House of Lords
Thursday, 4 June 2015.
11 am
Prayers—read by the Lord Bishop of Norwich.
Oaths and Affirmations
11.06 am
Several noble Lords took the oath or made the solemn affirmation, and signed an undertaking to abide by the Code of Conduct.
BBC Royal Charter
Question
11.07 am
To ask Her Majesty’s Government what plans they have to consult the public on the renewal of the BBC royal charter.
The Parliamentary Under-Secretary of State, Departments for Business, Innovation and Skills and for Culture, Media and Sport (Baroness Neville-Rolfe) (Con): My Lords, the Secretary of State for Culture, Media and Sport is currently considering a range of options for how the charter review might be conducted. An announcement will be made in due course. There is no set process, but of course we are determined to conduct a robust and thorough process with significant opportunities for the public to contribute.
Lord Fowler (Con): I am grateful to the Minister, but did she see the reports of 12 May, which appeared in every newspaper and clearly resulted from an official briefing, that the Government intended, in the words of the DailyTelegraph, to declare “war” on the BBC? Does the Minister recognise that many people in this country profoundly disagree with such a policy, value the high standards of the BBC and its international reputation and will strongly oppose any attempt to undermine these?
Baroness Neville-Rolfe: My Lords, war has not been declared on the BBC. The BBC makes an enormous and valuable contribution to many people’s lives as the nation’s broadcaster and in its overseas services, with 308 million people around the world and 96% of the UK population watching it each week. It is also a very well-understood and supported cultural institution, which I know is important to this House. The arrangements will be looked at fully and from every perspective in the charter review. I think the process starts today with the kind of comments that I know will be made in this House.
Lord Lea of Crondall (Lab): My Lords, is the Minister aware that it is a bit rich for many members of the Conservative Party to complain when the BBC does not reflect everything said by the Daily Mail, when, as far as I can see, it is compelled each morning to regurgitate everything said by the Daily Mail, the Daily Telegraph, the Daily Express, the Sun et cetera on “What the Papers Say”?
Baroness Neville-Rolfe: My Lords, the underlying point is about impartiality. The BBC is required by the royal charter and agreement to deliver impartial news. Under the terms of the agreement, the BBC must do all it can to ensure that controversial subjects are treated with due accuracy and due impartiality. This is, of course, one of the issues for the charter review. I think there has been some long-standing suspicion that the views are sometimes skewed, and not in a way favourable to our party.
Lord Low of Dalston (CB): My Lords, I saw a report in the Spectator which suggested that music and entertainment services provided by the BBC could be put out to subscription and that the only thing the licence fee should continue to support was the BBC’s news and current affairs output. Does that reflect the Government’s thinking?
Baroness Neville-Rolfe: My Lords, funding, governance and all other aspects, especially ensuring that we continue to have some of the best public broadcasting in the world, are all matters for the charter review, which will be getting under way very soon.
Lord Pearson of Rannoch (UKIP): My Lords—
Baroness Bonham-Carter of Yarnbury (LD): My Lords—
Lord Morris of Aberavon (Lab): My Lords—
The Lord Privy Seal (Baroness Stowell of Beeston) (Con): My Lords, the House seems to be calling for the noble Lord, Lord Pearson, but we have plenty of time and we have not heard from the Liberal Democrat Benches either. I suggest that we hear first from the noble Lord, Lord Pearson, and then move to the Liberal Democrats.
Lord Pearson of Rannoch: My Lords, I am most grateful. Have the Government examined the News-watch.co.uk website, which shows how the BBC has so far failed to allow fair debate between the two sides in the forthcoming EU referendum and thus to respect its present charter? Might it be good to involve the public in the next charter by allowing the licence fee-payers to elect the BBC’s trustees and, through them, the chairman and the director-general?
Baroness Neville-Rolfe: My Lords, I have not seen the News-watch website that was referred to, but I will obviously take the opportunity to look at it as part of my induction into this vital area. All aspects of the
kind that the noble Lord describes will be looked at in the review. As I said, I think that the comments from this House will be very helpful to us in coming to the right conclusions.
Baroness Bonham-Carter of Yarnbury: My Lords, does the Minister not agree that a BBC funded by the licence fee is essential in a changing world as a safeguard for British creativity? The creative industries are the fastest growing sector of the UK economy and a crucial part of our continued prosperity and the economic recovery.
Baroness Neville-Rolfe: My Lords, I very much agree with the noble Baroness’s point about the power and importance of the creative industries, and of course the BBC plays a huge part in that, not least around the world because of the respect that it is accorded.
Lord Morris of Aberavon: My Lords, are there plans to consult on the BBC’s partial funding of the Welsh television channel S4C?
Baroness Neville-Rolfe: My Lords, the Government are committed to strong Welsh language broadcasting, although the funding arrangements for the future are clearly for the charter review. I am sure they will be looked at in that context. It is really important to safeguard Welsh language broadcasting. When I was on maternity leave, I was a big fan of “Pobol y Cwm”, which you can get in the south-west, where I was spending some time.
Lord Dobbs (Con): My Lords, if the noble Baroness were to go round any of the market squares of eastern Europe and talk to anybody over the age of 45, she would discover how vital the BBC has been in emphasising British and western cultural values. The same could now be said of all the villages and madrassahs in places such as Afghanistan, where they gather round a television still in their coffee shops. For those of us who believe that the BBC, in some of its areas, needs a good and perhaps vigorous nudging, will she ensure that that crucial element of soft power which the BBC represents is not undermined but indeed enhanced?
Baroness Neville-Rolfe: My Lords, I agree with my noble friend. I have spent a lot of time in the towns of central Europe and I know just how important the BBC is to them. Indeed, I was very pleased to hear that while there were a lot of concerns about the World Service, the funding has actually gone up since the new arrangements were brought in.
Baroness King of Bow (Lab): I draw attention to my entry in the register of Members’ interests, as I work for Channel 4. Turning to the BBC, it is, as my noble friend Lord Bragg put it yesterday,
“not so much the family silver as the family itself”?—[
Official Report
, 3/6/15; col. 432.]
As the Minister herself mentioned, a staggering 96% of the British population uses a BBC service every week. Given that, when going into negotiations on the
licence fee, will the Government take into account the range and breadth of the BBC’s offer, so appreciated by the British public, because any wholesale reduction in funding will inevitably damage content and tarnish the family silver, if not the family? Lastly, did the Minister’s response to the noble Lord, Lord Low, not indicate a lack of clarity in the Government’s thinking?
Baroness Neville-Rolfe: My Lords, good points have been made, but we are embarking on a charter review and we need to consult the public, business and distinguished people such as your Lordships. Nothing is ruled in and nothing is ruled out, but the underlying variety which the BBC produces, here and around the world, is obviously incredibly important and helps our place in the world.
General Election: Postal Voting Fraud
Question
11.16 am
To ask Her Majesty’s Government what assessment they have made of the extent of postal voting fraud at the recent general election.
Baroness Chisholm of Owlpen (Con): My Lords, the Government are not aware of any issues in relation to postal voting at the recent general election, although no formal assessment has been made. The Electoral Commission will produce a report on the general election in the coming months, which will include any concerns around the use of postal votes at the general election. A range of measures is in place to combat electoral fraud in the UK.
Lord Lexden (Con): Do the Government agree with Mr Nazir Afzal, the former chief crown prosecutor for north-west England, who said last month:
“One of the big problems is that victims who have their votes”,
“taken from them won’t come forward … We need the police to be much more proactive”?
He added that consideration should be given to establishing,
“a national, high-profile police hotline”.
Will the Government also ensure that the large number of complaints by registered overseas electors who failed to receive the postal votes for which they applied are fully investigated and the results made public?
Baroness Chisholm of Owlpen: My Lords, we are in the early stages of a discussion with the Electoral Commission about how to take forward the manifesto commitment to ensure that it puts greater priority on tackling fraud. Obviously, all these issues will be considered in that discussion. On my noble friend’s second point concerning overseas voters, for the 2015 general election—as with future general elections—postal votes were able to be sent out as soon as practicable,
19 working days before the day of poll. These changes were made specifically to meet the needs of overseas voters.
Lord Morgan (Lab): My Lords, does the noble Baroness acknowledge that the greatest electoral fraud of all was committed by the Ministers of the last Government, Liberal Democrat and Conservative, in wilfully adopting policies that kept millions of people off the electoral register?
Baroness Chisholm of Owlpen: My Lords, I do not accept that. The latest figures published by the National Police Chiefs’ Council and the Electoral Commission, on 19 March 2015, show that police forces had only 272 cases of alleged electoral fraud in the UK in 2014, out of a total of 29 million votes cast.
Lord Pearson of Rannoch (UKIP): My Lords, is not the first past the post system pretty much an undemocratic fraud, when the Government are elected by only 24% of the electorate and UKIP gets only one MP with 4 million votes? I might add that, although of course your Lordships’ House is appointed under patronage, with no pretence of democracy, we have only three Peers here whereas the Liberal Democrats now have 100, even though they got only a measly 2.4 million votes.
Baroness Chisholm of Owlpen: My Lords, I am not quite sure how that is about electoral fraud, which is what we are discussing today.
Lord Rennard (LD): My Lords, given the widespread abuse of the postal voting system and the ease with which it was possible to cheat in the most recent Tower Hamlets mayoral election, will the Government accept the need to review our election laws to provide more safeguards for democratic principles? If so, what is the justification for the abolition of the Political and Constitutional Reform Select Committee, which examines such matters?
Baroness Chisholm of Owlpen: My Lords, the Tower Hamlets situation was dealt with in the courts, so I do not want to comment on that. I am sorry, but can the noble Lord just repeat the other part of the question?
Lord Rennard: I understand. If election law were to be revised, in the previous Parliament the Political and Constitutional Reform Select Committee in the other place would have looked at that revised law. However, the Government are now abolishing that Select Committee, which I believe cannot be justified. What is the justification for the abolition of that Select Committee?
Baroness Chisholm of Owlpen: My Lords, as is known, the Government do not get involved in Select Committees, so that is not a point for me to answer here.
Baroness Warsi (Con): My Lords, I would not want to refer my noble friend to the case of the Tower Hamlets mayoral election, but could she write to me, if she cannot answer me today, about whether the
Government’s understanding of the law in relation to undue spiritual influence is clear? Can the Government be sure that the law in relation to undue spiritual influence at the time of elections is being consistently applied across different religious communities?
Baroness Chisholm of Owlpen: My Lords, I will certainly get back to my noble friend on that question. The Government consider tackling electoral fraud to be a very high priority and they believe that more needs to be done to safeguard the integrity of elections. Indeed, this will certainly be looked into in the future with the Electoral Commission.
Lord Beecham (Lab): Given the large number of people not currently registered and the likelihood that that number will grow with the introduction of individual registration, how much are the Government prepared to invest in supporting local authorities in ensuring that people do register?
Baroness Chisholm of Owlpen: My Lords, in 17 local authorities where there is a feeling that there is a problem at the moment, £500,000 has been made available to increase the completeness and accuracy of the electoral register. This should improve research and intelligence gathering, and help with the production of videos to educate the public.
Armed Forces: Airborne Maritime Patrol
Question
11.23 am
To ask Her Majesty’s Government what plans they have to improve the United Kingdom’s airborne maritime patrol capability.
The Minister of State, Ministry of Defence (Earl Howe) (Con): My Lords, we have been clear for some time that the right point to look again at the requirement for a maritime patrol aircraft is in the forthcoming strategic defence and security review, the SDSR. That decision will be informed by the latest threat assessments and the conclusions come to in recent years. We continue to embed around 30 former Nimrod air crew in the maritime patrol communities of allied air forces in order to reduce the time and risks associated with regenerating a capability.
Lord Reid of Cardowan (Lab): My Lords—
Lord Empey (UUP): Steady on. Does the Minister not agree with me that one does not need a review to know that, as an island nation with a sea-borne nuclear deterrent capability, we are not even in a position to secure our own deterrent, because we do not have the capability to do so? I understand that all things have to be reviewed, but this is such a no-brainer. It is obviously of great concern if we cannot protect our own sea lanes against an increasingly aggressive Russian naval force. Will the Minister go back to his
right honourable friend in the other place and say that we should be proceeding now to prepare the necessary facilities to ensure that we have adequate protection for our nuclear deterrent as well as for our shores?
Earl Howe: My Lords, I absolutely do not accept that we cannot protect our own sea lanes. We have acknowledged that we have a capability gap, following the decision not to bring the Nimrod MRA4 into service, but at the same time we made it clear that we chose to accept that gap because we knew that we could mitigate it through employment of other assets, as well as through co-operation with allies. Even taking operational activity into account, we remain of the view that the SDSR is the right context in which to take a decision of this significance.
Lord Reid of Cardowan: My Lords, does the noble Earl accept that there is an ingenuity in the MoD in producing euphemisms? I was once told that something was being put not into mothballs, but into a “state of extended readiness”. When he mentions the capability gap, will he accept that the maritime patrol aircraft and its facilities is not an optional add-on for a nuclear deterrent but an essential component providing surveillance, security and secrecy of location? What is the point of having a continuous at-sea submarine-based nuclear deterrent if it does not have those features? This has all the hallmarks not of a minor housekeeping problem for the MoD but of a major strategic blunder.
Earl Howe: My Lords, I emphasise again that this matter will be looked at very closely in the context of the SDSR—indeed, some preparatory work has already been done. I do not accept the noble Lord’s contention that we are without protection in this important area. We have the use of other military assets, as I said, including Type 23 frigates, submarines and Merlin anti-submarine warfare helicopters, and we rely on the assistance that we get from our allies and partners.
Lord Craig of Radley (CB): My Lords, the Minister mentioned that some preparatory steps are being taken in the MoD. What date is the MoD planning for the introduction, assuming an agreement through the review that he mentioned?
Earl Howe: My Lords, I think that the noble and gallant Lord will accept that we must not leap ahead of ourselves too much. However, I can tell him that the capabilities required from a future maritime patrol aircraft have been studied by the MoD over the past two and a half years. The study has received representations from a number of defence industrial organisations, which have allowed us to understand better the nature of the platforms in existence, as well as the timeframe in which novel technologies are likely to mature.
Baroness Jolly (LD): My Lords, given the Minister’s response just now, can he reassure the House in the mean time how we will be able to meet our international
obligations on search and rescue—for example, were an aircraft to crash in the furthermost corner of our sector of the Atlantic?
Earl Howe: My Lords, a range of other military aircraft provide search and rescue radar capability to the Armed Forces. We have the E-3D Sentry system, which admittedly is optimised for the air-to-air role, but its radar has a maritime search mode. C-130 Hercules aircraft are fitted with radar systems that, combined with visual search, provide basic maritime search capabilities. RAF Sea King helicopters, and Royal Navy Merlin and Lynx helicopters all possess short-range surface search radar for use in maritime search operations.
Lord Rosser (Lab): I welcome the Minister to his first Defence Question since his appointment. He has moved from the health of the nation to the health of our Armed Forces. He referred to the strategic defence and security review and our maritime patrol capability. Can he confirm that, in pursuit of a bipartisan approach to defence policy, Her Majesty’s loyal Opposition will also be involved in the consultations on the SDSR, which the Government told us last Thursday in this House are now taking place?
Earl Howe: My Lords, I hope I can reassure the noble Lord. We will be looking for opportunities to consult a wide range of stakeholders, including industry, naturally, academics and parliamentarians. The Opposition will be welcome to feed in their ideas in the course of that process.
Lord West of Spithead (Lab): My Lords, the surveillance of our offshore economic zone and our waters is much broader than just the submarine issue. There is a real resource and money issue. We have already sent two Border Force cutters to the Mediterranean, one of our offshore patrol vessels for fishery protection has gone to the West Indies, and there is insufficient money in the defence budget. If we are going to provide this capability, what capabilities are going to be removed because there is just not enough money to do the things we need to do without going up to at least the 2% of GDP and, ideally, more?
Earl Howe: My Lords, it is important to emphasise that the SDSR will be underpinned by a very robust assessment of the threats that face us and the needs that we have to meet those threats. On the noble Lord’s wider point, the Ministry of Defence is just one organisation with a role in the security of the UK’s territorial waters. Under the UK national strategy for maritime security we have a ministerial working group chaired by the FCO. That has been established to focus on maritime security in its entirety.
Lord Davies of Stamford (Lab): My Lords—
FIFA
Question
11.31 am
To ask Her Majesty’s Government what criminal investigations the Crown Prosecution Service and Serious Fraud Office have undertaken in the last five years into allegations of corruption and other illegal behaviour involving FIFA.
The Minister of State, Ministry of Justice (Lord Faulks) (Con): My Lords, the Crown Prosecution Service does not conduct criminal investigations. The Serious Fraud Office has not opened a criminal investigation into allegations relating to FIFA. While the SFO has not opened such an investigation, it is actively reviewing material in its possession. It also stands ready to assist the US and Swiss authorities in their investigations, although, by international convention, the SFO would not comment on such matters.
Lord Bach (Lab): My Lords, I thank the Minister for his Answer. Of course, by its nature this scandal is international and has been brewing for many years. We have excellent investigative and prosecuting authorities in this country. Does the Minister agree that this is the appropriate time for a thorough investigation of any possible British connection, whether through the banking system, British nationals or in any other way? Will Her Majesty’s Government ensure that sufficient resources are made available for any such investigation?
Lord Faulks: My Lords, this is a fast-unfolding story. I am sure we can be generous enough to acknowledge the major contribution the United States Department of Justice has made to this matter. In the mean time, we stand ready to assist. It is a fast-developing situation. The SFO has been aware of allegations relating to FIFA for some years. It is keeping the situation under review and is ready to assist in any way it can. We do not think there is a lack of resources. Although the SFO is involved in a number of high-profile and difficult cases, including the LIBOR manipulation, resources are not an issue in this case.
Lord Thomas of Gresford (LD): My Lords, soliciting a bribe is a crime. Will the SFO make inquiries of the members of the England bid team for the 2018 World Cup, which achieved only two votes out of 22 from the committee, about whether they were approached by anybody for a sweetener in relation to their bid?
Lord Faulks: The Swiss authority’s investigation is particularly focused on the 2018 World Cup bid on the basis that the jurisdiction is based on FIFA being a Swiss private company. If there is any information that we have in this country, we stand ready to assist on that, too.
Lord Faulkner of Worcester (Lab): Will the Minister heed those who are calling for the bidding process for the 2018 and 2022 World Cups to be reopened? Will the Government make it clear that they wish to see that happen?
Lord Faulks: It depends on what is found in relation to those bids for 2018 and 2022. The Government are most concerned, as is the FA, to find out whether there was any transgression in that case. Of course we cannot rule out the possibility of those bids being reopened.
Lord Soley (Lab): My Lords, given the growth of corruption in world bodies generally, and given that this is the year of Magna Carta, should we all not just be celebrating what the United States and Swiss authorities have done—for the reason, I understand, that the offence was alleged to have started there—but looking for a way in which international justice can make its mark in the world? Frankly, it is needed now more than it has ever been.
Lord Faulks: I agree with the noble Lord. We provide mutual legal assistance to a number of countries in accordance with treaty obligations. There are always difficulties with criminal jurisdictions extending beyond one country to another, but I entirely accept that co-operation should be the order of the day where these matters are concerned.
Lord Geddes (Con): My Lords, would the Minister join me in congratulating my noble friend Lord Courtown on persuading Mr Blatter to resign when he did?
Lord Faulks: I suppose there might be some slight dispute over cause and effect, but nevertheless I join my noble friend.
Lord Wallace of Saltaire (LD): My Lords, does Her Majesty’s oversight of criminal law extend to offshore financial centres under United Kingdom sovereignty? From what has already come out, it is clear that a number of these illegal payments flowed through offshore financial centres that are British Overseas Territories. Do the Government intend to investigate that, or do they regard it as outside their jurisdiction?
Lord Faulks: It will be a question of fact in relation to each allegation as to whether it comes within the jurisdiction. As the noble Lord may well be aware, the Bribery Act 2010 came into force in July 2011, which has to some extent extended criminal jurisdiction. The timing of any alleged offence will be crucial, but if there are any offences we are not going to be restrained if there is a prima facie case of infringement of criminal law within this jurisdiction.
Baroness Deech (CB): My Lords, will the Minister take this opportunity to acknowledge the fearless part played in this by British investigative journalism, and the importance of a fearless and not overregulated British press?
Lord Faulks: I have absolutely no difficulty in acknowledging that, particularly the contributions by the Sunday Times and “Panorama”.
Lord Reid of Cardowan (Lab): My Lords, should we not also place on record our appreciation for the initiative and courage of a Member of this House, my noble friend Lord Triesman, in raising this issue a long time ago and being thoroughly abused for it in many quarters at the time?
Lord Faulks: Equally, I am more than happy to raise that. We should also note that such is the momentum behind this investigation that we have some of the main culprits starting to turn against each other, so we can say that this investigation really has traction.
Assisted Dying Bill [HL]
First Reading
11.37 am
A Bill to enable competent adults who are terminally ill to be provided at their request with specified assistance to end their own life; and for connected purposes.
The Bill was introduced by Lord Falconer of Thoroton, read a first time and ordered to be printed.
Conscientious Objection(Medical Activities) Bill [HL]
First Reading
11.38am
A Bill to clarify the extent to which a medical practitioner with a conscientious objection may refrain from participating in certain medical activities; and for connected purposes.
The Bill was introduced by Lord Rowe-Beddoe (on behalf of Baroness O’Loan), read a first time and ordered to be printed.
European Union Citizens(Electoral Rights) Bill [HL]
First Reading
11.38 am
A Bill to make provision to allow European Union citizens who are resident in the United Kingdom to vote in parliamentary elections and to become Members of Parliament; and for connected purposes.
The Bill was introduced by Lord Balfe, read a first time and ordered to be printed.
Divorce (Financial Provision) Bill [HL]
First Reading
11.39 am
A Bill to amend the Matrimonial Causes Act 1973 and make provision in connection with financial settlements following divorce.
The Bill was introduced by Baroness Deech, read a first time and ordered to be printed.
Cohabitation Rights Bill [HL]
First Reading
11.39 am
A Bill to provide certain protections for persons who live together as a couple or have lived together as a couple; to make provision about the property of deceased persons who are survived by a cohabitant; and for connected purposes.
The Bill was introduced by Lord Marks of Henley-on-Thames, read a first time and ordered to be printed.
Queen’s Speech
Debate (6th Day)
11.39 am
Moved on Wednesday 27 May by Baroness Bottomley of Nettlestone
That an humble Address be presented to Her Majesty as follows:
“Most Gracious Sovereign—We, Your Majesty’s most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament”.
Lord Gardiner of Kimble (Con): My Lords, this is the final day of the debate on the humble Address, and the advisory speaking time is seven minutes. That will allow the House to rise at a respectable time, and I hope that noble Lords making their contributions will be mindful of that.
The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con) (Maiden Speech): My Lords, I begin by thanking your Lordships for the warm and generous welcome I have received from everyone in this House. It is a privilege to serve as a member of Her Majesty’s Government, and it is a particular honour to make my maiden speech opening this debate following Her Majesty’s gracious Speech. I have been told that the conventions of a maiden speech require the speaker to be both brief and uncontroversial. Let me warn noble Lords—though some already know me—that only about 50% of that comes naturally to me.
My only regret today is that my parents are no longer around to see me here. They were true working-class Tories, which may surprise some people. They would have been not only proud but, frankly, slightly astonished that their continuous attempts to get me to focus on the Daily Telegraph at the breakfast table during my younger years, and not on the latest Manchester United programme, eventually bore some fruit. Indeed, one of my cousins told me just yesterday that even many years later my dad was still, in my absence, apparently pondering whether I would ever get a proper job. That showed me that they appeared to know that an individual and society’s collective productivity is what drives wealth and sustains success. This Government have put productivity as a priority for the next five years.
I was brought up in south Manchester, where I attended the local primary and junior school. When I reflect back—which, of course, I have especially done in the past few days—it is still clear to me that many of those school friends were at least as naturally gifted as I may have been, but for a variety of reasons, so many of them did not achieve their potential. I was lucky enough to go on to university and then achieve a career in the City, ending up as chief economist of Goldman Sachs. My time there overlapped with the rapid growth in the so-called large emerging economies, especially Brazil, Russia, India and China, which nearly 14 years ago now I was lucky enough to describe as “the BRICs”.
During those 18 years I started to understand the factors that drive economic growth. Economic theory tells us there are two things that make a country’s GDP grow—the size of its labour force, and its productivity—and I believe that this basic theory is right. The labour force is primarily driven by a country’s population, which is of course limited by physical factors. Importantly in that regard, the UK seems reasonably well blessed for the next couple of decades compared with many of our developed country—and in particular G7—friends. Productivity is trickier, but we can try to influence that with good policy, and I believe that if we are bolder and truly ambitious, we can do something about it.
I am therefore very excited to have joined the Government at this time to help drive the changes that this country needs to try to increase our productivity, whether that is having the right infrastructure, giving our children the best education, giving our workforce the skills they need for the 21st century, getting more women into the workforce, having a more effective policy on housing supply, providing better long-term incentives to invest, or providing even more effective and—importantly, perhaps—less strangling regulation.
During my time in the City, I also saw that successful interconnected urban areas—often, areas beyond the capital city—are vital to economic growth. The UK was, and frankly still is, underperforming in this regard. So, when I left Goldman, among the things that came on to my plate, I was very attracted to an offer to chair an independent commission on the growth of our cities outside of London. I pay tribute in this regard to my noble friend Lord Heseltine, whose work in this area has of course been groundbreaking. His was one of the very first voices to say that government policy on the industrial cities of the north should not be one of managed decline. He was a true pioneer in trying to help them to enable themselves to redevelop.
That can-do, positive, growth-oriented approach has been at the heart of what I ended up somewhat inelegantly calling “ManSheffLeedsPool”, which, of course, has now become better known as the northern powerhouse, not least because it includes other important northern cities such as Hull and the cities of the north-east—strong, interconnected cities across the north of England. I have been lucky enough to be asked to help deliver this, and to use my experience in the emerging world—especially, although not only, China—to help improve the UK’s economic performance.
Importantly, I will also continue to lead the review into antimicrobial resistance that I have been leading for the past nine months, for which we will make our final recommendations in about 12 months’ time. I hope that noble Lords will continue to feed into the extremely productive work that the review is carrying out, which in itself will help to improve the productivity of not only the UK but the whole world.
I believe that this country could be on the edge of something exciting and special. It is an honour and privilege to be asked to serve in Her Majesty’s Government, and I look forward to contributing to the work of this House.
Turning to the legislative agenda, last week in this Chamber we heard Her Majesty’s gracious Speech, setting out this Government’s legislative programme, which will build on the foundations laid in the previous Parliament to get Britain back towards prosperity. Our legislation is designed for everybody in the country, meeting their needs and helping them to fulfil their ambitions at each stage of their lives. Important things were achieved in the previous Parliament. The deficit has come down, and the economy has improved. The record on jobs, in particular, has been strong. There are 2 million new jobs and, importantly, in the past 12 months we have had the strongest employment increase among the G7 countries. Today, we have the highest employment record in the UK’s modern history.
However, the work is far from finished. The fiscal deficit is still too high, and the same is true of our external current account deficit. Our trade remains overly reliant on slow-growing emerging European markets. We need to do more with my friends in the emerging world. There are big infrastructure decisions that we have yet to make. Our businesses are still hampered by excessive regulation, and of course, there is so much to do to improve the competitiveness of our cities outside of London. The cities commission that I chaired showed that if the largest metro areas outside of London—not just northern powerhouse, but others too—could grow at the same strong rate as London, the UK’s national growth trend could be boosted by 0.2%. This may seem immediately significant only to the economics geeks among your Lordships but, to put it in perspective, it will translate into an extra £79 billion to the British economy by 2030.
Our productivity challenge is well known. I do not need to labour too long on the statistics, but our output per hour is 17% below the G7 average; 27% below that of France; similarly, 28% below that of Germany; and, even higher, 31% below that of the US. In my judgment, there are some valid questions about the accuracy of our productivity statistics but that should not be an excuse. We can and should do a lot better. If we could get our productivity rates up, we could enter a virtuous circle to the benefit of all.
Against that background, today I shall briefly address the measures in the Government’s legislative programme dealing with business, economic affairs and transport.
When businesses do well, so does the country, so we want to help businesses every step of the way. Our enterprise Bill will remove another £10 billion of red
tape from businesses. Our target for cutting red tape will cover the activities of more regulators so that they contribute to our deregulation target too. We will make it easier for small businesses to solve late-payment disputes with other businesses. We will also create a faster, simpler, more efficient business rates appeals system, to be in place for the next business rates revaluation in 2017.
Moving on to the tax lock, we also want to let people keep more of the money they earn to spend or invest as they see fit. We will keep the manifesto commitment not to increase the rates of national insurance contributions, income tax or VAT. The commitments for income tax and VAT will be delivered through a finance Bill and, for NICs, we will introduce a national insurance contributions Bill, preventing any increase in the class 1 rate above the current rates.
We believe it is important to keep improving the transparency, accountability and governance of the Bank of England. To keep us ahead of the game, a Bank of England Bill will address the recommendations of the Warsh review, complete the transition to eight meetings of the Monetary Policy Committee a year and formalise changes to the Bank’s top team. Further changes are under discussion between the Treasury and the Bank, and we will announce them shortly.
This Government believe that strikes, many of which disrupt essential public services, should be the result only of a clear mandate. The trade unions Bill will therefore introduce a 50% threshold of those eligible to vote for ballot turnout. In the health, education, fire and transport sectors, it will also introduce a voting threshold of 40% in support of strike action in order for that vote to be legitimate. Other measures will tackle the intimidation of non-striking workers, reform the rules on ballot mandates and make changes to the role of the certification officer.
Noble Lords will recall that in 2013 the Prime Minister delivered a deal in Brussels which saw the EU budget cut in real terms for the first time while protecting our rebate. The mechanism by which individual member states finance this budget is known as the Own Resources Decision. The new ORD was agreed unanimously by member states in 2014. This fully reflects the financing aspects of the Prime Minister’s historic deal, including protecting our rebate. In common with previous practice, legislation is required for the UK to approve this, and we will introduce this in the form of the European Union (Finance) Bill.
I turn now to an important topic for the country and a Bill which, if executed correctly, could be highly advantageous; namely, the HS2 Bill. As is known from a number of my past public comments, I believe that other significant transport projects are vital for the success of the northern powerhouse. However, let me point out that, just in the past few days, a significant number of the leading local policymakers of all the northern cities that will be linked by HS2 have repeated their highly favourable stance to this project.
HS2 will connect eight of Britain’s top 10 cities. It will more than double capacity on some of our busiest routes and support up to 100,000 new jobs, 25,000 of which will be in construction alone. The cross-party
support shown to HS2, both here and in the other place, is notable. I would like to pay tribute to the work of the noble Lord, Lord Adonis, and others in this regard. This Bill will provide the Government with the legal powers to acquire the land needed for phase 1 of HS2, to build it and to operate it. As a hybrid Bill, it will also enable both Houses to hear petitions based on specific issues relating to HS2, although not about the general principle. I look forward to working with my noble friend Lord Ahmad of Wimbledon on this important issue.
The Department for Transport is also taking forward the buses Bill to enable combined authorities with directly elected mayors to franchise their own buses. It is right that local areas that have ambitious plans to grow and develop should be given franchising powers as they consider necessary to deliver an integrated transport system.
In conclusion, this Government’s legislative programme has three primary objectives: first, to help working people at every stage of their lives; secondly, to put the public finances on a stable, sustainable footing by running a surplus; and thirdly, to deliver a step-change in the nation’s productivity. A dynamic, growing economy, underpinned by sound finances and solid investment, is by far the best way to give the people of this country a better standard of living. The measures set out by Her Majesty last week will help us achieve exactly that.
11.57 am
Lord Mendelsohn (Lab): My Lords, it is a great honour and pleasure to follow such an impressive maiden speech. The Minister is known to me and I was very pleased to hear of his appointment and delighted that he has now taken up ministerial office. The Minister earned an undergraduate degree at the University of Sheffield and a PhD from the University of Surrey. He enjoyed a meteoric rise through the investment banking industry, ending at Goldman Sachs. He should also be known for his services to education, for philanthropy and for his very important work on cities.
Many have previously sought to woo the Minister into political service. I had always hoped that the colour of the shirt of the football team he adores so much was always likely to be a sure indication of his devotions. A recent FT article on his appointment described his political views as “opaque”. Well, from where I sit, he has turned into a Blue—not the most comfortable of places for a Manchester United devotee.
The Minister is an engaging speaker, as we witnessed. An online commercial listing to book the Minister to speak—an old listing, I hasten to say—provides his CV and, to help with your search, has a tab you can press if you are interested to find “similar speakers”. I pressed it. He will be pleased to know that among the eight speakers listed were Franz Beckenbauer and Myleene Klass. He may be comforted to know that the list also included Steve Forbes.
The Minister is a great addition to this house and to the Government. His fantastic work on cities and growth is truly to be admired. I wish him well and wish him every success in his post.
It is always a pleasure to see the noble Baroness, Lady Neville-Rolfe, in her place. I look forward to hearing what she will say later. I congratulate her on her extended role in the Government and hope that the courteous and generous way in which we were able to debate fully on areas of disagreement and collaboratively on areas of agreement will continue in this Parliament.
As someone who still pursues an active life in business, I refer noble Lords to my entries in the register of interests. I am looking forward to this debate and to the maiden speech of the noble Lord, Lord King of Lothbury.
On behalf of these Benches, I want to provide some context to how we will look at the measures proposed in Queen’s Speech and refer to some matters which we hope the Government will consider in their plans. We are yet to be convinced that the gracious Speech provides a strategy to build the productive and sustainable economy that the country needs. There is, for example, a considerable problem with foreign direct investment and its impact on productivity. Our performance is good and has been for many decades, but in the past five years we have clearly seen foreign direct investment’s contribution to UK performance, measured by GDP per head, become a drag on productivity. The coalition Government ended with a wide deficit still in place in public sector finances and external imbalances. Alone among the major economies, this twin-deficit problem is in double-digit territory. A current account deficit represents a country selling its assets and/or incurring debt to finance spending. This is a reasonable strategy if such investments are likely to create a return and to pay off in the long term, but the UK’s problem is that we have been seen to be on a consumption binge. Household savings are weak; household debt is rising steeply and projected to deteriorate further. We may continue to grow but there will be costs and many potential risks and shocks to the system ahead.
The plain truth is that the UK economy has not recovered because of the successful fiscal austerity programme of the Government—quite the contrary: the UK economy recovered because the last Government abandoned the fiscal consolidation programme three years ago and left it for the next Government to deal with. The way in which they dealt with austerity was not balanced. The Minister is in charge of infrastructure, so we hope that he will succeed in delivering effective and long-term investment and making a significant difference.
The likely occurrence of bumps ahead is indicated not just by frequent reports of uneven confidence in different sectors of the economy but by the proposed national insurance contributions Bill and finance Bill. We will not oppose measures that lock the main rates of tax until 2020, as we oppose additional taxes on working people. We want to see the tax burden shared fairly and soberly, with any scope for tax cuts focused only on middle and lower earners. We will not oppose the measures on the national minimum wage even though it is worth pointing out that they provide no additional benefit, as life, frankly, is just too short.
We support efforts to get people back to work, to achieve full employment and to get the social security bill under control. We will look carefully at the full
employment and welfare benefits Bill, especially in light of what may be said in the emergency Budget.
We will not oppose the European Union (Finance) Bill, whose purposes we support, and we will clearly support measures in the Bank of England Bill that help ensure that the Bank is able to fulfil its role of overseeing monetary policy and financial stability. We will await the publication of further details.
It is important that the business and economic dimensions are considered in relation to other Bills in the legislative plan, including especially the Cities and Local Government Devolution Bill. We will probe this Bill to make sure that the important economic opportunities are fulfilled and made available to all.
I am concerned that the trade unions Bill masks a much darker purpose that the 20-year trends do not support. No one can accuse me of being in the pocket of the unions and I believe that they require more than just reform, but there lurks something nasty and unpleasant in the construction of this Bill and in its lack of natural justice. The Government should expect some energetic engagement on it.
The centrepiece Bill, which is the expression of the Government’s growth agenda, is the enterprise Bill. I am bound to say that it is a little limited in its scope, but there may be a case for doing a few things well. However, we will naturally support measures that take us beyond where we currently are. We will naturally support, too, measures to make life easier for small businesses, including tackling late payments, as indeed we will support measures to improve the business rates system and address issues around pay-offs for public sector workers. I especially look forward to a detailed analysis and scrutiny of the suggested £10 billion of savings which we have heard about. I am pleased that further measures are planned for small businesses and am grateful for being given a second bite at the cherry on late payments, which is a terrible scandal, with £40 billion to £50 billion of cash failing to circulate properly in the economy and drive economic performance. Having personally examined the Australian arrangements in relation to our debates on the previous Bill, which became the Small Business, Enterprise and Employment Act, I look forward to understanding the Government’s argument for the new proposals.
The Queen’s Speech is quite bold in its language but modest in its scope. The country needs to strive constantly for a low-cost and more business-friendly environment; a more skilled labour force; better economic infrastructure; an industrial policy that fosters competitiveness, innovation and entrepreneurship; balanced and long-term investments; to make the case for the positive role of business in creating prosperity, employment and fulfilment; and, most crucially, to address the productivity failure of the past five years, which will undoubtedly be the greatest challenge for the next 10.
We will rigorously scrutinise every Bill that is before this House. We will be constructive and collaborative where we can be but our economy and businesses need more than what is on offer and we will not shirk from suggesting what can be done within the bounds of the conventions. We will not hesitate to challenge the Government when the occasion demands.
12.05 pm
Baroness Kramer (LD): My Lords, it is a pleasure to join in the welcome to the noble Lord, Lord O’Neill. There could not have been a more difficult set of circumstances under which to make a maiden speech, and he did so quite brilliantly. He has achieved a great deal in a very distinguished career and he brings great experience and financial expertise to this House.
As he will gather from my remarks, I hope that he will act as a reality check on a Government who show every sign of veering away from the balanced and fair coalition strategy on the economy and finance that has brought us through one of the worst financial crises in our history and advanced the rebuilding of our economy.
When the IMF and the OECD praised the success of the coalition in bringing down the deficit and restoring financial stability, they praised an approach in which everyone contributed—the rich as well as the middle and, indeed, the poor; and with tax increases as well as cuts in public spending. The broadest shoulders took on a significant burden and we were all in it together. That approach not only promoted fairness but bolstered economic recovery and dynamism across the country.
However, with the Liberal Democrats gone, the Tory Government are now clear that fairness and balance have been abandoned. Ideologically driven welfare cuts are at the heart of the Tory strategy and the Government have trumpeted their determination to cut £12 billion from the welfare budget—not to eliminate the deficit but over and above eliminating the deficit. They have not even had the grace so far to name those cuts—only about £1 billion are identified in the gracious Speech. So what are the rest? Perhaps the Government will admit that this is not considered economic policy but is essentially a sop to a Tory right wing that bitterly resented the elements of fairness and balance that brought that success in the coalition years.
The noble Lord, Lord O’Neill, also told us with enthusiasm—which I understand—of the new NIC and finance Bills to enact into law measures to prevent his own Government raising income tax, VAT and national insurance for the next five years. Frankly, the premise that any Government has to pass a law to regulate their own tax behaviour is quite extraordinary. However, the issues go deeper. I suggest to the noble Lord, Lord O’Neill, that, back in the days when he was involved in asset management, if a chief executive had locked his company into paying a dividend no matter what the state of the company, the industry and the country, he would have dumped the stock and called for the resignation of the CEO—and yet he has just announced the government and Treasury equivalent. Do he and the Government really believe that volatility, instability and crises are ended?
Gordon Brown believed that he had ended boom and bust for ever, and consequently the Labour Government made disastrous decisions on public spending that drove a financial crisis into a deep recession. Now we are faced with a string of issues and instability—a Greek exit from the euro; a possible EU exit by Britain, which would surely be a self-inflicted injury
on an extraordinary scale; Russia’s ambitions; ISIL; a weakening Chinese economy; and never mind the unknowns—that same arrogance has now returned to the Treasury, and this time it has a Tory face. That is a fundamental threat and I hope that the noble Lord, Lord O’Neill, will use his expertise and experience to temper some of this arrogance before, once again, we are on a trajectory of failed decisions that restrict our ability to respond to and remedy the crises that inevitably will come.
There is some limited reform of the financial system in the Government’s proposals, notably in the Bank of England Bill. Let me suggest that the Government could do worse than enact more completely the recommendations of the Parliamentary Commission on Banking Standards, of which I was privileged to be a member. But yet more needs to be done. We have the return to the private sector of RBS. This is surely an opportunity to look at doing that in a way which will increase the diversity—preferably the regional diversity—of banking in the UK. We need better arrangements to deal with systemic risk, particularly that posed by central counterparties for clearing derivatives—an area in which the noble Lord will have real expertise. We lack a sufficient regulatory framework to deal with abuses in personal financial services, the latest being the behaviour of so-called debt management companies. We will press the Government to address these and a wide range of similar issues.
The noble Lord, Lord O’Neill, referred to the importance of the full employment Bill. I am most interested to know how he reconciles that with the Government’s targets to reduce net immigration to the tens of thousands when, as he knows, it is the import of relevant skills that is absolutely critical as an element of growth.
As a Liberal Democrat, I am obviously pleased that our policy of lifting the starting rate of income tax continues, although I note that when we were part of the Government we did not need a law to make it happen. I am amazed that the Tories trust themselves so little that they need a law to make them do it.
My noble friend Lord Teverson will talk much more extensively on transport issues but obviously I am delighted, after my time as a Transport Minister, that HS2 progresses, as does the devolution of transport powers to cities. The policy owes a great deal to the noble Lord, Lord Heseltine, but perhaps I may also mention that it owes a great deal to Nick Clegg personally—as does the whole process of devolution.
We on these Benches will be constructive, as is our duty and our wont, but our role is to scrutinise and revise. What a tragedy for the country if the hard-earned successes of the coalition years are now squandered to pacify a right-wing ideology.
12.12 pm
Lord Birt (CB): My Lords, a new Government have a unique opportunity to set a clear strategic direction for the longer term and thus to achieve real, fundamental and enduring change, as Clement Attlee and Margaret Thatcher once did. 1 hope that this new Government will begin first by articulating a long-term plan for reducing our nation’s indebtedness. Earlier this year,
the noble Lord, Lord Deighton, set out in a Written Answer the aggregate debt of the G7 countries in 2012, which was the last year for which comparable figures were at that point available. Aggregate debt is not just government debt but all debt; it includes private households as well as the finance and general business sectors.
The picture unveiled by the noble Lord, Lord Deighton, was truly gory, and the OECD’s updated figures for 2013 appear to show the same grim picture. Two countries stand out from the crowd: Japan and the UK. Japan is higher up the naughty step than we are, but the UK, by a wide margin, is far more indebted than other G7 countries, with total aggregated debt of seven times GDP—a truly shocking figure.
We appear suddenly to have a welcome, if belated, consensus that when the sun shone the last Government but one should have saved, not spent. This Government accept, I think, that when the global tsunami struck, private-sector debt was also too high and that as a country we were massively overexposed to debt in the financial sector, as the bank rescues all too dramatically illuminated.
In his Answer, the noble Lord, Lord Deighton, suggested that overall levels of private and commercial-sector debt should not threaten our financial stability, but he declined to set any explicit targets for the future. Would the Minister set out in her concluding remarks how we will know when we have reached the point of comfort as a nation for both sector and aggregate debt? We have in total 45% more debt than Germany. Would we, for instance, like to reduce down to current German levels, or even beyond? How long should we take to do that? What principles should guide us? Perhaps the Minister will say.
Our approach to bringing down the deficit, as we must, should also be strategic and not technical. On many occasions in my life, working in both the public and private sectors, I have had to drive or preside over spending reductions. In reducing public spending the focus should be not on capacity reductions but on maintaining desirable public outcomes more cost efficiently and by myriad means: promoting competition, ending duplication, improving processes, sharing services, harnessing technology and much more.
We should also be suspicious of the shallow, much repeated assertion that spending cuts must equal capacity cuts. In most areas of the economy, more can and is being done for less. I continue to see substantial evidence that that can be true in the public sector, too. But there is a problem to overcome if we are to achieve that goal. In my time in government, I saw how weak Whitehall was at analysing cost structures—I say this surrounded by a phalanx of former Permanent Secretaries to the Treasury. It was a world away from best private-sector practice, and I see no reason to believe that it is much better now. Not only the departments but the Treasury itself needs a more muscular value-for-money capability, and now is the time that it needs it most. If we focus just on cuts we will make a grievous error, for in healthy organisations you invest even as you cut. You prioritise, keeping within your means in the here and now, but at one and the same time you plan for the longer term.
As a nation we must be clear-sighted about our long-term priorities. With black clouds on every horizon, with the world a troubled and volatile place, the first responsibility of government is to design, to build and to maintain a security and defence capability that will meet our future needs. Next, we must improve the health of our economy, as well as safeguard our defence. We must identify why our national productivity has been lower than that of comparable countries for so long. For certain, as the noble Lord, Lord O’Neill, suggested in his punchy maiden speech, we must invest in the future skills our economy will need. We must accelerate spend on our road and rail infrastructure, on which we are by far the worst compared with our competitors, and we must end the shameful delay in creating appropriate national strategic airport capacity. Let us be alert to the pace at which much of Asia moves, and let us not be left badly behind.
Finally, a new Government must ask themselves what capabilities and accountabilities they need at the centre, not only to drive and to monitor a massive and unavoidable programme of change right across Whitehall but to improve our national planning. Who in government foresaw that our population would grow by 7.5% in 10 years, and in the middle of highly adverse economic circumstances? Who forecasted and planned for this? I suggest that no one did. We need at the centre of government a proper focus on long-term and integrated planning.
Now is the moment to begin to drive the UK, over the next five to 10 years, to a more harmonious and stable place—a UK with a more balanced, productive, less indebted economy, and with a more alert, agile and efficient state. This can be achieved, but only if we seize the moment and start now.
12.19 pm
Lord Higgins (Con): My Lords, it is a great pleasure to welcome the noble Lord, Lord O’Neill of Gatley, to the House and congratulate him on his maiden speech. It is not an easy thing to make a maiden speech from the Front Bench and to combine those things adequately. I had the same experience when I entered the House but I had the disadvantage of doing so in opposition. I am delighted that the noble Lord has the chance to do so in government.
One looks forward with great pleasure to the maiden speech of the noble Lord, Lord King of Lothbury, who will certainly make a major contribution to our debates, not least, of course, as far as banking is concerned. I also look forward to hearing the maiden speech of the noble Baroness, Lady Altmann, in due course, although she is not down to speak today. When I served for a decade or so on the Front Bench as the main spokesman on pensions, I benefited enormously from her comments outside the House. It is very good indeed that we shall have the opportunity to hear her views first-hand rather than from the sidelines.
We are lucky to have those who are now joining us at a time which I think is more difficult than any I can remember in the last 50 years or so as regards both the mass of difficult problems at home and impending dangers—the well-known expression—abroad. I benefited
greatly from a very good article by Professor Vernon Bogdanor,
The Crisis of the Constitution
, in which he analyses the way in which we have a whole series of interlocking crises. We have a Scottish problem following in the aftermath of the referendum, a European problem with the anticipated referendum, a human rights problem, an English problem in terms of English votes and so on and a crisis of representation in a multi-party system. This is all extremely difficult and the problem arises from the way in which each of these crises interlock. As I say, this is well analysed in the article to which I referred.
In the short time I have I want to concentrate on two things: the deficit on the one hand and the European referendum and our lead in Europe on the other. I am afraid that there is still enormous confusion in the press between the deficit and debt. The two are not the same. The extraordinary thing about the deficit is that it has been overwhelmingly at the centre of our economic problems for the last five years, and will continue to be so for the next five years, but there is no mention of it in the gracious Speech. That is curious. What the Government are planning to do will be immensely difficult to achieve over the next five years, not least because so many areas have been ruled out as far as making economies is concerned. I do not know whether legislating at this stage in the proceedings to make that a solid situation we cannot go back on is very helpful.
Having said that, we need to stress that the deficit is a UK problem. Remarks by leaders in the Scottish nationalist field both during the campaign and since seem to indicate that Scotland will be exempt from the cuts that will be necessary if we are to cure this United Kingdom problem. Indeed, one gets the impression that it will be a case of having austerity in England but not in Scotland. We must face up to the fact that Scotland is already in a privileged position. The Smith commission report would seek to maintain the present balance. We have to look again at the Barnett formula and we should not rule that out. Indeed, the great Lord Barnett himself—greatly missed—felt that it needed to be changed. Therefore, I hope that we can take some action as far as that is concerned.
Finally, I turn to the question of the European referendum and the remarks made in the Queen’s Speech, which says that the Government will,
“pursue reform of the European Union for the benefit of all member states”.
There is a whole series of issues, not least freedom of movement, on which clearly the Prime Minister will need to negotiate. The crucial thing is that we must take a lead, as the Queen’s Speech says, in the interests of Europe. We must face the fact that the present structure of Europe, dependent as it is on the eurozone, is fundamentally flawed.
We should be taking a lead in planning for a situation where if a country has to leave the eurozone, it can still remain in Europe—that is very important—but also that there is a planned process of exit. I believe fundamentally that there is no prospect of the Greek economy becoming competitive at the present exchange rate. Indeed, this view is shared by a number of others, including Alan Greenspan in the United States. We ought
to press the European Union to make sure that there is an escape mechanism for countries that are not going to be competitive. We cannot have a situation where they go on being bailed out for ever and the European economy as a whole, and particularly our own, is adversely affected as a result.
12.26 pm
Lord Reid of Cardowan (Lab): My Lords, I am genuinely delighted to welcome the Minister to the Dispatch Box, for three reasons. First, he deserves it. Indeed, he deserves to be in the premier league on this side but at least he is on the red Benches, which should be some consolation to him. Secondly, it enables us to continue our occasional discussions on the great affairs of state, which of course involve the future of Manchester United Football Club. Thirdly, he majored on the truth that up to this stage dare not speak its name—productivity.
We are seven years on from the biggest recession in modern times—seven years during which we have had the slowest recovery—and five years of that, courtesy of the blessed Fixed-term Parliaments Act, have effectively been a general election campaign. I listened to the speeches, I read the articles and I looked at the manifestos and there was a great deal of advice on how to spend money, how to allocate resources and how to distribute wealth but nothing—nothing—on how to create wealth, from any of the parties, incidentally. So I am glad that the Minister is now majoring—now that the Government are safely berthed, as they see it, for another five years—on how to face the storms ahead, not least of which is productivity.
I want to make three points specifically on productivity and I do so from a background that has nowhere near the expertise that the Minister brings to the subject. First, there seems to be a danger of exploitation squeezing out exploration when it comes to productivity. Productivity has to do much more than just find more efficient ways of doing the same things. It needs exploration as much as—perhaps more than, in the present circumstances—exploitation. Sacrificing one for the other is not only unproductive but strategically very dangerous.
In that context, how productivity is measured therefore matters a lot. The Minister mentioned his scepticism about some statistics. I also have a great deal of scepticism about the means by which we measure productivity: the rate of output per worker per unit time, or labour productivity; and the residual of output not explained by the amount of inputs used in production—that is, the total factor production. These of course feature large in debate among the experts but they tend to assume that radical changes in modes of production do not need to be matched by radically improved means of measurement. I doubt that is the case.
The practical results of inadequate measures are real enough, though. Ordinary people feel the spectre of labour being substituted for technology and vice versa as exploitation far more widely than high-priced experts who are often indulging in groupthink—the very phenomena which enabled us to stumble into the recession last time around. As a result, people’s job
anxieties are needlessly provoked and capital is poorly invested. Exploitation squeezes out exploration at all levels. It is remarkable that rather than investing capital surpluses in necessary innovation, last year share buybacks —buying back our own shares—amounted to $903 billion for the S&P 500. The failure to reinvest capital manifests itself in all sorts of small but significant ways: for instance, in unproductive labour being employed in the revival of hand car washes because of the failure to invest in highly successful technology, which is also, by the way, environmentally very sound.
These examples evidence two major failings sapping productivity. First, there is the failure to invest in research-intensive innovation that is vital to our competitive future—for instance, in UK biotech. Secondly, there is the failure to liberate labour for more productive endeavour by withholding capital investment, even in exploiting well-established technologies. Both are of course linked. Productivity measures are—to coin a phrase—not entirely fit for purpose, given the strategic challenge ahead of us. They are skewed to exploitation squeezing out exploration. The Chancellor, or the Minister, may well be spurred into action at long last on productivity but would be well advised to assure himself that he is using instruments calibrated for the real economy, not financial groupthink.
Secondly, unless we learn to innovate at the pace, intensity and scale fit for the strategic challenges ahead, our problems will grow, not our productivity. For centuries, British ingenuity and innovation have enabled us to sit astride the spokes at any given contemporary period of the globalised world. The shipping lanes we opened were complemented by financial services that underpinned confidence in growing trade. We constantly evolved, building coaling stations and laying submarine cables, which in turn allowed us to dominate the world’s communications, and developing engines to propel ships, trains, planes et cetera. At the heart of that is a language and ethos for pragmatism, which we share for the better conduct of business and science the world over. However, something has stalled. A deep, wide and persistent productivity disease has taken hold and we cannot afford that.
The third and final point is the advent of cyberspace. Success in the cyber environment, an environment characterised by constant entrepreneurial innovation, makes this issue more essential than ever. Yet according to the European Union Innovation Union Scoreboard 2014, despite the fanfares for Shoreditch and the Silicon Roundabout, the UK is an EU follower in cyberspace, not a leader. The evidence suggests that however world-class our research and education are, they simply fail to translate into innovation that sells. In particular, I say to the Minister that this includes an overweening financial services sector, which the Bank for International Settlements and the IMF warn can undermine productivity severely because its interests are served by generating short-term transactions, not investment in research and development or capital-intensive industries in the real economy.
If we are honest, we may be able to face these things. If we are dishonest and ignore these productivity inhibitors, as all parties did in the election, things will only get worse. Our fitness for the cyber environment is a benchmark that we must set for ourselves at
“excellent” and “world-leading”. Reaching such benchmarks needs some very practical and sustained effort, and that effort needs to start now.
12.34 pm
Lord Newby (LD): My Lords, it is a great pleasure to be able to speak in today’s debate before I re-enter the Stygian world of the Whips’ office. I welcome the noble Lord, Lord O’Neill, and congratulate him on his maiden speech. I wish him well. I also look forward to the maiden speech of the noble Lord, Lord King of Lothbury. I will say something about the economy and then something, given that it has attracted considerable interest, about the attitude on these Benches towards the passage of business in your Lordships’ House.
Although the economic position inherited by this Government is incomparably stronger than that inherited by the coalition in 2010, a combination of deep-seated problems and external risks means that we are definitely not out of the woods. As far as the macroeconomic position is concerned, great progress has been made in reducing the deficit, and clearly more needs to be done, but I urge the Government not to bring about an accelerated elimination of the deficit on the back of very significant welfare cuts for the working poor and modest earners. That is neither economically necessary nor socially justifiable.
It is said that the only reason the Conservatives included the provision of £12 billion of welfare cuts in their programme was that they knew that, in any second coalition, the Liberal Democrats would not let them get away with it. They are now embarrassed and confused because they have not the faintest idea how they will make the cuts. I will make the Minister an offer. If the Government would still like the Liberal Democrats to scupper these proposals, I am sure that, with colleagues from across the House, we are still prepared to oblige. Perhaps the Minister will tip me the wink when the welfare reform legislation comes forward, and I will see what I can do.
In terms of the deep-seated economic problems facing the country, the last Government began to tackle some of them with some success, but much needs to be done. I will briefly mention three issues, all of them falling within the Minister’s priority of productivity. The first relates to innovation. Although the UK is a world-leading innovator in the service sector, we consistently spend less than our major competitors in this area in manufacturing. We are in fact 19th in the OECD for total expenditure and 24th for government R&D spending. We should be looking to increase the Government’s own investment in R&D to bring us much further up the OECD table. In particular, it is extremely important that we invest further in the extremely successful Technology Strategy Board, the Catapults and the sector research bodies, and that we commit to doing so over the long term.
Secondly, the housing shortage is now becoming a crisis. On current policies, the problem will get worse during the course of this Parliament rather than better. It is a particularly acute problem in London and in the social housing sector. I was therefore depressed to see that the Conservative manifesto devoted just three sentences, one of them descriptive, to affordable housing. Many changes will be needed in this area if we are
going to really deal with this problem. I mention only one, which lies at the door of the Treasury and is an institutional mindset which is deeply damaging. The Treasury currently does not regard housing as part of our national infrastructure—as I discovered when I asked for a brief on infrastructure from Treasury officials last year. This must change, and the Minister is ideally placed to change it. I hope he will.
Thirdly, there is the northern powerhouse. The Chancellor, in his guise as the thieving magpie of Liberal Democrat policies, has very sensibly identified the need to give greater government impetus to the development of the north by latching on to Nick Clegg’s advocacy of greater powers for the northern cities. This is greatly to be welcomed. However, not only must the northern cities and indeed other cities be given greater powers, as is planned, but if the infrastructure of the north, particularly the transport infrastructure, is to match that of London, greater powers on their own are not enough. More resources are going to be needed if we are going to transform trans-Pennine rail links, for example, than simply giving northern cities greater powers.
Much has been said already in these debates about the Salisbury/Addison convention and how the opposition parties should behave in this Parliament. Let me make it clear that, for my part, I would not support any suggestion from any of my colleagues that we should seek to frustrate the Government by filibustering or by mounting a full-frontal attack on every aspect of the Government’s legislation. But what we shall do is to challenge aspects of legislation with which we disagree. In doing so, we will be guided by the traditions of the House. As a young and impressionable Treasury spokesman in your Lordships’ House, I learnt about these traditions during the period of the last Labour Government.
Several episodes stand out in my mind. I remember with affection the vote called on the then Financial Services and Markets Bill by the noble Lord, Lord Saatchi, at 10.45 pm on 9 May 2000. I also remember the noble Baroness, Lady Noakes, catching me almost literally napping when she called a vote at 11.35 pm in Committee on the then Banking Bill on 26 January 2009. I also remember the memorable day when the noble Lord, Lord Davies of Oldham, rang me in my office having suffered a big defeat on the first day in Committee the previous day, on an amendment to the statistics Bill, to sue for peace. In that case, the Government had brought forward a Bill which seemed calculated to give Ministers more control over official statistics when they were pledged to reduce it. A cross-party group led by the noble Lord, Lord Moser, sought fundamentally to redraft the Bill. As a result of this early defeat in Committee, the Bill was largely redrafted. I think that everybody, perhaps even the noble Lord, Lord Davies, agreed that this was the Lords doing its work.
My experience in government was that, when the Government lost the argument, they tended to lose the vote. There have been a number of the Government’s flagship proposals which we have already debated in these Queen’s Speech debates where the Government have already lost the arguments. They can expect a busy time in the Division Lobbies in the months ahead.
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Baroness Wall of New Barnet (Lab): My Lords, I, too, would like to congratulate the noble Lord on his entrance into this House, and know that he will play a major role. As somebody who comes from the other side of the north-west divide, I was delighted to hear his rich south Manchester accent is still prevailing. It is really important that we keep the flag flying for the north-west.
I want to focus my contribution in this interesting and wide-ranging debate on important policies on an issue that some businesses are succeeding in and some are trying hard to do so, while many still struggle to understand the value that it would have for their business and, importantly, to many of their staff of both genders. I refer to getting the balance right—women in business. It is a fact that women play a vital role in business across all sectors, not least in the advanced manufacturing and engineering sector, and in all the STEM roles. Manufacturing is an important component for a balanced economy, and women are a vital component for a balanced workforce. We need 1 million more women in STEM roles by 2020 to meet the skills shortage and to achieve 30% critical mass of women carrying out those STEM roles. WISE has been very helpful in providing me with information to put this speech together; that organisation is very anxious about the state of science and engineering, particularly from its own aspect.
In 2014, there were 14.2 million women in the workforce overall, representing 46.5%. However, in STEM occupations there are only 689,000, representing only 12.8% of the STEM workforce. Currently, fewer than one in five, or 13%, of those working in STEM occupations in the United Kingdom are female, with fewer than one in 10 STEM managers who are women. In some areas, such as ICT and science and engineering, the percentage of women is actually falling.
I am keen to discuss what works. By taking positive action to support their female workforce, companies can target improvements in their recruitment of women, in reducing their resignations and holding on to them as important members of society, and increasing the number of women in senior executive roles. Many leading companies in the advanced manufacturing and engineering sector are implementing diversity strategies to ensure that they can recruit, retain and, very importantly, progress their female talent to deliver business growth.
A number of companies use Skills 4, which I support. Its career development programme to support female talent to progress their careers is usually successful. It is now offered as an open programme in partnership with WISE to allow smaller companies and individual women to access the rights and opportunities to grow. A number of companies are focused on improving their gender balance across a range of activities. For example, Atkins supports a women’s professional network and a women’s leadership council which guide women and act as role models and mentors. The Skills 4 career development programme and returners programme support women returning to the workforce following maternity leave or carer leave. They also offer a wide range of part-time and flexible working schemes.
If businesses are serious about aspiring to have 30% of women on boards, they must take serious action to support and progress women to the top of their careers to ensure that they will be there when the places need to be taken up.
My noble friend Lord Davies of Abersoch, working collaboratively with business, agreed and got co-operation from business to set a target of 25% of women on the boards of businesses. There has been good progress in the FTSE 100, and it is believed this target will soon be achieved. However, this will be difficult to achieve in the STEM sector due to the small percentage of women in that sector, which means that the pipeline is not there and we need to create successful role models. There have been a number of key successful government initiatives to support women in STEM, but we do not have a real strategy across the key government departments—the Department for Education and the Department for Business, Innovation and Skills—to ensure long-term success.
The right honourable Nicky Morgan, the returning Minister for Women and Equalities and Secretary of State for Education, is in a good place to influence this. She stated that, looking forward, the Government have ambitions and plans which include continuing to close the gender pay gap, increasing the number of women on boards and in public life and increasing free childcare to 30 hours for working parents of three to four year-olds. This is all key, nobody would disagree with it and all of us would support it, but it has to happen rather than be talked about. There is a need for a joined-up government strategy across education, skills and businesses that we all want to succeed to make gender balance an integral part of mainstream policy rather than what often seems an add-on programme, particularly in apprenticeships where there is a chronic gender divide.
Who benefits? The compelling business case is clear and well researched. Diverse teams help drive customer insight, a further reach into new markets, team working, safety and risk management. It is well known that teams involving people from different backgrounds make better decisions than homogenous groups. Companies with three or more women in senior management perform better on nine criteria of organisational excellence, including leadership, accountability and innovation.
We urgently need young women to consider a career in STEM. This is the only way we will have that future and that pipeline will be filled. I congratulate the Minister on her dual role, which is obviously onerous but I am sure she will do extremely well. I urge her to work very hard with the new Minister to make sure that we have joined-up government. We need to stop saying the right things and start taking the right decisions.
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Lord King of Lothbury (CB) (Maiden Speech): My Lords, I am extremely grateful for your Lordships’ patience in allowing me to wait until after the general election before burdening the House with my views, and for the warm welcome that I have received. Parliament is a forbidding place for a central banker—our experience is usually confined to appearances in the other place before the Treasury Committee. I can report that,
contrary to that body, the Economic Affairs Committee of this House offered not only greater decorum but also a superior quality of discussion.
With the general election behind us, I shall say a word about the economic challenges facing the country. Before that, I add my welcome to the noble Lord, Lord O’Neill, who will be responsible for many of the policies aimed at improving the performance of our economy. He will add expertise to the experience of the House at a time when economic issues loom large in our politics, especially in relation to Europe.
Over the past five years, the UK economy has expanded by almost 10%, faster than official statisticians initially estimated but still slower than expected at the beginning of the previous Parliament. The task now, as then, is to rebalance the UK economy away from private and public consumption and toward investments and exports. Monetary policy is in good hands, fiscal policy is tackling the structural deficit and banking is being reformed.
We have made progress, but we face two challenges. The first is to raise productivity throughout the economy—easy to say, hard to do. Several noble Lords today have made convincing contributions to explain what we need to do. Despite recent official data, we should be optimistic about the long-run growth rate of the British economy. Innovation is our strength. If we support research and encourage its application to commercial ventures, I believe that we will make up the output lost in the financial crisis. We have not yet fully resolved the problem of “Invented in Britain; developed abroad”, and I hope that the Government will look closely at any inhibitions to the development of British discoveries at home.
The second challenge is the continuing slow recovery of the world economy. No major economy has found it easy to generate a sustainable recovery. Indeed, most countries today could argue that if only the rest of the world was growing at its normal rate then they would be fine but, since it is not, they are not. With interest rates close to zero and fiscal policy constrained by high debt levels, many countries have resorted to pushing down their exchange rate. One does not have to employ the emotive language of “currency wars” to see that this is a zero-sum game. And one of the costs is that the appreciation in sterling’s effective rate of over 10% over the past 18 months is holding back the rebalancing of our economy.
Most problematic is the position of monetary union in Europe. The first crisis weekend to deal with Greece was almost exactly five years ago. Since then, the crisis has spread to other countries. It ebbs and flows with little sign of any permanent solution and, as all the options for the euro area are unpalatable, the inevitable result is drift. This feeds directly into the problems facing the Government in renegotiating our relationship with the European Union.
I hope that the Government will approach those negotiations not with a British shopping list but with a simple principle for the future of the European Union: the nature and speed of political integration required for monetary union to survive is wholly different from that appropriate for countries outside the euro area. The reality is that for the foreseeable future there will
be two types of member of the EU: those in the monetary union and those outside it. This is not a temporary state but one that will continue for a considerable time. Failure to recognise that reality will threaten not only monetary union but the wider Union, too.
I echo the views of the noble Lord, Lord Higgins. I think that a deal could be based on a binding declaration that countries outside the euro area would not prevent further political integration among the “ins” in return for a guarantee that those steps would not apply to the “outs”. That is not a British demand, but an attempt to save Europe from itself. This is as much a challenge for Chancellor Merkel as it is for our Prime Minister. It will be her taxpayers who foot the bill for greater integration of the euro area.
There are two challenges: raising productivity at home and, in Europe, a more realistic approach to the development of the Union. In both cases the process would be helped by what John Maynard Keynes once described as “ruthless truth-telling”. We in this House can show that it is not only the child but also men and women of a certain age who can say that the emperor has no clothes. Interest groups at home and a few of our partners in Europe may not always like what we say, but they will listen. And who knows, with good arguments, we might even change some minds.
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Lord Turnbull (CB): My Lords, I am delighted to welcome the noble Lord, Lord King of Lothbury, to the House and to congratulate him on his excellent maiden speech. It was well worth waiting for. The noble Lord’s career divides neatly into two parts of roughly 20 years as a distinguished academic economist and 20 years at the heart of the Bank of England. As its governor for 10 years, he became a key figure not just in the UK but globally as part of a small group of world policymakers who, by developing innovative monetary policy techniques, prevented a recession from spiralling into a depression, for which we must be grateful. Since he left the Bank two years ago and was made a life Peer, he has wisely followed one of the teachings of the Lords spiritual: when a bishop retires, he leaves the diocese, at least for a time. He has wisely judged that now is the right time to re-engage in the public debate, and we welcome that.
Some people may have found writing a maiden speech daunting, but in the case of the noble Lord, Lord King, it must have come as a relief as two of the passions of his life, English cricket and Aston Villa, bombed out so badly over the weekend, but at least he can remember the name of the football club he supports. With the simultaneous arrival of the noble Lord, Lord O’Neill, the collective experience of the House in finance, economics and taxation has been enormously enhanced, and I look forward to their respective, possibly contrasting, contributions.
The electorate clearly thought that the Conservatives’ record in office was more credible than Labour’s. The latter party was punished heavily, I believe, for its refusal to acknowledge the flaws in its economic management in the middle of the last decade. The electorate clearly also thought that the Conservatives’
policy programme was the more attractive. Nevertheless, the Conservatives do not, in my view, have a monopoly of superior wisdom. There are elements of their programme that are objectionable, and there are elements of Labour’s programme that are more attractive.
Let us start with fiscal policy. A position in which the stock of debt was increasing far faster than money GDP was clearly unsustainable, and the priority was, rightly in my view, to get to a point where the debt/GDP ratio was no longer rising, and as now is beginning to fall. I do not agree, however, that it is an urgent priority to eliminate the overall deficit, both current and capital, in four years and then to go on running a surplus. The Labour proposal that only the current deficit should be eliminated is more logical.
Why do I take this more dovish attitude to public-sector debt? First, one cannot make a sensible judgment without looking at the asset side of the Government’s balance sheet as well as the liabilities. The UK Government debt ratio is around the median of the G7, but the UK also has serious gaps in its infrastructure, including in power generation, roads, and above all in social housing. There is a serious illogicality in the Government’s position. It is promoting HS2 and the northern powerhouse on the grounds that these are investments that will make the economy more productive. If that is so, they will create the means to service the debt to pay for them.
Secondly, I dislike intensely the language of reducing the debt so that we do not impoverish later generations. In an economy where 70% of government debt is owned by UK citizens, we are witnessing a transfer process. Tax is being collected from and interest is being paid to many of the same people or their pension funds. It is true that if that is carried to an extreme, the weight of this extra tax burden can reduce the effectiveness of the economy, but that is far short of the alarmist impoverishment claim. I believe that the narrative of debt reduction is being used to provide a smoke-screen for another objective: to reduce the size of the public sector. There is a case for that, but it should be made explicitly and not be hidden behind a bogus argument.
My second area of concern is housing, where I believe that neither party has it right. Fortunately, I do not need to deal with the objections to the Government’s right-to-buy scheme, as they were dealt with very effectively by the noble Lord, Lord Kerslake, and other noble Lords earlier this week. The proposals coming from Labour on rent control and letting control were a ghastly throwback to the failed policies of the last century. Nevertheless, there was one area in which Labour rather than the Conservatives correctly diagnosed the problem: the relative weight of taxation on higher-value housing. It cannot be fair that a £3 million house, which is 100 times more valuable than a £30,000 house, pays only three times the tax. Council tax is based on relative values as they were a quarter of a century ago.
In that time, relative house prices across the country have shifted substantially. This not just a Kensington issue but a national one; it is as just as much about the relative contributions of Beckenham and Birkenhead. However, having identified a valid issue, Labour produced a deeply objectionable response. Its mansion tax was
based on class rather than economics, grafting a tax on absolute values on to a system of relative values. The correct answer, which neither party has shown the courage to adopt, is to start by undertaking a national revaluation and then to redesign the bands, adding two or three more at the top end.
The other flaw is the position of housing in the overall system of taxation. Housing is a capital asset that pays no capital gains tax on people’s first residence, nor any tax on imputed income. The same money invested in businesses or financial assets pays both. It is not surprising that people have been incentivised to pile into residential property. We get this wrong, because we fail to understand the difference between the cost of a house as bought on the market and the cost of building a house. Many people can afford to pay the cost of building a house, but the problem is with land, and until we tackle that all those schemes and subsidies, tax reliefs and rights to buy will simply make things worse.
As a former Permanent Secretary to the Treasury, I cannot be expected to applaud the legislation to freeze our main tax rates. Why do legislators need legislation to force them to implement what they have legislated? This is now the fourth of these legal duties, after the reduction in child poverty, the decarbonisation target and the commitment on international aid. What has happened to good old-fashioned accountability? Far from increasing trust in politicians, these arrangements merely serve to advertise their untrustworthiness. The tax proposal has many dangers in it. If it is to be strictly enforced, it will create extortion opportunities for predatory parties such as the SNP and DUP and could bring to the UK the farcical shut-downs of the US Congress. If there are sensible safety valves and waivers, what is the point?
Finally, one parting shot: we should scrap the Smith commission and start again. Grafting tax powers on top of an already overgenerous grants system will make the outcome even more unfair. The sine qua non of any new system if it is to generate fiscal responsibility is that £1 of extra spending in Scotland must be funded at the margin by £1 of extra tax in Scotland.
1.03 pm
Lord Haskel (Lab): My Lords, as a fellow Mancunian, I welcome the Minister to the House and congratulate him on his maiden speech.
Yes, the election and its surprises are behind us, but our economic problems remain. My noble friend Lord Mendelsohn reminded us of them. We all know the answer, which many noble Lords have given: productivity. Yes, raising productivity is the main determinant of our standard of living, so why has it not happened? Could it be that productivity contains so many different ingredients, spread across so many government departments, that it is just too difficult to bring it all together? However, that is what leaders do. Yes, progress is often incremental, but sometimes it happens when leaders bring different elements together so that the whole is greater than the sum of the parts. That is true of productivity. The irony is that many of the elements required to raise productivity are already here, waiting to be harnessed by leadership.
What are those ingredients? The Minister listed some. We have an excellent science base in our universities and research organisations. Nurtured and supported in an age of productivity, it will become even better. We know that government spending on science pays, and it is a good example of investment crowding in. The noble Lord, Lord King, spoke of that. We have in place Innovate UK—the old Technology Strategy Board—which the noble Lord, Lord Newby, mentioned. I declare an interest as a past honorary president of its Materials Knowledge Transfer Network, and so I know the excellent work it does. In an age of productivity, there would be more nurture and more support for those organisations.
Another ingredient is skills. The gracious Speech promised us 3 million more apprenticeships. However, in an age of productivity the number would be less important than the standard; vocational education would be given the same priority as other sectors, instead of being the poor relation. The numbers are important as regards raising the number of firms offering good apprenticeships. The age of productivity in the digital 21st century requires digital skills and education. What has to be done is laid out in your Lordships’ own ad hoc committee report on digital skills.
Steps towards the age of productivity have already been taken in finance. We have an embryo industrial bank and the Business Growth Fund, and once our priorities change to productivity instead of austerity, new areas of finance will present themselves. Although sometimes misdirected, the City’s contribution, too, is important in an age of productivity. The UK would have much to lose by its decline—and much to gain from directing its ingenuity towards productivity. The noble Lord, Lord Reid, queried the data, and I agree. Much production is hidden in intangible production, but we raised that with the Minister’s predecessor on many occasions.
In an age of productivity, a national infrastructure commission would address our chronic underinvestment, as mentioned by the noble Lord, Lord Birt, and tax incentives would encourage productive investment over rent-seeking investment, as the noble Baroness, Lady Kramer, mentioned. The Minister spoke of cutting red tape. By the three internationally accepted measures we are among the most lightly regulated OECD countries. In an age of productivity, sensible regulation is important. Other attitudes, too, have to change: we need longer-term business leadership where productivity growth replaces financial engineering, as the noble Lord, Lord Reid, said. I put it to the Minister that the means of achieving this ambition of raising productivity is all around us. It needs to be harnessed.
The Minister is new, but your Lordships have heard this from me many times. However on this occasion I have an important ally: the Governor of the Bank of England. In the quarterly Inflation Report published this May, the Bank draws our attention to the fact that productivity has hardly moved in the last seven years; the Minister gave us the numbers. It speaks of the disproportionate number of low-skilled and low-paid jobs that require little investment. The point is that we cannot achieve sustainable increases in our standard of living by employing more and more people for
longer hours on low pay. The message is that, when interest rates go up and the supply of cheap labour runs down, do not expect the Bank of England to keep things going by printing money and easing monetary policy.
The governor expects us to become more productive, and he is right. If productivity goes up by 0.5% a year, after five years we would still have £104 billion to find in cuts. A rise of 4% a year—ambitious but not impossible from a low start—would leave the Chancellor with £18 billion to give away. It can be done. We already have some wonderfully productive companies showing us the way. Unipart even has its own university of productivity, and McKinsey tells us that three-quarters of potential productivity growth comes from adopting these better management practices. So why are the Government not encouraging this?
The Minister reminded us that in the gracious Speech there are Bills to get Britain working. I am so ancient that I can remember something similar from Barbara Castle’s day, when she was the Minister for productivity. When Gordon Brown was Chancellor, he had a team in the Treasury doing this. The coalition claimed to have an industrial strategy. The Government’s proposals are therefore nothing new.
So what is missing? What is missing is an understanding that productivity is not just economics. Both Ministers have been in business—they know that productivity has to be a way of life and a culture, because it affects every aspect of a company’s business. And so it must be for Britain. It has to become our way of life, instead of austerity.
I put it to the Minister that this age of productivity is the real one-nation politics. It raises the standard of living of us all. It is business friendly. It would have the support of the Bank of England. The time has come for our culture to move from the age of austerity to the age of productivity.
1.12 pm
Baroness Noakes (Con): I extend the warmest of welcomes to my noble friend Lord O’Neill of Gatley, and to his role at the Treasury, and I congratulate him on his maiden speech. We are very lucky to have his expertise on our Benches. I also welcome back to her enlarged ministerial role my noble friend Lady Neville-Rolfe.
It was good to hear the maiden speech of the noble Lord, Lord King of Lothbury, which brought back happy memories of my years on the Court of the Bank of England. His huge expertise will be of great value to your Lordships’ House.
The last five years have been marked by the outstanding economic leadership of my right honourable friend the Chancellor. I particularly welcome the commitment in the gracious Speech to continue with the long-term economic plan, and to bring the finances under control and reduce the deficit. We have made a lot of progress in the last five years but there is much still to do, and I am glad that we now have the opportunity to complete that task.
There is a temptation for any new Government to launch large legislative programmes, and I would like to offer the Government a few words of advice.
Please do not feel it is necessary to legislate. The electorate did not vote for lots of legislation. Businesses are certainly not gagging for more legislation. Businesses in particular want to be left alone to get on with their role of job creation and wealth creation. The Government should be especially wary of gesture legislation. Here I agree with the remarks of the noble Baroness, Lady Kramer, and the noble Lord, Lord Turnbull, in respect of legislating not to put taxes up—legislating not to do something you are not going to do anyway. That is actually an abuse of legislative time.
Noble Lords who have heard me speak before will not be surprised to learn that there is one Bill about which I am hugely enthusiastic, and that, of course, is the European Union Referendum Bill. Today, I will say only that it is important that we have an informed debate about the economic benefits or otherwise of our membership of the European Union and the opportunities and risks involved in withdrawal. It is far from a self-evident truth that there is a net economic benefit to our remaining in membership; indeed, many studies show quite the reverse. I sincerely look forward to that debate.
I know that the Government’s deregulatory heart is in the right place—we have had two rather large Bills already this year that had deregulation at their heart, and we are now promised even more in the enterprise Bill. If it really is necessary to legislate again, so be it; but the more important thing is to achieve real reductions in regulation. In that light, I certainly welcome the Government’s announcement that they will cut another £10 billion of red tape over the Parliament. Will my noble friend the Minister say how much of that £10 billion is expected to deliver for small and medium-sized enterprises? Not all regulatory savings are equal; those which benefit SMEs can be more equal than others.
In the limited time available today, I will refer to two bits of legislation in the gracious Speech that trouble me, and one thing the absence of which I regret. I will start with my regret. Yet again, the Government have missed an opportunity to signal the merger of income tax and national insurance—an idea that has much support, not least from the Office of Tax Simplification. Taxpayers find the different rates and thresholds baffling, and businesses bear the brunt of complex and burdensome administration. A brave Government would set a course towards a merger.
The gracious Speech has confirmed that the Government remain set upon legislation for High Speed 2. Earlier this year, a report from your Lordships’ Economic Affairs Committee concluded that the Government have yet to make a case for continuing with this project. For a cost of a minimum of £50 billion, we might shave 20 minutes off the travelling time between London and Birmingham. HS2 does not even connect to the northern powerhouse. The Government would be very wise to look again at this project with a cold and analytical eye.
That is the first thing I find difficult in our legislative programme. The second—and, the Whips will be pleased to know, only other—thing I have difficulty with is the commitment to increase the amount of free childcare
to 30 hours a week for working parents of three and four year-olds. I am quite sure this policy is popular with those who are eligible: any policy that has other taxpayers picking up the tab for something you would otherwise pay for is bound to be popular. But this is evidence-free policy-making, and the Minister who defended the policy on Radio 4 earlier this week merely asserted that it was the “right thing to do”, and offered no rationale.
I could support the policy if it increased maternal employment, but the evidence base shows at best a weak employment effect. I could support the policy if it was about improving the life chances of children, but that would require eligibility to be based on the disadvantaged status of children, not the working status of their parents. This policy will work only if the Government accept that the private sector providers who are crucial to delivering it are currently inadequately funded. Put simply, free childcare will require a lot more money. The report of your Lordships’ Select Committee on Affordable Childcare, on which I served, sets all this out. I am genuinely surprised that the Treasury has endorsed a statist policy that has so many obvious question marks over the value for money it could deliver.
I conclude by welcoming the policies that are directed at restoring prosperity to our country. We have been saved from mansion taxes, from the 50p rate of tax, from the persecution of non-doms and from policies that viewed businesses as predators, rather than creators of wealth. Now, let us get on and prosper—and with as little interference as possible.
1.19 pm
Baroness Liddell of Coatdyke (Lab): My Lords, sometimes when I wander the corridors of this building, I feel a bit like my namesake, Alice Liddell, and I have a sense that I have wandered through the looking glass. I feel that when I see names such as those of my noble friend Lord Desai and the noble Lord, Lord Skidelsky, on the speakers list, when I pass my noble friend Lord Peston in the corridor and when I come in and hear the maiden speeches of the noble Lords, Lord O’Neill and Lord King. I am enough of a geek that the only autograph I ever asked for in my life was that of John Kenneth Galbraith, but I have managed to get out a bit more since then.
Many of the areas that I wish to cover have already been touched on, but I want to talk about growth, innovation and productivity.
The existing growth industry that I want to talk about is tourism. I suspect that some colleagues are saying, “She got the day wrong. Tourism was yesterday; we did culture yesterday”. The noble Lord, Lord Lee of Trafford, in his excellent speech yesterday referred to tourism as the Cinderella industry. I think that it is time to bring Cinderella to the ball, which means bringing it to the Treasury and to BIS. For too long it has languished in the Department for Culture, Media and Sport, yet it is one of our most successful growth industries. Inbound tourism is worth £24 billion a year to the UK economy and, indeed, it is continuing to break records at a time when domestic demand is softening. It is growing faster than many sectors of the economy, including manufacturing, construction and
retail, yet we consign it to a department where it does not appear in the title and it does not even have a Minister. The Minister for Sport is presumably to do tourism at half-time. That is not good enough.
In terms of employment generation, a third of all UK jobs generated between 2010 and 2012 were in tourism. For politicians—I say this with a bit of guilt myself—the generation of jobs is the easiest part of growing the economy. Things such as zero-hours contracts help to grow jobs, but the hard bit is growing productivity, and some of that in the service sector has been drifting. It is interesting to look at how competitive the marketplace is for tourism. Australia spends £90 million a year on tourism, and £20 million alone on tourism from China. VisitBritain’s grant in aid for everything that it does is less than that.
I have a proposal to put to the Ministers on the Treasury Bench. It does not involve legislation—one thing on which I agree with the noble Baroness, Lady Noakes, is that we do not need more legislation. I believe that we need a machinery-of-government change. Tourism should be recognised as the third-largest service sector and it should be moved to BIS, where it would work together with our major inward investors in UKTI. That would get proper recognition for the one industry that can generate jobs not just in the northern powerhouse but in Cornwall, Galloway, Orkney and Shetland. It has the Heineken effect and it is time that we allowed it to grow up.
The other area that I want to talk about—innovation —was touched on by a number of noble Lords, not the least of whom was the noble Lord, Lord Newby. I declare an interest as a non-executive director of the Offshore Renewable Energy Catapult. The catapults were brought into being largely because of an idea from my noble friend Lord Mandelson, who asked Hermann Hauser to look at how we harnessed research and innovation and to make it into something commercial. There are now a number of catapults and in many instances they are proving extremely successful. The High Value Manufacturing Catapult has galvanised that sector and is doing extremely well. However, if you wish to innovate, you have to be prepared to have long lead times.
The area that, unashamedly, I am particularly interested in is offshore renewable energy and particularly offshore renewable wind. I am a Scot. We have two former Secretaries of State for Scotland sitting on the Front Bench, and I bet that the Barons whose statues are up there are glad that we are not here to talk about Scotland. The decline in the North Sea means that a skill shift needs be addressed rapidly to prevent employment dipping and those skills being lost to other markets. Offshore renewable energy is a classic area where that can be done. I want to say something to the noble Lord, Lord O’Neill, that I think will shock him: he will be used to the short term of industry but the short term of government is even more pernicious. If we are to change this industry, we have to invest now and invest for the long term.
Finally, I turn to productivity in general, about which there have been quite a few remarks in our discussion this morning. There is a very interesting pattern in the productivity dip in the United Kingdom. Is it not bizarre that here, with particularly liberalised
labour markets, our productivity has not risen as fast as that of France, where it has gone up 2% and where the labour markets are particularly illiberal? One part of productivity is investment. Indeed, if we look at vehicle manufacturing, we see a significant increase in productivity because there is investment in technology, techniques, training and skills. The Minister talked about the significance of education in that regard. The other side of the coin is that in chemicals and pharmaceuticals, many of which are in that northern powerhouse, there is a dip in productivity. We have also had a dip in productivity in the financial services sector. The Minister is very good on acronyms—he gave us BRIC and MINT—and I would like to ask him to give us an acronym for productivity. We need something that we can coalesce around.
Solving this productivity problem is not a short-term but a long-term game, and I think that we need to take party politics out of it. We need to work together for the good of this country on issues such as productivity. The Finns do it wonderfully. They have a “Committee for the Good of Finland”. I think that we need a “Committee for the Good of Britain”. I cannot think of anyone better to convene it than the noble Lord and the noble Baroness on the Treasury Bench, but I challenge the Minister to come up with an acronym for it.
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Lord Teverson (LD): My Lords, I, too, congratulate the noble Lords, Lord O’Neill and Lord King, on their speeches. I am going to talk primarily about transport but I want to take up one point from the excellent speech of the noble Lord, Lord King. He talked about the “euro ins” and the “euro outs”. That is sometimes a bit of a dangerous argument. One forgets that a lot of those euro outs are trying to get in: they are the future ins of the euro. As he mentioned, the Greek crisis has gone on for some five years now. We all thought that the euro was going to melt down, and it may be a surprise to people out there on the streets of the United Kingdom to hear that the number of members of the euro has gone up over that period rather than going down, with the addition of two member states. So we have to look at the analysis in terms of the aspiration of the outs, rather than just seeing them as permanent outs, as perhaps we ourselves will be.
Transport is the plumbing of the nation. There is no doubt about that, and I congratulate my noble friend Lady Kramer on the work that she did on transport in government. A lot of good things came out of that. Broadband and transport are absolutely key to productivity and to the way that the economy works.
I was pleased to see two Bills mentioned in the Queen’s Speech and in the Government’s programme. The Liberal Democrats, along with many other Members of this House, have strongly supported HS2. I understand that it is contentious but it is clear to me that in terms of capacity and investment in infrastructure that will last for more than 100 years, this is something that has to happen in some way. Getting that increased capacity through changes in the existing west coast, east coast
or even central railway would be utterly disruptive to the nation in terms of the economy, commuters, long-distance travellers, business, leisure and freight. It would be a disaster to enter into that investment other than by trying to find a new way of adding capacity—and why add capacity that is old-fashioned rather than new technology?
There is one thing that we often forget. We think of HS1 primarily as an intercontinental railway into Europe. One of its great successes recently has been fast transport into areas that have been hard-pressed economically, in particular east Kent. Those services have been hugely popular, with local authorities demanding that they be increased rather than trying to push them away. That is an example of how that can work. On the other hand, when it comes to connecting up the northern powerhouse, the nomenclature of HS3 is perhaps rather dangerous given the brand image of HS2 in so many areas. We should be quite clear how important it is and that it will be about making a much more conventional railway work properly and to the advantage of those communities.
The other programme is the buses Bill. I suspect that we will not have a full Chamber for that and that it will not be discussed in Committee on the Floor of the House. However, I very much welcome the Bill, in that it transfers to other combined authorities some of the advantages that Transport for London has over controlling buses. My question to the Minister is whether there would be an option—as in the devolution Bill that is coming to the House for Second Reading on Monday—for unitary counties to bring in that power as well.
Transport is very important in terms of sustainability and is responsible for about a quarter of our national CO2 emissions. Therefore, we need to look to sustainable transport systems. I congratulate the Conservatives on having in their manifesto a target of 2050—that may be slightly late—for zero-carbon vehicles. I also congratulate them for effectively saying that they will continue their £38 billion programme for other improvements through railway capital expenditure over the next five years. Sometimes we forget that a huge investment programme is taking place outside HS2. We should shout about that much more loudly. It is policy that is, I think, agreed widely round the House, but we sometimes forget that.
In the Infrastructure Act, which we passed towards the end of the last Parliament, a commitment was brought in—it was rather resisted by the coalition Government to begin with, although I am sure many of us put pressure on to get the change—for a cycle and walking strategy. I would be very interested to hear from the Minister when an investment strategy for those areas of sustainable transport, which is so increasingly important, will be published so that we can start to look at and implement that important programme.
As someone who lives in the far south-west of Cornwall, when I talk about sustainable transport I am also going to talk about the resilience of rail links into our regions, not least Devon and Cornwall and the still outstanding matter of a decision on how to secure the resilience of the line into the far south-west,
while still protecting and providing transport for cities such as Torbay. I look forward to understanding how that might move forward.
On airports, we look forward to Sir Howard Davies’s report and to finding out how sustainable that proposal might or might not be.
In the last minute that I have, I want to talk about access to transport. One of the great contrasts that I see, as a rural dweller, is that “poor” regions such as London have £3 billion of subsidy for Transport for London for people who travel in this area. The buses for the poor people of London have some £450 million-worth of subsidy. The rich “rollercoasters” of Cornwall, however, have a subsidy of £5 million, and in Devon, £7 million. It is a complete contrast in terms of public investment and subsidy of services. I would not argue against the subsidy in London; it is clearly important due to all the externalities there would be if we did not have those systems. However, there is an imbalance there that, along with reduced local government expenditure, has caused those services to decrease over the years. It is vital to the economy that people are able to get to work, go to college and go to training courses on public transport. This is one area that we have to tackle to make sure that there is greater equality of opportunity economically in the regions.
I am going to leave it at that and make one small point outside transport. One business model that we so often look at and praise in this Chamber, and in Parliament generally, is that of small businesses. Clearly, they are exceptionally important—I have been involved in a number over time. I believe very strongly that we so often forget about middle-sized businesses and their importance. In the United Kingdom economy we have a shortage of those important middle-sized businesses. They are able to invest, offer careers to their employees, export, and offer wealth and income that is spread across all regions rather than being concentrated in a few areas. An important part of the German economy and of the very alive economy of northern Italy is based around that type of business model. I hope that the Government will find a way to make sure not just that small businesses thrive but that the middle sector of business becomes an important and hugely contributing part of our British economy.
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Lord Leigh of Hurley (Con): My Lords, I am delighted to be speaking today on the Queen’s Speech debate on business and the economy, and declare all my business interests as in the register. The noble Lord, Lord Teverson, will be pleased to note that most of my remarks focus on middle-sized businesses.
I am delighted to be speaking, not least because it could have all been so very different. Instead of a Government who recognise the role that business plays in our economy and our communities, we could have had one who saw business as inherently bad; one seeking to split businesses up into producers and predators and pit large businesses against small; a Government whose principal role was perceived as regulating rather than enabling businesses to excel. I am thankful that those of us in business do not have to contend with the radical proposals made by the party opposite, such as the extraordinary suggestion to force business owners
to give employees first dibs on buying a business put up for sale by its owners, or the proposal mooted by the leader at the time for compulsory work councils for businesses employing over 49 people. I am thankful that we do not have to contend with a Government intervening on pricing or with other anti-business measures, particularly the idea of greater taxation on medium and larger businesses, which would be to the detriment of small businesses. Those of us on this side of the House who understand aspiration know that that aspiration applies equally in business. However, I will leave it to the party opposite to explain those proposals and confirm that it no longer supports them.
As the Minister knows, this does not mean that there are not challenges ahead and important issues that need to be addressed by this Government. I would like to run through just a few of these that I hope might be picked up in the legislation introduced by the gracious Speech.
First, we need to keep our foot to the floor in encouraging entrepreneurship and making sure that the UK is seen as the place to start a business and grow it; otherwise, the momentum gained in the last Parliament could stall. One way to do this is to liberalise the entrepreneurs’ relief, which, to their credit, was brought in by the last Labour Government. Currently, a 5% minimum shareholding is required to be eligible for that relief. This discriminates against smaller shareholders and distorts economic activity. Indeed, I have seen one company recently refuse to take in fresh equity because it would dilute certain shareholders below 5%. The employment test for that relief should be scrapped. Business mentors, angel investors and academics who invest not just capital but time and advice should not be prejudiced against being eligible for that relief.
Specifically, the absurd lifetime cap of £10 million should be abolished. We are talking about creating a market for the world’s most ambitious entrepreneurs, who want to start not just one business but many, some of which will be global titans. Scrapping the limit will encourage them to do this in the UK.
To further support entrepreneurship and the growth of companies, I am delighted to see the inclusion in the Queen’s Speech of the enterprise Bill, promising as it does to cut down on red tape and, as we have heard, saving businesses £10 billion in this Parliament. I was a member of the DTI—as it was it then—deregulation task force in 1996 and the area that I focused on, as it happens, was business rates. I am therefore delighted to hear that this matter is finally going to be addressed and use this opportunity to welcome to the House the noble Lord, Lord O’Neill of Gatley, whose appointment is welcomed not just here but by the business community and the financial community worldwide as recognition of the importance attributed to this area by this Government. I am also delighted that my noble friend Lord Maude of Horsham, who created the DTI deregulation task force, will be at the forefront of BIS and will, with the Minister, continue our efforts to spread the wings of UK business still further.
In addition to cutting red tape, the Bill should enforce greater transparency with respect to regulators to make sure that they comply with their statutory obligations. I want to emphasise that the reach of the
Bill must extend to the financial services, as I am sure that the noble Lord, Lord O’Neill, will recognise, and in particular to the FCA. After a financial crisis such as we have had, it is vital that the regulator acts to restore trust in what is still a very important industry in the UK, yet I am increasingly concerned that the FCA is pursuing an agenda that, at least in respect of smaller firms, is lacking in transparency and accountability. Decisions made by an ombudsman or individual within the FCA can have extremely wide implications and affect the availability of financial products to the detriment of both consumer and provider. I ask the Minister to ensure that the enterprise Bill looks at this area, which is threatening growth in the UK’s financial services industry.
I have expressed concern in this House in the past that insolvency practitioners become administrators. I hope that this will be addressed. I would also like to lend my support to the trade unions Bill. To improve business confidence further, our labour laws must work in the interests of employers and employees alike, not the trade union bosses. Introducing a 50% minimum voter turnout threshold for strike action is therefore fair and proportionate. I accept the assertion made by the noble Lord, Lord Mendelsohn, that he is not personally financed by unions, but others are.
Having just come through a credit crunch, we need to look again at the supply of business finance in our economy, so hats off to the Government for creating the British Business Bank and the business growth fund, mainly on the equity side, but we should be concerned about the return of “covenant-light” lending from the banks and, specifically, from debt funds. Some of these covenant-light loans are originated on the assumption that if they turn bad they can later be offloaded to vulture funds without any cost to the debt providers. This is bad news for the borrower. It is far better to make sure that the terms of the loans do not allow their sale and are more responsible in the first place. This is crucial for financial stability. We need to learn from 2007-08 that covenant-light loans will inevitably lead to reckless borrowing. I am sorry to advise your Lordships’ House that such loans are back in the market. I therefore urge the Treasury and the Bank of England to revisit controls over covenant-light lending with some urgency. I at this point express my great delight that the noble Lord, Lord King of Lothbury, a world expert on this matter and to whom this country owes so much, has made his maiden speech today.
Likewise, it is time to take a serious look at tightening the rules on tax deductibility of debt interest, because what we have now is simply an incentive to load debt on to the balance sheet of companies. This is not in the interests of the long-term viability of the businesses concerned or of the country as a whole. With the OECD looking at this issue, in a piece of work championed by the Prime Minister no less, it is time for the UK to come in from the cold and bring its approach more into line with the emerging global consensus on debt relief, where at least deductions are limited.
Therefore, there is much still to be done. One thing we can be sure of is that the election result and the Queen’s Speech that has followed are undeniably good
news for business and the UK economy. I believe that the growth that we have enjoyed recently will continue unabated and we should be proud that Britain has shown the way in how to run a competitive economy that benefits all its people, businesses and workers alike. Long may this continue.
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Baroness Drake (Lab): My Lords, the Governor of the Bank of England recently stressed that productivity performance is the single most important driver of prosperity and growth in wages, but productivity in the UK has not improved in eight years, breaking a trend of around 2% annual growth. The FT reports the Conference Board as showing that, on the measure of total-factor productivity, the UK has suffered three consecutive annual falls. The drop in productivity growth is a global problem, but, as the IMF observed, it is deeper in Britain than in any other member of the G7. The ONS reports that UK productivity slow-down is three times as great as in the rest of the G7.
The Government have announced through Her Majesty’s gracious Speech a series of supply-side reforms. The MPC offers three possible explanations for the problem: low interest rates and lenders’ reluctance to crystallise losses, allowing inefficient businesses to survive; weak business investment; and the growing proportion of lower-skilled employees, which has been bad for output per hour. I comment on this latter explanation.
The UK has a flexible labour market, and the Chancellor’s further drive to deregulate it has not made productivity rise. Indeed, it fell in the last quarter of 2014. Wages may have begun to increase, but productivity has to improve if growth in real earnings is to be sustained. The Government should consider raising the national minimum wage to much nearer the living wage as part of their portfolio of measures to drive inefficient firms to be more productive, to reduce welfare expenditure and to raise the living standards of lower earners.
According to the Centre for Policy Studies, the evidence suggests that increases in labour costs in low-paying firms have been met by increases in labour productivity, not from reductions in employment but from increases in total-factor productivity, and that raising wages at the lower end of the labour market can improve productivity. One hundred and forty research projects from the Low Pay Commission show that the minimum wage had little negative effect on employment even when the rate increased faster than average wages. Yet some sectors and businesses remain stuck in a low-pay, low-productivity cycle that is self-perpetuating. The way in which some companies operate means that increasing numbers of workers are reliant on in-work benefits. In 2014, around 1.2 million over-21s earned the minimum wage, a proportion doubled since 1999, and a further 1.1 million earned within 50p of that minimum. This year, nearly £30 billion will be spent on tax credits to top up the low wages of those in work. Taxpayers are subsidising company pay bills. Seventy per cent of tax credits are paid to in-work families and by far the biggest increase in the tax credit bill has gone to such families, not to out-of work families.
The CPS, whose head of economic research argues the case for raising the national minimum wage as part of a portfolio of measures, demonstrates using data from the Labour Force Survey and the IFS that for every £1 increase in low wages the Government get a 50p fiscal boost due to lower welfare payments and higher tax revenue from higher incomes. Only a quarter of FTSE 100 companies have signed up to the living wage.
Too many British businesses operate on low wages and low productivity. The overall rate of return for British companies in 2014 hit its highest level in nearly 20 years. Profits drive growth and employment. Successful businesses are the bedrock of a growing economy. However, recent growth has within it declining labour productivity and a polarisation of jobs. The employer benefits from flexibility, but risks are transferred from the employer, through the employee, to the taxpayer. When an employer has a limited obligation in the wages they pay, the universal credit system takes the downside risk. This is a disincentive on employers to increase their productivity. Simply cutting tax credits without increasing the minimum wage will simply make working families poorer and reduce productivity even further.
Yes, low-paid workers should be able to keep more of what they earn and be better off in work. The Government are focused on increasing the personal tax allowance to address low pay. However, they are also reducing the work allowance—it is frozen for three years—which is the amount a family can earn before benefits are reduced and is crucial to making work pay. It is an inefficient way of improving incomes for many working families, because increases in net income as a result of reduced income tax payments increase household income brought to account for some benefit purposes and universal credit, thereby reducing the value of benefits received and offsetting the reduced income tax gains.
If low earners were taxed less and paid a higher national minimum wage, public expenditure on in-work benefits would be less, incentives to work would almost certainly be stronger, and companies would be incentivised to increase productivity. It would also benefit the many part-time employees on very low earnings who pay little or no income tax and so benefit little from increases in the personal tax allowance.
I conclude by congratulating the noble Lord, Lord O’Neill of Gatley, on his maiden speech. I hope his desire to increase productivity and drive growth throughout the north and other areas of the country remains a passion, because it certainly should be a passion.
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Lord German (LD): My Lords, before I address the remarks made by the noble Lord, Lord O’Neill, in his excellent opening speech, I should like to add a supporting measure to the comments on tourism made by the noble Baroness, Lady Liddell. As a Minister for economic affairs in Wales with responsibility for tourism, I resisted every attempt to push that portfolio into the culture and sport portfolio. The main reason for that was that tourism is an economic driver and contributes
7% of GDP in Wales. A huge amount of its growth is possible through tourism and it was important to maintain it as an economic driver.
I wish to address my remarks to the comments made by the noble Lord, Lord O’Neill, and many other noble Lords about the productivity issue, particularly the need to see it as one of the principal inhibitors of growth in our economy. I shall focus on one factor on the issue of increasing productivity, and that is in-work progression—helping people to progress within work both financially and in self-esteem. I wish to link these remarks to the full employment and welfare benefits Bill and to address some of the wider implications of that Bill. As the Bill has both the words “employment” and “welfare benefits” in its title, and as it spans the responsibilities of BIS and the DWP, I apologise if I stray across the subject areas scheduled for debate both yesterday and today.
The elephant in the room facing Treasury Ministers is the proposed £12 billion cuts in the welfare bill. I shall not venture into the landscape of where the Government are going to make those savings—after all, all efforts to find the answer to that question failed during the general election, as they did in this House yesterday—but the Prime Minister’s announcement a few days ago that child benefit and child tax credits will not be touched leaves the only credible answer to the question of where the cuts are to come as housing benefit and disability benefit. In themselves, these cuts will work to the detriment, with job-related impacts, in particular relating to in-work progression.
These issues are closely linked to the real progress that we can make on ensuring employment opportunities for our country. The challenge for the Government will be not only to get people into jobs but to ensure that they can have in-work progression in the number of hours of work they are offered and in their rate of pay. The full employment and welfare benefits Bill presumes that the savings in the welfare benefits element will go in part or in full to pay for the promises in the full employment element. The Treasury question to be asked at the outset is whether the envisaged cuts in welfare are savings to contribute to deficit reduction or savings to be reallocated to other areas of government.
The information we have so far on the Bill is that the savings from the welfare element are specifically to fund new apprenticeships and to increase support for the troubled families initiative. The IFS’s analysis of the matter is that that would account for £130 million a year to put to those issues. Is the £12 billion still a separate amount? I would value an answer to that question from a Treasury Minister.
The Government’s Bill is about a series of sticks and carrots, incentives and sanctions, to meet their policy objectives but there appear to be more sticks than carrots. The policy of providing more opportunities for jobs is laudable, but it requires an appropriate mix of incentives and sanctions. There is no doubt that the previous Government achieved a great deal in sourcing jobs and getting people into work, but the challenge now is not only getting people through the doorway into work but ensuring that they have an income which permits them not to fall back on to state benefits.
The current statistics are stark. The noble Baroness, Lady Drake, mentioned £30 billion of tax credits and, according to the House of Commons Library, over £5 billion last year was paid out in housing benefit alone to people in work. The figures and the numbers are growing and this is a recurring feature of universal credit as it is rolled out. I agree that work remains the best route out of poverty and that is why universal credit is so important. Its successful implementation will mean a route into meaningful employment.
However, there are potential incentives the Government can provide to assist working households to increase their earnings. That might mean through a continuation of the Access to Work programme of support to get people into work and to help them to get the skills and self-esteem that they need to progress within work.
As to the sector facing the most difficulties in accessing a job—those with disabilities—yesterday in your Lordships’ House the noble Baroness, Lady Campbell, told us that 52% of working-age people with a disability are out of work and that many wish to work. There are some incredible examples of where people with a disability have found work and are contributing fully to the economic life of our country. However, for many there is a need for support. The Access to Work programme paints disability with a single brush and the Government intend to make this worse by trying to get more users out of the same amount of money.
Each person with a disability has different needs. For a deaf person it could be the provision of sign language; for a wheelchair user it could mean physical adaptations, including widening doors and putting in ramps. The Government’s ambition is to halve the disability employment gap. Does that mean that the Government’s target is that 25% or less of people with disabilities will be unemployed? More importantly, what is their target? Is it to increase the rate of employment among people with disabilities from 48% to 75%? That is a big challenge.
The big challenge of improving productivity is closely linked to these elements of work progression. The dramatic cuts which are threatened to in-work benefits will have a major impact not only on helping people into work but on enabling them to progress in employment and creating that sustainable productive economy which is the wish of all Members of this House.
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Lord Aberdare (CB): My Lords, I shall speak about two topics that were less prominent in the gracious Speech than I hope they will be in the Government’s overall programme for business and the economy: namely, apprenticeships and digital skills. Both are vital to tackling the challenge of improving UK competitiveness and productivity, which was so rightly emphasised by the noble Lord, Lord O’Neill, in his fine speech and by several other noble Lords.
I welcome the Government’s target of 3 million new apprenticeships and the commitment, via the full employment and welfare benefits Bill, to report annually on progress towards its achievement. However, I have some questions about how it can be achieved and how the Government will ensure that quantity is matched
by increased quality. Reaching the 3 million target will require significant growth in the number of apprenticeships on offer, particularly from small and medium-sized enterprises. Many SMEs, and, indeed, larger employers, have been distinctly wary about offering apprenticeships. They worry about the costs involved, the bureaucratic and management burdens, and their ability to provide continuing work for an apprentice over the length of time involved.
A real effort is needed to persuade more firms, especially SMEs, to offer apprenticeships. Possible initiatives might include a sustained, high-profile marketing campaign to sell the benefits of apprenticeships, including powerful case studies; an enhanced system of incentives, including for approved independent bodies helping to broker apprenticeships, such as chambers of commerce or local enterprise partnerships; and specific support and encouragement for mechanisms designed to make apprenticeships easier for small employers, such as employer-led apprenticeship training agencies which undertake the tasks of recruiting and managing apprentices on behalf of a consortium of small employers, either on a geographic or a sectoral basis.