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Advertising in the UK has another less direct effect. It provides access to corporate brand budgets, which can be and frequently are directed towards the funding of music venues, film and book festivals and independent programming. Without advertising, ITV and Channel 4 would not be in business, and nor, perhaps slightly more equivocally, would the Millennium Dome. Of course, the diversity, range and freedom of our press would be directly threatened. All this is to speak about the quantitative aspects of our advertising industry.
The qualitative aspects of the industry are just as important, perhaps even more important. I am not entirely impartial here and should perhaps declare a by now somewhat historic interest. I have spent 30 years of my commercial life working in and around the advertising industry. I am proud to have been managing director of Saatchi & Saatchi here when it was the largest advertising agency in the world and producer of the highest quality creative work. But even allowing for a slight partiality, I believe it is true that we have here in the UK one the two best advertising industries in the world. External rankings consistently put the US or the UK in the No. 1 or No. 2 positions. Given our relative sizes, this is a truly astonishing achievement. In the UK, the advertising industry is a truly world-class industry.
The advertising industry has undoubtedly been very successful in the UK, but, as with other leading creative industries, it faces new and very fierce challenges. The Work Foundation report notes that:
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"It is likely that the global centre of advertising creative and production gravity will continue to shift away from the western countries and towards the BRIC and SE Asian markets".
The industry is alive to this challenge and so I believe, very largely, are the Government.
The industry is proactive in positioning itself as a creative and innovation hub to the largest and fastest growing companies in emerging markets, with a view to encouraging them to take their brands global. For example, the Institute of Practitioners in Advertising has just launched a new consumer R&D service in China. Speaking of China, the number of IPA member agencies with offices in China has risen from 23 to 62 in the past three years. With the active support of the DCMS and UKTI, the industry runs trade missions to promote our skills, our expertise and our companies. There was a mission to China at the end of September, and there will even be a mission to Silicon Valley and Hollywood, which is due to leave next week.
The UK is a collection of world-beating industries. Our future prosperity will depend more and more on our ability to sustain and develop our creative leadership in advertising as in all creative industries. As someone who has dealt professionally with creative people for 30 years or so, perhaps I may close by saying to my noble friend the Minister that I have always found it useful when dealing with creative people to bear in mind two key principles: first, be very supportive, especially at an earlier stage; and, secondly, keep well out of the way.
1.58 pm
Lord Smith of Finsbury: My Lords, I warmly congratulate the noble Baroness, Lady Bonham-Carter, on securing this important debate, which has led us into a fascinating and illuminating discussion from all parts of the House. I have a especial word of congratulation for the noble Viscount, Lord Colville, on a very moving and interesting maiden speech. I should, of course, note a number of interests: I am chairman of the advertising standards authority, a non-executive board member of Phonographic Performance Ltd, and the person who has been asked by the Government to lead the review of policy on the film industry that is currently under way.
When I became Secretary of State at DCMS in 1997, and looked at the creative sector of the economy-those activities that depend for their economic value on the product of individual creative skill and talent, ranging from music, film and the high arts at one end through to advertising, architecture, design and many other enterprises at the other-I sensed that this was a body of activity that was not just of great aesthetic importance but of huge economic importance to the country. I discovered, however, that no one knew the exact extent of those industries. No one knew what the trends or challenges were or what was happening to them, and more importantly, the rest of Government did not acknowledge that they were important.
The picture has of course changed since then. A lot of work from a succession of Ministers and departments in both Governments has been put into establishing the importance of the creative industries, but perhaps that importance is still not recognised sharply enough.
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Two other things are also vital and both have been touched on in the course of our discussions. The first is the importance of education for the success of the creative sector. That starts with the nurturing of creative spirit in our schools. That does not just mean the chance to absorb, enjoy and develop a passion about dance, drama, the visual arts and the richness of our museums, film and music; it is also about giving every pupil in our schools the chance to play music, to direct a play, to make a movie, to be part of the creative process and not just the enjoyment of the creative process.
We need to ensure the development of skill and talent is taken forward not just in our schools but post-school at higher education and further education level. If we are not training the new generations to become the directors, the designers, the lighting specialists, the wizards at special effects, we are not going to have these industries to cherish at all in the future. Education also needs to consider how to encourage and assist the people who are developing their creative talents and skills to learn business skills as well, because they have to be able to become entrepreneurs as well as hone their creativity.
The second hugely important area in relation to the creative sector is the protection of intellectual property value. This is, after all, where the economic value, the creation of wealth, in these creative sectors comes from. The creator has to be properly remunerated for their talent and skill. I cannot emphasise too strongly how important this is. It is especially important in the digital world where online communication is simultaneously the creator's best friend and potential foe. We need to ensure that value can be properly and legitimately realised and returned to the creator. That is why I urge the Government to press ahead urgently with the implementation of the Digital Economy Act. The Hargreaves report was all very well-Hargreaves got some things right and some things wrong-but we must not forget the Digital Economy Act in the process.
The creative industries add enormously to the wealth of the economy and to the richness of our lives. That needs to be recognised not only in the heart and soul of DCMS-and I know the noble Baroness absolutely understands this-but in the heart and soul of the Secretary of State for Business, the Secretary of State for Education, the Chancellor of the Exchequer, and the Prime Minister as well.
2.04 pm
Lord Stevenson of Balmacara: My Lords, I thank the noble Baroness, Lady Bonham-Carter, for securing this debate. As the noble Lord, Lord Grade, quipped, at a time of bad economic news it is a chance to celebrate a success story, and not just in TV. As the noble Baroness, Lady Randerson, said, the time has
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It is about two years since your Lordships' House last discussed this topic, when my noble friend Lord Bragg introduced a similar debate. As then, we have had a very high-quality discussion, much enhanced by the contributions from noble Lords with direct experience in these industries, as well as from those with a passionate engagement with the sector. The main themes that seem to have emerged this morning are: a continuing concern to improve skills and training; worries about the way creativity is being squeezed out of the core curriculum, with particular reference to the EBacc; a decline in the arts and creative courses being taught in higher education because of the cut in the teaching grant; the need for an appropriate solution to stimulating finance for these high risk businesses, not that they are any more risky than others, but the risk is of a different quality-it is a "hit" industry that needs specific attention; how deregulation of the BBC and ITV might help; the need to preserve diversity on and off screen; the need to preserve live music and the performing arts more generally as the seed-bed of all these creative industries; and, as we have just heard, concern about preserving and ensuring that the IP that is created is well used and able to provide a return that is appropriate for its investment.
My noble friend Lord Macdonald of Tradeston raised the question of when the term "creative industries" was actually coined. It was certainly not around when I was working at the British Film Institute in the 1980s and 1990s. It seemed to arrive fully formed in 1997, so perhaps the then incoming Secretary of State, the noble Lord, Lord Smith of Finsbury, had more to do with it than his natural modesty permitted him to say.
Success has many parents so we will probably never know, but by any measure the UK creative industries grew considerably as an industrial sector between 1997 and 2010, sometimes growing at twice the rate of the national average. In London and in several other major cities such as Cardiff, Manchester and Salford, as we have heard, it has become a significant economic sector in its own right and is at the forefront of the UK's international competitiveness. Data show that exports of services for radio and TV, advertising, architecture, film, video and photography doubled between 1997 and 2007, and almost quadrupled in the case of publishing and software, computer games and electronic publishing. Other figures are just as impressive. The sector as a whole saw an average GVA growth of 5 per cent per annum over that period, with computer games and electronic publishing rising annually at an average of 9 per cent, representing an increase in GVA of nearly 200 per cent over the 10 year period.
Mention has also been made of the fact that the UK has a strategic international lead in the production and export of creative goods and services. Although
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Some noble Lords spoke about the wider economic and social challenges facing our country, and one of the main themes that emerged this morning was the need for an economy in the UK that looks and feels very different than what we see today, with more opportunities for more people to get better jobs in good companies. There is every reason to believe our cultural industries can play a major part in this recalibration. If that is to happen, we need an active intelligent Government who support an industrial strategy to foster good, high growth, high productivity companies that create great jobs. The challenge, and the opportunity, is significant. We need to equip ourselves with an understanding and commitment to those things that will drive creative, competitive success in a global context.
The last Government can be proud of their record on the creative industries. They recognised that the creative industries would quickly become an increasingly vital source of skilled jobs and economic growth. The coalition Government have said repeatedly that they view the creative industries as key drivers of jobs and growth, but on a number of critical issues they have been accused of failing to respond to the challenges threatening the future strength of the sector.
I will give three or four examples. The announcement of a creative industries council in the last Budget was welcomed, but it remains to be seen whether it is just a talking shop or a focal point for action in areas other than training and skills. This seems to be the one area that is making good progress, although it is hampered-as the noble Lord, Lord Clement-Jones, said-by the fact that there are two sector skills councils operating in a limited space when perhaps Skillset should be in the lead.
Why has there been such a delay in the rollout of universal broadband and a lack of progress in implementing the Digital Economy Act? As many noble Lords argued, intellectual property is at the heart of all that the sector has to offer and do. It must be supported. The Government's higher education plans are resulting in significant cuts in art and design education, and the changes to the EMA are denying many young people the chance to develop education and training opportunities linked to the creative industries. Britain's immigration rules are making it difficult to bring in artists and performers to study, perform and teach. Something must be done about this.
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There must be some doubt about whether current government policies will nurture talent, foster growth and widen opportunity in the cultural industries. Clearly, DCMS cannot do this on its own. It is a cross-departmental challenge that requires bold leadership from DCMS. As the Minister is about to respond, perhaps I may suggest that these are the key questions that she and the department should address.
The skills required for the creative economy are changing. We must assess the suitability and impact of current schools policy for the creative industries. Can DCMS re-engineer the relationship between our education system and our support mechanisms for arts and culture so that we grow and nurture talent for the creative economy? The UK has a strong talent base but lacks some of the technical and business abilities required for a digital era, particularly if we want to see more microbusinesses grow. Can the DCMS bring forward an apprenticeship scheme, building on the work of the BBC in Wales that was described by the noble Lord, Lord Rowe-Beddoe? It might be tailored more appropriately for companies operating in the creative economy.
A major challenge for public policy is a shortage of risk capital for creative companies in the content sectors. There will be inevitable consequences for UK competitiveness if we fail to address those issues successfully. My noble friend Lord Hollick drew attention to the predisposition towards debt finance. This structural weakness prevents us from acquiring or owning the economic benefit of creative output, and confines us often to service company status. Will the DCMS work with the Treasury to ensure that appropriate new schemes to bring in risk capital are introduced, and to ensure that the current support through the tax system is not curtailed by the threatened introduction of new eligibility rules? Thirdly and finally, what can DCMS do to widen the UK creative talent pool? Without that, there may be significant detrimental impact in the longer term on a sector that prides itself on the generation of diverse creative content.
The Government need a coherent strategy for the creative industries. They are a key sector for jobs and growth, and the UK needs a framework that underpins confidence, investment and innovation. British young people in the creative sector have extraordinary talent. We must make it as easy as possible for them to flourish, if only to aid growth. I look forward to the Minister's response.
2.13 pm
Baroness Rawlings: My Lords, I start by adding to the sentiments of all noble Lords who spoke in appreciation of my noble friend Lady Bonham-Carter having given us the opportunity to discuss the role of the creative industries in the United Kingdom. As we heard, not since the debate on the same subject in June 2009, secured by the noble Lord, Lord Bragg, have we been able to debate at length the importance of their impact. In 2009, it was clear that there was a vast knowledge and commitment in your Lordships' House; today, it is evident once again that your Lordships are as passionate and committed as ever to the creative industries and their contribution to the UK economy.
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Perhaps I may especially commend the maiden speech of the noble Viscount, Lord Colville. It was delivered with great modesty. He highlighted the issue of unpaid internships, which is certainly a pressing challenge for these industries. The key will be to find a balance between making these valuable opportunities available to young people and making certain that they are not exploited and that these are genuine learning experiences. It is already clear that your Lordships' House will benefit from the noble Viscount's wide experience in areas ranging from his work as a BBC producer on "Newsnight" in Moscow during the collapse of the Soviet Union to his current projects, one of which is a programme about the physics of the climate. We wish him luck and look forward to hearing him very frequently in this House.
My noble friend Lord Grade, in his eloquent and naturally well informed speech, raised an important point about television advertising and the continuing competition remedy known as contract rights renewal. CRR has formed a major part of the recent Communications Select Committee's inquiry and subsequent report on the regulation of TV advertising, which we will debate later today. I hope that my noble friend might be able to speak in that debate as he knows so much about the subject. My noble friend also raised the issue of "must carry". I relished the reference to Ongar, which was part of my old Essex South West constituency, being "one station beyond Barking". A number of responses to the Secretary of State's open letter on the communications review raised the issue of transmission charges paid by the BBC and other PSBs to satellite operators. No doubt we will consider the issue in the communications review Green Paper.
I listened with great interest to my noble friend Lord Black's concern about the local press. The question we must consider is whether one reference decision by the Office of Fair Trading is enough to undermine the whole merger regime. Obviously this appears not to work for local newspapers, and I believe that the answer should be no.
The noble Lord, Lord Smith, answered many noble Lords' questions regarding the film industry's role within the creative industries. We are grateful to him for chairing a body with an eight-strong independent panel of industry experts. I will come back to further points made by the noble Lord later.
In answer to the question of my noble friend Lord Clement-Jones about economic contribution, the UK's creative industries are part of the digital economy to which we can look with confidence for growth in future. In these challenging economic times, that makes them particularly important. I will mention later what the Government are doing on this. However, the figures speak for themselves: the creative industries contribute 5.6 per cent to the UK economy as a whole-around £59 billion a year; 1.3 million people are employed in creative jobs; and UK creative exports were worth £17 billion in 2008, which represented around 4.1 per cent of all goods and services exported. Over the past decade, the creative industries have grown faster than the rest of the economy. Recent forecasts by PricewaterhouseCoopers suggest that the UK entertainment
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My noble friend Lord Fowler asked whether BBC Worldwide should be considered in the forthcoming communications Green Paper. We are discussing this and I hope that the Green Paper will be produced soon. It will look at whether any change is needed to the law. The Communications Act 2003 has held up well, but we need to give it a proper check-up, which will take into account works such as Hargreaves and the Leveson inquiry.
I would like to outline just a few areas where the UK has demonstrated its particular strengths. The status of English as a global language has made the UK a world leader in creative content, giving UK producers a huge advantage in global markets. This is illustrated by the strength of our publishing and music industries, and the value of TV programming, both at home and especially in export sales. In 2010, the UK strengthened its position as one of the only two net exporters of music, growing its trade balance three times faster than the US. British talent is behind many iconic, globally successful games titles too. I am told that these include "Grand Theft Auto" and the UK online video game "Moshi Monsters", now with 50 million users and one of the fastest growing children's entertainment brands in the world.
Among other topics, my noble friend Lady Randerson, the noble Earl, Lord Clancarty, and the noble Lord, Lord Bichard, mentioned the importance of fashion. I agree with them. The UK is at the cutting edge of international fashion and this year industry forecasters named London Fashion Week the number one fashion week in the world, overtaking Paris, New York and Milan. The noble Lord, Lord Bichard, referred to Vivienne Westwood. She even designed the graduation robes for King's College, London.
Britain is one of the few countries in the world to have not one but five dedicated PSB broadcasters: BBC, ITV, Channel 4, channel Five and not forgetting S4C. British television produces programmes that are popular around the world, such as "Doctor Who" and "Downton Abbey".
My noble friend Lord Razzall talked of our success in Cambridge. He is right about our many creative industries there. As we heard on the "Today" programme this week, ARM Holdings, a global company with its headquarters in Cambridge, is the world's leading semi-conductor intellectual property supplier and as such is at the heart of the development of digital electronic products. We need consistently to work to maintain these successes, and continue to retain our share of the growing global market, estimated by UNCTAD to be worth nearly $600 billion, for creative goods and services in an increasingly competitive world.
I can reassure the noble Baroness, Lady Jones, that the Government and especially the Secretary of State fully understand the importance of the arts, both culturally and economically. I suggest that the Arts Council's settlement was not bad in the current circumstances. I am sorry that the noble Baroness,
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The noble Lord, Lord Bilimoria, wanted to know whether the Government had given this area top priority. I can say to him yes. In March this year ThePlan for Growthincluded a package of support for the digital and creative industries. These measures are designed to achieve strong, long-term, balanced growth that is more evenly shared across the country and between industries. The Government have established the Creative Industries Council to be a voice for this most important area, and to be a place where Government and council members, who are leading figures drawn from across the creative and digital industries, can work together to tackle barriers to growth facing the sector.
My noble friend Lady Benjamin stressed the challenges identified by the council, including lack of access to finance, skills shortages, the need for better access to export markets and the need to improve the intellectual property regime. I know of the noble Baroness's preoccupation with children's programmes and I note her concerns. We have discussed this frequently and no doubt we will come back to it. The council has established working groups on skills and access to finance as a first priority and it will report in 2012, so I agree with the noble Lord, Lord Bilimoria, and the noble Lord, Lord Hollick.
My noble friend Lord Clement-Jones rightly lays emphasis on skills. In tandem with the skills working group of the council, a number of actions have been taken forward to improve skills in the digital and creative industries. These include identifying 360 science, technology, engineering and maths-STEM-ambassadors from the creative and digital industries, and encouraging graduates from the sciences, technology and maths to seek out careers in these sectors.
I have great sympathy with the worries of my noble friend Lady Bonham-Carter and of several others about not including the arts, such as music, and computer sciences in the EBacc. This is a matter for the Education Secretary, but it does not stop these subjects being taught in schools.
My noble friend Lady Randerson and several noble Lords were concerned about superfast broadband. Superfast broadband is a key business growth enabler, and £530 million is being invested over the next four years in order to create the best superfast broadband network in Europe by 2015. We heard the other day that one of Italy's problems is that it has fallen behind with broadband compared with what we are doing here. The Government have taken further action towards the goal of making certain that all businesses in enterprise zones have access to superfast broadband by 2015, with Broadband Delivery UK considering and addressing
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The noble Lord, Lord Rowe-Beddoe, mentioned the importance of the Hargreaves review of intellectual property and growth, which set out recommendations for how the UK's intellectual property framework can further promote entrepreneurialism, economic growth and social and commercial innovation. The Government published on 3 August its response to the Hargreaves report. This included a commitment to establishing licensing and clearance procedures for orphan works. Government will shortly consult formally on proposals taking forward the Hargreaves recommendations. I am happy to address the noble Lord's concerns on music and congratulate him on stressing the importance of the conservatoires.
The national plan for music education will be published shortly and will set out new arrangements for creating local music hubs expected to support all young people's music making and offer routes for progression. These might include music industry-based provision and information. I am also fully aware of the importance of the jazz industry, mentioned by my noble friend Lord Colwyn, and I hope his suggestion of jazz will be included.
My noble friend Lord Colwyn also pointed out the need for clarification around the licensing of sites for live music. The Government remain committed to scrapping unnecessary red tape. We support the Bill introduced by my noble friend Lord Clement-Jones and are consulting on a broader approach. I will make sure that my noble friend's concerns are made known, and I will take them back to my department. However, I must not pre-empt the consultation, and there are concerns on the other side.
This debate has highlighted the fact that the creative industries make a strong contribution to the UK economy. They are worth £59 billion to the economy, and a significant number of people are working to create a dynamic and innovative part of our economy. I wholly agree with the noble Lords, Lord Smith and Lord Stevenson, about the importance of the value of intellectual property in a digital world. We are committed to implementing the Digital Economy Act, and we hope that the initial obligations code will be abolished shortly.
The noble Lord, Lord Smith, also mentioned that it would be wrong to see the creative industries in purely economic terms. My noble friend Lord Shipley also explained this point very clearly. The creative industries make an enormous cultural contribution to this country and to the wider world, and what is being developed in Salford and the north-east is also important. Indeed, the creative industries enhance our reputation as a global creative and cultural leader. It is vital that we understand and continue to make the case for the importance of the close relationship between the arts and the creative industries.
I quite rightly pay tribute to our recent successes in the cultural sphere, which were mentioned by the noble Baroness, Lady McIntosh, whether they be the successes of UK-produced plays such "War Horse" or "Jerusalem" on Broadway, "Downton Abbey", written
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My noble friend Lord Glasgow and other noble Lords asked about the film industry. It is a cultural achievement of which we should be proud. It illustrates the strength of the UK's creative industries.
The noble Lord, Lord Stevenson, asked about games tax relief. I will write to him with the details.
As we have heard in your Lordships' House today, the creative industries are a sector that we ought to celebrate as a nation. The Government will continue to play their full part in making certain that they remain a global success story. I thank all speakers in today's extensive debate who have shown such an interest and offered such well informed views. I have certainly learnt a great deal, and in this short time I hope to have answered most noble Lords' questions. I ask for forgiveness from the noble Earls, Lord Glasgow and Lord Clancarty, and the noble Lords, Lord Macdonald, Lord Sharkey and Lord Stevenson, if I have not answered all their questions. I will read Hansard, and I will, of course, write to any noble Lord who has not had their points addressed and put a copy of the letter in the Library.
In conclusion, I once again thank my noble friend Lady Bonham-Carter, who has brought this important topic to the House.
Lord Clement-Jones: My Lords, I apologise for interrupting the Minister but, specifically, I wonder whether she will write on the question of finance for start-ups in the creative industries. I did not hear anything specific on that, and that question was asked by a number of noble Lords and is crucial to the creative industries.
Baroness Rawlings: My noble friend raises the point at a very opportune moment, with my noble friend Lord Sassoon sitting next to me. No doubt it will be taken into account.
I applaud again the maiden speech by the noble Viscount, Lord Colville, on this important topic that my noble friend Lady Bonham-Carter raised, which has afforded your Lordships such a constructive and creative debate.
2.34 pm
Baroness Bonham-Carter of Yarnbury: My Lords, I am grateful to the Minister for her response and to all noble Lords who have taken part in this debate. In particular, I am grateful to the noble Viscount, Lord Colville. Listening to his speech, I was reminded of the advice that he gave me when I was being sent off to the Soviet Union. He said, "You'll know how important the person you're interviewing is by the number of telephones on their desk. They won't ring, but it is a status symbol". Of course, the creative industries have got rid of that status symbol, and I would be interested to hear from him what he thinks the new one is.
As our time is running out, I will just say that I agree wholeheartedly with what the noble Lord, Lord Smith, said. This is something where all government ministries must get together in order to ensure that the
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EU: Financial Stability and Economic Growth
Debate
2.35 pm
To call attention to the Government's role in supporting financial stability and economic growth in the European Union; and to move for papers.
Lord Newby: My Lords, when I first suggested that we have a debate on Britain's role within the EU, I knew that because of the crisis within the eurozone, it would be topical. What I did not realise was how this crisis was likely to develop, nor quite what demons it would unleash within the UK. It is now clear that we are at a more critical juncture in our dealings with the EU than at any point since 1975. I believe it is decisively in our national interest to play a positive European role.
Of the many illusions of those who believe that we could have a more successful future outside the EU, the one which is, in my view, the most misconceived is that without participating in the world's largest single market, the UK would on its own have an influence which would satisfactorily protect our national economic interests. I can only assume that when the antis travelled to, say, India, they hear heard businessmen speak with passion about their future relations and trading prospects with Brazil, China and the rest of south and south-east Asia and mention Britain almost as an afterthought; or speak to American bankers who see London's strength as being largely dependent on being part of the single market; or to South Korean manufacturers, who put their European production plants in eastern Europe, but have a European head office in London only because we are part of the EU.
The EU brings many benefits in terms of helping the UK to promote its values and interests globally, but our relationship with the rest of Europe stands or falls on the economics. Here, despite the growing importance of the BRICs, the EU remains our predominant trade partner: over 40 per cent of our external trade is with the EU. Despite the importance which we are now rightly attaching to expanding our trade with the BRICs, it is the case that, at present, trade with China, India and Brazil combined is but a small fraction of our trade with Europe. So while those countries have tremendous potential, even if our performance improves dramatically, they will still be lagging behind trade with Europe for a very long time.
If we judge that our interests remain best served by staying in the EU, how well are we currently placed to promote those interests and what should we do to strengthen our position? Before the eurozone agreement
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The UK's increasingly unsatisfactory position was exemplified by the recent announcement of a financial transactions tax by the European Commission President. This measure would bear predominantly on the UK: in some estimates, up to 80 per cent of transactions covered by the tax take place here. Both the previous Government and now the coalition have made it abundantly clear that they would oppose such a measure unless it were introduced globally, which is at present a very slim possibility. Nevertheless, President Barroso went ahead and unveiled the plan. It is inconceivable that the Commission would vigorously promote a proposal that would predominantly affect France or Germany if he knew that those countries opposed it. It would be a futile gesture and bad politics. However, no such inhibitions apply to a snub to the UK. This only happened because Barroso knew that we were relatively isolated and unpopular and that a populist proposal aimed at London would win him many more plaudits than brickbats.
This far-from-satisfactory situation was where we found ourselves before last week's eurozone summit. That meeting not only agreed the package of measures to try to sort out the Greek debt problem, recapitalise eurozone banks and enhance the bailout fund, just as importantly it also agreed a step change in co-ordination of the eurozone. In addition to greater co-ordination of economic and fiscal policies, and in order to give greater political impetus to the process, it established a new eurozone governance structure. This will involve regular summits presided over by a new euro summit president and it also includes the possibility of the president of the eurozone being a full-time post based in Brussels. For non-eurozone members, there is only a commitment that the president of the euro summit will keep us informed of the preparation and outcome of the summits themselves. This is not very reassuring.
Arguably these measures by the eurozone countries should have been put in place when the euro was introduced in order to avoid some of the current mess. However, having belatedly begun to get a grip on the crisis, there is a strong chance now that the eurozone Governments will implement this new plan. What is their plan B? The truth is there is none. If this happens, the UK is in danger of moving from being a central if quarrelsome core EU member to being marginalised. Therefore, what should our response be? We are clearly not suddenly going to apply to join the eurozone.
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Of course, we are one of 10 countries in the same position. However, we should not be fooled into thinking that the euro-outs are a credible long-term alternative power structure within the EU. It is worth listing the non-eurozone members: Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden. Leaving aside the fact that some of them are keen to join the euro-including the most important, Poland-there is clearly no particularly broad commonality of interest among the outs. If we were to list those member states with which we have the greatest economic and political ties and interests, few of these countries would be near the top. I hope that British Prime Ministers in coming years enjoy their dinners with the group of outs, but I cannot help feeling that, as they look across at the somewhat larger eurozone table, they will feel slightly queasy.
So far I have been pretty gloomy about our position within the EU and I am well aware that simply moping about our lot will not promote our position. Nor do I think adopting the attitude of vultures waiting for the opportunity to pick at the European treaties and take back the odd morsel of power here and there is a substitute for a credible strategy to help support stability and growth across Europe and therefore within the UK. What should we do, and what is it credible to do within the confines of current British politics?
First, we need to continue making it clear that we support the eurozone countries in the action they are taking, including their plans for greater fiscal co-ordination. Our ability to affect that process is in any event extremely limited, but in doing so we should try to avoid lecturing them on the need to sort themselves out and get on with it. I can understand why Ministers find that a very attractive line but even if it were appropriate before last week's decisions, those decisions mean that it is doubly inappropriate now. I agree that it is very much for the eurozone to deal with the problem which, as it were, it has created, but I hope that the UK will play a positive role in supporting the IMF in this respect. When the statement was made last week, I felt that the Government went to inordinate lengths to try to put the brakes on the IMF supporting sensible measures to sort out the eurozone mess. Statements by the Prime Minister over the last 24 hours suggest that perhaps I misread what he had in mind, and I would be extremely grateful if the Minister could say this afternoon what now the British Government's position is on providing additional support for the IMF, which, however generally it may be couched, could mean that we would be supporting greater IMF involvement within the eurozone.
If we adopt a sensible tone, we need to articulate a growth strategy for the whole of the EU that will resonate widely across it. Obviously this has to be built on strengthening the single market. The Prime Minister produced a pamphlet on this subject in March, which had four key pillars. The first was completing the single market, particularly by further liberalisation of services and the creation of a single digital market. It has been estimated that if it were possible to do this in full, it could be worth up to £3,500 for each household in the UK. That figure seems somewhat large but even if we were to achieve only a significant proportion of that it would be a prize worth having. Secondly, we
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Those measures have been amplified and supported by the Deputy Prime Minister in recent days. It is a constructive agenda. The question is how to ensure that it is taken forward positively. This now needs detailed, consistent and concerted follow-through, which should be led by Ministers and involve building coalitions involving both the euro-ins and the euro-outs. I believe that the Government are now adopting this strategy with some success and are finding that there is a broader degree of support for some of the lines that we are taking than might originally have been thought to be the case. If we adopt a less hectoring tone and promote a growth strategy that wins widespread support, I hope that we will create an atmosphere in which our voice will carry a more proportionate weight.
However, I am realistic enough to believe that it is not quite as simple as that. For all member states, the importance of promoting their interests within the EU as well as promoting the EU as a whole is critical. A key way in which they all seek to do this is by making sure that their voice is heard as often and effectively as possible within all the EU structures. That requires them to have as many effective people in place across these institutions as possible. For years, some countries, particularly France and Ireland, have recognised this and gone to great lengths to ensure that as many of their compatriots as possible are in position in the Commission and other EU institutions. Not so the UK. The view too often has been that the best officials would do their careers harm, rather than good, by moving to Brussels either permanently or on secondment. That view has definitely been held in the Treasury and the Bank of England over many years.
It is now extremely important that we place as many top-quality officials as possible, not just in the Commission, but given the importance of the financial services sector to the UK, also in the three European supervisory bodies for banking, insurance and securities and markets. I believe that the Foreign Secretary recognises this and is taking steps to encourage more UK high flyers to spend time in Brussels on secondment or on a permanent basis, which is very much to be welcomed.
If we adopt the agenda that I have outlined, we will stand a better chance of playing the kind of constructive role which is vital for the development of the UK economy within the EU. The stakes are very high, but so is the prize. I beg to move.
2.50 pm
Baroness Noakes: My Lords, I congratulate the noble Lord, Lord Newby, on securing this debate. I suspect he little thought how topical it would be when he did so. The noble Lord, Lord Newby, and I agree on many things but I do not think that we shall ever
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Let me start with some basics. It is undoubtedly in the interests of Britain as a trading nation that there is both financial stability and economic growth within the community of trading nations. Exporters need growth in the global economy and growth, in turn, needs financial stability. That is also true at the level of the individual countries with which we trade. Countries in financial turmoil that show little or no growth are not good trading partners. So I can go along with the argument that says that to the extent that the UK needs or wants to trade with countries within Europe, it is certainly better for us if those countries are financially stable and growing. But how important is the EU, and therefore financial stability and growth in the EU, to the UK? A claim often made by the Government is that the EU is one of the most important trading zones to the UK, giving access to hundreds of millions of consumers. But that is at best only a partial truth. To start with, only around 10 per cent of the UK economy is actually involved in trading with businesses in other EU states. Most of our economy is focused on the UK or on trade outside the EU, and the USA is by far the largest single country, in value terms, with which we trade.
We are a deficit trading nation, with a significant deficit on goods offset by a surplus on services. Two of our five largest deficits are with Germany and France so, although we might have a need to trade with Germany and France and other EU countries, the fact is that our European neighbours need our markets more than we need theirs. On the other hand, we have a trade surplus with the USA.
Focusing on exports, the EU accounts for around 40 per cent of our exports of goods and services; put another way, the rest of the world is more important to us. Of course, 40 per cent is not unimportant but the EU, even without its current problems, is not a source of massive growth. The plain fact is that global growth forecasts are concentrated outside the EU. If our exporters waste all their energies on the economies of mainland Europe, that will be a real tragedy for our future share of global trade.
As I said earlier, it is important that those countries with which we trade are financially stable and offer prospects for growth. But that is a long way from the proposition that the UK Government have a particular role in supporting that stability and growth. That is subject to one overriding concern: namely, the impact of eurozone financial instability on the international banks, including our global banks. I declare here an interest as a director and shareholder of the Royal Bank of Scotland.
It is very much in our interests to ensure that the problems of the eurozone do not, through interconnectedness, spread through the financial system more widely. That is why it is encouraging news that the exit of Greece from the euro is now being openly
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So what should be the UK's role? I completely support our Government in refusing to put money into the European stability fund, whether directly or via the IMF. We have enough problems of our own without paying for those of other countries. I support our policy that the problems are for the eurozone countries themselves to solve; it is no business of ours to tell our trading partners how to run things. On the other hand, we must be ready to seize any opportunities to improve our position in Europe, which is not good. If the eurozone needs a treaty change to sort itself out, we must grasp that opportunity to gain greater freedoms for the UK. We must focus on our growth and prosperity. The health of our trading partners is an indirect interest derived from and limited to their impact on our economy.
Our agenda in Europe should be directed at the UK's interests. We must cut the budget; we must roll back the encroachment of the EU into our financial services industry; we must gain control over things like the working time directive; and we must reduce the impact of EU rules and regulations. It is our growth, and no one else's, that should be the subject of our policies and, in forming their policies, the Government must always remember that our history and destiny are global and not European.
2.56 pm
Lord McFall of Alcluith: My Lords, I congratulate the noble Lord, Lord Newby, on securing this hugely important debate. My contribution has two themes: honesty and clarity. Honesty refers to the fact that this is part of the global financial crisis, which started in August 2007 with BNP Paribas stating that it had suspended three funds related to subprime. At the time, I said that we had a banking crisis; that went on to become an economic crisis, which became a political crisis and a social crisis. The latter two now have equal resonance with the former. The political crisis that we see in Greece, where the Prime Minister has lost his nerve, is now a straight choice between in or out, and the sooner that choice is made the better, so that we can get on with business.
The big question is how to maintain the integrity of the eurozone and stop contagion. We must remember that Italy's bond yields are almost 6.5 per cent compared with Germany's at 0.3 per cent. That is unsustainable and cannot go on. If you remember, Portugal and Ireland went to the fund for help when their bond yields were around that price.
On the social side, the International Labour Organisation undertook a study and stated very clearly recently that the world economy is on the verge of a new jobs recession. In 45 out of the 118 countries that were examined, the risks of social unrest were there. When the leaders meet at the G20 today, that social dimension should be in the background.
On the issue of honesty, our own Government have to be honest. The Prime Minister has said that he is not going to contribute to a eurozone bailout, and the Chancellor has said that he is not going to contribute
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There is a growth crisis in Europe at the moment. In the last year, unemployment has increased in Germany, which has not happened for two years, and its manufacturing sector has contracted as a result. We must remember that Europe as a whole is heading for a recession. In a sovereign debt crisis, where private debt has been transferred to government debt, slow growth and deflation are the biggest risks for solving debt and it will exacerbate the situation if we do not have growth.
The issue facing us today is a lack of demand. My successor as chairman of the Treasury Committee, Andrew Tyrie, put it quite clearly and succinctly when he said that the Government lack a "coherent and credible" plan for growth. If that is the case, we need clarity on that.
Yesterday, along with the noble Lord, Lord Skidelsky, and others, we looked at the issue of a national investment bank, which would invest in large infrastructure projects here. By the way, such a bank would serve the interests of the country, because as far back as 1931 there was what was identified as the Macmillan gap. The Macmillan commission said that there were not adequate resources for British industry and small businesses. We have still to tackle that, and the present crisis is crying out for that. Adam Posen, a member of the Monetary Policy Committee, says that the UK lacks a "spare tyre" and that we have to get on with that issue.
Why do I say that manufacturing industry is in such a serious situation? In the past three or four years, we have seen devaluation of the currency by about 30 per cent. In a normal situation, that would lead to an export-led manufacturing boom. It has not done so, and therefore we need to ensure that we have organisations and facilities that mirror those of the German Mittelstand. A time of cheap capital, real negative interest rates and spare capacity in employment is when to invest in growth so that we come out of recession in the proper way.
When I talk about employment and capacity, that capacity is available not least among young people. There are 991,000 unemployed 16 to 24 year-olds. I know from when I was a school teacher in Glasgow what the decimation was like in society when jobs were not available for young people. It is very important that we take on that issue. Today, a very depressing report from Barnardo's says that,
and that society views children in a negative way. That message is wrong in fact and in principle. If we give out the message that society has given up on young people, young people will certainly give up on us. It is an overwhelming economic need, as well as a humanitarian need, for society to treasure young people.
Let us show that today, with increased urgency, by factoring young people into our economic stability and growth agenda.
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3.02 pm
Lord Razzall: My Lords, in thanking my noble friend Lord Newby for introducing this important debate, it goes without saying that I agree with everything he said. It probably will not surprise noble Lords that I disagree with almost everything said by the noble Baroness, Lady Noakes.
When the eurozone was established, it was clear that its members could not have the benefits of the euro without the drawbacks of losing domestic control over their currency, which meant ceding fiscal powers to the centre. At that time, rules were established regarding fiscal policies to be followed by members of the eurozone both to qualify for admission and to maintain those rules when they became members. The first thing that happened of course was that for political reasons the numbers were fudged for Greece, Italy, Spain and probably Portugal in order to allow those countries into the eurozone. Even worse, when things got a bit rough in France and Germany, those fiscal rules were scrapped and France and Germany were allowed not to obey the long-established rules. That, inevitably, has led to the situation in which the eurozone finds itself today.
It would be easy to conclude that that is just Europe's problem and, "Aren't we lucky to be outside the eurozone?". Unfortunately, as the noble Baroness, Lady Noakes, touched on, we have a problem as to what the crisis in the eurozone does for our UK banks and financial institutions. She disclosed the fact that she is a non-executive director of the Royal Bank of Scotland. I do not know the details of the RBS's loan portfolio to eurozone countries but, clearly, were those countries to default, that must have a significant impact on the UK banks which have lent money to those Governments or institutions in those countries. That will have an ongoing effect on the ability of those banks to lend in the UK domestic market.
Perhaps I may introduce your Lordships to the arcane topic of credit default swaps, which is an even greater danger for UK financial institutions. Credit default swaps are a mechanism that has been invented by banks and financial institutions to make money, of course, which basically means that loans to eurozone countries or other countries throughout the world are insured by this mechanism. Credit default swaps involve parties that are not only UK banks but UK pension funds and UK hedge funds, all of which are involved in this market. If the eurozone countries start to default in relation to loans, not only it is UK banks which have to write down the loans that they have made but there are significant losses in the credit default swap market which affects those institutions. Not only the banks will be affected.
What is worse is that, under the new accounting rules that were brought in on the mark-to-market requirements for financial institutions, even if countries have not gone bust but it looks as though the rating of those credit default swaps is worth less than they would be when they were originally taken out, those banks or financial institutions also have to write down the effect of that mark-to-market valuation. That has a very significant effect on the balance sheets of our UK banks and financial institutions, which will have a
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We have no alternative but to continue the engagement with our European friends. It does not mean that we have to rush into the eurozone, although, interestingly, I see that Poland and Lithuania as we speak are very anxious to join. I am not suggesting that, but we absolutely need to engage in Europe. I commend the initiative of the Department for Business, Innovation and Skills, which has put together an informal like-minded group for growth. It consists of 14 states in Europe, half of which are eurozone countries. That group is trying to work together to develop policies for the development of growth in Europe and the United Kingdom. It is now the time to engage in Europe and not to walk away in order to secure policies for growth.
3.06 pm
Lord Hannay of Chiswick: My Lords, this debate could hardly be more timely and topical, and for that I thank the noble Lord, Lord Newby. The temptation to pronounce on the turmoil in Athens, and on the prospects for a Greek referendum and what might follow from its outcome, or indeed from a decision not to hold a referendum, is strong. But I believe that for those like us in this House who are not directly involved in the decisions being made, a period of silence on those issues would be the best contribution we can make.
It is a matter for regret and concern that so little of the debate on European issues in this country in recent weeks has been about the Government's role in supporting financial stability and growth across Europe and that so much of it has been in denigration of the efforts of the 17 eurozone countries to put their house in order and in angry demands that we should have nothing whatever to do with those efforts. Yet, there surely have been few truer words spoken by a member of the coalition Government than those by the Chancellor of the Exchequer when he said:
"We are all in this together".
I know that those words were spoken in a different context but they apply every bit as much to Britain's strong national interest in the success of our European partners' latest package of decisions. I welcome the fact that the Prime Minister and the Chancellor have made our national interest in that emphatically clear. I wish only that I thought that their Back-Benchers were listening to them but there is little sign of that, including, I notice, in this House.
I confess I was a little puzzled-indeed, baffled-by the elaborate detail which the Chancellor's Statement of 27 October on the European Council went into in trying to block hypothetical ways in which the IMF might be involved in supporting the European package of decisions. It is surely rather unwise to express such firm views on ideas which have not yet even seen the light of day. Should we really be trying to tie the managing director's hands? I thought we were enthusiastically in favour of her appointment. Do we have no confidence that she will act in all respects within the powers that she has? I fear that the suspicion
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That thought brings me to the role in all this of the single market. Far too often the single market is portrayed as a kind of alternative to the policies being pursued by the eurozone countries. That is surely wrong. If you look at the prescriptions being given by the Commission, the European Central Bank and IMF to the countries being bailed out-Greece, Portugal and Ireland-and the advice being given ever more forcefully to Spain and Italy, those prescriptions and that advice are replete with issues which are at the heart of the single market programme, which is at yet incomplete, such as removing restrictive practices in the professions, breaking up state monopolies or quasi-monopolies and freeing up labour markets. All 27 member states together need, if they are to compete effectively with the great emerging countries-China, Brazil, India and others-to complete the single market measures in the fields of services and energy. Only thus will they achieve the sort of growth and competitiveness that will enable the whole of Europe to hold its own in the new multipolar world. It is often said that whenever the eurozone's problems are discussed there is a need for "more Europe". What should equally be being said is that there is a need for "more single market".
That approach will not be everyone's cup of tea. There are plenty of voices being raised calling for more protection and deglobalisation-an appalling phrase. Just look at the recent debates within the French Socialist Party. If we are to carry the EU with us, we must engage that discussion now and try to lead it. We must do so in a credibly positive spirit. It is no good proposing an à la carte single market with each country applying only the bits it likes. That will lead to 27 policies and no single market at all. That is why the whole repatriation debate is not only a futile displacement activity but actually inimical to the achievement of Britain's and Europe's objectives.
However, we will need more than just warm words if such a positive approach is to be seen by our partners as a credible contribution to supporting Europe's financial stability. That is why I would like to hear from the noble Lord again some response about the euro-plus pact and the possibility, particularly if it could be renamed, of us being associated with it. I hope he will say something when he winds up.
In conclusion I have a point of tactics. We are in some cases going to have to say a firm "no" to ideas coming forward in Brussels. In my view the proposed financial transaction tax is one such. I cannot anyway for the life of me see how such a tax, at least if it is not applied worldwide, could possibly contribute to Europe's financial stability and growth. However, if our "noes" are not to be seen as single wrecking manoeuvres, we are going to need to have a wider positive agenda to accompany them.
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Earl Attlee: My Lords, we are doing quite well on time but noble Lords need to be very careful. Otherwise we will run out of time if we overshoot-even 30 seconds on each speech will make a difference.
3.15 pm
The Lord Bishop of Bath and Wells: My Lords, I am grateful too to the noble Lord, Lord Newby, for initiating this timely debate and inviting this House to look more broadly at the pressing question of financial stability and economic growth in the European Union.
Constraining public spending and securing financial stability can be only part of the equation. Europe also needs to embrace structural reform of its economic model to encourage growth. This means tackling the imbalances that currently exist within Europe and, unless we do so, we are likely to see a damaging outbreak of protectionism across Europe.
European economies for the most part are shrinking while unemployment is rising, in some cases alarmingly so. Austerity measures introduced in response to the financial crisis are biting. The soaring rate of interest on the sovereign debt of some countries underlines the worry that much of the existing debt, even if partly written off, is unaffordable.
Our public and political debate is understandably fixed on the latest saga in the eurozone. However, are we conveniently overlooking the pressing question of where growth will come from? This is not just a eurozone problem but one for the whole of Europe. A stable euro requires more balanced trade and growth among its members. The prevailing economic orthodoxy holds that tough austerity and structural reform will ultimately lead to growth. The past two years may suggest that this orthodoxy is wanting.
Economists will of course point out examples of fiscal austerity preceding economic growth but they all include currency devaluation and/or big cuts in interest rates. Neither option is open to the eurozone economies. It is hardly surprising therefore that household and business confidence is rapidly crumbling across the currency union, depressing economic activity across Europe as a whole. On current trends a series of sovereign and banking defaults looks unavoidable.
A crisis that started on Europe's periphery has been allowed to grow into a threat to the core of the eurozone and the future of the European project itself. Measures taken across Europe appear to invite economic stagnation and political dislocation, the effects of which can be seen on even the marbled steps of St Paul's.
There are of course dissenting voices to this orthodoxy. Some talk of a Marshall Plan for Greece to stimulate investment in infrastructure and solar power. In Brussels, the European Commission is working on schemes to speed up the disbursement of the European Union regional aid funds to foster growth in the southern countries and, if last year's report on the single market drawn up by the former Commissioner Mario Monti to liberalise services and the digital economy had been implemented, Europe's growth might have increased. However, at the moment too little is being done to boost growth across Europe.
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The question of Europe's competitiveness predates the current crisis affecting the eurozone and is in many ways one of its underlying causes. For decades Europe has grown more slowly than other continents. However, there are remedies. These were set out and agreed in the Lisbon agenda of 2000 and the Commission's recent European Union 2020 programme. What are we to make today of the statement that Europe should be,
- "the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion and respect for the environment"?
European Governments have always found it easier to sell the promise of this agenda than its content. Populism, nationalism and Euro-scepticism are on the rise. Even if Europe's politicians can agree the right policies to establish and to stabilise Europe's finances and stimulate economic growth, there is no guarantee that public opinion will be sufficiently benevolent to allow them to carry them out.
One of the greatest achievements of the European Union has been to scrap non-tariff barriers. The biggest danger, however, is that the euro crisis will lead to a two-speed Europe that fractures the single market. We need to be wary that the new bailout mechanisms agreed at last week's euro summit do not sideline either the European Commission or the European Parliament. A flawed single market that encourages protectionist measures cannot be either in Britain's best interests or in those of Europe. A more protectionist Europe will result in slower growth, thus fuelling the electoral fortunes of populist parties. A more fractured single market will see Britain disengage yet further from Europe, a retrograde step in the hard fought fight towards peace and prosperity for our region.
3.18 pm
Lord Marlesford: My Lords, I want to suggest a specific course of action in the debt crisis, but let me first put it in an abstract context. The result of increasing the size of a rescue fund is that it creates both a precedent and the expectation that it will be increased again-or, as the jargon has it, a moral hazard. And if that rescue fund is based on a central bank, which by definition cannot go bust in the way that other banks can because it can turn on the printing press, that can have only one of two consequences: either in an extreme case it will feed through to inflation, if you believe as I do that inflation is a monetary phenomenon; or you may be able to achieve such a rapid rate of growth that the inflation is absorbed and subsumed in a gradual but slow drift upwards of prices at a lower rate than the nominal rate of growth.
Last week the European Financial Stability Facility rescue fund was increased from its original level in May 2010 of €440 billion to a potential €1 trillion, and there is already talk of it being necessary to raise it to €2 trillion or even €3 trillion, larger than the GDP of Germany. Then remember that the world tends to be divided between those who save and those who borrow. The inclination of borrowers is, as the old advertising slogan has it, "take the waiting out of wanting". There is normally, however, a fear of having to repay loans. If a debt is forgiven or partly forgiven by the lender,
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Now we have Greece, which has been offered a bailout apparently with no enforceable strings attached. That way lies contagion and thus a further crisis. I believe that Greece should be required to leave the euro area but certainly be allowed to remain inside the EU. Greece will then have the opportunity of deciding whether to invent a Mickey Mouse currency, which it might choose to call the drachma, or to continue to use the euro. Greece outside the euro area will have no borrowing capacity underwritten by the European Central Bank. If it reinvents the drachma no one will take that currency seriously. Remember that the three classical functions of a currency are as a store of value, as a unit of account and as a medium of exchange. A reinvented drachma is unlikely to have any of those. If Greece continues to use the euro it will be in the same position as any of us. It will only get the number of euros that it can earn by selling its goods and services. Greece will have to devalue, which in this case would mean cutting pay and prices from previous euro levels. Without help, in the short run it will not be strong enough to survive the political pressures this would cause.
I am so glad that the noble Lord, Lord Hannay, drew attention to the important role of the International Monetary Fund in all this. I totally agree with him. In fact, I would propose that Greece should become a ward of the IMF. The IMF, which of course cannot print money, will dole out to Greece such sums as it has provided over the decades to other economic basket cases to prevent them becoming failed states. There are plenty of precedents for countries in crisis using a currency other than their own. Yugoslavia, after Tito died, used the deutschmark, and various South American countries have from time to time used the US dollar.
The other advantage of what I propose is that other countries will not wish to leave the euro area and will therefore have a real incentive to accept the necessary tough political decisions in order to avoid a default that would have that consequence. First in line would be Italy. Germany, with 27 per cent of the euro area GDP, is big enough to absorb all the debts of Greece, which has only 3 per cent of the euro area GDP. Italy, of course, represents 17 per cent of the euro area GDP and is therefore too big for Germany to swallow. That is why Greece should be treated in the way I am proposing, but I would say straightaway that Greece is historically and culturally central to Europe, and I would hope that in due course, if these disciplines were used, it would come fully back into the European family.
3.23 pm
Lord Giddens: My Lords, I also congratulate the noble Lord, Lord Newby, on initiating this debate on such a momentous topic. The Government rightly recognise that it is in the UK's interest to achieve stability in the eurozone and, moreover, that this presumes much greater fiscal integration than has been true in
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However, I will talk primarily about economic growth and job creation, on the premise that it is no good just preaching austerity, even to beleaguered Greece. We have to provide some kind of message of hope. We have to think in the long term, not just the short term. This has to be coupled to practical plans for investment and renewal. Where will new net jobs come from?
In approaching this question it is important to recognise, as the right reverend Prelate hinted, that the travails of the eurozone and-to some extent-the rest of Europe do not come just from the problems of the euro but from a failure to implement the Lisbon agenda. To put it more precisely, the Lisbon agenda was implemented only partially and regionally within Europe. Some countries, such as the Scandinavian countries, the Netherlands, Germany and to some extent the UK, followed some of the prime suppositions of the Lisbon agenda and are in a superior economic situation to other countries largely situated in the south, such as Spain, Portugal, Italy and Greece, which did not reform. Instead they borrowed and these borrowings have conjoined with the debt in the banking system to generate the extent of the crisis that we see now.
What policy should the Government support to promote growth and job creation in Europe? As I said, to do this one has to think beyond the current crisis. I will mention four main elements. They are not exactly the same ones as the noble Lord, Lord Newby, mentioned.
First, it is possible to promote the return of manufacture to Europe. I ask the Government to pay attention to the really interesting debate on reshoring-the opposite of off-shoring-that is going on in the United States. It is quite a technical debate and the issues are complicated; there is not a simple map that comes from it, but it is important. Many companies suffer from disruptions to their supply chains. Wages in China and India in core manufacturing sectors are rising rapidly. It looks as if it might be possible to recreate manufacture in certain core sectors in some industrial countries, including European ones. It is important to recognise that Europe is strong in manufacture-and not just Germany. For example, even Spain has a higher ratio of manufacturing output per person than the United States. The reshoring debate suggests that if you want to promote manufacture it should be done not only in high-tech, cutting-edge areas. It may be possible to build on established strengths. This is a different orientation from the past.
Secondly, as noble Lords have said, we have to complete the service directive and increase competitiveness in service industries within the single market. I work in higher education, where we are well behind on the possibility of standardisation which would promote mobility of labour. Thirdly-we do have to do that. To have a flexible, competitive economy, you must have mobility of labour. How does that sit with the Government's strictures on immigration? Of course, movement of European citizens is not technically the
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Fourthly, and finally, we have to concentrate on quality of growth and not just on quantity. This means two things, the first of which is distributional. What is the use of growth that only goes to 1 per cent of the population? Not much. It also means an environmental thing. Europe could be in a highly competitive position vis-à-vis the United States or China, neither of which provide a sustainable, environmental model out of which job creation can come. I would welcome the Minister's comments on any or all of those points.
3.29 pm
Lord Teverson: My Lords, I welcome this debate as well. The crux of it is the Government's and the United Kingdom's ability to help financial stability and growth in Europe. That is a natural role for us because the United Kingdom is self-evidently part of Europe. We are part of it geographically and economically-as has already been described in the debate-and, absolutely, culturally. I was thinking about this area in particular. Contrast with this country the Obama healthcare reforms in the United States and how they have been received by the media culturally, and all the difficulties that that has caused in terms of ideas of socialism-and that is moving nowhere near to universal healthcare. Here, we have a health Bill going through where even what are seen as contentious propositions guarantee universal delivery, free at the point of need, and competition but not price competition. It shows that there is a big gulf culturally with the Atlantic, and that Britain is very much a European-style nation in the way that it looks at a number of things.
The only way that Britain can contribute towards that economic and financial stability is if it is able to have and promote that influence. My noble friend Lord Newby has already talked about some of that, but I want to emphasise it in the financial regulation area, which is part of the debate. I fully understand why the Financial Services Authority has to be abolished in that it was seen to fail very strongly in its strategic prudential regulation over the last few years. However, there is concern that, in its division into the financial conduct authority and the prudential authority, we could lose our single voice within the new economic and financial structures-in Brussels, the ESMA and the banking authority. I am sure the Minister is also concerned about that area as a high priority. I would be interested to hear the Government's view.
The other area I mention is the one my noble friend Lord Newby raised, which is parliamentary influence. In the last European elections, I would say there were two major winners. One was the Conservative Party. Out of our 72 seats on an assembly of some 730 Members, 26 Conservatives were elected, 13 UKIP Members-a great result for UKIP-with Labour equal on 13, and the Liberal Democrats slightly below with 11. Yet in the European Parliament itself, which post-Lisbon has very literally equal powers with the Council of Ministers in terms of legislation and therefore British interests,
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The IMF has been mentioned. I was not going to talk about the IMF loans particularly in this debate, but I will spend my last minute on a short excursion on that. I went to New England for the first time this summer, though I have been to the United States many times. I went to New Hampshire and, being a bit of an anorak and an economics student, I noticed that Bretton Woods, which is a minute settlement at the top of New Hampshire, was within striking range. I made my own pilgrimage to the Bretton Woods Washington hotel. Give it its credit: it still has the pictures there of John Maynard Keynes and the other people who came together to put together the post-war financial system. That system-the IMF side of it-has largely survived. It would be a great regret, as that change and that strategy was largely led by Britain, if we were not a participant in carrying forward those obligations.
We have a great role in Europe. Ironically, during the Delors/Thatcher time we pushed Europe forward more than has been done over the last few decades. We must, in this country, make sure that that momentum continues. We must not be marginalised.
3.35 pm
Lord Bilimoria: My Lords, last week, the German Chancellor Angela Merkel warned us that if the euro falls there will be war in Europe. As the noble Lord, Lord Giddens, said, the repercussions would be catastrophic. There is no question that, after World War II, the European Union has been fundamental in preventing conflict among the EU states over the past six decades. In terms of economic stability and growth in the good times, the EU has been fantastic. But underlying the whole concept of the European Union is the question of where you draw the line. How far is too far? We have benefited from a zone of free people and goods, and that is fantastic. I am all for it, and I thank the noble Lord, Lord Newby, for initiating this debate. As he said, almost 50 per cent of our trade is with European Union countries. But one of the best decisions this country made was not to join the euro. In the good times, the euro has been very good. In the bad times, as we have seen, the failure is terrible.
It is illogical to expect that you have the same currency and interest rates for countries that are never-ever-going to be in sync at any one time. How can you have that? Look at Germany at the one extreme and Greece at the other, let alone governance of these countries. How can the Chancellor, George Osborne, possibly suggest increased fiscal integration among
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Therefore, we have got to accept that the euro was a step too far. Our forays into political integration with the European Union have resulted in a system in which we have MEPs who have absolutely no connection with their constituents, who in turn have no idea who they are. There are constant complaints in our country about the bureaucracy and red tape that come out of Brussels, particular in the areas of business and employment law.
I have spoken before about the domino effect that has taken place in the past five years: of the sub-prime crisis leading to the credit crunch, leading to the financial crisis, leading to the great recession, leading to the sovereign debt crisis, and leading to the eurozone crisis. We are at a very precarious time in history. The people who say that Greece merely represents 0.5 per cent of the world's economy, or 3 per cent of the eurozone, miss the point: it only takes half a spark to start a whole fire.
What are the Government's plans to deal with the possible disintegration of the euro and the eurozone? The Government refuse to have a plan B where the economy is concerned, but I credit them for having sent out the right signals to the global financial markets by showing that we are willing to cut our GDP/public expenditure from 50 per cent to 40 per cent. That is good, but what are the plans for a euro-disaster scenario?
Does the Minister agree that Britain should take a leadership role to resolve this disaster that lies ahead of us? Bailing out Greece-and other countries; we have heard about Italy, with €1.9 trillion of debt-the measures have gone from a sticking plaster to a bandage last week, and now Greece has admitted itself into the operating theatre. We are only prolonging the inevitable. Can Britain play a leadership role with this doomsday scenario possibly taking place, rather than being told by President Sarkozy to stay out of it? Why does it take the noble Lord, Lord Wolfson, to offer a prize for a solution to a country disengaging from the euro? Does that mean that the Government do not know how this should happen? In my role as the president of the UK India Business Council, I always say that we are so perfectly positioned as a gateway to Europe.
What are the Government doing to deal with the negative impact of hedge funds and people taking advantage of credit default swaps, accentuating the downward spiral scenario? Everyone talks about the ECB saving Europe but look at the EFSF, which has not even been able to raise €3 billion out of the €1 trillion it is meant to. Gary Jenkins of Evolution Securities put it really well when he said:
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"The vehicle that's supposed to borrow on behalf of the countries that can't borrow, can't borrow".
With regards to a referendum, the question should be not about whether we are in or out of Europe, but about how countries are in Europe and on what terms. Under the worst of circumstances, where the eurozone could disintegrate, we now have an opportunity to redraw almost from scratch what the European Union should be: a union of countries with democratic principles, with a rule of law and with shared values. Then we will have a European Union with peace, stability and growth.
3.39 pm
Lord Flight: My Lords, I congratulate the noble Lord, Lord Newby, on bringing forward this debate at such an appropriate time, and I compliment the noble Lord, Lord Bilimoria, on raising some of the really grave aspects of this crisis.
The first point I want to make is that it is no good tinkering around the edges. It is necessary to understand the cause of the eurozone financial and government debt crisis. It is blindingly obvious. If very disparate economies such as those of southern and northern Europe share a currency for political reasons but they are in no way homogenous, and the south has become 35 per cent uncompetitive against the highly efficient north, it is not surprising that the southern economies are in trouble. Their economies are dead in the water; their government debt and borrowing go up.
Secondly, it is not surprising that the markets in the rest of the world do not want to buy Spanish and Italian debts. The prospect is that these economies will not recover without significant devaluation one way or the other. So who is going to buy their bonds when there is the fear, if not the threat, that sooner or later there will be substantial losses as a result of devaluation? The fundamental problem has to be looked at and addressed.
There have been comments about the fiscal union route of dealing with this. Indeed, there is truth in the principle that, if you are going to share a currency, you need to have common economic and fiscal policies. However, I really do not think that is the solution. I will go through some of the ingredients. Euro bonds are okay, but Germany effectively underwrites whatever proportion of the debts of Italy and Spain it is responsible for. Not surprisingly, Germany is not very keen to do that.
The second, more traditional way is to make transfer payments from the more prosperous areas to the less prosperous areas. In America, transfer payments amount to 30 per cent of federal tax revenues. Even in the UK, in our little common currency area, they are £70 billion or £80 billion of public spending. The problem with the sort of transfer payments that would be required from Germany to southern Europe is that they could be of the order of a third of Germany's GDP. Anyone who thinks that Germany is going to consider such amounts is mad. Just supporting the former East Germany depressed its economy for 15 years. The German answer is to say, "Right, effect an internal devaluation". That is fine, but does anyone think it politically practical that Italy and Spain are going to
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Finally, as others have said, the whole political objective of the EU was to get rid of nationalism, and what do we see? We see southern Europe starting to get very resentful about being bossed around by Germany, as it sees it, and Germany starting to get extremely uncomfortable about being able to pay for things. This is hardly good news for good relations.
I would like to throw on to the Floor the idea that the only workable solution is for the euro to divide into a hard currency for northern Europe and a soft currency for southern Europe. It would be easy to achieve, but I believe I know how it could be achieved. I think that it would be workable because there is a commonality of economic characteristics between the northern countries and the southern ones. I think that if the eurozone turns its back on this in the present climate, it will miss a huge opportunity to stop chaos.
3.44 pm
Lord Harrison: My Lords, in thanking the noble Lord, Lord Newby, for so cogently introducing this debate, I don my hat as chair of the sub-committee of your Lordships EU Select Committee which concerns itself with economic and financial affairs and trade. We are dealing with a number of reports on financial stability. We look forward to the noble Lord, Lord Sassoon, responding to our report on sovereign credit rating agencies and a further report on the new EU financial supervisory framework under three new EU supervisory authorities. Our current inquiry is looking at how a single mortgage market might be established throughout the European Union. A future inquiry will look at the topical financial transactions tax. Among our regular scrutiny items are the EU prudential regime and the reaction to Basle III and CRD4.
However, the most important reports that we have produced recently, in March this year, was on the future of economic governance in the EU and the euro. We are now producing a follow-up report, which involved interviewing Sharon Bowles, the excellent chair of the European Parliament's Economics Committee, and the German Ambassador Boomgaarden. On a cultural point, the ambassador spoke absolutely fluent English and showed a grasp of British history that I do not think any British spokesman or politician could match if they were to address a German crowd in such a way.
In considering the future of economic governance in the EU, we looked at the Commission's proposals for the so-called "six pack" in achieving enhanced economic co-ordination. We think that it is going in the right direction. We believe it is essential that the political authorities of the EU take that seriously and
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I doff my chairman's hat and return to the other side of this matter-the growth aspects. I rebut the notion of the noble Baroness, Lady Noakes, that our interest is different from that of the European Union. The two interests may well coincide. I encourage the Government to stop deluding others regarding some of the good work that they do. We should not disguise the fact that we had a self-interest in helping out Ireland. When we contribute to the IMF fund, we should not say-as the Chancellor did-that we are just one of 80 countries that have done so. We have a purpose in supporting the IMF and we may need to do the same with the ESM in the future.
The noble Lord, Lord Newby, spoke of the problem that will emerge for us if we find that more and more of the European Union 27 member states join the euro, as they are destined to do. Three countries in the western Balkans already attach themselves to the euro. We may be like the children at birthday parties in the Harrison household who always wanted a place at the bottom of the table, away from where all the adults sat. We may end up at that table, supping with a couple of others who are excluded from the adult conversation taking place higher up the table.
Finally, the secret to growth-I was interested to hear the comments of the noble Lord, Lord Giddens, in this respect-is the single market. In this we can find a political consensus. As the noble Lord, Lord Hannay, has illustrated, if we secure the single market it will bring the prosperity, growth and jobs which we can all enjoy.
3.50 pm
Lord Shipley: My Lords, I join with others in thanking my noble friend Lord Newby for initiating this debate. My view is that a demand for a referendum on membership of the European Union was an unnecessary diversion. It was misguided and mistimed. Referendums are not flavour of the month and would simply have added to instability across Europe and the eurozone. However, Europe and the eurozone are often seen by the general public as the same thing, so I think that the reasons for our being in the European Union need much stronger explanation.
Being part of a single market is central to jobs. The UK has 500 million consumers in that single market. Ten per cent of our jobs in the UK-3.5 million jobs-rely on that single market. We export strongly
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I agree entirely with what the noble Lord, Lord McFall, said about institutions, particularly democratic institutions, needing to give hope to the people that they represent. We have to be seen to be capable of resolving the problems in the eurozone. I want to draw two things from what the noble Lord, Lord McFall, said, which, broadly speaking, was similar to something I wanted to say myself. The first relates to youth unemployment. It is untenable for youth unemployment across Europe to stand at 21 per cent. It is 21 per cent in the UK but in Spain it has hit 46 per cent. Our 21 per cent is almost a million young people and it is simply too high. Secondly, we have to learn more from Germany because its comparative stability and growth can set an example for other countries, not least ourselves. Germany's organisation, partly through the Mittelstand but also generally through communications and systems involving employers, the education system, trade unions, and so on, has led to a highly integrated system based on long-term planning as opposed to short-term gain.
I find it quite astonishing that, despite the billions of pounds that have been spent in the UK on education and training, we still have a major skills gap. Unemployment in the north-east of England runs at 11 per cent at the moment, twice the level of the south-east of England. And yet a quarter of the north-east's manufacturing, engineering and processing companies cannot find enough skilled workers. I welcome every initiative we can take to recreate a desire in young people to learn vocational skills around technology and engineering. For that reason I welcome university technical colleges, places where people learn skills to do real jobs. One has just been announced recently in Newcastle upon Tyne. I am very grateful for the work of my noble friend Lord Baker in supporting this initiative.
It is fundamentally important that to compete in the modern world our young people have to have the skills with which to do it. The skills gap that we have would not happen in Germany. A week ago the CBI issued a report urging the Government and the City to concentrate support on the forgotten army of middle-sized companies of up to £100 million turnover a year with up to 500 employees. I hope that we can learn from that.
My final point is a question to the Minister about the European Globalisation Adjustment Fund to which he may be able to reply. I understand that the UK has
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3.56 pm
Lord Pearson of Rannoch: My Lords, I welcome the debate, if only because it allows me to point out why no British Government can do anything useful to support either financial stability or economic growth in the European Union. At root this is because the big idea that gave birth to the whole project of European integration has failed. The longer the political class tries to prop it up the more painful the result will be to the peoples of Europe.
Let me remind your Lordships once again what that big idea was. It was that the national democracies of Europe had been responsible for two world wars. They therefore had to be emasculated and diluted into a new form of supranational government run by technocrats, with their national Governments and Parliaments largely powerless. The euro, about which we hear so much today but which is not the deeper point, was never an economic project. It was supposed to be the cement that would hold the emerging corporatist state together. Those who designed it in the 1980s knew perfectly well that a currency zone cannot survive for long without a federal budget and without the ability to tax and send money from richer and poorer parts of the zone. Anyone who doubts this should read that great book by Mr Bernard Connolly, The Rotten Heart of Europe.
So the euro was to complete the project of European integration by handing the essential power of taxation to Brussels. All the other powers would have been put in place by a sly and a steady succession of treaty changes ending with the grand, overriding constitution which has come to be known, thanks to the French and Dutch people who turned it down in referendums, as the Lisbon treaty. Now, all according to plan, a British Government have some 8 per cent of the votes in the secret law-making process in Brussels, which interferes in almost every aspect of our daily lives-a process in which your Lordships' House and the House of Commons are entirely irrelevant. The more the people understand this, the less they like it.
That, very briefly, is why I say there is not much any British Government can do about financial stability or economic growth in the European Union. But there are deeper reasons, even further beyond the reach of any British Government. As to financial stability, in the time available it is perhaps best to let events caused by the euro speak for themselves. It remains to be seen whether the people of first Greece and then elsewhere will go along with the austerity required by the grand euro plan that has been imposed on them without their informed consent. In the mean time, I hope that I can be forgiven for saying: some cement, this euro.
As to economic growth, the position is equally hopeless. Here I draw your Lordships' attention to a short new publication from Civitas called Time To Say No, written by my colleague at Global Britain, Mr Ian Milne, with a foreword by the noble Lord, Lord Vinson, of Roddam Dene. It draws heavily on a number of Mr Milne's one-page briefing notes to be found at Global Britain.org, which are a very underused resource
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The booklet also explains how customs unions have become redundant; how our trade, both ways, with the EU has been declining for some time while expanding with the rest of the world; and why you do not need to be part of the single market to export to it, underlined by the fact that Switzerland exports three times more per capita to the EU than we do and Norway five times.
In conclusion, if this debate does nothing else, I hope it will stop the Government and Europhiles constantly pretending that we need to stay in the EU in order to maintain our exports to clients in it and the jobs that depend on them. If the Minister does not want to take my word for this, Channel 4's "Fact Check" section on 1 November reveals that the academics who originally found that 3 million of our jobs depend on the sale of goods and services to clients in the EU have never said that any of these would be lost if we left the EU. Of course they would not, and the sooner we do it, the better.
4.01 pm
Lord Haskel: My Lords, during the referendum debate on 24 October in another place, at col. 60, one honourable Member-a Conservative colleague of the noble Baroness, Lady Noakes-asked why Members were worried about seeking a better deal with the EU. If we did, he said, the French would still sell us their wine, the Germans would still sell us their cars. Do noble Lords opposite really think that this is why we are in the EU, so that we can drive around in Mercedes cars and drink fine French wines?
My concern is that if we are not in the EU, the French will stop buying our avionics, the Germans our pharmaceuticals and both will stop buying our insurance. As other noble Lords have pointed out, half of our trade is with the EU. If we are not in the EU, will the French and Germans invest in the new power plants that we so desperately need, and will Asian investors restart our steel plants and invest in our car factories? Of course not, as the noble Lord, Lord Shipley, explained. It is outrageous to risk all of these actual jobs and investments with some kind of imaginary option which probably does not exist in reality.
The opposite is true: we should be taking even more advantage of our association, and the timing is right. With a weak pound, rising prices in Asia and supply chain problems, the word near-shoring is beginning to be heard, as my noble friend Lord Giddens told us,
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Is it that the Government see devaluation as the route to our future, and if so, for how long? The pound has devalued by 30 per cent against the euro in the last five years and surely this devaluation is one reason for the high inflation we have now. It is the less well-off who pick up the tab for this strategy. If we are to seek economic growth within the EU it must be more for the excellence of our business, and less through devaluation.
So, with devaluation less of an option, how do we encourage economic growth? The Government want to achieve it by returning powers from Brussels-repatriation, as the noble Lord, Lord Hannay, put it. So, what are these powers? It seems to me that they deal with the way in which we run our businesses: terms of employment, labour relations, regulation. The theory is that we can compete better with a more flexible labour market and less regulation. This argument has been around for years-long enough for us to judge whether or not it is true. I put to the Minister that in practice the argument no longer stands up. So-called flexibility does not create more value. That is why a lot of businesses have moved on. They are putting into practice the social values that help create the motivation and commitment that are acceptable to the markets and to people, and which make their businesses more trusted and create longer-term value for all. Withdrawal of powers will not make us more competitive.
I will say one more thing-this time to the noble Lord, Lord Pearson. The big idea has not failed. For my generation the EU is more than economics. It is peace instead of war, as the noble Lord, Lord Bilimoria, said; it is shared prosperity instead of social divisions; it is mutual support in an interdependent world. Europe is certainly far more than the pleasures of driving a Mercedes car or drinking fine Bordeaux wine.
4.06 pm
Lord Liddle: My Lords, as many noble Lords have said, the noble Lord, Lord Newby, was very timely in choosing the topic for debate today. I agreed with virtually everything he said in his speech, although for the sake of the record I ought to say that I disagreed with his description of the previous Labour Government as an awkward partner in Europe. He should go to Brussels and ask what people today think of the coalition. We should remember the influence the previous Labour Government had over the Lisbon strategy, European defence and climate change policy. There were three new treaties. We greatly increased British influence in Europe. Our problem was that we did not make a strong enough case for Europe in Britain. This is what we now have to do.
The central issue in the debate is how Britain should keep its place among the adults, as my noble friend Lord Harrison said, at the European dining table. Some people think that Europe is irrelevant. The noble
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Lord Pearson of Rannoch: My Lords-
Lord Liddle: I am not giving way. The single market is a difficult bargain. The Government say that they want to promote it, but when a lot of people are worried about its social effects, how will they be effective in promoting it at the same time as they are trying to withdraw the United Kingdom from our social and employment obligations? This is a fundamental issue for the coalition and a fundamental contradiction in its policy.
I agree with right reverend Prelate the Bishop of Bath and Wells and with other noble Lords who said that the single market in itself is not enough. We need a European plan for growth. It is not difficult to put that together. Hundreds of millions of pounds lie unused in structural funds, many in the United Kingdom. What will the Minister do about that? The European Investment Bank already does far more to support small businesses in Britain than anything the British Government do. We could expand that role very considerably.
Several noble Lords have said they think devaluation is needed as part of growth. May I draw their attention to an article in this morning's Financial Times? Its respected economics editor, Mr Chris Giles, points to some striking figures, comparing the net trade contribution to GDP since 2008 for the UK and Spain, both hit badly by the banking crisis. For the UK, with 30 per cent devaluation, trade has improved our GDP by 2.5 per cent; for Spain, stuck in the eurozone single currency, its trade contribution to GDP has improved by 6.3 per cent. Devaluation is not the cure.
I said that this debate was timely and serious. It really is serious, because as the eurozone hovers on the brink of an existential crisis, we should recall the words of the German Chancellor Angela Merkel, that if the euro fails, Europe fails. For Germany, that would be unthinkable. Such an outcome should be unthinkable for the United Kingdom, too.
Let us recall that the euro was not conceived as a foolish political venture that took priority over the single market, as some noble Lords appear to think. Instead, it was the only practical means to sustain the single market once capital movements were liberalised under the 1992 programme that was so strongly advocated by the Government of the noble Baroness, Lady Thatcher. Free capital movement made it impossible to continue with the system of managed exchange rates under the ERM. At the end of the 1980s, Europe faced a simple choice between reverting to free-floating exchange rates, which risked competitive devaluations and a return to
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The noble Lord, Lord Teverson, mentioned Bretton Woods, where Keynes's essential argument was that free trade and open markets are far more important to economic dynamism than flexible exchange rates; and it is very difficult to have both at the same time. That is why the present situation is such a threat to Britain's vital interests. Let us not kid ourselves: if the euro fails, we will not see a return to the status quo ante. I do not agree on this point with the argument of the noble Lord, Lord Bilimoria, for whom I have the most wonderful respect and admiration. The likelihood is that if the euro broke up, the single market would break up as well, in a new Europe of competing currencies. Member states would take protectionist measures against each other to prevent what they see as unfair competition.
For Britain, which conducts so much of its trade and which has so much investment dependant on the single market, this would truly be an economic catastrophe. It would not be just an economic catastrophe. The collapse of the euro would, as Mrs Merkel said, put the European Union itself at risk. I believe that the single market is the foundation stone of the European Union and, as I have argued, the euro is its essential cement. Pull that away and in place of the remarkable unity that we have seen in Europe since the Second World War, we retreat to a Europe of fractious nation states.
This is what it would be: we in Europe decide to become Westphalian pygmies at the moment that Brazil, India and China become globalisation giants. What hope would there be for our ability to promote the values that we share, with Europe and not with the United States, to back international development, reduce world poverty, tackle climate change, advance democracy and human rights and help to solve the problem of failing states? What would happen then in that disastrous situation to the ideals of the founding fathers of the European Union who fought for a Europe whole and free, at peace in a co-operative partnership of nations where elements of sovereignty were pooled in the cause of democracy, freedom, prosperity and social justice?
Britain will be an enormous loser if the European project founders. It must not happen. We must strain every sinew as a Government and as a Parliament to avoid that terrible catastrophe. In doing so, I say to the noble Lord, Lord Pearson of Rannoch, that we are not traitors to our national interests but are giving a practical expression to modern patriotism.
4.15 pm
The Commercial Secretary to the Treasury (Lord Sassoon):My Lords, I am grateful to my noble friend Lord Newby for initiating this debate. It has been a valuable and insightful debate on stability and growth in the European Union and comes at a particularly good time. As your Lordships are all aware, it has been an incredibly turbulent few months, few days, and few hours for the global economy. The euro area is at the epicentre of this instability. A decisive resolution to
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Last week, good progress was made towards reaching a comprehensive solution for the euro-area crisis. It is one that echoes the approach we have been advocating. First, there is the recapitalisation of European banks. As agreed last week, all major European banks will be required to hold at least a 9 per cent core tier 1 capital ratio by the end of June next year. Importantly, the assessment by the European Banking Authority is that no British banks require additional capital.
Secondly, there is the resolution of Greek debt. There is a headline agreement to reduce the Greek debt-to-GDP ratio to 120 per cent by 2020, with private holders of Greek sovereign debt being asked to accept a nominal write-down of 50 per cent. I should remind my noble friend Lord Marlesford that Greece is subject to an adjustment programme to which the IMF is a party, so there are indeed very considerable and appropriate strings attached.
Finally, in the package is reinforcing the firewall between Greece and other vulnerable euro-area countries, either by using the bailout fund to provide insurance on new debt issued by euro-area countries, or by creating special purpose vehicles to attract private and public resources. As my right honourable friend the Chancellor said, the immediate priority must be to implement the agreement that was entered into on 27 October.
That is the particular and immediate. At the other end of the spectrum we have had considerations of existentialism and very broad future scenarios painted by the noble Lords, Lord Liddle, Lord Pearson of Rannoch and Lord Bilimoria, and my noble friend Lord Flight. I should say at this point that I regret that I will probably disappoint them by not entering today into speculation about what will go on in the future. I will concentrate on the immediate practicalities of the eurozone as we face them today.
The first thing I will address is the question about the IMF, UK resources and where we should put them. The noble Lords, Lord McFall of Alcluith and Lord Hannay of Chiswick, do not paint a fair reflection of the UK's position towards the IMF and bailout funds. My right honourable friend the Chancellor of the Exchequer has been clear that building up IMF resources and building up euro-area bailout funds are separate issues. The UK has always been a strong supporter of the IMF as a global backstop to the world economy, and this support has been from Governments of all political standpoints since the IMF's foundation. The Chancellor of the Exchequer has said that the UK,
- "stands ready to consider the case ... for further increasing the resources of the IMF to keep pace with the size of the global economy".
That point was reinforced by my right honourable friend the Prime Minister earlier today.
In recent years some of the biggest use of IMF funds has been for countries such as Mexico and Poland, both non-euro-area countries. In uncertain times, lots of areas around the world may need IMF support and it is important to ensure that this key
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Of course, the package that I have summarised is not the answer to the longer-term reforms that are needed to make the euro area work more effectively. All euro area members need to implement credible plans to reduce budget deficits. That commitment was made in the very first section of last week's agreement. We will continue to ensure that our voice will be heard and our national interests protected. In response to a question asked by the noble Lord, Lord Bilimoria, this will of course include planning to cover the widest range of scenarios that may develop.
It is essential that matters that affect all 27 member states continue to be discussed by all 27 member states. This is the approach that we will take to protecting and promoting the single market. We have agreement and confirmation of that as a result of my right honourable friend the Prime Minister's intervention on 23 October. The noble Lord, Lord Hannay, asked about the euro-plus pact. The Government took a clear decision not to join the current pact as they viewed the pact as a response to the specific needs of the euro area and there has been no change in that position. The vast majority of decisions on economic and financial policy are made by the EU 27, not by the euro area. That will not change. We still have our 29 votes, the same number as France and Germany, and we play an active and positive role in all Council debates. Of course, as noble Lords know full well, it is not a question just of the UK being outside the euro-plus pact; the Czech Republic, Hungary and Sweden did not join either.
As noble Lords have recognised, because the single market is one of the most powerful tools we have to promote sustainable, mutual and renewed growth in the UK and across the EU, we must continue to work hard to progress it. We have made substantial progress to complete the single market over recent years and the UK has worked hard to prioritise measures that bring the greatest benefit to growth. That is why we have strongly supported the liberalisation of EU cross-border trade in services, prioritising the passing and proper implementation of the services directive. Even conservative estimates place the benefits of this at a very substantial 0.8 per cent of EU GDP.
There are huge gains to be had for growth and job creation, a point that my noble friend Lord Shipley drew particular attention to, and those come from even the smallest changes to protect and promote truly free and open markets within the European Union, a
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The Prime Minister also secured language, in the 23 October European Council conclusions, which calls for an EU growth test to filter out EU legislation which is harmful to growth and jobs. That is positive and important. I am, of course, grateful for the ongoing work of the noble Lord, Lord Harrison, in your Lordships' European Union Committee in discussing and helping to promote these ideas.
In support of that, my noble friend Lord Newby asked about our positioning of UK officials in Brussels. I recognise that we have to work harder in this area, but I believe that the push on this, which the Foreign Office made last year and continues to make, has led to success in the EU campaign. On the number of candidates put forward for EU positions, we have seen the UK rise from a lamentable 19th place to a barely respectable, but much better, 12th position last year. That is one indication that we are making some progress, but we have to work harder.
In respect of this positive agenda, I am grateful to my noble friend Lord Razzall who talked about the wider group of pro-growth member states, which regularly meets with my honourable friend the Minister for Employment Relations, Consumer and Postal Affairs and with counterparts from 13 other EU member states. There are lots of very practical things on the agenda that officials and my ministerial colleagues are working on, just as your Lordships' committee is doing.
That takes me on to the outward-facing aspect of this, to which a number of noble Lords have drawn attention. We must remember that the gains to be made from freer trade are not just a matter of completing the single market but are a matter of completing the outward-facing trade arrangements under the Doha trade round and out-of-trade bilateral agreements. That is a critically important area to which my noble friend Lord Newby drew attention. The Government continue to support the Doha round. It is important to complete Doha as a matter of urgency but we also should point to the importance of the EU's bilateral trade deals with markets such as India, Canada and Singapore. On the point made by the noble Lord, Lord Giddens, about labour mobility within the EU and outside it, of course those bilateral deals pick up important issues related to labour mobility as far as they link directly to trade. My noble friend Lord Shipley raised a detailed point. There have indeed been very recent Commission proposals to extend the European globalisation fund. I can certainly assure my noble friend that we are currently considering the Government's response to those recent proposals.
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I turn next to financial services, an area to which a number of noble Lords drew attention. In the past year the Government have demonstrated the same resolve to promote an open and single market in financial services. I say to my noble friend Lord Teverson that I do not recognise that there has been any loss of voice in this area. Yes, we have to recognise that there is a change of architecture and make sure that within that architecture we maximise our voice, but I would suggest that the evidence is that we are being heard. For example, on the alternative investment fund managers directive, we completely reversed the Council's position to ensure that the directive is internationally consistent and non-discriminatory.
On the Basel III reforms, we are working with the Commission to ensure that the capital requirements directive reinforces rather than weakens the single market by having high, common and consistently applied standards for capital, just as we are doing at the G20 to ensure that we do not distort international competition and markets. Likewise, we cannot undermine European competitiveness by unilaterally implementing a financial transaction tax. At a time when we have to do everything we can to promote growth, a tax to undermine Europe's competitiveness is in no one's interest.
These continue to be turbulent, dangerous times for both the European economy and the global economy. Within Europe, the decisions reached last week are a big step to resolving the crisis that has undermined economies around the world since the summer. We still have a long way to go to finalise the details of that agreement and it is important that all parties to the agreement deliver on their commitments. Beyond that, the UK will continue to be at the heart of that process and the process of coming up proactively with pro-growth policies for the UK and for Europe. At the same time, we will continue to protect and promote our interests across the EU.
In conclusion, I am very grateful to my noble friend Lord Newby for stimulating this debate and for the constructive proposals and suggestions from all sides of the House.
4.32 pm
Lord Newby: My Lords, I thank all noble Lords who have taken part in this fascinating debate. I am sure that the one thing uniting all participants is that the issues we have been debating are of central importance to the future growth and stability of the UK economy. We will no doubt return to them frequently in coming months but, for today, I beg leave to withdraw the Motion.
Television Advertising: Communications Committee Report
Motion to Take Note
4.33 pm
That this House takes note of the report of the Communications Committee on Regulation of Television Advertising (First Report, HL Paper 99).
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Lord Clement-Jones: My Lords, I declare an interest as a sometime employee of London Weekend Television in the 1980s. First, I thank my fellow members of the committee, those who gave evidence to us, Ralph Publicover and Audrey Nelson who were successively the clerks to the committee, and our expert advisers, Professor Patrick Barwise, emeritus professor of management and marketing at the London Business School, and Professor Steven Barnett, professor of communications at the University of Westminster.
I also want to pay tribute to Michael, the late Earl of Onslow, who, if his health had permitted, would have taken over the chairmanship of the Communications Committee for this its first inquiry after the general election. I took over the acting chairmanship as a result. Despite ill health, as the House may imagine, he contributed intermittently but vigorously-sometimes even on the telephone. He was a considerable individual and we all miss him greatly.
Let me set out the background to the inquiry. The UK television advertising industry has changed over recent years as a result of the growth in the number of commercial channels, competition for marketing budgets from internet advertising and the economic downturn. This has led to calls for changes in the regulation of television advertising.
Although there has been some deregulation within the industry, there remain constraints on the quantity, scheduling and content of television advertisements and additional constraints on the price of commercial airtime-on ITV1 specifically. During 2008-09 there was a sharp fall in the revenues earned by commercial television companies from the sale of advertising-some 16 per cent. This was, in part, a reflection of the general economic downturn but it was also due to other developments including the migration of advertising from television to the internet. When we started the inquiry there had been some recovery of ITV advertising revenues in 2010, which seems to have continued into 2011, but the movement of advertising towards the internet seemed-and still seems-likely to continue.
If the advertising-funded model is in irreversible decline this would have serious implications for the future of commercial public service broadcasting. The committee therefore decided to conduct an inquiry into the current regulation of the television advertising market and how changes might assist the commercial television companies to maintain revenues and output to the benefit of the viewer. At the time, the Secretary of State for Culture, Media and Sport was also reported to have asked his officials to examine the case for ending regulation of the rates ITV could charge for advertising. It therefore seemed a good time to look at the whole question of advertising regulation but focusing on the regulations that do not involve advertising content.
Television advertising in the United Kingdom is subject to regulation in its scheduling and its sales arrangements. There is in particular a set of rules-the contract rights renewal undertakings, or CRR-which regulate what ITV can charge for advertising. These undertakings were required by the Competition Commission in 2003 as part of the arrangements for the Carlton/Granada merger to proceed to protect
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The committee inquiry considered a number of questions: whether the current level of regulation of television advertising is appropriate; what the financial impact might be on television companies if changes are made to the regulation of scheduling and sales of television advertising; and the extent to which current arrangements reflect the public interest. It was not always easy-as committee members will testify-to come up with a clear answer, and sometimes fine judgments had to be made but if in doubt, when looking at particular proposals, we tried to give priority to television viewers' interests.
The committee came to the following conclusions. First, the COSTA regulations should be harmonised to level the playing field between public service and commercial broadcasters when digital switchover happens in 2012. Research suggests that viewers would not support an increase in the amount of advertising on television, especially on ITV1, Channel 4 and Channel 5. It was our view that a reduction in the quantity of advertising airtime that broadcasters are allowed to sell may well improve the viewer experience and would certainly be fairer to those channels, which are limited more than all other commercial channels at the moment. As I said, under the COSTA rules public service broadcasters such as ITV1, Channel 4 and Channel 5 are permitted an average of seven minutes of advertising an hour and a maximum of eight minutes at peak times. On balance, our recommendation was that all channels should be allowed an average of seven minutes an hour, with an appropriate peak-time maximum which would be determined after research from Ofcom.
We also concluded that the CRR undertakings are no longer the most appropriate mechanism for regulating how advertising airtime is sold on ITV1. Your Lordships may have caught the speech today of the noble Lord, Lord Grade, in which he was exceedingly vigorous in his condemnation of the CRR rules and the remit of the Competition Commission. We took the view that the context in which CRR had been imposed had changed sufficiently to justify this view and that the Competition Commission when recently examining CRR had not been able to take more than a narrow, competition-based view, which did not take account of the wider public interest and in particular the clearly understood preference of television viewers for UK-originated content, as well as the contribution that increased original production makes to the nation's creative economy.
ITV still dominates the market for fast-build advertising in mass-market popular television shows, but even so the competition has changed considerably, with heavy consolidation of the main media buyers into four organisations. On CRR, the committee therefore recommended that these undertakings should be removed on the important condition that they are replaced with
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As we said, it is extremely difficult to predict how much ITV plc would stand to gain in additional advertising revenue from the removal of CRR. However, the available evidence suggested figures of around £30 million to £55 million per annum. This equates to roughly 5 per cent to 10 per cent of ITV1's current investment in original UK content. The public service broadcasters, I must emphasise, are vitally important for original UK production. Despite the advance of multichannel television and commitments from other broadcasters such as BSkyB to spend more, the PSBs still account for over 90 per cent of first-run original UK production, excluding sports rights. On the basis that they can be held to their promises, this rebalancing of television's advertising money would therefore be seen on our television screens, to the manifest benefit of viewers and the creative economy, and would partially compensate for the £500 million which has been lost from original UK production in the last six years.
We noted that the changes to CRR may require primary legislation, but that it would be preferable to deal with these as soon as possible under the aegis of the Secretary of State for Culture, Olympics, Media and Sport. We recommended that the proposed changes are implemented at the very latest as part of the next communications Act.
A third extremely important element of our recommendations arose out of our view, in common with the Competition Commission and Ofcom, that the trading system used for selling television advertising is complex and arcane. This traditionally is based on an annual "deal round", often on a so-called umbrella basis between advertisers, media buyers and broadcast sales houses involving a negotiation over the price of "commercial impacts", essentially the eyeballs of particular types of target audience and unrelated to buying advertising slots in particular identified programmes, based on the discounts off station average price available for particular share of advertisers' budgets. We took the view that the lack of transparency within the trading system favoured neither fair competition nor the viewer. We noted that for certain programmes called "specials", such as the "X Factor" final or a Champions League match, different arrangements were put in place which could relate to the ratings of the programme itself. We therefore recommended that there should be a short, focused review of the trading system for television advertising airtime in order to
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How have our recommendations fared at the hands of the Government and the competition authorities? Well, needless to say, we have not seen an instant relaxation of the rules yet, but a victory took place almost before the ink was dry. In March, just weeks after the committee's report was published, Ofcom announced a review of the advertising trading model, as we recommended. This will be a significant step in assessing whether the CRR rules should be changed. The consultation document was launched in June this year and covers many of the areas which the committee was concerned with: transparency of pricing, signals, bundling of airtime and lack of innovation in the system. Above all, it is looking not only at the impact on advertisers, but also on TV viewers-an aspect that the Competition Commission was unable to consider in relation to CRR in its review. I trust that the review will be short and sharp. Ofcom also believes that more work is needed before changes to advertising minutage are made-that is, under COSTA. It is examining the potential economic impact and public interest arguments of different options.
The Government believe, and gave evidence to the effect, that they currently lack the power to lift CRR without the competition authorities' recommendation, unless changes are made in the forthcoming communications Bill. However, I shall be interested to hear what the Minister has to say because they seem to have accepted that the Competition Commission was only able to take a narrow view when reviewing CRR in 2009-10 and have welcomed Ofcom's inquiry into the advertising trading system. They are somewhat doubtful about the desirability of how to formulate and enforce any undertakings of the kind suggested by the committee.
In summary, the Government seem to be attracted to a more deregulated environment but uncertain about how to achieve it. This is understandable given the very different views that we heard about the impact of CRR, but with Ofcom's advice they should be able to come up with a practicable solution. There is clearly a great deal of water to flow under the bridge. We did not expect a quick response in terms of action. We are pleased that the committee's report has had an important response from Ofcom and the Government. We look forward to further progress which will explicitly feed into the forthcoming communications Green Paper and the subsequent Bill. I beg to move.
4.46 pm
Lord Patten: My Lords, I hope that your Lordships take close note of this report-it is a good one-and in particular of the pressing need to clean up the system of contract rights renewal, or CRR, to which my noble friend Lord Clement-Jones has just referred. By their own words in this report, Ministers do not fully understand the CRR system. I hope that once they do, they will take speedy action in the public interest to change it. That need is urgent.
I have no interests of any sort to declare. I have no business or professional interests in TV or advertising. Rather insultingly, no person, company or body has
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If one refers to the excellent glossary at the end of this well produced report, one sees that contract rights renewal is defined simply as:
"A set of undertakings which determine the way in which ITV plc is able to sell advertising airtime on ITV1".
That seems crystal clear and simple, but in practice it is not. CRR seems to lack much transparency of any sort and is exceptionally hard to understand, at least according to the Ministers who have the responsibility of understanding it. The Ministers giving evidence fell over themselves throughout to stress their own lack of understanding of the CRR system. As I ploughed through the report, I carefully noted their various descriptions of it. First, they described CRR as "arcane"; then, slightly revving up, it became "complex". Getting a bit racier, it was termed reminiscent of the Schleswig-Holstein question. Warming to their theme, it was "Byzantine", then "highly complicated and Byzantine", before peaking with the truly wonderful "Byzantine and incestuous", to be found on page 195 in all its glory. I look forward to being reassured that HMG are not in favour of incest whether in business or elsewhere. If your Lordships and Ministers apply that valuable old test, "If one cannot explain it, it should not exist", the CRR system, which we have allowed to carry on, fails absolutely.
This is not some arcane administrative sideshow, for the public interest cannot be served nor the market be perfectly informed about a cloudy system that determines how the approximate 80 per cent of annual deals and the 20 per cent of short-term burst deals are agreed. It is right that the public-and best of all even junior Ministers-should be able to understand it. The CRR system should be reformed completely so I very much echo what my noble friend Lord Clement-Jones said earlier. Alas, I was not in the Chamber to hear my noble friend Lord Grade of Yarmouth in an earlier debate, but it sounds as though we agree pretty strongly. We have never discussed the issue; again, I say this in the spirit of transparency.
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I think the CRR system should be reformed completely. It should be subject to enhanced public interest undertakings, and subject to an equally enhanced adjudication process to help complaints about the way advertising airtime is sold. This is because of my belief that-as ITV strongly and to a lesser extent Channel 5 have argued-if CRR was removed then advertising revenues would increase. If advertising revenues increase, this will enable broadcasters, by charging more for advertising, to invest more in programming and invest more in the training of broadcasters. Better programming? That is highly desirable. Better training? More training? Both are highly desirable. Both to be guaranteed by a new public service broadcasting undertakings arrangement of a binding sort is a proper trade-off for the transparency and deregulation that I really thought our coalition Government favoured.
This reform of the contract rights renewal system is urgently needed. It is in the public interest. In the light of the migration of advertising to the internet pointed out by my noble friend Lord Clement-Jones, it is much needed as well to sustain good programming and good training for good broadcasters. I congratulate him and his colleagues on this excellent report, and for pinpointing the pressing need for CRR to be reformed as quickly as possible, something that I hope that Ministers will listen to. I ask my noble friend on the Front Bench not to respond in any detailed way to what I have said, but to draw my views to the attention of the Ministers responsible.
4.53 pm
Lord Lipsey: My Lords, I too very much welcome the report, which, besides its recommendations, contains a wealth of information on the system. If I might, not having been a member of the committee, I join the noble Lord, Lord Clement-Jones, in saying that the special advisers to the committee, Professor Barwise and Professor Barnett, really deserve an accolade for the work they have done, whether or not one agrees with them.
This debate has been long delayed. The report came out in February and only now in November are we debating it. However, that is quite desirable in one way because Ofcom is now within a few weeks of making its decisions on these matters. Therefore, I hope that the words uttered in this Chamber may have more effect on it than they would if it had had longer to forget them.
I only want to make two points, in one of which I disagree with the report. Its authors will not worry too much about that, but I also disagree with practically everybody else in the world, a not-unfamiliar position in which to find myself. In the other point, I powerfully agree with the report, and hope that it will bear fruit.
The thing that I think that I disagree with the report about is minutage-COSTA. As an economist, I find the concept that we should limit the number of minutes of advertising extraordinarily curious and hard to justify. It is a strange regulation to have introduced. When it was introduced, there was a powerful case for it, because ITV then had a monopoly; it was, famously, a licence to print money, and you had to do something to restrict the amount of money it was allowed to
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Why do people cling to this? I think, in most people's heads, the reason is due to America. If you watch American television-like other noble Lords present I have recently spent some time in America-you will know that it really is completely ghastly. Actually, in some senses, the ads are a relief from the bloody programmes, but one ghastliness about it is the amount of advertising. Therefore, there is a respectable fear that our television would become like that. However, this fear is greatly overdone for two principal reasons. The first is the BBC. If we do not like the amount of advertising on the commercial channels, we can turn to the BBC; sometimes the BBC itself is an offender because it contains so many trails for upcoming programmes as to seem almost like a commercial channel itself, but that is beside the point. The BBC's market share is roughly a third of the market: 33.1 per cent, according to its latest annual report. Compare that with America. There are no exactly comparable figures because PBS-public broadcasting in America-does not publish figures for its share but, thanks to the wonderful work of the Library, I have established that it is roughly 1.3 per cent: a 30th of the BBC's share. The alternative of turning to public broadcasting if you do not like the amount of advertising is not there; you have to put up with what you get. It is a completely different situation.
The second reason is of course that we have quite a lot of good television. Most of us now have DVRs. On good days I can even work the DVR, thanks to Sky+, which has transformed so many lives. Thanks to a DVR you can, if you want, watch a programme later and accelerate through the adverts, so any channel that puts too many ads in is simply inviting people to postpone their viewing and rush through the ads. There is therefore a powerful competitive force which says, "Do not put too much advertising on, otherwise you will lose your viewers".
There is a complication, a European directive which limits advertising to 12 minutes per hour. Pro-Europeans will say, "Well, it's great that we've got a limitation", and anti-Europeans will be surprised that the limit is so much higher than those which we ourselves impose: nine minutes for all channels and seven minutes for the public service broadcasters. The European limitation is so far above our limitation that for practical purposes it does not preclude a sensible liberalisation of our rules.
Why should we keep COSTA? The noble Lord, Lord Clement-Jones, gave the only argument there is: viewers do not want more advertising. It is true that polling evidence contained in this report shows that viewers do not want more advertising. However, I do not think that is a very sensible question to ask in a
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It really is not a valid argument to rely on what the opinion polls show. We have to make our own judgments. In my judgment this is an indefensible piece of overregulation, which leads to all the things that overregulation usually gets. Now we get competitive briefings from various organisations, all talking for their vested interests as to whether they want this to change or to be put down to the same level for every broadcaster. As usual, what should be decided by the market is being decided by competitive political lobbying. That does not seem to me, as an economist, to be very desirable.
That is where I disagree with the report. Where I agree with it very much is that there has to be a relaxation. I quite agree with it on CRR, but I believe that the benefit of the relaxation should go to viewers in the form of more spending on programmes and not to anyone else. To use a fashionable phrase, there is no case for giving the broadcasters "something for nothing". Having been a director of an ITV company, London Weekend Television, I know how attractive it is to say that you want certain relaxations in order to provide a better service to broadcasters and then hand the money to the shareholders. The shareholders invested in these companies knowing full well the limitations on them. Some of them were no doubt hoping that the authorities would hand them a bonanza by lifting the advertising restrictions, but we should not be falling over backwards to grant them a windfall gain from the removal of restrictions.
I wholly agree with paragraph 47 of the report that any relaxation should be matched for viewers by an enforceable commitment to spend more on programmes. Of course, the detail of that is complicated. It is not an easy thing to do. However, I can think of a symbolic way in which this could be done: ITV could agree to restore "The South Bank Show"-so wonderfully compèred by my noble friend Lord Bragg-which it cruelly and remorselessly butchered in December 2009 to the immense disbenefit of its more sophisticated viewers and indeed of its reputation with the public.
5.03 pm
Lord Razzall: My Lords, following the remarks of the noble Lord, Lord Lipsey, I ought to report that, as a member of the committee, his noble friend Lord Bragg showed remarkable restraint in not making the point that the noble Lord, Lord Lipsey, has just made.
I think I speak for every member of the committee who had not previously been involved in the television industry when I say that when we started on this inquiry we were to some extent extremely surprised and in some cases shocked to discover the way in
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For the benefit of the people who read Hansard, it is worth expanding a little on my discovery of the way in which advertising is sold. People who do not appreciate the way in which it is sold might be interested to know about that. Each year there is an annual deal round, usually in the autumn, when media agencies negotiate an "umbrella deal" which will form the basis for booking specific advertising campaigns for the year ahead. That surprised me. It was even more of a surprise to learn that those negotiations do not start with a blank sheet of paper each year. The starting point each year is likely to be what was agreed in the previous year, which means that there is likely to be considerable consistency over time in the deals which are made.
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