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I should explain that I am a co-opted member of European Union Sub-Committee B. As the noble Baroness explained, our responsibility is to scrutinise the working of the single market-business, employment, transport, innovation and technology. Our work of course is highly relevant to this debate, so I start by joining the noble Baroness in welcoming the recommendation in paragraph 30 of the EU Committee's report that the NRP report and the Select Committee's report should be debated together. That is very helpful, and I hope that we will do it in the future.

I also noted in the committee's report that some members were sceptical of the value of these reports. I could almost hear murmurings of national plans meaning too much administration and too little management. I do not agree. Indeed, I agree with the Minister. In his evidence, he said that, used properly, the reports are a way of galvanising action and of having a dialogue with other countries and among ourselves. Yes, there are problems. One is keeping up with the times-the globalised world seems to be moving very quickly; the other is making the reports meaningful to ordinary people and ordinary businesses.

The NRP report suffers from both of these. The section on bottlenecks may have great meaning to a Treasury economist, but less so to somebody running a business or working in industry. You can correct this by putting it another way. Instead of setting out how we are going to tackle these bottlenecks, we should ask what we actually want to achieve. People would then understand the report better. It would have a purpose; it would point to action. It would be more inspirational, more easily understood and more likely to be implemented.

Let me give an example. One bottleneck is to facilitate,

Quite rightly, business reacted to the recession by cutting costs and it is crucial that as the economy recovers these costs do not return. After all, that additional competitiveness and productivity are helping us to recover. To sustain these lower costs means more investment and lower head count-lower head count with greater skills. Said that way, it means something to people. I put it to the Minister that, if the Government would like to involve the public more, putting things in terms of what we wish to achieve rather than what we need to overcome will mean more.

In his evidence to the committee, the Minister also spoke about consultation. The record of this Government on consultation is pretty poor. Your Lordships' Merits Committee commented on that and the Minister may have heard the debate on 3 May when I had to point out how decisions in the Home Office had cut right across policy laid down in the Treasury's plan for growth. We must do better at consulting both inside and outside government.

The paper calls for fewer regulations, but if the Government want the support of the general public, they must understand that one man's red tape is

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another man's polluted water or difficult working conditions. It is the rules that are important-how they are targeted and how proportionate they are. The numbers are of secondary importance. Regulatory failure is because the rules are wrong, not that the numbers are high. More and more of these rules are part of Europe 2020 and are being made in Brussels, outside our direct control. The Government have not made it clear how they will engage with this, so perhaps the Minister could say something about that.

In contrast with Europe 2020, I find the NRP paper pretty thin on the green economy. Certainly, the plan for growth talks about putting the economy on a low-carbon basis, but Europe 2020 makes energy efficiency one of its highlights, especially in transport and buildings. Indeed, it offers financial support. Will we take advantage of that? Our plans seem reluctant to commit investment in this area. Presumably that is because the Government do not want to burden our grandchildren with the debt. However, neither will our grandchildren thank us for burdening them with a high-carbon economy. Debt is less dangerous than global warming.

In these reports, keeping up with the times is essential but difficult because globalisation is moving really fast. I strongly support the intention of producing and debating an NRP each year. Personally, I would find it helpful if there were a section that told us what had changed from year to year. For example, in previous years, all the talk was about the inexorable move of manufacturing to Asia, particularly to China. Indeed, I was one of those businessmen to go there in 1979 when it started the open-door policy.

However, the wheel has nearly turned full circle. Rising wages and an ageing population in China, rapidly rising transport costs and rising productivity here in Europe, mean that it is already attractive to produce goods here in Europe that require frequent design changes or are of low volume. That is especially true for products where labour is a third or less of the cost. Our hourly worker wages adjusted for productivity are now much the same as Germany's and are lower than those of France and Italy. Yes, that does have something to do with the weakness of a pound against the euro, but this is a very important change for the economy of Britain and Europe. It is an important trend and I would like to see this sort of thing highlighted in the National Reform Programme. It not only points towards a new trend in globalisation, it also justifies our concentration on skills and investment, and on productivity and innovation. That is why I would like to see a section on what has changed over the year.

Another way in which this kind of approach is helpful is that it helps us to address the problems that globalisation has thrust upon us and justifies our impatience to complete the single market as well as the work and the expenditure on doing that. Incidentally, it also helps explain the benefits of the single market, something that we never do enough of. In its NRP 2011 paper, the Government say they strongly support Europe 2020, its challenges and its opportunities. Who could disagree with more jobs, more research and development and innovation, more investment, greener energy, better education and less poverty? It is because we are all in agreement with the aims and objectives of

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Europe 2020 that I would like to see this support shouted from the housetops and given a much higher profile. Could it be branded in some way, so that projects that contribute towards these objectives are identified as being part of Europe 2020?

The Government's paper, Let's Choose Growth, is a start. As well as calling for change, it expresses a lot of the right ambitions and identifies many things that we have to do. But who has seen it? Has it had an impact? Most of the people I know have actually never seen it. Some people would like to separate the economic from the social aspects, but the two are intertwined and cannot be separated. That is why it has to be expressed in terms that explain its impact on the lives of ordinary people. As the committee said in its report, the Lisbon strategy suffered because it had a low public profile and a low political profile. I join the committee in calling for a high profile to be given to Europe 2020. It creates a purpose to which all of us want to contribute. If there is one thing that I would like to take away from this debate, it is that we are all committed to that.

5.38 pm

Lord Newby: My Lords, I very much welcome the fact that we are debating the two documents together not least because had we not been debating the document introduced by the noble Baroness, Lady O'Cathain, we would have been having the fourth general economic debate in your Lordships' House in about five sitting weeks on what is happening to the UK economy. Although many of us like nothing better than to discuss the state of the economy, it is a bit like pulling a plant up on a weekly basis to see how the roots are doing. I do not think we would have served any useful purpose by it.

The more important relevance of debating the two documents together is the point that the Minister made in his introduction when he said the UK was not a bystander in the debate on fiscal stabilisation within the EU. The fact that we are not in the eurozone does not mean that we are somehow less affected than before by what happens more generally in the European economy. For example, it is very clear at the moment that when we are looking for additional investment for infrastructure, and into small or large businesses, the funds that might be available from banks based in London to support this investment are not being liberated by the banks, in part because they are worried about what is happening in the eurozone. They are worried that Greece may default, or that their holdings of Greek bonds may take a haircut, and therefore they are hanging back on making investments in the UK. So there is an absolutely direct link between the level of investment here and the stability of the rest of the EU. It is in our absolutely direct economic interest that stabilisation of those eurozone countries that have got into difficulty takes place swiftly. Many noble Lords wish that we were not part of the European financial stabilisation mechanism, but to the extent that our membership makes the stabilisation of those countries' economies go forward more quickly, that is just straightforwardly in the national interest.



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On the Europe 2020 programme, I completely agree with what the noble Baroness said about the Lisbon agenda. Before we were in coalition, that was the kind of thing that Liberal Democrat policy-makers used to do on wet Saturday afternoons. They would write down huge lists of aspirations which at the end of the afternoon made you feel great. But if you had been in government you would not have had the faintest clue how you would have brought them about. The extraordinary thing about the Lisbon agenda is that heads of government did the same; they signed up to this wonderful statement, which they had no means and not even the political intent to try to bring about. They felt very happy that Europe was going to take this leading role and then they sat back and let China, India and the rest of the world take the leading role.

Therefore, the fact that the flagship policies under Europe 2020 are in a way less ambitious is a good thing. However, they fall into two categories. One category includes policies or areas in which the EU itself can make an impact and there are other areas in which the EU can make very little direct impact. I am not an expert on the European platform against poverty, for example, but to the extent that you are taking direct action to deal with poverty, it will be done on a member state basis. The EU has no levers to pull on poverty other than having a framework for growth, which means that the economies of member states are doing better so it is easier for them to pull people out of poverty.

The key thing from Europe 2020 revolves around those actions that the EU itself can undertake. I welcome the fact that the Prime Minister has taken an initiative on this front, although I think whoever chose the title "Let's Choose Growth" for the pamphlet needs their head examining. What else are you going to choose-stagnation? The two things that the Government and the Prime Minister were proposing, which I hope the Government will push really hard, because they are pragmatic and will make a big difference, are a series of measures to strengthen and deepen the single market. We are talking about pragmatic things that the EU can do-it is in its competence. Secondly, we should push very hard for the completion of the Doha round. I know that it has had a very long and tortuous history, but trade remains one of the main motors of growth and we need to keep pushing to see what progress can be made. Those are two very specific things. I hope the Minister can reassure me that the Government, having written their letter and pamphlet, will keep the pressure on to see whether we can get concrete movement.

I am more sceptical about the national reform programme, the Government's programme and the whole process. I have in my mind the sight of 27 national reform programmes stacked on top of each other, sitting and accumulating dust. I do not know how that immense weight of material can be effectively analysed and peer reviewed. I am not sure how the peer review system works, but the document we are discussing says that the NRPs of all member states will be peer reviewed at the ECOFIN council in January. I do not know how you can effectively peer review anything at an ECOFIN council. If you are doing it beforehand,

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who are the peers and who are reviewing whom? Which named individuals from the UK are doing this review and do they do it for everybody or are we given half a dozen to peer review this year? When you have produced all the peer reviews, you presumably have a long document with thousands of detailed comments. What happens then? The more I think about the process, the more depressed I become because I wonder whether it actually achieves anything-particularly given that, for a number of member states, the noble aspirations of Europe 2020 and their bottlenecks to growth are so difficult to deal with that I cannot imagine this process being of any help at all.

Given what Ireland, Portugal and Greece are going through, does a document called the National Reform Programme with "bottlenecks" have any relevance? When I was attempting to brief myself on this debate, I made the mistake of typing into Google not "national reform programme" but "national recovery programme". Amazingly, there are national recovery programmes: Ireland has one but it also has a national reform programme. In those circumstances, I wonder whether that has any great value.

I am very supportive of the Europe 2020 approach and of efforts by this Government and by the EU to deal with their own bottlenecks for growth. I hope very much that they can be pushed by the Government. I have a final question for the Minister. We in the UK, and in every member state, have bottlenecks identified by august bodies such as the IMF and the OECD. Does the EU itself have bottlenecks that it is attempting to address? What is the equivalent of the five bottlenecks that we are grappling with-if you can grapple with a bottleneck-that the Commission is dealing with and what milestones are the Commission having to account against as it seeks to promote what is, as I say, an admirable aim?

5.47 pm

Baroness Valentine: I declare that I am chief executive of London First, a not-for-profit business membership organisation. I am also pleased to serve on this House's European Sub-Committee B, under the able chairmanship of the noble Baroness, Lady O'Cathain.

I welcome this debate. The EU Committee's report says of the reform programme,

It is worth doing because transparency and scrutiny by other member states, EU institutions, the OECD and others can only be helpful in establishing good practice. However, I take note of the reservations of the noble Lord, Lord Newby, about the practicalities.

Europe 2020: UK National Reform Programme 2011 makes clear the importance the Government rightly attach to growth. The national reform programme states:

"As Europe recovers from the worst recession since the 1930s, Europe 2020's aims of higher growth and increased employment represent the most important long-term challenges, and opportunities, facing the EU".

I will focus my remarks on the "bottlenecks" to growth identified in Chapter 3 and suggest some areas where the Government can perhaps do more to overcome these challenges.



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First, on competitiveness in financial services and taxation, after tackling the deficit the first challenge identified by the report is,

The Vickers commission's work to improve competition and stability within the banking sector is relevant, but we need to add a third leg to this stool-the global competitiveness of the UK sector. There have been failures in governance, supervision and regulation, but the UK has demonstrable competitive advantage in the financial services sector. We must make sure that any unilateral action does not diminish that competitiveness.

The EU's annual growth survey calls for Europe-wide co-ordination in the taxation of the financial sector. That is commendable, but London is the EU's only world-competitive financial centre, so taxation in other global financial centres outside the eurozone is just as important. What we actually have, though, is a unilaterally applied banking levy that satisfies neither point. The Government made a good start by consulting on their approach to the introduction of taxation last year. Post credit crisis, politicians attempted to shoot from the hip, but boring, slow, internationally compatible and considered changes in taxation are much better. So, while the tax hike on oil and gas exploration may or may not have been right, its abrupt introduction was almost certainly not.

I welcome the national reform programme's section on,

which reiterates the Government's objective of creating,

However, the UK heavily depends on its service sector for growth. We are claimed to be the second highest exporter of professional services worldwide. In this context, the international competitiveness of our personal taxes is important. Recent Treasury signals of a future reduction in the top rate of income tax are welcome. Unfortunately, other changes-to personal allowances for high earners, national insurance contributions, the non-dom levy, pension tax relief and the banking bonus tax-portend anything but a stable and predictable tax regime.

Secondly, on infrastructure and investment, the Government are right to aim for industry to have the confidence to invest in our economic infrastructure. Londoners are relieved that the Government have maintained the much needed and long overdue investment in our transport infrastructure, and we look forward to the forthcoming national infrastructure plan.

However, I would like to highlight some concerns. The Localism Bill, while motivated by an admirable desire for local empowerment, risks giving local authorities powers without resources-again. It risks frustrating development on the one hand by giving weight to the nimby vote while on the other failing to provide the tools to local authorities to fund the infrastructure that underpins regeneration and growth. How does one get the Northern line extended to Battersea power station to create a new economic quarter? While we have good progress with the Olympic Park Legacy Company in sorting out the park and indeed, under

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the Localism Bill, turning that company into a mayoral development corporation, who will act as client for investment in energy and the public realm south of the Olympic park to catalyse the East End regeneration that we all desire? Surely, alongside localism we need to give local authorities the benefit of the doubt in raising the finance to invest in the infrastructure that is a prerequisite to that regeneration.

The thorny question of aviation capacity in the south-east also remains unsolved. The NRP recommends rebalancing towards net exports. With £20 billion of business services exports driven by London, according to the Work Foundation, the capital's links to the world are critical. Aviation policy should expand businesses' international links rather than funnelling them through the most overcrowded airport in Europe.

I turn to Brussels. As the Minister asserts, policies to drive the UK's growth are largely in the hands of the UK Government, not the EU, but there are important areas of European influence. We need to ditch our little England approach to Brussels. By that I mean not embracing some great Utopian European dream but concentrating on the key areas of policy that affect our businesses and citizens. We must be sure to shape policy-making at the front end of the process and not as a desperate afterthought. In football-speak, we are last-ditch defenders when we have all the skills to be creative midfielders.

I am concerned about two areas in particular: labour laws and financial regulation. Europe 2020 seeks a 75 per cent employment rate across Europe. The Department for Business's own research indicates that more flexible labour laws lead to higher employment. Well meant protection for existing employees risks reducing employers' appetite for creating new job opportunities or employing more challenging candidates, when they worry about having their hands tied. The UK and Europe need to get the balance right between what is fair and what leads to more employment.

My second worry is financial regulation. The British financial sector is the most global in the EU and therefore needs more sophisticated regulation, but this regulation must be well informed both about products and about real-world market practice. The UK has 12 per cent of the EU population but makes up just 6 per cent of Commission staff. The UK needs to value people who serve in Europe; it should be seen as a boost to a career in either the public or the private sector. Given the vital role of the new European supervisory authorities in relation to our financial markets, would it make sense for, say, 20 per cent of their staff to have experience of London's financial services?

In these and other areas, politicians need to get in early and help to set the rules, rather than regarding Europe as a perennial irritation. I wish the national reform programme well.

5.54 pm

Lord Clinton-Davis: The noble Baroness, Lady Valentine, asked a lot of highly relevant questions. I hope that the Minister will be able to answer them.



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I start by paying tribute to the sub-committee's chairman, the noble Baroness, Lady O'Cathain. She is a guiding example in what a chairman should adopt. She chaired the sub-committee with skill and charm, and has enabled the sub-committee to work with undoubted success. Part of that success has been to enable all members of the committee to have their say. I thank the noble Baroness very much.

Charm, of course, is not always disarming. The noble Lord, Lord Sassoon, has demonstrated that today. I have a high regard for him, as he well knows, but he is something of an optimist, where pessimism is not the right answer but something between optimism and pessimism would not be averse.

To quote the former press secretary of President Eisenhower:

"One day I sat thinking, almost in despair; a hand fell on my shoulder and a voice said reassuringly: 'Cheer up, things could get worse'. So I cheered up and, sure enough, things got worse".

I think the same of the present Government's policy: things will certainly get much worse. The Minister failed to see that as a possibility in any way. For example, their comments about unemployment are dealt with in paragraph 3 on page 2 of the report, which says,

by-

and by increasing the-

How on earth has that got any relevance to the present unemployment problems? Of course we ought to adopt the ideas, but they are only part of the solution, not the entire solution.

Unhappily, the current facts indicate a rather different situation. They will, in most of Europe, form a vastly different situation: one of rising unemployment, probably to very high levels which will have serious political, as well as economic, problems. In the final paragraph of this report, the commission addresses part of the problem, but certainly not its entirety. It concentrates its fire on some unnamed member states with inflexible labour laws, but who are they? We do not know. That is hidden from view. The UK Government go to the other end of the spectrum. This situation is entirely wrong. In my view moderation, which calls for a modus vivendi, is the preferred remedy.

What does the second paragraph on page 4 really mean? It is full of verbiage but what does it mean? The situation cannot be approached in the way that the Government are doing. They have to be clear about the position, and that is certainly not the case.

I turn to the United Kingdom National Reform Programme 2011. I depart from the complacency which the noble Lord assumed at the beginning of this debate. I cannot endorse the programme that is advanced. It is long on verbiage and short on experience. Myths replace truths. It is extremist in tone and distorts recent history. It lives in hope, ignoring real problems that exist.



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Paragraph 1.3 of the introduction is a repetition of the old canards and a strenuous refusal to recognise the mistakes which the Government are making. Is the Minister entirely convinced that the Government have 100 per cent of the answers? No Government have succeeded so far as that is concerned.

While trying to play a constructive role in the sub-committee, I have real doubts about the present European Commission and, indeed, about our Government: one mirrors the other. Despite significant problems, our economy was growing in 2010 at an annual rate of about 4 per cent. Now all that has changed disastrously, with a collapse of consumer confidence and a refusal on the part of many businesses to invest. None of this is confronted by the Commission or the Government.

The current orthodoxy reflected by the European Commission and others is that demand must be diminished by 1.5 per cent over the next four years. Inflation is likely to increase and personal disposable income is likely to decline. Those are not simply my words but those of many economic experts. All this will be accompanied by an inexorable rise in unemployment. My own view is that when all this happens-I do not say "if"-there will be an enduring political fallout. Ordinary people will, regrettably, be affected. They will be worse off than they were 12 months ago.

Labour certainly made many mistakes when in government but it is quite untrue that Gordon Brown and Alistair Darling left Britain on the brink of bankruptcy. That has been repeated many times by Ministers. However many times it is repeated, it is completely untrue. I hope against hope that Britain and the European Commission will pursue policies both of job creation and growth over a period of years. Wages must not be cut and the taxes of the squeezed middle should be dealt with in a similar way. Of course we cannot ignore the situation, but it has to be handled in a rather different way from that of the present Government. That is a way to disaster. That is my view. Others may have a different view; but that is what I really think. In my submission, all this demands a radically different approach from that of the Government and of the European Commission.

6.05 pm

Lord Davies of Oldham: My Lords, this has been a most interesting debate, not least because of its focus on the valuable documents before us-those provided by the Treasury, by the Office for Budget Responsibility and, of course, the extensive work done by the European Union Committee of this House. I congratulate the noble Baroness, Lady O'Cathain, on her work in the committee, to which tribute has been paid during the course of the debate, and on her contribution this afternoon.

It is also a timely debate, for while the situation of the UK economy at the turn of the year was grave, today it is worse. In the first half of 2010, it should be recognised that under the recovery strategy put in place by my right honourable friend Alistair Darling the economy grew at an annual rate in excess of 2 per cent, with a beneficial effect on tax revenues that led to welcome reductions in the deficit that were substantially

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in excess of what the forecasts had predicted. Now the economy has effectively ground to a halt and there has been no growth at all since the third quarter of last year. Indeed, the National Institute for Economic and Social Research said last week that the performance of the UK had deteriorated markedly since the autumn, that economic output would grow by just 1.4 per cent and that the weak recovery would feed through to lower tax revenues. That meant that even if the spending plans are met over the next four years, the public sector deficit will substantially exceed the Government's professed target. Yesterday, the Bank of England downgraded its growth forecasts and added in the extra spice of a predicted rise in inflation in the not-too-distant future to 5 per cent. This is a new coalition of low growth and high inflation.

As this debate is set in a European context, what of convergence? How are our major European partners doing on the road to recovery and in the face of rising commodity prices that we also confront? Germany has growth at around 3 per cent, with inflation at 2.6 per cent. That is almost double UK growth and half our predicted inflation rate. France has growth at 2 per cent with inflation at 2 per cent-higher growth and lower inflation. Italy has growth at 1.5 per cent with inflation at 2.5 per cent. Growth is about the same as ours, but with much lower inflation.

Indeed, despite all the financial problems in the eurozone, the eurozone as a whole is forecast to grow just as fast as the UK this year, with less than half the UK's rate of inflation. The new UK coalition of low growth and high inflation is just like another coalition that I can think of-it tends to bring out the worst elements in each partner. Low growth undermines productivity, stoking the fires of inflation. High inflation not only cuts growth of demand by cutting real income, it also means that Britain becomes less competitive at home and abroad. Inflation is likely to erode all the advantage that we obtained, particularly in our manufacturing industry, from the devaluation a couple of years ago.

I referred to the Treasury documents. They are indeed valuable, because they contain clear, succinct statements of the Government's economic strategy. It is particularly well put in paragraph 2.10 of the 2010-11 Convergence Programme for the United Kingdom, which states that the policy has four components: cutting the deficit to promote confidence; monetary policy to secure price stability-it is pretty obvious how well that is working-reform of financial regulation; and microeconomic policies to make the UK the best place in Europe to start, finance and grow a business. Underpinning all that is the deficit reduction programme and the rate at which the Government want to see that programme completed. The link that the Government make between deficit reduction and growth is very clear. On page 7, we are told:

"Tackling the deficit is essential as it will: reduce the UK's vulnerability to further shocks or a loss of market confidence, which could force a much sharper correction; underpin private sector confidence, supporting growth and job creation over the medium term".

That is what serious economists, such as the Nobel prize-winning economist Paul Krugman, call the confidence fairy theory of growth, where the confidence

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fairy is like the tooth fairy, but with a bit less credibility. Sad to say, the confidence fairy does not seem to have sprinkled much stardust on the UK economy. Not only has consumer confidence plummeted over the past six months, the recently updated survey by the Institute of Chartered Accountants reveals that,

The chief executive of the Chartered Institute of Purchasing and Supply stated last month that in the construction industry:

"Confidence remains at a historically low level as the number of jobs continues to drop".

We have rising inflation and falling confidence. No wonder that in April, the UK's manufacturing sector grew at the slowest pace for months. On page 8 of Convergence Programme for the United Kingdom, there is a valuable table. It compares the impact on the deficit of what is called the policy inherited by the Government-in other words, Alistair Darling's strategy to halve the deficit in four years-with the Government's policy of eliminating the deficit in four years, the clear implication being that Labour's policy was just a timid version of that of the present Government.

That is a quite incorrect implication. The thinking behind Labour's policy was and is entirely different from the policy stance of this Government. The coalition argues that cutting the deficit is the prerequisite of growth, whether via the confidence fairy or microeconomic measures-something that I will talk about in a moment. Labour argues that the only way to secure a sustainable reduction in the deficit is for the economy to grow. Preserving, as far as possible, a steady rate of demand is the key to securing growth. That is exactly what was happening in the first half of last year. Exactly the opposite is happening now.

It is only fair to ask whether the fourth element in the coalition's economic plan, the microeconomic measures, will achieve what seems to be beyond even the confidence fairy's magic wand. Of course, there are some sensible sounding measures; and I would be the first to recognise them. There is a focus on science and research and development, on apprenticeships and on tax incentives for entrepreneurs. Sadly, when we look more closely, the actual measures are either too small or badly targeted. Research and development tax changes sound good until one realises that they benefit just 7,000 of the 4.8 million small firms in this country. The entrepreneurs' relief sounds good until one realises that the benefit will go to just a few hundred people. The idea that higher education is being put on a "sustainable financial footing", when this week David Willetts, the Member of Parliament and Minister, has produced another dimension of uncertainty with regard to higher education, indicates that the Government's funding projection for higher education is beyond a joke.

However, of even more concern is the idea that at the heart of the growth strategy is a policy to,

The Minister emphasised the extent to which corporation tax was going to be reduced. As we all know, the problem with corporation tax is that it is an extraordinarily efficient device for enhancing capacity for tax avoidance.

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Of course, there is nothing wrong with lowering taxes to create the right climate for business when it is part of a wider growth strategy that includes finance for industry, increased investment in research and higher education, and the maintenance of growing demand, which is the key motivation to invest. However, when cutting taxes and deregulation are central to the strategy, there is a risk of a race to the bottom-a risk that we will be involved in competitive tax-cutting, which has the effect of draining the Government of the funding they need for vital investment in infrastructure and other foundations of competitive success. Will low growth, weak regulation and low taxes build a manufacturing industry in this country to compete with Germany? I think that the answer is clear.

However, we can leave to the Office for Budget Responsibility the final verdict on the Government's so-called growth strategy, which is at the heart of this debate in relationship to our perspective on Europe. Considering the growth measures in the recent Budget, the OBR concluded that the impact on growth would be "minimal". No wonder. Without the prospect of growth, there is no incentive to invest, however low taxes might be.

Of course, we all recognise that economic forecasting is a hazardous activity, indulged in when projections over 10 to 15 years enable one to avoid some of the harsh realities of the immediate and clear future. Why do we need the crystal ball when the book is open before us? Under the coalition Government, the recovery has stopped in its tracks, with no growth since the third quarter of 2010. The previous Government's strategy of supporting the growth of demand in the recovery process has been replaced by the economics of low growth allied with high inflation-a coalition perfectly designed to reduce confidence, discourage investment, postpone recovery and, as the national institute has argued, reduce tax revenues in due course and therefore make the deficit problem more acute. This is the world of the Government's economics, and the Minister will no doubt set out to defend them once again.

6.18 pm

Lord Sassoon: My Lords, we have had an interesting and valuable debate. It got into a new gear towards the end. We were having some very positive and practical suggestions about the content of the documents that we are talking about today and how they should be handled both domestically and in Europe, and then we suddenly went off into hyperspace, thanks to the contribution of the noble Lords, Lord Clinton-Davis and Lord Davies of Oldham. My response, therefore, will be in two parts. I thank all noble Lords for their contributions. I think my noble friend Lady O'Cathain was criticising Europe for a lack of oomph in relation to Lisbon. She certainly got the debate off with plenty of positive oomph but we ended with a lot of tired hot air coming from certain of the Benches.

I start by confirming that we will be reporting to the Commission each year. We are required to report on the UK's economic and budgetary position, which is part of our commitment under the stability and growth pact. This is, of course, to ensure that we can help to maintain an appropriate level of macroeconomic

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policy co-ordination, which in itself contributes to stability and growth across the economic union. This is where the debate, particularly in its second half, presents some difficulties. What we get from certain noble Lords on the opposition Benches is all carping and critique but absolutely no alternative. The NRP and convergence programme is clear and comprehensive-not remotely complacent, to use the charge of the noble Lord, Lord Clinton-Davis.

Lord Clinton-Davis: I meant the Minister rather than the Government as a whole.

Lord Sassoon: It would be nice to know what on earth the Opposition have to offer and we could then have a meaningful debate about the alternatives. Only this morning, one of Gordon Brown's close former Treasury and Downing Street advisers, Mr Dan Corry, wrote an article in the City A.M. newspaper, headed:

"Balls must offer alternative instead of carping".

I would insert the names of a couple of noble Lords for "Balls".

The article states:

"Balls and Miliband ... should spend time developing and articulating what Labour's economic strategy for growth is, and why it can work. That is the real task ahead and they need to get to it".

I very much address those remarks to the noble Lord, Lord Davies of Oldham, and it would be much easier if next time we had a debate when we knew the alternative.

What underpins the plans is a,

Those are not my words but the words of the IMF in September last year, and that is what we are talking about this afternoon. Of course there are issues on which we are not remotely complacent as a Government. We have said all along that the recovery will be choppy and difficult. Yes, we recognise that inflation will be high this year but it is forecast by independent forecasters at the OBR and elsewhere to be coming down very significantly in 2012. We could trade all sorts of critiques about our plans all night, but one of the latest commentators with immense credibility on this, the US Treasury Secretary, said only recently that he was impressed with the basic strategy that had been adopted. He said that if we do not act with force to stabilise confidence, we will be confined to a much worse outcome economically. When asked whether we were going too fast, the US Treasury answered, "I don't think so".

We could spend a long time going over the substance of the Government's basic economic strategy but I would merely say that the debate confirms that we certainly have a very clear strategy. It is at the heart of the documents we are discussing today. As I say, it would be nice in due course for the Opposition to come forward with something of an alternative if they think that our plans are not appropriate for the economy.

In the rest of the debate, many constructive points were made. I will first address issues to do with consultation, the way in which the document was presented and how it might evolve. A number of useful policy and other issues were raised; I may have

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time to address a few of them. Similarly, a group of points was raised concerning the handling in Europe of the NRP and the convergence programme, and how the process will go forward. I will take the points broadly in those groupings.

I turn first to the nature of the process that led to the document. My noble friend Lady O'Cathain and the noble Lord, Lord Haskel, asked about consultation and the inclusiveness of the process. Certainly I can confirm that as we drew up the growth plan that underpins the document, we consulted all those parts of society that my noble friend mentioned-NGOs, the private sector, civil society partners, local authorities and so on-and we will continue to engage in this process as we consult on the next iteration of the Government's growth plans.

As far as concerns the nature of the document, the noble Lord, Lord Haskel, was suitably challenging and positive about the way in which the NRP and Europe 2020 should be presented. It would be great if the enthusiasm that he shows for making this a more popular document in which a wider set of people was interested could be fulfilled. However, we should not be overambitious in this area. I very much take to heart some of his suggestions about the way in which the document could be structured. We are, in particular when it comes to setting out the bottlenecks, following a template that Europe sets for us. The noble Lord suggested that the document should show what has changed from year to year. I agree with him. This is the first full NRP under Europe 2020, and I am sure that future documents will chart progress from year to year.

The noble Lord has very high standards and perhaps was a little uncharitable about some of the themes that were not in the document, such as the impact on people. Our aim was to give the document more colour, flavour, appeal and interest to a broader readership. Noble Lords will know that there are a number of boxes throughout the document that give practical studies of the way in which some of the reform ideas can operate, whether through colleges, major companies, small businesses or voluntary organisations. I take the noble Lord's point, but we worked hard to make sure that the document contained illustrations from a broad section of society of how the themes in the NRP should operate.

I turn now to one or two specific policy areas to which attention was drawn. The noble Baroness, Lady Valentine, referred in particular to employment and labour law. This theme was touched on by the noble Lord, Lord Clinton-Davis. I should like to assure the noble Baroness that as we go forward with our reform work, employment law will be at the heart of it. As my right honourable friend the Chancellor said only yesterday at the Institute of Directors conference, the Government will publish a detailed timetable for the wholesale review of employment law in this country. It will include plans to review the unlimited penalties currently applied in discrimination employment tribunals, to simplify the administration of the national minimum wage, to review the TUPE regulations and to reform the consultation period for collective redundancies. The Government of course recognise that some of

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these issues may be controversial but, as we go forward with a challenging reform programme, it is essential and necessary that we leave no stone unturned, including in the area of employment law.

The noble Lord, Lord Haskel, questioned whether the NRP was thin on green detail-for example, on energy policy. Although I am sure that the noble Lord has seen it, I would point out that there is a section on climate change and energy which details the Government's key objectives and policy actions in that area. Of course they cannot give the full detail, but the underlying policy documents are referenced in the NRP. More generally, on the question of a transition to the low-carbon economy, the announcement in the Budget of the carbon price floor sets a very challenging underpinning and basis on which investment can be made in the range of energy projects which we need going forward in this country, including, critically, in the low-carbon space.

The NRP sets out for each bottleneck and target the Government's key objectives and details the policy action being taken forward towards meeting those objectives. As I have described already, we have examples of the way in which stakeholders are implementing these policies. Although the noble Lord, Lord Haskel, may challenge the structure of the document, it is very much responding to the way in which the European Commission would like to see it. We have tried to make it as illustrative as it can be, but of course we will take note of any suggestions as we think about the second and future iterations of it.

My noble friend Lord Newby raised a number of questions, including a very important one about trade and the Doha round. Of course he is right that Europe needs to become one of the key engines of world trade. I can confirm that the Government support concluding the Doha development round this year, but I would also bracket that by saying that there is another important European dimension to this. We want the European Union to build on the success of recent bilateral free trade agreements-that with Korea in particular-and further agreements to be concluded with India, Canada and Singapore this year. I am grateful to my noble friend for drawing attention to that. Europe has an important role to play on both Doha and the bilateral agreements and we will be pressing it forward in both those dimensions.

I turn now to some of the other Europe-wide issues and the process points on the documents. My noble friend Lord Newby asked whether the EU has its own bottlenecks and what is it doing about them. That is absolutely the right question to ask, and it will certainly strengthen my own resolve to make sure that we put the institutions at the heart of Europe on the spot in terms of identifying the bottlenecks in the areas for which they are responsible. Principally that means strengthening and deepening the single market, the free trade issues to which my noble friend drew attention, and reducing regulatory burdens at the EU level. Those are issues that we press vigorously with Europe, but his read-across on the bottleneck theme is an interesting one, although this particular exercise is principally one for individual member states.



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On how this is now being addressed, my noble friend Lady O'Cathain asked about the robustness of discussions. They are indeed robust and I hope that, as we get into the key discussions that will take place over the summer, they will continue to be so. There are some interesting differences perhaps of expectation about the nature of the process going forward. I have to say that on balance I am probably more in tune with the way the noble Baroness, Lady Valentine, characterised at the beginning of her speech the nature of the scrutiny process and the expectations we should have of it rather than with my noble friend Lord Newby. What is critical about this is that these issues will be debated at heads of government level, having first been discussed at ECOFIN. Of course we cannot expect leaders to debate all the fine detail, but what is important about this-I take up a point made by my noble friend Lady O'Cathain-is that there is a basis on which national governments can be held to account. Peer group pressure by discussion at heads of government level is very important, and the UK has certainly put down a document that challenges our partners in a number of key respects.

Lastly, my noble friend asked about independent analysis. We would like to see independent analysis of the sort that the Centre for European Reform has been conducting to carry on, but of course it is independent and it is for the centre to come forward with further analysis. We would welcome that.

In conclusion, this has been a full and interesting debate. The UK has laid down an NRP and a CP which are challenging documents in that they show how we are going to reverse the trend that we have seen over the past decade to create an economy that is more balanced and one in which the deficit is brought under control. These are plans that we will drive through and plans on the basis of which we will participate enthusiastically in exerting peer pressure on our member state partners. We will use this process as far as we can to enhance Europe's fiscal disciplines and to encourage the structural reforms in Europe that are necessary to underpin Europe's sustained growth.

Motion agreed.

EUC Report: Economic Growth and the UK National Reform

Copy of the Report

Motion to Take Note

6.38 pm

Moved by Baroness O'Cathain

Motion agreed.

National Reform Programme 2011

Motion to Take Note

Moved By Lord Sassoon

Motion agreed.

House adjourned at 6.39 pm.


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