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A short while back, when our rail infrastructure stalled and ground to a halt, it was because we had the wrong type of snow. Now it seems that our economy is stalling, not only because the snow is back but because we have had the wrong type of inflation-increasing spending on benefits but not having a commensurate increase in tax revenues. It is particularly timely that we are having this debate today and we should congratulate the noble Lord, Lord Lawson of Blaby, on giving us this opportunity. I remember well his 1988 Budget and the Finance Bill that followed. I was tucked away in a garret in Norman Shaw North scribbling amendments for the Labour Front Bench, all of which, sadly, were defeated.

However, in comparison to the autumn forecast, growth is down in 2010, and in 2011 and 2012. Unemployment is up in every year and spending on social security benefits is up by some £12 billion over the Parliament. The OBR expects the economy to be 0.7 per cent smaller in 2015 than it did in November, just a few months ago. Borrowing is up by £43 billion over the forecast period-£11 billion a year extra in 2015-16. The noble Lord, Lord Newby, talked about this being a slight rise in borrowing, which I find interesting terminology.

So what is happening? Last year, when we left office, the economy was growing strongly again. Inflation was lower and unemployment was falling. Everyone knows that the deficit has to be addressed but we continue to hold to the view that the Government's approach is cutting too deep and too fast. In doing so, they are fuelling unemployment, thus making it more difficult for growth to take hold.

There can be a plan B. We could quite credibly halve the deficit steadily over four years, and not try to cut it further and faster than any other major economy in the world. That is not being faint-hearted. There would have to be tough choices to get the deficit down, including spending cuts and tax rises. But the most important thing in getting the deficit down is what happens to jobs and growth in the economy, which is why last year, as the economy started growing again and unemployment was falling, the deficit came in £20 billion lower than was expected. All that changed as the economy stopped growing at the end of last year, and unemployment is now rising again. As the Financial Times today reports, all the Chancellor's tinkering yesterday, and all the lollipops with enterprise

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boosting, red tape cutting and planning regulations, has had no effect on the OBR's assessment of long-term growth assumptions.

While yesterday may have made little change, we should remember what has gone before and the pain that is still to come. By 2015-16, the CPI switch will mean change for those claiming benefits, tax credits and public service pensions. There will be a hit of £10.5 billion annually. We know that the VAT cost is £13.5 billion annually. There are changes in restrictions to the employment and support allowance that will hit to the tune of £1.1 billion, cuts in child benefit of £2.5 billion and there are more.

Yesterday's efforts by the Chancellor can reasonably be described as fiscally neutral and some of them nifty. He held true to the Lib Dem aspiration of increases in the income tax personal allowance but by the end of the forecast period equivalent amounts will be clawed back by changing the default indexation assumptions from RPI to CPI. This will apply to national insurance thresholds-until those far-off days should national insurance ever be merged with income tax. I think that we would be wise to listen to the comments of the noble Lord, Lord Lawson, on that matter. But it means that capital gains tax annual exempt amounts and ISA limits will be less favourable and generous in the future. The reduction in the national insurance contracting out rate is a further hit on business and on individuals.

We also heard from the Chancellor that his vision for growth encompasses the ambition that we should have the most competitive tax system in the G20 and that the system should be simple to understand and easy to comply with. In order to have the most competitive system in the G20 depends on how things are measured. Inward investors will not just look at headline rates; they will look at effective tax rates. Yesterday's announcement of a further 1 per cent cut in the rate of corporation tax is no doubt welcome but the more substantial cuts announced in the June Budget last year were largely paid for by restrictions on capital allowances and investment allowances. We heard yesterday the simplistic line that our tax code is now the longest in the world. Frankly, that does not help. Tax law and regulations are structured differently in different countries. Try putting the US code with all its regulations and guidance end to end.

As for simplification, of course it makes sense to sweep away redundant provisions but I wonder how many additional pages of legislation will flow from yesterday's announcements. We have heard about changes to the controlled foreign companies' regime, the taxation of foreign branches, stamp duty land tax bulk purchasing and the taxation of non-doms, to mention just a few. There are a raft of anti-avoidance provisions, which we support, but these will not be dealt with by simplifying the tax system. Unless and until we have a general anti-avoidance provision, they will require specifically targeted changes to the law. That will then set new boundaries for the avoidance industry to assail.

The Government's approach to regulation seems to be that it is inevitably undesirable and should be quashed at every turn. No one would argue for unnecessary regulation but just occasionally it would be good to hear the Government speak up for regulation

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which has been transformational. The Health and Safety at Work etc. Act was built on political consensus. It has helped to save many lives over the years and has been beneficial for business and society in saving costs and the misery of people who might have been injured or made ill by their work. We weaken all that at our peril. Dame Carol Black, in her review of the health of Britain's working age population, estimated the annual economic cost of sickness absence and worklessness associated with working-age ill health to be more than £100 billion per year.

To conclude, there was nothing in the Budget yesterday which gives comfort on growth. Let us hope that this debate will provide ammunition to the Chancellor to enable him to rethink.

2.17 pm

Lord Bates: My Lords, I join the noble Lord, Lord McKenzie, in paying tribute to my noble friend Lord Lawson for securing this debate. I also pay tribute to him for its title, which emphasises enterprise and the need for rebalance. I will come back to that in my remarks, particularly focusing on the north-east of England, which is where I am from and where I am for.

I also want to pay tribute to the excellent maiden speeches, particularly that of my noble friend Lady Stedman-Scott. Through Tomorrow's People and its operation in Newcastle, she has made a profound difference to the lives of many people in the north-east. Tomorrow's People takes some of the hardest-to-reach young unemployed people and puts them on a course. That gives them confidence, inspires them and builds their self-worth. It manages to get employment or training posts for 70 per cent of these young people. My noble friend is certainly someone who makes things happen.

The noble Lord, Lord Sugar, said that the test for being able to speak on these matters was being able to demonstrate that you run something. Having set up three businesses and currently being involved in two others, I probably just shave past the "Sugar test". But, given the impact which my noble friend Lady Stedman-Scott has made on transforming the lives of so many in our inner cities, I am more interested in struggling a little closer towards a "Stedman-Scott test" of whether we are making a worthwhile contribution to society.

I want to focus on the north-east of England because to me it represents an excellent case study of the need for rebalancing the economy. The Centre for Economics and Business Research has shown that, over nearly 11 years of the previous Government, the public sector as a share of the north-east regional economy rose from 48.6 per cent to 63.9 per cent. This increase has gathered pace over the past two to three years and, if left unchecked, it is on a trajectory heading towards 70 per cent and perhaps even beyond. The claim is not that the north-east of England's public sector is too large but that its private sector is too small. That is the reason for the imbalance and why we need to focus on growth.

The previous Government placed great emphasis on two things, one of which was the regional development

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agency One North East. Much was said in the debate last night lamenting its passing, as if the economy will stutter to a halt the minute it closes down. Yet, after 11 years of operation during which the agency received funding of £2.7 billion, the gap between the north-east and the rest of the country has widened: it was 83 per cent of the national average in 1998 and 78 per cent in 2010.

Moreover, during the recent recession, some in the north-east of England noted that the recession hit London, the banking sector and financial services, but that the north-east would mercifully be spared because a large section of the local economy revolves around the public sector and manufacturing-which I will come back to shortly-but that was actually not the case. The economy of the north-east contracted faster and more sharply, by 6.1 per cent, between 2008 and 2009 whereas London-at the epicentre of the shock, if you like-contracted by only 4.41 per cent.

My point here is that there is something fundamentally wrong with the understanding and the approach taken by the previous Government. We have seen a massive reduction in the number of manufacturing jobs in the north-east. Between 1997 and 2009, the reduction in employment in the manufacturing sector amounted to 95,000 jobs, and 56 per cent of those jobs were in the advanced manufacturing sector. That is important if we bear in mind that we need to do two things to get the economy of the north-east back on its feet and moving forward strongly.

First, we need to create an enterprise culture that is less concerned with state intervention and believing that organisations, strategies and structures will somehow deliver growth. Growth is delivered by businessmen taking risks; that is what creates wealth. Essentially, the Government can create the conditions for growth, but they cannot create the jobs. It was laughable when Ministers used to come up to the north-east and talk about agencies that had actually created so many jobs. I never came across an agency that created any jobs, but I did come across some that had destroyed a few. Businesspeople and entrepreneurs create wealth and jobs, and they are to be encouraged.

The second thing is the importance of manufacturing, which was what the Budget yesterday was all about. It talked about creating enterprise zones that will focus on manufacturing. It talked about the green investment bank that will invest in manufacturing. It talked about reducing regulation, which is important to manufacturing. It also talked about increasing apprenticeships and the new university technical colleges. All of these things are exactly what the economy in the north-east needs.

That is not to say for a moment that the Government have no duty to intervene in order to speed the economy of the north-east on its way. That is why they have announced significant investments in centres of excellence for renewable energy in Blyth and the Centre for Process Innovation on Teesside, and why they have invested £350 million in the Tyne and Wear metro and so on. The Government are taking an innovative approach while recognising that it is limited.

I shall close with this: a year ago almost to the day, the Labour Cabinet arrived in my home town of Durham in full gung-ho general election mode with a

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plan to announce a massive new trains order with Agility Trains for the north-east. Unfortunately, that happened to coincide with news of the closure of the Corus TCP plant and the loss of 3,000 jobs. The decision was that the good news of the trains order would be lost in the bad news of the steel plant closure and therefore the announcement was pulled. It is with great pride that I can say that over the past two weeks, the Corus TCP plant has actually been reopened by a new investor who is creating jobs, and that the Agility Trains order, stopped on that occasion, has been given the go-ahead. That is what this Government are doing for the north-east and I am proud of them.

2.26 pm

Lord Empey: My Lords, I apologise for some unavoidable absences during the debate. I, too, congratulate the noble Lord, Lord Lawson, on bringing this subject forward because I am a new Member of this place. The issues that have been debated over the past couple of months since I joined the House, such as the AV referendum proposal, fixed-term Parliaments, the Public Bodies Bill and the European Union proposals, are all matters of considerable constitutional importance and therefore of great interest to me and, no doubt, to your Lordships. However, it cannot be said of the people on the streets of Glasgow, Manchester, Cardiff or Belfast that they talk of little else. On the other hand, this debate goes to the heart of what really does matter to the people on those streets as they wrestle with rising food and fuel costs, rising unemployment and, almost as bad, the threat of unemployment, along with increased borrowing costs and now the prospect of significant inflation. These are the things that people are talking about around the breakfast and the dinner table and at work. I am therefore glad that we are addressing these issues today.

This situation has not come about overnight. It has happened as a result of over-ambition, with previous Governments perhaps believing that we could spend our way to a better economic future based on financial and other services. It has long been believed that future jobs would come largely from the service sector, particularly the financial services sector. While of course we all value those jobs, there was a bias in Government against manufacturing. A view was held that it was old hat: "Never mind about smelly businesses and people getting their hands dirty. We'll concentrate on financial services, on derivatives and insurance". Important as those things are, there has to be a solid manufacturing base to create the wealth that we as Governments and Parliaments want to spend.

What a difference two years has made to our perception of where we should be going. Today, manufacturing is thankfully enjoying something of a revival, fuelled in part by lower exchange rates. Land-based businesses and food production have also held steady in this uncertain world of rising commodity costs. In short, there is no substitute for a significant manufacturing sector in order to generate the wealth to pay for our public services. We must pay more attention to this sector and hold it in higher esteem.

I turn to the other point I wish to make. There is an element of snobbery in this country that seems to value those seeking a career in the manufacturing

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sector rather less than those who choose a career in the professions. That pervades our education system at virtually all levels and must be discouraged. The Government can give a lead here and set the tone.

In recent days, as we have seen, our Armed Forces are in harm's way yet again. Many noble Lords have been calling for a rethink of the recent defence review. That is entirely understandable. However, the principal reason for the review, apart from strategic issues, was lack of cash. That cash can come only from the wealth creators in this country, who generate the taxes needed to pay for our military assets. Like many in this House, I would like to see an aircraft carrier with aircraft that can fly from it, able to project power in a dangerous situation and protect our national interests. Who would not? However, that will not happen unless we get our economic policies right. I wish the Chancellor well in his endeavours to cure our country's problems. We will all benefit if he succeeds.

I want to mention two things that previous speakers said. The noble Lord, Lord Renton, mentioned apprenticeships, and the noble Baroness, Lady Stedman-Scott, in her maiden speech mentioned dealing with people in the harder-to-reach areas of the labour market. We have been pushing perhaps too many people towards university and higher education, and perhaps not enough towards apprenticeships, learning trades and learning skills that can keep our businesses going. We also need that; we need a balanced economy. The noble Lord, Lord Renton, mentioned internships, which are an excellent idea. Many graduates languish on the unemployment register, stack shelves in supermarkets or do whatever they can do, and maybe there are opportunities here to introduce them to work and give them a chance.

The noble Lord, Lord Bates, made the point that the public sector in his region now accounted for 70 per cent of the economy. I can reflect on that from my region, where we are in exactly the same position. The right approach is to say not that the public sector is too big, but that the private sector is too small. Will we be able in this country to revive the concept of entrepreneurship and treat it with the esteem that it deserves? The Government can take a lead here. That would encourage people to believe that there is a future outside the accountant's office or the law practice, valuable as they are.

The noble Lord, Lord Sugar, gave us all a lesson earlier on what it means to be confronted with the reality of seeking funds to get started in business. You have to have an idea, some back-up and the will to succeed. As a nation, we need to raise the esteem in which we hold people who carry out this function in our economy, otherwise there will be no taxes for any of us to spend.

2.33 pm

Lord Lyell: My Lords, I thank my noble friend Lord Lawson for giving us a chance to discuss the economy. He may be startled, since normally in debates like this there is a welcome period of silence from me. However, today I humbly put my toe in the water and refer to one particular part of industry.

Thirty-three years ago, I was sitting roughly where the noble Lord, Lord Davies of Oldham, is sitting.

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Early in January 1977, I was suddenly advised that the Patents Bill was going to start in your Lordships' House. I was the junior member of the Front Bench, something in the nature of a reserve scrum-half at Murrayfield with the Titans wishing to seize the ball from him. I was told that part of the law on patents was applicable directly to industry. Lord Belstead suggested to me that I should take consultations-take lessons, indeed-from the pharmaceutical industry. I thought that that was ripe stuff-certainly from him-to a Member of your Lordships' House with not one O-level in science, although it is fair enough that I did grind out the yardage as a chartered accountant. I went to speak to the pharmaceutical industry and through the years have followed everything that has gone on in that industry. The last figures that I had were that the UK had a £7 billion balance in overseas trade in our favour from that industry. It is the best of nine major industries, which will bring a glow to the heart of my noble friend Lord Lawson, let alone the Minister.

Why is that the case? First, there is the excellence of the people and facilities in research and development in the industry. It is also an example of a tremendous partnership between the public and private sectors. Since 1948 and the institution of the National Health Service, the industry has worked well with it. I understand that there is something called the VPRS, the voluntary price restriction scheme; my noble friend Lady Hooper may be able to correct me. There is another, the PPRS; I do not think that is a reference to pill-poppers, but she might be able to advise me on that later. The schemes have been enormously successful in providing tremendous and outstanding service-one that is unique in the world-to the United Kingdom for health. They are clearly something in the nature of a ritual dance between the Department of Health and Ministers in your Lordships' House and the other place, let alone representatives of the industry either in your Lordships' House or outside. The schemes seem to be something like a bean-bag or a squeegee: the Government push them in one direction and the beans scoot out in another. However, there seems to be a unique relationship between the Government, the public sector and the area of the private sector connected with health and outstanding success in production and industry.

Your Lordships may not be surprised that I have a blue tie today; I am from Scotland. I understand that 11,000 people are directly employed in full-time high-quality jobs in the pharmaceutical industry and the health industry in Scotland. In the United Kingdom, 72,000 full-time jobs are applicable directly to the pharmaceuticalindustry, and 27,000 of those are highly qualified persons in research and development. It is a huge sector of our economy, and it has interests throughout the community. Two companies give all sorts of little advice on a very local level. Certainly in my area of Dundee, as well as elsewhere in Scotland, one can find enormous help from two companies-enormous health companies-that give advice to Girl Guides, Scouts and other voluntary organisations.

Time is limited and, above all, there are many more important speakers than myself on these massive macroeconomic details, so I shall return to what I call the retail or consumer side of health. I take medicines. I declare an interest, that I am no stranger to the

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hospital ward, mainly thanks to what is so well known to my noble friend Lord Hodgson: winter sports. I have spent a good time on the ward with broken legs-both-shoulders, hands and other things; I tell him that it has been due more to orthopaedics than to liver problems or overindulgence in Switzerland. One day in June 2006, I was looking forward to taking part in your Lordships' House and suddenly I was struck down with something called an ischemia-a light stroke. My noble friend Lady Hooper may be able to explain it, but not today. Within one month, I was back at home in Scotland watching the final of the football World Cup. That shows the enormous and matchless service that the health industry gives to everyone, and it gave it to me that month. It was perhaps luck on my part-I might even say divine intervention since I do not know many Members of your Lordships' House who have taken what I did but have been back in your Lordships' House in eight weeks-but perhaps your Lordships have mixed feelings on that.

I understand that the budget for the National Health Service is £120 billion each year. I believe that that is very well spent. Perhaps I may conclude by making a plea to the Minister. There is a very well known and widely respected worldwide company that has had some difficulties recently. He will know that it is in Sandwich in Kent. I am sure that he and his colleagues will attempt to alleviate the problem. Indeed, we found in yesterday's Budget-I am not too sure in which section; I know that it was on page 18 of the guidance-references to innovation parks and research. My noble friend Lord Northbrook referred to this, too. The Babraham Institute in Cambridge and Norwich Research Park will share in a £100 million boost for science research funding. Any help that the Minister can give to this particular firm would be gratefully received.

I conclude with two mottos, both of which will be familiar to my noble friend Lady Hooper. One is nil satis nisi optimum-only the best will do. That applies to the pharmaceutical industry, and I hope that my noble friend the Minister will be able to give enormous help to it. The second motto refers to pill-poppers such as me, retailers and consumers: every little helps. It is because of the eternal watchfulness of my noble friend the Minister and the Government that we have in the United Kingdom some of the cheapest but best-value medicines in the world. Your Lordships have been very kind. I am very grateful and in good health. I look forward to listening to what the Minister has to say. I am especially grateful, for once, to my noble friend Lord Lawson for this debate.

2.42 pm

Lord Risby: My Lords, it is a great pleasure to follow on from my noble friend Lord Lyell. I add to the congratulations already offered to my noble friend Lord Lawson on securing this debate and on being a truly reforming Chancellor. I also congratulate warmly my two noble friends Lord Hussain and Lady Stedman-Scott on their excellent maiden speeches. I know that they will greatly enrich the proceedings of your Lordships' House in the years to come.

We appear today to be in something of a circular situation, with consumers feeling bruised and nervous,

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their confidence weak and, in consequence, banks being reluctant to lend, especially to smaller and start-up businesses. Yet, ironically, the overall cash position of corporate Britain is very high by historic standards. Unleashing this would undoubtedly spur on economic growth and confidence, and this was at the heart of what the Budget was all about.

A fundamental necessity for any new Government after the general election was to convince the markets that the deficit would be tackled, and this has worked. While the interest-level cost of our massive borrowing has decreased, it has risen in other countries, as we have heard, such as Spain and Portugal. What has happened in the past 24 hours to Portugal absolutely says it all. Given that we have the highest deficit in the industrialised world, we had to respond to the sovereign debt crisis, which was and is pervasive in southern Europe. We avoided that, and had we not done so, the consequences would have been simply cataclysmic. Interest rates would have risen. Even now, with restraint, our total debt will be £1.36 billion.

Lord Myners: Trillion.

Lord Risby: Trillion. It is simply wrong and absolutely immoral to bequeath to our children and grandchildren a debt burden of this order, which would have been even worse because of the profligacy of this generation in government.

However, at the heart of this most difficult legacy was the behaviour of banks, so disproportionately important to the UK economy. This was due substantially to a failure of proper regulation. I have heard it described as a product of light regulation. The FSA's bureaucratic procedures and micromanagement meant that it did not focus on the big picture-for example, the borrowing and lending practices of Northern Rock. The tripartite system ensured that neither the Treasury nor the FSA nor the Bank of England took the necessary pre-emptive action to stop what so tragically ensued. It diminished in consequence our credibility and ability to influence the pattern of emerging European financial services regulation.

Nevertheless, given the massive importance of the financial services industry, it is crucial that previous failed arrangements are replaced. No regulatory system is perfect, but at least the Bank of England previously closely monitored financial institutions and will do so again. Without this, overall economic recovery will not happen. While Governments can assist with an appropriate tax and regulatory framework, it is the private sector that will ensure this, with innovation and new enterprise crucial to it.

I declare an interest in this regard because I am deputy chairman of the Small Business Bureau. The renewed emphasis on smaller businesses is extremely important, as the weight of regulatory and tax pressure is for them inevitably disproportionate. Planning laws have been too restrictive and have benefited larger businesses such as supermarkets. They have also had the effect of distorting house prices. Therefore, I greatly welcome George Osborne's recognition of this, and the reform of Business Link to assist budding entrepreneurs is welcome, too.

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Of significant potential is the renewed government-supported export drive, which specifically includes small businesses. It is gratifying that the strategy outlined in your Lordships' House by my noble friend Lord Green includes financial support and advice to SMEs. The structure of export promotion in this country has been ill focused, with regions even competing with each other at international trade fairs. Our trade promotion activities compared with those of our rivals have been inadequate, and the strategy which has been outlined brings fresh coherence to a huge marketing opportunity abroad. The new enterprise finance guarantee scheme, a new working capital scheme, a new bond support arrangement and credit insurance are specifically targeted at SMEs and in that regard are particularly welcome.

This focus on acorn companies is long overdue. They account for half of all private sector output and 60 per cent of private sector jobs. Freeing them from new domestic regulation, limiting audit and reporting burdens, the small business rate relief and fresh access arrangements to increase finance to them, matched with easier planning consents, will help promote entrepreneurial activity. The increase in the SME rate of research and development tax credit is additional good news.

History has shown us that, in politics, defeat often produces a kind of introspection. It has certainly manifested itself since the last general election. It is as if the Opposition were not responsible at all for the economic crisis which engulfed us. In the context of the economy today, to have one policy, which is simply to say that reduction of the deficit should be slower, is frankly no policy at all. If there is a coherent alternative strategy, I hope that we shall hear it today.

2.49 pm

Lord Myners: My Lords, I join other Members of the House in congratulating the noble Baroness, Lady Stedman-Scott, and the noble Lord, Lord Hussain, on their maiden speeches, and the noble Lord, Lord Lawson, on his timely securing of this debate. I pay tribute to the noble Lord as one of the three great post-war Chancellors of the Exchequer that this country has had in office.

Yesterday's Budget, on which the noble Lord, Lord Lawson, said we were likely to focus in speaking to this debate, was characterised as a Budget for growth. However, rather sadly, the text did not follow the headline, because we had a story of declining growth-the third downward adjustment in growth forecasts for the current year in the space of 10 months. The only things that went up were the things we did not want to go up. Unemployment is going up by another 140,000; inflation is going up, including the important GDP deflator; and the deficit is going up.

On the growth front, the world is enjoying stronger growth. In all our major competitor countries, growth estimates have increased over the past three months. In the UK, we are going in the reverse direction. Even the long-term forecasts from the OBR on growth were due to a sleight of hand. The OBR has a simplistic model: if growth is not delivered this year, it adds it into future years, so it will always track back to a

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long-term trend growth of 2.25 per cent. There is asymmetrical risk in the OBR forecast. Put simply, the risk of us doing better than the OBR has forecast is, first, low; and, secondly, of little consequence. The risk of us doing a lot worse is high and could be devastating.

This was less a Budget for growth than a Budget which clings to growth assumptions to support the logic of the thinking behind the Budget. I do not see the party opposite as being one of "crazed fanatics", as mentioned by the noble Lord, Lord Lawson. There is a logic to what the Government are doing-I do not deny that-but the Budget and the Government strategy is driven by ideology and is resting on some crude misunderstandings of economics. The challenge for this side of the House is to set out the facts and articulate clear and credible alternatives. We have not always done that.

Let us look to the facts. During the period 1997-2010 the UK achieved the second highest growth rate per capita in the G8 countries, surpassed only by Canada. That is a fact of achievement under the previous Government. The deficit in 2007, before the global financial crisis, was less than 3 per cent and borrowing as a percentage of GDP was in the bottom quartile for the G8 countries. In 2007, George Osborne endorsed the Government's spending plans. Indeed, he said he would replicate the quantum of government spending. That is the backdrop to an economy which was then confronted by a global crisis. Its impact on us was emphasised-the Prime Minister was wrong to say that we were less exposed to the global and financial sector downturn than other economies; we were hit hard-because of our dependence on financial services. We were hit not on expenditure-it was not an increase in expenditure; the cyclical adjusters went up-but on taxation. That is a temporary phenomenon; once the economy recovers, taxation recovers.

In 2010, the economy was recovering: we had had two quarters of successive economic growth, the deficit was coming down-it was £20 billion lower than forecast-growth was re-established and unemployment was coming down. That has all been placed at risk by the economic strategy of this Government-a strategy that is based on a misreading of the economy; a misreading of the impact of their own talk of austerity, which is forcing down economic confidence, as we see from the nationwide index and other indices of business and consumer confidence; and a misreading of basic economics and finance.

I shall cite three examples. First, it is simply wrong to remove demand from the economy when we have significant excess capacity. The role of the public sector is to provide demand in those moments when the export sector or the private sector is not providing the demand. Secondly, there was no panic in the area of funding-quite the opposite. We were funding at record low rates, with maturities which, due to the wisdom of previous Chancellors of the Exchequer, were the longest of the G8 countries.

We must remember that a deficit in itself is not wrong; it is the purpose for which it is used. To have a deficit to run benefit payments over a long period of time is an inter-generational transfer which is difficult

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to justify. To have a deficit for capital investment-to build roads, hospitals, schools and infrastructure-is a good thing. That is where the ideology of the Government, which is centred on small government, is wrong because it is not supporting investment in infrastructure.

Many of the measures announced yesterday were sound-it is not my job to emphasise them-but there were a raft of inadequate headline grabbers: the double tracking of railways in the Cotswolds and an enterprise zone in Sheffield-I wonder how the Prime Minister and Deputy Prime Minister thought up those two; the filling of pot holes; a new home subsidy which will simply drive up the price of houses; and the non- doms hit again. That is a very bad thing for the economy; it is something that we did which I deeply regret. I also deeply regret the 50p tax rate. These measures are anti-growth and wrong for innovation and economic prosperity.

The new enterprise zones will simply move activity from one area to another, although I will be arguing the case that Cornwall should be one of them. If the gift is there, one might as well reach out for it. Interestingly, the 11 zones announced today are all in urban areas. I hope we will find some rural areas among the other 10 to be announced.

Where are the growth builders in this Budget? Infrastructure investment-cut; education-cut; workforce expansion-to be reduced. I welcome the simplification of the tax system but we need stable and predictable taxation. Yesterday we were hit by a sudden increase in oil tax. Last night the Chief Secretary guaranteed that the oil tax would not be passed on to customers; can the Minister give a similar guarantee that the bank levy will not be passed on to customers? I believe that it will be because the bank sector is not openly competitive enough. I am sure that the banks are now regretting deeply all the time they spent on project Merlin because, clearly, the Government's word was not worth it in terms of what they expected to get out of it.

I hope that we also look to monetary policy. I am deeply concerned about the doubling of inflation. I am aware of the time; I am closing and there is no need for the Minister to gesticulate because I am sure that on this occasion he can cope with my questions. I am deeply concerned about inflation and it is a great shame that the Bank of England is losing its credibility because it is unable to do the right thing to combat inflation.

2.57 pm

Lord Ahmad of Wimbledon: My Lords, I join other noble Lords in thanking the noble Lord, Lord Lawson of Blaby, for bringing forward this debate at an important time for our country. I, too, wish to pay tribute to the maiden speeches of the noble Baroness, Lady Stedman-Scott, and the noble Lord, Lord Hussain. One touched on the issue of youth engagement and youth employment, and the other on community cohesion and fighting extremism-issues which, I can assure both noble Lords, resonate with your Lordships' House.

The Budget just delivered in the other place by my right honourable friend the Chancellor was about sustaining confidence in the markets; it was about

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demonstrating a willingness to continue to make difficult decisions to tackle the burden of debt; it was about implementing measures which are not governed by short-term headlines but aimed at long-term growth. I believe it achieves all three. Indeed, the influential ITEM Club has already alluded to the fact that the Government have achieved the aims of both controlling expenditure and increasing revenues.

It was interesting to follow a former City Minister after hearing him respond, in part, to my noble friend Lord Risby, who asked, "What is the alternative?". I noted that he said that the Conservative Party and the coalition Government believe in small government. We do. What is the alternative-big government? We have had enough of that already.

At the height of this global economic downturn, I wish to focus on the City of London and its crucial role. Financial services account for a 10 per cent share of UK GDP-more than in many other major economies. On employment, UK financial services across the country employ more than 1 million people, with 3,000 people employed in financial services in more than 62 constituencies in the UK. Financial services generated a trade surplus of more than £36 billion in 2010, and the tax take of UK financial services amounted to £53.4 billion in the year 2009-10, accounting for approximately 11 per cent of the UK tax receipt. As regards UK GDP, we can see that the contribution that the UK makes with its financial services sector is greater than that of both France and Germany. At a time when the coalition Government are rightly making difficult decisions on expenditure, with the vital contribution made by the financial services industry to the Exchequer, even as the effects of the crisis wade across institutions in the City, the industry has demonstrated resilience in these challenging global economic conditions.

We need to ensure as a Government that we work with firms operating across the financial and professional services to see that the UK remains as a good place in which to invest and work towards creating a sounder environment for growth. Indeed, I welcome recent statements from the City in the preamble to the Budget about firms that have said that they would stay the course and remain in London. They recognise that steps were necessary in regulating certain markets and they see the need to address wider economic conditions. That means that they need to be part of the solution. We should move forward and stop blaming banks. The coalition does not blame banks, as was said earlier by noble Lords opposite, although we do hold the previous Government to account. But it is not about blaming banks; it is about working with banks.

Indeed, I am reminded of my early years. The noble Lord, Lord Hodgson, talked about credit scoring now becoming the core activity for banks-and banks need to look at that again. I am reminded of my own career. When I started and I walked into my first job as a lending officer within a bank, I was told, "Tariq, what you need to apply is Campari and ice". As a teetotaller and a young trainee, I thought that was a rather strange acronym to put forward. It was a matter of looking at each small business, its character and ability and means to pay. We need to get banks focused on

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that style of lending. Therefore it is right that the current Government are working with the banks to ensure that we create the right conditions for small businesses and large corporates to prosper. We can take the example of Goldman Sachs and the programme for 10,000 small businesses, with free business and education courses. SMEs are reliant on bank lending, yet debt capital markets are another option. We need to work hard in ensuring that we remove some of the hurdles and barriers to diversify the financing sources for SMEs.

We are seeing new actions announced in the Budget, with reforms to the enterprise initiative scheme; raising income tax relief to 30 per cent from April; and the big society bank, dealing with the need to increase civil organisations' financing through social finance intermediaries. On bank financing, there will be £190 billion in new credit for businesses and £76 billion to be allocated to the SMEs. We heard the noble Lord, Lord Sugar, allude earlier to those SMEs that have no collateral and those businesses that have no track record. The review and the extension of the enterprise finance guarantee in new lending, which should raise more than £2 billion in this Parliament, is also to be welcomed. Then there is the business growth fund for established SMEs with high growth potential. The UK banks have increased their contribution, bringing the total size of the fund to £2.5 billion. That is due for launch in May 2011. Then we will be working with the BBA to restore bank business relationships, which may have faltered, and to improve standards with lending and business mentoring. That demonstrates the willingness of this coalition Government to work with banks to deliver the solutions our economy and our country needs.

It is my belief that this Budget tackles the debt legacy left by the Labour Government. We have heard a string of Labour spokesmen offering us advice, but as my noble friend Lord Risby said, the only advice they can offer is that we are doing all of this too quickly. No alternative is offered. The approach of the coalition Government, with George Osborne as Chancellor, does not carry the support of the Benches opposite but it carries the support of institutions such as the IMF, the OECD and the IFS. It is a Budget of growth, focused on the long term and on the recovery of our economy and our country.

3.04 pm

Lord Selsdon: My Lords, I have to confess that I have spent the bulk of my life in the financing of trade and in your Lordships' House. It is in the latter that I have probably had the greatest benefit, because I was told that I should listen to everything that noble Lords said over years and that I would be suitably drip-fed by geriatrics. Much therefore of what I have learnt I shall try to regurgitate today.

I ask and beg, as someone who has been involved in trade, that the Government should please return to using the word "trade" and restore the Board of Trade. I hate the word "business", as it reminds me when in the morning my mother would say to me, as a small boy, "Take the dogs out for a walk and make sure they do their business". When we came back she would say, "Was it little business or big business?"

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We can learn much from history. Like the noble Lord, Lord Brooke, I like to return to things and go back into the history of trade. I go back only 500 years to when the Council of Trade was formed. Its mandate was to,

Moving on another 70 years, the mandate for the Council of Trade was extended:

"Ye shall take into your consideration ye inconveniences the English Trade hath suffered in any parts beyond the seas. And are to enquire into such articles of former treaties as have been made with any princes or states in relation to trade"-

maybe even the EU. Your Lordships and those who produce such papers today should look at the latest one in the early 18th century, which was:

"To examine into and take an account of the state and condition of the general trade of England and of the several particular trades into foreign parts... to consider what means profitable manufactures already settled may be further improved and how new and profitable manufactures may be introduced".

Why do we need all these statements when it is already there?

When I joined the House, I used to get put on committees by my noble friend Lord Jellicoe and the noble Lord, Lord Shackleton, because I was young enough at the time. One point they made to me was that, when things are really bad, that is the time for really good opportunities. I served on one of the first Select Committees on trade. I was told that it would not be appropriate for me to intervene or to speak but that, if I listened, I might learn something. That Committee was looking at trade and we had a visit one day from a very important Minister: my then right honourable friend who is now my noble friend Lord Lawson. He came and stood before us and gave us what we described later as a very interesting lecture on the different Ms-relating to the money supply-which I am afraid I did not understand. I did not dare to ask any questions but Viscount Amory, who had been a Chancellor, asked him a few. The noble Lord, Lord Lawson, responded with vigour-in those days, he had slightly more latitude than he has today-and Viscount Amory then said, "Thank you so much, Chancellor, for your clear and lucid explanation". I admit I am still confused but happy to be confused at a much higher level. I am really grateful to my noble friend for what he has done today because some interesting matters have come out of this debate.

If I may return to the subject of trade, we have had a growing trade deficit since 1947, when my great-uncle Sir Stafford Cripps was effectively President of the Board of Trade and was followed in that by Harold Wilson. That deficit has grown and grown. I raise this in many debates as the noble Lord, Lord Myners, knows. We have a deficit in manufactures of around £100 billion, which has grown and grown. We have a surplus in invisibles-some of which are really becoming invisible now, such as the North Sea revenues and others-of about £50 billion and therefore an overall deficit of £50 billion. On the current account, can the Minister tell me what the UK budget deficit is at present? We seem to be a country of deficits. When we look at where we trade it is with 71 countries of the

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world, yet we have a surplus with only 12 of them. The biggest surplus we had was with Ireland, followed by the United States, but the Irish surplus has fallen away. It may not be important that we should have trade surpluses, but I have a feeling that, unless something is done about it, the situation could get worse.

On the subject of investment, over the years since the war we have always had a pretty even balance between inward and outward investment. However, what that investment is put into is of considerable importance; hence I welcome the concept of the enterprise zones. I spent a lot of time in inner-city projects, particularly in Docklands. I found it remarkable how quickly something could take off once it reached a certain height. The declaration of enterprise zones here is a good idea, as is the idea that foreigners who live in England might be able to get tax allowances from reducing their taxation levels if they genuinely invest in new projects. We should give the same thought to the United Kingdom's activities overseas. We need to import food and therefore to invest in agriculture in Africa and in all the ancient areas where we went, because we only expanded our economies internationally or created an empire because we needed the materials and products that came from those countries.

If we do not have a lot of money, somehow the application of clawing money back by granting tax allowances on international and national investment appeals to me. I have said enough and I hope that your Lordships will realise that I did not intend to drip-feed you in any way at all. Please remember that we can learn an enormous amount from your Lordships. I have learnt very much indeed today.

3.12 pm

Lord Paul: My Lords, as is customary I declare an interest: I am chairman of the Caparo Group, a manufacturer of industrial products. First, I thank the noble Lord, Lord Lawson, for initiating this debate. In September 1986, when he was Chancellor, he inaugurated our Caparo merchant bar plant in Scunthorpe. I am pleased that this facility, unlike many manufacturing units in the UK, continues to flourish.

It is clear that economic policy is the instrument that makes or breaks a nation. When so much of the UK's destiny is at stake, we must examine the policies that will determine our economic future. There is a great deal of economic knowledge and wisdom in this House and when we discuss economic issues a good amount of debate is focused on dynamic, even glamorous, sectors of the economy such as information technology, financial services and new energy resources et cetera. That is well and good, but it sometimes underemphasises or overlooks the manufacturing sector.

Today, I focus on manufacturing because my entire life has been involved in the manufacturing industry and I am deeply concerned about the current state of it in this country. What is needed are some policy initiatives and a sustained follow-through. I shall suggest a few measures that I believe could soon create the environment in which UK industry could flourish once more.

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First, reduce the administrative burden on industry. The present taxation arrangements, pension structures and human resources regulations are needlessly complicated. I congratulate the Chancellor on making an effort yesterday, and I hope that it will be successfully implemented. Secondly, there should be a tax distinction between financial services businesses and industrial companies. Manufacturing cash flow requires large outlays over long periods before any money can be recovered, which surely deserves tax recognition. We also need to revise R&D tax credits to encourage investment in practical production processes. Thirdly, we need to stimulate small enterprises, which are among the most innovative businesses, by giving them special capital allowances and lowering their tax thresholds.

Initiatives like the enterprise finance guarantee scheme are supposed to put cash into the economy, with the Government providing guarantees to the lending banks. In reality, banks are still asking small business owners to provide personal guarantees against borrowing. This is why, speaking in this House on 8 December 2008, I suggested creating a state-sponsored national industrial bank. We need that even more today.

Even the United States, the citadel of free enterprise, is talking about setting up a state-sponsored infrastructure bank because it is evident that this is one of the most effective ways to mobilize capital for national purposes. There is a shortage of engineers in manufacturing industry, partly because finance industries offer graduates better incentives. It is expensive for manufacturers to take new people and train them. Why not give capital allowances so that industry can hire people? That would solve the problem of skills shortages and give employment to university graduates, many of whom cannot find a job. There should also be incentives for larger businesses, public and private, to form closer links with universities such as my company has with Wolverhampton University, which has reviewed over 1,000 potentially commercial inventions.

We hear a lot about manufacturing success. However, in the past 30 years manufacturing's contribution to GDP has declined from 30 per cent to 11 per cent. In spite of that, manufacturing is doing well thanks to the efforts of our managers and workforce, and I congratulate them. They have performed with exceptional capability in adverse conditions. Without them there would be hardly any UK industry. Conversely, given appropriate support of the kind that I have outlined, our workers could produce world-class results.

In the mean time, other countries have seized opportunities. China, India, Brazil and other countries have focused on manufacturing. Look at the numerous visits that Western leaders now make to these emerging economies. Statesmanship is now salesmanship. This is surely the grand paradox of our age-leaders who pay obeisance to manufacturing abroad while tending to neglect it at home.

UK Governments always begin by saying that they want to help manufacturing. I do not doubt the good intentions. We in manufacturing are waiting for this Government to put into practice an effective industrial policy, but we should not have to wait much longer. If we do, we risk evolving into a "comprador" nation, simply buying and selling the manufactures of others

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and servicing their needs. Manufacturing is the bedrock of our independence and, with sensible policy corrections, can be a powerful source of steady employment and social mobility. In the larger sweep of history and in the lives of nations, these are things that really matter.

3.18 pm

Lord Lexden: My Lords, the great national tasks of stimulating enterprise and growth and of rebalancing our economy, to which this important Motion refers, create profound challenges for us all. Nowhere are these challenges more formidable than in Northern Ireland, in whose affairs I have taken a deep interest since the 1970s when I worked as political adviser to Airey Neave while he was Conservative Shadow Secretary of State for Northern Ireland. Sadly, the Belfast agreement of 1998 has not yet had the effect of setting the Province on the road to sustained economic progress. Nearly 13 years on, it remains the poorest region in our country. A higher percentage of its working age population is economically inactive than that of any other region. Its economy today is strikingly unbalanced. The private sector is small and the public sector is dominant, as it is in the north-east of England, to which my noble friend Lord Bates referred so tellingly earlier. Public spending in Northern Ireland has risen to the remarkable point where it is equivalent to more than two-thirds of GDP. This state of affairs is sustained by taxpayers in Great Britain, who provide the resources for roughly half of all government spending in Northern Ireland.

The Province's grossly unbalanced economy is in part the result of the ravages of terrorism, with which I, like so many others, am personally familiar. I say this on the day that a memorial plaque is to be unveiled in another place to Ian Gow. I went around many Northern Ireland businesses with him. How Ian cheered and heartened them with the marvellous neo-Churchillian language that he loved to employ. The spirit of enterprise and the desire for private sector growth have not vanished from the Province, whose great private sector industries-shipbuilding, linen, rope-making and engineering-integrated its economy with Britain's in the 19th century.

As my right honourable friend the Secretary of State for Northern Ireland stressed in a speech in Washington last week, the Province remains an excellent place in which to do business. It has first-class transport links to the rest of our country and to Europe; its education results are significantly better than those of other regions; and it is the first part of Europe to have 100 per cent broadband access. It is against this encouraging background that the Northern Ireland Executive, uniting representatives of both communities, is fostering a strongly pro-business climate. In this new pro-business climate a number of forward-looking economists, accountants and businessmen based in Northern Ireland recently came together to form the Northern Ireland Economic Reform Group.

In a report last May, the group examined the Province's current unbalanced economy in great depth. It concluded that the key to rebalancing lay in a sharp reduction of corporation tax, enabling Northern Ireland to benefit

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in the way that the Republic of Ireland had done from its 12.5 per cent rate. On the basis of detailed calculations, the report predicted that Northern Ireland,

The report also stated:

"A reduction in CT tax to a level close to that in the Republic of Ireland would quite quickly raise overall tax revenues",

in Northern Ireland as new investment took place. Old fashioned Tories like me, imbued with the scepticism of Edmund Burke, treat the bullish forecasts of professional economists with some caution. Nevertheless, a case has surely been made for a low rate of corporation tax in Northern Ireland that deserves full consideration, not least because of the competitive disadvantage created for the Province by the Republic of Ireland's current low rate. For some years that has been the firm view of my right honourable friend the Secretary of State for Northern Ireland.

The joint manifesto published by my party and the Ulster Unionists-then led by the noble Lord, Lord Empey-for last year's election contained a commitment to,

The commitment was incorporated in the coalition agreement and, following an announcement by the Chancellor in yesterday's Budget, a consultation paper entitled Rebalancing the Northern Ireland Economy was published this morning by the Treasury. It sets the scene for the full discussion of the,

It is my profound hope that the discussion that the consultation paper will produce will have a positive outcome so that the flame of enterprise, which has survived the Province's long, dark years, can burn more brightly. Then Ulster's new-found peace and stability would be matched by a new-found prosperity.

3.24 pm

Lord Eatwell: My Lords, this has been a fascinating debate, enhanced by excellent maiden speeches from the noble Lord, Lord Hussain, and the noble Baroness, Lady Stedman-Scott. Reflecting on what was said by the noble Lord, Lord Lawson, in his customarily elegant introductory speech and on the remarks of many noble Lords opposite, it occurred to me that the economic policies being pursued by the Government may be characterised as good-good politics, that is.

Two elements of the Government's stance bear the mark of good politics. First, it is always a good idea to have a scapegoat. We have today heard numerous references to the so-called "economic mess" inherited by the Government and to the "record deficit". With a good scapegoat, you can justify almost anything. It is good politics. Secondly, it is good politics to inflict the maximum pain on the electorate in the first years of a new Government and save up all the sweeteners for the 18 months or so before an election, when the Government can triumphantly declare deliverance from the misery that they themselves have created. All this is good politics, but it is rotten economics.

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On the scapegoat point, noble Lords might have noticed that yesterday in the Budget the Chancellor admitted that the UK debt ratio will peak at 71 per cent. I wonder how many noble Lords were puzzled by that statement. How could that be when there is purportedly such an awful financial mess and so-called record deficits that our debt ratio will peak at a level lower than in every other G7 country other than Canada, and at a level lower than in Germany when it entered the crisis? However, let us not go into another debate about debt ratios, use silly expressions such as Britain being on the brink of bankruptcy, or make foolish comparisons with Greece, Ireland or Portugal.

The scapegoating approach is rotten economics, not because the Government convinced themselves of this nonsense but because they have convinced the markets and business, too. By their own politically advantageous hysteria, the Government have, as my noble friend Lord Myners noted, destroyed business and consumer confidence. It is not surprising that the OBR revealed yesterday that business investment growth is down and has locked Britain into a bond-market straitjacket from which it is now almost impossible to escape without abandoning the scapegoating slogans. It is good politics, but rotten economics.

On the timing of sweeteners and elections, unfortunately that is rotten economics, too. The problem is that you cannot be sure that the economy will have recovered in time to deliver the goodies. As the Bank of England's Monetary Policy Committee minutes published yesterday record, it is,

That is the Bank of England's view. This is before the savage government spending cuts hit the economy next month.

The low growth and increased unemployment that the Government's policies have produced have, as my noble friend Lord McKenzie, also pointed out, cut projected tax revenues for the next five years. I repeat; they have cut revenues for the next five years, so there will be a lot less to give away. The fall in revenues and the consequent increase in government borrowing revealed in the Budget are an indication that we may have entered a terrible downward spiral in which higher taxes and spending cuts result in low growth and unemployment that in turn result in lower revenues, higher welfare payments and a growing deficit-exactly the scenario painted in the OBR's economic report. That is what the noble Lord, Lord Higgins, should be afraid of. Instead of falling, borrowing is rising.

However, the real failure of this budget is the subject of today's debate-the failure to promote the rebalancing of the economy that is necessary to enable Britain to grow its way out of recession, and out of deficit. Consider the measures that the Chancellor claims will create growth. Research and development tax changes sound good, until you realise that these will benefit just 7,000 out of the 4.8 million small firms in this country. The entrepreneurs' relief sounds good, until you realise that the benefit will go to just a few hundred people. The new apprenticeships that will

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reach 12,500 young people sound good, until you realise that 60,000 young people have become unemployed in the past year alone, adding to the 1 million young people currently unemployed. The enterprise zones sound good-until one looks at all the academic evidence that demonstrates that they are the most expensive means available of creating jobs, because so many of those jobs would have been created anyway. Enterprise zones are just a neat way of avoiding taxes-perhaps in Cornwall, too.

What of the cuts in corporation tax and fuel duty? The OBR's verdict is that the effects will be "minimal". No wonder, since the cut in corporation tax has been paid for by cutting investment allowances. How stupid is it to take from companies that invest and hand out the money as a tax cut to all companies, whether they invest or not?

The OBR's verdict on this Budget for growth is that:

"We do not believe that there is sufficiently strong evidence to justify changing our trend growth assumption in light of policy measures announced in Budget 2011".

That is it: no change.

The real damage to the hope of rebalancing the economy is to be found not in the failure of the Budget but in the announcement on the day before that inflation was at 5.5 per cent, and in the Government's admission that inflation is likely to stay that high for the rest of this year, and to be higher than previously forecast for the next five years. That point was emphasised by the noble Lord, Lord Griffiths.

This country has one goose that can lay rebalancing golden eggs: British manufacturing, as the noble Lords, Lord Renton, Lord Empey and Lord Paul, and the noble Baroness, Lady Hooper, noted. Over the past year, manufacturing has performed very well, with rapid export growth stimulated by the sharp fall in the value of sterling. However, the competitive advantage derived from the devaluation is being eroded by our relatively high inflation rate. Moreover, the high rate of inflation is likely to bring forward the day when the Monetary Policy Committee raises interest rates and seeks to reduce inflation by raising the exchange rate, weakening further the stimulus to exports. We have only one goose and we are in danger of killing it.

The danger derives not just from the Government's failed macroeconomic strategy, important though that failure is, but from the timidity of the growth strategy laid out in The Plan for Growthpublished yesterday. The essence of the plan is summed up under the heading: "What the Government will do now". The main headings are: "minimise regulatory burdens", "reform the planning system", "improve the corporate governance framework"-by removing the need for audits-"provide finance for new and growing businesses"-by small tax incentives-"further improve innovation in the UK"-by small but useful measures-and, "improve competition".

The clear theme is to reduce the role of government-something that surely pleases the noble Lord, Lord Ahmad-and create a slightly biased playing field relative to our major competitor countries. This is not what Britain needs, as my noble friend Lord Haskel pointed out. We do not need a biased playing field; we

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need a new game, as the noble Lord, Lord Bates, suggested. The rules of the new game can be learnt readily by studying the success of other economies-something that the noble Lord, Lord Risby, might care to do. What is needed is a secure, plentiful and stable flow of finance to fund industrial investment, together with a structure of corporate governance that fosters a commitment to long-term innovation and investment. Neither of these conditions is present in Britain.

Our fundamental problem is illustrated by the fact that more than 70 per cent of purchases and sales of industrial stocks and shares over the past year have been by day traders and short-term investors. British industry is owned by people to whom the long-term future of a company is irrelevant. The mantra that the duty of the board of a company is to pursue the best interests of the shareholders is vacuous when the shareholders change by the hour. Instead of secure sources of finance for industry, we have a fragile banking system that is overly dependent on short-term wholesale funding and in which a significant proportion of financial innovation is driven not by the demands of economic efficiency but by the desire to avoid taxes and/or the strictures of financial regulation.

Of course, better regulation would not be enough to secure the industrial financing that we need. That will require a fundamental reform of the UK's financial sector that goes far beyond the terms of reference of the Independent Commission on Banking. The reform should encompass not just the welcome creation of the green investment bank but the creation of an industrial investment bank, as called for by my noble friend Lord McFall, with the funding muscle to make a real difference to Britain's small and medium-sized industries-the industries from which innovation and jobs predominantly come.

Nothing so radical was evident in yesterday's Budget. Indeed, there was nothing radical at all. Whether there is fuel in the tank is debatable, but everyone can see that all the tyres are flat. That is because the other crucial component of a growth strategy is missing. The Government have chosen to throw away the ignition key. What will ignite growth is demand. Investment will take place only if there is the prospect of stable, growing demand. Without prospective demand, it does not matter how cheap or reliable funding might be, how generous the tax breaks or how innovative the technology. Without prospective demand, you simply stand to lose your money, and there lies the central failure. By consciously suppressing demand, the Government are consciously suppressing growth. That is why growth is down-not just now but for the foreseeable future. The noble Lord, Lord Lawson, described this as being least needed economically. I must say that I prefer the noble Lord of the Lawson boom rather than the one of fiscal masochism.

The OBR's forecasts show growth recovering after 2013. However, one should not be misled, as the noble Lord, Lord Newby, has been. The OBR made it clear that its medium growth forecasts are based on the forecasts of potential growth-that is, on capacity and not on demand for that capacity. Only if there were some magic fairy that ensured that capacity was fully utilised would those growth rates be attained.

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There is no magic fairy. This Chancellor has undermined Britain's recovery from the consequences of the international financial crisis. Worse than that, by making the wrong choices at the wrong time he has weakened the growth prospects of the British economy for years to come. The characterisation of this Budget as a "Budget for Growth" is a title worthy to stand alongside Orwell's Ministry of Truth. It was a Budget for stagnation. However worthy the micromeasures, the verdict remains that of the Office for Budget Responsibility-no impact on long-term growth. No impact at all.

3.37 pm

The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, we have had a tremendously interesting and wide-ranging debate, and I add my gratitude to my noble friend Lord Lawson of Blaby for having secured it on the day after the Budget. It has been a debate enriched in particular by notable maiden speeches, to which I shall return. I wish that I had the time to do justice to all the points made but I am very grateful for all the contributions, even if I am not able to cover more than a small percentage of them.

Last June's Budget was all about rescuing the nation's finances and paying for the mistakes of the past. Yesterday's Budget was about reforming the nation's economy so that we have sustainable growth and jobs. However, this will not be possible without sticking to our deficit reduction plan. It is that plan which has secured economic stability and our international credit rating, and it has been commended by the OECD, the IMF, the World Bank and many others. Therefore, I am very grateful for the starting point of my noble friend Lord Lawson, who, at the beginning of the debate, confirmed, as did many other speakers, that the prime duty of the Government-and it is what my right honourable friend the Chancellor did yesterday-is to stick to plan A to eliminate the structural deficit. That was touched on by my noble friends Lord Newby, Lord King of Bridgwater and Lord Tugendhat in particular, who stressed that these are difficult times in which we have to operate. Indeed, the consistent message across a range of speakers, including my noble friends Lord Oakeshott of Seagrove Bay, Lord Higgins and Lord Griffiths of Fforestfach, was that we must carry on with that plan. There were one or two discordant voices, but only one or two, led by the noble Lord, Lord McKenzie of Luton. But it flies in the face of all the advice, domestically and internationally, that we are getting.

I say to the noble Lord, Lord Myners, who tries to paint a very negative picture of where we are, that on the latest figures, which the EU has put out, the growth numbers for the UK this year are lower than those forecast last year, very largely due to the disappointing fourth quarter that we had last year, which flows on through to this year. I acknowledge that, but nevertheless, on the EU's figures, the UK will grow faster this year than France; it will grow faster than the eurozone average and it will grow faster than the average of the EU. We must get out of the habit of talking down the prospects of the economy.

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The action taken by the Government has allowed us to move from rescue to recovery. Yesterday's Budget will encourage enterprise and increase investment; it will support exports, manufacturing and innovation; and it confronts a hard truth, which has been ignored for far too long, that for the past decade Britain has been losing ground in the global economy. While other nations have reduced their business tax rates, ours have increased; while other countries have removed barriers to enterprise, ours still stand; and while our competitors have improved their education systems, reformed welfare and increased exports, we have gone backwards on all those measures.

The legacy bequeathed to this Government was one where Britain's future was gambled on a debt-fuelled model of growth that has clearly failed. It is no good saying there was growth as it was based on unsustainable debt and the private sector was crowded out. As we have been reminded, the state represents almost a half of all our national income. We simply cannot afford to continue down that path. It is a point that has been made forcefully today and most forcefully made by noble Lords on the opposite Benches, starting with the noble Lord, Lord Sugar. He made it quite clear that it was ill-discipline in the banking system-he did not quite get to say that it was ill-discipline that was allowed to go on by the previous Government. That was one element of it.

The noble Lord, Lord McFall of Alcluith, drew attention to another aspect of the legacy that we have in the too-big-to-fail challenge. My noble friend Lord Oakeshott of Seagrove Bay drew attention to excess debt and the noble Lord, Lord Haskel, again referred to debt-fuelled growth. I could not agree more. My noble friend Lady Kramer very rightly made the point that, if the growth is to be sustainable, we have to move from a debt-fuelled to a savings-fuelled basis for growth.

The noble Lord, Lord Myners, seems to have forgotten where he was on these matters only a few months ago. As he put it-I could not put it better:

"The mistake we made as a government was that we ran large deficits in the middle part of the last decade when the economy was clearly running at full capacity".

I do not think he drew our attention to that today but, if I am wrong, I apologise-I missed it. However, the fact that we need sustainable growth is at the root of what the Government now have to fix.

Britain, like any other nation, has to earn its way as the world becomes more competitive. We have to reverse the trend that has seen us drop from fourth to twelfth in the global competitiveness league. We have to ensure that growth is to the benefit of every region of the UK, not just of London and the south-east, a point that has been made this afternoon. The alternative would be to accept this country's economic decline and a continuing fall in living standards for our population. That is why my right honourable friend the Chancellor has set out the Government's new vision for growth. It is a vision that has four key economic ambitions at its heart: that Britain should have the most competitive tax system in the G20; that Britain should be the best place in Europe to start, finance and grow a business;

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that Britain should be a more balanced economy by encouraging exports and investment; and that Britain should have a more educated workforce that is the most flexible in Europe.

First, I take taxation. Britain used to have the third lowest corporate tax rate in Europe; we now have the sixth highest. Our tax code has become so complicated that it has overtaken that of India to become the longest in the world. We have to address that. Our taxes must be fair, predictable, simple to understand and easy to comply with; and they have to be efficient in supporting growth. From April this year, corporation tax will be reduced not just by one percentage point, as we announced last June, but by two, and it will continue to fall by one percentage point in each of the next three years, taking our corporate tax rate down to just 23 per cent, which is 16 per cent lower than it is in America, 11 per cent lower than in France and 7 per cent lower than in Germany, and will give us the lowest corporate tax rate in the G7.

A lot of points on tax have been rightly raised in our debate. My noble friend Lord Lawson kicked it off by taking the big picture view: drawing our attention in particular to the need to look forensically at the top rate of income tax. Yes, of course, we will look at the lessons of his dramatic reduction of the top rate from 60 per cent to 40 per cent, and factor that in. I acknowledge and note that the noble Lord, Lord Myners, did not agree, and is prepared to say so consistently, with his Government's decision to raise the top rate to 50 per cent. My right honourable friend the Chancellor has made it quite clear that that is not part of what he sees as the medium to long-term regime for income tax.

On the question of the possible combination of income tax and national insurance, I take the warnings of my noble friend Lord Lawson to heart. Yesterday, my right honourable friend described it very precisely as an operational merger. We are conscious of the difficulties. Indeed, we keep a copy of my noble friend's memoirs on the ministerial floor; it is presently in the office of my honourable friend the Exchequer Secretary. We will take the lessons to heart. It will be a measure that will certainly reduce administrative burdens for employers. It will bring the two regimes operationally together. It has the capacity to allow us to smooth out some major inconsistencies, but we will take it stage by stage through the consultation process.

On tax incentives for entrepreneurs, I very much agree with the noble Lord, Lord Sugar, and my noble friend Lord Northbrook, who drew attention to those important measures. On fairness, which underpins everything that the coalition does in the tax system, my noble friends Lady Kramer and Lord Oakeshott of Seagrove Bay, rightly drew attention to the coalition's emphasis on measures to take 1.1 million people totally out of the tax system and measures that will lower income tax for 25 million people. While we are on fairness, I say to the noble Lord, Lord Haskel, that the pain is indeed being fairly shared. As was confirmed in the distributional analysis published in the Budget document yesterday, the top 20 per cent of households by income will make the biggest contribution to deficit reduction. That is absolutely right and proper. Lastly

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in this area, I am grateful to my noble friend Lord Higgins for mentioning measures on charitable giving. It is expected that the inheritance tax measure will result in about £300 million additional benefit to charities when it is in full effect.

Our second ambition is for Britain to become the best place in Europe to start, finance and grow a business. In this area, I agree with many speakers that there is a pressing need for reform. In the past decade alone, countries such as Germany, Denmark and Finland have overtaken the UK in the international rankings for competitiveness. The Government's plan for growth has many actions in it, too many actions for a few of your Lordships who made references to lollypops and so on, but it is out of a process where we had the most intensive and wide-ranging discussions with representatives of business. These measures were widely welcomed yesterday by business as responding to what it asked of us and they are measures which we have been able to afford. I assure the noble Baroness, Lady Valentine, that we will see these things through. She is quite right that it is a plan for action that will be driven through. A similar point was made by my noble friend Lord Griffiths of Fforestfach who questioned the responsibility for seeing it through. I could recite the list of ministerial responsibilities, but I assure him that implementation will be vigorous.

I note that a number of contributions stressed the regional aspects. I am always refreshed to hear my noble friend Lord Bates reminding us of the vigour with which the north-east is responding to very difficult conditions. I welcome his recognition of how some of the proposed interventions target his region. We seem to have the north-east and the south-west in coalition in that corner. It was also good to be reminded that Wiltshire has been thriving and leading the way from the mid-9th century. I am grateful to my noble friend Lord Brooke of Sutton Mandeville for that.

Another very important and separate regional dimension was raised by my noble friend Lord Lexden and the noble Lord, Lord Empey. I am grateful to my noble friend for mentioning that the Treasury has today published a document on rebalancing the Northern Ireland economy as the Northern Ireland economy faces particular challenges. Another dimension mentioned by a number of noble Lords, including, in his inimitable way, my noble friend Lord Lyell, is the industrial sector. We have it very much in our plans.

When one steps back from all the measures, it is perhaps the issues to which my noble friend Lord Lawson drew attention at the beginning of the debate that are critical. They were also mentioned by my noble friends Lord Northbrook and Lord Tugendhat. They are the broad deregulatory measures. I think a new and concerted look at the planning system is important. I am grateful to my noble friend for stressing that.

The third of the Government's ambitions is the need to have balanced growth to encourage investment and exports. I shall highlight a few of the measures we are taking. We have put a lot of effort into the sectoral cut when discussing them with numerous sector groups. For example, in life sciences, we will radically reduce the time it takes to get approval for clinical trials,

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which is critical if the UK is to continue to be at the cutting edge, and in the digital and creative industries, we will improve the intellectual property regime. The noble Lord, Lord Paul, quite rightly drew attention to the mixed picture in manufacturing. On the one hand, there has been very dramatic slippage in manufacturing over the past decade, but on the other, our manufacturing sector still has very great strengths. I am pleased to say that at the moment manufacturing is growing at a record rate with 14,000 more jobs having been created in the sector in the past three months. To help this to continue and to build on this progress, the Government are creating new export credits to help smaller businesses. We are launching Britain's first technology and innovation centre for high-value manufacturing, and we are funding a further nine new university centres for innovative manufacturing.

Several noble Lords, including the noble Lord, Lord Sugar, in his fascinating speech, drew attention to the help to SMEs, which is critical. My noble friend Lord Newby drew attention to the difficulty of getting credit and my noble friend Lord Hussain, in his very clear, direct and interesting maiden speech, could not have been clearer about a number of things, but particularly the challenge facing SMEs. I also note that there will now be at least two doughty champions for Luton in this House and we shall be reminded of all the good things that are going on there.

I assure my noble friend Lord Hodgson of Astley Abbotts that we will watch very closely the process by which SMEs get credit. I am grateful to my noble friend Lord Risby for stressing the range of support that the Government are giving SMEs. I am grateful also to my noble friend Lord Ahmad of Wimbledon for his different perspective on these issues. In a related area, my noble friend Lady Hooper rightly stressed the need for us to press on with trade arrangements that benefit small, medium and large companies. Yes, we will place new emphasis on EU bilateral free trade agreements and, yes, we are working on Latin America. Only next week, the Deputy Prime Minister will be there and of course he will promote trade as part of his visit.

On the last of our four ambitions for growth, to create a better educated workforce that is the most flexible in Europe, it is alarming to see that Britain's working age population has lower skills than the same demographic in America, Germany and France. That perhaps is the biggest problem facing our economy and is why the Government are committed to funding new university technical colleges, which will provide 11 to 19 year-olds with vocational training that is among the best in the world. But that will not alone solve the problem. Our attention quite rightly was drawn to that issue by a number of speakers. In the maiden speech of my noble friend Lady Stedman-Scott, she could not have been clearer about the challenge of getting young people, even those furthest away from the labour market, into employment. I can only commend the work that she has done and does with Tomorrow's People and I thank her for her contribution. These issues were also touched on by my noble friend Lord Renton of Mount Harry and the noble Lords, Lord McFall of Alcluith and Lord Haskel.

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The noble Lord, Lord Haskel, talked about 40,000 apprenticeships for the young and unemployed. It is perhaps worth remembering that that is incremental to what the Government had already announced. It brings the total number of apprenticeships available over the next four years to 1.2 million. As a result of this Government's policies, and because this is so critical to the future of the economy, there will be some 250,000 more apprenticeships over that period.

In summary, the Government are looking to get the economy back on the right path. I say to the noble Lord, Lord Eatwell, that we will reverse the trend of the past decade that has seen our share of world exports decline, has seen the UK's economy becoming increasingly unbalanced and has seen our businesses held back by a mountain of bureaucracy and a myriad of red tape. That is the legacy of the previous Government. Instead, we will make the UK Europe's leading destination for enterprise, with the most competitive tax system in the G20, the most flexible workforce in the EU and an economy that is the envy of the world. That is how we will drive growth in this country, how we will create the jobs for the future and how we will build the more dynamic, prosperous and sustainable economy that this country deserves.

3.59 pm

Lord Lawson of Blaby: My Lords, we have had a truly excellent debate. I suspect that your Lordships will be relieved to know that I intend to be very brief indeed as I have a plane to catch. I thank most sincerely all those who have taken part in the debate. I thank in particular my noble friends Lord Hussain and Lady Stedman-Scott, who treated us to two outstanding maiden speeches. We look forward to hearing them frequently in the future. With that, I beg leave to withdraw the Motion.

Motion withdrawn.

Adapting to Climate Change: EU Agriculture and Forestry (EUC Report)

Adapting to climate change: EU agriculture and forestry

Motion to Take Note

4 pm

Moved By Baroness Sharp of Guildford

Baroness Sharp of Guildford: My Lords, it is a year now since the European Union Committee published our report on adapting EU agriculture and forestry to climate change. In that report, we acknowledged that there had been changes to the climate in the past and repeated the widely shared concern that current projections of climate change indicate a far higher level of uncertainty in the future. We quoted from a November 2009 statement made jointly by the Met Office, the Natural Environment Research Council and the Royal Society

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which said that scientific evidence of dangerous, long-term and potentially irreversible climate change had significantly strengthened since 2007. The statement went on:

"In the UK, we will be affected both directly and indirectly, through the effects of climate change on, for example, global markets (notably in food), health, extent of flooding and sea levels".

Indeed, your Lordships will recall what happened in Cumbria in November 2009 when unprecedented levels of rainfall caused flooding that devastated much of the area's infrastructure. Water levels in Cockermouth, for example, reached over eight feet at their worst point. Estimates suggest that the cost of the damage to homes, businesses and infrastructure has amounted to more than a quarter of a billion pounds. Your Lordships will also be well aware of the recent Foresight report entitled The Future of Food and Farming which identifies climate change as one of the major challenges that our global agriculture and food system face.

We carried out our inquiry against this wider background, but more specifically in relation to the White Paper, Adapting to climate change: towards a European frameworkfor action, which the European Commission had published in April 2009, together with a linked paper, The challenge for Europeanagriculture and rural areas. In general, and perhaps even more so in the light of the Foresight report, our feeling was that the White Paper failed to emphasise the urgency of these issues. Perhaps I may also say that we felt that also to be true of the Government's response. The White Paper was rather too long on aspiration and on getting together to prepare models and strategies, but somewhat short on action.

The main focus of our report is on the actions that the UK and our EU partners can and should take to face the challenges posed to agriculture. This in turn sets the discussion in the context of the common agricultural policy, where there is a larger debate now under way about reform after 2013. I should also mention that our report related to forestry as well as agriculture. Because the Commission published its Green Paper, Forest Protection and Informationin the EU: Preparing forests for climate change, only in March 2010 when we were concluding our inquiry, we returned to the forestry aspects of our inquiry in July of last year when we responded to the Green Paper. My remarks today will take account of that response as well.

The Commission White Paper of April 2009 foresaw a two-stage approach on adaptation measures. Phase 1, from 2009 to 2012, would prepare the ground for a more comprehensive EU adaptation strategy. Phase 2, from 2013 onwards, would see that strategy implemented. Emphasis was rightly placed on action at the national and local level, while the Commission's role was essentially that of strategy setting.

As regards agriculture and forestry, in phase 1 the Commission proposed that measures for adaptation and water management be embedded in national rural development programmes from 2007 to 2013. We explain in our report that those rural development and environmental programmes are supported under Pillar 2 of the CAP, which at present makes up some 20 per cent of the CAP spend-some €96 billion over that seven-year period. There was an interim review of the

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CAP in 2008-the health check-which, among other things, led to an agreement by member states that several "new challenges" should be seen as priorities for funding under the second pillar. Among those were measures towards the mitigation of, and adaptation to, climate change.

We heard from witnesses to our inquiry, including a representative of the Commission's Directorate-General for Agriculture and Rural Development, that after the health check the take-up of climate change measures had been very disappointing, with only some 14 per cent of funds available used for this purpose and the bulk of the funding used by countries that had already been giving priority to such measures. We felt that there was much room here for greater transparency-perhaps a little naming and shaming-and recommended that member states should be required to spell out what they had done to promote measures for adaptation to climate change in the annual rural development programme reports which they are required to provide to the Commission.

In the White Paper the Commission also proposed that, before 2013, there should be an examination of the capacity of the CAP's farm advisory service to reinforce knowledge and adoption of new technologies that facilitate adaptation. That issue is very much at the heart of our concern about the future of agriculture in this country and in the EU more generally. One chapter in our March 2010 report deals with what we call research and knowledge transfer; and we are clear that the double challenge of feeding the world's growing population, at a time when climate change is likely to restrict the landmass that can usefully be cultivated, demands both developing new and innovative technologies and making use of those that already exist but where farmers need help with putting them into practice.

The White Paper proposed that by 2011 the EU should set up what it called a "clearing house mechanism" to serve as a database on climate change impact, vulnerability and best practices on adaptation. That is fine as far as it goes. However, more widely, we are concerned by the evidence that we received suggesting significant neglect of scientific research into agriculture generally and specifically into adapting agriculture and forestry to climate change. That was particularly true of the UK. We heard, for example, that between 1970 and 2010 there had been a significant fall in the number of agricultural research institutes in the UK, and in the number of university departments of agriculture and land management, paralleled by a large drop in the number of students in these subjects.

In our report, we therefore call on the Government to ensure that the UK's research capacity is strengthened. We also make clear our view that there is an important role for the EU to identify the research gaps, and to look to fill them with research supported by the Commission through the framework programme as well as by co-operative efforts between member states. Since our report, I am pleased to note progress in that respect. In March 2010, when our report was published, the first steps were being taken to set up a very promising co-operation between the UK's Biotechnology and Biological Services Research Council, the BBSRC,

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and France's National Institute for Agricultural Research, INRA, to carry out joint research into agriculture, climate change and food security.

A commitment to generating new knowledge is essential but not sufficient. It is also essential that such knowledge is translated into new products and techniques and that it can be applied in practice. Since last autumn our committee has been conducting a further inquiry, into innovation in EU agriculture. We were stimulated to undertake this latest inquiry by our work on adaptation to climate change and the seeming deficiencies in both the volume of agricultural R&D and the means of spreading best practice. In the past few months, we have learnt a great deal about the state of advisory systems in the UK and in other EU member states. In particular, I want to draw your Lordships' attention to the farm advisory system which all member states have been required to provide under the CAP over the past decade.

This requirement was introduced in parallel with the introduction of so-called "cross-compliance" obligations on farmers receiving direct payments under the CAP-obligations to meet certain conditions relating to environmental protection in their agricultural practice. Different member states have acted on the farm advisory system requirement in different ways. We have heard that, in some countries, FAS representatives are found to offer a very helpful service, while in others they are seen, in effect, as agricultural policemen.

We know that the Commission is reconsidering the role and functions of the farm advisory system and that the UK Government are looking again at arrangements in this country. We are clear that there is an unacceptable gap in the provision of advice to farmers-and that agricultural advisers could, and should, act as conduits for the application of research advances to farming practices. We look to the Minister to tell us more about the Government's intentions in this respect.

The Commission's White Paper looked to the period from 2013, the phase 2, for the implementation of strategies on adaptation to climate change. This coincides with the next funding period for the CAP, hence the shape of the CAP after the further reform which is now under discussion. In our report we said that the defining characteristics of the future CAP should be the "sustainable intensification" of agriculture, a term which was persuasively advanced in the Royal Society's 2009 report, Reaping the Benefits.

In November last year, the Commission published a communication, The CAP towards 2020: Meeting the food, natural resources and territorial challenges of the future. We responded to it with a letter which drew heavily on our report on adaptation to climate change. In it we said that we welcomed the idea of the "greening" of Pillar 1 of the CAP, which would imply making some of the income support funding contingent on the delivery of environmental public goods. We have suggested that eligible activities might include incentives to mitigate agriculture's contribution to climate change and to adapt the impact of climate change on agriculture. We reiterated our view that there is no case for payments to be made available without an environmental justification. Again, we have stressed that better integration

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of environmental considerations in Pillar 1 must go hand in hand with vastly improved knowledge transfer systems.

I must say just a few words about the committee's views on forestry in the context of concerns about climate change. In our July 2010 response to the Commission's Green Paper, we agreed that there was no need to give the EU competence for forestry to match the competence which it has in relation to agriculture, while accepting that this still left scope for valuable action to be taken by the EU. Forests can play a key role in combating climate change, both as a carbon sink and as a source of renewable energy. We were much influenced by the evidence that we received from Professor Read, which suggested that restoring the proportion of UK land devoted to forestry to the 16 per cent at which it stood in 1980-compared with 12 per cent of our landmass today-could reduce UK carbon emissions by some 10 per cent, which is a very substantial amount.

However, we made clear our concern that the economics of forestry could prove the greatest obstacle to such policies. Given the wide range of experience across the EU, we recommended that the Commission should work with member states to exchange experience and develop an economic assessment of the viability of providing significant additional afforestation. I have to say that, so far, we have seen no strong signs of support from the Government for such a policy. I would welcome some comment from the Minister today on this recommendation.

Mr Jim Paice MP, the Minister of State at Defra, wrote to us at the end of June 2010 to set out the Government's response to our report. I am glad to say that there is quite clearly a lot in common between our views and those of the Government on the issues with which we dealt in the report-not least on the longer-term shape of the future CAP. However, as I have indicated, we have not so far been able to persuade the Government in relation to our recommendations for future action on research and knowledge transfer. For example, in their response, the Government commented that,

We accept that-but it could still be a debating point. There is certainly a whiff of complacency about such an answer, particularly in light of the widespread concern, as we heard from our witnesses, that there has been a significant decline in agricultural research in this country and a major failure in knowledge transfer down to farm level.

The Government also commented that,

Given our analysis that in England such communication currently falls short of what is required to enable farmers to put innovative knowledge into practice, we expect the Government to take on board the need to make farm advisory services more effective. In June 2010, the response said that Defra was mapping advisory services "to inform future decisions". I hope that the Minister will be able today to say something more positive about those decisions .

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We have also received a response to our report from European Commissioner Sefcovic in a letter dated 7 September 2010. We were encouraged to read that the Commission agreed with most of our views and recommendations. It is fair to say, however, that the evidence of the extent of its agreement will come when there are more specific legislative proposals for the future of the CAP.

My remarks this afternoon have shown how intensive a debate is now under way in relation to the future of the CAP, in Brussels and in the capitals of the EU member states. As our report of March 2010 makes clear, however, the sustainable intensification of agriculture must be a key determinant of the future CAP and must include a range of measures aimed at adaptation to climate change. It is important that these measures are put into effect in not too distant a time. I beg to move.

4.18 pm

The Earl of Selborne: My Lords, the House will wish to join me in thanking my noble friend Lady Sharp for the authoritative way in which she has introduced this important report. I wish to thank all members of the committee who contributed, a year ago now, to this report and I am grateful that we at last have an opportunity to debate it.

I warm to the concept enunciated by my noble friend of sustainable intensification, which is the key to future common agricultural farming policy in Europe. European farming has to be considered in a long-term context and needs to be reviewed in the light of adapting to climate change.

I declare two interests: I chair the Living With Environmental Change programme, which is a partnership of major UK public sector funders of environmental research; and I am a farmer.

The role that Europeans and the global population might expect to be the contribution of Europe to meeting the global needs of food production after 2013 needs to be put into the context of not only climate change but of environmental, economic and demographic change, and over a much longer period than in the past the CAP has been considered; it is perfectly reasonable to think in terms of 40 years. Of course, when we are thinking about food security, as we are in a global sense, we have to recognise that there is absolutely no validity in simply considering national food security, or even continental food security. It all has to be looked at in terms of the needs of the world. If we look at the rather chequered career of previous common agricultural policies, we recognise that the obsession, which was perhaps understandable, of trying to achieve European food security in some ways exacerbated the problems in poorer countries by undermining local production by subsidised exports and import tariffs. So the concept that the committee enunciates of sustainable intensification is not, quite frankly, a policy that in some member states will chime very warmly-but for all that it needs to be promoted very strenuously.

The issues that will face us over the 30 or 40 years, which we can predict fairly confidently, bear repeating. There will be a population of 9 billion or more, with

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increased purchasing power. That is a positive factor; it is excellent that there are now opportunities for people to assume the nutritional levels that we take for granted. It is not to say that the millennium goal of 2,100 calories per capita will be met in many parts of the world, but at least there will be very significant populations that will eat more meat and therefore will need more animal feed, so the demand for feed will increase. We know also-or it is perfectly reasonable to assume-that the land area for crops will decline, at the very best. If it increased, it would be clearly at the expense of environmental issues, not least the loss of biodiversity. The urbanisation of so many parts of the world demonstrates that it is highly improbable to expect new cropped areas. So there will be severe limits in reclaiming for agriculture new land areas, and there will be a limitation of other natural resources-water above all, but also fertilisers and fossil fuels, which we would wish to limit because of their impact on climate change.

To go back to water, one of the most critical of those natural resources, we must remember that of the available fresh water already 70 per cent is used on a global scale in agriculture, although not of course in this country. The figure is relatively low in this country. But when you look at how you are going to increase production, you have to recognise that fresh water is a finite resource and that innovation is clearly required. Against that there is the issue, which we have discussed regularly, about the increased demand for biofuels, which has land use implications, and the need for agriculture, to make a contribution and to reduce its adverse impacts, in terms of not only climate change but environmental pollution to soil and water.

Above all, the requirement is to ensure that with the new agricultural systems that we anticipate having to be produced through new technologies, we must ensure that the price of food remains within the capacity of the poorer countries, which at the moment find it difficult sometimes to compete for food. Indeed, the higher food prices threaten their development.

In the developed world, as opposed to the developing world, we face increased volatility in food prices, which arises quite rapidly and unexpectedly sometimes, as we saw last year, with food bans from Russia, Ukraine and other countries. In 2009, Chatham House said very reasonably that we can no longer afford to take our European food supplies for granted. We may not be short of food ourselves, but our purchasing power of European consumers leads to these adverse impacts, export bans and food droughts, which we have seen since 2009, as a direct consequence of our reliance on food that we can purchase more rapidly than others. Over the next 40 or 50 years, we need in Europe to promote increased production, particularly in countries where consumption will increase-that is, we want to promote production in poorer countries and reduce price volatility, which helps no one. Above all, we want to develop lower cost production systems, or low-cost production systems at any rate, because I fear that they will not be lower than at present. We need to reduce our dependence on inputs, particularly of fossil fuel, and to make much better use of water. That is what we mean by sustainable intensification, which has to be done with the same or a reduced land area.

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The bulk of future increases in production will thus have to come by greater output per hectare, which means higher yields and a dependence on good quality soils, adequate amounts of water and the development of appropriate technology.

Chapter 6 of this helpful report deals at some length with the research and development requirements. This is where, with our own role in the United Kingdom, we recognise that we are the repository of much of the underpinning science. That is certainly relevant to other European countries, if perhaps to a lesser extent. While it is true that applied agricultural research has declined over the past 20 years, the same has not been true of the biological sciences as a whole. All credit to the previous Administration, particularly while the noble Lord, Lord Sainsbury, was Science Minister. He did a lot to underpin the basic sciences. The tragedy is that much of that basic science is not being adequately applied in ways which are relevant to these production areas where we see problems looming ahead, so we need to build those bridges.

We need technology transfer that is appropriate to the users. I remember that when Archbishop Tutu was asked what had been the greatest and most important advance in Africa over the past 10 years, or perhaps in his lifetime, he said that it was the mobile telephone. That is because many African farmers will have access to a mobile telephone with a camera on it. Being able to photograph the crop or the disease, they can get instant transfer with the sort of technology they are looking for. Above all, we need the infrastructure to ensure that the development work moves the science, which has moved so fast. In molecular biology, we now have knowledge of the plant and animal genomes. All that gives us a great opportunity and there is huge potential for innovative approaches.

The problem is that we have not been prepared to embrace some of those new technologies, an obvious example being GM soya. We have to rely on imported protein for animal feed, which we cannot grow competitively in Europe. Soya is now largely grown as genetically modified. If we insist on importing the non-genetically modified, our production systems will simply be more expensive. Of course there is a great deal of hypocrisy anyway, because we import meat that has been fed with GM soya-in fact we cannot tell whether it has or not. That is simply a case of not embracing a new technology for reasons that are nothing to do with either the science or the risk.

New technologies that will be relevant are no-till agriculture, which has already been widely adopted in Europe and certainly has much more application elsewhere around the world, and better irrigation systems, where the report refers to the technologies developed in the Middle East. I particularly draw attention to the excellent work done is Israel in developing irrigation systems that have far less loss through evaporation. Above all, there is integrated cost protection. All of those lead to lower input farming systems and cost minimisation.

We need to fund this strategic and applied agricultural research. Over the past 20 years, we have lost momentum. I have heard of and read many reports, and it is encouraging to hear Ministers say that they recognise that this now needs to be addressed, but it takes

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20 years to move from basic research right through to the applied end of the spectrum. We need to understand that it should surely be part of our overall assistance to developing countries around the world. We are the repositories of so much of this science and we have an obligation to make sure that it is properly transferred.

4.29 pm

Lord Giddens: My Lords, the most reliable measurements we have of CO2 in the atmosphere are those of the Mauna Loa observatory in Hawaii. As of February 2011, those showed levels of CO2 to be still rising. It is up to 391.76 parts per million, compared with 389.85 parts per million last year. Not only are those rising, they are increasing at an accelerating rate from decade to decade. Because, as collective humanity, we are doing so little to change the situation, it is now unlikely that we will be able to confine global warming to an average to two degrees Celsius-as noble Lords will remember, the limit that most scientists regard as reducing risk to reasonably manageable dimensions.

Whatever we do now, there will be significant levels of climate change. Noble Lords should remember that that climate change is irrevocable and cumulative. Once the greenhouse gases are in the atmosphere they will be there for centuries, and we know of no way of getting them out again. That means that globally, regionally and locally we will be deeply in adaptation. The term "adaptation" sounds benign and almost reassuring, but the risks that we face are truly profound and scary. It is a myth to suppose that the most dangerous changes will be confined to the developing world; Europe is as vulnerable as anywhere else to the increasingly intense patterns of drought, flooding and extreme weather that will follow.

For that reason, because of its emphasis on adaptation, I welcome the report. It was produced before I became a member of the sub-committee but I congratulate my colleagues on its production and on their excellent work. It is a highly important report because agriculture and land use produce something like 10 per cent of the greenhouse gases produced by the European Union, including some very lethal ones, notably methane.

The report and the EU commissioner's White Paper are both rich in detail so I will comment only on a few aspects, and then only briefly. First, a core point is that we have to think about adaptation proactively and in a long-term fashion. It is no good waiting for climatic changes to occur and then trying to adapt to them later; our defences against a newly aggressive nature would be quickly overwhelmed. We have to prepare and invest now for outcomes that may be 20 or 30 years off. This is a difficult situation because it involves the assessment of future risk and there are several different scenarios for what that risk will be, so preparing for the long term is complex-it is not a simple matter. However, it is easy to find instances of where the threats are. For example, the core agricultural industries that exist in the southern Mediterranean almost certainly will not be there at all 20 years down the line, so we face massive issues of adaptation and we have to prepare now, not leave them for the future.

Secondly, improving the resilience of crops, woodland areas and water management systems is going to be

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key. Science and technology will have a massive role here, and I agree wholeheartedly with the comments that the noble Earl has made on this issue. I agree with the report when it emphasises the importance of biotechnology, which is probably the only way of simultaneously increasing the productivity and the hardiness of crops in response to changing climatic conditions. I do not see any other way of doing that on the horizon.

Thirdly, it is right to point out, as has been pointed out, that forestry has a dual role. Over 40 per cent of the EU is still forested. Protecting the forests is crucial since deforestation is a major source of greenhouse gas emissions in Europe and across the world. Forests also absorb CO2 and therefore act as a brake on emissions. I think that the Green Paper on forestry and the work on forestry that is currently being done in the European Union and, I hope, in this country will have a crucial role in adaptation in future.

Fourthly, it is important to stress that there is a positive side to all this, in spite of the real risks and dangers with which we will have to cope. We know that creating a low-carbon economy can have many positives, such as reducing our dependence on imported oil and gas, creating new industries and generating net new jobs. It is not often said that much the same goes for adaptation, which will also have to be creative and innovative. It will, I hope, at least have similar positive consequences. A good example is the research that is now going on into latest-generation biofuels. They can be grown in areas where no crops can be grown at the moment; they can be grown in the far north and, in the form of algae, in the oceans. There are many other examples of a proactively positive approach to adaptation. It is important not to lose sight of the significance of this.

The tasks facing us are huge. It is an open question whether, on a global level, we can cope with them. Certainly, in our region we must do so on a pan-European level, as it is obvious that climate change is no respecter of national boundaries. In conclusion, I would like the Minister to comment on anything he sees fit to comment on in what I have said, but also on one core question. Does he accept that adaptation to climate change must be proactive and demands a long-term strategy, as well as a pro-European one?

4.36 pm

Lord Teverson: My Lords, unlike the noble Lord, Lord Giddens, I will speak more about mitigation. However, I must agree with him, after that very serious and penetrating speech, about how important adaptation is. If we do not make sure that our agricultural systems and crops are far more robust than they are at the moment, there will be a real problem in food security globally, especially in Europe, in the future.

The thing that I liked about this report was that it brought focus on to the agricultural sector. I am someone who gets particularly involved in issues of mitigation. I can never really understand why, effectively, mitigation is in DECC and adaptation is in Defra. It seems to split an important policy area, but we should not get into that in this debate. Agriculture does not come over very strongly; it is a theme that is sometimes, but not often, recognised. The steel, aluminium, cement

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and aviation industries get top billing, and we often forget about agriculture and forestry altogether. Why is that wrong?

I am very glad that this report highlights why it is wrong. First, agriculture accounts for around 14 per cent of global greenhouse gas emissions. In Europe, as the report points out, it accounts for almost 10 per cent-9 per cent, I think. In the UK, the figure is 7 per cent. However, I ask myself: if 7 per cent of greenhouse gas emissions in the UK are from agriculture, what proportion of GDP comes from agriculture in the UK? It is close to 1 per cent. Perhaps that is an unfair comparison and ratio, but here we have an industry that, as a percentage, contributes seven times more to greenhouse gas emissions than to national product. For all those reasons, this is an important sector.

This is further highlighted in the report by figures that I found quite staggering. Nitrous oxide is, as the report says, 300 times more lethal as a greenhouse gas than CO2, but in agriculture accounts for some two-thirds of emissions. Agriculture accounts for almost half the emissions of methane, which I thought was 70 times more potent than CO2 but the report says is somewhat less so. That means that this sector is important, and it is one that I ask the committee to keep focusing on in the future. It is one of which we should take a great deal of notice.

However, that is as nothing compared with forestry. When one looks at forestry on a global scale-as the noble Lord, Lord Giddens, said, climate change knows no boundaries-one sees 30 million acres of deforestation per annum creating more greenhouse gases than motor vehicle and truck emissions worldwide. It varies between 15 and 20 per cent, depending on the rate of deforestation in any one year. The sector is crucial for the rate of global warming in future. I will return to the relevance of this for Europe, which has already deforested most of its land surface. However, in a small but perhaps quite important way, it could perform better and reforest more.

Another area of mitigation that worries me-again, it relates to points made by the noble Lord, Lord Giddens-is that agriculture plays an important role even in Europe with biomass and biofuels. It has been disappointing that after the introduction of regulations such as the renewable transport fuel obligation, and the enthusiasm for biofuels, we had a very negative analysis of the sector which reversed the view about whether it could help with climate change mitigation. I urge the Government to stick with making sure that we get the sustainability criteria right for biofuels, so that we do not throw away this opportunity for the advancement of the agricultural sector in terms of mitigation of climate change by saying that it is too difficult or controversial. As we have already heard in the debate, whether it is algae or growing biomass in areas where it is not grown at present, we have a great opportunity. We in Europe should not give that away, nor rely on imports from the rest of the world.

I come back to the strength that Europe can have-and has had in Cancun-because of its status in the negotiations on the reduction of emissions through deforestation and forest degradation. Europe is crucial to enabling that programme to succeed, both because

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of its political leverage and through its financial contributions to making sure that that will become possible. It is one of the most crucial short-term programmes that we have to make a significant difference to climate change. What is the current state of negotiations on this part of the United Nations procedures? The Government have taken a lead in this area, but do they feel that Europe is putting sufficient emphasis on global deforestation to make sure that it is kept high on the agenda? I know that there has been movement in this area, whereas in others there has not. It depresses me that Europe, after the Lisbon treaty, still has pillars in the agricultural sector and in the common agricultural policy. We got rid of them in justice, home affairs, the CFSP and other areas, but we still have them in agricultural policy.

Something in the report that I liked is the idea of the carbon contract and carbon compliance. This is fundamental to reform of the common agricultural policy. Will the Minister and the UK Government champion this concept when considering where the CAP should go in future?

This is an excellent report. I hope that there will be renewed focus on this area, and I look forward to the Minister's responses on the crucial issue of the management of our climate for the future.

4.44 pm

Lord Cameron of Dillington: My Lords, first, I declare an interest as a farmer, as a Lawes trustee at Rothamsted Research Station and as the new chairman of the Government's global food security strategy board.

I was not on Sub-Committee D at the time of this report, so I come at the subject only from the evidence of my own experience, and I hope that your Lordships will forgive me if I extend my horizons slightly wider than Europe.

The Government's chief scientist has, rightly, become famous for his "perfect storm" analogy, wherein the world has to produce at least 50 per cent more food over the next 40 years without damaging the environment, while emitting fewer greenhouse gases and using less energy and, above all, without depleting our water supplies. It is on this last issue that I should like to focus today in connection with agricultural adaptation. Indeed, the committee report highlights my point, saying:

"Effective water management lies at the heart of efforts to adapt EU agriculture to climate change".

Although the Environment Agency gave evidence to the committee that water availability in England and Wales is going to be 15 per cent lower by 2050, it is elsewhere in the world, including southern Europe, that water problems are going to be really critical.

We actually have enough fresh water in the world to go around. We are currently using only 54 per cent of all accessible fresh water, which leaves 46 per cent untapped. However, even now, with today's population, the reality is that a child dies as a result of poor sanitation every 20 seconds, amounting to some 1.5 million preventable deaths each year. Without serious political action, that situation can only get worse. Total world water demand is projected to rise by over 30 per cent

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by 2030. Many river systems, such as the Yellow River in China, the Murray-Darling in Australia, the Colorado in the US and the Indus in Pakistan, are already running dry due to excess irrigation. As we will all be aware, the Indus had terrible floods recently. However, it is the Indus delta, which is a very fertile and productive area of Pakistan, that has problems. It is being invaded by saline water and is thus becoming less productive.

Meanwhile, projections in Mediterranean countries such as Spain and Morocco indicate that declines in rainfall of up to 30 per cent might be expected in the future. Equally, the rainy seasons in Africa and India seem to be starting later and later. Perhaps because of this, Indian farmers are now taking 100 cubic kilometres more from their aquifers than are being replaced by rains. They have to drill deeper and deeper. Likewise, the water level in the aquifer under the Hebei Province of China, where much of the wheat is grown, is falling at the rate of 3 metres per annum.

As the noble Earl, Lord Selborne, has already commented, nearly 70 per cent of all water in the world consumed by man goes to produce food. Water availability becomes a critical issue when 40 per cent of the renewable resources are used for irrigation. It is at that point that difficult choices have to be made between agriculture and urban water supplies. By 2030, some southern European countries will be at or nearing this 40 per cent level, and, believe me, all politicians will choose to support the urban voter over his rural brother. Therefore, in all these countries and regions, adaptation and new practices will be needed, and I give a few examples.

The first is drip irrigation. Israel is at the forefront here, employing expensive sub-surface drip irrigation that puts the water right to the roots of the plant. There are not even pipes on the surface, and of course that is infinitely better than spray irrigation, where most of the water evaporates.

The second is recycling urban sewage. For example, faced with paying higher costs for imported water and desalination, Singapore has gone for self-sufficiency through treated sewage water. When the fifth plant opens this year, water from flushed toilets and so on will account for some 30 per cent of Singapore's drinking water. There are other examples, such as in India, where the sewage effluent of Hyderabad is mixed with the waters of the River Musi and put into underground pipes to help to grow vegetables in Andhra Pradesh.

The third is better capture and storage. They do not have to be big reservoir schemes, as many small schemes for individual farms and communities are usually better. In southern Europe and elsewhere they will need government support either with grants or with cheap capital.

The fourth is better use of shallow aquifers. If you want to store water in a hot country, what better way is there than pumping the excess water in the rainy season down to the underground aquifer to store it so that you can use it later on? You have a ready built reservoir, free from the problems of evaporation and free from the problems of flooding people's homes, as can happen when you build an above-ground reservoir.

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I realise that there are complications in doing that, but as a method it has been quite successfully used in many parts of the world.

The fifth is better use of modern farming systems, such as no-till cultivation techniques, which, again, the noble Earl, Lord Selborne, mentioned. That greatly reduces the evaporation of water from the soil and encourages better organic matter, which is very useful in developing countries as an important source of fertiliser.

Last, but not least, we need to make better use of modern plant-breeding techniques across Europe. For example, if you can silence the gene in maize which makes the plant transpire and therefore need twice as much water as it really needs in order to grow its cobs, you can help to feed more with less. Equally, plant breeders are finding varieties of rice and other staple crops that now require less water than old varieties. There is a variety of rice with the wonderful name of scuba rice which allows rice to survive underwater in floods for much longer periods than was possible in the past.

Europe simply must invest in new technology and it must not be frightened of persuading its consumers that these varieties are safe to grow and to eat. I have a view that if scientists, farmers and everyone involved in the food chain seriously focused on how to feed 9.4 billion people-our forecasted population-we will be able to feed them, providing, of course, politicians and other funders can take a long-term view.

On water, no one is denying that there will not be serious problems in some areas, which there already are, as there is some political unrest and strife in areas such as northern Kenya and the Middle East. As regards food shortages, if the nations of the world can continue to work together and trade together, water shortages will remain localised and not affect the overall supply of food. I agree that that is a big "if", and the key phrase is "providing politicians can take a long-term view"-which, in the immortal words of Private Frazer, means: "We're all doomed!".

4.53 pm

Lord Framlingham: My Lords, I am deeply honoured to become a Member of your Lordships' House, and I am immensely gratefu1 for the warm welcome I have been given by everyone, not least the staff of the House who have been unfailingly helpful and kind throughout. I am deeply indebted to my sponsors for escorting me safely through my introduction: the noble Lord, Lord Geddes, who is an old friend from Suffolk, and the noble Baroness, Lady Boothroyd, under whom I had the great pleasure of serving as a Deputy Speaker. I am particularly grateful to them as a recent illness has left me temporarily unsteady on my legs. I suspect that they were as anxious as I was throughout the entire ceremony.

As Michael Lord, I was for 27 years the only Lord in the Commons. On my appointment to your Lordships' House, I would have been a Lord in the Lords. I was advised by the powers that be that this really would be most confusing in so many ways, not least in debates in your Lordships' House, where I would have been referred to as the noble Lord, Lord Lord. To choose

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another title was no hardship. On the contrary, taking the name of Framlingham, a delightful ancient and historic market town in my old constituency, where I was originally adopted as a parliamentary candidate in 1983, gave me, and will always give me, enormous pleasure.

For my last 13 years in the Commons, I was a Deputy Speaker. That has inevitably made me, among other things, a good listener. How often in the Speaker's Chair I yearned to intervene in a debate, only to realise later how glad I was that I had not.

Fairness and firmness are required of the occupant of the Speaker's Chair. To the extent that I have any of these qualities, I got them in due part from all the sport that I played over the years-particularly, in my younger years, Rugby football. I played for Cambridge against Oxford in the 1960 Varsity match. Our fair and firm, top international referee was a highly respected Welshman called Mr Gwynne Walters. Impeccably dressed, he always refereed in a blazer; he refereed impeccably too. Although the match was ferocious, as all such matches are, not one player spoke a word to him throughout the entire match. How things have changed. Modesty forbids me mentioning the outcome of the match, save to say that further details could be gleaned from the noble Lord, Lord Butler of Brockwell, who played on the opposite side.

A Deputy Speaker in the Commons must have a good memory. He or she must be able to name immediately what was, in my day, any one of 650 honourable Members at the moment that they rise to speak, however unexpectedly. It was not always so. In earlier times, the occupant of the chair simply pointed to whomever he wished to speak next. Then, on 19 May 1685, the House of Commons, in its wisdom, elected as Speaker Sir John Trevor, who appears to have been cross-eyed. The result was that every time he pointed, two people stood up. Ever since then, names have had to be remembered and called.

Before entering the House of Commons, I started and ran my own forestry company. I became increasingly involved in what is sometimes called urban forestry and, finally, in arboriculture. I was privileged for several years to be the president of the Arboricultural Association. Having listened to the debate so far, I am sure that your Lordships will be well aware that arboriculture is about trees for their looks; as opposed to silviculture, which is about trees for their timber.

I worked through the dreadful ravages of Dutch elm disease and on the subsidence problems caused by trees near buildings on shrinkable clay subsoils. When, some years ago, the Clore extension was added to the Tate Gallery, I was retained to ensure the survival of the adjacent London plane trees. Strangely enough, my experience proved useful soon after I arrived in the House of Commons. Someone had advised the felling of the Catalpa trees in New Palace Yard. I was asked what I thought, and I am delighted to say that, 25 years later, they are still there. I have a great interest in our ancient and historic trees as well. Before politics took over entirely, I lectured both in this country and in the United States.

One of the most pleasurable duties of a Deputy Speaker in the House of Commons, when the Speaker is not available, is to greet and entertain visiting Speakers

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or their deputies. Without exception, they were full of admiration and respect for our Parliament, its systems and traditions, and anxious to learn from us wherever possible. They still truly believe that we are the mother of Parliaments. I trust that we do too.

My great pleasure in being appointed to your Lordships' House was heightened by the fact that I have a huge affection for and belief in our Parliament, the way it works and all it stands for. We take it for granted, in this rapidly changing world, at our peril. I have always believed that one of the principal duties of any generation is to hand on to the next generation that which has been entrusted to its care. In this context, I say that I was deeply saddened that we have agreed to experiment with allowing the use of electronic devices in this Chamber. I believe that that will prove to be harmful and disruptive, and I sincerely hope that it will not become a permanent feature.

Politics is often said to be the art of the possible, but sometimes I think it is the art of having the courage to do the obvious. I also suspect that many great issues are essentially very simple and that we make them complicated when we do not want to face them. In this, the role played by your Lordships' House in the great issues of the day, free from simplistic party politics, is so very important.

I thank the noble Baroness, Lady Sharp, for her comprehensive introduction of her report. The term forestry-one of the topics of this debate-means different things in different countries and to different people and organisations. In this country, it originally referred to the hunting domains of kings, thus we have Hatfield Chase and Cannock Chase, and it came to mean, until relatively recently, planting and harvesting trees, principally softwoods, for timber. Currently the word covers everything from the great Kielder Forest to copses on our farms, and from ancient woodlands to urban forestry in Milton Keynes. It includes large tracts of conifer-planted uplands as well as the New Forest, the Forest of Dean and, in my part of the world, Thetford Forest.

In many of these areas now, the amenity value of woodland is considered to be as important as its timber value. In this increasingly hectic world, it seems more and more people are turning to and appreciating the enjoyment provided by trees and the habitat that they create and preserve. Whatever the terminology, however, it is all about trees. Trees really are one of the world's blessings. They take in our carbon dioxide and give us back their oxygen. They give us their timber and their fruits. They help to stabilise mountainous regions, are crucial in the battle against desertification and, on top of all this, they are a joy to behold. So whether they grow in our country, in tropical rainforests or in the developing world, we must do all we can to increase tree cover. Regardless of the pros and cons of climate change, let us do the obvious and plant trees, protect rainforests and generally treat trees with the respect that they deserve, not for their sake, but for our own.

I thank noble Lords for listening to me so patiently. I look forward to making further contributions to debates in your Lordships' House in due course and to playing my part in the affairs of this noble House.

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5.02 pm

The Earl of Caithness: My Lords, it is a very great pleasure to congratulate my noble friend Lord Framlingham-the noble Lord, Lord Lord-on his excellent maiden speech and to welcome him to the House. Besides gracing the green grass at Twickenham, he is a great sportsman because he also captained the parliamentary golfing association and has participated in many other sports. He has also done lots of other things in his life. He has great experience, which he will bring to the House, in local government, having served on North Bedfordshire Borough Council and Bedford County Council before he contested the seat of Manchester Gorton in 1979 where he got over 38 per cent of the vote, and nobody has come close to that figure since then. He was realised as a good bet for the future, and he moved from a Labour stronghold to a fairly good Conservative stronghold in Central Suffolk which later became Central Suffolk and North Ipswich, which he served from 1983 to 2010. More important than that, he brings to this House huge experience in agriculture and, particularly, forestry, and we welcome him for that especially. He graduated from Christ's College, Cambridge with an MA. Presumably he played rugby for Cambridge rather than for the rather superior Oxford, which I would have supported, although I did not go there. His knowledge of forestry will be important in the future. We welcome my noble friend. We all enjoyed his maiden speech very much.

Turning to the debate, I say to my noble friend Lord Henley that I sympathise with him because he has an utterly impossible job. Far too much is expected of Governments but Governments cannot manage the climate. There is too much sensational press reporting on climate change and utter confusion in the minds of a lot of people who cannot separate climate change and manmade or man-encouraged greenhouse gases. Underlying all that, there is a huge lack of scientific knowledge. What there is is often contradictory.

The noble Lord, Lord Giddens, talked about air temperature. Just to show that we are not all on the same side, I would rather welcome a change in air temperature and a little warming in Caithness. That would be good. After all, it was much warmer in the days of the bronze age, as can be seen from archaeological evidence. My noble friend Lord Teverson will know that from Dartmoor. I know it from Caithness. It was certainly warmer when my ancestors, the Norsemen, came over to this country and benefited by integrating with the Picts.

Air circulation, an issue on which we are short of scientific knowledge, concerns me more. We are told that because air temperature is going to rise it will be more stormy. But the storms that bring the rain to this country, mostly during the winter, arise very much because of the difference in temperature between the Arctic and the mid-latitudes. The wider that temperature, the greater the storms. If, as it is, the Arctic ocean is increasing in temperature, the gradient between the two temperatures is decreasing and the chances of storms are decreasing. We believe that that is what happened in the times of the Norsemen who went Viking. That could bring positive benefits but it could also mean that we will have very variable rainfall in the

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future. I am rather more sceptical than the noble Lord, Lord Giddens, as regards manmade climate change but I take the precautionary principle. I think that that is based on the fact that I am more of a countryman. I really believe that we have abused our planet in far too many ways.

On agriculture, the key to adaption, mitigation and changes for the future is the common agricultural policy, reform of which is essential. In her excellent introduction to the debate my noble friend Lady Sharp spelt that out clearly. However, what is more important about changing the CAP is the fact that it is the only way in which the EU will ever get close to playing a part-I hope a strong part-in feeding the burgeoning world population. I believe that to be a much more serious threat than manmade climate change. That is why paragraphs 68 and 69 of our report are so important and I welcome the Government's reaction to that point.

I hope that my noble friend Lord Henley will work towards a reform of the common agricultural policy that is flexible because each area in Europe is different. Each area in the UK is different. Some of the solutions will need to be quite local. We have talked about the air circulation of the jet stream, which affected our weather this winter and brought on the early snow. Sutherland and Caithness are adjoining counties in the north of Scotland; one has hills and one has not. A local solution will be extremely important. Perhaps I may stress to my noble friend Lord Henley how worried some of us were about evidence that we received from the Commission, which seemed totally to lack comprehension that we are a maritime climate, unlike most of the rest of the continent. Therefore, our problems are different, particularly in the less-favoured areas.

As my noble friend Lord Framlingham said, there is a change of perception of forestry. There also is a change of perception as to how people view the countryside. That is why paragraph 150, in which we say that farmers and foresters must be compensated when they make a provision of public goods, is important. The Government gave a warm response to that recommendation. However, that is the easy bit. The difficult bit is how to value the provision of public goods. If my noble friend can say anything on that, it would be very helpful.

A point that has not been raised is regulation in agriculture and forestry. In our current report alluded to by my noble friend Lady Sharp, we took evidence from Rothamsted Research, which said:

"The disjunction between restrictive regulation in the EU and the lack of resources for agricultural research and innovation is probably the biggest threat to the long-term viability and competitiveness of EU agriculture".

We will discuss that rather more fully next Tuesday evening, so I will not say anything more now.

I want to say a brief word about forestry, which was mentioned by my noble friends Lady Sharp and Lord Teverson. We do need more trees. That is essential not just for their significance as regards carbon but also for preventing the further degradation of soils. However, unless trees are profitable, they are not going to be planted. If they are not profitable, the taxpayer is

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going to have to subsidise the landowner or planter of the trees. That brings me back to paragraph 150, which I have just mentioned. Agriculture is one thing: you grow a crop and harvest it in the same year. When you plant a forest you are looking at what your grandchildren will harvest. Therefore anyone who is going to plant trees has to have confidence in the Government. As Governments change, we have seen time and time again that what one Government promise, the next may renege on. More importantly, the woodland owner has to compete with the Forestry Commission. As we discussed the other day, the Forestry Commission is both judge and jury in its own right. It controls anything a private owner can do and can set up in competition to the private owner. My noble friend faces a huge challenge in creating a climate in which people can have the confidence to plant trees for the future. It is necessary, but under the present structure with the Forestry Commission, it is not likely to happen.

I end with a brief word about innovation and research. There is no doubt that our research base, which, as my noble friend Lord Selborne said, has stood us in good stead, is now at severe risk. We were prime leaders around the world, something the noble Lord, Lord Cameron of Dillington, knows far better than me. British agriculturalists did a phenomenal amount of good work in Africa and elsewhere. Unless we put more into research and allow farmers to innovate by ensuring that the resulting knowledge reaches farming and forestry people, I am afraid that we face a fairly bleak future.

5.13 pm

Lord Taverne: My Lords, I, too, congratulate the noble Lord, Lord Framlingham, on a delightful maiden speech. We look forward enormously to his future contributions. This is a fairly welcome and very good report which should be read together with the Foresight report and the later one from the European Commission, which has now been published. It is clear from these what the problems are: hunger, rising population, a shortage of good agricultural land, a severe shortage of water and all the effects of climate change.

I will speak only on the question of biotechnology. I have probably made more speeches about biotechnology than any other Member of this House. The reason is that it is not generally appreciated in Europe that while biotechnology is not a panacea for all our problems, and while an enormous amount of valuable research into greater productivity in agriculture is being done, which holds a lot of promise for the future, in Europe we have not recognised quite how important agricultural biotechnology is. Indeed, the Government demonstrate an attitude of considerable caution. Europe imposes severe restrictions on the import of food and feed, which has repercussions for those elsewhere who want to export to Europe. In many countries there are bans on biotechnology. As I have said, the Government are also cautious. In this report, the junior Minister for Agriculture said that the benefits of genetically modified crops have not yet been established. I do not know where he gets that idea from or whether he has really looked at the international evidence, which is quite clear.

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What is not recognised is that, outside the European Union, agricultural biotechnology has been the fastest and most effective application of a new technology in agriculture ever. It is an enormous success story. There are now 148 million hectares on which genetically modified crops are cultivated, in 29 countries. Over 15 million farmers now grow genetically modified crops, over 14 million of them small-scale. There is no doubt about the crops' success. One can look at the emphasis given to them in China, which regards agricultural biotechnology as one of the most important technologies for the future. In India, it is growing at a very fast pace indeed. So far as the problems in terms of greater productivity and dealing with drought are concerned, biotechnology has an enormous amount to contribute, as the noble Lord, Lord Giddens, said.

Under those circumstances, why is there still such opposition? I think it is because we tend to treat the green organisations-Greenpeace and Friends of the Earth-and the organic movement with extraordinary respect. We treat them as though they stand for motherhood. People are terrified of criticising them publicly, yet if one looks at their effect on agriculture one sees that they do far more harm than good. They keep saying that we must prove that the technology is safe, but there have been any number of reports. Every national academy of sciences in the world-those from Mexico, India, China, the third world, America and Brazil, the Royal Society and other European societies-has examined this time after time. Their conclusions are absolutely clear: that so far there is no evidence of harm to human health or the environment, despite 12 years of growth and consumption. That is completely ignored by Greenpeace and Friends of the Earth, and their opposition is not rational. Many years ago, when this House held an inquiry into genetically modified crops, Lord Melchett-then director of Greenpeace-gave evidence. He was asked:

"Your opposition to the release of GMOs, that is an absolute and definite opposition? It is not one that is dependent on further scientific research ... ?".

His answer was:

"It is a permanent and definite and complete opposition".

That means that it is a faith-it cannot be influenced by evidence-and nothing has changed. All the evidence of the way in which genetically modified cotton has been a huge success throughout the world-it saved the Australian industry and has spread faster in India than anywhere else-is completely ignored or contradicted. The result is that the European Union is left behind.

Again, as far as the organic movement is concerned, I have made the point several times that at a time of cuts it is extraordinary that we spend £30 million a year subsidising the inefficient use of land; it is used to encourage conversion to organic farming. There is no question about it: organic production is a less efficient use of land. Why does organic food cost more? It is not because organic farmers want to rook the public, but because the yield is consistently lower. That cannot be denied, yet we subsidise it. If we spent that £30 million on agricultural research, it would be of enormous benefit. We would not have to cut the programme at all; in fact, we could give extra help to those excellent

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crop research institutes in Norwich-the John Innes Centre-and Rothamsted and to the Scottish research institutes.

The European Commission has issued any number of reports stressing the advantages of genetically modified food, explaining why it is no danger to health or the environment. But the Commission also subsidises Greenpeace and Friends of the Earth with €100,000 a year to carry out anti-GM propaganda in India. It is an extraordinary position.

In this country, the opposition to genetically modified food is superficial. That has been shown by some careful research done in Nottingham and Cardiff. The Government should speak out boldly, stop being cautious and give a lead. If we do not support this technology we will continue to be left behind, and Europe as a whole will suffer.

5.20 pm

Baroness Miller of Chilthorne Domer: My Lords, I must remind the House of my interests; my husband and I own and run a 40-acre vineyard, and I am chair of the All-Party Group on Agro-Ecology. I warmly thank my noble friend Lady Sharp of Guildford for her knowledgeable and passionate introduction to the report, as it came to some important conclusions that were rather hidden behind a slightly anodyne summary and a less-than-passionate introduction. I am glad that she has redressed that today.

Agriculture and forestry are tremendously important; after all, they occupy the vast proportion of the entire land surface of the EU. For that reason alone, they offer tremendous opportunities for climate change mitigation to be incorporated into our land use. There are also some dreadful penalties to be paid by future generations if we do not manage to get adaptation right. Those penalties will be paid in food production, flooding and the very ability of future generations to able to produce food at all.

Is the Commission capable of altering the CAP in order to address some of this? That is where my worries lie. The difficulty was spelled out in some of the evidence that the committee received from Ms Andugar, which is on page 158 of the report. She said:

"The CAP is not a climate change policy, so it is impossible for this policy to provide all the tools, incentives or instruments".

That is the crux of the issue.

I agree with my noble friend Lord Teverson that the debate hovers unhelpfully at the moment around pillars-pillars are depressing-and whether we should green Pillar 1 rather more or move further towards Pillar 2, where environmental goods are recognised as a desirable outcome. I am worried that the Commission might simply settle for the compromises that are needed to achieve any CAP reform by 2013. Those compromises will fall far short of what it must deliver in order to start addressing some of the critical issues that climate change puts before us and which your Lordships have touched on today. Here, I disagree with the noble Earl, Lord Caithness. Even without climate change, the issues of profligacy and waste would be no less critical. We cannot go on using water as we have. we cannot go

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on using artificial fertilisers as we have, and we would need three planets in order to farm as we have. I think that the noble Earl is nodding assent. Even if we set climate change aside, the CAP would still need radical reform.

It was cheering to hear in our evidence sessions of the multiple wins to be had from incentivising land users and farmers to take the right measures that address not only climate change but the crucial issues of soil quality, water stress and waste. For example, green cover crops slow down water run-off, stop soil erosion and allow better water absorption, with leguminous plants reducing the need for artificial fertilisers. All these provide more opportunities for beneficial insects and encourage biodiversity.

The report gets very excited about biochar-I agree that the evidence from Mr Prodi MEP was among the most exciting and compelling that the committee received. However, the committee could have extrapolated more fully the biochar lesson, which was that there should be no such thing as waste in the agricultural process. Waste at the start of the food chain is compost, mulch and manure; at the end of the food chain, and under some of the new technology coming forward, it is biofertiliser from the anaerobic digestion of food waste. We all agree that there is far too much food waste, but while it exists, let us use it. Biofertiliser is a liquid containing nitrogen, phosphate and potash, along with other trace elements, and it can be applied to farmland, reducing drastically the need for purchased fertilisers. That is another example of a win, win, win situation.

As other noble Lords have mentioned, this report needs to be read in conjunction with the recent government report from Foresight entitled The Future of Food and Farming. That report contains a critical, almost throwaway, sentence. It states that there is nearly as much carbon in the organic compounds contained in the top 30 centimetres of soil as there is in the entire atmosphere. That deceptively small statement contains an enormity of importance on which the UK Government and the Commission need especially to focus.

There are dangers in badly managed soils and potential in properly managed soils. In order to manage soil, farmers and land managers need the skills and knowledge, and indeed the right incentives, to restore its health and its properties. We have had more than 50 years of throwing on to it as much imported and artificial fertiliser as a farmer could afford. That has resulted in degraded, eroded soils and an industry addicted to artificial fertiliser.

I disagree with my noble friend Lord Taverne, who has offered biotechnology as the solution to the problem, but it will not restore the soils or supply more water. Before he is tempted to intervene, I should say that I have a very short time in which to speak and that I have kept my remarks as moderate as I can. We have to consider other ways of addressing this issue.

The UK response to the Commission communication and consultation, published in January 2011, also contained a worrying phrase. It said that,

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However, there is nothing magic about consolidation. Small farms might have seemed undesirable in the 1980s monoculture philosophy of maximising one-crop production as cheaply as possible without worrying about externalising the costs. Now we are thinking about carbon outputs, soil compaction from enormous machinery and, indeed, unemployment as the workforce is reduced. In today's world, small farms can be seen as highly efficient units. Indeed, some studies of innovations on farms in south-east Asia have discovered highly efficient units of mixed production that re-use animal manures; they have a mixed polycultural approach and spread the risk for the farmers.

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