My fear about the present coalition’s policy is that, although there are aspects of it that are very attractive, the problem of the two nations may be made worse. I will give a few examples. One of the good ideas in the coalition policy is the pupil premium. When you look, however, at what is happening in teaching, autonomy in schools should not become an excuse for hiring loads of unqualified teachers. That will not improve the quality of teaching; nor should the proposals to reform the system of teacher education be rushed. The Government are right to want a lot more apprentices. Yes, there is a need for more apprenticeships, and the previous Government, I think, got things wrong on Train to Gain. I am quite willing to admit that. However, I looked at a recent report from the Boston Consulting Group—this is not a Labour think tank, this is the Boston Consulting Group—which said that, of the 240,000 new apprenticeships created in the past two years, 58% were low-level and 75% went to people over the age of 25 who were already in work. It looks to me as though this is not a dramatic breakthrough in skills education but another form of employer wage subsidy. We have progress to make on apprenticeships.

That is also the case in higher education. My noble friend Lady Warwick talked about the decline in part-time students and mature students, which is a great shame. The noble Lord, Lord Paul, mentioned how migration policies threaten the future of our universities. I think the Government may have the wrong priorities. For instance, I am sure that, in the other place today, there will be a lot of applause for the married couple’s allowance and the universal free school meals. Would it not, if you were seriously interested in educational opportunity and that was your principal objective, have been better to spend that money on children’s centres and early years?

Our education policy needs a rethink, on a cross-party basis, to try to establish consensus. We need to make institutional changes to our education system that will withstand changes of Government. We need to make systemic change to raise quality, not just fiddle around at the edges. We need to raise the status, as Labour attempted, of the teaching profession. We need a new system of post-16 funding. I think the Labour Government experimented with an individual

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learning account and it went wrong, but we need something like that. We also need a new, more settled approach to higher education.

In conclusion, we will succeed as a country only if we improve our educational quality. The greatest national resource that we have for our future is the unfulfilled potential of so many of our young people. We need a national consensus if we are to achieve that.

2.08 pm

The Parliamentary Under-Secretary of State for Schools (Lord Nash) (Con): My Lords, I thank the noble Baroness, Lady Morgan, for proposing this debate on such an important topic. She is an experienced and passionate advocate for education, from her time as a geography teacher in the early 1980s to the work that she has done as a member of the board of trustees of the Teaching Leaders charity, chair of the board of trustees of Future Leaders and chair of Ofsted.

I congratulate the right reverend Prelate the Bishop of St Albans and my noble friend Lord Sherbourne on their maiden speeches. Both spoke passionately, incisively and eloquently, and I am sure that we are all looking forward to hearing them speak on many more occasions. I also thank all noble Lords for their valuable contributions.

As the excellent charity ARK, one of our high-performing academy sponsors, which I know the noble Baroness advises, has stated, education is one of the strongest determinants of future income and social mobility. Young people with university degrees have double the earning capacity of those who leave school without qualifications. The noble Baroness, Lady Morgan, spoke about the underachievement “tail” of particularly poor children. We all know that many of our children are brought up in chaotic home lives with no systems, no structures and a background of generational worklessness. As I think noble Lords know, and I think there is consensus on this across the House, the only way in which we can break this cycle is through education. The tail is why we are changing the basic accounting measure for schools from a rather simplistic five A* to C grades, including English and maths, to a progress measure across eight subjects so that all pupils, whether they come to school performing poorly or highly, are measured on the progress that they make.

The noble Baroness also mentioned London Challenge, to which I pay tribute, as a model of collaboration. The academies programme is the structure that we are using for school-to-school support in local clusters in regional locations. A local collaborative structure is the only model that we feel works. I was delighted to hear the noble Viscount, Lord Hanworth, say that people work best when they have ownership of the processes that they are running, which is exactly what our academy programme is all about.

The right reverend Prelate the Bishop of St Albans mentioned that 82% of the schools in his diocese are good or outstanding. As I am sure he knows, that puts his diocese in the premier division of dioceses. I am extremely grateful to the Diocese of St Albans for its sponsorship of the All Saints Academy. I also pay tribute to church schools generally, which consistently outperform local authority-maintained schools and outperform on community cohesion.

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As the noble Baroness, Lady Morgan, and other noble Lords have said, this debate is particularly timely as the latest PISA international comparison results were published earlier this week. These results showed that, having tumbled down the PISA tables in the first decade of this century, we have broadly maintained our pretty average, mid-20s standing out of 65 countries. For the sixth largest economy in the world, it is clear that there is a lot more that we have to do if we are to give our children the ability to compete in an increasingly competitive and diverse international market.

These results follow the shocking findings of the recently published OECD’s adult skills survey, which showed that we came joint bottom out of 24 countries in numeracy and 21st out of 24 in maths. We were the only country in the surveyed group whose school leavers’ grandparents are better educated than they are. There is a similar story with TIMSS and other statistics.

It is clear that countries with successful education systems have faster rates of economic growth, as the noble Lord, Lord Paul, referenced. A study by Hanushek and Woessmann in 2012 suggested that if the UK halved the then 50 PISA-point gap between us and Finland, it would result in a 6% boost to the level of UK GDP by 2050, worth around £90 billion in today’s money.

There is evidence that education is increasingly important across the world. Graduates are good for growth and good for the economy; the noble Baronesses, Lady Warwick, Lady Cohen, Lady Donaghy and Lady Dean, referred to the success of our university system. Looking across developed economies, a study by the National Institute of Economic and Social Research shows that countries that increased their share of graduates in the workforce saw labour productivity grow faster, as the noble Lord, Lord Liddle, referred to. In the UK, we estimate that roughly one-third of the increase in labour productivity between 1994 and 2005 was attributable to the accumulation of graduate skills in the labour force. In other words, a substantial share of the UK’s economic growth over this period was related to the expansion of higher education.

The noble Lord, Lord Liddle, referred to the graduate premium. Office for National Statistics data show that the average income for graduates levels out at £35,000, compared to £22,000 per annum for those with A-levels and £19,000 for those with merely GCSEs.

The noble Baroness, Lady Warwick, and the noble Lord, Lord Liddle, referred to funding. I must remind the House that we inherited a particularly parlous state of finances in this country and we have had some very difficult decisions to make as we seek to rectify the financial situation while protecting education budgets extremely well, particularly in relation to schools. As a result of our tighter financial controls, and as the Chancellor has today announced, the economic prospects for the country are looking up substantially.

While education is critical in building human capital, it is also important for short-term and medium-term growth. Our £18 billion capital investment programme to build new schools is stimulating construction activity across the country and supporting jobs. Free early

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years education for 1.3 million three and four year-olds—that is 96%—is enabling more parents to work. Education is worth around £17.5 billion to the UK export sector. My department spends almost £60 billion on education and children’s services.

However, it is not just about spending money, it is also about value for money. I am delighted to be able to tell the House that we are now building schools at half the cost of that under the Building Schools for the Future programme, more quickly and more fit for purpose. We are also running the Department for Education far more efficiently and, by 2015, will have halved the cost of running the department in real terms from just over £500 million to around £300 million, and we will have a far more efficient and effective organisation as a result.

Our ambitious educational reforms are influenced by international evidence on what works. Successful school systems prioritise the quality of teachers over the size of classes; they attract the best people into teaching; and there is greater autonomy and accountability—I pay tribute to the noble Baroness, Lady Morgan, and Sir Michael Wilshaw for the highly effective work that Ofsted does in this regard.

High-performing systems have curriculum standards that set clear and high expectations. The relationship between early education and better student outcomes is strongest in countries that offer early education to a large proportion of the population. The amount spent is less important than how those resources are used.

Pupils’ socioeconomic background still plays too big a role in attainment in England. The impact of parental education on literacy and numeracy is stronger in England than in most other countries. According to the Sutton Trust, boosting the educational outcomes of children from less educated families to match the UK average could be worth around 4% of GDP, or £60 billion, to the country’s economy.

The noble Earl, Lord Listowel and the noble Baroness, Lady Taylor, spoke about the importance of engaging parents in their children’s education. I could not agree more. Unfortunately, many parents, however hard they try to engage, are so badly educated and so immersed in worklessness that schools today have to do so much more to replace the lack of support that children get at home. The evidence is that children from middle-class families will hear different words millions of times more than children from poorer families, which is why we are focusing so much on improving early years and primary education.

We know that education is crucial to a child’s future success. Not only is that true in respect of the labour market but educated people are healthier, more innovative, less likely to commit crime and more likely to be involved in volunteering.

Our education reform programme is based on raising attainment across the board and narrowing gaps. We are prioritising the most disadvantaged children through additional funding for early years and the pupil premium; setting higher expectations of the quality of teaching and standards of education; giving our teachers more scope to make the right decisions; holding schools and colleges to account for the outcomes that they secure for their disadvantaged pupils through a robust

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accountability system, which I have already mentioned; and creating opportunity for more innovation in the schools system, giving head teachers more freedoms in maintained schools and driving forward growth in the number of free schools, UTCs and studio schools.

As the noble Lord, Lord Baker, mentioned, we now have 42 UTCs open or due to open. These are creating opportunities—or will do when they are full—for 30,000 young people to train as the engineers and scientists of the future, playing a crucial role in England’s long-term economic growth. In this, they are teaming up with employers such as Jaguar Land Rover, Rolls-Royce, Siemens and the National Grid. I pay tribute to the noble Lord, Lord Baker, for his tireless, relentless and energetic determination to drive this programme and to the noble Lord, Lord Adonis, who is not in his place, for getting this programme off the ground in the first place.

We also have studio schools. There are now 28 open, with 13 more due to open shortly. They bring together academic and vocational education and employment, with over 400 employers, including M&S, Sony, Barclays and the BBC as well as many smaller businesses, involved.

My noble friend Lord Sherbourne set out another crucial factor in the future competitiveness of our children—modern languages. He highlighted many of the reforms that we have made in this area and made a compelling case for these changes, and I thank him for it. As he said, the English baccalaureate is already encouraging more young people to take a language at GCSE level. The increase is 16% in 2013 in pupils taking MFL at GCSE. Studying languages is about choice and we are making £3.1 million available in funding for Routes into Languages, a consortium of universities working together with schools and colleges to enthuse and encourage people to study languages to support a new three-year student demand-raising programme. Through the free schools programme we have opened the Bilingual Primary School in Brighton, which is delivering the curriculum in both English and Spanish, and the Judith Kerr Primary School in Southwark, where the curriculum is being delivered in both English and German, while in pre-opening there is the Bromley Bilingual school, which will teach French and English through immersion, and the Marco Polo Academy, which will teach English and Mandarin using immersion methods.

I thank my noble friend Lord Storey for his encouraging words about what we are doing about languages in primary schools. Strong and robust vocational education is essential for the future. More and more young people are taking vocational courses; we have seen a 200% increase over the past 10 years. As my noble friend Lord Baker said, the fact that we have such a high number of NEETs, stubbornly stuck at around 1 million, has to change. We need to repair the broken link between qualifications and training between British industry and employers and universities. The most able students must have confidence that the vocational qualifications are of the highest standard.

The noble Baroness, Lady Morgan, spoke about the importance of raising the status of vocational courses, and that is why we commissioned the report

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by Professor Alison Wolf on vocational education. We have followed all her excellent recommendations. We have already reformed vocational qualifications at 14, we are in the process of consulting on reforming 16-to-19 vocational qualifications and we have introduced Techbacc. In the past, skills training has been bureaucratic, top-down and complex. The funding of the system has been done through large numbers of people rather than focusing on value. Successive Governments have made the education system for vocational qualification accountable to funding bodies instead of to their customers, learners, businesses and the wider local community.

Under this Government we have ended top-down bureaucracy in FE colleges and supported a massive expansion in apprenticeships programmes, which we are focusing on making of higher quality and of longer duration. However, none of this means anything unless our young people are engaging with education, and we are planning to spend £7.4 million in 2013-14 to fund an education and training place for every 16 or 17 year-old who wants one, and we are raising the participation age.

Our higher education system is a huge success story, as a number of noble Lords have mentioned. We attract large numbers of international students and researchers who bring revenue, expertise and stimulate growth. Our strongest universities are among the best in the world. Education is a valuable and growing export sector worth about £17.5 billion in 2011. About 26,000 international students at over 1,200 UK independent schools contribute £685 million in fees, and around 1.4 million pupils studied at nearly 3,000 British schools overseas, contributing nearly £10 billion in fees. There is a strong overseas demand for educational products and services, including support in building, staffing and inspecting overseas schools. There is also growing interest in developing technical and higher vocational skills.

In the summer we published our education export strategy, which will ensure that British schools, universities, colleges and education businesses continue to stay ahead in the global education market worth about £1 trillion. The noble Baroness, Lady Donaghy, talked about the Institute of Education, which I would be delighted to visit. I was delighted to hear the noble Baroness refer to the World Bank report mentioning the importance of acquiring knowledge and the processing of information, which is why we are increasing the content in our curriculum. I was also delighted to hear her mention the importance of providing incentives so that the stronger teachers can get better paid, which is what performance-related pay is all about. I am beginning to sense the makings of a consensus across the House on the future of education, and perhaps we can begin to see the end of the stone-throwing era.

I agree with the noble Baroness, Lady Dean, about the importance of raising aspirations for our pupils, particularly those from less privileged backgrounds. The noble Baroness, Lady Taylor, talked about those films in the 1960s. I can particularly remember one with Tom Courtenay. I cannot recall what it was called but it made a vivid impression on my mind.

We must open the door to education much wider for employers. As the noble Lord, Lord Mawson, said,

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we must provide our pupils with a clear line of sight to the workplace. I have been struck when talking to students about their work experience and visiting places of work; talking to people from the workplace has raised their heads and their ambitions. I look forward to meeting him to see if we can unblock the logjam to which he referred.

I agree with the noble Lord, Lord Graham, that schools should widen their connections with the local community. In my own school we have an active programme of raising aspirations, engaging with community voluntary groups, professions and businesses, which has had a remarkable effect on the aspirations of the children.

The noble Baroness, Lady Taylor, talked about prescription and the freedom to teach. As the noble Baroness, Lady Morgan, knows, one of the things that we in this Government have been very strong on is being much less prescriptive. We have had many conversations with Ofsted about how teachers should teach so that they can teach in the way that they think is best to make progress for their pupils.

Ensuring that all our children receive the best educational outcomes is a priority not just for me, my department and my right honourable friend the Secretary of State for Education but for the whole country, and I am sure that there is consensus across the House about this. In concluding, I again congratulate the right reverend Prelate the Bishop of St Albans and my noble friend Lord Sherbourne on their excellent maiden speeches, and I am grateful to all noble Lords for their contributions to this debate. I thank the noble Baroness, Lady Morgan, for allowing us to discuss these most important matters.

2.28 pm

Baroness Morgan of Huyton: My Lords, I thank noble Lords for taking part in today’s debate, which has been engrossing. I especially thank the right reverend prelate the Bishop of St Albans and the noble Lord, Lord Sherbourne of Didsbury, for their excellent maiden speeches. I am sure that we all look forward to hearing more from them in the future.

I have been struck by the breadth of knowledge and expertise in this House but also by the real experience that so many Members of this House have. We do not do too much stone-throwing here; we seek consensus and ways to try to move educational standards forward in a way that will help economic growth.

Motion agreed.

Scotland: Independence

Question for Short Debate

2.29 pm

Asked by Lord Forsyth of Drumlean

To ask Her Majesty’s Government what is their response to the Scottish Government’s declaration that, if the people of Scotland vote for independence, Scottish independence day will be 24 March 2016.

Lord Forsyth of Drumlean (Con): My Lords, I am most grateful for this opportunity to discuss the White Paper that was published by the Scottish Government on the advantages of an independent Scotland. It runs

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to 650 pages, and I believe that an anagram of the title,

Scotland’s Future

, is “fraudulent costs”, which would certainly do a great deal to explain the content. It has all the deliverability and realism of a letter to Santa Claus. Such is its credibility that if it were put forward on “Dragons’ Den” as a business plan for an independent Scotland for the next 300 years, it would not even get up the stairs to be filmed before them.

We were told that it would answer all the central questions about Scottish independence. In fact, it ignores all the questions by simply asserting the answers that the Scottish Government would like. On EU membership, therefore, Scotland will able to join the EU. The Spanish Prime Minister says, “Not on your life”—but, of course, Alex Salmond knows better than the Spanish Prime Minister, the European Commission and others.

Yes, there will be free tuition fees, but our deal with Europe will mean that we can maintain this outrageous discrimination against students from England. The proposal in this White Paper, believe it or not, is that an independent Scotland will allow French, Italian and German students to come and get free university tuition fees, but England, Wales and Northern Ireland will still be discriminated against. This is from people who have the nerve to use the rhetoric of us all being a family together.

Similarly, an independent Scotland will not have to join the euro, even though the treaty requires it. It will have the pound, but without accepting any of the obligations that would come from the Bank of England in a monetary union when it comes to determining their interest rates, borrowing and the rest. It will be able to avoid Schengen as well—all because Alex says that this has got to be the case. On NATO, it can join a nuclear alliance while engaging in rhetoric about how offensive nuclear weapons are. The Scottish Government can put at risk tens of thousands of jobs on the Clyde by insisting on our nuclear deterrent being moved, without any suggestions as to where it might be moved, who would bear the cost of the tens of billions of pounds involved, or what the consequences for NATO would be of Britain consequently having to abandon its nuclear deterrent.

The Scottish Government fail to make the case in this White Paper for what amounts to the Balkanisation of Britain. To be fair, they do answer some questions. For noble Lords who have not had the opportunity, as I had last weekend, of wading through this document, I can announce that Scotland will be able to put forward its own entry for the Eurovision Song Contest.

I say to my noble friend on the Front Bench that it is a bit off that we should be debating a document as important as this on a Back-Bench Motion late on a Thursday afternoon. We really ought to have seen a debate in the House of Commons and one in this House on such an important document. I suggest to my noble friend that he might consider persuading his colleagues to set up a Joint Committee, perhaps chaired by someone of impeccable credentials such as a former Law Lord, to go through this White Paper—it will not take them long, although it might take a long time to read it—and set out what the consequences should be for both sides of the border. This is not a Scottish

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issue. It is an issue for every part of the United Kingdom, with huge implications for Northern Ireland, Wales and England.

I have another request for my noble friend. I do not know if he has had a chance to read the White Paper, but you only have to get to pages xii and xiii to see set out a whole load of things, where on one side it says:

“Gains from independence—whichever party is elected”,

and on the opposite page it says:

“Gains from independence—if we are the first government of an independent Scotland”.

It sets out SNP party policy, including the renationalisation of the Royal Mail, which is not within the competences of the Scottish Parliament. What on earth are civil servants doing writing this stuff, with the Government of Scotland putting the bill for an SNP manifesto on to taxpayers?

I draw my noble friend’s attention to paragraph 14 of the Civil Service Code, which says:

“You must: serve the Government, whatever its political persuasion, to the best of your ability in a way which maintains political impartiality and is in line with the requirements of this Code”.

Section 15 says:

“You must not: act in a way that is determined by party political considerations”.

The Cabinet Secretary ought to have a look at this. If he concludes that it is party political and contrary to the code, the bill for this whole exercise should be sent to the SNP, which should pay it. I do not see why my taxes should pay for this sort of nonsense.

The subject of my Motion was the declaration in this document that if Scotland votes for independence, 24 March 2016 will be independence day. I have no idea where that particular date came from, but I was always told that if you were going to be in a negotiation—and if Scotland votes for independence there will be a lot to negotiate, because it is not answered in this White Paper—you never set a deadline, especially if you are the weaker party.

The other day, I pointed out to the leader of the SNP in the other place that if independence day was going to be 24 March 2016, it would be rather awkward if a Government had been elected with a majority that depended on Scottish MPs, who would presumably be thrown out of the House of Commons on independence day. He replied, “Ah, yes, we’ve been thinking about that, and we think that the general election should be postponed by a year”.

Noble Lords: Ha!

Lord Forsyth of Drumlean: That is SNP policy, and it is one of the more credible notions that it puts forward.

Of course, to be fair, I shall always be grateful to the SNP. Had it not brought down the Labour Government, we would never have had the late Baroness Thatcher as Prime Minister for three successive Parliaments. Now, of course, it is arguing that we should extend the life of the coalition Government by a further year. It is indeed a fair-weather friend. Of course, if there were no Scottish MPs in the House of Commons, we would have a Conservative Government with a majority of 10. Let no one say that the Tory Party does not stand up for the United Kingdom, even when it is against its own short-term political interests.

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Where did this idea of independence day come from? The Battle of Bannockburn was on 24 June. The Act of Union took effect on 1 May. Could it just be that 24 March is immediately before the run-up to the election campaign for the next Scottish parliamentary elections? Therein lies the clue: this is all about the SNP’s interests and not about our country’s. It has never been part of Scotland that good, patriotic Scots are concerned with narrow nationalism. We have always been an outward-looking, innovative, entrepreneurial nation. A Scot founded the BBC. A Scot founded the Bank of England. Scots played a major part in the industrial revolution, with steam engines, railway engines, and then telephones, televisions and penicillin. The Age of Enlightenment came about after the Act of Union, because of the benefits of the union, and gave us Adam Smith, Hume, Robert Adam, and ships and bridges all over the globe; and, today, Dolly the sheep and even computer games. It is a nation with a traditionally global outlook.

What are we to say to those members of the Armed Forces serving in the British Army in Afghanistan who, according to this White Paper, will be asked to choose whether they want to be in the Scots army, which will be like “Dad’s Army”, or remain in the British Army and, in so doing—as most of them will so decide—become mercenaries as part of the British Army, having proudly fought under the union flag? It is a nonsense which, according to this White Paper, will make our families on both sides of the border choose their nationality—choose the country of which they are to be citizens or subjects—and will make families and neighbours foreigners in their own countries. And for what? What are the benefits?

The benefits seem unclear. We are to rely on the wishful thinking of Mr Salmond, Ms Sturgeon and Mr Swinney. It reminds me of lines from The Jungle Book, which I remember from childhood. In the “Road-Song of the Bandar-Log”, three monkeys chant:

“Here we sit in a branchy row,

Thinking of beautiful things we know;Dreaming of deeds that we mean to do,All complete, in a minute or two—Something noble and grand and good,Won by merely wishing we could”.

2.39 pm

Lord Foulkes of Cumnock (Lab): My Lords, I am grateful to the noble Lord, Lord Forsyth, for providing the opportunity to speak on this matter, and for giving such a witty and eloquent introduction. I am only sorry that more of my Scottish Labour colleagues are not down to speak today. I hope earnestly that they are not feeling intimidated by Alex Salmond and his cybernat cronies who constantly attack Members of this House because we are not elected. I have in fact been elected to two councils and to two Parliaments over more than 40 years, as have some other Members who are participating in this debate. Whether they like it or not, this House is part of the UK legislature. We have a continuing responsibility, because what Alex Salmond and his party are proposing affects the whole of the United Kingdom.

Mr Salmond reminds me a bit of the Mad Hatter in Alice in Wonderland: if he says that it is so, then it must be so. His so-called White Paper, which I do not call a

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White Paper, is not so. He does not have the power to implement the proposals that he is putting forward. Voting yes in the referendum is not an endorsement of all the proposals in the White Paper, and he cannot say that it is.

When he declares independence day unilaterally, as he has done, he ignores the fact that when two parties must make an agreement, the timetable cannot be determined by one side—by one of the parties. When he declares, as the noble Lord, Lord Forsyth said, that a separate Scotland would automatically be in the European Union, NATO and the Commonwealth, he flies in the face of logic and geopolitics, as we have heard recently from Belgium and Spain.

Mr Salmond has declared that a separate Scotland would keep the pound, ignoring that this would need the consent of the rest of the United Kingdom. When he pledges that no controls would be needed at the border between Scotland and England, but promises an open door to immigrants—which would be a different case from the rest of the United Kingdom—he also flies in the face of logic. There are many similar unilateral pronouncements throughout Scotland’s Future, which is 650 pages of continuous fiction. I agree with the noble Lord, Lord Forsyth, that we should have a full day’s debate in this House and in the other House. I have raised that with my party group.

I will quote Voltaire rather than The Jungle Book. He wrote:

“The human brain is a complex organ with the wonderful power of enabling man to find reasons for continuing to believe whatever it is that he wants to believe”.

Alex Salmond is living proof that Voltaire was right.

2.42 pm

Lord Steel of Aikwood (LD): My Lords, I am not sure that I shall join in the thanks to my noble friend Lord Forsyth for arranging that we would have three minutes to speak on this subject, but I agree with the noble Lord, Lord, Foulkes, that he was right to press for a proper debate on it.

The so-called White Paper is full of wishful thinking. It spells out what the SNP would like to happen, not what will happen. There is a fundamental difference between the two. Some of what it would like to happen, I would like as well. For example, it mentions currency union. We have that already. It is a funny kind of independence in which the Bank of England will call the shots in future. On defence, it wants a separate Scotland to stay in NATO, keep all Scotland’s defence establishments and get rid of Trident. It just wishes that that would happen. It wants a separate Scotland to be an “active participant” in the European Union. Not only the Prime Minister of Spain but many others will have views on that matter. There are pages and pages of wishful thinking.

My greatest fear, which is what I want to express today, is that the danger of a vote for independence is that Scotland would become ingrown. That is against the whole of our history. After all, the contribution that Scotland made to the building of empire and Commonwealth was far greater than our population would suggest. The contribution that we made in the

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First and Second World Wars to the defence of Britain was far greater than our population would suggest. I take pride in that. I want to live in a country that continues that history of a major contribution to the well-being and success of the United Kingdom. I do not wish to live in a country that has its own wee broadcasting corporation feeding us on a continuous diet of “cauld kail het agin”, which I fear is what would happen. That is why I believe that the people of Scotland will vote decisively against this bogus prospectus of a bogus independence.

2.44 pm

Lord Hennessy of Nympsfield (CB): My Lords, I add my thanks to the noble Lord, Lord Forsyth, for securing this debate and support his call for a Joint Committee.

I offer a few thoughts on the possible percussive effects of the Scottish question. Horizon scanning is a perilous trade, but those of us who live on our islands and care deeply about them need to be ready for several stretching, vexing and interlocking contingencies. I have two swift scenarios. The first one has already been alluded to by the noble Lord, Lord Forsyth.

In September 2014, the Scottish people vote to separate from the UK and negotiations begin. I have my doubts that the all-encompassing statute ending the old sovereignties will be in place by spring 2016, but it would be so well before 2020. In May 2015, at the general election, Scotland returns 59 MPs to the House of Commons. Last time 40 were Labour Members. Should Labour win the 2015 election, even with a relatively comfortable overall majority, the loss of around 40 MPs when Scotland goes would plunge it into a minority Government. Does it soldier on to May 2020, or would such a Government try to engineer a losing confidence vote to stop the clock ticking, in accordance with the Fixed-term Parliaments Act, knowing that what Whitehall inelegantly calls the “remainder of the UK”, or “RUK”, is unlikely to return another majority Labour Government in the foreseeable future?

In scenario two, in September 2014 Scotland votes to stay a part of the UK. Opinion surveys show that economic worries were among the trumping factors in determining the outcome. In June 2017, the UK electorate votes in a referendum to leave the European Union. Scottish voters, especially if the bulk of the Scottish electorate favoured staying in the EU in 2017, would say that the September 2014 deal is off. They voted then to remain part of a country with full EU membership and unfettered access to its single market. Could a UK Government deny Scotland another Edinburgh agreement and another referendum in, say, 2020? Alongside the upheaval and uncertainty of hauling ourselves out of the EU in the vain hope of becoming a kind of Singapore in the cold northern seas, the prospect of living inside a shrivelled RUK would loom once more. There is more uncertainty imperilling our islands in peacetime than in anyone’s living memory—and far more than our people realise.

I have a final optimistic thought. When the time comes, I want to draw my last breath as a Brit, not a RUK. I am fairly confident that I shall.

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2.47 pm

The Duke of Montrose (Con): My Lords, I thank my noble friend Lord Forsyth for giving us an opportunity to make brief comments on this vital issue.

I will go back a little while. It looks as if the First Earl of Seafield was not quite correct when he described the Act of Union in 1707, which brought an end the Scottish independent Parliament, as the “end of an auld sang”—even if it was in one sense. It was also the end of another “auld sang”, which was the efforts of the Crown and the Scottish Parliament to bring to an end what had been more than 100 years of negotiation for a settlement between the two countries. One of my ancestors, in appointing the members for the first commission for the union in 1604, expressed the aim as being to achieve,

“the often wished but hardly expected conjunction of the two so ancient and long discordant kingdoms”.

It was that discordance that once again drove through the union in 1707. We are not given to being agreeable neighbours at the best of times.

It appears now that we are thinking of taking up that “sang” again. In 10 months we will see whether it is a number that gets to the top of the charts. Unfortunately, discordance, or its modern equivalent, is still something that could undermine the outcome, whatever it is. The current mood in Scotland thrives on the emphasis of discordance. This is very unfortunate. Breaking is always easier than building, but the Scottish Government paper’s 18 months to achieve a settlement, as most other Peers have mentioned, looks a particularly unrealistic proposal. However, it is only one of the many areas that might produce argument. We have now got ourselves into a position with devolution that is not wholly satisfactory from anyone’s point of view. Changes are due under the recent Scotland Act, and it may be that things should be looked at again further.

A current issue, in which I must declare an interest, is that Scottish farmers are much disturbed because they are switching on to an area-based, single farm payment, and there is great uncertainly about the size of the gains or losses that will affect each business. They have concluded that Whitehall is not sufficiently alive to their problem. Therefore, there are areas for argument.

Then again, there is an argument, much favoured by the Scottish First Minister, that an end to the Act of Union would create two new countries, and that each would have to re-establish itself by new treaties and arrangements. What steps is the Minister taking to guard against this outcome?

2.50 pm

Lord Maclennan of Rogart (LD): My Lords, I, too, thank the noble Lord, Lord Forsyth, for initiating this debate. This debate can highlight many of the issues that ought to be considered and deliberated on by the people of Scotland. None the less, the document that has been produced by the Government of Scotland is so transparently thin, and contains so much wishful thinking, that it ought to be considered not just in a one-hour debate but by a joint committee of the two Houses of Parliament. I support what the noble Lord,

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Lord Forsyth, said on that. I also take the view that we need, at this time, to agree to a further constitutional convention.

If the Scots are presented in 10 months’ time with a referendum, as they will be, the present choice appears to be between the status quo and independence. Frankly, that is not enough. We have seen many changes take place in our constitution over the past decade and a half—almost two decades. It was perfectly appropriate for them to consider some by themselves: for example, enactment of the European Human Rights Act and of the Freedom of Information Act, and the separation of the judiciary from this legislative House. However, if we are to see changes—and all the political parties are suggesting changes that might come further down the line—we want the people of Britain, not just the people of Scotland, to have some input in deciding what the structure of our Government should be.

I noticed that the committee chaired by Graham Allen in the House of Commons recommended such a convention. It would help if the Government and all political parties agreed that that should be set up—and that it should be announced that it is being set up—before the referendum takes place.

2.53 pm

Lord Selkirk of Douglas (Con): My Lords, I do not accept the premise that 24 March 2016 will be independence day. Indeed, I trust that before the vote next September the electorate will remember that the duty of any Government is the defence of the realm. I cannot see how Scotland and Britain’s security will be enhanced in any way by ripping our Armed Forces apart.

The disaggregation required to set up a new Scottish defence force would be an enormous upheaval and would take time. It would also be both costly and disruptive, and economies of scale would no longer apply. Speaking in Glasgow recently, former commander of the Black Watch Lieutenant-General Sir Alastair Irwin warned that extracting men and women from the Army, the Navy and the Royal Air Force would deal,

“a very significant blow to the defence capability of the rest of the UK”.

He said that separation would lead to,

“a British Isles collectively less well defended”.

Sir Alastair also warned of the difficulties of recruitment, saying:

“It would be a big assumption to make that every single member of each of the units allocated to the Scottish forces would elect to transfer from the British Army that they had joined, not least because many of them are not themselves Scots”.

I remember when a Labour Government cut three-quarters of the Territorial Army in the mid-1960s. I was taking degree exams and was not one of the chosen few who remained. However, when the TA was expanded in the 1970s, I rejoined a newly formed battalion and I recall quite clearly all the difficulties we faced in having to start from scratch, as much that we had taken for granted before was just not there.

Other major issues must be resolved such as defence procurement and the future of shipbuilding jobs on the Clyde. I note that the Ministry of Defence said that the Scottish Government’s proposal for some form of joint procurement is a non-starter.

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What, therefore, are the advantages and disadvantages of breaking up our 300 year-old partnership? It seems that when it comes to defence, the weight of argument lies with maintaining our highly efficient integrated armed services, which are among the best in the world.

Why do we have to go through the controversial and painful process of disaggregation with regard to our fighting forces, not to mention putting at risk thousands of jobs? The answer, of course, is that we do not have to do so if a majority of those resident in Scotland vote no in the referendum next September. I am very pleased to say that on this occasion Peers of the realm who live in Scotland will have a vote.

2.56 pm

Lord Kerr of Kinlochard (CB): This document is 650 pages long and I congratulate the noble Lord, Lord Forsyth, on reading them all. It is, however, rather longer on assertion than on argument. I will just touch on the EU angle.

The aim as set out is to achieve by March 2016 a seamless transition into membership. The SNP says that the treaty base appropriate to the exercise is Article 48 of the treaty. That is not the view of the EU institutions or that of any of the member states that have so far spoken. I doubt if it is the view of HMG, although I will be interested to hear what the Minister has to say. Most people seem to believe that Article 49 would be the treaty base for the negotiation. They are clearly “all out of step but oor Wullie”. However, wishing it so cannot make it so. There will be a genuine negotiation to be had under Article 49. That cannot formally start until Scotland is an independent sovereign state. It could possibly be pre-negotiated; that would be possible if all member states were to agree that there could be pre-negotiation both of the substance of the deal and of transitional arrangements, which would follow during the inevitable hiatus after Scotland, as a sovereign state, could sign the treaty—some date after March 2016—and during the process, which might be many months, possibly more than a year, of ratification by all the other member states, because it is their treaty, too. It is possible that you could pre-negotiate both the substance and the transition. However, that would not be easy, and would require every member state to agree that they were prepared to do it. Judging by some statements that have been made, some member states might not want to.

The negotiations on substance would be serious. The text says that Scotland does not wish to apply to join Schengen. However, the treaty says that all applicants must undertake that they will join Schengen. It is perfectly possible to envisage a derogation for Scotland; no one would want a real physical frontier on the Tweed. However, that derogation would have to be negotiated. You cannot just assert that “We will not apply, therefore it will not apply to us”. The same applies to the euro. I do not believe that if Scotland had opted—and the remainder of the United Kingdom had agreed—to continue to use sterling, Scotland would be obliged to join the euro. In any case, Scotland would not be eligible, such would be its inherited debt and deficit. However, the treaty says that you take a commitment to join when you are eligible, and getting a derogation on that would have to be negotiated.

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Most delightfully of all, the big book says that the budget rebate would continue. It also says that Scotland would be one of the richest countries in the world. The continuation of the rebate would play extremely well in Lesmahagow or in Linlithgow, but not necessarily as well in less rich Latvia or Lithuania, and it would be up to the Latvians and the Lithuanians to decide. I am not clear about a lot of things in the big book but it seems certain that if and when an independent Scotland achieved membership of the European Union—and I believe that it would—all Scots would be paying more into the EU budget per capita than would all English, Welsh or Northern Irish. It also seems absolutely clear that you cannot achieve, by March 2016, the seamless transition which is so boldly asserted in this book.

3 pm

Lord Crickhowell (Con): My Lords, I am grateful to my noble friend Lord Forsyth of Drumlean for initiating this debate. My own family represents an intermingling of English, Welsh, Scottish and Irish blood that is by no means uncommon. In the 1820s, my wife’s Scottish forebears established a Far East trading company of the kind to which the noble Lord, Lord Steel of Aikwood, was referring. It prospered for 150 years. Scots have frequently lived, worked and produced their offspring far from home. Today, a great many of them live and work away from Scotland; they will have no vote in the referendum that will decide the future of their country.

The Scottish Government propose an 18-month timetable from the referendum, if it is won, to independence. Between the two events, negotiations of immense complexity would have to take place and, in May 2015, a general election will be held. I do not think for one moment that it would be postponed for Mr Salmond.

Last Thursday, my noble friend Lord Forsyth asked a crucial question. At what point will those Scottish MPs, elected to the House of Commons, be asked to leave? My noble and learned friend Lord Wallace of Tankerness responded:

“Those who have been elected to this Parliament in the other place have received their Writ of Summons. I do not think they have any clause in it that tells them to go”.—[Official Report, 28/11/13; col. 1514.]

The implication seemed to be that, once elected, MPs from Scotland might stay for a full five years, despite that, in less than a year, they would be foreigners. I do not for one moment believe that that would be allowed to happen. There would have to be speedy legislation to tell the Scottish MPs that they would have to go at the moment of independence. That could result in a change of government at Westminster, less than a year after the start of a five-year Parliament. As the first non-Scot to speak in this debate, I emphasise, as did my noble friend, that all these events are as important for the rest of the United Kingdom as they are for Scotland.

The Scottish Government are frank about the deep integration that exists between Scotland and the rest of the UK, but fail to acknowledge the many consequences of break-up. Among these are the costs of dissolving

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institutions and of merging others, which would be not be light, and would be a burden that could severely impact both economies for many years.

Interdependence takes so many forms. Mr Salmond’s bid to remain with the sterling area and to have the Bank of England as lender of last resort, while making a rapid and pain-free entry into the EU, has already sparked hostile reactions which have introduced an element of reality into this debate. It is clear that he and his supporters want to eat their cake and have it too. I support my noble friend Lord Forsyth of Drumlean’s proposal that there should be a Joint Committee of both Houses to make recommendations about the way forward, and about how much cake there is available for eating.

3.04 pm

Lord Purvis of Tweed (LD): My Lords, many noble Lords have reflected upon Scotland’s historic contribution to the union. That is entirely understandable, and I share it. A girl born in my former Scottish Parliament constituency on 18 September 2014 will glimpse the 22nd century and her grand-daughter is likely to see the 23rd century. There are many people in Scotland, such as myself, who wish to be taking part and to have a voice in a debate about the long-term prospects of the future of Scotland. One scenario is being outlined with the trappings of a new state, and one argument is being presented by those who want an independent state for Scotland. It is for those who believe in that course of action to defend it, and it is quite right that those proposals are scrutinised forensically and robustly. I would rather wish to debate a positive future for Scotland and its role with the United Kingdom. With long-term sustainable, equitable funding for Scottish services, we can deliver educational attainment that is the best not only in these islands but in Europe. We could see child poverty abolished in that girl’s lifetime, and we could see her contribution match, perhaps, some of the historic contributions that Scots have made in the past. It means that the United Kingdom has to be fit for that purpose, and so far the United Kingdom is not fit for that purpose when it comes to its structures and institutions.

I do not need to look at a hypothetical way forward over the next 18 months towards—as some noble Lords have said—a fanciful independence day. For five years, I was on the Finance Committee of the Scottish Parliament, and I know that it is not sustainable. I know that a parliament in these nations cannot be sustained almost exclusively on handouts when it does not have revenue powers that are commensurate with its legislative powers, otherwise we will have a permanent parliament in these nations where the electorate will reward rhetoric rather than results. It also means that the case against independence is not so much that it cannot work; rather that being part of the United Kingdom—a refreshed United Kingdom—is far better for the people of Scotland than is independence.

Finally, if this United Kingdom is not successful for that girl born on independence day, she will continue to have some of the unequal life opportunities that currently exist. In my former constituency, the girl would have a life expectancy of 82 years. Just an hour

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and a half over the hills to Glasgow, her life expectancy would be 14 years less. Her chances of dying of alcohol morbidity would be immeasurably higher, and her life opportunities would be fewer because of unemployment and a poorer education.

I believe that the choice is not one of independence versus the status quo, and I endorse my noble friend Lord Maclennan of Rogart’s contribution. The choice is either that March 2016 could be seen as state building, or that we in this House and in another place carry through progressive reforms to make the United Kingdom better, and Scotland within that a more prosperous and forward-looking country. That, I hope, is the best that we can provide the girl born on referendum day.

3.07 pm

Lord Cormack (Con):My Lords, I congratulate my noble friend Lord Forsyth, and I want to endorse two of the suggestions he made. First, there should be a proper debate in this House and, by a proper debate, I mean a debate that can—as with the debate on the future of this House—extend over two days. There is no more important constitutional issue before us at present than the one we are all too briefly discussing today. I also endorse what noble Lords on both sides of the House have said about a Joint Committee of both Houses to examine in full the implications of independence for the whole of the United Kingdom.

I have often said in this House that Mr Salmond is an extremely wily politician; he is. I do not think that he is a statesman, but he is a very skilful politician. He is a sort of Tartan Boris, but whereas Boris is a big Londoner, Mr Salmond is a little Scotlander. That is because if his wishes come to pass, Scotland will be diminished. The United Kingdom is much more than the sum of its individual parts, and Scotland’s punching power in the world is far greater as an integral part of the United Kingdom and a separate nation within it—because it has proper nationhood—than it would ever have as a small, independent European nation. Notwithstanding all the points made by the noble Lord, Lord Kerr, I am not certain that Scotland would go automatically into the European Union, but that is another point entirely.

What I want to say today is that Scotland means a great deal to all of us who are in the other parts of the United Kingdom. My noble friend Lord Crickhowell talked about his own mixed ancestry and that of his wife. I have a son who lives in Scotland and is married to a Scottish girl, and I have two granddaughters at a school in Edinburgh. They consider themselves to be Scottish and British. My forebears all came from Scotland, but I consider myself British. I have streaks of Englishness and Scottishness within my make-up and I want to keep it that way for all of us. There are very few Members present in the Chamber who cannot say that they do not have family connections with Scotland, Wales and Northern Ireland. The United Kingdom is the most amazing constitutional achievement of the last three centuries.

When it comes to referendum day next year, I hope sincerely that all our friends and fellow citizens in Scotland will realise what it is that we have to lose as

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well as what they have to lose, and what we and they have to gain if we can build on the integrity of a very great nation. Let old acquaintance never be forgot.

3.11 pm

Lord McFall of Alcluith (Lab): My Lords, it is a privilege to reply to this debate from the Opposition Front Bench, and I congratulate the noble Lord, Lord Forsyth, on introducing it, as my noble friend Lord Foulkes said, in a witty and elegant way. I also appreciate the contributions made by all Members today. Their range and profound quality has been impressive, and the points made regarding a Joint Committee are very important; it is something that we need to take up.

The White Paper is almost 700 pages long. I am always suspicious when I am given a long document. Why is it so long? It is to allow the SNP to duck the questions, not to answer them, so we must see the paper as an elaborate ruse to duck them. When President Barroso and Mariano Rajoy, in responding to the Economic Affairs Committee of which I am a member, state that Scotland must reapply for EU membership, which will need the unanimous approval of the 28 member states, what that indicates is not that Scotland will not get into the EU some day but that the negotiations ahead may be protracted.

The ground chosen by the First Minister is the economic one. He has said clearly that the Scots will be better off if they are not part of the union, so the most important economic decision of the referendum is the currency one. Jim Sillars, the former deputy leader of the SNP, has talked about,

“the mistaken policy of using sterling in a currency union”.

with the rest of the UK. He went on:

“That will require a treaty between two countries, ours and theirs, and just as it takes two to tango, so it takes two to make a treaty. If SNP policy is seen as damaging to”,

the rest of the United Kingdom’s,

“state interests, and that of its allies, why should they sign a treaty giving us seats on their central bank, and a say in monetary policy? Alex Salmond says Osborne cannot stop us using sterling. True, but there is a world of difference between using it as one’s currency, and being in a currency union”.

On Mr Sillars’s point there I say: precisely.

We could have dollarisation along the same lines as Montenegro without RUK consent, but that would not be a viable option because we have large Scottish financial services firms that rely on access to UK central bank services. The Economic Affairs Committee took evidence from Standard Life, which told us that 94% of its products are sold on the other side of the border and 6% to Scotland. What will it do if there is an independent Scotland and it wants recourse to a central bank? It is obvious: Standard Life will move its headquarters. John Swinney said in his evidence to the committee that he wanted a,

“formal monetary union … with the Bank of England operating as the central bank for sterling”.

But we cannot have a monetary union if we do not have a fiscal union, and therefore the implications for tax and spending policies are enormous. As Gavin McCrone, the former respected chief economist at the Scottish Office, said, monetary union will only work if there are broadly similar inflation rates. If the SNP persists with the sterling option, it will require Bank of England approval.

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I suggest that it would be foolish for a central bank, after the RBS and HBOS debacles, to extend central bank services or be the lender of last resort to a foreign country over which it does not have any control or exert any real influence on tax and spending policies. On the proposal to exert influence over the Bank of England, let alone the rest of the UK Exchequer, the EAC said clearly in its report that that is devoid of precedent and entirely fanciful. Nowhere in the White Paper are these difficulties and uncertainties addressed.

Whether we are talking about the EU, NATO, pensions and benefits or the future of the Scottish financial industry, they all have to be examined very carefully. We also need to examine whether independence will deprive Scots of the benefits of pooling resources and bringing down real costs. John Kay, an eminent economist at the Financial Times and an adviser to Alex Salmond, has said:

“For the degree of economic independence a small European country can enjoy in a global marketplace is inevitably limited. Nothing that happens in Scotland in September 2014 will change that reality”.

Let us make a decision on independence only after a proper debate. The 670 pages of the SNP’s White Paper is its very own brand of poetry. It has taken 19 months for Scotland to reorganise the Scottish police forces into one force, but the White Paper envisages an independent Scotland being up and running in less time than it took to reorganise the police. What a fantasy that is. It illustrates the fanciful nature of the proposition. It is an insult to the seriousness of the Scottish question which people will have to address in September 2014. It is a wish list with no price list, and this House needs to examine it further and forensically. We need a Joint Committee and further debate because if we do not do so, all of us—the rest of the United Kingdom and Scotland itself—will be losers, and we cannot afford that.

3.17 pm

The Advocate-General for Scotland (Lord Wallace of Tankerness): My Lords, I start by echoing what many of your Lordships have said, by thanking my noble friend Lord Forsyth for securing this debate and introducing it—and, indeed, for the animated and spirited way in which he made his case. He covered, in a very short time, most of the salient points that were made in the debate. I acknowledge that he was not alone in asking for a much longer debate; indeed, I think most other contributors to the debate said the same. I have noted that request, and will ensure that it is conveyed back to the business managers. Even I am constrained in replying to all the points that have been made in this debate, and would perhaps like longer to do so. That is an important point.

Numerous noble Lords have asked for a Joint Committee. Clearly, that is a matter that could be established only with agreement across both Houses. As ever, I shall ensure that the usual channels consider the request. It is also important to put it on record that committees and their members in both Houses are already undertaking much work on the implications of independence in a whole range of different areas; they are making the case for the union and exposing the

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gaps in the case for independence. I pay tribute to the work done by a number of Select Committees, both in your Lordships’ House and in the other place.

Lord Campbell-Savours (Lab): The Minister says that this will be a matter for the usual channels, but could not Ministers in this House approach the Leader of the House of Commons and ask him whether it is possible to take such an initiative forward?

Lord Wallace of Tankerness: I thought that the Leader of the House of Commons was part of the usual channels. This would have to be done with the collaboration of both Houses, but I am saying that we will reflect on the matter. I cannot go further in making any commitment today, other than what I have already said.

My noble friend chose a debate specifically on the date, because I think he had to put his application into a ballot before the White Paper had been published. It may be worth reflecting on the fact that the date may be about the only thing in the White Paper that had not previously been in the public domain—and even that was leaked about two days before publication. We had already been told that the date would be in March 2016, so I suspect the only new information was the specific date of 24March, which I think is the anniversary of the death of Queen Elizabeth I, and therefore of the union of the Crowns. Indeed, as my noble friend the Duke of Montrose reminded us when he talked about the Earl of Seafield and the end of the auld sang, it is also the date on which the previous Scottish Parliament last sat. However, I rather suspect that that was an ex post facto justification that some people gave for that date, rather than stating the reason that, as my noble friend pointed out, it will be the start of the 2016 Scottish election campaign.

I take the point that even if Scotland were—heaven forbid—to vote yes, actually naming your cut-off point does not seem the best way to go about negotiations. One of the things that has been evident from this debate, if not necessarily from the White Paper, is that a considerable amount of negotiation will have to take place. That point was made by the noble Lord, Lord Foulkes.

Sometimes we have heard people in the Scottish Government compare this White Paper to the 1997 White Paper produced by the Labour Government, which paved the way to the referendum on devolution. However, there is a world of difference between a White Paper produced by a Government, which reflected a constitutional convention that had met in public over many years and had achieved a consensus, and a White Paper that is the product of a single party behind closed doors, and is dependent not just on the Government of the rest of the United Kingdom, but on other member states of the European Union, members of NATO and numerous other countries. It is important to make the point that this White Paper has no guarantee of delivery. It is, as the noble Lord, Lord Kerr, said, strong on assertion but perhaps not so strong on argument.

My noble friend the Duke of Montrose asked about the fact that it is sometimes said by some Scottish National Party people that there would be two new countries, and the rest of the United Kingdom would

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have to negotiate lots of other treaties. However, the first Scotland analysis paper, which the Government produced in February, examined the constitutional position. We did so on the basis of advice from Professor James Crawford of Cambridge University and Professor Boyle of Edinburgh University—two outstanding experts in the field. Their analysis—one which represents the view of the United Kingdom Government—is that the rest of the United Kingdom would be a continuing state, with all the rights and responsibilities such as permanent membership of the Security Council of the United Nations and membership of the European Union on the terms that have been negotiated, and Scotland would be a new state.

It sometimes seems rather odd to me that a party that aspires to independence finds it awkward to admit that it wants to be a new state. I thought that was the whole purpose. Scotland would be a new state, and it would have to enter into a whole series of different negotiations, including seeking membership of NATO and the European Union. If I may pick up another point, it was certainly rather a novel approach—perhaps this is one of the other things in the White Paper that we had not quite anticipated—to refer to Article 48 of the TFEU. The view of the United Kingdom Government—again, this was set out in the first paper of the Scotland analysis series—is that Article 49 would represent the appropriate way forward. We can have a debate as to whether Scotland would have to come out to go back in, or whether there would be a possibility, following a yes vote, of negotiations taking place during that period. However, the important point, which was reflected in the speeches by my noble friend Lord Forsyth and the noble Lord, Lord Kerr, is that there would have to be negotiations—and we cannot predict with any certainty what would be in those negotiations. The only thing that is certain is the uncertainty.

Arguments have been made about Schengen, about membership of the euro and about the rebate. Approaching this from the perspective of Croatia or Bulgaria, we would be talking about giving a rebate to a country that the First Minister has said would be the eighth wealthiest in the world. I also think that there is a misunderstanding on the part of the Scottish Government as to the nature of the rebate. They have said, “As the budget has been set for the European Union for 2014-20, we will decide between Scotland and the rest of the United Kingdom how the rebate is split up”. I know that there are people in this House who are much more knowledgeable about this matter than me but my understanding is that it is not a constant, annual lump sum that can be divvied up or shared; it is a function of the United Kingdom’s respective shares in the EU economy and receipts. Any change in the size of the United Kingdom, for example as a result of independence, would automatically be reflected in the rebate calculation. Therefore, there would not be a Scottish share of the UK rebate to be handed over. There seems to be a fundamental misunderstanding on the part of the Scottish Government in their White Paper as to what they are talking about.

As regards currency, my right honourable friend the Chancellor of the Exchequer has said that it is highly unlikely that there would be a currency union. That was reflected by other former Chancellors, including

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Alistair Darling, and the former Chancellor and Prime Minister, Gordon Brown. I think it also has been said by the Shadow Chancellor. Therefore, while we get an answer to whether Scotland could take part in the Eurovision Song Contest, we do not get an answer as to what the currency position would be if a monetary union was not agreed with the rest of the United Kingdom. Because questions such as that are ducked, the Scottish people will not be given, as a result of this White Paper or from the Scottish Government, the proper information with which they can make up their minds—our minds—when voting on 18 September next year.

My noble friend Lord Selkirk talked about defence and the primary importance of the security of the realm. We believe that the whole of Scotland and the United Kingdom benefits from a full range of UK defence capabilities and activities. Scotland has greater security and influence with the United Kingdom’s geopolitical influence, which few states of similar size to Scotland can match. In addition, there is the important defence industry in Scotland. On the idea of joint procurement, as far as I am aware, since the Second World War, no complex naval vessels have been built outside the United Kingdom. If the rest of the United Kingdom should start building these vessels outside the UK, that could not automatically go to Scotland. There would have to be open competition, even in these circumstances. My noble friend is absolutely right to stress the defence implications of independence, but there are defence benefits from Scotland being part of the United Kingdom.

The 2015 election was mentioned by my noble friend Lord Crickhowell and the noble Lord, Lord Hennessy. In answer to my noble friend Lord Crickhowell, last Thursday, I had a question from my noble friend Lord Forsyth on what would happen after the vote on independence in September 2014 and whether Scottish MPs would have to leave at that point. I think that that is when I said that they would not need to do so. Obviously, it would be a matter for Parliament to address what would happen in 2016, although I cannot honestly see how people could represent constituencies or a country that no longer belongs to the rest of the United Kingdom. I do not see how that could happen, or how Parliament would deal with that or with the intervening period between the elections in 2015 and 2016. Should that ever happen, I think it would be a matter for both Houses.

I certainly picked up the point made by my noble friend about the idea that we should somehow postpone the United Kingdom general election. Given that the Fixed-term Parliaments Act was on the statute book before the date of the referendum was announced, the Scottish Government had full notice of it. I find it somewhat preposterous that for some reason people in the rest of the United Kingdom should be denied their democratic opportunity to select their Members of Parliament to facilitate a negotiation.

Lord Forsyth of Drumlean: Will the Minister deal with the point about the Civil Service Code?

Lord Wallace of Tankerness: My noble friend raised an important point on paragraph 14 of the Civil Service Code. When a similar issue was raised during

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the Scotland Bill debate, I said that, when questions are asked about breaches of the code, there is a process for dealing with that. I do not think that it is appropriate for a Minister at the Dispatch Box to pass judgment on that when there are proper processes. I note what my noble friend says and I am sure that it will be noted by those to whom these matters might properly be addressed. I think my noble friend reflected on the positive things about the union. It was also said by my noble friend Lord Steel.

My noble friend Lord Maclennan talked about a United Kingdom convention and my noble friend Lord Purvis talked about policies of how we might look to the future in our constitutional arrangements. It is important that we look to the future. We should do so and record the strengths of our United Kingdom; namely, those of family and kinship, which were mentioned by my noble friends Lord Cormack and Lord Crickhowell. We should also look at what has been achieved over many years.

Just before I came into the Chamber, my attention was drawn to the second leader in today’s Times. It states:

“Whatever Scotland’s future, it should be a source of pride to everyone in the United Kingdom that for centuries we have made a state of many nations work so well. We have lived together in peace and harmony, never losing our distinct identity yet also forging one together. And we have been strong together, through centuries of continental and global conflict. None of this should be pushed to one side in favour of an argument dominated by oil revenues”.

That is profound advice. I believe that when it comes to it, people will recognise that Scotland is stronger as part of the United Kingdom and the United Kingdom is stronger with Scotland as part of it. I sincerely hope that the noble Lord, Lord Hennessy, will die British rather than as RUK.

Autumn Statement


3.30 pm

The Commercial Secretary to the Treasury (Lord Deighton) (Con): My Lords, I refer the House to the Autumn Statement made by my right honourable Friend the Chancellor of the Exchequer in the House of Commons, copies of which have been made available in the Printed Paper Office, and the text of which will be printed in full in the Official Report.

The following Statement was made earlier in the House of Commons.

“Britain’s economic plan is working, but the job is not done. We need to secure the economy for the long term, and the biggest risk to that comes from those who would abandon the plan. We seek a responsible recovery, one in which we do not squander the gains we have made, but go on taking the difficult decisions, and one in which we do not repeat the mistakes of the past, but this time spot the debt bubbles before they threaten financial stability. We seek a responsible recovery, in which we do not pretend we can make this nation better off by writing cheques to ourselves, and instead make the hard choices. We need a Government who live within their means, in a country that pays its way in the world.

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Three and a half years ago, I set out our long-term economic plan in the emergency Budget. That plan restored stability in a fiscal crisis, but it was also designed to address the deep-seated problems of unsustainable spending, uncompetitive taxes and unreformed public services for which there are no quick fixes. Over the last three years we have stuck to our guns and worked through the plan. We have done so in the face of a sovereign debt crisis abroad, and at home in the face of opposition from those who got Britain into this mess in the first place and have resisted every cut, every reform and every effort to get us out of that mess. We have held our nerve while those who predicted there would be no growth until we turned the spending taps back on have been proved comprehensively wrong.

Thanks to the sacrifice and endeavour of the British people, I can today report the hard evidence that shows our economic plan is working, but I also report the hard truth that the job is not yet done. Yes, the deficit is down, but it is still far too high, and today we take more difficult decisions. Yes, the forecasts show that growth is up, but the same forecasts show growth in productivity is still too low, and today we set out further economic reforms. Yes, jobs are up and unemployment is down, but too many of our young people lack the skills to fill those jobs and the opportunities to acquire them, so now we take bold steps to remove that cap on aspiration. Yes, businesses are expanding, but business taxes are still too high and exports are too low and we must address that. And yes, real household disposable income is rising, but the effects of the financial crash on family budgets and the cost of living are still being felt. So where we can afford to help hard-working families, we will continue to do so. The hard work of the British people is paying off, and we will not squander their efforts. We will secure the economy for the long term, and this Statement sets out how.

Let me turn to the report from the Office for Budget Responsibility. Again, I thank Robert Chote and his team for their rigorous and independent work. The OBR report notes that the Office for National Statistics has reassessed the depth of the great recession. The fall in GDP from peak to trough between 2008 and 2009 was not 6.3% as previously thought, but was instead an even more staggering 7.2%; £112 billion was wiped off our economy—about £3,000 for every household in this country—in one of the sharpest falls in the national income of any economy in the world. That is a reminder of the economic calamity that befell Britain and of the simple fact that our country remains poorer as a result of it. A lot of work still remains to be done to put that right. The data revisions also showed something else: there was no double-dip recession.

Let me turn to the future. At the time of the Budget in March, the OBR forecast that growth this year would be 0.6%. Today, it more than doubles that forecast and the estimate for growth will be 1.4%. Next year, instead of growth of 1.8%, it is now forecasting 2.4%. Faster growth now means that it has revised the following four years to 2.2%, 2.6%, 2.7% and 2.7%, so growth over the forecast period is significantly up. It is still not as strong as we would like it to be, but this is

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the largest improvement to current year economic forecasts at any Budget or autumn Statement for 14 years. I can report that Britain is currently growing faster than any other major advanced economy: faster than France, which is contracting; faster than Germany; and faster even than America. That contrast itself points to the risks that remain for the UK from abroad, and the weakness of many of our main trading partners.

The first risk the OBR identified to our economic recovery is a recurrence of the damaging instability in the eurozone. Even with the relative calm of recent months, the OBR still forecasts that the euro area as a whole will shrink by 0.4% this year. Its growth forecasts for the US and emerging markets have also been revised down, and world trade has been weaker than it expected in March. While our exports are growing, they are not growing as fast as we would like. That is because we are too dependent on markets in Europe and North America. The Prime Minister’s visit to China this week is the latest step in the Government’s determined plan to increase British exports to the faster growing emerging markets, something our country should have done many years ago. Today, I am doubling to £50 billion the export finance capacity available to support British businesses, expanding the help available to firms in these emerging markets and ensuring that our excellent new Trade Minister, Lord Livingston, has all the firepower he needs.

Let me turn to the forecast for employment. Today in Britain, employment is at an all-time high and the OBR has revised up its forecast for the future. It was expecting jobs to stay flat over the year, but it now expects the total number of jobs to rise by 400,000 this year. This is being felt right across the country. Since 2010, the number of jobs in Carlisle and on the Wirral, and from Selby to south Tyneside, have all grown faster than in London. Meanwhile, the number of people claiming unemployment benefit has fallen by more than 200,000 in the past six months—the largest such fall for 16 years. Unemployment is also lower than in 2010, and is forecast to fall further from 7.6% this year to 7% in 2015, before falling even further to 5.6% by 2018. We have the lowest proportion of workless households for 17 years.

There were those who said it was a ‘fantasy’ to believe that businesses could create jobs more quickly than the public sector would have to lose them. What they should have said was that it would be fantastic if it happened. So I have good news for them. Businesses have already created three jobs for every one lost in the public sector, and the OBR report today forecasts that this will continue, with 3.1 million more jobs being created by businesses by 2019, which, in its words, ‘more than offsets’ the million or so reduction in the public sector headcount. Far from the mass unemployment predicted, we have a record number of people in work, hundreds of thousands fewer on welfare, and unemployment lower than when we came to office, and we will have 2 million more jobs than in 2010—an economic plan that is working and a Government who are seeking a job-rich recovery for all.

Let me turn now to the forecasts for government borrowing and debt. When this Government came into office, the deficit was 11% of GDP. That was the

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highest level in our peacetime history. One pound in every four was being borrowed, and a former Chancellor and a former Prime Minister have now joined the consensus that spending was too high. The borrowing posed a huge risk to the economic stability and credibility of the United Kingdom, and we have taken many difficult decisions to bring that deficit down—every one contested and opposed.

I can report today, however, that the effort is paying off. The OBR uses a measure of what it calls ‘underlying public sector net borrowing’, which excludes the impact of the Royal Mail pension scheme and asset purchase facility transfers. I can tell the House that this underlying measure of the deficit, like the other deficit measure, has been revised down substantially since March. From the 11% back in 2010, the underlying deficit now falls to 6.8% this year, instead of the 7.5% the OBR forecast back in March. It then falls to 5.6% next year, then 4.4%, 2.7% and, in 2017-18, 1.2%. By 2018-19, on this measure, the OBR does not expect a deficit at all. Instead, it expects Britain to run a small surplus. These numbers mean that the Government will meet their fiscal mandate to bring the structural current budget into balance and meet it one year early.

Let me turn to the forecasts for cash borrowing on this same underlying basis. At the autumn Statement last year, there were repeated predictions that borrowing would go up. Instead, borrowing is down—and down significantly more than was forecast. In their last year in office, the previous Government borrowed £158 billion. This year, we will borrow £111 billion, which is £9 billion less than was feared in March. That falls next year to £96 billion, then down to £79 billion in 2015-16, £51 billion the year after and £23 billion the year after that. So we are set to borrow £73 billion less over the period than was forecast in March. That means that we are borrowing the equivalent of £2,500 less for every household in this country.

In 2018-19, on this cash measure too, the OBR forecasts that the Government will not have to borrow anything at all. Instead, we will run a small cash surplus. Of course, this will only happen if we go on working through our long-term plan, delivering the reductions in the deficit we plan this year, next year and in the three years after. If we gave up on the plan now, we would be saddled with a deficit still among the highest in Europe, and the government side of the House is not prepared to take that risk.

While the deficit remains, it adds to our national debt every year. The OBR today expects debt this year to come in at 75.5% of GDP, which is £18 billion lower than was forecast in March. It rises to 78.3% next year, before peaking at 80% the next year—5% lower than forecast at the Budget. In 2016-17, it then falls, albeit slightly, to 79.9%; then falls again to 78.4% and then to 75.9%. By 2017-18, debt is over £80 billion lower than forecast in March. The supplementary debt target is for debt to be falling in 2015-16. At the Budget, the OBR forecast debt to be falling in 2017-18. It is now forecast to fall in 2016-17, which is one year earlier.

But let me enter this note of caution. The OBR is clear that this is a cyclical improvement. The forecast for the continuing fall in the structural deficit has not improved. The structural deficit is the borrowing that

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stays behind even when the economy improves. Thanks to our actions, it has fallen from the 8.7% we inherited to 4.4% today—more than in any other major advanced economy. It goes on falling, but no faster than was previously expected because, as we have always argued, the central task of reforming government and controlling spending does not simply dissolve when growth returns. It supports the case we have made all along that economic growth alone was never going to be enough to repair Britain’s broken public finances. An improving economy does not let us off the hook for taking the difficult decisions to make sure that the Government live within their means.

The single most important economic judgment I make today is this: we will not let up in dealing with our country’s debts; we will not spend the money from lower borrowing; we will not squander the hard-earned gains of the British people. The stability and low mortgage rates, the lower deficit and falling borrowing have been hard won by this country, but let us be clear that they could easily be lost. That is why we must work through our plan to secure the British economy for the long term.

So this autumn Statement is fiscally neutral across the period. Indeed, I can announce today that we will take three new steps to entrench Britain’s commitment to sound public finances. First, we will bring forward next year an updated charter for budget responsibility and ask Parliament to support it. I can say today that both parties of the coalition have agreed that we must ensure that debt continues to fall as a percentage of GDP, including using surpluses in good years, for this purpose. In other words, this time we will fix the roof when the sun is shining.

We will look to see whether the five-year time horizon of the fiscal mandate could be shorter and even more binding now that the public finances are closer to balance, and we will see how fiscal credibility could be further enhanced by a stronger parliamentary commitment to the path of consolidation already agreed for 2016-17 and 2017-18. The answers will be written into an updated charter for budget responsibility, which will be presented to Parliament a year from now and voted upon.

The second step we take today to entrench Britain’s commitment to sound public finances is this: we will cap overall welfare spending. Welfare budgets were completely out of control when we came to office and the number of households where no one had ever worked nearly doubled. We have taken very difficult decisions to bring benefit bills down; we have saved £19 billion a year for the taxpayer. We need to maintain that discipline. The percentage of spending in the UK subject to fixed spending controls is very low by international standards—at just 50%. So from next year, we will introduce a new cap on total welfare spending.

I have had representations that the basic state pension should be included within that cap, but that would mean cutting pensions for those who have worked hard all their lives because the costs on, say, housing benefit for young people had got out of control. That is not fair, so we will not include the state pension, which is better controlled over a longer period. We will

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also exclude from the cap the most cyclical of benefits for jobseekers. All other benefits—from tax credits to income support to the vast majority of housing benefit—will be included in the cap.

At the beginning of each Parliament, the Chancellor of the day will set the welfare cap for the coming years, and will ask the House of Commons for its support. If the cap is breached, the Chancellor will have to explain why, and hold a vote in the House. The principle is clear: the Government have a responsibility to taxpayers to control their spending on welfare, and Parliament has a responsibility to the country to hold the Government to account for it.

That brings me to our third step. Ultimately, the test of fiscal credibility is whether you are prepared actually to make the difficult decisions that will keep spending under control. Tight discipline means that most departments are now living well within their set budgets. This year they are expected to underspend by £7 billion, which is testimony to good financial management. We can therefore be confident in reducing the contingency reserve by £1 billion this year, and reducing departmental budgets by a similar amount in the next two years. That will save a further £3 billion in total. The protections for the NHS and schools will apply, and the security and intelligence agencies and Her Majesty’s Revenue and Customs will be exempt. The Barnett formula means that over the next two years, the budgets for Scotland, Northern Ireland and Wales will see a net increase. We will not apply those additional savings to local authorities, because we expect them to freeze council tax next year.

This year, Britain becomes the first G8 country to meet our promise to the poorest in the world to spend 0.7% of our national income on development, but we do not have to increase the budget of the Department for International Development further in order to do that. The effectiveness of the British Government’s aid effort in the Philippines, matched by the generosity of the British public, is a reminder of what marks us out as a nation, and we in this country can be very proud of it.

We are also immeasurably proud of the work of Britain’s Armed Forces. As they wind down their operations in Afghanistan, the budget that we spend there is also falling fast, so we can reduce the military special reserve by a further £900 million this year while still funding all operational costs. To reflect our society’s debt of gratitude to our service men and women and their families, I want to make a further £100 million of LIBOR fines available to our brilliant military charities, and to extend that support to those who care for the work of our police, fire and ambulance services. I think the whole House will agree that the terrible events in Glasgow this weekend, and the work that those services are doing right now to cope with the adverse weather conditions, remind us how much we owe to them.

Discipline with the public finances means more than just words. It means making difficult decisions, and being prepared to stick to them. It means using surpluses in good years to keep debt falling, so that we fix that roof when the sun is shining. It means capping welfare to keep it under control, and, when we do

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want to spend more money, it means finding extra ways in which to pay for it. One of the biggest single items of government spending is the basic state pension. I am proud to be in a Government who have introduced a triple lock that ensures a fair and generous increase in the state pension every year for those who have worked hard all their lives. I can confirm that next April the state pension will rise by a further £2.95 a week. That increase, and the other increases that have been made under this Government, mean that pensioners will be more than £800 better off every year. I can announce that we are also going to offer current pensioners an opportunity to make voluntary national insurance contributions to boost their income in retirement, and that we will extend that opportunity to those who reach pension age before the introduction of the single-tier pension. That will help those who have not built up much entitlement to the additional state pension, especially women and the self-employed.

However, we must also guarantee that the basic state pension is affordable in the future, even as people live longer and our society grows older, and the only way in which to do that is to ensure that the pension age keeps pace with life expectancy. The Pensions Bill, which is currently going through Parliament, puts in place reviews of the pension age every five years. We have set the principle that will underpin those reviews. We think that a fair principle is that, as now, people should expect to spend up to a third of their adult lives in retirement. Based on the latest life expectancy figures, applying that principle would mean an increase in the state pension age to 68 in the mid-2030s and to 69 in the late 2040s. The exact dates will be set by the future statutory reviews and in line with the most up-to-date demographic data, of which the next update is published next week. This is one of those difficult decisions that Governments have to take if they are serious about controlling the public finances. Future taxpayers will be saved around £500 billion. Young people will know that our country can afford to give them a proper pension when they retire. That is this generation fulfilling its obligations for fiscal responsibility to the next generation, not saddling them with the debts and the decisions we were not prepared to deal with ourselves.

Having sound public finances also means making sure that we collect the taxes that are due. Most wealthy people pay their taxes and make a huge contribution to funding our public services; the latest figures show that 30% of all income tax is paid by just 1% of taxpayers. We have given incentives to enterprise and cut punitive tax rates, and this year the rich pay a greater share of the nation’s income taxes than was the case in any year under the last Labour Government. But alongside those paying the most tax are those who try to avoid paying their fair share of tax. So today we set out in detail the largest package of measures to tackle tax avoidance, tax evasion, fraud and error so far this Parliament. Together it will raise over £9 billion over the next five years.

We are going to tackle the growth of intermediaries disguising employment as false self-employment, depriving workforces of basic employment rights such as the minimum wage in a bid to avoid employer national insurance. We will halve the final period exemption for capital gains tax private residence relief. We will end

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the abuse of dual contracts, offshore oil and gas contracting, derivatives linked to profits and share buy-backs. And we will ensure the tax advantages of partnerships are not abused either. We are introducing a new, limited power that requires people to pay up front their taxes where the scheme they used has already been struck down by the courts. We are going to strengthen Whitehall’s capacity to prevent error and tackle fraud in the benefit and tax credit systems, and expand its efforts to recover money that is owed.

There is one personal tax change we make today which is not about avoidance, but is about fairness. Britain is an open country that welcomes investment from all over the world, including investment in our residential property. But it is not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence while those who do not live here do not—that is unfair. So from April 2015, we will introduce capital gains tax on future gains made by non-residents who sell residential property here in the UK.

I can also announce that from 1 January next year the rate of the bank levy will rise to 0.156% and its base will be broadened in ways we have consulted on. The levy will raise £2.7 billion in 2014-15 and £2.9 billion each year from 2015-16. The country stood behind the banks in the crisis, and now it is right that they support the country in recovery.

Having a Government who live within their means is essential to secure the economy for the long term, but it is not sufficient. Britain has to earn its way in the world. Our infrastructure needs to be overhauled. We have to help our businesses compete. Above all, our young people need the skills to succeed in the modern world. This autumn Statement takes the next big steps in all these areas.

Let me start with infrastructure. We are going to be spending more on capital as a proportion of national income on average over this decade than over the whole period of the last Government. That has involved making tough choices about priorities in spending and sticking to them. But that is not the most difficult decision in this area. We have to decide whether we are serious as a country about competing in the modern world and say to people that we need the new roads and the new railways, including the northern hub and High Speed 2. We have to say that we are prepared to push the boundaries of scientific endeavour, including in controversial areas, because Britain has always been a pioneer.

We should say that the country that was the first to extract oil and gas from deep under the sea should not turn its back on new sources of energy such as shale gas because it is all too difficult, and the country with the world’s first civil nuclear programme should not be a country that says we can do this no longer.

Yesterday, my right honourable friend the Chief Secretary and Lord Deighton published the update to the national infrastructure plan. That includes a co-operation agreement with Hitachi on the next nuclear power station in Anglesey and a deal with the insurance industry to invest at least £25 billion in UK infrastructure. We published the strike prices that support long-term investment in offshore wind and prioritise it over

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onshore wind. Today we go further, with a commitment to invest in quantum technology, and a new tax allowance to encourage investment in shale gas that halves tax rates on early profits. In the week in which Professor Peter Higgs travels to Stockholm to collect his Nobel prize for physics, we commit to build a new centre in his name at Edinburgh University, because science is a personal priority of mine.

Some of the most important infrastructure for British families is housing and we must confront this simple truth: if we want more people to own a home, we have to build more homes. The Office for Budget Responsibility is absolutely right today to draw attention to the weakness of housing supply in this country. The good news is that the latest survey data showed residential construction growing at its fastest rate for a decade. Our hard-won planning reforms are delivering a 35% increase in approvals for new homes, but we need to do more.

This week, we are announcing £1 billion of loans to unblock large housing developments on sites in Manchester and Leeds and across the country. We will increase the housing revenue account borrowing limit by £300 million. Aspiration is not only for people who can afford their own home. We want to regenerate some of our most run-down urban housing estates. Councils will sell off the most expensive social housing, so they can house many more families for the same money. We are going to give working people in social housing a priority right to move if they need to for a job.

Right-to-buy applications have doubled under this Government, and we will expand it more. The very same spirit of aspiration that underpins right to buy is what drives this Government with Help to Buy. It is not enough to build more houses if families who can afford mortgages do not have the large deposits that the banks have demanded. Help to Buy is now helping thousands to own their own home. I can today announce that Aldermore and Virgin, two challenger banks, expect to join the scheme this month. Help to aspiring families and building more homes: that is what we stand for.

We must also avoid the mistakes of the past decade. We want a responsible recovery. That is why I am the first Chancellor to give the Bank of England the responsibility and the power not only to monitor overall debt levels, but to take action to deal with asset bubbles if they threaten our stability.

We want a functioning, stable housing market. The OBR’s latest house price forecast today, while higher, still has real house prices 3.1% lower in 2018 than at their peak in 2007. Together with Governor Carney, I acted last week to focus the funding for lending scheme away from mortgages on to small business lending, where its support is still needed. It is precisely because the authorities can act in this targeted and pre-emptive way, and because our public finances are under control, that the Bank can keep overall interest rates lower for longer and support the rest of the economy.

Investing in the physical infrastructure of our country is critical to our future. But in this global economy, it is better education and skills that hold the key to

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long-term national success. This week’s programme for international student assessment—PISA—scores show how much ground this country has to make up. My right honourable friend the Education Secretary is doing more to transform school standards and raise the aspirations of pupils from the poorest families than anyone who has done that job before him. His expansion of free schools and academies has the full backing of this Chancellor.

We also know that children do better at school when they have a proper meal inside them. This autumn Statement has found the financial resources to fund the expansion of free school meals to all schoolchildren in reception, year 1 and year 2, announced by the Deputy Prime Minister and supported by me.

But today we also focus on what happens when our young people leave school—and we do more to help them. First, we will not abandon those who leave school with few or no qualifications. At present, Jobcentre Plus does almost nothing to help 16 and 17 year-olds who are not in work or education. We will change that and will now fund the jobcentres to support these very young adults to find an apprenticeship or a traineeship.

Without basic maths or English, there is a limited chance any young person will be able to stay off welfare, so we are taking a new approach. Starting in some areas at first, anyone aged 18 to 21 signing on without those basic skills will be required to undertake training from day one or lose their benefits. If they are still unemployed after six months, they will have to start a traineeship, take work experience or do a community work placement—and if they do not turn up, they will lose their benefits.

A culture of worklessness becomes entrenched when young people can leave school and go straight on to the dole with nothing expected in return. That option is coming to an end in our welfare system.

The second reform is to apprenticeships. We have doubled the number of apprenticeships and now we will transform the way they are provided by funding employers directly through HMRC. I can tell the House there will now be an additional 20,000 higher apprenticeships over the next two years. I can also announce a big expansion of start-up loans, through which a new generation of entrepreneurs is being created: 50,000 more people will be helped to fulfil their aspiration to start their own business. We are extending the new enterprise allowance, too.

This year is also the 50th anniversary of the Robbins report, which challenged the nonsense that university was suitable only for a small few. In 1963, Robbins said:

‘Courses of higher education should be available for all those who are qualified by ability and attainment to pursue them and who wish to do so’.

That was true then, and I believe it should remain true today. Our reforms to student loans, difficult as they were, have put our universities on a secure footing. Some predicted that applications from students from poor backgrounds would fall. Instead, I can report that this year we have had the highest ever proportion of young people from disadvantaged backgrounds applying to university.

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But there is still a cap on aspiration. Each year, about 60,000 young people who have worked hard at school, got the results, want to go on learning and want to take out a loan to pay for it are prevented from doing so because of an arbitrary cap. That makes no sense when we have a lower proportion of people going to university than even the United States, let alone countries such as South Korea. Access to higher education is a basic tenet of economic success in the global race, so today I can announce that next year we will provide 30,000 more student places, and the year after we will abolish the cap on student numbers altogether.

Extra funding will be provided to science, technology, and engineering courses. The new loans will be financed by selling the old student loan book, allowing thousands more to achieve their potential.

Education underpins opportunity. It is business that provides those opportunities and the best way to help business is by lowering the burden of tax. KPMG’s report last week confirmed for the second year running that Britain has the most competitive business tax system in the world. Some in this House suggest that our response to this good news should be to increase corporation tax from 20%. Today, we publish the first of our studies into the dynamic effects of tax changes that shows that our corporation tax cuts increase investment and raise productivity—so much so that more than half the cost of the tax cut to the Treasury will be recovered because of higher growth. Putting up corporation tax hits investment, cuts productivity, costs jobs and raises much less. We thank the honourable Members for their submission, but we think it would be economic madness to pursue it.

Quite the reverse, today we take further steps to make our business taxes yet more competitive. The Budget announcement that we would abolish stamp duty on AIM shares was applauded around the world. Today, we also abolish stamp duty for shares purchased in exchange traded funds to encourage those funds to locate in the UK. We are making our successful film tax relief even more generous, and looking to extend the principle, including to regional theatre. We set out major reforms to encourage employee ownership of the kind that makes John Lewis such a success. And from April, we will be one of the first countries in the world to introduce a new tax relief for investment in social enterprises and new social impact bonds. I want to thank Sir Ronnie Cohen and my honourable friend the Charities Minister for all their help in putting this innovative scheme together.

Business rates impose a heavy burden on businesses of all sizes. Today, we will help ease that burden—and here is how. The last Government wanted to halve small business rates relief—a relief that helps cut rates bills for half a million companies and means a third of a million of the smallest businesses pay no rates at all. If we had followed that plan, small businesses would have faced a rate increase of up to £3,375. So we have rejected that plan. Instead, we have extended that rate relief scheme year after year. It was due to expire next April. We will now extend it for another whole year. We have also listened to the small business groups and will relax the rules that discourage these firms from expanding and opening extra premises.

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But that does not go far enough. All businesses are expecting rates to rise by 3.2% next year. Instead, I will cap the inflation increase in business rates for all premises at 2% from next April. We will also allow businesses to pay their rates in 12 monthly instalments. We will clear almost all the backlog of valuation appeals by July 2015, with reform of business rates on the agenda for 2017 revaluation.

There is one group of businesses that has found the recession especially hard, as it has coincided with a rising challenge from the internet that is only getting stronger. These are our local retailers—the shops, the pubs and the cafés that make up our high streets across Britain. With Small Business Saturday this weekend, I want the Government to do all we can to help them. We are already changing the planning rules to help town centres compete. To get the vacant shops that blight too many town centres to open again, I am introducing a new reoccupation relief that will halve the rates for new occupants.

But we can do more, and I want to thank my honourable friends the Members for Wolverhampton South West, Nuneaton, Hastings and Rye and many others for their campaign. Like them, I also want to help those who have struggled hard on our high streets—often working long hours for not enough in return. So I can announce today that for the next two years every retail premise in England with a rateable value of up to £50,000 will get a discount on their business rates. This discount will be worth £1,000 off their bills.

This is what we offer: business rates capped; for the smallest firms, no rates at all; and help for the high street, with £1,000 off for small shops, pubs, cafés and restaurants across our country. The people in these businesses epitomise the hard-working values this Government support, and we are backing British businesses all the way.

And we are backing British families. Next April, the personal allowance will reach £10,000. This Government are delivering an income tax cut worth up to £700 a year to over 25 million hard-working people. Under the last Government, council tax doubled. We are now helping councils freeze it for the whole of this Parliament. Tax-free childcare is being introduced and free school meals are on their way. But there is more we are doing to help.

This autumn Statement confirms that from April 2015 we will introduce a new transferable tax allowance for married couples. Available to all basic rate taxpayers, it enables people to transfer £1,000 of their personal allowance to their wife, husband or civil partner. It is just a start. And I confirm today that we will introduce a new uprating mechanism that ensures the new married couples tax allowance is automatically increased in proportion to the personal allowance. Four million families will benefit, many of them among the poorest working families in our country. This measure, along with the others we take today, ensures that across this Parliament our policies are progressive, showing that we are all in this together, with the very rich paying the most.

We are also helping families with their energy bills, not with a transparent con by pretending that we can control the world oil price, but instead by focusing on

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the thing that Government can and should control—the levies and charges that previous Energy Secretaries piled on bills. This week we deliver on the promise made by the Prime Minister to roll back those levies. The result: an average of £50 off family bills. We are doing this in a way that supports the lowest income families, reduces carbon, supports investment in our energy infrastructure and, as the document shows, does not add a penny to the tax bills that families pay. My political philosophy is clear: instead of penalising people with more taxes and more regulation, give them incentives by reducing their taxes and their bills. As I have often said, going green does not have to cost the earth.

That brings me on to fuel duty. We inherited from the previous Government the hated fuel duty escalator that would have inflicted hardship on families and small firms alike. Instead of those rises, we abolished the escalator, and we have cut and then frozen fuel duty. I have had further representations from many honourable friends, from the Member for Blackpool North and Cleveleys, to the Member for Argyll and Bute, and of course the Member for Harlow, who is a champion of the people he represents.

I said earlier this autumn that if we could find the money, I would like to go on freezing duty. Today I can report that because we have taken difficult decisions to control the public finances, I can deliver on that promise. Next year’s fuel duty rise will be cancelled. Instead of petrol taxes going up by 2p a litre, they will stay frozen. That means that, compared with the previous Government’s plans, petrol will be 20p a litre less. That is £11 less every time you fill up—a saving for drivers over this Parliament of £680, and double that for a small business with a van.

Cancelling fuel duty rises has been a major priority of the Government—a £22 billion demonstration that we are on the side of hard-working people in this country. A married couples allowance; £50 off energy bills. We are helping those who drive a car and we are helping those who get the train, too. Fares next January were going to go up by 1% above inflation. We are going to keep average fares flat in real terms.

We on the government Benches know that there is one thing more than any other that has supported families through these difficult times, and that is being in work. At the heart of our economic plan is support for the creation of more jobs. That is why we opposed the last Government’s plan to increase the jobs tax. That is why we reversed the most damaging part of that increase in the very first Budget after we came to office. That is also why in the last Budget I introduced the employment allowance, which eliminates the jobs tax for half a million small businesses. And that is why we will go further still. We are going to abolish the jobs tax on young people under the age of 21. Employer national insurance contributions will be removed altogether on a million and a half jobs for young people. We are not going to leave young people behind as the economy grows. We are going to have a responsible recovery for all.

The cost for a business of employing a young person on a salary of £12,000 will fall by over £500. For someone on £16,000, that is over £1,000 off. I

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want to commend my honourable friends for Braintree and Carlisle and the Million Jobs campaign for highlighting this issue. The change requires legislation. It will come into force in April 2015, and it will not apply beyond the upper earnings limit.

This country is working through its long-term plan: bringing down the deficit and dealing with the debt; spending less on welfare and making the big decisions on infrastructure; living within our means and cutting tax on business; making work pay and letting people keep more of what they earn; and with confidence in the next generation, as they make their way in education and in the workplace. This Statement shows that the plan is working. It is a long-term plan for a grown-up country. But the job is not done. By doing the right thing, we are heading in the right direction. Britain is moving again. Let us keep going.”

3.30 pm

Lord Davies of Oldham (Lab): My Lords, it is a pleasure to address the issues raised in the Autumn Statement in our usual atmosphere of calmness and courtesy—a rather sharp contrast with the wall of noise that greeted my counterpart, the shadow Chancellor, in the other place. This is an occasion for asking questions so I am sure that I am not going to be able to generate such excitement on the government Benches, but I hope that the Minister will answer my questions.

The Chancellor did not mention the concept of productivity, made no acknowledgment of the weakness of our balance of payments position in recent years despite the significant devaluation of the currency that we have experienced, and showed no real appreciation of the fact that real wages are still falling, among those who are employed. It is therefore proper to ask the Minister whether he is assured that the much vaunted growth figures quoted in the Statement are not based upon a somewhat insubstantial platform. Do these figures also not reflect a bounce back from a very low base indeed? The House will appreciate that even if growth reaches the figures that the Chancellor quoted, with his customary optimism, after three years of this economy flatlining, growth by 2015 will be only half the growth that in 2010 the Chancellor indicated to the nation that he hoped to achieve by the time that this Parliament had concluded.

The Minister who will respond to this Statement speaks and acts significantly on the issues of infrastructure in the economy. Will he comment on the fact that infrastructure output has fallen by 15% since 2010, and that so much which is promised remains unfulfilled? In 2010 the Chancellor also said that he was setting out to balance the books by 2015. It is clear that in 2015 we shall still have a deficit of £80 billion. That reflects the amount of borrowing that he had to do in the lean, flatlining years when no growth occurred. Will the Government persist in seeking to deny that we are in the middle of an acute cost of living crisis?

The Government are of course so wedded to the free market that they are quite unable to recognise the challenge presented by the Opposition on energy prices. After all, their belief in the market means that they cannot even recognise a standard textbook analysis of the creation of cartels, which is what the six main

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energy companies represent, and how that leads to excess profits. It is noticeable that the Government’s gesture in attempting to moderate the level of energy prices during this winter does not cost the cartel anything at all. It is the taxpayer who is going to meet the deficit that will occur due to the companies charging quite so much, and prices will still rise, going up by £70 in this period. For an awful lot of people in the country, £70 is a very significant sum for fuel. After all, we pay £100 to pensioners in the winter fuel allowance because we recognise the acute need that pensioners have to keep their homes warm. However, we expect all the rest of the population, whatever their incomes, to withstand an increased charge of £70.

The Government shy away from any interference with the market. However, I am a fair man and therefore the House would expect me to acknowledge those occasions when the Government do interfere—for example, the gesture with regard to payday loans, but that is a straight reflection of the pressure that had been generated from my party and in this House on the issue, and of course the Government’s response has been woefully inadequate.

The crucial thing I want the Minister to address is the constant failure of wages to match prices, which is making working people poorer. It may be that the Minister is not that familiar with those people who find themselves poor at present. He is likely to meet an awful lot of people—his friends certainly have many associates among the banks—in the banking fraternity, at the highest levels, who are of course not feeling the pinch at all. Hedge funds, too, are not noticeably short of returns. That is to say nothing of the growth of high salaries right throughout British commerce and industry, while wage levels stay stagnant. It is only accidental that some of those groups have a profound interest in sustaining and supporting the Conservative Party both between elections and at election time. We are not seeking to be too controversial today so the Government need not comment on that particular point, but I want the Minister to respond on the issue of falling wages.

It is quite clear that the Government are committed to a position. The Chancellor waxed with some strength over the fact that there will be a cap on welfare and very severe constraints on public expenditure, and gave the briefest outline of what that would mean. We all know what it means: five more long and hard years. We also know who is going to bear the costs of those five long and hard years—those who have done it since the coalition came into office in 2010.

The other obvious question is: if the Government are so wedded to free markets, do they consider that the free market worked well in the banking crisis of 2007-08? That was not a failure of anything except the free market. I notice some excitement on the government Bench, because they have worked out that in 2007-08 Labour was in power. That is certainly so, but we were not in power when the Big Bang freed up the City to create the successive market mechanism, and whenever there were suggestions of anything to do with regulation we know on which side the Conservative Opposition were. Of course, they have shown themselves to be exactly the same in the energy debate.

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Will the Minister confirm that the Chancellor envisages—if, by some mischance, this Government, or a Conservative version of them, were retained in office—aiming for the size of the state in public expenditure to go back to the levels of 1948? To contemplate that in a modern society merely demonstrates that ideology dictates this Government’s economic policies, not the welfare of the nation.

Baroness Thornton (Lab): Answer that!

3.41 pm

Lord Deighton: I will. My Lords, first, I thank the noble Lord for his measured response and forensic questioning, which I shall do my very best to address in an entirely constructive fashion.

However, I want to set a bit of reality and context to the discussion about the economy. Clearly, there was lots of good news to report and we as a nation, across the parties, should welcome the recovery of the economy that we have seen in recent months. Growth is up: the OBR has just restated that the growth forecast for 2013 is up from 0.6% to 1.4%. For 2014 the forecast has been increased from 1.8% to 2.4%. The deficit is down. As a percentage of GDP in 2010 it was 11%; it will be 6.8% this year and will be at a small surplus in 2018-19.

The noble Lord makes much of the fact that some of the original projections in 2010 envisaged those targets being reached earlier. Of course, the two principal reasons that they were not were, first, that the depth of the crisis in 2008-10 proved to be much, much greater, with over 7% taken out of GDP, as we have just discovered. Secondly, the external circumstances surrounding the economy in the past three years, in particular the fact that the euro region was on the verge of having its currency broken up, put a damper on the economy. To find ourselves in this economic situation today, despite those prevailing winds, is a testimony to the strength of this Government’s economic strategy.

Surprise, surprise, there was no mention of employment, which sits at record levels, with the lowest proportion of workless households for the past 17 years and the creation of 1.4 million new private sector jobs. There were some interesting announcements in the Autumn Statement today, particularly around trying to help young people into those job opportunities: namely, the scrapping of national insurance contributions for under-21s and specific measures for Jobcentre Plus to deal with 16 and 17 year-olds, which are addressing something absolutely critical for the nation.

On inflation, let us talk a little about real wages. Of course, the reason that people are feeling the squeeze is the result of the significant collapse in the economy in 2008-10, from which we are trying to recover. That is the problem; that is why real wages fell sharply. Above-target inflation occurred through 2011-12 because of external influences, principally commodity prices and the oil price.

The good news is that inflation is now slowing down. It was at 2.2% in the previous quarter. The OBR says that we will hit our 2% target by 2016. So we see inflation coming down and earnings recovering.

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But earnings do not tell the whole story. Total, real household disposable incomes have increased by 3.9% since the crisis, and that has been supported by government policy—for example, the increase in the personal allowance to £10,000, which will be coming through next year—as well as those strong employment levels.

Of course, the critical thing in this argument is that the only way to improve living standards is to grow the economy. There cannot be a cost-of-living strategy without an economic strategy. We have heard nothing from the Opposition about an economic strategy, which is not surprising because the one they were professing has been demonstrated to be a complete failure. The numbers I have just gone through show very clearly that you can have both a reduction in the deficit and a recovery in economic growth. It was the axiom of the opposition strategy that that just was not possible. The facts have demonstrated that it is.

I absolutely accept that there is still a lot to do. We are not at all complacent about the situation. It was a very deep recession. We are recovering from it effectively but still relatively slowly. Although on an international basis we are one of the strongest performing economies at the moment, there is still an enormous amount to do. Our deficit level is still far too high. Of course, the level of debt created by the accumulation of borrowing in order to finance the deficit leaves us in an exposed and unsustainable position unless we continue to bring it down. That is why the overall message in this Autumn Statement is the commitment to fiscal neutrality, even though the temptation to indulge in giveaways could, at the political level, be strong.

I admire the Chancellor’s discipline. Taking a grip of the long-term risks around pension costs is absolutely the right thing to do, to match pensions to longevity. Putting a constraint on the absolute size of the welfare bill—the part of our spending that was most out of control, among the many out-of-control elements of the previous regime—so that the Chancellor will have to come back to Parliament to be scrutinised if that significant part of our spending gets out of whack, is a very disciplined part of the equation. We will also continue to see a reduction in government spending at the margin—continuing to capture the underspends that we will see this year, which are a function of prudent financial management, but ensuring that year after year we continue with that efficiency drive to ensure that the state delivers its services in a reformed and efficient way.

The noble Lord said that the Chancellor mentioned neither productivity nor exports. With respect, that is not correct. He did refer to productivity and said that it is expected to increase in 2014-15 and 2015-16 as the economy recovers, which is in the OBR independent report, and that this will drive the cost-of-living recovery. He also talked about exports. If one looks at the balance of the recovery, it is consumer-led. Everybody accepts that. It is not surprising that it is consumer-led. Consumption is by far the biggest part of the economy. The OBR’s estimate is that business investment will recover strongly next year and the year after. Of course, everything that the Government are doing on the supply side of the economy is focused on supporting that.

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The Chancellor absolutely said that exports were disappointing. The reason they are disappointing is that the markets into which we export, predominantly the European Union and the US, have been relatively weak through the period, which is why our efforts have been so focused on developing export markets in the faster-growing developing economies; hence the Prime Minister’s recent trip to China, for example. We are absolutely in tune with the requirement to improve the net trade balance.

I also draw noble Lords’ attention to the fact that at the heart of living standards recovery is the improvement in productivity that will come with the growth in the economy, but in the mean time this Government have been very attentive to supporting hard-working individuals, whether it is through the £50 improvement to energy bills, the freeze on fuel duty, the married couple’s allowance, free school meals for the up-to-seven year-olds and freezing rail fares in real terms. Those are just some of the examples of the measures.

There have been very targeted efforts to ease the burden on those who are feeling it most, including the most consistent and effective attack on tax avoidance that this country has ever seen, which is yielding considerable savings to the Exchequer that can be deployed against some of these targeted cost-of-living measures.

On the question of free markets, I am proud of the work that we did all together in this House to come up with the right answer on payday loans. I make no apologies for that. It was a really good example of the work that this House can do on a collaborative basis, and a specific example of the general work we are doing on banking reform.

It is hard to know where to start on the 2007-08 banking crisis. It was the regulatory regime that was the great revolutionary change of the previous Government; taking control away from the Bank of England, which meant that the regulatory system was quite unable to cope with what was happening. This of course led us, with the Financial Services (Banking Reform) Bill, to completely change the regulatory framework.

3.51 pm

Lord Higgins (Con): My Lords, I very much welcome many aspects of the very imaginative Autumn Statement. Regretfully, I have to deplore once again the fact that many aspects of it were leaked in advance. I would have thought that the Treasury would have learnt the lesson from a previous Budget experience that this is not a good way of handling public relations—and is very discourteous indeed to Parliament. Parliament has the right to hear these matters first.

The good news, certainly, as my noble friend has just said, is that the economy is recovering faster than expected. Perhaps I might comment on why this has happened. There are, I think, two particular aspects. The first is that the deficit has not been cut as fast as we hoped and that consequently, the economy has picked up a little more, because of the effect on aggregate demand. None the less, I welcome the fact that the Chancellor has now set out a very firm timetable for getting down not only the underlying cyclical deficit but also the structural deficit. This is

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something to be welcomed. Up to now, we have rejoiced in the fact that we have cut the deficit by a third, but we are still continuing to borrow at two-thirds of the appalling rate that we inherited from the previous Government. It is very important that my noble friend agrees that that should be tackled.

The second reason, which gives more cause for concern, is the substantial reduction in saving—apparently the biggest fall in saving for 40 years. People have been using their savings, which has accelerated the growth of the economy, which may lead to concern. Given his particular responsibility for infrastructure, does my noble friend agree that it is absolutely crucial that we get savings up? The finance has to be provided for the infrastructure that the Government envisage.

In that context, I will ask one particular point. We seem to have got away from financing infrastructure in the usual way: that is, by allowing capital to be provided by whoever is launching the operation and then working it up in the usual way. Instead of that, we have been allowing monopolistic enterprises in particular to increase the prices on existing consumers. That has been the way in which we have been financing, for example, the railways and energy. Will he look particularly at whether this is the right way to proceed—because we are also then depending very largely on foreign investment rather than our own domestic savings and ownership?

Lord Deighton: I thank my noble friend for those incisive observations. He is absolutely right to say that the deficit was reduced in a measured fashion, which is part of the reason why the economy has been able to recover so quickly. He is also absolutely right that there is still a structural deficit, so we cannot simply allow for the natural recovery through the economic cycle to take care of our borrowing problem; we must continue to drive savings through the system. On the fall in consumer savings, again, my noble friend is absolutely right that it is a sign of a healthy economy to have a strong savings rate. On consumer behaviour, it is not surprising that, after a few years of belt-tightening, there has been a desire to begin spending again.

On the overall economy, as I mentioned, the recovery in business investment is the single most important change in the recovery of the economy over the next year. We anticipate that the recovery in consumer demand will give business the confidence it needs to increase its level of investment, which is what should sustain the recovery.

On infrastructure, my noble friend is correct. Essentially, there are two ways to finance it: directly from taxpayers or indirectly through the private sector and into the utilities, which then recover the investment through consumers paying. Of course, that is governed by independent regulators, who set the prices in those industries. It is absolutely part of our national infrastructure plan continually to assess the balance between the interests of the investing institutions and consumers’ affordability over the longer term.

Lord Razzall (LD): My Lords, notwithstanding the verbal fisticuffs in another place, I am sure that no one in your Lordships’ House thinks that the Autumn

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Statement does not contain a lot of good news. Perhaps I could ask the Minister one or two, or three or four questions.

I assume that the Minister will agree that our two parties going into coalition government in 2010 was essential to restore the economy to the point where we could have the Autumn Statement today, and that, without that coalition being formed, that would not have happened. Touching on the coalition, I am well aware, as are all noble Lords, that coalitions mean trade-offs. One of them is the married tax allowance. It is obviously above the Minister’s pay grade to say whether it is time to change it, but if the object is to save marriages, would it not have been better to spend the money on organisations that help them, rather than to introduce that to satisfy the Tory right-wing?

Has there been any progress on the tax fairness proposals that David Cameron announced at the G8, with negotiations on international co-operation? The Minister touched on tax avoidance. How much have tax evasion and aggressive avoidance been affected? How much is currently raised annually from the Government’s measures? Does he agree that, although the plan announced yesterday indicates that only 1% of our GDP will be spent on infrastructure—much less than our colleagues—there is an opportunity to increase that as the economy recovers?

Finally, on a cheekier point to which I think I know the answer, bearing in mind that, as the Minister rightly says, more jobs have been created here in this country than before, have he or his colleagues had an apology from the Labour Party for saying that this would not work?

Lord Deighton: On the effectiveness of the coalition partnership, I launched the national infrastructure plan yesterday with my right honourable friend Danny Alexander, and I can say that the harmony in the Treasury could not be stronger. My noble friend is correct to say that the marriage tax allowance question is way beyond my pay grade. On the G8, I can confirm that the initiatives outlined by the Prime Minister, where we have taken global leadership to address issues of tax information exchange and publicising beneficial ownership, continued to be followed through very effectively, with us setting an example.

On the national infrastructure plan, it is clear to me that infrastructure is a very important driver of growth, and the bigger proportion of public spending we can devote to it, the healthier the long-term outcome. The measure, therefore, that my honourable friend the Chancellor of the Exchequer has put in place to keep the proportion of capital expenditure to national income at a constant level is absolutely to be welcomed as a protection in that respect.

Lord Newby (LD): My Lords, these are time-limited questions, so the briefer individual Lords can be in making their contributions, the more Members of your Lordships’ House will be able to participate.

The Lord Bishop of Chester: My Lords, whenever a bishop speaks on economics I must emphasise that we preface it with St Paul’s statement: “I speak as a fool”.

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I fundamentally support the Government’s strategy of getting the deficit down. My question is about the cap and how that is going to operate. Somewhere in the Statement it says that 30% of tax is now collected from 1% of taxpayers. That is a signal of how disparities of wealth have grown in our society. It really behoves us to protect the weakest. My worry is that I see a sort of American scenario of a cap being introduced and benefits not being paid because the cap is there. How will this work, when social security benefits can rise and fall with events which nobody can control? It worries me that introducing another cap of an absolute sort without reference to other realities could end up almost undergirding the underclass, which I am afraid is a developing feature of our society. Can the Minister say a bit more on how this cap is going to work?

Lord Deighton: The cap is essentially a fiscal discipline to ensure that a very large part of our budget, which in the past has had no controls around it—and no opportunity to explain what is going on—is properly scrutinised. In the circumstances where there is justification for changing the cap, that will be done under the scrutiny of Parliament. The Chancellor has not introduced what the level of the cap should be but merely an operational measure to make sure that it is properly controlled, just as other parts of the budget are, and indeed so that all the questions and issues around the appropriate level of support for vulnerable members of society can be tackled independently. Those measures should be effectively targeted and that is also part of our welfare-reform programme.

Lord McFall of Alcluith (Lab): My Lords, the Statement issued by the Treasury indicates that the free school meals commitment, costing £755 million in 2015-16, is there for only two years. Can the Minister confirm that that is not the case, and can he indicate why the OBR today sees public finances worsening in the future?

Lord Deighton: I thank the noble Lord for that question. I will have to write back to him. I am not sure what the long-term budgetary arrangement is. The usual thing is that it is not specifically in the book. It is expected to be absorbed when we come to do the specific budgets in those years. I am sure the expectation is that it will continue, and that the money will be found for it when we do the budget for that year.

Lord Crickhowell (Con): My Lords, I particularly welcome the measures taken to reduce the tax on employing young people, which will be welcome all around the country. But will the Minister say a little more about the £25 billion that is supposed to be coming in for infrastructure from the insurance companies? I do not think this has been referred to at all in the exchange that has taken place so far on infrastructure. How far does he think it can help in speeding up the infrastructure work? That seems to me, as the years go by, to take longer and longer, partly because the projects are very big. What we really need is not just a large amount of infrastructure work propped with finance but that it takes effect quickly rather than slowly.

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Lord Deighton: I absolutely agree that one of the principal challenges for our infrastructure ambitions is accelerating the delivery of the projects which we know are important but which take time to define, to get through planning, to be organised and generally to deliver. In a nutshell, what the Government are trying to do within the national infrastructure plan is to work away at the constraints on delivering this plan more effectively. Financing is one of those, which is why we welcome the announcement from those six insurance companies. It is an interesting example of joined-up government working, because the Treasury negotiated successfully with the European Union on the solvency question. That enabled the insurance companies to be comfortable in committing to this kind of asset, because the capital treatment in Brussels is now much more sensible.

Lord McKenzie of Luton (Lab): My Lords, page 1 of the Statement makes reference to the introduction of universal credit. Part of the news that we had today was confirmation that that programme is in disarray and will not be delivered on time. Can the Minister say how much public expenditure has been wasted on that to date and what the estimates are of future write-offs of abortive expenditure? If the Minister is not able to give us the figures today, will he promise to write to us and let us have that information? The Minister referred also to tax avoidance. The introduction of capital gains tax on disposals of residential property by non-residents is to be welcomed, but, from a Government who do not hesitate to legislate retrospectively for benefit claimants, why will that not be introduced until April 2015, when it is clear that the wise will forestall that tax by upping valuations in the interim?

Lord Deighton: On universal credit, I can tell your Lordships from a personal point of view that the individual whom we have brought in to manage that programme, Howard Shiplee, worked on the Olympic Games and delivering the Olympic park, so we have got the right people focused on getting the delivery of universal credit absolutely right. Our current planning assumption is that universal credit will be available in each part of Great Britain during 2016, with new claims to the benefits that it replaces having been closed down and the majority of the remaining caseload moving to universal credit in 2017. I do not have the particular numbers on how much it has cost, but I will work with DWP and provide the noble Lord with a response to that question. On capital gains tax for non-residents, we are introducing it in the normal way. The efficacy with which we have approached closing down these loopholes puts the previous Government to shame.

Lord Hollick (Lab): The Statement recognises that we have a cyclical recovery and that in order to turn that into a sustainable, long-term recovery, we need investment—we have had a number of discussions on that—and an improvement in productivity. The Statement references a report, presumably prepared by the Treasury, showing that the policy pursued by this Government and their predecessor to reduce corporation tax has increased investment and raised productivity. In the

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light of this, is it not strange that the Government have so comprehensively rejected the recommendation of a report prepared by the Economic Affairs Committee of this House and enthusiastically endorsed by all sides in a recent debate that we take measures to ensure that all companies pay corporation tax, particularly those international companies which currently do not, and that UK companies using complex and—frankly—dodgy procedures not to pay tax here should all be required to pay tax? As a result of that, the tax rate to both large and small companies could be substantially reduced, to the benefit of productivity, and the Treasury would be no worse off.

Lord Deighton:I thank the noble Lord for his analysis of our need for investment. We also talked about productivity. The review that the noble Lord referred to that the Treasury did on corporation tax is what we describe as dynamic modelling, which means understanding the long-term effects of the tax cuts and demonstrating that the increase in income that flows afterwards pays for the majority of them. The way that we are dealing with making sure that overseas companies pay their fair share is through the OECD and taking leadership internationally. I think that is the only way that you can do it. You have to be able to deal with these international companies on a global basis, otherwise it is impossible to close them down, so that is probably the right way to approach it. The general trend of getting people to pay less tax and making sure that everybody pays that tax is the right strategy, and one that is working well for this country.

Baroness McIntosh of Hudnall (Lab): My Lords, I was not here at the beginning so I merely repeat something that has been said by somebody else. I do not believe the Minister answered the question from my noble friend Lord McFall about the OBR. Perhaps I could repeat the question. I believe my noble friend asked why the OBR was predicting that the economic situation would get worse in the years ahead.

Lord Deighton:The short answer is that you would probably need to ask it. As a former economist I can take this lightly, but in the short term, where I would rely much more on their forecast, the recovery is strong. In the longer term, if you look at the way the OBR handles it, it shows a fan of growth forecasts which comprehends just about every single possibility in the longer term.

Police: Independent Police Commission Report

Motion to Take Note

4.11 pm

Moved by Lord Harris of Haringey

That this House takes note of the role and responsibilities of the police service in the light of the report of the Independent Police Commission chaired by Lord Stevens of Kirkwhelpington.

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Lord Harris of Haringey (Lab): My Lords, I declare my interest as co-chair of the All-Party Parliamentary Group on Policing and as adviser to a number of technology companies with an interest or potential interest in the policing sector.

I would also like to congratulate the noble Lord, Lord Stevens of Kirkwhelpington, who I understand is not in his place today because of business elsewhere, and his other commissioners, some of whom are speaking in this debate, on their report Policing for a Better Britain. As I understand it, the commission had six days of witness hearings, seven regional meetings, conducted eight surveys and drew on advice of over 40 experts and 30 academic institutions, along with receiving over 250,000 words in evidence and submissions. It was a royal commission in all but name. As the Independent newspaper said:

“it provides the most detailed appraisal of policing for over fifty years”,

and certainly since the royal commission of 1962.

Like that royal commission, it provides an opportunity to reshape the police service to meet the challenges that it faces today. What are those challenges? According to the report, nothing less than a police service grappling with “deep social transformations”. In particular, it highlights “a global economic downturn”—we have just heard the rosy viewpoint that has been expressed by the Government today—as well as,

“quickening flows of migration, widening inequalities, constitutional uncertainty, and the impact of new social media”.

While overall crime levels have fallen, though there are some indications that burglary and acquisitive and violent crime are rising, there are new types and modes of crime to contend with, including e-crime and cyber-enabled crime, widespread trafficking of people and goods and terrorism, both international and domestic. All this is happening when trust in the police is under threat. Indeed, the integrity of the police service has been seriously shaken by high-profile scandals and organisational failures. Some of those are historic but others are not. Perhaps it is a good time to go back to the principles that should underpin British policing. I understand that it is a matter of debate whether Sir Robert Peel ever uttered Peel’s maxim:

“The police are the public and the public are the police”.

That outlines the concept that the police are a civilian service and operate with the consent of the public they serve. The principle also articulated that police effectiveness is measured not by the number of arrests but by the absence of crime. The underlying theme of all of it is that the police are accountable for their actions.

That is why the central recommendations of this commission are so important. The noble Lord, Lord Stevens, articulates its vision as follows:

“Our vision is of a police service with a social purpose that combines catching offenders with work to prevent crime and promote and maintain order in our communities … listens closely to the demands of everyone while meeting the needs of the most vulnerable in our society and protecting victims of crime … is rooted in local communities while also possessing the capacity to tackle effectively threats of organised and cross-border crime”.

The report says that the golden thread running through its proposals,

“is that the local policing area is the core unit, and building block, of fair and effective policing”.

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The commission warns, and it is a serious warning, that:

“Faced with budgetary constraints and the Government's insistence that the police are ‘crime-fighters’”,

there is a danger of the police being forced to retreat,

“to a discredited model of reactive policing”.

That means that the Home Secretary’s credo that all that matters for the police are the crime statistics misses the point. The police have to be about crime prevention as well as crime detection. The police have to be proactively engaged with the community rather than simply providing an emergency response. They have a social purpose in contributing to community cohesion while maintaining order.

That is why the steady dismantling of neighbourhood policing under this Government is so wrong. The sight of neighbourhood police, whom the local community know, fosters reassurance. It promotes feelings of well-being and security and builds trust. It builds the sort of relationships where the public will feel confident enough in their local police to confide, to pass on concerns, to provide the raw material of the intelligence on which the police must rely to do their work.

When I was chair of the Metropolitan Police Authority, when the noble Lord, Lord Stevens, was the commissioner and the noble Lord, Lord Blair, was the deputy commissioner, we developed the “3-2-1” concept of neighbourhood policing: one sergeant, two police officers and three police community support officers. Indeed, we pioneered the introduction of PCSOs as a visible presence in local communities, building confidence. That neighbourhood policing is now disappearing: 300 neighbourhood sergeants have been removed in the past two years alone. Safer neighbourhood teams are being replaced by a more reactive, fast-response approach. No doubt that is a more efficient use of reduced police resources if the sole criterion of success is a speedy presence at a crime scene. However, what is being done to prevent the crimes being committed in the first place?

The very point of neighbourhood policing was to build local trust and confidence. It was to make communities feel safe. It was to offer reassurance. That, in turn, led to public approval and reinforced police legitimacy. That is very different from the police as an occupying force, swooping in reactively and creating resentment through failure to understand the communities involved. Reassurance stemming from proactive neighbourhood policing produces an orderly community, where people can voluntarily comply with the law. It reinforces that that compliance is the right thing to do. Prioritising a reactive response, as this Government do, is not sufficient. It misses out on that essential community engagement. If that reactive response has been the objective of government policy, it has failed. Her Majesty’s inspectorate has reported that within the past two years the proportion of emergency calls responded to within the target time has fallen in 20 of the forces surveyed. The Stevens commission’s survey found that 30% of the population thought that their local policing had got worse in the past few years, with only 5% thinking that it had improved.

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