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I turn now to the Budget. What a change there has been in the political backdrop to Budgets in Britain. That is epitomised by an article by Chris Mullin in Monday's Times. I do not disagree with the word of that article. Twenty-five years ago, Mr Mullin was editor of Tribuneand 30 years ago he edited Tony Benn's Arguments forSocialism. Now he writes:

"As for the Lib Dems and their ludicrous talk of mansion taxes and tycoon taxes, these are simply gimmicks".

He ends his article by saying:

"Polls tell us that most people favour increased taxes for the rich, but that is because people tend to favour taxes they won't have to pay. In any case, simply increasing taxes on top earners does not begin to raise the sums needed. That can only come from the middle classes. It is time politicians plucked up the courage to say so".

That is another example of the need to face reality.

In four years, from 1975-76 to 1978-79, when the noble Lord, Lord Healey, was Chancellor, we had a top marginal rate tax of 98 per cent. That cut in at a threshold of £24,000. In today's money, that would be £110,000. Those were the days when there was mass emigration of some of the most talented in Britain-the so-called brain drain. Had I qualified in any respect, I might well have been part of that. Yet today, the argument on all sides of the political spectrum is whether the top tax rate at £150,000 should be 50 per cent, 45 per cent or 40 per cent.

I remember very well sitting in the Press Gallery in the House of Commons in 1988 when the noble Lord, Lord Lawson, announced a top tax rate of 40 per cent. The opposition Benches exploded with anger. It is the only time in history when the House of Commons has had to be suspended in disorder during a Budget speech. However, that top rate of 40 per cent lasted more than 20 years, right through the Labour Government, and the 50 per cent rate was one of the bequests of Mr Gordon Brown to this Government.

As the excellent New Statesman, which I read every week, had on its cover last week, it is truly "the end of socialism". Socialism was a casualty of reality-of the determination and energy of human beings, the recalcitrance of human behaviour and the inability of Governments to run business.

None of that means that further tax changes are not needed, and I have time to suggest only one. It is absurd that council tax-a well designed and efficient tax-should be allowed to get hopelessly out of date through administrative inertia. There are many houses, particularly in London, worth well over £1 million, which are not even in the existing top band, which comes in at a value of £320,000. We do not need extra bands, but the thresholds of the eight existing bands should be changed. At the moment, band A has a value of up to £40,000. That could become £100,000, with subsequent bands at £150,000, £200,000, £300,000, £500,000, £750,000, £1 million and £2 million. The

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differential in the rates of council tax could be changed as well if it was thought that owners of the more expensive houses should pay a reasonably non-proportionate tax. Yet the 1 per cent levy over £2 million suggested by Mr Cable is merely, to borrow from Mr Mullin, a "gimmick" to which I am afraid I would add the adjective "vindictive".

The key to introducing such a system would be to do it only when a property changed hands. That would be administratively simple. Transfer prices have to be reported to the land registrar anyway, and stamp duty-I welcome the new rates-would continue to be payable. It would merely be a matter of reporting the change in ownership to the local authority that levies the council tax. Thus the buyer would know exactly what rate of council tax he or she would have to pay. There would be no hardship for existing occupiers. The two banding systems would exist side by side. Of course, it would take a generation before every house was in the new band. That might have some temporary depressing effect on the price of some houses, but that could be an added attraction.

Finally, I will add one other word on fairness. In my book, it is immoral to give state handouts to those who do not need them at the cost of not having enough money for those who do. For those at the bottom, a large part of their income has to be in the form of a social wage, but there are many benefits that could and should be taxed. The winter fuel allowance is an obvious one. Meanwhile, I am all in favour of getting more people at the bottom out of the tax range altogether. The Budget takes a major step in that direction.

2.11 pm

Baroness Worthington: My Lords, I aim my comments towards the measures in the Budget that address green energy and the environment. The grouping of these topics within the Budget might imply that there is some overall cohesive vision linking our green future and energy together. Sadly, as the Budget shows, that is not the case. The Budget has been described by Greenpeace as a "polluter's charter". It is a ragbag of measures that appear to give great benefit to the fossil fuel industry at the expense of the green energy industry.

In opposition, the current Chancellor George Osborne made a great pretence of being green. He talked about how he would make the Treasury join DECC in championing action to tackle climate change. He said:

"The Treasury will no longer be the cuckoo in the Whitehall nest when it comes to climate change".

He was right. It has become an albatross sitting round the neck of the low-carbon industry. We can be grateful that he seems to have dropped his more obviously outright hostility towards the UK leading on climate change but this is a long way from being a green Budget. He does not seem able to help himself. Even as he praises renewables, he then immediately undermines that by making a veiled reference to the fact that he obviously considers the renewables sector to be costing industry and consumers too much. He said:

"Renewable energy will play a crucial part in Britain's energy mix, but I will always be alert to the costs that we are asking families and businesses to bear".-[Official Report, Commons, 21/3/12; col. 798.]

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Why single out renewables in that case? It is obviously clear that we need to subsidise low-carbon technologies but why single out renewables?

The policy that the Treasury introduced that supports investment in low-carbon technologies is the carbon floor price. It is quite a controversial policy. The announced level for 2014-15 in the Budget is now as high as £9.55 per tonne of CO2-almost double what it was-because there has been a big falling-off in carbon prices in Europe. We have to pay more to meet our desired level. We are now paying more than double the traded price in Europe. This is having an impact on businesses and consumers, but to what end? Essentially, it does not guarantee investment and it rewards existing generators who already built their infrastructure many years ago. It is accruing large amounts of money to our nuclear generators. Why no mention of the costs that nuclear puts on the consumer and business?

The Chancellor also appears to have some strange logic. He says that, "Gas is cheap". In what way is gas cheap? If it is cheap, why would he also then have to announce a call for evidence on the barriers to investment in gas? The answer is that gas is not cheap at all-quite the opposite. Increases in gas prices are what are putting pressure on energy bills, not renewables. I am not against the increased use of gas. What concerns me is the Chancellor's blithe disregard for the facts. People cannot invest in gas because it is expensive. There is a real possibility that it will remain so in future. Instead of making sure that we have a sensible contingency plan by giving unqualified support for renewables-a sector that is delivering investment, jobs and growth now-he sets about undermining them.

Why is gas expensive? In part, that expense has been driven by record oil prices. A couple of weeks ago, the oil price hit £80 a barrel. No one really considers or seriously believes that that will come back down in a significant way. That then makes the Chancellor's fair fuel stabiliser policy completely redundant since it only kicks in if oil returns to £45 a barrel. Could the Minister help us understand the logic of this policy and tell the House when he expects oil prices to return to that level? That would certainly help our economy. I guess that the answer is never, and that the oil majors must be delighted to have successfully negotiated a break on the taxation of their product.

It does not stop there. They have also received more help in the form of substantial tax breaks for offshore drilling and decommissioning. In these difficult times, the Budget rewards not just rich individuals but also the most profitable businesses. Why does an industry making such huge profits need to receive yet more help from government? The noble Lord, Lord Marlesford, said that,

The offshore oil and gas industry is not a poor one. We do not need to spend £3 billion of lost tax revenue helping it get more oil out of sensitive areas in our seas.

It is not just the oil and gas industry that the Treasury has seen fit to help out. There is also something in the Budget for the coal lobby: an exemption from

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the carbon floor price for the use of coal slurry to generate electricity. That does not sound at all green to me. I struggle to see how that can be justified. This is apparently a low-carbon policy yet we are giving an exemption for a high-carbon-emitting source of fuel used to make electricity. That makes no sense. Again, could the Minister explain that logic? We do not need to give tax breaks to the coal industry under the banner of an environmental policy.

We could talk about many other measures, such as the Government's double-dealing with the combined heat and power sector. We have helped the industry by giving it an exemption from the carbon floor price but we are also removing its exemptions from the climate change levy. Overall, the industry is a net loser: £45 million is saved from the carbon floor price but £110 million is lost from the CCL exemption removal.

Then we come to the carbon reduction commitments. I admit that I am not a great fan of this policy but it addresses the important point of those people not currently caught by the EU Emissions Trading Scheme. I welcome the fact that we will look again at this and the potential for a different, simpler environmental tax. I suggest that one option is to think about the extension of the upstream Emissions Trading Scheme to the suppliers of heating fuels. Since they are outside the cap, any measure to price carbon there would definitely be additional. That would be a revenue-raiser for the Treasury and could replace the CRC in creating a price signal to encourage investment in energy efficiency.

There have been many other criticisms of the Budget on green issues. The Chancellor made great play of the terrible burden that the habitats directive placed on business. That has obviously been proved to be a complete red herring. There is also the concern about the deregulation of planning leading to urban sprawl and essentially a developer's charter. There is now a presumption in favour of sustainable development but my fear is that, having seen the Budget, "sustainable development" includes absolutely everything from coal slurry to offshore oil and gas, and gas fracking. That could all be put in under this definition of sustainable development. I would like to hear some reassurance that that is not the case.

So many things could have been different. We could have seen a proper investment in the renewable sector. The engineering giant, Alsthom, has recently invested quite heavily in creating a wind turbine manufacturing plant in France for offshore wind turbines. That is despite the fact that the overall market for offshore wind in France is very small in comparison to that in the UK; the problem is a huge amount of policy uncertainty and a sense that the Government are not pulling together behind the renewables industry. The Chancellor has a lot of responsibility for giving that impression.

One policy could have been in there and would have given a sign that the Chancellor cares and understands what will help us to achieve our low-carbon economy: providing more help for energy efficiency measures. One example is the use of voltage optimisation technology, which is an excellent example of UK expertise and has come out of the University of Liverpool. We now have

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world-leading technology that helps householders to save electricity without doing anything; it simply optimises their use of electricity, taking around 10 per cent off their Bills. The Government have absolutely failed to be able to provide any support for that sector, which is currently excluded from the Green Deal for reasons of huge bureaucracy rather than it not being a good technology. It is a good technology and is already used in DECC and No. 10 to save money, yet it has not been supported for others to take up the policy. A lower reduced rate of VAT could have been given for that technology; it would have boosted jobs and helped to breed a very good UK sector in something that we excel at.

Overall, the Budget fails miserably to match up to the expectations that we might have from the greenest Government ever, and I am sorry that I cannot be more positive.

2.21 pm

Baroness Kramer: My Lords, I find a great deal to welcome in this Budget, not the least of it being the clarity of the Red Book. It is the first time that I have not needed six hands and a book of Post-its to work out exactly what was going on. That has been extremely helpful.

Noble Lords will not be surprised that, like most Liberal Democrats, to me the most important measure in the whole Budget is the raising of the starting tax threshold, which is going up to £9,205, with 20 million basic-rate taxpayers being £220 better off. That consolidates one of my goals, shared by many of my colleagues, to see at the end of this long process-and it may have to go on into the next Government-an alignment between the minimum wage and the starting point of paying tax. The kind of impact that has on the incentive to work is utterly fundamental. It is a matter not just of the numbers but of capturing that principle.

Like many of my colleagues I would not particularly have chosen to take the 50p rate off at this point in time, but it has always been a temporary measure-and the Opposition have always signed up to it as a temporary measure. What interests me is that some of the offsetting measures are permanent; because they are important offsetting measures, that permanence is something that we have to applaud. I never understood why Labour so valiantly refused to put a cap on tax reliefs. That is absolutely critical-and now it has been done. That principle is one that will stay with us and fundamentally change things, building in a degree of fairness to our tax system that had not been there previously.

Noble Lords will exclude me if I find some personal pleasure in seeing a Government tackle the problem of stamp duty avoidance. It made so many people in my local area furious to see how easy it was for people to avoid paying stamp duty through the use of corporations or trusts based in offshore areas to own property and avoid in effect paying any capital gains. The 2010 general election campaign against me was effectively funded, you could say, by avoidance of stamp duty on a major purchase of a property. Local Conservatives argued that it was a tax break that all the rich definitely deserved. So I am very glad to see a change by the

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Chancellor on the grounds that a sinner who repenteth should be welcomed. I never understood why the Labour Party refused to go in and close that egregious loophole.

I welcome this Budget, although as in all Budgets there will be one or two issues that one would wish to raise-and I have a couple. As people know, I am a strong supporter of tax increment financing as a mechanism for local government to go around and tap new, private sources of financing for infrastructure and regeneration-and the need, as we all know, is huge right across the country. So I am rather disappointed by the announcement in the Budget that the Government will support only £150 million in TIF; that is quite a bitter disappointment. If you spread it around the country, it comes to very little. I am concerned that that has the potential to undermine some confidence in the new localism agenda. This is a time when the market for TIF-type financing should be built up and focused on; it is the time to go out and develop that marketplace. I am concerned that the Treasury's desire always to hang on to the strings counters what could have been a very significant opportunity. Local authorities up and down the country will be disappointed.

On what the Government are doing to provide access to credit for small business, I would never for a moment argue against the national loan guarantee scheme, which is very welcome. Business has welcomed it, but with some reserve, because its effect is to reduce the cost of loans, which the four major banks plus Aldermore would have done anyway.

The underlying problem with credit for small business is captured again in the Breedon report, which was launched last week and which underscored again the fact that the UK has one of the highest SME loan rejection rates in Europe at about 33 per cent. The decrease in the supply of loans to SMEs has been much sharper in the UK than elsewhere. Our problem is that we have a banking group that is not on the whole interested in the SME market, and certainly not in the micro market that lies within that. Some have said that it is because of balance-sheet pressures on the banks but, if you look at banks' behaviour, you can see that they long ago retired or fired the people who understood small business lending. When they lend to small businesses now, it is typically based on the value of commercial or residential real estate and very rarely against the capacity or potential of a business plan, which is the hallmark of lending to the small and micro sector.

In this country, we lack a whole layer of banking. The local savings banks that are the backbone of small business in Germany and Switzerland, and the community banks that play the same role in the United States are frankly only in their infancy here in the UK. The advantage of those banks is that they stick with small and micro businesses through thick and thin because only if those businesses thrive do the banks thrive too. I know that the community development finance institutions in the UK benefited from the regional growth fund to the tune of £30 million, but that really was small potatoes. I am so sad that in this Budget the Government lost the opportunity to boost the whole sector by bringing it into the credit easing

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arrangements. I hope very much that over the year there might be some attempt to look at that and to see how to wrap the CDFIs and possibly credit unions as well into credit easing. That is a strategy that has worked very successfully in the United States, where the Obama Administration pump money into small business through that route. Frankly, if the Government do not take by the scruff of the neck the problem of that missing layer of the banking sector, in 10 years' time we will still be moaning that we cannot get credit into small and micro business.

Finally, I know that the Breedon report and the Government are looking with some enthusiasm at online innovative financing as an alternative to the banks. The idea is difficult to describe. I have said this before in the House and everyone broke out with laughter, but the umbrella term-although it is often not accurate-is peer-to-peer lending, and the text version is P2P, which leaves my five year-old granddaughter on the floor with laughter. This is a world where the online technology is now making it possible for players to set up a whole variety of different platforms, some of which let ordinary people become lenders to businesses, while others are invoice discounters. It is also a mechanism for social enterprise bonds. There are a whole lot of different areas. The Government have looked to participate and support this sector through the Business Finance Partnership, and are adding a welcome 20 per cent increase to the £1 billion that they originally committed in this Budget. However, the Government's commitment to cofinancing will be only for mid-sized businesses with a turnover of £500 million or so. These platforms are perfect for microbusiness and small business, so this really is another lost opportunity and an area where, frankly, I hope that the Government will look again.

These are, in a sense, relatively small comments on what has been overall a fairly masterful budget. I remind the Labour Party, when it sits down with its criticism, that it oversaw an economy with tax revenues that were pumped up by the false profits of the banks; they were not real profits, and they collapsed. It was pumped up by an asset bubble in house prices, which again has collapsed, and it was pumped up, in a sense, by a consumer demand which was fuelled by absolutely excessive consumer credit, which was going to be unsustainable. I congratulate the Chancellor on recognising that sustainability has to be at the core of economic growth and fiscal sensibility.

2.31 pm

Lord Myners: My Lords, I join other Members of the House in welcoming the maiden speech from the noble Lord, Lord Heseltine. I want also to mark the fact that it is a wonderful occasion that he is being given this important assignment to address the areas of the interface between government expenditure and the private sector, and that in his speech to your Lordships' House he said that he would include examination of the roles of owners of public companies-an issue which I have come to describe as the ownerless corporation. I cannot think of anybody better suited to carrying out that review than the noble Lord, Lord Heseltine, and the Chancellor should be congratulated on that appointment.

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I like digging around in the Red Book. That is where you find the real story on the Budget. If you go to paragraph 2.140, you find that herbal cigarettes are now to be taxed as tobacco cigarettes are. Paragraph 2.145 deals with non-residents playing bingo, while paragraph 2.54 tells us about a further and more favourable change to what is euphemistically known as,

"Resettlement payments to Members of Parliament"-

those who no longer hold their seats.

It is also in the Red Book that we see the dangers lingering in the undergrowth. We see in paragraph 2.71 that the Government are looking at taxation on interest. It does not say why they are looking at that issue, although one is reminded that the right honourable Chancellor of the Exchequer, when in opposition, raised the question about whether interest should be a deductible charge for taxation purposes. Is that what the Government are looking at under paragraph 2.71? At paragraph 2.40, we have a message that philanthropy is going to be a victim of the Budget. The Red Book says that it will not be impacted "significantly", but a Government who are encouraging philanthropy for education, science and the arts appear to be contemplating a tax measure which will discourage philanthropy.

One also looks in the Budget for areas which one hopes will be addressed, but with great frustration one finds that they are not. The treatment of carried interest in private equity funds as a capital gain rather than an income is an issue on which the Minister has very kindly answered one or two Written Questions from me in the past. He is indicating two fives. It is not just the one multiple of five; the Minister's hands are positively animated at this. I think that he overestimates, but I know that he struggles with the burden of his job and no doubt it seems that he has rather a lot of Questions to answer. If he gave me straight Answers to my Questions in the first place, he probably would not have quite as many supplementaries to answer.

I find my eye drawn to paragraph 2.179, where the Government have really caught on to something: the taxation of static caravans. This is an issue to which the Government have applied their attention, but they have not applied it to the issue of a static economy-one which is flatlining now, and has been ever since this Government came into power. I encourage noble Lords to read the contribution of the noble Lord, Lord Sassoon, in our debate this time last year, when noble Lords on this side of the House were saying that there were risks to economic growth and the Minister said that this was complete nonsense. What we have seen is barely any economic growth at all over the past 12 months and, importantly, the OBR tells us that the sum outcome of this budget will make no material difference to economic growth prospects over the forecasting period. There is no material change in its forecast.

In fact, we are looking at even more austerity. Looking at discounted cash flow, which the noble Lord is very familiar with, the way that you make the numbers come out all right on discounted cash flow is to put all the growth into infinity at the end of the process, while all of the cuts and further austerity are now being pushed beyond the date of the next election.

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That is the only way that the Government are able to say, "We are still achieving our targets of fiscal balance within the planning period".

This, of course, is a Budget that will be remembered for the 45p tax and the raid on pensioners-and for the sleight of hand that we saw in a number of areas, including the treatment of the Royal Mail, where the assets of its pension fund are being brought in but the Government in national accounts are going to disregard the deficit. This is a Budget which will benefit 14,000 millionaires-14,000 people earning £1 million or more a year-by more than £40,000. How can that possibly be justified during a time of austerity? As my noble friend Lord McFall said, when the Chancellor told us yesterday about the "simplification" of pensioners' allowances, his eyes dropped down to his papers and his voice lowered. It was quite evident to all who were watching that this was a sleight of hand, which had to be revealed when we turned to look at the Red Book.

Growth is still static. Unemployment is still rising. The OBR sees no reason to meaningfully change its forecast; that is to say that it will not be until 2014 that we achieve again the GDP output levels achieved in 2007. That is a shocking outcome for this Government to put before the nation. The OBR says, however, that the composition of growth is going to change quite dramatically. In November, it was expecting 12.5 per cent of growth to come from private consumption; it now expects that figure to be nearly 40 per cent. This will be a debt-led consumption, as again is clear in the OBR report. Business investment, according to the OBR, will now fall quite rapidly. It was expecting 7.7 per cent of economic growth in 2012 to come from business investment; that will now fall to only 0.7 per cent. In 2013, it now expects that figure to be 2.5 per cent lower than it originally forecast, and in 2014 to be 1 per cent lower. That is to say that the business community is not responding to the rosy outlook that the Chancellor is describing-nor, according to the OBR, will it respond positively to the incentives to business given in this Budget.

The noble Lord, Lord Bilimoria, asked about the National Loan Guarantee Scheme, a successor to the failed Merlin project. The OBR says that this will be too small to have much effect-too small, when it was an initiative that we waited six months for. The private sector and business investment is being squeezed, and the Government have no tangible and evident plans to address that. There are no major commitments to investment in infrastructure, just words. We continue to have to live with this odd fiscal contraction, which is meant to lead to economic expansion as the private sector steps in to the capacity being released by the public sector. There is no evidence that that is happening at all. Nothing in this Budget shows a clear, coherent and carefully articulated strategy for growth. In fact, it is a rather boring and meagre Budget, which will largely be remembered for its generosity to the paymasters of the Conservative Party-the super-rich-funded entirely, if we look at the OBR report, by the money which is being pickpocketed from the grannies. It is a poor Budget with little to offer any improved prospect for economic activity or employment.

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2.40 pm

Lord Bates: My Lords, it is a pleasure to speak in this debate and I congratulate the Minister on the way that he introduced it. It is always a pleasure to follow the noble Lord, Lord Myners, but his description of the Budget as boring would not necessarily be borne out by a cursory glance at the headlines in the newspapers this morning. It seems pretty exciting. By nature, people always tend to focus on the negatives rather than the positives. If the House will bear with me, I should like to focus on a bit of good news and on a few of the positives that are coming out of the Budget as far as I am concerned, as well as the positive stories that I hear in my native north-east England. I want to pass on a few of those thoughts.

Sometimes we need to get a balance in this country and I do not think that the media help us in doing that. We had the fantastic news yesterday that the state pension is to be increased by 5.2 per cent. That is a record in recent years. It is going up by about £5.30 a week, which is an extra £250 a year. It would be nice to hear some more news of that nature as well as, rightly, hearing comments about taxation. It would be nice to hear how pensioners are benefiting in other ways through the Government getting inflation down and keeping it down. I am referring to the big picture of retaining confidence in the British economy from international markets. That is hugely important for us.

The north-east is in many ways a good place to look at as a sort of case study or test bed for how this Government's policies are working. We have heard about the attempt to rebalance the economy away from an overreliance on the public sector to a strengthening of the private sector, and that is a very good thing. I recall a few years ago hearing the devastating news of the closure of the Corus steelworks, the shelving of plans for the Hitachi train order and the huge lay-offs at Nissan. However, the mood music is changing up there. We have heard the announcement of another 2,000 jobs at Nissan and seen the reopening of the Corus steelworks, with the Government giving the go-ahead for the Hitachi train orders, meaning 800 jobs. That is a bit of good news to hear about in the area.

We always observe weaknesses rather than focus on strengths but we should play to our strengths. One strength of the north-east is that it is the only region in the United Kingdom that exports more than it imports. In the last quarter of 2011, its exports hit a new record level. What is more, that is evidence of a resurgence in manufacturing. Just this week, an exhibition was staged here by the energy company Northern Offshore, and I talked to Keith Hunter, who helped to found the organisation. He told me that he is now working with Siemens, which last year recruited 37 apprentices to work on wind turbines in the new developments offshore in the north-east of England. This year, he will recruit another 37 apprentices, and the company intends to create another 35 to 40 new apprenticeships each year for the foreseeable future. That is real evidence of what is happening on the ground.

Today, I had the opportunity to meet Allan Cook of Arlington Real Estate and Neil McMillan of Carillion Developments, who are creating a marvellous development

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at Durham Gate in Spennymoor. It will be the global research and development centre for Stanley Black & Decker, providing highly skilled jobs in Durham. They are talking about the number of jobs on that site going up from 200 to 2,000. In a sense, it does not matter what I as a politician say about these things; this is what real people creating real jobs are saying. To add to that, I was very interested to discover that half the chemicals in the United Kingdom are manufactured in the north-east of England. When Andrew Witty, chief executive of GlaxoSmithKline, speaks, we all tend to stand to attention and listen. Regarding the Budget, he said that the patent box and fall in corporation tax have,

He is referring to the above-line R&D tax credit and the fall in corporation tax. The UK was among the highest corporation tax chargers in the world and is now one of the lowest. That is a real change and it sends out a message. It sets the mood music for decisions to be made, and companies such as GlaxoSmithKline are listening to that. That is very welcome, as is the change to the higher rate of tax.

We need to get away from a politics which is perennially based around arguments of greed and envy, and we need to focus on recognising that wealth creation is a wonderful thing. The more wealth creation we get, the more jobs are created, the more tax revenues come to the Government, and the more we can invest in our public services and care for the poor at home and around the world. That, to me, is what a good society looks like. Therefore, bringing down the higher rate of tax is a very good thing. In fact, I have an endorsement of this. I was reading the report of the debate on the Budget in the other place and came across a quotation from Tony Blair's latest book. He is quoted as having said:

"I wanted to preserve, in terms of competitive tax rates, the essential Thatcher/Howe/Lawson legacy. I wanted wealthy people to feel at home and welcomed in the UK so that they could bring more business, create jobs and spread some of that wealth around".

I think that Tony Blair was right, and in essence this Government are trying to build on that.

One thing that the north-east has often suffered from is that it has had far too much faith in governments of all persuasions in Whitehall and far too little faith in itself. People need the self-confidence and belief to say, "We can get out there. We can make a difference". I was interested in a survey undertaken by the BBC-so it must be 100 per cent accurate-looking at the best places for business champions. Lo and behold, it found that according to the latest research the north-east is ranked first in England in terms of business champions. It said:

"The criteria for these include young, small companies which are less than 10 years old and with fewer than 50 employees, with directors with entrepreneurial appetite and are part of a wider corporate network".

It is great news to be given top ranking. It is nice to see the BBC give more of a headline to that type of declaration about the north-east rather than perpetually run the region down and tell us about all the problems. We are all too well aware of our problems but we do not talk enough about our successes either as a region or as a country, and I think that that is what this

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Budget does. It helps us to remember that we have some fantastic businesses and some great entrepreneurs who are creating wealth in this country. We are incredibly proud of them. What they need is not a Government who are on their back but a Government who are on their side.

2.49 pm

Viscount Hanworth: My Lords, the Budget that we are discussing today has appalled many people on this side of the House. At a time of high unemployment, when fuels bills and food prices are rising, benefits are being cut and many families are feeling painful financial pressure, the Chancellor, George Osborne, has chosen to benefit the rich. This is bound to have dire consequences for the Conservative Party and its allies when they submit themselves to the judgment of the electorate.

We understand that, before deciding to cut the top rate of tax, the Chancellor asked for an assessment of how much revenue was being derived from top-income earners and how much would be lost in consequence of this largesse. He may have been encouraged to go ahead with his cuts on learning that the tax take was less than one might imagine. To use this as a justification for cutting taxes implies an inverted logic. The reason for the revenue being less than expected is well documented in the report of the Select Committee on Economic Affairs, which tells of an estimated tax gap of £42 billion, which is a substantial proportion of the current budget deficit. The gap is defined as the difference between tax collected and the tax that should have been collected. This enormous figure represents the total of tax evasion and tax avoidance. It is a testimony to the extent to which high-income earners, aided by tax consultants who operate on an industrial scale, have managed to avoid paying their taxes. It represents a huge fiscal resource.

It is difficult to understand what justification the measures of the Budget might have had in the minds of its proponents. Can it really be true that, by taking an emollient attitude towards high-income entrepreneurs, who represent only a small proportion of the beneficiaries, the Chancellor imagined that he might stimulate the economy? Are we witnessing a reprise of the grotesque and wholly discredited doctrine of the trickle-down effect?

Perhaps we should take stock of what the Government have been doing lately to encourage industry and enterprise. We can begin with George Osborne's trip to China. This was ostensibly a trade mission in which the Chinese would be encouraged to purchase goods manufactured in Britain, and in which direct foreign investment in the UK would be encouraged. British exports to mainland China are valued at £7 billion, which could surely be increased. As it transpired, the Chancellor did very little to encourage the purchase of British goods. He did far more to encourage inward investment. Just 24 hours after his arrival, we learnt that a Chinese sovereign wealth fund was to acquire a 9 per cent stake in Thames Water. Much more of this sort was expected to follow.

It is curious that such inward investment should acquire the unquestioning approval of so many commentators. In effect, it ensures that foreign countries

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will profit from the labours of British workers by reaping the profits and dividends that would otherwise accrue to Britain. The malign effects of such investment differ from the often beneficial effects of direct foreign investment in industrial capital, albeit that the two categories of investment are often confused. However, one should not overlook the manner in which foreign enterprises, such as the Japanese motor manufacturers, are liable to displace native enterprises. They are also free to repatriate the profits and the dividends.

George Osborne's principal objective during his visit to China was to turn London into the first non-Chinese trading hub for the renminbi, China's national currency. Such a development would be a major benefit to the City of London, which is one of the most important parts of the UK economy in his opinion, and to which he has strong allegiances. As well as such benefits, we should consider the costs that are imposed on the rest of us by the City of London. Its costs are not only the episodic ones associated with the lengthy financial crisis that began in 2008. They have been borne by the rest of the economy over a much longer period.

The City of London can be likened to a diseased organ of the body. Its hypertrophy has pre-empted the life-blood that would otherwise sustain the other organs. As I have already indicated, the massive inward investment that the City has facilitated has found its way, in the main, not into physical capital but into financial assets. The City has facilitated the acquisition by foreign investors of large tracts of British industry and many of our essential utilities. In the process, the captains of finance have greatly enriched themselves and the pound sterling has maintained a high value against other national currencies.

The consequence of this overvaluation of the pound has been the inability of our manufacturing sector to export its products. This has led, over many years, to its atrophy and decline. These consequences are manifest in a comparison of the proportion of national product that originates in manufacturing in the UK with the proportions in other European Union countries. According to figures published by the OECD, the UK proportion is around 20 per cent. Among our European neighbours it is, on average, 25 per cent or 26 per cent. In view of the disadvantage of our overvalued currency, our industry needs to be fostered carefully and protected. The Government often seem to be doing the exact opposite.

They have failed to constrain the banks and the financial sector more generally to provide much needed investment funds to small and medium-sized enterprises. That is the point that the noble Baroness, Lady Kramer, made so forcefully. They have also failed to take steps to ensure that British manufacturers have an adequate chance to gain contracts for the supply of equipment to some of our major infrastructure projects. A recent example is provided by the Thameslink project. The contract to provide the rail fleet has been awarded to the German firm of Siemens.

One investment in infrastructure that is urgent, and will remain so for many years to come, is the renewal of our energy resources. Last year, investment in wind power fell by 40 per cent compared to the year before, and the Government have failed to support an industry

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that could have become a major exporter. Since 2009, our nuclear industry has been in the hands of an Anglo-Franco-American consortium, in which we are decidedly the junior partners. The Government have made little attempt to ensure that the promised renaissance of the nuclear power industry will be to the benefit of British manufacturers and technologists.

Their declared intention is to rely heavily on the private sector to achieve the necessary investments in infrastructure. We have already observed that private finance initiatives, mediated by the City, have been more costly to the taxpayer than the direct investments via the erstwhile nationalised industries. Those industries ought to have been allowed to raise funds in their own right but, in the main, they were prevented from doing so.

This Budget and the statements and pronouncements that have surrounded it seem to be the products of the ideological fantasies that were inculcated to young Conservatives in the era of Margaret Thatcher. This ideology has done great damage to our economy, both in the period of the previous Conservative incumbency and-dare I say?-in later years as well. It continues to wreak havoc.

2.57 pm

Lord Sheikh: My Lords, there can be little doubt that the state of the economy is the most important issue facing the United Kingdom at the moment. The pressures facing individual households and businesses across the country are real and very difficult. I welcome the opportunity to speak on this Motion, not least since it has a wider focus than yesterday's Budget Statement. However, that is not to diminish the importance of what the Chancellor of the Exchequer said yesterday.

We are wrestling with economic challenges on two main fronts: our own domestic budget deficit and the wider international concerns and potential threats in relation to the eurozone and oil prices. Growth in 2011 was lower than in 2010 and lower than the Office for Budget Responsibility's forecast at the time of last year's Budget. Prices have inflated more than previously predicted and, as a result, people have been able to afford less in their household spending. Our Prime Minister has been consistently clear that tough times call for tough measures, while some of those measures have not been politically convenient.

It has been refreshing to see decisions taken with a long-term view to nursing our economy back to good health. I was pleased to see that this disciplined approach allowed the Chancellor to make a number of positive announcements in yesterday's Budget Statement. I welcome the raising of the personal tax allowance to £9,205 from next year. It is the largest increase in the personal allowance for the past 30 years. I am also highly supportive of the reduction in the top rate of income tax to 45p, which will help ensure that higher earners and businesses do not take their skills and practices elsewhere. I feel that this change in taxation will provide a fair deal for persons who help to create wealth in this country. The entrepreneurs, who include the high earners, provide employment for a considerable number of people.

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The phasing out of child benefit for those earning more than £50,000 is also in my view a policy that is not only fiscally responsible but will have the support of the vast majority of hard-working taxpayers. We must be clear that giving people greater power and responsibility to manage their own budgets is a big step on the journey back to economic prosperity. Families and businesses across the country are living through these difficult times and it will be these families and businesses that help our economy to flourish once again with their spending power.

Thanks to this Government's responsible fiscal policy, the OBR states that it now expects the economy to grow by 0.8 per cent this year, before rising to 2 per cent next year and higher in the medium to long term. Inflation has been a cause of concern and getting it under control is crucial. Therefore, I welcome the forecast that inflation will fall from 2.8 per cent this year to 1.9 per cent next year.

I have enjoyed a long career in business and have a strong connection with the City of London. As a chairman of companies and an employer I feel that I have an understanding and appreciation of how businesses and employers contribute to the economy, and the challenges they face in maintaining and increasing their productivity in such difficult times.

I have visited eight different countries in the past 18 months, where I have been privileged to meet various senior figures from politics and business and to speak at a number of conferences. Engaging with our overseas partners has reasserted my long-held belief that one of the best ways we can improve our financial position, both globally and domestically, is to place a much greater focus on trade. We are the world's seventh largest economy and, as such, Britain's economic health is closely intertwined with wider global stability. Our trade surplus and global market share in key industries such as aerospace and pharmaceuticals provide us with a solid base in manufacturing and research, and the City of London maintains its position as a major investment powerhouse. However, we must do more. I want to see more of our goods and services exported overseas. I was very pleased to hear our Chancellor make reference to the key role of trade in yesterday's Budget. In addition to continuing cuts in the rate of corporation tax, he stated that we must help British businesses to expand and innovate, and that we want to double British exports to £1 trillion by the end of this decade. I believe that this will play an important role in helping our immediate economic recovery and ensuring that Britain remains a strong economic force for decades to come.

I applaud the work of UK trade and industry in encouraging more of our small and medium-sized businesses to focus on exports, and particularly in shifting focus to emerging markets. In regard to overseas trade, we should, of course, maintain our connection with America and Europe but we need to look for opportunities in India, China, Brazil and the Middle East; in fact, in every part of the world. We could do more to trade with the Commonwealth countries. We, of course, have a historic connection with the Commonwealth, which is indeed an advantage. The Chancellor announced yesterday that UK Export Finance will be expanded. This is all extremely welcome.

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It is important that we clamp down on tax avoidance and tax evasion. No one can fail to have been impressed by the energy with which the Government have taken forward this effort since May 2010. It is to be welcomed that the Chancellor has given additional impetus to this effort in the Budget. People have a right to know how their money is collected and spent. The concept of personal tax statements seems very simple, and might beg the question why we have not made them available sooner. However, if we are truly to engage effectively with the public on public spending choices, these statements are a useful tool.

It is also good to see both the Foreign Secretary and the Business Secretary working with UK Trade & Industry. I hope that this paves the way for greater co-operation between these and other government departments. I believe that if we are truly to realise our potential in identifying key markets and developing and promoting our products overseas, we must consider even more long-term joined-up thinking between those in the Foreign Office, the Department for Business and the Department for International Development. I, of course, welcome the fact that the Government have made headway on this. One of the most effective means of promotion will come from the networking and coverage provided by international trade missions. We should organise more trade missions to overseas countries. I am pleased that recently I was able to assist in arranging a trade mission. We provide aid to foreign countries but we must consider giving more financial assistance to properly organised trade missions. Aid and trade can go hand in hand. In addition, our ambassadors and high commissioners overseas could play a more significant role in this respect.

Two years ago, this Government inherited one of the biggest budget deficits in the G20. Times since then have been turbulent and have involved taking a number of difficult and sometimes controversial decisions. Let us be under no impression that there are any quick fixes, but yesterday our Chancellor delivered a Budget Statement that will ensure we continue on our road to recovery and uphold the United Kingdom as a fair, attractive and prosperous place in which to invest. We have already had a positive reaction from GlaxoSmithKline, which has announced that the company will invest £500 million in new manufacturing facilities, creating 1,000 new jobs. I would like to conclude by saying that we are indeed on a road to recovery.

3.08 pm

Lord Davies of Stamford: My Lords, I endorse the remarks of the noble Lord, Lord Higgins, about the extraordinary leaks of this Budget, which was more or less published verbatim before the Budget Statement. I do not need to repeat those remarks because everyone heard them, but I thoroughly agree with them. If the Minister would be so kind, would he tell the House clearly whether the leaks by the official referred to by the Financial Times and other papers were authorised by Ministers or, if not, whether the Treasury is undertaking an inquiry into them with a view to stopping such scandalous behaviour in future?

I was shocked, as I think was the whole country, by the extraordinary decision of this Government, when

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for the first time they had an opportunity to give away some tax breaks, to make the major priority those people earning over £150,000 a year and paying tax at 50 per cent. It is widely regarded as extraordinary, at a time when people on modest incomes and on working families tax credit are finding that that tax credit and people's benefits are being reduced and people are being made redundant wholesale by the public sector-I think of so many sailors, soldiers and airmen whom I knew in the MoD and whom the Government are now making redundant-that the Government should want to give a present of roughly £40,000 to someone who is earning £1 million a year. That is quite obscene and extraordinarily insensitive.

It was almost as obnoxious that the Government should abolish the higher personal tax allowances for older people, which apply only to those whose total income is less than about £25,000-I cannot remember the exact cut-off figure. Surely they are some of the most deserving people in this country; they are retired and have incomes at a modest level that can have been accumulated only through quite brave and self-sacrificial efforts at saving during their careers or small occupational pensions, and now they are being denied their benefit. Again, that is an extraordinary decision, reflecting an extraordinary set of priorities and values.

The Government have got themselves into the most frightful mess about child benefit. They have introduced a taper, which admittedly is slightly better than the previous system where the benefit was simply removed at the point of earning a £40,000 income. Nevertheless, what they have done introduces serious anomalies. Between incomes of £50,000 and £60,000 there will be a high rate of withdrawal of child benefit. I do not know what that rate will be-perhaps the Government can tell me-but it will be a very high effective marginal tax rate. I remind the Government, as they appear to have forgotten, that marginal tax rates are essential in determining incentives to save, to work, to take risks, to start businesses, to work harder, to get promoted or whatever. It is most undesirable for the Government suddenly to introduce a high effective marginal tax rate for this category of earnings.

What is more, the measure leaves the distortion and the great unfairness that if two parents are both working, they can enjoy an income much greater than in the case of a single parent who is working and continue to have the full child benefit. That runs quite counter to all the rhetoric that we heard from the Government about supporting the family and so forth. Perhaps that rhetoric was nothing more than rather insincere PR, which I think is rather a sad position.

I am concerned about the consequence of putting a ceiling on all reliefs. I support the principle quite strongly but I am concerned about the impact on charities. I would be grateful if the Minister could make clear whether in some way this would limit people's ability to offset their charitable giving against tax; it would be a very unfortunate development if that were the case. There is a complete distinction between individuals who give away their money-they no longer have it and therefore should not be taxed on it-and those taxpayers who invest their money in tax-efficient savings schemes such as SIPPs and EISs. They still continue to own those assets and have the

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benefit of them, so the position is completely different and in that case it is quite right to impose a ceiling. It is quite wrong to do so if it affects the income of charities and the propensity of people in this country to contribute to them.

On the detailed tax measures, I support in principle the introduction of a general anti-avoidance rule but with an important condition, and I would be greatly reassured if the Minister could assure me that that condition will be applied: that there will be a right for taxpayers to receive timely pre-transaction rulings from HMRC when it wishes to remove the uncertainty that will otherwise be created by this GAAR. The point is that, under present arrangements, if you want to know what your tax liability is, it is sufficient to read the taxes Acts and look at the jurisprudence, or pay someone else a large amount of money to do that for you. Then you know exactly where you stand. Under a general anti-avoidance rule, that will no longer be the case. You might be completely in line with the texts available, which might tell you quite correctly that a certain rate of tax should be applied, but it is then open to HMRC to challenge you and say that actually you should pay a vast increase on that, a penal rate, because the only or substantial reason that you have arranged your affairs in that way was to avoid tax.

In many cases, there may be respectable reasons for a particular structure being adopted. The structure may happen to be tax efficient as well, but there may be other reasons, market reasons, strategic reasons or risk-management reasons-foreign exchange exposure management, for example-which lead you to adopt that course. Complete uncertainty is created as to whether those reasons will prevail and be accepted by HMRC. The disincentive to invest in this country which will be introduced if that uncertainty is allowed to exist will be much greater than the value of several points off corporation tax, desirable as that is in itself.

That uncertainty must be removed. The only way to remove it is to give people a guarantee that they can get a pre-transaction ruling from HMRC, that they can clear with HMRC a particular structure or arrangement in advance in a timely fashion. There should be a limit of 30 days within which HMRC must respond. I do not know whether the Government have in mind such a provision. If they do not, they should look at that urgently. If they do, I hope that they will reassure me that they are already working along those lines. It is not easy, because I am sure that HMRC will find all sorts of arguments why it cannot or should not be done: it does not want the risk or the responsibility; it is afraid of being taken to court; it does not have the people or the time; all the usual bureaucratic reasons. I am convinced that it will have to be forced to do that, but it is important that it is if the GAAR is to come into effect.

Finally, I make some remarks on the macroeconomic management of the Government. It seems to me that their fiscal policy has been far too tight. The fact that they have successively had to revise down their growth rates proves that. The excuse of the sovereign debt crisis in the eurozone is of no use, because that did not begin to affect the markets and confidence until last autumn. It is clear that they got their judgment wrong. It would have been much better to have continued on

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the general curve of reduction of public expenditure and the deficit which they inherited from the previous Labour Government.

That said, clearly the Monetary Policy Committee takes the same view and thought that it was necessary to do something by way of a monetary boost. Because, at the present rates of interest, it cannot use the traditional interest rate instrument, it has gone for the quantitative easing instrument. I have nothing against that in principle, but it raises two problems: a short-term and a longer-term problem. The short-term problem is that it is not very efficient. You need an awful lot of quantitative easing to get a given amount of credit creation-£200 billion or £300 billion each time. Part of the reason for that is that we are in a deleveraging recession or near recession in which there is not a great propensity on the part of households to take on more debt; they are trying to get rid of their existing debt. Part of the problem is the confidence in the economy at the present time, and part of the problem is that the Government are in contradiction with themselves, because they are trying to impose on banks the new Basel rules for high capital ratios, and that runs against the idea of the banks using that money to leverage a large amount of lending. That is the short-term problem.

Then there is the longer-term problem of what the Government do with all the instruments that they are buying-or the Bank of England, on their behalf, is buying. If they are cancelled, that represents a substantial increase in the money supply, which could be extremely dangerous once the output gap is reduced, narrowed. On the other hand, if the intention is to reverse the transaction, there will be great pressure on the markets, which will of course compete with the gilt issue and the need to renew the considerable amount of government debt in future. It will mean that interest rates are likely to be higher at that stage in the cycle than they otherwise would be, because of the need to reverse the transaction.

I agree with the noble Lord, Lord Higgins, on that. There has been nothing like enough discussion in this House or among the public about the monetary easing by means of quantitative easing. There is all too great a temptation to see this as a free lunch, a cost-free exercise with only benefits attached to it. I should be grateful if the Minister would address those problems in his summing up.

3.18 pm

The Earl of Listowel: My Lords, I shall address the issue of childcare and related issues. Professor Melhuish, in his presentation to the OECD in 2011, highlighted that China had invested more than any other nation as a percentage of its GDP in childcare in the past 15 years. The PISA organisation, which looks across the globe at educational performance, finds a very close connection between good-quality early years care and long-term educational outcomes. Although, in the past, Finland has been at the top of the PISA tables for numeracy, literacy and science, Shanghai is now at the top of those tables of achievement.

I thank the Minister for introducing the debate. I am grateful to him for reminding us of the investment by GlaxoSmithKline in Cumbria, and in the creation

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of jobs. The noble Lord, Lord Sheikh, also mentioned that. A number of other companies are also investing in this country and that is very good news. I noted what the Minister said about our infrastructure plans and the emerging economic giants, such as China. I shall return to that subject. I also noted what the noble Baroness, Lady Kramer, said about credit for small and medium-sized businesses. That is a recurring theme whenever I speak to owners of smaller and medium-sized enterprises. I welcome what the Government are doing in this direction although I wonder whether they might not go further still. I particularly welcome what might be seen as a small thing-the 5 per cent rise, or 37p increase, in the cost of a packet of cigarettes. Cigarettes are the bane of the nation's health and that increase should be highlighted.

I am sure that all noble Lords are very concerned about the exceedingly high rate of youth unemployment, which stands at more than 1 million. I hope that the Minister will say something about the long or medium-term forecast on youth employment and that he will be able to offer some encouragement in that regard.

As I am a trustee of a child welfare organisation, the Michael Sieff Foundation, I would like to address three key points: childcare, strong family attachments and getting the professionals in place who can support families to be strong. I have already mentioned the importance of childcare. Recently, however, when speaking with Save the Children, I was reminded that the United Kingdom is among the three most expensive nations for childcare. Although I welcome the steps which this and the previous Government have taken to make childcare much more widely available, its provision is still very expensive. I hope that we might move towards the situation in many other nations where childcare is as freely available as school and health provision. If we want to compete in the future, we need to have easy access to good-quality childcare.

The noble Lord has referred to investing in the physical infrastructure, in roads, in universities and in academic research. I would like to say something about investing in the social infrastructure. If we want young educated people who do well, we have to acknowledge the importance of schools. It was interesting to listen to the comments this week of the Chief Inspector of Schools about the importance of school leadership and excellent teachers. In his view, we have the best cadre of new teachers, which is wonderful news. We are grateful to the previous Government as well as to the current one for their commitment to teachers and to education.

Academics say, however, that schools can make only a 10 or 20 per cent difference to the educational outcome for children, and that the biggest difference is determined by what happens at home. The principal indicator of whether a child will succeed in education is how successful their parents were in education. So we need to support families better. If a family experiences domestic violence in the home, if the parents are alcoholic, or if they are simply at loggerheads all the time, even the most enthusiastic and able teacher will find it difficult to get the child in that family to concentrate and do well in school.

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We have a real issue with so many young men growing up without contact with their fathers. That issue again came to the surface in a recent report from the Children's Commissioner on school exclusions. This report highlighted the large number of Afro-Caribbean boys being excluded from schools. A documentary that I saw a few years ago about a young Caribbean boy in a children's home reminded me of the greater number of Afro-Caribbean boys in local authority care. We saw this boy at Christmas and on his birthday. His father had told him that he would visit but never turned up. The educational and life outcomes of so many young men are being seriously diminished because they do not have a father or steady male role model who will take a continuing interest in their education, and support and encourage them. I only have to think back to my own father to recognise how important he was to me and to my education. We must address this as a nation if we are to be as productive as we can be in future.

To do that, we need the right professionals in place. I spoke of the welcome recruitment of excellent teachers to the profession. The previous and present Governments have done good work with health visitors, and with child and family social workers. It was very encouraging to hear from Tim Loughton MP, the Minister in the Department for Education responsible for child protection. He took the trouble to spend a month last year in a social services department, shadowing social workers. He has a long-standing commitment to raising the status of social work. The Government, under David Willetts and Michael Gove, have raised the threshold of entry to social work. Many agree that the new generation of social workers is of the best quality that has been seen for a very long time. This is extremely good news.

We need to invest in these people. If we invest in accountants and lawyers, we pay the best money for the best people because our capital investment is so important. We need to take the same view with vulnerable children and families. If we fail them and they grow up without an education, dependent on the state and entering the criminal justice system, there will be huge costs to us. We have an ageing population and we need to make the most of every young person in the country. We cannot afford to depend on immigrant labour. Many other nations are competing for it. We must make the best of the resources available to us.

I am very grateful for the work of the right honourable Iain Duncan Smith, Secretary of State for Work and Pensions. He has worked for a long time with the Centre for Social Justice, which he set up to look at what he called broken Britain, and the families that are not functioning as they need to, and to support early intervention. It was encouraging last week to hear about his social justice strategy, and the mooting of an early intervention foundation funded by business to intervene early and effectively with families. The Labour MP for Nottingham North, Graham Allen, has worked with Iain Duncan Smith on these important developments.

I mentioned the costs of failing to intervene early, so I will wind up. We are of course in a terrible recession. Difficult decisions have been made about

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cuts, particularly to local authority budgets. Authorities have had to make tough choices and have chosen in particular to cut funding to charities that support families. One hears that many charities that supported struggling families are no longer there to do so. As soon as we can, we should start reinvesting in supporting those vulnerable families. We need to recruit social workers who will develop a network of foster carers, because they depend for support on good-quality social workers. We need teachers and early-years workers. In general, we need to think about the familial infrastructure of the country as well as the concrete infrastructure if we are to compete in future with countries such as China. We must think about how to make good-quality childcare more affordable and available. I look forward to the Minister's response.

3.29 pm

Lord Desai: My Lords, it is a great pleasure to take part in this debate on the Budget. When I came into the House 21 years ago, I was able to extract a concession from the then Government that the Budget would be discussed. I was proud to open the debate on the Budget from the Back Benches. That practice was discontinued in 1997, when my party came to power. I am glad that after a few years we have resumed this practice, and I hope it continues. Of course, I should add that we have had an excellent maiden speech from the noble Lord, Lord Heseltine. It was a treat to be able to listen to what I can only call a class act. We look forward to many more interventions from him.

I have been known to be partisan about the policy of a rapid elimination of the deficit. Indeed, before the election, I was one of the people who wrote the letter to the Sunday Times saying that a total elimination of the deficit within a Parliament was absolutely essential, so I make no question about the overall strategy that the Chancellor has adopted. Unlike many previous Chancellors who in two or three years attempted to deviate from the path they set for themselves, the present Chancellor has kept to that path at considerable cost to his popularity.

I am not going to dwell on matters of tax policy and so on as other people have spoken about that. I do not find it shocking that the Conservative Party benefits the rich and taxes the poor. What else is it for? That is what economists call rational expectations. That is what we expect to happen, so I regret that none of that shocks me. However, what does shock me-and I think nobody else has mentioned this so far-is that the Chancellor had an excellent opportunity to revive growth and has made a tactical blunder in not taking it.

So far, when we have mentioned plan B, or something like that, the Chancellor has correctly said that he cannot hatch a plan B or give more money to the green bank because if he does that the debt numbers will go up. I quite agree that he has set a path for five or six years, whatever it is, and has to stick to it. However, he earned himself a windfall of £28 billion from the Royal Mail pension transaction. I take the view that he should have spent this windfall in reviving the economy rather than salted it away repaying the debt. People may consider that that contradicts what I said before, but once the Chancellor has set a timescale of

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five or six years, and it has been approved by the market, he does not need to overegg the pudding. On the other hand, as the OBR points out, there is a one-in-four chance that 2012 will see a recession, a drop in growth. The OBR predictions of 0.8 per cent this year, 2 per cent next year and so on are all right, but they are not very exciting. If he had had the courage to take this £28 billion and put it into the economy-and I shall come to how I would put it into the economy-put it into the green bank, done an infrastructure project or whatever, he could have shown that he is doing something to get growth in the economy without affecting his long-run strategic plan to eliminate the deficit. This is a matter of choice. I would do it, he would not do it, but he is the Chancellor and I am not. However, he is missing a good opportunity that will not come again in the next three or four years.

Now £28 billion is okay, but it is not a large sum of money. One of the frustrating things about reading the Red Book and so on is that nowhere do you find the figure for the total GDP of the country. You have proportions and percentages and you have to divide one by the other to find out. I think it is roughly £1.7 trillion, give or take a few hundred billion, so £28 billion is around 1.5 per cent of GDP. It would be a good spending boost to give the economy-maybe in one year, maybe over two years-and if you admit that the multiplier is, I do not know, one and a half, you will be able to revive the economy to the extent of, say, £2 billion to £3 billion. That would be a high growth rate. If that came on top of the 0.8 per cent, you would have a 2 per cent-plus growth rate.

There was a choice for the Chancellor to make here. He has deliberately not made it. He mentioned in his Budget speech that he was not going to spend the £28 billion but he is going to repay the debt. If you look at the debt numbers given in the Budget, it gives him a slight advantage this year, but there is really not that much difference in the path to debt repayment. I would have liked the OBR, which has done an excellent job, to have tried out the stimulation effect on the economy if the Chancellor had taken the liberty of spending £28 billion this year.

Of course, some people may prefer to give it to the green bank. If the noble Lord, Lord Skidelsky, had been here, he would have argued once again for his investment bank. I would prefer something much quicker. Twenty-eight billion pounds is roughly £1,000 per household. Give every household a £1,000 Diamond Jubilee voucher on the condition that it cannot be saved; it has to be spent. If the Chancellor had done that, it would not only have tremendously lifted the doom and gloom from the economy and been a good celebration for the Diamond Jubilee, it would have been an excellent boost to growth. This would have been a win-win situation, instead of which the repayment of debt disappears somewhere in the footnotes of a table.

As the OBR has said, the Budget does not alter the growth path of the economy one tiny bit, so the repayment has brought no advantage to the Chancellor. He did not ask me, but had he guessed what I might say and done it before I said it, it would have been a tremendous boost to the economy. If there is any chance even now to recook the books and go back and

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forth, that would be a very good idea. It is desperately needed if we are to avoid what is very likely to be an output drop this year. There is sufficient excess capacity in the economy not to worry about inflation. A £28 billion boost would have been a good thing.

Finally, I welcome the idea that the Chancellor wants to float perpetual bonds, taking advantage of the lower interest rates. I only have one suggestion: they should be called Gideons.

3.37 pm

Lord Northbrook: My Lords, it is always a pleasure to follow the noble Lord, Lord Desai. I welcome the opportunity to take note of the UK economy in light of the Budget. First, I will look at the general UK economic background and then I will move on to look at specific measures in the Budget.

Initial comments on the Budget forecasts have in general endorsed the OBR inflation forecasts, which state that it will fall back sharply though the remainder of 2012 and ease further to be close to the 2 per cent target from early 2013, as the upward pressure from commodity prices eases and spare capacity weighs upon inflation. Growth forecasts have given rise to more criticism. It is good news that the OBR has revised upward slightly the forecast for this year to 0.8 per cent, although commentators feel that the 2013, 2014 and 2015 forecasts could be a little optimistic. However, the forecasts are supported by the Bank of England, which says that the UK will avoid recession.

The Chancellor and the Minister are quite right to draw attention to two jokers in the pack, which could significantly affect the forecasts. First, there is the OBR euro area growth downgrade by 0.8 per cent. Secondly, there is the problem of a further spike in the oil price due to the Iranian situation but I hope that this might be lessened by further Saudi release of oil production on to the markets.

The budget deficit too is forecast to decrease. The Chancellor must be given credit for sticking to his guns and bringing this down. His forecast of £126 billion is £1 billion better than at the time of the Autumn Statement. Yesterday's borrowing figures, however, although covering only a month, show that there can be no cause for complacency going forward. The Chancellor will need to continue with his fine determination to get this figure down to £21 billion, as forecast, by 2016-17 when the structural deficit, he states, will be eliminated.

Here, I should like to take issue with the noble Lord, Lord Eatwell, in his opening remarks. He stated that there was not a particular crisis in the finances before the banking crisis. However, I think that the debt figure of £36 billion was already breaking the Government's own rules. I should also like to draw his attention to a speech made by the noble Lord, Lord Myners, when he said:

"There is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation. There will need to be significant cuts in public expenditure, but there is considerable waste in public expenditure".-[Official Report, 8/6/10; col. 625.]

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The shadow Chancellor, Ed Balls, has stated that there can be no let-up or any reversal of the cuts of the Government.

How does the overall Budget help the Chancellor's plans? According to table 1 in the OBR fiscal and economic outlook, the total fiscal impact to 2016-17, as a result of the policy decisions, will be about broadly neutral. As a result, much on the expenditure front needs to be done to get the deficit down. The Chancellor has said that if, in the next spending review, the Government maintain the same rate of reductions in departmental spending as they have done in this review, a further £10 billion of savings would have to be made to welfare by 2016. That is a challenging task.

The IFS green budget states that,

and that only 12 per cent of the planned total cuts to public service spending, and just 6 per cent of the cuts in current spending, will have been implemented by the end of this financial year. Page 67 of its report compares the size of the cuts planned to those of other economies. Over the next few years, the UK currently has the fifth-largest planned reduction in public expenditure as a share of national income. Only Iceland, Greece, Estonia and Ireland are planning larger cuts. They are large by historic standards. The Government's plans will be the tightest seven-year period for spending on public services since the Second World War. Over the period April 2010 to March 2017, there will be a cumulative real-terms cut of 16 per cent, which is considerably greater than the nearly 9 per cent cut achieved from 1975 to 1982. The challenge is great but I am sure that the Chancellor will make every endeavour to achieve it.

There is much to praise about this year's Budget. First, I would highlight the decision to cut the top rate of income tax from 50 per cent to 45 per cent. This sends a good signal to business and wealth creators. Secondly, I fully endorse the planned lowering of corporation tax. Again, this sends out a good message to entrepreneurs who should also benefit from the £20 billion national loan guarantee scheme. I also applaud the move to consult on a new cash basis for calculating tax for firms with a turnover of up to £77,000. Any move like that will make filling in tax returns dramatically simpler for up to 3 million firms, which must be a good thing and helpful to business.

For individuals I shall highlight two areas. First, the adjustment to the cliff edge withdrawal of child benefit was long overdue. The second area is the increase in personal allowances to £9,205 from next year. That is a positive step. Other measures in the Budget may not have an immediate effect, but could be a useful long-term help to the UK economy. The decision to relax the planning laws to encourage sustainable development should help business. In addition, moves to encourage the life sciences, aerospace and technology sectors are helpful. There are a few measures that I am less certain about. The abolition of the additional age-related allowance seems to have caused quite a stir, even though, as the noble Lord, Lord Newby, stated, it is made up for by the increase in the pension.

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On a separate theme, could I ask my noble friend about the figures in table A1 for oil companies over the next five years with the change to North Sea oil and gas decommissioning? I see that it is going to cost the industry a net £1,145 billion over the next five years, which is a substantial figure. Are those figures due to last year's Budget? Also, where does the most welcome £3 billion new field allowance for large and deep fields west of Shetland come in table A1? I can only see figures for the first two years.

While some commentators have criticised the increase in stamp duty, I find myself less concerned about it, particularly with the plan to clamp down on offshore companies avoiding the duty. Clearly this hits central London hard, so as long as the knock-on effects have been thought through, such as the effect on building work in London, I see no problem with it. Likewise, on the introduction of the general anti-avoidance rule, I take on board the comments of the noble Lord, Lord Davies of Stamford, on this. It is right to press ahead with a narrowly targeted GAAR aimed at truly artificial schemes, but supporting guidance must be practical for taxpayers as well as HMRC.

Two other areas give me cause for concern, the first of which is the 3p rise in fuel duty that is due later in the summer. This will not help the beleaguered motorist as prices are at record highs. The Government may correctly say that the price of oil is beyond their control, but I do not see why the increases cannot be delayed. Can the Minister say how much this will raise in tax? The other issue I am not happy with is the extra 300,000 people who will be dragged into the top rate of tax as the threshold for the higher rate is reduced to counteract the effect of higher personal allowances. In addition, there are still anomalies of high marginal rates for taxpayers with children and an income of between £50,000 and £60,000 and between £100,000 and £118,000, according to today's Financial Times.

Overall, I commend the Chancellor on his Budget and for sticking to his last in cutting the budget deficit, offering sensible tax rates to individuals and companies, and setting in place longer-term projects to encourage the return of growth.

3.47 pm

Lord Haskel: My Lords, last month I was in the United States, another country with a very large deficit. But I could not help noticing that its policy for tackling its deficit is much closer to Labour's policies than to the Government's measures. I also could not help noticing that its policy seems to be working, so I hope that the Prime Minister took note of that during his visit, because a lesson is there for all of us to learn.

The Minister spoke of the Government's intention to support business and to get more balance into the economy. He pointed to some of the successes. He mentioned Nissan and Jaguar cars, and in pharmaceuticals a decision that was made within 24 hours of the Budget. They work fast at GSK, or was it just a PR stunt? But even so, the economy is forecast hardly to move. My noble friend Lord Myners reminded us that we are still producing less than we did four years ago and that the job situation is getting worse. Indeed, unless we get the economy growing faster, it looks as if

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our children and grandchildren are going to have a lower standard of living than ours, in spite of the granny tax. What is the Government's Budget going to do about it? Apparently, very little.

We all know that the way to cut the deficit is through growth, and growth needs investment. Yet as a result of what has been proposed in this Budget, as my noble friends Lord Eatwell, Lord Wood and Lord Myners told us, the OBR has reduced its forecast for investment this year and next year, partly because we all know that reducing corporation tax does little for investment but encourages retention.

There have been all kinds of policies to provide business with finance. Quite rightly, my noble friend Lord Sugar and the noble Lord, Lord Bilimoria, expressed their doubts about their validity. They are doubtful because the schemes do not seem to be working. Project Merlin had hardly any impact. Why will this one work? Funds intended for business development are being used by the banks to strengthen their balance sheets. They have borrowed €8 billion from the European Central Bank at 1 per cent interest for three years, yet business is still being starved of funds. It is no wonder that a frustrated Vince Cable wrote to the Prime Minister drawing his attention to the piecemeal policies to help business. I agree with Mr Cable. Let us unite behind an objective which has relevance to every part of the economy and every part of government, and can create jobs and encourage innovation. It should be familiar to us all and not necessarily just in terms of money.

Without this kind of objective, the outlook will feel bleak. We need something which gives people hope and business confidence-the confidence that the Institute of Directors is calling for. The noble Baroness, Lady Randerson, accused me and others on this side of the House of living in a parallel universe. Perhaps we are, but we are living in the real universe. So let us try a different approach in the real world and ask: what is it that has brought growth, progress and jobs to our economy? What is it that has helped us raise productivity and use intelligent machines to make the Jaguar and Nissan cars that we have heard about? What is it that enables us to invest in modern systems of additive and high-speed manufacturing? What is it that has enabled us to create lots of new small businesses with products and services which are exported all over the world? What is it that has enabled us to use the discoveries of genomic science to create all kinds of new health products? What is it that has enabled us to build the creative economy and the knowledge economy? The answer, in a word, is digitalisation.

Where have many of the well paying jobs come from in the past 10 years? It is the digital economy. Where have many of the improvements in productivity, in processes and services that we have seen in the past ten years come from? They have come through innovation using clever software, microelectronics and clever design. In manufacturing, in services, in communications, in health and in entertainment, digitalisation in its broadest sense has been the key to growth and progress. Before the Minister says to me, "Well, you're 10 years too late. Digitalisation is too mature. We need the next thing", let me say that he is wrong and that it is only just starting. We are only just beginning to feel its impact and to learn what it can do. There is a long way to go.

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So here is a strategy for the noble Lord, Lord Heseltine, who is searching for competitiveness, as he explained in his excellent maiden speech. Digitalisation can be the theme that unites and joins us together in our plan for growth and competitiveness. It is everywhere. Let programming be taught as a language in every school. Digitalisation is familiar to every one of the young unemployed people who concern the noble Earl, Lord Listowel. Let us use it to encourage them to get involved and to seek the training and skills which they and the economy need. The Technology Strategy Board and the technology centres of excellence are all aware of what digitalisation can do for industry. Let this be a theme for their valuable work. The same goes for healthcare and medicine. Instead of selecting industries which the Government think have a future, let us support the introduction of digitalisation in every industry. We know that it will make them more competitive. It is essential at this time when the rising cost of energy and materials affects every business. We have become very good at the innovative and clever stuff of using microprocessors, of writing clever software and of miniaturisation, and selling it. So let us use it to grow our economy faster. As other noble Lords indicated, there are a couple of pointers towards this in the Budget, such as a tax break for digital entertainment and less tax if you manufacture your patented inventions here. But that hardly scratches the surface. The Minister spoke about providing better broadband facilities in some parts of the country. The noble Lord, Lord Fink, welcomed that. But, as your Lordships' Communications Committee was told only this week, the plans are completely inadequate and leave us far behind our competitors.

Digitalisation can have an impact even on those industries that we have all but written off. Is the Minister aware that the first new yarn dyeing plant for 20 years was opened in Yorkshire recently? It is competitive thanks to digitalisation.

The Prime Minister must be in favour of this because recently he signed a letter together with 11 other EU Prime Ministers calling for the creation of a truly digital single market by 2015. That is not central planning: it is a way of encouraging everybody to pull in the same direction-a co-ordinated, cohesive strategy accountable to Parliament, to industry and the public, designed to create growth.

In the Budget, I would have liked to have seen digitalisation become a crusade which unites the piecemeal efforts that Mr Cable is so unhappy about. It will help us to create jobs, find investment and find the growth that we all seek. It could be the start of something that is not only made in Britain but imagined in Britain.

3.56 pm

Lord Flight: My Lords, I congratulate the Chancellor on his Budget which, by and large, makes the best scope of the limited manoeuvre that he has and one understands the political constraints that are upon him.

The first obvious point, that many other noble Lords have made, is not backtracking from the programme to phase out the deficit in the public finances. In

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overall terms, what we have is modest cuts in spending that have been able to pay for welcome increases in personal allowances.

I support the comments made earlier in this debate by my noble friend Lord Higgins about leaks and the point that they have led to unfair and wrong publicity over the abolition of additional personal allowances for older people. It is fairly clear that if you take together the increase in state pensions, the new £140 pension and the increase that is on its way in personal allowances, overall, those pensioners will be better off. I hope that that message will be put across successfully.

I welcome especially the supply-side reforms, such as the corporation tax cuts. We do not have that much to offer but it is crucial for us to be competitive on that front. I welcome the enhancement of incentives in EIS, VCT and with EMI schemes for investment in small cap business. I declare an interest as chairman of the EIS Association. I welcome the increase in personal allowances and moreover the reduction next year in the top rate of income tax.

It seems to me that the Opposition are engaging in crocodile tears and playing politics. It was quite clear for most of the period of the Labour Government from 1997 onwards that Prime Minister Blair, his advisers and his Cabinet considered that a 40 per cent tax rate was the highest tax rate compatible with a successful economy.

I also accept some of the pragmatic measures taken to stimulate growth, although I am somewhat uncomfortable with the belief that government know best on where and what to do. I certainly hope that the changed measures for North Sea oil will result in reviving production and correct what I think were mistakes made last year. Certainly, support is needed for the life-science industries and I hope that the Government will address the issues raised in the House by my noble friend Lord Ryder on the Government's problems with EU regulations.

I support what are bluntly Keynesian initiatives to invest in infrastructure and on a public/private basis. The increase in export credit is particularly necessary. The facilities that this country has been able to offer have been very poor in comparison with, say, France or the USA. I am sceptical of some of the other particular public-sector initiatives. To me, they smack a little too much of the sort of tinkering that we saw from Gordon Brown.

The Budget has a coherent growth strategy and there is a shift from public to private-sector investment. I am also pleased that the Budget did not tinker further with tax incentives for pension savings. It seems that, by constant tinkering, this country has substantially wrecked what was a very successful pension-saving situation up until 1997. I would like to have seen a more philosophical base and framework behind the tax reform in some of the supply-side growth policies. Although I understand the political reasons for bashing the rich, my own view is that taking that line is inappropriate and unwise, particularly for a Conservative Chancellor.

The Budget includes some items on which I have concerns. First, it would have been better to leave child benefit alone and found the cuts elsewhere. Child

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benefit was a substitute for a very rational income tax allowance for those who had the substantial burdens of bringing up children, whether rich or poor. Even though the measures announced yesterday improve upon the initial proposals, there is a still a steep rate of tax on individuals with between £50,000 and £60,000 per annum. To me, it is fair that those with the costs of raising children should enjoy a tax benefit. The economy could not go forward unless children were raised and there to do the work for those of us as we get old.

I personally think that the 7 per cent stamp duty tax was somewhat less than wise. It is yet another burden on London and the south-east, which already subsidises the rest of the country by over £50 billion per annum. It will be counterproductive in that it will simply reduce the rate of turnover as it is reduction tax. It is also another attack on aspirants. London has the problem that house prices are far too high because of the many wealthy foreigners who come here-more than 50 per cent of the market. For those wanting to buy a house in London, it is already bad enough and too expensive. This is just putting the cost up further.

I am also extremely concerned at the proposed measures to limit tax relief to 25 per cent of people's incomes. As it stands, that would appear to apply to charitable giving, which seems a complete madness and contrary to the whole big society concept. I am not clear, but there could be elements of retrospective taxation here. The whole EIS situation rested on the fact that venture capital investment has not been very successful in this country, largely because the public sector is far too large. A lot of these investments fail but there has been the known ability, where they fail and you lose all your money, to offset that against income. If that is removed, there is an element of retrospection to it in that people have made investments on the basis that that was there. No matter how politically justified, I am uncomfortable with all forms of retrospection in the tax area.

My main point is that the Chancellor spoke of Britain not getting left behind compared with the growing economies of Asia and South America. It is correct that this Budget has done something towards addressing that, but we have a long way to go. Being 10th in the league table of the most attractive economies is nothing to boast about. In fact, we are not a particularly attractive economy in which to do business. Many will have seen Willie Walsh's article, and the Chinese find this a very difficult and unattractive place to do business.

We have a long way to go. In my book, we are above all dragged down by a public sector that is too large and which has negative productivity, so that the private sector has to run even faster both to offset the negative productivity in the public sector and to achieve some growth. With a 50 per cent public sector you are never going to be a successful economy; you need to get below 40 per cent and towards 35 per cent. I hope that the Government's objectives to achieve that by 2017 will come about. But the truth is that there is still masses of waste in the public sector, with duplication of activities, quangos doing things that add nothing of any value and, basically, excess regulation. It is a pity not to see a slightly more radical approach on those fronts.

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I conclude by wishing the noble Lord, Lord Heseltine, every success in the challenge that he faces. There is no one better to do that job, and I think that individuals can achieve things even in the face of difficulties. If this country is going to succeed and prosper in comparison with Asia over the next 20 years, we will not be able to continue with welfare and NHS expenditure representing over half of public expenditure, with some 25 per cent of GDP through that route. We will have to make ourselves enormously more competitive, get rid of a lot of regulation that damages this economy and address the issue of regulation that damages our economy and comes from the EU. In the 1980s and 1990s, we were focused on not wanting our economy to become sclerotic, as the economies of most of continental Europe had become. That is what has happened to us, and we need to be a lot more radical in order again to become a vibrant economy.

4.07 pm

Lord Liddle: My Lords, this has been a very good debate about what I found the profoundly depressing event that was yesterday's Budget. The only bright spark in that Budget was the announcement that the noble Lord, Lord Heseltine, was going to take a thorough, long-term look at the competitive challenges facing the country. He spoke about that with sharpness and authority today. However, much of the rest of the Budget-its main themes-was about politics and about holding together an increasingly fractious coalition, with the Chancellor positioning himself for the future leadership of a rightward-trending Conservative Party. That is what the Budget was about; it was not about achieving the necessary national unity and consensus that we need to address the long-term challenges.

Some of these challenges, as the noble Lord, Lord Heseltine, said in his remarkable speech, have been with us for a century. But we have also been hit, as my noble friend Lord Eatwell described in a wonderful metaphor, by a tsunami of a banking crisis. It was a global banking crisis that has led to the deepest slump that we have experienced since the 19th century; it is the gravest banking crisis since 1825, as some economic historian friend of mine was telling me. The likelihood is that we will not recover the level of output that we achieved in the UK in 2007 until 2013 or 2014 at the earliest.

This was a crisis that few anticipated. The occasional economist did so; Mr Vince Cable claims to have anticipated it as well. But certainly the majority of the political establishment, such as the Governor of the Bank of England and the Treasury mandarins, never saw it coming for a moment. It was a global crisis; not a crisis of public debt in Britain, but in origin a crisis of the total debt of a banking system and private debt bubble which has reached more than 500 per cent of British GDP. As a result of the explosion of that private debt bubble, we have had our tax revenues in this country decimated. That explains the rising deficit, not the Labour Government's irresponsibility. We have had a banking system which is now completely dysfunctional, and is still unreformed and not lending to the economy in a proper way. We have had an economy which is badly out of balance, a trading sector that is too small and manufacturing that has shrunk.

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Here, I accept that Labour was slow on its watch in seeing what was happening to manufacturing during its period of office. British manufacturing was, to a large extent, crucified by an artificially high exchange rate, which rose far too high in the past decade as a result of the banking system pulling in capital from overseas, with its assets rising from 200 per cent to 500 per cent of GDP. In other words, there was a repetition of a problem we have been familiar with in Britain: of the interests of the City of London being different from the interests of the manufacturing sector of the economy. In the essence of a policy for manufacturing, one key element has to be a policy for the exchange rate. Yet this is still something we do not talk about in polite company in this country, and we have to change that.

As a result of this crisis, we face very tough times, and on this side of the House we, of course, accept that. There is no alternative to spending cuts and tax rises, or to many difficult decisions. For my part, I certainly accept that there are severe, practical limits to the scope for Keynesianism in one country. However, there is more room for manoeuvre on the deficit than the Government have so far been willing to exploit. On youth unemployment, the Government are doing less than the Thatcher Government did with the Manpower Services Commission in the 1980s. On mobilising investment, we are still short of the action necessary to get the huge investments in energy and housing that we need. There is still scope for prioritising within public expenditure social investments such as training, research and higher education, which will strengthen our position in the knowledge economy-exactly the sort of thing that the Swedes did in response to their banking crisis in the 1990s. On a prudent view of public finance, those kinds of expenditures on youth unemployment and social investments would pay for themselves within a very short period. We ought to be doing more to put money into these areas as part of our growth strategy.

Most of all, we need a more coherent industrial strategy for Britain. It is a great pity that when it was first elected the coalition, instead of building on my noble friend Lord Mandelson's industrial activism, chose to distance itself from it. Instead of reforming the regional development agencies and using them as an instrument for the Regional Jobs Fund which the noble Lord, Lord Heseltine, chairs, it chose to abolish this means of getting money out into the productive economy. There has been, as Vince Cable said in his leaked letter to the Prime Minister, no "compelling vision" of our future. That is why we look with great expectation to the work that the noble Lord, Lord Heseltine, is now undertaking. In my view, the noble Lord has to think very radically. We have to look again at the proposals that the noble Lord, Lord Skidelsky, has put forward for a state investment bank or national investment bank of some kind to resolve the relationship between finance and industry. None of the schemes being promoted at the moment is really effective. We have to do something more radical.

The Kay review looks very carefully at the shareholder relationship and how the relationship between shareholders and the managers of companies needs to

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improve. In terms of local business engagement and local initiatives, the new enterprise partnerships can, in my view, work only if they are accompanied by much more radical decentralisation within Whitehall so that questions such as how training budgets are spent are not decided by some central bureaucracy but are effectively devolved to the cities and regions that are in a position to know what best suits their local economy.

We have to change the Treasury mindset. The noble Lord, Lord Heseltine, said that he was not in favour of wasteful spending. When I advised the noble Lord, Lord Mandelson, my experience was that the Treasury appeared to think that any kind of industrial spending was wasteful. We also have to break what I fear has become a Whitehall mindset that Ministers and markets do not mix. I believe that in the right circumstances public policy and markets can mix and that you can promote an active industrial policy more successfully than we have done.

The Budget does nothing in those areas. Instead, it cuts the top rate of tax. The noble Lord, Lord Flight, talked about Blair and Brown advisers. I was one of them, and I was in favour of sticking with the 40p rate. However, in the circumstances of the 2008 crisis, when sacrifices were going to be required all round, there is no doubt in my mind that the increase in the top rate was justified, and I cannot see what has caused the Chancellor to change that judgment.

This is a fiscal consolidation that is to last seven years and we are at the end of only the first two. Even if the amount of money to be raised from these taxes were not substantial, the fact is that we have been debating in this House scandalous cuts in welfare spending, such as depriving disabled people of an extra bedroom in their rented home. We have been saying that that kind of expenditure cannot be afforded and, at the same time, are cutting the 50p rate of tax.

I feel sorriest for my friends in the Liberal Democrats. They have thrown away the 50p rate for nothing. There is no progress whatever towards the taxation of wealth in this Budget. They have shown themselves to be weak and irrelevant in this coalition. They are like the National Liberals in the 1930s and they should draw the lessons from this Budget: they have no power to influence anything.

4.18 pm

Lord Davies of Oldham: My Lords, this has been an excellent and wide-ranging debate, and therefore it is all the more difficult to wind up the issues from this side. Before we came into the Chamber, the Minister was kind enough to indicate that it is always the senior figure, in the Commons and here, who introduces the debate and the poor junior who has to cope with winding up. Of course, the Minister is playing both roles, so he has my greatest sympathy.

I hope that in responding to the debate the Minister will find time to address himself, in particular, to specific points that Members of the House have raised. They are difficult for me to develop in the limited time available but I think they are well worthy of consideration. My noble friend Lady Worthington drew attention to the extent to which this Budget challenges the

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Government's green credentials, and the noble Lord, Lord Marlesford, indicated that property taxes are a pressing issue that we ought to address. My noble friend Lord Desai said that the Minister ought to consider what should have been done with the windfall of Royal Mail resources. The noble Lord, Lord Northbrook, indicated something that is of great concern to the nation-the imposition of an extra 3p on fuel duty later this year unless the Chancellor takes action.

In the limited time that I have, I will concentrate on the main themes of this debate. The main theme is obvious: this is a Budget presented in an age of austerity. That is why the country sought to respond to the concept that was presented a year or so ago-we are all in this together. The Government said that they were concerned about fairness in the necessary privations that would be visited on the nation as it emerged from these great difficulties. We were somewhat reassured last year when the Chancellor said that it was not the right time to remove the 50p tax rate, when others in society on much lower incomes were being asked to make sacrifices. Exactly, but what has changed? Only that the least well-off in our society-the poor; those who are losing their jobs as mass unemployment begins to emerge across the nation; those who are losing their benefits; those who are finding their pay frozen; and those who are threatened with regional pay rates at a lower level than they enjoyed in the past-are making sacrifices while the Government reduces the 50p rate of tax. It is payoff time for the Government's supporters but payback time when the nation regards this issue as appallingly unfair.

Of course, the Budget did not come as a shock. As the noble Lord, Lord Higgins, indicated, there was very little left in the Budget that could cause any surprise because the press had been well briefed. My noble friend Lord Davies of Stamford asked whether Ministers knew that this briefing was going on. Is it conceivable that even the challenging folk in the Treasury would have been so brave as to give these leaks without sanction? Of course not; this was a carefully prepared position.

What was not revealed in the leaks beforehand was the granny tax. That emerged from the finer print of the Budget. As my noble friends Lord Wood and Lord Myners, who both demolished the totally contradictory defences that the Government have erected for the reduction in the higher rate of income tax, pointed out, everyone is scandalised by the Government attacking pensioners in such an obscure way. The reason for doing so is straightforward and has nothing to do with the Government's defence of, "We haven't hit pensioners hard enough yet so it's their turn", which seems an odd idea of fairness. Pensioners are on fixed incomes, with fixed expectations; that is why the change to the terms of trade in pensions is so acute and causes such anxiety. Members of the Government ought to appreciate just how significant that is in the response to the Budget.

However, even then, we are still discussing minor matters in relation to the economy. I think the noble Lord, Lord Higgins, first voiced the opinion, which was subsequently reinforced by a number of noble Lords, that the Budget did not have a great deal to do with the real economy. Given its neutral stance, it will

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have a marginal impact on the real economy. However, this debate is about the real economy and some of the interesting contributions have addressed that.

In a central part of an extremely challenging speech, my noble friend Lord Eatwell indicated that one of the crucial figures is that business investment, which was anticipated to be 7.7 per cent, is down to 0.8 per cent at present. That ought to be a source of real anxiety for us all. Is it because businesses lack cash? That is not what the Institute of Directors says. Its director-general says that we do not lack cash but we do lack consumers. Certainly, many of our major companies are cash-rich at present. However, they do not have confidence in the market. They are not confident that they will get a return on their investment. This is not the case to the same extent with the SMEs, which may not be so cash-rich. As my noble friend Lord Sugar pointed out, there ought to be a role for government. He was not the only speaker to voice this point but he was probably the first to do so. We need an investment bank that directs itself to provide resources for what would be the rapid growth areas of the economy, if we can only prime them successfully.

The problem is that the Government are massively reducing demand. They are reducing the resources available to people to spend. I am not, of course, talking about those who will benefit from the reduced rate of taxation and can afford to buy sports cars costing £40,000 to £60,000. The only tragedy about that is that those cars are almost certain to be German and therefore British industry gains little from those transactions. However, the vast majority of the population are exhorted not to spend what they do not have. The problem is that they have less, or they are anticipating that they are about to have less.

We are used to a Conservative Party which in times of austerity has a history of being quite prepared to run the country with high levels of unemployment. Reference has been made to the lessons of the 1930s, but there was high unemployment in the 1980s and we are now approaching similar levels of unemployment. That is a tragedy for all those who are unemployed. Those who think that the 1 million young people who are unemployed are unemployed because they prefer to hang around on generous benefits know nothing about the young people of this country. No young man or woman wants to be in a position where there is no possibility of getting a job or career. The reason why they are unemployed is because the jobs do not exist. The Government ought to address those issues a great deal more intensively than they do. Encouraging higher growth would give people a chance to get jobs.

The noble Lord, Lord Bates, and the noble Baroness, Lady Randerson, referred to the north-east and Wales respectively. Those areas, which have relatively low levels of income, are now being threatened by cuts in public sector employment, which will result in even lower levels of income. I heard what the noble Baroness, Lady Randerson, said about the Welsh economy. However, I have also heard representatives of the other place speak of their great concern for the Principality.

The great highlight of this debate was of course the presence and contribution of the noble Lord, Lord Heseltine. We all congratulate him on his maiden speech, although that phrase sits ill with me due to his

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contributions at Westminster over the years. We wish him well in the role that he is to play, particularly because, despite all the trials and tribulations of the immediate future, it is important that we have a longer-term perspective.

International comparisons can be of great benefit to us. We can learn from the way in which others tackle their business, not least because-let me make the obvious point-the US economy grew by 2 per cent last year. When the US car giants threatened to collapse, the US Government moved in. It might be that this Government should have a bit more confidence in doing so.

4.30 pm

Lord Sassoon: My Lords, I welcome the debate that we have had today and the valuable contributions that have been made, including particularly those from noble Lords in all parts of the House who have drawn attention to the many initiatives in the Budget that I did not have time to highlight in my opening speech. I am grateful for the opportunity to reply to as many of the points raised as I can, but I will not have the time to reply to everything-there have been a lot of questions.

I reiterate this Government's number one economic priority: tackling the record peacetime deficit that we inherited from the previous Government and restoring economic stability. We will stick to our deficit reduction plans; I assure my noble friend Lord Flight of that. I noted the contributions from a number of Peers-the first was probably from the right reverend Prelate the Bishop of Chichester-acknowledging the need for a fiscally neutral Budget at this time. As my noble friend Lord Higgins pointed out, a combination of tight fiscal policy and loose monetary policy is the balance that we are taking forward. I assure my noble friend that the Bank's holding of gilts under quantitative easing is completely transparent; it is updated day by day on the Bank's website and the position will be unwound in due course.

Nevertheless, we have a steady stream of noble Lords from the Benches opposite who still preach the idea of free spending with as much money as is out there, with no fiscal discipline. They do not seem to have learnt lessons. I am not surprised by the noble Lord, Lord Liddle, espousing that but I am a little surprised at the noble Lord, Lord Desai, saying that we should spend this £28 billion from the Royal Mail pension plan. We inherit £28 billion of assets but we inherit liabilities to the pensioners that are considerably higher than that. Is it really right that we should spend that money? No, we will not. As for suggestions that we might like to recook the books, I think that we had enough of cooking the books under the previous Government. We will not go there. As it happens, the noble Lord, Lord Desai, was doing what I had been doing a little earlier to look for the GDP number. I assure him that it is there in table D2 of the Red Book, but I agree that you have to look some way into the document.

We will stick to fiscal rectitude. Even if we were to decide to hand out vouchers, which we will not, I do not know how we would be assured about where they

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would be spent-we could not be sure that they would all be spent on goods produced in this country.

I was rather hoping to keep away from too much historical analysis of how we got to where we are, but perhaps I should be grateful to the noble Lord, Lord Eatwell, for drawing our attention to chart 1.5 of the Red Book. He seemed to suggest that it showed what a good job the previous Government did to keep the deficit under control. Perhaps he would like to look closer at that chart. It exposes to the full glare of daylight exactly what the previous Government were doing. It shows that the Labour Government continued to borrow £30 billion to £40 billion a year while the sun was shining. That illustrates precisely the nature of the structural problem that we inherited: running budget deficits year after year to create the illusion of growth until the credit card finally ran out. We will not go back to that.

Having talked about the basic stance of the Government, let me deal with the question of leaks, because it relates directly to the way that the previous Government used to conduct their business. As the Chancellor said in the Budget Statement, a Budget produced within a coalition is different. The days of the Chancellor coming up with a Budget in secret are-whatever we think about the rights and wrongs-gone. This was not a Conservative or a Liberal Democrat Budget, it was a coalition Budget, as we have heard from the broad agreement from coalition Peers this afternoon. As the noble Lord, Lord McFall of Alcluith, recognised, that makes this Budget different.

In the course of coalition Budget negotiations, various proposals were raised, discussed and debated. I come back to what we have been used to in previous years. It has been more widely debated than in previous years, when the Chancellor briefed the Prime Minister on what was in the Budget the day before, if the Prime Minister was lucky, and even more than in the dying days of the previous Government, when the Prime Minister told the Chancellor what should be in the Budget the night before. We do not need lessons from Members opposite on how to conduct ourselves in the run-up to a Budget.

Lord Higgins: That was not quite the point I was making. I understand about negotiations within the coalition, but it appears-for example, from the front page of the Financial Times-that officials told the Financial Times before the Budget was announced what was going to be in it. I believe that the House of Commons has the right to hear first.

Lord Sassoon: That issue has been the subject of an Urgent Question in another place this afternoon, and the Government have explained their position in an answer there.

I have said that we will stick to our fiscal position. That means that there continue to be tough choices to be made. Some of those tough choices have been highlighted this afternoon. I start with my noble friend Lord Newby, who gave a fair and good analysis of the issues about pensioners and the fair deal that they are getting. However, because the noble Lords, Lord McFall, Lord Myners and Lord Davies of Oldham, and others

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raised the issue, let me underline it again. The Government are committed to supporting pensioners. The IFS confirmed today that that is indeed the case. Pensioners will get the largest ever rise in the basic state pension this April to £107.45 a week. The Government are protecting pension benefits, including winter fuel payments, free prescriptions and eye tests, free bus travel, free TV licences and, of course, the triple lock on the basic state pension is being introduced. The single-tier state pension will be introduced and has been estimated to be likely to be £140 in current terms. I refute the suggestions that pensioners have been poorly treated. We are all in this together.

My noble friends Lord Fink and Lord Sheikh have quite properly raised the issue of tax transparency. I agree with them on the importance of the new annual statements, which will show everyone who pays tax what they are paying and where the money will be spent across the different categories of expenditure. I am sure that will raise a healthy debate.

On tax reform, I am very confused about where the Opposition stand on the 50p tax rate. Are they really still saying that the Chancellor of the Exchequer should justify the continuation of a tax that is shown to produce next to no revenue for the country and which materially affects our global competitiveness? The noble Lord, Lord Eatwell, quotes approvingly the Institute of Directors, but the main part of the institute's statement after the Budget called for the tax rate to be reduced to 40p. Is that what the noble Lord, Lord Eatwell, wants? The noble Lord, Lord Wood of Anfield, who is not in his place at the moment, questioned whether the Government had been fully transparent on this. The forestalling number that he was looking for is set out in bold type on page 51 of the Red Book, a complete contrast to what the previous Government did in not even recognising that there was a forestalling problem. The tax raised less than a third of the estimates that they put out. I believe that they are in no position to question the basis on which we have looked at the evidence in coming forward with a 45p rate.

Lord Davies of Stamford: How can a 50p tax rate possibly be devastating to our competiveness and at the same time raise no money? If people do not pay it, it will not have any effect on their behaviour.

Lord Sassoon: My Lords, the simple fact is that if you talk to businesses around the world about why they are not moving business into this country and are not moving high-earning individuals back to this country, you will find that it is simply because of the disincentive effect of the 50p tax rate. It is entirely consistent that there is a disincentive effect on business decisions, even though the net take is nothing. I listened to what the real businesspeople in this House-the noble Lord, Lord Bilimoria, and my noble friend Lord Fink-said about the damaging effect of high rates of tax. Their voices present the true position.

Lord Haskel: We have some real businesspeople on this side of the House as well.

Lord Sassoon: Indeed, there are distinguished businesspeople, including the noble Lord, Lord Haskel, on the other Benches, but I do not think that the noble

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Lord, Lord Haskel, made this particular point. He made other points which, if I do not have more interruptions, I might be able to turn to. There is also the noble Lord, Lord Sugar. I shall refer to as many speakers as I can, if noble Lords want to hear me rather than make additional points themselves.

My noble friends Lady Randerson and Lady Kramer importantly referred to the significance of our new anti-avoidance regime, particularly in relation to homes with a value of more than £2 million. Some issues have been raised on the measures that will claw back five times the amount of the cost of a 5p drop in the top rate of tax. My noble friend Lord Fink, and the noble Lord, Lord Davies of Stamford, in particular, raised the question of the capping of tax reliefs and the effect on philanthropists and charities. The Government will explore with philanthropists ways to ensure that the new limit will not significantly impact on charities that depend on large donations. It is an important restriction, but we will make sure that charities are protected.

On other areas of tax and tax avoidance, the noble Lord, Lord Davies of Stamford, asked about the general anti-avoidance rule. Under the new structure, a pre-clearance system will no longer be warranted. GAAR's focus will be on artificial and abusive tax avoidance schemes. We will have a completely different construct from the present one, and it is not proposed that there should be a clearance system.

A certain amount was said in different ways on the question of distributional impact by the noble Lords, Lord Liddle and Lord Myners, the noble Viscount, Lord Hanworth, and others. Again, since the Government came to power, we have in the Red Book done the transparent thing and made it absolutely clear what the distributional effect is of Budget after Budget-something that the previous Government never did. I set out the figures in my opening speech. In cash terms, losses for the households in the top 10 per cent will be almost five times the average, and more than eight times those of the bottom 10 per cent by income. We have real and deep concern for the distributional effects of our tax and spending policies.

My noble friend Lord Northbrook, and the noble Lord, Lord McFall of Alcluith, asked about the lowering of the starting point of the 40p band. There is nothing untoward about this; it is simply a partial offset of the effect of the increase in the personal allowance, so that higher-rate taxpayers will receive only a partial benefit rather than the full one, which is targeted principally and rightly at lower earners.

Lord Myners: My Lords, the Chancellor used the term "simple" yesterday to describe the pickpocketing of pensioners. The Minister has now used the same term. The IFS today stated that the reduction in the allowance for the starting point of top-rate tax will take 1.5 million taxpayers into the highest tax bracket for the first time. The measure is not simple; it will expose more people to 40 per cent tax than was previously the case.

Lord Sassoon: My Lords, I will not repeat myself. I explained the rationale for doing this, which is to make sure that the benefit is targeted correctly. The position is completely clear.

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I will address one or two issues that were raised on business taxes. The noble Lord, Lord Haskel, made the point about there being other businessmen in the Chamber. I listened hard to what he said about his recent visit to the US. I, too, was in the US recently. One place I visited was Chicago, which at the moment is the headquarters of Aon, the world's largest risk management company. It is moving its global headquarters to the UK for a number of reasons, including our lower and more competitive tax regime. I do not remotely believe that we should follow US policies in a slavish way if we want to see a growing business base in this country.

Lord Eatwell: As the noble Lord brought up the point, does he agree that Aon announced its decision to move here before there was any intimation that top-rate tax would be reduced?

Lord Sassoon: My Lords, as I understand it, Aon based its decision principally on the very clear road map on corporation tax. However, I believe that the change in top-rate tax will see many other companies reconsider their location.

On oil taxation, my noble friend Lord Northbrook asked about the apparent position in the Red Book that shows that receipts are rising. Indeed, that is the case, but it is because decommissioning certainty and the new field allowances will lead to new investment that will in turn give rise to additional tax receipts, so it is a clear win-win situation.

Turning to one or two of the pro-growth policy questions that were raised, infrastructure remains very important, but I would say to my noble friend Lord Newby, who presses, quite rightly, on this important point, that the initial commitment to £2 billion of investment by the pension funds is good news, as he recognises. It is for the pension funds to decide how much further and faster they want to go. From my experience, I observe that rapid investment decisions sometimes lead to poor investments, but that is for the pension funds. The other thing is that there is only a limited pipeline of shovel-ready projects, but as projects come through, the appetite is there.

The right reverend Prelate the Bishop of Chichester asked about Sunday trading and the Olympics. I can assure him that there will be proper time for debate in this House. I know that the right reverend Prelate the Bishop of London has written to the Chancellor today and the Chancellor will be responding shortly. I will make sure that the right reverend Prelate gets a copy of that response.

Outstanding in the contributions on the Government's pro-business policies was, of course, the maiden speech of my noble friend Lord Heseltine. It was a one-of-a-kind maiden speech in my experience and, I am sure, the experience of all of us. He set out in a very measured and realistic way the scope of the challenge that he is taking on in the benchmarking exercise, as he characterised it. We all very much look forward to the early autumn when, I think, we will get the fruits of his deliberations.

Turning to other pro-business areas, there were a number of questions from the noble Lords, Lord Bilimoria and Lord Sugar, and other noble Lords

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about the National Loan Guarantee Scheme. Let me assure your Lordships that there is now lots of publicity on the participating banks' websites and in their branches. There is clear branding of the scheme. HSBC is not in it because its funding structure is different. There is nothing about it other than its funding structure. As to where the risk falls, it falls on the banks that make the loans. The credit risk remains there.

As to our progress on the rest of our plan for growth, I draw the attention of the noble Lord, Lord Eatwell, to the progress report that was put up on the HM Treasury website yesterday.

I come back to what I heard from my noble friend Lord Bates and others who reminded us of the very positive things that are happening in business and particularly in challenged areas, such as the north-east. That is an important reminder to us of what is really going on in the economy.

Lastly on areas of business policy, I say to the noble Baroness, Lady Worthington, that we took an important step forward in our energy policy in a joined-up way between DECC and HM Treasury yesterday when the Chancellor confirmed the important look at a gas strategy as part of our overall energy mix going forward. The picture I got from talking this morning to the chief executive of one of our largest companies invested in renewable energy in this country was that the company is very supportive of the Budget, while noting, quite rightly, that there are many policy areas in this area that we have to consider.

In conclusion, we will build a recovery in this country through the ambition of those who aspire to do better for themselves and their families. I am particularly encouraged by what I have heard from noble Lords with business experience on all sides of the House.

This Government are building a sustainable and prosperous economy and a recovery that builds on our strengths across all regions of the country and all the creativity and productivity of our private sector.

Motion agreed.

EUC Report: Healthcare Professionals

Safety First: Mobility of Healthcare Professionals in the EU

Motion to Take Note

4.54 pm

Moved by Baroness Young of Hornsey

Baroness Young of Hornsey: My Lords, domestic healthcare has been high on the agenda of this House for the last six months or so. As with most other policies, there is a European dimension. This afternoon I would like to draw the House's attention to the mobility of healthcare professionals within the EU.

I am sure that noble Lords will be aware of the debate that took place in the House on 8 September 2011 concerning the disparities between EEA and

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non-EEA healthcare professionals, as moved by the noble Viscount, Lord Bridgeman-who subsequently joined my committee, I am very pleased to say. On 11 January 2012, a Question for Short Debate asked by the noble Lord, Lord Kakkar, touched on the mobility issues but also considered other EU measures such as the working time and clinical trials directives.

Since its inception in 1948, the NHS has relied heavily on overseas-trained nurses and doctors to bolster its workforce. Their contribution has been significant and, since our accession to the European Union, what began with legal migration under the Commonwealth has been superseded by legal migration from other European countries.

We launched our inquiry into the mobility of healthcare professionals in May, shortly before the Commission published its Green Paper on revising the professional qualifications directive. Our report was published last October and considered the operation of the directive as it relates to the healthcare professions that are covered by its system of automatic recognition. The report not only made a number of recommendations to the Government but acted as our response to the Commission's Green Paper consultation.

From the outset, we supported the principle that the mobility of healthcare professionals can bring significant benefits to patients, professionals and the EU in general. None of our witnesses challenged this assumption. However, we also recognised that the current directive failed to command the confidence of patients and professionals. Major UK regulators including the General Medical Council and the Nursing and Midwifery Council expressed strong concerns in their evidence to us that discrepancies in the current system forced them to admit individuals who did not meet the standards otherwise required of UK or non-EEA professionals, thereby putting patients at potentially serious risk. Incidents related to the failures of the directive have been statistically low. However, high-profile examples have had fatal results. This has undermined confidence in the directive and led to fears in some quarters that mobility has been prioritised over patient safety.

We examined the minimum training requirements contained in the current directive and concluded that they were out of date and badly in need of updating in order to reflect modern practice. We also considered whether there should be more stringent requirements for professionals to undertake continuing professional development, and whether a more competency- based approach to training and professional development should be adopted. We examined how fitness-to- practise information was shared between competent authorities in each member state, and we were alarmed to hear that competent authorities often fail to share information and that in some member states there are a plethora of different competent authorities, causing added confusion.

We concluded that the use of existing mechanisms such as the internal market information system needed to be enhanced and become more routine, representing a simpler and more cost-effective way of improving information-sharing than the Commission's favoured option of introducing a European professional card.

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Communication between patients and healthcare professionals is vital, and everybody agreed that professionals must be able to communicate effectively in the language of the host member state. We believe that the directive fails to ensure this and needs to be clarified so that language testing is permitted at the point of registration if deemed necessary for patient safety by the relevant regulator.

In the report's conclusion we reached the view that encouraging mobility should never be at the expense of patient safety and that this must be the overriding concern in all circumstances. We believe that the current directive strikes the wrong balance and therefore welcome the Commission's review, and we call on all parties, including the Government, to act quickly to ensure that serious failings in the current regime, which places patients at unacceptable risk, are remedied. Such changes would not represent a barrier to free movement but would instead strengthen it by rebuilding confidence.

The Government's response was published on 19 December 2011, the same day as the Commission's proposal for a revised directive. There is clearly a lot of common ground between our views and the Government's views on the issues that we dealt with in our report. The Commission's proposal to revise the directive goes some way to remedying the shortcomings in the original directive that we identified in our report. An alert mechanism will be introduced so that regulatory bodies must warn each other if, for example, a doctor or nurse has been struck off or suspended from a register and attempts to register in another member state.

The minimum training requirements for healthcare professionals will also be updated to reflect modern practices, and regulatory bodies will be able to check the language skills of health professionals. However, there is some confusion here. On the one hand, the GMC says that it is not currently allowed to systematically test language skills. On the other hand, the Commission says that it is. The situation is clearly ambiguous and we call on the Government and the Commission to work together to achieve what seems to be a common goal: to achieve clarity on this crucial issue. The Government's proposed amendments to the Medical Act should happen in accord with any changes agreed to the EU directive in this area.

We also welcome the proposed exemption of healthcare professionals from the partial access provisions, in the interests of patient safety. We note that with the support of the relevant professional bodies, the Government are intending to push for veterinary surgeons and architects to be exempted. However, we also note that the Commission's proposal contains no reference to the importance of continuing professional development. We reiterate our report's recommendation that it should include an obligation on member states to require healthcare professionals to undertake CPD, but without being too prescriptive, and leaving the detail to each member state's competent authorities. Although we remain to be convinced of the merits of the professional card, we note that the proposal seems to suggest that the introduction of professional cards for different professions will not be mandatory.

Although UK regulators have welcomed the introduction of an alert mechanism, they have questioned why it should apply only to the automatically recognised

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professions and not to the general professions. They also stress that the mechanism should flag up any conditions, restrictions or limitations placed on an individual's right to practise, rather than just removals from registers. We share their concerns in this regard.

Data protection concerns have been raised in regard to the proposed alert mechanism, including by the European data protection supervisor. We touched on that in our report and note that the Government are already alive to this issue. We hope that they can successfully address these concerns during the negotiations, particularly in the context of the separate proposals for a revised data protection directive.

We have not yet received the Commission's response. However, since the publication of our report I have participated in two conferences in Brussels which have included health regulators from across Europe who are working closely together on the proposals for a revised directive. During each event, interest in and awareness of our report was high. It therefore provided an excellent opportunity to reinforce the EU Committee's views on this matter. I would also say that there was a good deal of consensus around the table among healthcare professionals from across the EU.

I also had the pleasure of hosting a roundtable meeting with senior representatives of all the automatically recognised professionals in the UK-that is, doctors, nurses, midwives, dentists, pharmacists, vets and architects. I hosted this event on 26 January and their views have helped to inform the committee's ongoing scrutiny of the Commission's proposal. We know that the Government have already worked closely with UK regulators in an effort to reflect their concerns during the negotiations on the proposal, which we commend.

In conclusion, I hope that my remarks demonstrate that the impact of the committee's work in this area, as well as its proactive stakeholder engagement, has been successful and resulted in an ongoing scrutiny rather than, as it were, writing a report and leaving it on the shelf. The committee hopes that all parties to the negotiations on the revised directive, which are likely to continue until the end of this year, will strive to achieve real and practical improvements to the draft provisions. I look forward to hearing from other noble Lords, and of course from the noble Earl, Lord Howe, on behalf of the Government regarding this important matter. I beg to move.

5.05 pm

Viscount Bridgeman: My Lords, I thank the noble Baroness, Lady Young of Hornsey, for initiating this debate and I congratulate her on the excellence of the report. I am in a position to say that as I only joined the committee after it had been published. The noble Baroness has set out the timetable for the various consultation papers which have appeared, possibly inconveniently, at the same time as the report. It has to be said that the Commission's draft on the amendments to the 2006 directive, on which many had pinned high hopes, at first glance is disappointing on the matter of language testing. However I am assured by a number of competent authorities-regulators-I have spoken to that, in reality, slow but sure progress is being made. Again, the noble Baroness has confirmed this.

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Let me take one or two specific points relating to language testing. Proportionality, a basic concept of the European Union, has been replaced in the amending document with "when strictly necessary". I am assured that either of these expressions, each of them as long as a piece of string, is fundamental to the EU principles and that this concept has been upheld in several cases before the European Court. I simply ask the Minister whether, in his negotiations with the Commission together with BIS, the Commission has fully taken on board that healthcare is the most prominent among a small group of professions where patient safety is a vital consideration, in addition to but quite discrete from other factors such as a mutual recognition of qualifications that goes right across the group. In talking to some of the UK bodies, I wonder if the Commission has fully taken this on board. I remain suspicious that patient safety remains as it has been to date; that is, sidelined in favour of single market dogma. Is there not a fundamental complacency about this?

I note that at paragraph 73 of the report, Emma McClarkin MEP is reported as saying in evidence that there have only been "occasional problems" with competent authorities over the issue of language testing. One death that is attributable to language misunderstanding is one death too many. As I have read somewhere, the difference between a milligram and a microgram in dosage can be a coffin-a smart bit of journalism, but surely that says it all. So there is almost universal agreement that the draft amending regulations as they apply to language testing are not sufficiently specific. I hope that both departments will take on board the message from this debate that they should aim towards unequivocal drafting which ensures that, in this matter, patient safety transcends any other consideration.

The committee's report makes the point with elegant moderation:

"We consider that the Directive currently strikes the wrong balance between facilitating mobility and ensuring patient safety, which must be the overriding concern. Furthermore the current system undermines public and professional confidence in the mobility of healthcare professionals within the EU".

I would take this point further. The regulations as they stand inhibit the status of the regulators within their own respective disciplines. After all, what is the raison d'être of a regulating body if it cannot adequately monitor its membership?

Perhaps I may make my own position quite clear. In my view, our aim must be that Article 53 is amended so that healthcare authorities in each member state have the power to impose whatever language testing they think fit. In some cases this may amount to blanket language testing, something the Commission has set its heart against. In other cases, the regulators may consider that some lower level of testing is adequate.

The sub-committee's report covers the matter of language testing with clarity and common sense, and its proposals are admirably set out in paragraphs 82 to 85. These include provisions for monitoring the language skills of self-employed professionals, an area which in the Commission's own admission is inadequately covered. There is also the very practical suggestion that, in view of the length of time required to effect legislative change, a code of conduct is an effective and relatively

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speedy route for clarifying with competent authorities what the directive currently permits with regard to language testing. Finally, the committee is not in favour of restricting language testing to those professionals who come into contact with patients.

In talks with various regulators, I am reassured that slow but steady progress is being made by the Department of Health and BIS in their negotiations with the Commission. I feel that we are all talking to the same purpose and this is very welcome. But perhaps I may ask the Minister whether he will continue to make the point that, whereas proportionality is a fundamental principle going back to the treaty of Rome, the matter of patient safety is quite frankly even more fundamental than that, and that it is patient safety which must in the end prevail.

5.11 pm

Lord Dykes: My Lords, from these Benches, I thank most warmly the noble Baroness, Lady Young of Hornsey, and her sub-committee's members for this excellent report in what is an incredibly complicated area. A good deal of thought has gone into its construction. I think that the evidence taken from a large number of very impressive people helped the sub-committee's deliberations. It is good also to see, as usual, the chairman of the European Union Select Committee in his place listening to this debate.

As noble Lords have said, what is striking about the report is that it is not just to be put on a shelf and then forgotten; this is a matter of crucial importance where the report has breathed life into the Government's own deliberations and conclusions, some of which I am sure we will hear from the Minister today. We will then await the European directive.

I also thank from these Benches the noble Viscount, Lord Bridgeman, for his comments, partly because of his very close connections with and experience of the medical profession and well known hospitals. He has acquired great knowledge over many years. I hope that we can perhaps use instead of "single market dogma" the more congenial "single market objective", because that is a legitimate objective of the European Union-indeed, it is set down in European Union law and applies to us as well because we obey European Union law, I hope, in all respects. When all the complexities have been ironed out, the mobility of healthcare professionals will be an important part of the growing single market not only in the European Union but in the EEA as well. Therefore, we await the terms and contents of the directive.

I commend the way in which the Commission has very patiently and carefully conducted its hearings and produced its Green Paper. It has consulted and listened to all sorts of advice in a way that happens more often in Brussels than in member states, where Governments sometimes legislate too quickly depending on the individual characteristics of the parliamentary system that they enjoy or suffer from, as the case may be.

This process will lead to a directive and member states will then bring in their own national legislation. That will be the crucial moment for HMG to implant into it those important requirements that we have

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heard about at the beginning of this debate and the primary considerations of the committee as described by the noble Baroness, Lady Young of Hornsey.

I again thank the chairman of the European Union Select Committee. I think that it is now in order to quote a letter from him to the members of the committee because it is in the public and parliamentary domain. The last but one paragraph of his letter of 16 March, referring to the report from the committee of the noble Baroness, Lady Young, states:

"The Committee considered that to ensure that professionals' qualifications and skills were adequate and reflected modern practice, the training requirements of the Directive needed updating".

That will surely be one of the most important components of the directive that we await. The letter continues:

"The Committee proposed that mandatory use of the Internal Market Information System by competent authorities in Member States to exchange information about healthcare professionals would be simpler and more cost-effective than the European professional card".

From these Benches, I agree with that very much indeed. In the longer-term future there may be a European-wide single market healthcare professional electronic identity card that can be used, but that is further down the track.

Public confidence is important, not only in this country. There are individual medical stories in the dramatic press in other member states too about things that go wrong with a doctor, healthcare professional or nurse practitioner where something tragic happens-or if someone suffers prolonged illness rather than the tragedy of death. Those people have come with inadequate language qualifications, or other details of their training were substandard, and therefore they were not able to perform as the public would want.

But there are very small numbers of those cases. The press with its lurid headlines is bound to highlight them. In this case it does a good service. We often grumble about the press and its dramatic headlines, but in this case it is good to make sure that patients' safety is the real priority. But it is a small number, so we should not go too far down the other path. That is something to which we are prone in this country, with our excessively nationalistic press: saying that in all respects British standards are higher and better than in other member states, including large member states in the European Union where more and more now the standards are getting very similar. There is a high level of quality and of protection. It is easy and tempting to go down that path, but it is a flawed path and misleading and one that I think the Government would be wise to discourage as much as possible and explain the realities behind these matters.

We wish the report well. We look forward to the final judgment of the Commission, the publication of the proposed new European directive and the Government's conclusions pro tem today. I also thank the noble Earl, Lord Howe, for coming here only three days after the end of his herculean efforts on the Health and Social Care Bill to deal with this important matter. We thank him for that and support the conclusions that he may lead us to this afternoon.

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5.17 pm

Baroness Thornton: My Lords, it does indeed feel that normal service has been resumed in the Chamber. I thank the noble Baroness, Lady Young, for the report and for the coherent way that she introduced it. I congratulate her and her committee on a brilliant job.

It is true that in September we had a preview of the report. We even saw some of it circulated during the debate initiated by the noble Viscount, Lord Bridgeman. During that debate in September, the Minister said:

"This summer we have been working constructively with other government departments and the health regulators themselves to formulate our response to the European Commission's Green Paper on reforms to the directive. On that Green Paper there is very little on which the department and our partners disagree regarding areas of the directive that need strengthening. We agree that the harmonised training standards underpinning automatic recognition need updating and that a mechanism for regular updates is required. We would also like to see a focus over time on competencies in training rather than particular length of training".-[Official Report, 8/9/11; col. 457.]

The Minister then goes on to talk about those negotiations. Those remarks were very important because they showed that we were making progress and moving forward together in the UK. What further progress is being made on that? I ask because it is not completely clear from the Government's response to the report what the scale of progress is in the different areas that are covered by this report.

It seems to me that government policy, the report and the response are all broadly in the right place and there has been agreement in the House many times, not least because the noble Viscount has championed this issue for some time.

As well as being grateful for the report from the noble Baroness's committee, we also need a report back on how the Government are progressing with these negotiations, what they expect the outcomes will be and at what times. This is indeed an issue of patient safety but, as the noble Lord, Lord Dykes, said, we also have to recognise that it is an issue from our NHS benefiting from the free movement of health professionals across Europe. Which one of us has not been treated by a nurse, doctor or health professional from some part of the European Union? That will absolutely be the case and is quite right. In the vast majority of cases, we do not even think about the fact that we may be treated by a German doctor, a Scandinavian nurse or whatever because we assume that they will be competent. In the vast majority of cases, they will be.

I hope that the unanimity in this House will help to inform the Government's position on this review and indeed strengthen the Minister's arm in these negotiations. However, I have a question about what and how much impact the Government's position on light-touch regulation will have on these negotiations. That is slightly going back to the Health and Social Care Bill, where we had a discussion about that. I would like to know what impact that might have. It seems clear that the language skills clarity and the continuing professional development are still very important issues that need to be resolved. However, finally, there is no question that the EU Committee has done a great favour for patient safety not only in the UK but also across the whole of the European Union.

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5.21 pm

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, I echo the comments just made by the noble Baroness, Lady Thornton. I, too, am extremely grateful to the noble Baroness, Lady Young, for her work and the work of her sub-committee in undertaking the inquiry that it did and for producing the report which has proved extremely valuable to us. Like the noble Baroness, Lady Young, I welcome the European Commission's review of the directive on the mutual recognition of professional qualifications. It is a priority for the Government to ensure an appropriate balance between free movement and patient safety in the new directive. I will come on to say something more about that.

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