House of Lords
Wednesday, 14 November 2007.
The House met at three o'clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Truro): the LORD SPEAKER on the Woolsack.
Energy: Nuclear Decommissioning Authority
My Lords, an open recruitment campaign for the post of chair of the Nuclear Decommissioning Authority is in train. It is hoped to announce the successful candidate in January.
My Lords, is the noble Lord aware that Ministers have known about this post since February and knew that a new chairman would have to be appointed in the summer? Is he further aware that in April the two-days-a-week post was advertised at £80,000 a year, but no suitable candidates came forward? The post was readvertised in September, offering two and a half times as much—£200,000 a year. I am grateful to the Minister’s office for letting me see the advertisements. Did the Treasury impose the original limit of £80,000? Can the noble Lord, Lord Jones, claim the credit for making it see sense?
My Lords, I am grateful to the noble Lord for giving me credit that I do not deserve. He is right that my office let him have the advertisements, which I am looking at now. We did not get enough volume of good candidates from which to make an informed and inspired choice. We advertised again, as he rightly said, offering £200,000 a year instead of £80,000, for two days a week. That has attracted many more candidates.
My Lords, I understand salary levels in the private sector, as noble Lords will understand. From that wider pool, we hope to get someone who can take on a far wider, more detailed and more important brief, as this hugely important subject rightly goes forward in the glare of public scrutiny.
My Lords, I assure noble Lords that under the Office of the Commissioner for Public Appointments, the rules do not allow me to discuss such things in public. However, we are confident that the appointment in January will come from a much wider pool.
My Lords, is my noble friend aware that while private negotiations on the salary were going on, work was being done by the NDA on a business plan, which was published in the past few days and is 66 pages long? Oddly, it was published as a consultative document on many matters that would have been better dealt with in-house. Will he comment on what has happened in the past few days?
My Lords, those negotiations, as my noble friend put it, about changes in salary levels were not negotiations, and they were certainly not in private as far as my office was concerned. We are trying to set the market rate for the job to be done. We hope that we will get a much wider pool to apply, and we are pretty certain of that. I am not intimately involved in the business plan, nor do I have enough information to give him the proper answer that his question deserves. I promise that I will get back to him with an answer.
My Lords, as a former Member of Parliament for the area that will enjoy a considerable proportion of the budget of this organisation, can I be assured that the person selected to do this job will be recognised through the nuclear industry as competent to do it on the basis of their previous experience?
My Lords, I assure the noble Baroness that one thing has changed—actually, it was the year before; she is accurate in what she says, but she is one year out. Business was extremely worried about supply and about making sure that if we had a cold winter the lights would stay on. I am delighted to report to noble Lords that this winter that situation is being averted. It is two years on from when I made the remark. I am glad that I made it, because it woke a few people up. I think it had the desired result.
My Lords, given the noble Lord’s experience of the private sector, does he agree that almost invariably there are very long delays before the Government make up their mind on the appointment of major public figures? I suffered from that when I was in the public sector. Could he kindly pass on to those responsible that it would have been far better if they had got on with it quicker and made up their minds sooner on what remuneration had to be offered?
My Lords, I agree. As someone who came into this House to join noble Lords at 24 or 48 hours’ notice, I understand speed. I feel that a far swifter way is needed of bringing talent into other parts of public life. We have one problem—if the process is too speedy it becomes suspicious, unfairly, and then many other vested interests attack the process. Therefore, many people involved in appointments tend to get on the side of caution; that leads to slowness and very much to the objection raised by the noble Lord. He is right in trying to have a more speedy resolution to so many appointments, but he would have to address that to our friends in the media as much as to the Government.
My Lords, in the light of the presumed qualifications of the successful candidate for the chairmanship of the Nuclear Decommissioning Authority, is it likely that the individual chosen will subsequently be consulted by the Government on the commissioning of new nuclear power stations?
My Lords, I would not have thought for a minute that that will be part of the chairman’s brief, but I do not know specifically. What I do know is that we need a decision to be made on new stations after detailed consultation with the public in all their forms. Only then could we decide whether that issue went into the brief of anybody.
Foot and Mouth Disease
asked Her Majesty’s Government:
What legal options are available to compensate United Kingdom sheep and cattle farmers for their losses as a result of the foot and mouth disease outbreak originating at the Pirbright animal research centre site.
My Lords, the Animal Health Act 1981, as amended, requires that compensation is paid both for animals compulsorily slaughtered as a result of foot and mouth disease and for property, including carcasses, which is seized or destroyed to prevent the disease from spreading. There is no statutory provision for payment of compensation to farming or other businesses for other losses caused by disease control measures.
My Lords, I have no doubt that that Answer has the full force of the government lawyers and the Treasury behind it. None the less, the Minister’s right honourable friend the Prime Minister stated two weeks ago that he would help sheep producers in any way that he could. Will the Minister acknowledge that the foot and mouth outbreak originated from pollution at the Pirbright research centre, which is licensed, regulated and funded by Defra, and that the collateral damage to the sheep industry as a whole across the UK has halved 2006 prices, all because of necessary movement restrictions, market closures and export bans? Surely he will agree that in this unique situation the Government must pay proper one-off compensation to producers for the £520 million in losses that they have sustained this autumn.
My Lords, the Answer involves the full force of the law; nothing else. That is what the Animal Health Act 1981 clearly states. That has been the situation with each outbreak of an exotic disease since then, of which there have been more than a handful. There has been no compensation for consequential losses. Compensation is paid for animals that are directly taken to slaughter or those taken to slaughter on suspicion. This is a disaster for the industry. I do not gainsay that; I am just stating the legal position. I cannot comment on any legal action that may occur relating to Pirbright. Our best estimate currently—the situation obviously still continues; for example, there are no exports of live animals—is that, since 3 August, £100 million has gone to the livestock sector. With regard to its relative size, the sheep sector has been worst hit, with the costs so far amounting to about 7 per cent of its 2006 output. The sheep sector has been very badly affected.
My Lords, the Minister made it clear that he understands that to suffer loss you do not necessarily have to have the disease or even face a cull. The real damage is from the restrictions on movement and the interruptions to markets. What discretion do his officials have to reduce the hugely damaging impact of these restrictions to individual farmers and are they are being exhorted to use it?
My Lords, each of the movement restrictions and the zones has to be agreed by SCoFCAH, the committee of the EU vets. We have not gold-plated anything in that respect. It is true that we had a hiatus when we thought that foot and mouth was over, but we discovered more cases relating to the first outbreak. That was more than unfortunate. We now have the country split into three zones: the foot-and-mouth-free export area, the foot-and-mouth-restricted export area and the foot and mouth area where no exports of any kind of meat are allowed. We are expecting that, by the end of the year or certainly by the beginning of next year, subject to there being no further outbreak—so far, we have every reason to believe that there will not be one—we will be able to allow the export of live animals, if that is desired by the trade; I am sure that it will be.
My Lords, does the Minister agree that the real issue is not the Government’s responsibility for regulatory action but their moral responsibility in respect of the Pirbright institute? In 1966, it was shown that the law in this matter was very narrow—that persons could claim compensation only if their land had been invaded by the virus. If the Government were to shelter behind such a narrow interpretation of the law, they would be avoiding a heavy moral responsibility in respect of massive losses that have been caused by the negligence of a government agency.
My Lords, the situation is not as it was in 1966. I have already said that where animals are taken to slaughter on suspicion—when we have no proof that the virus is present—compensation is paid. The 1981 Act went much further than the 1966 legislation; people are being compensated when animals are taken compulsorily even on suspicion when the disease was not found. On Pirbright, I have said before—I am not playing with words—that it is not a Government-run laboratory. It is run by the Institute for Animal Health. The Government are a customer and a partial regulator along with the private sector company on the site. All the information that we have and all the independent reports into what happened in August have been published. I refer to the Health and Safety Executive report and the report of Professor Spratt. They are clear about where the outbreak originated but I do not think that they are clear about the precise location. This matter will undoubtedly come before the courts; I cannot possibly speculate on that because that would be quite wrong.
My Lords, is the Minister aware that yesterday the “World at One” on Radio 4 carried a report in which it was suggested that British farmers should be assisted in growing more food for the UK market and that a spokesperson for Defra responded by saying:
“It is up to the market to decide food prices. The UK can source efficiently food from a wide variety of stable countries, and that enables Britain to obtain the best value for money”?
Whatever the legal issues surrounding FMD compensation, and notwithstanding all that the Minister said in our debate yesterday, to which I listened with great interest, does not this Defra statement mean that Her Majesty’s Government continue to take food security insufficiently seriously and are prepared to see the terminal decline of the UK farming industry through the pursuit of cheap food and the concomitant exploitation of UK farmers by the retail food industry?
My Lords, in his Statement to the other place yesterday, the Secretary of State said that Pirbright was about to recommence vaccine production, yet the improvement plan for Pirbright has not yet been finished. Is that safe, and who, independent of government, has certified that Pirbright is now safe?
My Lords, I am not familiar with the details of yesterday’s Statement because I was attending the debate here, but it can only be the independent regulators. Presumably, this question would be decided not by Ministers but by the Health and Safety Executive, which would give the necessary approval. However, it has been stated that Pirbright can commence working with live viruses both at the Institute for Animal Health and the Merial laboratories. One knows that Pirbright is undergoing a £120 million investment programme—it is a building site and that will continue for some time. The fact is that the laboratories and equipment have been checked over and, so far as I understand, the regulators have agreed that work can recommence with live viruses. That is important because of the possibility of providing a vaccine for bluetongue disease, and it is one of the three laboratories that could provide that.
Africa: Arms Trade
asked Her Majesty’s Government:
What assessment they have made of the recent report published by Oxfam and others on the economic and human costs of conflict in Africa; and what prospects there are for the ratification of a global arms trade treaty.
My Lords, the Oxfam report makes vivid and compelling arguments about the cost of conflict to African development. That is why the UK has committed more than £350 million to conflict prevention initiatives in Africa since 2001 and has led calls at the UN for action to stop irresponsible arms trading that fuels conflict. There is widespread international support for the UN process towards an arms trade treaty. We are determined to work towards the conclusion of a robust treaty.
My Lords, I thank the Minister for that reply. However, will he confirm the findings of the authors of the report that conflict in Africa over the past decade or so has cost a staggering $300 billion and that it is estimated that every year it costs $18 billion—roughly the equivalent amount of money that the rest of the world puts into Africa in aid and development? Does he accept that the flow of small arms into Africa—95 per cent of the kalashnikovs used in places such as the Congo, southern Sudan, Darfur and elsewhere—come from outside Africa? This remains a paramount concern and, unless we get conflict resolution right, all our development programmes will be pretty worthless.
My Lords, the noble Lord is correct. This is a very well written and, so far as I can tell, well researched report, which arrives at the stunning conclusion that $300 billion has been lost because of conflict, with loss of life and foregone economic development, and that that is indeed approximately equivalent to the amount of aid that has been put into the continent. That is not to take away from what that aid has achieved, with the provision of health and education on a scale that otherwise would not have been available, but it draws one to conclude that we must find ways to stop this conflict so that the effect of the aid is felt more fully. In that regard, the treaty that the noble Lord mentions is one key part of the strategy.
My Lords, has any further information come to light on the alleged breaches of the UN arms embargo on Sudan by two members of the UN Security Council, as reported by Amnesty earlier this year? If not, do the Government intend to support any further investigation into this matter?
My Lords, it is estimated that between April and June 1994, 800,000 people died in the genocide in Rwanda, yet a report—a simulation exercise—commissioned by the Carnegie Foundation from West Point said that a mere 5,000 trained military personnel could have averted that catastrophe. What efforts are the Government making to provide with others a rapid reaction force under the auspices of the African Union? What progress has so far been made on that rapid reaction force?
My Lords, my noble friend talks of a very important effort under way to try to improve the capacity of the African Union to respond effectively to peacekeeping crises as they emerge. It will be a major subject of the EU-AU summit in December. The European Union is providing a lot of support in training, exercises and funding to AU forces, but as we are seeing not just in Darfur but in Somalia as well, we still have enormous difficulty in deploying effective African Union or even UN forces as quickly and as promptly as we would wish.
My Lords, in the light of encouraging remarks made by Chinese representatives at the first committee in the General Assembly, and also separately by the US, on the voluntary register of light weapons exports, will the Government consider suggesting to the intergovernmental group of experts on the treaty that signatory states should be required to report all light weapons exports as an obligation under the treaty? Secondly, will they also consider suggesting that the treaty should include a permanent UN monitoring mechanism for light weapons that are retrieved from theatres of conflict?
My Lords, the noble Lord knows that the experts are only now—in the next couple of months—going to assemble to follow up on last year’s resolution, which was driven by the United Kingdom and supported by 150 countries, to establish an arms trade treaty. We shall be very involved in the work of that expert group and I suspect that both suggestions should be raised with that group. It is an expert group and will have to reach its own conclusions. I should add that obviously this treaty is not intended to prevent the legitimate provision of arms to defence forces in Africa to defend the sovereign borders of their countries.
My Lords, I declare an interest as a former director of Oxfam and a continuing committed supporter. Does my noble friend agree that, as he has himself indicated, the real tragic dimension to this conflict is that the overwhelming majority of people who suffer—who are killed and maimed—are civilians? Therefore, the urgency of action along the lines of a global arms trade treaty cannot be overestimated. Does he accept that there is a great deal of admiration from those involved for the leadership shown by the British Government on this issue but a great deal of disappointment that our United States allies are not as forthcoming in their support? What is being done to bring the United States on board?
My Lords, the advice of the noble Earl is well taken, and I shall stick to the facts. It is the case that the United States was the one country to vote against this resolution last December, and we continue to press the US to reconsider its position. We very much hope through the consultations around the drafting of the treaty that we will be able to bring the US on board. While others either voted with us or abstained, I regret to say that the objectors to the treaty are not limited to the United States; it was, as is often the case, just a bit more straightforward in making its position clear.
My Lords, a Europe-wide review of the efficacy and safety of methylphenidate began in June and it will consider the findings of the University at Buffalo’s report. Following the review, any necessary updates will be made to guidance for prescribers and the information provided for patients. The review will also inform the NICE guidance on the pharmacological and psychological interventions to treat attention deficit hyperactivity disorder—ADHD—which should be published in July 2008.
My Lords, I thank the Minister for her reply. However, does she think that the time might now be right for the Government to commission an inquiry into the causes of ADHD, beyond merely evaluating the current medication? Given the more than threefold increase in prescriptions over the past 10 years, might it not be valuable to explore the concomitant possible changes over that period in environmental, dietary and social factors?
My Lords, I well understand the noble Baroness’s concern about the apparent increase in ADHD. It is not clear whether the percentage of children with ADHD has increased in recent years or whether this reflects greater awareness of the condition. But the suggestion that there should be a wide-ranging review is certainly interesting, although it would of course go far wider than the Department of Health—it would have to be a cross-Government initiative. I will therefore take it back to my colleagues, who will discuss the suggestion with the noble Baroness. I assure her that we will pursue it.
My Lords, is the Minister aware of research linking ADHD with post-natal depression? Many parents do not realise that they are suffering from post-natal depression, making the role of health visitors essential in addressing it early. Can the Minister tell me or write to me about what she is doing to recruit young men and women into the health visiting profession to tackle this problem? I understand that it is an ageing professional group.
My Lords, I was unaware of the relationship between post-natal depression and ADHD, and will therefore write to the noble Earl. He makes a valid point about the importance of health visitors and the need for more. The Government are acutely aware of this, and I will get back to him with further details.
My Lords, ADHD was first described in 1902, but there is as yet no diagnostic test for it. Can the Minister say whether the Department of Health and the Department for Children, Families and Schools would fund research into a better diagnostic test for general practitioners?
My Lords, funding is always a difficult issue. However, I well understand the need for a diagnostic test, so I will also have to come back to this in writing. There is a range of options for dealing with ADHD, such as psychotherapies, drugs and all sorts of things. Clearly, the most important thing is to have a diagnosis so that we get the treatment right.
My Lords, does the Minister recognise that it is difficult to assess the effect of drugs on behaviour, whereas it is much easier to assess the effect of a drug on, say, an infection? I am therefore sure that the Minister is right in not being too quick to draw conclusions from one bit of research in Buffalo.
My Lords, the noble Lord is absolutely right; that is one of the problems thus far. There is a lack of data on the impact that treatment has had on ADHD. It is perhaps not a recent phenomenon, but Ritalin, for example, has only been prescribed since 1988. Sadly, the long-term data are currently lacking.
My Lords, do the Government have any data on the extent of abuse of methylphenidate, given press reports that students are using it to improve their concentration when coming up to exams and because its effects on the body are similar to that of cocaine and other amphetamines?
My Lords, I, too, have read the deeply disturbing press articles. We have no evidence that it is being prescribed wrongly in a great number of cases. It is clearly being prescribed wrongly in a certain number of cases, or the incidents would not happen, but the Government are aware of this and, I am sure, are taking appropriate action.
My Lords, I declare an interest as the chair of the review of autism in Northern Ireland. Will the Minister extend her thinking beyond merely ADHD? Will she look at ASD where one finds that there is an abuse of Ritalin? One sometimes thinks it is an abuse through ignorance on the part of GPs who, since the Government have not produced a coherent and co-ordinated policy on autism, do not understand, so only behavioural problems are being tackled. There are also communication and sensory problems, and the objective must be to create transferable skills in autistic children.
My Lords, I pay tribute to the noble Lord for his work in the field of autism. I declare an interest as I am a past president of Autism Cymru, another excellent organisation. ASD is extremely important. I undertook to suggest to the department that the suggestion of the noble Baroness, Lady Greenfield, should be looked at further. I will also pass on the comments made by the noble Lord, but, in doing so, I give absolutely no undertakings on behalf of the Government.
Children and Young Persons Bill [HL]
My Lords, on behalf of my noble friend Lord Adonis, I beg to introduce a Bill to make provision about the delivery of local authority social work services for children and young persons; to amend Parts II and III of the Children Act 1989; to make further provision about the functions of local authorities and others in relation to children and young persons; to make provision about the enforcement of care standards in relation to certain establishments or agencies connected with children; to make provision about the independent review of determinations relating to adoption; and for connected purposes. I beg to move that this Bill be now read a first time.
Moved accordingly, and, on Question, Bill read a first time, and ordered to be printed.
Climate Change Bill [HL]
My Lords, I beg to introduce a Bill to set a target for the year 2050 for the reduction of targeted greenhouse gas emissions; to provide for a system of carbon budgeting; to establish a committee on Climate Change; to confer powers to establish trading schemes for the purpose of limiting greenhouse gas emissions or encouraging activities that reduce such emissions or remove greenhouse gas from the atmosphere; to make provision about adaptation to climate change; to confer powers to make schemes for providing financial incentives to produce less domestic waste and to recycle more of what is produced; to amend the provisions of the Energy Act 2004 about renewable transport fuel obligations; to make other provisions about climate change; and for connected purposes. I beg to move that this Bill be now read a first time.
Moved accordingly, and, on Question, Bill read a first time, and ordered to be printed.
Merits of Statutory Instruments Committee
Joint Committee on Human Rights
Joint Committee on Statutory Instruments
My Lords, I beg to move the five Motions standing in my name on the Order Paper.
Merits of Statutory Instruments Committee
Moved, That a Select Committee be appointed to consider the Merits of Statutory Instruments.
(1) The committee shall, subject to the exceptions in paragraph (2), consider—
(a) every instrument (whether or not a statutory instrument), or draft of an instrument, which is laid before each House of Parliament and upon which proceedings may be, or might have been, taken in either House of Parliament under an Act of Parliament;
(b) every proposal which is in the form of a draft of such an instrument and is laid before each House of Parliament under an Act of Parliament,
with a view to determining whether or not the special attention of the House should be drawn to it on any of the grounds specified in paragraph (3).
(2) The exceptions are—
(a) remedial orders, and draft remedial orders, under Section 10 of the Human Rights Act 1998;
(b) draft orders under Sections 14 and 18 of the Legislative and Regulatory Reform Act 2006, and subordinate provisions orders made or proposed to be made under the Regulatory Reform Act 2001;
(c) Measures under the Church of England Assembly (Powers) Act 1919 and instruments made, and drafts of instruments to be made, under them.
(3) The grounds on which an instrument, draft or proposal may be drawn to the special attention of the House are—
(a) that it is politically or legally important or gives rise to issues of public policy likely to be of interest to the House;
(b) that it may be inappropriate in view of changed circumstances since the enactment of the parent Act;
(c) that it may inappropriately implement European Union legislation;
(d) that it may imperfectly achieve its policy objectives.
(4) The committee shall also consider such other general matters relating to the effective scrutiny of the merits of statutory instruments and arising from the performance of its functions under paragraphs (1) to (3) as the committee considers appropriate, except matters within the orders of reference of the Joint Committee on Statutory Instruments.
That, as proposed by the Committee of Selection, the following Members be appointed to the committee:
L Filkin (Chairman)
L James of Blackheath
B Thomas of Winchester
That the committee have power to appoint specialist advisers;
That the committee have power to adjourn from place to place within the United Kingdom;
That the committee have leave to report from time to time;
That the reports of the committee shall be printed, regardless of any adjournment of the House;
That the evidence taken by the committee shall, if the committee so wish, be published.
Moved, That a Select Committee be appointed to examine the constitutional implications of all Public Bills coming before the House; and to keep under review the operation of the constitution;
That, as proposed by the Committee of Selection, the following Members be appointed to the committee:
L Goodlad (Chairman)
L Lyell of Markyate
L Morris of Aberavon
L Norton of Louth
L Rodgers of Quarry Bank
L Smith of Clifton
That the committee have power to appoint specialist advisers;
That the committee have power to adjourn from place to place;
That the committee have leave to report from time to time;
That the reports of the committee shall be printed, regardless of any adjournment of the House;
That the evidence taken by the committee in the last Session of Parliament be referred to the committee;
That the evidence taken by the committee shall, if the committee so wish, be published.
Joint Committee on Human Rights
Moved, That a Select Committee of six members be appointed to join with the committee appointed by the Commons as the Joint Committee on Human Rights:
(a) matters relating to human rights in the United Kingdom (but excluding consideration of individual cases);
(b) proposals for remedial orders, draft remedial orders and remedial orders made under Section 10 of and laid under Schedule 2 to the Human Rights Act 1998; and
(c) in respect of draft remedial orders and remedial orders, whether the special attention of the House should be drawn to them on any of the grounds specified in Standing Order 74 (Joint Committee on Statutory Instruments);
To report to the House:
(a) in relation to any document containing proposals laid before the House under paragraph 3 of the said Schedule 2, its recommendation whether a draft order in the same terms as the proposals should be laid before the House; or
(b) in relation to any draft order laid under paragraph 2 of the said Schedule 2, its recommendation whether the draft order should be approved;
and to have power to report to the House on any matter arising from its consideration of the said proposals or draft orders; and
To report to the House in respect of any original order laid under paragraph 4 of the said Schedule 2, its recommendation whether:
(a) the order should be approved in the form in which it was originally laid before Parliament; or
(b) that the order should be replaced by a new order modifying the provisions of the original order; or
(c) that the order should not be approved;
and to have power to report to the House on any matter arising from its consideration of the said order or any replacement order;
That the following Members be appointed to the committee:
L Fraser of Carmyllie
L Lester of Herne Hill
L Morris of Handsworth
That the committee have power to agree with the committee appointed by the Commons in the appointment of a chairman;
That the quorum of the committee shall be two;
That the committee have power to appoint specialist advisers;
That the committee have power to adjourn from place to place;
That the committee have leave to report from time to time;
That the reports of the committee shall be printed, regardless of any adjournment of the House;
That the evidence taken by the committee in the last Session of Parliament be referred to the committee;
That the evidence taken by the committee shall, if the committee so wish, be published.
Moved, That a Select Committee be appointed to consider information and communications services, including the Library and the Parliamentary Archives, within financial limits approved by the House Committee;
That, as proposed by the Committee of Selection, the following Members be appointed to the committee:
L Brooke of Alverthorpe
B Gibson of Market Rasen
L Jones of Cheltenham
B Miller of Hendon
L Renton of Mount Harry (Chairman)
L Taylor of Warwick;
That the committee have leave to report from time to time.
Joint Committee on Statutory Instruments
Moved, In accordance with Standing Order 74 and the resolution of the House of 16 December 1997, that, as proposed by the Committee of Selection, the following Members be appointed to join with a committee of the Commons as the Joint Committee on Statutory Instruments:
L Campbell of Alloway
L Gould of Brookwood
B Jones of Whitchurch
L Walpole.—(The Chairman of Committees.)
On Question, Motions agreed to.
My Lords, with the leave of the House, I will now repeat a Statement made in another place by my right honourable friend the Prime Minister.
“Mr Speaker, in advance of the National Security Strategy, which will be published in the next few weeks, and following the statement by the head of MI5 about the potential threat from UK-based terrorists, I want to update the House, as I promised in July, on the measures we are taking at home, following the incidents on 29 June and 30 June, both to root out terrorism and to strengthen the resilience of communities to resist extremist influence, measures that to succeed will require not just military and security resources but more policing and intelligence and an enhanced effort to win hearts and minds.
“Let me first of all thank the police, the security services and the Armed Forces for their vigilance, their service and their courage in facing up to the terrorist threat.
“The terrorist attacks in June revolved around an attempted bomb attack on a London venue where hundreds congregated and a vehicle bomb attack on Glasgow airport. The conclusions today of the review by the noble Lord, Lord West, on the protection of strategic infrastructure, stations, ports and airports and of other crowded places identifies a need to step up physical protection against possible vehicle bomb attacks. This will include, where judged necessary, improved security at railway stations—focusing first on those of our 250 busiest stations most at risk—airport terminals, ports and over 100 sensitive installations. The report proposes the installation of robust physical barriers as protection against vehicle bomb attacks, the nomination of vehicle exclusion zones to keep all but authorised vehicles at a safe distance and making buildings blast-resistant.
“While no major failures in our protective security have been identified, companies that are responsible for crowded places will now be given detailed and updated advice on how they can improve their resilience against attack, both by better physical protection and greater vigilance in identifying suspicious behaviour. New guidance will be sent to thousands of theatres, restaurants, cinemas, hotels, sporting venues and commercial centres, and all hospitals, schools and places of worship. This will include advice on training staff on how to be more vigilant.
“Up to 160 counterterrorism advisers will train civilian staff to identify suspect activity and to ensure that premises have secure emergency exits, CCTV footage used to best effect and regular searches and evacuation drills. From now on, local authorities will be required, as part of their performance framework, to assess the measures that they have taken to protect against terrorism.
“We will now work with architects and designers to encourage them to ‘design-in’ protective security measures into new buildings, including safe areas, traffic control measures and the use of blast resistant materials. For this advice, I am grateful for the recommendations of the honourable Member for Newark, whom I thank for his work. Following further work we will report back soon on what more we need to do to strengthen security to protect against the use of hazardous substances for terrorist purposes.
“Just as we are constantly vigilant to the ways in which we can tighten our security, so too we must ensure that the travelling public are able to go about their business in the normal way. In the most sensitive locations, for example, some large rail stations, while doing everything to avoid inconvenience to passengers, we are planning additional screening of baggage and passenger searches.
“But in the last few months at key airports there has already been additional investment in new screening capacity. We have been able to review the one-bag-per-passenger rule. The Transport Secretary is announcing today that as soon as we are confident that airports are able to handle the additional baggage safely, these restrictions on hand baggage will be progressively lifted. Starting with several airports in the new year, we will work with airport operators to ensure that all UK airports are in a position to allow passengers to fly with more than one item of hand luggage.
“The security budget, which is £2.5 billion this year, will rise to £3.5 billion in 2011. Because of the terrorist threat, the size of the security service, which was under 2,000 in 2001 and is 3,300 now, will rise beyond 4,000—twice the size of 2001.
“I can report also that we have now constituted dedicated regional counterterrorism units with, in total, more than 2,000 police and support staff. These are responsible for overseeing investigations into those who recruit terrorists and promote hate.
“From the Home Office budget, from now until 2011, an additional £240 million pounds will finance counterterrorism policing. It will be focused as much on preventing the next generation of terrorists as pursuing current targets. This will include additional funding for further training of over 3,500 neighbourhood police teams to deal with radicalisation in their local communities.
“The scale of our international effort is such that around £400 million over the next three years will be invested through the Foreign Office, the Department for International Development and the British Council to tackle radicalism and to promote understanding overseas. The Government will report back on action overseas with other countries to counter extremism when we launch the full national security strategy.
“I can confirm that £70 million is being invested in community projects dedicated to countering violent extremism. So in total we are investing nearly three times as much in security now compared with six years ago.
“In line with the measured way we responded to the terrorist incidents in June, we will only seek new powers that are essential to the fight against terrorism. In the forthcoming Counter-Terrorism Bill, to be introduced shortly, there will be stronger sentences for terrorist-related offences, and where terrorists have served sentences, new powers for the police to continue to monitor their activities. Asset freezing is an important tool in the fight against terrorists buying weapons or using money for terrorist purposes. Sophisticated evidence-gathering of financial transactions can both deny terrorists finance and locate the sources of terrorist plots. Current legislation makes it difficult for us to take preventive action, so the Bill is intended to give new powers to ensure that we can use all the available information to pursue those who finance terrorist attacks.
“In addition to measures to process terrorist cases more efficiently and reduce the time between arrest and trial, including 14 new specially protected courtrooms, a single senior judge has been nominated to manage all terrorism cases. There will also be a single senior lead prosecutor in the Crown Prosecution Service who will be responsible for cases relating to inciting violent extremism.
“To ensure that we protect our borders and detect possible terrorist suspects, from January of next year members of the new UK Border Agency will have the power to detain people not just on suspicion of immigration offences or for Customs crimes, but for other criminal activities, including terrorism. Powers are also being given to airline liaison officers to cancel visas where justified. In line with the Statement I made in July, there will be a single primary checkpoint for both passport control and customs, and the UK Border Agency, which will have 25,000 staff, will now apply controls at the point of entry and exit on people and goods into and out of the United Kingdom, as well as working throughout the world. The new agency will enable us to transfer intelligence from UK operations overseas to those making visa decisions and to check biometrics taken from visa applicants against criminal and counterterrorism records. Further details of the new border agency, which has been welcomed by the Association of Chief Police Officers, are published in the Cabinet Office report issued today. This will go hand in hand with what is increasingly necessary. There will be biometric visas for all applicants from March of next year, biometric ID cards for foreign nationals introduced from the end of 2008, and a strengthening of the e-borders programme, with the contract to incorporate all passenger information awarded today.
“Having agreed repatriation arrangements for foreign terrorist suspects with Jordan, Lebanon and Algeria, work is under way with a number of additional countries with a view to signing new agreements for deportation. In addition to the nine foreign nationals recently deported under immigration powers on the grounds of national security, a further 24 foreign nationals are currently subject to deportation proceedings on national security grounds. Four thousand foreign prisoners are likely to be deported this year.
“All faith communities in the UK make a huge contribution to all spheres of our national life. They are integral to our success as a society. As we found when listening to all communities in June and after, the vast majority of people of all faiths and backgrounds condemn terrorism and the actions of terrorists. But the objectives of al-Qaeda and related groups are to manipulate political and humanitarian issues in order to gain support for their agenda of murder and violence, and to deliberately maim and kill fellow human beings, including innocent women and children, irrespective of their religion. We must not allow anyone to use terrorist activity as a means to divide us or isolate those belonging to a particular faith or community.
“To deal with the challenges posed by the terrorist threat, we have to do more, working with communities throughout the country, first, to challenge extremist propaganda and support alternative voices; secondly, to disrupt the promoters of violent extremism by strengthening our institutions and supporting individuals who may be being targeted; thirdly, to increase the capacity of communities to resist and reject violent extremism; and, fourthly, to address issues of concern exploited by ideologues and where, by emphasising our shared values across communities, we can both celebrate and act upon what unites us.
“This will be achieved not by one single programme or initiative and it will not be achieved overnight. This is a generational challenge which requires sustained work over the long term, by a range of actions in schools, colleges, universities, faith groups and youth clubs, by engaging young people through the media, culture, sport and the arts, and by acting against extremist influences operating on the internet and in institutions including prisons, universities and some places of worship.
“As part of intensifying measures to isolate extremism, a new unit bringing together police, security intelligence and research will identify, analyse and assess not just the inner circle of extremist groups but those at risk of falling under their influence, and share their advice and insights.
“Building on initial roadshows of mainstream Islamic scholarship around the country, which have already attracted over 70,000 young people, and an internet site which has reached far more, we will sponsor at home and abroad, including for the first time in Pakistan, a series of national and local events to counter extremist propaganda. The next stage will draw upon the work commissioned by the Economic and Social Research Council, King’s College and the Royal Society for Arts on how best to deal with radicalisation at home and abroad.
“One central issue is how to balance extremist views supporting terrorism which appear on the internet and in the media. The Home Secretary is inviting the largest global technology and internet companies to work together to ensure that our best technical expertise is galvanised to counter online incitement to hatred. I also welcome the decision by the Royal Television Society and the Society of Editors to hold a conference and regional debates on how to ensure accurate and balanced reporting of issues related to terrorism in the media.
“To ensure charities are not exploited by extremists, a new unit in the Charity Commission will strengthen governance and accountability of charities. A specialist unit in the Prison Service will be tasked with stopping extremists using prison networks to plot future activities. Because young people in the criminal justice system are especially vulnerable to extremist influence, we are making further funding available through the Youth Justice Board, the National Offender Management Service and the many voluntary agencies that work with young people, to support young people who may be targeted for recruitment by extremist groups.
“Following evidence that some of those involved in promoting violent extremism have made use of outdoor activity sports centres and facilities, we are working with Sport England to provide guidance for the sector to ensure that these facilities are not abused. Backed up by a new website to share best practice, a new board of experts will advise local councils, authorities and communities on tackling radicalisation and those promoting hate.
“We have had mosques in the UK for more than 100 years, serving local communities well. These communities tell me that mosques have a much wider role beyond their core spiritual purpose in providing services, educating young people and building cohesion, and the majority already work hard to reject violent extremism. As the newly constituted Mosques and Imams National Advisory Body recognises, however, the governance of mosques could be strengthened to help serve communities better and challenge those who feed hate.
“Our consultations with Muslim communities emphasise the importance of the training of imams, including English language requirements, and the Secretary for Communities will be announcing an independent review to examine with communities how to build the capacity of Islamic seminaries, learning from other faith communities as well as experience overseas.
“In addition to updated advice for universities on how to deal with extremism on campus, the Secretary for Skills and the Higher Education Minister will later this month invite universities to lead a debate on how we maintain academic freedom while ensuring that extremists can never stifle debate or impose their views. We will now also consult on how we can support further education colleges.
“The Secretary of State for Culture is working with the Museums, Libraries and Archives Council to agree a common approach to deal with inflammatory and extremist material that some now seek to distribute through public libraries, while protecting freedom of speech.
“We know that young people of school age can be exposed to extremist messages. The Secretary of State for Children will be convening a new forum of head teachers to advise on what more we can do together to protect young people and build bridges across communities. To ensure that young people have the opportunity to learn about diversity and faith in modern Britain, we will work in partnership with religious education teachers to promote the national framework for teaching religious education in schools, including making sure that children learn about all faiths. An advisory group will work with local communities to support the citizenship education classes run by mosque schools in Bradford and elsewhere.
“I can announce that one essential part of this will be to twin schools of different faiths with our new £2 million school linking programme, supported by the Schools Linking Network. I am also announcing today a youth panel to advise the Government from different parts of the country, which will enable young people to debate and discuss issues of concern—as does the work of the Youth Parliament, which has been running debates about the impact of terrorism on young people.
“We are sponsoring and encouraging a series of national and local mentoring programmes for young people—a Business in the Community Muslim mentoring programme linking 100 young people with professional mentors and role models, and local youth leadership schemes in Blackburn, Waltham Forest, Leeds and in partnership with Tottenham Hotspur Football Club in Haringey.
“After discussions with Muslim women, a new advisory group has been set up by the Secretary for Communities. This will advise on the access of women to mosques and their management committees.
“It is by seeking to build on shared interests and shared values that we will isolate extremists and foster understanding across faiths. Following the recent remarkable letter by 138 Muslim scholars from a diversity of traditions within Islam that paid tribute to the common roots of Islam, Christianity and Judaism and called for deeper dialogue, we stand ready to support in Britain new facilities for multifaith scholarship, research and dialogue. A Green Paper will be published to encourage interfaith groups to come together in all constituencies in the country. I am also inviting the Higher Education Funding Council to investigate the idea of setting up in Britain a European centre of excellence for Islamic studies.
“We will have joint work with the French and German Governments on building an appreciation of Islamic and Muslim heritage across Britain and Europe. The Arts Council England, the Tate Gallery, the Victoria and Albert Museum and the British Library will all be taking forward projects for greater understanding. Just as the British Council is connecting young people across the world through school twinning and volunteering exchanges, I am announcing that we will finance a rising number of young people from all communities to volunteer overseas.
“The intercept review will report in January. We believe a consensus now exists on post-charge questioning, and the Home Secretary is beginning a new round of consultations with parties and communities on detailed proposals on pre-charge detention where we believe we can establish an all-party consensus.
“Mr Speaker, there is no greater priority than the safety and security of our people and building the strongest possible relationships across all faiths and communities. I believe it possible, with the actions we are proposing, to build a stronger consensus that will both root out terrorist extremism and build more vibrant and cohesive communities. I commend this Statement to the House”.
My Lords, that concludes the Statement.
My Lords, I thank the noble Baroness for repeating what I can see is a long Statement. I can partly understand why it is so long, but if it is an example of the terseness of the Prime Minister, it must be hard to get a word in at meetings with him.
I have a question at the outset, to which I hope the noble Baroness will be able to reply; after all, she is sitting next to the noble Lord whom it concerns. What happened to the noble Lord, Lord West, this morning? Shortly after eight o’clock he said on the radio:
“I still need to be fully convinced that we absolutely need more than 28 days”.
An hour later he said:
“My feeling is, yes, we need more than 28 days”.
What on earth happened between those two statements? I cannot believe that an old sea dog like the noble Lord was fazed by an early rise. Did he go from one studio to another via Damascus?
The House will know that there is a desperately serious side to this. When we talk of detention without trial, when we talk of overthrowing habeas corpus, or of holding people without telling them why, we are playing with the deepest and most fundamental matters. I regret to say that we are doing so in a society where an innocent young man can be gunned down on suspicion on the London Tube. We do not play politics on this, and we never should play politics with our freedoms. However, the real suspicion, reinforced this morning, is that, when it comes to the issue of 28 days, it is politics that is sadly uppermost in the Prime Minister’s mind.
We can and must be a safe society, and we support a whole range of the proposals in this Statement. But we must also be a free society. Without freedom, life is not worth living, and, this week of all weeks, we recall how many people died for that freedom. We should not barter it away to play to any focus group. Let us hope that it is the sensible talk of consensus about intercept evidence, about post-charge questioning, that now prevails, and not the “let’s fit-up the Tories and Lib Dems” mentality of those election-hungry young Turks around the Prime Minister.
We sincerely thank the noble Lord, Lord West, for his work and for his careful report. We look forward to studying those parts of it that we are allowed to see. We back the national security approach, the idea of a national security strategy and the creation of a national security committee. Those were all proposed and adopted in our recent policy review.
On the broader issues of security in the Statement today, we have three particular areas of concern. We have long argued for effective securing of our borders. Will the noble Baroness say whether these proposals include the police and so create a proper border police force? On intercept, where we have supported the campaign of the noble and learned Lord, Lord Lloyd of Berwick, and on our idea of post-charge questioning, can the noble Baroness say whether the review will be complete in time for those provisions to go into the much awaited and anticipated Counter-Terrorism Bill?
We welcome proposals on security at railway stations, airports, sports stadia and shopping centres, but will the noble Baroness assure the House that disruption to the legitimate travelling public will be minimised? Too often lately, we have seen heavy-handed measures and absurd super-projects like ID cards aimed at the innocent, while there has been a corresponding lack of focus on high-risk areas and elements.
The noble Baroness described new controls from the Charity Commission. We can understand them, but can the noble Baroness say how she will prevent them ending in more unnecessary burdens on every charity? We hear of more action on asset-freezing and seizure. That is good as far as it goes, but can the noble Baroness assure us that it will go hand in hand with easing some of the absurd rules on money laundering that make life impossible for any child wanting to put a few quid into a bank account?
We welcome provisions for spending more on security, focusing on foreign nationals and tackling extremist preachers and imams. Those provisions, too, are good, as far as they go, but let us hope that they will be followed through. Recently, the Irish Government refused entry to Ibrahim Moussawi, head of the viciously anti-semitic TV station, Al-Manar. Will the British Government stop Moussawi when he tries to enter the UK to speak at a conference in December?
It becomes harder and harder for UK citizens to enter their own country. Some airports make a habit of making UK citizens queue to get in, while lanes for foreign nationals are scarcely used. British people find it increasingly hard to understand how all this is imposed on them, when illegal immigrants waft in and out of Britain in numbers that even the Home Office cannot count and can even end up guarding the Prime Minister’s car. They would not even put that in an episode of “Yes, Prime Minister”. Why are 4,000 prisoners still awaiting deportation? What is the cost to the UK taxpayer of keeping them?
The Statement talks of road shows in Pakistan to combat extremism. We all know—and there is increasing public concern about this—that Pakistan has been a fount of extremist groups and extremist teaching, but what authority is going to enable this action? What Government are going to combat extremism there? Is this not a matter of the profoundest concern?
Finally, of course we welcome projects to promote greater understanding of the contribution of Islam to European history and culture, but can we have projects on the contribution of Judaism and Christianity, too? We are all in this together, and the time for relativism and intellectual ghettoes is gone. We have common traditions, common values and common ideals, which British people of all faiths and none can cherish and share. We support everything in this Statement that tends to that. We must win the battle for hearts and minds among those who might be tempted by extremists, but we must not win it while losing the hearts and minds of those ordinary people who want to lead their own lives, without unnecessary intrusion, surveillance and fear.
My Lords, I associate myself with the thanks given by the noble Lord, Lord Strathclyde, to the noble Baroness, Lady Ashton, for repeating this Statement.
There is a lot of sound common sense in the Statement, particularly in relation to initiatives in education, the media and the community, and cross-faith initiatives. The length of the Statement deserves a full debate, and perhaps we can look at an opportunity to have one. I repeat the point that I made at the opening of the Queen’s Speech debate: we on these Benches are fully committed to measures to combat terrorism and ensure the safety of the public. We support the police and security services in their difficult and sometimes dangerous task of countering terrorism. We urge all communities to see the fight against terrorism as their fight.
It is not a question, as the noble Lord, Lord Strathclyde, has said, of one party being tough on terrorism and other parties being soft, nor is it a matter of being able to pass a law or adopt a policy that will make us 100 per cent secure and safe. There will be attacks in future and we have to think hard about how best to foil or respond to such attacks. It is on that basis that we welcome the Government’s search for a cross-party consensus.
There are areas of agreement: for example, we agree with the Government on post-charge questioning and support the concept of a unified border force. The training of staff and the use of architects and other professionals to make public areas and public buildings safer is eminently sensible and we shall examine the report of the noble Lord, Lord West, with due respect for his experience and expertise. We also welcome the constructive measures proposed to engage and involve our Muslim fellow citizens, who could be the greatest victims of all if terrorists are allowed to succeed.
The actions at all levels of education are to be welcomed, as are actions to ensure that those preaching in mosques are not preaching violence and hatred and the initiatives proposed among Muslim women and young Muslims. The proposals to work more closely with our European partners are also to be welcomed, as sharing experience and information can only be of value, as is the work to use financial intelligence to cut off funding to terrorist networks. However, consensus can go only so far; Parliament has a job to do.
During the Second World War, Winston Churchill described Aneurin Bevan as a “squalid nuisance”, because he kept up the responsibilities of opposition, even at a time of coalition and war. When government and agencies seek more powers over the citizen, Parliament has a duty to examine such proposals and ensure that the highest hurdles are cleared, otherwise we slip into a permanent state of emergency. The Government have a duty to inform people of the realities that they face but not to encourage panic or hysteria. In that respect, we welcome the absence of knee-jerk reactions to June’s events.
So we will question the justification for extending the period of detention without charge beyond 28 days. However, I will not go into a close debate on that today, otherwise the Lord President will simply quote to me the noble Lord, Lord Carlile—who is fast achieving sainthood on the government Benches. We will probe whether the rapid expansion of the security services outlined in the Statement is matched by improvements in co-ordination between the services, particularly between MI5 and MI6 and between those services and the new border forces and dedicated regional counterterrorism units. We will probe what political control and accountability those services will have.
We will continue to question whether the billions spent on an untried and untested ID card system would not be better spent on more mundane but more effective projects. For example, I read in the newspapers that the police are short of staff who can quickly and expertly decipher computer information. As the noble Baroness, Lady Kennedy, said on Monday, the police should be recruiting the young, with their computer skills, from our colleges and universities and get them on board to do this job. One could say the same about a number of the hearts-and-minds initiatives outlined in the Statement. There is a real danger that in many of these areas we will be doing too little, too late, while the ID card scheme gobbles up resources.
One of the lasting images of the Second World War was of Londoners trudging to work through glass and rubble. Such fortitude came from shared values and a common purpose. There is much in the Statement that will promote shared values and the shared interests referred to and promote that common purpose in the face of present dangers. However, Parliament has a duty to test demand for new powers against protection of hard-won and long-standing civil liberties. We are a robust society and one which is instinctively tolerant. So it might do us no harm to keep in mind another of Churchill's war time statements: we have nothing to fear but fear itself.
My Lords, I am grateful to both noble Lords for their general welcome for the Statement. I make no apologies for its length or detail because my right honourable friend felt it very important that there was an opportunity in another place and in your Lordships' House to hear all the detail on an issue of such great importance. I can assure the noble Lord, Lord Strathclyde, that my right honourable friend can be very short in his responses when it is required.
I want to deal first with the issue which the noble Lord, Lord Strathclyde, raised about my noble friend Lord West, who is in his place beside me. The noble Lord described him as an old sea dog. My noble friend described himself earlier today as a simple sailor. I do not think that he is either. I think that the right honourable gentleman Alan Beith got it more correct in his remarks about my noble friend’s stature. However, as my noble friend said to me only a couple of hours ago, those who speak on the radio sometimes do not say quite what they intended to.
My Lords, that is exactly right. He also said that I should repeat what he said at 9.43 this morning, which is actually his view. When asked, “Are you convinced of the need for more than 28 days’ detention”, my noble friend said:
“Yes, I am personally convinced there is, but I think what we’ve got to make sure is we’ve got all the evidence there to show people and … we have to balance civil liberties”.
That is my noble friend's position, and my noble friend will, I know, be nodding in agreement with that.
What the noble Lord, Lord Strathclyde, said about the concerns being deep and fundamental is absolutely right. However, when looking at such deep and fundamental questions, one of the issues we have to address is the need to reach consensus in building on the expertise and experience in your Lordships' House and in another place. It is not about fitting-up the Tories and the Liberal Democrats—an interesting parliamentary phrase—nor about taking away what the noble Lord, Lord McNally, described as the Opposition’s role to oppose. It is about using the robustness of those positions to ensure that, when we reach decisions where we can, we can reach a consensus on protecting the people of this country.
I was not going to quote the noble Lord, Lord Carlile—though I think that he should achieve sainthood on the Liberal Democrat Benches for the work that he does. Part of the reason why I would quote him is because he is a man of great independent thought. I know that he is highly valued by the noble Lord, Lord McNally, by the Liberal Democrats and by your Lordships' House. I pay tribute to the work that he has done. He does not say what he does not mean, and he does not say what he believes the Government wish to hear. Therefore, when he speaks on these issues, we listen, and it is right and proper that we should.
The noble Lord, Lord Strathclyde, asked about the borders agency and the role of the police within it. There was a review, as the noble Lord will know, and we found that there were strong arguments in favour of a consolidated police border force but there were also strong arguments against. The key people that we talked to were divided on what they thought should happen. My right honourable friend the Home Secretary is leading further work into that. The Association of Chief Police Officers is very pleased about that. We are making sure that the police work collaboratively. A senior police officer will be on the executive board; there will be better operational co-operation; a single lead official at ports and airports responsible for liaising with the police, drawing on the skills of the police, their expertise in training officers, and working jointly to look at controls at smaller ports and airports. My right honourable friend will come back when she has considered further how we might work closer together, so it is an issue that we take very seriously.
The noble Lord also asked about disruption to the public’s travel. Indeed, my right honourable friend was at pains to set out in the Statement that we want to make sure that disruption is minimal while also recognising that there are safety issues. Members of the Conservative Party asked what we would do within the Charities Bill and beyond to look at issues that are reasonably raised about extremism and the use of charities. That will be done properly and partly at the behest of noble Lords opposite. We will make sure that it does not create the unnecessary burdens that the noble Lord fears.
On asset freezing, my children take money out of bank accounts, not put it in, but that is an interesting thought; that is teenagers. But it is important that we do this in a proper and measured way, as the noble Lord says. I take those points on board and I am sure that will be part of it. As regards the individual that the noble Lord mentioned, I believe that my right honourable friend said to the right honourable Leader of the Opposition that he would write to him about individuals. I am sure that that letter will be copied to your Lordships' House and to the Lord, Lord Strathclyde. I shall ensure that that happens.
The relevant Bill will take account of the work of the privy counsellors who are reviewing intercept evidence and will allow that to happen, as I understand it. As regards interfaith issues and the questions raised about Christian, Jewish and other communities, the point about interfaith is to enable those collaborative approaches to take place. But as the noble Lord, Lord McNally, said, Muslim citizens are potentially the greatest victims of this terrorism. Therefore, we have to make sure that we are talking properly with Muslim communities right across the country.
Finally, I relate an anecdote from my time as an education Minister. After 9/11, I spent a day sitting in a Muslim girls’ school. The girls were terrified of going to school because of the way people treated them on the way to school. That treatment resulted from ignorance but none the less it had a huge impact on those young girls and was very distressing to witness. We have to make sure that we help and support the Muslim community who are critical to the success of what we are seeking to do. I take nothing away from what the noble Lord said but I put the emphasis in that direction.
My Lords, has the noble Baroness’s attention been drawn to an extraordinary project by the Commission in Brussels to put together a list of critical infrastructures inside all the member countries of the European Union? Does she not agree that such a list would be a gift for potential terrorists? Is she further aware that the Government have quite rightly expressed their opposition to creating such a list? Will she give us an undertaking that the Government will redouble their efforts to kill this lunatic idea?
My Lords, I am not aware of the list. My noble friend Lord West assures me that we have made it clear that we are not comfortable with it. On that basis, the noble Lord can be reassured that there is no proposal to put such a list in the public domain.
My Lords, I thank the Minister for the Statement. I will reflect aloud on one or two issues. First, there is the language that frequently occurs in debates such as this about “the Muslim community”, as though there is only one; my experience is that there are very many. If we get our language wrong at the start, we shall be incapable of enabling the subtleties and nuances that are required to be developed. I hope that we can develop language that recognises the complexity of the situation in our country.
Secondly, while I welcome the concern about making our country safer, it somehow leads me to think that if we are not careful, we shall be scuttling from one fortified place to another down narrow corridors, flashing our ID cards wherever we go, with cameras catching us every time we sneeze. That would be terribly sad. While I recognise the need for us all to be safe, this is profoundly about humanity and the range of humanity in our country, and how we collectively work together on “hearts and minds” kind of stuff. If the amount of money that is likely to be put into soft architecture and barriers at stations could be directed with equal concern and excitement towards interfaith work, we should achieve a great deal more in the long term.
Thirdly—I speak as a former chairman of the Council of Christians and Jews—the amount of support that national bodies that have been working in this area for so long have received from the Government is so tiny as to make little effect. I very much hope that as the Government try to move forward they will have serious conversations with those bodies, such as the CCJ, that have existed since the middle of the Second World War, and ask them, “How do we learn from what you are doing?”.
Finally, I hope that real attention will be given to what is happening on the ground in small interfaith groups up and down the country in places such as Luton, St Albans and Bedford, where the amount of effort being put in by religious communities to create stability is remarkable. If we can support those people, that would be enormously helpful. I shall stop there by saying Amen.
My Lords, the right reverend Prelate covered a lot. I apologise for making a wind-up sign, but there are only 20 minutes and many people may want to come in.
I will comment on only a couple of points, although I agree with much of what the right reverend Prelate said. I am guilty of using the wrong language as well. In the Statement, my right honourable friend was at great pains to point out the diversity within Islam and the different communities. One of the elements of the Prevent work is to look at and try to map out more the diversity of different cultures and communities to support and address that. As the right reverend Prelate will see when he reads it, funding for some interfaith work is in the Statement. We do not want to create anything that means scuttling from one fortress to another, but both through the ideas of design and building and through using technology appropriately we believe that we can keep people safer and allow them to go about their everyday business.
My Lords, my contribution will be a short question. I was interested in the reference in the Statement to the United Kingdom Border Agency. Will the units of that agency operate throughout the whole of Great Britain or throughout the whole of the United Kingdom?
My Lords, I fear that I have been asked this question before by the noble Lord and I did not give him a satisfactory answer. I know that there are issues to do with how we relate both in the United Kingdom and with Great Britain. I will write to the noble Lord to set it out properly, so that I answer him effectively this time.
My Lords, the Statement holds out the prospect of a further considerable increase in the staffing of the Security Service, MI5. What confidence do the Government have that it will be able to recruit people of appropriate quality in sufficient numbers and develop and train them to be able to meet the timescale? The Government rightly recognise that this struggle will not be won simply and solely by the professionals and the Statement spoke of the importance of increasing the capacity of the community. Will my noble friend tell us something about the insights that the Government have gained and a bit more about how they intend to arrive at a better understanding of the psychology of terrorism and the pathology of the terrorist so that we can hope to identify those who are susceptible to terrorism and extricate them from that? Does she accept that it is not realistic to expect to keep a whole citizenry in a permanent state of high alert? How do the Government expect to advise and assist our citizens to be appropriately and intelligently alert to the incubation of terrorism in our midst?
My Lords, my noble friend is absolutely right that one of the key issues will be how to ensure that we can recruit effectively for the security services. Recruitment is going on and is being successful, but I take nothing away from the point raised by my noble friend about recruiting not being a simple and straightforward proposition. Secondly, in terms of the communities and understanding better the conditions that can lead people into terrorism—that is indeed the work that the Prevent strategy is undertaking; it is examining areas where we know that young people may be susceptible, who is approaching them and what their role is, how they are being brought into a network, the role of the internet, technology and so on. All of that is important. Finally, it is important that citizens are alert and vigilant without feeling that they are in a state of high alert at all times. The British public are extremely good at doing exactly that.
My Lords, is the noble Baroness aware that in 2005 I had the privilege of serving on the Prime Minister’s task force on Muslim extremism? Looking at this complex and lengthy Statement, I see that much of our work, done rather in haste and a little bit on the back of an envelope, has come to some kind of fruition. I congratulate the Government on that. Many initiatives here deserve our support. I shall pick up one or two that I am engaged with.
The ESRC project involves critical academic research on some of the pathologies and psychologies that the noble Lord, Lord Howarth, mentioned a minute ago. I am delighted that the Government are committed wholeheartedly to supporting that, because that is what in the long term will give us the answers to some of the riddles about what drives our young people.
The Leader of the House did not quite answer questions on two areas about which I have reservations. One was the question of the noble Lord, Lord Strathclyde, on the roadshow in Pakistan. The noble Baroness may know that I am a patron of the Pakistan human development commission. We have found that in terms of going out to young people and women in most poverty-stricken areas of Pakistan the battle for hearts and minds is not necessarily won through people coming in and talking to these people but through pure development aid and education. I hope that, following the commitment that the paper makes, DfID will indeed target its resources to Pakistan in that fashion.
My final question has been partially answered by the Minister, but I would like a bit more reassurance about the impact that these well meaning, wide-ranging measures will have on the Muslim community. Will she have in due course a more open and lengthy debate with that community and explain to us how much our vested interest lies in these measures?
My Lords, I am very grateful for the work that the noble Baroness did on the task force and I hope that it is reassuring to see much of that work coming to fruition in the Statement. I agree with her on the need to support the work of the ESRC, which has the Government’s wholehearted support. I ran out of time regarding the work in Pakistan and I apologise for that. I take the point—DfID, the Foreign Office and the British Council will play a fundamental part in that and I agree completely with the noble Baroness that this is in large part about education, knowledge, support, training, opportunity and so on which are key to people being able to develop their own lives.
I, too, hope that there will be many opportunities to debate this. I do not propose that we have a debate in your Lordships’ House but it is important that individual communities debate this. That is why my right honourable friend the Secretary of State for Communities and Local Government is looking at involving Muslim women in particular in certain areas and, more generally, at communities to support the network of those who are able to help us to work out a preventive strategy.
My Lords, I welcome this timely and balanced Statement. In particular, I am delighted that so many of the issues raised in the work that I led in relation to the Metropolitan Police Authority—it involved consulting Londoners over a year—have been addressed in it. I also welcome the emphasis on the prevention of violent extremism; that is why it is so important to balance extra measures on security with measures that will reach into the different communities around the United Kingdom. Did the review look at the issues around the electronic security of the critical national infrastructure in view of, for example, evidence of state-sponsored cyber-attacks on a number of countries and of the very high technological and IT knowledge of some of those who have been arrested in respect of terrorist matters in this country? Is my noble friend satisfied that the Centre for the Protection of National Infrastructure—which I understand is not a statutory body—has sufficient powers to require that those organisations that constitute our national infrastructure are properly protected electronically against cyber-attack?
My Lords, I congratulate the Government on the Statement, which seems to be the product of a great deal of creative and imaginative thought. However, I underline the fact that there seems to be an unanswerable case to what might be described as international collective security in this matter. Although a terrorist attack may ostensibly be aimed at a particular religious or cultural group, any such attack is essentially an attack on humanity as a whole and on the very concept of a sovereign state.
My Lords, I am grateful for the noble Lord’s welcome to the Statement. Of course it is true that we must think about this nationally and internationally and consider the implications of what is being done by terrorists all over the world. We need to work with other states to prevent terrorism arising and deal with it properly if, sadly, it does.
My Lords, I think that there is plenty of time but I shall be brief.
About five years ago, after the disturbances in various northern towns—Burnley, Oldham, Bradford and so on—various reports, from Ted Cantle and others, identified the problem of parallel communities: of different communities living apart. It is the general view of people in many of these towns that the situation in the past five years has not improved; there is a value judgment that people have grown more apart rather than more together. There is a concern that focusing on Muslim communities as such, as opposed to different ethnic communities in their wider diversity, is not really tackling the problem. Do the Government agree that funding streams that cater for local projects that bring people together at street level, at community level and at the individual personal level should have a higher priority than they do?
My Lords, I agree completely with the noble Lord, Lord Greaves. I remember very well the work that Ted Cantle did and I also pay tribute to him. It was important to look at how communities were growing up in some of our cities and the parallel nature of that, as the noble Lord described it. As part of the work that is going on in that regard, we will need to find ways of bringing people together at street level, community level or local authority level and so on. I was merely pointing out that we need to be aware of certain issues for members of the different Muslim communities in particular. It is right and proper that the Secretary of State considers that and talks to that community as well in the light of the events of the past year.
My Lords, does the Leader of the House recognise that a real gap in our security at present is that no routine monitoring of people leaving the United Kingdom takes place? Has she noticed that paragraph 4.25 of the noble Lord’s paper says that,
“the intention is that passengers arriving and leaving the UK will be monitored electronically”?
That is urgent. When will it happen?
My Lords, we have increased screening procedures for those employed in the private sector who have the ability to go airside—such as cleaners on airplanes, baggage handlers and so on—but, in the light of the recently well publicised case of an extremist woman who worked in a shop at an airport, is the noble Baroness satisfied that the screening procedures for such employees are sufficiently watertight? Finally, in view of the vast sums now being given to the Muslim community, will she be aware of the need for certain caution that those of other faith communities, such as the Christian community and others, might be just a little jealous?
My Lords, it is very important to recognise that, try as we might, we can never guarantee a 100 per cent success rate in a screening process. Certainly, procedures have been reviewed, and are kept under review, to ensure that we recognise, identify and work through problems that have arisen or might arise in the future. However, I make that caveat. It is very important that we do not end up with jealousies but with a thriving, vibrant community within this country that recognises its diversity and celebrates it.
My Lords, I declare an interest in the security industry and I very much welcome a lot of what is in the Statement. There will be an opportunity for good security companies to assist the Government in their plans. One small point that bothers me concerns the immigration numbers for those who should be returned to their country—4,000, I think the noble Baroness said. I am sure that unwanted immigrants should be returned to their countries but it is almost as though the Government are afraid of doing so. How many have been returned lately, and what plans are there to get rid of those 4,000 from this country?
My Lords, I do not have with me the exact figure for those who have been returned. I think that the Statement made some reference to it but I will ensure that the information is available to noble Lords. Of course, the figure changes as people return. When I was involved in asylum and immigration legislation in your Lordships’ House, one issue that I was aware of was knowing where people had come from. Noble Lords will know that those who travel with false passports are often loath to explain precisely from whence they come and, on occasion, countries are reluctant to take them back. Therefore, as noble Lords would expect, it is not a simple process by any means. In addition, one has to be mindful of ensuring that people are returned safely and that they will not be tortured or killed.
Debate on the Address
Debate resumed on the Motion moved on Tuesday 6 November by the Baroness Corston—namely, That an humble Address be presented to Her Majesty as follows:
“Most Gracious Sovereign—We, Your Majesty’s most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament”.
My Lords, globalisation presents challenges but also opportunities for all developed economies. With our open economy, macroeconomic stability, our value-added, innovative way of making things and providing services, the UK is not only made for globalisation but is poised in so many ways to face up to its challenges more successfully than any of our rival nations in the developed world.
The Government are determined to make full use of this backdrop and help ensure business success in an increasingly competitive global economy. The domestic stability delivered by the Government’s macroeconomic framework has put this country in a strong position to respond to the global economic challenges of the next decade. This stability is so often now taken for granted, but no part of UK society should bank on it complacently. So much of what has to be done in the United Kingdom and so much of our country’s ability to absorb economic shocks that originate elsewhere in the world depend on it.
Over the past 10 years, the UK has enjoyed greater stability in terms of GDP growth and inflation than at any time in the past 70 years. That, plus our flexible labour market and our internationally competitive regulatory environment, have created the conditions businesses need to make successful long-term investments. It has made sure that Britain continues to be a good place—indeed, one of the best places—to do business. Whatever certain interests with other agendas may say, it is no coincidence that we have the most flexible labour market in Europe and one of the lowest rates of unemployment. Long may that remain the case.
Governments do not create wealth, regardless of what some may think or say, but successful Governments create the right framework to allow business to create wealth. We are determined to focus increasingly on ensuring that business has the right environment and support to thrive and prosper here in the UK and internationally. It is business that creates the wealth and pays the tax, or employs the people who pay the tax that pays for good people in our public sector who pay the tax—all helping to fund our schools and hospitals. Thriving business means a thriving Britain.
That is at the heart of the Department for Business, Enterprise and Regulatory Reform’s work and also that of UK Trade & Investment, which I am privileged to lead. UKTI champions UK business abroad and also ensures that we remain the number one location in Europe for inward investment, and number two in the world. We know that large stocks of inward and outward investment put the UK in an excellent position to take advantage of global trade, and to benefit rapidly from new ideas, new management techniques and new production methods.
If you want to build a global business, come to the United Kingdom. Bring your talent, your capital, your enterprise. Bring your family. Work hard and live in peace, regardless of the colour of your skin or the God you worship. Help make Great Britain greater—and make yourself a few bob along the way.
In so many sectors we lead the world, or are among the very best. In our financial services sector we must jealously guard our global pre-eminence; we must not be complacent. We must do all we can to continue to be the location of choice over New York, Frankfurt or Tokyo. We must never let up.
Our defence manufacturing sector is world-class and we must do all we can to support this major employer, major provider of taxation and major exporter. The facts speak for themselves. More than 300,000 people are employed every day in defence manufacturing in Britain. That means that more than 1 million family members all over the country depend on defence manufacturing. It has exports of £4.7 billion—1.3 per cent of total UK exports—with a worldwide reputation for good partnering, good quality and good experience, arming the best Navy, Army and Air Force on the planet. The Government are committed to giving it fulsome support from all relevant departments.
In creative industries, from textile design to advertising, from music and film-making to web design and computer games, from architecture to consultant engineering, hundreds of thousands of small businesses, as well as globally recognised major brands, give meaning to a true value-added, innovative 21st-century economy. It is happening here in our country every day.
The mandate for UKTI and BERR from my right honourable friend the Prime Minister is to be a strong voice for business across Whitehall, and we are committed to making this a reality, helping to increase economic growth, business competitiveness and wealth creation. We need to keep renewing and refreshing our knowledge and understanding of what barriers to growth businesses face every day, and then do as much as we can to deal with them. This is why, over the past month, we have been holding a series of consultation events with business men and women across the country to ensure that we make the most of the entrepreneurship of the British people.
I was pleased to attend the first meeting of the Business Council for Britain, which provides the opportunity to bring highly experienced business minds into a new dialogue with government. The group’s first meeting discussed a range of issues: globalisation, open markets, human capital, the need for a critical mass of employers to engage on adult skills, climate change and energy security. I am confident that the Business Council will make a real impact in shaping the policy agenda. A key challenge, and often the biggest complaint from businesses, will be addressing concerns about red tape. Through specific responsibility for cross-government regulatory reform—indeed, BERR’s name constantly bears witness to this—the Prime Minister has given us the levers for addressing the concerns that businesses are raising. We have also set out a series of measures that will take us closer to our goal of reducing—yes, reducing—the overall burden of regulation in our economy.
The 2007 Comprehensive Spending Review underlies the Government’s commitment to business and enterprise with a budget for BERR of £3.2 billion by 2010. CSR07 provides UKTI with a programme budget of £89 million by 2010. Drawing on resources from both the Foreign and Commonwealth Office and BERR, UKTI’s total budget will be £256 million by 2010-11. That settlement provides BERR with the resources needed to fund priorities such as the promotion of enterprise, the development of new energy and energy- efficiency technologies and nuclear decommissioning. It also leaves us well positioned to fulfil our mandate to be the voice for business in government.
Energy is a key priority for business, both as a producer and a consumer of energy. Prices and security of supply are rightly key concerns, but business is also keen to engage on the climate change agenda, both in terms of promoting cost-effective measures to reduce emissions from energy, and to exploit opportunities for UK business in the shift to a low-carbon economy. I believe that the next Bill Gates will be making his or her money from delivering easily understood technological solutions to the challenges of climate change, riding the wave of public buy-in just as that guy from Seattle did with IT some 30 years ago. Wouldn’t it be brilliant if that person was a Brit, or came from anywhere in the world but did it in Britain?
We are committed to ensuring the reliable supply and efficient use of clean, competitively priced energy for the UK economy. That commitment to renewable energy was underlined again last week with the go-ahead for the Walney Wind Farm, off Cumbria. The world’s largest offshore wind project, the London Array, will also now receive its final consent. Our actions should speak louder than our words. The UK, along with Denmark, is leading the world in the development of offshore wind power. To build further on our energy commitments, the Energy Bill will update and strengthen the legislative framework so it is appropriate for today’s energy market and fit for the challenges we face on climate change and security of supply.
The Energy Bill should be viewed as part of a package of legislation being taken forward in this parliamentary Session. Taken together, the Energy Bill, the Climate Change Bill and the Planning Reform Bill will give the UK a coherent, fit-for-purpose legislative framework. This will ensure that UK policy is designed from its very outset to deliver our long-term objectives to tackle climate change and enable the timely private sector investment in new energy infrastructure, including a broad range of low-carbon electricity generation sources, necessary to ensure secure, sustainable energy supplies.
The Energy Bill will facilitate private sector investment in carbon capture and storage projects, a technology which has the potential to reduce carbon dioxide emissions from fossil fuel generation by up to 90 per cent, and will strengthen the renewables obligation to drive greater and more rapid deployment of renewables in the UK and support less developed renewable energy technologies, such as offshore wind. A broader set of investment options will help encourage a diverse, more secure supply of electricity while at the same time reducing our carbon dioxide emissions. This will help the UK make further progress towards reducing carbon dioxide emissions by at least 60 per cent by 2050 relative to 1990 levels.
We also need to ensure that the UK’s legislative framework reflects the UK’s growing dependence on gas imports as North Sea gas production declines. The Bill will therefore bring forward proposals to simplify the consenting regime for offshore gas supply infrastructure, enabling important new private sector investment in offshore gas storage and offshore unloading of liquefied natural gas. If the Government decide that, following their detailed and appropriate recent consultation, it is in the public interest to allow private sector investment in new nuclear power stations, the Bill will create a framework that will help to protect the taxpayer by requiring owners or operators of new nuclear power stations to make financial provisions to cover the full decommissioning costs and their full share of waste management costs. The Government’s energy policy addresses the need to tackle climate change by reducing carbon dioxide emissions both within the UK and abroad. We cannot escape the fact that we are becoming increasingly dependent on imported fuel, but we can and we must ensure that we have secure, clean and affordable energy for use by future generations. Is it vital? Yes. Is it achievable? For sure.
The Employment Bill will increase protection for vulnerable workers and lighten the load for law-abiding businesses. The Government are committed to ensuring that employees’ rights are safeguarded and that employers understand and abide by their responsibilities within a system which offers flexibility and fairness. The Bill will simplify and clarify key aspects of employment law and build a stronger enforcement regime in both the private and public sectors. It will repeal the statutory workplace dispute resolution procedures and pave the way for the implementation of a package of replacement measures to encourage early dispute resolution, reducing administrative burdens on business by up to £180 million per year.
The Bill will also clarify and strengthen the enforcement framework for the national minimum wage and employment agency standards. The new framework will promote compliance and help ensure a level playing field for law-abiding businesses. It is often said by those whose vested interest overpowers their acknowledgement of the facts that I opposed the introduction of the national minimum wage. I would like to remind noble Lords that I was still in private practice in Birmingham when the minimum wage was introduced. Indeed, had I been asked for my opinion at that time, and I was not, I would have supported its introduction with the caveat that its long-term success would depend on the rate at which it was set and to which it was subsequently increased, and the method of compliance.
The minimum wage has been a success because it has not adversely affected inflation or employment, yet it has made a real difference to the lives of so many. It is important that employees feel, and are, fairly remunerated for their efforts. It makes for a more productive workforce.
While on the subject of the workplace, I want to say that I was also struck recently by the excellent examples of partnership working between unions and employers in the private sector around the area that is near to my heart: skills.
British Bakeries has developed a detailed dialogue with its unions to ensure workers are adequately trained and, importantly, retrained to adjust to organisational change and restructuring. I visited the Rolls-Royce aero engines plant at Derby where learning reps have made such a contribution to that company continuing to make the best aero engines in the world. The union learning reps at Rolls-Royce’s plant at Inchinnan in Scotland recently mapped out the learning needs of the workplace and put in place a learning programme in partnership with local providers such as the University of Paisley, Stow College and the Open University. Rolls-Royce’s good work in this area was recognised when its lead learning rep, Pat McIlvogue, won the TUC learning rep of the year award for 2007.
Those are just a couple of examples—there are so many more. Reskilling and upskilling the UK workforce is vital to our global competitiveness. It is the agenda for the 21st century for trades unions, whether in the private or, importantly, public sector. The benefits to employees and employers alike are enormous.
The Regulatory Enforcement and Sanctions Bill, introduced to this House last week, will reduce regulatory burden on business. It will establish the Local Better Regulation Office, bringing consistency to local authority enforcement. The Bill will also put in place a range of administrative sanctions for regulatory non-compliance that will complement existing criminal sanctions, and also requires that regulators do not maintain or impose unnecessary burdens on business. That is part of the Government’s ambitious better-regulation agenda aimed at eliminating obsolete and inefficient regulation, achieving user-friendly and effective new regulation and tackling inconsistent regulations.
There is a cross-government commitment to reduce administrative burdens on private and third sectors by 25 per cent by 2010. We have secured agreement from 27 member states and the European Commission in Brussels for a 25 per cent target for the reduction of EU law administrative burdens by 2012, and we are delivering better regulation in the public sector, identifying and removing unnecessary burdens that add to the cost for the taxpayer and impact on the delivery of services to the detriment of the consumer.
My right honourable friend the Prime Minister also announced proposals to extend the right to request flexible working arrangements to parents of older children. The right to request flexible working not only helps millions of parents juggle work and family life, but can benefit business by improving staff retention and productivity. Used appropriately and as part of a wider employment strategy in line with 21st-century lifestyles, employers can acquire a reputation in a local community as the place to work in that community. Happy employees are productive employees.
An independent review consulting with employers will be led by Sainsbury’s human resources director, Imelda Walsh, to determine what further progress can be made. A formal consultation will be held after the results of the review are published, to gauge the views of business, employers, and other stakeholders.
Moving on to issues covered by the Department for Work and Pensions, I hope that noble Lords will support the Pensions Bill. It will build on the consensus created around the Pensions Commission reform package. The Government intend to make it easier for people to save through automatic enrolment into a qualifying workplace scheme or personal account. Coupled with major changes to the state pension system in the Pensions Act 2007, people will be helped to meet their retirement aspirations. Since 1997, average pensioner incomes, net of tax, have increased by 29 per cent in real terms, with more than 2 million pensioners lifted out of absolute poverty and more than 1 million lifted out of relative poverty. That is good progress, but it must continue.
The Child Maintenance and Other Payments Bill will establish a new system of child maintenance to tackle child poverty more effectively. It will also support sufferers diagnosed with the asbestos-related disease, mesothelioma, by extending the categories of people eligible to receive the lump sum compensation payment and by paying it as quickly as possible once the disease has been diagnosed, so bringing help when it is needed and not only when it is too late.
It will establish a non-departmental public body—the Child Maintenance and Enforcement Commission—to replace the Child Support Agency. It will introduce more streamlined and transparent child maintenance arrangements, which will empower and enable parents to make their own maintenance arrangements and more effective processes for assessing, collecting and enforcing maintenance payments for those using the statutory maintenance service.
Moving on to Bills covered by the Treasury, the Dormant Bank and Building Society Accounts Bill will enable money lying dormant in the banking system to be made available for distribution in the community. The Government intend that money available for distribution will be reinvested in the community, with the focus in England on funding youth services, financial capability, financial inclusion and, resources permitting, social investment. This money can help to meet the Government’s commitment to use the money to fund the provision of facilities for young people in England. There will be protection for those consumers affected as they will be able to reclaim their money at any point in the future and have equivalent protection to that currently held.
The Government will bring forward legislation to improve the framework for depositor protection. To maintain trust in the financial system, consumers want to be sure that they will be able to get their money back in a timely fashion if a bank runs into problems. They also want to know that they will continue to have access to day-to-day banking services with strong safeguards in place until at least they can transfer their services in an orderly way.
The Government released a discussion document on 11 November and will follow it up with full consultation in the new year. It would be wrong to prejudge the outcome of that consultation process. However, the broad aim of the legislation will be to give greater protection for depositors in the event of a bank failure, to preserve all-important financial stability and reputation, and to safeguard the taxpayers’ interest.
The National Insurance Contributions Bill will ensure that the Government begin to implement their commitment to provide a solid and simpler state pension foundation as an incentive to private saving while delivering the Budget’s personal tax reforms. It will also include changes to the state second pension following the announcement by the Chancellor in the Pre-Budget Report that the Government would bring forward the introduction of the upper accruals point in 2009. Both those reforms will offer more support for working families and pensioners.
Lastly, the European Communities (Finance) Bill ratifies the system by which member states finance the annual budget of the European Communities. It will provide entry into law of the revised decision on the communities’ system of our own resources that implements changes agreed under the UK presidency at the December 2005 European Council.
That is a brief summary of the Bills we are about to receive. Business is the key to social inclusion, the key to a better skilled and safer population and the key to paying, out of the profits earned, for the schools, hospitals, prisons, roads and armed services that the nation must have. These Bills will ensure that UK business continues to succeed while providing fairness for employees and consumers alike. I so hope that noble Lords will support them.
My Lords, I thank the Minister for opening the last day of debate on the gracious Speech. The Minister spoke about the importance of the creation of business wealth in our country, but he did not tell us whether he thought the Chancellor’s recent CGT changes would help or hinder that. We know what the business community thinks, but what does the Minister, who used to be a champion of business, think? If he would like to tell the House, I will happily give way to him. Well, perhaps he could whisper the answer to his noble friend Lord McKenzie of Luton, who could let us know later on.
The scope of today’s debate includes economic affairs. I was therefore somewhat surprised and disappointed to find that the noble Lord, Lord Davies of Oldham, who speaks in your Lordships’ House on Treasury matters, was not taking part in our proceedings today. I am delighted, of course, that the noble Lord, Lord Jones of Birmingham, has opened the debate and I certainly look forward to the speech of the noble Lord, Lord McKenzie of Luton, when he winds up, but I have to say to noble Lords that it is odd that the Government’s own spokesman on economic matters in your Lordships’ House will not be defending the Government’s economic record.
This is all of a piece with the Government’s unwillingness to debate the economy in your Lordships’ House. On 9 October, the Pre-Budget Report and Comprehensive Spending Review were announced in another place. That was the Statement which was hastily rescheduled to provide a platform to launch the general election that never was because the Prime Minister bottled out. We on these Benches believe that the PBR/CSR Statement was a very important one which ought to have been debated by your Lordships on a timely basis. It not only set out the Government’s assessment of the economy and some of the fiscal measures that will appear in next year’s Budget, but included the long-awaited spending plans for the next three years. It represents a crucial part of the policies of the Government. Noble Lords will doubtless recall how in those few weeks after our return in October, the business of your Lordships’ House was extremely light and we often rose early. Members on these Benches continually pressed the Government for a debate on the PBR/CSR in that period, but we were stonewalled.
In that light, I make no apology for dealing with some of the substance of the PBR and CSR today. Indeed, I crave the indulgence of the House to dwell rather longer than I would otherwise have done on the statement in the gracious Speech that the Government would,
“pursue policies to secure a stable and strong economy, with low inflation, sound public finances and high levels of employment”.
But before I turn to that, I should say that I shall be covering matters from a Treasury perspective and will also speak to some matters that fall within the Department for Work and Pensions, as the noble Lord, Lord McKenzie of Luton, is with us. My noble friend Lady Wilcox will be winding up for these Benches and will focus on issues covered by the Department for Business, Enterprise and Regulatory Reform.
The Government have built our economy on debt. Just as we can confidently predict that night follows day, so can we predict that the Budgets and Pre-Budget Reports of this Government will revise their forecasts of debt upwards. This PBR was no exception, adding another £16 billion of debt over the next five years. The Government meet their 40 per cent of GDP debt rule only because some key items are left out of account, items such as Network Rail and PFI liabilities.
Our economy has experienced an unbroken growth record since 1992, which is something that we can be proud of. But since 1997, that growth has to a considerable degree been on the back of consumer expenditure. There would be nothing wrong with that if disposable incomes had been growing commensurately, but the disposable income ratio has been falling as rising taxes have taken their toll. The Institute for Fiscal Studies has calculated that the latest PBR will increase taxes by a further £2,600 per annum for the average family over the next five years. In addition, wage earners are now suffering real income declines as RPI inflation remains above earnings growth, and well above the CPI inflation that the Government target. The Queen’s Speech referred to low inflation, but the inflation experienced by those on low incomes, especially pensioners, is well above their income growth. The latest news on food and fuel prices will keep RPI inflation uncomfortably high in the near term. The net result of all this is that the majority are experiencing a real income squeeze. The savings ratio this year hit a 40-year low, which will in turn exacerbate our pensions crisis in years to come, a point I shall return to later.
Personal debt is also at record levels, nearing £1.4 trillion and higher than the UK’s GDP. Much of this is secured on property and the level is driven in part by the rise in house prices. Are the Government still complacent about house prices? Now that house prices have started to slide, do they still have no worry about their impact on the economy?
While debt default levels and mortgage repossessions are increasing, they have not reached crisis levels taken in the context of the whole economy—although they undoubtedly represent tragedies for the individual families involved. Of more concern to the economy is the impact that stressed household finances will have on consumer spending. Do the Government have any concerns on this front? If consumers stop spending, what will underpin economic growth? We all know that business investment as a percentage of GDP is at its lowest level since records began, and the cack-handed capital gains tax changes announced in the PBR will depress that still further. Businesses are reeling from the rise in the corporate tax burden and from high interest rates, and the state cannot fuel growth without more tax and spend.
The Government cannot take the blame for the sub-prime debt problems which emanated in the US and are now rippling around the world. My noble friend Lord Marlesford will address this issue. But the Government will be blamed if they have, through imprudent policies, left our economy more vulnerable to external shocks. The price of being a highly indebted nation in every sense may not yet be apparent to us.
The gracious Speech also stated that the Government would,
“continue to work to build a prosperous and secure European Union, better able to respond to the challenges of globalisation”.
We think it would be so much better if the Government concentrated on equipping our own business community to respond to the challenges of globalisation. Only last week, the World Economic Forum’s competitiveness league table showed how the Government’s policies have resulted in the UK slipping to ninth place. Our tax code is the longest in the world and one of the most complex. Our headline corporation tax rate is due to reduce next year but that is not enough to restore our competitiveness, especially against the faster growing economies with which we compete for corporate investment. Regulatory burdens, which my noble friend Lady Wilcox will cover, have reached frightening levels.
Where in the Queen’s Speech, the PBR or the CSR do we find the Government setting out policies which will equip the UK for the competitiveness challenges of globalisation? The noble Lord, Lord Jones, tried to say that all these measures will do that and that the Government have policies, but we are far from convinced that they will achieve the outcomes that we urgently need.
The gracious Speech referred to high levels of employment but said nothing about unemployment; it failed to acknowledge that there are now nearly 5 million people on out-of-work benefits, including 2.7 million on incapacity benefit. As Joseph Rowntree studies have shown, the incentives to move from benefits to work have got markedly worse for many groups under this Government. In the 16 to 24 age group there are 1.2 million NEETs—those not in employment, education or training. This group has increased in the past 10 years, underlining the abject failure of the Government’s youth employment policies.
The Government have got themselves into a dreadful mess on immigration: they cannot count the numbers which have swelled our workforce or the proportion of new jobs taken by immigrants, and they have no idea about the economic benefit or disbenefit of their ineffective immigration policies. The Government have hidden behind platitudes rather than facts, and my right honourable friend Mr David Cameron has now put down clear markers for the scope of the debate that we urgently need on issues such as the impact of immigration on our overstretched public services. Recently the Prime Minister has borrowed a slogan from the British National Party in his call for “British jobs for British workers”. Will the Minister explain how that will work and how it will impact on the Government’s policies towards immigrant workers?
I shall run through some of the Bills within my subject area. The gracious Speech promised a Bill to,
“protect depositors and ensure confidence in the banking system”,
but there is silence as to how the Government will repair the damage they have inflicted on the reputation of our financial services system through their mishandling of the Northern Rock affair. The first run on a UK bank in 140 years occurred on this Government’s watch, and it is in large measure a result of the failure of the tripartite arrangements that were the brainchild of the Prime Minister. We will work constructively towards appropriate depositor protection, but that is not anything like the end of the story of Northern Rock and we shall expect the Government to do much more than that Bill.
I shall say nothing today about the Dormant Bank and Building Society Accounts Bill, as we already have Second Reading scheduled for that next week. The only other relevant Bill mentioned in the gracious Speech is one that Her Majesty described as one to,
“place a duty on every employer to contribute to good … workplace pensions for their employees”,
which is a classic bit of new Labour spin. The Pensions Bill is actually about getting employees to save for their retirement before any question of employer contribution arises.
We have supported efforts to achieve higher pension savings, but that support is not unconditional and we remain concerned about a number of issues, all of which were debated in the context of the previous Session’s Pensions Act. This Session’s Bill is not assured of a trouble-free passage in your Lordships’ House. It will do nothing to deal with the Government’s failure to honour the ombudsman’s recommendations for proper compensation for those who lost their pensions, and will assuredly do nothing to eliminate the disparity between the majority of the workforce and public sector workers, whose pension arrangements are gold-plated at taxpayers’ expense.
Not mentioned in the gracious Speech, though mentioned by the noble Lord, Lord Jones, was a National Insurance Contributions Bill, which we will greet with little enthusiasm. By aligning the income tax and national insurance thresholds, the Bill will achieve a welcome simplification of the structure of personal tax. However, it is being introduced not in a cost-neutral way but in the tax-grabbing style of this Government, and will cost middle-income families around £1.5 billion a year. The Bill will also legitimise the Chancellor’s latest pension raid via the state second pension. Put simply, the Bill is just one big money-raising exercise to shore up shaky government finances.
Another Bill not mentioned was the one allowing the privatisation of the student loan book. That policy came directly from our 2005 manifesto and we look forward to working on it.
Lastly, there will be a European Communities (Finance) Bill, which has a price tag of over £7 billion. It will legitimise the damage done by the former Prime Minister last year when he gave up a large part of our EU rebate in return for precisely no EU reform. We simply cannot afford EU membership at whatever price our profligate neighbours demand.
Her Majesty’s most gracious Speech said that the Government would,
“take forward policies to respond to the rising aspirations of the people of the United Kingdom”.
It would be nearer the truth for the Speech to have said that the policies were designed to satisfy the aspirations of this Government, who have run out of steam, are desperate to cling to power and lack the courage to ask the people whether they can stay in office. We on these Benches will work tirelessly to demonstrate the poverty of vision of this failing regime.
My Lords, I too thank the noble Lord, Lord Jones, for introducing this debate. I do not propose to follow him particularly on the trade, industry and energy aspects of his speech, which my noble friends Lord Cotter and Lord Razzall in particular will respond to.
On the initial challenge which the noble Baroness, Lady Noakes, laid down on capital gains tax, I make it clear that we on these Benches support the thrust of the changes that the Government have proposed. They did it in a panic and in a blue funk, and consultation is certainly necessary but, in general, simplification is important. We are not sure that the Conservatives genuinely are in favour of them, and one finds a sequence of different special interest groups coming forward and saying on all these reforms that they strongly support the principle but, in each case, that they do not like the change that is proposed for them. I am afraid that, when we have a situation that is as messy, expensive and complicated as the present ragbag of reliefs, one has to accept that there will be quite a few losers through simplification.
I spoke in the debate on the gracious Speech one year ago and focused on the dangers of debt—personal, corporate and public. I gave some pretty stark warnings. They were not perhaps in the flesh-creeping premier league of those of my honourable friend our shadow Chancellor, Vincent Cable, but they were serious. I was especially worried about the overpriced housing market forcing families into debt, and about the spectre of tax privilege and secret private equity funds gobbling up well run British businesses and loading them with vast debts. However, never in my darkest nightmares did I foresee what I think is the first ever nationwide run on a bank in British history—Overend and Gurney was a side show compared to Northern Rock—with more than £20 billion of taxpayers’ money poured so far into what I fear will turn out to be the Northern Rock black hole. There is no end in sight and no government grip to protect these vast sums, which are more than we spend on primary education and more than our entire aid budget.
I declare an interest as a pension fund manager with 31 years’ experience of investing in shares and property markets. I have seen a few companies going wrong during that time. Perhaps I can share with noble Lords a few home truths which should have been obvious to the great and good, but were not. When a financial company grows its business fourfold in five years, and when it shoots up by 55 per cent in the first eight months of this year so that it overtakes the Halifax with a 20 per cent share of the mortgage market, it is a break-neck rate of expansion. Old-fashioned textbooks used to call it overtrading. You can do it only by taking very big risks, whether you are selling loans or insurance. It is the easiest trick in the book to sell them cheaper or on softer terms than the competition, and in the short run you get away with it. The crunch comes when conditions turn against you, the loans have to be repaid or you have to pay out on the insurance policies. Independent Insurance, your Lordships may have seen, also did a Northern Rock—it came from nowhere to grab a vast market share a few years ago. Its competitors were highly sceptical about its margins and the chickens have now come home to roost there.
I have with me the briefing memorandum, Project Wing, which Northern Rock’s advisers have just put out. They tried to use injunctions last night to prevent newspapers such as the Evening Standard, the Guardian, the FT and the Telegraph publishing it but, as a taxpayer sharing in the £20 billion loan propping up Northern Rock, I think that I am entitled to see that document and to tell your Lordships a certain amount of what the bank’s advisers say. It is pretty hairy stuff. Northern Rock has what are called “together” unsecured loan accounts of £3.3 billion and standalone unsecured loan accounts of another £4.5 billion outstanding. It then claims that it writes only prime mortgage business on its balance sheet. The giveaway in the memorandum is the bank’s stating that the growth has been possible through attractive products and pricing. The problem is that it has been far too attractive. Northern Rock has been pumping out mortgages at unsustainably low interest rates, and as the credit-worthy borrowers who have taken out Northern Rock mortgages during this dash for growth come to the end of their fixed-term mortgages, they will all start to remortgage elsewhere, leaving Northern Rock with an ever increasing proportion of lower-quality loans in a falling housing market.
Its arrears have been low during the past few years because, in a raging-bull market, if borrowers start to struggle, they just sell their house and walk away with the profit. But when house prices are falling, as they clearly are today all over Britain, loans of 100 per cent or more of a house’s value, such as the loan of 127 per cent that I was offered when I rang up three or four weeks ago—taxpayers’ money—quickly turn toxic. They have repossession risk written all over them. The British taxpayer is effectively underwriting a substantial slice of a falling housing market. There is a clear conflict of interest between the directors of Northern Rock, whose duty is to the shareholders, and the Government, who must minimise the risk to the taxpayer. It is simply outrageous that the board and management of Northern Rock are still in charge, still being paid and running up vast fees, and are leading the process of inviting offers for the bank. The tail is wagging the dog, and it is high time that the Government took full control and put in bankers and auditors to go through the books and limit taxpayers’ losses. This is already a major financial scandal, and with every day that Darling dithers it is getting worse.
After all that, the gracious Speech promises:
“Legislation will be brought forward to protect depositors and ensure confidence in the banking system”.
If only. We on these Benches believe that 100 per cent protection for bank deposits should be extended, perhaps to £35,000 or £50,000 but not beyond that, both because it would give an unfair advantage to people keeping their money in the bank as opposed to other longer-term savings products and because bankers must not assume, as the Governor of the Bank of England rightly says, that taxpayers will rescue them when they get it wrong.
On private equity, the credit crunch means that that party is over. There are now some changes to the absurdly generous tax treatment of private equity players, but the Government turned a blind eye to the concerns that we were raising for far too long. In the difficult economic conditions that we have ahead, it will be a long hard haul for the employees, pensioners and suppliers of many of Britain’s largest companies as they struggle with the debt mountains of private equity ownership.
Personal debt is still a monster gnawing away at the security and future of far too many lower- and middle-income families in our country. It is a particular problem with house prices having been too high that people are forced into debt to get on to the housing ladder. Extraordinarily for a Labour Government, they have until very recently ignored the real problem in the housing market, which is the fact that people stopped building council houses and affordable housing. The big change in the housing market is that the number of houses built for sale has been pretty constant over the past 20 years but social and affordable housing building has completely collapsed.
We also have the problem of 2 million irreversibly indebted families in this country, who may be able to pay their interest bills but have no realistic prospect of ever paying back their loans. On the most recent figures, 43 per cent of us owe credit card debt carried over from last month, which is a key indicator of someone at financial risk, because that person is paying a real interest rate in double figures.
That leads on to the Pensions Bill. We on these Benches strongly support the principle behind the Bill of a low-cost simple national pensions savings scheme for the growing millions of people who face poverty in old age. After all, it was our idea in the first place. But we will not be able to support much of the Bill in practice in this place unless the Government come clean on the scale of the means-testing and advice problems and take action. A good start would be to let women buy back more lost years of basic pension entitlement, as this House by an overwhelming majority indicated was its view when we debated the previous Pensions Bill. It is time for action on that front.
The key problem with means-testing is that our basic state pension is still far too low—the lowest in Europe as a proportion of average earnings, as figures published only this week have shown. That means that far too many people, possibly one-third or even more of those who will be enrolled in the new scheme, will see enough of their savings eroded by loss of means-tested benefits to lay the Government open—and I say this quite frankly—to a charge of mass pensions mis-selling. What is the Government’s latest estimate for the proportion of those likely to save through personal accounts who will lose means-tested benefits when they retire?
The Conservatives are raising concerns about means-testing but, unlike us, they are not prepared to make a commitment to raise the basic state pension over two Parliaments so that pensioners receive as of right the means-tested benefits they now have to apply for. That is the simple, straightforward way to ensure that people keep every pound they save towards a pension, and any other solutions are really just fiddling round the fringes.
My noble friend Lady Thomas of Winchester will speak in detail on the pressing need for a massive expansion of debt and pensions advice based on far more resources for that uniquely trusted one-stop shop, the CAB. How can it be right for people to save for a pension with an expected rate of return of 8 per cent a year when so many are paying, as I said, 15 per cent a year interest on their credit cards or, in many cases, rates of 20, 30, 50 or even 100 per cent on other forms of borrowing? That is why we believe that it is essential that we have general advice, but advice that looks at the whole question of debt and pensions together. There are far too many little bits of advice dotted round the place—advice on this and advice on that. We think that a one-stop shop is essential if we are to get through to millions of people who are at risk.
Finally, Britain must stop living on capital. Spending the increase in your house value every year, as so many have done lately, is the road to ruin, and there are not going to be increases in house values for the next few years; quite the reverse. As the noble Baroness, Lady Noakes, pointed out, our national savings rate, at 2 per cent of national income, is far too low. The economic skies are darkening. Retail prices inflation—which is much nearer the figure for real inflation, not the CPI figure of 2 per cent or so—rose again above 4 per cent yesterday. Business and economic confidence is clearly on the slide. It will not be long before we hear that dread word “stagflation” again. Gordon Brown may have escaped just in time from No. 11 Downing Street, but on Northern Rock—as we saw at Prime Minister’s Questions today—on personal debt and on Britain's pathetic pensions, Mr Brown has no hiding place in No. 10.
My Lords, when I say goodbye to my children every morning before they go to school, I ask them, “What are you going to do today?”, and the answer is always, “Listen and learn”. Today, Britain is in a privileged position because we sit at the top table as one of the five largest economies in the world. But looking ahead, with the emerging giants of India and China on the horizon, are we going to remain at the top table in decades to come? Are we as a country listening and learning?
Earlier this year I made my first visit to Israel. I went there in the knowledge that I was entering one of the most conflict-torn regions in the world. Yet I saw a country with a vibrant economy attracting more than $20 billion of foreign direct investment last year with world-beating, cutting-edge technology and innovation. I discovered that one of the secrets of their success was the Yozma initiative, a government-funded venture capital incubation and start-up scheme where the Government risked more than $100 million putting their money where their mouth was.
In the United States, the Government have through their Small Business Administration backed $45 billion of loans helping almost 20 million businesses in the past few decades, enabling world-beating global giants such as Microsoft to get off the ground. Here in the United Kingdom we have wonderful initiatives such as the Small Firms Loan Guarantee Scheme, of which I myself have been a beneficiary, and the Government's Enterprise Fund, total funding for which I believe has recently increased to £350 million. But is that enough—$45 billion versus £350 million? Just imagine what we could achieve if our Government were bold enough to increase our Enterprise Fund to a comparable level to the United States. Inspired by the words of the American poet Robert Frost I can only say, “We have miles to go, or we will sleep”.
In the gracious Speech, Her Majesty said that her Government would,
“pursue policies to secure a stable and strong economy”.
Two of the Government’s best moves to achieve this in the past decade have been the creation of the independent Monetary Policy Committee of the Bank of England and the introduction of taper relief reducing capital gains tax to 10 per cent to encourage investment in entrepreneurship and SMEs. Last month, the Chancellor in his Pre-Budget Report simplified capital gains tax to a flat rate of 18 per cent, but by removing taper relief he has almost doubled the tax from its current level of 10 per cent. What is more, this flat rate of 18 per cent will still make our capital gains tax rate higher than the United States at 15 per cent, higher than Italy at 12.5 per cent and even higher than France at 16 per cent.
It is well known that the Government, in removing taper relief, were addressing the perceived inequitable use of this tax incentive by the hedge fund and private equity industry. However, the Government did not consult the entrepreneurial community before announcing this blunt and backward proposal. They also failed to consult the CBI, the British Chambers of Commerce, the IoD and the Federation of Small Businesses before this move. The entrepreneurial community throughout the country is unanimously outraged, dismayed and up in arms. A rift has resulted in the previously excellent relationship between business and the Government.
I am sure that the House will remember another tax which attempted to simplify the tax system. That tax was instantly unpopular and widely viewed as unfair, but the Government of the day refused to listen. By the time it was removed, as we all remember, it was too late. Irreparable damage had been done. Where the business community is concerned, this Government's proposal to remove capital gains tax taper relief runs the risk of becoming their poll tax. On behalf of the business and entrepreneurial community throughout the UK, whose unanimous support I know I have, I urge the Minister to urge the Government to look again at this issue and to listen to the voices of the millions of small and medium-sized enterprises which are the engine of this country's economy. I urge the Government to reverse their decision. I urge them to reintroduce capital gains tax taper relief at 10 per cent for investment in entrepreneurship and SMEs.
In my experience in building a business from scratch, there is a saying which rings very true here. The saying is: “Good judgment comes from experience, and experience comes from bad judgment”. I have made numerous mistakes, but I have always tried to learn from them, correct them if possible, and move on. After all, pride comes before a fall. Talking about pride, we have so much to be proud of in this country, as the noble Lord, Lord Jones, said. We have one of the most open economies in the world. We have some of the finest higher education establishments in the world, with Oxford, Cambridge and Imperial regularly ranking in the top 10 universities worldwide, and Cambridge even ranking first in science worldwide. Yet this is in spite of our overall spending on higher education of just over approximately 1.1 per cent of our GDP, compared to just over approximately 2.6 per cent in the United States—more than double our spending in proportionate terms.
Similarly, when it comes to investment in research and development, the United States invests 2.7 per cent of its GDP, compared with our investment of 1.9 per cent. Just imagine what we could achieve if we matched these American levels of investment, and the transforming effect that would have on our economy and our global competitiveness.
I have seen the power of government being a catalyst, being a supporter and being a helper to business. In January this year, the then Chancellor Gordon Brown announced a step-changing increase of the support to the UK India Business Council (UKIBC), which I am proud to chair. UK Trade and Investment has increased its funding of the UKIBC from £75,000 to £1 million a year—a figure which will be matched by private funds. The UKIBC is now in a position to encourage and facilitate trade, business and investment between Britain and India in a way that we have never been able to do before.
I also have seen from my experience on the Joint Economic and Trade Committee between Britain and India just how powerful it can be to have business leaders, Ministers and civil servants seated around the same table with the same objectives, addressing openly the challenges, the opportunities and the solutions.
This week is Enterprise Week, which is an annual week of events supported by the Department for Business, Enterprise and Regulatory Reform to inspire young people and make them alive to the possibilities of starting their business or social enterprise. In the first year of Enterprise Week, there were 1,000 events. In the second year, there were 2,000 events. In the third year, there were 3,000 events. This year, the fourth Enterprise Week, 5,000 events are taking place throughout the country. I am proud to be Enterprise Week’s champion and proud too that the Government support such an important endeavour through their patronage of the Make Your Mark campaign, which organises these events.
Furthermore, we are now taking Enterprise Week global. Yesterday, I was privileged, alongside the Prime Minster, to launch Global Entrepreneurship Week 2008, an idea whose time has come. I was particularly happy that we were launching it here in London, which for me is the greatest of the world’s great cities.
When I visit India, the land of my birth, several times a year, from the moment that I arrive I see the hunger of the country’s entrepreneurs. I see Indian companies today going global; I see billion-dollar companies being created within a decade time after time. It reminds me of the only science equation that I can remember from my school days: momentum equals mass times velocity. It is a country of 1.1 billion people, with a GDP growth rate of over 9 per cent a year; that is true momentum, and that momentum will carry on for decades to come. Mark it well, for along with China, these giant nations are growing now and will continue to do so for many years to come.
If we want to succeed and turn the challenges of globalisation into opportunities, we must invest in our entrepreneurs, we must invest in education, we must invest in research and development, and we must continue to develop an environment in which business and enterprise can flourish. Our Government must be in the business of encouraging business.
I spoke earlier of Israel achieving economic success in spite of all its problems. I have spoken of the United States never resting on its laurels and continuing to invest heavily in enterprise, research and education. I have spoken of the emerging giant of India, succeeding in spite of all its challenges. For centuries, Britain has been a country that others have listened to and learnt from. Now we must listen and we must learn and, if we do, we will continue to punch above our weight and we will always be at the top table of the world.
My Lords, with the start of a new Session, there is always a nice feeling of hope and expectation. That was reflected in the speech made by my noble friend in opening this debate and in what the noble Lord, Lord Bilimoria, said about Enterprise Week. Talking of hope and expectation, the economy is a pretty cheerful topic at the moment. Unlike the noble Baroness, Lady Noakes, the usual outside experts think that our performance has been rather good. The OECD and the IMF have nice things to say about us. That is why my advice to noble Lords opposite is to stick to the shadow Chancellor’s commitment to match our spending plans instead of promising extra cuts in things such as inheritance tax and stamp duty.
The economy is pretty robust at the moment. Let us leave it that way, because there could be difficult times ahead; the abrupt end of easy credit, $100 a barrel oil and rising commodity prices all point to inflation and belt tightening. What will that mean? What will be the effect? I well remember that on previous occasions when we have had a downturn after a period of growth, the downturn has been marked by calls for protectionism. I happen to think that one of the triumphs of this Labour Government is that for 10 years we have maintained a free and open economy. I agree with my noble friend Lord Jones and the noble Lord, Lord Bilimoria. We have faced globalisation by opening up our markets, rather than trying to protect our markets as others have done. That link between globalisation and protectionism will be hotly debated when things get tough.
There will be calls to cut immigration. There is an immigration Bill in the gracious Speech. To prepare for this, the Minister will have to solve a mystery. We have had a million immigrants, most of whom have readily found paid jobs in Britain. Yet we have 1.6 million unemployed with 800,000 on jobseeker’s allowance and 600,000 vacancies have been notified. I am sure part of it is churn, but the numbers are too large for that to be the full explanation. It is absolutely right that we should welcome immigrants. Indeed I am one myself. But why is it that they can find the jobs? Is it skills? Is it attitude? Is it aptitude? Is it the lack of enforcement, as suggested to your Lordships’ Select Committee yesterday? The Government have to find the answer because that will be the kind of argument used by our opponents against an open economy.
Protectionists will raise the questions of sovereign funds and protecting jobs from foreign takeovers. The answer to this is not protectionism, but more effective regulation. Ownership of regulated businesses becomes less important the better regulation becomes. We are a nation strong enough to regulate markets properly and I hope that this as well as less regulation will be discussed in the better regulation Bill that will come before us.
Fortunately, we have a great ally in our battle to maintain a free and open economy and better to regulate strategic industries. Who is this great ally? I am afraid that some noble Lords opposite are not going to like the answer, because it is the European Commission. Eurosceptics find it hard to reconcile their prejudices with the fact that the European Commission is increasingly the tool for furthering liberalisation and competition. The Government and all of us should welcome the support that we get from the Commission for an open economy and noble Lords should remember this when we debate the European Union Reform Treaty Bill.
If and when the crunch comes I hope that my noble friend will remind the protectionists that by far the most jobs have been lost to technology and technical change, rather than to low wages offshore or foreign takeovers. In spite of this, industrial output is rising and there have been huge increases in employment. Normally this is attributed to the rise in the service sector. I do not want to detain your Lordships again with my views that dividing a modern knowledge economy between services and manufacturing is wholly artificial and counterproductive, but in his Pre-Budget Report last month my right honourable friend the Chancellor did hint that the Treasury is looking at this. It even published a paper about it. The point he made is that although traditionally we measure our investments as being in the form of tangible assets such as buildings and machinery, in a modern knowledge economy investing in software, research and development, design, training, branding and responding to customers is equally important. But with very few exceptions this intangible spending does not appear either as investment or in our GDP. The Chancellor is right to mention this, because such spending turns out to be very large. In fact in 2004 it was £120 billion, which is the same as we spent on tangible assets.
My noble friend who is to reply, and who in another life knew all about accountancy, would perhaps agree with me that this throws a different light on things. It also impacts on what the noble Lord, Lord Bilimoria, said about what we spend on research and development. It is not just a matter of investing in science—we have to invest in many other things in a modern knowledge economy. We could be doing better in the knowledge economy than we thought. On Monday, in the Financial Times, Will Hutton of the Work Foundation said that we are a world leader. I hope that my noble friend will bear this in mind if there is a call for more protectionism because we cannot compete in the modern world. We are probably more competitive than we thought.
The final argument against protectionism that I would like the Government to remember is the negative impact that protectionism has on the developing world. Protectionism in goods and services, both industrial and agricultural, has led to the current impasse in the world trade talks. Poor countries do require aid to achieve a threshold level of capability but, once they have achieved this, there is no doubt that free trade brings unprecedented opportunities for these countries. Of course it brings competitive pressures and some difficulties for us, too, but the outcome seems to be a sensible division of labour. This has resulted in a huge increase in employment in developing countries but it has also done so in the developed countries, and in this country in particular. Somehow, the Government must get this message across. The risks are not as great as the protectionists say.
Furthermore, the Government must also argue that this is an ethical policy. Indeed, ethics pervades the gracious Speech. So do the Government's long-standing commitments to: a fair society; more housing for a growing population; improving our children's life chances; reforming party funding before it poisons our politics; flexible working for parents and carers; and helping one-parent families out of poverty—yes, I know that that is a carry-over Bill and has been tried before but I still feel ashamed when I read of fathers who do not support their children. These Bills demonstrate the power that a strong economy has to break down social barriers and transform people's lives as well as creating wealth.
We can and do conduct our economy by reference to a moral code. The Prime Minister has spoken and written about this on many occasions. It is what he stands for and what I think my party stands for. There is one Bill in the gracious Speech that encapsulates this rather well. It is a Bill that is not so much a matter of political will but a test of character. I refer, of course, to the Climate Change Bill. Those of you who heard my noble friend Lord Rooker move the First Reading earlier today will realise that it touches on everything. Of course there are economic and commercial aspects; my noble friend Lord Jones explained those. It affects agriculture and the environment, housing and transport. It affects our health and security. Is it ambitious? Certainly. Is it important? Without doubt. Is it ethical? Absolutely. I am delighted that this will start its passage here in your Lordships’ House because I am sure that we will make a very good job of scrutinising it.
My Lords, the Chancellor said little to nothing in his Pre-Budget Statement about local government spending in the next three years. And no wonder—he wanted to hide bad news. In a tough spending period ahead, it is going to be particularly tough on local authorities. While extra costs and responsibilities are heaped by central government on them, there will be heavy restraint on central government grants. Yet again, the council tax payer will have to bear the bulk of the burden. Again, this will particularly hit pensioners—yet another of the many disasters affecting the whole area of pensions under this Government.
I want to say more about waste in government spending later if I have time but let me give an example of a potential huge extra spending hit on Norfolk council tax payers during the period of this spending review. My noble friend Lady Shephard of Northwold referred in the debate on Monday to what appears to be an attempt by the Government to inflict some form of unitary authority on Norfolk when the majority of local authorities in the county are opposed to it. My noble friend went into the matter in some detail so suffice it for me to say that it is rumoured that the chairman of the Boundary Committee has indicated that it is only a matter of what form of unitary structure should be imposed and that the status quo is ruled out even if the people of Norfolk prefer that. He appears to have set deadlines of around the end of this month for responses.
What is not in dispute is that whatever form that takes it will be costly, taking into account the cost of reorganisation, substantial redundancy payments and so on. All recent experience of reorganisations has demonstrated that. It will be at least tens of millions of pounds, even up to £100 million, and it will be the result of central government direction. I suspect that, in what will be a very tough three years for public spending, no central government funding will follow to pay for it. The Minister, the noble Lord, Lord Hunt of Kings Heath, said on Monday that the Secretary of State was,
“minded to refer the proposal to the Boundary Commission and ask it to look at local government structures in Norfolk, with a view to it making an alternative proposal”.—[Official Report, 12/11/07; col. 340.]
The words “minded to” do not suggest an end-November deadline.
I should be grateful for the Minister’s response to three questions. I realise that he may not have time to deal with them when he replies to the debate but perhaps he can get advice on how to respond and write to me later. First, I understand that the reference to the Boundary Commission for such an inquiry by a boundary committee and its terms of reference may not be drawn up until January. Is that the case? Surely it is only when we can all see the terms of reference that all local authorities and everyone else can respond.
Secondly, will the Minister ensure that the Chief Secretary has drawn to his attention the financial implications of any proposals for reorganisation? There will be many demands on the public purse in the next three years which simply cannot be met, and this is not one of them. I cannot imagine that the Treasury would take a benign view of this situation.
Thirdly, if it does go ahead, will central government substantially meet the bill, as it will be central government policy, or will the council tax payer have to foot the entire bill instead?
Even in 10 minutes, it is difficult to do more than scratch the surface of this subject but I want to turn to two national issues. The first is the credit crunch, following the sub-prime mortgage débâcle of Northern Rock et al. On the broad issue, I shall say only that I have long been surprised at the multiple of earnings offered by many lenders and at the fact that many who bought the collateralised debt obligations and securitisation of sub-prime assets did not look underneath at the real value and risk of the assets. I follow much of what the noble Lord, Lord Oakeshott, said on this issue and wish to make two points.
The first is that there will obviously be inquests into what went wrong by many authorities and others, but the one area that seems not to have had sufficient attention is the rating agencies. After all, much of the attitude surrounding the credit-worthiness of many companies, financial institutions and so on depends on these agencies. They seem to be much at fault in the ratings that they have given many securities and debts. I hope that the Government will ensure that the role of the rating agencies—clearly this is an international issue—will be looked at as part of the general inquest.
Secondly, some changes in the regulatory regimes will almost certainly follow the inquests—if that is the right word—reviews and inquiries into what went wrong during this period. However, I hope that the inevitable demand for much heavier and more detailed regulation—I have heard others, including some who should know better, already calling for that heavier regulation—will be avoided. Earlier this week, this House’s Select Committee on Regulators, on which I served, produced its report on UK economic regulators. We completed our inquiry before the Northern Rock incident and so our comments about the FSA were made before that period, although I think that they are still relevant. We made two recommendations in this context. The first was:
“We would encourage regulators other than the Financial Services Authority … to consider risk-based regulation more explicitly, particularly as a means of using regulatory resources more efficiently”.
We excluded the FSA because it is doing that already. Secondly, we said:
“We encourage the FSA to continue its work in the area of principles-based regulation. We would also encourage other regulators to investigate the scope for replacing detailed rules by a move to a principles-based approach in their own areas of activity”.
I hope that that will continue to be the view of the Government. I am certainly encouraged by remarks made by the Economic Secretary to the Treasury in the House Magazine on 29 October. She said that,
“we will not react to this situation by over-regulating. We will continue with the proportionate, principles-based approach to regulation that’s played such a big part in establishing the City’s competitiveness, and establishing it as the world’s leading international financial centre”.
I hope that the Government will stick to that view and that the lessons of Sarbanes-Oxley on New York’s pre-eminence as a world financial centre and on American businesses will be heeded.
I turn now to the Comprehensive Spending Review. The manipulation of dates by the Chancellor’s predecessor to fit within the golden rule seems to have been continued by the present Chancellor. Chart 2.2 on page 27 endeavours to prove that the golden rule is being met within the cycle. But that includes the earlier years, when prudence dominated the household, and the next three years of much tighter targets to compensate for the years between 2000 and 2007 of high spending will make the new Chancellor’s life much more difficult in the years ahead.
As for the sustainable investment rule, if the PFI debts now rolling up were included, as they should be, that, too, would now be breached. I suspect that the Chancellor is being overoptimistic in his economic forecasts, and here I very much follow my noble friend Lady Noakes. The fallout from the global credit crunch is far from over and far from being fully felt. The new banking regulations to which the noble Lord, Lord Rees-Mogg, referred, in a penetrating article in the Times earlier this week, will tighten the squeeze.
The implications of pulling back the excessive consumer debt, which was taking place in this country in the expectation that ever-rising house prices would provide a cushion, the rising oil and energy prices, the negative impact on financial services and the City of London of the credit crunch, all imply a greater squeeze and slowdown than the Chancellor is predicting. Much as I applaud the rise of the City of London as a major world financial centre, it is kind of alarming that more than 10 per cent of our GDP now depends on the success of that one area. A reduction in impact there means a reduction not only in growth but in tax revenue.
On the public expenditure side, I note that even the Chancellor’s tighter spending targets depend on his better-value-for-money targets, which amount to a saving of well over £40 billion a year annually over the next three years. On top of that, he is looking for at least £30 billion from the next sale of assets. That is greater than the real-terms increase of most of the departmental budgets. Post-Gershon experience casts doubt on whether in reality that will be delivered.
The environment in the past few years has been benign. There has been strong growth internationally. At home, there are the benefits of earlier reforms prior to this Government, such as the flexible labour markets, to which the Minister referred; low inflation, not least because of the predominance of cheap imports from China, India and the developing countries, which will not necessarily continue at that rate; and consumer expenditure financed by unprecedented personal debt and its accompanying nearly all-time low savings rate. All these have provided a benign atmosphere. There are now rough waters ahead.
During this benign period, the Government have behaved as if it would continue for ever. They let spending rip with rising borrowing and much off-balance-sheet financing through excessive use of PFIs. It was a period of easy money in government; careless control over expenditure; massive sums spent on health and education, without commensurate results; billions wasted on projects and programmes, such as IT in the National Health Service, the Rural Payments Agency, and many more smaller ones adding up to billions, which will never yield value for money. Prudence was replaced by profligacy, and now the chickens are coming home to roost.
I feel sorry for the Chancellor—basically a sound and careful pair of hands. He has inherited an extremely difficult legacy and there is one person to blame above all—the Chancellor who presided over our economic affairs since he abandoned prudence, the Prime Minister himself.
My Lords, the gracious Speech contains few surprises for those of us following the Work and Pensions brief. The Child Maintenance and Other Payments Bill is a carried-over Bill expected here shortly, and the next Pensions Bill was well flagged in the previous Session.
The detail of some of the welfare reforms flowing from last Session’s Act are now appearing in statutory instruments, beginning with the local housing allowance, about which my noble friend Lord Oakeshott of Seagrove Bay has tabled a Prayer, so detailed argument about that is for next week. However, the national rollout of this controversial scheme under which housing benefit is paid to claimants rather than to landlords in the private rented sector will undoubtedly have an impact on local advice-giving services, which in most cases means citizens advice bureaux. It is on this invaluable service that I wish to concentrate this afternoon, and in particular, about how the work of local CABs is greatly affected by changes in government policy, as well as by the global credit crunch, mentioned by the noble Lord, Lord MacGregor, and others.
Debt inquiries have now replaced benefit inquiries as the overall number one problem bureaux deal with—1.7 million new CAB cases in 2006-07. Citizens Advice, the parent organisation, estimates that 6,600 debt-related inquiries are dealt with across the network every working day. Some welcome funding has been secured for bureaux for debt advice from the Financial Inclusion Fund—administered by the newly named department, BERR—but this funding will come to an end in March next year. It was announced last month that a reduced tranche of money will be earmarked for the FIF for the next three years, but we do not yet know how much will be available for debt advice, and because of this uncertainty many debt advisers in bureaux are in danger of being given precautionary redundancy notices. This seems crazy.
Debt problems are not going to go away any time soon. For example, between January and August next year, it is estimated that 40,000 to 60,000 fixed-term mortgages will come to an end, with many mortgages increasing beyond the reach of a lot of householders and almost certainly resulting in repossessions. Council tax is set to rise significantly, as the local government settlement was not a generous one. There are still terrible problems with the tax credit system. Banks are getting increasingly jittery, and although some are good at funding short-term projects with local CABs, those same banks can also be assiduous in chasing debt defaulters, often late at night with repeated phone calls. So I call on the Government to extend the existing FIF programme to allow local bureaux to give their debt advisers some kind of assurance that their jobs and all their expertise will not be lost, even for a few months.
I have mentioned tax credits. In 2006-07, 186,000 tax credit problems were dealt with by CABs, a rise of 21 per cent from the previous year. The Parliamentary and Health Service Ombudsman’s recent report showed that almost a third of all tax credit awards had been overpaid, a significant proportion being to low-income households which then had to repay the money. However valuable this extra income is to many people—and it is—it surely cannot be right for them to have to rely on such an unreliable source of income. CABs are often the first port of call when things go wrong, whether it is a demand for repayment or an official letter which makes no sense to the recipient. In parenthesis, I recount the following anecdote which I was told last week. When an adviser phoned the tax credit helpline about the meaning of one such letter, she was told, “Yes, I know what you mean. I am the longest serving member of this office and when I get my own tax credit award letters, I often have to ring up the helpline myself”.
Urgent action is required. Can the Minister give the House some indication of whether the Government are heeding any of the recently published recommendations of Citizens Advice? These include getting HMRC and the DWP to work closely together, not least on the provision of clearly written explanations of overpayments. The final recommendation from Citizens Advice seems a sensible one, which is that there should be a review of the annual system and that fixed awards should be introduced to increase stability of income, enabling families to budget without the fear of repayments hanging over them.
On the free legal advice offered by CABs, the whole landscape has changed. For the past 10 years, individual CABs have taken on contracts with the Legal Services Commission to enable them to deliver specialist advice to their clients. In July of last year, the review of legal procurement by the noble Lord, Lord Carter of Coles, was published, followed by some controversial recommendations which are causing concern as far as they affect CAB contracts. To start with, the LSC will in future give contracts only to CABs and other advice agencies which can offer specialist advice in more than one area of social welfare law, such as housing, debt, immigration, asylum and welfare. Those that already have a contract for one subject area could lose it unless they become part of a larger organisation or consortium. Some advisers think that such large contracting would mean competing with big solicitors’ firms which do not have the same holistic advice-giving background as the CAB. The fees, on a fee-per-case basis, are low and likely to result in caseworkers having to concentrate on quantity rather than quality.
The managers of the Streatham CAB in south London—an area of high social deprivation—report that it is now viable only to provide clients with two to three hours of professional legal advice on any particular case. In the past, the minimum considered necessary to deal with a case effectively, particularly if the client was unable to attend the bureau or required translation or interpretation assistance, was seven to eight hours. This is a scenario familiar to the East End of London CAB which represents three of the most deprived boroughs in Britain—Hackney, Tower Hamlets and Newham—and it points out that there will be an even greater strain on the system if the immigration laws change to a points-based system. One advice worker said that she thought one result of the new legal aid contracts was that experienced case workers would end up not having time to go to courts or tribunals with their clients, sending them with written submissions instead. It is well known that tribunals are daunting, and those clients with good representation succeed more often. Although the LSC’s argument is that the proportion of complex and simple cases balance each other out, this is not the case for not-for-profit agencies, which spend most of their time helping people suffering from multiple deprivation who need more time for their cases to be considered. Citizens Advice’s call for a tiered approach on fixed fees for more complex or time-consuming cases which fall below the exceptional status threshold seems very sensible.
Another change in government policy likely to have a significant impact on the workload of advice agencies is the Child Maintenance and Other Payments Bill expected in this House shortly. CABs in England and Wales dealt with 29,000 cases involving a child support problem during 2006-07, and this figure is likely to be exceeded when the Bill becomes law if parents are to be helped to reach voluntary agreements. My noble friend Lord Kirkwood of Kirkhope will speak about this later.
In spite of having more and more work as a result of government policies, CABs do not complain. They operate cheerfully and efficiently throughout the country, with a mixture of paid, mostly part-time, staff, and well trained volunteers. The brand name has a high recognition and an equally high and well deserved reputation. They are funded to a large extent by local authorities and a vast patchwork of other funding. They have charitable status, and the individual bureaux are well supported by the parent organisation, Citizens Advice, which also has charitable status. But they operate against the odds, often in cramped, totally inadequate accommodation. Those in the larger cities often have to close their doors shortly after they open because of the numbers of people in the queue. Other bureaux have had to move to an appointment-only system, such was the pressure on the service. Even in affluent areas such as Winchester, the bureau is very busy. The manager told me, “Winchester is a very expensive place to be poor. Even the charity shops are more expensive”. Managers spend a huge amount of their time raising money from a variety of sources just to pay for core advice services.
What more can the Government suggest be done to help local CABs in the light of all the extra work they are facing as a direct result of government policies? A universal levy on the banks is one idea, as is using a proportion of money collected under the terms of the Dormant Bank and Building Society Accounts Bill, shortly to be introduced. I urge the Government to consider the effect of their policies on those agencies that have to pick up the pieces, and to consider how they can be helped practically to continue their most valuable work.
My Lords, tempting though it may be to range widely across consumer affairs, industry and economic affairs, today I will concentrate on energy. I say straightaway that it is regrettable that the energy element of the debate on the Address has been separated from that on the environment, which was covered in your Lordships’ House yesterday.
It was my great honour and privilege to serve the previous Government as Energy Minister, and I need hardly remind your Lordships that the twin drivers behind the energy White Paper published in May 2007 were tackling climate change and ensuring security of supply. I always argued that they were two sides of the same coin. You cannot ensure security of supply without tackling climate change, and you definitely cannot mitigate the effects of climate change without having a properly thought-through and effective energy policy.
As one of those involved in drawing up the energy White Paper, Meeting the Energy Challenge, I am extremely proud of what the Government achieved in this sphere. The Government have laid out a strategy for enhancing energy efficiency, reducing fuel poverty, boosting renewables, and creating the conditions for new technologies such as carbon capture and storage, and future investment in research and development, nuclear power, and the transport and energy infrastructure.
Your Lordships’ House will debate three vital government Bills, which together will ensure that this country has secure, affordable and clean energy supplies in future: the Energy Bill, the Planning Reform Bill and the Climate Change Bill. Each is essential to achieve the goal of avoiding an energy crunch in the middle of the next decade. If we do nothing, or next to nothing, our energy margins will be uncomfortably tight, with the prospect of blackouts against the background of potentially devastating climate change.
As Nick Stern and the IPCC reports showed, action now can forestall global disaster later, but we should be under no illusion that time is running out. Over the next 20 years the UK will witness the disappearance of at least a third of its generating capacity as the low-carbon plant directive bites and ageing nuclear power stations are closed. Nuclear power currently accounts for around 18 per cent of our electricity generation and most of the existing stations are due to close over the next 15 years or so. The UK will thus need around 30 to 35 gigawatts of new electricity generation capacity over the next two decades and around two-thirds of that capacity by 2020. If our current generating capacity is to be replaced with low-carbon alternatives, avoiding another precipitate “dash for gas”, the country has no option but to build a new generation of nuclear power stations combined with a drive to develop the renewable sector and significantly improve energy efficiency.
The draft Climate Change Bill creates a new legal framework for the UK achieving through domestic and international action at least a 60 per cent reduction in carbon dioxide emissions by 2050 and a 26 to 32 per cent reduction by 2020 against a 1990 baseline. Yet as the environmental prognosis for our planet darkens, we may have to achieve far more. Massive investment will be required both here and abroad to meet the world’s energy needs. China and India are sucking in huge resources, while China builds the equivalent of a coal-fired power station every week. The International Energy Agency has forecast that more than $20 trillion of investment will be required to meet these challenges by 2020.
When I was in the DTI, the precursor to the elegantly renamed BERR, business repeatedly stressed the need to revamp the planning system and I am pleased that the Government listened. While acknowledging the need for full consultation with local communities, the country cannot afford the interminable and costly planning processes which surround major infrastructure projects. Long-term uncertainty in planning benefits nobody; neither local communities nor business. Because of pre-development consultation, I expect local input to improve as a result of the Government's planning proposals, but planning inquiries should no longer go on without end, costing the taxpayer tens of millions of pounds. I said that interminable planning inquiries benefit nobody, but I suppose I must admit that that is not entirely accurate. They hugely benefit those paid to represent the various interest groups participating in the inquiries, but given the membership of your Lordships’ House, I am perhaps here treading on dangerous ground and hastily move on.
I earlier mentioned security of supply. I make no apology for saying that this is one of the major reasons why I support a new generation of nuclear power stations, which is a position that I have not always held. Security of supply is about ensuring that in keeping the lights on, this country has a diversity of energy sources from a diversity of suppliers. Thus nuclear development should go hand in hand with the promotion of renewables, while we should also husband our indigenous supplies of oil, gas and clean coal.
The Government's commitment to carbon capture and storage is welcome, although I hope there will be a chance to support a wider range of CCS technology as it develops. The North Sea may be a declining asset, but there is still much to play for. While some 37 billion barrels of oil equivalent have been produced to date, estimates of the hydrocarbons remaining to be produced from the UK continental shelf range from 16 to 25 billion barrels of oil equivalent. Opportunities, including west of Shetland, should not be squandered, either through lack of co-operation in the energy industry or through lack of adequate investment incentives. The UK has made great strides in improving its import and storage capacity and in the development of LNG terminals which will further broaden our security of supply.
Security and diversity of supply is not aimed against any of our current or potential energy suppliers. Nor is it, or should it be, based on paranoia about gas supplies from Russia. Current gas supplies from Russia to the UK are less than 5 per cent of the total, and most of it is through swap arrangements. While Russia, with the world's largest gas reserves, will remain the most significant supplier of gas to the EU, the IEA estimates the share of Russian gas supplied will decline from around 25 per cent to around 23 per cent overall. As the UK and what is frequently called the West agonise about issues such as resource nationalism, peak oil and security of supply, OPEC and Russia increasingly speak of the need for security of demand. The push for energy independence and the greater use of biofuels is seen by some supplier countries as more of a threat than an opportunity. The reality is that in the global village the customer relies on the supplier and vice versa.
I have some concerns that I think it is necessary to flag up. The EU Emissions Trading Scheme and future energy investment in the UK are dependent upon a robust price for carbon, and the Government should work domestically and with our European partners to see that is achieved. The 20 per cent renewables energy target, agreed under the German presidency, is, and always was, wholly unrealistic as far as the UK is concerned. The Government need to negotiate a workable solution within the European Union that is more than purely aspirational. More needs to be done to tackle fuel poverty, although the Government have been active in this sphere. They should work harder to convince the public on their plans for handling nuclear waste and should further speed up their nuclear legacy decommissioning programme. I have no doubt that Her Majesty's Government are aware of all these issues, and when my noble friend the Minister winds up, I know that I can rely upon him to assure your Lordships’ House that the country's energy policy is in safe hands.
My Lords, more than 2,700 years ago a poem of thunderous beauty was written about economic affairs. The poet, looking around him, saw land which was rich and prosperous—the vineyard was bearing much fruit. But then things began to go terribly wrong: greed began to prevail over justice, oppression was rife and mercy was no longer part of the social or political vocabulary. The poet wrote:
“Woe to you who join house to house, field to field, until there is room for no one but you”.
He could have been describing parts of the London property market or of the banking industry. The poem is long, but in it the relationship between social morality and economic affairs is examined with power and precision.
In trying to understand our current economic problems and, in particular, the banking crisis, I have read newspapers and journals fairly carefully and I have been much helped by articles such as that by the noble Lord, Lord Rees-Mogg, which has already been referred to. On Monday, he drew attention to some new regulations—FAS 157 and FAS 159—and explained that they,
“will set the terms on which the banks will value their assets”.
Then wrote, crisply and clearly,
“no assets, no lending; no lending, no bank”.
That is a gem of a summary.
In the same newspaper on the same day, in an article about one of Britain’s major banks, a journalist quoted an insider as saying that his bank had,
“always been at the transparent end of the spectrum”.
The implication that other banks are not is easily drawn.
One thing missing from newspaper comment on the banking crisis has been any explicit reference to the morality on which good banking practice is necessarily based. There has been the inevitable targeting of individuals, from the Governor of the Bank of England to the CEO of Northern Rock, but that kind of targeted attack misses the much bigger issues concerned with the probity of institutions. It misses those situations that are about the moral relationship that exists between trust and risk and reward; about the moral accountability of those who have financial control over the most vulnerable; and about the morality of a society in which the gap between rich and poor remains achingly large.
When a few hours ago we were talking about the remuneration for the two-days-a-week post of the new chairman of the Nuclear Decommissioning Authority, I could not help wondering how that would go down with the people who care for us here—who sweep the floors and provide our food. There is also a question about the morality of a housing market, which, having been left to its own devices, has left the poor and the young trapped in despair.
In a democratic society, banking necessarily depends on trust. The unwritten, unspoken contract is that, if I lend money to a bank, I shall receive the money back in due course. If that moral trust is lacking or if faith is broken—I use the word “faith” deliberately—the banking system will collapse.
The current failures in the system are as much to do with morality as with economic mechanics. If I over-lend or encourage indebtedness—that ho-ho phrase only a couple of days after the Northern Rock fiasco about the banks being “over exuberant” was an appalling statement—knowing that my customers are not really aware of the risks that they are taking, that is not a mechanical problem but a moral one. No amount of arcane speaking about CDOs, selling debt or sub-prime lending can conceal the fact that the issue is a moral one.
There is an urgent need for Her Majesty's Government to take action at two levels. The first is to call together senior bankers with ethicists, philosophers, theologians and academics to reflect on the moral values which underline banking practice in our country to see whether there is any room for improvement. While that may seem a touch academic and self-indulgent, if the financial rectitude of our financial services industry is ever called into question, the economic consequences for the City and our nation will be immense.
The second thing that I would urge is the support of CABs throughout the country, where problems of indebtedness are encountered on a daily basis among the poor, lonely and most vulnerable. I support everything that the noble Baroness, Lady Thomas of Winchester, said. I had not realised that she was going to mention CABs, but my plea is the same. If my call for a proper round-table discussion among senior bankers, philosophers and theologians does not achieve anything, and if my call, along with others, for help for the CAB does not produce anything, I end with a recommendation that noble Lords take a course in the reading of poetry, especially the poetry of a man called Isaiah. It is all there, but it is very uncomfortable reading.
My Lords, it is a particular pleasure to follow the right reverend Prelate because he has introduced a topic that I was going to talk about. As an economist, I believe in the division of labour. He has done the morality and I will do the economic mechanism of our present crisis.
The present crisis is a global financial crisis not just a local one. In many ways, we are not yet out of it. It is continuing and we do not know where it will go. In America, we have already seen major multinational banks such as Citibank and Merrill Lynch admit to having lost billions of dollars, not because anyone has taken anything away from their coffers but because of a revaluation of the assets that they thought they had. The problem may be one of morality, but I am much more concerned by the problem of sheer ignorance on the part of the top bankers.
Financial innovations have generated many fancy products. In the universities, rocket scientists, who are the mathematical statisticians and economists, have generated a variety of products which are bets upon bets upon bets. People make money out of them, but people often make money out of things that they do not understand. That happened in Barings Bank in the early 1990s when what Nick Leeson was doing was not understood by the top team at the bank, but they were glad to be making money. When they stopped making money they went bankrupt, still not understanding why they had gone bankrupt.
This is a serious problem and if the Government are going to follow the suggestion of the right reverend Prelate to have this meeting of philosophers, bankers and moralists, they should also have a serious examination of the competence of bankers to understand what they are doing. I am not saying that facetiously, because some of the models that are designed to value CDOs and all those things are so complex that few people who operate them readily understand how the risks operate—who bears the risk. Very often banks themselves think that they have diversified or hedged a risk, whereas all they have done is taken a risk on one asset and put it on another asset, which is correlated with the asset they thought they were hedging against.
Given that complexity, there is little confidence in top people in the banking community who are paid enormous sums of money. I do not begrudge anyone large sums of money if they deserve them, but there is a serious problem and we may tumble further into a financial crisis precisely because people do not understand the risks that they are taking. It is not as if these risks were not foreseen. People have been warning of problems for two years if not longer. Not only in the sub prime markets but in a variety of other securitised assets where there are hedges upon hedges upon hedges, people are carrying on their portfolios assets whose value may vary anywhere up to 300 or 400 per cent. Anything that you put down on your books is a gamble. The number itself is a gamble, regardless of the fact that the asset was also a gamble.
This is an international problem, so it must be tackled at an international level. It is remarkable how sadly absent the International Monetary Fund has been in the latest crisis. It did absolutely nothing to warn about the problem or to tackle the problem when it happened. It is faced with a leadership crisis, but I have no time to go into why we appoint the leader of the IMF in the way we do. Perhaps the Financial Stability Forum, which my right honourable friend the Prime Minister did so much to establish when he was the Chancellor, should look into this problem, because it is not going to go away.
During the crisis, we witnessed how differently the European Central Bank and the Bank of England behaved. It is not just because Mervyn King is a friend of mine and a colleague of long standing that I think that the Bank of England by and large took the correct view. If adults take risks which they should not take, you should not bail them out when things go bad. I shall turn to Northern Rock later, but in the main the stance taken by the Bank of England was entirely correct. You do not pump liquidity into a system suffering from excess liquidity and risks taken by people who are getting money far too cheaply.
The way in which the Federal Reserve and the ECB behaved was not only different. There will be consequences which we are yet to see. In addition, because the Bank of England was quite severe with its lending policies, many British banks borrowed either in an American window or in an ECB window. Now, the rescuing of banks or the way in which they borrow from the Central Bank has become a global phenomenon. There is not a single, central bank which can bail out or not bail out its local bank. It is a consortium of central banks. We need a framework for understanding some co-ordination. When a crisis like this happens, it should be clearly understood that banks, although not following identical policies, inform each other about what is happening in their backyard. The way things are going, the idea that a central bank controls banks within its jurisdiction will no longer be viable. We have the emergence of a new global financial regime which needs regulation that is not too elaborate or cumbersome, but it will need a form of oversight. Obviously, the Bank for International Settlements is the agency doing this, but I am sure that by now Basel 2 is out of date and we will have to think again about banking regulations and the requirement for banks to behave prudently.
On Northern Rock, it is remarkable that only one bank has gone in the British banking system, whereas in Germany many more banks have gone or are in considerable difficulty. The noble Lord, Lord Oakeshott, is well informed and was right in what he said about why Northern Rock went the way it did. But we also need to examine what we have done to the housing market. On the one hand we wring our hands in despair about the lack of affordable housing, but on the other hand we do everything we can to distort the market when it comes to the demand for housing.
For many years we have allowed house purchasers to be treated very favourably and differentially. No wonder people are tempted to overinvest in housing. If I went to the bank and said, “Give me four times my earnings to buy a part of a racehorse”—I could not afford a whole racehorse—the bank would say, “Get lost”. But if I go to the same bank and say, “Give me four times my income to buy a house”, it would say, “Done. Just sign here and you can take the money away”. We have created a special corner in the asset market where a house is no longer just for living in. Everyone who buys a house thinks that they are buying an appreciating asset. All sides of politics have been too shy and cowardly to tax house ownership to bring it in line with the ownership of other assets. Because the recent fracas on inheritance tax has worsened the situation rather than improve it, we will go on having distortion in the housing market and people will overinvest in it. If we do not integrate the housing market into the complete set of financial market assets and tax it properly and if we do not allow people the delusion that when they buy a house, they are buying a productive asset, specialist institutions, such as Northern Rock, will overdo things. People are buying not a productive asset, but a depreciating asset. Any rise in the value of the house is an illusion.
My Lords, it is always a great pleasure to follow the noble Lord, Lord Desai, and I hope that his warnings will be heard. It is remarkable that in these debates there has been virtually no comment on the unique feature of the Queen’s Speech this year; namely, that the Prime Minister decided to publish virtually all its content in advance. That was clearly a gimmick, which probably anticipated the election that never was. It also sought to establish the fact that the Government consulted on important issues. I shall come to the consequence of this proposal in a moment, but you have only to contrast that idea with the total lack of consultation as regards the autumn statement on the changes in capital gains tax to realise that this Government do not consult properly, which is a major failure.
Will the Minister be sure to reply and let us know, as a result of the consultations which were made following the pre-publication of the Queen’s Speech, precisely how many there were, how many of them were relevant and what has changed in the Bills before us which would not otherwise have changed? It seems to me that there is no reason why one should not have pursued the normal process followed by consultation. I very much hope, if only because it will not be as discourteous to Her Majesty, that this practice will not be followed in future. I shall comment on three Bills—those on unclaimed assets, pensions and student loans—before I turn to more general matters.
The unclaimed assets scheme is to be welcomed. There is already a great mass of documentation from the Treasury Select Committee and others on various aspects of it. As it happens, I may have more experience in this field than anyone else in either House. A few years ago I was asked by Mr Paul Volcker, former chairman of the Federal Reserve Bank and a very distinguished American public servant, to take part on the claims resolution tribunal for dormant accounts in Switzerland. We were extremely successful in finding the owners of many of those accounts. Many of them were victims of the Holocaust, but a great many were not.
The crucial point that I should like to make at this stage—it may be appropriate if I join in at later stages on the Bill—is that I believe that the Government in implementing this scheme must be proactive in trying to find the owners of the dormant accounts. That does not come through in the documentation to which I have referred. I do not think that there will be the terrible problems in identifying the account holders if they come forward that there were in Switzerland. Almost all of those accounts will be based on a signature, whereas one of the problems in Switzerland was that they were numbered accounts and there were no signatures.
On the Pensions Bill, the Queen’s Speech states:
“A Bill will place a duty on every employer to contribute to good quality workplace pensions for their employees”.
That seems to me to be another proposal for a tax. The crucial point here is that this is against the background of the devastation of British companies’ pension schemes over the past 10 years. The scheme which had more assets in it than the whole of the assets in the rest of Europe in similar company schemes has been devastated. The final salary scheme has been seriously reduced: very few are still left open. Now the Government have come up with this proposal. It is a remarkable thing and needs to be put into context.
What I also regret not seeing in the Queen’s Speech is a proposal to take the administration of the tax credits scheme away from HM Revenue and Customs. The noble Baroness, Lady Hollis, will remember that I warned against this at the time because the Revenue is a great deal better at collecting money than it is at giving it away. The fact is that it has given away the wrong amount to tens of thousands of people and then demanded it back, which has caused the most appalling concern and worry to the poorest members of our society. The sooner the scheme is taken away from the Revenue and put back into the social security side of things, the better.
I turn thirdly to the Sale of Student Loans Bill, which was not mentioned in the Queen’s Speech at all. I well know from my own experience that there is always intense competition between departments to get a sentence in the Queen’s Speech. The one from this particular department states that:
“My Government wants all children to have the best possible start in life”.
Anything more platitudinous or wasteful of an opportunity, I cannot envisage. However, the speech does not mention the Sale of Student Loans Bill, so when the Minister mentioned it in his opening speech last week, I was rapidly prompted to intervene because it is extraordinary. If the Government are proposing to sell off to the private sector a collection of sub-prime loans at the present moment, their sense of timing is seriously defective. Nothing could be more unfortunate than to try to dispose of this particular asset at this particular moment, even if it is said to be only a provisional Bill. But what worries me even more is that after the debate a colleague said to me, “One of my children has a student loan. Did you realise that the Government have just put up the interest rate?”. It seems that the Government are raising the interest rate on student loans in order to boost the value of the asset so that they can sell it off to the private sector. I hope that the universities and various other institutions around the country have put this information on their notice boards. The scheme is said to be worth £18 billion at present, but I doubt very much whether the Government will get that sum for it because these are clearly not prime loans. If they were, there would be no reason for the Government not to hang on to them. The Government are going to sell them off not only at a discount—I wonder where the loss will appear in the Government’s accounts—but they are going to have to pay a risk premium as well.
I turn now more broadly to the state of the economy. The words are surely, “debt, debt, debt”—international debt, national debt and personal debt. The noble Lord, Lord Oakeshott, and my noble friend Lord MacGregor both referred to this matter. The fact is that the previous Chancellor of the Exchequer presided for 10 years over a situation where the Government’s debt has grown more and more and more. The idea of prudence, as my noble friend Lord MacGregor observed, is a busted myth. There has been nothing prudent about the way the Chancellor of the Exchequer has acted over the past 10 years. On supervision of the banking system, his tripartite arrangement failed completely at the very moment when it was first put to the test. There has been not only enormous government borrowing but also much encouragement of personal borrowing. There is now a great deal of personal debt and the repayment of it is becoming increasingly difficult. I believe that we could well be heading towards a situation similar to that which alas we had under a Conservative Government, that of negative equity, but on a much larger scale than was the case then. On top of that, we have the Northern Rock fiasco. I have not worked out the exact figures, but an estimate in the Evening Standard this evening suggests that the amount now on loan is equivalent to £720 for each taxpayer in the country. There has not been a worse example of how to manage a crisis than that.
I am out of time and I want to make only one final point in line with what was said a moment ago. The previous Chancellor of the Exchequer inherited the best economic situation that has been inherited by any Chancellor; I fear that his successor, Mr Darling, is in danger of inheriting one of the worst.
My Lords, business needs stability, and it was good to hear the noble Lord, Lord Jones, refer to that very point in his opening remarks. We on these Benches were extremely pleased when the Government introduced the system whereby the central bank sets interest rates. It was a departure that has produced much-needed stability and is something that we had long advocated. But stability is driven not only by the financial backdrop, it is also about the Government’s overall and specific approach to business, the climate they create. Among other things, this means that business must be listened to. I shall say more on that later.
The Government have long stated a commitment that the impact of regulations and government measures will first be assessed for their effect on small businesses. I hope that that commitment will be renewed and carried forward. Our SMEs are the backbone of the country and frequently provide the innovation and new ideas that play a big part in our economy. I have spent a lifetime in the small business field, latterly as managing director of a manufacturing company producing plastic extrusions, so I declare an interest, albeit a past one.
In all the time I have been in Parliament, in both Houses, the much-repeated concern from all quarters has been about red tape and excessive bureaucracy. The touch must be light. But business also needs certainty and awareness. The world does not stand still and there are always fresh challenges. People’s circumstances and expectations change, so the Government and business must adapt, but certainty is important. Too often, new regulations are brought forward without proper consultation and with no prior knowledge. A few years ago while on a visit to Brussels, I was dismayed to confirm what I had believed already: there was no one-source tracking system for new regulations. From inception through their development to the final regulations, no central computer system or system of any sort tracked regulations so that business and politicians could easily be kept up to date. I think that this still applies. If it does, I ask the Minister to look at it again. It is deplorable that we do not have a system whereby politicians and business people can see clearly what is coming down the track.
While business needs stability, it also needs the freedom to operate sensibly and fairly, and it needs trained people in the workplace. Before saying a few words on training, perhaps I may say on the issue of red tape that there have been a very great many initiatives over the past 10 years, and we now have one more. I hope that the planned Regulatory Enforcement and Sanctions Bill does not become just another initiative among the many. It talks about the establishment of a statutory corporation known as the Local Regulation Office. Will that mean one more set of officials? I appreciate that much to do with regulation happens locally, and thereby the desire for local offices. This will be welcomed by many, but I am still concerned that this should not become, in its own way, a further piece of bureaucracy. The new Bill must contribute to a reduction in bureaucracy and be monitored accordingly. We will naturally be very keen to ensure that the Government do that over a period of time.
I hope that the Government are living up to their promises on the “one in-one out” principle in regard to the introduction of new regulation. I hope that principle is being followed because the Government made a strong commitment to it. I hope also that, in practice, a statement of effect to ensure that all other measures have been exhausted and examined is produced before new regulation takes effect. We still need slimmer regulations, more consultation and a higher standard of impact assessments.
We have always maintained the need for rigorous independent regulatory impact assessments. During my time in the other House I dealt with something in the order of 10 Bills. The concern about regulatory impact assessments was raised fairly consistently and frequently, certainly in the early days. The Bills were not very adequate in that respect. The impact assessments should be independent, accurate and rigorous. Many will again watch with interest for a genuine reduction in bureaucracy and, above all, more common sense being brought to regulations. This often happens, in my experience.
Perhaps I may now touch on the issue of the workforce and training. Business and industry need the highest quality of educated people but also those who are vocationally trained. It is to be welcomed that the Government will address through legislation the issue of apprenticeships. This is exciting. An emphasis on an entitlement to an apprenticeship for 16 to 18 year-olds will be welcomed. I, along with others, look forward to the review of the apprenticeships programme promised for January next year.
It is good to note that under this Government’s tenure there has been an increase in the number of apprenticeships, but completion is important and in the past the rate of completion has been as low as 40 per cent. It has now risen to 60 per cent. It is important that the Government address the problem of completion and ensure that the courses are relevant and exciting enough to keep the apprentices involved. We cannot let potentially valuable people—who, when properly trained, could make a great contribution to the economy—go because of a lack of enthusiasm.
What will the Government do to encourage employers to take on apprentices? In the past employers have been reluctant to take on apprentices aged 16 to 18. Perhaps they feel they were not equipped to go into business or have not had a sufficient lead-in to it. It is a very serious issue in view of the commitment the Government are making in carrying forward the education of 16 to 18 year-olds. It is particularly important in regard to apprenticeships that employers are encouraged to take on young people—indeed, to take on all people. In that connection, employers at the moment do not necessarily feel that encouragement as there are gaps in the funding arrangements. This means there is not the incentive that there should be for the employers to make their contribution of some 50 per cent or so towards courses, and many are reluctant to do so. Therefore, while welcoming the Government’s initiative, we will be looking very closely at the detail. We hope there will be a good period of consultation before the Bill is introduced later next year.
As I say, small businesses, in particular, must not be forgotten in regard to both red tape and training, because that is a very difficult area for them to address with their limited funds. So stability, setting business free and training are the key watchwords. We look forward with interest to seeing the Government deliver on these.
My Lords, we are to have another Pensions Bill this Session. This was of course foreshadowed in the discussions we had on the Pensions Bill in the previous Session, which we knew was the beginning of the Government’s attempt to redesign pensions provision. Of course, most of us agreed that this was necessary. Until quite recently we had a very good system of private pension provision in this country, although of course there were criticisms of the basic state scheme. Those of us who benefited from a final salary scheme are the lucky ones. The decision of many companies to close such schemes to new entrants and to provide very much less favourable money purchase schemes was a great shock. This was followed by the collapse of certain final salary schemes, which many employees had believed to be entirely safe and had been encouraged to join on that basis.
It was clear that something had to be done and the Government rightly sought to provide some assistance. We discussed the schemes concerned in the context of the previous Bill. There was of course the Pension Protection Fund, and the Financial Assistance Scheme to assist those not covered by the PPF. It seems likely that we shall have to return to discussion of these schemes as there have been concerns about whether the resources made available will be adequate. There was also a suggestion last time round that there should be a lifeboat scheme. It received a certain amount of support but the Government did not accept it.
However, the Government plainly want to restore confidence in private occupational schemes, and we have a new regulator. The Government were quite correct to adhere to their arrangements with the unions in the public sector, thus ensuring that such employees benefit from good occupational schemes, and they have rightly maintained that stance despite some criticism from opposition parties.
Problems remain, however. How do you persuade people, at a time in their lives when they already have heavy calls on their disposable incomes, that it is necessary for them to save for retirement? They may already have debt problems, some of which have been referred to—heavy mortgage repayments, children to support, perhaps even ageing parents to care for. The cost of living in London is acknowledged to be very high. The last thing they want to think about is retirement and the cost of saving for a pension. Moreover, when they look at the figures involved in providing good private pension provision for themselves, they may be absolutely horrified; it costs an enormous amount.
The Government came to the conclusion that an element of compulsion was required. This of course is included in the scheme that we discussed in outline during the last Session with the previous Bill. But there is a problem involved there too. The scheme would involve automatic enrolment, with the employer, employee and Government each making a contribution, but there would be an opportunity for the employee to opt out. The problem we identified the last time it was discussed was the interaction with the benefits system. If an individual decides to opt out and then, at the appropriate time, does just as well under the benefits system as someone who has paid his 4 per cent salary deduction, there will be an incentive for more people to opt out. There needs to be a discussion about how to deal with that problem and how the new scheme will be managed and regulated. No doubt there will be an opportunity to discuss this in the context of the new Bill.
Then there is the state system. We have often been told that it is the cornerstone of pension provision in this country. Certainly for many lower paid people it is likely to be their only income in retirement. I welcome the decision to provide increases in the basic state pension in line with the wages index in future, but regret that it was not thought possible to introduce this with immediate effect.
I know that pension credits have been of great assistance to many people, despite some of the problems that have been identified by other speakers, such as the noble Lord, Lord Higgins, but I would still prefer a substantial increase as of right—not means-tested—for all pensioners, enough to provide a basic state pension on which it is possible to live. That has long been the aim of the TUC, and the noble Lord, Lord Oakeshott, referred to it earlier. In that respect I agree with a lot of what he had to say. If it were said once again that such a measure would simply benefit the better-off, I would say that the additional money would undoubtedly be removed from the better-off via the tax system and at least pensioners would get their pension as of right without submitting to means-testing.
The Government have attempted to meet criticism of the poor provision for women in the state system by reducing the number of contributions necessary for them to qualify for a full pension. We welcomed that last time, but I doubt whether it will deal with the problem fully. Many of us believe that a residency-based pension rather than a contributions-based one would inevitably benefit women more than the current proposals. That option has been rejected and there may be many problems associated with it, but we may have to consider it in future. My noble friend Lady Hollis, who is an expert on this subject and has done a lot of work on it, may make a contribution about this in her speech. Nevertheless, the Government seem aware of the many problems that exist, and I welcome the chance to discuss the new Bill.
On the issue of employment, I was interested to hear what the Minister had to say in introducing the debate. The employment legislation looks very far-reaching and I welcome the opportunity to discuss it when we have more details available.
My Lords, at the start of this year many people thought the world economy was set to continue its steady progress. Based on low world inflation, low or falling unemployment and globalisation with rapidly developing economies generating huge liquidity from massive trade surpluses from oil, primarily in the Middle East, and from manufactures, primarily in China, it seemed as though prospects, if not exciting, were as solid as the rock on which Manhattan is built.
Although the sub-prime problem in the American housing market had emerged in March—HSBC, with its $10.6 billion write-off, was the first to own up—the imminent scale and effect of the credit crunch was as widely unpredicted as it was predictable. The credit bandwagon rolled on. The bubbles in real estate, consumer spending and stock prices continued to swell so that when the storm burst in August and September and the banks stopped lending to each other, most did not realise the gravity of what was to happen.
The scale of toxic credit revealed by the sub-prime scandal is almost unimaginable. As a measure, take the UK GDP, which is $2.6 trillion. Including the $1.3 trillion in sub-prime bonds, there is $2.8 trillion in distressed mortgage bonds. Already the international banks have revealed losses totalling $50 billion. The experts now expect that the eventual total could be $150 billion to $450 billion. The very width of that forecast underlines the uncertainties.
Let us remember that in the great crash of 1929 the Dow peaked in September of that year but did not bottom out until July 1932, by which time American shares had lost 90 per cent of their value. Few people thought that the failure in May 1931 of the Credit-Anstalt bank in Austria, which triggered the financial collapse of central Europe, with the German Danabank collapsing in July and closing down all German banks until August, could lead directly to the fall of Britain’s Labour Government three months later and, in March 1933, a banking collapse with America leaving the gold standard. I well remember that, at the time of the London secondary banking crisis 30 years ago, Jim Slater was one of the first to spot the dangers, but that did not save Slater Walker.
Let us go back for a moment to December 2001 when the American energy trading company Enron collapsed owing $16.8 billion. Enron used off-balance sheet structures to keep liabilities off their books and booked “mark to market” profits, often based on derivative prices they created. The banks today have huge exposures to off-balance-sheet structured investment vehicles—SIVs—which have been borrowing in the capital markets and investing in securitised credit derivatives, which are now blowing up. They have earned huge profits out of the creation and management of such off-balance-sheet vehicles, and are now being forced by market realities to take them back on to their balance sheets just as the investments they hold become worth less or, in many cases, worthless.
I am reminded of the scandal of Lloyd’s of London that did so much damage in the 1980s to the reputation of the City. I should at once declare an interest as a former victim of Lloyd’s. What happened then was that a number of underwriters, who combined a fatal mixture of stupidity, greed and dishonesty, motivated by the commissions they would earn, took on to their books a series of unquantifiable long-term risks that no sane person would have looked at. To protect themselves they invented the notorious baby syndicates into which they sought to place the best business for the benefit of themselves and their friends, while the mass of rubbish was shunted on to the punters who were outside names.
Last month I was among some of the most sophisticated members of the American financial community. They expressed much concern that it would take many months for the extent of the credit crunch disaster to unfold. I was struck by an analogy used by Dr Sidney Jones, a former professor of finance at Michigan University and previously assistant secretary for economic policy in the US Treasury. It was, he explained, like the childhood card game of Old Maid. In this case the old maid was the card labelled “risk”. It was cut into small pieces and each piece was bundled into a package of other financial confetti and shuffled out to those with an appetite for such sophisticated instruments—which, of course, they did not understand. The originators reckoned that the mathematical logarithms would prevent any chance of the pieces of the risk card being reassembled. Well, they have been.
A Cambridge mathematician friend of mine, who sees the financial model in engineering terms, believes there is a real risk that the whole credit risk cycle could be reversed. That may well have started. Thus, instead of freely available credit leading to more leverage and more buyers and thus to increasing asset values and decreasing lender defaults, less credit at higher prices would result in fewer buyers, falling asset values and thus more defaults and less chance of recovery for lenders.
What is quite certain is that we have not yet begun to see the impact of all this on the ultimate consumer. The bankers having failed in their prime task of assessing risk rather than going for short-term profit maximisation, the public on both sides of the Atlantic have been gorged with credit, whether in bank loans, excessive mortgages or multiple credit card expenditures. Some of your Lordships may remember one of the most amoral of financial marketing slogans, “Borrow from us and take the waiting out of wanting”.
Alan Greenspan, in his recent book The Age of Turbulence, puts it neatly:
“When reality strikes home, exuberance turns to fear”.
America has had an economic engine fuelled by optimism. Now I find that many there feel that there is perhaps a 30 per cent chance that there will be a recession.
What are the conclusions from all this? First, central banks should not be in a hurry to cut interest rates. If capital is to be properly used it should have a real cost of about 3 per cent or the long-term GDP growth, which is probably about the same thing. Monetary policy can become an empty weapon, as the Japanese found to their cost. The Nikkei bubble peaked at 39,000 in December 1989. Today, 18 years later, it is still only at 40 per cent of that level.
Secondly, we must expect currencies to revert to something closer to their purchasing power parities, perhaps by the end of 2008. That is what exchange rates are for. You cannot buck the market but a two-dollar pound is clearly unsustainable, as is a euro that will buy $1.47.
Thirdly, we can expect the genuine liquidity of Asia and the Middle East, probably each about $1.5 trillion, to compensate for some of the toxic liquidity being destroyed in the West. China, where I was earlier this month, is starting to do so with the formation of the new China Investment Corporation, with its initial funding of $200 billion. It must be encouraged to invest that in real assets in the West. The growing domestic market in China will help to offset a recession in America.
Fourthly, we have to deflate the oil price bubble. There are two ways to do it. The first is by ceasing to bully and threaten Iran, and by leaving Iraq to sink or swim on its own, but at the same time imposing a genuine two-state solution on Israel-Palestine. The deal at present on the table is not viable. America must deal with both Palestinians and Israelis on a more equal footing. Syria could be crucial in persuading the Palestinians to come along. Western military support should be focused on Pakistan and Afghanistan, where the threat from Islamism is far more serious. The second way is for both America and Europe to announce a massive long-term plan to construct nuclear power plants. The oil market will soon get the message.
Fifthly, the Governments of France, Germany and Italy must restructure their unsustainable social systems. We see the problems that Sarkozy is having at the moment, as he tries to do it.
Sixthly, the British Government must continue to cherish the City of London, which now provides some 13 per cent of our GDP, as an international base for financial operations. Three-quarters of the enterprises functioning there are foreign-owned, and 25 per cent of the 1 million who work there are foreign passport holders. This should mean, for example, restructuring of the tax rules to get rid of the absurd fiction, imposed by Her Majesty’s Revenue and Customs, that funds in practice managed from London are in theory managed in Bermuda, the Cayman Islands and other such places.
I see history as being driven by both tides and storms. It is sometimes difficult to distinguish between them. Most of the world’s economic tides today are favourable to stability and prosperity. Political tides are another matter. Storms do not usually change the tide although, when they do, it is sometimes in the opposite direction to that which was intended. The ultra-left cultural revolution actually set China on the road to capitalism.
The credit crisis is a storm. It will pass, but it will need careful handling to make sure that it does not turn into a political storm, and some long-term changes in practice and attitudes must be made.
My Lords, I welcome the opportunity to take part in this debate. The House has already held a debate on education following the gracious Speech, and I am sure that all Members will agree that education is the most important part of a successful advance beyond the already-impressive economic policy pursued by this Government, as the Minister made clear in his opening remarks.
I shall refer specifically to the pressing need for an increase in skills throughout the UK. Its necessity was pointed out in the review of skills carried out by my noble friend Lord Leitch and reiterated by the Minister. I am heartened to see that the Government have taken on board the main recommendations of the review, especially in relation to increasing the skills of the workforce by making sure that employers get the trained staff that they need.
As the House of Lords Select Committee regretfully pointed out in its report, despite our successful economy, which is arguably the best in Europe, we lag behind many of our main competitors in skills. We have to face up to the fact that a large percentage of our workforce possesses low skills, but it is to the credit of this Government that, since 1997, they have done a great deal to rectify the record inherited from the previous Government. There is much more to be done, and the gracious Speech spelt out the Government’s determination to tackle the skills shortage.
The Education and Skills Bill takes forward the proposals outlined by my noble friend Lord Leitch on how to improve skills across the country, create a workforce with world-class skills levels and increase economic productivity across the board. The crucial role of sector skills councils is to give employers a voice and ensure that they are fully behind the Government’s plans. The role of the sector skills councils in consulting and engaging with employers is crucial. That, too, was emphasised by my noble friend.
The Government clearly recognise in the draft Apprenticeship Reform Bill the importance of on-the-job training on accredited apprenticeship courses, which gives people a real chance to further their career prospects. I have already mentioned the Government’s impressive record. We have recently been told by the Skills Minister, David Lammy, that, during the past 10 years, the number of apprenticeships has increased from 75,000 to more than 250,000.
In my area of Tameside, the council has provided modern apprenticeships to school leavers, enabling them to earn a wage and gain access to learning in a work placement, while studying for a qualification relevant to their chosen occupation. Young apprenticeships are being offered to students who are still at school. Through combined work placement and college training, they work towards a City & Guilds Level 2 certificate and an NVQ in business and administration Level 1. Tameside is rightly recognised as one of the leading authorities in Greater Manchester, and probably in the country, for running such schemes and it should be commended. It is not alone: many other local authorities are engaging in exciting and innovative apprenticeship schemes.
I welcome the Government’s emphasis on employers and the focus on a demand-led skill system. I am pleased that sector skills councils are recognised as being at the heart of the solution. I hope that the reforms will mean that, for the first time, vocational education and training will be demand-led and that each student can look forward to better opportunities for employment when they enter the job market. I cannot think of a better incentive than that for young people to participate in education and training. However, I am concerned whether sector skills councils will be adequately resourced to do the job in hand and provide leadership to employers. They have been charged with leading the way in the reform of qualifications, but it is imperative that the Government ensure sufficient funding for the job to be carried out.
A question that must be asked is whether the publicly funded system will be responsive enough to employers’ needs. Employers in some sectors are finding that the qualifications available are not right for their industry, and the funding for the courses that are available is less than they would like.
One example that has been pointed out to me is training in the sport and leisure industry. I need hardly point out that that industry has a significant role to play in helping to build a stronger and fitter economy. It has the power to engage with people of all ages. As president of the Football Foundation and chair of the All-Party Sports Group, I am only too aware of the need for skilled professionals to work at all levels throughout the sport and leisure industries. This is a particular concern for me. We need football coaches, lifeguards, skilled fitness instructors, playworkers, outdoor adventure leaders and more. The Sector Skills Council for Active Leisure and Learning, SkillsActive, works with employers in that industry to ensure that proper training and skills are available and promoted.
This is exactly the kind of employer-led direction to which many young people who may be considering leaving full-time education will be attracted. Employers in that industry are calling for people coming into the sector to have not simply to have the technical skills required, but better team-working skills, improved communication skills, better technical and practical skills, and improved customer-handling skills.
Through SkillsActive, employers in the active leisure and learning sector are coming together to invest in a key solution to the problem of skills shortages in the UK; namely, national skills academies. SkillsActive has been successful in the latest round of submissions for a National Skills Academy for the active leisure and learning sector, and hopes to provide a radical opportunity for the sector to meet the productivity challenge and increase participation in sport. The academy will ensure that all employers in that sector are linked to, and supported through, a single point of contact to identify the skills that are required. It will encourage many people to enter the industry and provide them with the right employability skills and motivation to work. It will provide employers with access to high-quality and cost-effective training and education for their new recruits and for the development of management skills for their existing workforce.
SkillsActive is also working to develop pathways for entry to the workforce. A sport and leisure diploma is being developed in consultation with employers, schools, colleges, training providers and other organisations in the sector, and aims to give young people a fully rounded qualification, combining theoretical and practical learning. Currently in the planning stages, the diploma is likely to be online by 2010 and a national entitlement by 2013.
The young apprenticeship for the sector is in sports management, leadership and coaching, supported by SkillsActive to allow 14 to 16 year-olds to combine academic studies with a blend of vocational qualifications and work placements to learn the skills required by employers. It is hoped that there will soon be one young apprenticeship partnership in sport in every county and there is a strong message that employers really want to engage in this programme. Skills passports are another innovation available to staff in the sector to allow employers to see what qualifications people have and need and to allow staff to move freely throughout the sector.
In conclusion, there is a great and obvious need for opportunities for young people in these skills sectors, and I urge the Government to take on board the views of employers and sector skills councils to ensure that the UK can be a nation with world-class skills by 2020.
My Lords, what are the overall aspects of the Government’s economic policy? The decision to hand over the setting of interest rates to the Bank of England was a good one; the bank has done a fine job in delivering low inflation and stability in spite of the former Chancellor’s interference in changing the goalposts, as usual—from the RPI to the consumer price index. The economy has grown for 10 years in succession, which is no mean achievement, but half the growth has been accounted for by increased government expenditure. What did the Prime Minister say in 1997? “I shall reduce government employment”. We now have 700,000 more in government employment than in 1997.
Tax as a percentage of GDP has risen from 39 per cent to 42 per cent. In 1997, the balance of payments was in balance; now the deficit is more than £25 billion. If you take only half of those on benefit and add that to our unemployed, we have one of the highest rates of unemployment in Europe. We have had the lowest number working in manufacturing since records began in 1841—and it is still falling. Admittedly, globalisation has had a major impact, but we cannot go on reducing the private sector and increasing the government one. Government borrowing to finance the growth will be more than £30 billion this year. Public sector debt is now nearly 40 per cent of GDP, which ignores £20 billion for Network Rail and more than £160 billion for private sector finance, as well as more than £700 billion for public pensions not provided for.
For some strange reason, none of those figures is in the borrowing figures. Does that mean that the banks caught up in the sub-prime crisis do not need to take account of any of their outstanding guarantees? Just as European tax and borrowing levels are falling, ours are rising—and rising as we approach an economic slowdown.
Then we come to the restrictions imposed by Brussels. The Italian Prime Minister, Mr Prodi, a well-known pro-European, has rushed through an emergency decree authorising the deportation of thousands of Romanians, even though the Italian magistrates’ association has pointed out that it is a breach of EU law, which clearly states that EU countries can deport each other’s citizens only on an individual, one-by-one basis. Mass deportations are illegal. The UK studiously plays it by the rules, or maybe its gold-plated interpretation of them, but should we also, to reduce the economic burden on the state, be deporting those immigrants en masse who claim benefits without contributing and are here illegally?
Then we come to Northern Rock and the first run on a bank for nearly 150 years, which severely damaged the UK’s record of economic and financial competence. These episodes normally occur in third-world countries. It is a sorry story of the failure of the regulatory authorities, reorganised under the Government when the Bank of England was given independence, but more importantly of the board and the independent—or perhaps more appropriately non-executive—directors. While they basked in the unsustainable growth of Northern Rock, its business model had already proved faulty. As early as 2004, Northern Rock, having been caught out by higher interest rates, told its investors that half its loans would be met by retail deposits, yet when it collapsed, only one-quarter were matched.
Where were the regulators? The Bank of England failed to step in early enough as the lender of last resort, perhaps influenced by its over-reaction to the last crisis—BCCI—in 1991, when at least one bank was forced by the Bank of England into arranging a facility that it did not need and did not use. The bank may have been nervous of becoming involved until the situation made it inevitable. However, it then stated that EC regulations prevented its intervention, although that was subsequently denied by Brussels. That is UK gold-plating again, perhaps.
The primary blame for this affair lies with a board that lacked the vision to see the inadequacies of its financial model and the Chancellor, who devised the financial regulations, falling between two stools, and lastly the regulators. It is somewhat surprising to say the least that the board has not resigned or been asked to when the Government are providing £20 billion plus of funding. The repercussions of Northern Rock are now, with the sub-prime problems, working their way through our economy, and have created much more nervousness than might otherwise be the case. Add to this the fact that the financial services industry makes such a substantial contribution to our economy and one can appreciate the damage that Northern Rock has done.
The biggest horror, of course, relates to the public finances. It is difficult to comprehend how much government spending has gone up. In 1997, it was £320 billion; it is now £580 billion. The absurdity of throwing all that cash at unreformed public services in the face of falling productivity and gross waste of resources is amazing. The unhealthy state of public finances should be regarded, as one eminent economist has put it, as a major achievement of irresponsible mismanagement. Look at the Galileo project, which cost maybe £10 billion. The UK contributes 17 per cent of the cost, which is decided by majority voting in Brussels, and two-thirds of those voting on this expenditure make no contribution to the cost. Frankly, this is absurd. In 2003, when we went into deficit, the Chancellor said that we would be in credit by 2004. In 2004, with a larger deficit, he said that we would be in credit by 2006. In 2007—and I need say no more.
Look at the fiasco of tax credits. To claim them, there is a 60-page booklet and then a 12-page form. The cost is £15 billion a year. The NHS spends £100 billion a year, up three times since 1997, and even now we are sacking staff and closing hospitals. The Prime Minister’s sanction of a £20 billion computer system for the NHS is a shambles and miles over budget. Tony Blair’s pledge to improve state schools so much, to use his words, that parents no longer feel the need to go private, are belied by recent figures showing that a growing proportion of families are paying to educate their children outside the state system. In almost one-third of towns and cities, more than one in 10 children attends a private school. That increase is in spite of a near 50 per cent rise in fees over the past five years. Even Labour MPs—very courageously—are saying that Mr Blair failed in his objective.
In the mean time, Tolley’s yellow tax book is up from 4,500 to 10,000 pages. However, one piece of simplification to be welcomed in principle—and here I disagree with some noble Lords who spoke earlier—is a single rate of capital gains tax of 18 per cent. We have complained for years that it is too complicated; now that it is greatly simplified, we are getting complaints that it is an 80 per cent increase for some. Speaking for myself, it is a 55 per cent decrease; as I used to pay 98 per cent capital gains tax it is a huge decrease. So I do not think that 18 per cent, although I wish it was lower, is unreasonable. What I do think the Government need to do is to make some better and well thought-out provisional arrangements. We asked for simplification and we have got it. We should not complain about it now that we have got it.
Finally, let us look at what Labour said in its 1997 manifesto. It said:
“New Labour will be wise spenders, not big spenders”.
As I mentioned, public spending has risen from £320 billion to £580 billion. Since 2001, spending has increased at 7 per cent per annum, vastly in excess of the growth in GNP. In 1997, new Labour said that public finances under a Conservative Government which were heading for a surplus “remain weak”. There is now a structural borrowing requirement of more than £30 billion. What does new Labour call that? And that is after taking £100 billion from private sector pension funds and ruining a wonderful provision for old age that was almost unique in Europe.
So congratulations to the Government on 10 years’ GDP growth—but at what cost, and what happens now? Unfortunately I do not have time for that, but it is going to be tough, with 20 per cent of household income going on debt repayments. Long gone are the days when the previous Prime Minister took the credit for the record level of the Financial Times share index. When it hit a new peak in 2000, it was all due to good government—a level which has never been achieved since. It this the market’s judgment on the Government's economic performance?
My Lords, I am happy to follow the noble Lord, Lord Stevens, but I will not go down the same route; I intend to talk largely about energy, an area in which I have interests which have been declared related to the nuclear industry and related matters.
As the noble Lord, Lord Jones, said in opening the debate, we have in this Queen's Speech three Bills—on climate change, energy and planning—that should enable the energy industries in this country to start making a clear and targeted contribution to reducing CO2 emissions. Before today’s debate we had the Statement from the noble Lord, Lord Rooker, on the Climate Change Bill. Although there are differences of opinion about the targets which should be set and the frequency with which they should be reviewed, in the early stages it is premature to be unduly specific. I agree with the remarks made earlier by the noble Lord, Lord Truscott, that some of the targets imposed by Europe are totally unrealistic. I have always felt that the target of 10 per cent by 2010 was attributable as much to the fact that 10 is the only number between nine and 11 as to anything else. I think that we will eventually get there, maybe by 2012, but we will certainly need the help—I hope it will be help—afforded by the changes in the planning legislation. If we can streamline the planning processes, I think that a number of projects which are currently locked in will be released.
What I do find rather depressing is the sectarianism of certain elements of the so-called Green movement which are prepared to frustrate this legislation because they see it as paving the road for the replacement of nuclear power. They choose to oppose the legislation while at the same time denying access to a number of renewable schemes, particularly wind and the like, which are presently being clogged up in the planning system—not always because of the system itself but sometimes because of the gutlessness of some local authorities which will not grasp the nettle of taking on board their responsibility, a responsibility which is sometimes seen in very short-sighted terms. There were several farms in my former constituency which wanted to have a complex of windmills that would have not only assisted in electricity generation but provided a revenue stream to enable the farm businesses to sustain the land for which they were initially established. It was frustrating to have to listen to the bleating of what some have perhaps politically incorrectly called the “white settlers”—the weekenders who come down and like the view but do not realise that farmers and farm workers are doing the business the other five, six or almost seven days of the week to maintain those views and keep the place going.
We have to recognise that those who seek to oppose the planning legislation are in danger of throwing a number of babies out with the bathwater. The fact that people are unhappy about nuclear power does not give them the right to deny us access to all forms of alternative energy which require extended or rigorous planning supervision and consideration.
I should like briefly to talk about the nuclear question. I am conscious that it is a delicate subject and that Ministers’ every utterance—perhaps some of them should have thought about this earlier—is being scrutinised by those who wish to seek refuge in the courts once a decision is announced. A number of us can read between the lines and see that the Government are prepared to do something about replacing the nuclear capability in this country. I use the word “replace” because I do not think that it is helpful to start talking in terms of 20 per cent or 40 per cent. Indeed, in the 1990s, when I had responsibility for energy policy in another place, I very quickly discovered that as soon as you put your money on any kind of energy source for any period of time you immediately get it wrong.
Those who subscribe to small-scale localised developments ignore the economic reality that in order to keep the transport system—and the chemical plants and the 24/7 industrial complexes which this country still has—going, we need a baseload-generation capability. If we are to have that, and have it in a manner that enables us to reduce carbon emissions, then the nuclear option has to be exercised. It will not happen immediately. We need approval and licensing of the reactors. That is in many respects the first fence and, at the moment, it looks like we are falling at it.
Despite the talk about the doubling or quadrupling of the salary of the chairman of the Nuclear Decommissioning Authority, we have the spectacle of the Nuclear Installations Inspectorate in a prolonged battle with the Treasury because the Treasury will not recognise that there is a special case to be made for nuclear installations inspectors, a group of men and women who are very highly qualified and highly skilled and who at the moment are in very short supply. The Minister could help us if he would tell us where we are in this wrangle between the Treasury’s obtuseness and obduracy and a not unreasonable demand by the installations inspectorate. We need their services in cleaning up the nuclear power stations and in decommissioning them. These people are necessary at every step along the road and their employment is essential. We are not going to get these people into employment if we are not able to offer them salaries commensurate with the significance of their task and the importance of what is going on.
Before we build nuclear power stations and before we have windmills we have to take account of the fact that the gracious Speech contained a reference to “affordable” power. Since 2004, we have seen some 2 million households going back into fuel poverty; that is, more than 10 per cent of their weekly income is accounted for by their fuel bills. We have seen the Government cajoling the energy companies, which have made offers and proposals. However, I find it very difficult to see energy utilities cast in the role of philanthropists. Their limited philanthropy does nothing but confuse consumers in dire straits. The Government have recognised that there should be social tariffs; that is, special provision should be made for consumers with financial difficulties by means of price discounts, fixed price bills, price freezes and the like. The Government have said that if the companies are prepared to introduce such measures, they will not legislate. However, the competitive position is a shambles. We have a variety of schemes, not all of which are identical, and not all of which genuinely help the fuel poor. It would be helpful if the Minister could tell us whether the Energy Bill that we shall probably see in the New Year will cover the social tariffs that companies will be required to provide for the poorest and most vulnerable sections of our communities. If they are to be provided for, there should be guidelines of a character that the public and the companies can follow. At the moment these vulnerable people are not being given a fair crack of the whip.
Overall, this area of the Government’s policy is exciting and developing and will be the subject of a lot of debate here. With one or two obvious qualifications, I shall be more than happy to offer my support and participation. I hope that by the new year we will see an Energy Bill and a White Paper which together will point forward to a future in which nuclear power—in which, as I say, I have an interest—will be a contributory factor. No one is asking for a French option of 80 per cent in 60 stations across the country but we recognise that our over-dependence on gas and the difficulties with coal—even allowing for storage of carbon—mean that these options are not in themselves sufficient. The nuclear option can give us national independence from the vagaries of the international system, but it will not come for at least another 10 years and in the intervening period a lot of old and cold people will die unnecessarily because they cannot keep themselves warm. Therefore, I ask the Minister to deal with that as a matter of piority in the forthcoming Bill.
My Lords, it is a great pleasure to follow my colleague the noble Lord, Lord O’Neill, who is a well established expert in the whole field of energy. It was a pleasure to listen to his powerful contribution. I strongly agree with what he said about social tariffs. He knows more about that than anyone else. Fuel poverty is a real scourge across the nation. I wish to concentrate my remarks on poverty.
Climate change and energy are the biggest issues facing us over the next 10 years. Much has been done in that regard in the Stern report and the Comprehensive Spending Review report on implementing Stern. The Bali conference in December 2007 will also be important in that regard. I just wish that people made more use of their powerful positions in government to try to change domestic attitudes to saving energy. If we save energy, some of the problems to which the noble Lord, Lord O’Neill, rightly alluded will become much easier to manage.
I feel sorry for the noble Lord, Lord McKenzie, who will sum up a debate comprising the diverse topics of consumer affairs, industry, energy and economic affairs. I shall make his life slightly easier—it is a genuine attempt to do so—as I shall talk about poverty and he knows about that. But before I do so I make a point in parenthesis about the role of Parliament and the important sentence in the Queen’s Speech about trying to get more engagement with and transparency in Parliament. There is far too much legislation and not enough pre- or post-legislative scrutiny. Through the Procedure Committee, the Whips or somebody, I hope that the House will seize the invitation in the Queen’s Speech to give effect to the aspiration of achieving a better role for Parliament.
I give an example, which is only one of dozens that I could think of. We have a carryover Bill dealing with the replacement for the Child Support Agency at the same time as we have a children Bill. It makes absolutely no sense to me that these two things should be separate as they both deal with crucial elements in children’s development, yet we have two separate bits of legislation. The Bill dealing with the replacement for the Child Support Agency simply lifts the template that was devised in the 1991 legislation. Circumstances have changed considerably in all sorts of ways since then. Let us see what we can make of the offer from the Executive to try to get a bit closer to it and work with it so that the legislative process is more efficient and receives even better scrutiny, although my experience of the three years that I have been in your Lordships' House is that the scrutiny here is of a much higher grade than in the other place. Let us continue that and see whether we can make the processes more transparent and more understandable to people outside.
I was slightly irked by the sentence in the Queen’s Speech about everyone being given,
“the chance to reach their full potential”.
If everyone was given the chance to realise their full potential, the country would really be in trouble. As the late Lady Seear used to say, it is an impossible goal to attain. For the lowest deciles of the income distribution, the aspiration to get anywhere near realising their full potential is impossible these days.
I wish to make a simple point in my remaining allotted time; namely, we have had a wide-ranging and interesting debate. I agree with much that has been said about skills, opportunities and the CABs. All these things have to be considered in the round and in the mix and they will all help. But what worries me more than anything else is that over the past 10 years there has been a benign set of economic circumstances. I think that the noble Lord, Lord MacGregor, referred to this, and there are people in this place who know more about economics than me. I think that it is generally accepted to be true that we are just emerging from a period where there was a real chance of making a difference to some of these things. I acknowledge that the Government have tried to do all sorts of things with active labour markets, with which we all agree, and I do not deny for a moment that there have been improvements in child and pensioner poverty in particular during that period, but for all that we still have 8 million families suffering from financial exclusion. The noble Lord, Lord O’Neill, said a moment ago that 2 million are in fuel poverty. Fifty per cent of households have no savings and no pension provision. A third of households—nearly 50 per cent in some more challenged locations such as sink estates—have no household contents insurance. My noble friend Lord Oakeshott referred to £1.3 trillion-worth of debt. That is not something that you would have expected to be the end result of 10 years of relative economic stability and growth.
I do not want to sound too doom-laden but my worry is that things could get worse. Noble Lords on all sides of the House have suggested that that might happen in the next five to 10 years. If that is the case, what will happen to some of these challenged households? I looked again at the figures for households below average income, published in May. I acknowledge that some of these figures have shown a downward trend. The figures relate to 2005-06, so some of the Government’s plans have still to feed through, but we are still talking about 10.4 million people below 60 per cent median net disposable household income on a before housing costs basis and some 12 million on an after housing costs basis. There are similar types of figures. These are numbers of people; they are not percentages. These are 2.8 million or 3.8 million children, depending on whether it is on a before or after housing costs basis. The working age group of people who are below 60 per cent has gone up over that period, and there are between 1.8 million and 2.2 million pensioners, depending on whether the test is before or after housing costs. Big numbers of households are challenged. There is poverty still abroad in our country; it is not fashionable to talk about it, but it is there and it hurts. It could be getting worse, because the raw material price increases in fuel and foodstuffs that we have begun to notice coming through the pipeline will fall with heavy incidence on the poor more than they will on anyone else. The Government must take some account of that.
We are waiting on an uprating statement which is coming within the next few weeks. We have the retail prices index increase of 3.9 per cent for full benefits and 2.3 per cent for Rossi index means-tested benefits. I urge the Government to use all the leverage that they can—because there is discretion in some of the operating rules—to recognise that those challenges are still being faced by some households throughout the United Kingdom. It will not be made any easier by the departmental spending envelope, because the Comprehensive Spending Review tells us that the DWP is going to have to generate annual net cash-releasing savings of £1.225 billion over the next three years to 2010-11. That is an annual 5 per cent average increase each year over that period of the Comprehensive Spending Review. There have been some improvements as a direct result of the efficiency of putting more professional staff who do a very good job into front-line positions dealing with some of these issues, but if the department is being asked to survive against that kind of background of savings, it is being asked to do too much with resources that are not adequate for the task in hand.
We are moving away in a worrying sense from a rights-based welfare system. The welfare system is too complex; but I get boring about that. I have new friends and allies on this, because the Select Committee in the other place in its seventh report said that the benefits simplification programme has,
“a lack of vision and drive”.
It does not believe that the Benefit Simplification Unit can do the necessary job. It has called for a high-level welfare commission to look at the oversight of simplification in the round. I agree with all that.
The National Audit Office this morning published a report looking at sustainable employment, and it rightly alluded to the fact that a 13-week sustainability period in jobs is nothing like adequate. David Freud talked about a three-year sustainability period before a job could in any sense realistically be described as sustainable. That is a real challenge that must be addressed in terms of how the Welfare to Work programme is to be rolled out in future. My plea to the Minister is: of course there are lots of success strories that the Government can point to over the past 10 years, but if that is all we can do in terms of the numbers of people who are still in poverty, we have to work even harder over the next three-year period. If we do not do that properly, things will get worse before they get better.
My Lords, there was much welcome reference to reducing emissions and the need for clean, secure and affordable energy supplies in the gracious Speech. I will concentrate my remarks on using less energy both for saving emissions and because of price. Two previous speakers, my noble friend Lord O’Neill and the noble Lord, Lord Kirkwood, mentioned domestic energy and fuel poverty.
There is much too little emphasis on the need for using things like proper insulation. In the document produced by the Government last week, Towards a Sustainable Transport System, much more than transport is covered. It is a response to the Eddington report and the Stern report. They only plan a 12 per cent reduction in emissions from the residential sector in 25 years. That is not really very much; a lot more could be done. I welcome the construction of another quarter of a million homes every year, and we understand that by 2016 many of them will have zero emissions. I wonder how that will be done. The Home Builders Federation, which seems to be in charge of all the feasibility studies, does not have a very good record in improving building regulations, insulation and so on. There have been seven separate occasions in the past 20 years when it has resisted having better insulation. Its director has gone on record as saying:
“What is the point in trying to keep the heat inside the building, if the world is heating up outside?”.
That is a bit of a Neanderthal approach.
I hope that the Government will be able to do better than that. I hope that they will take into account the evidence produced by the Building Research Establishment that even the very poor standards that we have for our houses at the moment are not actually implemented. In fact, it is the exception rather than the rule that buildings comply with even minimum standards. The goal of having zero emissions by 2016 remains. The Government have said that energy standards for all new homes are to be tightened in 2010 up to the code level 3 for sustainable buildings, and then higher in 2013.
It is extraordinary that Ministers are apparently blocking any council wanting new private homes to reach those levels. By ministerial edict, they are not allowed to do so. Apparently that is because our old friends in the Home Builders Federation say that placing such extra burdens on them would reduce the number of new homes that will be built. Given that homes last so very long, it looks as though we will be shivering in our homes for many decades to come. That is not a very good idea. I hope that my noble friend can tell me that I am completely wrong on this and that we are all going to have lovely warm homes in any house that is built now or in the future.
I will now consider transport sector energy use and carbon reduction. Again, in the report in response to the Eddington review, the transport sector does even worse than the residential sector. The Government are planning only an 8 per cent reduction in emissions to 2030. The report does not give many ideas for saving carbon emissions, especially from cars, trucks and air. I will paint a scenario about this on passengers and freight. I declare an interest as chairman of the Rail Freight Group. There will be a growth in demand for the next 25 years. Government forecasts that we have used in the industry suggest that rail freight will more than double by 2030, with container traffic doubling four times. Road freight will probably do much the same. Rail passenger numbers will double if the trend goes on; it is extremely good at the moment. Car use will probably double as well.
I do not know what will happen in the future of air travel. The Government look forward to making air travel more efficient in emissions, but they do not even suggest that instead of some short-haul flights people should be encouraged to go by rail. Since Mr Eddington used to run British Airways, maybe that is not so surprising. Putting that aside, there are some good ideas here. The real issue will be the price of oil. We have followed the price of oil, which today is about $100 a barrel. The Treasury currently uses in its forward estimates a figure of $40 to $50. I was told that it has a scenario in which the price drops to $10 in 2010. I am not sure of the logic of that, but it is a good curve. What I have never seen and what should be in this long-term planning document in response to Mr Eddington is what would happen if the oil price was $150 or $200 in five or 10 years’ time—and rising. Would demand increase? Would China, India and other such places ensure that the price continued to go up? It is a trend that is happening at the moment. Gas prices will follow oil and I suspect that coal prices will do much the same. In 10 or 20 years’ time, maybe less, we might expect petrol to be £4 a litre—four times the present price. I do not think that that is unreasonable.
In the next 25 years the trend must be towards more energy-efficient transport and a much greater use of electricity. I do not know whether my noble friend Lord O’Neill’s ideas of having much more nuclear power will be the way forward, but there will certainly be a need for more electricity and less oil and gas. He is quite right about the planning issues. We need better planning for the railways, as well as for nuclear and ports and so on. What would be the consequence of this price rise? Many fewer passengers on more expensive flights and possibly electric cars but less use of them, while demand for trains and buses might quadruple rather than double. That is an idea. Regarding freight, we have not yet invented electric lorries. There may be more shipping for places near the coast, but possibly four times more rail freight. There may be much more electrification of railways, but the consequence will be four times more traffic than at present.
I may be wrong, but that is surely a scenario that the Government should begin to examine with some urgency. It affects the quality of our lives, the location of schools and hospitals relating to our workplaces, our homes and commuting. I suggest that there would be no more driving around the M25 from Reading to Chelmsford to commute, which someone I know does every day. Our planning laws will need revision. This will affect our economy also, one way or another. I hope that my noble friend can give me some assurance in his response that the Government will start looking at this scenario of oil prices of $150 to $200 a barrel, rather than $50 or even $10, if my figures are right. I look forward to his response.
My Lords, in following the speech of the noble Lord, Lord Berkeley, I cannot resist drawing attention to the contrast between what he said and what the noble Lord, Lord Jones, said at the beginning of this debate. Perhaps I may offer some comfort to the noble Lord, Lord Berkeley. I can assure him that I live in a house built in 1656 that is extremely well insulated. The walls are very thick and there is six inches of vermiculite between the joists in the roof, which does a grand job in keeping out the cold.
The Government have made much of their economic record. I want to talk about the principal driver, which is perhaps the City of London. Oxford economists have carried out a study that shows that the 12 per cent of the population living in London produces 19 per cent of the gross value-added of the country. Of that 19 per cent, some 13 per cent is due to financial services and to the business services that accompany them—legal, accounting and consultancy. That contribution has risen by a half since 1997, from around 8.5 per cent of GVA to 13 per cent today. That is an amazing and successful performance. It is due to world markets, to the position of London, to confidence in the regulatory system, the depth of London’s capital markets and to the professionalism of those who work there.
That inevitably brings me back to the subject raised by the noble Lord, Lord Oakeshott, and others—Northern Rock. What is the true importance of the credit crunch and the position of Northern Rock in relation to the performance of London? Before going into that, I should say that I live in the north-east. To comfort the noble Lord, Lord Berkeley, I catch the train from Darlington every week when the House is sitting and return at the end of the week. My wife, who sometimes sits on these Benches, has been happy to be a depositor with Northern Rock until recently. I have benefited as a trustee of a leading north-eastern charity from the munificence of the Northern Rock Foundation, which has been a fantastic supporter of charitable causes in the north-east of England.
I must plead a gap in knowledge. When I was the chief executive of the Commonwealth Development Corporation, I was much involved in mortgage finance. We managed mortgage finance companies; we did not call them building societies. We had 100 per cent of the equity in some companies and other equity percentages in other companies from places as far apart as Hong Kong, Kuala Lumpur, St Lucia, Dominica, Nairobi and Kingston in Jamaica. So we were reasonably abreast of the idea that sometimes housing finance could be risky. But I have to say that if you were prudent, there was nothing more certain to a housing finance company than a brewery. If you invested in the third world, a brewery was the only investment on which you were pretty certain to make a reasonable return. We did not understand mortgage finance. We lent only four times proven income and we lent 90 per cent of a cautiously valued property on a repayment mortgage. We did not understand all the things that have happened subsequently.
The Northern Rock story is, unfortunately, very different. The only business it had, the single-stream business, was in housing finance and related lending. When it became a bank, it became very aggressive, with a strong marketing and sales policy and an extremely aggressive financing policy. I have to say that I simply cannot comprehend how one could think that it was right to depend to that extent on wholesale money markets. What surprises me is why the regulatory system failed to deter Northern Rock from what it was doing. It has been going on not for one or two years, but for several years. Yet the regulatory system, which is supposed to deal with these matters, completely failed to persuade it.
At the beginning of this year, Northern Rock had an 8 per cent market share, which was very good. It heard the warnings, but it did not heed them. Perhaps the warnings were not forceful enough. The Governor of the Bank of England, with whom I have a lot of sympathy, has said, “Perhaps I did not say what I was saying clearly enough”. But it was heard by everyone else and it was in the newspapers. But Northern Rock decided to go ahead and proceeded to build its market share towards 10 per cent by taking 20 per cent of all new business. That will not have endeared it to the other people operating in the same market. Thereby lies something that has not yet come out, although I think that it will: the bank was the new kid on the block and it was doing things that others operating in the market knew to be unduly risky.
That is the story that led to the run. Was it preventable? I suppose that I would say yes. If Northern Rock one year ago had taken the advice that was probably available and said to its shareholders, “Look, we cannot go on in the way that we have been doing. It has worked so far but now we must change our position and you will not get increasing dividends or profits; you will probably get entirely the reverse”, the shareholders and the market might have seen it through. But it did not do that.
Moreover, there might have been liquidity insurance in the market. That involves a sum of money to deal with the first and possibly the second person who gets into trouble with refinancing their mortgage book; it then becomes a mutual, really, and all the leading players would need to be involved. That is the lifeboat that the industry could have made for itself, presumably with guidance from the Bank of England, although one has to doubt whether there would have been any guidance from the FSA. There might have been competition issues and so on. However, that was not done; perhaps it will be done now.
There is also the issue of guaranteeing bank deposits, which is the other side of the coin. In my view, that is only mitigation and would not have prevented what happened.
As has been said, the present position is that Northern Rock is de facto in public ownership, or at least under public control. De jure it is owned by its shareholders but they have little or nothing to lose, and that tends to turn people awkward. I suppose that there is no early exit in prospect. The talk about February is, frankly, nonsense. Northern Rock is much more likely to need long-term managing with its book and still very large lines of credit. It does not much matter if somebody else stands in its shoes. Incidentally, the talk of a brand is nonsense; mortgage finance does not include branding.
The question is, what is the situation? I am not much interested in the blame game; it is uninteresting. You can, of course, blame Northern Rock. That would be the simplest and probably the most justifiable apportioning of blame. However, since it cannot carry any blame because it does not have the resources to do so, that is not a very interesting point. The issue now is not who is to blame but what is to be done. In contributing to solving that problem, I suggest that the best advice will come from the Bank of England; never mind what has been said by the media. The Treasury seems to come far behind as the number two and the FSA as the number three. However, there is a fourth stakeholder; that is, the banking sector. It would have been better if all the people in that sector had thought that it was a good idea to put together a bit of self-help with the regulatory system. The banking sector will come to regret the fact that it did not find a way of dealing with the Northern Rock situation before it occurred.
That brings me back to London’s contribution to the economy and the objective, which must be to cease the blame game but to look for ways of maintaining or—as people all over the world will be arguing—restoring confidence in London and its regulatory system. Mistakes have been made but sometimes mistakes offer opportunities to show, through leadership, how you can clear them up neatly and quickly. The problem is that it will not be solved by the Bank of England, although its advice would still be, in my view, the best. It will not be solved by the FSA. The problem sits on the desks of the Prime Minister and the Chancellor. The Prime Minister does not appear to find it all that easy to admit mistakes. I wonder whether the Chancellor is really his own man. Indeed, I wonder whether the Government are up to finding a solution. Since they now have control of Northern Rock, they have to find the solution. That is needed because London’s position within the UK economy is a vital component and it is in everyone’s interest that it is not damaged by this episode.
My Lords, I welcome the opportunity to discuss the matters in the Queen’s Speech connected with consumer affairs, industry and economic affairs. I am only sorry, like my noble friend Lady Noakes, that the noble Lord, Lord Davies of Oldham, is not taking part in this debate. I believe that, unlike his colleague, the noble Lord, Lord Drayson, that is not because he has taken a sudden interest in motor racing.
I can applaud the general level of economic growth since 1997 and can give the Government some credit for this, although they inherited a very good legacy from our party. There are signs that all is not well on the growth front, particularly as the Chancellor has reduced his GDP forecast for 2008 to 2 to 2.5 per cent. Also I note, as my noble friend Lady Noakes has already stated, that the World Economic Forum's recent global competitiveness report shows that in its index the UK has fallen from second in 2006-07 to ninth in 2007-08.
I want next to focus on two economic issues: the level of government borrowing and inflation. The PBR total borrowing forecast for this financial year was increased by £4 billion. Government borrowing over the next five years is expected, as my noble friend Lady Noakes has already stated, to rise by £16 billion more than predicted in the 2007 Budget. Under the Government's own sustainable investment rule, public sector net debt as a percentage of GDP should be held over an economic cycle at 40 per cent. The 2007-08 estimate is 37.6 per cent and that for 2008-09 is 38.4 per cent. There are good reasons to fear that the 40 per cent target could be breached in the next two years.
Treasury coffers in recent years have benefited hugely from the booming activity in the financial sector. The economist Richard Jeffrey of Ingenious Securities states that in 2006, financial companies accounted for 30 per cent of taxes paid by the corporate sector. The latest Treasury projections show corporation tax receipts rising to £51.5 billion next financial year from £46.8 billion in the current financial year. It is impossible, he believes, to be precise as to the extent that current events will hit profits or how prolonged the effect will be, but he believes that the loss to the Treasury will be measured in billions of pounds due to write-down of assets. As a result, he estimates that the 2008-09 budget deficit could hit £50 billion. If you add to this the effect of lower growth, which could well occur as a result of the global financial problems of the past few months, the deficit figures could be looking a lot higher even than this.
Cognoscenti of my speeches will know that for the past year I have been worried about inflation, especially in the areas of food, oil prices and the so-called “Chinese effect”. Yesterday's UK inflation figures for October showed a rise in the CPI from 1.8 to 2.1 per cent over the Government's 2 per cent target, and an increase in the RPI figure, on which many pay deals are based, from 3.9 to 4.2 per cent. Two other major contributors to these rises were, yet again, petrol and food prices. It seems ironic that we are now at a stage where the Government's preferred indicator of inflation, the CPI, is half what the old index, the RPI, is showing. Does the Minister agree that it is going to be very hard to force the public sector to accept 2 per cent pay deals when it is clear that the normal rate of inflation, as shown by the RPI, is so much higher?
I note that another country’s inflation figures were published yesterday—those of China. Its inflation figure for October was 6.5 per cent—the highest rate since 1996. Why is that important? It is important because our inflation has been much helped by the cheap price of imported goods, many of which are made in China. If its inflation keeps going up, its workers will want higher wages and that will make China’s exported goods to us much more expensive and thus contribute to our inflation.
Returning to the subject of the Government’s borrowing problems, they have resorted to various stealthy ways to raise taxes. First, as many speakers have mentioned, there is the change in the capital gains tax regime to a flat rate of 18 per cent. This sounded like good news when it was first announced, but can the Minister confirm that it will raise an extra £2 billion in tax for the Government over the next three years due to the rate increase from 10 per cent and the abolition of taper relief and indexation? Does he also support the views of his colleague the noble Lord, Lord Jones of Birmingham, in a speech to business leaders in late October? The noble Lord, Lord Jones, said that he felt that the CGT package was fair but went on:
“I have learnt that medium-sized businesses, in particular, think this is a terrible thing”.
Would the noble Lord, Lord Jones, like to make any comment on that at this stage?
Also, does the noble Lord agree with the private equity boss, Sir Ronald Cohen, who said on 8 November that the CGT move sent out an “unfortunate signal” to budding UK entrepreneurs? Sir Ronald added:
“and here you have the CBI and the Institute of Directors and the chambers of commerce and the Federation of Small Businesses joining hands and saying, ‘We want an entrepreneurial society, let people take risk, let them create businesses’”.
Can the Minister let the House know what the Government’s response will be to the strong plea by the noble Lord, Lord Bilimoria, and many individuals and business organisations to review the huge increase in CGT for many entrepreneurs? And are the rumours about a partial restoration of retirement relief true?
The Prime Minister promised an era of more open government, yet, in a couple of tax moves announced by the Chancellor in his Pre-Budget Report, he is back to his master’s old tricks of stealth tax increases. Can the Minister confirm that, in a very technical move which many of the public will fail to understand, realigning national insurance and income tax ceilings will increase the tax burden on middle-income families by £1.5 billion a year? Will he admit that, even more stealthily, bringing forward the flat-rating of the second state pension will bring the Government an extra £400 million a year? In the words of Chris Grayling, our shadow Secretary of State for Work and Pensions in the other place:
“This is a nothing less than a new stealth tax on retirement”.
Next, in the area of tax, will the Minister agree that the Government have negotiated away £7.2 billion of the British rebate in Europe while continuing to tax and borrow more? Finally on this subject, can the Minister please confirm how many billions are being lost to the taxpayer because of fraud and error in the tax credit system, which, despite promises, is still not working satisfactorily?
I now move on to the saga of Northern Rock. There are certain questions that I should like to ask the Minister about this sorry episode. First, why did the Government not insist early on that the Bank of England provide liquidity to the money markets at a sensible rate of interest? The Fed did this to its money markets, and so did the ECB. As a result, there was no liquidity crisis in their interbank markets and no run on any of their banks. Was it not until the run on Northern Rock started that the Government belatedly realised they had to support depositors and the bank itself?
However, the story has not finished yet. What does the noble Lord think the bank is now worth and what will happen to the Bank of England loan, which is now £20 billion, if no one comes forward to bid for it? Does he agree that, as today’s Financial Times says, this could leave the Government facing the political embarrassment of having agreed to a long-term guarantee that they could be forced to justify to the European Commission under rules governing state aid?
Another question that needs to be answered, already referred to by the noble Lord, Lord Oakeshott, concerns the conduct of the Northern Rock directors. I have been informed by a reliable City source that an interest rate hedge taken out was closed off in early August and the sum due taken as income due to pressure to attain an earnings figure expected by the market. Thus, Northern Rock was fully unnecessarily exposed when the interbank rates became challenging. Also, as other speakers have said, Northern Rock recklessly expanded its mortgage book from 10 to 20 per cent this year, taking on risky business to improve market share. Surely the FSA or the Bank of England supervision department should have been more aware of these developments and the directors should have been warned of the risks they were taking. Even now, as the noble Lord, Lord Oakeshott, stated, they should be censured for their actions. The House needs to know the Minister’s view on the Northern Rock situation.
Finally, on the subject of pensions, I hope that both the Conservative and Liberal Democrat Front Benches will finally get together and agree to the abolition of compulsory annuities. I suggest to my Front-Bench colleagues that we should not oppose the reasonable cost of a pensions commission if that is part of the package required to get the noble Lord, Lord Oakeshott, and his troops on side on this issue. It is high time that this iniquity was dealt with.
My Lords, if that is not a bribe, I am not sure that I have ever heard one before. With so many Bills, I do not envy my noble friend but, in the context of personal accounts, I should like to talk a little more generally about poverty, pensions and risk.
I wish to put forward four bold and rather obvious propositions. First, we are living longer—a year every three years or so. When we had this debate two or three years ago, the figure was a year every five years or so. In 1980, men at 65 lived for 12 more years; that figure is now 20. By 2020, it will probably be 25, meaning that the figure will have virtually doubled. Each additional year costs 3 per cent in defined benefit schemes or adds about £12 billion a year to the cost of FTSE 100 pensions.
Secondly, as Wanless shows, those extra years will be years of poor health and dependency. By 2025, there will be a need for 50 per cent more hours of caring from the same working-age population. As a result, caring for the generation ahead will cost many women the capacity to build their own pension and care for themselves in the future.
The third proposition is that the pensions world is increasingly one of defined contributions. I understand that 32 per cent of employees now have defined benefits rights, but for 30 per cent—a figure that is growing—it is defined contributions. To some extent, DB belongs to the world that we have lost—a world of male, full-time jobs in manufacturing—whereas DC tends increasingly to cover the service sector, women, the mobile and the part-time, which of course tend to be the same thing. All are pretty much coming into DC schemes, with 60 per cent of DB schemes now closed to new members. That is to say nothing of the problems of buy-out and the question of whether the FSA is an appropriate alternative regulator to the PPF.
The fourth proposition is that property is increasingly the investment of choice. Others may have seen the rather startling statistics produced by Lincoln, which showed that at the moment, excluding mortgage costs, people are putting twice as much per month into their homes as into their pensions. They are putting £300 a month into their homes, compared with £100 a month into pensions for women and £150 for men. In the light of personal accounts, which are extending the DC market to the under-pensioned and the low-earning—especially women—I want to ask what this will mean, what risks we face and what we might do about it.
DC schemes carry contribution risk. They can be as rewarding as DB schemes but if, and only if, there is the same level of contribution, which there is not. We know that since 2005 the average DB contribution from employers has come down to 16 per cent and to 6 per cent for DC contributions. Incidentally, employers contribute something like 15 per cent less if their employee happens to be a woman. So, even though an employee can pay in the same amount under DB or DC schemes, under a DC scheme he or she is likely to go home with half or less of a similar pension.
There is also the investment risk, with women in particular choosing risk-averse, low-return default schemes, and the accompanying disinvestment risk in terms of both rates within the market and inflation rates over the years. I sometimes speculate that we seem to have set up a PPF which mostly protects DB men from defaulting employers but leaves mostly poorer DC women, paying the same contributions, at risk of defaulting markets, defaulting husbands and a defaulting benefit system which entangles them in means-testing. The proposition put forward by Chris Grayling, as I understand it—if someone is no better off saving than being on benefits at the point of retirement, the pensioner will get the contributions back—is well meaning but almost certainly futile because the lump sum returned would equally reduce the entitlement to pension credit.
One answer, which I hope we will explore when debating the Bill, would be to raise the trivial commutation limit to, say £25,000 or £30,000, and then raise the capital—not income—cap on pension credit from its current £6,000 likewise to £25,000 or £30,000. One would keep both savings and pension credit. It is workable and what happens now to rolled-up basic state pension. Over five years, you can roll up £35,000 and as a capital sum it is exempt from the rules of pension credit. To raise it comes with a cost—perhaps £350 million—but we might decide it is well worth paying. It is essential to underpin personal accounts with a complete basic state pension, if necessary with the purchase of additional years. Otherwise we will guarantee mis-selling.
As the noble Lord, Lord Oakeshott, mentioned, noble Lords made their views very clear last summer. My noble friend, Mr Mike O’Brien in the other House, and the DWP, have been working honourably to deliver the proposals on added years. On behalf of the whole House, I thank them for that, but it seems to be stuck in the Treasury. I shall be returning to this if undertakings honourably given in the outcome are not honoured but instead end up in the long grass. I feel sure that your Lordships would feel as betrayed as the women we are seeking to help if those undertakings are not honoured.
Clearly those with small personal accounts will need advice on whether to stay in or out. Thoreson’s interim findings are not yet sufficiently detailed to help. I would favour a simple traffic light system: green if you are under 40, earning over £15,000 per annum, married with a potentially full NI record; red if you are over 50, earning under £12,000, single, in debt, tenant, no savings and a weak NI record; and advice for the amber group in between.
The DC world will remain entangled with means-testing for two other reasons, as opposed to the role of pension credit, to which little attention has been given. The first—both trends are really rather worrying—is that 90 per cent of DC pensions are level. Over and beyond the risks of investment and disinvestment, people are taking a punt on their own longevity and on inflation, both of which they consistently underestimate. That will press many back down into means-testing over time.
Nearly half of all women from 50 on—not just younger women—will not be married by 2030. Their family work—caring for children and the elderly—will cut across an adequate DC pension of their own. Even if they remain married, their husbands may default in another way because nearly all of them buy a single life annuity. It dies with him, so after 20 years on a limited DC pension, which is itself being continuously eroded by inflation, she then faces 10 years of widowhood with no DC pension at all, and she will certainly go down the snake to means-testing.
What is to be done? Despite the fact that FTSE 100 pensions are pretty much no longer in deficit, the longevity and volatility of equity suggests that no employers will return to the old DB world, although we may be able to protect existing DB schemes by modifying them into, rather as Fidelity called it, “DB-lite”, with versions of career average, which is increasingly widely accepted now; possibly—I have reservations about this, but it is worth exploring—conditional indexation as in the Netherlands, which is worth about 16 per cent, provided that it is properly regulated by the TPR; and, I hope, more hybrid risk-sharing schemes—either sequential DC followed by DB in one’s later years; or DB for lower tranches of pay, topped up by DC for higher incomes; or indeed, matching longevity bonds. I expect a quarter to a third of companies to pursue such schemes, but I rather fear that everybody will invent their own, making regulation extremely complex. I hope that the TPR and the PPF can produce some standard templates, which companies may be encouraged to follow for the sake of transparency and simplicity.
I also hope that we can develop products that are more attractive and appropriate to the lives women lead, combining accessible short-term savings with long-term pension planning. I hope that we see revived again some of the Conservative proposals of David Willetts and Malcolm Rifkind for LiSAs—lifetime savings accounts.
What else can be done? I return to the fourth proposition—home equity. Half of all women over 50 own their homes. They can effectively be frozen-asset rich and income poor. We have to find safe, decent and transparent ways of freeing that locked-up equity to supplement declining pensions in a DC world. I mention some provisos on equity release. Many people will not have a home that is worth enough, and the housing market is currently highly volatile. It is probably much better if the family can help out, but often they cannot. It is probably better to trade down if the emotional and financial trade-offs make sense. But for 10 per cent or more of pensioners, equity release can provide the money to refurbish the bathroom, renew the heating or fund the social life to overcome isolation in retirement.
Regulated by the FSA and SHIPs, good equity release schemes have scrupulous personal interviews, careful financial audits, including benefit entitlement, no overselling, independent legal advice and guaranteed no negative equity. As long as the customer understands compound interest—often they do not—equity release may prove a useful and valuable supplement to declining retirement capital and income.
With the growing number of dependent elderly people and worries about residential care, I would hope that we would see partnerships emerging with central government, local government and reputable companies linking pensions, direct care payments and equity release into a financial care package, allowing older people to do as they wish and to remain in their own homes, comfortable and confident, which after all is the whole point of saving in the first place. If we could think outside the boxes and put those packages together, we could do something really rather special for many people.
My Lords, when the Prime Minister postponed the election date, his spin doctors said that it was to give him time to create his vision for Britain. Those parts of the gracious Speech that we are debating today, which deal with consumer affairs, industry, energy and economic affairs, are characterised by three things: first, a serious timidity; secondly, a remarkable lack of vision; and thirdly, a significant failure to tackle a number of the structural issues that bedevil the management by the Government of economic and business issues.
If noble Lords doubt the timidity in this area of the gracious Speech, I direct them to the proposals on work/life balance. The Government have announced that they will set up a review to determine how to extend the right to flexible working not just to parents of younger children but those of older children as well. Well, this has been Liberal Democrat policy for a number of years; indeed, we would go further and extend the right to request flexible working to all employees, not just parents. I am sure noble Lords will accept that, as the whole culture of work changes, flexible working should become more available. For many, the nine-to-five routine is no longer necessary or relevant. In March 2007, my colleague in another place, Lorely Burt, proposed a Private Member’s Bill using the 10-minute rule to extend the right to request to work flexibly to parents of children up to age 18. Our party has extended this to a proposal that this right should extend to all people in the workplace. The Government should stop talking about the benefits of flexible working and start acting.
A further example of timidity lies in the Regulatory Enforcement and Sanctions Bill, the Second Reading of which will be debated in this House next week. As a number of noble Lords have indicated, since Labour came to power the cost to business of new regulations is estimated at £50 billion—that is the figure from the British Chamber of Commerce review. The BCC’s study in February 2007 reported that both Conservative and Labour Administrations approached deregulation with apparent enthusiasm but learnt little or nothing from previous efforts and have little, if anything, to show for each initiative. The Bill coming before your Lordships’ House next week barely scratches the surface of what needs to be done to reduce the regulatory burden. I notice that the noble Lord, Lord Jones, is laughing at that.
A number of things are needed to slash the red tape, bureaucracy and over-regulation holding British business back, especially small businesses: first, an impact assessment of any new regulation before it is implemented and post-implementation reviews; secondly, as noble Lords on these Benches have said, we would incorporate a sunset clause into each new business regulation so that it has to come back to Parliament for review and renewal; and thirdly, each small business should have a single point of regulatory contact to act as an adviser and ensure that all inspections are joined up and, wherever possible, take place at the same time.
For lack of vision there is no better example than the Energy Bill, which has the hallmarks of a monumental let-down for the United Kingdom. I am sure we all accept that the Government should commit Britain to a carbon-neutral future with renewable energy playing a significant role. Unfortunately, the fixation of this Government on nuclear power means that we do not get a proper debate on anything in the Energy Bill. Nuclear consultation has always been a sham. Ministers claim to have an open mind on nuclear power but were obviously committed to building new nuclear power stations before the consultation even began. These Benches remain opposed to nuclear power, not in principle but on judgment. For example, the Government have still not addressed the legacy they leave to future generations: radioactive waste that will remain dangerous for thousands of years. We are concerned that the Government are promising to improve the lot of renewables, but look at the track record. It is doubtful we will meet the 10 per cent renewables target by 2010, a direct consequence of the Government not being sufficiently supportive of renewables. The Government are looking to set a framework for carbon capture and storage, but that should already have happened. We should be looking to be market leaders in low-carbon technologies. This Bill constitutes a minor step towards the zero-carbon Britain essential for our future.
On the need to tackle structural issues, two recent events highlight the problems. First, our party—this is no secret as it has been in the previous two party manifestos—has long argued for the break-up of what used to be called the Department of Trade and Industry; it is now called the Department for Business, Enterprise and Regulatory Reform; the DTI without science. The main driver for our argument there was that there has always been a dichotomy between the interests of consumers and those of business. If you put the interests of consumers and business in the same department you inevitably have a conflict between them. What better example of the problem can there be than the European Union attempt to reduce mobile telephone roaming charges? It is clear that lower charges for those of us who travel to Europe are massively in the interest of the consumer, yet leaked reports from the Department of Trade and Industry—I apologise, the Department for Business, Enterprise and Regulatory Reform—indicate that the Government and civil servants were lobbying for higher charges in order to ensure that the interests of mobile phone operators were protected. What better example could there be that consumer protection and the interests of business should not be looked after by the same ministry?
The second and most fundamental issue with regard to the structure of the way that these things are dealt with is the Northern Rock débâcle, to which a number of noble Lords have referred. The Government presided over the largest run on a UK bank since prehistory. We can go into the history of it, but in modern times this is the most significant run on a British bank, and who would have thought that it would have occurred in 2007? Do the Government believe that the relationship between the Treasury, the Financial Services Authority and the Bank of England worked satisfactorily? If the answer is yes, surely the Government are being complacent. If it is no, where are their proposals to ensure that the structure works better next time?
My Lords, I thank the Minister and all noble Lords who have spoken in today’s interesting debate on the humble Address. I especially thank my noble friend Lady Noakes for opening this debate for the Conservatives with some pointed analysis of our economy. I shall add my concerns to hers. She is right to throw cold water on the rose-tinted picture that the Government insist upon. The Chancellor of the Exchequer has had to revise his growth forecast downwards for 2008 and blames international uncertainty for the half-point revision. As a customer of Northern Rock, I wonder whether he was ever tempted to march up and down those lines of desperately worried people, chanting the Prime Minister’s old line, which we do not seem to hear very much these days, “No more boom and bust”. Perhaps he should have followed the advice of the right reverend Prelate the Bishop of St Albans and read Isaiah. My noble friend Lord Eccles eloquently described his interpretation of those sad events, as did my noble friend Lord Northbrook.
It is perhaps not surprising that we hear about the international climate only when it provides a convenient excuse for the Government. The Prime Minister, when he was Chancellor, did not share the credit for the period of economic growth that followed the 1992 recession with anyone, least of all the international economy, despite the 10 golden years of low inflation and low interest rates that many other countries have also enjoyed. The United Kingdom's GDP increase of 49 per cent between 1992 and 2006 must be compared to the United States’s 60 per cent, Canada's 59 per cent, New Zealand's 62 per cent, Australia's 73 per cent and the Republic of Ireland's 167 per cent.
What is worse, this Government have also failed to prepare our economy for the inevitable end of this good luck. Instead of ensuring that the UK economy is capable of weathering a less favourable international climate, the opportunity of the past 10 years has been wasted. To see proof of this, we need look no further than the government borrowing figures: projected government borrowing for the next five years is now £16 billion above what was stated in the 2007 Budget. The principle that one should save for a rainy day seems to have passed the Prime Minister by. It is tragic that, from the first raid on private pensions to the imprudent levels of public borrowing, this Prime Minister's fixed purpose has been to plunder the savings and income of the future to squander it today. Never in our peacetime history has so much been taxed, so much been wasted and, sadly, so much hard-earned, irreplaceable money simply been thrown away.
Unfortunately, the Government's lack of foresight has affected the private as well as the public sector. The UK is falling in the global competitiveness index, it is lagging behind the G7 in productivity and has had a lower rate of business investment than the US, France and Germany since 2000. The World Bank's research identifies the United Kingdom as the best place to do business in only one respect: as a place to get credit. On all other criteria, we are convincingly beaten by other countries, especially on the matter of licences, where this Government's approach to regulation ensures that we are in 54th place. Yet in 1997, the Prime Minister stated:
“No one should doubt my determination to create the conditions in which British business, and manufacturing, can flourish”.
When we look at energy policy, we hear the creak of the stable door and the thunder of hooves receding into the distance. In energy, as in finance, we have spent the fruit of the good years and failed to plan adequately for tomorrow. To provide security is the first task of any Government, and what we have now is growing insecurity on energy. Because of the dithering of Mr Blair and Mr Brown in the years of plenty, our children and grandchildren may pay heavily in locust years to come, as they go cap in hand to OPEC or whatever worse may come in its wake.
The current Prime Minister appears to be doing no better than his predecessor in following through on his commitments. The Energy Bill that we have been promised was set to address several important needs: the looming energy gap as 30 per cent of our capacity shuts over the next 20 years, our country's commitment to renewable energy and low carbon emissions, and the provision of guidance and a clear framework for the debate over the future role of nuclear power. The Bill will not do any of those things. DBERR itself admits that it would be too expensive and difficult to meet existing renewables targets; it seems to be beyond the capabilities of this Government, who have already failed to meet the 2003 target of 5 per cent. This is simply unacceptable; the targets were set at that level for a reason, and we on these Benches will strongly oppose any attempts by this Government to water down their commitment to meeting them.
The Government have also failed effectively to manage the nuclear issue. This year, the High Court found the former DTI's consultation “manifestly inadequate”, “misleading” and “seriously flawed”, and another legal challenge by Greenpeace is in the offing. The Government must pull themselves together and start taking our country’s energy policy seriously.
Nowhere is the Government's failure to keep their promises clearer than in the matter of regulation. My noble friend Lord MacGregor shared with us his Select Committee work on the economic regulators here. The British Chambers of Commerce shows that the cost of regulation in 2007 was £55 billion, yet the Government are failing to do anything meaningful to reduce it. Despite the Government's two previous deregulatory Acts, they are continuing to add to it. In the four years after the 2001 manifesto commitment to cut red tape, the Government abolished 27 regulations but created 600 more.
In the Queen's Speech, we have yet another regulatory Bill to add to those two previous Acts. This Bill deals with the burden of enforcement rather than of regulation itself, which is understandable. After all, what further legislative powers can be given to encourage the Government to deregulate? The answer is not in more legislation but in a cultural shift within Whitehall, something that this Government seem absolutely unable to implement.
But in the dark, dreary tale of regulation—the bitter squeezing of enterprise, enthusiasm and endeavour by regulation, rule and code of practice that goes on day by day in our country—I wonder as I look across the Chamber whether we have come to that moment in the history of the DTI, DBERR or whatever the image consultants have decided to rename it next when Clark Kent takes off his specs, dons his cloak and starts booting the bad men to kingdom come. For the first time in a decade, we have a Deregulation Minister who is not a member of the Labour Party, who is not in hock to the trade unions who pay Labour, who has not been on the first-class train to Warwick to patch up an agreement with the unions to saddle business with new burdens, and who will not be afraid to face up to the regulation maniacs who infest the home, education, environment and other departments, not just his own. This surely is a sign of immense hope. A huge dent will be made in the noble Lord’s considerable reputation if he does not use this opportunity to tilt the balance back towards enterprise, small and large. I know that the CBI and the Federation of Small Businesses see the fact that he will not take a Labour whip as a sign of real independence of mind. If it is, we on this side look forward to working with him, but I suspect it is on the Benches behind him that he may have to watch out for the kryptonite.
This enormous regulatory burden clearly is having an awful effect on business. I can hope only that the Employment Bill will do what the Prime Minister has said it will. Simplification, clarification and cost saving are needed and it would make a refreshing change for government policy to head in that direction for once. Heartened was I by the call made by the noble Lord, Lord Pendry, for vocational education and for his emphasis on employers. I was delighted to listen to that.
My noble friend Lord Higgins reminded us that the Government had ruined our occupational pensions through their stealth taxes. The noble Baroness, Lady Hollis, who had to wait until the end to speak, gave a master class on the special issues of pension treatment, especially for women. The Queen’s Speech also mentioned the second Pensions Bill that will finish what the Pensions Act 2007 started. I am afraid that it failed to mention the £2 billion stealth tax that the Government are levying on retirement by moving the UAP introduction date to 2009. The previous raid on pensions had disastrous results, and I would like to take this opportunity to restate my party’s commitment to those pensioners still suffering the consequences.
It is clear that the Government will soon be unable to hide the consequences of their economic policies. My noble friends Lord MacGregor, Lord Higgins and Lord Marlesford fear for the Chancellor, for whom the question remains about how he will handle the more uncertain times ahead, especially in light of the speculation that he does not have the full confidence of even the Prime Minister, let alone the country. My noble friend Lady Noakes and I look forward to watching how he handles the current financial instability. I also look forward very much to working more closely than was possible last Session with the noble Lord, Lord Jones of Birmingham. He has said a great deal in the past with which I wholeheartedly agree and I hope that we will have much to agree on in future.
On these Benches, we support unreservedly the Motion moved by the noble Baroness, Lady Corston, and seconded by the noble Lord, Lord Hart of Chilton.
My Lords, this wide-ranging debate was led with an inspirational speech made by my noble friend Lord Jones. I should like to thank all noble Lords who have participated and I shall try to deal with as many of the points raised as possible.
I shall start with some views on the economy, because the economy that I see does not seem to fit with the description we have had from Members opposite. Our economy has now experienced an unprecedented 60 consecutive quarters of positive growth. One of the keys to what has happened over the past 10 years is that we have not allowed the slide back into recession that happened under the previous Government. We are on course to be the fastest growing G7 economy this year. Employment is at record levels. So far this decade, the UK has had the second-highest growth rate in the G7 and the second-lowest inflation rate. Before 1997, the UK was bottom of the G7 in terms of income per head; now it is second behind only the US. Manufacturing output has grown and, this year, export growth is expected to rise between 4.5 per cent and 5 per cent. The current account deficit is down to 2.6 per cent. As my noble friend Lord Haskel pointed out in a typically insightful contribution, the UK’s strong economic position derives from the fact that we have maintained a free and open economy, which is supported by a clear fiscal and monetary framework. He urged that in times of challenge we should not capitulate to protectionism. I agree with him absolutely on that point.
The issue of the impact on the economy of foreign nationals and immigration was touched on by my noble friend Lord Haskel, the noble Baroness, Lady Noakes, and the noble Lord, Lord Stevens of Ludgate. We should be clear that foreign nationals and migrant workers have made an important and welcome contribution to the success and growth of the UK. It is wrong to say that they are taking opportunities away from British citizens. The UK labour market remains very buoyant. There are more than 660,000 vacancies at any given time, but this is net of much higher flows around the dynamic labour market. In fact, Jobcentre Plus has something like 10,000 vacancies every working day. The challenge for us is to help those individuals on benefit and who find it difficult to get into work. This is at the heart of our proposals for further reform in welfare and securing full employment, including local employment partnerships. Indeed, the noble Lord, Lord Kirkwood, acknowledged that.
The noble Baroness, Lady Noakes, challenged me on capital gains tax and I shall come to that point in a moment. She asked what happens when consumers stop spending. What happens is what is already happening: there is a rebalancing of the economy whereby business investment comes more to the fore as consumer spending does not increase at its previous rate. She also asked about the unemployment figures. We have seen the latest figures today: from July to September we had 29.2 million people in work with an employment rate of 74.4 per cent. As for out-of-work benefits, the claimant count—
My Lords, I was talking about unemployment rather than employment, but as the Minister has raised the issue of employment, perhaps he will enlighten the House on how the Government are going to achieve their target of 80 per cent employment, because at the moment they are going backwards.
My Lords, that is right, but first I shall tell the noble Baroness what has happened to the claimant count. It too has reduced on the latest figures. Meeting the aspiration of an employment rate of 80 per cent is a key part of the welfare reform proposals and can be achieved by taking people off IB and using employment and support allowances back into work, helping more lone parents back into jobs and encouraging older people to remain in and move back into the workplace more quickly.
The tax position of the UK again came under challenge. The main corporation tax rate is the lowest rate among the G7 and below the EU 15 per cent average. The UK tax burden as a percentage of GDP is lower than the EU 15 per cent average, and the UK was ranked third in the OECD and second in the EU in a recent survey on the competitiveness of its tax system. The issue of capital gains tax was raised by the noble Baroness, Lady Noakes, and the noble Lords, Lord Bilimoria, Lord Higgins and Lord Northbrook. We should recognise, as did some of those contributors, that the change is a key simplification of the tax system. It does away with taper and indexation, a point acknowledged by the noble Lord, Lord Stevens. It has also been welcomed by the Institute for Fiscal Studies. It is right to say that the Treasury is working with representatives of the business community on the details of the reform, but I do not accept that the 18 per cent rate is particularly uncompetitive in comparison with other major economies. Nor do I accept that entrepreneurs, when thinking about setting up and driving a business, are worried because they will be able to keep only 82 per cent of the proceeds they make at the end of the day rather than 90 per cent. Relief for reinvestment into other businesses is still available, and of course for smaller gains the annual exemption remains in place.
We should acknowledge what the Government have done to support SMEs, and I think that the noble Lord would acknowledge that that has been significant. Between 1997 and 2006 the number of SMEs has risen by 760,000, an increase of 21 per cent. It is estimated that in 2006 there were 4.5 million SMEs in the UK employing around 59 per cent of the private sector workforce. There is a range of means by which the Government continue to support enterprise in general and SMEs in particular: further commitments to the Enterprise Capital Fund, the small loan guarantee scheme that was mentioned by the noble Lord, and other mechanisms. Next year we will introduce the annual investment allowance, which is another means of support for businesses and SMEs, as well as investment tax credits. So I believe that some of the challenges on capital gains tax are overstated.
As to the £2 billion tax raid that was mentioned by the noble Baroness and the noble Lord, Lord Northbrook, in May 2006 we announced our intention to convert the earnings-related state second pension into a flat rate top-up to the basic state pension, and the changes in the Budget earlier this year, because they increased the upper earnings limit, would have changed the originally conceived timeframe by which that would have been delivered. All these proposals do is take us back to where we were and where we expected to be.
My Lords, will the noble Lord concede that the original proposals were framed so that the S2P levelling-out would coincide with the introduction of earnings indexation in relation to the basic state pension? That was very clearly stated, I believe, in the May 2006 document.
My Lords, the proposal was that the earnings related would be phased out by 2030. To achieve that, if the upper earnings limit, with a normal uprating for inflation, had been where it was expected to be, it would have started in 2012. But because that upper earnings limit is increased, it needs to start in 2009. There is no change to where we expect to be and where we will end up.
The noble Lord, Lord Oakeshott, supported us on the capital gains tax changes. He reiterated his previously expressed view that the state pension should be subjected to a very substantial increase and we have dealt before with the significant costs that that would entail. He referred to levels of personal and corporate debt, as did the noble Lord, Lord Higgins, the noble Baroness, Lady Noakes, and the right reverend Prelate the Bishop of St Albans. The savings ratio is predicted to stabilise over the forecast period. Household net wealth has increased by 72 per cent since 1997 and total household assets are now worth £7.5 trillion. The stability in the economy, rising employment and rising real disposable incomes have influenced decisions about precautionary savings. The growth in total household debt is now at its lowest for five years, while growth in unsecured personal debt is now at its lowest for 13 years.
We should not be complacent about this and the Government have put in place the financial inclusion fund which will provide £130 million over the next three years. This will fund in part £47.5 million for face-to-face money advice services. More than 500 advisers are in post and more than 44,000 clients have been advised.
The noble Lords, Lord MacGregor, Lord Higgins, and Lord Stevens, and the noble Baroness, Lady Wilcox, referred to levels of government debt. The reality is that the Government are meeting their fiscal and sustainable investment rules. Public sector net debt was 36.7 per cent last year, a reduction from what was anticipated in the Pre-Budget Report—there was no mention of that from noble Lords opposite—and remains below 40 per cent throughout the forecast period. It is misleading to compare net debt in cash terms in different years because in cash terms the economy will have changed as well. What is important is debt as a share of GDP, the measure that the Government target in their sustainable investment rule. So debt is forecast to be lower as a share of the economy in 2013 at the end of the forecast period than it was in 1997-98—38.6 per cent against 41.3 per cent.
As to what is or is not included on the balance sheet, the Government have always been committed to using best practice accounting methods to construct the public accounts, as set out in the code for fiscal stability. It is simply not appropriate to add up the capital value of all PFI projects and put them on the net debt. That ignores the timing of the capital that is delivered under the deals and, indeed, it does not take account of debt that is repaid.
The noble Lord, Lord MacGregor, posed me three questions about local reorganisation. I can answer only the second, which was: will I bring it to the attention of the Chief Secretary? Yes, I will, and I will respond to the noble Lord on his other two points. With regard to Northern Rock and all that flows from it, he asked whether anyone was considering the role of rating agencies. The G7 has asked the Financial Stability Forum to look at a range of issues in response to recent global financial turbulence, one of which is the role of credit rating agencies and the use firms make of them. The final report is due in April 2008.
The noble Baroness, Lady Thomas, raised issues about the CAB and tax credits. The take-up of the child tax credits has risen from 79 per cent to 82 per cent with more than 90 per cent of the money available being claimed, and the take-up among those with incomes of less than £10,000 is now at 97 per cent. We recognise and acknowledge the important work that Citizens Advice does. It provides an important advice and representative service for many employees, which is why we provide more than £24 million of funding for Citizens Advice to cover core costs. That is not funding to local bureaux, which get their funding in a different way.
The right reverend Prelate the Bishop of St Albans challenged me about social morality and economic affairs and how easily they sit together, which is a highly relevant question. I do not believe that they cannot sit together, but it is important that we always think about not only social justice but the wider moral position of business undertakings. I understand the suggestion that there should be a gathering of senior bankers, philosophers and others, perhaps faith communities in the UK, to address how we have ended up where we are and where we are going, but the reality, as other noble Lords have said, is that this is an international issue.
We should also recognise that financial services play an important role for all advanced economies. They match savers to borrowers, help to manage risk, provide firms with the means to make and receive payment and allocate savings to productive investment. In my view there is nothing inherently evil or immoral about the financial system because it serves us as individual consumers.
The noble Lord, Lord Desai, talked about the complexity of the international banking system, which is absolutely right, and where we go from here with regard to Northern Rock. The Governor of the Bank of England has asked important questions about how central banks can exercise their financial stability responsibilities in today’s transparent global market. There are lessons to be learnt from recent events and it is right that we work with our international partners to address them. Specific action is being undertaken to address issues raised by the governor. A discussion paper on deposit protection addresses concerns about the compensation scheme and arrangements for handling the administration of banks. It will review the relevant regulations concerned with takeovers to assess whether they inappropriately frustrate rapid bank takeover. We are working through the Financial Stability Forum to reach a shared understanding of the ability for EU central banks to provide covert support to protect financial stability, and we will work with other member states to provide certainty if necessary.
The noble Viscount, Lord Eccles, gave us an interesting tale of his practical experience in dealing with mortgage finance. He asked why the regulatory system did not pick up Northern Rock. The bank’s reliance on wholesale funding and securitisation was known to the authorities and to the markets. That was not in itself a problem. The FSA explained to the Treasury Select Committee that it recognised Northern Rock as a “high impact” firm but it underestimated the risk of a complete freeze in critical wholesale markets. The FSA’s assessment was widely shared by market commentators and analysts and other banking regulators globally. The authority has acknowledged that we need to learn the lessons of the Northern Rock experience, and it is conducting a review—but also that we cannot, and do not, run a zero-risk regime.
The noble Lord, Lord Higgins, spoke about Northern Rock and asked about the consultation on the publication of the draft programme, and what had ensued from it. I do not have that data to hand; if meaningful data exist, I shall communicate them to noble Lords. He welcomed the unclaimed assets scheme, and I welcome his welcome. It was interesting to hear about his experiences in Switzerland. He talked about the need to be proactive in reuniting people with their accounts. Reunification is a central part of the scheme that is proposed. It dates back to 2005, when we made it clear that the first element of any scheme is successfully putting consumers in touch with their money. The Government welcome the banking and building society sector’s commitment to a major reuniting exercise ahead of the scheme’s launch, and they have written to the BBA, the BSA and National Savings to encourage them to work together to help consumers access their accounts more easily.
The noble Lord spoke a little about the Pensions Bill. He also asserted that the tripartite arrangement had failed. That is not a fair judgment. Nothing has emerged which fundamentally challenges that tripartite structure, but lessons can clearly be learnt from how it operated in practice.
The noble Lord, Lord Marlesford, took us on a wider journey in telling us where he thought the credit squeeze was heading and its international ramifications. He urged us to continue to cherish the City of London, which we should do. The noble Viscount, Lord Eccles, reiterated that sentiment. However, some of the noble Lord’s prescriptions in terms of foreign policy interactions are beyond the sole control of Her Majesty's Government.
The noble Lord, Lord Northbrook, talked about inflation and pressures on public sector pay. He was right, but we need to recognise the supreme importance of keeping in place the fiscal framework. It is that which has helped the stability on which our economic success rests. He also asked whether the Bank of England should not have provided liquidity for the market at an earlier stage. We believe not, because massive amounts of money would have been required if enough of that liquidity was to flow through to Northern Rock. In providing individual support, we did it the right way round. It is not for me to speculate what the bank is worth; I simply do not know.
I see that compulsory annuitisation is back on the agenda and look forward to some interesting debates about it. As we learnt on the previous occasion, taxation is a matter for the other place and not for your Lordships’ House—thankfully.
My noble friend Lord Truscott asked me to assure your Lordships' House that the country’s energy policy is in safe hands. This I do, and I pay tribute to the role that he played as Energy Minister in advancing us to where we are now. He made clear, as did my noble friend Lord O’Neill, his support for a new generation of nuclear power stations—the noble Lord, Lord Razzall, did not show quite the same enthusiasm from the Liberal Democrat Benches. We have already expressed our preliminary view that it would be in the public interest to allow the private sector to invest in new nuclear power stations. We have further stated that we will reach a conclusive view around the end of the year. That is why we have prepared contingent provisions for the Energy Bill which will ensure that developers put in place adequate funding to pay for the full cost of decommissioning and the full share of waste management.
My noble friend Lord Truscott talked about climate change and security of supply, and asked whether they should be tackled together. He spoke, too, about the EU renewables target of 20 per cent. The Government fully recognise the need to tackle climate change and security of supply together. Measures which will tackle both challenges are in the Energy Bill. The 20 per cent target is EU-wide; it is not a target specifically for the UK. After a decision has been reached on each member state’s contribution to this target, we have committed to bring forward measures to meet our contribution.
My noble friend Lord Truscott again said that the Government need to do more on nuclear waste. On the topic of dealing with our nuclear waste legacy, we are actively tackling the problem. We have identified the best solution and accepted the recommendations of the Committee on Radioactive Waste Management for deep geological storage.
My noble friend Lord O’Neill again spoke with great authority on energy issues and my noble friend Lord Truscott spoke in favour of nuclear generation. He asked me specifically about the pay issue for nuclear inspectors. We recognise the important role that those experienced individuals will play if the programme goes ahead. I am pleased to say that recent discussions with Treasury colleagues have been productive and I am hopeful that the matter can be satisfactorily concluded in the very near future.
My noble friend also asked me about fuel poverty, on which the White Paper makes it clear that we would expect energy suppliers to match the best in the market on social programmes and, if they did not take sufficient action, we would consider legislation. We are working still with Ofgem and energy suppliers in that context, but I notice concerns about how the current operations are working in practice. He also said that he thought that the EU targets of 10 per cent renewables by 2010 were unrealistic. Our renewables targets are challenging, but we believe that they are realistic and remain committed to them. We are taking action to reach them, which is why we propose measures in the Energy Bill to improve the renewables obligation. Our modelling shows that they could treble renewable generation in the UK to about 15 per cent by 2015.
The noble Lord, Lord Kirkwood, said that we needed to do more on energy, and the energy White Paper sets out a comprehensive package of measures to improve energy efficiency in the UK.
My noble friend Lady Turner, with her great experience, talked on pensions and asked what would persuade people, particularly those who are not on high incomes with stretched family budgets, to save for retirement. I believe that we need the combination of employer contributions, tax relief, automatic enrolment and default funds in the scheme, so that individual choices about investment do not have to be made. That is certainly a collection of issues that would help—but I know that that is not the whole case, and that benefits are part of the discussion.
My noble friend Lady Hollis as ever produced a thoughtful analysis, which it is almost impossible to respond to in detail in the time available. She mentioned the debate that we had on class 3 national insurance contributions and the right to purchase prior years. The commitment that we made was that we would consider all the options in terms of the following principles: fairness, as any solution must help those most in need; affordability, as any solution must be affordable and sustainable; and simplicity, as it must be deliverable, simple to implement and understandable to those whom it would benefit. As my noble friend recognised, work has been done on that and continues to be done, and we hope that conclusions can be reached shortly.
My noble friend also made interesting observations about the role that equity release might play. Certainly, purchasing an equity release product can be a complex financial decision and individuals need to be sure that any product they purchase is right for them. Consumers need to make informed decisions and should seek independent financial advice. The FSA, as a result of this Government’s measures, now regulates mortgages and home reversion plans.
The noble Lord, Lord Cotter, asked about the Local Better Regulation Office and what it entailed. He asked whether it was simply another level of bureaucracy. We believe that the LBRO and other provisions in the Regulatory Enforcement and Sanctions Bill will provide benefits to business of up to £100 million in savings. The LBRO will bring in a more strategic and co-ordinated approach to regulatory enforcements. Two of the problems that were discovered with regulation were that there was inconsistency, particularly at local authority level, which needs to be tackled, and inappropriate enforcement mechanisms through the courts. Tackling those problems is included in the Bill.
My noble friend Lord Pendry talked about the skills of the workforce, a very significant contribution. I can say that spending on adult skills and apprenticeships will rise to £5.3 billion a year by 2010-11, allowing for good progress against the Leitch world-class ambitions in the CSR period. What runs through a lot of what we are doing in welfare reform, recognising that work is the best route to get people out of poverty as well as being good for one’s health, is a recognition that we need to help those who do not have the skills to access the job opportunities that exist.
The noble Lord, Lord Stevens, took a pretty dim view of the Government’s handling of the economy, and I would not agree with that. He also talked about the failure of the tripartite system. I believe that I have set out our views on that. I do not accept that the Government have destroyed pensions. The debates we have had have shown that changes in longevity and what has happened to asset returns are key to that. We also talked about borrowing and GDP.
The noble Lord, Lord Kirkwood, talked about equity and poverty. I agree entirely that there is much to do if we are truly to eliminate poverty within the United Kingdom and more widely. I believe that we have made a good start. The benefit simplification programme certainly needs to take root and make progress. His observation on whether 13 weeks is sustainable in terms of jobs was very interesting. It is at odds with what was said in the report that we received.
My noble friend Lord Berkeley talked about energy efficiency and the need for energy-efficiency measures in the domestic sector. The White Paper announced a number of measures to help improve domestic energy efficiency. I do not have time to go through them now. I hope he will forgive me; I will write to him later.
The noble Lord, Lord Razzall, talked about impact assessments and said they should be required for every new regulation. The Government already publish impact assessments for all legislation and regulations with significant impacts on business. It is not for absolutely every one but for every one that could have a significant impact on business. They have recently reviewed the whole approach to impact assessment, bringing more focus and accountability to how they are drawn up. The noble Lord referred to the right to request flexible working and said that it should extend to all employees. The Government do not take a blanket approach to regulation in that manner and are mindful of the effect on business. The success of the right to request flexible working has been due to its targeted nature. We first introduced the right to request for parents with children under six and then extended it to carers. We are now extending it to parents of older children. It has worked and I think that our approach has been important in that.
The noble Baroness, Lady Wilcox, challenged us on the renewables target. I should reiterate that the United Kingdom remains committed to the EU renewables target, contrary to media reports. She cited the oft-cited figure of £55 billion as the cost of regulation. That is an unfair figure. It includes the cost, for example, of the national minimum wage. It is not the cost of administering regulation; it is the consequence of it. If the noble Baroness wants to challenge whether we should be encouraging the national minimum wage, and if that is still the Conservative Party policy, then that would be an interesting development. She also said that for security of supply we need to invest in new infrastructure. The private sector stands ready to invest billions in the new energy infrastructure needed to ensure security of supply, and the Energy Bill will update the regulatory framework providing clarity to investors and allowing investment to take place.
This has been an extremely interesting and worthwhile debate; indeed I expected no less. There has been a general theme running through the issues before us and one that the Government remain committed to—that of ensuring that every person in this country benefits from the unprecedented economic growth and prosperity that we have seen over the past decade; that we foster and encourage that growth; and that we sustain these opportunities not just for ourselves but for future generations. That has quite properly raised expectations and aspirations for full employment and a society in which no child, working-age adult or pensioner should live in poverty.
The specific measures before us today will give a further boost to our determination to tackle child poverty, ensure that there is fairness and justice in the workplace, build on the pensions settlement to provide enhanced security for tomorrow’s pensioners and channel dormant funds to support our communities and young people today. They will improve the framework for protection of depositors and improve confidence in our financial system, and recognise that we do not have to sacrifice prosperity and business efficiency to maintain effective regulation undertaken on behalf of us all. They address the crucial challenges of ensuring clean, secure and affordable energy supplies for current and future generations, and enable us to play our full part in Europe. As my noble friend Lord Haskel said, taken together they have a moral thread—fairness, consideration for the future, promoting a framework within which individuals and their families can flourish, and underpinning it all, the vital importance of a successful, stable economy. I look forward to our detailed consideration of these matters as the programme unfolds and commend these measures to the House.
On Question, Motion agreed to nemine dissentiente; the said Address to be presented to Her Majesty by the Lord Chamberlain.
House adjourned at 9.31 pm.