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House of Lords

Thursday, 10 September 2015.

11 am

Prayers—read by the Lord Bishop of Peterborough.

Oaths and Affirmations

11.05 am

Lord Wolfson of Sunningdale made the solemn affirmation, and signed an undertaking to abide by the Code of Conduct.

Iraq and Syria: Religious andCultural Heritage

Question

11.06 am

Asked by Baroness Berridge

To ask Her Majesty’s Government what is their strategy to prevent stolen items of religious and cultural heritage from Iraq and Syria being illegally imported into the United Kingdom and then used to finance terrorist activities.

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills and Department for Culture, Media and Sport (Baroness Neville-Rolfe) (Con): My Lords, our strategy is to prevent the illegal importation of Iraqi and Syrian antiquities through UK customs and border controls. Border Force officers, supported by HMRC intelligence officers and investigators, enforce the comprehensive sanctions legislation that is in place. Our current assessment is that ISIL’s revenue stream from the illegal trade in oil is far more significant than that raised from trade in Iraqi and Syrian antiquities.

Baroness Berridge (Con): I thank my noble friend the Minister for her response. She will join me in noting how sad it was to learn of the death of the archaeologist Khaled al-Asaad, killed by IS for bravely refusing to reveal where artefacts from Palmyra were stored. This overall global trade is worth millions and is a means of funding terrorist operations. Britain is seen as a key nation because of our world-renowned universities, archaeologists, museums and auction houses. Will the Minister please outline whether it is still the Government’s commitment, as outlined in the previous Parliament, that we should now ratify the 1954 convention for the protection of cultural property in the event of armed conflict and outline when parliamentary time will be found for this?

Baroness Neville-Rolfe: My Lords, I agree with everything that my noble friend said. I pay tribute in particular to the dedication of heritage professionals in dangerous regions such as this, including the late Khaled al-Asaad, who gave his life to protect the

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treasures of Palmyra. We will bring forward legislation to ratify the Hague convention at the first opportunity. This is a new Government. The Secretary of State regards it as a priority. We are committed to protecting cultural property during armed conflict. Noble Lords will be glad to hear that our Armed Forces already act in the spirit of the convention and its protocols.

Lord Campbell-Savours (Lab): My Lords, if the Government believe that oil is the main source of revenue, what are we doing to block it?

Baroness Neville-Rolfe: My Lords, there was a much wider debate earlier in the week following the repeat of the Statement by the Prime Minister on the many things that we are trying to do to help in this terrible conflict. That obviously includes trying to find a better outcome in these areas and to tackle the difficulties of oil and other issues.

Lord Cormack (Con): My Lords, what my noble friend said about ratification is extremely welcome to everyone who cares about these things, but can she please ensure that this is really given proper priority? Can she also assure the House that the British Museum and other British museums will give safe refuge to such items as come their way, pending restitution when peace has been restored?

Baroness Neville-Rolfe: My Lords, as I have already said, we regard this as a priority. Parliamentary time will have to be found for it. I have been amazed by what the museums have already done in recent years, such as the British Museum’s work in Iraq and the good relations that they have. Looking after artefacts and working with the other institutions is very much part of their core culture. The museums decide on these things themselves, but it is part of the work that the Government are developing, including the new cultural protection fund that we have announced, which we will talk about further in the coming weeks.

Baroness Nicholson of Winterbourne (LD): Is the Minister aware that the cultural heritage of the Federal Republic of Iraq contains a religion that is fast disappearing? What is she able to offer noble Lords from Her Majesty’s Government to save the heritage of the Yazidi faith, which is a living faith, not a dead faith like the one she is discussing? What is she going to do to save not just the Yazidi artefacts relating to their faith, cultural heritage and particular way of worship but the Yazidi people themselves, who face extinction?

Baroness Neville-Rolfe: I have much sympathy with the point the noble Baroness makes. The Government are obviously developing a number of programmes. We give priority to the human cost of these horrific conflicts, and much of that has been articulated. I have talked about the cultural work that we are doing, which also includes some very interesting and innovative things such as deploying digital archaeology in conflict zones. The religious angle that the noble

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Baroness articulated is a new one on me, I have to say. I will take it away and perhaps have a further word with her.

The Earl of Kinnoull (CB): My Lords, noting my interests in the register, will the Minister comment on what moves the Government have made to clear this issue with the British insurance industry, with its world leadership position in the insurance of art and artefacts such as this and its associated loss registers?

Baroness Neville-Rolfe: My Lords, I will look into the insurance issue and come back to the noble Earl. We have worked very hard to ensure that appropriate guidelines are available for the art and antiques trade and have very good links with the Border Force and the Metropolitan Police. However, the insurance point is a good one and I thank him for it.

Lord Collins of Highbury (Lab): My Lords, I am sure many noble Lords will welcome the Minister’s commitment to the ratification of the convention for the protection of cultural property. However, the problem for many in this House is that on 14 May 2014, we heard exactly that response, so 18 months later we are still hearing the same commitment. Will she give a very clear assurance to this House that we will see the commitment acted on in this Session of Parliament?

Baroness Neville-Rolfe: This is a commitment the Government have made. It is for the parliamentary managers to decide exactly what is done when. All I can say is that we regard it as a priority. The Secretary of State regards it as a priority. The circumstances around the world today make it all the more important. I look forward to debating it in due course with colleagues on all sides of the House.

Lord Tebbit (Con): My Lords, is it really the view of Her Majesty’s Government that the principal source of revenue for ISIL is illegal trade in oil? Do they have an estimate of how much is paid in protection money by Gulf states and other rich Arabs to ensure that none of the refugees lands in Muslim states but that they are all pushed into western Europe?

Baroness Neville-Rolfe: My noble friend makes a strong point, which goes beyond the cultural area that we are mainly discussing today. I stand by what I said: the assessment I have had is that the revenue stream from illegal oil is a much more serious source of money for ISIL than the cultural items that we are talking about, important though they are.

Health: Children

Question

11.15 am

Asked by Baroness Tyler of Enfield

To ask Her Majesty’s Government what plans they have to tackle the variations in health outcomes across the country for children aged under five.

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The Parliamentary Under-Secretary of State, Department of Health (Lord Prior of Brampton) (Con): My Lords, giving every child the best start in life is central to the Government’s approach to reducing health inequalities. This ambition is supported by action across government and the health system at local and national level.

Baroness Tyler of Enfield (LD): I thank the Minister for his reply. Is he aware of the report published this week by the National Children’s Bureau—I declare an interest as its president—called Poor Beginnings, which shows very vividly how the place where young children live can dramatically affect their health? In particular, it highlights really dramatic differences in areas such as obesity, tooth decay and getting injured, and shows very significant variations in child health outcomes between deprived local authorities. As local authorities take up responsibility for young children’s public health from this October, what steps are the Government taking to support them in their work to narrow the gap in outcomes?

Lord Prior of Brampton: I have indeed read the report by the NCB, although it came out only on Monday so I have not fully digested its conclusions. I think that it very much echoes the work done by Michael Marmot four or five years ago. He said that the first two years, and certainly the first five years, of a child’s life are crucial in determining their subsequent standard of living and health. The variation that the NCB’s report has identified is extremely important. It is a variation not just between rich areas and poor areas but within deprived areas. That level of variation is best tackled at local level by local authorities. The decision to push the commissioning process down to local authorities is probably the right one, but they will be heavily supported by Public Health England.

Lord Hunt of Kings Heath (Lab): My Lords, all the evidence suggests that there is a direct link between poverty and poor health outcomes. In view of that—and I accept that the Minister’s department has noble aims—what is his response to the work of the Child Poverty Action Group, which estimated very recently that by 2020, 4.7 million children will live in poverty? What representations has his department made to the DWP about its disastrous welfare policies?

Lord Prior of Brampton: My Lords, the causes of childhood poverty are profound. They are to do with employment, family relationships and education. The work that the DWP is doing with its troubled families programme and the work that the Department for Education is doing in improving educational standards will have a much greater impact on childhood poverty than, for example, focusing solely on things such as tax credits.

Baroness Masham of Ilton (CB): My Lords, are there enough paediatricians across the UK to look after the under-fives, and is prevention of cerebral palsy a priority?

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Lord Prior of Brampton: My Lords, I do not have the numbers for paediatricians—whether or not there is a shortage. Certainly, there are shortages in some specialties, particularly in A&E and other emergency specialties. I cannot give the noble Baroness a definitive answer on the shortage of paediatricians but perhaps she will allow me to go back, look at the figures and write to her.

The Lord Bishop of St Albans: My Lords, one of the most significant aspects of child health is to do with access to health services, which is a particular problem in rural areas. The phenomenon of distance decay, the further away you are from where the service is provided, is well documented. Will the Minister tell us what Her Majesty’s Government are doing to increase access to health services for those 900,000 rural households living in income poverty?

Lord Prior of Brampton: My Lords, access to health services is not just a rural issue; it relates also to deprivation, be it urban or rural. I would point out to the House the increase in the number of health visitors, which has gone up from 8,000 to nearly 12,000 over the past five years, and also to the Family Nurse Partnership scheme, which now has 16,000 places on it for younger and teenage mothers. So the Government are doing a lot to improve access. I guess they could always do more.

Baroness Walmsley (LD): My Lords, is the Minister aware that in some areas fewer than half the five year-olds reach a good level of development? Given how important this is for their health, education and future employment prospects, why have the Government decided that from next year, the collection of early years foundation stage profile data is no longer to be statutory? How are the Government going to monitor how well children are developing across the piece, and how individual nursery settings are doing?

Lord Prior of Brampton: I am not sure that I can give that question a full answer. I am aware of the early years programme and I think that it is largely up to schools to monitor the development performance of children when they come into reception classes, which they are doing. I have seen the figures that the noble Baroness refers to—the 40% figure of children who have not reached the right development age by the time they come into reception class. It is a serious issue and I will take her words on board.

Lord Beecham (Lab): My Lords, what is the Government’s response to the recent concerns expressed by the Royal College of Nursing about the reduction in the number of school nurses in recent years, and what assurance can the Minister give that the reduction in the public health budget will not lead to a still further reduction in the number of school nurses?

Lord Prior of Brampton: I have not seen the figures that the noble Lord refers to on school nurses but I will take that away and look into it.

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Baroness Finlay of Llandaff (CB): Do the Government accept that intrauterine exposure to environmental toxins, psychological stress and nutritional deficiencies in the mother have long-term health effects on the child, as well as problems that arise in the immediate postnatal period? Will the Government therefore undertake to support epidemiological research in these areas, linked to their reviews of maternity services?

Lord Prior of Brampton: I am well aware of the impact on the health of children before as well as after they are born. I cannot give the undertaking that the noble Baroness would like me to give here today but I am very happy to pick it up with her outside the Chamber.

Benefits: Sanctions

Question

11.22 am

Asked by Baroness Sherlock

To ask Her Majesty’s Government what plans they have to review the operation of sanctions on benefits.

The Minister of State, Department for Work and Pensions (Lord Freud) (Con): We have made a number of improvements to the sanctions systems and are implementing further changes following recommendations made by the Oakley review. We are now focusing on embedding those changes and improvements. We will keep the operation of the sanctions system under review to ensure that it continues to function effectively and fairly.

Baroness Sherlock (Lab): I wonder if the Minister has read the leaflet that his department published for disabled people, which featured Zac and Sarah. Sarah had been sanctioned for failing to produce a CV, but it ended happily. Sarah said:

“My benefit is back to normal now and I’m really pleased with how my CV looks. It’s going to help me when I’m ready to go back to work”.

An FOI request established that Sarah does not exist. The picture was a model and DWP invented the quotes. Real people’s experience of sanctions is very different. Food banks repeatedly see desperate people sanctioned for trivial or, frankly, mystifying reasons, and the scale of sanctions is now such that a fifth—no, almost a quarter—of all JSA claimants were sanctioned in the last five years. Will the Minister please now do what the DWP Select Committee asked: respond to its report and conduct a major review of sanctions before the whole system is discredited?

Lord Freud: Let me clarify this. The sanctions level runs at around 5% on a monthly basis. That level is the running rate of sanctions and other figures are simply wrong. On the first point that the noble Baroness made, we do use illustrative examples where they are real, and we make it clear where they are not. In this

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case, it was wrong—and we have said it was wrong—to have made illustrative examples look as if they were real.

Baroness Meacher (CB): My Lords, I was involved in an inquiry earlier this year on behalf of the Fawcett Society into the effects of the welfare reforms. One of the greatest problems for clients seems to be the errors on the part of staff, as a result of which a woman can go to a post office for some money at the end of the week and be told, “Sorry, you are sanctioned”, because the message had not been passed on that her child was ill so she could not attend an interview—that sort of thing. Can the Minister tell the House what action his staff are taking to stamp out these errors in communications with clients?

Lord Freud: Clearly, one error is one error too many. We work to try to eliminate the error rate, and we have layers of safeguards, for both JSA and ESA, to make sure that we review these cases at each level so that we get it right. Some, of course, will creep through.

Baroness Eaton (Con): Do the Government have any evidence that sanctions are effective?

Lord Freud: We have done surveys on this and found that people say that the sanctions regime encourages positive behaviour. According to the figures we have, which have been published, 72% of JSA claimants and 61% of ESA claimants say that it impacts on their behaviour.

Lord Foulkes of Cumnock (Lab): My Lords—

The Lord Bishop of Peterborough: My Lords—

Baroness Thomas of Winchester (LD): My Lords—

Noble Lords: Bishop!

The Minister of State, Ministry of Defence (Earl Howe) (Con): My Lords, I think it is the turn of the Bishops’ Benches, and then perhaps we can hear from the Benches opposite.

The Lord Bishop of Peterborough: My Lords, the Feeding Britain report showed that some people have been sanctioned for missing or being late for appointments when it is not their own fault. Is it not possible for the staff at Jobcentre Plus to be given some discretion in whether or not to apply sanctions? Along the same lines, is it fair that some people in rural communities have to spend £7 or more on bus fares to get to routine appointments when the likes of me, who can well afford bus fares, are entitled to a free bus pass?

Lord Freud: Jobcentre Plus people do have discretion. There is some, although less, discretion for Work Programme providers. We layer up that discretion with decisions from our decision-makers. It can then go to mandatory reconsideration and on to appeal, so

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there is a system to allow these things to be reviewed very flexibly. On the other point, the decision that older people should get free travel is one which was made by several Governments in the past.

Baroness Thomas of Winchester: My Lords—

Lord Foulkes of Cumnock: My Lords—

Baroness Hollis of Heigham (Lab): My Lords—

Noble Lords: Lib Dems!

Earl Howe: My Lords, the Liberal Democrats have not had a turn in this Question. If we proceed quickly to the noble Baroness, Lady Thomas, we might then be able to have a question from the Labour Benches.

Baroness Thomas of Winchester: My Lords, would the Minister consider asking the Social Security Advisory Committee to conduct a review of sanctions policy on ESA claimants, as they did for JSA claimants with the Oakley review?

Lord Freud: The reality is that the number of ESA claimants being sanctioned is very small—it is running at around 1%—and we look at those cases very carefully. We do not have any plans to look at that specifically at this stage, given that it has steadied out.

Baroness Hollis of Heigham: My noble friend Lady Sherlock’s figures on the number of appeals are absolutely right: they are based on the annual figures. The DWP is sheltering behind monthly figures, which will not do. We know—as I am sure the Minister will agree—that over 50% of those who appeal after being sanctioned have their sanctions overturned, having lived for many weeks, sometimes months, without their benefit. Can the Minister tell the House how many of those sanctioned have mental health problems?

Lord Freud: Where people’s sanctions have been found to be wrong, they recoup that money. Meanwhile, we have an established process of hardship payments, by which people can now get paid within three days where that is appropriate, to deal with that problem.

Baroness Hollis of Heigham: Will the Minister answer the second question?

Rugby World Cup 2015

Question

11.29 am

Asked by Lord St John of Bletso

To ask Her Majesty’s Government what steps they are taking to maximise the grass-roots impact of hosting the forthcoming Rugby World Cup.

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills and Department for Culture, Media and Sport (Baroness Neville-Rolfe) (Con): My Lords, the Government are working closely with

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the Rugby Football Union to ensure a lasting legacy from the Rugby World Cup. It is working to spread the game’s popularity—notably, by improving clubs’ capacity and by offering more young people the opportunity to play rugby, especially in state schools.

Lord St John of Bletso (CB): My Lords, I am grateful to the noble Baroness for her reply. Many of us are very much looking forward to the forthcoming Rugby World Cup, which will be the first major international sporting event in England since the Olympic Games. Is the Minister aware that way back in January 2012, before the Olympic Games, the then Minister for Culture, Media and Sport declared that the Government would promote at least 1,300 partnerships between schools and rugby clubs, making it easier for young people to play sport after their education? Can she elaborate on what has been done with those initiatives?

Baroness Neville-Rolfe: My Lords, the Rugby Football Union is well on its way to meeting that target by 2017. It has 960 new links between clubs, schools and colleges in its targeted work. In addition, it has 104 women and girls’ club sections with a new school/college link. The RFU is taking the game into state schools, reaching 130,000 state school pupils in the past school year. I do not know whether noble Lords have seen today’s Financial Times, which describes the Rugby World Cup as:

“A tonic for rugby’s grassroots”,

and highlights the extra £15 million likely to become available for grass-roots rugby.

Lord Addington (LD): My Lords, will the Minister give some thought to those at the other end of the grass-roots spectrum—that is, the veterans? Is she aware that a veterans’ tournament for parliamentarians who are involved in the Rugby World Cup is taking place next week, starting in Rugby? If any care to come down to watch, we are also playing at the Richmond athletics ground on Tuesdays and Thursdays.

Baroness Neville-Rolfe: The parliamentary rugby match is an excellent example of grass-roots rugby, demonstrating over the past 20 years that rugby can be enjoyed by people of all ages. I understand that the noble Lord has regularly distinguished himself in those matches, and I wish him and the team well—and every success for England as well.

Baroness Seccombe (Con): My Lords, does my noble friend agree that it is a joy to know that the Rugby World Cup is on terrestrial television—unlike the cricket, which suffers from the fact that a whole generation of young people, unless they have Sky, never gets the opportunity to see it on television?

Baroness Neville-Rolfe: I agree with the noble Baroness. The Rugby World Cup is on ITV; the final is an A-listed event. We all look forward to a strong few weeks of television, and joy, whoever gets through to the final stages.

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Lord Stevenson of Balmacara (Lab): My Lords, I am sure the noble Baroness made a mistake when she simply referred to supporting England in those matches. The Scots among us, the Welsh and even the Irish will also want her congratulations; I am sure that she will want to give them.

Also, do the excellent plans that the RFU has for those legacy activities extend to women players? The participation figures for young women in rugby are still very poor and they need to be supported.

Baroness Neville-Rolfe: Of course, I wish Scotland, Wales and Ireland very well as well. When Scotland do extremely well, I will think of the noble Lord, Lord Stevenson, with his fashionable new beard. As noble Lords can imagine, I feel some passion on the subject of women in rugby, as of course does the Minister for Sport, who herself plays football. England women won the 2014 World Cup, and the RFU’s women and girls strategy, launched in September 2014, has built on that. Participation is up by a third, demonstrating a track record of success. Of course there is more to be done, but the RFU is focused on that and it is part of their excellent lead-up and legacy plan.

Lord Thomas of Gresford (LD): My Lords, will the Minister encourage the English rugby team to maximise its impact on the grass roots at Twickenham in the match against Wales?

Baroness Neville-Rolfe: I thank the noble Lord for his comment and will pass it on.

Lord Moynihan (Con): My Lords, declaring my interest as a co-chair of the All-Party Group on Ticket Abuse, will my noble friend agree that apart from a home nation—preferably England—winning the World Cup, a good way of maximising the grass-roots impact is to back the RFU and England 2015 in their campaign to stop online operators of secondary markets illegally fleecing supporters of the game? I hope my noble friend will also congratulate the RFU on its patience in waiting on the touchline for the Government to launch their statutory review, which was in the Consumer Rights Act, and has to report by May of next year. When will that inquiry be launched?

Baroness Neville-Rolfe: I thank my noble friend for his comments about the RFU. Certainly a lot of professional work has been done, which has focused also on fraud, which is important. As I explained to him earlier this week in another part of the House, we are very much on track to start this review, and we hope to make an announcement very soon about the chair and the terms of reference. It will be an important review, which will be able to take into account the successes and the problems that are found with ticketing for this very important Rugby World Cup.

Lord Faulkner of Worcester (Lab): My Lords, is the Minister confident that all disabled rugby fans who wish to attend a World Cup match will find that the facilities in the stadiums are there, appropriate and in sufficient quantity for them to be able to do so?

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Baroness Neville-Rolfe: My Lords, this is an important point. I do not know the answer, but I do know that in our consultation on the strategy for sport we have a theme that is all about safety and well-being. We are looking at that area and of course have debated it in the context of the noble Lord’s Private Member’s Bill. My impression is that the RFU is very alert to this problem, and I will certainly pass on his comments.

Northern Ireland Assembly

Private Notice Question

11.37 am

Asked by Lord Reid of Cardowan

To ask Her Majesty’s Government what is their response to the demand of the First Minister of the Northern Ireland Assembly for an immediate adjournment or suspension of the Northern Ireland Assembly within 24 hours.

Lord Reid of Cardowan (Lab): My Lords, I beg leave to ask a Question of which I have given private notice.

The Parliamentary Under-Secretary of State, Scotland Office (Lord Dunlop) (Con): My Lords, the question of an adjournment of the Northern Ireland Assembly is a matter for the Northern Ireland Assembly. I understand that the Assembly Business Committee is meeting this afternoon to consider this proposal.

11.37 am

Lord Reid of Cardowan: I thank the Minister for that Answer, which of course did not refer to suspension of the Assembly, which is not within the remit of the Northern Ireland Business Committee but within the powers of the British Government. Only two days ago, the Government said that they had no intention to suspend the Assembly. Yesterday, in what is effectively an ultimatum, the First Minister of Northern Ireland said that unless the Assembly was adjourned by the Northern Ireland Business Committee, which is meeting today, or suspended by the British Government, he and the DUP members of the Executive would resign, effectively bringing down power-sharing in Northern Ireland.

I understand the difficulties the Government have, since one of the options does not take place until 2 o’clock this afternoon, and they will not know the outcome of whether there is to be an adjournment within the power of the Northern Ireland Business Committee until that stage. I do not wish to add to the Minister’s difficulties, and I understand that the Government will not wish to say anything prematurely. However, this is a very grave issue indeed.

I will ask the Minister two simple questions. The first refers to the Government themselves. Will they assure us that, at the earliest possible moment after the Northern Ireland Business Committee has met this afternoon, they will bring this issue back to the British Parliament? Secondly, as regards the talks being convened by the Northern Ireland Secretary, which may be

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under way at present, will the Government give us an assurance that these will be time-limited? If they are not, I can assure him from experience that they will drift on indefinitely, and this crisis will just get worse.

Lord Dunlop: The noble Lord brings vast experience of Northern Ireland to these matters. Indeed, when he was Secretary of State for Northern Ireland, he went through a period of suspension, and he will appreciate the seriousness of any step to suspend. As the Secretary of State for Northern Ireland has already set out, the Government do not think that the time is right to suspend devolved institutions. If circumstances change, the Government will review their options. Clearly, this is a fast-moving situation, and I am sure that the Government would want to keep Parliament informed, and will certainly do so. We had exchanges on this yesterday, and I very much agree that any talks need to be focused, intensive and urgent and, therefore, time limited.

Lord McAvoy (Lab): My Lords, I am sure that the whole House is grateful to the noble Lord, Lord Reid of Cardowan, for bringing this PNQ forward and to the Government for responding to it. We are also grateful for the assurance from the Minister that Parliament will be kept informed of the situation as it develops because, as has been agreed, it is so important that that happens. As the Minister also rightly said, this is and will be a fast-moving situation, and we welcome his assurance that they will report back to Parliament as soon as possible. I am sure that all noble Lords are aware of the deep concern across Northern Ireland and the whole of the United Kingdom about this situation, which is a dangerous one. We place on record that we are fully behind the Government in their efforts to resolve this very serious situation.

Lord Dunlop: Just to reiterate, this is an ongoing situation, and the parties will consider the issue of adjournment this afternoon in the Business Committee. While we want to keep Parliament informed as appropriate, it is also worth saying that, in a fast-moving situation, it would not be helpful for the UK Government to give a running commentary on what are very sensitive and serious matters.

Lord Mawhinney (Con): My Lords, is my noble friend aware that, when the then Secretary of State for Northern Ireland, my noble friend Lord Brooke, and I conducted the very first set of round-table talks, the end-point of which many years later was the agreement, we made it clear that those talks were time-limited? Both of us believed that the fact that they were time-limited and that we kept to the limit was a significant factor in moving the talks forward. Bearing in mind the well-established allegations that Northern Ireland may run out of money at the end of October, would he not strengthen his original Answer and agree that time-limiting the talks is of itself an important factor?

Lord Dunlop: My noble friend is absolutely right—the budgetary situation in Northern Ireland is acute, which is why the Secretary of State has made it clear that

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these talks need to be focused, urgent and intensive. The expectation is that they would last between three to four weeks.

Lord Browne of Belmont (DUP): I welcome the PNQ from the noble Lord, Lord Reid, the former Secretary of State for Northern Ireland. There is no doubt that the situation in Northern Ireland is extremely serious and it is vital that important and constructive discussions on the future of devolved government and on the Stormont House agreement take place. Surely, this is the time for all Northern Ireland parties to consider the welfare of the whole community, rather than seeking short-term political advantage. Does the Minister agree that it would be useful to have a short adjournment of the Assembly, as that would facilitate positive discussions, free from the wrangling that inevitably accompanies everyday parliamentary business?

Lord Dunlop: I very much agree with the noble Lord that there is support for devolution across the community in Northern Ireland. Our priority remains keeping the devolved institutions functioning. As I said earlier, the adjournment of the Northern Ireland Assembly is a matter for the Assembly, and we await the outcome of the Business Committee’s considerations this afternoon.

Lord Shutt of Greetland (LD): My Lords, on the one hand, we hear of suspension; on the other, there is the threat of abdication. I am absolutely certain that talks are the most important thing. First, will the Minister assure us that the Government will go to every length to ensure that talks take place and that they keep going? Secondly, will he assure us that, if there is failure, alternatives are in place for the good governance of Northern Ireland?

Lord Dunlop: I can certainly give the noble Lord the assurance that our focus is on the talks and on those talks reaching a successful outcome. That is the focus of all our activity at the moment.

Lord Kilclooney (CB): My Lords, first, can the Minister confirm that the present crisis is due to some members of the IRA being involved in terrorist activity and killing people? That has brought about the crisis. Secondly, can the Minister confirm that adjournment is far preferable to suspension? Adjournment means that devolution continues in Northern Ireland; suspension means that it is abolished and will later have to be restored. Will he therefore confirm that adjournment is the preferable option? Thirdly, does he agree that something similar to the Independent Monitoring Commission, which was abolished, would be helpful in the present security situation? Finally, does he agree that one of the weaknesses of the cross-party Executive at Stormont was the fact that there was no cross-party Opposition? Will he bear that in mind?

Lord Dunlop: Paramilitary activity is clearly a very serious matter. The scope of the talks is one of two aspects, the other being the implementation of the Stormont House agreement, which is very much the focus

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of the talks. The IMC is one option for consideration. As we discussed yesterday when these matters were brought up, the current situation is very different from the one that existed in 2004, when the IMC was originally set up. Clearly, we would have to ask such a body very different questions today.

Business of the House

Timing of Debates

11.47 am

Moved by Earl Howe:

That the debates on the motions in the names of Lord Haskel and Baroness Bakewell set down for today shall each be limited to 2½ hours.

The Minister of State, Ministry of Defence (Earl Howe) (Con): My Lords, in the absence of my noble friend the Lord Privy Seal, the Leader of the House, and on her behalf, I beg to move the Motion standing in her name on the Order Paper.

Motion agreed.

Communications Committee

Liaison Committee

Membership Motions

11.48 am

Moved by The Chairman of Committees

Communications Committee

That Lord Goodlad be appointed a member of the Select Committee in place of Lord Dobbs, resigned.

Liaison Committee

That Baroness Garden of Frognal be appointed a member of the Select Committee.

Motion agreed.

Economy

Motion to Take Note

11.48 am

Moved by Lord Haskel

That this House takes note of the British economy beyond austerity.

Lord Haskel (Lab): My Lords, I am delighted to move this Motion this morning. In fact, I rather feel like somebody waiting for the No. 59 bus and then two come along. Having two debates on productivity and the economy this week is most exceptional. Some of

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us were unable to get on the first bus, as it was slipped in during the summer, so I welcome noble Lords to this rather full second bus.

Now that the new Government may at last be thinking beyond austerity, I feel that it is very important to explore this, and I am grateful to all noble Lords and the Front Benchers for their participation. Perhaps debating this issue twice this week is an indication of its importance.

Let me start with the Government’s recent paper on productivity. Much was repeated in Tuesday’s debate. It certainly pressed most of the right buttons but, like many previous efforts, it is destined to achieve little. Why? It is because there is no strategy. It mentions everything; it prioritises nothing. It remembers everything; it learns nothing. If we want to move from an age of austerity into an age of productivity, it is management and leadership that should be prioritised, and then things will get done. That is because the first task is to encourage a culture of productivity, both in business and in government. Without this, much of the work that the Government do on infrastructure, housing, science and education will all be wasted. This is urgent because in the next 12 months, productivity has to make up for the gap between the recently announced withdrawal of in-work benefits and the rise in the minimum wage. Otherwise, it will lead to job losses. Quite rightly, one does not encourage productivity by driving down wages and making people poorer; that is what happens in an age of austerity.

This is especially true in local government, which has suffered twice the cuts that UK public spending has suffered as a whole. Over the past five years, the cuts in local government have not been so obvious because they are hidden: prisons or roads not being built, or reduced welfare for people whom we do not see outside of their homes. The public sector, which the Government are in charge of, is hardly mentioned in their paper. In an age of productivity, this kind of management is not good enough. If there has to be budget cuts, there must also be management and leadership to help cope with them.

After the age of austerity, the strength of our economy will rely on our ability to adapt to all the new changes coming from many directions. Our ability to manage things will be crucial. The old tools will not solve these new problems. I say this because technology is transforming everything. To start with, business markets and government services can be transformed in months as new apps and ideas reach millions of people in days. This means that it is the younger, digitally knowledgeable employees who will detect the coming change or indeed suggest one. This means that companies, particularly large companies, are going to have to change the way they manage their staff. Employees at all levels have to be free to come up with new ideas and exploit digital platforms. This kind of creativity is stifled by the more traditional forms of management.

Many jobs are now not jobs in the way they used to be defined. Many people are employed part-time or over the internet; it is called transactional employment. Many now work in an online market for casual labour, which is rapidly expanding. This is for not only on-demand

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or sharing services such as accommodation or taxis but, for example, computer programming. In Europe alone, there are some 20,000 freelancers registered with Upwork, which does this kind of business. The scale of this new world of work is only just emerging. Its impact on the age of productivity will be twofold. First, the Department for Work and Pensions will have to be creative and find a new form of employment arrangement that suits these changing circumstances, so that it does not just become old-style casual labour, with people losing out on training, pensions, holidays and sick pay. Secondly, as people become their own managers, so the economy becomes more productive, and the tax system will have to acknowledge and understand this.

Many noble Lords are concerned about skills shortages. By introducing a training levy, do we presume that the direction of travel is that business and industry will deal with the skills themselves? Is this why larger government contractors must now have apprenticeships?

The Government are obviously unsure about this policy because they have announced that they are going to create seven new national colleges for particular industries, such as nuclear and high-speed rail, with employers expected to contribute towards the capital costs. Meanwhile, resources are being put into university technology colleges, yet FE colleges, which offer the more expensive training and vocational qualifications, have had their funding cut. This kind of muddle confuses parents, and confuses students looking for a technical education and training for a career. To find out whether this is yet another example of the Government remembering everything but learning nothing, I have put down a Written Question asking who will pay the running costs of these seven new colleges. The crucial point is that the right technical education has to be available to those adapting to the technical change.

The age of productivity calls for a more progressive style of management, which ironically often means less management as people work with more autonomy. The Chancellor has asked Sir Charlie Mayfield to look into all this to see how corporate governance can look to the long term instead of the short term, and I am sure that his proposals will be very helpful. However, we cannot wait for yet one more report without getting the impression that Ministers are having reviews until they get the recommendations that they want, especially as there are signs that the change is already happening. The CEO of Unilever has stopped quarterly reporting. At its recent London conference, the Coalition for Inclusive Capitalism called for a more broadly based prosperity and is enlisting our major asset management groups in the City towards this end. Incidentally, Mrs Clinton is pursuing this in her nomination campaign in America.

Some companies have reviewed their governance in terms of stewardship—the kind of stewardship proposed by Tomorrow’s Company. The Bank of England is prodding banking in this direction. Some may say that these ideas have been around for a long time, but in an age of productivity, their time has come. This has to be the direction of travel. Ignoring this will once again be a sign that the Government are remembering everything but learning nothing.

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The Government’s leadership on sustainability and the green environment is another important aspect of leadership in an age of productivity. The Government’s words indicate a green direction of travel, but recent actions indicate the opposite. For example, the Energy Bill will produce abrupt changes. Also, cancelling the requirement to build zero-carbon homes from 2016 adds to the feeling that we are not going to achieve the legally required targets for carbon emissions by 2020. This must be managed better. In an age of productivity, you have to carry people with you and have a purpose with which people can identify; otherwise, the very objective you are trying to achieve becomes discredited.

The Minister’s regional policy of more independence is absolutely right for an age of productivity. But in an age of productivity regionalisation must be seen not as devolving the cuts to local government, as happened in the age of austerity, but as revitalising areas of Britain away from London.

The age of productivity requires this kind of management and leadership because of the growing impact of computers and technology on work and business. In an age of productivity, products and services have to be lighter, smarter and greener. Services in particular will become yet more data driven, using algorithms that self-improve.

Lord Lea of Crondall (Lab): Would my noble friend mind if I asked him a question that has puzzled me for a long time on exactly the point that he has just made? How is it that we never see any sign of these vast increases on paper of productivity through technology —10 times, 100 times—in the aggregate productivity statistics?

Lord Haskel: The Minister has asked Sir Charles Bean—Charlie Bean—to look into this whole question, so I will leave it to him to answer. It is called delegation.

At present, we have a growing system where public administration, business and trading, shopping and entertainment, travel and leisure, and running our offices, our homes and our health depend more and more on computers dealing with each other. Sometimes, we are the only human in the loop. This is what the age of productivity will eventually look like.

The danger lies in our ability to control this complexity and interdependence. The complexity defeated us in the financial sector and helped cause the crash in 2008. This is why we need management and leadership that will remember everything and learn from it.

There is also a need for government to understand that much of this investment is intangible—difficult to see, so hard to finance. It is confusing to accountants, statisticians and apparently to the Government, too—so they set up a committee to look into it. But it is crucial to the stronger policies needed to support innovation. This is why the age of productivity needs arm’s-length organisations such as Innovate UK and the alternative forms of funding which are arising.

So what are the implications for the age of productivity? Since productivity has become disconnected from pay, pay rates have hardly gone up in the past five years. The proceeds of this have accrued mainly to investors

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and managers. In an age of productivity, the benefits must balance out and both must prosper equally. If they do not, the age of productivity, pursued to its logical conclusion, will create an unequal society the like of which we have not seen for generations. Are we just going to allow this economic process to continue unopposed? Surely not.

The Government claim that austerity is necessary so as not to impose on future generations. I say that we have to move to an age of productivity so as not to penalise future generations. In this way, we will learn something as well as remember everything. I beg to move.

Lord Ashton of Hyde (Con): My Lords, that was perfect timing from the noble Lord, but I remind other noble Lords that we have a very tight timetable if we are going get through this debate in two-and-a-half hours. There is absolutely no spare time, so, when the clock turns to five minutes, it means that your time is up.

12.03 pm

Lord Howell of Guildford (Con): My Lords, I welcome this debate promoted by the noble Lord, Lord Haskel, who made several points with which I agreed. I want to focus on the austerity aspect of the debate—we are looking at the concept of “beyond austerity”—and examine some of the myths that surround it.

Austerity may have become a loaded word in some quarters, but the truth is—and this is difficult to accept but essential—that there has to be a permanent downward pressure on public spending at all times. That is essential if we want a balanced economy. Those who want to end austerity and make speeches about it at the moment really want more spending. More spending means more borrowing, which means more taxes to meet the ever-bigger interest payments. That taxation inevitably comes from workers’ wages and salaries, however much you try to squeeze the rich. So ending austerity and calling for a clear anti-austerity agenda—as I believe the fashionable phrase is—are just weasel words for shifting the burden onto working people and the poor to pay for the ever-swelling state. I find it difficult to see why people cannot understand that very obvious point, but those who cannot see it should to my mind follow the advice on the Underground ticket gate, which tells you to “Seek Assistance”. Poor Scotland under Mrs Sturgeon’s economic policy, which is declared to be against austerity, and poor British workers if ever Labour take charge.

To maintain the essential downward pressure on public expenditure, which is needed at all times and not just over the next little while, I welcome the Chancellor’s new fiscal responsibility charter. But will that be enough? I will give a little history. Back in 1970, my colleague Mark Schreiber, who is now my noble friend Lord Marlesford, who I see is in his place, believed that we should import into Whitehall three powerful new tools: PPBS, which is policy and programme budgeting systems; PAR, which is programme analysis and review; and a central capability, subsequently called the central policy review staff, to drive the questioning of every government activity.

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The art of questioning is of course to ask the right questions. This was the genesis of the original CPRS idea. We wanted a central capability with colossal and persistent questioning power to ask, and repeatedly ask, the right questions of every part and function of government—every division and every agency. “What are your objectives? Could you achieve them better? Do they need to be achieved in the public sector or could they be contracted out? Could they be achieved better by the private sector? Are they worthwhile and necessary at all?”.

To mount such questioning centrally of course requires massive intellectual power, and that is what we wanted to see centred in the CPRS. We wanted it to drill down into every public sector department, division, agency and state-owned industry systematically and penetratingly, insisting on constant rejustification for every organisation’s or group’s existence in the public sector, with privatisation or abolition as the alternatives if public sector operation and public expenditure could no longer be justified. We saw this as the only way to place a firm and disciplined hand on the whole public sector and on the constant tendency, which is always underestimated, of public activity and public bureaucracy to swell and grow at all levels, which it always otherwise does.

This is not an ideological impulse: it is a practical and managerial one. Government is mushroom-like. If left in the dark and out of the light of challenge and questioning, it always grows. That is inevitable. Pressures good and bad are pushing for expansion all the time. How often one hears the cry “There should be a law about it”, or “We need a new agency”— in a trice we have a new set of regulations, more committees and more spending. That is why we wanted then and still need a really powerful and well-informed inside mechanism to assist Parliament and the national interest, as we did in 1970.

There was support then from the very top, but Civil Service chiefs were very suspicious of too much power in No. 10. Finding the right people to ask really penetrating questions was extremely difficult. One person whom we approached said, “I’m not going around Whitehall asking awkward questions. Socrates did that, and look what happened to him”. So in practice, the CPRS began the right way but it really lost its direction after the 1970s and ceased being a powerful questioning and challenging agency. Instead, it started generalising about the broad direction of government and of macroeconomic policy, so it was abolished. Today we need central spending tightly controlled at all times, and not just in the short period ahead. We could call it austerity. I am afraid that the word “prudence” has been discredited. But whatever others call it, I call it common sense.

12.09 pm

Lord McFall of Alcluith (Lab): My Lords, it is a pleasure to participate in this debate and to congratulate my noble friend Lord Haskel on it, particularly as it comes on top of the debate in the name of my noble friend Lord Monks earlier this year.

As has been mentioned, productivity has collapsed in the United Kingdom and, by the way, that is why

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employment is buoyant. The

Economist

had it right on 14 March when it said that if Britain,

“cannot get more from its legion of cheap workers, the recovery will stall”.

Output per worker is still 2% below the pre-crisis peak, while in the rest of the G7 it is 5% higher. The French could take Friday off and still produce more than Britons do in a full week, while, confounding stereotypes, the Italians’ output is 9% higher. When people are cheap, rather than invest in machines and technology, firms will hire them, so productivity is held down. While the Government’s report, Fixing the Foundations, is admirable in its rhetoric, we are still to find out what flesh there is on that issue.

On the austerity agenda, I welcome the debate because there is a need to highlight the nonsense that is spoken about it. We have to strip away the hype and expose the reality. What has happened with the Chancellor’s policy is that there has been a prolonged recession that has produced a lopsided and unbalanced recovery. Millions of people in Europe and elsewhere rightly feel that the current economic order is not serving their interests, hence Syriza in Greece, Podemos in Spain, Le Pen in France, Beppe Grillo in Italy, Trump in America and, dare I say it, the SNP in Scotland. The key is to change the nonsense on deficits and perpetual balanced budgets that the Chancellor comes out with. We need to give serious consideration to the development of a positive narrative on why running a deficit now holds the key to future growth.

In 2009, the United States was running a 10% deficit, yet today its economy is growing more than that of any European country which is running a surplus. We do not need to go back too far, just to the Second World War, when we had debts worth 250%, but at the time we had the National Health Service, a debate on welfare and a Conservative Government who, in the early 1950s, built 300,000 houses a year, a record that still stands. That has to be recognised.

I have been calling in Parliament for a state bank since 2009. We can see the example of the Nordic banks, while when the European Investment Bank gets up, it is set to finance more than £220 billion of investments by 2017 with a fiscal outlay of less than £20 billion. There is a lesson in that. Despite this Government failing to meet their fiscal targets, interest rates on UK public debt are still astonishingly low: 30-year and 50-year gilts yield 2.4% while the yields on comparable index-linked gilts are close to minus 1%. If anything comes near being a free loan, that is it, so there is a need to invest and for growth-promoting borrowing. That is what is required.

We also need to expand our thinking. Yes, businesses are wealth creators, but it is more than that. We need a fusion of business, the state and the working population to create wealth. I remind noble Lords of Google and Apple. Google was given a grant by the US National Science Foundation which allowed it to discover its own algorithm. Without that state funding, it would not have happened to Google. If one side of the triangle of business, the state and the working population is missing, we will not realise our aims. We have to reject the Chancellor’s narrow and woefully misleading view that the sole economic problem is the budget

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deficit. The main obstacles are pitiful productivity levels, the poor performance of manufacturing industry, a lack of capital investment and the resulting balance of payments deficit. We need new policies, but above all we need a new mindset. If my noble friend Lord Haskel’s debate today has introduced a chink of light for that, it will have done the House a great service.

12.14 pm

Lord Taverne (LD): My Lords, the Chancellor’s declared aim is to shrink the state—to turn Britain into a country with a strictly limited role for the public sector and low taxation. In fact, the Government have even gone so far—incredibly—as to commit themselves to a legislative ban on certain tax increases.

The result of this policy in the next few years will mean, as has been pointed out by the noble Lord, Lord Haskel, major cuts which will have to be borne by local authorities; welfare budgets will be seriously affected, as will public services such as the police. It is probable that we will find that even education and the National Health Service will not prove to be exempt. The Government, in effect, plan the withering of the welfare state. They rely on the free market and deficit reduction to produce growth.

Free markets are not efficient; reckless deregulation and the failure of financial institutions, not profligacy and borrowing by Governments, were the main causes of the crash in 2008. Spain and Ireland, for example, were running budget surpluses before the crash. What could be more convincing evidence of market failure than the emergence of banks which were able to take huge, unjustified and disastrous risks, and had to be rescued because they were too big to fail? The best way to reduce deficit, as history shows, is by growth, not austerity. As the noble Lord, Lord McFall, pointed out, Britain’s record between 1945 and 1970 and that of the United States during the Clinton presidency are only two of many examples.

In fact, contrary to the mantra propagated by market fundamentalists, public investment is generally not less productive than private. Not only does it promote essential public goods but, as the noble Lord, Lord Haskel, pointed out, it promotes innovation through basic research which the private sector regards as too risky or unprofitable. That has been essential in the United States, for example, to the success of private IT and technology companies. In Britain, the National Health Service is far more efficient than private health provision in the United States. Of course, public investment must be paid for by taxation, but as the famous American judge Oliver Wendell Holmes pointed out:

“Taxes are the price we pay for civilisation”.

Further, contrary to the mantra of market fundamentalists, high taxation has not historically proved incompatible with economic growth. Indeed, periods of high and progressive taxes in the United States as well as Europe after the war were, as Piketty has shown, times of unusually fast growth, particularly in high-tax Scandinavian countries. In fact, it is inequality that can seriously hold back productivity and growth; it destroys good will and a sense of fairness about relative incomes, which are essential to trust and effective teamwork which, in turn, enhance productivity.

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A shrinking state is the creed of the Tea Party. It is the path to a dysfunctional society. We should not travel one more miserable inch along such a fearsome road.

12.18 pm

Lord Bhattacharyya (Lab): My Lords, I declare my interest as chairman of WMG at the University of Warwick. I thank my noble friend Lord Haskel for this opportunity to look beyond austerity.

In politics, current issues can obscure future opportunities. Ministers must have sweated over their deadline to offer 40% budget cuts last Friday. We have had a few pressing issues to absorb us on these Benches too. So it is a pleasure to be able to think of the future.

In the search for growth beyond austerity, we must look beyond our own borders. This may not feel comforting; we know the problems of the eurozone and now fast-growing economies appear unstable as well. Yet for all the headlines, China is still growing. Domestic retail is up 10%, innovation spending is surging and infrastructure spending is a quarter of a trillion dollars. Yet our exports to China are just 1/20th of our total. So why, as the EEF says, are half of our manufacturers and the Government concerned about China? It is not simply exchange rates—Chinese firms now produce quality products and are stronger competition, as we have seen in the automotive sector. Western growth depends on partnerships with economies with expanding domestic demand and quality exports, so we gain from trade and investment.

The latter is crucial for us. British capital formation is behind that of our competitors—just 17% of GDP. Our infrastructure spend has lagged the G7 for three decades. Our science base is excellent but business R&D is well below the EU average. Where will we get the resources to change this? Trade is welcome but British goods exports will be only a small part of our economy in the medium term. We do better on services, despite handicapping ourselves with restrictions on our premier education exports—or degree courses, as we usually call them.

The best strategy is to attract inward investment. A good parallel is Japanese firms in the 1980s. They wanted to expand into Europe, so there was a real commitment to securing that investment for Britain. At WMG, we worked with Ministers and unions to offer what Japanese companies needed. As a result, Britain secured one-third of all European FDI. That did not happen just in the 1980s. Foreign firms created more than 1.5 million jobs in the last decade.

Today, we need to commit to getting investment again. Hitachi in Durham shows what can be done. It seems that we are to spend two years discussing leaving Europe. This is a real risk to growth. We must resolve that quickly. If securing investment is our external priority, our internal need is to improve productivity. The CBI and the TUC are not soulmates but both endorse Krugman’s view:

“Productivity isn’t everything, but in the long run it is almost everything”.

The Government agree. On high-speed rail, skills, science, the northern powerhouse and the Midlands engine, their agenda is attractive.

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There is consensus across politics. Last week, Chuka Umunna and Vince Cable gave support to policies such as the apprenticeship levy, protecting research funding and the Business Bank. But, as in the 1980s, delivery is what counts. Increasing innovation spend requires more work than a tax cut. On infrastructure, it is easier to review than to decide. We need an infrastructure commission to get projects agreed, as Sir John Armitt has proposed. While we must demand business investment in skills, it would be a mistake to cut FE spending before they do.

The summer Budget had good strategies. There are rumours that the spending review will show slow progress in the winter. I hope that the details of November will match the ambitions of July. If they do, we will all be more confident in our economy beyond austerity.

12.23 pm

Lord Mawhinney (Con): My Lords, I congratulate the noble Lord, Lord Haskel, on his introduction of this subject for debate. I welcome the wording that he chose about economies after austerity. I will follow his lead. He did not try to define austerity or when “after austerity” might happen. Unlike others who are better qualified than me, I will not involve myself in deep, economic theory. I will simply highlight two issues that have plagued this country for a very long time. I have chosen them in part because they have plagued Governments on all sides of this House, so they are not in any sense party political.

The first issue is the present level of inequality in our society. I commend the Government because they have recognised that; at least, that is the interpretation I put on the fact that the Prime Minister has repeatedly said that he will govern as one nation. He has also made it clear that, in his view, we are now the party of working people. The House will know that one-nation Toryism has a resonance within the Tory party as well as outside it, but I take my right honourable friend at his word: he will govern as a one-nation Tory and on behalf of working people.

If that is the case, there flows from it an inevitable focus on inequality. The Government have done well. They have addressed inequality at the low end through taxation measures and through commitments to living wages. Tackling it at the upper end is much more difficult because it immediately runs into fundamental questions about the role of government alongside the role of the private sector and the market. I am a good enough Tory to believe that you tread in those areas at fairly considerable risk. Yet, if we are to be serious about being one nation, the inexorable rise of inequality under all Governments—I stress again that this is not a party-political point—needs to be addressed. That is likely to be the test in the future of one nation for working people.

The second point that I have heard discussed in the 36 years that I have been privileged to be in this building—26 at that end, 10 at this—is that manufacturing in this country has not prospered. It has gone down. That fact sometimes gets masked by the success of service industries, but manufacturing is fundamental. It is affected by issues outside the Government’s control:

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the economies of other countries; the exchange rates of currencies; the tendency of other countries to help their economies by dumping in the world market.

My introduction to the Conservative Party was in part that I was taught that what we made and sold was an integral and fundamental part of our national wealth. I am old-fashioned enough still to believe that. If we are a one-nation Government, strengthening and addressing that long-standing manufacturing problem—which was true under all Governments; I am not making a party-political point—needs to be addressed. The future will tell us whether and how effectively those two issues prospered after austerity.

12.28 pm

Lord Low of Dalston (CB): My Lords, I thank the noble Lord, Lord Haskel, for introducing this important debate on a subject that must be on all our minds: what kind of state the economy will be in once we get beyond this damaging austerity—not that the prospect seems all that imminent.

I say “damaging austerity”, but not everybody seems to see it that way. Some people—let us not be mealy-mouthed about this: the Chancellor and his acolytes—far from seeing austerity as a bad thing, or at best a regrettable necessity, seem to see it as a good thing. As the noble Lord, Lord Turnbull, said the other day, they seem to relish the opportunity to shrink the state back to levels not seen since the 1950s, except perhaps for a time at the end of the last period of Conservative government in the 1990s, with public expenditure set to fall to just over 36% of GDP by the end of this Parliament.

In contrast with the noble Lord, Lord Howell, I wish to take issue with this perspective and maintain that public expenditure, properly managed and controlled, is a good thing. It has been responsible for the vast improvement in the welfare of our citizens over the last 100 to 150 years. It has made major inroads into Beveridge’s giant evils of squalor, ignorance, want, idleness and disease. To take just a few examples at random, it has given us old age pensions, compensation for industrial injury, great improvements in access and provision for disabled people, a flourishing of the arts and much more besides.

One good thing to have come out of the Labour leadership election is that it has brought discussion of an economic policy aimed at combating austerity, rather than imposing it, into the mainstream. More than 40 economists wrote to the Observer in support of Corbynomics and 55 to the Financial Times against, which I suppose just goes to confirm that, however many economists you put end to end, they would never reach a conclusion. But the important point is that there is a discussion. In passing, one thing economists do seem to agree about is the wrong-headedness of the Chancellor’s plans for permanent Budget surpluses. To me, as a non-economist, it seems that the Corbynistas are getting the best of the argument.

The charge against Corbyn was summed up in a NewStatesman editorial in the issue of 20 August to 27 August, as,

“the policy of a ‘people’s quantitative easing’ would risk rampant inflation and is not a sustainable means of financing infrastructure programmes”.

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Let us take that in bite-sized chunks. “People’s QE” is rather disparagingly referred to as “printing money”. It is, but that is no different from what the Bank of England has been doing for the last few years. As regards rampant inflation, this policy might contribute to inflation in the longer term but that is not a risk at the moment with interest rates still at record lows in a very lukewarm recovery.

As regards this policy not being,

“a sustainable means of financing infrastructure programmes”,

the operative word here is “sustainable”. QE is probably not a sustainable means of financing infrastructure programmes in the longer term for the reason just stated, as well as Bank of England independence, but it might kick-start the process. However, this would probably not be necessary as Corbyn has other proposals for funding infrastructure investment—namely, a national investment bank.

There is discussion among Corbyn supporters on whether conventional borrowing would not be a more appropriate way of capitalising a national investment bank. These are matters of emphasis which can probably be resolved. The important point is that even the 55 economists critical of Corbynomics agree that, at this time of very low interest rates, much-needed public investment can be financed by conventional borrowing.

The time limits have not left much time to talk about the key question posed by this debate—namely, what awaits us post austerity. I fear that the answer is not very encouraging. This is one of the most fragile recoveries in history. Fuelled by ballooning household debt, it contains the seeds of its own destruction. What happens when interest rates rise? Another crash, but that is likely to be only a staging post in a self-reinforcing downward spiral, and the Chinese slow-down is not going to help either.

The demise of capitalism has oft been predicted, but it has shown itself to be remarkably resilient. The future of capitalism is a subject for another debate, but there must be a question about how long we can continue to rely on this resilience.

12.33 pm

Baroness Donaghy (Lab): My Lords, I thank the noble Lord, Lord Haskel, for initiating this debate and for the passionate and comprehensive way in which he did so. It is a positive move to encourage us to look and plan ahead. I intend to say something about good employment relations.

First, I congratulate the Minister on emphasising the importance of productivity. If I were his public relations adviser, I would caution against setting himself up as such an easy target. In planning for the future we do not know what the state of the economy will be by the time of the next general election. It is clear that thousands of jobs will be lost in local government, which will decrease its capacity and capability at a time when it is being given more responsibility for both local entrepreneurial development and picking up the pieces of the human cost of our unequal society. The future must include better financial settlements for local government, as well as for capacity building in what will be a much diminished area.

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There is also huge uncertainty about the future of pensions, which will impact on a generation and on our economy. I believe that the abolition of annuities was foolish and that reform, which was of course overdue, would have been more sensible. The rush to swap pension pots for buy-to-let properties might look good at present but there is great risk. Pensions are so complicated that the state has a duty of care to protect its citizens from the market. I do not believe the Government are doing this.

On higher education, if the Government do not take action on the unsustainable student debt levels, that will also impact on our economy. Inflexible restrictions on foreign students going to British universities will mean that vital courses in STEM subjects and languages will close. Engineering firms are crying out for well-qualified postgraduates—who, unfortunately, are primarily from overseas—but they are not being allowed to stay. They are needed for those jobs now.

On skills shortages, particularly in the construction industry, there needs to be a step change in government action. The suggestion of a compulsory levy on the larger employers is welcome but further government intervention is vital if we are to tackle what I accept is a systemic problem.

Turning to good employment relations and their link to a successful economy, the general secretary of the TUC, Frances O’Grady, has said:

“When workers are engaged and getting a fair share from growth, they deliver better results”.

The Minister referred to the excellent work by ACAS in his speech on productivity earlier this week. His praise of ACAS is very welcome and I am pleased that he indicated that he would continue that dialogue. I had the privilege to chair ACAS for seven years. It has produced some excellent policy papers on UK productivity and the link with good management and good employment relations. One of the publications, Closing the Gap: Workplace Innovation and UK Productivity, suggests that,

“we need to rediscover the importance of how people are managed and deployed in the workplace if we are to make inroads into the productivity problem … Well under 30 per cent of UK workers are involved in decisions about how work is organised and the number has been declining steadily since 2001 … The UK compares unfavourably with several other Northern European countries against many comparable indicators. Unlike these countries, the UK also lacks a coherent policy framework to stimulate the adoption of better ways of working”.

Ineffective management is estimated to be costing UK businesses more than £19 billion a year in lost working hours, and 43% of UK managers rate their own line managers as ineffective. Yet how many line managers are given sufficient training and support to manage change effectively, to have that difficult conversation and to motivate? These workers are key to the solution but too often they are the weakest link because they are unsupported.

ACAS has also produced a paper giving seven practical solutions to improve workplace productivity. As my noble friend Lord Monks said on Tuesday, I hope the Minister will continue his welcome approach to good employment relations and his dialogue with ACAS. It makes a pleasant change from his Government’s ghastly Trade Union Bill and its shopping list of shoddy measures.

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12.39 pm

Lord Flight (Con): My Lords, I regret that I do not have time to make my intended comments on the wider economy as I wish to focus on the importance of entrepreneurship and the problems now presented by the new EU state aid rules for the provision of risk equity finance for SMEs. It is vital to maintain and encourage the growth of entrepreneurship and new businesses, much of which is based on new technology. That is what provides for a dynamic economy. I declare my interest as chairman of the Enterprise Investment Scheme Association.

By way of background, Britain has been easily the best country in which to start new businesses. It is much easier here than in many other EU countries, and there has been great success, with 1.5 million new companies over the last two and a half years. Universities are collaborating with business to exploit inventions and developments. But SMEs need risk capital as well as bank finance, and the EIS scheme here has been a great success. It has raised £13 billion since it started and the amounts raised over the last three years have virtually trebled. This has been largely the result of the reforms which the Government brought in in 2011, widening the parameters for companies to qualify for both EIS and VCT finance. The crucial thing here was that it meant that small businesses which were starting to expand and cut their teeth could thus get the necessary equity finance.

I was therefore horrified by the changes to the state aid rules that the EU Commission is forcing on the UK. These changes will reduce and, in some cases, cut off the flow of risk equity funding. So far the Government are seeking to make the best of things and argue that the changes have gone beyond the state aid rules. However, I do not think that the Commission is listening to the widespread complaints and concerns of the venture capital industry. The changes discriminate against UK private sector incentives for providing risk equity under state aid. Many continental European companies are substantially financed by state aid—for example, biotech in Germany. However, that happens in the form of grants, which have no restrictions on companies acquiring other companies or being acquired. Such restrictions are now being imposed on the UK. The brief of the noble Lord, Lord Hill, to increase capital market funding for SMEs will be made much more difficult. Indeed, I had urged him to promote the EIS scheme across the EU, as France has done extremely successfully in the last two years.

A major objection is that there is no apparent economic or commercial logic to the new rules. There are several problems. The rules will disqualify companies that have existed for more than seven years, cutting out for no reason the ability to redevelop and drive forward such businesses with necessary equity funding. We have had a limit of £10 million per annum for combined EIS and VCT investment, and it has worked satisfactorily. The limit is now to be reduced to £12 million over the life of the company, and on a retrospective basis, which will cut off funding particularly for SMEs that are expanding. It will also not always be easy to check all the historic state aid funding that has been received, which brings with it the danger of disqualification. The new rules relating to subsidiaries

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and the seven-year rule are unclear. When a qualifying company has a subsidiary that is over seven years old but is not old itself, and when the EIS funding it has raised is not for its subsidiary, will the seven-year rule disqualify it because its subsidiary is over seven years old?

The new rules maintain the requirement for major monitoring and record-keeping, especially in relation to any subsidiary. The requirements to monitor staff composition in knowledge-based companies is unrealistic, if not impossible. The bias against investment in intangibles is wrong in today’s world, where much capital investment is in the form of intangible knowledge-based assets rather than old-fashioned physical capital. The rules banning the use of EIS and VCT finance for buying companies or acquiring a business by way of purchasing their plant, machinery and good will have no economic logic and stop the valuable economic benefits of such businesses being rescued, keeping their skills and keeping the jobs. The rules are not clear, as they permit purchases of assets such as plant and machinery as required. Where is the line drawn between buying a trade and buying its plant and machinery?

The Commission has also made it clear that it will monitor the UK closely and if it believes that UK law for VCT and EIS investment is outside its interpretation of the new state aid rules, it will override UK law and demand recovery of the tax incentives. Should that happen, it will be a major turn-off. The Commission is overstepping its reach here and is unfairly discriminating against the UK. The new rules will slow the flow of this funding to equity businesses, and there is considerable resentment in the industry.

12.45 pm

Lord Monks (Lab): My Lords, I thank my noble friend Lord Haskel for bringing to our attention the need to face some serious, ongoing problems with the British economy and to face some of the truths about our position, which, as the noble Lord, Lord Low, and other noble Lords have said, is fragile in some important respects.

First, I will just mention a truth about our position from economic history. The crisis of 2007-08 did not result from lax public spending; it was caused by banks acting irresponsibly and by the failure of too-light-touch regulation. My view is supported by a recent House of Commons briefing, which points out that the average public deficit from 1997 to 2007—the year of the subprime problems and the crash—was 1.4%, half the average public deficit under Margaret Thatcher and John Major. Even after the crash, yields on 10-year bonds rose only marginally up to the 2010 election. The idea that public spending bust the British economy is completely wrong. I know that there was success in standing up that view at the general election and more generally, but it is important that, after the election, we face up frankly to what the real position was.

In the short time that I have available, I will talk about two current matters. One is the manufacturing sector, which, let us face it, is too small in Britain now. There is not enough of it, and when we talk about rebalancing the economy, we are looking round for areas to promote the growth of manufacturing. I was

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a member of the advisory panel for the regional growth fund under the last Government, and we struggled to find suitable places to put public money behind manufacturing. I was struck too, as many are, by the preponderance of foreign-owned companies in many of the key sectors—not just the car sector but many others. The leading companies are not British. There is welcome inward investment, which sets a good example to others, but none the less they are not British-owned. It puzzles me why Eurosceptics are so touchy about any infringement of national sovereignty that might squeak out of Brussels but are totally relaxed as soon as it comes to takeovers and deals from abroad. I do not know whether this is about the fees they are earning from the deals being cut, but I would ask the other side why there is this difference in their approach to our national assets.

That brings me on to a quick word on the City, which still seems largely disengaged from attempts to inject dynamism—or balance, as the Government call it now—into the British economy. The City seems to remain short-termist. It is wedded to the deal and financial engineering and to trying to generate fees from as many rearrangements of companies as it can find, rather than being interested in the organic growth of the British economy. It is a paradox that we are in the middle of a city that is perhaps the most dynamic in the world for financial services, yet we are dependent, for example, if there is a third runway at Heathrow, on Chinese and Middle Eastern investors. It will not be British investors behind what I would think would be a sure-fire return.

My final point is about business schools. Does the Treasury take an interest in what they teach? Those of us who have some experience in business schools know that the demand from students is to learn more about financial services and financial engineering and how to arrange money in the most lucrative ways. It is not about training people to be cadres in manufacturing and to lead organic growth in great businesses over the next period.

So there are questions for the Minister on the City and business schools, in particular, and on foreign ownership. We debated productivity the other day, so I will not run over those points again.

12.50 pm

Baroness Miller of Chilthorne Domer (LD): My Lords, in his excellent introduction, the noble Lord, Lord Haskel, spoke of a green direction of travel for the economy. We must think of that direction of travel when reviewing the form that the future economy may take. When does the Minister think that the green economy and the economy will merge? Surely the economy of the 21st century must be one that respects the fact that low carbon is a given. It needs to create jobs and value, but also respect the environment and recognise that resource extraction is finite. Many smart companies already vastly reduce their use of virgin materials—for example, they reduce and recycle the water they use—thereby reducing their costs and their impact on the planet. A 21st-century economy should bring together industry and ecosystems. In fact, it is a completely new paradigm from that of the 20th century economy.

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When the Prime Minister, David Cameron, signed the climate pledge in February, he talked of the need to accelerate the transition to a competitive, energy-efficient, low-carbon economy. However, since the election, we have seen no measures to grow that low-carbon economy—quite the reverse. As the noble Lord, Lord Haskel, mentioned, we have seen the cancellation of the zero-carbon homes policy six months before its full implementation, despite significant investment from house builders and their supply chain. The zero-carbon building commitment, due to be implemented in 2019, has also been cancelled, despite huge support from the construction sector.

Investment in renewables has faltered, given the Government’s decision to end subsidies for onshore wind and further free up the oil and gas sectors. In transport, new rules for vehicle tax will result in owners of the most polluting and most efficient cars paying the same after the first year, despite the UK car industry investing in design and technology to make it one of the world leaders in fuel-efficient vehicles. The car industry expects that tax change to reduce UK sales of those efficient vehicles.

I turn to agriculture. Bees, pollinators worth more than £650 million to the economy, remain under threat, with no real action on the national pollinator strategy. Indeed, the Government have given permission to restart the use of neonicotinoids—the pesticides implicated in pollinator decline.

All of that flies in the face of the data that demonstrate that money spent on protecting the natural environment is a wise investment. The Government’s national ecosystem assessment states that if the UK’s ecosystems were properly protected, they could add an extra £30 billion to the UK economy, whereas neglect and loss of the free services that nature gives us may well cost as much as £20 billion to the economy every year. The Natural Capital Committee has shown that spending on biodiversity protection provides a real and significant return on investment: £10 billion is spent by tourists in England’s rural areas each year. That is in large part due to the quality of the natural environment.

The Exchequer must provide co-funding to draw down England’s European agricultural fund for rural development. Any cuts to that funding would mean sending money back to Europe, losing a further £3 for every £1 that the Government might consider to be saved. Cutting that co-funding will render quite impossible the Conservative manifesto commitment to spend £3 billion on the environment through the CAP and to plant 11 million trees.

When you talk of the economy, you need to think of the green economy, because that is the 21st-century economy. At the rate the Government are going, we risk being left far behind those countries that are really implementing the green economy.

12.54 pm

Lord Giddens (Lab): My Lords, we are struggling to recover from one of the greatest economic crises in modern history. Anyone who offers simple nostrums about how this can be achieved needs his or her head examined. The crisis is structural, not just cyclical, and a great deal of innovative thinking will be needed to get the world economy back on track.

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I do not see where this innovative thinking is coming from at the moment, but the group of doctrines that has become known as “austerity” is certainly not it. I am not sure that current Keynesian doctrines can supply more than part of the answer either. The idea of austerity is intuitively attractive, and would even seem to comply with common sense: when in debt, cut back on spending. Yet what applies at the level of an individual or a household manifestly does not apply at the level of the economy. I always respect what the noble Lord, Lord Howell, has to say, but on this matter I fundamentally disagree with him. The principles of austerity have failed wherever they have been applied. Not only that, they have acted against the very outcomes they are supposed to achieve.

Although halting and beset with problems, the US has made the best recovery among the advanced economies, which is the result of dynamic policies of an activist central bank coupled with a range of large-scale government interventions. The $800 billion stimulus Bill introduced by the US Government increased GDP by two percentage points from late 2009 to 2011, avoiding a double-dip recession. The contributions the Bill made to helping the less well-off were very substantial. Some 5.3 million people were prevented from slipping below the poverty line—a very considerable accomplishment.

Progress that has been achieved in the UK is in spite of the austerity measures adopted or, to put it more accurately, because at certain points they were relaxed. Employment has held up well, but that is largely because of depressed conditions at the lower end of the labour market. GDP capita as of 2014 was fully 16% below what it would have been if trends before the crisis had continued.

Among the extraordinary features of the aftermath of the crisis, which have been referred to by my noble friend Lord Monks, is that private irresponsibility has become redefined as public debt, and that the poor are being held accountable for the fecklessness of the rich. The former Governor of the Bank of England, the noble Lord, Lord King, put this quite well:

“The price of this financial crisis is being borne by people who absolutely did not cause it”.

The huge further cuts planned to welfare will have damaging consequences for those working on low incomes, the unemployed, young people and the disabled. The raiding of Labour’s cupboard to provide a veneer of social justice will not stop this becoming a toxic mix. In the mean time, disparities of wealth and income between the top 1% and the rest continue to soar. The structural causes of the crisis are to date at best only partly addressed, and remain dangerous.

I have one major question for the Minister, who will forgive me for losing my voice through this speech. RBS is being sold back to the private sector. Does that mean that it is no longer too big to fail? I would like a yes or no answer to that question.

12.59 pm

Lord Selsdon (Con): My Lords, I am a little confused. I am not sure what austerity is. I do not see abject poverty around. Therefore I will use what the Financial Times

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says as an introduction: austerity marks a period of adverse economic conditions where the Government cut their spending or increases taxes in order to reduce their budget deficit.

The factors that I considered when I was in the banking world are rather favourable. The pound is strong and stable. Our balance of payments is reasonable because of services, but we have always had a balance of payments deficit on manufactures and that is agreed year after year. But when you look at that balance of payments deficit on manufactures, you realise that many components are already imported. So if you try to search through the pattern, you want to look and see what is wrong, or whether you can prove what is wrong.

At the other end of the scale, we have vast sources of wealth in other parts of the world looking for investment. I know that my noble friend Lord Howell has visited some of the major funds around the world. They have visited me, too, and they have asked what opportunities there are for investment. Well, there are not many requirements from the United Kingdom other than new infrastructure. Our balance of payments deficit has not caused us any problem, the universities are doing well, technology is in the forefront of activities, and it is a question of where and what direct investment we should be encouraging more of into the United Kingdom and in what sectors. I am asked regularly during my international trips, “What would you invest in?”. In the early days, suggestions were made to me that they should invest in the automotive industry, which I thought would be a complete waste of time. I never realised that the automotive industry in the United Kingdom had virtually fallen into foreign ownership.

So what is foreign ownership and where are the problems at the moment? I detect that those economic minds I see around me—for whom I have great respect; I used to study some of their papers—are perhaps at a loss to find any reasonable conclusions as to what the Government or Governments should do next. Our balance of payments is not a difficult one: we have, as I say, the surplus on services and that surplus will continue.

So I ask the Minister: what is wrong? I spend most of my life internationally and find great respect for the United Kingdom these days. Probably one of the weaknesses is that everybody wants to come and live here. One factor that comes up is the element of personal taxation, which is unfair if it is levied upon the British and not upon foreigners, but this is more of a social issue. Therefore we find that the investment that comes in is not necessarily direct, but comes through all sorts of corridors. There is no pressure on the pound sterling, there is no pressure on inflation. There is pressure for a slightly better bus service and fewer strikes in London. But when you are confronted by some of the sovereign wealth funds who say they would like to invest in our country and ask what our future plans are and what major exciting projects they could invest in, the answers are not necessarily there. So I have no concern at all. In fact, I am worried that I cannot find a worry—and maybe some noble Lords could demonstrate what is wrong. It is not a party-political issue. In general, those who come out of university are

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finding jobs. The training schemes are getting better and better. The arguments seem to be only about major jumbo projects about where we should put an airport, which international people cannot understand. I would like someone to say, “What do we need money for?”—because I am not sure.

1.03 pm

Baroness Warwick of Undercliffe (Lab): My Lords, I congratulate my noble friend Lord Haskel on securing this debate in our first week after the Recess. He focused on productivity and that word resonates with the debate we had on Tuesday on the Government’s plans to boost productivity. Indeed, much of what I want to deal with underpins productivity.

In his Budget speech, the Chancellor said that,

“our weak productivity shows that we do not train enough, build enough or invest enough”.—[Official Report, Commons, 8/7/15; col. 321.]

I will focus on the second leg of his argument: building enough. He talked about the confidence that comes from getting our house in order. I will talk literally about getting our houses in order and to rise to his challenge that one key to raising productivity is building more homes.

In doing so I declare an interest as the soon-to-be chair of the National Housing Federation. The NHF represent England’s housing associations, which provide homes for the most vulnerable and help so many people to get into home ownership and get on the housing ladder for the first time. They should be welcomed as a key player in driving Britain out of austerity and into a prosperous future, both as an economy and as a society. It is generally accepted that, for most people, having a stable place to live improves life chances and employment.

The Government have said that housing is a national priority. We are in the middle of a housing crisis. We need 250,000 new homes each year and the country is not building even half that number. Housing associations are a secret weapon in building a better Britain. I say “secret” because few people seem to realise what housing associations are and how much they do. I wonder how many members of this House, like me only a few months ago, do not realise that last year housing associations built one in three of all new homes.

They are the UK’s most successful social enterprises; they are independent of local authorities and government but work closely with both. They build houses for rent, for shared ownership and for outright sale. They are ambitious, they want to do so much more across every tenure, and they could do so if government would work with them—and indeed, to reassure the noble Lord, Lord Selsdon, if private investors would work with them as well.

In their plan for productivity, the Government complained that expenditure on physical investment had been persistently low. Yes, that is generally true, but housing associations are doing something about it. They have secured £75 billion in private investment for new homes over 30 years. Their efficiency and ability to create surpluses have persuaded the money markets to invest. So they have delivered desperately needed affordable homes in every part of the country.

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They are a great boost for the Treasury, too. For every £1 invested by government, associations put in £6. They add an extraordinary £14 billion to Britain’s economy every year.

In my new role, I have seen for myself some of the amazing developments they have made possible across the country. Time does not allow me to talk about how inspiring they are because I do want to ask some urgent questions of the Minister. I would add only that in areas where deprivation remains a huge problem, housing associations offer exciting developments and give local communities optimism and hope.

That is because they do more than build houses; they invest to build resilient communities. In partnership with the NHS, GPs and local authorities, they provide outreach health care and redesign local care services; they deliver government programmes for helping people back into work—which is, of course, the most effective way of cutting the overall benefits bill—and last year they supported 12,000 apprenticeships. They could do so much more with greater flexibility, so I will ask the Minister some specific practical questions in the new and tougher environment set by the Chancellor’s Budget.

Will he encourage the Government to invest to deliver homes that meet locally defined needs and customer choice, not inflexible national housing programmes? Will he undertake to look at extending the Affordable Homes Guarantees Programme beyond 2017, given its boost to long-term competitively priced finance and the fact that, because of the sector’s no-default record, it comes at no cost to the taxpayer?

Will he look at empowering local public bodies, which have shown that they are effective in using their assets, to take more control over mapping public land and property locally and setting out how they much they can be released to deliver the homes and infrastructure needed to make communities thrive?

I conclude by saying that housing associations stand ready to work with government to end the housing crisis and, with the right conditions, can help drive us out of austerity to economic growth.

1.08 pm

Lord Cotter (LD): My Lords, today we are considering the economy. Growth is generated through businesses, of course, but the Government, as ever, have a role to play. SMEs are crucial, so the Government’s commitment in the Queen’s Speech to cut red tape for business by £10 billion is very important. So often business has been held back by unnecessary red tape and bureaucracy—I have experienced that myself in another life. Many Governments before have said that they will cut red tape, but this time I look to our Government to give us feedback and indicate how the cut-back is being achieved.

It was interesting that the Government said they would create a small business conciliation service to help settle disputes between small and large businesses. That initially brings to mind a continuing problem for SMEs—namely, the late payment of debt, which is a frequent problem that arises between small and large businesses. The larger-capacity businesses have the money but they often do not pay their debts promptly, and I look to the conciliation service as perhaps a way

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forward. Business Ministers have in recent times addressed FTSE companies, urging the many which have not done so to sign up to and implement the Prompt Payment Code. I ask the Minister how successful their request to FTSE companies has been and whether they will carry on pressurising those big companies to pay their debts on time.

There is much to say on the economy but I shall touch on just one or two other points. The need for exports to increase is key, as is enabling, helping and encouraging the business sector to get finance specifically for exports. I know that many smaller companies are discouraged from exporting for lots of different reasons, among which is the need to get finance to expand their exports. I ran a small business and at the time we were fairly fortunate in being able to export for various reasons. Therefore, there is a need for UK export finance to be brought on to a par with the world’s best export financial agencies.

Productivity has been debated already. At this stage, I thank the noble Lord, Lord Haskel, very much for initiating this debate and for the points that he made on productivity. I agree very much with him that lack of productivity can sometimes be the result of poor workplace relations. I had experience of that some years ago when I was asked to take on, as managing director, a small manufacturing company which for decades had been run poorly by management on a “them and us” basis. The approach from the top was very poor and the workforce naturally felt disengaged and uninspired to work hard. In a short time, having been asked to take on the company as managing director, I changed all that, establishing a very different culture of working as a team. Within a very short time, the company lifted off, and I was able to achieve that through my long-standing commitment—in thought anyway—to a team approach, not a “them and us” approach, when it came to business. Therefore, I hope that management training nowadays emphasises, among other issues, how important it is to have good workplace and management relations.

1.13 pm

Viscount Hanworth (Lab): My Lords, I have heard it said by a member of the party opposite that austerity is now at an end. This is a false perception. Our economic misery will not cease until our manufacturing industries and our foreign trade have been revived. This will require a technological revival and a macroeconomic policy very different from the one that the Government are pursuing. I have no confidence that this Government are capable of delivering such a revival.

At the end of the Second World War, Britain was one of the world’s leading technological and industrial nations. Besides being a leader in aviation, Britain was also a pioneer in nuclear technology, in electronics and in digital computing. Our automotive industries were also world leaders. These are the industries that have received the support of the Governments of the nations that are our economic competitors.

In Britain, our technological industries have been damaged by their relationship with successive Governments. Over the years, much of our former

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technical and scientific competence has been destroyed. The demise of British industry has been accompanied by perennial balance of payments problems that have been due to the overvaluation of the pound.

This problem also dates back to the early post-war years. In 1949, when Stafford Cripps was Chancellor of the Exchequer, the pound was devalued by 30% in order to stimulate our exports. The beneficial effects were quickly eroded by our high levels of domestic inflation. Another devaluation of our currency was needed in the early 1960s. However, the Wilson Government, which had been strongly influenced by British and foreign financiers, were unwilling to take the necessary steps. When it took place in 1967, the devaluation was by an inadequate 14%. In spite of the fact that we now have a floating exchange rate, our currency continues to be overvalued. This persistent overvaluation threatens our future prosperity.

The attitudes of successive Governments to our technological industries were strongly influenced by the problems of our aviation industry. The post-war industry was populated by numerous small and highly innovative enterprises, all of which sought government support. The situation was unsustainable. In 1957, a defence White Paper, sponsored by Duncan Sandys, proposed to solve the problem at a stroke. All projects for manned military aircraft were to be cancelled in favour of anti-aircraft missiles and intercontinental ballistic missiles. Although Sandys did not achieve the complete elimination of manned aircraft, he did establish a precedent for dealing with the technological industries.

The Civil Service, with the Treasury in its vanguard, developed a methodology of cancellation that was applied to many other industries by succeeding Governments. The Government of Harold Wilson did as much as their predecessor in cancelling the high-tech projects that threatened to make inroads into the Government’s budget at a time when they were severely constrained by a balance of payments crisis. This process of curtailment was vigorously pursued by the succeeding Conservative Governments of Margaret Thatcher. The consequence for Britain today and for the foreseeable future is that we have to rely heavily on our economic competitors to provide the technological skills that are so severely lacking. Unless we can amend this situation, our economic prospects will be bleak.

Throughout the post-war period, Britain’s financial sector has survived and prospered, which has been in spite of the weakening of the rest of the economy. The financial sector nowadays profits from an open economy that allows the free inflow of financial capital. A consequence of this inflow is that the balance of payments crisis that would otherwise have been occasioned by the failure of our export industries has been overcome by the sale of our assets to foreign buyers. The inflow of capital is largely responsible for the overvaluation of our currency, and it has greatly enriched those who earn their living in the financial sector. It is notable that, when they have taken trips abroad, ostensibly for the purpose of promoting our export trade, the Prime Minister and the Chancellor of the Exchequer have succeeded not so much in selling our manufactured goods as in selling large stakes in our native enterprises and our utilities.

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It should be clear where the current trajectory of the economy is carrying us. We are heading towards economic misery if not towards an economic crisis. The process will not be averted unless we can restore our manufacturing industries and the technical skills on which they must depend. If we do not do so then our society will become increasingly divided between the rich few and the impoverished majority.

1.18 pm

Baroness Wheatcroft (Con): My Lords, I am grateful to the noble Lord, Lord Haskel, for securing this debate and introducing it so passionately. However, unlike him and many other noble Lords, I saw this as an opportunity to gaze at the sunlit uplands that will be our reward for the years of austerity. The Government have been determined to rebuild the nation’s finances and the results are that we can look towards a high-wage, low-tax economy and a society in which those who can enjoy the dignity of work do so and those who cannot are supported by a sensible welfare system.

I commend the brave move of the Chancellor of the Exchequer in the summer Budget to raise the minimum wage. There are those who have said that this will cost jobs. I cite the case of Andy Harrison, the chief executive of Whitbread. He estimates that the increase will cost his company around £20 million. However, having mused about passing on that cost to those who favour his coffee, he actually said that the company made a profit of £550 million last year. Perhaps the shareholders in that business would not mind sharing a little of that profit with the workers. Those are not his words but mine.

My noble friend Lord Mawhinney talked about the need to address inequalities in society. I agree with him and hope that companies and investors will take note of the fact that, if they do not move, then the Government may have to. For too long we have had a system in which the taxpayer subsidised low-paid workers, to the benefit of shareholders and often, I am afraid, highly rewarded chief executives. That has to change. Their rewards for work are preferable to state handouts.

Of course it takes time to change a benefits culture that has taken root in this country, but it is gradually happening. With improvements in education and skills under way, we are moving towards an economy in which, for many, work will not be a chore but a pleasure. The creative industries are on a roll and constitute the fastest growing sector in the UK, contributing about £77 billion to the economy last year. The New York Times recently referred to London as,

“the design capital of the world”.

When it comes to film, we are booming. There are plans for a new studio as part of a massive redevelopment scheme in Greenwich alongside the O2. The latest Bond film, the new instalment of “Game of Thrones” and the latest “Star Wars” movie are all made in the UK. The Government have done their bit to foster these successes with tax breaks. Despite some of the gloom that we have heard today, the Government are also encouraging other exciting industries to thrive and create high-value jobs.

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Many have bemoaned the lack of manufacturing in this country, but Innovate UK is proving highly effective in stimulating business in science and technology. Since its creation in 2007, innovate UK has invested £1.5 billion and, with what does not sound a huge amount of money, created around £7.5 billion in added value for the economy and 35,000 extra jobs. There are catapults around the country, which are not as dangerous as they sound but are promoting nine different sectors in highly technical areas in which we could build world beaters.

That is not to say that we are out of the woods. Household debt remains a huge issue; we have to turn a borrowing nation into a saving nation; and we are not immune from what is going around the world, and the problems in Europe and further afield. As my noble friend Lord Howell pointed out, the need to continue to be careful with the country’s finances remains intense, and there is still room for improvement. When it comes to procurement, the Government are not anywhere near as effective as they should be. We recently heard about the cost of police truncheons being purchased; they were four times higher in one police force than another. Unless the cheap one is inflatable, I should have thought that we could go for the lower-cost truncheon.

That finally brings me to my question for the Minister, concerning Hinkley Point. It does not look like a good example of government procurement. Today it looks like a means by which to lock in high costs for consumers, at a time when energy costs and demand seem to be going in the other direction. Will the Minister reassure the House that the Government will re-examine the economics of Hinkley Point?

1.23 pm

Lord Soley (Lab): One of the great pleasures in taking part in a debate of my noble friend Lord Haskell is that he always comes to them with solutions, not just problems. He is absolutely right to focus on the issue of productivity. I have often argued for growth, but growth and productivity are very much part and parcel of the same thing. I do not agree with the noble Lord, Lord Howell, on the need just to put constant downward pressure on public expenditure, almost for the sake of it, which is the implication of what he was saying. The reality is that the problems we got into in the great banking and financial crash were not about public sector spending being too high in the previous years. In fact, under the Labour Government, there had been a lower public sector borrowing requirement to GDP ratio than there had been throughout the Thatcher years. That is an important factor. What blew the economy was the collapse of the banks and financial industries. At the time, anyone who would have argued against bailing out the banks would have been laughed out of the Chamber. The issue was bailing them out with public money, and that of course sent debt through the roof.

There are two ways in which to deal with debt: one is the austerity argument and the other is to get growth. Austerity, in a sense, is more of a political argument than an economic one. I know of no sensible economic policy with austerity at its heart. It is obviously a problem if there is too much debt compared with income, but the issue of growth is more important.

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My noble friend Lord McFall pointed out that there have been a number of occasions when the GDP-to-debt ratio in this country has been much higher than it was even after we bailed out the banks. That was particularly true, incidentally, in the 19th century. It did not matter because growth was increasing so fast that the debt level became sustainable.

That does not provide an easy answer to today’s problems, and I am certainly not in the camp that says, “We do not need to cut back public expenditure during the present time”. One needs to do that, but making it the centre of one’s policy and presenting austerity as a political issue says to the public, “I am afraid that you have got to suffer in order to do better”. That is a dangerous message because it also devalues the political process. Noble Lords should ask themselves why people are getting fed up with the political process. It is partly because they have been told, “You’ve got to suffer”. That is not necessarily true.

Britain can and will do very well. There are a lot of examples of that but we can get things wrong, and the Government are not in a good position to complain. I am bound to follow the comments of my noble friend Lord Monks: when the last Labour Government left office we had given the green light for Heathrow to expand. Since then, we have had another five years spending literally millions of pounds producing a report explaining why we cannot carry out a major infrastructure project. Similarly, the noble Baroness, Lady Wheatcroft, was right about the enormous growth of the arts and its importance to the British economy. I hope she will remember that when it comes to dealing with the BBC, which is the big economic driver in that regard. If it is cut back on the grounds that its empire is too big, there will be a knock-on effect on the rest of the economy. I could go through a whole range of areas where that argument applies, not least in the aviation and aerospace industry generally.

I welcome the Chancellor’s announcement of an increase in the minimum wage. It is significant that he will apply it from the age of 25. He recognises the difficult balance that needs to be struck—it applies to all these arguments—between increasing productivity by making labour more expensive, and the danger of increasing unemployment. This is where we need creative thinking, particularly in the Labour Party. I would far rather pay less in benefits to young people but give them instead an ordinary pay rate in order to train. I do not care too much what that training or education is. I am impressed by the way young people use modern technology to set up their own companies and do things that make money. At times I think, “That won’t work”—and the next thing I know, I am buying it. Science and technology, along with education, should be the drivers. We should focus on our young people and start paying them to train for almost anything. Then, we might have a future workforce that will meet my noble friend Lord Haskel’s demand for greater productivity.

1.29 pm

Baroness Wall of New Barnet (Lab): My Lords, I am going to be the 20th person to congratulate my noble friend Lord Haskel on the superb subject that he

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has raised. I echo what my noble friend Lord Soley said. The passion and resolution in my noble friend Lord Haskel’s speeches are always inspiring. This debate is closely linked with the debate in this House on Tuesday on productivity. I am not the first person to say this, but when one is 20th on the list it is difficult to say unique things, but I will do my best.

For me, some elements of productivity in the UK are absolutely tied in with British growth. I want to concentrate on the difference that well-led and well-trained staff, at all levels in businesses, make to the success of those businesses and how they consequently make a difference to the British economy. This is even more important following the period of austerity. Indeed, some of us would say that this period still pertains.

The Labour Government set rigorous goals for apprenticeships. I am delighted that the Conservative Government, like the coalition Government, are carrying on with this vision and, in fact, starting to deliver. The Labour Government worked closely with employers and trade unions, and I was delighted at the time to be heavily involved in the setting up of what was really the kernel of all this: the sector skills councils. Many of those councils, including SEMTA, led the way in working with employers to understand and value the difference that trained staff could make to their bottom line. Many of these businesses contribute hugely to the GDP.

In my view, the British economy still struggles in many ways to benefit fully from the contributions of small and medium-sized enterprises. The Government struggle with how to support these businesses and recognise the contribution they make to growth. Many issues still prevent SMEs growing as they would want to.

Some noble Lords who spoke today also spoke in Tuesday’s debate on productivity. They may well think that what I am talking about should have been said in Tuesday’s debate. However, I make no apology for focusing on it. As my noble friend Lord Solely and other contributors today have said, without good productivity, British growth will not happen and certainly will not be increased. Higher apprenticeships and apprenticeships really belong in the productivity area but, as I have already said, make the difference between a business being very successful or mediocre—and mediocre businesses sometimes fail, and certainly do not contribute for employers or the UK economy.

I am not worried at all about focusing on the overlap between a productive United Kingdom workforce and the British economy beyond austerity. That is the link I am making in this debate. Will the Minister assure us that the apprenticeship numbers the Government have suggested they are going to achieve will be achieved? The emphasis the Government have put on the employer paying towards this is absolutely superb. It was not what the Labour Government did, but the ownership of apprenticeships has become much more valuable because the employer feels that they are in charge and will benefit from recognising what that skilled workforce brings to their bottom line.

Finally, I want to talk about the gains that such a workforce makes through its contribution not only to business and the economy but to the overall nature

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and culture of our country. I echo what a number of my colleagues have said already: when people are in work that gives them satisfaction and feel that they can make a difference, the whole culture of the business, and consequently the whole culture of the UK economy, changes.

1.33 pm

Baroness Kramer (LD): My Lords, as the first of those making a winding-up speech, I thank and congratulate not just the noble Lord, Lord Haskel, but everyone who has contributed today. I do not think that I have ever sat through a debate in the House where every single speech has opened my mind in a different way and provided me with such extraordinary food for thought. Really, a very exceptional conversation has gone on with all sides of the House.

We have had, in effect, almost two different debates today: one, if I could turn it around, on austerity—I am going to make a few comments on that—and the other on the challenge that the noble Lord, Lord Haskel, has put before us of the extraordinarily disruptive new technologies that are changing the world in which we live. Such technologies will be the basis of the economy going forward and offer us extraordinary opportunities, as well as present us with real risks. I think the beginning of that debate is absolutely crucial.

Let me go back very briefly to austerity. I say again to the Labour Party and the Conservative Party that I completely agree that the crash was caused by the finance industry. There is no question about that. But the problem was that the ability to respond to that required cutting the deficit because public spending by the Labour Government was predicated on the assumption that we had done away with bust and were into a permanent era of boom. When that disappeared, it was simply unsustainable to continue public spending at those levels. But I also say to the noble Lord, Lord Howell of Guildford, that I believe we are no longer following the coalition’s trajectory, which, by the way, when it realised it was moving too harshly, had the common sense to tack its sails and reduce the deficit more slowly. There has been an ideological decision to try to rapidly move to a surplus situation and abandon the underlying principle of the coalition, which was that the burden should always be shared. In the Budget, we saw people who were prosperous and propertied getting very significant advantages and the cuts falling on the poorest of the working poor, children, young people and those with mental illnesses. That is the key change that I would fundamentally dispute, and it worries me going into the spending review.

Lord Howell of Guildford: My Lords, the noble Baroness mentioned my name, but I think she is slightly attributing to me views that I do not hold. All I was saying was that the concept of “beyond austerity” seems to imply a sort of nirvana where public expenditure can be completely relaxed. That is a delusion. If that line is pursued, it will hurt many working people very seriously. That is all that I am saying.

Baroness Kramer: My Lords, I like the word “prudence”; it is a sensible one to use. As my noble friend Lord Taverne said, in a civilised society taxation plays a key

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role and there is always a balance between the investment provided by the public sector, support for the vulnerable and the potential that can be brought about by constraining the amount of the economy that the public sector captures.

Let me move on to the more exciting part of this discussion, which will, I hope, be the first of many. During the coalition years, we had a very interventionist Government and an industrial strategy, to which the noble Baroness, Lady Wheatcroft, referred. It was not a free market solution of bringing back R&D investment and rebuilding the technological skills base in this country. It was a working partnership between the Government and business, often through the catapult centres, with a big focus on and support for research, especially the development end of research, and with that a development of the skills base.

Several people have made a key point: apprenticeships are wonderful and every one of us here would support high-quality apprenticeships. I hope the Government will look at how they work, not just in large companies but in small companies, which have been rather neglected. However, the work of the further education colleges in developing skilled people who have the flexibility not just to fill the immediate jobs but the potential to develop new industries and fill the opportunities of the future is absolutely key. I hope the Government keep that very much in mind.

These disruptive technologies are incredibly exciting; to me, that is, in part, because they are so consumer and user-driven. Amazon has become a powerhouse, not because it has been imposed from the top but because people want to change the way they buy. I hate the fact that it does not pay taxes, but we have to solve that problem because it will be a characteristic of so many of the firms of the future. Look at Uber. No matter how we feel about the black cab company, it seems that younger people have found Uber to be effective. However, as people in this House have said, it is a company that does not own a single taxi. I suspect that rather than going to a conventional hotel, many in this House are now looking at Airbnb as a way of booking their summer holiday. In the finance sector, which is rarely discussed in this context, the disintermediation of the big players is phenomenal. Peer-to-peer lending, crowdfunding and small, specialised banks are filling the gap that the financial institutions have allowed to develop, partly because they have hung on to ancient legacy technology—nearly all of them are dinosaurs. One sadness about the return of RBS was that it could have been reshaped into something that matched the new world of alternate finance. Instead, frankly, it has been left as a dinosaur of the old world.

I am concerned about access to financing for SMEs, because the traditional banks are not doing it any better than they were during recession—that is absolutely key; it is being picked up by the alternate world. That world will carry them through the very early days of development with relatively small amounts of finance, but we still have in this country the famous valley of death for companies that are beginning to grow and then cannot get access either to the risk capital or to the lending that they need to make that transition. We live with two consequences that worry me enormously.

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So many of our brilliant entrepreneurs who start companies have no ambition to grow them to global entities. In the US, their counterparts would do it without question, but they look to sell out. It is partly a cultural attitude, but it is also because that financing to go to a global structure is not available in this country, and it is something that has to be tackled rapidly.

A number of people—my noble friend Lady Miller in particular—talked about the importance of the green economy. It is one of the key economic sectors of the future. I am extraordinarily worried because any conversation now with investors in the green energy sector will tell you that they are holding back because they have been so discouraged by the actions that the Government have taken. Zero-carbon homes were mentioned, as was the withdrawal of support for onshore wind—there is now complete mistrust and suspicion across that sector. Those green jobs are critical to our future.

No one discussed the transport industry, where I have spent the past two years of my life. Ultra-low-emission vehicles together with driverless cars and huge manufacturing change—for example, 3D printing of car parts—revolutionised that industry. The old-legacy companies are scrambling and cannot see a path to the future. We have an extraordinary opportunity to become a leader if we build the market for ultra-low-emission vehicles and driverless vehicles in this country, and allow in the R&D and the jobs that can come with the related manufacturing. I hope that the Government will continue their commitment to that sector which was almost solely driven by Danny Alexander. I know that Oliver Letwin is also a big proponent of it. It is crucial that it continues to thrive because of the opportunities that it presents.

I see that my time is virtually up. I just want to say what an exciting time this, but let me add one very small caveat. It is the European Union. It is critical to us that we remain part of that single market if we are to have this exciting future that potentially sits in front of us. We are seriously at risk of talking this country out of the EU. I direct my comments particularly at the Conservative Benches and ask them, please, to stop the indulgence of the right wing, which is inward-looking and does not understand the dynamics of the market and the new opportunities, and to make sure that Britain is properly positioned as a world and European player with skills and investment and able to welcome and take advantage of those new disruptive technologies.

1.43 pm

Lord Mendelsohn (Lab): My Lords, I wish to draw attention to my business interests as recorded in the register.

I congratulate my noble friend Lord Haskel on securing this interesting and useful debate—it has been excellent, and my noble friend gave us an outstanding contribution to start it off. My noble friend is well regarded for his business acumen, but in this House has been a dogged investigator and advocate looking at economic and business matters. His interest in the

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problems of productivity has led him correctly to highlight one of the great challenges: the central importance of management and leadership.

This has been a fascinating debate that has covered many important issues, but let me take up the invitation from the Minister in Tuesday’s debate to think a little more boldly and see whether we have the right mix of political courage and consensus, and where we might be able to tackle some of the larger issues.

Long-standing government policy has been to pursue growth, fiscal consolidation, employment, skills development, competitiveness, innovation and improvements in productivity—the ingredients of economic motherhood and apple pie. But each Government of different shades pursue the same objectives with different emphasis and with different consequences. A long-term fault of all Governments has been an unwillingness to address some of the consequences and to understand that if something is working it might need to change to continue working.

It was frequently argued that one reason that France and Germany were able to develop high performance in productivity was the managerial response to inflexible labour markets. Being able to maximise the use of flexible labour markets in the UK led to less attention being paid to effective maximisation of capital, investment and management.

The optimistic explanation for the UK’s productivity puzzle and long-term underperformance was that after the financial crisis high unemployment both in the UK and the eurozone pushed down UK wages and led firms to put on ice investment that would have led to labour productivity growth and to employ more people instead on flexible terms and low wages. Low capital investment with some growth in demand—even if generated by leverage or an asset bubble—would generate rapid employment growth, cutting the unemployment that helped stall productivity.

But we have not seen an investment-led recovery in the way that we would have expected. There are still some fluctuating weaknesses in demand and uneven performance, and all this before you take into account in more recent times the impact of commodity prices, asset bubbles, and Chinese currency changes and economic performance. I suggest that we are far too reliant on the benefits of flexible labour markets.

It was overly optimistic to dream that as unemployment fell and labour shortages became common, the process would stop and the scale of investment would resume, but it has not yet become a reality. Let us be frank: productivity innovations do not take seven-year holidays.

While the Government’s policy document on productivity assembles much of what is already being done, combined with a few useful incremental initiatives, perhaps their most impactful policy to deal with the productivity challenge has been to transfer the costs of low pay from the state to the private sector with the Chancellor’s living wage proposal. This will certainly mean that businesses will have to respond with more creativity and capability than they have shown to date.

I hope that the Government take into real consideration the impact on people of the changes to the welfare arrangements as well as making sure that they develop

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the right levers to assist small businesses during this change. More aggressive policy on late payments and payment terms should be part of this.

From these Benches, we are very keen to encourage a broader look at what we need to change, addressing stewardship, ownership, governance, leadership and long-termism and ensuring the effective and proper functioning of markets. It was the Bank of England’s chief economist who expressed concern that shareholder power is leading to slower growth and that business investment has been slower than desirable because too high a proportion of profits has been paid out to shareholders rather than being reinvested. In 1970, £10 out of every £100 of profits were typically paid to shareholders through dividends, but today that figure is between £60 and £70, including the current desire for share buy-backs. Too little cash was available for growth investment and firms risked “eating themselves”, he said.

Mr Haldane’s argument is that UK company law needs re-examination. Too much decision-making power is with shareholders, and the evolution of traders in the public markets means that shareholdings are traded so frequently that they have less interest in the long-term health of the companies than in the trade itself.

Remuneration of senior executives is a matter of some concern. In 1998, the average CEO of a FTSE 100 company earned 47 times the pay of their average worker. Now I believe that we are close to 140 times. All too often, there is a limited alignment of interests. Remuneration packages are devoid of any long-term performance measures or claw-back. I find it amazing to be briefed by new managements on how the previous management undertook some short-term jiggery-pokery and then retired on comfortable terms with a generous pension to be paid in the long term when the costs of the damage done in the short term rest with the company and its shareholders and stakeholders. There is a huge misalignment of where the risks lie and where the upside is. But we must not give the board of directors a free pass. There is some startling evidence that suggests that the place where the short-term culture is more pervasive is on the main board of a company rather than among the executive directors or even the shareholders.

We have no issues with high rewards. We are strongly supportive of proper executive rewards for performance, as we have been for entrepreneurs and business owners, but it is important that all these matters deal with performance—and long-term performance. I strongly endorse the view that productivity improvements are present when there are excellent labour relations and where management’s ability to innovate is part of a joint exercise with staff—where companies, like any good functioning institution, have a sense of purpose and common values. One of my great teachers in business used to remind me that once in the 1960s when an American President was visiting NASA, he met one of the cleaning team. “What do you do?”, he asked. They replied, “I’m helping to put a man on the moon”. This notion of common endeavour is found in our best-performing companies. I feel that sometimes our management skills deployed in the public sector could do well to galvanise the public service ethos across the workforce to achieve more.

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There is also a growing weight of evidence that not only is there a link between high levels of employee ownership and superior share price performance, but that it is a long-term trend. The UK Employee Ownership Index tracks UK-listed stocks where staff own more than 3% of the company. If one had invested £100 in the EOI when it launched in 2003, it would be worth £749 now. That compares with £277 from the FTSE All-Share Index—a 472% outperformance, and it has been consistent. High employee ownership produces a positive culture. Perhaps it is time to set auditors free. In 2007, all 180 European banks that needed government rescues had clean audit reports. Auditors are meant to take a sceptical look at management, but all the recent failures, even since that period, also had clean reports. Audit terms should have a maximum period and once appointed it should be clear what is expected. A separate shareholder council should be established to make the recommendation at the annual meeting to make sure that there is genuine shareholder control of auditors. That would be a major advance in corporate governance.

We also need the policy framework that does not just address market failure but ensures the proper functioning of markets; that encourages competition; that is muscular in its approach to anti-competitive practices; that is tough on business misconduct and fraud; that encourages capital investment and positive corporate cultures; that prioritises leadership management science and technology; and that fundamentally addresses the terrible inequalities emerging in our society and the need to establish a more inclusive and sustainable capitalism.

We need and must be a place for disruptors, disaggregators and innovators to thrive, but it must be a place where efficiency, progress and new ways of working and satisfying the needs and requirements of today’s citizens and customers can be addressed. But we need to address the social and regulatory challenges at speed and, thus far, democratic systems do not seem able to meet the social and regulatory challenges in such a way that incentivises change, ensures fairness and manages the consequences and risks of innovation. Market cannot alone manage such transformations.

I assure the Minister that there is a strong appetite for more than the polite ripple of applause that greets most of the Government’s measures. In his speech on Tuesday, the Minister said that many of the decisions to make a step change need further boldness, political courage and close monitoring to ensure that the policies announced are implemented. Growth and productivity rely on the ability to make long-term decisions on framework and infrastructure and, whether it be energy policy or the Heathrow decision, we hold ourselves back with the time we take to make these important decisions. There are always consequences for all choices. Sometimes, right and wrong are more about timing and context. Sometimes, government policy decisions are far more political than economic. The Minister’s undoubted record on these matters offers some hope that we may witness a greater willingness to consider the more fundamental and required changes that our country needs, and I hope that in his comments to follow, we will be encouraged by how his influence may be starting to bear fruit.

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1.53 pm

The Commercial Secretary to the Treasury (Lord O’Neill of Gatley) (Con): My Lords, as the noble Baroness, Lady Kramer, suggested, yet again we have had a very interesting debate this afternoon. For myself, it is particularly helpful that it is on many topics very specifically close to my role as a Minister. As was pointed out by a number of noble Lords, it is the second debate on closely related matters that we have had in two days. Whether the greater participation of noble Lords present here today than the one two days ago is a sign of the growing appetite for such discussions or the hour at which the earlier one took place—or some sporting event of that particular evening, or what is about to follow this debate—I shall leave others to ponder.

I was somewhat unsure as to quite what the noble Lord, Lord Haskel, might have had in mind with his very specific reference in the title of the debate to,

“the British economy beyond austerity”.

Like others, I congratulate him on the content that he chose to focus on—on productivity. I heard the noble Lord describing what we are entering into as the age of productivity. Linked to the tone of what I have already said, I cannot resist the temptation to say that we must hope that the amount of discussion now taking place in this Chamber and the attention that we are giving the topic of productivity is itself a leading indicator of what may happen to productivity performance. I do not need to further remind the House that we had a specific discussion about productivity on Tuesday, and I encourage noble Lords, if they have time, to read the documents that are now available in the very likely event that I miss referring to all of those matters in my subsequent comments. I am conscious of the fact that our time is under intense pressure.