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House of Lords

Thursday, 27 March 2014.

11 am

Prayers—read by the Lord Bishop of Chester.

Death of a Member: Lord Kimball

Announcement

11.06 am

The Lord Speaker (Baroness D'Souza): My Lords, I regret to inform the House of the death last night of the noble Lord, Lord Kimball. On behalf of the House, I extend our condolences to the noble Lord’s family and friends.

Economy: Business Investment

Question

11.06 am

Asked by Baroness Williams of Trafford

To ask Her Majesty’s Government what are the latest figures they have for the business investment component of the total gross fixed capital formation (GFCF); and what plans they have to increase business investment in the future.

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con): Through industrial strategy and our structural reforms, we are setting the long-term direction needed to give businesses the confidence to invest, export and grow. Business investment was £123 billion in 2013, accounting for more than half of overall investment. The OBR forecasts that it will grow by 8% in 2014. At Budget, we announced further funding for innovation, including £42 million for the Alan Turing Institute and £74 million on cell therapy and graphene centres.

Baroness Williams of Trafford (Con): I thank my noble friend for his response. Can he pinpoint the cause of the increase in investor confidence?

Viscount Younger of Leckie: My Lords, the economy is growing, and unemployment and inflation are down. This is supported by an improving outlook in our export markets. We are cutting corporation tax to 21% this April, and to 20% in April 2015. At Budget, the Chancellor announced measures to reduce business energy costs and doubled our export finance scheme to £3 billion. These and other reforms are improving the business environment and providing long-term certainty for businesses, investors and employees.

Lord Kinnock (Lab): Will the Minister tell the House the full story shown by the Office for National Statistics, which is that business investment since 2010 has been

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flat, faltering or falling, and that we are in a state in which it has shrunk, by comparison with 2010, by about 7%? Whatever happened to the march of the makers?

Viscount Younger of Leckie: Business investment is a very narrow measure, which excludes investment by firms in skills, innovation and organisational change. When estimates of these types of investment are included, the UK’s performance is much improved, as we tend to invest heavily in these types of knowledge asset. It is also important to recognise that quality of investment is as important as quantity.

Lord Forsyth of Drumlean (Con): Has my noble friend noticed the disinvestment that is taking place in the energy sector, thanks to the irresponsible policies announced by the Opposition to bring in price controls?

Viscount Younger of Leckie: Yes, I have noticed that. Having said that, we are doing much in terms of the Green Investment Bank, which has invested directly and indirectly in 22 projects from five dedicated funds. It has directly committed £791 million, which will mobilise a total of £3.3 billion when fully deployed.

Lord Garel-Jones (Con): My noble friend will no doubt be aware of the Pacific Alliance treaty signed by Mexico, Colombia, Peru and Chile, which Costa Rica and Panama are shortly to join. Given that this represents the seventh or eighth largest trading bloc in the world, what steps are Her Majesty’s Government taking to encourage trade and investment with this important area?

Viscount Younger of Leckie: My noble friend is right. I am aware of this and the Government are working hard to increase trade in this area. My noble friend Lord Livingston recently headed up a successful trade mission to Colombia and Mexico, with some promising leads. I take this opportunity to congratulate my noble friend Lady Bonham-Carter on her excellent work as the Prime Minister’s trade envoy to Mexico. Exports of British goods to Mexico increased by 51% between 2009 and 2012.

Lord McFall of Alcluith (Lab): My Lords, is the Minister aware that the banking system here is responsible for 80% of the loans to small businesses in this country, unlike in the US? This intermediation system is bursting. Until the Government look at the issue of capital and equity support for businesses, we ain’t going to regenerate this economy in all parts of the country.

Viscount Younger of Leckie: I am afraid I do not accept the negative attitude that comes from the noble Lord. In fact, much has been done to provide financial support for businesses. Over the last quarter of 2013, the banks lent an average of £4 billion each month to SMEs. In the same period in 2012, the average was £3.1 billion. Respondents to the Bank of England’s Credit Conditions Survey reported that the overall availability of credit to the corporate sector increased significantly in the final quarter of 2013.

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Lord Stoneham of Droxford (LD): In the light of the good news that Hitachi is intending to invest in rolling stock manufacturing capacity and that Siemens is investing in wind farm equipment manufacturing in the UK, what further efforts are the Government making to use their procurement strength to ensure that we get more manufacturing capacity invested in the UK and more apprentices?

Viscount Younger of Leckie: My noble friend is right to highlight the excellent news that Siemens is to invest £160 million in the Hull area. Hitachi’s announcement that it will move its global rail headquarters to the UK is a further vote of confidence in companies investing in the UK. Among other actions, the Government recently announced a new college to train the next generation of world-class engineers working on the construction of High Speed 2, and we hope that it will train up to 2,000 apprentices. This will provide further opportunities for young people to have secure, long-term careers.

Lord Stevenson of Balmacara (Lab): In response to an earlier question, the Minister said that GFCF was a narrow measure. However, is it not true that it also includes expenditure on buildings, including houses for rent? Therefore, the figures conceal a considerable loss of money in terms of the productive economy.

Viscount Younger of Leckie: I am not sure that I agree with the noble Lord on that. What matters is the decisive action that the Government are taking to protect the economy in this period of global uncertainty. Our economic policy objective overall is to achieve strong, sustainable and balanced growth that is more evenly shared across the country and between industries, and that has a focus on property, too. We want to create the most competitive tax system in the G20, make the UK the best place in Europe to start, finance and grow a business, and create a more educated workforce that is the most flexible in Europe.

Lord Tebbit (Con): Can my noble friend perhaps have a chat with the noble Lord, Lord Kinnock, to see whether he can help us by pleading with his masters in Brussels to allow us to get on with investing in a nuclear energy programme? That would be really helpful. I see that the noble Lord, Lord Kinnock, shakes his head—he cannot do it.

Viscount Younger of Leckie: I am always happy to have a chat with the noble Lord, Lord Kinnock, and perhaps that will happen.

Algeria

Question

11.14 am

Asked by Lord Risby

To ask Her Majesty’s Government what plans they have to deepen their bilateral relationship with Algeria.

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Lord Ahmad of Wimbledon (Con): My Lords, the UK is committed to a strong and enduring partnership with Algeria, which is a key regional partner playing an important role in supporting regional stability. Building on a visit by my right honourable friend the Prime Minister in January 2013—and, indeed, the appointment of my noble friend as trade envoy—the UK plans to continue the high level of engagement that has characterised the relationship in recent years. The UK-Algeria high-level dialogue in January this year saw further progress on a range of issues, including security, trade, migration and education. The third meeting of the strategic security partnership will take place later this year.

Lord Risby (Con): My Lords, given the enormous interest and desire to learn English in Algeria, whether in schools, universities or the government sector and in the private sector as well, can my noble friend indicate how we are helping to fulfil this widespread ambition and opportunity? Further, given the growing commercial links, can my noble friend comment on whether a double taxation agreement, moving this forward, is now taking place because it is a great advantage to some of our European partners who already have such an arrangement?

Lord Ahmad of Wimbledon: I take this opportunity, if I may, to pay tribute to my noble friend’s work as a trade envoy. His work has facilitated some major contracts for British companies, including most recently the International Hospitals Group and Surrey Satellite Technology. Turning to his specific questions, of course, English is a powerful tool in our trade across the world and I am delighted to state that the British Council is upgrading its services. It is reopening a teaching college in September, supporting English in schools. Also there is agreement for 100 Algerian PhD students to take up places at UK universities. On the issue of the double taxation agreement, some noble Lords may know that these negotiations have started, are continuing and, indeed, we have exchanged draft texts on the agreement.

Lord Bach (Lab): My Lords, we know that there will be very important elections in Algeria on 17 April. Are Her Majesty’s Government satisfied that those elections will be freely and fairly conducted, and do the Government intend to send observers to them?

Lord Ahmad of Wimbledon: My Lords, if one looks across the wider MENA region, Algeria remains stable compared to other countries in what is a difficult and troubled region. The campaign, as the noble Lord has pointed out, has begun for presidential elections on 17 April, and the UK looks forward to working with whoever the Algerian people elect. On the specific issue of observers, I cannot give an answer now but I will certainly check that and write to him.

Lord Howell of Guildford (Con): Is my noble friend aware that Algeria is interested in closer association with the Commonwealth? Will he see that his ministerial colleagues encourage that?

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Lord Ahmad of Wimbledon: My noble friend always speaks with great authority and passion about the Commonwealth. Once again, he has indicated something on which I think our ministerial colleagues should reflect. I shall certainly take that back to the FCO.

Lord Dholakia (LD): My Lords, my noble friend will be aware that our Government are involved in projects designed to promote stability and peace in Algeria. To what extent are the Inter-Parliamentary Union and the Westminster Foundation for Democracy involved in such projects? What mechanisms are being established so that there is proper evaluation of the outcomes?

Lord Ahmad of Wimbledon: I think the organisations to which my noble friend has alluded, not just in Algeria but across the world, play a very important role. It has to be made clear that this is not about interference; it is about the value of sharing good practice and governance procedures. I would point out that Algeria increasingly sees itself as an exporter of stability. For example, it recently hosted peace talks between the Malian Government and opposition groups, and it co-operates well on border security with Mali. Over recent months, Algeria and Tunisia have also increased their co-operation on security issues of mutual concern.

Lord Kinnock (Lab): Will the Minister acknowledge that the British Council’s commitment in Algeria has been highly commendable and, on many occasions in recent years, courageous? Will he further acknowledge that the very welcome strengthened engagement of the council in Algeria, which he referred to, is in spite of significant cuts by the Government in grant in aid and has been made possible by the strengthened commercial performance of the British Council?

Lord Ahmad of Wimbledon: The noble Lord will know that I certainly agree with his first statement. On his second statement, the British Council is supported by the FCO and by Her Majesty’s Government. Together we are demonstrating how important the British Council’s influence is, not just in Algeria but across the world, and long may that continue.

Metropolitan Police

Question

11.19 am

Asked by Lord Trefgarne

To ask Her Majesty’s Government what steps they are taking to restore the reputation of the Metropolitan Police, having regard to recent reports.

The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach) (Con): My Lords, the majority of police officers serving in London and elsewhere do their jobs well, serving their communities with dedication and professionalism. We must build on this. We have established the College of Policing,

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which has the remit to set standards and promote good practice. Ensuring that the police maintain the highest levels of integrity is a core function of the college and it will be shortly publishing the first ever code of ethics for the police.

Lord Trefgarne (Con): My Lords, I am grateful to my noble friend. Is it not the case that undercover police operations play a vital part in the fight against terrorism and serious crime? Is it therefore not important that the unhappy and unfortunate events of past years should be put aside as soon as possible—having regard, of course, to due process—so that brave men and women are not discouraged from volunteering for this dangerous work?

Lord Taylor of Holbeach: I do not quite take that position. We are facing a grave crisis of confidence and it is important that, whatever the value of these operations, we learn from the mistakes of the past. Certainly we need to investigate the criminal activity that may have led to them occurring. It also makes it more important that such operations are properly authorised and supervised. The Government have already put in place improved arrangements for the authorisation of undercover work, including a requirement to notify deployments to the independent surveillance commissioners. In addition, HMIC is reviewing all law enforcement undercover units and will report at the end of May.

Baroness Lawrence of Clarendon (Lab): My Lords, I wish to declare my interest in the Question of the noble Lord, Lord Trefgarne, on the reputation of the Metropolitan Police. It was my interest and my request to the Home Secretary to look into corruption within the Metropolitan Police surrounding the investigation of the murder of my son in 1993 that prompted the paper review by Mark Ellison QC. Does the Minister agree that the Metropolitan Police needs urgently to clear up those elements that brought it into disrepute in the first place in order that it can concentrate on fighting crime, upholding the law and regaining the trust of the British public, especially the black community?

Lord Taylor of Holbeach: Those noble Lords who were here on 6 March to hear the repetition of the Statement that the Home Secretary had made to the House of Commons earlier that day will have attended a most poignant occasion. The noble Baroness was in her place to hear what had happened, which was indeed shocking. As my right honourable friend the Home Secretary said, policing stood damaged by the revelations in Mark Ellison’s review. She has made it clear that she is determined that all that can be done to find out what happened will be done. I know that that determination is shared by those currently in charge of the Metropolitan Police and by those conducting reviews and investigations. I hope that this reassures the noble Baroness of the sincerity of this Government in tackling what lay behind the tragic period leading up to and after her son’s death.

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Baroness Howarth of Breckland (CB): Does the Minister share my disappointment about the way the police have been dealing recently with domestic violence? After all the work that has been carried out, what can be done to bring those forces that are clearly not meeting the needs of women up to the level of excellence of those forces that are?

Lord Taylor of Holbeach: This is another area on which we have received a shocking report, and the Home Secretary commented on it this morning. Those noble Lords who listened to the “Today” programme will have heard a woman called Kimberley talk about her experience of the investigation made into her complaints. It is not good and the Home Secretary is determined to tackle this scourge. As she said this morning, she expects chief constables to respond to the report, and I would say that they owe it to the victims of these crimes to do so.

Lord Paddick (LD): My Lords, many noble Lords will recall the high-profile visit made by the Metropolitan Police to the right honourable Damian Green MP before he became the Minister for Policing, but I do not suspect that many will recall the last high-profile visit made by the Minister for Policing to the Metropolitan Police in support of the excellent work done by the overwhelming majority of police officers every day to keep us safe in London. Perhaps the noble Lord could tell us when such a visit was last made and why we have not heard about it.

Lord Taylor of Holbeach: My Lords, as my noble friend will know, the Commissioner of the Metropolitan Police and other senior officers meet the Home Secretary and the Minister for Policing on a regular basis. The last public engagement was the launch of the trial of body-worn video equipment that took place late last year and which was also attended by the Mayor of London. Contact between the Home Office and the Metropolitan Police is on an everyday basis because it is such an important link for us. I hope that my noble friend will be reassured by my earlier comments in answering this Question. We recognise the diligence with which the majority of police officers perform their duties on behalf of the public.

Lord Imbert (CB): My Lords, perhaps I may preface my question with a reference to the Home Secretary’s Statement to Parliament made on 6 March on the Ellison report of the inept investigation into the murder of Stephen Lawrence and related matters such as the inappropriate use of undercover police officers. She said:

“Stephen Lawrence was murdered more than 20 years ago and it is deplorable that his family have had to wait so many years for the truth to emerge”.—[Official Report, Commons, 6/3/14; col. 1064.]

I agree entirely with the Home Secretary’s view on the intolerable delay following the first highly unsatisfactory investigation into the murder of that young man.

The Metropolitan Police and policing generally have indeed had their reputations severely damaged by this and other incidents and revelations, but without trying to defend the indefensible, I would like to ask

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the Minister whether he would acknowledge that the relatively new captain and vice-captain of the Metropolitan Police Service are men of experience, determination and integrity and that, together with the many honest, brave and commendable police officers, they must be given the opportunity to redress the wrongs that have been revealed. I say “brave” officers because two were killed on duty last year and no fewer than 4,890 officers, both male and female, were injured and needed medical attention.

Lord Taylor of Holbeach: My Lords, it might help the noble Lord if I just say that I have made it quite clear that we recognise the sense of duty with which our police officers undertake their tasks, and indeed our confidence in the Commissioner of the Metropolitan Police.

Baroness Smith of Basildon (Lab): My Lords, I thank the Minister for the content and tone of his answers. The further revelations published in the Independent newspaper today of a secret investigation into persistent corrupt networks within the Metropolitan Police are really beyond shocking. I am grateful to the Minister for his answers today, but can he tell us what action the Government will be taking in regard to these allegations as well?

Lord Taylor of Holbeach: I think the noble Baroness is referring to Operation Zloty and the discovery that some of the material that we were hoping to be able to use to investigate further may have been destroyed. There is a determination among everyone who is currently engaged in this matter to get to the bottom of it and to get to the truth. I am confident that we will achieve that. It may take time and there may be obstacles in our path but we are determined that the truth should be known. Indeed, by finding the truth, we will also help the police themselves regain that confidence that they should surely have about the way that they protect us.

Egypt

Question

11.30 am

Asked by Lord McConnell of Glenscorrodale

To ask Her Majesty’s Government what representations they have made to the Government of Egypt following recent court cases in that country.

Lord Ahmad of Wimbledon (Con): My Lords, the Foreign Secretary made a Statement on 24 March, saying that he was,

“deeply concerned by the reports that 528 individuals were today sentenced to death by a court in Al Minya in Egypt”.

He urged the Egyptian authorities,

“to ensure full respect for defendants’ rights”,

and expressed,

“hope they will review this unacceptable sentence”.

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On 6 February, as noble Lords may be aware, the Foreign Secretary also publicly raised concerns about the arrest of Al-Jazeera journalists in Cairo and about freedom of expression.

Lord McConnell of Glenscorrodale (Lab): My Lords, since last summer, the Foreign Secretary has, understandably, condemned some of the actions of the new regime in Egypt and called for maintaining a dialogue with that regime. However, during that time we have seen not only the trial of the 20 Al-Jazeera journalists and the death sentences for the 529 accused on Monday but the prosecution of peaceful women student protestors, who face life sentences, and a whole host of other acts of repression and denial of basic human rights. Will the Government make a statement in the coming weeks, in the run-up to the elections that are due to take place in Egypt, outlining what other action has been taken in addition to dialogue and condemnation—for example, on export licences and co-operation in other matters—and what discussions have taken place in the EU and the UN to ensure some international co-ordination of efforts to persuade the Egyptian Government to stop this path towards repression and to open up the political space there if there are to be serious democratic elections in the future?

Lord Ahmad of Wimbledon: To begin with the noble Lord’s final point, he is of course quite right that openness and having a free, fair and fully pluralist style of elections are something that not only Her Majesty’s Government want to see but, as he has acknowledged, something that the UN is pursuing, as is the noble Baroness, Lady Ashton, in her capacity at the European Union. I reiterate once again that the UK Government remain deeply concerned about sentencing including, most recently, the sentencing to three years in prison of the democracy and human rights activists Ahmed Maher, Ahmed Douma and Mohamed Adel. The UK believes that the freedom to protest peacefully is vital in any democracy and calls on Egypt’s interim leaders to ensure that they uphold all Egypt’s international human rights obligations. The Foreign Secretary spoke to Foreign Minister Fahmy on 7 January and raised various concerns over Egypt, such as the arrest of human rights activists and journalists and the violence, including fatalities, at protests. I am sure representations will continue during what we hope will be free and fair elections later this year.

Lord Chidgey (LD): My Lords, the Egyptian Ministry of Justice is on record as saying that most of the 350 people originally sentenced to death were actually tried in absentia and that if they turn up in court they would be entitled to retrials. However, the Egyptian Government are insisting that the death sentences were handed down only “after careful study”. Have the Government advised the Egyptian authorities that, along with the UN human rights commissioner and 16 Egyptian human rights groups, we view these actions as being in breach of international human rights law and intolerable in a 21st-century democracy?

Lord Ahmad of Wimbledon: My noble friend sums up sentiments which are, I think, widely shared across the House. The UK of course opposes the death penalty. We believe it undermines human dignity and

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there is no evidence that it works as a deterrent. If an error is made, it is of course irreversible. We review the death penalty strategy each year, including priority countries where necessary. Our views have been well documented and continue to be shared across the board particularly, in this context, with the Egyptian authorities.

Lord Bach (Lab): My Lords, the verdict and sentences of death passed this week are a breach of international law, as has just been said. The UN human rights commissioner has said the same. However, along with the detention of the Al-Jazeera journalists and other matters raised, they also show a high level of contempt for the rule of law. Will Her Majesty’s Government take a significant role in not only condemning the decision—that is something that we can all easily do—but in really leading international opinion to insist on a proper and fair appeal process?

Lord Ahmad of Wimbledon: It is important to reiterate that the justice system in Egypt should be seen to be both transparent and fair. As my noble friend pointed out a moment ago, certain people have been tried in absentia. It is important that we see openness and justice being served. To mention the Al-Jazeera journalists specifically, we have raised our concerns about cases of freedom of expression at the most senior level with the Egyptian Government in recent days, and the Foreign Secretary discussed them with other European Foreign Ministers at the European Foreign Affairs Council. I reiterate that the UK believes that a free and robust press, alongside other matters, is the bedrock of democracy, and an open, transparent and fair justice system is also an important part of the democratic process.

Baroness Falkner of Margravine (LD): My Lords, my noble friend will be aware that the proposed new Egyptian constitution also privileges military trials for civilians, irrespective of whether they are military employees. What representations are the Government making on this aspect of the constitution, which will allow for more miscarriages of justice, rather than fewer?

Lord Ahmad of Wimbledon: The constitution in Egypt is primarily something that we should leave to the Egyptian people. We should be ensuring that there is fairness and a pluralist democracy in place. The Egyptians have promoted the fact that there was 98% agreement to the constitution, but this is on the basis of only 38% participation. One positive element that comes out of the constitution, which I am sure my noble friend acknowledges, is that minority groups and minority interests are well protected, and that is a welcome development.

Business of the House

Timing of Debates

11.36 am

Moved by Lord Hill of Oareford

That the Questions for Short Debate in the names of Baroness Whitaker and Lord Stevenson of Balmacara set down for Wednesday 2 April shall each be limited to one hour.

Motion agreed.

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Immigration Bill

Order of Consideration Motion

11.37 am

Moved by Lord Taylor of Holbeach

That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 4, Schedule 1, Clauses 5 to 12, Schedule 2, Clauses 13 to 19, Schedule 3, Clauses 20 to 51, Schedule 4, Clauses 52 and 53, Schedule 5, Clauses 54 to 58, Schedule 6, Clauses 59 to 62, Schedule 7, Clauses 63 to 65, Schedule 8, Clauses 66 to 70, Schedule 9, Clauses 71 to 74.

Motion agreed.

Liaison

Motion to Agree

11.37 am

Moved by The Chairman of Committees

That the 1st Report from the Select Committee (Review of select committee activity and proposals for new committee activity) (HL Paper 145) be agreed to.

The Chairman of Committees (Lord Sewel): My Lords, in our 2012 report we recommended an increase in ad hoc committee activity, including an additional committee unit. In our 2013 report we recommended a further additional committee unit. As a result, more ad hoc committees have been appointed this Session than ever before.

The Liaison Committee discussed the work of the three ad hoc committees appointed in the present Session with their respective chairmen: the noble Lord, Lord Harris of Haringey, chairman of the Olympic and Paralympic Legacy Committee; the noble Lord, Lord Howell of Guildford, chairman of the Soft Power Committee; and the noble Baroness, Lady Noakes, chairman of the Personal Service Companies Committee. All three were enthusiastic about the work of their committees, although the time constraints of the two short ad hoc inquiries had meant that the programmes of both committees had been telescoped. The next Session will be the last in the present Parliament and, as such, may be compressed, so we decided not to recommend the appointment of any short ad hoc committees during the 2014-15 Session.

We discussed the work of this Session’s post-legislative scrutiny committees with the noble and learned Lord, Lord Hardie, chairman of the Mental Capacity Act 2005 Committee, and the noble Lord, Lord Shutt of Greetland, chairman of the Inquiries Act 2005 Committee. Both committees have now reported and already have had a very marked and significant impact.

The increase in Select Committee activity during the past two Sessions has been well received, as has been the practice of inviting Members of the House to put forward their own proposals for ad hoc committees. This is a thorough and open process and allows all

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Members of the House to put forward their suggestions. This year’s deadline of 15 January was advertised on the front cover of

Red Benches

in December 2013 and through the party Whips and I routinely mentioned the opportunity for Members to submit topics when I went on my usual tour of the party groups and the Cross-Benchers’ meetings.

Twenty-two members of the House put forward proposals for ad hoc Select Committee activity in the 2014-15 Session by the deadline of 15 January. As was the case last year, our consideration was a two-stage process. On receipt of the proposals, a limited amount of research was carried out by the Committee Office to assist our first deliberation. At our meeting on 4 February, we shortlisted a number of the proposals for further scoping work by the Committee Office, which assisted our final recommendations at our meeting on 4 March. I am happy to say that, perhaps in part because of the thorough process that we followed, the committee was unanimous in agreeing the recommendations that are now before your Lordships.

Several Members of the House called for a Select Committee on foreign affairs. The noble Lord, Lord Howell of Guildford, also proposed that the House should appoint a further ad hoc committee on an international relations subject to succeed the ad hoc Committee on Soft Power and the UK’s Influence, which he chaired during the present Session. We were attracted to the proposal put forward by the noble Lord, Lord Howell, but do not think it appropriate at this late stage in the Parliament to set up any new sessional Select Committees, whether on international relations or any other subject. We were attracted also to the proposal put forward by the noble Lord, Lord Tugendhat, for an ad hoc committee to consider a range of issues relating to the Arctic, which could cover defence security, environmental security, energy security and the consequences of the redrawing of world trade routes in a hostile environment. The Arctic is an area that is moving, changing and developing very quickly and brings many significant questions to the fore. We think that this would be a good choice for an ad hoc committee on an international relations subject in the next Session.

The noble Baroness, Lady Massey of Darwen, proposed the establishment of a Select Committee on affordable childcare, following a debate in the House on 9 January 2014, and the committee agreed to support her proposal. Access to affordable childcare is an important factor both in women’s participation in the labour market and in child development.

We also agreed to support the proposal put forward by the noble Baroness, Lady O’Cathain, for a Select Committee on ICT, competitiveness and skills. This is another topic in which there is considerable interest and expertise in the House, expressed most recently during the Oral Question on 25 February on careers guidance in schools. We also agreed to recommend a new post-legislative scrutiny committee for the 2014-15 Session and to support the proposal of the noble Baroness, Lady Garden of Frognal, for the establishment of a post-legislative scrutiny committee to examine the Extradition Act 2003 and the law relating to extradition.

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I hope that your Lordships will support the committee’s decision to maintain the unprecedentedly high level of committee activity in Session 2014-15. Inevitably, it was not possible for the Liaison Committee to recommend to the House all the proposals received, but I hope that your Lordships will agree with me that this is a well balanced group of committees and subject areas.

On 13 March, nearly two months after the deadline for receiving proposals from Members of the House, I was sent an e-mail on behalf of a number of Members of the House asking,

“the Liaison Committee to create an ad hoc select committee on reform of the civil service to start work immediately”.

I hope that noble Lords will understand that this struck me as a bit of a bolt from the blue in that it sought to bypass what is an open, transparent and established selection process. I found it difficult to understand how a topic that received no support on 15 January could suddenly emerge by 13 March as the most urgent and important topic that we should address. I am therefore pleased to see that the noble Lord, Lord McNally, has now tabled an amendment referring to the possibility of a Joint Committee on the Civil Service, particularly asking the House to agree that, if a message were received from the House of Commons inviting the House of Lords to appoint its share of such a Joint Committee, the Liaison Committee would meet again to consider the proposals. I am very happy to agree to that and accept the amendment of the noble Lord, Lord McNally, as it reflects our normal procedure—as one would expect, given that the noble Lord was until recently a member of the Liaison Committee. Of course, I cannot prejudge the decision that the Liaison Committee may make if we were to receive any such message from the House of Commons.

11.45 am

Finally, I turn to the question of follow-up. As several committee chairmen observed to us, the downside of ad hoc committees is that they cease to exist once they have reported and are thus unable to engage in follow-up. Accordingly, we considered how that point of weakness might be addressed. On the one hand, the new ad hoc committees were set up as fixed-term entities. Any likely follow-up mechanism would be difficult to limit in both time and resource. A further consideration is that, once ad hoc committees have reported, the protection of parliamentary privilege ceases. On the other hand, committees exist to make recommendations and, if those are not followed up, the value of the committee report is diminished. I am glad to say that the follow-up report of last Session’s Committee on Small and Medium-Sized Enterprises and exports is expected to take place shortly and that the Government have agreed to provide a further written response to the report of the Select Committee on Public Service and Demographic Change approximately one year after the publication of their first response. The Liaison Committee expects to receive that further government response in June 2014. Our report invites future ad hoc committees to identify clearly the issues that they wish to be followed up roughly a year after they have reported.

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In conclusion, I commend to the House the work of all our committees. The House of Lords now has a wide range of sessional and ad hoc committees and we must also remember the important work of pre-legislative scrutiny committees. Inevitably, some attract more publicity than others, but all are worth while, because this is an area of activity where this House really delivers added value. I beg to move.

Amendment to the Motion

Moved by Lord McNally

At end to insert “with the proviso that, in the event that the House of Commons invites the House of Lords to appoint a Committee to join with a Commons Committee as a joint committee on the Civil Service, the Liaison Committee will meet again to consider the proposal”.

Lord McNally (LD): My Lords, let me make it clear that tabling the amendment in no way changes my opinion of the Lord Chairman of Committees—a comrade in arms. I have tabled the amendment because the Lord Chairman said, in response to the e-mail to which he referred, which was signed by me and the noble Lords, Lord Norton, Lord Hennessy and Lord Forsyth:

“When the Liaison Committee last met, I had heard by word of mouth that particularly in the Commons there were Members interested in a Joint Committee on Civil Service Reform. As no formal process had been received the Committee could not consider this in great detail, but the general feeling of the Committee was that the terms of reference would need to be considered carefully. The subject is a large and important one, and Members felt that it was unlikely that justice could be done to such a complex issue in the parliamentary time available before the 2015 election”.

However, the report to the House refers in no way to that discussion. I am in no way casting doubt on the Liaison Committee, but I felt that without this amendment being accepted—I am very grateful that it is accepted—if the other place called for a Joint Committee, the response would be that the Liaison Committee had already discussed it and we were not in favour of it. That would be a disgraceful response if the other place expressed an interest in such a Joint Committee on the Civil Service.

I served on the Liaison Committee for nine years and I am pleased that recent reforms have made it less arthritic. However, the Liaison Committee should be able to respond very quickly to need. I do not believe that the fifth year of this Parliament is a dead or fallow period, particularly when the Executive are pressing ahead with such an important thing as Civil Service reform. The idea of a Civil Service chosen on merit and politically neutral is one of the great reforming gifts of 19th-century Liberalism to our governance. We should not let that go away casually while Parliament is not looking. It is not acceptable that Civil Service reform should go ahead without proper parliamentary scrutiny.

In passing I would say that I recently had the honour of serving in government for three and a half years and my impression was that we still attract talent into our Civil Service and that it is still based on a very strong ethos of public service. If we are not to throw that away casually or by the back door, Parliament

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will have to be very alert. I therefore put down this marker to the Liaison Committee. Some very distinguished Members from all parties in the other place have pressed for such a committee. I hope that the Liaison Committee will react nimbly and positively to such a request.

Lord Forsyth of Drumlean (Con): I shall speak briefly. As the noble Lord has pointed out, I added my name to the e-mail that was sent. I say to the Chairman of Committees that I think it is a bit bureaucratic to say that the deadline was 15 January when we had a major debate in this House on the Civil Service in which almost every speech expressed concern about maintaining the integrity of the Civil Service and its political independence. After that there were moves at a very senior level in the other place to have an initiative on a joint basis between both Houses. Therefore, we made a request for a committee to be established after the deadline because of the circumstances that occurred in both Chambers of Parliament. I say very gently to the Chairman of Committees that, if the Liaison Committee is so concerned about its procedures that it does not take account of what is being said in both Houses of Parliament, perhaps more flexibility needs to be introduced into these procedures.

I am very concerned indeed by some of the proposals being put forward for reform of the Civil Service. When I was Secretary of State for Scotland, we were in government but I always felt that I was in opposition. The Civil Service in the Scottish Office was pretty committed to establishing a Scottish Parliament and we were pretty committed to not establishing a Scottish Parliament. We were also committed to a whole range of quite radical reforms that went against the grain. I have to say that I never, ever experienced anything other than complete and total professional service from the Civil Service. If you gave it a lead, it would respond, and respond with great professionalism and integrity.

I observe the Civil Service now; I observe the degree to which there is turnover in important departments such as the Treasury; I look at the numbers of Permanent Secretaries who seem to survive for less than 12 months; and I look at the proposals that are coming from the coalition to politicise and increase the number of special advisers. These are all hugely revolutionary and important changes and when, come the general election, each political party will no doubt have something to say on its views on the Civil Service, it will be important that we have an informed debate.

I therefore regret the fact that there will not be an opportunity for us to have a proper look at these issues so that people can make up their minds as to what the right way forward is. I very much hope that, as the noble Lord, Lord McNally, said, should a proposal come from the House of Commons we would respond to it so that the expertise and experience that exist in this House in all quarters can add to what is a central debate to the future of our constitution and good government in our country.

Lord Butler of Brockwell (CB): My Lords, I make it clear that I make no criticism of the procedures of the Liaison Committee, which were perfectly fair, although

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I agree with the noble Lords, Lord McNally and Lord Forsyth, that there is an issue for Parliament here. The proposal that there were issues of such importance affecting the Civil Service that they required investigation had the support of not only the Public Administration Select Committee in another place but all the chairmen of the Select Committees that examine departments. It was a unanimous proposal from the Liaison Committee in another place. These are issues of importance, which may well be in the manifestos for the next general election. As I said in my remarks on 16 January, it would be extraordinary if Parliament did not examine them when there is such senior support for that in the House. While I absolutely understand the procedures that were followed by the Liaison Committee and have never sought to overturn either its recommendations or the list of subjects that it has proposed, I hope, as other speakers have, that if the House of Commons goes ahead with setting up an examination of these issues, the Liaison Committee of this House will be flexible enough to agree that this House should join in that investigation.

Lord Hamilton of Epsom (Con): My Lords, I must confess that I did not realise that my noble friend Lord McNally had put down this amendment. If I had, I would have put my name to it. There is something seriously wrong with our Civil Service today and there is no better place than your Lordships’ House to give consideration to how it should be reformed.

Amendment to the Motion agreed.

Lord Higgins (Con): My Lords, I am sure that the House is anxious to get on with the Budget debate, as I am, so I shall not delay it for more than a few moments. However, paragraph 12 of the report that we are considering draws attention to an extremely serious situation, where the work of the ad hoc Select Committee on Personal Service Companies has been seriously handicapped by the fact that the Treasury Minister concerned refused either to give oral evidence or to allow his officials to give evidence. That was on the grounds that we were concerned only with the administration of the situation, whereas quite clearly the whole thing operates within a legal and legislative framework that is the responsibility of the Treasury. We ought to have been able to question Treasury Ministers on the implications of that legislation for the subject that we were discussing. The committee’s report clearly says that this situation is “unfortunate”, but I am not clear what representations the Liaison Committee is making to the Government, and perhaps to the Chancellor of the Exchequer in particular, about this extremely unfortunate situation, which has handicapped the ability of the committee to carry out its work.

Motion, as amended, agreed.

Arrangement of Business

Announcement

Noon

(Baroness Anelay of St Johns) (Con): My Lords, we now have two debates during the rest of our sitting today. The first of those debates on the Budget is not

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time limited and colleagues will know that I have been keen to table government-led debates on a Thursday where we are not strictly time limited. The second is time limited. It is a Question for Short Debate, which may last only one and a half hours. It may therefore be helpful, particularly to those who are in the second debate, if I give an advisory speaking time on the Budget debate. We have 30 speakers for today’s debate on the Budget. If Back-Bench contributions were to be kept to 10 minutes then those on the QSD later could be assured that they would complete their work by 7 pm.

Budget Statement

Motion to Take Note

Noon

Moved by Lord Deighton

That this House takes note of the economy of the United Kingdom in the light of the Budget Statement.

The Commercial Secretary to the Treasury (Lord Deighton) (Con): My Lords, the UK’s economic recovery has finally taken hold. No major advanced economy grew faster in the fourth quarter of 2013 than the UK’s. Employment is at record levels. Some 1.7 million private sector jobs have been created since early 2010 and over the same period more than four private sector jobs have been created for every public sector job lost. Inflation of 1.7% last month was the lowest for more than four years.

During this debate last year I argued that the Government’s focus on deficit reduction could go hand in hand with a successful strategy for growth. Some noble Lords disagreed. At that time the independent OBR had forecast growth of 1.8% for 2014. Last week the OBR forecast growth of 2.7% for 2014—nearly a whole percentage point higher. That is the biggest upward revision to growth between Budgets for at least 30 years. However, there is clearly more to do to ensure that our recovery is balanced and will protect us against future shocks, so today I will speak about how the Government are taking the difficult decisions to rectify the mistakes of the past so that everyone in the UK experiences the benefit of the recovery.

In the build up to the financial crisis the UK economy was characterised by severe imbalances and long-running structural weaknesses. In 2008, UK investment as a percentage of GDP had been the lowest in the G7 for a decade and our level of productivity was also lower than that of our peers. The economy had become increasingly reliant on the services sector. Manufacturing had fallen from 19% of the economy in 1997 to 11%—not helped by the long-run decline of North Sea oil. The UK financial system had become the most highly leveraged of any major economy, with a total balance sheet inflated to more than 200% of GDP. Total household debt had risen from around 100% of income at the start of the decade to more than 170% and the saving ratio had collapsed to just 0.2%.

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Imbalances were also building up in the public finances. In 2005-06, public expenditure had already increased to 41% of GDP while revenues were at 38%. Despite the buoyant economy, we were spending more than we were earning. All of this meant that when the financial crisis hit, the UK economy was among the most vulnerable and it was for that reason we experienced the biggest recession of any major advanced economy apart from Japan. By 2009-10 we were running the highest structural deficit in the G7, borrowing one pound for every four we spent. The deficit had climbed to 11% of GDP and every year that deficit adds even more to the debt that has been accumulated. Faced with a challenge of these proportions, restoring balance between public expenditure and receipts was the only credible option.

Following the financial crisis our economy was hit by further shocks. Some 40% of UK goods exports go to the euro area and as the eurozone crisis intensified it weighed on UK export performance. Commodity prices rose steeply between 2009 and 2011, increasing costs for households and businesses. In addition, it became apparent that the financial crisis had had a deeper and more lasting effect than we previously anticipated. The UK economy shrank by 7.2% in the aftermath of the crisis. Of course a crisis of that scale would have an impact on millions of households.

In the face of such a daunting economic challenge, it is essential to have a clear and comprehensive plan. I remember that in the debate last year, the noble Lord, Lord Desai, said that there was not much to say about the Budget because the Government had a plan and they were sticking to it. I chose to take that as a compliment, and we have continued to stick to our plan. Our plan made it clear that we would: fix the economy and deal with the deficit; cut tax to encourage investment and entrepreneurialism; back businesses across both the sectors and the regions; reform welfare, the cost of which had spiralled out of control; and invest in schools and skills so that the youth of today could drive the economy of the future. We put that plan in place. We have adhered to it, and we are delivering results with it. I would like to spend my time with noble Lords this afternoon discussing just what that plan has achieved to date and what more needs to be done to embed this recovery for the long term.

The scale of the fiscal challenge we faced required urgent action. This meant not just committing to reducing the deficit but doing it in a way that gave markets faith that it would be delivered, and helped keep interest rates low. Such is the level of the UK’s accumulated debt that interest payments alone are forecast to be almost £60 billion in 2015-16, which is more than the annual budget of the Department for Education. Maintaining market confidence in the Government’s determination to restore sustainable public finances is critical. A one percentage point rise in gilt rates would add around £8.5 billion in interest payments by 2018-19, a risk my noble friend Lord Higgins has questioned me about before.

Again, this Government’s decision to deliver the majority of the consolidation through reduced spending was the only credible option. However, the severity of the financial crisis and its impact on the UK public

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finances mean that returning to a sustainable path will take time. The independent OBR predicts that in 2018-19 we will have a surplus for the first time in 18 years, but even then our work will not be complete. Accumulated debt will still be in a position to make the public finances vulnerable. Without maintaining a continuing grip on the public finances and running surpluses during good years, debt will not fall, and future Governments risk being hampered in their ability to support the economy at times of stress, which we are sure to have. As my right honourable friend the Chancellor said in his Budget speech last week, we aim to,

“fix the roof when the sun is shining”.—[

Official Report

, Commons, 19/3/14; col. 784.]

This Government are committed to improving fiscal discipline. The creation of the independent OBR has given confidence to the reliability of the economic forecasts, and public pay restraint has been a tough but necessary action. The welfare cap announced at Budget, which was debated in the other place yesterday, will further tighten fiscal discipline and place the welfare system on a sustainable footing. Every other part of government spending is carefully managed, and welfare is too large an area of spending to be left without strong controls. As a result of all the measures laid out, public finances are now returning to a sustainable path.

Monetary policy formed the first line of defence following the crisis, supporting the economy and stimulating demand. By keeping the bank rate low and through quantitative easing, the Monetary Policy Committee has helped maintain low interest rates, reducing costs for households and businesses. Furthermore the Government have updated the remit of the MPC that ensures the committee provides greater transparency and certainty. Finally, the Government have created an entirely new macroprudential framework with the Financial Policy Committee at its heart. This fiscal and monetary action rescued the economy from crisis and provides a stable framework for us to continue to address some of the challenges which have impeded the UK’s economic performance.

At the heart of these challenges is the UK’s productivity challenge. This Government recognise productivity growth increases real earnings and improves the day-to-day lives of people around the UK. The future path of productivity growth is the most important judgment in the OBR’s economic forecast too and, by its own admission, the key uncertainty. Historically, the UK’s level of productivity was weak compared to many of our international peers and, despite some growth through the 1990s and early 2000s, when the financial crisis hit, UK productivity was still below the rest of the G7.

The causes of the UK’s weak productivity performance are hotly debated, and the implications are far reaching. While I am sure that in our debate this afternoon noble Lords will offer some excellent insight into possible areas for action, I shall address what I think are some of the key areas, namely, business investment, access to credit and skills and infrastructure.

Investment by businesses is a key driver of productivity growth. It improves their capital stock and enables them to produce more outputs with fewer inputs. More

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recently, business investment growth has returned, up 2.4% in the fourth quarter of 2013, and 8.5% compared to a year before. The OBR has forecast that investment will grow strongly in the coming years as uncertainty recedes and credit conditions improve. However, business investment is still considerably below its pre-crisis peak, and, as with productivity, UK investment over the longer term is weak compared to our international peers. There have been only five years since the late 1970s when we did not have the lowest investment in the G7.

The Government have a simple strategy for encouraging business investment: we want the UK to be the best place to set up and do business. We have already committed to reducing corporation tax to 20% by 2015, and last week the Chancellor announced that we would both extend and expand the annual investment allowance, which will give virtually all businesses a 100% allowance on new machinery or plant.

We also addressed the high energy costs that burden businesses, particularly manufacturers, by capping the carbon price support rate—a problem the noble Baroness, Lady Worthington, anticipated in her eloquent contribution to this debate last year. To help address the historic problem of imports outweighing exports, we are expanding the reach and support provided by UKTI. The Budget also doubled the amount of lending that UK Export Finance can make and reduced the cost of those loans to exporters. That positive business environment not only supports our home grown success stories, such as Jaguar Land Rover, but also attracts overseas investment and jobs; recent examples are Hitachi with rail and Siemens with wind turbines. However, businesses cannot invest if they cannot access credit.

When the Government took office, bank lending had fallen to record lows as a result of the financial crisis. There is also evidence that innovative, new, high productivity firms—the drivers of growth—struggled to access the credit they needed to get off the ground, which further exacerbated the UK’s weak productivity performance. Opinions divide on whether that was a result of constrained supply by banks, or lower demand by businesses that were just not confident enough to borrow. However, either way the outcome was the same: existing businesses, SMEs in particular, were not accessing the credit that would enable them to invest and grow.

Action has been taken. The Funding for Lending scheme was introduced to provide incentives for banks and building societies to boost their lending to the real economy. In November 2013, as mortgage lending to households was recovering, the scheme was focused on SME lending. Credit availability for small businesses is now increasing at its fastest rate in almost four years, and gross lending to SMEs was 13% higher in 2013 than in 2012.

Further, the Government are supporting increased competition within the banking sector and are nurturing alternatives to the banks, such as peer-to-peer lending and initiatives with equity finance. Specifically, the Business Finance Partnership has already unlocked £1.5 billion of additional lending to small and medium-sized businesses exclusively through non-bank finance.

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However, for productivity to grow and UK businesses to succeed, both domestically and globally, takes more than just investment. The Government must remove supply-side blockages, too, which means investing in infrastructure and skills.

The quality of this country’s transport, energy, communications and water networks is vital to improving our productivity. That infrastructure enables the rest of our economy to work, and we have underinvested in it for decades. Our national infrastructure plan sets out how the UK’s infrastructure needs will be delivered over the long term. We have published a pipeline of projects and programmes worth more than £375 billion, and at last week’s Budget we published further analysis of how we expect that to be financed. That builds on the long-term funding we have already announced for sectors such as roads, rail and flood defences and the steps we have taken to support private sector investment. We are continuing to reform our planning system, and are focused on ensuring that these projects are delivered on time and on budget.

The final ingredient for a productive and competitive economy—many would argue the most important one—is an educated and skilled population. That is why the Government are boosting funding for apprenticeships, removing the cap on student numbers, and increasing investment in science and innovation. The changing nature of the labour market means that the economy demands higher skills. Investment in skills and education ensures that the UK is able to compete in the global economy. Equipping the country’s workforce with the skills businesses need will provide more opportunities for our young people to find employment and reach their full potential.

Building a resilient economy is the only way in which to improve and maintain living standards. Given the scale of the financial crisis that we have experienced, it is no surprise that earnings growth slowed. Paul Johnson, the director of the IFS, acknowledged that falls in real earnings are a direct but delayed result of the 2008 recession. But throughout our time in office, this Government have taken huge steps to make sure that our policies impact households fairly across the UK. The personal allowance will increase again to £10,500 from April next year, meaning that a typical basic rate taxpayer will be more than £800 a year better off in cash terms. Fuel duty has been frozen until the end of Parliament; we have helped local authorities to freeze council tax in every year of this Parliament; we have increased the tax-free childcare cost cap, against which parents can claim 20% support, to £10,000 per year for each child; and we have made it easier to save and for people to access their pensions—a change that has been well received, on an issue that is perhaps closer to the hearts of Members of this Chamber than to those in the other place.

The most important way of getting money into people’s pockets, and helping them to raise their living standards, is to make sure that as many people as possible are in employment. Those figures I referred to in my introduction—1.7 million new private sector jobs, with four private sector jobs created for every public sector job lost—are a real demonstration that this Government’s policies are working, and the recovery

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is happening. But let us be clear: increasing growth and productivity is the only way to ensure that people feel the recovery for the long term, because it is productivity which determines real earnings growth. As we see the recovery take hold, the OBR predicts that earnings will grow faster than inflation this year and throughout the forecast period. It expects real household disposable income per capita to grow at 0.5% in 2014 and 1.2% in 2015. That improvement will be supported by a continuing strong employment performance.

In conclusion, it is indisputable that we have an improving economic picture, with growth and jobs up, and inflation and the deficit down—but there are, of course, significant challenges remaining. The Government’s economic plan has bolstered stability in the markets, given confidence to businesses and provided security for households, but there is no doubt that the job is not done, and we must continue to boost productivity and address the challenges that face our economy head on. We are now taking the next steps in our long-term economic plan, and last week’s Budget provided the right mix of policies to address the challenges that remain. I believe, as does my right honourable friend the Chancellor, that with the help of the British people, this Government are securing this country’s economic future.

12.17 pm

Lord Hollick (Lab): My Lords, I want to start with Tommy Cooper. When he was asked to explain how he did his sleight of hand magic, he said, “Watch my hands and ignore what I say”. Of course, that was easier said than done, because Cooper’s patter was utterly hilarious and compelling. Our Chancellor has a well practised line in patter, but if you watch his hands—in other words, what he actually does—you quickly detect the difference between what he says and what he does. He is adept at saying one thing while doing another.

Over the past few years, the Chancellor’s constant refrain in response to those calling for a Keynesian boost to get the economy moving has been, “You can’t cure debt with more debt”, but this is precisely what he has done—though not directly of course, although public debt has in fact significantly gone over his forecast. He has not overtly adopted a plan B; rather, he has resorted to off-balance-sheet measures to boost the economy. By making £120 billion in government guarantees available for additional mortgage borrowing, he has provided the private sector with a massive incentive to ignite the housing market and with it the feel-good factor.

That was last year. In this year’s Budget, the Chancellor tells us we are not saving enough, but in the next breath he announces that pensioners can now access their pension pots to finance consumption. The OBR forecasts that the savings ratio will fall from 7.2% in 2012 to 3.2% by 2018. That is before taking into account early pension fund withdrawals.

Anatole Kaletsky has rather colourfully dubbed the Chancellor a stealth convert to Keynesian Thatcherism. The Chancellor has arranged for the private sector to take the strain and privatise the borrowing that the

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economy needs to get us out of recession—all helped along, of course, by quantitative easing and ultra-low interest rates. This treatment has worked. As the Minister said, the UK’s growth rates have exceeded expectation and are ahead of all other major advanced economies. However, it could have worked earlier and the UK could have avoided three years of damaging economic underperformance if the Chancellor had adopted policies to boost borrowing earlier in the Parliament.

The IFS has spotted another important gap between words and actions. Despite the Chancellor’s protestations that he is ruthlessly holding the line on fiscal discipline, he has introduced permanent tax giveaways paid for by unspecified spending cuts and temporary tax increases, thus weakening long-term public finances. He has yet to spell out how he will achieve his target of cutting public expenditure by 2018 to the lowest share of national income since 1948.

GDP growth is being fuelled by a borrowing binge and house price inflation. We all know how that story ends. Will the Minister please explain why the Government expect the outturn will be different this time round? The long delayed recovery we are seeing is welcome but it is the worst—that is to say, taking the longest to get back to the previous peak in output—in our history. Output remains 15% below what might have been expected absent the financial crisis. The OBR forecasts that the output gap will close by 2018, with the prospect that there will be a permanent hole in UK output. If this forecast is correct, improved productivity is the only way to achieve above-trend growth and recover the lost ground, as the Minister said. The OBR notes that our productivity is exceptionally weak.

The substantial increase in employment is welcome, but it has led to a reduction in real wages and, therefore I presume, productivity. This may be explained by the move from good full-time jobs to a mix of part-time, sole trading, temporary contract and zero-hours contracts, and with many graduates and professionals now working in jobs for which they are well overqualified. The data on pay tell a grim story. Real average earnings have fallen by nearly 10% since 2008 and, measured by RPI, will show no recovery by 2018. Low pay and low productivity are no recipe for sustained growth or, indeed, for fairness.

The Chancellor flirted last autumn with the idea of a large increase in the minimum wage, but that came to nought. He could have been bolder and adopted a policy of requiring the public sector and those companies that hold government outsourcing contracts to pay the living wage. This would lift many working families off benefits and out of the clutches of payday lenders. Economic growth built on decent pay is more sustainable, let alone fairer, than growth based on excessive personal credit.

As the Minister said, increasing capital investment is essential to improving productivity. After four years of declining capital investment by both government and the private sector, there are welcome signs of a pick-up, with the OBR now forecasting 8% growth in business investment and 4.5% growth in government investment. The changes in the Budget to encourage business investment are also welcome. Now that increased

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funding is being promised, will the Minister tell the House what other barriers need to be removed if he is to achieve his ambitious infrastructure plan?

Investment in the energy sector is essential to getting prices down and to keeping the lights on, as the margin of electricity generating capacity over peak demand shrinks over the next few years. The shortcomings of energy policy have been laid bare by the Government’s dramatic intervention to introduce a £7 billion package to cut energy bills, secure investment in nuclear power and bring mothballed gas generating plants back into service as standby capacity.

But all that comes at a very high cost. The nuclear investment is predicated upon a gas price set at twice the current level and inflation linked for 35 years, all of which will give the investors—EDF—a very handsome 30%-plus return. The standby gas generation arrangements that the Government put in place will have to be underpinned by very expensive back-up contracts to provide gas. New offshore wind will, DECC calculates, be some 30% more expensive than the cost of new nuclear power—all this in a world in which energy prices are falling. The Chancellor promises a shale gas revolution but, to date, only one shale gas well has been fracked in the UK and, assuming that further drilling proves the reserves to be commercially viable, production will come on stream in volume only in the next decade.

The failure of energy policy to create a competitive, functioning energy market that is attractive to investors has forced the Government, in effect, to renationalise the energy sector by taking direct control of pricing and investment. This policy of intervention is not working on any level. Emissions are up because of the increased coal use, supply is less secure because of inadequate investment, and costs are up because of the high cost of new low-carbon supplies and the intermittent nature of the source of energy.

Lord Forsyth of Drumlean (Con): I find myself agreeing with much of what the noble Lord is saying on energy policy, but how does he reconcile what he is saying with the Official Opposition’s policy to introduce price controls on the energy companies?

Lord Hollick: As the noble Lord can see, I am speaking from the Back Benches. The wide-ranging competition policy announced today is welcome, but there is a need for a root-and-branch review of our energy policy.

The Chancellor’s measures to boost saving and to stop pensioners being forced to buy annuities from a cartel that gives poor value for money are bold and welcome. When he announced the decision to allow pensioners to access their pension savings, the Chancellor acknowledged that pensioners would need free, impartial advice if they are to get the best out of the choices they now have. The promise to provide that advice must be met in full if pensioners’ interests are to be protected in what is a fiendishly complex and, frankly, rather rapacious industry.

I end on a note of caution. I was a director of the National Bus Company when it was privatised by the then Conservative Government in 1987 into more

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than 80 separate companies. By the way, it was not my policy but that of Nicholas Ridley. Employees were given the option of staying in the indexed final salary scheme, which had government backing, or taking their chances in a deferred contribution scheme. The pension salesmen’s seductive patter and the promise of a share of the commission generated by the transfer to a defined contribution scheme proved irresistible to many, who then saw their pensions fall short of their expectations, let alone the guaranteed level of the NBC scheme that they had left. This House has an opportunity to make sure that that sort of thing does not happen again by providing proper information and making truly independent advice available to people who are making a decision that is irreversible at an important time in their lives.

12.27 pm

Lord Razzall (LD): My Lords, since the days of Asquith your Lordships’ House has been excluded from any direct influence on the Budget process, but the number of noble Lords who have put their names down to speak in this debate demonstrates how much we appreciate the opportunity to comment on the state of the economy and the potential political consequences that flow from it.

However cautious the Chancellor of the Exchequer and other Treasury Ministers have been, there can be no doubt that the UK economy is on the mend. Output is growing at its fastest rate since before the financial crash; unemployment is falling as new jobs are created in the private sector, as the Minister indicated—more than replacing those lost in the public sector; inflation at 1.7% last month is the lowest for four years and is now below the Bank of England target of 2%; and it is now estimated that by the last quarter of 2014 the economy will be greater in size than it was before the 2008 collapse.

For the two coalition parties the political challenge is clear. The result of the Fixed-term Parliaments Act means that we now know that the date of the next election will be the first Thursday in May 2015. To do well in that election, both our parties will have to demonstrate that the economic policies of the coalition are working and that a return to a Labour Government would put the economic recovery at risk.

As noble Lords will be aware, the coalition has been successful in persuading the electorate that the financial crisis in 2008 was the result of the Labour Government’s profligacy. I accept that this is slightly unfair as it ignores the effect of the subprime mortgage collapse in the United States, but the success of the argument is demonstrated by polling figures, which have consistently shown that the Government are better trusted to manage the economy than Labour. Of course, Labour has not been helped by the refusal of the shadow Chancellor, Mr Balls, to show any remorse for Labour’s period of economic stewardship.

The major attack from Labour, which the noble Lord, Lord Hollick, touched on, has been that growth is not resulting in an improvement in living standards. There are probably two main reasons for this, of which only one is the direct result of government policies. Clearly, the increase in VAT to 20% had a

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significant impact on household budgets which is still working its way through, but the major factor outside government control which is not often mentioned has been a significant adverse movement in trade prices. As Ben Broadbent, a member of the Monetary Policy Committee, has recently noted, for many years the terms of trade were in our favour. The emergence of China as a source of cheap labour sharply reduced the real price of goods. Our trading strength lay in services, the price of which rose steadily. However, this trend started to reverse in 2003. Growing demand from emerging markets produced a large rise in the price of commodities, of which we are a net importer, and the price of tradable services rose less quickly. Therefore, after a decade in which global trends helped to push down the real price of consumption for UK consumers, the past 10 years have seen the opposite.

On both those issues, it seems that the news is quite good for the coalition. Indirect taxes such as VAT are under government control, so I would have thought that before the election the Government would be unlikely to increase direct taxes, as they did between 2009 and 2011. The cost of imports seems to have stabilised and the prices of our services have started to rise.

The second big political argument in recent months has been over spending plans for the five years after 2015. The legacy inherited by the coalition in 2010 was the double whammy of an unsustainable deficit of government spending over income and a crippling government debt burden. George Osborne and Danny Alexander, the two relevant Treasury Ministers, have committed their respective parties to further steps to eliminate the deficit and reduce debt after 2015, although naturally there are disagreements to come between the two parties as to how in practice this will be achieved. In the mix of tax increases and spending cuts, I suspect that the Tories will be more likely to avoid the former, whereas the Liberal Democrats will not wish to rely solely on the latter. However, the two parties are united in opposition to Ed Balls’s recent proposals, which appear to concentrate solely on deficit reduction, ignoring the debt burden.

Will the coalition parties be able to claim in a year’s time that the economy has recovered on their watch? The portents are good at present. The polls are indicating a surge in economic confidence from both business and the consumer. Surveys by the employer organisations indicate a significant increase in proposals to invest. Although the overwhelming factor in the return of growth obviously comes from what Keynes described as “animal spirits”, the Government can claim some credit. I have often thought of government policy as analogous to a swan, sailing serenely on while declaring that there is no alternative to the austerity programme but underneath the water the legs are paddling furiously to create initiatives to promote economic activity: infrastructure spending, with Crossrail the largest infrastructure scheme in Europe; the regional growth fund; the Green Investment Bank and the business bank; the development of an industrial strategy by the Department for Business, Innovation and Skills, with concentration on key areas of industry; and the stimulation of the housing market by the Help to Buy scheme.

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So far as concerns the Labour attack on the reduction in living standards, which the noble Lord, Lord Hollick, referred to, I think that the news is also good. The increase in the personal allowance to £10,500 will clearly help the standard of living of the less well-off, and the improvement in living standards is beginning to show in the figures. The 1.7% headline rate of inflation was identical to the rise in pay in December and January. If you strip out the lumpy effect of bonuses, pay in January went up 1.8%, so incomes are now back to rising more than the rate of inflation.

Notwithstanding the return of confidence in the economy, I see two main pitfalls ahead. The first, to which the Minister referred, is our productivity record. Although real output is now more than 6% higher than in 2009, total real wages are lower. The feel-good factor from economic growth is not there, and by far the major factor in this has been the fall in productivity. Workers are simply producing less output than in the past. As the Minister indicated, a major key to increasing productivity and reversing the downward trend is more business investment, so the Government must pray that the confidence expressed in business surveys follows through to actual expenditure.

Secondly—I turn to a number of our Tory colleagues here—there is Europe. If the recovery in the eurozone stalls, as it is our biggest trading partner we will clearly feel the chill. More particularly, I have little doubt that if there is any chance of a referendum on Europe resulting in a vote to leave, business investment—the key to jobs and productivity increases, as we all accept—will falter. In 2012 for the first time ever Britain exported more cars than it imported. Can we imagine the multinational companies which own our major manufacturers committing significant new investment if they felt that the United Kingdom would leave the European Union?

12.36 pm

Lord Myners (Non-Afl): My Lords, we spoke briefly before this debate started about the role of the Civil Service. The Minister probably sits in the same office in the Treasury that I once occupied, and I can imagine the process running up to the Treasury. Indeed, the noble Lord might even have had to go through the indignity that I went through of having to be photographed holding a blank document, this being the cover of the Budget document even before it had come back from the printer, while looking over the Chancellor’s shoulder and pointing at it, saying, “What wonderful proposals we have here”.

The Civil Service is extremely good at helping Ministers put a gloss on an indifferent story. It does it through statistics. The Minister referred to the growth in small business lending in the past 12 months. If he looked at the level of lending to small businesses in the past decade, or the past 20 or 30 years, he would note that it is still extremely low. There are carefully selected data. The Minister told us that output growth is at its strongest—indeed, it is the strongest of all the world’s developing nations. However, it is also a level of growth and achievement that is still lower than the pre-cyclical peak. We are the only economy still to be producing

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less than we produced in 2008. The Minister refers to reducing our dependence on debt but the OBR forecasts a further decline in the savings ratio.

The noble Lord, Lord Razzall, talked about inflation being back to forecast at 1.85%. He is correct in that, but it is 1.8% above a figure of 12 months ago, which was in itself 8% higher than inflation and prices would have been had we managed to achieve the 2% target throughout the period that the Government have been in office. This is just playing with statistics. The issues about cost of living and the squeezed middle arise because of the failure to keep inflation under control during the early years of this Government, when it consistently, over a period of 49 months, ran at a higher level than the 2% forecast.

There are some things in the Budget which I find commendable, such as the increase in capital allowances. I ask the Minister why it has taken such a long time to do this but it is entirely sensible, as is the increase in resource to the Department for Business, Innovation and Skills for export-led activity, albeit that it is an extraordinarily modest amount of money. Nevertheless, an extra £3 million advanced to UKTI can only be helpful.

Looked at from a macro perspective, the Budget has little economic consequence. It is a pre-election Budget. It is the last Budget we will have before the election that is likely to have any impact on voters’ expectations and general sense of confidence and well-being.

How is the Chancellor doing against his primary goal of eliminating the deficit? First of all, it was a pretty poor goal to set. The Minister, as a former partner of that eminent finance house, Goldman Sachs, will recognise the fundamental flaw in looking at only one side of the balance sheet, and yet that is what the Chancellor does. He does not have regard to public investment and he treats revenue and capital expenditure as the same. That has been the practice of Governments over many years and it leads to a failure to realise that there are extraordinarily attractive opportunities for public investment, particularly when interest rates are low and when public capital creation as a percentage of GDP is running at levels lower than at any time in the past 25 years.

The Minister deals regularly with financial institutions, seeking to persuade them to invest in infrastructure. I doubt very much whether he will say this but I suspect that, in his heart, he thinks that this is a wasted exercise. Quite frankly, the amount of money he has got into new investment, as opposed to buying investments made under previous Governments, is very small and the amount of risk transfer is almost zero. Why are the Government not spending more at a time when they are able to borrow at zero rates of interest for important capital projects? I am not talking about borrowing to support revenue projects. There is a need to get welfare expenditure under control. It was never the intention that people could make it a lifestyle option to live off the taxpayer through benefits. There is a need to get a grip on that and the Government are doing so. However, to conflate that with the issue of capital expenditure is clearly wrong.

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I mentioned earlier obfuscation on statistics. The Chancellor said that he has reduced the deficit to 5.5% of GDP, compared to it being 11% when he came into office, claiming that he has halved the deficit. This is a sleight of hand, as any self-respecting economist would know. Even at our current levels, our deficit will be higher this year than the deficits in Greece, Italy and Ireland.

The OBR discloses the sleight of hand. If the deficit is adjusted for the cyclical recovery which has taken place, government borrowing figures are worse than they were 12 months ago. I do not think we heard the Chancellor say that in explicit terms when he spoke in the other place, nor have we heard anything close to that from the Minister.

The recovery, inasmuch as we have one, is built on candy floss. The upswing is cyclical in its source. This is not a recovery based on investment or exports. This is no march of the makers, as we were promised by the Chancellor. The labour market is tightening and capacity gaps are closing, yet business is sitting on huge cash balances. However, business chooses not to invest in new capital capacity because demand is being met at the moment by low-cost, low-productivity labour. It is simply easier for a business to meet any short-term increase in demand by employing more people on zero-hours contracts than to invest in important manufacturing capacity. The blame for that lies with the Government for not building the right environment for confident capital investment, and not least the Conservatives in government for the uncertainty they have unleashed over our future relationship with Europe.

The Minister talked about trends in productivity. Let me tell him that, since the end of the Second World War, labour productivity in this country has increased by 2.2% per annum. This is not significantly lower than our competitor nations. Our problem is not productivity of labour, but productivity of capital. However, labour productivity has not increased at all since 2007. Declining labour and capital productivity do not augur well for the future, and the impact is already with us in the declining share of world trade currently taken by the United Kingdom. I believe that this lack of confidence explains why SMEs are not borrowing. I wrestled with this when I was a Minister: was it that the banks were not willing to lend or was it that SMEs did not want to borrow? I have concluded that it is much more the latter than the former.

We have the wrong sort of growth, in the same way my doctor tells me that I have the wrong sort of cholesterol. We have growth that is based on a consumer boom that has been unleashed by low rates of interest and encouraged by a profligate and reckless Government who are stoking a boom in house prices and disregarding the inevitable consequences, while doing absolutely nothing to close the gap between the number of new family homes we need and the number being built.

Private sector debt as a percentage of GDP is rising, while government debt has doubled in the period that this Government have been in office. Debt will have risen to twice the level it previously stood at after 350 years of government: so much for their sound management of the nation’s finances.

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I should like to close with a brief comment about quantitative easing. I was in office when QE was introduced, but I do not think any of us envisaged that it would last this long. A new deputy governor has been appointed at the Bank of England to look specifically at QE. Will the Minister give consideration to whether we should not seriously examine the possibility of off-setting the gilt-edged securities owned by the Government through the QE asset purchase programme against the gilts that were issued? Perhaps he would like to respond to me in writing on this. The first thing you do when you find that a company is in difficulties is say, “Pay off your debts with your surplus cash”. Why are the Government not doing this? It would reduce debt as a percentage of GDP at a stroke. The impact on inflation is likely to be low and could probably be handled through sterilisation activities in the money markets. This has not been publicly debated or raised as a possibility but, given the existence of surplus capacity in the economy and restrained inflationary pressure, I cannot see any significant reason why the Government should not look seriously at it as a possibility. The alternative, of seeking to sell the QE-purchased gilts back into the market while continuing to fund a deficit of 5.5% of GDP, is unthinkable.

12.49 pm

The Lord Bishop of Chester: My Lords, the reason that the Bishops sit on the government side of the Chamber, I am told, is the recognition that the task of government is so difficult that the Government need all the help available to them. Managing the economy in recent years has been an enormously difficult task and we can only express relief and, indeed, gratitude that things seem to be moving on to a more normal plane despite all the challenges ahead, about which the Chancellor himself is fairly candid.

The present Budget reminded me a bit more than its immediate predecessors of the iconic Budgets of the 1980s, with their emphasis on deregulation and personal freedom. There was a similar tone, which the unexpected radical announcement in relation to defined contribution pension savings illustrated. I have always been a cautious and strictly apolitical supporter of many of the policies introduced in the 1980s. I could recall only too well the moribund character of much of the 1960s and 1970s in my formative years. The British economy did need opening up in many of the ways achieved in the 1980s, and it was significant how few of the changes made then were actually reversed by the long subsequent period of Labour government, apart from an increasing trajectory for public borrowing, as has been noted.

However, an underlying problem of the past 30 years has been the difficult interplay of freedom and responsibility in our society. Greater freedom demands a greater degree of responsibility in the exercise of that freedom and in how to deal with its fruits, if it is genuinely to serve the common good, otherwise greater freedom is likely just to generate a greater selfishness and individualism in all its guises. The sense of necessary responsibility is something which not only individual citizens have to recognise but the institutions of society and, especially, Government themselves.

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Any society which increases the degree of freedom available to its citizens is liable and likely to generate an increasing disparity between winners and losers. Some will take advantage of the new freedoms, and much greater and more concentrated levels of personal wealth will emerge, while others will tend to sink to the bottom of the pile and form part of a growing underclass. That seems to me to be just what we have seen in the past 30 years. At the top of the pile, the rich get seemingly ever richer; and if the plans for inheritance tax are brought in, wealth will tend to be even more entrenched in particular families. We are told that 30% of our income tax in the UK is collected from 1% of taxpayers. However, that can be presented in two entirely different ways: as evidence that the rich are indeed paying their fair share of our taxes but also as evidence of the very imbalances which I indicated just now between the rich and the poor. Both may have a degree of truth.

I speak of a growing underclass. What is the evidence? The prison population has doubled in the past 30 years. The problems of ingrained poverty in a benefits-dependent culture, which noble Lords have referred to, are a new set of problems for our society and are well recognised. There are stubbornly high figures for child poverty. Beyond economic measurement, there is the strong perception that social mobility in our society has actually tended to decrease. That was the subject of a five-hour debate in your Lordships’ House just two weeks ago, in relation to our education system. I was able to sit through much of the debate and was struck by the fact that at the end of the day, for all the fine talk, people did not really seem to understand or know why there had been this decline in social mobility or, indeed, where the answers might be found.

A few months ago, I heard the former boss of Tesco, Terry Leahy, on “Desert Island Discs”. At the end, he was asked whether, today, someone like him from a working-class estate in Liverpool might rise to an equivalent position. He said that it was possible but much less likely. The reason he gave was the absence today of the social institutions which surrounded his upbringing and protected and encouraged him: the family, the local church—in his case a Roman Catholic church—and other local institutions.

All these supported the schooling that he received. That brings me back to the Budget. If, as surely we all hope is the case, we are now at the beginning of a new period of economic growth and prosperity, how will we avoid some of the problems that we have seen in the past 30 years? I will briefly doff my mitre—an imaginary cloth mitre—in three directions.

First, we must all do what we can to support strong social institutions in our society. Unavoidably, that must include the family. Independent estimates tell us that the cost of family breakdown to the Exchequer is something like £45 billion a year, a figure that the noble Lord, Lord Freud, accepted a few weeks ago in response to a Question. Of course, families can take a variety of shapes and all deserve support. Indeed, all who care for children, whatever their immediate circumstances, deserve and need our complete support. I just do not think that we will achieve a strong and renewed sense of family life in our society without

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having, in some sense, marriage as a core institution in the spectrum of actual family relationships. The Budget includes a modest introduction of transferable allowances within marriage and civil partnerships as both a symbolic and an actual gesture, and that is to be welcomed. It is very modest and I hope it can be built upon in the future.

Secondly, we must welcome unreservedly the Government’s commitment to maintain the real value of our overseas aid programme. In an ever more globalised world, the great disparities in wealth will be an ever greater source of instability. The notion of the common good is not just a national idea; it is a transnational and international idea. Wealth always brings power, and lasting peace is ultimately built upon some form of power-sharing.

Finally, as I said earlier, freedom has its in-built dangers. I can welcome the deregulation of defined contribution pension savings but only if robust protections are put in place to safeguard people against the misuse of those freedoms—here I agree entirely with the noble Lord, Lord Hollick. These protections include much better education about financial realities at all levels of our society, from school upwards. I am always struck by how the younger generation seem not to have been taught to think about these things, but pension saving is, if nothing else, a very long-term requirement. One has to look only at the way in which payday loans have been advertised in our society to see the equivalent dangers that are going to arise.

Let us be clear: in the future most people in our country are going to have some form of defined contribution pension pot. That is the whole trajectory of pensions changes in recent years. Robust advice and information must surely be made widely available if these new freedoms are to end up being used responsibly and wisely and in genuinely serving the common good in our society.

12.58 pm

Lord Wakeham (Con): My Lords, it is always a pleasure to hear the right reverend Prelate making his remarks in the House. Indeed, it is always a pleasure when there is more than one Bishop on the Benches. Of course, the original purpose of the Bishops being in the House of Lords was not for their spiritual qualities at all but because they were some of the great landowners in the country. Those days have gone but they still make a very useful contribution.

When I was Leader of the House, I had a meeting with the then Archbishop of Canterbury and said I thought that the Bishops ought to speak more often in the House; just coming here and saying prayers and doing nothing else was not good enough and they ought to be able to make more of it. These days they do and it is very welcome indeed, and what the right reverend Prelate said was absolutely right.

Of course, ever since I started to take an interest in Budgets and such matters, there has always been a debate as to whether Budgets themselves are useful and whether the debates that follow them are useful. The view was, and it is still held, that it is better that changes in taxation and so on are made separately when they are ready than for there to be the great

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anticipation of the Budget and then letdown. That has been so as far as I can remember: some people think that they are useful and some do not. The very first Budget that I ever heard was that of the noble Lord, Lord Healey, in 1974—it was lovely to see him here in the House the other day. I was then a new Member of Parliament and on a committee in the House of Commons chaired by, as some people will remember, Ian Mikardo. He called a meeting of the committee to coincide with the Budget Statement. I went to him and I said, “I want to listen to the Budget and I actually want to make my maiden speech later on that day if I can”. He said, “Well, you’ll learn better as you’ve been around a bit longer, but I understand. If that’s what you want, I’ll change the meeting of the committee so that you can listen to the Budget”. Ian Mikardo said—as he used to say to everybody: “I’m not nearly as nasty a man as I look”. So he agreed to that and we got on extremely well.

The second moment in all these 40 years that I remember is that Budgets can occasionally be used for demonstrations. I remember the 1988 Budget, the first Budget of my noble friend Lord Lawson. At the crucial time in the Budget when he was announcing very substantial tax reductions, the honourable Member for Banff and Buchan, one Alex Salmond, rose up in absolute fury at these proposals, shouting, “Outrageous! Outrageous! Outrageous!” and the Speaker had no option but to name him. I was then the Leader of the House and had to move the Motion that the honourable Member be excluded. He was thrown out in the middle of the Budget debate for not being able to accept the fact that we were reducing taxation. That was Alex Salmond in those days. Mind you, I was an expert at that, because I happen to have thrown more people out of the House of Commons on Motions than any other Leader of the House since the war, which I think is a really obscure record.

However, I do not think that this Budget, whether you approve it or not, is likely to be forgotten, because it contains some substantial and important points, in particular the long overdue changes to the savings and pensions regime. I was very pleased that that was done and, what is more, that it seems to have been universally accepted across the nation. That is also a very good sign in a Budget. I am not sure that I agree with the noble Lords, Lord Hollick and Lord Myners, on this. In my view, the savings ratio will improve as people realise that they have a much better arrangement for dealing with their savings than they had. I think that the measure will be a great encouragement. I guess that those who sell annuities will be busy mopping up the last of the defined-benefit schemes from companies that still have them.

I do not think that we could have expected there to be any greater changes in the tax regime in this country, but, much as I would like tax rates to be reduced, I would like Chancellors not necessarily to reduce taxes but to get them on to a better basis. Nearly all our taxes have some serious flaws in them at whatever rate they are. For example, I have nothing against capital gains tax—it is an essential part of the process—but very much of our capital gains tax is taxing inflation. We should be able to find a better way of taxing real capital gains than taxing inflation. Let us look at stamp

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duty. I was in the Treasury 30 years ago, probably in the same office as the Minister—it might have had a coat of paint on it since I was there. I am told that it has not; it used to have terrible lino on the floor in my day. I tried to persuade the officials in the Treasury that stamp duty was a bad tax. It is a tax on change, and we want to encourage change, but the Treasury looks at it another way and says that it is a jolly good, easy tax to collect. That is why it is very difficult to get a rational discussion about stamp duty, but somebody has to face up to the fact that it is not a good, helpful tax.

I am delighted that the Prime Minister said that he hoped to have a look at inheritance tax in the near future, because, again, there are illogicalities in that which need in this day and age to be looked at. Of course, I would like all the taxes to be down—most people would—but there are exemptions and all sorts of things which should not be in a modern tax system.

The view I take is that we have had a good Budget Statement. I am not convinced that we can do away with Budgets—I fear that we are going to have them for much longer and they are often constructive—but I hope that my right honourable friend the Chancellor will continue to tackle the anomalies that are in the tax system to get them on a more logical and reasonable basis.

1.05 pm

Lord Kestenbaum (Lab): My Lords, as with the eager anticipation of the first cuckoo of spring, we have been greeted in recent days by the suggestion of some stirrings—this time amidst our economy—and it would be entirely churlish of noble Lords in all parts of this House, including on these Benches, to seem reluctant to acknowledge such stirrings.

So what have we been told? Well, supposedly, growth is now well and truly back. Sales are up; house prices are flying again; and unemployment is falling. One can almost feel Sir Humphrey striding in with a beaming face and announcing, “I have good news, Minister”.

Might this just be an appropriate moment then for the Prime Minister’s own, dignified yardstick for recovery to be the appropriate measure for improvement rather than excitable pundits and pre-election spin? This is what the Prime Minister said when he came into office four years ago:

“We want to create a … more balanced economy, where we are not so dependent on a narrow range of economic sectors …We will support sustainable growth and enterprise, balanced across all regions and all industries”.

He went on to say that the Government’s most urgent task was to tackle our public debt.

With the Prime Minister’s own scorecard before us, what do we see? I regret to say that we see telltale signs of headline growth which do not give the full picture. Yes, of course, we can tackle a range of economic indices over the short term and, these days, you do that with that deadly cocktail of cheap credit and government debt, laced with, as the noble Lord, Lord Myners, artfully pointed out, a dash of presentational panache. That cocktail is exactly what lies beneath last week’s excitement. As a recent column put it, we have become,

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“drugged up on cheap money, subsidised credit and rock-bottom interest rates”.

What about those two measures that the Prime Minister rightly put to us: reduction of public debt and rebalancing? While there has been much talk of paying down debt, according to both ONS statements and the most recent OBR forecast, net sector public debt is expected to rise from £1.2 trillion in 2014 to £1.5 trillion in 2018. This year alone, the Government are likely to spend £100 billion more than they take.

Equally worrying is how short we have fallen measured against the Prime Minister’s second yardstick: rebalancing in general and, as we have heard in this House today from my noble friend Lord Hollick, productivity in particular. We have heard so much about rebalancing our economy in the past few years. Now that the growth siren is being sounded, it is hardly the balanced version. I said earlier that the Government would hold themselves to account against economic rebalancing between sectors and regions. That is not happening. We can all admire the crispest of last week’s soundbites—“We must make more, build more, produce more”—but the hard fact is that there are few signs of this kind of serious investment in machines, infrastructure and skills which produces the kinds of shift that the Minister spoke of. We are still waiting for business seriously to rebound. In the mean time, infrastructure investment, as the noble Lord, Lord Myners, pointed out, proceeds slowly, most of it being in the south-east. Let us consider this analysis in the recent IPPR research on transport, which states that,

“where transport infrastructure projects involve public sector spending … the spend per head of population is £2,595.68 in London but just £5.01 per head in the North East”.

This is not rebalancing, neither by region nor by sector. There is, truly, no march of the makers. Growth, such as it is, is being led by the south-east and by business services. That makes it vulnerable, and much of the country is not feeling the benefit.

Why are those headline numbers ultimately so worrying for us? Because, at their heart, they do not sufficiently fire the single most important engine of sustainable growth, that which has been referred to so freely in the House today—productivity. Indeed, the Minister acknowledged the importance of that. The productivity gap is back with a vengeance. Our workforce is once again 25% less productive than France and Germany and even further—29%—behind the United States. Hence, the recovery, regrettably, is not what it seems. As my noble friend Lord Hollick said, many of the jobs being created, which produce falling unemployment statistics, while low wage, often part time, make little of our country’s talents and, let us be frank, are undignified, let alone not doing anything for the sustainable growth that the Prime Minister spoke of. Low-paying, low-productivity jobs are the sign of a troubled economy, not a healthy one, however helpful they are to pre-election unemployment statistics.

The trap set for the economy—inadvertently, perhaps—is the inevitable crushing headache that results from too much of the cocktail referred to earlier. It is the headache of short-term flickers. We know that for the economy to be resilient and the recovery to follow it, it must travel to sustainable economic growth via

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innovation—a reference that the Minister made earlier. We know the facts. Innovating businesses create more jobs and grow faster. Two-thirds of the productivity in this country, according to NESTA’s index, is the result of innovation.

Innovation as a national strategy, as we have seen around the world, is surely the most important driver of long-term prosperity. We know exactly why: because those two elusive measures to which the Prime Minister referred of rebalancing and productivity are at the heart of an innovation economy. Look at the three areas of our emerging competitive advantage today. First, there are the big differentiators: advanced manufacturing, aerospace and pharma. Secondly, there are the smaller fields of video games, visual effects, design and the creative industries. Thirdly, there are the potential golden eggs of the economic future: graphene and biotech. Once you look deeper at those real engines of growth, not just the sectors but the firms, a picture emerges and all the evidence shows that innovative, high-growth firms create the high-productivity jobs of the future. Some 7% of businesses in the UK classified as high growth in the past decade are responsible for half the new jobs.

What do those firms all seem to have in common? Again, the evidence is clear. They are not concentrated in particular sectors. Pleasingly, they are not found predominantly in one part of the country. That is good news when it comes to rebalancing. Rather, one factor links them all: they are disproportionately likely to innovate. Those pockets of the innovation economy, from semiconductor clusters in the south-west of England to the creative industry hopes of the east of Scotland, will be the heartbeat of any sustainable recovery.

We know that the most imaginative global economies—the US, Finland, Korea and Israel—have substantial measures of supportive public policy and effective financing to drive their innovative capacities. They have active, assertive, long-term, growth-oriented government. So, although modest measures in that regard were welcomed last week, I fear that they do little to attack the real causes of low productivity in the UK.

Then there comes the rhythm of announcements. Consider the new graphene centre, but this time against the science capital budget dramatically, drastically cut in 2010, followed by a series of small new initiatives in subsequent years that account for a tiny fraction of the amount previously cut. These are pinpricks in comparison to the opportunity and the need. For example, what progress has been made in using government procurement budgets to drive innovation in our businesses? Such a move—as the Minister acknowledges, at no extra cost—will have a transformational impact. For example, 2% of government procurement towards innovative businesses would be an extraordinarily potent measure.

I fear that such ambition comes second, certainly over the next 12 months, to the lure of the announcement. Too many timid programmes, often disconnected, are launched with fanfare and quietly closed 18 months later. We would instead hope for an assertive, ambitious national programme running right through government

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which drives the innovation revolution and would produce the type of real, sustainable growth that all parts of the House want.

1.15 pm

Lord Palumbo of Southwark (LD): My Lords, there is a scene in Quentin Tarantino’s film “Pulp Fiction” in which the heroine collapses into a drugs overdose. Dramatic action is needed, so the hero stabs her heart with an adrenaline shot. Between 1986 and 2008, the banking system overdosed. Bankers were out of control; politicians failed to regulate the system. The result, as your Lordships know, was a financial heart attack. Since then, the system has had continuous doses of adrenaline to its heart via quantitative easing.

Recent economic data appear to show a recovery. As we have heard, the economy is growing, the deficit is down, inflation is improving and employment is rising. We seem to be on the road to recovery, but the recovery is modest relative to the amount of financial medicine which has been administered. GDP is still 1% lower than at its pre-crisis peak. Five years into the recoveries of the 1980s and 1990s, it had risen by 15% and 19%. We also now have the new phenomenon of underemployment, and wages continue to fall year on year. As a result, household debt remains high and money lenders are busy.

In other words, the financial adrenaline has not really worked as expected. Although progress has been made, the patient is not yet out of the recovery room. Why? As several noble Lords have already so eloquently explained, people seem frightened to invest long-term or in improving productivity. Exports are poor. Instead, money has gone on consumption: share buybacks and housing. As a result, those markets have inflated and housing is now unaffordable in certain parts of London. The situation is compounded by interest rates at 0.5%. In contrast, the recoveries of the 1980s and 1990s started with average rates of 9% and 13% respectively. A low base rate is another form of emergency medicine. Like quantitative easing, it cannot be sustained. At some stage, rates will have to normalise. What will happen to mortgage holders and small businesses then?

As your Lordships know, economics is both art and science; there are many views. Some believe that we are now in a phase of stagnation similar to that suffered by Japan over the past 25 years—the Japanification of the UK. As a businessman trained to look at the downside, it may be worth briefly exploring that scenario. The intersection where politics meets economics provides a good starting point. How does the way we conduct politics affect the economic decisions that we take?

I have three points for your Lordships’ consideration. First, there is the difficulty that politicians face in speaking plainly about the choices before us. That is because the short-term demands of modern democratic politics outweigh the need to plan long-term in economics. Political careers are short; economic issues are not. Secondly, I would cite the adversarial nature of our politics. PMQs makes for good viewing but it is unclear exactly what it achieves. We have seen how political rancour in the United States has threatened economic stability. The third issue is the lack of expertise in

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certain areas within the system and the political difficulty of hiring high-level professionals on private-sector-type pay packages.

I believe that voters sense those issues, particularly the tension between the promises that politicians make and their ability to deliver. It is perhaps this which accounts for the disquiet with certain aspects of our system.

There are no easy answers. However, in the event of a stagnation, it may be necessary to reconsider the way that we conduct our politics. I wonder whether a policy of “hiring the best” might lead to big changes in procurement, infrastructure, reform of our tax code and bringing housing development forward. I know that reform of the confrontational political system is anathema to many—but perhaps a circular debating Chamber would lead to a more thoughtful exchange. Would a modernised form of royal commission help solve the great imponderables of the long-term future of the NHS and of the welfare and pensions systems? What of other benefits in this redrawn landscape, such as the extinction of political cliché? Imagine our world free of the words “change”, “fairness” and “one nation”.

Another film by Quentin Tarantino depicts people adapting to their circumstances in times of war. That is what our leaders did a century ago to fight the Great War. Perhaps the battlefield ahead is economic, not military. In that event, we may need to reshape our politics to meet this challenge.

1.21 pm

Baroness Meacher (CB): My Lords, I rise to address a widespread concern about a single sector of our economy, the NHS, and to pursue the statement from the chair of the Royal College of General Practitioners, Dr Maureen Baker, who described the Chancellor’s Budget as,

“yet another blow for patients and for general practice”.

I should declare my interest in the NHS.

General practice provides about 90% of all NHS patient contacts and yet its funding now stands at an all-time low of 8.39% of the NHS budget. People justify the squeeze on GPs because they had a good pay rise in the 2004 contract. We need to remember why that increase occurred. At the time there was a recruitment crisis in general practice and GPs’ incomes had fallen behind those of comparable professional groups. This was a catch-up settlement. Since then GPs’ pay has fallen by 11% in the four years 2008 to 2012, and we are now back in the situation we had in 2004—a recruitment and retention crisis. Advertisements for GPs which five years ago would have generated 40 to 50 responses now generate none or possibly one. Young doctors who would have become GPs four or five years ago are now looking for jobs abroad. Indeed, they are looking for careers abroad; they are not going to come back. At the other end of their careers many GPs are retiring—far too many—at the age of 50. The inevitable results are delayed hospital admissions and more expensive and prolonged hospital treatments due to delayed interventions. These unnecessary hospital expenditures absorb excessive funds and lead to further cuts to primary care, and so the downward spiral continues.

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A recent King’s Fund report points to the growing consensus that if we are ever to sort out the demands of an increasing and ageing population at a time of financial constraint, the NHS must deliver services closer to people’s homes and focus more on prevention rather than simply treating people in hospital down the line. The funding crisis is undermining this objective and indeed threatening the capacity of the NHS as a whole to meet the challenges ahead.

Some may argue that this is a matter for the Department of Health and the distribution of funds within the NHS. That is only partly true. My concern is that the overall funding of the NHS is the problem. The demand for the NHS to find £20 billion of so-called productivity improvements by 2015 has, in fact, led to swingeing cuts alongside efficiency savings.

The NHS chief executive, Sir David Nicholson, recently pointed out that although politicians say that the NHS has been protected financially, this is only relative to the extraordinary level of real cuts in other public services, and crucially, neglects the growth in the demand for healthcare—which, of course, always rises due to demographic changes and other factors. Also in 2015-16, around £3.8 billion, or 3.3% of the entire NHS budget, will be transferred from the NHS to local government as part of the ring-fenced “integration transformation fund”. There will in fact be a 2% real-terms cut in the healthcare budget in 2015-16; and we will have had a real-terms cut of 1.4% for the period from 2009-10 to 2015-16. The NHS is therefore expected to meet the demands of more and more people with less and less money. By international standards, the NHS is, as we know, a low-cost service.

The only way that such huge cuts could be achieved while improving or at least maintaining the quality of service to patients would be through major reconfigurations of services. However, progress with these essential changes is hampered by the activities of the competition authorities and the tendency of politicians to fight to preserve local services even when these are not viable.

To add to the pressures on GPs, £104 million of this year’s savings by local authorities is coming from the direct withdrawal of services. The number of district nurses has plummeted by 40% in the past decade—and as always when these things happen, the buck seems to stop with the GP. Some 87% of councils now respond only to needs classified as “substantial” or “critical” under the fair access to care criteria. As a result, the number of older people receiving publicly funded services has fallen by 26% since 2009-10. The decline has been 21% for working age adults. What this does to the economy as more and more people are sick and not obtaining treatment does not bear thinking about.

As a result of all this, GPs are experiencing ballooning workloads. It is apparently quite normal for a GP not only to work 11 to 12 hours a day—as many of us do—but to deal with 60 patients per day, some over the phone but most of them face to face. GPs regularly do this, day after day. I regard it as unacceptable to expect any human being to make complex and responsible decisions in relation to so many people each day. Any of those 60 people might be facing a life or death

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situation and the wrong decision could, in fact, cause them to die. The reality is that errors will be made. Patients will suffer as a direct result of the financial pressure on the NHS and therefore upon general practice. Some 49% of GPs say they feel they can no longer guarantee safe care for their patients. If our health service collapses the Government will find it incredibly difficult to achieve any of the objectives that the Minister set out today.

Any opinion poll will tell the Chancellor that rectifying the problem and reducing the risks to patients is a top priority for voters, and yet there was nothing in the Budget to alleviate these problems. I appeal to the Minister to draw these concerns to the attention of the Chancellor.

1.28 pm

Lord Holmes of Richmond (Con): My Lords, I thank the Minister for launching this debate. Indeed, it is difficult to think of a more significant debate. If we want a world-class health service, world-class education and world-class transport, we can get them only if they are founded on a world-class economy.

Last week’s Budget was about jobs, business and Britain, so let us consider the employment figures that were issued that day. They showed that more people in this country are in work than ever before—more people employed in the private sector than ever before, and, best of all, more women in employment than ever before. These are not just figures that we can bandy around or statistics for economists to consider; these are real people’s lives. We have higher employment, lower unemployment and more people on the right path in this country as a result of the measures that have been taken since 2010. But let us not take the words of politicians or pundits, or even the words of economists. Let us trust business.

The day after the Budget, as has been mentioned, Hitachi announced that it was going to base its global—yes, its global—rail business in the country. A few days later, Siemens announced investment that will create more than 1,000 jobs in renewables. Business believes in Britain. We should similarly believe in and back business to invest in this country. To secure jobs is one thing but we should also focus relentlessly on building up skills and talents, particularly in our young people—training them to be able to take up these jobs, not least in engineering and manufacturing. In that, we should all pay tribute to my noble friend Lord Baker of Dorking for his work with university technical colleges. I should mention also the JCB Academy and the work of my noble friend Lord Bamford. These initiatives are making a difference.

If Hitachi and Siemens demonstrate that businesses are coming to Britain and want to base their operations here, we also need to act to ensure that British business gets the best bang abroad. What we saw in the Budget was a real commitment in doubling the funding for exporters to £3 billion and cutting the interest that they will pay by one-third. This is urgent and necessary, and it will make a difference. For too long, we have relied on the European market. Europe takes 40% of our exports but when I studied economics Europe took around two-thirds of our exports. We can see the

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way that that market is going. However, it is still a significant market and we are focusing on getting our businesses into every corner of it.

We are still so far away from grasping the prize that the BRICS economies and the so-called new MINT economies offer to us. The “Great” campaign from the Foreign and Commonwealth Office and BIS is significant in this area but we are starting from such a low base. When I was in Rio in 2011 with the “Great” campaign, I discovered that we export four times less to Brazil than Italy does. Italy is a fine country but it is one with no language, cultural or historical links to Brazil. Yet through effort and connection it has made that happen. It exports four times more to Brazil than the United Kingdom. The BRICS economies and the MINT economies are there for us. The whole of Africa is there for us to ensure that we put everything in place to enable our businesses to go out there and do the business.

The Budget threw a helpful and necessary light on pensions. In reality, it was seeking to address people’s trust in pensions. Over the past week, reports of the death of the annuity have been greatly exaggerated. The annuity is a fine financial vehicle for delivering certainty, security and a de-risked retirement. I do not believe that the changes introduced in last week’s Budget will mark the death knell of the annuity. It will still be a product into which millions will decide to put their funds but the crucial point is that it gives individuals the choice of when to take a particular financial vehicle, how much to put into it and what to do with their savings, which they have been building up for decades. This is about freedom and choice. Crucially, it is about trusting us all, as individuals and across the country—everyone with a DC pension pot—to do the right thing.

The Budget was about belief in the individual. If the right environment is put in place, people up and down the country—all of us—and businesses will do the right thing. Businesses will invest and back their workforces. They will get out there and build, make, manufacture and export. It was a Budget that believed in Britain, rooted in the reality that we are at our most brilliant and best when we work together and come together. We saw this in 2012 with the Olympic and Paralympic Games, so excellently steered by my noble friend the Minister. We see it across the country, in the smallest economic and social acts and in communities and businesses, from Inverness to St Ives. We are at our best and we are better together. Together, we all need to continue on this journey to try to secure and sustain Britain’s economy. We are on the right road but we have barely begun the journey. It is in everyone’s best interests, whichever corner of the country or perspective you come from, to have a high-employment, low-inflation, high-productivity and low-interest rate United Kingdom economy that is focused on and fit for a national, European and global future.

1.37 pm

Baroness Worthington (Lab): My Lords, it is a pleasure to speak in this debate, which is my third successive Budget debate, and I am sure it will come as no surprise if I focus much of my attention on the

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parts of the Budget that relate to energy and the environment. However, if noble Lords will bear with me I will begin with a more general observation.

I watched the Chancellor of the Exchequer last week and have listened to the Minister this afternoon, and I congratulate them both on eloquently presenting a very seductive argument: “We, the Government, have been making the hard decisions to get us to live within our means and so reduce our deficit, grow the economy and give everyone a higher standard of living as a result”. How appealing—what Government would not wish to try to achieve those aims? The problem, as the noble Lords, Lord Hollick and Lord Myners, have eloquently pointed out, is that it is easy to say one thing but then do something else. This Government have shown that they have not learnt from past mistakes and are instead relying on sleight of hand to boost the economy, creating another unsustainable housing bubble, increasing government debt and shifting borrowing on to the private sector, where it will necessarily cost more. The Government have also avoided making the tough decisions needed to make our economy resilient for the future. That is nowhere more evident than in the case of energy policy.

The truth is that most people’s judgment of how well they are faring is not measured by one simplistic GDP growth metric. Their sense of security and optimism for the future is determined by a complex mixture of factors, including the extent to which social capital and cohesion are being maintained and how much they believe that the Government are standing up for their interests, now and in the future. That our economy is finally clawing its way back to good health despite, rather than because of, this Government’s actions is good news. However, there is a huge way to go before that will be felt by everyone, up and down the country, and an even longer way to go before the Government can claim to be tackling the really big challenges facing this country.

A good example of the Government’s, and in particular the Treasury’s, failure to accept and tackle big challenges is provided by the response in the Budget to the dreadful floods that we experienced this winter. By necessity, this Budget included a £140 million fund for repairs to flood defences and a further £200 million for pothole repairs—a problem exacerbated by the extreme weather that we experienced. We can expect these sorts of cost to increase over time as the impacts of climate change become more apparent.

However, until recently, spending under this Government on flood defences was in decline. At the time of the floods, the Prime Minister acknowledged that climate change was one of the most significant threats we face. However, in this Budget, in which a whole section is devoted to risk, there is scarcely one mention of climate change and none at all of the singularly high exposure of the UK Stock Exchange to international coal assets that risk becoming stranded assets, significantly devalued as the world collectively starts to take action to reduce its emissions of greenhouse gases. Taken overall, this appears to be one of the least green Budgets produced in recent times, from the supposedly greenest Government ever. Is it perhaps the case that the Prime Minister and the Chancellor

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do not see eye to eye on this issue? If this is so—and I believe it is—is it therefore any surprise that investors have no idea what they should believe or trust in when making their investment decisions?

As graciously acknowledged by the Minister, 12 months ago the focus of my speech was on the fact that the Chancellor had failed to mention a new inflationary tax on electricity, which began in April last year and was set to double year-on-year, raising the Treasury around £4 billion from electricity bill payers over just three years. This year, this almost universally disliked policy did warrant a mention, only for it to be announced that, less than a year after it started, the policy has been changed and the tax frozen. The curious thing is that the Chancellor now appears to be seeking credit for reducing the impact of a tax that he introduced which distorts competition against our European neighbours and, even in its frozen state, will still add around £9 per megawatt hour, taking an estimated £1.5 billion per annum off bill payers for no obvious purpose other than revenue raising. Attempts have been made to justify this tax on the basis that it will encourage investment in low-carbon infrastructure. The fact that it is has already been so drastically altered, and that this was always likely to be the case given how poorly thought through it was, simply serves to confirm that no investor worth his salt would put any store by it at all.

Given the pressure the Government were under before the Autumn Statement to reduce electricity bills, I am also curious to know why the announced change was not trailed at that time. I can only conclude that it was because the Government’s Energy Bill was still being debated in this House. The one purpose it could be argued that this tax—known as the carbon price floor—was performing was to help return gas-fired power stations to a state of profitability relative to coal stations. The plight of gas and the roll back to old unabated coal was repeatedly raised as a concern in this House. With the carbon price support now frozen, the roll back to coal is much more likely. A cynic might argue that, because of this tax, the Treasury now has an incentive to protect the rich revenues being generated from our ageing and inefficient coal stations. It is now in the Treasury’s interests to maintain them for as long as possible in a state of suspended animation. Perhaps this explains the expunging of any real mention of climate change from this Budget.

The problem is that, in addition to being huge contributors to climate change, unabated coal stations also contribute massively to poor air quality and diminished human health and so are rightly subjected to regulations requiring that they be cleaned up. Meeting these regulations would require investment over the next few years that will only ever patch up these stations for another decade or so at the expense of more long-sighted investment in low-carbon alternatives, which will last for many decades. This kind of short-term investment will deteriorate our productivity by decreasing the efficiency of our electricity fleet still further—more inputs of coal but fewer outputs of kilowatt hours. How will this help address our productivity challenge? Thanks to the frozen carbon price support, the investment will not even ensure prices are lower, since the big six

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can happily pass the costs of this tax on to the consumer for as long as they remain vertically integrated. There we have it: the Government’s ideology in a nutshell—failing to make the difficult decisions, failing to stand up to vested interests and favouring a short-term quick fix over doing the right thing in the longer term.

If this stop-start policy on energy were affecting only gas and coal investments that would be bad enough. However, the change of heart will also have an impact on investment in renewables and nuclear. The Energy Act, which we worked so hard to try to improve last year—to no avail—introduces new support mechanisms for these technologies but the level of that support is capped by the Treasury through the levy control framework. The level of that cap was set on the assumption that this electricity tax would proceed as announced last Budget. This is no longer the case. Therefore, the cap is very likely to be insufficient to support the level of investment needed to meet our targets. Can the Minister reassure the House that when it states in the Budget that,

“the buying power of the Levy Control Framework will be unaffected by other Budget decisions”,

this means the basis on which the framework was calculated will be revised? If this is true, when might we hear from the Treasury what that new level will be? If it is unchanged, I fear we will have wasted a great many hours of parliamentary time last year labouring under false pretences. An unchanged cap on the amount of support for energy market reforms will inevitably lead to the cannibalising of one low-carbon technology by the other, with existing coal stations carrying on unaffected, paying into the Treasury coffers but damaging our resource efficiency, our climate and our health.

There are signs that this is already happening, with plans to convert Eggborough, a coal station, into biomass having been derailed and a dedicated biomass plant being dropped. Despite the welcome announcement from Siemens this week that it will build a manufacturing plant for offshore wind in Britain, even offshore wind farms are being discarded. Meanwhile the great white hope of Hinkley Point nuclear power station—a project the Minister is well acquainted with—has run into state aid problems, potentially causing the construction timeline to slip even before it has begun. The most depressing aspect of all of this is that had the Treasury and DECC listened to the debate in this House and accepted more amendments, including the one that was won here to introduce a more cost-effective policy to constrain unabated coal and boost investment in all alternatives, we would not be in this predicament.

Rather than showing that this Government are up to the task of tackling the long-term challenges facing this country, this is a Budget based on short-term thinking and a misreading of where our future prosperity lies. Rather than learning from the past, they appear to trying to reproduce it by fuelling another dangerous housing boom, pursuing the chimera of growth based on oil and gas—that is clearly no longer cheap or easy to extract—and failing to understand that we are stronger as a country when we acknowledge and face up to the real global challenges ahead of us that we cannot escape. I hope that before this Government leave office, which, given their short-term thinking, they seem to have accepted is likely to be very soon, we

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will see a Budget that is genuinely sustainable and wholeheartedly embraces the benefits brought by the low-carbon industrial revolution that we are now embarked on, as we lead the world in tackling climate change.

1.47 pm

The Lord Bishop of Sheffield: My Lords, the prophet Jeremiah wrote a short but remarkable letter to his contemporaries long ago who had been sent into exile in Babylon. The letter has shaped Jewish and Christian thought on how communities of faith should engage with the wider society down all the generations since. The prophet’s advice is to,

“seek the welfare of the city where I have sent you … for in its welfare you will find your welfare”.

On behalf of all on these Benches, I warmly welcome the evidence of economic growth and I welcome the measures taken in the Budget to deepen that recovery. With my right reverend friend the Bishop of Chester I warmly welcome the reaffirmation by the Chancellor of our country’s commitment to spend 0.7% of our national income on overseas development.

The grant of £20 million for the maintenance and repair of our nation’s cathedrals is also hugely welcome. Our cathedrals contribute to the common good as places of worship, meeting points, and agents of regeneration and support for those in need. Sheffield Cathedral is currently completing a major reordering project. It strives to be a place for all the people of the city and is home to the Archer Project, which cares for the homeless on a daily basis.

Along with many on these Benches, I urge the Government to pay much closer attention to the effect of the cuts in government spending on the poorest in society. However, my appeal to the Government and to this House today is that measures are taken to ensure that growth in the economy is rebalanced to benefit not just a single city but the whole of the United Kingdom. Britain has one of the world’s truly global cities, London, where the economy is undoubtedly growing and investment is focused. We should all welcome that growth but too many of our urban areas outside London are failing to achieve their growth potential. Since 2010, 79% of private sector jobs growth has occurred in London but, in the same period, Britain’s next nine largest cities accounted for just 10% of all new private sector jobs created, according to the Centre for Cities report this year.

Regional imbalances have serious consequences for our overall economy. We are not releasing the creative potential of our great cities to the benefit of their regions and the nation. This has serious consequences for the well-being of many. Youth unemployment and underemployment, for example, is a major challenge in South Yorkshire and blights many lives. As the recent Sheffield Fairness Commission powerfully illustrated, inequality between and within regions and cities has serious consequences for the overall sense of cohesion and fairness of life in the United Kingdom.

The imbalance of growth by region is leading to a widening of the economic gap not only between London and the rest of the country but also between what city regions, such as Sheffield, contribute to the national economy and what they could contribute. As our

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economy begins to recover, I urge the Government and your Lordships’ House to give serious and strategic attention to the question of what kind of economic growth we want and how we achieve a more balanced economic recovery across the regions. This would be a suitable and urgent subject for a cross-party parliamentary commission or working group looking ahead five, 10 or more years.

There are a number of urgent areas which such a group or commission needs to address. We need to rebalance our economy back towards manufacturing. I welcome the significant measures in the Budget which support this. More is needed. The current Sheffield Master Cutler has put forward a strong case for an independent office for manufacturing competitiveness mirroring the recently established Office for Budget Responsibility.

We need to strengthen further the links between universities, research and industry, as commended by the recent Witty report. The Advanced Manufacturing Research Centre in Sheffield is a model for the future. It is a partnership between the University of Sheffield, Boeing, Rolls-Royce and other leading companies. The centre is attracting manufacturing and production back to the United Kingdom by research-led innovation and stimulating investment and growth. This year, the centre launched an innovative apprenticeship scheme with 150 new places this year and another 250 in each year to come.

We need to develop patterns of regional collaboration and growth between cities, particularly in the north of England. We need a major shift in the balance of power to make decisions and determine investment between national and local government. The United Kingdom is one of the most centralised economies in the world. Local authorities control just 5% of money raised locally through taxation. The OECD average is 25%.

Finally, we need a significant shift in the proportion of central government expenditure and resource allocation back to the regions. The large cities of the north of England have been disproportionately hit by reductions in local government spending and in investment in transport, culture and the arts and in other areas. If we do nothing, we will see the gap between London and the regions continue to widen to the detriment of the whole country. I urge the Government and this House to address this problem with imagination, courage and vigour and develop a strategy which will rebalance economic growth across the whole of our nation.

1.54 pm

Lord Higgins (Con): My Lords, it is often said of my former constituency of Worthing that people go there to die and forget what they came for, and there is some considerable truth in that. Many people have come to Worthing to retire, and many of them have provided for their retirement by saving and have been extremely prudent. It has therefore been quite heartbreaking for them to find themselves in the situation that has existed for the past five years or so, and I do not understand how some of them have continued to exist, given the appallingly low rate of return which they have had on their savings.

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We understand very well why it has been necessary to deal with the problems of economic management. You cannot take the fiscal measures you would like to take because of the deficit, and therefore you have to resort to monetary measures, so interest rates have been as low. But none the less we have tended to ignore the effect which these low interest rates have had both on pensioners and on savings. Therefore, I believe that this Budget is the Budget they have been waiting for. At long last, something is being done to help them. Some of the measures are quite direct: the abolition of the 10% rate on savings income and the introduction of a pension bond which will give a rate of return significantly higher than market rates.

The overall Budget is extremely imaginative. I was very surprised by one of the BBC commentators who said that it will be seen as a run-of-the-mill Budget. I think it will be a Budget that many people will remember as an extraordinarily imaginative Budget, given the fact that the Chancellor has virtually nothing to give away. He has taken steps, particularly in the annuities market, that will give people a great deal more freedom. In that respect, I shall make one point. There has been some suggestion that people in final salary schemes—the few schemes that survived Gordon Brown’s effect on final salary schemes—should switch into a defined contribution scheme and take advantage of the Budget. That would be wrong. They would do much better to stay where they are in the final salary scheme. On that side of things, the Chancellor has been very helpful.

There are other measures, for example the doubling of the investment allowance, which will certainly aid the recovery of the economy. I feel bound to say that, welcome though it is, much of the investment coming in is from overseas, and we still find ourselves in a situation where investment from domestic sources, despite the huge cash balances flushing around the economy at the moment, is not really coming. At all events, the investment allowances will help.

The coalition Government’s overwhelming priority—and I pay tribute to the fact that they have been unanimous on this—has been to reduce the deficit. As I have pointed out on previous occasions, saying we have cut it by a third means that we are still borrowing at two-thirds of the appalling rate of the previous Government, with a huge increase in underlying debt, which has been referred to by a number of other speakers. Although we have not made progress as fast as we would have liked, we are moving towards the deficit having been reduced by 50%. The target for abolishing the deficit has moved back but is, none the less, coming into sight.

What I really welcome is the statement made by my noble friend this afternoon, which I do not think anyone else has made from the ministerial Bench. He said that what we have to do is not to move towards reducing the deficit but towards a surplus, because that is the only way in which we will reduce the total actual debt, rather than the deficit, which will be inherited by our children.

Other aspects of the issue are relevant. The savings ratio, in particular, has been referred to. As was pointed out in the OBR report, it has fallen to 5% from 7.2% in

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2012. To some extent, that change reflects increased borrowing and expenditure, which has led to part of the recovery over the past year or so. The savings ratio is beginning to go up again, but again the measures in the Budget will help to increase the savings ratio. That will be very important if we are to have the resources we need for further investment in the economy.

Some aspects of the present situation still remain puzzling and paradoxical, such as the way in which employment has stood up, and increased remarkably well, but productivity has not moved. Obviously, we must move to a situation in which productivity also goes up, as a number of noble Lords have referred to.

I will make one other point. I am still completely puzzled as to why the Treasury works off one economic forecast and the Bank of England off another—the latest OBR report even has a diagram that shows the way in which they diverge. Some unanimity of view on that in government would be appropriate. I worry that the monetary policy under Gordon Brown’s much praised measures, which I always had doubts about, is in the hands of the Bank of England and the fiscal side is in the hands of the Treasury. It is not the least bit clear—this came up in a Question from the noble Lord, Lord Barnett, the other day—who is responsible for co-ordinating the two, and that is important.

None the less, the measures that have been taken by the Bank of England are to be welcomed. We have found a situation in which QE has played a useful role. At long last the Bank got away from the Monetary Policy Committee’s obsession with interest rates rather than the price and supply of money, and is taking more action on that side of things.

In that context I will take up a point made by the noble Lord, Lord Myners, who I see is not in his place but who made a very good speech earlier. The idea that somehow we will have to sell off the gilt-edged securities which have been purchased by the Bank of England as part of QE is, it seems to me, quite absurd. There is no reason to suppose that the rates, terms and duration of the debt that we bought then will still be appropriate at the point where we sell it off. It would clearly be much more sensible simply to issue fresh debt which is appropriate in terms of its structure. It is important that we should move towards more co-ordination of fiscal and monetary policy.

Finally, there is a very good analysis of the output gap in the OBR report. We are moving gradually towards eliminating that gap, but it is extremely difficult to know what it is because we do not know how much productive capacity has been destroyed in the course of the crisis from which we are just emerging. None the less, I am sure that it is right gradually to move towards a point where the output gap is closed and we can go on to a sustainable long-term growth rate, rather than mopping up excess capacity.