House of Lords
Monday, 13 May 2013.
2.30 pm
Prayers—read by the Lord Bishop of Bath and Wells.
Lord Walker of Gestingthorpe took the oath.
Death of a Member: Lord Reay
Announcement
2.36 pm
The Lord Speaker (Baroness D'Souza): My Lords, I regret to inform the House of the death of the noble Lord, Lord Reay, on 10 May. On behalf of the House, I extend our deepest condolences to the noble Lord’s family and friends.
NHS: 111 Telephone Service
Question
2.37 pm
Asked by Lord Hunt of Kings Heath
To ask Her Majesty’s Government what steps they are taking to improve the implementation of the NHS 111 service.
Lord Hunt of Kings Heath: My Lords, I beg leave to ask the Question standing in my name on the Order Paper and refer noble Lords to my health interests in the register.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, we recognise that the NHS 111 launches in March did not go as smoothly as planned and that a number of providers have delivered an unacceptable service, especially at weekends. NHS England is working closely with clinical commissioning groups to stabilise providers who have failed to deliver an effective service and to ensure that areas yet to go live are in a safe and fit state to do so.
Lord Hunt of Kings Heath: My Lords, I am grateful to the noble Earl for that response, but on what grounds was the decision made to go ahead with the national rollout in the light of the results from the pilots, which showed problems with the scheme, and the fact that many people in the NHS advised Ministers and NHS England not to roll it out because it was not ready?
Earl Howe: My Lords, the University of Sheffield did work for the department reporting on the first four NHS 111 pilots. That showed that 92% of patients were satisfied with the service and that 93% felt that the advice given was helpful. It also found that, overall, the service was meeting its objective of getting people to the right place first time. On that basis, it was
considered safe to go ahead with a rollout. Unfortunately, in particular areas of the country, the resources deployed to meet the demand have not been accurately assessed, but I stress that that is in a minority of locations.
Lord Mawhinney: My Lords, does my noble friend accept that if the Government were to take firm action and turn back the clock to require general practitioners to provide seven days a week, 24 hours a day comprehensive and efficient service, demands on 111 would greatly decrease?
Earl Howe: My noble friend, with his experience, is very wise on these matters. I think it would be quite difficult to turn the clock back completely, but I take his point. There is enormous scope for GPs to contribute to the drive to keep elderly, frail people in particular out of hospital. Too many people are landing up in hospital with chronic diseases who should never have been allowed to get there.
Baroness Wall of New Barnet: My Lords, the Minister has just stolen my thunder in his response to the noble Lord. Does the Minister have any idea when the failings in the system will be sorted? At the Barnet and Chase Farm Hospitals NHS Trust, of which I declare an interest as chair, we see extra people coming into A&E who, as he has just said, are very poorly and should not really be in hospital because they need antibiotics or something like that and would get better much quicker either in their own home or in a nursing home.
Earl Howe: On the issue of A&E, there is no doubt that the NHS has been under very heavy pressure over the past few weeks. I am pleased to say that over the past two weeks the NHS as a whole has met the 95% standard, but obviously that statistic masks difficulties that are still being experienced in particular locations. The challenge now is to ensure that we are ready for next winter, and all the work that is now being done in NHS England, by clinical commissioning groups and within providers is designed to ensure that we are much readier for the pressures to come.
Lord Laming: My Lords, does the Minister accept that, although we refer to “primary care services”, they are not primary in that they are available for the shortest number of hours per week of any part of the health service? Unless things change dramatically, it is inevitable that accident and emergency will be seen as the first point of call for more and more people, especially in out of office hours.
Earl Howe: I take the noble Lord’s point. That is why the 111 service has been created; there is no doubt that there was a very confusing landscape in which people did not know who to call out of hours, and they did not necessarily have the telephone number of the out of hours provider in their area. The 111 service is designed to simplify all that, and across the vast bulk of England people are getting a good, if not
fantastic, service. Unfortunately, in two areas of the country, the south-east and the south-west, we are still seeing problems arising, and those are being gripped.
Baroness Jolly: My Lords, the out of hours services, the ambulance services, A&E and these 111 services need to work in a harmonious and co-ordinated way for the good not only of the patient but of the service as a whole. Will the Minister reassure the House that the 111 service will be part of the review of urgent and emergency services being led by Sir Bruce Keogh?
Earl Howe: I am very glad that my noble friend has raised that issue. Sir Bruce Keogh is indeed looking across the piece at urgent and emergency care services, and that will include the way in which 111 is working.
Lord Tomlinson: Does the Minister accept that Sir Bruce looking at these questions is not necessarily a comfort? Sir Bruce looked at accident and emergency services in south London but, based on what the Minister has said today about the pressure on accident and emergency services, Sir Bruce came to the wrong conclusion about Lewisham accident and emergency.
Earl Howe: My Lords, I hope the noble Lord will understand that I cannot comment on Lewisham because it is sub judice. I do not accept that the advice that Sir Bruce gave was ill founded.
Baroness Masham of Ilton: The Minister said that there had been confusion in the past. There is even more confusion now. Does he not agree that there should be some publicity for the general public so that they know where to go?
Earl Howe: I agree. NHS England and clinical commissioning groups are engaged in that publicity. I think it will be a while before the general public are fully aware of what NHS 111 has to offer, but I have in my brief a series of very complimentary testimonials about 111 that show that many members of the public are already enjoying its benefits.
Baroness McIntosh of Hudnall: My Lords, would the Minister accept that many people who are not directly involved in the health services find it quite hard to understand why NHS Direct was dismantled in favour of the 111 service, which has clearly not been working terribly well? Does he agree that the fact that this change has not succeeded tremendously well does not give one great confidence that other changes that appear to have been relatively unnecessary will go through successfully?
Earl Howe: I agree. It is unfortunate that the launch of this service was not nearly as satisfactory as was planned. The adverse performance in certain areas of the country has rather overshadowed the very good, if not excellent, performance in other areas, so while not belittling the issue the noble Baroness raises, I think we have to get it in proportion.
UK Clothing Sector: Safety
Question
2.45 pm
Asked by Baroness Young of Hornsey
To ask Her Majesty’s Government what steps they are taking to ensure that retailers operating in the United Kingdom clothing sector take a rigorous approach to ensuring that people working throughout their supply chains enjoy safe and secure working conditions.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie): My Lords, the Bangladesh garment factory tragedies bring into sharp focus the challenges arising from blurred and multiple supply chains in retail and the protection and well-being of those who manufacture. BIS is working closely with DfID, the FCO, overseas Governments and companies to secure improvements in working conditions and invest in assessing risks. We are supporting voluntary initiatives and international principles to reform legislation and regulation.
Baroness Young of Hornsey: I thank the Minister for his response and for indicating that some action is beginning to take place. Does he agree that it is damaging for retailers in the UK to be associated with making profit on the backs of cheap labour working in dangerous conditions? Does he agree that the Government have a leadership role to play in working in partnership with retail outlets in order to ensure that their operational and business models are changed and can address the seriousness of this situation?
Viscount Younger of Leckie: I thank the noble Baroness for that. Indeed, it can be damaging for businesses. I know that many of them, including Primark, are already working extremely hard to help at the sharp end in Bangladesh in the aftermath of this terrible tragedy. Before I go on, can we not rejoice at the rescue of the seamstress a couple of days ago while remembering, of course, that 1,000 people died?
Many companies now have a corporate social responsibility department, and it is within that area that companies and businesses need to drive forward their responsibilities. From the Government’s perspective, in terms of reporting, we are bringing in from 1 October a mandatory report on human rights issues.
Lord Avebury:Will my noble friend consider asking the Bangladeshi authorities whether we could offer advice on ensuring that building regulations in Dhaka are fit for purpose and that inspectors police the enforcement of building regulations free of corruption?
Viscount Younger of Leckie: My noble friend makes a very important point. We welcome the statement by the Bangladeshi Foreign Secretary that Rana Plaza is “a turning point in Bangladesh’s history”. I know that the Bangladeshi Government have taken this dreadful
tragedy extremely seriously. I understand that they have shut down 18 factories, some of which have reopened on the basis of rigorous safety certificates.
Baroness McIntosh of Hudnall: Does the Minister not agree that although corporate social responsibility is clearly important in this matter, what is really at stake is a business model for many of these retailers which depends upon being able to sell clothes at prices that are, frankly, ridiculously low? I am just as guilty as most other people of taking advantage of that opportunity when I see it, but I would really rather not have it before me. Will the Minister say in what way the Government can help to educate the market in this country to understand the price of low prices?
Viscount Younger of Leckie: I understand that even if wages were doubled in Bangladesh—I know that we are talking about a health and safety issue—it would put only 2p on the price of a T-shirt, so there are some real issues to tackle. As I mentioned earlier, this is a cross-departmental issue. For example, DfID is supporting the ethical trading initiative which is a leading alliance of companies, trade unions and NGOs, and the Government very much support it. Secondly, DfID, with government support, is supporting the Responsible and Accountable Garment Sector challenge fund, known as RAGS, so a number of initiatives are being pushed by the Government, and we continue to put the necessary pressure on the retail organisations.
Lord Naseby: I have lived and worked in that part of the world. Is my noble friend aware that there is nothing wrong with the building regulations? It is entirely a matter of whether the buildings are inspected. Clearly, the loading on the floors of this particular factory was far in excess of what it should have been. Can the Government not think of something practical to do? We have high commissioners in Commonwealth countries and ambassadors in non-Commonwealth countries. We usually have a trade section. Why can we not have someone within our own sphere of interest liaising principally with the importers in the UK and the major retailers—
Lord Naseby: It is not too long when more than 1,000 people were killed. Why can we not have someone liaising with the two parties to ensure that this sort of tragedy does not happen again?
Viscount Younger of Leckie: There are two strands to that. First, I reassure my noble friend that Governments, particularly the UK Government, are working extremely hard with the Bangladesh Government and others at all levels—political and diplomatic—to get to the bottom of the reasons behind this dreadful collapse. Secondly, there is now even greater pressure on organisations to look at their supply-chain management and the multiplicity of those links, to be sure that health and safety issues at the beginning of the supply chain are up to scratch.
The Lord Bishop of Bath and Wells: My Lords, does the Minister agree that retailers need to put resources into providing safe conditions, particularly by having personnel on the ground in the areas affected by this kind of tragedy?
Viscount Younger of Leckie: The right reverend Prelate makes a good point. Many retailers in this country have individuals on the ground. Primark, for example, has somebody on the ground; they are working hard to deal with the aftermath of the disaster and looking ahead at remedies.
The Earl of Clancarty: My Lords, what is the Government’s response to Muhammad Yunus’s call for an international minimum wage for those working in the garment industry, the level of this wage to be agreed upon by the foreign buyers?
Viscount Younger of Leckie: The issue of wages is clearly linked. We have obviously been talking about a very serious health and safety issue with the factory collapsing. I alluded to wages before and, again, further pressure needs to be brought on organisations to be sure that a decent wage, however defined, is paid out in these particular countries.
Lord Young of Norwood Green: My Lords, does the Minister agree that if the owner of that company had listened to the concerns of the workers who complained the day before about cracks in the building then this tragedy could possibly have been averted? That stresses the importance of having independent trade unions, independent health and safety committees and workers committees in these factories if we are to ensure a safe future for the workers.
Viscount Younger of Leckie: The noble Lord makes a very good point. From our perspective in Britain, we need to exert as much pressure as we can to encourage greater communication between workers, workers’ representatives and Governments in countries such as Bangladesh.
Scotland: Independence
Question
2.53 pm
To ask Her Majesty’s Government what if any instructions they have given to each Government department to outline the impact that independence would have on its responsibilities in Scotland.
The Advocate-General for Scotland (Lord Wallace of Tankerness): My Lords, the Government announced last year that they would carry out a detailed analysis of how Scotland and the rest of the UK contribute to and benefit from our partnership. This work will look at issues including the legal and constitutional set-up, the economy, wider policy issues such as the United
Kingdom’s place in the world, defence, energy and welfare. This work is being carried out across government by policy experts in relevant areas.
Lord McAvoy: My Lords, I thank the Minister for his Answer. He will, like me, be confident that the overwhelming body of evidence supplied by government Ministers and their departments will show that Scotland is far better off staying within the union. However, the Minister knows that we must be careful with how this is portrayed in Scotland. We do not want lecturing or hectoring. I ask the Minister to do whatever he can to ensure that government Ministers produce and present these facts in such a way that they do not alienate opinion in Scotland.
Lord Wallace of Tankerness: I very much agree with the initial comments of the noble Lord that Scotland is better within the UK and the UK is better with Scotland in it. I take his point, too, that it is important that the tone of the argument is set, and that it is positive, because there is a very positive case to make. However, pointing out some of the difficulties and challenges of independence does not mean that we are scaremongering or being negative. For example, the paper recently published on currency showed the disadvantages of a number of other options but also showed, beyond peradventure, that the best option of all is for Scotland to remain part of the United Kingdom.
Lord Forsyth of Drumlean: My Lords, will my noble and learned friend indicate what the Government’s position will be on the West Lothian question and on the Barnett formula? Surely, if people are going to vote in the referendum and wish to remain in the United Kingdom, they need to know what the position of their representatives at Westminster will be, and what the funding position in the future will be.
Lord Wallace of Tankerness: My Lords, as my noble friend will know, the commission established to look at the so-called West Lothian question, under the chairmanship of Sir William McKay, reported a couple of months ago, and obviously the Government are looking at and considering the detail of that report. It has been made clear on a number of occasions that the Government do not have any plans to reform or revise the Barnett formula, as our primary objective is to get the UK government finances back into a healthy situation.
Lord West of Spithead: My Lords, I am sure that the Minister agrees that defence and security are the most important duties of any Government. Is the Minister content that sufficient work is being done on looking at the full detail of the inconsistency of what the SNP says about providing a new MoD, command and control, intelligence and the Five Eyes community? These are a whole raft of issues that are crucially important for the defence of these islands in the future should, by some error or whatever, Scotland become separate. Those things need to be looked at, and I am not sure that they are being looked at.
Lord Wallace of Tankerness: My Lords, I certainly agree that one of the primary responsibilities of government is the defence and security of the realm. The report, which was published two weeks ago by the Foreign Affairs Committee of the House of Commons and the Economic Affairs Committee of this House, touched on a whole stream of important issues related to defence. Defence is one of the issues on which a paper will be published in the Scotland analysis series. It is important to recognise the benefits Scotland gets, not only from our defence of the UK but from the number of jobs that are dependent on the defence industries in Scotland.
Lord Maclennan of Rogart: My Lords, have the Government given collective consideration to how to get across to the general voting public in Scotland the facts that are being made available, in a department-by-department process? It is extremely important to bear in mind that the media are not giving detailed consideration to these issues. The Government might think it right to communicate with the electors directly on these matters. If we follow the pattern of the previous referendum, on alternative voting, we had two weeks of media coverage of that issue, although admittedly it was nothing like as important as the break-up of Britain. However, if we do not get detailed knowledge to an intelligent electorate, we could find that the public react against the general condition of the country at the time.
Lord Wallace of Tankerness: My Lords, I take my noble friend’s point about the importance of communicating the arguments. The paper on currency to which I have just referred in my response to the noble Lord, Lord McAvoy, had so many points in it that some did not necessarily get the full airing that they might have. The next paper in the series will be on the financial services industry, and numerous issues could arise from that. It is not anticipated that there will be any separate government publication in the run-up to the election in the way that there was in the run-up to the EU referendum of 1975. However, it is important that the Government communicate these important messages and arguments for the union in a way that is readily accessible. It is important that they are underpinned by some weighty analysis, but there is also a case to be made for making sure that the arguments are readily available to the public.
Lord Butler of Brockwell: My Lords, what guidance has been given to the Civil Service about maintaining neutrality between the two sides in the lead-up to the referendum on independence?
Lord Wallace of Tankerness: My Lords, I recall that some time ago, following the election of the present Scottish Government, the previous Cabinet Secretary gave some indication that Scottish civil servants working for the Scottish Government would be expected, as are UK government civil servants, to promote the policy of their Government. Likewise, civil servants working
for the Scottish Government, albeit that they are UK civil servants, will be expected to work towards the policy of the Scottish Government.
Lord Foulkes of Cumnock: My Lords, will the Minister answer a question that his namesake, the noble Lord, Lord Wallace of Saltaire, could not, and confirm that the Cabinet has taken two decisions: first, that there should be no pre-negotiation with the Scottish Government, which is absolutely correct; and, secondly, that there should be no contingency planning, which is quite wrong, particularly, as my noble friend Lord West said, in the area of defence? Will the issue of contingency planning be reconsidered by the Government?
Lord Wallace of Tankerness: My Lords, the Government have indicated that there will be neither pre-negotiation nor contingency planning. I can understand why people talk about red lines and making things clear, but to ask the United Kingdom Government to prioritise one part of the United Kingdom over another would not sit easily with a Government who seek to serve the interests of all our citizens in all parts of the United Kingdom. It is not in the interests of Scotland or of the United Kingdom that we should start to unstitch the fabric of the United Kingdom before the people of Scotland have had their say.
Leveson Inquiry: Report
Question
3.01 pm
To ask Her Majesty’s Government what assessment they have made of the proposals put forward by a number of newspapers in response to the Leveson inquiry report.
Lord Gardiner of Kimble: My Lords, the Press Standards Board of Finance petitioned the Privy Council Office with a draft royal charter on 30 April. A royal charter of this kind, submitted to the Privy Council, must go through due process. It has been published on the Privy Council website for people to offer views. Thereafter, it will be considered against the criteria published by the Privy Council Office. The Government’s view on the cross-party royal charter has not changed.
Lord Fowler: My Lords, so that we can be absolutely clear about the position, is it that the delay has been purely to allow the Privy Council to consider the newspapers’ alternative proposal for a royal charter but that the Government remain absolutely committed to their own charter, which was approved unanimously by MPs in the other place? Surely the point is that in a democracy it is the will of Parliament that should take precedence over any interest group, however powerful.
Lord Gardiner of Kimble: My Lords, as I mentioned, there will need to be due processes for the Pressbof royal charter to be considered. However, the royal charter published on 18 March continues to have cross-
party support, and the support of all party leaders. It was the subject of 21 weeks of discussion and negotiation. The Government believe it would put in place a system of independent self-regulation with a robust system of redress, while protecting the freedom of the press.
Lord Soley: Will the Minister convey to the Secretary of State for Culture and, through her, to the Prime Minister the sense of outrage that is felt, not just by victims, at the way senior members of the press are trying to override the will of Parliament? They claim press freedom, but they were the ones who closed the News of the World rather than sacking the chief executive and chairman. Why are we listening to them when they ought to be showing a bit of humility and recognising the will of Parliament?
Lord Gardiner of Kimble: My Lords, of course I understand what the noble Lord has said. We must indeed remember why the Leveson inquiry was held. Innocent people suffered tremendous harm and we owe it to them to ensure that this does not happen again. However, that should not and does not conflict with the important place we have for protecting freedom of the press.
Baroness Bonham-Carter of Yarnbury: My Lords, has the Minister seen the response from the NUJ to the publishers’ and proprietors’ charter? The NUJ represents journalists and utterly condemns the charter as showing contempt for parliamentary democracy. Who does the Minister think supports the publishers’ charter? Does he not agree that the proposal would not create a self-regulator that was genuinely independent or impartial, which is what the people of this country, and in particular the victims, want and deserve?
Lord Gardiner of Kimble: My Lords, I am aware of the representations of the NUJ and, indeed, other interests. I have to repeat that there are due processes for any submission of a royal charter. I checked the website at the Privy Council Office and I can work out how one can put across one’s views during this period of openness. There will be 15 working days for a period of openness, when people can put their views to the Privy Council as to the Pressbof royal charter.
Lord Prescott: My Lords, I confess not to being a full supporter of the royal charter, although I was quite prepared to accept it if all three parties got together, and it embodied the Leveson proposals. I am pleased to hear that that is now going ahead. Will the Minister confirm that, even under those proposals, there will have to be legislation before these Houses to determine the issue on damages and costs for those editors and papers that refuse to co-operate with any form of charter? Can he confirm that there will be legislation here? If that is the Government’s policy, why was it not in the Queen’s Speech, which we are now debating?
Lord Gardiner of Kimble: My Lords, my understanding is that all outstanding matters were dealt with in discussions not only of the royal charter but of the
Crime and Courts Bill before the House rose for prorogation. So my understanding is that all outstanding matters vis-à-vis the matters that the noble Lord has raised have already been handled.
Baroness Jones of Whitchurch: My Lords, perhaps I may return to the Minister’s answer to the noble Lord, Lord Fowler, on the issue of the chronology of what has occurred. It seems very strange that, although the all-party supported royal charter was agreed before the one put together subsequently by the press group, the only one being put forward to the Privy Council is the press version, which was agreed after the one that was originally put forward on an all-party basis. I really do not understand why that has been allowed to happen. Why is not the Privy Council also considering the one put forward on an all-party basis?
Lord Gardiner of Kimble: My Lords, I can understand the point that the noble Baroness has made. I asked the question myself. I understand that you cannot have two royal charters relating to the same sort of subject dealt with in parallel. It will have to be, because of the due process, that there is one royal charter from Pressbof, which is a professional, body-based version, and then the state-sponsored royal charter, which this and the other House agreed on 18 March. Therefore, the first process is that there will have to be a consideration of the Pressbof royal charter. Once that has been achieved and the Privy Council has dealt with it, my understanding is that you cannot have two applications at the same time.
Medicinal Labelling Bill [HL]
First Reading
3.07 pm
A Bill to require the declaration relating to animal research to be placed on medicinal products’ labels.
The Bill was introduced by Lord Winston, read a first time and ordered to be printed.
Equality (Titles) Bill [HL]
First Reading
3.08 pm
A Bill to make provision for the succession of female heirs to hereditary titles; for husbands and civil partners of those receiving honours to be allowed to use equivalent honorary titles to those available to wives; and for connected purposes.
The Bill was introduced by Lord Lucas, read a first time and ordered to be printed.
Firearms (Amendment) Bill [HL]
First Reading
3.08 pm
A Bill to amend the Firearms Act 1968.
The Bill was introduced by Lord Faulkner of Worcester, read a first time and ordered to be printed.
Clean Neighbourhoods and Environment (Amendment) Bill [HL]
First Reading
3.09 pm
A Bill to raise the penalty for littering offences, and to require local authorities to provide appropriate and convenient litter disposal points for the entrances to public buildings.
The Bill was introduced by Lord Selsdon, read a first time and ordered to be printed.
Rights of the Sovereign and the Duchy of Cornwall Bill [HL]
First Reading
3.09 pm
A Bill to amend the Sovereign Grant Act 2011; to amend the succession to the title of the Duke of Cornwall; to redistribute the Duchy of Cornwall estate; and to remove the requirement for a Parliament to obtain the Queen’s or Prince’s consent to consideration of Bills passing through Parliament.
The Bill was introduced by Lord Berkeley, read a first time and ordered to be printed.
Arrangement of Business
Announcement
3.09 pm
Lord Newby: My Lords, there are currently 166 speakers on the lists for the remaining three days of debate on the humble Address. If Back-Bench contributions are kept to eight minutes, the House should be able to rise by 10 pm tonight, around 11 pm on Tuesday and around midnight on Wednesday.
Queen’s Speech
Debate (3rd Day)
3.10 pm
Moved on Wednesday 8 May byLord Lang of Monkton
That an humble Address be presented to Her Majesty as follows:
“Most Gracious Sovereign—We, Your Majesty’s most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament”.
The Commercial Secretary to the Treasury (Lord Deighton): My Lords, it is a privilege to open this debate. We will be considering the Government’s priorities
for business, the economy, local government and transport for the year ahead. I am particularly looking forward to the maiden speech of the noble Baroness, Lady Lane-Fox of Soho. She brings valuable business expertise, inspiration to our entrepreneurs and a deep knowledge of how to make the most of technology to revolutionise business and our daily lives. She is a most welcome addition to this House.
The measures in Her Majesty’s gracious Speech advance the Government’s strategy to position this country for success in the global economy. This strategy and its component parts are clear and have been consistently articulated and pursued. Our priority now must be the effective implementation of the policies which have been introduced, delivering meaningful improvements to our economic performance. The foundation of this strategy remains the steady restoration of our public finances from their precarious state in 2010. Although slower than anticipated growth, caused principally by problems in the eurozone, has necessarily extended the period of fiscal consolidation, the deficit has already been cut by a third. This has established credibility in the financial markets and keeps our borrowing costs at record low levels. This commitment to fiscal responsibility, reinforced by an activist monetary policy and the reform of the banking system, is the base on which we are building the supply side measures, such as establishing the lowest corporation tax rate in the G20, aimed at making the UK a great place to do business.
Last Thursday, we hosted a conference in London which attracted senior business people and investors from around the world. The positive attitude to the UK’s business environment was overwhelming and represents a significant advantage to us in the global race, which we can exploit but cannot take for granted. Our economy faces many challenges, but progress is promising in a number of areas: more than a million and a quarter private sector jobs have been created since 2010, with the OBR projecting employment to rise in every year of its forecast. We have also seen our exports to some of the large emerging markets increasing strongly, a trend that we must accelerate to reduce our relative exposure to a slower growing Europe.
I turn to some of the specific initiatives driving this agenda forward. Following the Financial Services Act, the Banking Reform Bill, which was introduced in the previous Session, will enter this House for consideration before the Summer Recess. This Bill is fundamental to the Government’s commitment to pass the necessary legislation before the end of this Parliament to restore the financial system to stability. Only then can it effectively support growth in the economy. The Bill implements the recommendations of the Independent Commission on Banking, ring-fencing retail banking services on which households depend from more volatile wholesale activities.
In addition to strengthening our financial infrastructure, first-class economic infrastructure is a necessary condition for UK business to achieve global competitiveness. Our intention is to improve our approach to planning for, financing and delivering this critical infrastructure as we go through a significant period of renewal. This is very well illustrated by our ambitious programme to
deliver transport infrastructure. We all know that good transport is essential to drive sustainable economic growth and prosperity. Efficient transport systems help UK businesses to be more productive by making journeys quicker and more reliable, supporting UK exports, enabling a flexible workforce, attracting inward investment and rebalancing our economy by generating development opportunities throughout the country.
In many cases, crucial transport investments are needed now to unlock growth and support the supply chain. That is why we are pioneering new ways to deliver infrastructure projects faster in all parts of the country, from essential highway maintenance that keeps traffic moving, to targeted improvements to our networks, to transformational investments for future generations. We will reduce the time it takes to plan and deliver new roads by up to a half and we are piloting a new delivery model for upgrades to the M1, M3 and M6. We have also focused our short-term investment plans on projects that will deliver benefits quickly, such as addressing pinch points and extending managed motorways.
Her Majesty’s gracious Speech announced the paving Bill and High Speed 2 hybrid Bill. High-speed rail is an engine for growth that will help drive regional regeneration, secure economic prosperity across Britain and support tens of thousands of jobs. We should not underestimate the scale of transformation that rail infrastructure is providing. Crossrail is the largest infrastructure project of its kind in Europe—it is going on at the moment—and is one of the largest single infrastructure investments undertaken in the UK. The high-speed rail link will be the first new line that we have built north of London for over 120 years —that is why we need it—and will boost our rail capacity, benefiting many throughout the country. Network Rail’s current investment in our railway infrastructure is the biggest since Victorian times. Introducing a paving Bill will allow Parliament to make a clear commitment to high speed rail. Crucially, the Bill will also give us the spending powers to progress the detailed design work for the scheme. We want to get this project moving and delivered at the earliest opportunity and this Bill will help us do just that.
It is not only railway lines that are being transformed but a concerted regeneration of major stations is currently under way. Two examples of this are, the £550 million part-privately funded redevelopment of Birmingham New Street that will stimulate the physical regeneration of the surrounding area, and the £850 million reconstruction of Reading station, due for completion in 2015, which will add five new platforms.
As to local government, we believe there is a significant opportunity to deliver our growth agenda more effectively by supporting the initiatives, capabilities and energy that exist in our regions and cities. Local government has a key role to play in local economic development. By implementing many of the recommendations in the review by my noble friend Lord Heseltine, the Government are handing power to the regions. We are committed to creating a single local growth fund for
the key areas of skills, housing and transport. The final size of the fund will be set out at the spending round next month.
We have brought in local enterprise partnerships, with public and private participation, to co-ordinate regional development and enabled cities to take control of their own local economies through City Deals. Thus far, City Deals have been implemented in eight major cities, with 20 more to be agreed this year. Now we are going further by continuing the process of devolving resources away from Whitehall towards local leaders who know what is best for their areas. We are introducing a localism Bill and the general power of competence. The Bill will increase local accountability by empowering local people to hold councils and local bodies to account for local spending decisions and ensure that they deliver effective value for money. This is the final step in a programme of reforms to local audit arrangements that will close the Audit Commission and deliver an estimated £1.2 billion of savings over 10 years.
We are also committed to reforming the planning system to help achieve sustainable development. We have simplified planning and provided incentives for communities to support development through neighbourhood plans and the community infrastructure levy. The primary legislation required to enact this programme is in place, and we are now streamlining the planning application process, including by broadening permitted development rights by exploring opportunities to create new housing from shops and agricultural buildings.
Housing is central to our plans for economic growth but, more importantly, it is essential to the hopes and dreams of people across the country. Our aim is to help people achieve their aspiration to live in a home that gives them security. The Government are committed to addressing housing shortages through a major increase in the supply of new homes where they are needed and wanted. This is why the Government have committed to invest over £11 billion in housing programmes during this spending review period. It is why, to date, the Government have sold enough surplus public sector land to deliver 45,000 new homes. With our new guarantees programme, we now aim to deliver 200,000 new affordable homes by 2016-17 with over £20 billion investment. It is also why we are providing a package of support for councils and developers to help accelerate and unblock locally led large housing sites. In addition, we are of course making it easier to obtain a mortgage through our Help to Buy scheme.
Direct support for business is a key part of our plan to improve the UK’s competitive performance: this takes the form of tax incentives, progressive legislation, access to finance and other forms of intervention with a particular focus on nurturing smaller businesses. The National Insurance Contributions Bill will entitle businesses and charities to a £2,000 employment allowance each year. By reducing the costs of employment, this will support small businesses aspiring to grow. More than 90% of this benefit will go to small businesses with fewer than 50 employees. This Bill also builds on the robust stance that this Government are taking in tackling all forms of tax and NICs avoidance. Our
approach is very simple: in return for offering a highly competitive tax system, we expect everyone to pay their taxes. The general anti-abuse rule reinforces this principle and will deter those who market and participate in artificial schemes. In addition, we continue to lead international efforts to develop a more effective cross-border tax framework.
The Government are also working hard to help UK businesses to increase their exports. We have supported 32,000 UK exporters in 2012-13, up from 25,000 the previous year. This has helped UK exporters to win billions of pounds of high-value export contracts, such as £150 million for an oil industry project in Brazil and over £78 million of new business for UK rail companies in Singapore. However, we want to do more, which is why we have committed to increase total annual UK exports from £488 billion in 2011 to a £1 trillion target by 2020. We plan to deliver this partly through increasing the number of UK SMEs that export from one in five to one in four.
If those SMEs are to grow, they need better access to finance. That is why we have set up the business bank with £1 billion of funding. Of the £1 billion, the Government will invest £300 million alongside private investors over the next two years in new channels, such as non-bank lenders.
We have also set up the Green Investment Bank to stimulate the additional investment required to finance the UK’s transition to a greener economy. In its first six months of operation, the bank has committed more than £635 million, including investments in each of its four priority sectors: waste, offshore wind, non-domestic energy efficiency and the Green Deal.
Beyond these schemes, we have implemented a package of credit-easing measures to improve the supply of affordable credit to SMEs across the country. For example, the Funding for Lending scheme was recently extended with incentives heavily skewed towards SME lending support. The £1.2 billion Business Finance Partnership was established to stimulate the development of alternatives to bank finance.
The Government are also supporting SMEs which lack a sufficient track record or collateral to access bank finance by providing government loan guarantees. Since May 2010, more than 10,500 SMEs have been offered enterprise finance guarantee loans with a total value in excess of £1 billion.
Her Majesty’s gracious Speech announced legislation that will further support SMEs in the design sector to drive growth through innovation by facilitating the protection of their intellectual property. The Intellectual Property Bill will implement the recommendations of the Hargreaves review. One of its key elements is the unified patent court agreement, which will make it possible for British businesses to protect their inventions across 25 countries in a single application. That could bring direct savings to UK businesses of up to £40 million per annum in translation costs alone.
The Department for Business, Innovation and Skills also plans to modernise and simplify our consumer rights framework through introducing a consumer rights Bill during this Session. In particular, this Bill will include important new protections for consumers buying digital content such as music downloads or
software where legal protection is currently unclear. Clarity in this area should also reduce the regulatory burdens for business, with the aim of improving market performance.
In summary, I believe that our future prosperity depends on our ability to be competitive in a fast-changing world. That means competitive in terms of hosting businesses that can take on the world and win, and competitive in terms of attracting highly mobile capital and investment. This Government are determined to create the best possible financial and economic conditions for the UK to succeed in this race. First, we have to demonstrate that we can deal with the deficit—it is impossible to produce sustained growth if the public finances are not under control. Secondly, we need to complete our work in fixing the financial system so that it is able to sustain growth in the economy. Thirdly, we must implement the reforms necessary to improve our competitiveness. These range from the support we are providing for SMEs to investments in infrastructure and housing and to the devolution of important local spending responsibilities. I believe that this is the right recipe to convert from our current phase of economic healing to one of sustained recovery and the right recipe to unlock the aspirations of our nation by backing people who want to work and get on.
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Lord Eatwell: My Lords, I am most grateful to the noble Lord, Lord Deighton, for introducing this part of the debate on the gracious Speech. If only all the good news that he spoke of had some connection with economic reality.
Like all noble Lords, I look forward to the maiden speech of the noble Baroness, Lady Lane-Fox. Many noble Lords may not know that she is an accomplished actress. It was surely no accident that one of her most successful roles was as Miranda in “The Tempest”, since Miranda famously hails:
“O brave new world, That has such people in’t!”.
The noble Baroness has been a major force in guiding this country into that brave new world of information technology and is one of the most remarkable people in it. We are all delighted to see her in this House.
The whole House is keenly aware that the central issue facing Britain today is economic failure: no growth for two years, output still 2.5% below the level of four years ago, 1 million young people unemployed, productivity well below the level of 2008, the banking system still unreformed, and a government deficit that has not fallen significantly for two years—the worst economic performance of any G7 economy other than Italy.
Given the seriousness of our economic problems, it has been widely remarked upon that there are no Treasury measures in the gracious Speech other than the welcome national insurance contributions Bill and the banking Bill carried over from the previous Session. However, there should be no surprise at this inaction. It is the very essence of the Government’s strategy that the Treasury has a very limited role other than the maintenance of austerity. Activism is to be left to
others. That is made abundantly clear in the recent most valuable outline of the Government’s economic policy that accompanied the Chancellor’s letter defining the remit of the Financial Policy Committee. It was echoed by the noble Lord, Lord Deighton, today, but he left out one bit. The letter declares:
“The Government’s economic strategy consists of four key pillars: monetary activism and credit easing, stimulating demand, maintaining price stability and supporting the flow of credit in the economy”.
All that is the responsibility of the Bank of England. The letter continues with,
“deficit reduction, returning the public finances to a sustainable position and ensuring … fiscal credibility”—
“reform of the financial system, improving the regulatory framework to reduce risks to the taxpayer and build the resilience of the system”,
which refers to the banking Bill, of which there will be more later,
“and a comprehensive package of structural reforms, rebalancing and strengthening the economy for the future, including an ambitious housing package and programme of infrastructure investment”.
All this is predominantly farmed out to other departments.
Those are the pillars on which the Government’s entire strategy is built. It is worth considering just how sound these pillars really are. First, on monetary activism, there certainly has been plenty of activity—from quantitative easing and Merlin to the Funding for Lending scheme and now Funding for Lending mark 2. The difficulty with all that activism is that when there is a lack of demand, it is very difficult for monetary policy to achieve any traction, so QE2 follows QE1 and there is no noticeable effect on lending. Funding for lending offers banks cheap funds to lend at highly profitable rates, but there is no noticeable increase in lending. Now we have Funding for Lending 2, and without any prospect of sustained growth of demand the result will be the same—no noticeable increase in lending. It is no wonder that in his letter defining its remit, the Chancellor appeals rather plaintively that the FPC,
“takes into account, and gives due weight to, the impact of its actions on the near-term economic recovery”.
In other words, “give me financial stability, but not yet”.
What all that activism has achieved is a serious distortion of the monetary system. The rock-bottom interest rates of which the Chancellor is so proud have put pension funds under severe strain, and pensioners have no chance of buying a worthwhile annuity. The excess liquidity, unused for real investment, is funding a bubble in the stock market that bears no relation to Britain’s real economic condition. The conclusion is that monetary activism may help growth a little bit but fundamentally does not work. That is one pillar gone.
Of the next pillar, reform of the banking system, the key reform is of course the banking Bill. But which banking Bill, the watered-down version of the Vickers proposals favoured by the Treasury or the beefed-up banking Bill proposed by the Parliamentary Commission on Banking Standards? The banking Bill has already
passed through Committee in another place, where any amendments related to the serious criticisms of the Bill in the Parliamentary Commission on Banking Standards’ report, published on 11 March, were resolutely voted down by the Government.
A further report by the commission is due at some time in the next four weeks or so. Will the Minister tell the House how the Government intend to deal with the arguments of these two reports? Will the Government recommit the Bill in another place? If not, how are the commission’s proposals to be dealt with in this House, or has the lobbying by the banks secured the Government’s commitment to ignore the commission’s arguments? Conclusion: the banking reform Bill is decidedly shaky.
“ambitious housing package and programme of infrastructure investment”,
which the Chancellor claims are at the heart of his comprehensive package of structural reforms. These were referred to by the noble Lord, Lord Deighton. We certainly need an ambitious housing package. No peacetime Government since the 1920s have presided over fewer housing completions than this Government have in the past two years. The situation is getting worse. Housing starts fell by 11% last year to below 100,000, while house prices, particularly in London and the south-east, spiralled out of the reach of young people attempting to buy a first home.
So what do the Government do? Unbelievably, they increase the affordable homes guarantee programme that applies to the existing housing stock as well as new build, giving their own special twist to the housing price spiral. This British version of Fannie Mae should be focused on new build. That is what is needed. Even this bit of economic activism on housing is a bit too much for the Treasury’s do-nothing sensibilities. The decision whether the guarantee scheme is to continue in three years’ time is to be handed over to unelected officials at the Bank of England.
What of the programme of infrastructure investment? We were told in the Budget that the Government are planning a £3 billion boost in two years’ time. I ask the Minister why, when infrastructure projects are notoriously slow to get started, work cannot begin now. The Government are committed to borrowing the money in two years’ time, so why not borrow it today? Is the postponement not entirely due to the Government’s attempt to massage a falling trend in the deficit, however slight?
As to the railways, the welcome paving legislation for HS2 proposed in the gracious Speech heralds a change of heart from the more than £1.25 billion cut in railway investment in the last spending review. The planned increased of £9.2 billion for five years from next year is clearly needed and welcome, but will the Minister tell us how it is to be funded? How much of it is to be paid for by an increase in Network Rail’s debt and how much by yet more inflation-busting increases in rail fares? Conclusion: the infrastructure pillar may be in place at some time or other in the future but certainly not today.
Finally, I turn to the fourth pillar of the Government’s economic strategy: austerity, to ensure that,
“fiscal credibility underpins low long-term interest rates”.
As all noble Lords will be well aware, there is a growing international consensus among all serious commentators on economic policy that austerity strategies have failed. The academic work purported to validate the austerity policy has been demonstrated to be seriously flawed. As for Britain, Olivier Blanchard, the chief economist of the IMF, has said that the country is “playing with fire” if it allows stagnation to continue.
As your Lordships are well aware, in 2010 the coalition’s austerity transformed Britain’s growth rate from a steady 2% a year into an equally steady 0% a year, with little prospect of returning to 2% in the near future. The level of output remains stubbornly below the level of output obtained in 2008, while other countries have at least recovered from the worst ravages of the global financial crisis. What is the Government’s justification for clinging to this failed doctrine? The Treasury argues over and over again that any change to the strategy it has followed for the past three years will damage the Government’s credibility in the financial markets, and that the subsequent increase in long-term interest rates would outweigh any benefits from cutting taxes or increasing spending. Since this is the only shred of justification for sticking to the failed austerity policy, it is worth examining for a moment.
First, with whom are the Government seeking credibility? The answer is: the markets. Who are they? What they are not is some single malevolent force tying George Osborne’s hands behind his back as he pleads to be set free to stimulate growth. In fact, the markets comprise millions of individual traders who pore over their computer screens trying to guess how the markets will move in the next month, week or even the next few seconds, and trying to make a secure return. In other words, they are trying to guess what everyone else in the market will do in response, for example, to announcements by firms or Governments, to the release of economic data or to research reports. This is not easy, but it is made much easier if an authoritative source makes statements that every trader believes all the other traders will accept. We have had a striking example of this in the eurozone, where Mario Draghi’s statement that the ECB would do everything necessary to defend the euro convinced each trader that all the other traders would take Draghi at his word. Accordingly, the markets all moved together in exactly the way in which Mr Draghi wanted. Authoritative statements can move markets, so if all the traders are convinced that any relaxation of austerity will result in higher interest rates in the UK, it will.
Credibility is potentially a vice tightening its grip around the heart of the British economy, but what do the clowns at the Treasury do about it? They do everything they can to reinforce those traders’ beliefs. They turn potential into reality and they cry from the rooftops that the markets will tighten the austerity vice because it is the only justification they have left of a failed policy, and the danger for Britain is that anyone will believe them. At the same time, they falsify the arguments for abandoning austerity. No one is expecting George Osborne to take himself off to the Tower of London, crying out to the world, “I was wrong”—although when thinking about it, that is not quite such a bad idea. What we all hope for is a
steady and carefully staged change of emphasis. Bring forward that increase in infrastructure spending; why postpone it for two years? A British investment added to a strengthened banking Bill, a jobs guarantee for the long-term unemployed, a real new-build housing programme, and, to improve the existing housing stock, a reduction in VAT on home repairs, maintenance and improvements—none of these requires a fanfare announcement; all they need is real activism from a do-nothing Treasury.
What is left of the four pillars?
Lord Forsyth of Drumlean: My Lords, I have much sympathy with what the noble Lord says about clarity. Can he tell us by how much the Opposition would wish to increase borrowing in order to deliver the programme he has just outlined?
Lord Eatwell: Gross borrowing could be increased so that net borrowing would fall. That is our strategy.
Again, what is left of these four pillars is something that the Opposition perhaps do not understand. The noble Lord, Lord Deighton, who has a good economics degree, understands it very well. What is left of the four pillars of the Government’s strategy? Monetary activism that does not work, a banking Bill that fails to reform the banks in the way that Britain needs, an infrastructure policy that recedes into the distant future, and a housing policy that does precious little for the new build that homebuyers and the construction industry desperately need. Last, but by no means least, there is an austerity policy that fails to cut the deficit but is very successful in cutting real incomes. Those are the four pillars, but what this Queen’s Speech reveals is that the Government’s economic policy does not have a leg to stand on.
3.40 pm
Lord Empey: My Lords, every time the economy and public spending are mentioned, the word “growth” usually accompanies them. Today is no exception. People say that what we need are policies for growth, as this is the only way to close the deficit and reduce our borrowing. It is easy to see why this is a popular idea. When one looks at the graph of spending to borrowing, a rise in tax revenues brought about by an increase in economic activity would, over time, solve our problems—or would it? When we were enjoying economic growth, we increased our spending. We did not use the increased tax revenues to pay down our debt, so when the crisis of 2007-08 occurred, we were caught in a trap from which we have not escaped. Who said we are entitled to expect ongoing growth in our economy? Growth will occur only if we remain competitive. We no longer provide sufficient goods and services at prices that the world wants to pay. This is not surprising, for a number of reasons.
There is a deep-seated culture in this country that has not given a parity of esteem to those in business who have led the way in innovation and exports. In competitor countries such as Germany, those who decide to become engineers, for example, are highly regarded and respected. Vocational education in Germany
is also regarded with higher esteem than it is in this country and not seen as what a student does if they have failed in the academic pathway, as is often the case here. This is unfortunate, because it permeates our education and governmental apparatus from top to bottom. There is a form of snobbery which perversely values those professions and skill sets that spend taxpayers’ money over those professions and skill sets that create it.
I had the privilege of being a member of the ad hoc Select Committee of your Lordships’ House which looked at SMEs and exports. We found a large number of potentially highly successful small businesses out there which are really trying—some are succeeding—to grow the export potential of this country. There is no lack of potential but there are failings which frustrated those of us on the committee and which we want to air when the report is debated later in this Session.
However, it is clear that businesses in this country are having to pass on to customers the overwhelming cost burden of a welfare state that we simply cannot sustain at present levels unless we have a larger economy. I come from a region which benefits greatly from the welfare state and the financial transfers from Westminster. As an elected representative there for more than 25 years, I know something of the plight and the dependence of many constituents who rely on having access to various benefits. To be blunt, this situation cannot go on as it is. When we were discussing the Welfare Reform Bill and the health legislation, many of your Lordships pointed to the hardship some of these changes would cause for individuals in the community. There is no doubt that this is true. What was lacking from these sincere expressions of concern was any apparent grasp of the dire long-term consequences of the UK’s continuing economic weakness for the future of the welfare state. Little emphasis was placed on how the wealth is to be created to produce the revenues to spend on so many deserving cases.
I will suggest a few steps we might take, to which the Minister, in winding up, will perhaps respond. I feel that the time has come to place a general duty on all departments to have regard to the economic well-being of this country. I also feel that all civil servants, irrespective of which department they currently serve in, should, as part of their terms and conditions, be required to have a general duty to look at the consequences of their actions on the economy. We need to review the priority given to wealth creation in our education system, which needs to run right through from primary to tertiary education. It is simply not happening on a large enough scale.
Turning to the Treasury estimates, there seems to be a muddled message in some of these decisions. In recent years, Governments of all parties have recognised the valuable role of our foreign service in promoting exports and trade abroad. With a meagre budget of £2 billion, the FCO is expected to promote our diplomatic and commercial interests around the world, yet the Department for International Development will have £10.7 billion to spend next year. Given recent diplomatic fallout from the decision to cut £19 million of aid to South Africa and a similar row last year over aid to India, who looks at the downstream commercial
consequences of these decisions? Is there no way of handling things to avoid such bad publicity and possible damage to our long-term commercial interests?
This is one reason why I repeat my call for all departments to have to look at the economic fallout of their decisions. Perhaps there needs to be a form of economic proofing of departmental decisions. It will not be lost on many that with the international development budget growing while the defence budget is falling, there is a need for a review of how best to ensure that priority is given to the UK’s long-term national interests in these spending areas.
Since I came to your Lordships’ House, I have been struck by the division that still exists between those of your Lordships who can be regarded as Europhiles and many who are seen as Eurosceptics. Perhaps I will add another category: Eurorealists. The arguments of the 1970s are over. The UK took a decision to join the then EEC and we have seen that economic community change into a rival to nation states. I have no doubt that this was always the intention of the EU founding fathers, but it was most certainly not the intention of the British people. Ironically, many of those who are now sounding alarm bells about the growing appetite of Brussels for its own statehood supported the necessary legislative and treaty changes that have brought about the present situation.
As we are talking about the g-word—growth—today, it is obvious that significant business growth is currently available outside the EU. Indeed, parts of the EU face years of contraction and not a small risk of political instability as a result of the politics—rather than the economics—of Europe. The euro has been a disaster for southern Europe: there is 64% youth unemployment in Greece and 57% in Spain. For how long can this go on?
The EU is still a huge consumer market, to which the UK sends 40% of its exports, but it is not sufficient to generate the growth that we need. While there is no incompatibility between trading with the EU and with the rest of the world—including, I hope, a growth in our trade with the Commonwealth—the fact remains that Europe is making itself progressively less competitive with the rest of the world and we are powerless to stop this on our own.
I do not relish another four years—or maybe more—of these pro- and anti-European arguments. While at all times acting in our own interests, we must strive to shorten this period of uncertainty. I am not sure that a referendum or referenda can wait until 2017. I support the concept of a last-ditch attempt to renegotiate the terms of our membership of the EU. But we must remember that Brussels has only done and is only doing what we, as an independent nation state, through this Parliament, agreed that it should do. There is no point is blaming Brussels or the Commission for their actions; the blame lies in this House and the other place. We agreed to the free movement of labour within and between member states; that means that we agreed that the workforce in a country such as Bulgaria, with a minimum wage of 83p per hour, was free to seek work in this country. While it was never envisaged
that the diversity of economies in Europe would be so wide, we had the opportunity to negotiate at the time of the various treaties, but we failed to do so.
We are in a pickle of our own making and it is in the interests of our future economic well-being to ensure as speedy a resolution to the Europe question as possible. No good will come of endless delay and procrastination.
3.49 pm
The Lord Bishop of Birmingham: My Lords, I am grateful for what we have heard today of Her Majesty's Government’s aspirations for a stronger economy and a fairer society, because those two are held together at the head of the gracious Speech. We aspire to them ourselves, even as far north as Birmingham.
It is on the holding-together of these two laudable elements and the outworking of their detail that we must focus in the local economy day by day, person by person, job by job. There are, as we have heard, murmurs of good news. Foreign direct investment in greater Birmingham in 2012 rose by 52%, bringing in 2,200 new jobs and more than £174 million of new investment, four-fifths of which was within the sectors targeted by Business Birmingham—they are in some of the exciting areas about which we may hear later: IT, food and drink, life sciences, digital media, professional and financial services and advanced engineering. It was also good to hear about infrastructure developments. I recommend that any of your Lordships who visit Birmingham should do so via New Street station, which is already much improved. The airport runway is also being extended so that we can travel further. In real economics, we need to persuade air carriers to use our regional airports. Connecting up the macro and the micro is significant. High Speed 2 is welcome, particularly when the right compensation deals are agreed. Of course—to bring culture into the argument—Birmingham has one of the finest new libraries in the whole of Europe, to be opened in September this year. Universities are investing and so are hospitals.
Building on this apparent success in the regions is based on a recognition that well resourced employment is at the heart of a stronger economy and a fairer society. I was glad to hear the Minister mention local enterprise partnerships, inspired by the No Stone Unturned report, but I urge clarity on how much money is going to be attached to the now-published strategic growth plans that our region and, I am sure, other regions have, and when it will be forthcoming. It is in the further connecting-up of the macroeconomic and the day-by-day experience of ordinary people that we need to persuade ourselves here in Westminster that it is possible to delegate power and responsibility to talented and enthusiastic workers, businesses and institutions in our regions.
We will see a steady rise in the economy when we see a steady rise in the active participation in the economy of ordinary workers, people who want to use their skills and talents and to engage them in any way that is on offer to them. These macroeconomic policies will be tested on whether people have hope and changed lives in their local areas.
Perhaps I may drill down a little into practical matters. Those of us on this Bench are supposed to stick to principles, but I find that principles are best illustrated by hard decisions, particularly where money is concerned. In the wide-ranging Birmingham social inclusion White Paper, published in March this year and accepted by local businesses and politicians alike, economic policies are seen as being at the heart of changing society, particularly for those who are excluded at the moment. Let me mention just four areas which are of economic interest, and I would be very grateful for a response from the Government.
The first is removing the corrosion of youth unemployment. Birmingham has published, as I am sure have many other regions, commissions and strategies to deal with the appalling waste of young talent coming out from school through their not being able to engage in the economy. I encourage the Government to have even more flexibility in apprenticeship schemes and enabling businesses to take on more than just one person at a time. I recommend proper devolution of the implementation of those schemes through youth contracts to regions such as ours.
The second is the abolition of the spectre of unmanageable debt. That connects with what we have heard already this afternoon to do with banking. I focus on asking the Government to support credit unions even more strongly. That quieter, softer area of the financial world may not produce huge profits but can be profitable and can enable the 9 million people in this country who do not have access to bank accounts to manage their affairs in a way which will enable them to be contributors rather than dependants. But the Government must deal face-to-face with the appalling business of the poverty premium, which means that the poorest people in the country pay the most for the ordinary goods that we take for granted in our houses because they do not have access to finance and have not been able to save.
Thirdly, we have heard and will hear more in this Parliament about the banking system. I am delighted that my noble and most reverend friend the Archbishop is here, but I speak in your Lordships’ House today because he cannot be here tonight, he has church duties to perform. We have heard about the support for small and medium-sized enterprises and the £300 million that has been offered. I urge that to happen quickly in a trustworthy manner so that those employers, who form the majority of the business employers in the country, can have confidence in their ability to take on new workers and to develop their businesses.
Finally, I address local government more directly and the more widespread and long-distance issue, which is fundamentally economic but also social. That is continuing to promote cross-cultural friendship. I hope that your Lordships will forgive me for mentioning this in an economic debate, but it is economic because the Government have been supporting it through a Near Neighbours programme. Although modest in money terms, it has already reached out in our area to 120 projects, spending just under £400,000. The basic requirement is that people of different cultures and faiths meet together to engage in community activity.
That underlies a successful and healthy economy—a strong economy, but also a fairer society. I trust that all those commitments will be given forensic attention in the next period.
The phrase that holds together a stronger economy and a fairer society that has been used lately in our debates is social cohesion. Your Lordships will know from your deep knowledge that it was first used by a former Archbishop of Canterbury, William Temple, in his Scott Holland lecture of 1928. In it, he said that all can flourish when, by the exercise of principles of freedom, fellowship and service, faith, family, church, trade and professional associations, businesses and voluntary movements working together can achieve what any nation wants: peace and prosperity. I urge the Government to attend to those details of ordinary lives so that people can immediately participate in a country that may again be one of the greatest in the world. In the words of someone whom William Temple heard just before he died, “Give us the tools in the regions and we will finish the job”.
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Lord Forsyth of Drumlean: My Lords, it is a great pleasure to follow the right reverend Prelate, who is absolutely right to warn us of the considerable dangers of unmanageable debt both in households—private debt—and in government. We are heading for a doubling of our national debt by the end of this Parliament to about £1.5 trillion to £1.6 trillion. For the life of me, I do not know how it is possible to pay back that kind of money. We are passing on to the next generation a terrific burden, one that is tough enough already with interest rates that are well below historical norms. They will certainly go up, and with them will go the cost and burden of servicing the debt. I have considerable respect for the noble Lord, Lord Eatwell, but when I asked him by how much the Opposition wish to increase that debt still further, he did not really give me an answer. He told me that the Opposition did not understand this. I think that he meant the Government, but he may have been listening to the interview that his leader gave on the “Today” programme, which certainly gave the impression that the Opposition did not understand it.
Lord Eatwell: I am grateful to the noble Lord for correcting any verbal infelicities that may have occurred. I wonder if he has noticed that the significant government cuts in expenditure have not resulted in a falling deficit for the past two years. In the same way, an expenditure programme targeted on worthwhile activities that stimulated a flow of tax returns would result in a reduction in the deficit. One other small point: when he says that there is a burden on our children from this debt, I wonder if he ever thinks about who we owe the debt to. The answer is that one group of our children owes it to another group of our children. Collectively, there is no burden.
Lord Forsyth of Drumlean: That is all right, then; we will just write it off, there will be no problem and the world will continue to treat the pound in the same way. One of the extraordinary things is that although
the pound has sunk significantly on the markets relative to other currencies, we are still not able to increase our exports and improve our productivity. As the noble Lord, Lord Empey, said, the key to this is being able to sell goods and services to a global marketplace competitively. Unless we can increase our revenue, we will not pay back the debt or, more importantly, provide the public services that the right reverend Prelate rightly emphasised as being of importance. The issue for us is how we do that.
The gracious Speech is a bit disappointing in the vision stakes. It is a list of Bills. One of the things that I have learnt in almost 30 years of being associated with Parliament is that legislation is seldom the answer to any problem, and usually creates considerably more. The idea that we should address every problem by thinking of a Bill or a new regulation comes out of this gracious Speech. To be fair, many people have said that they thought that the Speech was a bit thin, and in some regards it was. Perhaps it was modesty on the part of my noble friend, but I do not know why Her Majesty did not refer in the gracious Speech to the fantastic success that we had last summer with the Olympics, when Britain was advertised across the world as a competitive, successful and enterprising nation that was proud of its young people. My noble friend Lord Deighton played his part in ensuring that the Games were an enormous success, along with my noble friends Lord Coe and Lord Moynihan. Perhaps we could have done with a touch of levity in the Speech: I was itching to know whether Her Majesty had any further plans for appearing in Bond movies, for example.
I think that we have to go back to 1946 for the last time that there was a proposal to amend a Motion on the gracious Speech, which is happening in the other place. That amendment arises, again, because of the issues that the noble Lord, Lord Empey, pointed to—because Banquo’s ghost continues to haunt us. I cannot believe that it is now so many years since we discussed the Maastricht treaty yet I find myself mouthing the same arguments now to colleagues as appeared then.
I want to touch on the central themes of the gracious Speech. We have to improve Britain’s economic competitiveness and get Britain working and our economy growing again by investment in infrastructure.
I have to say to my noble friend Lord Deighton, who is a very clever chap, that whatever one’s views on the high-speed train—I have views that I had better not repeat because I want to be supportive of the Government—the immediate need is for jobs now. In roads and transport, we want people out fixing the holes in the road that are there today. We need more activity now in order to create employment. It is no good dreaming up fantastic, high-profile, wonderful schemes that will take place in 25 years’ time. We may not be around to see the benefits of those projects.
Similarly, there is talk of wanting another Bill to reduce regulation. Why do you need legislation to get rid of legislation? I should declare an interest as chairman of a small business that my daughter runs selling handbags—which are very good, by the way.
Small businesses are not allowed any rates relief while they are setting up and before they start trading. Rates are a huge burden, particularly on the retail sector. They are competing with companies, such as Amazon, that pay no corporation tax or rates because, thanks to the splendid efforts of many entrepreneurs—not least the noble Baroness, Lady Lane-Fox, whose speech we very much look forward to hearing this afternoon—they are using cyberspace and are therefore able to escape taxation. Their competitors on the high street in bricks and mortar are faced with a burden of rates that they must pay regardless of whether they are profitable. It is no good saying that we are reducing the burden of corporation tax because you pay corporation tax only if you are making a profit, and our high streets are bleeding. We need to look at the burden of business rates and shift it in a direction that takes account of the needs of entrepreneurs and people starting up, particularly in retail.
The gracious Speech also refers to our commitment to encourage people to save for their pensions, but why do my noble friend and his colleagues in the Treasury continue to interfere and change the rules that apply to pension schemes? Raids started with Mr Gordon Brown’s on dividend tax relief. Then we had A-day; rules were going to be set in stone and people could rely on them, but in every Budget and finance Bill we have another nibble at the rules on pension saving. Why does that matter? People might say that it affects only the very wealthy who have built up very large pension pots. It matters because it undermines confidence in a long-term saving vehicle in a country that needs more long-term saving. Then you have the Government, who say that they are holding down interest rates because of their control on public expenditure—which, incidentally, is going up in cash terms—and who are funding their own borrowing by quantitative easing and creating, through quantitative easing, an artificially low interest rate. You then have the contributions that employers and companies must make to company pension schemes determined by the gilt yield. The result is that billions of pounds that would otherwise be going into growth and investment to create jobs for the future are going into pension funds, whence they will never come out because the assessed liabilities of those pension funds have been exaggerated by the Government’s quantitative easing policy. Far from quantitative easing helping, it is causing enormous damage and sucking productive funds out of the economy, from the private sector, which would otherwise be invested in job creation.
There is also the commitment to supporting the union, which, of course, I very much endorse, but if people are being asked to vote in a national referendum about Scotland’s continued place in the United Kingdom, which is in the interests of Scotland and the rest of the United Kingdom, we need to sort out the issues that remain unresolved from devolution and, in particular, the role of Scottish MPs voting at Westminster on devolved matters: the so-called West Lothian question. People voting in the referendum need to know what they are voting for. The Government simply cannot continue to run away from the West Lothian question. They need to say what the arrangements will be in future.
Similarly, if we are to continue with a devolved Parliament, we need a system of funding that is fair to Wales, England and the rest. Barnett is certainly not that. Repeated reports, including one from the House’s own committee that was set up for the purpose, have drawn attention to the unfairness of Barnett. The Government simply cannot say that they are concentrating on reducing the deficit and are therefore not doing anything about Barnett. That is a non-sequitur. There is no relationship between these two arguments.
On what is going on at the other end of the Building in respect of Europe, it seems that the central theme of the gracious Speech is our country being competitive and creating those jobs and opportunities that the noble Lord, Lord Empey, talked about. That depends on our looking outwards and recognising what is going on in Europe. It is not a matter of our leaving Europe; the rest of Europe is leaving us. It is going off on this madcap scheme to have a single currency. There seems to be no price that it is not prepared to pay in terms of the misery being created, particularly in the southern European states. They have unemployment among young people of 60%—more than half their youngsters unemployed. That is not only an outrage but simply unsustainable. The rest of Europe is determined that no sacrifice is too great for the sake of this project.
Lord Spicer: Can my noble friend confirm that one of the reasons why it will be so difficult to renegotiate the repatriation of powers that he has implied already is the acquis communautaire? The acquis insists on all movement, all the changes in the treaty, going in one way: towards a federal state. It is endemic in the treaty and is always supported by the court.
Lord Forsyth of Drumlean: My noble friend is absolutely right. I remember, when I was an Employment Minister, spending hours trying to prevent the working time directive coming into being, which ended with our challenging it in the courts and being advised that we would lose because the court has a duty to promote the acquis, which is about integration. We are involved in a club that has a particular direction. That direction is to create a country called Europe with one Finance Minister, one currency and one set of interest rates, which will take no account of the relative competitiveness of the member states. We can see what is happening. The result will be years of economic decline. It is our marketplace. It is a big marketplace, of course, but the rest of Europe actually sells more to us than we sell to it. We have a Commonwealth. We have relationships around the globe. We need to get out there and sell to those parts of the world that are growing. That is where our future lies. It does not lie in being tied up in sclerotic bureaucracy created by this organisation called Europe.
As to the referendum, all the political parties are split to one degree or another on our membership of the European Union. We should have a referendum as soon as possible. Just as it was argued in Scotland that we should have a referendum in order to end the uncertainty as quickly as possible, so we should have a referendum to end the uncertainty about our continuing
membership of the European Union. Some of my colleagues who are of the same view as me say, “We might lose. Perhaps we should delay it. Perhaps we should put the arguments for longer”. Others, who are in favour of us maintaining our current relationship, take the same view. Let us trust the people and let them decide.
I say to my noble friends that the most disgraceful thing has been the behaviour of the Deputy Prime Minister and the Liberals on this matter. I took part in the general election campaign. I saw the leaflets that were produced asking us to sign a petition to send to Liberal headquarters, with a picture of the Deputy Prime Minister saying that the people of Britain must be given an in/out vote. That is what the Liberals fought the general election on. Indeed, the former Prime Minister, Gordon Brown, was attacked by Nick Clegg at Prime Minister’s Questions for not giving the people an in/out vote. Nick Clegg says that he wants to restore trust in British politics. Holding the Prime Minister hostage and preventing him giving the people a say on this crucial matter is a very funny way of doing that. Let us have a referendum, get it out of the way and then concentrate on building our prosperity by selling our goods and services to the rest of the globe, and using those relationships—our soft power—to make Britain produce the resources and revenues that we need to fulfil our obligations to our fellow citizens.
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Baroness Kramer: My Lords, I do not flatter myself that so many noble Lords have remained in this Chamber for my speech, but rather for the speech of the noble Baroness, Lady Lane-Fox, who will follow me—and quite right, too. I very much hope that she will address the issues of entrepreneurship in such a cutting-edge industry. That will be fascinating, not just on a personal level, but because it lends itself so much to the issues of economic growth that we are talking about today.
The opening phrases of the gracious Speech indicated that the Government’s purpose is to focus on building a stronger economy and promoting a fairer society. Let me wholeheartedly endorse those two principles, which must go hand in hand. This country has, at times in its history, pursued one but not the other, and that has damaged us as an economy and a society.
Much of the work of rebuilding the economy is already under way. I will pick up on the latest measure that was in the Queen’s Speech, which is extremely positive, namely the commitment to introduce a new employment allowance of £2,000, not least because its simplicity should make it very attractive to small businesses. We have heard again today, from the right reverend Prelate the Bishop of Birmingham, and others, that small businesses are key to the future of this country’s economy. This should be a spur to new hirers.
I commend the Government on resisting the temptation to constantly think up more legislation in the finance area, where we already have crucial banking reform legislation to deal with. I am on the Parliamentary Commission on Banking Standards, and our report will come out in the next few weeks. The Government slightly surprised me today by saying that that Bill will
come to this House before the Summer Recess. It is very important that the issues raised in our final report have the opportunity to be properly considered, and, on many fronts, incorporated into that legislation. I therefore ask the Government to take a serious look at the timing.
I agree with one part of the speech made today by the noble Lord, Lord Forsyth: it is sometimes a relief that we have a Government who do not constantly try to address every problem by producing yet another piece of legislation. When we heard the noble Lord, Lord Eatwell, essentially complaining that there were not enough new laws in the Treasury field for this section, I thought, “Labour’s continuing with its old habits of legislation”. I am glad that he finally agrees that implementation and governance are the right answers, but those are not the words that his colleagues have used.
In these uncertain times in which we live, it is unwise to overestimate green shoots in the economy. However, I have been struck by the very positive tone that I now hear from a wide range of those working in small businesses, in business accountancy, and even in the commercial sector of the banking industry. Help to buy is having a very big impact on the housing market; Barratts has reported the highest demand for five years, and now warns of a possible skills shortage in construction, which it is combating by planning for 600 new apprentices and graduates over the next three years. The CBI report also reinforces the sense that there is momentum.
We have seen these signs before. In 2011 confidence began to grow, but was knocked back with the problems in Greece, and in 2012 we began again to see gathering confidence, which was then shaken by concerns over Italy and Spain. This time, however, there is a broader base, with a pickup in the service sector, non-EU exports, manufacturing output and retail sales. I would love to hear from the Government about retail sales, but I understand that much of the pickup comes from the over-45 age group, which, frankly, was much less impacted by unemployment and by wage compression. That group has the capacity to spend, and if it is starting to again, that is a very important message for the economy.
Of course, any return to recovery has its own risks. A few months ago it was fashionable to suggest that many companies in the UK were essentially zombie companies—the walking dead that would collapse in an economic revival. Thank goodness that theory has largely been discarded because it does not fit the facts. However, it is true that as the economy improves many companies will quickly chew through their cash reserves, and it will be absolutely critical that we have a banking sector able to meet the demands especially of small and medium-sized businesses. I confess that this worries me.
The Government’s decision in the Budget to continue and expand Funding for Lending, with much more emphasis on small business lending, was significant and welcome. The big banks have been clearing their balance sheets and trying to retrain their staff to look at the sector, and they should have enhanced lending
capacity—although I remain sceptical about the low levels of demand that they insist exist in the economy. However, as the economy recovers we will definitely see a very significant pickup in demand for credit. It will come not in steady increments but in waves of expansion. We cannot afford for the banks to fail us again. If they are correct that only lack of demand has been holding back the flow of credit, we should see that change. In case they do not, I hope very much that the Government are looking at additional contingencies. It would be terrible to lose the opportunity of a rising economy because our banking sector, which has never focused very much on the real economy in the UK, failed to live up to expectations.
In the long run, new banking players and non-banking players will enter the credit market. We must never again depend on just four institutions, as essentially we do today. I am very pleased that we are close to achieving a proper regulatory framework for peer-to-peer lenders, and that they are getting support from the business bank. I congratulate the regulators, the FCA and the PRA, on a complete about-face in historical strategy. They are now setting out to remove barriers to the entry of new banks. Measures such as seven-day account switching will finally let ordinary people change their banks to get a better service, and will open the opportunity for new players to thrive. The Chancellor has proposed that the regulator should take on the payment system—the plumbing of financial services and banking—which has been in a sclerotic state and made it almost impossible for any new players to enter the market. We are moving towards an environment where competition is encouraged.
I am still concerned that waiting for banking and credit markets to grow organically and provide us with new players of any size will take longer than we can wait, and longer than one economic cycle. For that reason, I urge the Government to look closely at RBS, and possibly Lloyds, and consider splitting them up. People talked about splitting RBS into a good bank and a bad bank. That would have made sense five years ago but we are past that point now. Much more interesting would be a split into a number of regional banks that could identify and focus on the needs of each regional business base. For decades we have let the market shape our banking industry. It has been a disaster; we have seen nothing but consolidation and homogenisation. We now need the Government to tackle the failings in the structure of the industry, not just the failings of individual banks, which they are tackling with capital requirements, ring-fencing and other measures, so that it is fit for purpose, and the purpose is serving the real economy.
I know that Lloyds and RBS have had trouble selling off the pieces of their own banks that they have been forced to sell by European law. Two points are relevant here. One is the appalling legacy technology that the institutions are burdened with, which has not been brought up to date. The other is a general expectation that they will simply consolidate into another new big bank rather than remain sustainable as regional organisations. Economies of scale have dropped sharply and dramatically with modern technology. Highly competitive regional banks have proved viable across
the globe. If national banks cannot serve our businesses and regional banks can, we should seize the once-in-a-generation opportunity of returning two major banks to the private sector to build the banking structure that best supports our economy.
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Baroness Lane-Fox of Soho: My Lords, I am not the first Lane-Fox to make a maiden speech, but I think I may be the first Baroness to have a survived a virtual and a real-world crash. In 2000, the company I cofounded, lastminute.com, was navigating the choppy waters of the dot com boom and bust. Frankly, it was difficult—but she survived and thrived, as I was extremely fortunate to do when I was flung from a car in 2004.
The friendliness of this House is legendary, but I have been overwhelmed by the support and kindness of everybody, most recently in the past two minutes those who came to find me to tell me that I was coming up right now—but also the security staff, attendants, and catering and administrative staff. My two supporters, the noble Lord, Lord Chadlington, and the noble Baroness, Lady King, have given invaluable advice and were endlessly jolly on the day of my introduction, which banished nearly all my nerves.
My great aunt, Felicity Lane-Fox, gave her maiden speech in 1981, talking about disability rights, so I feel that it is particularly poignant that I can stand up and make a speech now and try to follow her great example. I would like to reassure any noble Lords who might remember Felicity that I do not intend to career down corridors towards my detractors, as she was given to doing in her newly electrified wheelchair—a weapon of persuasion.
When we started in 1998, we spent most of the time at lastminute.com convincing investors, suppliers and customers that the internet would be a force for good in the economy and was not about to blow up. It was surprising to me that well over 10 years later, when I was asked to become UK digital champion, I again spent my time convincing two successive Governments and millions of people in the country that the internet has much to offer. Shockingly, there are still 16 million people in the UK who do not have basic digital skills, and 7 million who have never been online. But we do have strong digital foundations: the internet accounts for 8% of our GDP, the highest of any G20 country, and recent forecasts suggest that 25% of our economic growth will come from the internet sector in future. We have competitively priced access and the highest number of online shoppers in the world. But I would like to argue that we should go much further and build on those foundations. I see usage of, and access to, the internet as a basic right that all citizens should be able to enjoy.
Why does it matter that so many people have never used the internet or do not have those basic digital skills? Partly, it is because we know that the majority come from the most disadvantaged communities—yet we also know that, if you are online, you are 40% more likely to be able to get work and will achieve 25% better results in education. Even the lowest income families will save up to £170 a year from online deals. In addition, the data show that feelings of loneliness
and isolation are dramatically reduced when you get online. Some 1.5 million of the unskilled live alone and see nobody in a whole week.
British businesses also need support, as has been mentioned here already, and small and medium-sized business in particular. We know that only 30% of them are able effectively to use online tools, and that there is a potential £18 billion in the economy if we are able to give them more advanced skills to sell and buy online.
I have been fortunate enough to meet many people who have told me of the transformative power of the internet on their lives, but one young man I met in Leeds I think of often. He told me that the internet had saved his life. Saved his life—really? Even I was amazed. But he described how, homeless and addicted to drugs, he had ended up at a drop-in centre in Leeds, where they had encouraged him to learn some new skills, and now he was making music and selling it all over the world as well as teaching other people in his community—a budding entrepreneur and giving something back.
We must not create a two-tier society but aspire to a universality of digital skills. We must make sure that the potential of all our citizens is unlocked. I believe that this will help the UK prosper and grow at a national level and at an individual one. Only when we focus on all aspects of digital growth, both infrastructure and skills, will we be a truly digital Britain. In this tough economic climate, the internet is such a powerful tool to help people manage the trickiest circumstances of their lives, whatever their age and whatever their location.
This is not an impossible challenge. The charity I founded, Go On UK, managed to reduce the offline population by 50% in just six months in Liverpool last year by bringing together interesting partnerships in that one area. However, we know that all the data show that by far and away the most effective method of spreading skills is through peer-to-peer support, so, naturally, as I look around here, I see a room full of potential.
The internet has had a profound effect on my life. It has enabled me to start businesses and to work with charities and has helped me to endure long periods in hospital as well as deepening my cultural life in a way that I would never have thought possible. I am honoured to join this House and hope that from here I can continue to encourage and champion a truly digital Britain.
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Baroness Wheatcroft: My Lords, it gives me great pleasure to follow the noble Baroness, Lady Lane-Fox, and I congratulate her on such an insightful maiden speech. As others have said, she is a very welcome addition to this House, bringing to it a remarkable business background and a determination to help everyone make the most of digital technology. She is now working with the Cabinet Office to that end, but I first met her when she was running lastminute.com, the business she started with Brent Hoberman. Unlike so many digital businesses, lastminute.com is still going strong. However, the noble Baroness, Lady Lane-Fox, has moved on and now sits on several boards, including
that of Marks & Spencer. She has also launched a chain of karaoke clubs. I like to think that many of your Lordships are members and enjoy their facilities.
In February, “Woman’s Hour”, that most influential of programmes, anointed her as one of the 100 most powerful women in the UK. From what we have heard today, I am certain that she will make a very powerful contribution to your Lordships’ House. Britain needs more people to build businesses and create wealth. The gracious Speech spelt out that the Government’s first priority is to strengthen Britain’s economic competitiveness, but we have a long way to go. I am delighted that by 2015, this Government will have cut the rate of corporation tax to a level which makes the UK the joint lowest in the G20, but a low rate of corporation tax will not ensure our competitiveness. The UK suffers from a dire level of productivity. Figures released in February by the Office for National Statistics showed that output per British worker trailed the G7 average by 21% in 2011. Output per hour was some 16% worse than across the other major industrialised economies, the worst figure for 18 years. Economists expect that the picture will be even bleaker in the current year. According to Spencer Dale, the Bank of England’s chief economist, the level of private sector productivity is around 15% below the level that would be implied by a continuation of the trend before the economic crisis hit. My noble friend Lord Deighton pointed to the new investment in infrastructure and transport being made and that will help, but it will not cure the problem.
Today, in his inimitable style, the Mayor of London gave his own explanation for why UK productivity may be low. He referred to classic,
“British short-termism, inadequate management, sloth, low skills, a culture of easy gratification and underinvestment in both human and physical capital and infrastructure”.
No doubt London’s business leaders will wish to respond to his considered view. I do not completely share it. However, it is clear that low productivity disadvantages the country and we need to find a way to improve it. The gracious Speech heralded some welcome measures for business—in particular, the promise of further deregulation. Red tape remains a major hindrance to business efficiency and undoubtedly puts UK firms at a disadvantage when competing particularly with those from outside Europe. Europe, of course, is where much of the red tape begins.
I also applaud the move cited by my noble friend Lady Kramer to exempt companies from the first £2,000 of their national insurance bills. That should encourage businesses to recruit, but the Mayor is right when he cites low skills and a lack of investment as the key to Britain’s productivity problems. The Government are doing their best to enhance the skills of those currently in the education system and are committed to trying to ensure that school leavers not going on to university move into training or apprenticeships. However, we have far too many unskilled workers. According to the Chartered Institute of Personnel and Development, there are on average 45 people applying for every low-skilled job. Improving the skills of the older unemployed is essential—and so is investment.
Britain’s companies are sitting on an unprecedented cash pile. Non-financial businesses had a total of £672 billion in the bank last year. The Government have tried to encourage them to invest. Generous capital allowances are available but that policy has not been noticeably successful. There seems to be a risk aversion in business and the key may be to address the chronic short-termism that the Mayor cites. The owners of big businesses, the shareholders in public companies, do not encourage investment for the long term, because they are too interested in short-term gains. We need to find a way of encouraging investors to think long term and to foster an attitude that does not view stocks as mere gambling chips. There have been many investigations and reports into this but, so far, nobody has found a solution. If the Government were to find some means of encouraging and rewarding institutional investors for taking a long-term view, it would result in an improvement in productivity.
The other aspect of the economy on which I should like to focus is the dominance of London. Even allowing for the importance of financial services to the capital and the hammering that the sector has taken in recent years, London’s economy has outperformed that of other regions since 2007. Between 2007 and 2011, it grew by a nominal 12.4%, compared to just 2.3% in some parts of the country and no more than 6.8% anywhere else. This led to London’s share of output increasing from 20.7% to 21.9% over that period. The right reverend Prelate the Bishop of Birmingham spoke eloquently of the needs of the regions.
Whether the statistics say that we have escaped a double-dip recession or not, there are many parts of the country where the views of economists count for little. If it looks like a recession, if it feels like a recession and if it hurts like a recession, it is a recession. The Government are pledged to push a greater proportion of growth-related spending to local areas from 2015, and we have heard how that will be of benefit. However, more can be done. The numbers employed in the public sector are decreasing but will remain substantial. Wherever possible, those jobs should be pushed out of London—not just the clerical jobs but the jobs at the top. In the digital age, with Skype available to all, there is no need for everyone to be in the capital. The savings in property costs would be beneficial, as would the boost that would be delivered to the regions. I am sure that plenty of civil servants would hesitate even to contemplate this and might talk about the huge transport bills that they would incur when coming to London for meetings. Forget it; they can just go online. I am sure that the noble Baroness, Lady Lane-Fox, can advise on how that could be done. There is much talk of rebalancing the economy away from financial services to manufacturing, but a bit of rebalancing away from London would also be a good idea.
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Lord Lea of Crondall: My Lords, as the first speaker from these Benches following the outstanding maiden speech of the noble Baroness, Lady Lane-Fox of Soho, I add that, as someone who has always been in difficulty
in working my computer, let alone shopping online, I stand in awe of anyone in that line of business. Perhaps I can get some private tuition.
I welcome the role that the Bishops are taking on as the only territorial representatives in this House, as well as now having the financial expertise of the most reverend Primate the Archbishop of Canterbury, in both cases indicating a relationship to real people in real communities.
I wish also to refer to the highly political 16-minute speech of the noble Lord, Lord Forsyth. No attempt was made by the Whips on the government Benches to remind him that eight minutes had been advised. It was a 16-minute speech, and I trust that the government Chief Whip will now confirm that we can all have 16 minutes, especially in our case, as my noble friend Lord Bhattacharyya seems to have disappeared.
Lord Forsyth of Drumlean: My Lords, I am most grateful to the noble Lord. I think that I was interrupted, and also no time limit has been specified for this debate.
Lord Lea of Crondall: There is an advisory limit of eight minutes. I inquired and that was stated. I do not know whether anyone would like to confirm that that is the case.
Lord Wallace of Saltaire: My Lords, as the question has been raised, the Chief Whip gave the advice that if Members were to keep their remarks to eight minutes we would finish at 10 o’clock. I am advised that it is traditional in debates on the Queen’s Speech not to enforce the advisory rule, so it is entirely open to noble Lords still to be here at one o’clock in the morning if they so wish. However, if anyone were to go on for a very long period, I dare say that noble Lords would have ways of making their feelings on this known.
Lord Lea of Crondall: My Lords, I have no wish to produce the result whereby people are here at one o’clock in the morning. I simply say that I hope no one thinks that there is any discourtesy if, in the light of what has been said, one does not stick to eight minutes.
As my noble friend Lord Eatwell pointed out in his magisterial analysis of the short term, austerity will not improve our tax revenues, nor will it reduce our tax expenditures. There are perhaps three timescales over which one can analyse economic prospects: short, medium and long, by which I mean for the short term possibly three to four years, for the medium term 10 to 15 years, and for the longer term perhaps 20 to 30 years. The post-war architecture of the world economy—Bretton Woods and so on—goes back no less than 70 years. The IMF and the World Bank were the main institutions created at that time. Surprisingly—it is hard to think that it is true—the European Union in all its manifestations now goes back for the best part of 50 years. It is partly in view of the extraordinarily peremptory and dismissive speeches made by the noble Lords, Lord Forsyth and Lord Lawson, in recent days that I will concentrate on the second and third of those timescales.
Their recipe for leaving the European Union and indeed for the future of the nation as a whole is, in my view, catastrophic. It is going down an ideological road and is far from an objective analysis of our economy and our place in the world. It is also as far removed from pragmatism and empiricism as something that went on in the Labour Party in the 1980s, and that is where the Conservative Party will wind up if they follow that line. In the short term, it will be, as I said, catastrophic. Figures published today by the TUC, which has done some analysis of the statistics of the International Monetary Fund, suggest that by 2017 our per capita income in Britain will have increased by precisely 0.0%. I know it sounds extraordinary that a figure should be as precise as that but it works out that our living standards, our per capita income, in Britain will have risen by precisely 0.0% since 2008. Given the vast increase in the quantum of the top 1% and, indeed, 10%, that explains the deep cut in living standards for the median and the vast majority of the British people who, not surprisingly, are angry and disorientated as a result, and are prepared more readily to listen to sophists such as Mr Farage and others nearer to home.
I acknowledge that the EU as a whole has not had a very much better record, although perhaps I may draw attention to the fact that per capita incomes in the same series in Germany and Sweden—two examples of northern Europe—will both be projected to have risen by 10% in this period, a point to which I will return. In passing, I will also mention that on a couple of occasions I have asked my noble friend Lord Eatwell a rhetorical question about how we will pay for this, that and the other without increasing the deficit. The noble Lord, Lord Forsyth, says that we have to get on urgently with filling up the potholes. Perhaps he will pay for it himself but I assume that it will come out of public expenditure.
What is the bigger economic picture that we face in this country? Just to put the numbers another way, the loss of output in these 10 years below our earlier potential of roughly 2% growth per annum comes out at some extraordinary numbers. If you look at the cumulative loss against that trend, by the year 2017 it will work out at some £3 trillion—£3,000 billion. It will not be £30 billion or £300 billion but £3,000 billion. People can work it out for themselves. The noble Lord, Lord Forsyth, is looking puzzled but if he does a bit of mental arithmetic he will find that that is in the right ball park. I know he does not have time to work all that out in the time of my speech but perhaps later he will realise that my figures are accurate. We are talking about figures that are worse than the slump in the 1930s after the parallel banking crisis of 1929, from which we only recovered the full scale of our potential during the late 1930s and the Second World War, as, of course, did Germany and the United States.
As to my own prescription or views regarding these matters, I do not begin by wanting to be orthodox in terms of Labour Party policy. I do not think that that is the role that one is necessarily here to play. I am generally orthodox but I just should like to draw attention to one or two features of the trade deficit. It is not that we cannot grow our economy in the European Union. If the EU per se is the reason for
some incompatibility because of so-called red tape, how is it that Germany, despite absorbing a very weak East German economy over the past 20 years, has a GDP per head of 121—if we put EU equals 100—while ours is 109?
Germany, of course, which relies much more than we do on something as old fashioned as manufacturing, is rarely mentioned by the new ideologues. They seem to think that there is something magic about the City of London. For every £2-worth of goods or services—in the statistics they come to the same thing—we now export, we import £5-worth. This is, in part, to do with our exchange rate. Of course we cannot go on devaluing the pound without our living standards falling. However, if we want to regain our competitiveness, I could argue at the same level of abstraction as the noble Lords, Lord Forsyth and Lord Lawson, who think they are brilliant economists—I do not think that I am a brilliant economist but at least I can see the fallacies in what they are saying—but what is wrong with saying that although we are now stable at 85p to a euro we would be more competitive at parity with the euro? That is a devaluation of 15%. With the growth of our educational system and our whole industrial policy, perhaps that would ensure that we stay, for once, at parity with the euro.
I do not anticipate great enthusiasm for what I have just said but is it not a fact that our trade deficit is a fundamental issue both within the European Union and outside it? Simply asserting that we have got to trade with the rest of the world in no way addresses that fundamental question. As for the European side of growth, that, too, goes back to Lehman Brothers five years ago. It is not as if the whole of the European slow growth was created within the European Union.
The other point which needs to be put to these new iconoclasts is whether they would stay in the European Economic Area along with Switzerland, Norway and Iceland. There is plenty of red tape in the European Economic Area. We signed the EFTA treaty in Stockholm leading up to its creation in 1960 and there have been rules on state aid and so on. The noble Lord who referred to the acquis, the noble Lord, Lord Spicer, who is not in his place, is correct in that if we were a member only of EFTA we would be following all of the acquis without having a seat or a vote at the decision-making table. Would he be happy to be in that position? He has given no clue as to the scenario we would be expected to vote for if he had his way.
The third and final fallacy—I am still three minutes off my 16 minutes—concerns relying on the City of London. The noble Lord seems to want to have it both ways. Either it is the centre of Europe’s financial system and dependent on our being part of the EU for its strength, or it will somehow have a comparative advantage in its own right without our being part of the European Union. The noble Lord must have missed the speeches by leading officials in China, the United States and elsewhere, who have said that of course our share of world investment would be considerably at risk if we were to leave the European Union.
In conclusion, “Stop the world, I want to get off” is a policy which I am sure the British people, when they are told the truth—we are told that we have to get
them to understand the truth, but that is a bit difficult when the Murdochs, the
Daily Telegraph
,
Daily Mail
and so on do not allow them to know it because for the most part they censor it—will reject. On the state of British public opinion, I shall read out three or four statistics taken from a new survey produced by YouGov/The Fabian Society looking at the attitudes of the younger generation, those aged between 18 and 34. They were asked:
“How convincing or unconvincing do you find the following statements in favour of the European Union? … It has given people the freedom to travel, work and live in other EU countries”.
Some 60% found it “fairly convincing”. Perhaps I should send an e-mail to the noble Lord, Lord Lawson, in France saying that I hope he is happy that that has enabled him to live there.
“The EU has agreed common standards of workers’ rights, consumer protection and played an important role in guaranteeing the social rights of individual citizens”.
The response showed that 48% found that statement “fairly” or “very” convincing against 15% who did not.
“Co-operation between EU countries is the best way to tackle the big issues of our time, like climate change, the global financial crisis and international terrorism”.
Some 49% said yes, while 18% said no.
“The EU has helped keep peace in western Europe since the second world war”.
Some 47% agreed and 17% did not.
Perhaps I may say in my final sentence that, so far as peace in the world is concerned, it is essential that Germany, France and ourselves are in the same Europe with a common defence approach vis-à-vis the rest of the world. That point will become clearer and clearer as this debate continues.
4.56 pm
Lord Razzall: My Lords, first, from these Benches I congratulate the noble Baroness, Lady Lane-Fox of Soho, on her brilliant maiden speech. Like other noble Lords, I look forward very much to her contributions to the deliberations of this House and her contribution to driving growth in the economy, which she touched on so ably in her remarks.
There has been much criticism of the gracious Speech, particularly from those on the Benches opposite, who suggest that it is slight and insubstantial. I do not share that view. The criticism suggests that the role of government is to legislate. I do not believe that that is right; the role of government is to govern. Do we really believe that the 30 or so crime Bills in 13 years of Labour Government caused the recent drop in crime rates? I certainly do not. I come from the school which believes that we have too much legislation, and I have often thought that occasionally a one-line Queen’s Speech saying, “My Government propose no legislation this year”, would be appropriate. Whether your Lordships agree that the primary role of government is to govern, all must agree that the Government now face two major challenges, both of which have been touched on by other noble Lords: what to do about the economy and what to do about Europe.
On the economy, there is common ground that economic growth will not be forthcoming without a correction in aggregate demand. Unlike in the 1930s
when Keynes was a lone voice against the austerity measures of the Bank of England, there is also now common ground that an economic slump is not self-correcting, that there are limits to monetary policy alone in dealing with a deficiency in aggregate demand, and that fiscal policy plays a significant role in stimulating demand. But then policy advocates part company. On the one hand, Keynes is prayed in aid, particularly on the Benches opposite, to dignify any proposal to spend more money and oppose cuts, while on the other hand, the right wing—not represented quite so strongly here—sees its authority in Hayek rather than Keynes to justify supply-side arguments—namely, that we need more deregulation, to scrap employment legislation, and that growth will come from the private sector always filling the space left by a retreating state. I have always leant towards the Keynesian side of the argument, but I have to accept that the UK crisis since 2008 is different from that in the 1930s.
In the 1930s, we did not see the difficulties in the banking sector that we have had since 2008. Indeed, in his classic work, Keynes hardly mentioned the problems of the banking sector. If we take banking assets relative to GDP, the UK has the biggest banking sector of any major industrial country. The banking crisis and the measures taken to avoid future crises have, as my noble friend Lady Kramer said, seriously impeded credit flows, particularly to SMEs and to individuals. As the Minister indicated, the Green Investment Bank and the business bank represent an attempt to start to deal with this problem. However, progressing from millions to billions being available for investment through those two institutions will not be easy.
To understand the other difference with the 1930s, I need to be a bit technical. In the 1930s, Keynes assumed that private sector multipliers of two to three times for every £1 of public sector spending would apply. However, the Office for Budget Responsibility now estimates that there is an income multiplier of only 0.4 for tax cuts and revenue spending and a multiplier of one for capital projects. Tax cuts, or an increase in current spending as advocated by certain members of the Opposition, would have significantly less effect on the creation of demand and carry a much greater risk of damage to our credibility in world markets and our ability to finance the deficit. When the coalition Government were formed in 2010, it was clear that the UK would lose the confidence of our creditors without a credible plan for deficit reduction. However, the issue for the Government now is whether the balance of risks has changed. In May 2012, the IMF said that the risk of losing confidence as a result of a more relaxed fiscal policy, particularly the financing of more capital investment by borrowing, may have diminished relative to the risk of deterioration of public finances through lack of growth. I believe that there is now a case for a significant increase in public investment where there are impediments to growth, particularly capital spending on housing and infrastructure spending on the so-called “shovel-ready” projects.
On Europe, the noble Lords, Lord Lawson and Lord Lamont, as well as television star Michael Portillo, have now weighed in on the side of the “come out”
camp. I am slightly reluctant to intrude on Tory grief over this issue but will make three points against them. First, the noble Lord, Lord Lawson, disagrees with the common assumption that leaving Europe would cost 3 million jobs. Indeed, he said that the Deputy Prime Minister was talking “poppycock” in using that argument and knew nothing about economics. As Alistair Darling said in the
Times
last week, although any assessment is theoretical, even if only 1.5 million jobs would be lost, that is a lot of jobs. Secondly, the main thesis of the noble Lord, Lord Lawson, was that our presence in Europe distracts our industry from competing in the growth markets of Asia, India and South America. However, it does not seem to stop the Germans in those markets—and they do not want to come out of Europe. The third argument against those advocating coming out seems to be the potential loss of international investment. The motor car industry is a classic example of an industry that has seen major overseas investment, primarily because of our presence in the European Union. The motor vehicle industry is a huge success story—last year, for the first time ever since the creation of the motor car, we exported more motor cars from the UK than we imported. Why should Tata, the Japanese and the Americans locate a new plant in the United Kingdom if we are outside the European Union? It is a highly risky strategy to assume that the European Union would allow us free trade in motor vehicles if we were outside it.
I have a suspicion that the arguments to come out, certainly from members of the Tory party in another place, have much more to do with fears of UKIP than economics. However, those Members of another place who are in fear of UKIP are in danger of misreading why people have been voting for UKIP.
Lord Forsyth of Drumlean: I am most grateful to the noble Lord, who obviously feels very strongly about this and feels that he has very strong arguments. But if they are so strong, why is the Liberal party in the coalition preventing the Government committing themselves to having a referendum, so that we can have this debate and people can decide, given that the Liberals campaigned for an in/out vote during the general election campaign?
Lord Razzall: I am grateful to the noble Lord, Lord Forsyth, for his intervention. As in so much of life, the question is timing. We are not in favour of having a referendum now. We might well have been in favour of having a referendum in 2010. Bearing in mind the policy of the Prime Minister to renegotiate our arrangement with the European Union, it seems sensible to have that referendum once that renegotiation has been completed.
Going back to my argument, I do not believe that people are voting UKIP because they want to come out of Europe. That is demonstrated by the detailed research that the noble Lord, Lord Ashcroft, has done. I commend his polling information to all noble Lords. It is very informative. People are voting UKIP because of a desire to go back to a perceived past world of Englishness, with no foreigners, with grammar schools and smoking in pubs, and where people knew their place.
John Major spotted this trend 20 years ago when he glorified a world of,
“long shadows on county grounds, warm beer, invincible green suburbs, dog lovers … old maids bicycling to Holy Communion through the morning mist”.
Unfortunately for his point, John Major quoted Orwell out of context. In criticising the past, Orwell had also talked about:
“The clatter of clogs in Lancashire mill towns, the to-and-fro of the lorries on the Great North Road, the queues outside the Labour Exchanges”.
I fear that this is the world to which UKIP wishes us to return. When I think of UKIP, I also think of 80 year-old Wyn Florey, on my ward committee, who said to me in the 1980s, “Don’t let them tell you about the ‘good old days’; they weren’t”. On the same point, my Tory colleagues might be better persuaded by William Whitelaw, who said in 1972:
“I do not intend to prejudge the past”.
I hope that, in deciding about Europe, Tory colleagues are not seduced by UKIP, and follow the Whitelaw advice. I hope and pray that they will not sacrifice the interests of our children and grandchildren to a misplaced nostalgia.
5.07 pm
Lord McFall of Alcluith: My Lords, today UK businesses have about £700 billion in cash on their balance sheets—money that is looking for places to invest but companies are lacking the confidence to do so. In addressing the growth strategy—which currently seems to be absent—the biggest task facing the Government is to instil confidence in people and companies. We have to recognise that there is a demand problem facing the country. That is why the austerity approach taken by the Government in the past few years has been wrong.
However, we need to ensure that confidence is based on reality. As a member of the Parliamentary Commission on Banking Standards, I am very much aware of the reality that in banking and finance the architecture has crumbled. We need not just to reform but to rebuild that from the floor up. We cannot afford to apply a sticking plaster to a system. Just how much the system has disintegrated was admitted by Adair Turner, the former chairman of the Financial Services Authority, in a remarkable interview a few weeks ago in the Sunday Telegraph. He said:
“I think we—as the authorities, central banks, regulators, those involved today—are the inheritors of a 50-year-long, large intellectual and policy mistake. We allowed the banking system to run with much too high levels of leverage, inadequate levels of capital, and we ignored the development of leverage in the financial system and in the real economy. And not only did we ignore it but we had a pretty overt intellectual philosophy that we could ignore it, because we knew the financial system was just a market like any other and whatever it did was bound to be for the good because that’s what markets are … I was surprised at the supervisory approach. I’d been on the board of a bank, I’d been involved in banks, I’d dealt with banks back in the 1980s and 1990s, and I, throughout that, had accepted the existing capital regime as a given, right? I had never gone back to basics and said, ‘Why do we allow banks to run with 30, 40, 50 times leverage?’. And neither had anybody else, funnily”.
That includes Larry Summers, former Treasury Secretary of the United States, adviser to President Clinton and president of Harvard University—he is presently the Charles Eliot professor of economics at Harvard—who has said that everything that he has taught in economics has been called into question by the crisis. When the respected John Kay and Professor Charles Goodhart came to the Treasury Select Committee a few years ago, I asked them whether they understood risk, to which Charles Goodhart succinctly answered no. John Kay said, “I’ve been teaching risk for the past 25 years at Oxford University and what I did was throw my notes away, because nobody understands risk at the present time”.
Therefore, the situation in which we find ourselves is fragile. I suggest that if we do not go back to basics we will not solve the long-term problems that affect the financial services industry. The Prime Minister last week admitted in response to a question from the chief executive of Santander that the Government were confused and had mixed messages for the sector. As for briefings from the Treasury and the Chancellor, I have been taken aback to read in newspapers over the past few weeks that the Treasury is paving the way to sell the Government’s bailed-out bank stakes at a loss. The Times commentators, Sam Coates and Patrick Hosking, both of whom I know and are very respected, wrote recently that the Treasury wants to,
“lower public expectations over the amount that will be recovered from the sale”.
It hopes that the Parliamentary Commission on Banking Standards will conclude that the Labour Government paid too much for Royal Bank of Scotland and Lloyds in 2008.
From my point of view, there is not a chance of that happening, and it is simply not true. Alistair Darling made it clear in an article in the Financial Times last week that, on the eve the general election in 2010, the economy was growing and the Royal Bank of Scotland’s share price was 504p, which meant that the taxpayer was up £500 million on the deal. Three years later, with no growth, the taxpayer is down almost £20 billion. It is vital that we do not turn a paper loss into a real one with a hasty sell-off. The Business Secretary, Vince Cable, agrees with us on that very point. He said:
“I don’t see the need for any haste”,
as he called for the break-up of the Royal Bank of Scotland to boost competition. That is perhaps as a result of his membership of the Future of Banking Commission—on which he sat along with me and David Davis MP, who chaired it excellently—when we called for increased competition, maximum transparency and a new culture and ethos in the system where customers’ interests come first.
Three years into the life of this coalition, meaningful competition is a more distant prospect than it was in 2010. The events at Lloyds with Project Verde and the RBS sell-off to Santander, which has hit the dust, illustrate that the Government have neither leadership nor control of this situation despite being the dominant shareholder in these entities. We cannot leave the structure of the banking system to the vagaries of the market. Perhaps the time has come for us to abandon the pretence that UKFI is in control of events, in a
situation where Lloyds has already spent more than £1 billion on Project Verde and Santander has withdrawn from the agreement with Royal Bank of Scotland after years of negotiation. We have seen everything turn to dust.
The Government need to demonstrate leadership by producing a blueprint of their own for a changed financial service. Perhaps, as the noble Baroness, Lady Kramer, who is an excellent member of the Parliamentary Commission on Banking Standards, mentioned earlier, that could be in conjunction with the regional partnership initiative of the noble Lord, Lord Heseltine. We have heard calls today for decentralisation from Westminster, for a rebalancing of the economy and for other parts of the country to share in prosperity.
However, if we do it in a hurry, it will be messed up. I suggest that the date of the next general election should not be the deciding factor in reforming the architecture of the banking system. This is a one-off opportunity. Mention has been made of the situation in Germany, where the privately owned Mittlestand companies are thriving because of their close regional relationship with the 3,000-plus independent banks, whose managers understand their businesses. Handelsbanken in the UK had a favourable press because of the same style of engagement at local level.
If we are serious about rebalancing the economy, developing SMEs and revitalising manufacture, this is the time. There has never been a better opportunity to use the leverage that we have. The politically myopic reactions to the situation from the spinners at the Treasury do no service whatever. Although the Parliamentary Commission on Banking Standards is doing excellent work, it is not the forum to produce a blueprint for the Royal Bank of Scotland and Lloyds. It can point the way forward, but the blueprint is for the Government. That is not our main focus. Our focus when we were established was clearly to look at culture and standards in the banking and financial services industry. RBS should not be a big element of our report, but we should recognise that there is an opportunity to do something there for the manufacturing and regional banking sector.
Also, we do not at present know what is on the banks’ balance sheets. Less than two weeks ago, the Financial Policy Committee said that British banks have a £25 billion shortfall in capital overall. The other day, the Local Authority Pension Fund Forum, representing 55 public pension funds, stated that the Royal Bank of Scotland has £10 billion of undisclosed loan losses on its balance sheet because it is using accounting standards that allow loss to be booked only after it is incurred, however likely a default may be, thereby underplaying the likely losses. We have been here before with accounting standards, when the banks, in their heyday, booked options and their own bonuses and expenses based on expected profits. A year of two later, however, the profits did not materialise. It is a sensitive and shaky situation.
Only the other week, I had discussions with HMRC after the noble Lord, Lord Lawson, and I, in a sub-committee of the Parliamentary Commission on Banking Standards, examined Barclays and the structured capital management vehicle, which the noble Lord accurately
referred to as tax avoidance on an industrial scale. It is a black box. Following my discussions with HMRC, the head of the business unit wrote to me to say that HMRC has 92 issues with the big banks at the moment and £3.2 billion is under consideration in relation to tax avoidance schemes. Those matters have still to be determined. They will not be determined tomorrow or next month; it could take between seven and 10 years. The sum of £3.2 billion could have considerable impact on the prudential stability and health of banks. The banks have set aside £16 billion already for PPI mis-selling—perhaps that is a euphemism for fraud—and that figure is not final. The situation is fragile and illustrates the folly of making definitive judgment calls before a general election. We are presently clawing our way in the dark. Incentives are at the heart of the matter in banking.
At the end of the day, we need that leadership from the Government. A quick disposal of shares on political grounds will negate the golden opportunity for the Government to effect real change. I submit that the customers’ interest, both personal and economic, requires a responsible, mature approach to the disposal. When I was chairman, the Treasury Select Committee was clear that we wanted the taxpayers’ interest to be paramount. The Public Accounts Committee has followed that up and said in its report of 2012:
“The taxpayer has invested £66 billion in RBS and Lloyds shares and it seems that their ‘temporary public ownership’ will last for some time if getting value for our investment remains the most important objective for Government … We are concerned that a short-term decision to sell might undermine long-term realisation of value for the taxpayer. The Treasury, with UK Financial Investments Ltd, should set out a strategy for its share sales, and how it will prioritise the government’s various objectives so that the taxpayer’s interests are protected in any eventual sale”.
Hope and confidence are at the centre of that. If we expect to take taxpayers along with us, we need to have that mature and fundamental look at the system.
5.20 pm
Lord Bilimoria: My Lords, the gracious Speech said a lot of really good things: build a stronger economy so that the United Kingdom could compete and succeed in the world; strengthen Britain’s economic competitiveness; ensure that interest rates are kept low and that people who work hard are properly rewarded; invest in infrastructure—I could go on. It is terrific.
However, when I was making my maiden speech, as the noble Baroness, Lady Lane-Fox, did today, in the same debate on the economy, I was advised, “Don’t worry about what’s in the gracious Speech; you can speak about things that are not in the gracious Speech”. I congratulate the noble Baroness on an excellent maiden speech. I am delighted to have a fellow entrepreneur in the House, and on the Cross Benches too. She spoke passionately about online inclusiveness, and I am sure that from now on all Peers will be online. Of course, we already are.
What is missing? What has been picked up in a huge way is Europe. The noble Lord, Lord Forsyth, said that to him this was like Groundhog Day—déjà vu. I am not going to go into that topic. Europe is going to go on for a long time. The eurozone crisis has not gone away. There are regular lulls before the storm, but that
storm is still about to come and it will be a perfect storm. I believe that we need to start with a clean sheet of paper and renegotiate our position in Europe. I say every day, “Thank God we are not in the euro”.
As an economy, we may have lost our triple-A rating but our interest rates are low and our inflation is relatively low. However, although we have avoided a triple dip, we are bumping along the bottom. We need to generate growth. What worries me is the Government’s priorities in achieving this. Why did we waste so much time pushing through employees giving up their rights for shares? This was against the will of business. It was twice sent back by the House of Lords to the House of Commons. It has gone through in a watered-down way. The lesson that I have learnt from this is that I could see very clearly that the Government had not consulted business properly first or listened to it. One of my favourite sayings in business is that good judgment comes from experience and experience comes from bad judgment. Will the Minister confirm that the Government have learnt from this mistake?
Lord Lea of Crondall: If the noble Lord will forgive me—this is a slightly sensitive subject—in regretting that noble Lords did not press their amendment, he may just be reminded that it was a Cross-Bencher, the noble Lord, Lord Pannick, who had put up an excellent performance on the first two occasions, who withdrew the amendment.
Lord Bilimoria: The noble Lord, Lord Pannick, did an excellent job, and the noble Lord is absolutely right. Will the Government accept, learn and consult business more in future?
The spending review is about to come along. Are the Government on target, given that, as the noble Lord, Lord Forsyth, said, our borrowings are increasing and will double to £1.5 trillion? We have to bring government expenditure as a proportion of GDP down. Is there a target of 40% of GDP for government spending? Could the Minister confirm that?
With regard to priorities, immigration has reared its head again. I am really worried about this. The gracious Speech mentions dealing with illegal immigration, the bad immigration that harms our country, and yes, we need to deal with that. Unfortunately, though, the signals that are being sent out, reinforced by highlighting immigration in the gracious Speech, are about discouraging and deterring the immigration that we benefit from. The number of Indian students has gone down by more than 40,000. In fact, recently we had a former head of immigration from Australia in the UK, and he said that every day in Australia they pray and thank God for the existence of the UK Border Agency. It has been proven unfit for purpose; that is why it is being dismantled. We are harming our competitiveness. If students do not come here, they go to Australia, Canada and the United States. It is one of our biggest strengths. We need to send out a very clear signal that we want immigration to benefit this country and that we appreciate the good immigration that has benefited it.
On infrastructure and High Speed 2, the noble Lord, Lord Forsyth, hesitated, but in his fantastic speech moving the Motion for an humble Address, the noble Lord, Lord Lang, spoke about High Speed 2 being a good investment in infrastructure from which our grandchildren will benefit. It is high speed being delivered at slow speed. Will the Minister confirm exactly when this project will be completed? It is an example of long-term thinking, which is great. The Minister spoke about Crossrail. I congratulate the Government on Crossrail. It is a fantastic initiative, started by the previous Government, which will benefit our economy, but nobody has spoken about Heathrow and the desperate need to improve our air services. We need that third runway at Heathrow. Why are the Government just postponing it?
What about a balanced economy? There is nothing in the gracious Speech about a balanced economy. When I am asked about my business, I say with pride that first and foremost we are manufacturers. Are the Government keen on promoting manufacturing? What are they going to do about that? We should be maximising our competitive strengths.
The tourism industry brings more than £115 billion to this economy. Expanding Heathrow would help tourism, but the most photographed building in the world is the Eiffel Tower. The second most photographed building in the world is our wonderful Palace of Westminster. The reason it is second is because we are not in the Schengen scheme for visas. There are so many people, particularly from China, who come to Europe, come as far as the channel, but do not come to the UK because a Schengen via for 25 countries is cheaper than a UK and Ireland visa. We should join Schengen. Anyone who has a Schengen visa should be able to come into this country. The reason we do not join Schengen is that we are worried about our border security. I have just spoken about the UK Border Agency. Why are the Government continually postponing imposing exit checks at our borders? They need to be brought in soon. We know who is coming into our country, but we do not know who is leaving. We need to have those exit checks. Will the Minister inform us of when they are going to be introduced?
Another of our competitive strengths is higher education, but there was not one mention of it in the gracious Speech. Earlier this month it was mentioned in this House that the University of Cambridge has achieved more Nobel Prizes than any other university. That is something of which we should be proud. That is in spite of the fact that we spend less as a proportion of GDP on R&D and innovation than the OECD or the European Union. We spend half the proportion of GDP on R&D that South Korea spends. When it comes to higher education funding, overall we spend less as a proportion of GDP than the EU average or the OECD average and way below countries such as the United States. Why is it that the United States always bounces back quickly? Why is it so competitive? Why is it so productive? Why it is so innovative? It is because it invests more than we do as a proportion of GDP in innovation and higher education. Why do the Government not do more of this?
Will the Minister confirm that we are going to be promoting clusters? There are three big clusters in the world: Silicon Valley, Boston-Cambridge in Massachusetts and Cambridge in the UK. We need to promote more clusters. Birmingham, for example, is a prime location for a manufacturing cluster. Will the Government promote clusters more proactively?