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Lords Chamber

Volume 707: debated on Tuesday 27 January 2009

House of Lords

Tuesday, 27 January 2009.

Prayers—read by the Lord Bishop of Carlisle.

Aid Workers

Question

Asked By

To ask Her Majesty’s Government what protection they are giving to British aid workers in conflict zones.

My Lords, we take the safety of British aid workers very seriously. The Department for International Development has revised and updated its security policy to ensure maximum protection of staff in conflict zones, in particular, but also in all overseas locations. We also support non-government partners in similar precautions. So we hope that non-government and non-British aid workers will also benefit from better security in the face of increasingly numerous and callous attacks.

My Lords, I thank the noble Lord for his Answer. I have asked this Question several times before but never received such a satisfactory Answer. This time, however, the situation is very different, as DfID’s budget is set to increase by 11 per cent a year, to £7.9 billion in 2010-11, according to the 2007 Pre-Budget Report and Comprehensive Spending Review. Will this increase still happen, and what percentage of this enormous but well-deserved amount will be put towards protecting the security of aid workers who are providing help and humanitarian assistance in areas of strife?

My Lords, I congratulate the noble Baroness on her birthday and on once again asking me a question that I have not the slightest chance of answering. I have every confidence that the figures in the Pre-Budget Report will be committed to and I am delighted that the opposition parties are aligning with them. On the protection of aid workers, which I think is what the noble Baroness is getting at, I should point out that we have three kinds of aid workers: DfID employees, funded NGOs and non-funded NGOs. On the funded NGOs, we now require anyone we are funding to have in place a proper security plan that is of the same standard as those for our own staff, and we expect them to include in their budget sufficient moneys to cover that security support. We have a legal responsibility for our own staff and we accept a moral and financial responsibility for those aid workers who work for us.

My Lords, does the noble Lord nevertheless agree that aid workers working in Afghanistan feel very strongly about this issue? They feel that aid workers should keep their distance from soldiers, mainly because of the obvious consequences for the local population with whom they are working.

My Lords, I can give a general answer but will write to the noble Earl on the specifics of Afghanistan because it has its own peculiar security problems. As a generality, we see a division among aid workers who are not DfID employees. Some aid workers are working for us by virtue of our grant, but we also respect those who work for organisations which choose to distance themselves from Her Majesty’s Government because they believe that that is a more effective way of working. We do not support them because they do not want us to support them. However, we include them in systems of information, guidance and advice. We recognise that many of those organisations do an excellent job.

My Lords, further to that question, does the Minister recognise that there is a conflict between carrying out the duty of care—for DfID employees, for instance—and moving them in straight after a conflict in a place like Musa Qala has finished? The need is to get them in fast if the opportunities won by the soldiers are not to be lost. The United States has tackled this problem by setting up a special unit of volunteers who are prepared to move in even when the circumstances are dangerous. That is far better than what we are doing. Is DfID thinking about such a proposition?

My Lords, the DfID approach is one of proportionality. We do not have an absolute sense that aid workers have to be as secure as someone working in the United Kingdom—we take risks that are proportional to the value they are adding. In that sense, we are working towards going down the same road as the US. In a dangerous environment we will be working with volunteers. We have a stabilisation unit which is assembling skilled people and our target is to have 1,000 people on the register who have various skills and can move into particular humanitarian situations. I am not sure that that follows the US model exactly but it is trying to be proportionate in terms of the safety of the individuals and the value they add. It is right to point out, as the noble Lord’s question did, that it is frequently in areas of conflict that we have to move in quickly to stabilise the situation because conflict is so much a part of poverty in many parts of the world.

My Lords, I declare an interest in the sense that a member of my family has just returned from Darfur and has been discussing the issue with me at the weekend. The problem for aid workers, particularly those from charities, is that they are people with a wide range of nationalities who are working in difficult areas, and we need to ensure that good evacuation procedures are available if the situation gets worse. That is an obvious shared interest and responsibility for the Governments concerned. How closely are the British Government working with other members of the European Union, the African Union and other international organisations to ensure that evacuation procedures can be put in place quickly?

My Lords, I entirely accept that a response requires full consideration of evacuation and constant information to ensure that the organisation organising the aid has appropriate sensitivity, knows when the situation is changing and is able to make a rapid response. My understanding—I will write to the noble Lord on this—is that Darfur is substantially a UN-organised aid thrust. The UK has great respect for that effort. We have employees working out there and they have been integrated into that effort, and of course we also have volunteers there. We are satisfied that in every respect the UN plans meet the standards of safety that we expect for our people. As ever, though, that must be proportionate to the risks they have to take to provide the benefit.

My Lords, is the Minister aware that I was in Sri Lanka four days ago? There are estimated to be around 100,000 Tamils in the Vanni region. Does DfID have contingency plans to ensure that the organisations it funds are ready to move into the Vanni once the Tamil Tigers have been defeated?

My Lords, I hate to share with the noble Lord the fact that I was not aware of where he was two or three days ago. I do not know whether DfID has specific plans for Sri Lanka in those circumstances, but I shall write to him.

Civil Service Bill

Question

Asked By

To ask Her Majesty’s Government when they will introduce a Civil Service Bill and grant its consideration parliamentary time.

My Lords, the draft constitutional renewal Bill, published in March 2008, included proposals to enshrine in statute the core principles and values of the Civil Service. As set out in the Queen’s Speech, the Government will continue to take forward proposals on constitutional renewal, including the Civil Service provisions.

My Lords, it is more than nine years since the Government said that they would introduce a Civil Service Bill. This undertaking has been repeated year after year. When the legislation comes before the House, will it deal with the impartiality of the Civil Service as it is backed by the force of law? The important question is: if there is once again to be further draft legislation, when will it finally be passed into law?

My Lords, I must congratulate my noble friend on his tenacity on this issue. I can confirm that the core values and duties of the Civil Service, which of course include impartiality, will be part of the Bill. I believe that our Civil Service is impartial, but it is good that there should be a statute in which those core principles are included. Pre-legislative scrutiny on these issues has taken place and I do not believe that further draft legislation is necessary. These proposals will be brought into law in due course.

My Lords, has the Lord President read that George Osborne has a detailed plan to sack senior civil servants whom Conservative Ministers deem responsible for shortfalls in their own financial targets? Might this not lead to an American-style spoils system of public appointment? Should not the opportunity of ministerial buck-passing be prevented by entrenching the independence of our British Civil Service?

My Lords, I am never in favour of buck-passing; I always think that the buck stops here. The existing Civil Service Code, which forms part of civil servants’ terms and conditions of employment, already states that civil servants must,

“make sure public money and other resources are used properly and efficiently … use resources only for the authorised public purposes for which they are provided”,

and that they must not,

“use official resources for party political purposes”.

That is absolutely correct; it is in the code; and I believe that it is sufficient.

My Lords, I am sure that the noble Baroness is aware that the constitutional renewal Bill contains a Civil Service Bill which is a fully formed and lusty baby after its long gestation and that there are many who think that the Civil Service is important enough to deserve a Bill of its own. Will she consider with her colleagues whether that baby might be delivered on its own?

My Lords, do the Government have any intention to reduce the number of special advisers, a very large number of whom have been created under this Government, which has gone so far to undermine independent advice being given by the Civil Service?

My Lords, there are no proposals at present to reduce the number of special advisers, but I disagree fundamentally with the noble Lord that their position in any way undermines the impartiality of the Civil Service. Gordon Brown’s first act as Prime Minister was to revoke the Order in Council that granted powers to special advisers to line-manage and give instructions to civil servants. We are now back to where we used to be and we are in a very good position.

My Lords, the constitutional renewal Bill was a miscellaneous measure. Could not the Civil Service Bill be brought in as an individual measure as it is so strongly supported? Could it not be said also that the Government cannot be accused of undue haste, as this was proposed in 1854 by the Northcote-Trevelyan report?

My Lords, I am grateful for that historical perspective and will certainly take those ideas back to the department.

My Lords, I support the idea of an individual Bill. That reflects the recommendations of the report of the Joint Committee and was the view taken by the noble Lord, Lord Williamson. I support both of them.

My Lords, does my noble friend consider that it would be beneficial if the contents of the Civil Service Bill drew on the distinctive insights and experiences, brief as they were, of the noble Lord, Lord Jones of Birmingham?

My Lords, I was disappointed by the views expressed recently by the noble Lord, Lord Jones. I was also slightly confused, because a couple of months previously, he had referred to our Civil Service, not exactly as world class, but he was full of praise for it. I endorse his praise for our Civil Service, which does a first-rate job.

I will abuse my position here to make a comment about the staff of the House. At this difficult time for the House, when the House is brought into disrepute, it must be difficult for our staff, who must feel demoralised. On behalf of the whole House, I record our thanks to our staff at this difficult time.

Energy: Gas Storage

Question

Asked By

To ask Her Majesty’s Government what steps they are taking to ensure an early and substantial increase in United Kingdom gas storage facilities in the light of the recent dispute between Russia and Ukraine over supplies.

My Lords, the Government are working to facilitate new gas storage projects by implementing the reforms to the consents procedure under the Energy and Planning Acts 2008. National Grid’s Ten Year Statement identifies 17 commercial gas storage projects which, if they all go ahead, could increase Britain’s gas storage capacity to 20 per cent of current demand levels by around 2020.

My Lords, I thank the Minister for that extremely helpful and full Answer. However, I remind him—I see that he is laughing, but I never ask anything difficult—that as recently as last December, our Prime Minister announced that there would be vast sums of money for infrastructure projects. Will any of that money enable us to look more quickly into other possible gas storage facilities, given that we have only an inadequate 14-day supply at present, compared with other countries, including France and Germany, which have supplies for 100 days?

My Lords, I was waiting for the “but”, and it came. I do not think that funding from Government is appropriate. We have 17 potential projects at various stages of development by the commercial sector. I am sure that that is right. We reckon also to have a storage capacity of 4.5 billion cubic metres, which is about 4 per cent of demand. The noble Baroness made a comparison with Germany. As a proportion of imports, our storage capacity is about the same as that of Germany.

My Lords, is not the real problem here, as the Question states, the dispute between Ukraine and Russia? Is it not a fact that Europe did not take any notice of the wake-up call in 2006, when Russia first cut off the supply? What proposals on this issue are the Government bringing to the Czech presidency summit, to make sure that the problem is not just for us but also for the rest of the European Union?

My Lords, the noble Lord makes a very penetrating comment. Clearly, events between Russia and Ukraine in the past few weeks have very much concentrated minds. The Government have been in close touch with the EU and the presidency to reinforce the need for Europe to consider and take action in these matters in a very decisive way. I know that they are being given consideration within the EU Energy Council. I assure the noble Lord that this Government will put all due pressure on the EU to ensure that the lessons are learnt quickly.

My Lords, does not the credit crisis mean that the storage plants that the Minister talks of are less likely to get the funding they need and that they will not actually be built? It is no good producing all sorts of wonderful ideas when the chances are that we will not get the money for them. On reflection, should not the Government have used the good years to ensure that the country had adequate storage facilities and not put our energy security at risk by dithering and delay?

My Lords, I do not know where dithering and delay come into it. We have taken action in the energy and planning legislation to facilitate the development of more storage facilities. Noble Lords need to recognise that we have a huge storage facility in the North Sea. Of course, the credit crunch may have an impact in certain investment decisions, and I would not walk away from that, but I assure the noble Baroness that we are keeping this under review.

We are not at all complacent but I am confident that we can come through and ensure that we have sufficient storage capacity. Some of the projects are very close to fruition and we can have confidence that we will have that storage capacity.

My Lords, can the Minister say what, if any, increases in gas storage in the European Union have been constructed since the wake-up call of the first crisis between Ukraine and Russia two years ago? Is that not the sort of object that the EU’s stimulus package should be directed towards? What does he think of the desirability of having a minimum storage requirement in the EU for gas, just as there is for oil?

My Lords, the question of what might be called strategic gas storage within Europe is under consideration at the moment. As for the UK, we remain to be convinced, since our concern is that a strategic supply would simply displace current commercial supply. However, I recognise that in continental Europe there are different considerations. I assure the noble Lord that we will continue to urge the EU to take decisive action in this area.

My Lords, have not this Government been urging the EU to take decisive action in this area for several years? That action has not been taken. It would be very desirable if it had been taken, but it has not. However, the fact that it has not be taken and is unlikely to be taken does not exonerate this Government from ensuring that we, nationally, have adequate gas storage, not least because, although Mr Putin can afford to cut supplies for a short period, he cannot afford to cut them for a long period. Therefore, if we had adequate gas storage facilities to cover a short period, we would be in a very much stronger position than we are in today.

My Lords, we have to remember that very little of our gas comes from Russia, we have a huge storage facility in the North Sea, we are not at all complacent and we are facilitating investment in further storage facilities. On the question of EU action or not, I believe that the events of the past few weeks have concentrated minds considerably in the EU. We will continue to press the EU to take the action necessary, alongside the actions that have been taken, such as a third internal market package to encourage Europe to have a more competitive approach to energy following the example that this country has set.

Travellers: Dale Farm

Question

Asked By

To ask Her Majesty’s Government what steps they will take to ensure accommodation is provided for the Traveller families which Basildon Council intends to evict from Dale Farm.

My Lords, it will be for Basildon District Council to assess the accommodation needs of those subject to enforcement action. In 2007, we issued clear guidance to local authorities stating the need to consider all the relevant circumstances before deciding to take enforcement action. The guidance recognises that enforcement action can be traumatic, and should therefore be proportionate and considered.

My Lords, I thank my noble friend for that clear Answer and I commend her department for its positive work for Gypsies and Travellers. The problem, as she says, is with Basildon council, which has not offered the families being evicted any suitable alternative accommodation. Perhaps over 100 parents and children will be homeless. Does my noble friend agree that those families face discrimination in the ordinary pursuit of finding somewhere to live, which no other minority ethnic group in the UK can expect? Is she aware that they have appealed to the European Union’s civil protection mechanism and will the Government contact the EU’s monitoring and information centre to play their part in helping?

My Lords, my noble friend is right to identify that the consequences of evictions are distressing. I am sure that Basildon council takes seriously its responsibilities under the Housing Act and that it will give full and proper consideration to any requests to be treated as homeless. I understand that it gave such assurances during the recent Court of Appeal hearings. I also expect it to work closely with children’s services in dealing with vulnerable children and adults. I know that the council has approached the EU’s civil protection mechanism and that it is already in direct contact with the monitoring and information centre. I am sure that it would be able to provide the centre with information.

However, there is no doubt that Gypsies and Travellers face great problems in finding authorised places in which to pitch their caravans and that is why we are urging all local authorities to be more proactive in that respect.

My Lords, is it incumbent on Basildon District Council to rehouse those people under the terms of the Human Rights Act?

My Lords, each housing application is treated on its merits. I am sure that when vulnerable children are involved—and there must be liaison with children’s services, especially as regards newly born children and the family’s circumstances—the council will do its best.

My Lords, it is estimated that the cost of this operation is £1.9 million, but that is not counting the further eviction that will be necessary from the temporary site that the residents will occupy after their move from Dale Farm: plus all the health and social security costs that will be imposed on the taxpayer for years down the line in respect of those families. Has the Minister made any comparison between that enormous bill and the amount that it would cost to provide permanent accommodation for the 400 people on the site? Will the Government invite Basildon council to come into the CLG to discuss with Ministers deferring the process until the specified accommodation in the south-east regional plan is provided?

My Lords, the noble Lord is right to draw attention to the cost of enforcement action. It is up to the local authority to judge what those costs should be and whether they are bearable in terms of breaches of planning control. There is no doubt that for many councillors those costs can be reduced once authorised pitches are provided. We are only talking about pitches for about 4,000 caravans in the entire country. We should place that matter in perspective.

The independent task group on site provision and enforcement noted that enforcement costs to one authority reduce from £200,000 per year to £5,000 for the sake of a one-off £400,000 cost. There is no doubt that the costs of racial and social tension are much higher.

My Lords, while this is not my brief, I believe that noble Lords will accept that Ireland was in these islands the home of the travelling people. For some considerable years it has had a strategy and management structure to look after and handle those people. Is it time that this country had the same?

My Lords, I am very pleased to say that in recent years we have moved towards that position. The main difference is making sure that Gypsies and Travellers have the same rights to housing as others. Therefore, their housing should be planned in the same sort of way. That is why we have moved away from putting a strict duty on local authorities to make sure that housing authorities assess the housing needs of Gypsies and Travellers. We expect those housing needs to be fed into regional spatial strategies, be properly planned for and properly provided.

Automotive Industry

Statement

My Lord, I shall make a Statement on the Government’s plans to help the British automotive industry weather the downturn in the global economy.

The automotive industry—with nearly 1 million employees, from manufacturing to retailing, and £10 billion worth of added value to our economy—is in the front line of the downturn, with output falling faster and further than any other sector since the summer. We need to counter this to prevent an irreversible loss of capacity, skills and technology. The health of the automotive industry is vital to the strength of manufacturing in Britain and is at the heart of many of our regional economies.

The industry and its supply chain will benefit from the measures that the Government have already taken to boost the economy. These include the VAT cut that saves consumers hundreds of pounds when buying a vehicle, and government guarantees that secure £21 billion in new and existing credit lines and lending for businesses, many of them in the automotive industry supply chain.

But I recognise that we need to do more. Today’s measures will provide a specific boost to the industry, providing real help and laying the foundations of its reinvention for a low carbon future. This industry is not a lame duck and this is no bail-out. The industry has been transformed over the past decade. Productivity has risen, catching up and overtaking that in both France and Sweden. In Britain today, we have some of the world’s most productive car plants.

For the future, Britain needs an economy with less financial engineering and more real engineering. The car industry can and should be a vibrant part of that future. The steps we are taking today will help companies speed their way to becoming greener, more innovative and more productive. This is the route to securing jobs for the long term as we build a more balanced economy for Britain’s future.

The world’s car industry is at a turning point. In Britain, we need to be at the leading edge of the development of low carbon vehicles and green manufacturing. This offers a major business opportunity for us, but this greening of the industry needs investment in plant, research and development.

Today I can announce that to back that investment we will provide loan guarantees to Britain’s auto manufacturers and large suppliers. First, we will offer guarantees to unlock loans of up to £1.3 billion from the European Investment Bank. Secondly, we will offer guarantees to support up to a further £1 billion of lending, or loans, where appropriate, to cover worthwhile investments not eligible for EIB support or which will bring special value to Britain.

Applications will be assessed by us on a case-by-case basis. There is no blank cheque on offer and there are no operating subsidies. We are committed to ensuring that anything backed by the scheme offers value for taxpayers’ money, enables us to green Britain’s economic recovery, delivers significant innovation in processes or technologies for the long term, and supports jobs and skills in Britain.

To support these aims, the Government will build on their programmes that are currently supporting the automotive industry. To further strengthen the sector’s skills, we are increasing funding for the training of employees. We have already developed a package to tailor the Government’s Train to Gain programme to meet the automotive industry’s specific needs. If there is the demand from the industry, my right honourable friend the Innovation, Universities and Skills Secretary will boost the funding to support new training to £100 million from its present £65 million. This offers real help to people, including workers in SMEs in the automotive supply chain. The £50 million Economic Challenge Investment Fund being announced separately today by the Higher Education Funding Council also creates new opportunities for automotive employers looking to tap into academic expertise in improving business performance.

Earlier this month, my right honourable friend the Transport Secretary announced the provision of £250 million to support consumers switching to ultra-low-carbon cars. But we want the car industry in Britain to meet that demand for low-carbon cars. So, alongside our loan guarantees for the greening of the industry, the next element of today’s announcement is that I am inviting the regional development agencies to work with the Technology Strategy Board to bring forward a further step-change in our programmes for research and development into cleaner engines, lighter cars, plug-in hybrids and components for electric vehicles. This will build on the £110 million of support for research and development that was announced last September.

We are looking at steps to improve car company financing arms’ access to additional funding. The finance arms play an important role in providing the credit that keeps the industry functioning. I have tasked the new Trade and Investment Minister, Mervyn Davies, to draw up a plan for improving their access to finance, a task to which he will bring considerable experience and expertise.

Taken together, today’s announcement will provide our leading automotive companies, their workers and suppliers with a significant boost. It will also ensure that the downturn does not derail the investment in innovation and change needed to make Britain a world leader in the development and manufacture of low-carbon vehicles. This is both an economic objective and an environmental imperative. The automotive industry knows that it must change to succeed in this new world. It has to be cleaner and greener. The Government know this is an important national objective, a key to building a competitive and balanced economy in the future.

Within the resources agreed in the Pre-Budget Report and the provision made then for such contingencies, we are determined as a Government to counter the credit crunch, counter the recession, create a level playing field for industry and build Britain’s low-carbon industrial future. We will take, as a Government, whatever action it is possible and appropriate for us to do. I commend this Statement to the House.

My Lords, I welcome the fact that the Secretary of State is here in person and of his own volition making this Statement. Only yesterday the Select Committee on Communications, chaired by my noble Friend Lord Fowler, published an excellent report which includes, in paragraph 140, this reminder:

“The most important announcements of Government policy should be made in the first instance to Parliament. Ministers should be reminded that trailing the content of announcements is incompatible with the Ministerial Code”.

I sincerely hope that the Secretary of State is going to communicate this message to all his ministerial colleagues.

The UK automotive industry has been in serious difficulties, in particular since last summer. In the past few weeks, that has turned into a catastrophic decline, with output falling by almost half in December. This industry is afflicted by problems that are all too familiar in other sectors, too: punitive taxation, slumping demand and, above all, a sudden tightening in the availability of credit. The Government have a lot to answer for, but it would be churlish not to welcome measures that may ameliorate matters. Having said that, as long ago as 16 October the Minister’s junior ministerial colleague Ian Pearson stated, in a Written Answer in another place, that:

“BERR continues to work closely with the automotive manufacturing industry on a range of key issues for the sector and has made clear it stands ready to assist the industry on new issues where appropriate, especially in the current economic climate”.—[Official Report, Commons, 16/10/08; col. 1423W.]

Never mind “standing ready”, the department has sadly been standing still for the past few months. The fundamental problem that needs to be tackled is the availability of credit.

An aspect of this Statement that I wholeheartedly welcome is the belated extension of the loan guarantee scheme to the car loan industry. The Conservative Party first pioneered calls for a far bigger loan guarantee scheme as long ago as 10 November, since when the automotive industry has fallen into desperate straits as Ministers dithered. At last Ministers have had the sense to listen to the Opposition. The glass may be only half full, but even these inadequate measures go in the right direction.

However, the Statement, which I have only just seen, raises some important questions. First, delivery: how quickly will these measures be implemented? Any detail that the Secretary of State could give us would be warmly welcomed. Secondly, as pointed out in the debate initiated by the noble Lord, Lord Harrison, over 80 per cent of cars bought in the UK are imported. Given how badly our manufacturing base has been damaged over the past 11 or 12 years, is there not a danger that most of the benefits of these measures will be dissipated as the demand generated merely sucks in more imports? What assessment has been made of that?

Thirdly, given the increasingly dire state of the public finances, are Ministers certain that this package is affordable? What assessments have been made of the additional financial exposure of the taxpayer? Fourthly, as the Secretary of State’s ministerial colleague the noble Lord, Lord Carter, also noted last week in the debate to which I have already referred:

“When one is considering sectoral intervention, one needs to be very clear that one is not propping up business models, product lines, capacity and pricing structures from another time”.—[Official Report, 19/01/2009; col.1530.]

What measures and precautions has the Secretary of State put in place to ensure that that does not happen?

I also warmly welcome the announcement about the Train to Gain programme. We must make much more investment in training and education.

I have a final and connected observation. Much of the automotive industry here in the UK is owned by vast international companies with sound balance sheets. If they are to benefit from measures such as these, what undertakings have they given in return?

While I welcome the fact that the Secretary of State is here where he belongs to make this Statement, I am afraid that the Statement itself leaves too many important questions unanswered. After years of persecuting the motorist, Ministers now offer a range of placebos to an industry that is facing the most serious crisis it has ever faced. Once again, this Government offer too little, too late.

My Lords, I join the noble Lord, Lord Hunt of Wirral, in welcoming the Statement and the fact that the Minister has made it to this House. Perhaps I may do what I normally leave to the Tories by commenting that my noble friend Lord Tyler suggested on 14 January that the Secretary of State should make Statements to this House first and his junior Minister should follow in the House of Commons. The Secretary of State did not seem to be immediately enthusiastic about that suggestion, but that is what is happening today. Can he confirm that that will be the precedent he will follow?

The noble Lord, Lord Hunt of Wirral, demonstrated accurately the serious state in which the car industry finds itself. I do not think that anyone who passes through Southampton will fail to recognise the problem that the automotive industry faces there. Southampton City Council is making far more money on parking charges for unsold vehicles than the motor car manufacturers are making through selling those vehicles. The automotive industry is clearly in crisis, which is, of course, why the Minister had to come to the House to bring forward proposals to help it.

We on these Benches will support many of the proposals. As the noble Lord, Lord Hunt, said, the training of employees through the Train to Gain programme is highly desirable and we welcome it. The Minister indicated that the Transport Secretary has announced the provision of £250 million to support consumers who switch to ultra-low carbon cars, and we welcome that. We obviously welcome the initiative that he has given the new Trade and Investment Minister to look at access to finance. It makes no sense that someone wanting to borrow money to buy a car can go to Barclays Bank, or perhaps I should say RBS, which has government support and pressure, but if they go to Volkswagen’s leasing or financing company, it is difficult to raise finance. That initiative makes sense in the context of what the banks are doing.

However, whenever the noble Lord, Lord Hunt, and I stand up to respond to Statements, I am always left with the underlying question: is this enough? The real financial issue in this Statement is the £1 billion of lending to cover worthwhile investments that are not eligible for EIB support. What will that lending be for? The Statement seems rather opaque in detail. Is it to support jobs? Is it to pay salaries for people who probably, without that money, would be made redundant? Is it to keep people in part-time work who otherwise would be made redundant? Or is it for investment in new products and new technology? The Statement is extremely opaque on that.

Will similar proposals come forward for the steel industry or other industries that soon come up with the begging bowl? You have only to turn on the radio or television to know the industries with a problem. Is this a disguised form of job preservation or genuine investment in the future of the British economy? The Statement indicates that we have moved to the next stage of the economic crisis. We have had two, three or four proposals by the Government to deal with the banking crisis and to endeavour to improve the provision of credit in the UK economy. The heat has gone from the Treasury to the Minister and, given the effects of the economic crisis, we are turning to British industry right across the board, in services and manufacturing.

I do not blame the Minister at all. I suspect that he has been extremely innovative. Although he will not admit it to your Lordships’ House, he has the brace of the Treasury behind him, pulling him back as he produces his innovative solutions. That is what I observe to be happening. Rather than this ad hoc approach as industry after industry has a problem—I touched on the steel industry and there will be others—does he not feel that over the next week or two the Government could take a more strategic approach so that the public, your Lordships’ House and the other place could have a view of the strategic imperatives that will save us from the frightful horrors that otherwise lie ahead? What are the strategic industries which need efficient support to ensure survival?

As the Government have no clear strategy but are going ahead on an ad hoc basis, dare I suggest that, if there is a strategic approach, there should be one or two key principles? First, any money spent by the Government in industry must deliver real value; secondly, it should be spending that can be undertaken quickly; and, thirdly, the work should be as labour-intensive as possible with other costs kept as low as possible. If those principles were applied in the proposals that I am sure the Minister will bring to this House in the next month or two, such a strategic approach would find merit with your Lordships’ House.

I welcome the concentration in these proposals on the greening of the car industry. That greening principle could apply to a number of other industries. We could invest in greening public buildings by investment in technologies such as ground-source heat pumps, better energy conservation and modern energy-efficient data centres. I am sure the Minister, with his strategic approach, could lead us to the forefront of the greening of British industry. I fear that without a strategic approach, this economy is heading for the edge of the cliff and we will fall off it.

Among the caveats, qualifications and criticisms, I discern a strong welcome for the Statement from the noble Lords, Lord Hunt and Lord Razzall. I do not think it is quite such an achievement to be able to make this Statement without it having been leaked or trailed three days in advance but, having said that, I am pleased to have done so today.

The noble Lord, Lord Hunt, asks how quickly we will be able to implement these measures. As far as the loan guarantee is concerned, we will be approaching the European Commission immediately for its clearance. As your Lordships know, it has already indicated that it will consider such clearance speedily and in a flexible way. Knowing my ex-colleagues, I am sure that they will live up to their word.

The noble Lord, Lord Hunt, makes an interesting point about the very large percentage of cars that are bought here which are imported from outside the country. This point is made in criticism of what is sometimes put forward as a useful measure—the scrappage scheme for cars. While it is true that between 75 per cent and 80 per cent of cars bought here are imported, they contain about £4 billion worth of UK-manufactured engines and other components. That is worth bearing in mind.

The noble Lord asks whether this is affordable. It is affordable because it will be funded strictly within the provision made for such contingencies by my right honourable friend the Chancellor in the Pre-Budget Report. We are talking about fresh allocations of resources within the terms and original sums announced by the Chancellor for the fiscal stimulus. We are not talking about an expansion of that stimulus in overall terms, and so the markets can be reassured of that.

The noble Lord made another good point, as did the noble Lord, Lord Razzall, about ensuring that the measures that we are taking are for new production processes and new vehicle models of the future, and not based on old business models and out-of-date products. In our case-by-case consideration of the applications for the loans and loan guarantees, I shall ensure that we are talking about production processes and models of the future, not the past. That condition is absolutely fundamental to everything that I have described and announced this afternoon. I am grateful for the noble Lord’s welcome for the additional training commitment, and I am grateful, too, to my right honourable friend the Secretary of State for Innovation, Universities and Skills for making additional sums available.

The noble Lord, Lord Razzall, was slightly carping, if I may say so, in describing us as having dragged our feet and come late to this announcement—a point that the noble Lord, Lord Hunt, also tried to make. We have to ensure that interventions such as these are properly weighed and properly considered, that they will meet real needs, that they target specific requirements that will make a difference in industrial sectors such as this, and that they are affordable. They have to meet the mark and reach their target, and, if it takes a little longer to establish that, I do not apologise for it.

However, I think that the noble Lord is slightly unfair when he suggests that this is the first measure of its kind that we have taken to help the automotive sector. There has been, for example, the working capital scheme that I announced to this House, the enterprise finance guarantee and other measures announced in the Pre-Budget Report to help to stimulate consumer demand, including the cut in VAT, the reductions in vehicle excise duty, and the provision for further finance for SMEs, including in the automotive supply chain. All those measures have already been put in place and important companies in this sector are already benefiting from them.

Lastly, the noble Lord, Lord Razzall, suggested that our approach is in some sense ad hoc. There is no sort of overall industrial plan. I am not presiding Soviet-style over some sort of Gosplan in which I am going to present indicative numbers for production and investment for every sector across the entire economy. We are certainly not in the business of bail-outs and we are not looking at the next intervention in line. We will take action where it is necessary and appropriate to do so within the overall funding for the fiscal stimulus provided by the Treasury on the basis of agreed criteria where the businesses in question are key to our industrial future, where their loss would have a substantial employment and regional impact and where government action would be likely to be effective and give value for money. It is on the basis of those criteria, and none other, that we will consider future interventions.

My Lords, I am sure my noble friend is aware that, when an economy goes into recession, the easiest thing for firms and households to do is to postpone the demand for durable goods, of which automotive products are as good an example as any. Therefore, it is not in the least bit surprising that that sector of our economy takes a terrible hit when we go into recession. However, it is equally true that when later this year, or more likely early next year, the economy starts moving forward again, part of the driving force for that will be the demand for durable goods of all kinds, including automotive products. Therefore, it is vital to have an industry sitting there and able to meet that demand when it emerges. The Government are to be congratulated, as I am sure they will be from these Benches, on offering proposals that will help that industry to survive and to improve itself to meet that emerging demand. That seems to be an entirely correct policy and one that I personally support.

My definition of rational action—my noble friend was more or less saying this anyway—is that you think before you act. The noble Lord, Lord Hunt, seemed to be saying that you should not do that, but rush into acting without waiting to think it through. The noble Lord might approve of that, but the Government are to be congratulated on working this through and coming up with today’s proposals.

My Lords, I am grateful to my noble friend. The auto industry, as both sides of the House have already acknowledged, has taken the brunt of the downturn far more quickly and deeply than any other. These are high-skill, high value-added manufacturing companies and they are at a turning point in their industrial future.

This is the main point and it is what has created the exceptional circumstances in this case. It would be really appalling if we were simply to take the downturn, ride out the recession and watch such a key industrial sector go to the wall, without being able to keep it in place to take advantage of the certain demand that will grow for its products when the upturn begins. It will play an absolutely key part as a cornerstone of this country’s advanced manufacturing. This Government stand full-square behind that industrial need and objective, which is why, among other reasons, we are taking this action today.

My Lords, does my noble friend recognise how warmly his Statement will be received on these Benches, and more widely and broadly? Has he had the opportunity to read, in Hansard, the debate that took place last Monday, which was answered by my noble friend Lord Carter of Barnes? Many ideas were presented to the Government there about helping the automotive industry. Professor Garel Rees has suggested, given that the downturn may last until 2011, the possibility of a kurzarbeit system of funding key workers in that industry—a practice copied, I think, in the Netherlands. Has my noble friend given any consideration to that system?

Will my noble friend also report on his visit to Brussels, where Commissioner Verheugen convened those in the European Union interested in the automotive industry, and what resulted from it? Will he ensure that there is a co-ordinated EU policy so that one member state does not try to outbid another, but that we have a co-ordinated industry? As he rightly says, here in the United Kingdom we have a successful industry, which is true of other European countries, and we wish to emerge successfully on the other side for the future.

My Lords, I am grateful to my noble friend and am aware of the debate that took place last Monday. I have not read every word of the Hansard report but I have been fully briefed on the ideas that emerged. He is right to point to approaches, schemes and programmes operated in other European countries, including the Netherlands. I am aware of the scheme that he referred to and continue to study it carefully.

However, I want to echo my noble friend’s important point about co-ordination across the European Union. It is only too easy, I fear, for different member states with important automotive sectors to find themselves played off, one against the other, by multinational companies which want to play the field in pursuing whatever benefit-incentive advantage they can. I hope that we will not see that approach either from the companies concerned or from European member states falling into that trap. I made that point at a ministerial automotive summit in Brussels two weeks ago, and it will require further co-ordination between me and ministerial partners in other member states.

My Lords, I recognise that many people feel that the Government have perhaps been too optimistic about how long the present troubles may last and that many may not share the view expressed by the noble Lord, Lord Peston, on how quickly they might be resolved. This appeared to include the head of Nissan, who suggested that it might be seven years before car sales and output generally return to previous levels that they have enjoyed. In those circumstances, what time limit will there be or what plans do the Government have to sustain such levels of expenditure if the present troubles last for a considerable time?

My Lords, I understand the noble Lord’s concern. This is a temporary framework being put in place and I shall not put a time limit as such on it, but it has a resource limit, which is a real one. We should be in no doubt that this sector will go through real difficulties and some profound change in the coming years. It is not our job to ignore the needs of the industry or to intervene in a way that will simply maintain the status quo and pickle the sector in past technology, products and processes. Our job is to help the industry and the entire sector to move with the times. It has a future, about which I am sure and confident. It has to embrace the future and our job is to help it to do so.

My Lords, I warmly welcome my noble friend’s Statement, unlike the noble Lord, Lord Hunt, who was rather churlish in his acceptance of it. I think that he was agreeing with it. However, I am a little unclear about the difference between loan guarantees and the insurance scheme being introduced by the Treasury for banks. My noble friend said that it was all inside the pre-Budget stimulus. Why does it need to be within that stimulus? If it is helping an industry, which clearly needs help, why should we not go beyond the figures that were sort of mentioned in the pre-Budget stimulus? The total level of stimulus is unclear. What is the difference between what the Treasury is doing and what is being done here? I assume that my noble friend is very friendly with the Treasury and has its agreement on what he said today, if he needed it. Perhaps he can explain that a little further.

My Lords, I would not dream of opening my mouth without the agreement of the Treasury. I note that my noble friend speaks as a former and very distinguished Chief Secretary to the Treasury. I know exactly what it is like and will always operate within its discipline.

The difference is that the insurance scheme that the Government have put in place is to help the banks deal with the loss of value of securitised assets that they have taken on to their balance sheets in the past. These loans and loan guarantees are available to corporates in this sector to assist in production and the introduction of new technologies and new models that in our view and theirs have a green future. That is the difference.

In answer to a previous question, I should add—not least because I have been prompted to do so—that the loan guarantee scheme has an effective two-year time limit under EU rules, as that is the period for which the Commission has agreed to relax the rules on state aid.

My Lords, I welcome a lot of what the Secretary of State has said, especially a reduction in financial engineering and an increase in real engineering. However, will he reassure us that we will really get there and will really get some creative engineering and some unique capabilities that might better anchor these facilities in this country?

My Lords, I absolutely share the noble Lord’s concern and interest in this area. If there is not real engineering, there will not be real loans or real loan guarantees.

My Lords, I very much echo what the noble Lord, Lord Broers, has said. What the Secretary of State has announced could be very helpful in advancing technology. The Secretary of State two or three times mentioned the cut in VAT. Does he recognise the growing awareness that this was a profound mistake and a waste of £12.4 billion? Shopkeepers, including car salesmen as much as anyone, are in the business of cutting prices desperately to try to sell things. Therefore, the result of cutting VAT merely meant that they would have to make a slightly smaller cut for themselves.

Will he therefore take to his right honourable friend the Chancellor the suggestion that he should announce that that VAT cut will be reversed with a time limit, which would stimulate people to buy things for a bit? That money could be used temporarily to finance the introduction of 100 per cent capital allowances for plant and machinery, and perhaps even industrial buildings, for a limited period to encourage people to bring forward plans for expenditure. Introducing 100 per cent capital allowances has no long-term effect on government revenue, which is a huge plus for it, but the £12.4 billion would be useable for the Government’s short-term cash-flow costs.

My Lords, I always take seriously and listen with great interest to what the noble Lord has to say, but on this occasion I simply cannot agree with him. It is all very well seeking new ways to stimulate the availability of credit or the availability of capital for investment, but the economy also desperately needs sustained demand and greater demand, for which we are providing a much needed stimulus. I simply do not accept his judgment about the effect of the VAT reduction and that everyone thinks it is a profound mistake. I know plenty of people who take the opposite view because they are not looking at this as a temporary expedient and as something to benefit the shops for Christmas. They are looking at the continuing effect for an entire year of the scale of spending power put into the pockets of consumers from which the economy will benefit for the year and beyond, and not just for a few weeks.

My Lords, in thanking the Minister for this Statement, I know that I speak for many, particularly those who are living, working and ministering in areas affected by the downturn in the automotive industry, when I say that this level of support and commitment is to be very much looked on with favour. Perhaps the Minister is disappointed that within this debate so far precious little has been made of the main thrust of his Statement; namely, that any aid to be given will be targeted towards the greening of the automotive industry.

I think the Minister said that it would be difficult to have a strategy to cover all cases and that, therefore, a case-by-case basis will be adopted. However, on the point made by the noble Lord, Lord Razzall, if there is to be a strategy, perhaps we will see the signs of that strategy in the fact that the main thrust of this Statement is about the greening of the automotive industry as a condition on which any public moneys will be made available. Can the Minister confirm that that is indeed part of the Government’s strategy so that any further assistance given to any industry will be made precisely on that condition—that it will be environmentally-proofed? If that is the case, today’s Statement is welcome, not only for the automotive industry, but perhaps for the wider cause of sustainability and our future environmental well-being.

My Lords, I am grateful to the right reverend Prelate for spotting the absolutely central point. This is not simply to assist an important industrial sector to weather the downturn and survive into the future. It is to define that future in the way that the right reverend Prelate has described. Strategically, the Government’s job is to help put in place the right bridges to our economic future, which will be a low-carbon economic future. We will do this with the right alignment of government policies and incentives to do it smartly and, throughout, with the grain of the market. That is fundamental. Essentially, we do not need old-style interventionism, as we knew it in the 1970s—and, a little, in the 1980s—but stable frameworks of policy, within which the private sector is free to take its own decisions. This is the Government’s approach, our policy rubric, which we need to apply to our economy’s productive base as a whole. The right reverend Prelate is right: at a time when people are feeling low, this is the sort of approach that gives them confidence and hope in the future.

My Lords, as I think the Minister was announcing the end of a big car culture, from which Britain and Germany need to move on, does he agree that, under this scheme, no car should be allowed to have an engine larger than two litres?

My Lords, I do not accept that. This announcement is not part of the end of a big car future. It is about the end of high emissions and a high-carbon past. That is central to what I have announced this afternoon. The noble Earl should not infer from it that I am being size-ist in any way.

My Lords, does the Statement have any effect on the situation at Corus? Noble Lords will be aware that a large number of redundancies have been announced and that the problem there is a decline in the demand for steel. However, the company is making quite large profits. This is of great concern to the unions, including my union, Unite, which is now pressuring the company to ensure that its present situation does not result in a desperate situation for some neighbourhoods, where it would be appalling if this number of people were made redundant.

My Lords, I share my noble friend’s concern about the implications of the announcement made yesterday by Corus. I spoke to the union leaders, as well as the chief executive of Corus, yesterday. All I can say in mitigation of what is very disappointing news for many people is that the structural changes that the company will undergo will—I have heard this from the company and I probably agree—contribute to its long-term competitiveness and, therefore, the security of production and employment in the longer term. That does not alter the pain of the news for those who are immediately affected, although I also have an assurance from the chief executive of Corus that, as far as possible, these redundancies will be voluntary, not forced. The Government stand ready, through all their agencies, to intervene wherever communities and individuals are affected and to give them every possible assistance.

Geneva Conventions and United Nations Personnel

Second Reading

Moved By

My Lords, the Geneva Conventions and United Nations Personnel (Protocols) Bill will give effect to two international agreements. Both agreements aim to enhance the protection of personnel operating with a humanitarian purpose. Enactment of this Bill will enable the United Kingdom to become a party to the third additional protocol to the Geneva conventions and the optional protocol to the Convention on the Safety of United Nations and Associated Personnel.

The first clause amends the Geneva Conventions Act 1957 to allow ratification of the third protocol to the Geneva conventions. The protocol was signed by the United Kingdom in December 2005. It introduced a new humanitarian emblem, the red crystal, in addition to the existing emblems of the red cross and the red crescent. Like these, the red crystal is designed to be a protective device for humanitarian personnel in armed conflict. The emblem of a red cross on a white background has been used for nearly 150 years as a universal humanitarian emblem in times of armed conflict. The red crescent emblem was later given the same function. Both are symbols of the protection that the medical services of the armed forces and those in their care enjoy under the Geneva conventions. More recently this protection has been extended to include medical services.

However, as conflicts become more complex, the scope for misunderstanding of these emblems has increased. In some situations, the red cross and the red crescent are wrongly seen as having a religious connotation. The red crystal was therefore introduced to be used wherever the protection given by the other emblems might be compromised. The symbol can also be used by National Societies of the Red Cross and Red Crescent movements, such as those in Israel and Eritrea, which feel unable to identify with either the cross or the crescent or do not wish to choose between the two.

The creation of the red crystal was part of a package which also paved the way for the Israeli and Palestinian national societies to join the International Red Cross and Red Crescent Movement in 2005. Recent events in Gaza have reminded us of the importance of effective humanitarian protection in conflict situations.

Once ratified, the protocol will enable the United Kingdom’s defence medical services to use any or a combination of the three distinctive emblems. In any conflict situation, armed forces will be able to choose the emblem likely to afford maximum protection to their medical services and their patients. The United Kingdom has played a major part in the adoption of the red crystal, which has been widely accepted. The protocol has been ratified already by 36 states. By ratifying, the United Kingdom will show its commitment to the development of international humanitarian law.

The implementing legislation before the House will amend the Geneva Conventions Act, which protects the red cross and red crescent against misuse under criminal law. As the protocol requires, the Bill provides the same protection to the new emblem as is already available to the red cross and the red crescent by making it an offence to misuse any of the three humanitarian emblems.

The Bill’s second clause amends the United Nations Personnel Act 1997 to give effect to the optional protocol to the Convention on the Safety of United Nations and Associated Personnel adopted by the General Assembly of the United Nations on 8 December 2005. This optional protocol extends the scope of legal protection to United Nations and associated personnel engaged in UN operations.

UN activity in this domain was initiated in 1994 with the adoption of the Convention on the Safety of United Nations and Associated Personnel. The convention was adopted in response to rising casualties among UN peacekeepers and other personnel. The convention requires member states to prevent and punish, through domestic and criminal law, attacks on UN personnel and others associated with UN operations, extradite perpetrators of such acts and take other ancillary measures.

The scope of the convention is relatively narrow, applying to only two categories of UN operations: those maintaining or restoring international peace and security; or those where the Security Council or the General Assembly has declared that there exists an exceptional risk to the safety of the personnel participating in the operation. However, in practice neither the Security Council nor the General Assembly has made that required declaration, leaving many UN workers without the protection the convention was intended to provide. This narrow scope of protection has been heavily criticised, particularly by the previous United Nations Secretary-General, Kofi Annan, who for some years had called for a protocol to extend the protection to those UN personnel not otherwise covered. His deputy at the time made similar calls. These were echoed at the world summit in September 2005.

In response, on 8 December 2005 the General Assembly of the United Nations adopted an optional protocol to the 1994 convention. The new protocol extends the scope of protection to two new categories: operations for the purpose of delivering humanitarian, political or development assistance in peacebuilding, and operations for the purpose of delivering emergency humanitarian assistance. The need for measures of this nature is as relevant as ever, as global demands on UN peacekeeping fail to cease. In a speech to the United Nations Security Council delivered on 8 January this year, the UN High Commissioner for Refugees, Antonio Guterres, expressed concern that the deliberate targeting of humanitarian workers has increased, establishing a tension between the imperatives of staff safety and effective humanitarian action.

If the courageous men and women involved are to continue to fulfil these vital roles they must have the full weight of international law behind them. Through its EU presidency the UK played a leading role in enabling the adoption of the protocol of the General Assembly before the end of 2005. Ratifying the protocol will reinforce the UK’s commitment to it, as well as encouraging further states to become parties to the 1994 convention. Given the need for the UK to be seen to be agreeing with the international consensus on these valuable initiatives, it should be regarded as an absolute minimum for the UK to ratify the two protocols contained in the Bill. For that reason, I commend it to the House. I beg to move.

My Lords, I am sure the House will be grateful to the Minister for moving the Second Reading of this short Bill, at a sadly appropriate time. The Bill has two objectives: to amend the Geneva Conventions Act 1957, as he has explained, and to amend the UN Personnel Act 1997.

The first aim marks a new stage in the use and application of protective and distinctive emblems to cover the work of those who are bringing care and relief to victims of battle, prisoners of war and people everywhere, including civilians, who are in crisis—a familiar scene that we have seen a thousand times in reality or on television screens. It does so by introducing and legalising this new additional emblem to the existing red cross and red crescent, to be called the “red crystal”, which is intended to be both protective and indicative, marked on vehicles and on the armbands and uniforms of personnel in the field. It also extends the penalties for misuse or abuse of this symbol and, as I understand it—I hope I have got this right—of the existing symbols as well. It is not often that one handles a Bill that has a picture in it. It is not, alas, in the colour that it ought to be, but it is an unusual departure from the grim, ordinary pattern of legislative documents placed before us.

The second aim, as the Minister explained, is to strengthen the safety of the conditions surrounding UN and associated personnel by extending their legal protection against attack, assault and danger to a wider range of operations. Both aims are commendable, and both are sadly relevant to the modern world and to events current even while we speak. The bravery of those who work under these emblems of neutrality and mercy, and of UN personnel in battle zones, cannot be exaggerated. It is easy to talk about, but it is immeasurable and shows enormous courage. That applies also to aid workers, whose position we discussed earlier in your Lordships' House when my noble friend Lady Rawlings raised an important Question on that issue

We strongly support the aims, but I have a number of questions for the Minister on which I hope he will have a chance to comment when he winds up this short debate. Although the expansion of symbols from the simple red cross to the red crescent comes down to us from the 19th century—indeed, at one stage, there was even a red lion and sun for the Persians and Iranians, and a red flame for the Thailanders—and arises from all manner of religious and ethnic concerns, it is a sad fact that the original red cross was never intended to be a religious symbol; it was simply the reversal of the Swiss flag, which is a white cross on a red background, and an emblem of that very precious and nowadays abused concept of true neutrality. That is all long ago, and it is no use crying over spilt milk, but it is where we have got to today.

If the cross and crescent have served so well, what is the main reasoning behind adding the new symbol? Are we being driven by the needs of a very small number of countries? Which countries want something different and are unable to accept either the cross or the crescent? The spirit behind these symbols is and must be complete and utter neutrality. Is that essential quality in any way weakened or diluted by the arrival of the third symbol?

We know about the Israeli problem, which the Minister has mentioned, and we know the Israeli preference for the Star of David. The proposition seems to be that, as they are now admitted to the international federation, they can combine the Star of David with the red crystal logo wrapped around it. Is that correct, and does it provide exactly the same protection under international law as the cross and the crescent?

Who exactly decides who can use the new symbol and where? I think that there is an answer, but I would like to hear it from the Minister. Will the combination emblems, be it the logo of the crystal with either the cross, the crescent or the Star of David, be fully operative for both indicative and protective purposes in all cases?

How will the new emblem affect the International Committee of the Red Cross, the International Federation of Red Cross and Red Crescent Societies or the International Red Cross and Red Crescent Movement? Will “crystal” come into any of their titles in the future? Will there be a new international red crystal organisation?

I turn to the aspect of the Bill that concerns UN personnel. Again, I have a few questions. Does the UN protocol cover all bodies; for example, the UN refugee centre in Gaza? There have been comments about the scope of the previous personnel convention, and suggestions that it did not give the full cover required. The Minister, with his considerable experience at the UN, is an expert in this field and will be able to tell us about that.

Secondly, how many states are party to the convention on the safety of UN personnel, and how many states will be party to the enhancement and extension of it? Thirdly, the protocol now extends to UN personnel working in more clearly defined conditions of exceptional risk. The problem led to understandable complaints from Kofi Annan and others that the cover was not good enough. Now that it extends beyond the narrower concept of peacekeeping and humanitarian work, how many of the current UN operations will have the protection of this convention? There are many such operations in this world at the moment—too many, as we know to our cost.

That completes my questions on a Bill that all reasonable people will welcome. We remain supportive of this endeavour and of the people who have shaped it. It has been created and established after many delays and debates, and we hope that it will bring more humanity to a dark and violent world.

My Lords, we on these Benches also support the Bill. As humanitarian action has become more organised and more international, so too must the protection of those involved. The Red Cross movement has a long and extraordinary history, and the steady expansion of the UN’s role is surely welcome. We have debated repeatedly what can be done to protect people in desperate circumstances, and the UN's duty to protect was recently strengthened. Following increased international action, we must improve what we do to protect those brave people identified by the noble Lord, Lord Howell, who are involved in such missions. That is what the Bill is about.

The Geneva Conventions and the use of the symbol of the red cross in the 19th century—related, as we have heard, to the Swiss flag—were the first moves in this direction. We have heard how Ottoman soldiers reacted to the symbol because it was reminiscent of the Crusaders' badge—hence the use of the red crescent. As the noble Lord, Lord Howell, mentioned, Persia later used a red lion. Others proposed other symbols, but in 1949 it was these symbols—the cross, the crescent and the lion—that were recognised internationally, and other contenders were not accepted.

The emblems serve an important purpose as signs of neutrality, and to bring protection on the battlefield. Even when they were adopted, there were problems with their use, and some feeling that they were not sufficiently inclusive. That feeling has grown and become more pressing with the rise of religious and ethnic conflicts. It seems that their efficacy has been undermined by identification with one group or another. Also, some national societies have had difficulty using one emblem because of the diversity of their communities.

From the discussions over this there emerged, almost a decade ago, the red crystal, seen as a symbol free from religious, national, cultural, ethnic or political symbolism. What happens when another symbol is placed within it, as the noble Lord, Lord Howell, mentioned, remains unclear. Given that it emerged a decade ago, we should expedite this measure, to improve protection and give greater universality to the symbols available to the movement.

The new emblem could, of course, apply to British Armed Forces operating in appropriate circumstances—Afghanistan and Iraq might be cases in point. Humanitarian assistance in the Middle East, which is so desperately needed at the moment, could also benefit. As the Minister said, the red crystal emblem has already enabled the Israeli National Society to be recognised. The Palestine Red Crescent Society has also been admitted to the movement, thus increasing the universality of this humanitarian network.

The second clause in this Bill extends the scope of legal protection to UN and associated personnel engaged in UN operations for delivering humanitarian, political or development assistance in peacebuilding, or for delivering humanitarian assistance generally. This reflects the expansion of the UN’s role and its work in places such as Rwanda and Bosnia in the 1990s. The move to introduce a protocol gained added momentum in August 2003, when Iraqi insurgents blew up the UN headquarters in Baghdad, killing 20 UN employees, including the UN special envoy to Iraq.

The expansion of the scope of automatic application of the convention to include peace-building operations and emergency humanitarian assistance operations is very important. It must be very satisfying for the Minister to find himself taking this through as a Minister in his home country, having been involved in the development of these protections while at the UN. However, it has been suggested that there are some limitations still. Could the noble Lord comment on whether some UN bodies remain outside its scope? For example, emergency humanitarian assistance operations established by autonomous organisations within the UN system and by the specialised agencies seem not to be covered as they were not established by UN charter bodies. So, for example, operations established by the Food and Agriculture Organisation or the World Health Organisation would not be within the scope of the protocol. If they fall outside the scope, does the Minister know of moves to include them?

There is also a concern about the number of states signing up to its provisions. The convention, more than 10 years after its adoption, has only 79 countries signed up out of a UN membership of 191, and some of those that are not signed up are where UN personnel are operating. I have heard that only four out of the 16 countries where UN personnel are operating have signed up. What comment would the noble Lord make on this?

Nevertheless these provisions are a move forward and to be welcomed. It cannot be for us to change this Bill; that will need to be built into future UN agreements and then ratified by member countries. But while we are discussing the issues of where now, can I ask when legislation might be brought forward in relation to the remaining international humanitarian law treaties to which the UK is not yet a party? I gather that in 1977 the UK entered a reservation on reprisals—that in extreme circumstances the UK retained the right to reprisals. Could the noble Lord comment? What else has the UK not yet signed up to, and why? For example, there is the 1954 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict, and its two protocols. A draft Bill on this was published in January 2008. The Culture, Media and Sport Select Committee undertook an inquiry and published a report in July 2008, but the Bill was not included in the Queen's Speech. It might be helpful if the noble Lord could say when this Bill might come forward. In the mean time, I wish to make it very clear that we welcome this Bill today.

My Lords, I shall speak briefly in support of this Bill, which will enable Britain to ratify the Third Additional Protocol for the Geneva Conventions and the Optional Protocol on the Safety of UN and Associated Personnel. In so doing, I declare an interest as the chair of the United Nations Association of the United Kingdom. Like my predecessor in this debate, I congratulate the Minister on the rather unusual possibility of playing the ball from one end of the table and getting round to the other end in time to play it back again.

No trend in recent years has been more shocking or despicable than the rise in attacks on UN and humanitarian personnel. Some episodes, such as the terrorist attack on the UN headquarters in Baghdad in 2003, which resulted in the death of the UN’s greatly admired Special Representative Sergio Vieira de Mello, received widespread publicity, as did the recent attacks on UN schools in Gaza; but far too many of these incidents pass over almost unnoticed by a general public who have become inured to such tragedies. I ask the Minister whether it is not high time that the Government took steps to commemorate with a public memorial the sacrifice by British citizens serving the UN and associated actions in this kind of operation.

In any case, the least that we can do to help the effort to reverse this lamentable trend is to pass this legislation and, by so doing, to make our own modest contribution to providing greater protection and security to UN and associated personnel. The other provision in the Bill that will enable us to ratify the amendment to the Geneva Conventions recognising a third symbol, in addition to the red cross and the red crescent; namely, the red diamond—or another word that escapes me at the moment—seems to me equally worthy of support and extremely topical in a period that has seen hostilities in a region where the addition of the new symbol could be genuinely valuable.

I should add that I doubt whether merely a confusion over symbols lies at the heart of some of the truly appalling incidents of disrespect for the basic precepts of international humanitarian law in and around Gaza. That is more properly a matter for debate that has, alas, lamentably been postponed for another 10 days, and in which I will unfortunately not be able to participate. I urge, therefore, that we give this measure a rapid and trouble-free passage through the House.

I was a little startled to hear the noble Lord, Lord Howell, suggest that there were too many UN conventions. I am not sure which ones he would propose to cull, but I may have misunderstood what he said, and if so, I apologise.

On the basis of recent experience, I suspect that if you were to ask the BBC whether it supported a measure designed to protect UN and associated personnel, it would decline on the basis that that would undermine its impartiality. As a lifetime supporter of the BBC’s right to exercise its own editorial judgment, I would not budge from that view, deeply though its decision to refuse to screen the Gaza appeal has dismayed and angered many of its friends. However, I reserve the right to say that I personally regard that decision as aberrant.

My Lords, I indicate on behalf of Magen David Adom, which translates as “red shield of David”, and of whose British friends I have the privilege of being president, that the Bill is warmly welcomed.

The history of the Red Cross and the Red Crescent is magnificent in regard to the work it has done to help people injured in situations of war or many other situations. It is also possible to recognise Magen David Adom, with the shield of David painted very visibly on its ambulances, which it uses in the vicinity of the Gaza strip to remove injured people regardless of religion or race from situations of danger, at much risk to those operating the vehicles. That fact has perhaps not been noted by the media. It is to be hoped that the fact that in future they can take advantage of the red crystal—the Hebrew for which I do not know—will be of benefit.

It might be asked, as indicated by the noble Lord, Lord Howell, why we should have another symbol if existing symbols have acquired the reputation to which I have referred. The fact is that when the Israeli aid service could not appropriately use either the red cross or the red crescent, they used another symbol. After long negotiation, carried out in an amicable spirit between the authorities of the Red Cross and the Red Crescent, the formula was devised of avoiding the undesirable multiplication of symbols and substituting a clearly neutral symbol. Perhaps it is to be welcomed that the international services were able to achieve beneficial results in those circumstances.

My Lords, the Bill has received a warm welcome from all sides of the House. I want to add only one or two short points. First, which symbol do the Government intend to use on medical vehicles? If, in humanitarian peacekeeping in Africa, the Middle East and Asia, there is a strong argument for our moving to the red crystal, can the Minister assure us that government Ministers will be robust in standing up to the unavoidable and inevitable response from the Daily Mail, the Sun and others if we shift from one symbol to another?

Secondly, I wish to make further remarks on the concept of true neutrality for the UN and elsewhere. We have all learned that, sadly, many people in the world do not accept the concept that any organisation can be truly neutral. I fear that we have suffered to an extent from those neoconservatives in the United States who wanted to make sure that the UN is the servant of a particular concept of world order—the West alone. That has not helped the UN and is the sort of attitude to the UN that helped to fuel the dreadful events in Bagdad. I knew well one of those badly injured in the Bagdad bombing. We need to make sure that international organisations are seen to be as non-partisan as possible, even while recognising that there will always be some groups, some non-state actors, who simply refuse to recognise that anyone can be neutral in any single way.

More and more humanitarian operations of the sort to which this extends protection will be taking place in parts of the world where there is no recognised authority or clear state, and where the idea of local authority will be highly contested. We have seen across the Great Lakes region, Sudan and elsewhere, the problems of trying to exist on law being enforced, particularly international law, and international courts. It throws extra complexity and extra tension into an already difficult situation. Perhaps the Minister would like to comment on how we should cope with international courts and international rights being added.

Thirdly, the question of territorial extent under Clause 3 always comes up in Bills like this. I do not expect the Minister to reply to this, but I am always puzzled by the extent to which we allow very small territories, much smaller in extent than those which Her Majesty’s Government regard as appropriate for any local authority in Britain, to opt in or opt out of these very evident international organisations—the Isle of Man, the British Overseas Territories, the Channel Islands and so on. At some stage soon the House is going to have to ask the Government for a clear definition of how much we allow the British territories to opt in and out of very clear international obligations, rather than accepting that we legislate for them.

My Lords, I thank all who have participated for their support for this Bill and for this thoughtful debate. I begin by reassuring the noble Lord, Lord Howell, that the introduction of the crystal will not in any way undermine the standing of the other two symbols. Indeed, it is the hope of those who came to this solution that creating a third religiously neutral symbol would prevent a proliferation of other symbols. It is hoped that the protections available to the first two symbols will be extended to this third one so they will all be on a level playing field and enjoy restored respect. In that way, the worrying, debilitating and degenerative fight about whether the first two symbols were becoming religious in nature would be at an end and the symbols would once more enjoy, we hope, universal authority and the power to protect because they would be respected. The protocol clearly covers under exactly what circumstances a country can adopt and incorporate its own symbol, as Israel has done. In much of this, the parties to the agreement will police it and make sure that people are satisfied that it is used within the framework of what has been agreed.

I suppose I should be relieved that on one ground at least I can say to the noble Lord, Lord Wallace, and, through him, to the Daily Mail, that the British Red Cross is safe with this Government. It is not our intention, nor is it the intention of the British Red Cross movement, to change the name or the emblem. There is a lot of history behind it and it will stay that way, so the Daily Mail can relax. That said, over time we expect more and more countries to avail themselves of the Red Crystal because unfortunately the polarisation around religion and religious symbols seems likely to grow rather than dissolve as the world moves forward. On whether there is special pleading behind this and whether it covers more than a small handful of countries, the original initiative within the Red Cross movement came from the need to find a way to include Israel in a way that it felt met its needs. That then got entangled with the separate issue of how to allow the Palestinian Red Crescent movement in. Eritrea is also reluctant to use the first two symbols. So there is a general sense that the crystal will get increased usage moving forward. It is just a sad commentary on the way of the world we live in.

Let me turn to the UN clause. As a number of noble Lords were kind enough to say, it is a great pleasure for me to see through this piece of national legislation. One of the darkest clouds of my latter years at the UN was the severity and growing frequency of attacks on UN humanitarian workers. Let me be clear that this protocol alone will not solve that problem. It is an important step and a demonstration by the UK that we take this very seriously. However, as it is not on UK territories that threats to UN humanitarian workers are likely to occur, we are in a sense trying to lead by example in doing this, encouraging others to adopt the protocol. More critically, we are encouraging them to recognise in their own justice systems and the priorities that they set for themselves that attacks on humanitarian workers—particularly UN workers, the category covered by this protocol—is a heinous offence that they must address.

The core point is how many countries with UN peacekeeping or major humanitarian missions have so far adopted the protocol. The Central African Republic, Cyprus, Lebanon, Liberia and Sierra Leone all have UN missions and are signatories to the protocol as well. Of the original convention, 87 countries have ratified it, while 34 have signed the protocol and 16 have fully ratified it as well. Perhaps we need to look at that sub-group most clearly.

The noble Baroness, Lady Northover, queried our record on other outstanding international legislation. I reassure her that the draft Heritage Protection Bill contains the necessary implementing legislation that will enable the Government to ratify the Hague convention. The draft Bill was published in April 2008 and is currently subject to pre-legislative scrutiny and public consultation. We remain committed to it, and it will be brought forward at a later date as soon as parliamentary time allows. I know from the difficulty we had fitting even this minnow of a Bill into your Lordships’ busy legislative programme and that of the other place, that this is currently a difficult issue; we have a bit of a queue of legislation. However, I reassure the noble Baroness that we have by no means lost focus on this. We recognise that legislation’s importance.

The suggestion of the noble Lord, Lord Hannay, for there to be a public memorial to UN personnel killed in the course of duty certainly appeals to me and is very much part of the broader issue that we want to address in terms of giving proper respect to those who lose their lives, and fits within a culture of respect and, for that matter, protection. I plan to share the idea with others in Government to see whether we can move forward with it.

The noble Baroness, Lady Northover, was right to say that the convention applies only to UN staff. I do not think that it is limited to just one subset of agencies, but she was correct to say that the Bill does not apply more broadly to humanitarian workers. We need continually to press for a fuller set of protections that would mean that people who work for Save the Children, Oxfam or other organisations were similarly protected. The Bill sets the right direction, but it is not all-embracing.

I conclude by asking the House to give the Bill a Second Reading.

Bill read a second time and committed to a Committee of the Whole House.

My Lords, I have temporarily lost my Minister, I therefore move that the House do adjourn during pleasure until 4.45 pm.

Sitting suspended.

Pre-Budget Report

Motion to Take Note

Moved By Lord Myners

To move that this House takes note with approval of the Government’s assessment as set out in the Pre-Budget Report 2008 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.

The Financial Services Secretary to the Treasury (Lord Myners): My Lords, I welcome this opportunity to debate the information provided to the European Commission under Section 5 of the European Communities (Amendment) Act 1993. Each year the Government report information to the Commission on the economic and budgetary position and our main economic policy measures. By formally sharing information from the Pre-Budget Report with our European partners, we can help to ensure a proper, accurate and effective EU system and meet our commitments, contributing to enhanced employment and growth.

This information was set out in the Pre-Budget Report in November and this material forms the basis of what we are now sending to the Commission. The 2008 Pre-Budget Report was made against a background of economic uncertainty not seen for generations. These are extraordinary, challenging times for the global economy and they are having an impact on businesses and families right across the world. Our central objective is to respond to the consequences of this global recession in our country. When faced with a global shock on the scale we have experienced, international co-operation is of primary importance and the European Union, its institutions and its member states are among our most important allies in this regard.

In this spirit, the European Council has agreed a European economic recovery plan which rightly calls for a fiscal stimulus from member states equivalent to around 1.5 per cent of GDP. The Council has also stressed the importance of flexibility in these exceptional times. It encouraged member states to allow borrowing to rise to support the economy, acknowledging that this would lead to a deepening of deficits in the short term and that the stability and growth pact should be applied in a manner which reflects the current exceptional circumstances. Therefore, in line with international consensus, the Chancellor announced in the PBR a fiscal stimulus of £20 billion, in addition to allowing the automatic stabilisers to operate in full, providing meaningful help to families and businesses when it is most needed.

Turning to the broader global economic environment, there is a serious problem with the global credit crunch, which is continuing to grip countries across the world and is inevitably affecting us here in Britain. This is a global problem, the start of which can be linked to problems in the sub-prime mortgage market in America and then spread with the contagion that infected banks right across the world. That is why the only way to resolve this will be through global action. The US and Japan are in recession and so is the euro area, while growth in India and China has slowed quite markedly. As the IMF has said,

“the world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s”.

According to the most recent IMF forecast, the world’s advanced economies are set for their first annual contraction in the post-war period and the UK is no exception. As the PBR set out, short and medium-term growth prospects in the UK remain subject to exceptional uncertainty.

My Lords, the Minister has mentioned the IMF. Why was it that before the PBR Statement last November the IMF warned the Government that their spending was reckless? The noble Lord has drawn our attention to those IMF views. Why did he not stress that the IMF has been saying for a long time that Britain’s public spending should be reigned in? Why was it that last November the Chancellor of the Exchequer predicted a recovery for the British economy in the third quarter of this year when the IMF was saying precisely the opposite?

My Lords, I shall address those points later in my opening speech. I do not believe that the IMF used the term “reckless” to describe government policy. Indeed, I am very aware that over a number of years the IMF commended the British economy for its growth against low inflation and a fiscally prudent backdrop, and that was reflected in the Chancellor of the Exchequer’s thinking when he presented his pre-Budget review in November. If the noble Lord is correct and the IMF used the term “reckless”, I apologise, but I am fairly confident that it did not.

As I was saying, the UK is no exception. As the PBR set out, short and medium-term growth prospects in the UK remain subject to exceptional uncertainty. However, it is now clear that the UK, like the US, the euro area and others, is in recession. These are difficult times and that is why we have taken the action necessary to support people now and to lay the foundations of recovery.

The problem of a lack of lending and constraints on credit is a worldwide one. All the important banks trade in every part of the world. The sources of finance that the banks have used in the past few years have dried up. Financial markets affect everyone’s daily life. If they fail to function properly, the impact is felt right across our economy and by every one of us. Therefore, restoring and maintaining financial stability is absolutely critical.

In October, we took action to stabilise and improve confidence in the banking system and to recapitalise a number of banks. As a result of the action that we took, a collapse of the banking system was avoided and no savers in UK banks lost money. This action, which has since been emulated in a number of other jurisdictions, has resulted in some improvements in bank lending, with the rate of interest at which banks lend to one another coming down by a noticeable margin since the autumn.

At the same time, we are putting money into direct support for small businesses, in particular, through different loan guarantee schemes to help them with short-term difficulties. However, we need to go further. The banks are still not lending to each other in the normal way and the global economic downturn has intensified since the autumn. We are now seeing a vicious circle of weakened banks damaging the economy and a weakening economy hurting the banks. The Government must act now to reverse that vicious circle, to get credit flowing again, to limit the extent of the downturn and to support the recovery, when it comes.

That is why the Chancellor of the Exchequer announced last week, in his Statement in the other place, a comprehensive package of measures designed to reinforce the stability of the financial system, to increase confidence and the capacity to lend, and, in turn, to support the recovery of the economy.

However, as I have said previously, this is a global problem. We have to get the banks lending to each other, not just in Britain but across international borders as well, and we can do that only by working with other Governments across the world. With the UK taking the presidency of the G20, we will take the lead in doing all that we can to prevent a recurrence of these problems, and in this respect we will be working very closely with our European partners.

Because of the economic and financial situation, tax revenues are falling across the world. As company profits fall, so do the proceeds from corporation tax. Receipts from the financial sector alone are expected to reduce by 35 per cent this year. Slower growth in wages means less income tax. Fewer people buying houses and falling prices mean less money from stamp duty, where tax take is down by 40 per cent. This all means that borrowing will be significantly higher than forecast. As a result of the combined effect of lower revenues, our commitment to maintain spending and extra support to the economy, borrowing will rise to £78 billion this year and £118 billion next year, or 8 per cent of GDP. However, from 2010, as we act to reduce borrowing when the economy begins to recover, borrowing will fall: to £105 billion, then £87 billion, £70 billion and £54 billion. By 2015-16 we will, again, be borrowing only to invest.

The economic crisis and action by Governments across the world will inevitably mean sharp increases in national debt relative to GDP. Again, the UK is no exception but, because we started from a stronger position, our debt is forecast to remain below that of most other major countries as we go through this downturn. UK net debt as a share of GDP will increase from 41 per cent this year to 48 per cent in 2009-10, then 53 per cent in 2010-11, before peaking at 57 per cent in 2013-14.

My Lords, this is a crucial question. To what extent do the Government intend to fund that deficit fully from the non-bank public?

My Lords, the Government intend to adopt a prudent and appropriate funding structure and, as such, to seek to fund that deficit fully from the non-bank public sector. As I was saying, UK net debt as a share of GDP will increase before peaking at 57 per cent in 2013-14.

Our economy cannot insulate itself from this global financial turmoil, but credible medium-term objectives and mechanisms for short-term flexibility mean that the Bank of England and the Government can deliver the necessary support to the economy, without compromising their respective commitments to low inflation and sound public finances. Responding to the global financial crisis, the Bank of England has reduced interest rates by 350 basis points since September, to an all-time low of 1.5 per cent, but most people recognise that monetary policy and interest rates on their own are not enough to stimulate the economy. There is widespread international consensus that a fiscal stimulus to help the economy is the right thing to do.

A consensus to do nothing—to walk on by as people struggled to keep their jobs and homes, letting the recession run deeper and longer—would be a massive mistake. The USA, France, Germany, Japan, Italy, India, China, South Korea and Australia—I could go on—have all announced fiscal stimulus packages in recent months. More are expected to follow. That approach has been agreed by the European Council and the leaders of the G20. It is backed by parties of both left and right on every continent; by international institutions such as the IMF and OECD; by business groups such as the CBI and the Institute of Directors; the Bank of England, and many more.

We need immediate action to boost economic activity, help us emerge faster and stronger from these difficult times, and face the future with renewed confidence. If we do not act now, that will cost more to the economy, to the public finances and to society. That is why the Pre-Budget Report represented a package of substantial fiscal action to help the economy now, with a £20 billion fiscal stimulus between now and April 2010, or around 1 per cent of GDP.

We are doing everything in our power to give real help to home owners and to businesses, including cutting VAT by 2.5 per cent for one year and putting £12.4 billion into the economy. We are bringing forward £3 billion of capital projects on housing repairs and insulation, school extensions, GP surgery refurbishments and transport improvements to provide jobs right now when the economy is under pressure. We are increasing support for pensioners and families with children, as well as for all taxpayers on modest to middle incomes. We are helping home owners with the new home owners mortgage support scheme to help people to stay in their homes if they experience a redundancy, and we will continue to invest in public services—just as we have done over the past 10 years. Investing in schools and hospitals and modernising infrastructure and transport links is not just an effective way of stimulating the economy, safeguarding jobs and protecting incomes; it is also vital for the future strength and health of our country.

We have seen in the past the long-term damage that cutting public investment has on the essential fabric of the country and the support people need. Since 1997, we have doubled the NHS budget, cutting hospital waiting lists. Spending on education is 60 per cent higher, improving schools, educational provision and exam results. Transport spending is up by 70 per cent, with more than 130 major road schemes and record numbers travelling by rail.

As the PBR set out, over the medium term, the Government’s fiscal policy objective remains to ensure the sustainability of the public finances to protect economic stability and long-term growth. Therefore, it set out plans to deliver a sustained fiscal consolidation from 2010-11 when the economy is expected to be recovering and is able to support a reduction in public sector borrowing. Our objectives for fiscal policy in the face of these shocks remain unchanged. It is right that in the Pre-Budget Report the Government did all they could to support the economy in these difficult times, taking immediate action to support the economy and setting out a path for ensuring fiscal sustainability. The Government’s objectives of smoothing the path of the economy in the short term while ensuring sound public finances over the medium term are consistent with the October European Council conclusions, which confirmed that the stability and growth pact should be applied in a manner that reflects current exceptional global economic circumstances.

The objectives are also consistent with the European economic recovery plan that was agreed by the December European Council. This calls for an EU-wide fiscal stimulus of around 1.5 per cent of EU GDP and recognises that a temporary deepening of deficits is justified, given the scale of the global crisis. Furthermore, to ensure sustainability of public finances, it calls for consolidation in pace with economic recovery.

These are exceptional times and require exceptional measures. They require immediate action to help people and action to build a stable economy. We have made our choices: helping businesses, helping house owners and helping people into work; boosting incomes; and giving real help now. That is possible only because this Government have taken the deliberate decision to support people and businesses through these difficult times. That is the programme set out in the 2008 Pre-Budget Report and that, with the approval of the House, is the basis on which we will send updated information to the European Commission. I welcome the opportunity to debate it here this afternoon.

My Lords, I thank the Minister for explaining to the House why we should approve this submission of the Pre-Budget Report to the EU. I believe that it is a requirement of a European Council regulation and a related code of conduct that the submission deadline is 1 December. In general, the lateness of the PBR means that we have been given an extension until 1 January, but here we are on 27 January in order to approve the submission. Furthermore, the relevant document, the UK convergence programme, while dated December 2008, was announced as available in a Written Statement only on 14 January. I am sure that the Government are not keen to submit this dreadful story of economic mismanagement to the EU, but will the Minister explain why they have ignored all the deadlines?

My usual line in connection with these Motions, which come up once a year, is that this House should not care over much about what is submitted to Europe in the name of the growth and stability pact. We are fortunate to remain outside the euro, a topic that we will debate more fully on Thursday, so our adherence to Europe’s rules has no real meaning. However, so awful is the content of the PBR and the convergence programme document that I have revised my opinion. Anything that gets an international spotlight on this Government’s appalling record is to be welcomed. The Government deserve every criticism or rebuke that the Commission lays at their door.

The Government have breached the Maastricht criteria of 3 per cent for deficits in the past and have generally used words that have implied that all was well because they were doing the right things and had strict fiscal rules, and so on. However, I do not believe that it has ever been the case that a growth and stability pact document has had to own up to a treaty deficit peaking at more than 8 per cent and remaining at more than 3 per cent for the whole of the forecast period. Nor has the treaty debt ratio been above the 60 per cent limit, but this convergence submission has that in every year, and the figure rises to 68 per cent on the EU’s measurement rules.

The Prime Minister used to lecture the world on his fiscal rules, on prudence and, most of all, on bringing an end to boom and bust. He and his successor as Chancellor threw prudence out of the window some time ago, which was followed late last year by the fiscal rules. The Prime Minister is incapable of admitting that he has made even a tiny error. He has refused to admit that his boast about boom and bust was just plain wrong. He refuses to own up to the bust, which we are assuredly now experiencing, having anything to do with him.

Perhaps I may read a brief extract from an article in the New York Times on 22 January. It states:

“An island nation that bulked up on debt and lived beyond its means. A plunging currency. And a financial system edging toward nationalization … it is no wonder that observers have started to refer to London as ‘Reykjavik-on-Thames’”.

The Prime Minister blames the global financial crisis originating in the US and the Minister today repeated that view. But it is certainly not the whole truth. The Prime Minister, when he was Chancellor, engineered the UK becoming overburdened by debt. The Government like to quote the OECD as having said that our debt level was virtually the lowest in the G7, although the OECD will not say that now as public sector debt rises to more than £1 trillion, nearly 60 per cent of GDP. That ignores the cost of the bank rescues, PFI and unfunded pension liabilities. It amounts to £17,000 for every individual in this country. However, to get a real fix on the overleveraging of our economy, we have to add corporate and personal debt, which we have warned for years was out of control. According to an analysis by Citibank, that takes our debt ratio to more than four times GDP, which is more than double that of any other country in the G7.

The publication of the PBR in November was the first time that the Government admitted publicly that their growth forecasts were completely wrong. Last week, the ONS confirmed that we are officially in recession, with the steepest quarterly GDP fall since 1980. The European Commission came out last week with its own forecasts, which showed the UK as the worst performer in the G7 and virtually at the bottom of the EU league.

In the PBR, we were told that there would be a quick dip into recession this year and that we would start to come out of it in the middle of the year. However, the Commission thinks that this year we will go backwards by almost 2.7 per cent, which is nearly three times the Government’s central forecast. In 2010, according to the Commission, we would just about emerge into positive territory, compared to the Government’s wishful thinking of nearly 2 per cent growth.

If the Government were a company, they would by now have had to issue a profit warning. However, the Government are, in effect, reissuing the figures from the PBR in the convergence programme document as if they were still valid, when they have clearly been overtaken by the increasing pace of the recession. Typically, the Government say that they will revise their forecasts in the Budget, whenever that is, but that is simply not good enough. It does not take a genius to work out that, as the recession deepens, the horrendous borrowing figures will get even worse and the need for action will become even more evident.

That brings me to the alleged centrepiece of the PBR: the fiscal stimulus, for which the Prime Minister likes to claim world leadership. It is clear that the temporary VAT reduction has bombed. Retailers thought it a costly waste of time and I have yet to meet a shopper tempted by an extra 2 per cent discount. We now hear reports of delays in the accelerated capital spending part of the stimulus package. There is a big question mark over the effectiveness of the Government’s fiscal stimulus programme in the PBR.

We question the policy itself. In a weak economy, already burdened by high debt and budget deficits, the scope for increased borrowing, beyond that caused by the automatic stabilisers, is very limited. We are not, as the Government like to claim, on our own in this. Both the IMF and the OECD have emphasised that fiscal stimuli need to be affordable in the context of sustainable public finances. The European Commission said in its recovery plan document, to which the Minister referred in his opening remarks:

“For those member states, in particular outside the Euro area, which are facing significant external and internal imbalances, budgetary policy should essentially aim at correcting those imbalances”.

That was Eurocode for, “The UK has got it wrong”.

We have argued for months that the main problem in the economy is a lack of credit and we proposed a national loans guarantee scheme. Bank rescue version 1 failed to restore credit. In the last two weeks we have seen bank rescue version 2 and a package of lending measures aimed at smaller businesses. We wish them well but are far from convinced that they will solve the problems faced by the business community. Beyond that, we believe that fiscal stimuli, in the context of a bust economy, must come from expenditure savings, not debt. We believe that we should create an era of responsible spending and, if returned to power, we plan to set up new arrangements to root out and deal with wasteful spending. We would also put together serious plans to start to reduce debt and not let it carry on rising. Germany’s fiscal stimulus was by no means a mirror of the UK version, as the German one was accompanied by a constitutional amendment that requires Germany’s debt to be reduced each year.

The foreign exchanges have passed their own verdict on the viability of the Government’s plans, with the pound losing around 30 per cent of its value last year, the largest depreciation since the collapse of the Bretton Woods system of fixed exchange rates, according to the Monetary Policy Committee. Investors are clearly wary about the value of the pound. We have yet to see whether this will affect the financing of the Government’s debt mountain. Other, more balanced economies are having difficulty in financing their debt and we can observe the steadily rising credit default prices telling their own story about the markets’ view of the UK.

I have just three questions for the Minister. First, the convergence programme notes that unemployment has risen to 5.75 per cent, but that has already been overtaken by the official November figure of 6.1 per cent. Commentators now expect that to rise to over 10 per cent. What assumptions about unemployment were made in the PBR and what impact will each 1 per cent above that forecast add to the borrowing requirement?

Secondly, the PBR estimated that next year the Government would have to borrow an eye-watering £118 billion, the highest figure as a proportion of GDP on record. All the indications are that the sum will turn out to be even higher. Are the Government confident that they can raise this debt at a reasonable price?

Thirdly, the Government have announced tax rises for those on higher incomes with a new 45 per cent tax rate, thus breaking new Labour’s promise when it came into power. The IFS has already warned that the impact of this could be negative. Will the Minister give an assurance today that the Government will not raise top rates further?

The submission to the EU is a sorry document. It shows the depths to which nearly 11 years of Labour misrule have taken us. The Government used to blame everything bad on what happened before 1997; now they blame the rest of the world. The truth is that they inherited an economy that was growing strongly, with a stable currency and low inflation, and they have completely blown it.

My Lords, I, too, thank the Minister for his explanation of the Pre-Budget Report.

The report’s starting point is the overall economic outlook, which it sets out. Its prediction was that this year we would see a fall in GDP of between 0.75 and 1.25 per cent but that this would be more than offset in 2010 by an increase of between 1.5 and 2 per cent. This is clearly far too optimistic, both in the size of the fall in GDP and the speed of the turn round. It is worth reminding ourselves of the speed of the collapse of the economy last year. The first two quarters saw an average growth of 0.1 per cent; the third quarter saw a reduction in GDP of 0.6 per cent; and the fourth a reduction of 1.5 per cent. So in 2008 in total, GDP fell by 1.9 per cent. The Government believe that this year we will see a fall of 1.25 per cent, which would make in total a fall of about 3 per cent, peak to trough. Does anyone believe that we will see such a small fall peak to trough? Virtually all commentators are now talking about a fall, peak to trough, of at least 5 per cent. I suspect that 5 per cent is now a rather optimistic forecast.

The Minister was at great pains to set out, as the Government have done at every point, how important the international component of this crisis is. He has suggested, as the Prime Minister has many times, that we were almost passive victims of a crisis, of a whirlwind that somehow started internationally. Clearly the collapse of the sub-prime housing market in the United States started the crisis, but to claim that it is entirely, or even mainly, made abroad is surely wrong. It has been exacerbated in the UK to a considerable extent by the recklessness of UK banks; by the recklessness, frankly, of individuals encouraged by the banks to ratchet up levels of debt which were unsustainable; and by the collusion of the Government in the entire process, given their absolute determination to take credit for every increase in GDP as though they had personally engineered it.

It has also been exacerbated by the complete inadequacy of the regulatory authorities, particularly the FSA, which have lacked rigour, decisiveness and determination to take action to prick the bubble at its earliest stages. I do not intend to deal with many of the detailed issues on regulation today as I feel we have done them slightly to death in our debates on the Banking Bill in recent weeks.

The fall in GDP is mirrored by the fall in the robustness of the public finances. Just as the GDP forecast is now looking wildly optimistic, so too are the forecasts the Government have produced in the Pre-Budget Report. The PBR itself shows how quickly things can go south. It reports that between the Budget and the Pre-Budget Report the projected deficit in the year increased from £42.5 billion to £77.6 billion, so over that period the Government’s own view of the deficit has nearly doubled. As the noble Baroness said, they now predict £118 billion in 2009-10. That is clearly a significant underestimate.

What are the consequences of that, and how worried should we be? The Conservatives are very concerned about the views and the role of the IMF; the noble Lord, Lord Ryder, has already introduced the IMF into the debate. I ask the noble Lord, Lord Howard of Rising, who will be winding up for the Conservatives, to tell us about their view of the future role of the IMF in the UK economy. According to the leader of the Conservatives, Mr Cameron, Britain is running the risk of being forced to go to the IMF cap in hand. According to the Shadow Secretary of State for the Department of Business, Enterprise and Regulatory Reform, such a suggestion is not realistic. If the Conservatives aspire to be the next Government, we ought to be told about their views and policy on the IMF’s likely future role.

Having set out the financial and economic outlook, the Government then took steps in the Pre-Budget Report to deal with it. We support in principle the concept of a fiscal stimulus. We do not agree with the noble Baroness’s assertion that credit is the only problem facing the UK economy. Is she really suggesting that the levels of borrowing that were being undertaken last year were sustainable? Is she saying that there was no bubble to burst? Is she saying that the banks should be lending on commercial property, on housing and on a whole raft of matters at the level that they were last year? I hardly think so, because that would hardly be responsible. I am also amazed at the assertion that the way out of the problem, other than extending credit, is expenditure savings. I thought that all the lessons of history were that during a downturn, when consumers and business are struggling, it makes sense for the Government to take up some of the slack through a fiscal stimulus.

That does not mean that we agree with the detailed stimulus that the Government have introduced. In our view, the VAT reduction, costing £12.5 billion, is an ineffective way of stimulating the economy, not least because nearly all of that, and nearly all the other measures that the Government took, relate to current, rather than capital, spending. We believe that a fiscal stimulus should be concentrated on the capital side. The Government’s own admission is that of the 1.1 per cent of GDP that the measures in the Pre-Budget Report inject into the economy, only 0.2 per cent of GDP relates to capital spending. That is inadequate.

The size of the VAT cut is almost irrelevant now, because it pales into insignificance next to the other measures with regard to the banking sector that the Government either had already taken at the time of the Pre-Budget Report or have taken since. Paragraph 2.67 on page 32 of the report sets out how the Government had already made commitments of £66 billion to the banks between the Budget and the Pre-Budget Report over that period. There is a £37 billion recapitalisation, which is the headline figure, but then there is £21 billion for refinancing the Financial Services Compensation Scheme, £5.7 billion working capital to Bradford & Bingley and a payment of over £5 billion for retail depositors in Bradford & Bingley and the Icelandic banks. That is a huge amount. It dwarfs the VAT figure by a factor of well over five to one. Therefore, the VAT cut, whatever its merits, is only one small part of the picture.

Since the Budget, we have had the Mandelson announcement of several weeks ago, the Chancellor’s announcement of last week and the second Mandelson announcement this afternoon. We share the concern which the Treasury’s Select Committee has expressed that a raft of measures with huge public expenditure commitments is being dribbled out daily and that we, if not the Government, will lose track of quite where we are. The Treasury Select Committee suggested that the Government should follow business practice and produce a quarterly statement of their expenditure, particularly in these areas. That seems to be an extremely sensible proposal. I hope that the Minister will say something about the Government’s response to the Treasury Select Committee report today. The table in the Pre-Budget Report to which I referred is a good model of how that kind of reporting to Parliament could be undertaken in future.

I do not intend to trawl in detail through the announcements of recent days and since the Pre-Budget Report, but perhaps I might press the Minister in respect of the bank lending agreements, which were reported last week. I asked him then whether all the banks had agreed to participate in the bank lending agreements. Perhaps I might ask him also about the scale of the Government’s intervention in seeking to influence the scope of bank lending. We are faced with a potential collapse of the social housing market. A number of housing associations whose loans come up for renegotiation are in danger of being faced with a fivefold increase in the interest rate spread that they are expected to bear. There is a suggestion that some of them will find that very difficult. Do the Government’s lending agreements with the banks in their view enable them to go into the banks and suggest that, for this kind of lending, the increase in interest rates which they might otherwise charge be moderated? Or is it the Government’s view that the cost of lending is entirely up to the banks? This is an area where potentially considerable grief is coming around the corner and where the Government could use their influence with the banks to have a major impact during the short period ahead, when many of the loans are due to be renegotiated.

We support the concept of a fiscal stimulus but are critical of the nature of the stimulus that the Government have adopted. We looked at what one could do with £12.5 billion, which in our view could have been better spent on investment and contributing to meeting the carbon reduction targets which the Government have set. For £12.5 billion, you could, for example, fund a five-year programme to insulate every school; you could fund insulation and energy efficiency for 1 million homes, with a £1,000 subsidy for 1 million more; you could build 40,000 extra zero-carbon social houses; you could buy 700 new train carriages; you could reopen old railway lines and stations; you could electrify the Great Western and Midland main lines and begin the Liverpool light rail network; and you could install energy and money-saving smart meters in every home. That seems to be the kind of fiscal stimulus which really makes sense and has a long-term benefit for the country.

I think that we can all agree that we are in the middle of a financial and economic blizzard not seen in our lifetimes. This Pre-Budget Report already has the feel of a historic document. We now await the Budget to see how much further the Government’s finances have deteriorated since the autumn and what further steps they plan to take to recognise the scale of the current economic crisis.

My Lords, we have an exceptional economic situation, but, however serious it is, the media are seeking to make it worse—of that there is little doubt. You would believe from listening to and reading the media that it was the end of the world. However, as Kenneth Clarke said, it is not a financial calamity that we face but a serious situation.

I never thought that I would quote from the Evening Standard, but Anthony Hilton said last week:

“When one hedge fund manager … tells you ‘the country is bankrupt’ and another, the American Jim Rogers, says Britain is finished, you can be sure of one thing—they probably both have a massive short position in sterling and will profit mightily if they can engineer its fall”.

When I spoke at Question Time in the House the other day, my noble friend Lord Myners spoke of the benefits of stopping the ban on shorting. I asked him to list the benefits of shorting. He overlooked the request—I know that he is very busy—but will he come back to it and tell us the benefits of shorting? I have not been able to see many.

The Opposition have the right, and indeed the duty, to criticise the Government, and I do not blame them for that. However, often they appear to be attacking not just the Government but the country, which we all want to succeed. Today, the noble Baroness, Lady Noakes, suggested no serious alternative solution to what the Government are proposing. Her only proposal seemed to be to cut public expenditure—now, in the middle of a recession. That makes no sense at all. Public expenditure may eventually have to be cut—I spent five years doing it, much to my regret at the time. However, doing it in the middle of a recession is not a solution; it would make the matter much worse, as the noble Lord, Lord Newby, was right to say.

I turn briefly to the Pre-Budget Report, because that is what we are debating. It had to make forecasts, because the Treasury is obliged to do so. However, it is basically guessing, as everybody else is guessing, what is going to happen in the next year or so. As the noble Lord, Lord Newby, pointed out, the Chancellor said that towards the end of the year, there will be an end to the recession and a slight beginning of the upturn. I have always said that I hope that the Chancellor and the Pre-Budget Report will turn out to be correct, but I have my doubts still.

The central question today is what we do about the serious economic crisis. A fiscal stimulus is right, although, like the noble Lord, Lord Newby, I would not have chosen the VAT cut. However, I understand why it was chosen—it could be done quickly, by regulation, and, in terms of whether it is successful, it can be easily reversed, as was intended. Whether I agree with the family benefit figure of £200, I am not sure, but at least the money is going into the economy as a stimulus, and this cannot be reversed. However, it seems to me that a great part of the stimulus must be capital investment on a major scale.

The central problem remains the banks. Eventually there will have to be stronger regulation; that will have to happen; but for now we need a proper functioning of the banks, which is what the Government seek to achieve by stabilising the banking system. So far, they do not seem to be having too great an effect. The Government are right to seek to put large sums of money into the banks.

My noble friend did not refer to one major area to which the Governor of the Bank of England referred recently, when he said that very substantial sums would be put into the banks by way of buying bonds. I shall quote what he is supposed to have said, which was reported in the Financial Times. He said:

“The Bank of England will start to buy corporate bonds in large quantities”.

I declare an interest, as I have a few—good quality ones, I hasten to add. Another report said that there would be £50 billion of such bonds to increase liquidity. I am delighted to see, and would like to see, increased liquidity in the banks, but I should be glad if my noble friend would tell us whether this is true. Does he agree with the Governor of the Bank of England, or was he talking off the top of his head about something that he would like to do at some time or other? How would he do it? Is he talking about buying new or existing bonds? What exactly did he have in mind? He also talked about “unconventional unconventional measures”. Maybe the Financial Times got it wrong, as the media can occasionally, but that is apparently what he said.

The real problem we face is how much it is all going to cost. My noble friend gave us some figures for borrowing for this year and next year and they were very large. I fear that it could be even larger, but I do not fear it as much as doing nothing to stimulate the banking system and the economy. If it has to be slightly higher and takes slightly longer to repay and to get the borrowing down again, we could live with that better than we could with not doing anything, resulting in an even longer and deeper recession. I support the Government on that. It would be a disaster if we did nothing and an even greater disaster if we did not spend this money.

We are asked what the true cost would be—what the banks would cost us. We do not know; nobody can answer the question, because nobody knows what the banks’ balance sheets are like or should be like. I read in the Financial Times, which is one of my favourite newspapers, as noble Lords will realise, that the auditors are very worried about the certificates that they have to give. I am not surprised; they should be worried, because in the past they have given clear certificates and the following day the banks have written off billions. The Financial Times tells us again:

“The City regulator is holding talks with top auditors to try to ensure banks are not destabilised by accountants making a qualified judgment on annual accounts”.

It is perfectly true that any qualification of an audit certificate on any company would virtually ensure its bankruptcy. What has been the result of those talks? It is not clear to me what auditors can say. The only way in which they can solve this terrible difficulty for the banks and for auditors is fully to state the extent of the toxic assets, whether they have been written off or not and to what extent they have been written off. If we do not know that, we will never know the true cost of what we have to put into the banks and the extent of their deficits. I hope that that can be done, but again I have my doubts.

The other main question is: who will manage the banks if we are left with a majority in a lot of them or full nationalisation? My noble friend is quoted—rightly in my view—as saying that he would prefer that the banks were not nationalised. I am not sure that Ministers and civil servants are the best kind of people to run the banking system. However, from what we have seen of those who have been running our banks does not inspire much confidence.

In my noble friend’s article in the Financial Times last week, he said that we need an effective commercial banking sector. That would be better than nationalisation. I agree with him, but the central word is “effective”. If it is not effective, inevitably there will have to be nationalisation, whether we like it or not. One can hardly be confident that the people running the banks will be effective commercially in running them. I would like to think that the new people will be. Perhaps it would be better if my noble friend Lord Myners retired and went to run a bank. He may prefer it: I see him smiling and I believe that he should do so.

It is essential that the media and the Official Opposition stop talking the country down—they can talk the Government down if they must. But it is essential that the Government get the money quickly into the banks, that the banks lend it quickly to each other and to the country and that we have a fiscal stimulus that really works, even if it costs a bit more. If we do that, we can prove all the Jeremiahs wrong.

My Lords, I congratulate the noble Baroness, Lady Noakes, on once again making a comprehensive and telling speech, which this side of the House fully supports. I am not going to follow necessarily the noble Lord, Lord Barnett, who always speaks a lot of common sense and commands the House’s attention. I want to concentrate in a few brief remarks on the impact of the crisis and indeed the Pre-Budget Report on industry.

Earlier today, your Lordships’ House heard from the noble Lord, Lord Mandelson, the Secretary of State for Business, about support for the automobile industry. That is certainly welcome. He said that support was to prevent a loss of skills and technology in that industry. The noble Lord assured noble Lords that Her Majesty’s Government would take further action within the limits of the announced fiscal stimulus in the Pre-Budget Report for other industries that are necessary for our industrial well-being and that need help. I hope that I have summarised what the noble Lord, Lord Mandelson, said.

I wish to raise briefly the serious financial plight of early-stage high-technology innovative companies in the United Kingdom, given the present financial crisis and indeed the outlook for 2009-10. Those companies—the United Kingdom is renowned for its wealth of such innovative companies—are pre-revenue; they are often spun out of our great universities to exploit potentially world-beating new technologies. I declare an interest as chairman of Cambridge University’s technology transfer office. That is not a paid job; it is pro bono. I am a board director of a number of small technology companies. I speak with a little experience and a great deal of feeling. These companies and this sector of our economy are in a very serious position because venture capital funding has completely stopped. For a variety of reasons, those who normally provide funding are nervous about continuing to support existing companies, let alone new companies, and universities throughout the country are finding it difficult to support existing spin-out companies because of the pressure on their own university resources. If no government action is taken—I intend to suggest sensible action in just a second—some forecasters have said that at least half of all the high-tech start-up companies will die during this year. That forecast is not unreasonable.

The new Minister for Trade and Investment, the noble Lord, Lord Davies, visited Cambridge last week. He was told about the squeeze on venture capital and therefore on the lifeblood of the region’s technology and, particularly, biotechnology companies.

How to assist? It is not about tax, although I pay credit to the value of research and development credits paid back through HMRC, which certainly has helped the development of many young start-up companies. It is not about bank lending because these companies are at too early a stage to benefit from the credit scheme the Government have announced, and which was referred to on a number of occasions by my noble friend on the Front Bench. It is about the availability of risk capital.

The Government talk about a fiscal stimulus of £3 billion of government capital spend that will be brought forward from next year into this year. Of that, £442 million is to accelerate projects to improve further and higher education and to bring forward development of scientific research facilities. I say to the Minister that, although this capital expenditure infusion is welcome, unless some of these resources are devoted to the research and development base of the high-technology companies, a lot of the building work is going to be wasted. We have to save the lifeblood of our research and development capacity in this country for the future.

I believe that the solution is an extension of the existing public/private partnerships, which have worked extremely well. The Government’s initiative, over the years, of the enterprise capital funds has helped but is much too small. That initiative needs to be expanded. This is where matching funds come from government and the private sector to fund early-stage companies. The Technology Strategy Board is now under the leadership of the noble Lord, Lord Drayson. I pay tribute to what he has done already in seeking to expand its work, but, frankly, what is on offer is a pinprick; it is extremely modest in terms of the crisis now facing the industry.

The European Commission has acted swiftly, and I pay tribute to it, in approving improved aid to high-technology companies, particularly in the form of risk capital, where the partnership ratio can go as high as 70 per cent from the public sector and 30 per cent from the private sector—I do not suggest that that is a standard rule. However, the Commission has responded quickly and we should be grateful.

Green technology is one of the areas that could certainly benefit. Her Majesty’s Opposition, as the Minister will know, propose the creation of a green-tech start-up fund with matching funds coming from the private and the public sector. That is to be welcomed. Her Majesty’s Government have £535 million of capital spending in this fiscal stimulus for work specifically in the environment. Some of that money should be devoted to emerging new technology to help meet our renewable energy targets in 2020. We cannot rely on existing technology, whether it is wind, solar or tidal. We need more research and it must be done urgently. In summary, more public resources within the fiscal stimulus already announced should be devoted to saving our innovative technology industry, which is in dire straits.

I support the recommendation of the National Endowment for Science, Technology and the Arts for a £1 billion early stage fund. It is an entirely non-political body, chaired by Sir Christopher Powell. That proposal has been put to the noble Lord, Lord Drayson, the Minister for Science and Innovation. I hope that it will receive sympathetic consideration.

Moreover, environmental schemes deserve priority. They will keep innovation alive and meet the climate change targets. The noble Lord, Lord Smith, the chairman of the Environment Agency, who is not in his place, has been quoted extensively in the press over the past few days as warmly supporting the call for further funding for environmental schemes.

If the noble Lord, Lord Myners, is not able to respond to these comments, I hope that he will at least pass them on to his colleagues in other departments. I look forward to his response.

My Lords, Lord Keynes was addressing a group of bankers and asked them to raise their hand if they had ever printed more notes than their gold represented. A forest of hands went up. Keynes foresaw that there are times, like the present economic crisis, when Governments have no alternative but to create artificial wealth to replace at least some of the overvalued wealth that created the problem in the first place.

As other noble Lords have mentioned, it is an excellent thing that we are not in the euro. It enables us to do what we want to do to the benefit of our economy. In a paper-currency world, money is credit and credit is money. Credit is given on the assumption that its value and more will be recovered. I am sure your Lordships are aware that when a bank raises £1 billion in capital, it is in a position to lend £10 billion worth of credit, and does, on the assumption that it will not all be called for at the same time and it is confident that the risk is spread. The key word is “confidence” and the gearing effect of credit relies on confidence.

Conversely, if the collateral that underpinned that credit decision suddenly disappears, we have a situation, like today, where the ungearing is dramatic and liquidity, the life blood of economic activity, is massively drained from the system. We witness a colossal reduction of credit, due not only to the sub-prime losses of the worldwide overvaluation of property but also the destruction of collateral consequent to the collapse of share prices—a double whammy of a self-feeding collapse in confidence.

Under these circumstances, it is perfectly right and proper to put back by quantitative easing, or “printing money”—call it what you will—the essential life blood of liquidity to prevent the patient from haemorrhaging to death. The velocity of circulation, the heartbeat of the patient, has to be kept going. Professor Milton Friedman, the arch-monetarist whom I had the privilege of meeting, suggested using aircraft to sprinkle the country with bucket-loads of notes. The concept of printing money is abhorrent but 10 years of deflation would be far worse, as the great slumps of the 1920s and 1930s showed.

In the 18th century, in an effort to cure the patient’s malady, doctors got it all wrong by bleeding a person already haemorrhaging. This is not the time to make the situation worse by cutting back, other than by the elimination of waste. It is the time for pumping liquidity back into the system, the art being to recognise that, as the economy recovers, interest rates will need to be raised in good time to prevent the patient overheating. National Governments are understandably afraid of doing this in case the international finger of scorn is pointed at them, and we have partly witnessed this by a run on the pound. However, if it is done on a global scale, as Keynes broadly suggested, everyone is in the same boat. We should reflate simultaneously with the EU, but that is unlikely.

To update Keynes’s concept, the group of 20, shortly to meet, should authorise the IMF to issue loans to member countries of up to 5, 6 or 7 per cent of their GNP. Such loans could carry 2 per cent interest over 30 years. These, in turn, would be lent on by national Treasuries to their own banks, enabling them to lend at, say, 4 per cent interest to their clients. Anyone who cannot afford to borrow at 4 per cent or thereabouts should not borrow at all. Today, as has been well said, it is not the cost of money that is the problem but the lack of it.

Using such a system, over 30 years the principal will have been repaid as interest and the IMF could quietly write off the loan in the same manner as it currently writes off loans to third-world countries. Either way, it is essential to print money at this stage and it is excellent to see that Mr Ben Bernanke is pursuing this line in the United States. We should follow in unison with others. Like the USA, we should be putting money into infrastructure improvements, most of which would be of long-term economic benefit. It was crazy to cancel the aircraft carrier orders at this stage, and expenditure on desperately needed road repairs would have an immediate beneficial effect.

Economic fashions come and go, and very few look watertight 10 years after they are implemented. One should be humble with any prognosis. As Keynes said, one should pronounce on economic matters with a contrite heart. However, the current concept that we have to reduce interest rates to near zero is a complete fallacy. The unintended consequences of so doing will in fact negate any possible benefit, as low interest rates in Japan over a decade clearly illustrated. That did not lead to Japan's recovery; it led, partly through the financial “carry trade”, to cheap money for the rest of the world and a virtually stagnant economy in Japan. Consumers are simply not encouraged to spend their life savings if they get no interest on them; they conserve their battered wealth.

There is confusion caused by two contradictory policies: first, a desire for very cheap money to enable the banks to repair their balances; and, secondly, a wish to increase personal consumption, as shown by the Government's VAT cut. But the last thing any Government should do is turn off the expenditure of tens of millions of savers and pensioners who rely on the dividend interest from their savings. It will, of course, also decimate charitable giving, and the work of many charities will cease because they too heavily rely on dividend flow. The concept that we have to have low interest rates to prevent deflation simply does not stand up against the realities of a pound that has depreciated 25 to 30 per cent against the dollar and the euro, and where, before long, our import prices are bound to rise and inflation will be compounded by the reimposition of the VAT that has been cut.

The Shadow Monetary Policy Committee, an august body of academics, thought that interest rates had been cut enough to 2.5 per cent. I hope that the Bank of England and the Treasury between them will reconsider the damaging and unintended consequences of the existing level and further cuts.

I come to the primary purpose of this debate: our financial relationship with Europe. Recent parliamentary Questions have shown that our membership, after all rebates, costs us at least £4 billion a year, apart from the appalling inefficiencies that the ever-growing burden of EU regulations brings to this economy. The French, needless to say, are substantial beneficiaries. Our contribution of £4 billion a year is a lot of money, and many of the rebates we get are for purposes that our own Treasury would not dream of sanctioning. So the real loss to this country, in net terms, is considerably more.

However, this pales into insignificance against the unquantifiable cost of unnecessary regulations, which bring a huge additional burden: it must be tens of billions of pounds a year. To name but four of the culprits, there are the working time directive, the chemicals directive, the height at work directive and the pesticides directive. Now there is even compulsory holiday pay for people who have been on sick leave for up to five years, there is a limit on doctors’ working hours, and electronic implants are to be compulsorily put into Britain’s 10 million sheep. All these things, like the premature closing down of our coal power stations just when we need them, chisel away and do real economic damage to our flexible economy.

It was not as if we could do anything about it, anything to rectify it in any way. Here, Parliament, through its scrutiny committees, has tried to influence that legislation, but its work has been almost totally ignored. Hundreds of recommendations have been made to improve EU legislation and the hard fact is that our scrutiny committees have been wasting their time. Frustratingly, there is no satisfactory way of rectifying that regulation. This democratic safety valve simply does not work.

Your Lordships will recall that the American War of Independence was triggered on the slogan, “No taxation without representation”. Today we have the equivalent: “Regulation without rectification”. Increasingly, our citizens in the front line of business do not like it and we ignore their rumbling discontent at our peril.

Our blind and damaging conformity to EU regulations is like an army marching over the cliff because no one has the courage to question the command. Idealism is a wonderful thing, but blind idealism is damaging this country beyond belief. Day by day and week by week we witness the economy of this country being impoverished by the endless attrition caused by unnecessary EU regulations. Few in Westminster are really aware of what is going on; the political class lives above it all. Eagles seldom know of the habits of moles. I love my country and I hate to see it ruined by bureaucratic nonsenses imposed by non-elected, totally impractical officials.

The denial of the means of rectification is a denial of sovereignty, and without sovereignty democracy cannot exist. We really must re-examine our financial and wider relationships with the EU.

My Lords, much has already been said, and I will be brief. When I spoke in your Lordships’ House in the debate on the economy after the Chancellor’s proposals for the economic recovery of this country had been revealed in the Pre-Budget Report, I tried to make clear quite how much of the difficulty in which we found ourselves could be laid at the door of this Government. I said that much of what was proposed would not work, and I have been very public since in declaring that the 2.5 per cent VAT cut, which has been referred to often, was a complete and utter waste of public money—£12.5 billion of it. I may have been right in my prediction. The VAT cut was made only because it could be done quickly, not because anyone thought that it would work terribly well.

However, I should like to take a different tack. The huge increase in public borrowing which this Government propose has been made necessary by their utter inability to evaluate risk. It is some time since I heard the words, “We are among the best placed countries to spend our way out of recession”. We were not; we are not; and, as my noble friend Lady Noakes has said, even the EU economic unit declares us to be among the worst placed to weather this particular storm, having kept nothing aside for the proverbial rainy day.

I also predicted in my speech that the actions being taken would inevitably weaken the pound, and so it has proved. The financial world is betting that the Government’s plans will fail. Part of reason for this is that the financial world believes that the plans are inherently over-risky and conceived on the hoof without proper evaluation. It was without a doubt right to prop up the banks, but, given that the Government had a year to look at the situation at Northern Rock, which their lack of supervision caused to develop, how could they have poured so much money into the banks without a proper investigation of the loan books? That was very risky. How could the Government have poured so much money into the banks without any formal guarantee of ensuing lending patterns? That was very risky.

How could the Government have proposed the VAT cut without any research as to its possible stimulus effect? That was extremely risky. On the latest bailout package, how could they, when preference shares were converted to equity, thus denying the taxpayer their much-vaunted return, have moved again without a clear understanding of the loan books and future ratios? Again, that was very risky. It is simply not the case, for example, that all of RBS’s toxic loans arrived with ABN AMRO, which had its own fair share of them. Not understanding that sort of thing reveals a lack of knowledge of the true situation, which is very risky indeed. Lastly, what bright spark decided a week ago last Friday to honour the deadline for removing the ban on the short selling of financial institutions, and nearly brought Barclays to its knees in the process? That was very risky.

I have to say that, had any business leader I know, however hazardous the circumstances in which he found himself, loaded up his company with that amount of risk, he would expect and deserve to be fired.

My Lords, I am pleased to follow my noble friend Lord Blyth, whose industrial experience is hugely respected in your Lordships’ House.

This is my first chance to welcome the Minister to your Lordships’ House and I do so with great pleasure. His distinguished presence highlights the lack of talent available for key government posts in the other place.

The Prime Minister and his colleagues claim that a global recession is solely responsible for our economic condition. This is a travesty of the truth and the markets know it. The Prime Minister created in Britain a debt boom, a housing boom and a spending boom. He splashed during the boom; his kitty was empty for the bust. By last July, well before the collapse in the markets, Britain’s public expenditure was out of control. Earlier, in March 2008, the Chancellor, in his Budget, forecast a £43 billion borrowing requirement for the year. Yet, after only six months, and before the collapse in the markets, it had reached £37.6 billion. These were the worst figures since 1946—so much for the fiscal sustainability to which the Minister referred earlier.

The IMF warned the Government before the markets collapsed about the scale of their spending. Simultaneously, the EU Commission criticised the Government for encroaching the deficit allowed by the so-called Maastricht rules. Public finances were on course to register a record deficit even when the boom was in flow. Last July, before the markets collapsed, the Independent—hardly a Conservative chronicle—declared in an editorial:

“All the signs are that Mr Brown intends to spend very large amounts of taxpayers’ money in a doomed effort to save his political skin. … the Government has lost direction and has no plan other than a spending spree financed by borrowing on the never-never”.

It is small wonder that spending was out of control before the collapse in the markets. After all, for eight—yes, eight—successive years under Messrs Brown and Darling, government expenditure has exceeded Treasury forecasts. I repeat, for eight years running government expenditure has exceeded Treasury forecasts.

When making his PBR Statement in November, the Chancellor’s first duty was reassure investors and the markets that serious measures would be taken to restore financial rectitude as soon as circumstances allowed. Instead, the Chancellor, compounding his March folly, relied once more on political spin against, I sense, the advice of his Treasury officials. He predicted that the economy would start recovering in the third quarter of this year. This flabbergasted the markets because the IMF, the CBI, the NIESR and a host of other organisations had already reached opposite and more reliable conclusions. The Chancellor failed to construct a credible fiscal framework for his policies in the PBR in November. Consequently, sterling again came under pressure and, on the day after the Statement, even the Labour-tender Financial Times, so much loved by the noble Lord, Lord Barnett, said that,

“the Treasury has an uphill battle to regain trust that it will bring public borrowing back down to a sustainable level. Years of fudging and fiddling have already undermined their credibility”.

That was the Financial Times the day after the PBR Statement. An ominous question mark hangs over Treasury public spending forecasts because, for eight successive years, it looks as though they have been twisted for political ends in the face of advice from officials.

The result of the Chancellor’s fantasy finance is that the pound’s fall has been greater than at any stage since sterling left the gold standard in 1931. It is no surprise that the German Finance Minister, a social democrat, described Mr Brown’s economic policy as “breathtaking” and “crass”. Nor is it a surprise that central bank governors, such as Mr Mersch of Luxembourg, raise eyebrows when lectured by the Prime Minister about saving the world.

Of course, Mr Mersch knows, as do the other international investors and the markets, that it is not just the fecklessness in British public spending that occurred before the collapse in the markets but the growing list of off-balance-sheet items that imperil Britain’s present and future. PFIs, Northern Rock, Bradford & Bingley, Network Rail and the extra cost of net contributions to the EU are part of this debate. Our net contribution to the EU next year was to be £6.5 billion, but not any more. The collapse of sterling has added £3 billion to that figure, bringing it to £9.5 billion. Of course, there is also the question of public sector pensions, as well as age-related liabilities. They all undermine our ratings. Public sector pensions are the heaviest weight of our hidden millstones off- balance sheet. In October, the independent Pensions Policy Institute published a report, which stated:

“It is often assumed that better pensions in the public sector make up for lower pay. Although a job-for-job type comparison of pay is difficult to make between private and public sectors”,

the evidence suggests that pay in the public sector is not lower than pay in the private sector across the board.

Gold-plated pensions are becoming indefensible, not least because Mr Brown has increased the number of people dependent for work on the public sector by nearly 1 million. We should remember that this was the same Mr Brown who raided private sector pensions. Annual annuities from public sector pensions are now about £17,000 a year, compared with about £1,100 per annum in the private sector. Let us not forget that in his own last Budget Mr Brown hid £45 billion of public sector pension costs. This was not an annual figure; it was an incremental increase in one single year.

Last July, in the Second Reading of the Finance Bill in your Lordships’ House, before the collapse in the markets, I submitted that the reordering of our public finances would dominate the time of the next Prime Minister and Chancellor from the day they took office to the exclusion of much else. How they dealt with fiscal policy, I submitted, would define the scale of their success, and the events of the past few months have reinforced my argument.

After the next general election, I look forward to the publication of a White Paper on the Government’s expenditure plans along the lines of the respected document produced by my noble and learned friend Lord Howe of Aberavon, who is in his place. This set out the true picture of the public finances and stated how my noble and learned friend intended to rectify the profligacy of his predecessors. Until such a document is published by a new Prime Minister and a new Chancellor, the market and international investors will lack trust in the figures provided by the British Government.

I hope that Treasury officials are dusting off copies of my noble and learned friend’s 1979 White Paper. Only when another such document is published by a new Government, determined to set a credible framework for our public finances and dispensing with the scourge of spin, will faith be restored in the Ministers running our economy and in the august Treasury itself. As a former Minister in that department, I know how much its officials prefer to serve Ministers whose forecasts and pronouncements are accurate and can be respected by the markets.

My Lords, the important point in the Pre-Budget Report is that we are witnessing a greater instability than at any time for generations. The real problem is that investors assumed that the considerable and long-term growth rate would continue indefinitely, and so did the banks. That was one of the major problems that we must face, because in their efforts to win much of the business from investors the banks provided loans at exceptionally low rates of interest. As a result, so many investors went much further than they would have done in the past.

Thus, together with the sharp rise in unemployment, recent purchasers suffered an important decline in their financial position. A major consequence has been the strong downturn in the housing market. The question facing us is: how long will the downturn last? The Prime Minister has been foremost in anticipating the consequences and size of the economic downturn, and his approach to providing financing was echoed throughout the financial world.

Introducing 15 per cent VAT for the current year was an important step in countering the downturn, more so than a number of your Lordships feel. The advantage of that move was its quick injection; there are not many ways of spending money to get the results that are possible in that way. That quick injection into consumer spending was an important factor. It may not have been seen as an important step, but it was a change in the economic situation—one which is difficult to effect quite so rapidly in other ways.

Other methods can be introduced, but the delay in their effect on the economy would have limited consequences on the situation. The noble Lord, Lord Newby, pointed out that there were other ways of spending that £12.5 billion and suggested building homes as one of them. Yet a number of things that were mentioned by the noble Lord, and by others, take much longer to produce a result. The great advantage of having 15 per cent VAT was that we got it straight away.

The Government’s proposals are to support confidence in the banking system. Their tasks are to protect depositors’ money and to safeguard the interests of taxpayers. The Government are also helping small and medium-sized businesses, through the support of bank lending. They have also brought forward £3 billion of capital spending into the current year; more has been announced today.

My noble friend Lord Myners has said that banks, and their “grossly over-rewarded” executives, are partly to blame for causing the economic recession. He said that,

“the golden days of huge bonuses”

were over, and that executives had,

“no sense of the broader society around them”.

He said that the banking system came close to collapse last October, before the Government’s £500 billion rescue package, and that,

“There were two or three hours when things felt very bad, nervous and fragile”.

The point he made was well accepted. He said that major depositors were trying to withdraw and were willing to pay penalities for early withdrawal from a number of large banks. He continued:

“They are people who have no sense of the broader society around them. There is quite a lot of annoyance and much of that is justified. Let us be quite clear: there has been mismanagement of our banks”.

That has been one of the fundamental things that no one ever expected. People trusted banks; they gave their money and thought that there would be no problem about getting it out whenever they wanted it, and with interest. To see the banks decline in this way was quite unexpected.

The United Kingdom is now in recession for the first time since 1991. Official government figures have confirmed that. Gross domestic product fell by 1.5 per cent in the last three months of 2008 after a 0.6 per cent drop in the previous quarter. That means that the widely accepted definition of a recession—two consecutive quarters of negative economic growth—has been met. It represents the biggest quarter-on-quarter decline since 1980, and a 1.8 per cent fall on the same quarter a year ago. The worse-than-expected contraction sent sterling to a 24-year low against the dollar with £1 buying $1.35. Meanwhile the FTSE 100 index fell almost 2 per cent below 4,000 points. The figures from the Office for National Statistics showed that manufacturing made the largest contribution to the slowdown, contracting by 4.6 per cent despite hopes that the weak pound would help exporters. That was an expectation, and we have the whole of this year to see how much it will lead to an increase in exports. With the exception of agriculture, all elements of the economy shrank from the previous three months.

The fall in GDP was slightly steeper than most analysts had been expecting. The downturn was broad-based, and it has been said that the bleak manufacturing data ended any prospect of this being a white-collar recession that would largely escape manufacturers. Chancellor Alistair Darling said that the figures underlined the scale of the challenges the Government faced. He said:

“It’s going to be a difficult year for families in the UK. We need to go about the problem with a sense of purpose”.

He said that countries across the globe were facing recession and that the crisis could be solved better and quicker if other Governments also acted to stimulate their economies. We hope to see other countries coming into the same fold. What started as a crisis in the financial sector continues to infect the wider economy.

Unemployment is accelerating sharply with large numbers of people now out of work. The housing market remains severely depressed and retail sales are weak. Even though December’s retail figures were better than expected—growing by 1.6 per cent—this was driven by heavy price-discounting and should be treated with caution. Andrew Smith, the chief economist at KPMG, said:

“It is difficult to see why things should improve in the foreseeable future”.

Efforts to prevent the recession deepening have been widespread, although critics say they have not gone far enough. The Bank of England has aggressively cut interest rates to 1.5 per cent, which is aimed at driving down the cost of lending and making it easier for consumers and businesses to access credit. However, banks have been reluctant to lend sufficiently, despite a £37 billion injection into major banks, and a scheme to offer insurance to banks against potential losses on risky loans. The interesting question that faces us today is: how is the pressure being put on the banks to carry on the sort of business that they have been producing for so long and so well?

My Lords, the debate is taking place on the basis of the Pre-Budget Report, a massive 232 page document, which the Government and the Minister suggest is an appropriate document for European Union members. Although it is dated November 2008, it has been completely overtaken by events and by a series of increases in public expenditure, which are far beyond anything any previous Chancellor of the Exchequer could possibly have envisaged.

Despite its length and scope, it has some remarkable omissions. Among the things in which one might expect European Union members to have an interest is the British Government’s policy on the exchange rate. I search in vain in this document for any mention whatever of the exchange rate. In Europe, that might be understandable because members are in the exchange rate mechanism, the monetary system of the European Union, and that is determined for them. But they certainly would have a great interest in knowing whether the recent depreciation of the pound was deliberate or even whether in cutting interest rates the Bank of England took into account the effect on the exchange rate. It is immensely relevant, for example, to the Statement made today by the noble Lord, Lord Mandelson, in relation to the motor industry. Probably the fall in the exchange rate is far more important to the competitive position of the motor industry in this country than anything that he announced. But we look in vain in this document for any indication of the Government’s policy on this matter.

Another omission from the report is any discussion of monetary policy in a sensible context. One reason why there is great confusion on this is that when the then Chancellor of the Exchequer, Mr Brown, gave what he described as independence to the Bank of England on monetary policy, he at the same time clawed back into the Treasury responsibility for debt management. I stressed that at the time, but great attention was not paid to it. This is a crucial point, which has led to great confusion.

In the present, quite heated, economic debate, we are, truth to tell, in a serious semantic mess and it is important for us to sort that out. It is very important to distinguish between monetary policy, which concerns the quantity of money, and interest rate policy, which concerns the price of money. The Minister is nodding and I am glad to see that I carry him with me. I am pursuing the line which I pursued in the debate on the Queen’s Speech, but I want to develop the argument.

The fact is that the Bank of England was not given independence on monetary policy; it was given independence on interest rate policy. But that is wrong because it was given independence, as I have said before, on a single interest rate. We have only to look at what has been happening to other interest rates recently to realise that the Bank of England certainly has not been determining interest rates; it has determined only the one rate. The reality is that the Monetary Policy Committee of the Bank of England is completely misnamed. It is not concerned with money supply. Of course, a movement in interest rate will have an effect, but it is far from being the only, still less the most important, determinant of the money supply. It is very important that we should get this set of issues sorted out. Otherwise, there is great confusion.

Throughout the document under discussion, when it refers to “monetary policy”, it means “interest rate policy”. There is no indication of what the Government’s policy is on the money supply. That is an extraordinary change in fashion. When I was at the Treasury a long while ago, I was bedevilled all the time by M1, M2, M3, M4 or whatever. There is no mention of it at all, but it is crucially important now. We may all be Keynesians, but monetary policy still has an important role to play. In particular, there is the relationship between this enormous increase in debt that has taken place and the Government’s policy on funding.

I intervened in the noble Lord’s speech. He was kind enough to reply, saying that it was the Government’s policy fully to fund the deficit from the non-bank public. That is crucial in determining the money supply. It is not likely to result in the kind of so-called fiscal stimulus which the Government seem to envisage, because it would largely nullify the effect of the fiscal stimulus—that is to say, the debt—on the money supply. In turn, that would have an effect on aggregate demand. The Minister may wish to recant on this point when he comes to reply.

It is interesting that, suddenly, over the past few days, there are rumours, which might be the best way to put it in the press, that the Bank of England and its Monetary Policy Committee might be given some control over so-called quantitative easing. Not to put too fine a point on it, that means increasing the money supply, or printing money. Of course, there are many different ways of “printing money”. You can do it, if necessary, simply by getting a printing press; that is the easiest way of doing it. The more usual way involves the relationship between debt and funding. Is there, indeed, any intention to give the Bank of England—and, in particular, the so-called Monetary Policy Committee—something to do with monetary policy, as against interest rate policy? The real trouble is that at the moment we have no idea where responsibility for these matters lies. I do not believe that it is with the Bank of England. Presumably responsibility is with the Treasury, but we do not really know what their policy is on this point. We are in a difficult situation.

In the earlier debate I asked the Minister whether figures are available on the money supply. They certainly do not appear in this book. Since taking office the Minister has been very good in responding to various debates. If noble Lords have asked questions to which they did not get replies, he has written to them with a specific answer. We should be grateful for that; it has not always happened in the past, by any means. Indeed, it is almost an innovation. I hope the Minister will place in the Library a letter or some serious indication of the extent to which the Government believe that the supply of money will change.

I am not particularly against an increase in the money supply. I was castigated enough for it previously. It may well be what we need at this time. Clearly, the banking system, in terms of making credit available to those who need it in order to stimulate the economy, has clogged up. Despite the Government’s efforts—I pay tribute to them for this—to unblock the banking system and allow the flow of credit to proceed in wholesale markets normally, it is not happening. Therefore, it may well be that a stimulus to the money supply is the appropriate response at this time.

The great danger at present is that in stimulating the economy we build up enormous inflationary pressure for the future. That would be a very dangerous situation. We are starting from a point where inflation, even at this moment, while it has come down substantially, is still above the zero level. Interest rates have now been cut virtually to zero and, certainly in real terms, are negative.

I do not understand either how the Government are going to fund any of this enormous debt—if they do not do so at all, there will be huge inflationary pressures—or how they are going to deal with what is now an explosive situation as a result of the increase in debt. We have had no clear statement from the Government, from Mr Brown or from the Chancellor as to where we are going on the central problem of economic management. We are entitled to know that and simply fudging the issue is a dangerous thing to do.

My Lords, the House is asked to note with approval the Government’s economic assessment as set out in the Pre-Budget Report of 2008. I do not approve of it at all. As for all opposition speakers, even my initial thoughts were that the document already looked rather out of date. As many noble Lords have said, the economic outlook for 2009, even at the time of the PBR, was not particularly bright. The growth forecast then was a negative 1 per cent for 2009. But then, extraordinarily and optimistically, the Treasury forecast 1.5 to 2 per cent growth for 2010.

The 2009 forecast looks far too optimistic, especially so after the release of the fourth quarter GDP figures on Friday. As other noble Lords have mentioned, these showed a decline of 1.5 per cent in the final three months of 2008. The figure formally confirmed that we are in recession. As for this year, according to the FT of 24 January the European Commission predicted that the annual rate of growth for 2009 would be negative 2.8 per cent and the Ernst & Young ITEM Club predicted a fall of 2.7 per cent.

The Government’s GDP forecast for 2010 also looks completely optimistic. The head of the FSA, the noble Lord, Lord Turner of Ecchinswell, who I am sorry to see has taken no part in our financial debates since the credit crunch began, said in a recent City lecture:

“I do not know whether in three months’ time or six months’ time we are going to be able to use words like ‘green shoots’ without everyone thinking ‘what an absurd thing to say’. But I do think that within two years … we will clearly be on an up path”.

Does the Minister agree with that view or with the view of the knowledgeable noble Baroness, Lady Vadera, and, in the other place, Tony McNulty, who both see green shoots coming already?

The same weak situation exists with UK public sector borrowing. Here the Government have squandered the golden legacy that they were given in 1997. How can one note with approval how the total for 2008-09 has shot up since the November PBR forecast, according to independent commentators? As has been said, the PBR forecast the 2008-09 deficit at £76 billion and the 2009-10 deficit at £118 billion, or 8 per cent of GDP. I do not know how the Minister can predict the figure for 2015-16, let alone the next two years. The highest forecast in the Treasury’s latest compilation of independent forecasts published a few days ago, which I tend to believe, indicates a full-year deficit of £90 billion in 2008-09—an increase of nearly 15 per cent in two months—and for 2009-10 the highest independent forecasters are giving a figure of £144 billion, which is a 22 per cent increase over the PBR figure.

The Government have failed since 1997 to keep back any reserve for a rainy day. We were as a result heavily in debt as a nation even before the credit crunch started and so we are in a much weaker position to react to it. Debt to GDP is now at the same level as for Spain, which has lost its Standard & Poor’s AAA credit rating. The same loss may happen for the UK.

Another problem is that the Treasury balance sheet is changing week by week. According to last Friday’s Times, the influential Treasury Select Committee has requested that in these exceptional times the Treasury must behave like a large public company and publish accounts every three months. I am in total agreement with its views.

The Government have persisted, and the Minister’s speech today is no exception, in blaming the economic crisis on the global credit crunch. They fail to take any responsibility for having built up public borrowing to a dangerously high level even before the credit crunch started. They also refuse to accept responsibility for creating a system of regulation under the tripartite regime that failed properly to monitor the risk level of the activities of banks and other financial institutions.

International concern about our weaker economic and financial position than that of the USA and the eurozone has been demonstrated, as other speakers have said, by the collapse in sterling. The pound has dropped 32 per cent against the dollar in less than six months and about 16 per cent against the euro. The Prime Minister himself said in 1992:

“A weak currency arises from a weak economy which … is the result of a weak Government”.

While a weak currency is useful for export, a precipitous fall such as we have seen against the dollar in particular can severely weaken confidence in the UK economy and scare off new overseas investors from buying UK debt. In the longer term, as my noble friend Lord Higgins said, it can have severe inflationary consequences.

Another major concern about the UK economy is the unemployment rate. UK unemployment was 1.92 million between September and November, the highest level since September 1997. December was the 11th consecutive month for which the claimant count had risen. The Ernst & Young ITEM Club, according to the Guardian on 18 January, has said that the number of people out of work will reach 3.25 million by the end of 2010 and 3.4 million the year after.

Let us now look at the fiscal measures taken by the Government. The lowering of the VAT rate from 17.5 per cent to 15 per cent for 13 months is costing £12 billion in lost revenue. The measure is unlikely to work, due to the cautious nature of consumers at present. Leading accountancy firms such as Grant Thornton and Ernst & Young have criticised it, as have others, including the chief executives of Next and Marks & Spencer. Even the noble Lord, Lord Jones of Birmingham, said on 23 November:

“You drop your VAT to get them into the high street but actually, at the end of the day, if they haven’t got a job, what are they going to do?”.

The Conservative Party has decided on a much more sensible measure, which is to allow small and medium-sized businesses to defer their VAT bills for up to six months.

The Government are planning yet again to increase their favourite stealth tax, national insurance. The decision has been made to increase the employee, employer and self-employed contribution by 0.5 per cent from April 2011. Our party has come up with more sensible measures to give firms relief from their NI contributions if they hire workers who have been unemployed for three months. We have also proposed a 1 per cent cut in national insurance for six months for those firms with fewer than five employees.

The Government have temporarily deferred until April 2010 a rise in the smaller companies’ corporation tax rate, but they still wish to penalise small businesses at the very time when they need help. I remind the House that this measure was originally to be staged: in April 2007 it was 19 per cent, to be moved up in stages to 22 per cent by April 2009. What signal does that give to the vital sector of our economy, the smaller businesses? In contrast, our party plans to cut smaller companies’ corporation tax from 22p to 20p and the main rate from 28 per cent to 25 per cent.

Overall in the PBR, the shadow Chancellor has calculated that there are future tax increases—or “fiscal consolidation”, as the Minister described them—of £40 billion, or £1,500 per family, over the next Parliament, matched by the temporary giveaways of £20 billion.

Our party is offering other positive measures. It is trying to help those climbing on to the property ladder with a stamp duty holiday for first-time buyers on house purchases of up to £0.25 million, which would save 200,000 first-time buyers each year an average of £2,000 each. The Government, on the other hand, have been aggressively repossessing houses through Northern Rock, although they have now suddenly done a U-turn and are encouraging Northern Rock to lend again. Our party is helping old-age pensioners by proposing to raise their tax allowance by £2,000 to £11,490. It is helping savers by suggesting the abolition of the basic rate of tax on savings. It is planning to raise the inheritance tax threshold to £1 million, so that the middle classes can pass on their homes without penalty.

Like my noble friend Lady Noakes, I wish the Government well in their stimulus packages, but I am uncertain whether they will work. Does the Minister believe that the examples of the Swedish banks in the 1990s and the rescue of UBS by the Swiss Government and central bank are useful models to follow?

In summary, I cannot note with approval the Government’s assessment as set out in the Pre-Budget Report as I am very concerned about the seemingly uncontrollable increase in government debt and the overoptimistic forecast for early recovery.

My Lords, I agree with my noble friend Lady Noakes that it really is pretty absurd that the United Kingdom should have to submit any report of our financial affairs to Brussels. After all, the EU’s own financial management is in a frightful mess, largely uncontrolled, wasteful and even fraudulent. My main question to the Minister is why we go on paying such huge sums to the EU at all, especially in these difficult times. In asking this question, I support the powerful speech of my noble friend Lord Vinson.

I cannot help but remember an appearance in about 1994 by the right honourable Kenneth Clarke MP, when he was Chancellor of the Exchequer, before your Lordships’ European Select Committee, on which I sat at the time. He was giving evidence on a report on fraud and waste in the European Union that we had produced, the latest of several reports that the committee had produced over previous years. Yes, Mr Clarke, agreed, things were indeed unacceptable; the British taxpayer really should not go on giving so much money away to such an unaccountable institution. But, he assured the committee, we could relax. The ebullient Chancellor informed us that the cavalry was coming: control of the EU’s financial impropriety and waste had just been handed over to a Mr Schmidthuber, with full powers to sort it out. That was 15 years ago; and so, to all noble Lords who claim that the EU is sorting itself out—I fear that the Minister may be among them—I have only one word to say: Schmidthuber.

Since then, we have had the frightening saga of Martha Andreasen, who became the EU’s first qualified accountant in 2002 in response to the mass resignation of the Santer Commission. She was promptly sacked for refusing to sign its fraudulent accounts and for insisting that its computer and accounting systems were incapable of producing accurate or useful figures. I am glad to say that she has recently become the treasurer of the UK Independence Party. I spoke to her this morning. She is aware of all the wonderful new procedures, systems and improvements which Brussels claims to have put in place, and her comment was, again, brief: “window-dressing”.

I therefore ask the Minister a question which I have asked several times before, although not, I think, of him. Why do we not withhold the vast sums of cash that we send to Brussels, which amount to about £9.5 billion net per annum according to the noble Lord, Lord Ryder, until an independent auditor, one of the big international accounting firms, is appointed which could account for them? Why do we not withhold our billions until that happens? I remind noble Lords that there is no independent auditor for the European Union, and its internal auditors have refused for 14 years to sign off its accounts. No institution on the planet could survive that, except in altogether disagreeable jurisdictions.

In the other place a week ago, my honourable friend Mr Philip Davies MP put this question to the Minister, Mr Ian Pearson—no relation, he would want me to assure you. He did not get the vestige of a reply. I look forward to the noble Lord’s reply and hope that he does better than his predecessors.

The developing EU is an increasingly nasty beast. It already makes most of our national laws, in a secretive process, and executes them to the exclusion of Parliament. Its court is a function of itself, and there is no appeal against its judgments. Its treatment of whistleblowers such as Mrs Andreasen is deplorable and it is becoming steadily more dismissive and aggressive towards those of us who do not agree with it. I fear that the Eurocrats are becoming the new nationalists, who brook no criticism of what we regard as their ill fated project.

I remind noble Lords that our membership is cripplingly expensive. It costs us perhaps 8 per cent of our GDP per annum. That includes the figures for overregulation, additional food costs and straight cash. Yet with its own accounting system continuing to be entirely inadequate and open to fraud, Brussels has the nerve to tell us how to alter our own accounting standards. It also presumes to inflict 41 damaging directives on the City of London—most of which, I fear, have not yet started to bite. It even suggests that it should be entrusted with sorting out the banking crisis. You could not make it up.

I conclude by asking about one other attribute that the EU shares with all undemocratic states: its use of expensive propaganda, to which we contribute. This is a good day to ask about this, because in Brussels this evening the brilliant and mildly Eurosceptic think-tank Open Europe is launching its latest analysis of the EU propaganda machine. It is generously entitled The Hard Sell: EU Communication Policy and the Campaign for Hearts and Minds and reveals that the EU spends a minimum of €2.4 billion per annum promoting itself and its central aim of ever closer union. That is more than Coca-Cola spends.

In case Europhile noble Lords are tempted to think that my use of the word “propaganda” is excessive, I will quote from the EU Commission:

“Neutral factual information is needed of course, but it is not enough on its own. Genuine communication by the EU cannot be reduced to the mere provision of information”.

I suppose that Brussels thinks that this propaganda is necessary as the EU grows steadily more unpopular with the people whom it seeks to dominate, especially with the British. Why should the UK continue to pay its 10 per cent share, some €240 million per annum? Could we not spend that money better elsewhere?

I look forward to the noble Lord’s reply, but I fear that I can guess at it. I suspect that he may seek to justify our continued ruinously expensive membership of the EU by repeating the arguments offered by the Government during our debates on the Lisbon treaty last summer, to the effect that, whatever the financial and constitutional costs of our membership, it is worth it because the Government enjoy more clout on the international stage and can deal better with international terrorism and with its sacred cow, global warming. That is a convenient position for our “conference-ariat” or political class to take, but it does not stack up. One can see that because EU countries have scarcely collaborated very successfully during the recent financial crisis. It will soon be obvious to real people that any of these pretended advantages could just as well be achieved through intergovernmental collaboration. They will then be even less enamoured of the unfortunate project of European integration, with its attendant costs to our sovereignty and exchequer. They will continue to get angrier the longer we stay in this wretched project.

My Lords, that was a fine load of old Schmidthubers to liven us up at the end of a long debate. I hope that the noble Lord, Lord Pearson of Rannoch, will pass on my commiserations to the new treasurer of UKIP, who has really drawn the short straw. We cannot just say that it is all Europe’s fault, as the noble Lord has. The noble Lord, Lord Vinson, started with some very interesting points about confidence and capital but, later in his speech, seemed to follow the line of the noble Lord, Lord Pearson of Rannoch.

I start by declaring my interests fully, as they are in the register. I am joint managing director and founder of OLIM Ltd, traditional fund managers for pension funds, charities, investment and unit trusts and private clients in UK equities and commercial property. We are part of Close Brothers; we do not short banks or sell any shares short at all.

The noble Lord, Lord Barnett, as so often, put his finger on the key issues of the debate and our economic situation today—the need for capital investment on a major scale and the need to fix the banks. He was absolutely right to focus on whether toxic assets have properly been written off. That is a major reason why the market has recently been very concerned about the Barclays share price, particularly given its enormous exposure to the gambling operations of Barclays Capital. The noble Lord, Lord Barnett, said that he had some bonds. I have news for him: the Government will be pumping out plenty more. There will be no shortage; there is no need to hurry while stocks last.

The noble Lord, Lord Freeman, gave a stark and important warning about the plight of early-stage companies. As he says, venture capital funding has virtually dried up. That is very serious and very worrying.

On these Benches we are at one with the noble Lord, Lord Blyth, in completely failing to understand why the FSA has decided to end the ban on short-selling in British banks. My honourable friend in another place, Vince Cable, has been taking a lead on this. It is the first serious mistake that the noble Lord, Lord Turner of Ecchinswell, has made, and I hope that it is not repeated. Of course, short-selling is not the only cause of the collapse in bank share prices, but why take the chance in a situation like this? When the fire brigade is fighting a roaring inferno, you do not let people play with paraffin around the flames.

I agreed with one part of the speech from the noble Lord, Lord Ryder of Wensum—and he was the only person to raise it—about the increasing and, in many ways, hidden cost of public sector pensions. We need to face up to that, and face up to it soon.

The noble Lord, Lord Sheldon, like his noble friend of so many years, the noble Lord, Lord Barnett, was absolutely right to focus on the fact that the present instability is probably the greatest that it has been for many generations. The noble Lord, Lord Higgins, was right to talk about the lack of focus on the exchange rate and, as have so many noble Lords, to point out that the banking sector is still clogged up. The noble Lord, Lord Northbrook, pointed again in a similar way to exchange rate and funding risk.

Perhaps I may say a few words about how I see the current economic situation and the risks. In some worrying ways, the closest parallel over the past century is with 1931. Back then, Britain was, as it is today, the most aggressive major developed country in dealing with deflationary pressures, particularly by a substantial devaluation. In those days it was coming off the gold standard; now, as we have heard, the currency has been sharply devalued. Certainly in the early 1930s our depression was a great deal shorter and shallower than most other main countries; however, the difficulty today is that our banking problems are much more serious than those of any other major country. Obviously there are small countries such as Ireland and Greece that are in a grave situation, but we have a large banking sector in relation to our economy. We have had, more than most other countries, an enormous build-up—an overvaluation in not only the residential but also the commercial property market. That has not been talked about so much, but it is in a very serious state. I refer in particular to the two big Scottish banks that were aggressive leaders in commercial property; between them they have £100 billion of exposure to commercial property which they have hardly begun to write off yet, so there are serious losses to come.

If we compare Britain and America, the numbers are worrying. The total assets of British and American banks are roughly the same, at just under $2 trillion. If we factor in something like an 18 per cent loss in those assets, which is not unreasonable, the losses in Britain would be about equivalent to the GDP and about twice the public debt, whereas in the United States we would be talking about losses for the same write-down of 10 per cent to 15 per cent of GDP and a third of public debt.

Of the five biggest banks in the world, three are based in Britain: the Royal Bank of Scotland, Barclays and HSBC. The other two big international banks in the top five are Deutsche Bank and BNP Paribas. Those pressures are one of the reasons why preference shares in United Kingdom banks yield about 25 per cent. The market is saying that there is serious risk.

The other problem is that the economy is falling fast. Looking at the last quarter’s fall on an annualised basis, we are talking about GDP falling at a rate approaching 6 per cent. The retail price index in particular fell 2.5 per cent over the past quarter, although no one seems to have noticed. Again, we are talking about a double figure percentage rate of decline. Everything that I sensed from the high street in January is that retail prices are falling even faster. We are seeing the possibility of a 1930s-type recession.

I would like the Minister to take up a problem in the commercial property market: people avoiding their obligations. It is called pre-pack administrations; many companies, retailers in particular, are effectively tearing up their leases, milking their suppliers, going into administration in the morning and buying themselves back out in the afternoon. That is causing great problems to suppliers but it is also seriously undermining the income stream and the security of income for pension funds and life insurance companies. I hope that the Minister will draw that increasingly worrying abuse to the attention of his noble friend Lord Mandelson and to the Insolvency Service.

As I have said, the economy is in grave danger of slipping down a black hole. The rising tide of unemployment is only just now hitting consumer confidence and house prices. The house price falls we have seen so far, which in reality are about 30 per cent, have really only been for financial reasons and the unwinding of speculation. Real people losing real jobs in the real economy will make the second shoe drop in the housing market, pushing house prices lower still. I would be very surprised if they did not halve from the recent peak to the bottom of the trough.

The banks must start serious lending again to British business, and the Government must face up to the 30 per cent or 40 per cent hole in lending to British business that has been left by the Icelandic, Irish and other foreign banks. That is a major problem. Individual British banks complain they cannot fill the hole. The problem is that they are the only people who can, which is part of the reason there is such a savage squeeze on bank lending.

Finally, the Government must inject serious spending power into the economy, not through stunts and wheezes—we have heard all about the VAT cut, which has been dismissed, rightly, around the House—and not by trying to pick winners in individual struggling companies, but by putting money straight into the pockets of pensioners and low-paid people, who will spend it because they must. We must build up real national assets, especially in desperately needed areas such as insulation, green power, green projects and, most important of all, affordable housing. We must not leave hundreds of thousands of building workers dumped on the dole—we must get them building again.

My Lords, this has been an interesting debate with many notable and intelligent contributions, especially, I am glad to say, from this side of the House, where the speeches were of such high quality that I should like to pay tribute to all the Conservative speakers and to the interesting speech of the noble Lord, Lord Pearson.

As well as being interesting, this has been a rather surreal debate. I say that because so much of what is in the convergence programme—the document we are discussing today—is open to question. It is a sad state of affairs that the Government have so devalued themselves that the figures and statements they produce are no longer credible. For example, eight years ago, before the economic crisis—and I choose this so no claim can be made that economic events distorted the forecast—Gordon Brown stated that Her Majesty’s Government would borrow £28 billion between 2001 and 2006. The Government actually borrowed £129 billion during that period. If that size of error could be made in benign circumstance, what hope is there now?

We have had to live through a series of hopeless forecasts, to which my noble friend Lord Ryder so ably drew attention in the debate. We have had to suffer the misleading spin produced to try to conceal reality. Not only have economic forecasts been spun but also all areas of government activity. The public have had enough spin to make even the strongest feel dizzy.

Even the convergence programme document has distortions; for example, the employment statistics. These describe the large number of people who will be employed in 2057, as if the Government have the slightest idea what will be happening next year, let alone in nearly half a century. A graph demonstrating the 2028 figure is included, but it completely ignores the present increase in unemployment to which my noble friend Lord Northbrook drew attention. I shall be interested to hear the Minister's answer to the question asked by my noble friend Lady Noakes on the assumptions used about unemployment and the impact that unemployment figures will have on the PBR.

My noble friend also commented that the EU is forecasting that the British economy will shrink by 2.7 per cent in the current year, nearly three times as much as the Government are forecasting. For 2010, the EU is forecasting that this country might creep out of negative growth whereas the Government are forecasting 2 per cent growth. Which forecast is the most credible? As my noble friend Lord Northbrook said, it is not likely to be the Government’s. It is shaming to have to stand here and say that the European Union is more believable than Her Majesty’s Government.

This over-optimistic forecasting on the economy will lead to projected borrowing figures being worse than predicted. The estimated figure for next year is £118 billion but no serious outside commentator believes this and on the Government’s record they would be right. When the extra borrowing is added in, what impact will it have on the UK’s debt ratios as we go forward? The treaty debt ratio limit of 60 per cent, already exceeded, will be even worse, and that before all the items that this Government exclude from official statistics are included. Others have already mentioned these today—local government pensions, public pension liability, private finance initiative, Network Rail, the banks, and so on and so forth. Together they add nearly another £1,000 billion to government liabilities. I look forward to hearing the Minister’s response to the question asked by my noble friend Lady Noakes on the ability of Her Majesty's Government to fund future years’ borrowing which, as I have said, may well exceed the figures estimated.

The Minister was asked to confirm that there would not be further tax increases beyond the proposed 45 per cent. Will he also say whether he agrees with the remark made by the noble Lord, Lord Healey, the former Labour Chancellor of the Exchequer, that this tax increase was only imposed to cheer up Labour’s core vote, and that all high taxes achieve is to drive abroad those most able to contribute to improving the economy? The noble Lord, Lord Healey, also said that there are probably twice as many people working in the public sector than are necessary. Does the Minister agree with him? And does he accept that reducing this unnecessary expense in the public sector, thus redirecting resources from the unproductive sector of the economy to the productive sector, is ultimately the only way to solve this country’s economic problems and bring budget deficits and government borrowing back to levels which will not create an unfair burden on our children and grandchildren?

My Lords, I add to the comments by the noble Lord, Lord Howard of Rising, in complimenting the quality of contributions to this debate: it has been a high-quality debate in its contributions from all sides of the House and from all parties, rather than being limited to one.

I will endeavour in the 20 minutes or so allotted to me to cover as many of the questions asked as I can, although, once again, noble Lords have made that an almost impossible task, unless one-word answers would suffice—I doubt that they would. Copies of the document that we are being invited to submit were placed in the Library on 19 December. I do not believe, as the noble Baroness, Lady Noakes, suggested, that this document will lead to criticism and rebuke from the EU Commission. I believe, on the contrary, that the EU Commission will indicate that the policy stance we have taken is consistent with that which the EU believes to be appropriate in addressing a global recession in which there is a failure at this stage to have an equilibrium between supply and demand and the need for that to be adjusted to by fiscal stimulus.

The noble Baroness referred to the New York Times article. I urge those on the Conservative Benches, here and in the other place, not to fall into the trap of appearing to take pleasure in the misfortunes of those suffering in our economy and in economies elsewhere; not to take pleasure from those whose jobs are at risk; and not to take pleasure from those whose homes face repossession. These are global problems, and we are taking appropriate action. Quite frankly, the Conservative Party does its cause a disservice when those who lead it on economics, in their preening arrogance of privilege, born to a better life, abhor the programmes that we are adopting to protect those who are most vulnerable at this time.

The noble Baroness refers to Citibank’s data on debt comparators. I am familiar with this work. She elects not to indicate that, not only has there been growth in debt, but also growth in assets. One of the reasons that we have higher private sector borrowing as a percentage of GDP in this country than elsewhere in Europe is high home ownership. Is the Conservative Party opposed to home ownership? Is it opposed to the use of mortgages to finance the purchase of one’s home? If so, that is a new policy to me, which I am sure the country will be interested in hearing more about. Another reason that we have high debt in the private sector is the remarkably well funded pension position which characterises the UK in comparison to many other jurisdictions.

The noble Baroness raised questions about the temporary reduction in VAT. She said that it had “bombed”. With all respect, it is far too soon to pass judgment on the economic impact of something that was only introduced just before Christmas. I take some comfort from the fact that the honourable Member for Rushcliffe in the other place himself proposed the policy before it was announced by the Chancellor of the Exchequer.

There was much talk from the noble Baroness about proposals to reduce public expenditure. Well, I hope that if there are proposals to reduce public expenditure through greater efficiency, they are executed with somewhat more success, precision and credibility than David Cameron concluded could be applied to the work done by the noble Lord, Lord James of Blackheath, when conducting such an exercise for the Conservative Party.

The noble Lord, Lord Ryder, made similar points about the need to cut expenditure. Well, what would he cut? On that we got very little enlightenment.

My Lords, I am always grateful to the ever polite and courteous Minister. I said no such thing. I simply said that the PBR submitted by the Chancellor last November did not produce a credible framework for providing a structure whereby public expenditure could be reviewed properly when circumstances allowed. The day after that PBR statement, the markets decided against the Chancellor, partly for that reason. If the Minister looks tomorrow at the text of what I said, he will find that I said no such thing.

My Lords, if that is the case, I concede that point, as I am sure the noble Lord would also do should he find that the IMF did not use the term “reckless” in describing the Government’s fiscal management.

My Lords, the IMF stated quite clearly last year that the Government’s spending policies were out of hand. It said that before the markets collapsed.

My Lords, I would be very happy to give way again to the noble Lord if he answered the question about the word “reckless”.

Certainly, my Lords, no one could consider the Government’s expenditure last year as anything but reckless. After all, the figures produced late last summer were the worst figures on public expenditure published since 1946, when records began. If that is not reckless, what is?

My Lords, I find myself defeated by a man who honed his skills in the other place. I heard him say that the IMF had used the term “reckless”. He is now choosing to say that it is, actually, his own term. Let me also help him. As he studies the IMF’s pronouncements on the UK economy last year—to which he referred—I shall quote its comments on the UK economy. It said that the UK had,

“strong policies and policy frameworks, which provide a strong foundation to weather global shocks”.

My Lords, can the Minister remind the House for what period the IMF was making its examination for that report?

My Lords, this was the IMF’s standard spring report. It is backward-looking and forward-looking. The terms used here very much pointed to the future, which will provide,

“a strong foundation to weather global shocks”.

I suspect that we will not agree on that, but I am clear that the quotations I have used are correct. I am not as clear that the IMF used the term “reckless”.

The noble Baroness asked three questions, which I shall seek to answer. First, it is not the Treasury’s policy in making economic forecasts to make assumptions about unemployment, other than regarding the operation of the automatic stabilisers. That has been the Treasury’s position for many years. The noble Baroness then asked about the funding of the government borrowing requirement. The noble Lord, Lord Higgins, referred to that, and I shall return to his point later. I would simply observe that the DMO has expressed its confidence about the fundability of the public sector requirement, that gilt yields are at a low point, compared with the past 50 years or so, and, indeed, that the sterling premium over German federal government borrowing rates is currently running below trend. That is evidence, if one wishes to look to the markets, and I believe that the markets can be used to prove just about—

My Lords, I should point out to the noble Lord that he has obviously not been looking at the gilt market over the past two or three weeks.

My Lords, I look at the gilt market daily. The premium of UK borrowing over German government borrowing rates is actually below trend.

I was asked about future taxation by the noble Baroness and the noble Lord, Lord Howard. Again, I am sure that they will realise that I shall not anticipate forward changes in taxation, whether reductions or increases. However, we have said that it is our intention that public finances in the medium term should be sustainable.

I am not going to comment on what the noble Lord, Lord Healey, says about those who work honourably, dutifully, effectively and loyally in the public sector. I know that it is very easy for people to mock public servants, but this party will not do so and I certainly will not be party to that. I found it shocking, in the description of those who will pay 45 per cent tax—the top 1 per cent of earners—the term that they “have the most to contribute”. What an inverted view of society it is, when the Conservative Party believes that those who have the most to contribute are at the top, and those with medium and the lowest remuneration have little to contribute—although it might explain why their concerns are rarely a feature of the Conservative Party’s political proposals.

I noticed that the noble Lord, Lord Newby, addressed a question about the IMF to the Conservative Benches. I also noticed that it was not answered. I appreciate the noble Lord’s support and that of the noble Lord, Lord Oakeshott of Seagrove Bay, for the fiscal stimulus, and I agree with their blending of the need and appropriateness of fiscal stimulus in this global crisis, aligned with a need to be fair and to ensure that those who are most vulnerable in society are protected. This is certainly not the right moment to copy the Tory tax cuts of 1981—to bleed the economy, as the noble Lord, Lord Vinson, said. This is the time when those with the broadest shoulders, the public sector, should be the risk managers who ensure that demand is there to support the economy.

The noble Lord, Lord Newby, asked about the Government’s response to the Treasury Select Committee. I am sure that my right honourable friend the Chancellor of the Exchequer will respond, particularly to the committee’s observation that the single most critical problem for the economy in the near term is bank lending. That is precisely why we are focused on bank lending and precisely why we will be developing over the next few weeks lending agreements with banks which choose to participate in the asset-protection arrangements set out by the Chancellor of the Exchequer in the other place at the beginning of last week. I also recognise the value to our economy of social housing and the importance that that sector should continue to enjoy adequate supply of competitively priced funding.

My noble friend Lord Barnett—whom I look upon to guide me on parliamentary procedure, although not to the point where he suggests that perhaps I should become a banker and cease to be an active member of the Government and this House—asked a question about shorting. I thought I had answered this when questions were asked by the right reverend Primate the Archbishop of York. Specifically, I believe I said that shorting aids price discovery and provides liquidity. My noble friend invited me to put a letter in the Library explaining this. It may be even more helpful if I ensure that my noble friend and the Library have a copy of the FSA’s consultation document on shorting, which is likely to be published in the next few weeks.

My noble friend suggested that Treasury economic forecasts were “guessing”. That term is loaded with pejorative meaning. I shall simply say that the Treasury’s methods for economic forecasting are not dissimilar from those used by other reputable economic forecasters. If we accused those in the private sector responsible for producing economic forecasts based on guessing, their market value and rate for the service they provide would be likely to fall. We will not therefore use that term.

My noble friends Lord Barnett and Lord Sheldon correctly summarised why we believe that VAT is the appropriate mechanism for fiscal stimulus. I would only add that the fact that it is also of benefit to non-taxpayers was another reason why Mr Kenneth Clarke and the Chancellor of the Exchequer both—

My Lords, I let the first reference to my right honourable friend Kenneth Clarke go by without rising to my feet. I explain for the record that my right honourable friend said before the Pre-Budget Report that he favoured a reduction in VAT. When he saw the horrifying figures revealed by the PBR he made it clear that he dissociated himself from the VAT-cut element. That is on the record of the other place and I hope it can be on the record of this House.

My Lords, I note that the right honourable Member for Rushcliffe amended his views on VAT. I am sure that there are people on the Tory Front Bench who hope that he will also amend his views on a number of other things where he is currently out of line with the thinking of Mr Cameron and Mr George Osborne.

With regard to auditors, I remind my noble friend of last night’s debate. The primary responsibility for accounts lies with the banks’ directors. I am going through a programme of meeting the chairs of banks’ audit committees to inform myself of the processes that they are taking in completing their year-end accounts. It is absolutely critical that we restore trust in the accounts published by our banks, and indeed by banks elsewhere in the world. We can do little about other world bank accounts, except through agencies such as the Financial Stability Forum. However, it is clearly important that our own banks produce accounts that inspire trust.

My Lords, is my noble friend saying that the reports that I quoted of meetings between the FSA, the regulators and the top auditing companies were untrue? Were they talking?

My Lords, in truth, I am not sure. I have certainly had meetings with the heads of the major accounting firms that are auditing our banks’ accounts, and I should be very surprised if the FSA has not also had meetings. I think we, including the banks, all realise that restoring damaged trust in banks’ accounts is of considerable importance both to the banks and to the economy.

The noble Lord, Lord Freeman, made an extraordinarily well informed and thoughtful speech on technology. I am keen to monitor the supply of capital to smaller companies, including those financed through venture capital and in the technology sector. I have spoken to my noble friend Lord Drayson on this matter and I shall draw his comments to the attention of the Department for Innovation, Universities and Skills and the Department of Energy and Climate Change.

I am conscious that there have been one or two interventions, so, with noble Lords’ indulgence, I shall go just a few minutes over 20 on the Clock.

My Lords, the noble Lord, Lord Vinson, raised questions about quantitative easing. The most recent announcement by the Chancellor of the Exchequer included a reference to the £50 billion fund, which I hope will be large enough to buy the whole of my noble friend’s portfolio, but possibly not. He said that this created the architecture that could be used for quantitative easing but then went on to say that the question of whether quantitative easing was used was a matter for the Monetary Policy Committee in engagement with the Treasury. He also said that, if this were contemplated before enactment, there would be a public exchange of correspondence between the MPC and the Treasury.

The noble Lord, Lord Blyth of Rowington, who served with me many years ago on the board of a strong and well performing bank, questioned the Government’s economic record of achievement. I am the first to admit that in this House, as in other places, we can be slightly selective in our use of data. I shall be as guilty of that as anyone and point out that in six of the past seven years the UK was either the strongest or the second strongest-growing economy in the G7 and that over the past 10 years we have enjoyed the highest per capita income growth in the G7 sector. Therefore, I do not think that it has been an entirely wasted period.

The noble Lord also said that short selling nearly brought Barclays to its knees. If he has information to suggest that that is the case, I think he should share it with the FSA. Certainly, on the basis of the published data, there has been almost no short selling or short selling positions in the shares of UK banks. The noble Lord will, perhaps, be aware that there is now a daily report from the FSA on short-selling positions, so I respectfully suggest that to be a slight overstatement.

I have given way to the noble Lord, Lord Ryder of Wensum, on numerous occasions. I will now give way to him happily, because the thrust of his comment was the need to reduce government expenditure. If that is the case, where would his party reduce it? Would it reduce it on nurses, or on teachers, or on the police, or on the military? I refer particularly to public sector pensions. The noble Lord said that the issue of public sector pensions needed to be addressed, so it would be helpful if the House were informed how he would address it.

My Lords, the Minister is very naughty because he tries to put words into people’s mouths that they did not utter. I simply said that, sooner or later, a Government would come to office who had to replicate the public expenditure White Paper produced by my noble and learned friend Lord Howe of Aberavon in 1979. He had to clear up the profligacy of the previous Government, and that will have to happen again.

I did not specify when that would be but the Minister, above all people, knows full well that there will be such a White Paper sooner or later and that such decisions will have to be reached by a Government in office. The Minister may not be part of it; by then, he might have gone back to the City and be earning lots of money. I hope that he will have, but a Government will have to do it—and he knows that.

Perish the thought, my Lords, that I should seek to put words in the mouth of the noble Lord, Lord Ryder, for to do so could be described only as reckless.

I never leave this Chamber without an increased admiration for the contributions of the noble Lord, Lord Higgins, to our debates. If it is possible, while on the Government Benches, to look forward to somebody’s contribution when looking to the Opposition Benches, then that is how I feel. Today was another when the noble Lord in no way disappointed me. He described himself as feeling, at times, befuddled with the complexity of monetary targeting; that was certainly an economic fashion of the time, which has now passed into decline. The noble Lord said that there is little in the document about monetary policy; I refer him to paragraphs 2.77 to 2.88 of the PBR, which deal with that, and with objectives and responses to the global shock.

As the Chancellor of the Exchequer said in his Statement to the other place on 19 January, the Bank of England’s asset-purchase facility will address liquidity in the system. The Treasury said that this programme,

“also provides a framework for the Monetary Policy Committee of the Bank of England to use asset purchases for monetary policy purposes should the MPC conclude that this would be … useful … for meeting the inflation target. In such circumstances”,

as I have previously said,

“a further announcement would be made”.

It can be construed from that that the Government and the MPC are considering a range of options that might be appropriate regarding the price and quantity of money.

My Lords, the Minister quoted a particular paragraph, or it may have been a chart—it is extremely difficult to find these things on the spur of the moment. Will the Minister provide the House with the Government’s forecast of what they think will happen to the money supply? I leave it to them to choose the definition of money supply, but at present we have no indication.

My Lords, in discussion with colleagues I shall consider the merit of assisting the noble Lord in pursuit of that information. If my colleagues and I conclude that that would be a good and proper thing to do, I will write to him and ensure that a copy goes to the noble Lord, Lord Vinson, as I believe his interests are similar.

I shall say little in response to the comments from the noble Lord, Lord Northbrook. As one of the later contributors, many of the things that one was going to say, or has said, have already been covered by others. I apologise for that and will limit myself to two comments that he made about banking, acknowledging that he is a scion of the Barings banking family and a known expert in this field. I think that he misunderstands the issue in respect of Northern Rock. A process of foreclosure on mortgages may well be right and appropriate—indeed, in the interests of the borrower when it is not possible for borrowers to continue to service their mortgages. That is rather different from what we are now saying, which is that we see the potential for Northern Rock to be used as a vehicle to provide additional funding for house purchases—for good quality new borrowing.

He also asked whether I thought that the Swedish and UBS models were useful. I think that they are. We certainly reviewed them in considerable detail before we concluded that an asset protection programme, which is sometimes described by the media incorrectly as insurance, was better than a whole purchase of assets—the good bank, bad bank model—that lies behind the Swedish and UBS precedents.

I shall have to consult colleagues on whether the noble Lord, Lord Pearson of Rannoch, used unparliamentary language, but his contribution was entirely predictable. My answer to the questions on withholding contributions and on the issue of audit will be no different from that of my colleagues when asked those questions previously by members of UKIP. I covered this matter in some depth when I answered a Question in this House from my noble friend Lady Cohen. However, as it was my first or possibly second day in this Chamber, I was frozen with fear and doubt whether my answers were as coherent as they should have been. If I reread Hansard and feel that I can improve my answer in any way, I shall do that by writing to the noble Lord, to whom I give way.

My Lords, I still have not understood whether the Minister and Her Majesty’s Government think that it is a good idea or a bad idea to withhold billions of pounds—more like £20 billion a year gross—from an organisation which cannot account for it.

My Lords, my answer to my noble friend Lady Cohen was to highlight that the vast majority of EU expenditure is carried out through national governments. Expenditure from the centre is relatively modest. As I said, I will revisit that.

My Lords, when the Minister revisits that, will he bear in mind that the Commission is responsible for one-third of the expenditure?

My Lords, I will ensure that I am even more informed on matters relating to the EU Commission, although I doubt whether I will ever be as informed as the noble Lord on that particular matter. But it may be that I represent a party with a broader range of policy proposals than UKIP would probably ever aspire to achieve.

The noble Lord, Lord Oakeshott, raised questions about pre-pack administration. I am aware that my colleagues in the Department for Business, Enterprise and Regulatory Reform have been alerted to these concerns and are monitoring it closely. I will draw to their attention his comments.

In closing, as has been mentioned, this is an extraordinary time both in the UK and abroad. We are in a global crisis that will require a global solution. The UK will continue to work closely with its partners in Europe and elsewhere to maintain a co-ordinated approach to the issues and solutions. It requires action now to help people and to build a stable economy. There is international consensus, although unfortunately it is not shared in this House, that we must act now to protect people and to help to pull our economies out of recession.

We have made our choices; namely, helping businesses, home owners, people and families, and boosting incomes. All that is possible only because this Government have taken a deliberate decision to support people and businesses through these difficult times. Against this background, I commend the Motion to the House.

Motion agreed.

House adjourned at 7.45 pm.