Apprenticeships need also to be of high quality. We need more higher-level, longer-term apprenticeships, as the Government have recognised, and, above all, apprenticeships need to lead on to actual, sustainable jobs. Like the noble Lord, Lord German, I find it startling that there seem to be no clearly defined ladders of progression through the various levels of training: for example, from traineeships on to apprenticeships and then into full-time jobs. Surely there should be some sort of account management for young people entering work experience, so that on completion of each stage they receive guidance on possible progression routes that they might follow at the next stage. This links to the need for a much better system of careers advice and guidance than currently exists. I hope that the plan included in the same Bill to provide Jobcentre Plus adviser support in schools across England will help address this.

Another concern is the challenge of proliferating apprenticeship standards. According to the Federation for Industry Sector Skills & Standards, which is the single certifying authority for all apprenticeships in England, there are currently 200 standards under development by 96 so-called trailblazer groups. It is estimated that ultimately some 1,500 standards may be needed, with at least 150 development groups. We need clearly defined processes for managing this complexity and avoiding unnecessary duplication, and for maintaining all the standards after their development groups have disbanded. I therefore hope that the Minister will be able to tell us something about how the Government plan to persuade more employers, especially SMEs, to offer apprenticeships and to ensure that the overall quality and sustainability of apprenticeships is raised.

Digital skills are equally important to productivity and competitiveness. I had the privilege last year of serving on your Lordships’ Select Committee on Digital Skills, along with the noble Lord, Lord Haskel, who has already spoken, and the noble Lord, Lord Macdonald of Tradeston, who is about to speak. The committee published its report in February with recommendations

4 Jun 2015 : Column 561

specifically aimed at this new Government. The copious evidence we received made it absolutely plain that the need for digital skills is not confined to what might be called technical sectors, let alone the information technology sector itself, nor only to people wishing to become technologists.

Digital skills are universally required by every sector—from robotics to fashion design—by every worker and increasingly by every citizen. The Tech Partnership, recognised by government as the industrial partnership for the digital industries—and so a key player in meeting the digital skills challenge—now comprises more than 500 employers from every industry sector across the UK economy. There are huge and growing opportunities in the digital economy, and the UK is in many respects well-positioned to grasp them, but at the same time the risks to our competitiveness of not stepping up to the challenges in this area are drastic. The Tech Partnership estimates that 134,000 new tech specialist workers are needed in the UK workforce every year, but employers are finding it hard to recruit for these jobs. A further alarming constraint is that only 17% of entrants into the sector are women.

The committee’s report identified the need for an overarching and ambitious digital agenda for the UK, co-ordinated by government acting as “conductor of the orchestra” of all the different interests involved, particularly in business and education, and with a Cabinet-level Minister having overall responsibility. Key elements of such an agenda would include recognition of high-speed broadband access as a utility service, so that everyone, whether in a remote rural area or one of the so-called urban “not-spots” where broadband coverage is currently poor, should be able to use the internet freely and effectively. Digital literacy should be seen as a third critical skills dimension, along with literacy and numeracy. Digital skills should be embedded within every level of education and training in schools, colleges and universities, as well as in all apprenticeships.

Now is not the time to rehearse all the recommendations of the committee’s report. The only other one I will mention is the recommendation that:

“Regional and sub-regional strengths are recognised and encouraged”.

In that context I welcome the Government’s commitment to the concept of the northern powerhouse. There are already good examples of effective regional technology clusters in the north, such as Sunderland Software City, a private sector, publicly backed organisation whose aim is,

“to generate a sustainable software industry in the region and drive the development of world class software businesses”.

The title of the committee’s report is Make or Break: The UK’s Digital Future and I believe that that phrase in no way exaggerates the importance of this issue. I hope that the Minister will be able to say how the Government plan to address it, across all departments, with urgency, vigour and commitment, and in partnership with other key players in business, education and the regions, as a central part of their efforts to enhance UK productivity.

4 Jun 2015 : Column 562

2.06 pm

Lord Macdonald of Tradeston (Lab): My Lords, I follow the noble Lord, Lord Aberdare, in concentrating on the full employment and welfare benefits Bill, which hopes to achieve full employment by helping to create 2 million new jobs. The gracious Speech gave Ministers new duties to report annually on job creation and apprenticeships and to report progress towards, among other things, the Government’s target of 3 million new apprenticeships by the end of this Parliament in 2020. The duty to report annually to Parliament is particularly welcome in relation to apprenticeships. As the noble Lord, Lord Aberdare, explained, concerns persist about their availability and standards, and about whether apprenticeships are now defined too widely, to the detriment of school leavers.

By outlining some of these concerns, my hope is that, through the discipline of annual reporting, such concerns will be addressed and progress better measured. If so, we can reinforce the achievements of previous Governments, which were significant. Like many noble Lords, I was saddened by the long decline of traditional craft apprenticeships. In 1997, the new Labour Government found apprenticeship starts had fallen to just 65,000 a year. However, by the end of the third Labour Government in 2010, new starts had risen to 280,000 a year. Even so, the demand by young people for places still far outstripped supply.

The growing cross-party consensus and the need to improve and expand vocational training was further strengthened by the coalition Government, which pledged to increase the number of apprenticeships to 2 million across the last Parliament. But it was the way in which the coalition achieved its target which raised questions that the new Government should now address directly through their annual reports to Parliament. For instance, research funded by the Local Government Association, which is to be published by the Institute for Public Policy Research this month, claims that, since 2010, 42% of apprenticeship starts have been by people over the age of 25, rather than by young people starting work. The IPPR also reports that two-thirds of those starting intermediate and advanced-level apprenticeships were already employed by their companies. The concern is that public money is being used by companies to train their existing staff, which is not an apprenticeship as commonly understood. The LGA says that,

“too many new apprenticeships are low skilled and taken by older people already in work with their employer. Too few new apprentices are school-leavers trying to get their first job”.

Can the Minister say whether the Government share this concern? At present, only about 10% of companies offer apprenticeships and about half of large UK companies employ no apprentices. Given the money and responsibility devolved by the coalition Government to companies, which I support, can we expect the first annual report on apprenticeships to show increased corporate involvement?

That greater employer involvement is especially important in key sectors of the economy such as construction and engineering, where the skills gaps are alarming. The construction industry is expected to create 180,000 extra jobs in the next few years, which is good news. The problem is that the number of building

4 Jun 2015 : Column 563

workers retiring will be more than 400,000 by the end of this decade. Perhaps even a skills gap of that size can be closed by importing still more building workers from abroad, but little wonder the Local Government Association says that too few school leavers,

“are getting the construction skills to build the homes and roads our local communities need”.

When it says “too few”, that perhaps refers to just 7,300 apprenticeships across the whole construction industry in 2013, despite those potential vacancies numbered in the hundreds of thousands. There is a similar yawning skills gap in engineering. By 2022, to satisfy the estimated need for 1.8 million people with engineering skills, the number of apprentices and graduates entering the industry will have to double. Can the Minister offer evidence of significant progress in boosting apprenticeships in construction and engineering?

As we have heard, another related concern of great importance is the urgent need to develop digital skills. My noble friend Lord Reid cited the UK’s underperformance in cyberspace. My noble friend Lord Haskel and the noble Lord, Lord Aberdare, in discussing productivity, told the House that earlier this year your Lordships’ Select Committee on Digital Skills, of which I was also a member, published its report, entitled Make or Break: The UK’s Digital Future. We heard evidence that the impact of digital technology on the labour market might put 35% of UK jobs at risk of being automated over the next two decades. The committee recommended that the new Government of May 2015 should develop an ambitious digital agenda to enable the UK to compete with the leading digital economies by the end of this Parliament. We also concluded that a better co-ordinated response across government was a high priority for action in schools, colleges, universities—indeed, in almost every sector of our economy—to ensure that the UK adapts rapidly to this unstoppable digital revolution. Specifically on apprenticeships, we suggested that a government objective should be the inclusion of a digital skills element in all apprenticeships.

I look forward to the Government’s response to our report on digital skills and the subsequent debate in your Lordships House on its recommendations. The UK’s pervasive skills shortages and the profound impact of the digital revolution require a strong, co-ordinated response across government. I hope that our make-or-break agenda for action is seen as a constructive contribution to future strategy. If in doubt, the Minister might ask her colleague, the noble Earl, Lord Courtown, who was a member of our committee and who knows a great deal about the subject.

2.13 pm

Baroness Wheatcroft (Con): My Lords, I add my voice to those who have congratulated my noble friend Lord O’Neill of Gatley and the noble Lord, Lord King of Lothbury, on their maiden speeches. In my former life I used to listen to them both intently and I shall continue to do so. My noble friend Lord O’Neill is, of course, known for his acronyms and the noble Baroness, Lady Liddell, suggested that he should come up with some more. I am confident that he will bring

4 Jun 2015 : Column 564

us all the PIES: productivity increases, infrastructure investment and economic sustainability. I will say a few words on each.

A lot has already been said about productivity. Recently, the Bank of England’s experts produced an article trying to analyse what the causes were. Of course, they talked about low skill sets and pointed out that, after Spain, we have the lowest proportion of unskilled labour of any country in the OECD, but they confessed that they were unable to explain the full extent of the productivity shortfall. I will throw in one suggestion: too often, our management is not up to scratch. There is real reluctance in this country to part with people who clearly are not the right people in the right jobs. There is a big contrast with the United States in that. When Jack Welch ran General Electric, he was renowned for saying to one-10th of his managers every year that both they and the company would be better off if they changed direction. While not advocating a 10th every year, too often we do not have the right management taking our companies in the right direction.

We have too much regulation and the gracious Speech promised us a Bill to cut red tape. In our new Business Secretary, Sajid Javid, we have somebody who actually knows about business. As he said, he grew up living over the shop. I have every confidence that he will slice through the red tape. I hope, too, that our new Government will be able to bring us the Transatlantic Trade and Investment Partnership. It has stalled so often, but if we can get it through it will bring huge benefits to this country.

I should like to think that the local enterprise partnerships, which are already proving so successful in parts of this country, will now be built on by the Government. They vary incredibly in what they can do and in the calibre of people working there. They could do a great deal more for small businesses. As others have said, much of our future lies in growing the small businesses that we have. At their best, local enterprise partnerships can really help there; they need government help and to benefit from talking to each other. The Federation of Small Businesses has produced an in-depth report looking at how these organisations function and suggesting ways that they might do better. Too often, they are governed by big business and do not cater for the needs of small business.

What else could we do that would benefit productivity? How about remuneration? A new report has come out this week from the Chartered Management Institute, which refers to an,

“unacceptable discrepancy between pay and performance”,

in Britain. It looked at 72,000 employees and found that 30% of those rated as “not meeting expectations” were paid a bonus. That is quite hard to understand. When it looked at higher-paid people and directors, it found that it was not 30% of people who had not met expectations who received bonuses, but more than 40%. Clearly, we need to look at remuneration again.

The noble Baroness, Lady Drake, spoke at length about low pay and the link between low pay and productivity. While it is not an issue for government to legislate on, as others have remarked—we do not want too much legislation—it is up to shareholders to begin to put more pressure on companies to distribute the rewards of growth a little more fairly. It cannot be

4 Jun 2015 : Column 565

right that the gap between the top and the bottom is now so great that the people at the bottom are being subsidised by taxpayers while the people at the top get huge bonuses. I would like to see shareholders really wake up to this and do a bit more.

Going back to those PIES, on infrastructure we have heard about HS2. My noble friend Lord O’Neill pointed out that he has not always been the strongest advocate of HS2 beyond all else—perhaps the east-west connection is at least equally important—but there are much smaller things that impede this country’s efficiency. Since it was in the Conservative manifesto, I see no harm in reminding people that we are apparently pledged to fill 18 million potholes before 2021. I do not know who counted them but it is there in black and white.

We have done a good job so far on economic sustainability but there is a long way to go. I point to one issue where I have concerns. We have got through one financial crash but where will the next one come from? A former chairman of the Federal Reserve in the States, Paul Volcker, said that he could think of only one financial innovation that had been of any benefit to the public in the past 20 years, and that was the ATM. I am inclined to agree.

I am fearful about algorithmic trading. I do not know whether noble Lords have read Flash Boys by Michael Lewis. It is quite a scary tome and points to something that is the very antithesis of investment—and investment is what we need. Therefore, I ask the Minister to investigate whether the regulators are looking at this carefully enough.

2.20 pm

Lord Clement-Jones (LD): My Lords, it is a pleasure to follow the noble Baroness, Lady Wheatcroft. I agree with much of what she said.

These debates are often much more about what is not in the gracious Speech than what is in it, especially in the context of business and the economy. The UK’s creative industries have been one of the great success stories of the past five years. Significant policies benefiting these industries were developed during the coalition Government. I pay tribute to Vince Cable for all his work as the Business Secretary.

I want to see creative businesses continue to thrive across the whole country so that our economy can continue to reap the benefits. It is vital that we do not lose the momentum. Will this Government build on the achievements of the last? That is the question. I welcome the fact that both the Minister and Ed Vaizey are Ministers shared jointly now by DCMS and BIS to ensure that creative industry policy is fully joined up. To maintain that momentum we need to encourage clustering of creative businesses developed through alliances between central government, local authorities, universities and the private sector in our major cities. Our cities and many counties need greater powers, especially over finance. I therefore welcome in principle the proposed cities and local government Bill as part of the Government’s northern powerhouse strategy. I add my welcome to that of others to the noble Lord, Lord O’Neill, whose presence in government is so welcome and whose passion for delivery of the northern powerhouse strategy is so apparent.

4 Jun 2015 : Column 566

The noble Baroness and Ed Vaizey represent valuable continuity for the sector. I welcome John Whittingdale to his new role, with his enthusiasm for intellectual property and live music in particular, and his background of 10 years as Culture, Media and Sport Committee chairman. I am sure that a brief spell for Sajid Javid at the DCMS has given him a useful insight into the fundamental relationship between the arts and our creative industries.

Many noble Lords have talked about development of digital skills being vital. Expansion of digital platforms has highlighted the growing convergence of creative content and the tech sector. Skills in the arts and sciences are increasingly drawn together. Will the Government promote the value of creative subjects in schools and ensure that they are rewarded for offering a broad and balanced curriculum? The number of apprenticeships created and taken up in the creative industries has expanded hugely in the past few years. I hope that they will enhance the co-ordination of action on skills by merging the two skills councils, Creative and Cultural Skills and Creative Skillset, into a single powerful and effective body. Will the Home Office break the habit of a lifetime and ensure with BIS that the tech and creative industries are able to fill the gaps in high-end skills, from abroad if necessary?

As we have heard today, our broadcasters are the linchpin of the creative industries and there are some key questions in that regard. Will the Government maintain Channel 4 in public ownership? Will they follow up the consultations started in March on Section 73 of the Copyright, Designs and Patents Act, which requires public service broadcasters to give away their most valuable product—their channels—to the pay-TV cable platform in the UK, and repeal it? We had a mini debate on the BBC today and contributions on the BBC were made yesterday. Under John Whittingdale’s chairmanship, the Culture, Media and Sport Committee produced a valuable report on the future of the BBC with many useful observations and recommendations, including on governance and extension of the licence fee to iPlayer-only users, which can, and no doubt will, be taken forward into the charter discussions—and so too, I hope, will the committee’s views on the need for open and transparent discussions on the charter. Will there be a full and open debate on any decriminalisation proposals and will the potential financial cost of such a policy to the BBC be fully recognised? We need strenuously to protect the independence of the BBC. Currently, the licence fee is the best way of doing that. However, that does not mean that it needs to rise faster than inflation.

Investment in the UK’s creative industries can only really make a difference if their intellectual property rights, particularly those relating to the protection of their online materials, are properly understood and enforced. It was good to see the acknowledgement in the Conservative manifesto of the importance of intellectual property and of proper behaviour by search engines. However, I was rather baffled by some of the statements in the manifesto. It says:

“We will protect intellectual property by continuing to require internet service providers to block sites that carry large amounts of illegal content”.

4 Jun 2015 : Column 567

I do not recall that we were able to persuade the last Government to bring in any legislation to do that. The legislation remained unenforced on the books, so I think there are questions to be asked about that. Is it not crucial that we should educate consumers on the importance of intellectual property and support initiatives designed to get voluntary agreement from the advertisers and credit card companies not to advertise on infringing sites? Will the Government continue to support the long-term funding of the Police Intellectual Property Crime Unit, or PIPCU, which carries out such vital work? Will they increase sanctions relating to online offences in line with the recent government review of penalties for online copyright infringement, Penalty Fair?

I regret that we shall spend the next two years arguing about membership of the EU. I hope that, at the same time, the Minister will find time to work with our EU partners to ensure that proposals for copyright reform as part of the single digital market proposals do not damage our creative industries by limiting territorial licensing.

I very much hope that the Government will continue discussions with artists and creators on extending the law governing unfair contracts to include intellectual property contracts. I very much hope that, when possible under EU law, the application of public lending rights to remote e-lending will be extended.

I have little time left but I very much hope that the Government will continue to promote the value of live music despite the powers created in the Anti-social Behaviour, Crime and Policing Act, which are already being used disproportionately. I agree 100% with the noble Baroness, Lady Liddell, and with the comments made by my noble friend Lord Lee yesterday, on the importance of our tourism industry, which so far, even after five years of the last Government, has been treated as a Cinderella and holds such promise for job creation in the years up to 2020. Time will tell. I look forward to future debates and discussion on all these policy areas.

2.28 pm

Lord Desai (Lab): My Lords, I congratulate my noble friend Lord King of Lothbury on his joining the House and on his brilliant maiden speech. I think that we have known each other for more than 40 years, although I do not know the exact figure, so it is good to see him in this place.

I also welcome the Minister, the noble Lord, Lord O’Neill, who made a brilliant maiden speech, as we expected. When I saw him in the Royal Gallery I told him that we intend to give him a very hard time—and I think now is the time to start. Let me say to him first of all that he promised to cut red tape and save £10 billion. I have been here 24 years and I have heard that about 10 times. The gains are illusory and the red tape is seldom cut because the committee appointed to cut red tape does not care to meet as often as the Government would like. Therefore, red tape shall continue to be slashed and cut and we shall go on having fun along the way.

I have been a friend of austerity, much to many other friends’ dismay. I advocated it before the election of 2010 and I stick by that. The debate is no longer

4 Jun 2015 : Column 568

about whether or not we should have austerity but about the pace and the size. As the noble Lord, Lord Turnbull, said, he prefers my party’s time shape of austerity and deficit reduction to the Government’s, but we are no longer questioning that the deficit has to be reduced. That is at least one plus. I know that the OECD is saying that the deficit should not be reduced so rapidly, and so is the IMF. When those two agree, I really think something should be done. We have to doubt their advice. It is frequently wrong.

One thing that will determine the time shape of the deficit is not the economics but the politics. Since the Government are going to embark on this EU referendum saga, whatever the result will be—and I believe it will be a decision to stay—the Government’s trouble will start the day they win the referendum because their Back Benches will give them hell. I was here during the Major Government and I remember how much a Conservative Back-Bench rebellion can affect government performance. So I say to Ministers: do what you can do in the first two years and later your lives are not going to be comfortable.

That having been said, I add my words to the warnings other people have given. It is possible to believe six impossible things before breakfast and say many inconsistent things before the election, but once the election is won we ought to pause and say that this mad promise not to raise taxes—income tax, VAT and NIC—is not only irrational and fiscally irresponsible but unnecessary to implement. If the Government are going to implement this mad proposal, they will make their lives much more difficult than before. Again following the speech of the noble Lord, Lord Turnbull, and I think some other noble Lords said this as well, if we revalue properties across the UK—the challenge that the Thatcher Government flunked 30 years ago and we had the saga of the poll tax—the Government could promise to cut the rate of council tax and increase their revenue. That is a combination I do not normally offer to people. It is a real tax-cutting thing but just revalue properties and you will be able to harness the capital gains people have made over the number of years. You can even say, “Thanks to a Tory Government, people have got richer so we are going to tax them”. That may actually reduce your burden.

I have a wheeze, a little scheme—it may or may not work—which is now that interest rates are so low, it will be possible for the Government to issue 100-year bonds like the Spanish Government have done at a 0.5% rate of interest or whatever and repay the existing debt, which has a much higher service charge. I do not know whether it is possible. Some experts may doubt it, but whatever the service charge of that debt is, and I think it is about 4% or 4.5%, you could reduce it much more and release some money for spending on good things such as HS2 or something like that. Maybe the Minister will put me down properly and tell me that my numbers are completely wrong.

I will say something about productivity. This is a snare and a delusion. When we had an economy largely producing solid things—in agriculture, manufacturing or even transport—it was possible to define productivity somewhat precisely. Then we had the sort of growth model where we all got hung up on productivity and total factory productivity and all that. That is no

4 Jun 2015 : Column 569

longer the economy we have—not only us, even the US economy is finding productivity growth low. The noble Lord, Lord O’Neill, said that there are statistical problems. They are not statistical, they are conceptual. If a large part of your economy is in services, there is no way of defining productivity. I do not know what the productivity is of a childcare worker or somebody who takes care of the elderly or a physical fitness instructor or your shopping manager or whatever it is. We really have to say that there are jobs which, even if we use the old classical terminology, are surplus-producing sectors and there are jobs that are welfare-enhancing. Only the surplus-producing sector can help productivity as normally defined, and the larger your welfare-enhancing labour force, the lower your productivity level and growth. That is a short lecture. I cannot take another 35 minutes with this.

Lastly, as my noble friend Lord Reid said, we may be on the verge of another big asset bubble and another crash. The merger and acquisition numbers are frightening. Again as my noble friend Lord Reid said, people are buying and selling existing equities and bonds but they are not investing in any new productive activity. This is a classic effect of a sort of Wicksellian cycle in which we have a very low interest rate and any profit rate would make it feasible to borrow. People are borrowing and buying equities back and forth. This will crash, no doubt, and I hope that when it does, the noble Lord, with his expertise in the financial markets, will be able to get us out of it.

2.37 pm

Lord Skidelsky (CB): My Lords, it is always a great pleasure to follow the noble Lord, Lord Desai. We seem to be yoked together like a pair of terrible twins, perhaps on the theory that at least we understand what each other is saying even if no one else does. It is a great pleasure to welcome the noble Lord, Lord King, to this House, and the very powerful speech of the noble Lord, Lord O’Neill, promises strenuous mental exercise over the coming months and years.

Praise where praise is due: there are several good things in the gracious Speech. It is strong on aspiration and there are some sound implementing measures promised. It is a good idea to take people working 30 hours a week on minimum wages out of income tax. Can the Minister explain how many are expected to benefit from that measure?

I particularly welcome the goal of building a northern powerhouse, and look forward to the Cities and Local Government Devolution Bill, which will provide for an elected mayor of Greater Manchester and possibly elected officials in other conurbations. Elected mayors are vital to the strength of local government. Some of us on the House’s Economic Affairs Committee hearing evidence about HS2 were struck by the weakness of the northern voice. It would have been better, I think, to have started the scheme by reducing transport costs in the north of England rather than spending a huge amount of money in the next five years reducing train times from London to Birmingham by 15 minutes. Elected mayors in the big cities will help to redress the London bias which has too long dominated our economic life.

4 Jun 2015 : Column 570

I welcome the aspiration in the gracious Speech to “full employment” and job security. I emphasise aspiration because there is no indication of how either goal is to be achieved. In particular, how does the aim of job security square with the large increase in insecure jobs over the last five years through temporary work, exploitative self-employment, zero-hour contracts, agency work and so on? Evidence suggests that about 5 million working-age adults are in such precarious jobs, and they account for much of the increased employment of which the Government boast.

This growing population of the working poor contributes to the amply documented rise in inequality, which has been growing since the 1980s and has accelerated since the onset of the crisis. Austerity has contributed significantly to this by reducing the share of income going to wage earners. The gap between rich and poor is now almost as great as it was before the First World War. This is morally unacceptable, socially divisive and economically destructive. In particular, it is a major cause of the collapse in productivity, to which noble Lords have alluded. I quote the Government’s briefing:

“Fixing the UK’s long-running productivity weakness is one of the government’s biggest challenges over the next five years”.

The noble Lord, Lord O’Neill, powerfully reinforced that, as did other noble Lords. Treating productivity as a long-run problem, however, disguises the fact that the most urgent problem is the collapse in short-run productivity. Between 2000 and 2008, productivity increased by about 2% a year, but since 2010 it has not grown at all. That is what is wrong with the argument of the noble Lord, Lord Desai, as it is not just a long-term problem based on the increase in unmeasurable service costs; it is what has happened in the last five years. That is what we ought to address, because most of the new jobs created since 2010 have been low-productivity jobs. How many people understand that the welcome fall in unemployment is the mirror image of the redeployment of many of the unemployed to low-productivity jobs? Real wages, as we know, have fallen since the coalition took office and apropos the noble Baroness, Lady Wheatcroft, most minimum wage jobs are not in companies that have shareholders. That is not the main problem here.

I do not want to rake over the coals of my long dispute with the coalition on economic policy. I do not doubt the Government’s commitment to sustainable growth but they see growth purely in terms of supply-side policy. It was assumed from the start that public austerity, by promoting the switching of production from the less efficient public sector to the more efficient private sector, would increase the efficiency of the economy. However, what that ignores is the effects of the policies on demand. At best, the Government have seen the problem of demand as a very short-run problem, not taking into account that a prolonged demand shortfall has lingering effects on supply. Economists have a rather horrible word for this: hysteresis, a word from engineering denoting the reduced capacity of a machine when it is disused or underused for any length of time. This has been happening to our productive system. Many, if admittedly not all, of our supply problems stem from the way that the labour market has adjusted to the austerity policies of the last five years.

4 Jun 2015 : Column 571

The Government still hanker for supply-side solutions. Of course supply is very important but it is not the only thing. They promise to introduce a bill to freeze benefit rates and reduce benefit caps for two years, in order, they say:

“To ensure that it pays to work rather than to rely on benefits”.

Of course you can always force people to work by reducing benefits but you will then get wages chasing benefits downwards in a vicious circle. What good does that do for productivity? The Government promise 3 million extra apprenticeships, which is very good, but those apprentices will need jobs to go to. Rather than the mean-spirited assault on benefits, the Government should bring forward investments in infrastructure that provide decent jobs. The Government promise a British investment bank, something that I have been advocating since 2010—better late than never—but are silent about its scope and financing. I suggest that investment projects should be targeted at the areas of higher than average unemployment, as part of the rebalancing and northern powerhouse strategy. To boost demand, the Government should take steps to raise middle and lower incomes, which will provide confidence for firms to invest. Raising the minimum wage would be a step in that direction.

It seems to me that the Government’s post-crash growth strategy relies dangerously on recreating the pre-crash levels of private debt. This is a perilous course, which risks another collapse at no distant future. In short, is that what we want? Is this the best that we can do? I think not. Let us try to do better. Let this House give voice to that better future which the leaders of the defeated parties failed to offer at the last election.

2.45 pm

Lord Farmer (Con): My Lords, I join others in congratulating my noble friend Lord O’Neill of Gatley and the noble Lord, Lord King of Lothbury, on their excellent maiden speeches. I welcome particularly the strengthened contribution which my noble friend brings to the Front-Bench Treasury team and which both noble Lords will bring to future economic debates in this House.

My noble friend Lord O’Neill underlined in his speech the need for improved productivity, as we have heard much of today, if our economy is to prosper. In this respect, I would like to contribute to this debate from the somewhat unusual angle of government family policy. I was delighted by the emphasis in Her Majesty’s gracious Speech on giving every child the best start in life. The Prime Minister made this a cornerstone of our election campaign, reiterating what he has always maintained: that the best start begins with a strong family. It is completely appropriate that a debate on the economy includes an emphasis on strong families, because they are the absolute bedrock of a successful nation. Sound management of the economy requires investment to ensure that families are productive and able to add value, instead of costing money. Helping families to get relationships right creates wealth, while failed relationships dissipate it.

With this in mind, I want to talk about the need to counter the biggest and most downplayed assault

4 Jun 2015 : Column 572

on our social fabric: family breakdown. As my honourable friend Fiona Bruce said this week in the other place:

“States have a vested interest in making families stronger. They make a contribution to society by producing a competitive labour force, caring for family members … playing an instrumental role in healthy child and youth development and putting a heart into local communities”.—[Official Report, Commons, 2/6/15; col. 531.]

Yet one-third of all children have experienced the breakdown of their parents’ relationships. That is nearly 5 million children and in percentage terms twice the OECD average and over six times as high as it is in Finland. Costing nearly £50 billion a year, it really is the elephant in the room when discussing the wider economy.

Much is made of the costs of families with complex needs, estimated to be £9 billion per year, to justify the troubled families programme. Help to turn their lives around is essential, but the tax credits and benefits bill associated with family splits across the country is almost £14 billion, with housing costs of £5 billion and health and social care costs of £16 billion. Much of this net loss to the Exchequer could be turned into tax receipts if families could be stabilised and helped to become net contributors to the economy. So as we embark on the first 100 days of a majority Conservative Government who are relentlessly focused on getting our economy on a sound footing, we must develop family policy that goes way beyond childcare and parental leave.

Making progress on this agenda will require a Cabinet-level family champion. Just as with the equalities brief, we cannot leave this to impact assessments, welcome though the new family test for all policy is. We need a Secretary of State with clear accountability, and resource at a departmental level, to prioritise the stability as well as quality of relationships and to promote fatherhood. Every government department has a role to play. For example, the Ministry of Justice should prioritise parenting and relationship support in prisons to reduce reoffending. The National Audit Office estimates that this costs between £9.5 billion and £13 billion every year—the same amount as the London Olympics. Yet reoffending rates are significantly reduced when a prisoner returns to a stable family environment.

The Department for Work and Pensions must address family breakdown as a driver of welfare dependency through its ownership of the wider social justice agenda. Communities and Local Government must ensure that couple work is included in the troubled families programme, and local authorities should address family breakdown as a root cause of poverty in local child poverty strategies.

The Department for Environment, Food and Rural Affairs should also acknowledge the strain on farming families and couples from the challenges of the rural economy, where depression and suicide are higher. Business, Innovation and Skills Ministers should work with employers to provide relationship support to reduce absenteeism. Lloyds Bank and others already do webinars on couple relationships as well as parenting.

Finally, the Department for Education and the Department of Health should work jointly on children’s and young people’s mental health. Family conflict and

4 Jun 2015 : Column 573

breakdown contribute significantly to the onset of mental health problems, so not least because of the huge associated costs this should be a priority area. But it is not. Friedli and Parsonage have calculated the lifetime cost of childhood mental disorder very conservatively at £150,000 per case, so just one year’s cohort of children with conduct disorder is costing us £5.25 billion.

As well as better mental health provision integrated into schools and other settings, we specifically need community-based infrastructure, such as children’s centres, to be far more responsive to the problems besetting many families. I have described in the past how they should become family hubs where anyone can go with a family or relationship issue.

To remove all doubt about this issue, people do seek help for their relationship anxieties. Just this week, Citizens Advice revealed that personal relationship issues in particular are putting enormous strains and pressure on GPs, who spend almost a fifth of their consultation time, and almost £400 million, on non-medical matters. GPs have nowhere to send people, hence broadening children’s centres into family hubs could ease significant pressures on our health service and help to contribute to the £22 billion of savings the NHS has to find.

Family relationships are not the soft centre of social policy but are at the hard edges where costs multiply. Strengthening families puts backbone into our nation and is indispensable to the sound management of our economy.

2.53 pm

Baroness Donaghy (Lab): My Lords, my contribution to this debate will concentrate on employment relations and on why I believe that the Government have missed the point about them. Of course our economic success depends on improving our dire productivity record and rebalancing our economy so that we are not so reliant on the service sector, as well as on staying in a reformed Europe, making the most of our talent through training and improving pay inequalities, particularly for women. Therefore, it is with a feeling of near despair that I see in the Queen’s Speech proposals to take away workers’ rights in some areas and to have another go at trade unions. There are 31 million people at work and only 6 million in trade unions. Why does the Minister think that existing employment law, already the tightest in Europe, is in any way inhibiting job creation? Some of our most successful enterprises are strongly unionised, with a record of consultation, co-operation and flexibility. Why do the Minister’s Government seem to think it is possible to separate workers from trade unions? Whenever the words “worker” or “working people” are mentioned, Ministers go misty-eyed and husky of voice, with moistened lips; mention the phrase “trade unions”, and they take on attack mode.

We live in a country where workers can earn 80 times less than their boss. It is unequal and unfair. The contrast in Germany could not be greater: Angela Merkel speaks at the congress of trade unions and spends at least half a day listening to debates. Mark Carney, the Governor of the Bank of England, came to the TUC last September and thanked workers—trade

4 Jun 2015 : Column 574

unionists all—for their sacrifices and answered questions from delegates afterwards. What is wrong with this co-operative model? You would expect a former chair of ACAS to say these things, and I want to ask the Minister what consideration will be given to ACAS funding. A lot of extra work was passed on to ACAS by the previous Government, most of it welcome. ACAS is good value, and has the trust and confidence of participants and the country, but it needs to be funded adequately. I can do no more than quote the noble Lord, Lord Marland, when he was the Parliamentary Under-Secretary of State at BIS:

“We all agree that ACAS is a terrific institution … That is why we intend to put much more in the way of resources into it … We know it acts fairly and properly, it has a good track record, and we are keen to support it”.—[Official Report, 5/12/12; col. GC 197.]

If extra work is to be given to the certification office, which is part of the ACAS family, I hope also that adequate funding will come with it.

Turning to the issue of political funds, I realise that this will press all the buttons about the party of the rich and the party in hock to the trade unions, so reason goes out of the door. Without state funding, which is unlikely to happen, we are faced with the unfortunate situation where the Conservatives receive £19 million from 27 of the 59 wealthiest asset managers included in the Sunday Times rich list and the Labour Party receives a substantial part of its income from trade unionists. Lady Thatcher introduced a requirement that trade unions should ballot their members every 10 years to see if members wished to retain or create a political fund. It takes a huge amount of time and money to set up the ballot, and not one has ever failed, but this is not enough for some Conservatives. They want to keep picking and picking at what they see as a running sore on the body politic, while blithely accepting cash from the least regulated financial area in the country.

For the record, the majority of trade unions with a political fund are not affiliated to the Labour Party. They are required to have a political fund if they wish to campaign on behalf of their members. What are the Government’s intentions regarding the non-affiliated unions? Will they be hit for six, so that it does not look too obvious that this is an attack on the Labour Party, or will they be exempt from the new requirements? The majority of trade unionists do not pay into a Labour Party-affiliated fund. Civil Service unions and teaching unions do not affiliate.

I was active in NALGO for 33 years, when it was not affiliated to the Labour Party. We were required, by a court of law, to set up a political fund because of the new legislation and we did that. I was chair of the general political fund at one time, and when it was agreed to merge with COHSE and NUPE, which were both affiliated to the Labour Party, the new union, UNISON, had to devise a solution to recognise the different cultures of the former partner unions. We came up with an elegant solution, which I have described before. Members could opt for the Labour Party-affiliated fund, the general political fund, both funds or neither fund—four choices. When the legislation is before us, I shall be very interested to see how non-affiliated unions will be treated and whether an opting-in process will make the 10-year ballot requirement redundant. This subject

4 Jun 2015 : Column 575

area may seem esoteric and faintly embarrassing to some noble Lords, but any proposed changes could have an important impact on trade union resources and income for the Labour Party.

The issue of strikes and public services was raised recently in a Question from the noble Lord, Lord Carrington of Fulham. The new Secretary of State for BIS was elected on less than 50% of his potential vote, and police commissioners and Members of the European Parliament as well as local councillors will never reach the required threshold of 50%—so why apply it to trade union ballots? It is clear that the Conservative Government intend to ban strikes in public services without appearing to breach any international codes on the right to strike. I caution the Government on this; it will not stop strikes, but it will prevent trade unions keeping some control over events. If you give people no achievable outlet, they will find other ways in which to protest.

Finally, the Queen’s Speech talks about the security of a job but not about job security. It talks about reforming trade unions, but not about improving management skills. There is no hint of trying to improve employment relations—not even a crumb of comfort for the HR community. As a fellow of the Chartered Institute of Personnel and Development, I would say that it presents a rather barren picture of the world of work.

3 pm

Lord Shutt of Greetland (LD): My Lords, today is allocated to discussing matters relating to business, economic affairs and transport. They are of course related. I want to speak about transport, and one specific area in relation to transport—railways. Even more specifically, I want to talk about the case for further electrification of our existing railways. Yes—infrastructure. By and large, it is not about legislation. I shall leave for a moment on one side the case for building HS2 and HS3.

Before I rise to the theme, I want to thank and congratulate the maiden speakers, the noble Lords, Lord King and Lord O’Neill of Gatley, and welcome the noble Lord, Lord O’Neill, to his ministerial task. I note that he referred to the northern powerhouse, and I have learnt from him today that it is more than just TransPennine. Geographically, at least, it includes the north-east. But what is the definition of northern powerhouse? It sounds like something that I would be rather in favour of, but what is it? What is the substance, or is it something akin to the American dream?

The UK has lagged behind the rest of Europe on electrification. The clear case is for clean-up, for a speedier and cheaper service once the capital costs have been dealt with, and because there will be scope for more trains. It is all well understood. Following the electrification of the east coast main line, completed as far back as 1991, there has been little further progress, or certainly not much progress in completed work. If we look at the period of the Government before last, from 1997 to 2010, electric wires were put up over only 8 miles from Crewe to Kidsgrove. In the last five years, it has not been hugely better, but 45 miles have been

4 Jun 2015 : Column 576

electrified, from Liverpool to Manchester and Liverpool to Wigan. However, there are plans and work is taking place.

The last Labour Government did announce plans in 2009, with the Great Western main line, hinting at the Midland main line and further electrification in the north-west of England. In 2010, perhaps understandably, several schemes that had not been started were stalled, only to be given the go-ahead later. I had the privilege of announcing in this House the Great Western electrification to Cardiff, back in 2011. It was a day when the noble Earl, Lord Attlee, was indisposed, and I had the task of announcing it there. In 2012, further electrification was announced, from Cardiff to Swansea, the Welsh valleys and the northern hub, which must be a friend of the northern powerhouse. Then there was the TransPennine line via Huddersfield to Leeds and York and the Midlands main line, Southampton to Nuneaton. Work is going on, but I learn that there have been delays.

What will the route mileage electrified become, in the period 2015 to 2020? Does the Minister think that there is any impediment to that tremendous list of electrification being achieved—and where next? The electrification plans should not stop at those announced in 2012 to 2014; electrification is a long process, and the electrifiers need keeping in business. Teams should not be disbanded, as happened years ago. There are many places, some gleams in the eye, along with other thoughts by planners, politicians and all-party parliamentary groups, as well as railwaymen. When the present announcements have been achieved, what will happen? Is the programme going to be kept rolling, particularly in terms of in-filling schemes? There are some major schemes, and I would not wish to stand up here without mentioning the Calder Valley line as one of many that come to mind.

Following on from earlier planning, the Government have a real chance of delivering significant electrification of our railways based on the present plans—but they must not stop.

3.06 pm

Lord Low of Dalston (CB): My Lords, I add my word of welcome to the new Minister to his position. I have heard him on the radio frequently; he is a big hitter, and will add much authority—I nearly said “much-needed authority”—to the Government and to our proceedings in this House. To judge from his speech this morning, he will add much dynamism as well. I also congratulate the noble Lord, Lord King of Lothbury, on a maiden speech every bit as distinguished as we would expect.

The Prime Minister and the Conservative Party are to be congratulated on their surprise victory—a surprise, I believe, as much to themselves as to anybody else, although people are now coming out of the woodwork to claim that they saw it coming. I myself believed that it was the one outcome that could not possibly come to pass. Mr Clegg has described it as the triumph of “grievance and fear” over liberal values. I have great respect for our Lib Dem colleagues, but I have to say to them that if that is the case it is something that they have connived at for the last five years.

4 Jun 2015 : Column 577

In truth, the election was won on a fraudulent prospectus of over-promising and under-delivering. The record for competence, especially economic competence, was rubbish, with the loss of our AAA credit rating and flagship deficit reduction and immigration targets missed by miles. Instead of the much-denied top-down reorganisation of the health service, we got a top-down reorganisation of the health service, only a costly one of byzantine confusion—and the jury is still out on universal credit, with major question marks still hanging over its deliverability.

The Prime Minister is now impaled on a number of promises that he probably did not expect to have to keep. On public expenditure, the figures simply do not add up. How are £7 billion worth of tax cuts, raising the threshold for inheritance tax to £1 million, subsidising the sell-off of housing association property and £8 billion more a year on the NHS to be squared with the removal of £30 billion from the budget is anyone’s guess, especially given the absurd lock on raising VAT, income tax and national insurance. Perhaps the Chancellor will tell us on 8 July, but I am not holding my breath. Against this background, seven-day working, along with extra doctors and nurses for the health service, is surely for the birds. If anyone else had exhibited such a cavalier approach to the nation’s finances, they would have been torn to shreds.

It is widely agreed by economists that the Government’s austerity measures at the beginning of the previous Parliament delayed the recovery by two years, entailing a permanent loss of resources to the economy conservatively estimated at 5%. When the recovery failed to materialise, the Chancellor abandoned his austerity policy, and the pace of the recovery quickened up to the present time. The Chancellor and his followers never tire of describing this as his long-term economic plan and claiming credit for holding to it. Indeed, the Chancellor achieved the singular feat of persuading people to accept a policy of austerity on the grounds that, although unpalatable, it is good for us, even when he has abandoned it himself. This is only a long-term economic plan if by “long-term plan”, you mean shrinking the state in the first two years of a Parliament with a view to expanding the economy again in the run-up to a general election.

The noble Lord, Lord Desai, and I had a slight difference of opinion over this when we last debated it shortly after the Budget when the noble Lord gave the Chancellor credit for sticking to his guns. It is true that the slowdown in the pace of deficit reduction in 2012 owed as much to disappointing tax receipts as to the Government reducing their expenditure. However, the Chancellor could have stuck to his original deficit reduction plan by raising taxes to compensate for this, or cutting spending still further, but the important point is that he chose not to do so.

Labour is said to be facing an existential crisis stemming from the unravelling of traditional class identities, its failure to come to terms with Scottish nationalism and its failure to speak to those left behind by the damaging effects of market individualism and global market forces. It certainly faces a herculean challenge which will not be overcome by vague appeals to back aspiration. It is said that Labour’s dilemma is that it needs to appeal to different audiences

4 Jun 2015 : Column 578

simultaneously, but I am not so sure. I think the problem was that it simultaneously colluded with the narrative on austerity and Labour’s part in the crisis while cautiously hinting at something a bit more radical, with the result that the trumpet gave forth a very uncertain sound. Whenever the Labour Party was taxed with the deficit, all it could do was go on about the good things it had done with it. It had just about screwed itself up to say that the deficit did not cause the crash but did not seem to be able to take the crucial step of explaining that it was the crash that caused the deficit. If Labour’s analysis is so poverty stricken, how can it expect anyone to get the message? Yet whenever I heard a strong lead being given in opposition to austerity, people resonated strongly with it. This is what happened in Scotland, and people voted for it. Labour needs to learn the lesson from this and stop giving so many mixed messages.

I fear that the Government are about to make the same mistake that they made at the beginning of the previous Parliament and inflict another bout of austerity. A number of speakers have anticipated this concern. This would not only be wrong in itself but risks choking off the recovery, which is not so strong that it can easily withstand another austerity shock. Attention focuses principally on stagnant productivity these days, but this should be viewed against the background of a host of other deep-seated problems with the British economy. It was reassuring to note the Minister’s awareness of them in his speech.

Investment is too low, the economy is unbalanced, our manufacturing base is too small and we rely too heavily on the service sector, particularly financial services. We have chronic balance of payment problems, debt levels remain too high, but growth, rather than further consolidation, is a much better way of addressing this. The recovery is too dependent on consumption artificially boosted to unsustainable levels by rising asset values and asset sales. There is even ominous talk of another crisis, worse than the previous one, looming. I was not sure how far this ominous talk was loose talk. The noble Lords, Lord Desai and Lord Skidelsky, referring to it this afternoon should lead us to take it very seriously.

The IMF has just said that deficit reduction is no longer the priority that it was, so there are many good reasons to be concerned at the prospect of a further round of austerity on economic grounds. It would seem to be counterproductive, even in the Government’s terms of delivering a programme of one-nation compassionate Conservativism. What price seven-day working in the NHS then?

3.15 pm

Lord Horam (Con): My Lords, I add my warm welcome to the two maiden speakers, the noble Lords, Lord O’Neill and Lord King. Both are economists, as am I. I tend to think that economists ought to run the country, but I doubt that I would carry the House with that thought. None the less, the noble Lords are very welcome, particularly since we are having an economic debate. Perhaps we could leave it that economists might be rather better than lawyers at running the country; that might be something that the House would agree to.

4 Jun 2015 : Column 579

A recent issue of the Spectator purported to list the top priorities of what it called “Cameron’s inside gang”. It did not actually spell out what “Cameron’s inside gang” was, which might have been more interesting, but it listed the priorities. They were,

“keeping economic growth going, getting an acceptable deal from Europe, securing the Union at home, showing that their policies benefit the poorest in society and ensuring that more houses are actually built”.

That rather cheered me up: first because there were only five priorities. Usually Governments have a long laundry list of issues that they say they are going to prioritise, but five is quite enough. Secondly, I rather agree with the priorities. You can say, with Groucho Marx, that if you do not like them, I have others—but if I had to settle for five at the point of a gun, those five are not too bad.

My problem is—and this is what I want to say a few words about—the difficulty there will be in achieving priority one, keeping economic growth going, and priority five, getting houses built. On economic growth, the US recovery is proving feeble, the BRIC countries, which were made famous by the noble Lord, Lord O’Neill, are slowing down and our exports are suffering. Jaguar Land Rover sales fell by 20% in the first quarter. Manufacturing is not doing particularly well at the moment. The international situation is not very promising and growth is rather fragile.

I am also concerned about the Government’s stance. Here I get into questions of Keynesian economics and so forth. The Government are saying that they are giving top priority to growth, according to the Spectator, but the economic section in the manifesto is all about deficit reduction, and the Queen’s Speech also centred on this. This reminds me of the beginning of the last Parliament, when priority was given to deficit reduction, and expenditure, particularly capital expenditure, was cut pretty drastically. The result was that the rather feeble growth went into reverse. Macroeconomists at the Lords seminar on austerity under the chairmanship of the noble Lord, Lord Bilimoria, which I attended before Christmas, suggested that this might have cost us 4% in GDP growth over the two years at the beginning of the last Parliament.

Only after the infamous “omnishambles” Budget did the Chancellor realise that the advice he was getting was wrong and quietly change tack, becoming rather more Keynesian. As someone who learned his economics in Cambridge during the post-war Keynesian heyday of the 1950s, I can only commend that, as well as his political flexibility—but I do not want to see the emphasis on deficit reduction repeated in the first Budget of this Parliament. That would be a serious mistake.

I would much prefer the Government to stick to their general proposition that they will give priority to maintaining economic growth and, consistent with that overriding objective, keep firm control of current government expenditure and endeavour to reduce the deficit year on year. I believe that the Chancellor now has real credibility as a result of his success—plus, for the first time in many years, a decent majority in Parliament—and the markets would not mark him down for adopting such a posture. It would be

4 Jun 2015 : Column 580

much more sensible that trying to meet the rather implausible figures that were mentioned in the Queen’s Speech.

My second and final point is about housing policy. The fact is that housing policy in the UK has been a disaster for the last 40 to 50 years. In 1968 we built 425,000 houses. Last year it was 140,000, but we need 250,000 a year. As a result, prices have soared and we spend £24 billion a year on housing benefit—a huge sum that, if it were spent on actually building houses, would revolutionise the situation. As John Kay, the FT columnist, put it the other day, the trends over the past 40 to 50 years,

“are … entirely explicable by reference to changes in … policy”.

In other words, it is our fault—or rather the fault of Governments and Parliaments over the past 40 or 50 years.

Now the Government want to go back to selling more social housing—this time, that owned by housing associations. This is a mistake. It does nothing to increase supply: indeed, it will reduce it. I therefore endorse the remarks made on Tuesday by the noble Lords, Lord Kerslake and Lord Best, in this Queen’s Speech debate. Since the Government appear determined to bring forward a Bill to transfer housing in this way, I beg them to subject it to pre-legislative scrutiny so that expert opinion on housing can be fully heard by both Houses of Parliament. Then we will see exactly what people who really know about the housing situation think.

To be fair to the Government, they have relaxed planning controls and encouraged the assembly of large parcels of land. I believe that the cost of land is a fundamental issue that has to be tackled in a radical way if we are to get more housing. I also believe, as the noble Lord, Lord Kerslake, said, that in Greg Clark we have an extremely able Secretary of State to deal with these matters. The fact is, though, that if we are going to get a decent housing situation for our children and particularly our grandchildren, with the sort of benefits that we enjoyed when we were young, we must have a much bigger and bolder effort by government to deal with the housing problem. Harold Macmillan did it in the 1950s when he oversaw the building of 300,000 houses a year, and if the Government are going to be truly a one-nation Conservative Government, they should be emulating him.

3.23 pm

Lord Monks (Lab): My Lords, I add my congratulations to the Minister on his maiden speech. He brings, among many other things, a much-needed lustre to a group much mocked and reviled in recent years in this House and more widely: I refer of course to supporters of Manchester United. Congratulations, too, to the noble Lord, Lord King, on his debut.

I had hoped that the Conservatives had exhausted their supply of bile against British trade unions and that the ludicrous dollop of red tape in the recent lobbying Act was the final scrape of that particular barrel. Clearly, though, there is plenty of bile left, as the original step-by-step approach of the 1980s is reappearing. A new Bill is proposed that aims to hobble trade union action still further. We are threatened

4 Jun 2015 : Column 581

with more curbs on balloting, with thresholds that no other organisations have to satisfy, as has been mentioned by my noble friend Lady Donaghy. Labour agencies would be allowed to bust strikes, which is something that those agencies do not even want because they do not want a reputation like that. We are threatened with changes in facility time for representatives along with contracting in to political contributions rather than contracting out, an old threat that has been revived as an attack on unions’ campaigning ability, whether or not they are anything to do with the Labour Party. This agenda is tribal hostility, no more, no less.

Noble Lords will be thinking, as I am a former general secretary of the TUC, “He would say this, wouldn’t he?”. After all, who today is afraid of the union wolf? It may still be bad but it is not very big—not as big as it used to be. However, join me for a moment in reflecting on the following truths. There are 6.4 million people in trade unions. I see that just this week the Royal College of Midwives joined the TUC: that is the kind of people that trade union members are today. Collective bargaining covers 30% of the workforce. Union membership is not just confined to the public sector, as I often hear; it remains the norm in most UK companies with more than 500 employees. Last time I looked, 41 of the FTSE top 50 were unionised companies; I could list them but your Lordships know all the household names that I would refer to. Thousands of agreements are made every year. Strikes are infrequent and relations are generally constructive.

So why are the Government so set on clouting unions again? Why is that a priority at this time? There are many features of the British labour market that work far less well than collective bargaining and the trade union role. The Minister and others in today’s debate have rightly put productivity at the heart of the country’s problems and of the Government’s programme, and I welcome that. We lag alarmingly behind comparable countries and it is not easy to turn things round. One thing that it is unwise to do, though, is pick a fight with one of the component parts of improving productivity, the trade unions. That was a gap in what the Minister said earlier—the need to involve and engage people, not just train them, though that is very important. Bringing people with you, getting their morale up and making them feel respected and worth something is very important if we are to make it to the premier league of productivity. Unions are an important part of that, not just something that is marginal or that can be given a kick now and again with no consequences.

It is not just productivity where the union role is important. Take inequality, which has alarmed even the IMF, the World Economic Forum and the CBI in recent months and years. When union membership was higher and collective bargaining covered 70% of the workforce, directors and other top executives knew that they could not help themselves to an annual, possibly double-digit pay increase, often regardless of performance, without facing the possibility of a wave of militancy of people claiming comparability. In the past 30 years, though, too many have adopted a self-service culture, feeling free to help themselves to a large chunk of the company income. To a large extent, that is now recognised across the political spectrum.

4 Jun 2015 : Column 582

In the 1920s, a period of union weakness, Stanley Baldwin, the Conservative Prime Minister, worried about boardroom greed and rising inequality. His solution was to build up institutions for collective bargaining through the then new Ministry of Labour. Baldwin also acted to bring in contracting in to the political levy, so he stops well short of being one of my political heroes. But what he did on collective bargaining is certainly relevant to today, and I hope that the more fair-minded and long-sighted Members on the Benches opposite and more widely will recognise that that is important.

We need influential and constructive trade unions to sort out decent living wages. It cannot all be done by law and it will not all be done by voluntarism. We need proper information and consultation arrangements. We need decent contracts with people that respect them, rather than just putting them on humiliating zero-hours casual bargain-basement contracts of the kind that are too prevalent today. A genuine one-nation Government would recognise that the need to boost productivity and promote long-termism in business cultures is interfered with by any tribal instincts of some in the Conservative Party to give unions a kicking.

This Bill deserves tough scrutiny in the House. I hope that we see a bit more of the spirit of Baldwin and rather less of the venom of the 1980s. Is that just too much to ask?

3.30 pm

Baroness Smith of Newnham (LD): My Lords, I welcome the Government’s commitment to a long-term economic plan and to reduce the deficit, but I have to agree with the excellent speech of the noble Lord, Lord Low of Dalston, suggesting that there is a long-term economic plan because the short-term economic plan did not get very far in the last Parliament. As a Liberal Democrat, I obviously welcome the fact that the deficit was halved as a percentage of GDP in the last Parliament, along with the commitment to getting rid of the deficit and beginning to reduce public debt. However, the Lib Dems were also committed to doing that fairly, as my noble friend Lady Kramer noted earlier. It is to be hoped that the Conservative Government will indeed reduce the deficit fairly, although, as the noble Lord, Lord Fowler, pointed out yesterday, to announce £12 billion of cuts without saying where they will fall is a perilous venture, so we are in perilous waters.

There is a further pledge to legislate to cap tax rates. As the noble Lord, Lord Desai, said a few moments ago, that is a mad promise. Suddenly, alongside unfunded manifesto commitments, here is something that will put pressure on many government departments, particularly those that are not ring-fenced. The two I want to mention today are the Ministry of Defence and the Foreign Office. As my noble friend Lady Harris noted on Tuesday, cuts have consequences, and so, too, do unfunded spending commitments. As the noble Lord, Lord Fowler, rightly warned in his contribution, protecting the NHS in the manifesto, without clear funding, means that public spending in other areas will be reduced. The Treasury will have to look at reducing spending,

“on the police and on defence”.—[

Official Report

, 3/6/15; col. 430.]

4 Jun 2015 : Column 583

This is also a problem for the Foreign and Commonwealth Office, despite the Government’s avowed commitment to continue to play a leading role in global affairs. There is a real danger to Britain’s place in the world if the salami-slicing of the FCO’s funding commitments continues.

The commitment, or lack thereof, to defence is, if anything, even more serious. The Prime Minister pressed others to commit 2% of GDP to defence at last year’s NATO Wales summit. That is a minimum and is not intended merely as an aspiration; nor is it a maximum figure. It is the minimum requirement and one that the Prime Minister argued for. At a time of global insecurity, credible defence commitments are crucial now more than ever. Will the Minister take back to the Chancellor the importance of ensuring that the welcome, albeit vague, commitment in the gracious Speech to,

“do whatever is necessary to ensure that our courageous Armed Forces can keep Britain safe”,

is delivered on? It is essential that this commitment is met, ideally with a firm 2% commitment on 8 July in the emergency Budget.

Of course, some may say that the economy is growing and therefore a 2% commitment is not as important as people have said, but I beg to differ. If this country genuinely seeks to be at the forefront of the NATO alliance, it must step up to the plate and deliver on its own commitments. After all, the time of a growing economy is surely the time when we should be delivering on them. As the Chancellor used to say to the Labour Party, you should fix the roof while the sun is shining. Now is the time to make that commitment.

The UK’s place as a key and engaged member of the European Union is also crucial to our place in the world and to our economy. The pledge to hold an in/out referendum and the prior renegotiation pose a threat to the UK economy by raising uncertainty. The noble Lord, Lord King of Lothbury, warned in his excellent maiden speech against having a laundry list of suggestions in the renegotiation. I am sure that that is right. We need a swift renegotiation and a clear commitment to staying in the EU. Brexit would be an even greater problem for the UK economy. Membership of the EU is clearly in the national interest in terms of our economic stability as well as our place in the world more generally.

The free movement of people is also vital to our economy, yet it is a freedom that is often seen as a cost to the British economy rather than as a benefit. In his excellent and powerful maiden speech, the Minister, the noble Lord, Lord O’Neill of Gatley, pointed out that economic growth depends on two things: productivity, which has been much mentioned already in the House, and the size of the labour force. The free movement of people and the fact that we are a magnet for those who want to come and work here is very significant to the British economy. We do not talk sufficiently about the merits of immigration or of free movement, both of which are important to our economic prosperity. These issues should be considered rather more fully than appears to be the case in the gracious Speech or in the nature of the debate today.

4 Jun 2015 : Column 584

I hope that the Minister will accept that our economy is stronger for being an integral part of the European Union, just as the United Kingdom is better together, as almost everyone in this House and many Members of the other place—although not the newly elected 56 members of the SNP—would agree. If Britain is better together, the UK is better as part of the European Union. We are better when we work with our EU partners and allies. This country has prevaricated for too long about making a wholehearted contribution and commitment to the European Union. The time has come for us to do that. We need to be in the EU for our own economic prosperity. We have been talking about a growing economy. If that is to continue, it needs to be as a full part of the European Union. We need to hear “yes” and we need to hear it said loud and clear, and I hope that the Minister and her team recognise that, along with those in the Foreign and Commonwealth Office who accept that Britain is better off in the European Union.

3.36 pm

Lord Bilimoria (CB): My Lords, with just 1% of the world’s population today, the UK is the fifth largest economy in the world. Having endured the worst recession in a century, we have recovered remarkably well. We have low inflation, low interest rates, high employment rates and a growing economy. We are the envy of Europe. But as so many noble Lords, including our maiden speakers the noble Lords, Lord O’Neill of Gatley and Lord King of Lothbury, have said, raising productivity is a serious challenge. As the noble Lord, Lord Leigh of Hurley, said, we are very lucky to have Jim O’Neill in the House of Lords. I have known him for many years. He was very helpful to me when I was the founding chair of the UK India Business Council, and we both served together for many years on the UK-India Round Table, where he was instrumental in getting Teach For India off the ground. It is now hugely popular, as our very own Teach First is here. He has been tasked by the Government to create the northern powerhouse. Well, in the noble Lord, Lord O’Neill, we have a northern powerhouse in our midst, and we welcome him to the House.

Where is Britain going to be in 2020? Our productivity must improve, because we lag way behind others. We may be the fifth largest economy in the world, but in purchasing-power parity terms—in per capita GDP—we are 27th in the world. How do we address this? Wearing my hat as the proud chancellor of the University of Birmingham and my various roles at the University of Cambridge, I was surprised to see no mention of higher education in the gracious Speech. We have the best universities in the world, along with the United States, and we are in danger of taking this for granted, because we way underinvest in higher education compared with the US, OECD and EU averages. The Minister, the noble Baroness, Lady Neville-Rolfe, who I congratulate on her reappointment—and I look forward to working with her—was on the board of the UK India Business Council when I was the chair, and a great board member she was too. Can she please explain the glaring omission of higher education? Can she reassure us that universities are going to be a top priority and that this Government will increase funding for universities to increase our competitiveness and productivity?

4 Jun 2015 : Column 585

The noble Lord, Lord King, is a great West Ham supporter. I am sorry, it is not the Prime Minister speaking; I meant Aston Villa supporter. We are so fortunate to have him in the House because he will add huge value. He talked in his great speech about innovation being one of Britain’s greatest strengths, yet when it comes to innovation and research and development, as other noble Lords have said, we invest way below the US, EU and OECD average as a percentage of GDP, and indeed way below South Korea. The coalition Government’s patent box initiative is tinkering around the edges. We need to encourage far more serious investment through our universities and business to really increase our productivity and competitiveness through innovation and R&D. Does the Minister agree?

We also need to encourage entrepreneurship. In India, Prime Minister Narendra Modi now has a Minister for Entrepreneurship in his Government. That is how important it is. As Secretary of State Sajid Javid has said, SMEs are the engine of our economy, and we need to have that focus on entrepreneurship, creativity and innovation. One of the reasons why the United States constantly bounces back so rapidly from any crisis is its huge strength in productivity, higher education, research and development, and innovation.

The Government are rightly targeting full employment as a goal. One way in which this could be achieved is by having a more balanced economy, where manufacturing is a priority. In my own business, Cobra Beer, I am first and foremost proud to be a British manufacturer. In India, Prime Minister Modi has his Make in India campaign, and has set an aim to increase the manufacturing share of GDP from 16% to 22% by 2022. Does the Minister agree that we also should set a specific target to increase manufacturing as a percentage of GDP?

It is not necessary for the Government to legislate that they are not going to increase certain taxes; the noble Baroness, Lady Kramer, made valid points about that. However, surely the Government should also be articulating that they will reduce certain taxes? The most important one is the 45% top rate of income tax, which should be brought down to 40%, which is where it was under both a Brown and a Blair Labour Government. Does the Minister agree?

One area where I fundamentally disagree with the Government is immigration. The gracious Speech mentions that immigration will be a priority to be controlled, and we all know that illegal immigration needs to be controlled and bogus colleges shut down. On the other hand, the Prime Minister, the Home Secretary and the Government continue to stick to their target of reducing immigration to the tens of thousands. However, by having no control over EU immigration this will not be possible, and continuing to include international students in net immigration figures is absolutely foolish and illogical. Even our new Universities Minister, Jo Johnson, with whom I look forward to working, has acknowledged the drastic drop in the number of students from India.

The negative immigration rhetoric is hampering our universities and our businesses. Sir Venki Ramakrishnan, the president-elect of the Royal Society, the pre-eminent institution for scientists in the world, is a Nobel laureate from Trinity College Cambridge and of Indian origin.

4 Jun 2015 : Column 586

The City of London would not be the number one financial centre in the world were it not for immigration. People and capital in business vote with their feet in our global world. Britain would be insignificant without immigration.

In terms of priorities, the Government should commit to spending 2% of our GDP on defence in this dangerous world, and it is negligent even to think of cuts to our defence or our Armed Forces today. Does the Minister agree?

Today, Britain is a remarkable nation, with the best of the best capabilities in every field you can imagine, whether it is advanced manufacturing, aerospace, financial services, beer, our lawyers, our accountants, our creative industries, our Oscar-winning film industry, designers and architects—I could go on. I spoke at the Milan expo recently and saw our brilliant GREAT Britain campaign in action. Our pavilion at the expo, the beehive, is by far the most impressive and creative of all pavilions from all over the world.

To conclude, the Government speak of aspiration. We need to be much bolder. The 200th anniversary of the Battle of Waterloo will be on 18 June. The Duke of Wellington’s motto could not be more appropriate: Virtutis Fortuna Comes—fortune favours the brave. If we as a country aspire by 2020 to be far more productive and competitive than we are today, we need that aspiration, which will lead to achievement, which will lead to inspiration, which in turn will lead to aspiration: a virtuous circle.

3.44 pm

The Earl of Arran (Con): My Lords, I will say just a few words on a part of the United Kingdom so far scarcely mentioned—it is called the West Country—where there is still a sense of deep shock at how at how quickly the events of the general election changed from the predictions of the pollsters to an outcome which, for the first time for a generation, shows the peninsula with a blue political colour-scheme, save only for fortress Exeter. The implications of that will take time to assess, but we do not forget that the coalition has not been unkind to our local economy and that many of the coalition members have worked hard to highlight that the deficiencies of our infrastructure should be remedied.

It is interesting to note that the 5.2 million population of Scotland currently receives £2,000 per head more than the 5.3 million population of the south-west. Perhaps many felt, when faced with their voting choice, that the risk of this becoming an even wider gap was too big to stomach.

What next? Do we risk again becoming the forgotten peninsula—the Cinderella of the west—or will we hold Whitehall to the commitments that were made during the pre-election period? That we most certainly will. In simple terms our message is easy to understand. The south-west cannot function without effective infrastructure. Some 90% of transport needs are on the roads, but we still have only one 21st century route, in the M5. When that is disrupted, paralysis quickly follows and many hours of business are lost before normal service is resumed. The case for a second artery—the A30/A303—has been argued for 30 years.

4 Jun 2015 : Column 587

It was nearly approved 15 years ago. It is ready to go. The maths are also simple: £2 billion expenditure equals a payback of £40 billion and 40,000 jobs. The Treasury has confirmed these figures. We cannot wait another five to 10 years before this work starts.

The rail network is in a similar state of under- investment. We have the oldest rolling stock in the United Kingdom—it predates the Ford Fiesta—and journey times that are an embarrassment when we greet national or international investors. We have been promised some new train sets, but this decision is still subject to Treasury approval. These commitments simply must be honoured. When considering rail, it would be wrong to ignore how vital both the national and the local networks are to our economies. In my own area of north Devon, the Tarka line carries nearly 1 million passengers a year, many of whom are students travelling to Exeter and back. The potential for growth in local rail initiatives such as the West Somerset Railway and the Lynton and Barnstaple Railway is quite simply huge. Again, they are vital lifelines for supporting economic growth.

It would be enough for most Members of your Lordships’ House to have to live with infrastructure deficiencies such as the ones I have just mentioned; however, they are not quite the end of our woes. What is now taken for granted across the country—simple access to mobile telephones and decent broadband speeds—is still absent in many of our rural, and surprisingly urban, areas. If the south-west is to improve its productivity outputs, which currently languish 10% behind the UK average, the quickest solution, which would attract the greatest support from businesses big and small, is broadband and mobile infrastructure investment. It would create a bow wave of exciting business activities. In the last five years, the south-west has created nearly 60,000 new jobs in the private sector. A high percentage of these people are self-employed, and many are working already in international markets. Broadband will ignite these businesses, enabling them to be the new generation of entrepreneurs and demonstrate that the south-west can deliver significant value to the UK economy.

In the run-up to the general election, a number of bold statements were made on—here we go again—housing. It was said that 200,000 houses a year will be built, and the right-to-buy provisions extended. Fine words, but how and when? In north Devon, the gap between affordable housing delivery and the housing waiting list becomes bigger and bigger. The current right-to-buy arrangements have not seen a like-for-like replacement of affordable dwellings. Planning delays can hold up vital schemes for three to five years and cost thousands of pounds, which could be invested in more dwellings. The impact on my local economy is most damaging in the recruiting of skilled key workers. In the rural economy these problems are multiplied, fuelling an exodus of the next generation and destroying family succession for many in the farming industry. The housing issue is a time bomb, as so many of your Lordships have said this afternoon. Radical reform is necessary, starting with yet another major reform of our heavily overbureaucratic and protracted planning system.

4 Jun 2015 : Column 588

This is not a list of whinges and whines. It is simply a list of some of the promises made by the Government during the election—promises that, both politically and economically, must be kept, for to renege on them would be both irresponsible and most unwise.

3.51 pm

Viscount Hanworth (Lab): I wish to talk about the dangers of our current economic circumstances, which have been exacerbated over the past five years of a Conservative Administration. I believe that we are heading for a crisis that will impoverish the nation, and from which it will take a long time to recover. I should like to examine this situation in the context of competing economic theories.

In the years following the end of the Second World War, until the 1970s, Keynesian macroeconomic theory held an unassailable position. Keynesian theory placed its emphasis on the supply side of the economy and on the role of central government in regulating economic demand through fiscal controls. It gave little recognition to the monetary and financial aspects of the economy. The theory had shown how an economy could be lifted out of a recession, but the problem in the UK in those post-war years was with an overheating economy.

A monetary aspect of Keynesian theory to which little attention was paid in the early post-war years concerned a theoretical curiosity described as the liquidity trap. The liquidity trap denotes a situation in which injections of cash by the central bank into commercial banks fail to decrease already low interest rates. Therefore, an expansionary monetary policy becomes ineffective. I shall return later to this matter, because it fits our present economic circumstances.

In the 1970s, economists began to espouse monetarist doctrines that were utterly at variance with the Keynesian nostrums. The doctrines were accompanied by a free-market ideology that advocated a widespread deregulation of economic and financial activities. Markets were deemed to be rational and self-regulating. These ideas, which were readily adopted on the right wing of British politics, had an appealing simplicity.

One of the simplifications of the monetarist theory was the assumption that the rate at which the stock of money circulates throughout the economy could be regarded as constant. In that case, since it was geared to the circulation of money, economic activity could be regulated by controlling the available quantity of money. The theory took little account of the towering edifice of credit and of derived money that can be generated by the financial sector on the basis of the so-called high-powered money provided by the Treasury and the central bank. In the latter years of the Thatcher Administration, the nostrums of the monetarists were utterly negated by the growth of this edifice. This was the result of the financial innovations that the Conservatives’ deregulation of the banking system encouraged. It was the unstable nature of this vastly inflated financial structure that caused the crisis that occurred in 2007 and 2008, during the subsequent Labour Administration, the effects of which continue to afflict us.

One of the myths perpetrated by the Conservatives during the recent electoral campaign is that the financial collapse was Labour’s responsibility rather than theirs.

4 Jun 2015 : Column 589

The blame that falls on a Labour Administration is a failure to recognise the extent to which the hypertrophy of Britain’s financial sector was endangering the nation. The blame must rest squarely on the Conservatives for having unleashed the malign forces in the first place. Thereafter, over the past five years, they may be blamed for having done next to nothing to diminish the dangers posed by our financial sector.

It is important to understand the manner in which the activities of Britain’s financial sector are serving to perpetuate the pathologies of our economy. These activities have succeeded in averting a balance of payments crisis that would otherwise have overtaken us long ago. In the process, they have created the circumstances that will eventually give rise to much greater difficulties.

The UK’s current account—which captures the value of flows of income and goods between the UK and the rest of the world—has now reached a record deficit of 6% of gross domestic product. The overall balance of payments has been maintained, as it must be inevitably, by adjustments on the capital account. These consist of the sales to foreigners of purely financial assets, of residential properties and of the public utilities and manufacturing enterprises that remain in British hands.

The result of this process has been the maintenance of a high value of the pound versus other currencies. The overvalued pound makes it generally difficult and often impossible for British companies to export their manufactured products. The reductions in the value of the pound that occurred between 2008 and 2010 have not materially altered this circumstance.

The prolonged overvaluation of the pound has left Britain with a severely diminished industrial sector, which satisfies an ever-decreasing proportion of our own domestic demand. A major crisis will arise when the supply of assets for sale overseas has been depleted and when the remnant of our industrial sector will be too small to engage in any effective import substitution. I believe that the crisis will be upon us sooner than most of us are liable to expect.

I now wish to return to the matter of the Keynesian liquidity trap. This was little more than a theoretical curiosity in the early post-war economic environment but it now has a very tangible embodiment. It is represented by our commercial banks, which have benefited from large injections of money from the central bank via operations that are nowadays described as quantitative easing. The banks had been expected to supply some of the money to industrial enterprises for the purpose of investment but they have not done so. Instead, they have retained most of the money, albeit that some of it has already found its way into financial assets.

The existence of the liquidity trap has some disconcerting implications. The abundant surplus of money, if it is not to be deployed in stimulating an investment boom, will surely be available for fuelling a further boom in financial and capital assets. Such a boom will favour those who are in possession of such assets, and they are the richer members of our society. What we will see is a worsening of the already sickening inequalities of our society.

4 Jun 2015 : Column 590

To avert an impending economic crisis, or, at least, to reduce its severity, we need to reduce the value of the pound, and we must cease to sell our assets overseas. We need to ensure that the money that has been pumped into the economy finds its way into industrial investment. In short, we should observe the nostrums of Keynesian economics.

3.57 pm

Lord Fox (LD): My Lords, before I begin, I should draw attention to the Members’ register of interests and the fact that I am a member of the executive team of GKN plc and that I hold shares in Smiths Group plc, a former employer. They are both global engineering companies with a strong manufacturing footprint in the United Kingdom.

I feel very fortunate to participate in today’s debate, it having been graced by two such excellent maiden speakers. The noble Lords, Lord O’Neill and Lord King, should be congratulated, as indeed they have been, on those speeches. I feel less fortunate in coming in as speaker number 35 in this debate, not least because I am following some absolutely excellent speeches from other Members. However, I will try my best not to repeat what has been said and to add a few other points.

A large proportion of the debate has focused on productivity, as, I am afraid, I was intending to do. The diagnosis is agreed and it was set out by the noble Lord, Lord O’Neill, very clearly at the beginning: the UK is very much falling behind the G7 in productivity. So we agree on the diagnosis, although the noble Lord, Lord Desai, begged to differ a little and tried to split up the sector. There are statistics that to some extent support what he said. The manufacturing statistics and data put out by the Engineering Employers’ Federation, for example, show that manufacturing and advanced manufacturing are delivering productivity at a rate different from that of some of the other sectors, particularly the services sector. Therefore, perhaps it is not a one-pace economy and we have to think about these things in a number of different ways.

Then, the economic big guns were rolled out. In a way that is perhaps heartening, almost all of them have had a different suggestion as to the solution to the productivity problem. This kind of confirmed what I found when I started to really look at this. I went to the Bank of England’s writing on it and was even more heartened when I found that it confessed to being puzzled by the situation. It does worry me a little when the Bank of England is puzzled. It cited the position in the cycle, where we are in fact growing capacity ahead of the need for that capacity. It cited the redeployment of people from productive tasks to business development. It talked about lower investment—I will come back to lower investment in more detail in a minute—and the inefficient allocation of capital. For a scientist, not an economist, all these things seem feasible. However, at the end of it all, the Bank of England did say that it was puzzled. This illustrates, as this debate has illustrated, that more work is necessary if we are going to explain the issues around the productivity gap. I ask the Minister to confirm that her team, and perhaps the Treasury and DBIS together, are working on a better understanding of some of the key issues.

4 Jun 2015 : Column 591

For us to work together on this, we have to have confidence in the statistics. A number of doubts have been expressed about those statistics. Sometimes, if the message is not what we want to hear, we throw doubt on statistics. It could not possibly be true, for example, that France is more productive than us—or is it? We need to start to have some focus on the key levers that we ought to be pulling in this area.

As an aside, I want to talk a little about investment. The availability of capital, particularly for SMEs, is a key issue. Finance for working capital, for expansion and for start-up is vital. It does seem that, during the recession, this had dried up. The tendency has been to blame banks and banks alone for this drying up. I suggest that banks are not necessarily the right sort of lender for many of these kinds of activities. Their risk profile, particularly of late, often does not match the sort of financial package that people are looking for. As noted today by several other speakers, we need to be in a position where we are fostering a more diverse source of capital and a broader pool of finance.

The Competition and Markets Authority is, to some extent, looking at SME banking. Its interim report is, I think, due some time in the autumn. I ask those in the ministerial team whether they would be able to bring back some of those interim findings. Perhaps using the expertise of the noble Lord, Lord O’Neill, in this area the team can lend some light to how we can put in place quite quickly some broader mechanisms to deliver finance to SMEs.

My second and much briefer point is around the industrial strategy, because I have not heard anything about it. There was nothing in the Queen’s Speech and nothing today. I am a little disappointed because it is very much an important centrepiece of what Government can do in conjunction with business. Noble Lords will be aware that, during the last Parliament, industrial strategies were established between Government and 11 key business sectors. I declare an interest that my own company was involved in two of those. There was a tremendous level of co-operation, discussion and exchange of shared ideals between the various segments involved. It should be acknowledged that that is really important work. The aim of industrial strategies is to establish the structures and relationships to give business the confidence to invest in the future, invest in the necessary R&D and capital, and to foster the development of the skills that we will need, not just in 10 years’ time but now.

I would like to take this opportunity to ask the Minister to assure us that these long-term initiatives—along with the work around Catapult and innovation centres, which is another important part of innovation fostering—and the focus on STEM skills will continue to be an important part of the work that goes ahead. We need continuity and a sense of certainty to encourage business to participate in investing in the long term in this country. I hope that the Minister can give business that sense of continuity.

4.05 pm

Lord Broers (CB): My Lords, as a microelectronics engineer who spent his first 20 years in industry, it is perhaps appropriate that I follow the noble Lord,

4 Jun 2015 : Column 592

Lord Fox, and a lot of what I shall say resonates with what he has just said.

It is a great privilege to speak in this debate. With other noble Lords, I was immensely impressed by the outstanding maiden speeches of the noble Lords, Lord O’Neill and Lord King. It is hugely encouraging that they have come to join us and help us in finding ways to strengthen our economy.

Like many other noble Lords, I wish to concentrate on manufacturing. The best way to reduce our deficit and bring our economy into balance is surely to increase our manufacturing output. To do this, we need to make our products more innovative and attractive to customers, reshore a significant fraction of our manufacturing and, most importantly, improve our productivity. Much has been gained over the past few years and there have been signs of a real renaissance in our manufacturing capability. Disappointingly, however, output has levelled off during the past year and, once again, manufacturing is lagging behind the financial and services sector, leaving our economy unbalanced. It is vital that we maintain our focus on manufacturing.

During the past two weeks, I have chaired for the fourth time the national manufacturing debate at Cranfield University, this year with the theme of reshoring. I also chaired a session of a Westminster Employment Forum focused on higher apprenticeships. Many of the critical factors affecting our manufacturing performance surfaced at these events and I want to talk about three of them.

First is the need to maintain and grow the support to the catapults, just mentioned. We now have seven catapults already producing innovative advances derived from research in industry and academia that will lead to better products and more efficient manufacturing, and two that began operations this April. Dick Elsy, the director of the first catapult, the High Value Manufacturing Catapult, told us at Cranfield about the success of this flagship example. It now operates at seven different sites and works on manufacturing processes that range from the production of Rolls-Royce turbine engines to plastic electronics. It is pleasing that the TSB, now Innovate UK, was able to exceed the original funding limits and allow it to expand. The other catapults are also doing well, although there is a worry that the regulations governing the provision of government funding to these centres places constraints on their operation that may impair entrepreneurship, but hopefully Innovate UK will keep an eye on this and not let it dull their performance.

As many of your Lordships will know, the catapults are a UK version of the German Fraunhofer centres, but we have a very long way to go before we will compete with the power of those German equivalents. Hermann Hauser, who proposed the catapults, points out that there are 77 Fraunhofers versus our seven to nine catapults. Each of the Fraunhofers is about the same size as the catapults, with more than €3 billion of support, and there are 55 potential Fraunhofers in waiting. He thinks that it is important that there should be a steady increase in the number of catapults—about two or three a year. These have the potential for being the life-blood of our manufacturing recovery, but only if they continue to receive adequate support.

4 Jun 2015 : Column 593

The second factor affecting our manufacturing performance that I wish to talk about, as many other noble Lords have done, is skills, and specifically the need for coherence in the two branches of our higher education system: the university branch and the apprentice branch. One of the speakers at the employment forum that I chaired described our higher education system as a series of pieces from a jigsaw puzzle, mostly of high quality but none of them fitting together. In particular, the qualifications for the different levels of apprenticeship are not adequately defined, especially with respect to the theoretical knowledge required to attain a given level.

It is felt by senior industrialists who I have spoken to that the Government need to help in determining these standards. At present they are established in an ad hoc manner by individual companies and the standards of attainment are too variable—they are all over the place and, to be blunt, not fit for purpose. There is also a tendency for the vocational or apprentice branch to be considered only by those who cannot get into a university. The result of this has been a serious shortage of what Europeans call master craftsmen. This was emphasised at Cranfield as a serious issue that may limit our ability to reshore manufacturing. The strong emphasis that the Government place on apprenticeships is admirable, but the qualifications needed to reach the different levels of apprenticeship need to be defined and enforced.

Finally, I wish to stress the need to place more emphasis on the needs of medium-sized businesses. It was pointed out at Cranfield that it was unfortunate in many ways that we almost universally refer to SMEs, small and medium-sized enterprises, as if they were the same and have the same needs. They are not the same. We are better at creating and supporting companies than we are at supporting and growing companies that are already established. I have raised this issue before. Our financial sector needs to learn how to assess the potential of these businesses and fund them, and not leave it to the Americans to have free access to our successful mid-sized companies just as they are ready to take off, thereby depriving us of the boost they could make to our manufacturing output.

4.11 pm

Lord Harrison (Lab): My Lords, like many others on this side of the House, I am less than transported by the Government’s proposed Bills for the forthcoming Session. However, I welcome the noble Lord, Lord O’Neill, not only as a man of the north but for his interests in strengthening transport links to not only the north and beyond but across to the east and the west. There are many successful large cities and big towns in the north. If that is true of the north, I hope he agrees—I believe he does—that it is also true of other areas throughout the United Kingdom and that there has been a failure to develop the east-west links which are so vital. One colleague would talk about the south-west and others would talk about the A14, for instance.

However, the noble Lord omitted to talk about the Airports Commission and the forthcoming decision that will have to be made. I encourage him not to proceed into the pusillanimity that David Cameron

4 Jun 2015 : Column 594

has exhibited by kicking this issue into the next Parliament. We need decisions. The airports need to be part of an integrated transport response to the changing and growing needs of our economy. Perhaps in his reply the Minister will mention more about regional airports and what the Government intend to do there.

Like others, I shall talk principally about small businesses and access to finance. Next Thursday, the noble Baroness, Lady Neville-Rolfe, and I will have a debate on the question of late payment of commercial debt. I warn her that it is no longer satisfactory to invoke the Prompt Payment Code as a way of solving that problem, which has been with us for far too long. I remind her that some two years ago, at the behest of the German ambassador in London, I attended a meeting with the German business bank on the eve of our setting up of the British Business Bank. However, I am at a loss to explain what is happening in the UK and what our bank has been doing. The British Business Bank was finally set up, as I understand it, in November 2014. Why so late? There was an explanation about waiting for the European Commission, but I do not understand why that did not apply to the German business bank. Why has there been so little help for manufacturing? The Minister, Matthew Hancock, agreed that only 13% of the moneys so far lent had been to manufacturing. That is another theme highlighted by the noble Lord, Lord Broers.

In addition, the Commons, in its report of 10 February, talked about the British Business Bank and said that,

“support is too complicated for business to understand or too poorly communicated for businesses to be aware of”.

It concluded that businesses seeking support find,

“a complex and unclear offer … from the Government”.

Will we do something about that? In that same report, there are concerns about the Green Investment Bank. It is a bank inhibited by a lack of borrowing powers. What do the Government propose to do about freeing up the Green Investment Bank?

During the spring, I had the pleasure of attending the World Bank and IMF parliamentary conference in Washington and of meeting Christine Lagarde. She and others are proposing a symposium or conference in Paris on climate change. What UK initiatives are we producing at that important meeting? What are we doing to fulfil the aim by our Prime Minister to be the greenest Administration ever?

The leitmotif of the noble Lord, Lord O’Neill, was productivity. He talked about the problems of being the second-poorest in terms of productivity in the G7 and being 17% behind—in deficit—compared to other countries. Even France, which is often invoked in UK political circles as a nutcase when it comes to the economy, clearly is more productive than we are. I ask the Minister to take on board the memorable formulation by my noble friend Lord Haskel that we need to replace the age of austerity with an age of productivity. We must clothe ourselves in the habit of productivity. In order to tackle productivity, the noble Lord, Lord O’Neill, suggests that we must do more in education. I suggest that we have a chaotic education system which leaves out higher education, as the noble Lord, Lord Broers, pointed out.

4 Jun 2015 : Column 595

We need to improve infrastructure. We have become pothole Britain. A Roman legion marching in Britain today would be subject to turned ankles and shattered shins. The noble Lord, Lord Horam, pointed out how the lack of housing is incapacitating our ability to revive the economy. Even the Telegraph yesterday had a report about how the City is snared in London from bringing in new customers and operators because of the lack of housing. The noble Lord, Lord O’Neill, boasts of coining the expression “BRICs”, but we need more bricks and mortar, and a bit more housing, to provide for peoples locally. I ask that local councils stop being attacked. They are often loaded with more and more work to do, and responsibilities, while being deprived of the money that is so important.

I conclude in agreeing with others who have spoken on the European question, to which we will return in time. I hope that we make a proper decision at the end of all this debate and that the noble Lord, Lord O’Neill, will join us in ensuring that we have a European future.

4.19 pm

Earl Attlee (Con): My Lords, I have very much enjoyed listening to the speeches today, in particular the two maiden speeches. I was also struck by your Lordships’ very interesting comments on the problems of productivity.

I take issue with the comments made by the noble Baroness, Lady Kramer, about welfare. We spend about £100 billion on welfare—more than health and several times what we spend on defence. If we do not adjust welfare we will have to cut something else even harder, which could have adverse effects on the economy. The noble Baroness suggested that my party is lurching to the right. The bad news for her is that my right honourable friend the Prime Minister has firmly pitched his tent on the centre ground and he has no intention of moving it.

Towards the end of the last Parliament I initiated a QSD on cyclist fatalities in London caused by HGVs. I was grateful for the participation of the noble Lord, Lord Davies of Oldham, who is in his place. Sadly, since Dissolution there have been a few more of these dreadful accidents. They are simply not tolerable. I can tell the Minister, my noble friend Lord Ahmad, that I will be on the warpath this Parliament. The impression I get is that Ministers would be happy if they could show a measureable reduction in the number of these accidents and fatalities. We do not appear to have a policy or set of policies to get us towards zero—by “zero”, I mean that in some years there are no fatalities. I believe that we can get to nearly zero by using sensor technology. The sooner we get to that point, the more lives we can save in absolute terms. We must not forget the very serious life-changing injuries as well.

I expect that Ministers will still be being briefed that the sensor technology available is simply not good enough to be mandated. That is not surprising, since central government has not promulgated a set of performance or evaluation criteria for manufacturers to work out what they need to do to be mandated. In short, industry does not really know what it has to do,

4 Jun 2015 : Column 596

although some manufacturers and suppliers think that they have the solution, which they do not. I do not need an answer this evening, not least because I will be tabling a whole range of helpful Written Questions for my noble friend the Minister to answer.

I was very pleased to hear the comments made by the Minister, my noble friend Lord O’Neill, about HS2. I was rather less enthusiastic about the comments made by my noble friend Lady Noakes in her otherwise excellent speech. She did a rather good job of criticising HS2; I just did not agree with her. The construction industry needs to have a steady and continuous stream of mega-works to be sustainable. That is to the benefit not just of front-line construction workers, but of the enablers: the architects, engineers and all the other specialists who work on these mega-projects. They have already done a considerable amount of work on HS2 phase 1 and they will be on to HS2 phase 2. We also must not forget the plant-hire industry, which hires all the necessary cranes and construction equipment. We have constructed the Olympic park; we are now building Crossrail. After Crossrail we will have HS2 phase 1 and then phase 2 to build. But if we do not build HS2 phase 1, what is the construction industry going to do in terms of mega-projects?

On affordability, we are currently spending around £3 billion on Crossrail per annum. When I was having a pop at the noble Baroness, Lady Kramer, I pointed out that we are spending £100 billion on welfare, so it is not as if we cannot afford HS2—we can.

I appreciate that my noble friend Lady Noakes could not give a full argument against HS2, but she mentioned time savings of 20 minutes to get to Birmingham. She will recognise that those time savings are also applicable to those passengers going north of Birmingham. HS2 is not just about time saving for the few, but about increasing capacity, because otherwise we will run out of capacity on the west coast main line. The noble Lord, Lord Berkeley, is in his place. He will want space for freight trains to run on the west coast main line. We have absolutely got to build HS2. But it is also about connecting all our great cities in this country. As far as I am concerned, there is a very strong case for HS2. The report from your Lordships’ Select Committee on Economic Affairs is a bit unfortunate. No doubt we will debate it fairly thoroughly in due course.

In his interesting speech from the opposition Front Bench, the noble Lord, Lord Mendelsohn, mentioned late payment of commercial debt. This was the subject of my maiden speech many years ago. I can see no good reason why we cannot have a system whereby all normal trading invoices are paid by the end of the month following the month of the invoice. This whole business is simply a waste of effort with the purchase ledger section in one business and the credit control section in another all undertaking perfectly pointless activity. In addition, some commercial organisations, especially in the haulage industry, can run up several months of credit with their customer and the customer goes bust, which can then send the haulage company out of business. Therefore, as I say, there is a very strong case for moving gradually to a system whereby invoices are paid by the end of the month following the month of the invoice.

4 Jun 2015 : Column 597

Finally, I turn to how this House will operate in this Parliament. We are not in a new situation. I am confident that noble Lords on the Benches opposite will recognise the need to act responsibly and that my noble friends on the Front Bench will recognise that for our Parliament to work effectively the Government in this House must be defeated from time to time.

4.26 pm

Lord Watson of Invergowrie (Lab): My Lords, the outcome of the general election came as a massive blow to me, as it did to all noble Lords on the Labour Benches. It was a major defeat for the Labour Party; there is no point trying to dress it up any other way. Even a month on, I admit that it still hurts.

As I began to get involved in competitive sports as a young boy, I remember that my father said to me, “Winning is everything”. But he qualified those remarks by saying, “Winning is everything within the game or within the contest, whatever it is. Once it’s over, your true mark is shown by how you react. Never gloat if you win, never sulk if you lose”. Those words have stayed with me ever since. It is regrettable that my father never had a chance to offer advice to the Prime Minister, because anybody watching Prime Minister’s Questions yesterday will have seen a sneering, patronising display aimed at the interim leader of the Opposition, which I believe did no credit to the Prime Minister or to Parliament.

The inquest within the Labour Party into what happened in the general election is ongoing, but I have no doubt that the main reason for our defeat is the very subject we are discussing today—the economy. Labour never managed to achieve economic credibility in the minds of enough people, and I believe that can be traced back to the period immediately following the 2010 general election. The coalition parties banged on about “the mess we inherited” and it stuck. It stuck despite being completely untrue. That is something about which the Liberal Democrats should be examining their consciences now.

As my noble friend Lord Hanworth said, the economic crisis was not caused by Gordon Brown or the Labour Government. It was a global economic crisis and it was caused by banks, with British banks well to the fore. The only accusation that could be laid at the door of the Labour Government was that regulation of the banks was woefully inadequate. But—and I believe that it is a big “but”—at no time prior to the economic crash did the Conservatives urge the Government to bring the banks under control, so they were equally culpable in that respect. However, Labour never managed to get that crucial point over to the electorate from the beginning. I believe that we had plenty of time to refute the coalition’s mantra and build a convincing economic policy narrative, but for reasons that I cannot quite grasp we never really managed to do so. That failure sowed the seeds of this year’s election defeat and we need to learn that lesson as we begin to rebuild the party as an electoral force.

As I said, I am still hurting—not for myself, but for the millions of people throughout the UK who are going to suffer considerable hardship over the next five years at the hands of a Government who talk

4 Jun 2015 : Column 598

about one nation but have neither an understanding of the concept nor any real interest in moving towards it. They talk the talk; I will be interested to see but I do not expect them to walk the walk. Inequality is the biggest and most pressing problem we face in this country today, and we desperately need policies that tackle it and begin to reverse the slide towards an ever more unequal society. I regret that I do not see any evidence that we will get that from this Government.

How can the Prime Minister claim that he wants one nation when his Government are about to embark on £12 billion of cuts in the social security budget? Indeed, along the Corridor his Chancellor has just been outlining the first tranche of some £3.5 billion of cuts, which we are told will amount to a 3% cut in the budgets of unprotected departments. Why were the plans for the full £12 billion not outlined during the election campaign? I suspect that the Chancellor never expected to be allowed to implement such cuts, as the Conservatives had no idea that they would be in a position to govern alone. That explains why there is to be a Budget next month, just four months after the previous one. Unconstrained, the Government are pressing ahead with unalloyed enthusiasm, irrespective of the effect it will have on families, children, the disabled, the unemployed and would-be first-time buyers.

Equally, how can the Prime Minister claim one nation as his aim when during the election campaign he cynically exploited the rise in support for the SNP to help him win power, all the while being fully aware that the outcome made an independent Scotland more likely? How can he claim one nation as his aim when he announces legislation in the trade unions Bill that will make strikes virtually impossible? My noble friends Lady Donaghy and Lord Monks have covered this in some depth and with greater experience than I have, but I believe that some points are worth restating.

More than 6 million people in the country are members of a trade union, yet they are being shackled in a manner not seen since the 1920s. One nation? Then why not apply the 50% threshold to all ballots? But that would mean the election of the Prime Minister’s close friend the Mayor of London would have been invalid. Why should a dispute between employees and their employer be seen as more important than the election of the most senior politician in the capital city? Mind you, the fact that the mayor regards his job as part-time perhaps diminishes my argument there.

The thresholds proposed are arbitrary, unfair and quite unnecessary. Even more so is the 40% threshold in favour that will be required in public sector strike ballots. On that basis, the Prime Minister’s own position is untenable as he and his party managed to gain a mere—I use the term advisedly—37% of the popular vote a month ago, which equates to just 24% of those eligible to vote. One nation? I say, “Hardly”. It is one rule for trade unionists and none for everyone else. How can the Prime Minister claim one nation as his aim when he seeks to require trade unionists to opt into paying the political levy to the Labour Party yet proposes no such requirements on shareholders as regards donations to his own party from business? This is a blatantly party-political move of the sort that discredits politics in its widest sense. This Government

4 Jun 2015 : Column 599

are determined to reduce workers’ rights and, indeed, human rights. The latter may not have been in this Queen’s Speech but it will be along soon enough.

Finally, I am disappointed that proposals to deal with tax evasion or avoidance were not included in the gracious Speech. There is a tax lock Bill, but it includes nothing to tackle tax dodging by multinational companies. This week, the International Monetary Fund said that every year $212 billion is lost to corporate tax dodging in developing countries. It believes that the existing global tax rules are,

“obsolete and ineffective in preventing tax abuse by multinational corporations”.

The Minister will recall that I raised these matters earlier this year during the passage of the Deregulation Bill and it is clear that the Government need to do more to tackle corporate tax dodging, because the job is far from done. The Conservative manifesto said that the party would consider the case for making country-by-country reporting public on a multilateral basis. I urge the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord O’Neill, to ask the Chancellor to spell out in the Budget how the Government will go about doing this.

4.34 pm

Lord Cotter (LD): My Lords, the Government have a big job on their hands when it comes to business. We have had an excellent debate today and many issues have already been raised. I should like to raise a few more points on some of those issues. How the business community operates is crucial for jobs but also for trade, and thereby for the profitability or otherwise of this country. We need to include in our aims—the Government do, anyway—to ensure that we increase the interest and ability of firms in this country to export. As I say, we need to be a profitable country for many reasons. There are many other strands to address.

To add to the list, we have had problems in the past on inward investment, as the Government will know. This area needs to be looked at again and again. There have been issues with visas and with people from overseas being able to come to this country to set up businesses and trade. A very important aspect of business is to ensure that young people are trained up and ready for the workplace. Many colleagues have spoken about engineering and the different abilities and skills needed. I am sure that many others in the Chamber will be monitoring and following up time and again over the months on these points. At this point I will mention one issue which I think was raised by the noble Baronesses, Lady Liddell and Lady Wheatcroft, and others. That is the need to make tourism a very important strand in the ability of this country to trade.

I hope that when it comes to the enterprise Bill, these and many other issues will be addressed because, as I have said, the Bill will need to cover so many of them. One issue that the Government have announced that they will address is red tape. The often-trumpeted reductions in red tape must happen this time. Many say that this country is adept at rule-setting. Am I going too far in saying that Governments in the past have excelled when it comes to regulating and regulations?

4 Jun 2015 : Column 600

I do not think so. With my lifetime of experience in operating a small business, I can and will point out to Ministers how those self-employed people struggle so often against bureaucracy. I have some specific examples in my mind.

There is much to address under the heading of finance. The difficulty for small businesses in getting finance and having money lent to them has been referred to already. We have had a debate on this area this year and I would appreciate a specific report back on late payments, which is a very big issue for industry and construction, for example. Specifically, a figure was quoted a while back of £39 billion being owed to SMEs because of overdue payments. Is this improving? The Government have written to FTSE companies to encourage those not signed up to the Prompt Payment Code to do so. I would be glad to learn whether that has succeeded and will be carried forward as a strong issue. I would be pleased to hear about the record of the Government and other Governments on local and national payment, by government and local councils, as well.

As the Minister will know, we have welcomed the concept of the business bank. As somebody who has been in business for much of my life, the bank’s overall funding and financing will be important. But there is also the importance of having local ability to raise money, and people with the knowledge to understand the business needs of their areas and the people operating locally. That is a very important strand of the business bank. I have spoken before about local enterprise partnerships, which I hope can be engaged to bring localism back into the picture.

There are many issues to be covered. Broadband was referred to again today. The previous Government made announcements about the appointment of various organisations when it comes to broadband, but I am told that in rural and other areas of the country our broadband is still just not necessarily up to the mark.

There is much to do when it comes to business, which is crucial for jobs and our country’s future. I look forward with great pleasure to the Government coming forward with their business Bill and to trying my best, with many colleagues, to influence the many aspects of the business Bill we need for jobs and the future of this country.

4.41 pm

Lord Northbrook (Con): My Lords, the electorate spoke and trusted the Conservatives to carry on the rescue mission for the economy that was started in 2010 by the coalition. Then, we inherited an economy on its knees. We had emerged from the most severe recession in post-war history. We had a big structural deficit. Government debt was 60% of GDP and rising. It has been hard work over the past five years to restore the economy to a state that resembles health. I note today the recent OECD survey, which said that we will have the fastest-growing economy in the G7 this year.

The job is still work in progress, but there is much to cheer about. Recent economic news has included better than expected April budget deficit news, the construction business confidence survey and buoyant

4 Jun 2015 : Column 601

UK retail sales. Unemployment has been falling rapidly, and the growth in jobs is notable because they are focused in the private sector. Real disposable incomes are starting to rise again. Manufacturing industry is generally on an upward path. The Chancellor has been correct to reduce the deficit largely through expenditure reductions rather than taxation and has been wise not to adopt wholly Keynesian measures to resolve the dangerous situation we inherited.

So how are the Government planning to reduce the budget deficit in part 2 of the rescue plan? I welcome the full employment and welfare benefits Bill, with its aim to freeze working benefits, tax credits and child benefits from 2016-17 for two years. I also welcome the planned reduction in the benefit cap. I support the scrapping of the automatic entitlement to housing benefit for 18 to 21 year-olds. I await with interest the plans for the remaining welfare cuts, amounting to £12 billion in total.

In the area of business, I applaud the enterprise Bill, with its pledge to free entrepreneurs from burdensome regulation by cutting at least £10 billion-worth of red tape and to create a small business conciliation service, as many other noble Lords have mentioned, to address late payments to suppliers. Government promises to do away with pointless rules and bureaucracy are nothing new, but this latest deregulatory drive is the first that will require wholly independent regulators to contribute. Business groups have been supportive of the commitments. However, as the British Chambers of Commerce has pointed out, since many of the costly regulatory burdens originate in Europe, genuine cuts to red tape may rely as much on reforms to the EU as on anything a domestic Government can do.

I also welcome the trade union Bill, which makes it harder for strikes to be called. It is only fair to make the stipulation that 50% of union members have to turn out in a vote for strike action for the walkout to be legal. I also approve of the proposal that, for essential public services, a strike will also have to have the support of 40% of workers eligible to vote.

I approve of the plans in the enterprise Bill to pledge 3 million new apprenticeships. However, the plan to fund these by a new visa levy for those employing foreign labour has been queried by the EEF manufacturers group. According to the Financial Times, the EEF’s head of employment policy, Tim Thomas, said that the levy proposed seemed high. With regard to the proposed EU referendum, the director-general of the British Chambers of Commerce, John Longworth, said that the vote should take place,

“as soon as is practicable”,

to minimise uncertainty. Overall, I think that we will have a more business-friendly regime at BIS for the next five years.

On the subject of taxation, I note the plan in the national insurance contributions and finance Bill for a tax lock to ban rises in income tax rates, VAT rates or national insurance contributions for individuals, employees and employers, but I am just not sure whether that is a good thing for a Government to legislate on, to stop things happening. I like the proposal to exempt from income tax those working 30 hours or more on the minimum wage, which would incentivise work over welfare. I also welcome the plan to raise the income

4 Jun 2015 : Column 602

tax threshold to £12,500 a year. However, more should be done at the higher rate of the tax scale to reduce the rate to 40%, which after all is only what it was under much of the Labour Government, and to raise that threshold to £50,000.

While I am full of praise for how the Government cut corporation tax over the last period, this has not been matched by the cutting of personal taxes. I am a great believer in the Laffer curve theory, which says that within reason lower taxes bring in higher revenues; this was certainly the case a few years ago when I got a study done by the House of Lords Library which stated the beneficial effect when corporation tax was cut from 52% to 30%, as it was at that time.

On the theme of tax, I move on to tax simplification. My noble friend Lady Noakes made an excellent speech highlighting this a year ago, and it is still valid today. Her first point was that the Office of Tax Simplification has done a great job but its recommendations have not all been heeded, and more than 2,000 pages of complex tax legislation had been added by the end of the last Parliament. She stated that the Chancellor had used the principle of dynamic modelling to underpin his reductions in corporation tax the year before last, and this should be extended to income tax. The 2020 Tax Commission, which was sponsored by the TaxPayers’ Alliance and the Institute of Directors, echoed the conclusion of the work done by my noble friend Lord Forsyth of Drumlean’s Tax Reform Commission nine years ago. Its proposal, which is truly radical, was to abolish most taxes and replace them with a single rate of income tax of 30% and a total restraint on taxes as a percentage of national income of around one-third. It said that this would add over 9% to GDP over 15 years and the annual growth rate would be improved by 0.4%.

I make no apologies for bringing this topic up again for our new Minister, the noble Lord, Lord O’Neill of Gatley, whom I would like to warmly welcome and congratulate on his maiden speech. I am sure that he will keep up the high standards attained in recent years by my noble friends Lady Noakes, Lord Sassoon and Lord Deighton. If he is as clever with government legislation as he is with his acronyms, we are all going to be very fortunate. His appointment continues the Goldman Sachs involvement in this House. Could I ask him for his thoughts on these tax simplification views?

Overall, I welcome the humble Address measures with regard to business and economic affairs and wish them a fair passage through this House.

4.48 pm

The Earl of Kinnoull (CB): My Lords, it was indeed heartening to hear, both in the gracious Speech and in the admirable and fluent maiden speech from the noble Lord the Minister, such a clear and prominent statement of intent about the reduction of regulation for small businesses, the “small and the brave”, which are the bedrock of our nation’s prosperity today and a foundation for its future prosperity tomorrow. I am going to concentrate only on this.

The last Administration made a good start in attacking the problem. The Regulatory Policy Committee, revamped in 2012, the Red Tape Challenge and the one-in,

4 Jun 2015 : Column 603

two-out rule have each contributed in their own way and continue in force. However, I hope that there will at least be a brief review of those three things to see whether they could be tweaked in any way to become yet more effective. I particularly feel that the one-in, two-out rule could do with some simplification and perhaps even the deletion of some of the exceptions, and I would be very grateful for the comments of the noble Baroness the Minister on this.

In preparing for today, I have been in touch with the British Insurance Brokers’ Association—BIBA—which has 1,500 members with 10 or fewer employees. Here I declare my interests as set out in the register, having worked for 25 years in that industry, but never as a broker. I have also been in touch with the Federation of Small Businesses, with its 200,000 or so members. I have two points that I want to put to the noble Baroness the Minister.

First, I urge greater action on the gold-plating that has arisen out of older EU directives—the emphasis is on the “older”. BIBA members are regulated by the Financial Conduct Authority, the FCA, which—or, more accurately, its predecessor the FSA—has platinum-plated the insurance mediation directive of 2002. According to BIBA’s independently commissioned research, the direct cost of regulation for UK insurance brokers is by far the highest in Europe, being a factor of two higher than second-placed Luxembourg and more than 10 times that in France and Germany. The CEO of BIBA commented to me: “Our peer associations in other European nations like France and Germany are shocked by the cost added by our regulator, and Karel Van Hulle, the recently retired European Commission head of insurance, referred to UK gold-plating by the FCA as ‘sauce anglaise’”. I understand that the FCA wants to stretch its lead at the top of the league table of cost in Europe and appears to be looking for an 8% rise next year in what it charges the insurance brokers it regulates. That must be wrong.

That is just one example of the well-appreciated gold-plating problem. I accept that, certainly since July 2011 and arguably somewhat earlier following the Davidson Review, great care has been taken to try to prevent gold-plating on new, fresh EU directives. Nevertheless, there is a lot of gold-plating around in older regulations made before that date and there is no satisfactory comprehensive mechanism for the automatic review of these older regulations. As part of the efforts to reduce the regulatory burden, will the Government review these older EU-derived regulations to seek out the gold plate, or sauce anglaise, and procure change for the better?

My final point is to do with the attitude of regulators up and down the land. I have had experience of regulators in quite a few countries in my 25 years in the insurance industry. Oddly, it is not a bad generalisation to say that they fall into two distinct camps in attitude, either being remote, severe and unhelpful or being akin to Dixon of Dock Green. Too many UK regulators tend towards the former category, where the regulator is feared rather than seen as a potential source of knowledge and assistance. The chairman of the Federation of Small Businesses summarised the issue to me as follows:

4 Jun 2015 : Column 604

“When setting out to tackle the burden of red tape, it’s important not only to identify obstructive regulations, but also to look at how regulation is enforced. Poor enforcement or excessive monitoring requirements can turn straightforward regulations into costly and disruptive burdens … We would like to see more partnership working between regulators and businesses with regulators focusing on proactively providing guidance to assist and encourage rather than an emphasis on enforcement”.

The “small and the brave” particularly need regulators with a helpful and collaborative approach to prosper. Will the noble Baroness the Minister confirm that the Government will seek to address this issue, which, in all probability, would require no legislation? The “small and the brave” need our help. I urge the Government to be big and bold in providing it.

4.54 pm

Viscount Trenchard (Con): My Lords, I join noble Lords in welcoming to this House and congratulating my noble friend Lord O’Neill of Gatley and the noble Lord, Lord King of Lothbury, on their excellent and interesting maiden speeches.

My noble friend Lord Horam said that the BRICs were made famous by my noble friend Lord O’Neill, although surely it was the other way around and my noble friend became famous for coining the acronym BRICs. The noble Baroness, Lady Liddell, asked him to invent a new acronym for productivity. I am not sure that is a good idea, because there are already too many acronyms, and in fact they are divisive. Acronyms are used more and more in public life and put off the majority of the population, who do not understand what they mean and feel that they appear to be ignorant if they ask. Rather than inventing new acronyms, I hope my noble friend the Minister will concentrate on the commitments that he made to enhancing productivity and to removing a lot of the strangling regulation that we have today.

While it is good for business and the economy that we have the first Conservative Government in 19 years, it is disconcerting for us on these Benches that there are so many fewer noble Lords that we may call our noble friends.

I welcome the introduction of the enterprise Bill, which is intended to cut red tape. This Bill should help to accelerate the encouraging increase in registrations of new companies, from some 480,000 in 2012 to more than 580,000 in 2014, a 20% increase in two years. It is also welcome that the Government have pledged to discourage EU bodies from imposing burdensome rules and have promised that any new regulations that come through from Brussels will be implemented as benignly as possible in the UK.

In order to succeed in a global market, businesses have a strong incentive to meet the standards required in their principal export markets. That in itself will encourage the harmonisation of standards applied across developed-world markets. Beyond that, I hope that the Government will insist in their negotiations with the EU that the principle of subsidiarity be given a great deal more weight than it appears to have been given in recent years.

My right honourable friend the Secretary of State for Business has said that the enterprise Bill will contain deregulatory measures to cut £10 billion of red tape. I ask the Minister, the noble Baroness,

4 Jun 2015 : Column 605

Lady Neville-Rolfe, how this figure is calculated. BIS has also announced that the Government’s ambitious target for cutting red tape will look beyond Whitehall and extend to independent regulators for the first time. I wonder whether that includes the European regulators.

I would like to mention the City, including the wider financial services industry, which also has a significant presence in Edinburgh and some other northern cities. I believe that it is time to stop punishing the City. It is arguably the jewel in our crown; it is certainly one of the most sparkling of them. It has come to be by far the most significant and successful financial centre in the European time zone and arguably in the world, not as a result of our membership of the EU, any other group or a politically created market but simply because of the City’s history, stability and highly respected and effective legal and accountancy regimes, the talents of its practitioners and the infrastructure and everything else that our great City of London has to offer.

The City has reacted well to the financial crisis and continues to learn from its mistakes. Several banks have had to pay extremely large fines as a result of LIBOR and foreign exchange-rate fixing. I consider that the balance of punishment has been tilted too much towards the banks and too little towards individuals who may have broken the law. If they have, it is they who should be punished, not the shareholders of the banks. Does the Minister agree?

Given the importance of the City to this nation’s prosperity and productivity, it is important continually to assess what kind of regulation will best protect the consumer against exploitation and at the same time enable our financial services companies to thrive in what is a global rather than a European market. In particular, given that banks now have to comply with greatly increased capital requirements, effective resolution regimes and strengthened deposit insurance arrangements, I would question whether the ring-fencing of retail banking will be necessary or appropriate. The time has come for us to look forward and consider how best we can maximise growth in the economy, in jobs and in tax revenues.

Ring-fenced retail banking would not have saved Northern Rock, and neither would RBS have been protected from the difficulties it encountered if ring-fencing were in force. Neither bank got into trouble because of its investment-banking activities, but the implementation of ring-fencing will be a significant burden for Barclays, HSBC and RBS, and if any one of these banks is considering whether to maintain its global headquarters in the UK, ring-fencing is certainly one of the factors supporting relocation. Other major countries have not introduced ring-fencing and have no intention of so doing.

I would also argue that the City should not be burdened with cumbersome and unnecessary regulation introduced by the European regulators EBA, ESMA and EIOPA, together with the ESRB. On its own, the UK would never have chosen to introduce much of the growing body of EU financial services and insurance regulation to which it is now subject.

As my noble friend the Minister has mentioned, the Government are committed to improving productivity and increasing living standards. That will not be achieved

4 Jun 2015 : Column 606

by an artificial rebalancing of the economy in favour of manufacturing. However, the more our financial services sector can thrive and prosper, the better will be the background and conditions necessary for a continued manufacturing revival. There is no statistical evidence that EU regulation has liberalised trade in financial services between the UK and the rest of the EU. Most of the UK’s financial services and insurance exports to the rest of the EU are wholesale in nature and not dependent on the UK’s EU membership. There are no obvious grounds for arguing that EU regulation enables the UK to manage the financial services and insurance sector better than it could do on its own. The European supervisory authorities should be the regulators for the eurozone, and the UK’s PRA and FCA should be restored to their deserved status as global-level regulators equivalent to the SEC of the United States and Japan’s FSA. I ask my noble friend to confirm that powers to regulate the City will be among those which the Government will ensure are returned to our own national regulators.

Like the noble Baroness, Lady Kramer, and other noble Lords, I do not understand the reason for the Government legislating to stop themselves from legislating to increase taxes. We can trust the Government to honour their commitment not to increase taxes, but they do not need to tie their own hands and restrict their ability to react prudently and promptly to any unforeseen economic disaster. I look forward to the remaining contributions, and especially to my noble friend the Minister’s winding-up speech.

5.03 pm

Baroness Worthington (Lab): My Lords, I rise to speak in the debate having listened with interest to the learned and wise contributions of so many distinguished noble Lords, including the most excellent maiden speeches of the noble Lords, Lord O’Neill and Lord King. As ever, the House has today eloquently demonstrated the depth of knowledge and breadth of experience we are so fortunate to embody.

My own contribution to the debate will focus on an important area of the economy which I fear is neither properly understood nor accorded the right level of respect and attention by the Government that it deserves: energy and climate change. Here we sit on our islands, home to a modest population with limited space and no great abundance of natural resources, and yet over the course of history our impact on the globe has been remarkable. As I am an optimist, I see no reason to doubt that we cannot continue to do so in the future, for we live in interesting times. We are buffeted by the winds of globalisation, with increasing interconnectedness and complexity being a part of our daily lives, and we must respond to these challenges.

How might we achieve this? Many noble Lords have spoken of addressing our productivity challenge, stabilising our economy, and equipping our citizens with the skills they need to thrive in this world. The Government’s recipe for success appears to be clear: reductions in business rates, freezing taxes, slashing red tape, slashing welfare in as yet undisclosed ways, and smashing the unions. So far, so much ideology. However, the key question is whether the Government can engender one of the most important elements

4 Jun 2015 : Column 607

needed for investment and growth in the economy: confidence. Will people and companies feel confident enough to spend money and to spend it here? So far, the evidence is not reassuring. The Government cling to a simple idea that the market knows best and, rid of interfering Governments, that it will deliver all that we might seek of it. That is of course nonsense—Governments have always and always will have a strong role to play in guiding the hand of the market and, in times of economic insecurity more than ever, they must apply a steady hand on the tiller. That steady hand should be manifest in sensible, well-constructed policy-making and regulation, of which there is too little evidence in the Government’s plan.

The northern powerhouse we have heard so much about remains, sadly, a slogan, without yet any appreciable sign of how it will be delivered—although we might look forward to seeing some detail. The one piece of legislation in the gracious Speech that related to infrastructure was the HS2 Bill, which can hardly be described as new, having been the subject of seemingly interminable debate in this House and the other for many years. The energy Bill contains not much more than a dog-whistle response to a vocal minority who oppose proven, clean, cheap onshore wind, reducing investor confidence when we should be boosting it. That is coupled with another attempt to reassure investors in the North Sea, as if searching to return to the golden era of the 1970s. We cannot evade the truth that in a world of excess capacity, reduced demand and low oil prices, the cash cow that we once relied upon to fill our coffers may be about to be extinguished.

To return to growth we must play to our future strengths, not try to replay our greatest hits, and we must also once again connect the financial world with the real economy, not rely on property price bubbles and financial derivatives that deliver no net gain to the global economy. We were once a nation strong in engineering excellence and infrastructure and we can be again; our infrastructure needs renewing to adapt and respond to the growing risk of climate change in particular.

The UK is fortunate to have a world-leading Climate Change Act, which creates the framework for a new industrial revolution in energy. Rather than pursuing fading hopes in the North Sea, the Government should seek to properly back a wide range of alternative sources of energy: renewables, nuclear, and coal with capture and storage, as well as converting transport to run on electricity and giving industrial sectors much-needed support to develop novel processes, electricity-based solutions and carbon capture and utilisation so that they can thrive in a carbon-constrained world. Solutions developed here in the UK will be in high demand, as every country is now waking up to the threat of climate change and pledging to act. There are few areas of our economy where we enjoy a positive trade balance with China; our environmental services is one. We should pursue it more.

As the Minister knows well, growth in the Chinese economy is delivered through a five-year plan, followed by instructions to state banks, which makes capital available and which results in infrastructure being conceived, financed and delivered with alacrity. This is

4 Jun 2015 : Column 608

not how things work here. We seem to have to guide, cajole, regulate and incentivise the private sector to commit investment. Monetary policy in this regard appears to have reached its limits. Government must step in and apply their guiding hand.

The gracious Speech included a Bank of England Bill. That is welcome, but the Government could and should be doing much more to improve the Bank’s capabilities to identify and respond to potential sources of instability. For example, it could require the Bank to extend its risk assessment horizon to include longer-term risks such as climate change. The issue that Mark Carney refers to as the “tragedy of horizons” prevents us properly assessing the risk that this great threat poses to our economy and to our society more generally. The Bill could also give the Bank greater powers to take action to address potential asset price bubbles—including, for example, those potentially overvalued fossil fuel assets that we may not be able to extract and burn in the way that we currently imagine we will. I will seek to promote that as the Bill makes its way through the parliamentary procedure.

I would like to end by briefly commenting on the distinctly odd tax Bill. I, like many noble Lords who have spoken before me, find it slightly strange and potentially a great waste of parliamentary resources. In the Government’s zeal to outlaw various tax increases, does this now mean that, to balance the books, the Treasury will embrace progressive green taxation, increases in which are not limited? Can the Minister confirm that? For example, might we look forward to the introduction of a comprehensive climate change levy—call it climate insurance, if you will—the proceeds of which could be spent on the research and development of clean energy and its deployment?

It has been a privilege to take part in this debate, and I look forward to our continued discussions of these topics in the coming months and years.

5.10 pm

Baroness Linklater of Butterstone (LD): My Lords, my contribution to this debate on the Queen’s Speech comes under the broad heading of “welfare reform”, and would more properly have been given during yesterday’s debate, making as it does the essential interconnection and correlation between social and economic disadvantage on the one hand, and offending behaviour on the other. So I am particularly grateful for this opportunity to speak, albeit somewhat out of context.

Last week, the Prison Reform Trust published the latest edition of its highly successful, informative and much-used Bromley Briefings Prison Factfile. According to the briefing, England and Wales currently have the highest imprisonment rate in western Europe, at 149 per 100,000 of the population. Over the past two decades, the prison population has nearly doubled, at enormous expense to the taxpayer, and it currently stands at more than 84,000. Reconviction rates are sky high: nearly half of all people released from prison are reconvicted within one year of their release.

The current realities of the lives of ex-prisoners include the following. Some 15% of newly convicted prisoners reported being homeless before custody, and

4 Jun 2015 : Column 609

9% were sleeping rough. More than half the people released from prison were claiming out-of-work benefits one month afterwards, and two-fifths were still claiming benefits two years after release. In 2013-14, only a quarter of prisoners entered employment on release from prison, and 26% of women and 16% of men said they had received treatment for a mental health problem in the year before custody.