House of Lords
Thursday, 7 May 2009.
Prayers—read by the Lord Bishop of Salisbury.
Energy: Nabucco Pipeline
My Lords, the Government strongly support the development of the southern corridor, which would bring gas from the Caspian, via Turkey, into Europe. This would increase UK and EU energy security by diversifying both sources and routes of gas supply. The Nabucco gas pipeline has the potential to form a key part of the southern corridor and, as such, it has the Government’s strong support.
My Lords, I thank the Minister very much for his very positive Answer. The European Parliament voted yesterday to designate €5 billion to environmental projects. Some €200 million will go to the Nabucco pipeline, importing gas from the Caspian, bypassing Russia. Given that in 2005 we became a net gas importer and by 2006 we had a net deficit in oil, will the Government be supporting this European Parliament proposal in Council?
My Lords, the Government have not reached a position on that yet but, as the noble Baroness will have interpreted from my opening statement, we are very much in favour of the Nabucco development and therefore welcome the fact that the European Parliament has commented on it favourably. We understand that in fact there is an element of underspend in aspects of the European budget, which could effectively be deployed to this immensely worthwhile and important project.
My Lords, will the Minister expand a little on what the Government mean by “strongly support”? Are we taking action with other member Governments in the European Union to ensure that this project is carried through to fulfilment, or does it just amount to a tick in an official’s ministerial comments box without the Government doing anything to build an active coalition in the EU to make sure that the pipeline goes ahead?
My Lords, the Government are doing a great deal more than an active tick. The noble Lord will appreciate that some delicate negotiations are to take place among countries which supply the gas and through which the pipeline will go. I have only to mention that Turkey, Armenia and Azerbaijan are all involved to indicate that this is not a straightforward exercise, as if any pipeline crossing a number of countries would be straightforward. Therefore, there is considerable Foreign Office activity with the European Union to ensure that we get effective action. Of course, the pipeline will be a commercial project and the resources will come from commercial companies, but the House will be reassured to hear that at least one British oil company is interested in investing in the pipeline.
My Lords, does the Minister not agree that in March the European Council earmarked the €200 million that has now been approved by the European Parliament? Does he not also agree that it is likely that the negotiations would be greatly facilitated if the energy chapter in Turkey’s accession negotiations were opened and Turkey were to become a wholehearted supporter of the Nabucco project? The situation is not helped at the moment by the European Union’s foot-dragging on that chapter in the accession negotiations.
My Lords, the noble Lord raises the interesting issue of the relationship of Turkey to the European Union and the several significant hurdles that need to be overcome if Turkey is to join the European Community. These are challenging issues. However, there is no doubt that the pipeline will flow through Turkey, and inevitably the Turks are looking on this as an indication of the extent to which they can contribute to the European Union’s economic welfare and, through that, strengthen their position as regards joining. However, the noble Lord will recognise that Turkey does not meet all the tests that will be applied to it before it is able to join the European Union.
My Lords, is the Minister aware that the problem is not so much support from European Union members for the project, which has been very vocal in recent times, as finding enough gas to fill the pipeline to make it even remotely viable? That, of course, depends on Russian willingness to see an under-Caspian pipeline from Turkmenistan, and that in turn depends on the attitude of the President of Turkmenistan and the President of Azerbaijan, President Aliyev. All those are highly uncertain prospects, which accounts for the fact that the project keeps slipping down the priority agenda. From our own point of view, given that we are totally, heavily and increasingly dependent on gas, thanks to government dithering over nuclear, in the next 10 years, would it not be much wiser to develop our links with Norway, which has unlimited gas to supply to us, and to develop our own storage systems, import more LNG and fill this dangerous gap which has arisen as a result of the Government’s dismal and ineffective energy policies?
My Lords, the noble Lord has given no credence at all to the extent to which we have negotiated with Norway about the supply of gas and the opening of fresh facilities. Nor has he indicated the full extent of the gas supplies that could come from the Caspian Sea: as much as 10 per cent of European needs. It is therefore important that we give considerable support to this project, not least because, as will be recognised after the anxieties last year in the Russian-Ukrainian gas dispute, it is important that we develop other sources. Those are not to be underestimated in their potential.
My Lords, does the noble Lord recognise that there are at least three and possibly five taps on which unfriendly presidential hands may be laid in the Nabucco pipeline whereas we are assured of the friendship of our friend and neighbour Norway? Would it not be much better to proceed rapidly with expanding our resources from there than from elsewhere?
My Lords, Norway is of course a good deal more secure as a supplier but Norway is also well aware of its bargaining position. The idea that we should turn down efforts to develop a pipeline from another gas source would fly in the face of intelligent behaviour by the Government, which is to maximise the sources of gas supply to this country.
My Lords, will the Minister confirm that we can do both, and continue to support Azerbaijan and people in the Caspian region? I think that the UK is the largest investor in Azerbaijan, and there is also that huge pipeline run by BP, which is a British asset. On the basis of security of supply, it is great to have Norway; but it is also very important not to write off the huge resources in the Caspian and to invest over there too.
My Lords, I am grateful to the noble Baroness, and I would emphasise one other point. Anxieties may be expressed about the tensions that exist between countries on the line of this pipeline, but economic interests often reconcile such tensions. For more than half a century, through thick and thin, through the Cold War and even close to the heating up of the Cold War, gas supplies from Russia have remained constant. So we should not exaggerate the extent to which political difficulties might interfere with supplies.
Constitutional Renewal Bill
My Lords, the Bill is in its final stages of drafting. We intend to introduce it before the Summer Recess for carry-over into the next Session. However, the final content is not yet agreed. The Government intend to bring forward measures to support this House in disciplining Members and to allow Members who wish to do so to resign. However, we must ensure that that is done in the most appropriate way.
My Lords, I welcome the Minister's Answer, in so far as the Bill will definitely be with us before the Summer Recess and appears to incorporate two of the four points in the Bill that I have introduced in this place, but what about the other two points: putting the Appointments Commission on a statutory basis and ending the hereditary by-elections?
My Lords, the noble Lord knows that the Government are committed to comprehensive reform of this House. We still believe—we have said this for several months now—that such major reform should be brought forward in a government Bill. That is why we had the all-party group meetings that took place over several years. The consequence of that was that we hope that the parties will set out in their manifestos for the next election their commitment to reform, and comprehensive reform can then take place.
My Lords, is my noble friend aware that the Government are absolutely right to view the provisions of the so-called Steel Bill with some suspicion? Is he further aware that the Government are absolutely right to say that at this stage they do not intend to bring forward a partial set of proposals for reform of this House? Finally, is he aware that at some stage the fundamental issue about this House, which is its composition and elections to it, will have to be decided?
Yes, my Lords, I absolutely agree with my noble friend. This is a major issue and one that we should not enter into lightly. We have committed ourselves to entering into it after the next general election. We hope that with the support of all the major parties we can move towards reform of this House. We still believe that piecemeal reform would be a mistake.
My Lords, on the question of constitutional principle, will my noble friend be wary of the advice given to him by my noble friend Lord Richard, which seems to be that until you can do everything, you should not do anything? Will he therefore take particular account of the Second Reading debate initiated by the noble Lord, Lord Steel, which received overwhelming support in this House? Its four principal provisions were not even objected to—as I read it, they were supported—by the Government Front Bench. Let us do a little bit that is good and wait for the wonders of the future at some later time.
My Lords, attractive though that proposition is as my noble friend puts it, there are dangers in it too. We feel that if we were to agree to some more minor measures, when we came to the reform of the House that will take place in future, we might be caught slightly by what the earlier Act of Parliament said. We have to walk very carefully in this field.
I can go this far with my noble friend: we think that we should bring forward some government legislation on discipline of the House and we hope to do that soon.
My Lords, does the noble Lord agree that the Liberal Democrats could best help the stabilisation of the constitution if they would stop perpetually trying to upheave it? Does he further agree that this is not the right time to institute a new Bill for Parliament, just at the end of the present Parliament?
My Lords, has the Minister had an opportunity to examine the provisions in the Constitutional Renewal Bill to which the House gave a First Reading on 31 March and which, incidentally, has provisions for appropriate disciplinary procedures for Members of your Lordships’ House? Would it not be better to make some progress now on these issues rather than wait until the Summer Recess? Will the Minister use his great persuasive powers to get the government business managers to find government time for a Second Reading, because then we could make real progress on these provisions?
My Lords, the noble Lord knows, I think, what I am going to say. We are immensely grateful to him for having introduced his own Constitutional Renewal Bill. Its progress, of course, is a matter for the usual channels, but it contains a number of points with which we agree and which I believe were drawn from the draft Bill that was published last year and which has been very widely discussed. We believe that those points are better taken forward in a government Bill.
My Lords, given that the House unanimously agreed the main principles of the Steel Bill, which includes a statutory Appointments Commission, and given the way in which the political parties make their appointments at present and the need for reform of that process, does my noble friend accept that supporters do not see the two points in the Bill which he mentioned as the most fundamental points and that a day should now be found to look at the clarification which the Government claim is needed and which supporters agree should now be made to the Bill to be clear about how the political parties make their nominations to a statutory Appointments Commission?
My Lords, we disagree with some of the details of the Steel Bill, although, as I have already conceded, there are parts of it that we like. I repeat that we believe that some of those issues point to a comprehensive reform of this House, which is best done by government following an election.
My Lords, young offenders who are sentenced to custody will continue to be placed by the Youth Justice Board in the accommodation that is best suited to meet their needs. The number of secure children’s home places that the Youth Justice Board has announced it will contract for is an optimum number that is determined by the board’s examination of the average level of demand for beds in secure training centres and secure children’s homes over a three-year period.
My Lords, I thank the Minister for her reply. She may be aware that the number of secure children’s homes that deal with our most vulnerable and difficult offending children has been more than halved over the past decade, with a shift in provision to secure training centres, which are part of the prison estate. Is it not a cause for real concern that the essentially welfare-led approach to these children’s needs is being replaced by the very different, more punitive ethos of the secure training centres, in which the training and staff ratios are lower, the use of restraint is still commonplace, and the reoffending rates are among the highest for offenders of any age?
Further, can the Minister confirm that the closure of Orchard Lodge means the loss of the last facility in the whole of London, so that in future the nearest secure children’s home will be in Southampton?
My Lords, I thank the noble Baroness for her questions. I reassure her that her interpretation of the approach of the Youth Justice Board is not how I would interpret it. I draw her attention to the youth crime action plan and the Government’s commitments in it to promote the youth rehabilitation order as a really constructive alternative to custodial sentences. Over the past 12 months, and before that, we have seen a significant and unsustainable level of vacancies in secure children’s homes. That is what is driving this change from the YJB. I also reassure her that we at the DCSF are looking very carefully at the drop in the level of demand on the welfare side, and at the same time we are investing in a number of alternatives to meet the needs of these children who are, as she says, very vulnerable.
My Lords, I thank my noble friend for that question. He points to the extremely live debate that is taking place, which follows the report of the noble Lord, Lord Laming, and the Government’s recent response. Through the Care Matters programme and the Children and Young Persons Act, we have placed a duty on local authorities to ensure that a range of appropriate accommodation is available for children who, through a court decision, are taken into care. It is right that we have the appropriate accommodation and that there are places in residential care for children who find themselves in the care of the local authority.
My Lords, is the Minister aware that the letter from the Youth Justice Board says that,
“quality was the predominant factor”,
in making this decision? In the light of that, can she explain why Sutton Place, a secure children’s home in Hull, got a rating of “outstanding” from inspectors and was not given a new contract, while Oakhill secure training centre, which has been in trouble or under a rectification notice since it opened, continues to hold vulnerable children in custody?
My Lords, the noble Baroness draws attention to the criteria that the YJB used for its review of its commissioning of places for secure children’s centres. I believe that the noble Baroness is referring to the fact that the assessment made through the tendering process was prospective and not retrospective. The Ofsted reports to which she refers are retrospective. The YJB asked bodies like Sutton Place to make proposals, which were assessed in terms of the quality and management proposals that were put forward. In the past, Oakhill has been subject to unfavourable assessments, but we can be reassured. On 21 March, Oakhill was given a “satisfactory” overall rating by Ofsted. There have been problems there, but there has also been improvement.
My Lords, how convinced is the Minister about the robustness of the projections for the demand for numbers of places? She mentioned that it was based on the average demand. Is she aware that where there is an average, there is also a top and bottom figure? In 2008, the chief inspector said that demand outstripped supply. If the projection of lower numbers of places being required is based on the Government putting more resources into rehabilitation in the community, that would be a good thing. Perhaps the noble Baroness can assure us, because it is not a cheaper option, that the Government are going to put an adequate amount of resources into in-community rehabilitation.
My Lords, I hope that I can answer the noble Baroness’s questions coherently. My point about the youth crime action plan is that the triple-track approach that the Government are adopting is very much about tackling offending behaviour through enforcement and punishment, as well as promoting better and earlier prevention and using alternatives to custody, such as intensive fostering and intensive surveillance programmes.
As the noble Baroness says, an average is just that, but the YJB has retained the resource to spot-purchase provision, should that be necessary. I believe that a comprehensive piece of work has been done, but the DCSF is keeping a very close eye on this, because we are extremely concerned to ensure that there are proper, adequate welfare placements as well.
Finance: Offshore Centres
My Lords, President Obama and Secretary Geithner have this week set out proposals to reform the US approach to international corporate taxation. All advanced economies face the challenge of protecting their tax bases. Like the US, we have acted and will continue to act to tackle avoidance and evasion activity, which puts our public finances at risk. British offshore financial centres know that they must engage constructively with the major economies. The Government have launched an independent review of British offshore financial centres which is being undertaken by Mr Michael Foot. It will assess the long-term sustainability of OFC business models and consider changes in the global economic and regulatory environment as part of its analysis.
My Lords, does the Minister accept that many of us on these Benches were puzzled by the Government’s happiness with the Bush Administration’s rather lax approach to the development of offshore financial centres which, as the Financial Times said yesterday, has clearly been part of the global financial boom? Now that the Obama Administration have shifted gear very sharply and specifically mentioned a number of offshore financial centres under British sovereignty in their measures, will the British Government take a much tougher approach to the need for sharper financial regulation, or will we continue as the Government have done over the past 12 years?
My Lords, we certainly are taking a tough line. Tax evasion is pursued with great vigour by the authorities. In 2004, we introduced a pre-clearance requirement that requires those pursuing or marketing tax avoidance strategies to disclose the details to the Inland Revenue in order that it may consider the consequences. We believe that, as a consequence of action taken in the light of such information, some £11 billion of revenue has been protected. We are also about to announce a code, on which we will consult, relating to bank involvement in tax avoidance and aggressive tax management, which I think will throw further light on these issues. President Obama’s approach is primarily addressed at protecting onshore domestic US industry against offshoring.
My Lords, I am saying that tax avoidance can be tackled on a unilateral basis through tax and information exchange agreements that increase the flow of information. However, as one source through which tax avoidance can take place is blocked, if you are not careful, other sources arise. The G20 initiative recognising the importance of this issue marks a significant change in the attitude of the developed world towards centres that rely primarily on tax for their source of competitive advantage. Moreover, the scale of sign-up to tax and information exchange agreements since the period immediately before the G20 and now is indicative of a fundamental change in the relationship between the developed world and offshore financial centres.
My Lords, there are two important aspects to this. I refer first to the work of Mr Michael Foot, who is looking at regulation and resolution procedures in Crown dependencies and offshore financial territories. I think that he will come up with some positive recommendations about improving regulation and the processes for dealing with regulatory failure. The OECD also has an important role to play in this. The Prime Minister has recently written to the OECD urging continued action to address its own co-ordinated programme towards transparency of transactional behaviours and the opening up and improvement of regulation. It is also worth noting in this respect that British Crown dependencies and offshore territories rank rather well by comparison with a number of other centres in terms of the quality of their regulation as judged by the OECD and the IMF.
My Lords, the Minister has referred to the work of Michael Foot and will no doubt have read the interim report which he produced and which was helpfully published on Budget day. Does he share my concern that Mr Foot seems more concerned about the British offshore financial centres remaining successful economically than about ensuring that they no longer rank among the major centres in the world for tax avoidance and evasion? As Mr Foot moves towards his final report, will the Minister ask him to concentrate on that issue?
My Lords, I shall certainly convey the noble Lord’s views to Mr Foot. He has comprehensive terms of reference, which include addressing tax issues as far as they relate to these centres. It is clear that these questions have become more elevated as a result of the agreement now within the G20 countries on the need to address tax evasion and wilful tax avoidance.
EU and Russia (EUC Report)
Motion to Refer to Grand Committee
Business of the House
Timing of Debates
My Lords, I draw noble Lords’ attention to the fact that this debate is limited to five hours. We have 38 speakers to the debate of the noble Lord, Lord Forsyth. It means that Back-Bench speakers are restricted to seven minutes—and seven minutes means the moment that the digital clock shows seven.
My Lords, I am most grateful for this opportunity to call attention to the economic prospects of the United Kingdom and somewhat overwhelmed by enormous list of speakers and their quality. Their experience in economic affairs makes me embark on this debate with a certain amount of trepidation. I very much look forward to hearing the maiden speech of the right reverend Prelate the Bishop of Bradford.
Every Labour Government are the same. They leave office with unemployment and debt higher than they when they started. This Government, it seems, will be no different from any of their predecessors. It gives me enormous pleasure to have here with us this morning my noble friends Lady Thatcher and Lord Lawson and my noble and learned friend Lord Howe, who had to deal with the consequences, 30 years ago almost to the day, of the mess left by a previous Labour Administration.
We recall the state of the country then. The anglophile American commentator Bill Safire described Britain then as a first-class example of how to ruin a first-class country. It seems that we have gone back to the future. Then, the Conservative Government had to deal with an enormous debt problem. We have never been allowed by the Benches opposite to forget the difficult decisions that we had to take in cutting public expenditure. My noble and learned friend Lord Howe had in 1981 to reduce the deficit from £13 billion to £11 billion. These days, the deficit goes up by £11 billion every month. We had a very high and rising level of unemployment, but my noble friends turned Britain around by insisting on sound money, insisting that we had to live within our means, by controlling public expenditure and by understanding that smaller government released resources for the enterprise of the British people to create growth and wealth again. They did so by cutting taxes—yes, by cutting taxes—in the midst of a recession and demonstrated how that could increase revenues.
To come back to the present and to the Administration led by Mr. Gordon Brown, he has squandered the legacy which he inherited from John Major. He inherited the strongest economy that we have had in 100 years and turned it into the weakest since the great depression. The legacy of this Government will be astronomical debt and more than 3 million unemployed. As the all-party Treasury Select Committee pointed out yesterday, some economists are even predicting that unemployment could reach a staggering 4 million. It turned out that the Prime Minister’s golden rule was iron pyrites—fool’s gold. It was a confidence trick, used to justify borrowing and spending beyond our means at the height of the boom, when the income from the Government was at its highest. Even on the Government’s own over-optimistic forecasts, even on their own plans, we can look forward to very substantial cuts in departmental spending—after the election, of course, not now, when a start should be made.
However much this Government may devalue the pound, however much they must cut interest rates to the lowest in 400 years, however quickly they turn on the printing presses, they cannot change the reality of our position. We have been spending about 10 per cent more than we earn and saving nothing. We need to save about 10 per cent and bring our spending in line with our income; and to do that, our living standards will inevitably fall, by perhaps 20 per cent, unless we can create growth. How do we create growth and employment? Certainly not by taxing jobs with higher national insurance charges.
My Lords, before the noble Lord continues, he has given us a litany of what has been happening without any reference to the world recession. Is that an oversight, or does he not agree that the world recession is causing minus GDP figures in many industrial countries around the world, minus 3 and minus 4 per cent, and that unemployment and rising public debt are a direct consequence of that? Is that not part of his analysis, or is he just making a political speech?
My Lords, I know that the noble Lord has an opportunity to make his own speech and of course, he is perfectly right—this is against the background of the global financial crisis. I am simply pointing out how this Government have turned a global financial crisis into a British financial catastrophe.
We will not create growth and employment by taxing jobs with higher national insurance charges, which this Government are doing. Instead of spending the £12 billion on cutting VAT by 2.5 per cent, the Government should be cutting the cost of employment to keep people in jobs and help businesses to compete. They should not be raising the marginal rate of tax to 50 or 60 per cent for some people. We know that that will result in a reduction of revenues and a reduction in growth. It is significant that even the all-party Treasury Select Committee, dominated by the Labour Party, yesterday said:
“We believe there are considerable uncertainties over the yield to be raised by the new 50 per cent top rate of income tax”.
It went on to say that,
“we were concerned that the Chancellor lacked a robust basis for selecting the threshold from which the new top rate of tax would apply and for choosing what that rate should be”.
I notice that the Minister, the noble Lord, Lord Myners, was on the radio this morning discussing a report on how we could make our country more competitive, a report produced by the Chancellor’s Financial Services Competitiveness Group. There was a report in the press earlier that it was a bit miffed because it was not allowed to refer to the impact on competitiveness of the Chancellor’s increase in the top rate of marginal tax. I tried to check what was said in the report, but we discover that his department is not going to release it until after I have sat down. I am sure that that is entirely coincidental. However, how can the Minister go on radio and talk about a report, which the rest of us have had no opportunity to see?
As to the 50p rate, I cannot put it better than the former Cabinet Minister Stephen Byers, speaking in the other place in last week’s Budget debate. He said:
“I believe that it should be opposed, because in the long run it will be damaging for both the Labour Party and the economy”.
He went on to say that we need a tax system,
“that is not only fair, but internationally competitive and attractive”.
He continued by saying that,
“the 50p-rate … has more to do with political positioning and tactical manoeuvring than a principled, strategic approach to taxation and the raising of revenue”.—[Official Report, Commons, 27/4/09; col. 615.]
That is from a former Cabinet Minister. It says it all. What are we to make of a Government who make our wealth creators pay higher taxes, knowing that it will damage our economy, in order to play some political game? They are a Government who put their own interests before those of the country. They are a Government who are morally bankrupt. It is no wonder that another former Cabinet Minister, Charles Clarke, says that he is ashamed to be a Labour MP. I give way to the noble Lord.
My Lords, the noble Lord has given us his version of the record of the Labour Government. Can he remind us which Government were in office when we had the three-day week; which Government said that unemployment was a price worth paying; which Government were in office when interest rates went up to 15 per cent and we were thrown out of the ERM; and of course which Government were in office when we turned our manufacturing sector in the north of England into a wasteland?
Lord Forsyth of Drumlean: My Lords, it was a Conservative Government who put right the disgrace that Governments were unable to govern in this country because the trade unions were out of control, and I note that the legislation that was brought in by my right honourable friends has never been reversed by a subsequent Labour Government for it was in the interests of our economy.
I return to today. This Government have doubled public spending from £320 billion to £623 billion. Where did all the money go? The services are certainly not twice as good. There is waste everywhere. Further, we have seen the Government embark on a spending binge from the proceeds of an artificial boom created by the Government and the revenues from stamp duty and City bonuses. The revenue has gone now. What we are witnessing is a Government filling the black hole with borrowed money. The interest that will need to be paid on that money will soon be more than the entire education and defence budgets. That is before the inevitable increase in rates. The Government are running a bureaucracy to give tax credits to people paid more than £60,000 per year. It is no wonder that the Treasury Select Committee—that all-party committee—was yesterday forced to warn of the lack of restraint and control of public expenditure.
What do we have to show for all this public expenditure? There are now more than 5 million people on out-of-work benefits. The number of youngsters not in education, employment or training is higher than when Labour took office. Can you believe that? In 2000, it was one in eight; it is now one in seven. People on low incomes are paying effective marginal rates of tax of 90 per cent. The private equity millionaires, thanks to the changes that Gordon Brown made, are paying tax at less than 18 per cent. Borrowing is out of control and Treasury forecasts have the credibility of Billy Bunter’s postal order.
In November, the Chancellor said that the economy would shrink by 1.5 per cent in 2009. Now he says that it will shrink by 3.5 per cent. The IMF says that it will shrink by 4.1 per cent. The Treasury Select Committee, to which I am extremely grateful this morning, has pointed out:
“Whilst it is possible that the Government will meet its growth forecasts, on the available evidence, this is an optimistic assumption”.
And so say all of us. The Government are now planning to borrow over the next five years £269 billion more than they were planning to borrow only six months ago. They are depending on being able to sell more than £900 billion of government bonds. Who is going to buy them? Sterling has fallen out of bed thanks to this Government’s incompetence. They will have doubled the national debt to £1.4 trillion, and that is before we take account of all the things that they have fiddled off the balance sheet. There is an urgent need for a plan to show how this debt will be paid back and how the public finances will be brought under control—another recommendation from the all-party Treasury Select Committee with which I very much agree.
Next year’s borrowing will be the highest since the Second World War. The yield curve for sterling—one of the steepest—indicates that that borrowing will not be cheap. Borrowing is just tax deferred. In this case, however, the scale of it is such that our children will pay the tax, or, in the case of your Lordships’ House, our grandchildren.
So there we have it. We have been reduced to stealing from our children by the Government. Gordon Brown has skipped on to the next generation. He started by stealing from the pensioners with his changes on the advance corporation tax for the pension funds, and now he is landing the children with the costs of his incompetence.
The Budget is the most remarkable that I have ever seen, and certainly the most dishonest. The Government say in the Budget that they have identified savings and waste. Well, if they have identified savings and waste, why are they leaving it until after the general election to deal with them? If there is waste there, it should be eliminated now. Why is it being left until after the election? They make incredible predictions about how the economy will suddenly burst into life in the year after the general election. They are now promising to take us back from bust to boom in two years. “Spend, spend, spend” before the election, but after the election £9 billion will be cut from planned expenditure with capital cuts of £11 billion.
From 2011, on the Government’s own numbers, public spending grows by 0.7 per cent. I am sorry that he is not in his place, but the noble Lord, Lord Mandelson, with a Budget that proposes reducing the growth in public expenditure to 0.7 per cent, is going around the studios attacking the Conservatives for not saying where the cuts will be made in public services. It is for him to say where the cuts, which will be inevitable under the Government’s own plans, will be made. We need a grown-up discussion, not Peter in never-neverland, and not everything on the never-never. We need to know how we are going to plan for our future public services and get our expenditure into balance.
Gordon Brown has certainly had to deal with a global crisis, but the Prime Minister played a key role in the origins of the banking crisis. At its heart is a regulatory failure and a failure of monetary policy. He sat there and watched as house prices went up by 25 per cent a year and did nothing except, of course, to remove housing from the measure of inflation, which helped to keep interest rates down even lower. The Governor of the Bank of England told the Economic Affairs Committee that he thought that that was a mistake. What a mistake it has proved to be. The Government boasted that they had ended boom and bust, and they encouraged the debt culture as he led by example. They wrecked supervision of the banking system by removing the Bank of England from that role.
Before somebody says that it is all very well to say that with hindsight, I came across a quote from my former colleague, the right honourable Peter Lilley, speaking in the debate on the Bank of England Act:
“With the removal of banking control to the Financial Services Authority … it is difficult to see how … the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse”.
He went on to say:
“The coverage of the FSA will be huge; its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all”.
Further, he said,
“the Government may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day”.—[Official Report, Commons, 11/11/97; cols. 731-32.]
There they were. They were warned by the Opposition what the consequences would be. No one listened and the result is that we must now all pay a price. The Prime Minister took away the safety barriers without consultation. He may vilify and blame the bankers now but he was all over them once. He gave James Crosby, the deputy chairman of the FSA, a knighthood. This is the chief executive of HBOS, who presided over a loan book which was 40 per cent housing and took equity stakes in the companies to which he lent money. He asked the same man to report on the housing crisis. Mr Fred Goodwin was invited to advise on task forces on credit unions and the New Deal. He was in and out of No. 10 and knighted for his services to banking. Mr Greenspan, who was responsible for cutting rates and for the monetary expansion at the heart of the global problem, was showered with honours and made a senior adviser to the Prime Minister.
If the Government are unable to pay their debts, they seem incapable of collecting them either. HMRC alone is owed a staggering £17.3 billion in outstanding tax, interest and penalties as of March last year and the number of debtors has increased from 13 million to 15.8 million. That is an increase of 22 per cent. The Government have also made £4.2 billion—yes, billion—worth of overpayments in benefits and tax credits. Just think of the loss of revenue but, more importantly, the misery that is causing as people are asked to pay it back. Last year, they wrote off £5.6 billion—more than the proceeds from raising the top rate of tax—in unpaid tax in 2007-08 alone.
We need an election now to deal with these problems instead of this Government who are playing for time and hoping, like Mr Micawber, that something will turn up. Today is 7 May. I know that the noble Lord, Lord West—I am sorry that he is not present—likes a flutter. I am willing to bet that exactly a year from now it will fall to David Cameron to sort out this mess left by a Labour Government. The country needs to understand the scale of the challenges he faces. Given the chance, I have no doubt that he will meet them. It is what Conservative Governments are for. I beg to move for Papers.
My Lords, I thank the noble Lord, Lord Forsyth, for securing this important debate though I do not agree with any of his conclusions.
As we consider the prospects for the future, the Government should be applauded for their swift action to secure the financial sector at a moment of global crisis. The decisions taken then were vital to prevent economic meltdown. Now we must act just as decisively to ensure that industry can drive growth in our economy.
I am an optimist about this country; that is the reason I live here. We live in a great, resilient and innovative nation. Yet far too often we are seized by negativity when we have the chance to grow. We must be confident and Britain will grow and prosper. To seize that opportunity, it is vital to have a Government who understand the needs of industry. For three decades the role of the DTI, and now BERR, shrank as government retreated from industrial policy. The current recession shows the importance of a powerful interface with business at the heart of government. My noble friend Lord Mandelson is right to focus on laying the foundations for future growth. His energy has been greatly appreciated by business. In preparing for recovery, we must not waste the talents of our young people. John Denham's recent announcements on skills, internships and apprenticeships, such as the Graduate Talent Pool, are particularly welcome.
I should declare an interest as director of Warwick Manufacturing Group at Warwick University. There I see talented students looking for the opportunity to pursue a career in industry so that they can be a productive part of our economy, since there are no jobs in the banks to give them bonuses. I hope that the Government will ensure that graduate internships and apprenticeships are a permanent theme in our industrial landscape.
In industry there has been broad support for the concept of new industrial activism and real anticipation of the investment that the Government have announced in Building Britain’s Future in areas such as climate change. In the current economic crisis speed is of the essence. Good ideas can take can take some time to reach those on the ground. I hope that my noble friend’s department at BERR will be able to deliver its agenda with some freedom.
In the past decade, Britain’s economic growth ran at almost 20 per cent of our long-term economic performance. Yet that growth disguised a decline in manufacturing. We relied on consumer spending and expansion of financial services to grow the economy over the past two and a half decades. That was entirely understandable. The virtues of revising the judgment of the market are limited, as many on the Benches opposite have pointed out in past debates. As a result, British industry became a smaller part of our economy, falling from 27 per cent of gross value added in 1990 to 17 per cent in 2007—a sharper fall than in any other OECD economy, bar Luxembourg.
This decline was not the result of unproductive manufacturers facing superior overseas competition, as it was in the 1970s and 1980s. Between 1996 and 2006, manufacturing output per hour worked increased at twice the rate of the whole economy. UK manufacturing is outstanding, but on a narrow front. It is not a matter of quality but a matter of breadth. While productivity has increased, manufacturing employment has declined by a quarter since 1998 and manufacturing investment has fallen even further, declining by a third. As a result, our manufacturing base has continued to decline as a share of exports from 64 per cent to 50 per cent in a decade.
We all lived for a long time on the fresh air of a post-industrial economy. For more than 20 years, economic growth was powered by financial services. All parties chased that mirage. Now it is over. A sharp contraction in the financial services sector, followed by declining house prices, has reduced consumer and business spending sharply. At the same time, the vital action that the Government took to stabilise the economy by rescuing banks, ensuring lending and increasing the money supply and velocity means that future public spending will be far more restrained.
Our trade in goods increased by 3 per cent only in February. The challenge is to use the window of competitive pricing to attract inward investment in our future product base. Britain is an excellent place to do business. We have a good infrastructure, a strong research base and a flexible workforce with good industrial relations. On the topic of Britain being a good place to do business, the idea that the British businessman or businesswoman is so concerned about marginal tax rates that they will not innovate if the top rate of tax is 5 per cent or 10 per cent higher is foolish. For the vast majority, it will not make any difference to their plans.
That is why we have had outstanding levels of foreign investment over the past decade. Those investments will be the key to future growth. We must act to ensure that this continues. Today we see companies that have all the ingredients for success: good products, strong R&D and healthy margins. They only require credit to achieve future growth. These companies need access to credit fast and should not be faced with a bureaucratic nightmare as they try to grow.
Industrial innovation and inward investment must be pursued with the same willingness to do whatever is needed that the Government showed at the height of the banking crisis. We are a very innovative nation. Britain will prosper. To innovate we must increase the proportion of research funding to support economic growth. It is not unreasonable to ask scientists to direct part of the massive funding increases they have received to secure the future economic vitality of the UK.
To attract investment, we need to focus on manufacturing industries that offer major export opportunities in high-value industries. The work of the regional development agencies is vital to achieving this. They should be freed to take decisions and to act quickly to invest in emerging products and processes.
Innovation entails risk. We should distribute that risk to secure outstanding growth from success, not pursue a bureaucratic, risk-averse approach. If we take these steps, the industry, technical excellence and flexibility of Britain’s manufacturers and exporters will lead us to growth sooner than many think. If we are bold, Britain will grow.
My Lords, it is a pleasure to follow the noble Lord, Lord Bhattacharyya. I am afraid that I found his speech a little corporatist. I blinked particularly at the new look of the noble Lord, Lord Mandelson, as the high priest of old Labour corporatism.
I declare my interest as a pension fund manager for the past 33 years. I congratulate the noble Lord, Lord Forsyth, on introducing the debate. The length and quality of our speakers list speak volumes, but I cannot because I have only seven minutes.
I pay tribute to the noble Lord, Lord Forsyth, for the professionalism and logic of his Tax Reform Commission report. We on these Benches share much of his approach to simplifying our tax structures. The image in my mind is that we must drag the tax ship into dry dock and scrape down its barnacle-infested bottom. Raising the tax-free personal allowance, slashing fringe benefits and cutting business and personal tax rates by closing loopholes are all our priorities, too.
One thing though—when the noble Baroness, Lady Noakes, winds up, will she confirm whether one of the key recommendations of the noble Lord, Lord Forsyth, and George Osborne’s first specific tax-cut pledge when he became Shadow Chancellor, still stands? It is the abolition, then costed at £3 billion a year—I expect it will be a little less now—of stamp duty on the purchase of all UK shares. Is that hand-out to their City friends still a firm Conservative pledge and priority?
I want to focus particularly on the banks and regulatory failure. Other noble Lords will also have heard this morning the noble Lord, Lord Myners, interviewed on the “Today” programme. I am sorry that it wandered off into a wild goose chase about his personal tax affairs, because I thought that that was quite inappropriate. But on regulation of the banks, I am afraid to say that he struck a complacent and pro-City establishment note. The Governor of the Bank of England, the Liberal Democrats, many economists and investors see a strong case for removing the taxpayer guarantee from banks’ non-core casino investment banking operations, particularly in Britain because we have three of the world’s big five banks based in London. That is a gigantic pillar of risk resting on a tiny economic base. We must cut our megabanks down to size, degear and derisk the British financial system, and rebalance our whole economy.
But the Government and the FSA simply refuse to take this vital debate seriously—talking about Freddie Mac in America really is utterly irrelevant. Patch things up, tighten up regulations, make banks hold more capital, but don’t rock the boat chaps. If you had to sum up the Government’s policies in a film title, it would be “Carry on in the City”. It should not be: the Government should be Eliot Ness and the Untouchables, cleaning the Al Capones out of Chicago.
The FSA has endured a saga of disaster, from Northern Rock and Bradford & Bingley, through RBS and HBOS, and it is far from over, as the Dunfermline Building Society debacle shows. There are more building societies which got totally out of their depth in commercial property where the spivs and sharks saw them coming a mile off. After so many failures costing taxpayers so many billions, Parliament has a right to know, and it must be in the FSA’s interest to be transparent and tell us how its banking stress tests work now.
Today in America, we will see the results of the stress tests on the 19 largest banks—full transparency on which banks have fallen short and need more capital. Everybody there knows where they stand. But here we have few hard facts—even on what the stress tests are and how the FSA is applying them. The FSA told the Liberal Democrat Treasury team a fortnight ago:
“Let me reiterate that we are planning to release further details of our stress testing publicly, but that we also consider this information potentially market sensitive (as it may affect analysts’ views of valuations in the banking sector), which is why we will not release this information to you until the financial markets have been informed via the regulatory news service of the stock exchange”.
That is fine. Was it not, however, far more market sensitive on 27 March, three days before the asset protection scheme deadline, when Barclays told the Financial Times that it had passed an extreme stress test by the FSA? Its share price went up by 24 per cent that day.
My honourable friend Vince Cable is writing to the FSA today to ask for full disclosure now of the FSA’s banking stress tests and how they are being applied. He will be asking for a full explanation of why Barclays gave that stress test result to one newspaper, whether the FSA confirmed it to the FT, and if so, why the FSA did not ensure that a full and proper announcement was made immediately to the Stock Exchange.
There must be no suspicion that some banks are too big to fail the FSA’s secret stress tests. If little Johnny brings home a story about how well he has done that term in the school magazine, most parents would say, “That’s nice, but I want to see your school report and your exam results”. That is what we are still waiting for from the headmaster at the FSA. Other banks’ directors tell us—indeed yesterday a bank director was telling us—that they want to know that they are having to jump the same hurdle as Barclays.
Our regulatory system has failed and our banks have failed our country. Our debt-fuelled fall in national income this year may well be even worse than in 1931. It is time to come clean and make a fresh start.
My Lords, I too thank the noble Lord, Lord Forsyth, for giving the House the opportunity to have this important debate. As we have already seen in the debate, much current political dialogue is about which Government can take the most credit for the prosperity of the past 15 years and which will be most competent to deal with the difficult situation that the world now faces. If the House will forgive me, I will not go very far down that road.
Indeed, my view, at the risk of offending both Front Benches, is that the prosperity of the past 15 years owes less to the brilliant management of Governments or the financial authorities than to an extraordinary combination of circumstances; we have had a supply of cheap manufactured goods from the Far East, a flow of cheap labour from eastern European countries and an abundance of cheap credit. In those circumstances, it really is not surprising that the western world has been prosperous over this recent period. The trouble is that the prosperity has been built on major imbalances in the world economy. It has been built on consuming countries, including the United States and the United Kingdom, consuming more than we were earning and living on the credit of the exporting countries—particularly China, Japan and Germany.
One of the aspects that worries me most about the situation as we look forward is that the steps that are being taken rightly by world leaders to deal with the situation that the world faces do very little to tackle those imbalances. It is the case that such imbalances can continue, indeed have continued, for a long time, for as long as the creditor countries are prepared to take the IOUs of the consuming countries. However, when something happens to make creditors’ confidence wane, the consequences are dire—and as for countries, so for banks.
The high rate of default on the so-called prime mortgages in the United States was the trigger that caused the recent collapse in the confidence in many of the world banking institutions. The banks ran for cover. The discount banking market dried up, the banks called in their loans, sound businesses became illiquid and the effects spread to the real economy.
In my view, it was both appropriate and right for the British and other Governments to do all that they could to stem that collapse. It was Britain’s misfortune that we were already in substantial structural deficit when that happened. In those circumstances, and since we were dealing with the collapse of confidence, it would have been wiser for the Government to have concentrated on using their credit to provide guarantees that, if successful, might not have been called, rather than to have dug the fiscal hole deeper, particularly through measures of doubtful effectiveness such as the VAT cut.
Although many of the right things have been done and there are signs that bank lending is beginning to free up, the effects on the real economy will continue to be felt for some time. For my part, I think that the Treasury’s forecast of a bounce-back in growth this autumn, while optimistic, is not impossible, but I am more doubtful whether we will return to the trend rate of growth as quickly as the Treasury expects.
What the Government must do in the period ahead is to encourage those areas of the economy from which growth will come. Our export markets are already being helped by more competitive exchange rates. The Government have been right over the past 10 years to support scientific innovation in the economy. In the straitened environment of the next few years, difficult choices will have to be made and we may have to cut back on areas of public investment that bring less immediate economic returns.
Whatever the public distaste at present for parts of the financial services industry, we must also recognise that it will remain a very important sector of our economy, as the noble Lord, Lord Myners, said in his interview on the “Today” programme this morning. We must not drive it away or strangle it by overregulation. From that perspective, I share the view that the 50 per cent tax rate was a serious mistake.
Seeing the noble Baroness, Lady Thatcher, in her place today, I should like to say one further thing to the House. In some comment on the origins of the banking failures, it has been suggested that banking irresponsibility is a legacy of Thatcherism. Many things have been attributed to Thatcherism that the noble Baroness would have difficulty in recognising, but this is one of the most absurd. It is true that, when markets were freed up and greater scope was given to enterprise, greater scope was inevitably given to people to behave irresponsibly. However, the noble Baroness was in the van of propounding sound finance, both publicly and privately, and she would have been the last person to support or encourage borrowing, particularly for the purpose of irresponsible speculation. I am sure that she would say to the House today that, if the principles of sound housekeeping had been followed in recent years by some financial institutions that failed to do so, we would not have had the banking difficulties that we have today.
My Lords, I congratulate the noble Lord, Lord Forsyth, on securing this debate to call attention to the economic prospects for the United Kingdom. I begin by thanking noble Lords and the support staff of the House of Lords for making this new boy on the block so welcome.
It is my privilege to make my maiden speech in your Lordships’ House and to contribute to the debate from the perspective of the diocese of Bradford, which I am proud to serve. I do so aware that I lack the gravitas, wisdom or wit of a number of my predecessors. One managed to spark the abdication crisis; another became Archbishop of York and then moved on to Canterbury, which in Yorkshire was regarded as a downward move; and a third, with Irish charm, became personal chaplain to Sir Terry Wogan. I have none of those aspirations.
Bishops move diagonally. When I moved to Bradford, even though it was only a few squares from being Bishop of Pontefract—moving, in effect, from Halifax to Bradford & Bingley—I was surprised by the beauty of the diocese. I knew the southern dales and the Three Peaks but I did not know the Howgill Fells or the Forest of Bowland; nor did I know Bradford itself, with its 5,800 listed buildings. On the rare occasions that I go to watch Bradford City, and on the all-too-frequent occasions when there is a lull in the action, I look out from my seat over the city and, if the sun is shining in the late afternoon, the York stone buildings glow gold. Could Bradford be Jerusalem in England’s green and pleasant land?
When I went to Bradford, I was surprised by the poverty that I encountered among the hill farmers but especially in the city. I saw the same poor-looking people in Bradford in 2002 as I had seen when I grew up in the inner city of Nottingham 50 years earlier.
I recently visited one of our two church secondary schools for a prize-giving. I get rolled in when no one is available from Bradford Bulls. The head teacher said to me, “You have to be proud of these children. They’ve done brilliantly in what they have achieved in spite of their backgrounds”. Studies show that children who experience poverty are more likely than others to be young for their age: young physically, mentally, socially, emotionally and intellectually; and they are disadvantaged throughout the whole of their lives. It is on behalf of these children and their prospects that I speak today.
I welcome the reduction in child poverty that has been achieved in recent years and the heavy investment in school buildings—at least, in Bradford—which has, for example, enabled the school of which I spoke to become an academy. However, I worry about any cuts in these initiatives as we seek to make amends for the financial debacle that we are debating. The Joseph Rowntree Foundation report, Ending Child Poverty in a Changing Economy, says:
“The recession will not greatly affect child poverty numbers, but it will worsen the profile of child poverty. Proportionately fewer of the children in poverty will have parents in work, and more will be in severe poverty”.
If these levels of poverty become embedded in the fabric of our society, this will be extremely costly for the country in the future because it will affect these children for the whole of their lives.
The noble Lord, Lord Layard, and the Children’s Society report, A Good Childhood, have argued that relative poverty could be equally as damaging to the rich as to the poor. Child well-being is highest in countries such as Denmark, where the disparity is least, and, I am sad to say, it is lowest, at least in western Europe, in Britain, where the disparity is greatest.
Bradford is second to London as the fastest-growing metropolitan district in the country. It is expecting something like a 15 per cent increase in population in the next 20 years. Most of that increase will be among young adults who can and will contribute to the economic and social well-being of our country provided that we continue our efforts to eradicate poverty and continue investing in our young people’s education. We must start now to create jobs that are sustainable for the future.
One of the psalms tells us that the Lord hears the cry of the poor. I ask that noble Lords, too, hear the cry of the poor.
My Lords, I am delighted to be the first to congratulate the right reverend Prelate the Bishop of Bradford on his excellent maiden speech. As a scientific priest—he has a PhD in chemistry—he will bring a wide range of expertise and experience to your Lordships’ House, an expertise no doubt enhanced by his enthusiasms for bird-watching and cooking. We look forward to many future contributions to our deliberations.
It is clear that there are sharp differences between the approach of the Government and the Opposition to economic policy. They are differences not just in priorities but real differences in economic analysis and hence in policy conclusions. The Budget Statement made it clear that the Government believe that it is their responsibility to compensate for the fall in private spending by increasing public spending. Savings that would otherwise run to waste as private investment crumbles are borrowed and put to work by the Government. That policy is opposed in its very fundamentals by Mr David Cameron. In a speech delivered 10 days ago, he spelt out the roots of his opposition. He opposed the Government’s cut in VAT. He was against any fiscal stimulus. He declared that he wanted spending cuts in 2008 and that he wants more spending cuts in 2010. Should the Conservative Party win the next election, he promised the British people an age of austerity.
Promising austerity is a pretty brave move for any politician. Why did Mr Cameron do that? He is crystal clear. He promises austerity because he believes:
“Our recovery will be held back, and our children will be weighed down, by a millstone of debt”.
He believes that the Government’s borrowing, far from offsetting the recession, worsens it. That is the central proposition from which all else follows. It is the defining belief on which Conservative economic policy is based. It therefore merits close examination.
Why might government debt weigh down on our children? First, taxes must be raised to pay the interest on the debt. Taxes raised are then paid on to the holders of the debt—the pension funds, insurance companies and money market funds that have lent to the Government. Our children pay the taxes and their pension funds get the money back. That is not a burden but a redistribution from some of our children to some others of our children.
Secondly, at some time in the future the debt must be repaid. Retiring the debt will necessarily involve the Government running a fiscal surplus. That would make sense once the economy has recovered, when the funds that are returned to the initial lenders—pension funds, and so on—will be lent on to support the investment plans of British business and commerce. But once again taxes are raised from our children to pay back to our children—to their pension funds and insurance companies. Once again it is a transfer payment. There is no millstone—there just is not. Funding nationally held debt is a transfer payment from one group of British citizens to another group of British citizens.
Mr Cameron’s belief in a beneficent age of austerity is not based on any coherent piece of economic theory or economic experience. It is based on an irrational fear of a non-existent threat. It is the same irrational fear that led Herbert Hoover to cut borrowing in the face of the great depression. It is the same irrational fear that condemned Japan to its lost decade and today paralyses the German Government even as German output falls twice as fast as output in the UK.
George Bush Sr had a name for it: voodoo economics. Like all irrational fears, voodoo economics promotes false threats and blinds us to the real problems that we face. Hence, not once in his speech does Mr Cameron mention the only way in which his millstone argument makes sense: when the Government borrow from abroad so that our children's taxes must fund payments overseas. That is a real burden. As a nation, our net borrowing overseas is equal to our balance of payments on current account. In other words, we are forced to borrow overseas, building up burdens for our children because we do not earn enough to pay our way in the world.
What matters is our competitiveness in the global economy. Where the banking system is seriously compromised, where world demand is stagnant and confidence is at a low ebb, the vital issue is how we grasp the opportunity provided by the fall in the exchange rate to build strong trading positions in manufacturing and non-financial services.
Three things are necessary. First, green shoots, when they come, need fertilising by credit. A major priority remains restoring the banking system to health. The Government’s cash injections and guarantees have staved off collapse, but as matters stand, it is very doubtful whether the banking system can generate the growing flows of credit necessary to fuel sustained economic recovery. It is likely, therefore, that further recapitalisation will be needed.
Secondly, the competitive industries of the future will be energy efficient. The extraordinary fact about the oil price today is not that it is so low, but that it is so high. In the face of global recession, oil still commands $50 a barrel. It must surely be likely that once the first signs of sustained global recovery appear, the oil price will jump back to the heights of a year or so ago, threatening to push the world back into recession. Investment in alternative energy supplies and energy-efficient technologies is therefore vital.
Thirdly, while rebalancing our economy and curbing the financial excesses that precipitated the recession, we must not forget that this country is a world leader in financial services. It is in the best interests of the whole nation that Britain's competitive position in financial services is sustained—indeed, enhanced.
Rebalancing the economy, rebuilding financial services and securing a flow of credit to industry, and placing energy efficiency at the core of economic policy: that is what the Government are doing to build a secure and sustainable recovery. In these uncharted waters, there are still plenty of unforeseeable events that could blow the British economy off course. Most important of all, we must avoid self-inflicted damage. The greatest danger is, in Roosevelt's words, fear itself—the irrational fear of mythical millstones.
My Lords, I, too, congratulate my noble friend Lord Forsyth on his splendid and penetrating speech introducing this debate. I also warmly welcome the right reverend Prelate and thank him for his heart-warming speech. I must say that I profoundly disagree with the noble Lord, Lord Eatwell, but I will come to that later. I agree with him about financial services, but on his major analysis I profoundly disagree.
My charge is not that the Government are solely responsible for the current financial crisis. Of course there are overseas causes such as the US sub-prime securitisations, although we have our fair share of faulty mortgages here, and of course there have been massive blunders in the banks and other financial institutions. The charge is, however, that, as the IMF and others have pointed out, as a result of the Government's handling of the economy since 2000 the UK is the least well prepared of the major developed economies to deal with the crisis. My noble friend Lord Forsyth gave a number of instances of that which I was going to cite, but he has saved me the need to do so. I just say that one of the problems has been that we simply have not been paying our way in the world during those years. The current Chancellor was handed a poisonous legacy from his predecessor, the Prime Minister.
I want to make three points in the time available. The first is about the huge public debt. On the Government’s figures, the Budget deficit will hit more than 12 per cent this year and overall public debt as a percentage of GDP 79 per cent—both the highest since World War II. Government debt will double over five years and on current trends we will return to 2007 levels—the former Chancellor’s much repeated target—in 2032. That is if you believe the Chancellor's figures. They are based on the Government's growth forecasts, and no one from the IMF to the EU to the IFS believes them. No wonder: the predictions for this year in both last year’s Budget and the PBR were wildly optimistic and wildly wrong.
My nightmare scenario, which I profoundly hope will not happen but is where the Government may be leading us, is what happens if the Debt Management Office fails to raise the huge sums in gilts that will be required. Here I follow the noble Lord, Lord Butler. At September 2008, overseas investors owned more than 36 per cent of all outstanding gilts, compared with less than 20 per cent 10 years earlier. The recent fall in sterling has hit them hard. Already, a lot of foreign bank lending has been pulled back from these shores. There are Chinese warnings about their willingness to finance the deficits. If there is a prospect of gilt auctions failing or continued concern about sterling, yields will have to increase and interest rates rise. There is also the likely increase in inflation in due course as a result of quantitative easing, which will add further to that.
My one question for the Minister is: on what rates of interest was the Budget forecast of £43 billion for interest rate costs this year—which is already as large as the school building programme—based, and what would be the effect on that forecast of every extra 0.5 per cent or 1 per cent increase in the cost of meeting those interest rate bills? We ought to know, because that is crucial as we look ahead.
Secondly, the NIESR recently estimated that to restore the public finances, three alternatives were required, or a combination of them: raise the state pension age to 70; raise the basic rate of income tax by 15p in the pound or 8p in the pound if the retirement age was raised; and cut public spending by one-10th. The Treasury Select Committee, with a Labour majority, yesterday made the same point: that only substantial tax rises or unprecedented cuts in public spending—or a combination of the two—will be enough to get Britain's debt back down to acceptable levels. The figures do not include the costs of off-balance-sheet financing, especially huge increases in the PFIs, and public sector pension liabilities, which have been calculated at anything between £650 billion and £900 billion. For a start, the Government should immediately raise the age for all public sector pensions to 65.
My charge is that the Chancellor simply has not been facing up to those challenges. Micawber-like, everything is put off until after tomorrow—that is, after the general election. If we are to continue to encourage growth in the economy, by far the greater part of the response has to come in cutting public expenditure. Let me make a few points about that. Even in this Budget, there was a litany of new spending commitments, rather like the former Chancellor announcing in every Budget in his grindingly monotonous way, “Today I can announce a further £400 million for this”, and so on. That is carrying on even now. There should be no more spending commitments this year. The Treasury and the Chief Secretary have simply lost their grip. As my noble friend said, there has been huge wasted expenditure with few beneficial results in recent years.
Many of the cuts written into future figures are to come from efficiency savings. Former Treasury Ministers know that it is easy to get agreement to efficiency savings from departments but extraordinarily difficult to get them to deliver them. Many of them are based on what will not happen. Of the £20 billion that was to come from the Gershon savings, the NAO has calculated that only a quarter was achieved.
Finally on public expenditure, my noble friend Lord Lawson, who will speak shortly, refers to the fact that he could make substantial cuts in taxes because we had moved into a budget surplus in 1988. I was proud to play some part in that as a Chief Secretary in the earlier years. If you are to get excessive public expenditure down, sometimes you have to say, as in a family, when you are faced with a huge or even a small spending request, however desirable, “I am sorry, but however good the arguments or however much you wish it, I just do not have the money”. Former spending Ministers have said to me subsequently that they had no answer to that. You also have to have the support of the Prime Minister—and my goodness we had it then.
Finally, we have often debated the plight of pensioners and how much this Government have eroded our pension system and our pension position. The £150,000 measures, although for higher earners, will have a further effect. Pensioners were told that the new A-Day arrangements, which the Government introduced with such bravado, would be the regime. Within a very short time, that regime has been eroded a lot, which will further cut confidence in private sector pensions.
I wish that I had time to say more about pensioners, but I will say just this; while we are talking about future generations of children and the debt that they will have to pay back, the pensioners are suffering the greatest plight at present, not least with the very low returns on their hard won savings. This Government have been no friend of the pensioners, and the pensioners will not forget it.
My Lords, it is a very great pleasure to follow my noble friend Lord MacGregor, who was a really excellent and successful Chief Secretary to the Treasury during part of my time as Chancellor of the Exchequer. He really knows what he is talking about when it comes to public expenditure, unlike the noble Lord, Lord Eatwell, in his somewhat ivory-tower, academic contribution.
I am particularly glad, too, that my noble friend Lady Thatcher can be here again. As my noble friend Lord Forsyth said in his excellent speech, which opened this debate, this really is, “Here we go again”. We face the twilight days of a Labour Government who have got the economy into a most almighty mess, including a massive fiscal deficit. The public finances are in a serious structural mess, leaving aside the amplification through this cycle. It will fall to a Conservative Government once again to clear up that mess.
If we were to listen to the Government, we would believe that the problem was a new kind of flu virus—financial flu, which came across the Atlantic from the United States—and that, until then, we were perfectly healthy and fit and there were no problems at all. That is poppycock. If the noble Lord, Lord Myners, refrains from the approach that it was the Americans who started it all, that will be some relief and something at least will be gained from this debate. The fact is that we had a massive and unsustainable housing bubble in this country that had nothing whatever to do with the United States and was larger in relation to our economy that the housing bubble in the United States was in relation to its economy. We had a massive explosion of other forms of consumer credit in this country, which again was unsustainable and a bigger proportion of household spending than is the case in the United States.
I was very glad to hear what the noble Lord, Lord Butler, had to say about financial supervision during the Thatcher Governments. I put in place the strengthened system of banking supervision under the Banking Act 1987, which created the Board of Banking Supervision chaired by the Governor of the Bank of England. The board’s members had great expertise and really knew what they were doing, but Gordon Brown abolished all that. The Bank of England was taken out of the process, and the Board of Banking Supervision was abolished. It is practically the only board that this Government have abolished, which was not very clever. The responsibility was handed to the Financial Services Authority, which has proved to be completely dysfunctional. That has to change. That cannot be blamed on the Americans.
The Government are forced to rely on what might be termed the Fred Goodwin defence: “I conducted my bank with gross irresponsibility, but everyone else was doing the same so it does not matter”. That did not wash in the case of Fred Goodwin and it does not wash in the case of Gordon Brown. The important question now is how we get out of the mess. Fundamentally, that means getting to grips with the public finances.
My final points are about how we will prevent this sort of thing happening again; the contribution of the noble Lord, Lord Oakeshott, was very much about that. This is not a question of how we can create an additional fiscal boost to end the recession. The recession will end. Cycles come to an end; after all, the Chancellor of the Exchequer in his Budget told us quite clearly that the recession will come to an end and that there will be recovery. The figures, and the reality, might not be quite the same as the ones that he put forward, but he is basically right. The problem is the structural budget deficit. There will have to be a real commitment to getting public expenditure down. This can be done, and has been done.
I speak from some experience, although I must admit that I was greatly assisted by my noble friend Lord MacGregor and other Chief Secretaries to the Treasury whom I had, and of course by the complete backing of the then Prime Minister, my noble friend Lady Thatcher, which was vital. During my six and a bit years as Chancellor, public expenditure, without any credit from privatisation receipts, rose in real terms by only 0.6 per cent a year and, as a result, fell as a proportion of GDP by 8 per cent. That had never been done before and so far has not been done since, but it will have to be done once again.
As I said, there is nothing that we can do about the cycle; it is endemic. Indeed, in a sense there is some benefit from the cycle because of the innovation that comes during the upswing of the cycle and the cost-cutting and efficiency that are driven in during the downswing of the cycle. What is malign about the current cycle is that it is not a normal cycle; it is a cycle that has been greatly exacerbated by a banking collapse. That is what we need to focus on.
What can we do? We cannot eliminate the cycle, as absurdity under the present Prime Minister, but we can try to ensure that there will not be another banking collapse. We cannot absolutely ensure that, but we must do our best to make it highly unlikely. That means improving supervision by taking it away from the FSA, which can focus on different things such as conduct of business regulation and consumer protection. There needs to be proper prudential supervision, either by the Bank of England or by another body that is closely associated with it. Either will work, but it should not be the FSA.
We must also separate utility banking from casino banking, commercial banks from investment banks. Investment banks are innovative and wonderful, but they are too risky to be bundled with utility banking. We need a form of the Glass-Steagall Act, and I am very glad that the Governor of the Bank of England has said publicly that that needs to be looked into. I know that the Government will have no time for it, but they are wrong on this issue as they are on a number of other issues, I regret to say.
In conclusion, what we must not do is raise the top rate of tax from 40 per cent to 50 per cent. Not only is this highly damaging, again as the noble Lord, Lord Butler, said, but it makes no contribution at all—not even the smallest one—to narrowing the budget deficit or to reducing the problem with the public finances. When I brought down the top rate of tax from 60 per cent to 40 per cent 21 years ago, not only did it bring in more revenue, which can be seen from the figures, but it had a curious result which even I did not expect. The top 1 per cent of households had been paying 14 per cent of the total income tax yield, but 10 years later the top 1 per cent of taxpayers were paying 21 per cent of the total yield. There was a redistribution in taxation.
I am sorry that I do not have the time to continue on that subject, but I think it is quite clear that it is a problem, unlike many problems in government, to which we have difficulty knowing the answer. We know exactly what the answer is to the problem that we are debating and what wants to be done. We need the guts, the resolution and the determination to do it. It was done under the Government led by my noble friend Lady Thatcher, and it will have to be done by a Conservative Government again.
My Lords, it is a pleasure to take part in this debate, which sometimes feels a little like a seminar in political economics. I congratulate the noble Lord on initiating it and it is a pleasure to welcome my friend and colleague, the right reverend Prelate the Bishop of Bradford. Perhaps I may say that his maiden speech was in the best traditions of these Benches because he brought his diocese with him.
It was out of the experience of the depression and the Second World War that Archbishop William Temple wrote his famous book, Christianity and Social Order. It was he who first coined the term “welfare state” to distinguish a state which gains its legitimacy by caring for its citizens, from a power state, which is legitimised by its ability to deploy forces in its interests. In a recent report for the General Synod of the Church of England about the implications of the financial crisis and the recession, this starting point was recalled because it touches on the enduring question about the compact between a Government and their people. We are in different times now from those of Temple, but the question is still one that refuses to go away and is in fact coming back even more forcefully today.
Behind the title of this debate about the economic prospects for the United Kingdom are wider questions about the sort of nation we want to see, from where we get our direction, values and ideas, and whether we have had sufficient public debate about it all. As others have noted, we are experiencing a wider and deeper recession than most people ever will have experienced in their lives, although it must also be said that the United Kingdom should fare a great deal better than several other developed countries, such as Japan, Ireland or Germany whose GDPs are expected to contract by a great deal more than ours this year.
There is always a temptation at a point such as this, a risk, that any price will be regarded as worth paying in order to climb into growth, whatever the later cost. But we need to challenge that. We have seen the effects of this in the past, when it was based on debt and was not sustainable. Economic growth at any cost is, we have belatedly realised, a risk too far. We need to have a much better idea about what sort of society we should be living in, not only economically, but socially.
We already know that we do not want to go back to the same settlement as before in the financial world. There will need to be some form of greater regulation of financial institutions and rules about credit, to cite but two examples. There have been suggestions about focusing on social and environmental investment in the future. We already know from experience, but also instinctively, that many things will have to be different.
How we handle this moment as a nation and people, and as individuals, will determine the kind of country we will be in the future. By way of example, I want to mention two areas: first, some of the work that the church is doing and, secondly, some highly relevant research which was published earlier this year. The church has always responded to those in the greatest need, especially in times of great hardship. In the diocese of Portsmouth, we have taken steps to target some extra support on parishes in areas of disadvantage in order that they can become not just more sustainable in their own right, but more particularly achieve greater social benefits for those who live in their catchment areas. This is by no means unique: it is replicated in many other places around the country where local churches of every denomination and faith groups of every tradition set up small-scale, very local projects that are hardly noticed at any other level.
The second example is from two eminent epidemiologists from the secular world, Richard Wilkinson and Kate Pickett, whose recent book The Spirit Level is subtitled, Why More Equal Societies Almost Always Do Better. They wrote:
“Initiatives aimed at tackling health or social problems are nearly always attempts to break the links between socio-economic disadvantage and the problems it produces. The unstated hope is that people—particularly the poor—can carry on in the same circumstances but will somehow no longer succumb to mental illness, teenage pregnancy, educational failure, obesity or drugs”.
This debate is about morality as well as economics. I hope that the future will be based on fact and not fiction.
My Lords, I congratulate my noble friend Lord Forsyth on introducing this debate and on his excellent speech. I do not think that anyone could have envied the Chancellor of the Exchequer in introducing this Budget. His situation was not one of his own making, but I thought that he delivered his speech with commendable stoicism considering the position in which he found himself. Before the Budget, I said that I hoped it would be a Darling and not a Brown Budget. Unfortunately, I think that it was a Brown one, and highly cynical at that. Nowhere is that cynicism more demonstrated than in the decision to reintroduce the 50 per cent rate of income tax—not just the measure, but also its timing.
The Government’s whole argument has been, “You can’t have tax increases now. You can’t have spending cuts now. In the middle of a recession it’s wrong to do that”. But, somehow, it is different when it comes to the 50 per cent rate of income tax. No doubt, populist measures and attempts to attack the better-off are a useful distraction, but they will hardly help Britain to attract inward investment, headquarters and entrepreneurs into this country.
My main criticism of the Budget would be that it did not show a clear path to restoring the national finances. The public finance figures revealed in the Budget were a horror story with the gargantuan deficit. I would suggest that the most alarming figure was not the 12.4 per cent of GDP deficit, but, as my noble friend Lord Lawson pointed out, the figure for the structural deficit—the 9.8 per cent of GDP. That huge figure shows that a large part of the deficit was not related to the downturn and not going to come back just with the recovery of the economy. By itself, that figure was a condemnation of the fiscal rules the Government have practised in the past and of their own overspending.
The Government now make attempts to minimise the importance of the total stock of debt. The noble Lord, Lord Eatwell, joined in that argument. But if debt does not matter, it is rather surprising that the Government for so long tried to adhere to a rule limiting debt to 40 per cent of GDP. I disagree with the noble Lord, Lord Eatwell. The deterioration in the level of debt is alarming and matters for two reasons. First, the burden of debt means that more resources are devoted to interest payments, some of the money going to foreigners, crowding out private investment. Less is available for spending on programmes. Secondly, if rates rise, interest becomes more expensive. If the Government do not move to deal with that situation, rates may rise further and the Government may soon find themselves in a debt trap.
The risks are there. As I know from the previous recession, the peak of the deficit came one year after it had ended, so it is perfectly possible that the figures that the Chancellor revealed, shocking as they were, still may not be the worst figures. Worse figures may appear later this year or in the Budget next year. The figures disclosed by the Chancellor are really an admission that the growth in recent years, about which there has been so much boasting, has been illusory. One commentator at the FT wrote that in the years since 2000 everything was oversized and GDP became inflated by the ability of debt to expropriate tomorrow’s expenditure. He said that it was as if we had made Bernie Madoff responsible for the national accounts.
The Prime Minister has developed some sophisticated rationale for saying that this is not a return to boom and bust, although it appears like that to everyone else. It is true that this is an international crisis, but it is a crisis that was co-authored by America and Britain. No other major country has had banking crises as big as those in the United States and Britain. That is clearly shown by the IMF figures for the projected cost of bank rescues: 13 per cent of GDP in the United States, 9 per cent of GDP in the United Kingdom, and both far bigger than in other countries. The Government like to point out that in Canada, Italy, Japan and China, exports and manufacturing are falling faster than here, but those countries contributed nothing to the banking crisis; they did not have banking crises. They are the victims of our retrenchment, our deleveraging and our debt deflation.
My major concern remains the banking system and the fear that it will be a drag on the economy. The Government have rescued the banks and I pay tribute to the noble Lord, Lord Myners, whose skills and knowledge of this sector have been great assets, but so far we have been dealing with the problems of the boom. The problems of the recession are only just beginning; the deleveraging is only just beginning. The IMF points out that debts to be written off in Europe and the United Kingdom have not been written off as quickly as they have in the United States and casts doubt on the ability of the banks to raise new capital in the private markets. The OECD points out that recessions from financial crises are usually very prolonged and severe, and so too are globally synchronised recessions. We have both, and for that reason we face a long recession and, when it ends, a weak recovery. We must never get into this situation again. We need to pay more attention to borrowing, both public and private. Above all, we need a complete change of culture to one that encourages much more saving. That change in culture is going to depend on a change in government.
My Lords, it is a great honour to take part in this debate, which has been so ably introduced by my noble friend Lord Forsyth. I feel like a pygmy among the giants. Some of the interesting points that have already been raised throw light on to the current situation but not, thank goodness, necessarily on why it happened because there has been so much analysis that we are becoming almost paralysed by it. We are lucky enough to be here today listening to a debate that casts a spotlight on the issues, but most of the population does not have that advantage and many people are deeply concerned about the future. In a debate looking at the economic prospects of the United Kingdom, we ought to consider those who have no voice or those who once had a voice which is not now being listened to.
There is huge confusion in the country as a whole. The Government are spending time and energy on informing people, quite rightly, about swine flu and what we should be doing, thus alleviating concern, but perhaps they should do likewise in order to alleviate the concern among the population about the economic prospects of this country. That concern arises from a complete breakdown of trust in the Government and a complete lack of confidence that they will take action to help those who so badly need it. Changing forecasts of growth, public expenditure and employment levels have resulted in trust and confidence vaporising. It is all right for some, of course—they will not be quite as concerned as others. Those who have no help fall into different categories. Other than bankers, building societies and people in fairly secure employment, what of those other huge employment sectors in this country that do not know whether they will survive? They are not likely to be bailed out, so can the brains in the Government come up with some swift action for them? The noble Lord, Lord Bhattacharyya, who is no longer in his place, said that the Government are capable of doing so and, indeed, did it right at the beginning of this crisis.
The areas of concern go wider than only those who are worried about losing their jobs. It has already been alluded to twice that pensioners face a real problem. Not only has there been a raid on pensions that has now gone on at the rate of £5 billion-plus a year for 12 years, but personal pension plans, which the Government encouraged people to take out in order to supplement their state pensions, have gone down in value by around 30 per cent in 12 months. If that continues, there will no personal pension plans to kick in when people need to augment what are very poor state pensions in this country by comparison with other developed nations. Further, those who have been frugal and prudent—to use a word that was in common use at the beginning of this Government—and saved for their retirement in addition to their personal pension plans or AVCs are finding that the money they invested is now earning a maximum interest rate of 0.5 per cent. That is not going to help. Older people “looking forward” to a longer life but one in which there is probably more illness and a greater need for care, which is extremely expensive to fund, have huge concerns as a direct result of the problems that have arisen due to the economic meltdown. Where is the swift action to deal with the issues of pensioners? They need some form of support from the Government, but the issue is never mentioned. The Government talk constantly about employment, but pensioners hardly ever get a look in. They are a growing sector of the population and something has got to be done about it.
I am sure that the Minister is an action man, but is he prepared to take action along these lines and not leave it for 12 months? The situation is changing dramatically. Let us look at the forecasts of public sector debt. Last year it was going to be £40 billion, this year it stands at £60 billion and someone has said that next year it will be £80 billion. Against a constantly changing background, action needs to be taken now and not left, as has been intimated, for another 12 months when almost certainly the Government will change and the situation will be even worse for those who are left.
We have to take action that is understandable to the country. There is no point in bandying about terms such as “quantitative easing”, because they mean nothing to the man living down in Surbiton or wherever, or even in the East End. We use these economic terms too frequently, blinding people with science and not properly explaining what they mean. As a result, there is real concern out there. I beg the Minister to do something about it and come up with an action plan to show that the Government actually do think of the people outside Westminster, Whitehall and academe.
My Lords, I, too, congratulate the noble Lord, Lord Forsyth, on initiating this debate. Judging by what he had to say, he and I have something in common. We both suffer from a form of short-term amnesia. Let me say quickly that mine is caused by my advanced years. In his opening speech the noble Lord remembered what happened 30 years ago, but seems to have forgotten that the recent enormous change in the public finances has been caused not by expenditure of choice but by expenditure of necessity.
When you have a near collapse of the banking and financial system followed by a recession, the economy has got to be fixed. We cannot afford not to rescue the financial system, and to put these costs down to reckless spending proves my diagnosis of amnesia. Paul Krugman, an economics prize-winner no less, described these actions as “saving capitalism”. I would have thought that the Conservatives, more than any others, would have welcomed the rescue, but we have yet to hear a word of gratitude from them. Perhaps it is because they are confused. They are confused about whether to welcome or reject the financial stimulus, as my noble friend Lord Eatwell explained. But surely this is not a matter—
My Lords, that is a party political matter, but this is not. It does not matter which party you support or which kind of economist you are; it is a matter of survival. In this matter, I am a cryptoeconomist, a cryptoeconomist with a hidden allegiance to balance—of the kind mentioned by the noble Lord, Lord Butler. I am for a balanced taxation system which, on the one hand, asks those with broader shoulders to bear more of the burden by paying a higher rate of income tax, but which, on the other, is balanced by encouraging enterprise and growth, by maintaining capital gains tax at 18 per cent—with an added incentive of 40 per cent capital allowances—and in that way encouraging people to leave money in the business to make it work and grow. After all, that is what people who are building a business do.
We cryptoeconomists also treat GDP data in a balanced way. Although the data are, yes, disappointing, we know that they are preliminary data which are routinely revised more often up than down. One quarter’s data, however surprising they may be, tell us little about growth in two or three years. After all, we are discovering that an amount of intangible activity is happening in the economy which is increasing and which we do not seem to measure in our GDP, as the Treasury paper mentioned.
I must admit that, as a cryptoeconomist, I also find it difficult to forecast, because, as the right reverend Prelate the Bishop of Portsmouth said, things are not going to go back to what they were, so we have carefully to manage our way out of these difficulties. I have every confidence in our management team. Unusually, most of this team is in your Lordships' House, which gives me confidence and, yes, a little pride, because they know that, after this period of excess, the financial sector has to be less overbearing and better regulated. Managing the economy also means driving other parts of the economy forward, as my noble friend Lord Bhattacharyya explained.
This debate is about prospects. Recent experience has taught us that we are all part of the same system; we are all interconnected. Those who have lost their jobs and their homes are paying a much heavier price than those whose wealth has shrunk or who have to pay more tax. Our form of capitalism has to have a more human face.
So it is not anti-business to understand that, as the right reverend Prelate the Bishop of Bradford reminded us, a market economy leaves behind poverty and deprivation. It is not anti-business to understand that business has both rights and obligations. It is not anti-business to point out that this perceived unfairness supports extremism. And it is not anti-business to say that, unless we build trust and confidence between business and society, we will never have a strong economy—the noble Baroness, Lady O’Cathain, touched on that. I therefore have every confidence that our management team will persuade us all of the importance of maintaining Labour’s values of equality and fairness.
It may well be that the medicine is working—perhaps the Government have put a floor under the downward spiral. It may well be that the banking sector has been stabilised and that quantitative easing is working. It may well be that the good news is that there is just less bad news.
In direct contrast with some noble Lords opposite, perhaps the right attitude of not talking us down was shown at the Institute of Directors meeting on 29 April. They spoke of moving on; how times of crisis present new opportunities, such as launching new businesses because of lower interest rates and low inflation; how in these difficult times it is easier to find talented people; how large, established firms are having to concentrate on cutting costs, giving new businesses the opportunity to find new markets and products; and how shorter working hours are cushioned by the tax credits system.
I hope that noble Lords will forgive my amnesia but join me in my quest for more balanced economics.
My Lords, I always enjoy listening to the noble Lord, but the proposition that an all-party Select Committee is party-political in its decisions, whereas what he said was not party-political, is a doctrine that I shall have to study with some care before I am able to accept it.
I thank my noble friend Lord Forsyth for introducing this debate and for his comprehensive speech. At this stage, many of the important things that need to be said have been, so I shall keep my remarks fairly short.
The first Select Committee on which I ever served in the House of Commons was chaired by the late Ian Mikardo, a man on the left of his party who was a good friend to me and had a sort of irresistible charm. He once explained to me that he was the only person in the 1945 general election who did not put his photograph on his election address, on the basis that if he had had to show his face, he would have got even fewer votes than he subsequently received. He proposed a meeting of his committee during the afternoon of the Budget speech. I protested, and it did not take place. However, his argument was that listening to a Budget was a waste of time because you soon found out what was in it. Nevertheless, like many noble Lords, I have listened to a great many Budgets in my time. I have been brought up on the doctrine that a Budget which does not go down too well on the day is, surprisingly, often seen to have many features of importance and success within a week, whereas a Budget which is extremely well received on the day is often seen through a week later. I think that this last Budget was unique in the sense that it was seen to be pretty bad on the day and has got steadily worse ever since.
But Budget speeches do matter, and I am not surprised that this one received a pretty bad reception. First, one has only to look at the number of times in the first few paragraphs that the Chancellor referred to the global recession to appreciate that he was pretty sensitive about his difficulties. In good times, the Government have been keen to take credit, but in difficult times they want someone else to take the blame. Of course, the massive government borrowing requirement owes something to the world recession, but we would not be in these difficulties if public expenditure had not grown at a far greater rate than the growth of GDP, with our consequent need to borrow.
Secondly, Chancellors ought to have learnt by now to stick to real economic matters and not try to score political points, which is a luxury that should well be avoided. Thirdly, Chancellors should be careful to use forecasts that have credibility. I understand why the Chancellor wanted to produce a Budget and forecast that showed us coming out of recession, but the figures that he produced had very little credibility. Within 24 hours, it had been indicated by a substantial number of other forecasters that they were not right. Perhaps the best feature of the Budget was to show up starkly the difference between the policies of this Government and those of my noble friends in the Official Opposition.
If I were in government, or considering the prospect of government, the two things that would worry me most are how do we finance the government debt and how do get our public finances under control. Many of my noble friends have spoken of this. It is going to be a massive task. I am also concerned that we may have a very serious problem still in the stability of our banking system. The news today from the United States is certainly worrying. If the banks were over their difficulties in the United Kingdom, I do not think they would have any difficulty at all in raising additional funds that would enable them to lend to small and medium-sized businesses. The fact that they still have difficulties in this area makes me wonder whether the banks are primarily concerned to strengthen their own balance sheets, rather than to take on more business. It seems to me that we are moving from a system of simply guaranteeing depositors to one of insurance, which means that the good banks pay for the mistakes of the others. A bank that is, so-called, “too big to fail” ought to demonstrate that it does not enter into the more risky activities that have given us so much trouble.
My noble friend Lord Lawson is quite clear that he believes there is a need for some form of Glass-Steagall legislation. I am not absolutely sure whether that is necessary, or whether it can be dealt with by regulation, but the effect has to be the same. The failure of the present tripartite system of regulation has also got to be changed to a more coherent system—not more regulation, but better regulation. The House of Commons Select Committee rightly blames the banks for much of the mess, but the Government’s tripartite system of supervision needs to be answered. I just wonder whether, if the late Eddie George had been in charge during recent years, we would have got into this mess. When we do get a better system, the Government have got to look, or the regulation system has got to look, very closely at some very doubtful accounting practices that have been allowed to grow up. My feeling is that mark-to-market accounting was probably a mistake. It allowed profits and bonuses to rise too quickly in good times—the absolute opposite of what the noble Lord, Lord Turner, and the FSA are arguing, which is that in good times, reserves should be strengthened to help in lean times, which, I think, is a counter-cyclical policy. If we are to move from where we are to where we ought to be, it is bound to take time, but the objective of getting back to a more conservative accounting policy is what is needed to restore long-term confidence in our financial system.
My Lords, I, too, thank the noble Lord, Lord Forsyth of Drumlean, for initiating this debate. The last time there was a general debate on the UK economy in this House was seven months ago. Since November, the collective failure of the three regulators—the Bank of England, the Treasury and the FSA—has become even more apparent. That said, this in no way absolves the bankers from their responsibility. As the noble Lord, Lord Wakeham, said, in this regard it was helpful to have last week’s Commons Treasury Select Committee report, which specifically concluded that the main blame for the current disastrous state of the banking industry lay squarely with the banks themselves. That should not be forgotten. The public certainly show no sign of forgetting, still less forgiving, those bankers who played a major part in damaging the UK economy. There is still much anger that no charges have been laid against the perpetrators. That is in stark contrast to the United States’ practice.
Those who say that a line should be drawn under the fiasco that occurred and that it is time to move on should be ignored. It is altogether much too premature for that response. It is not enough to name and shame the guilty ones, for they should brought to book and punished. I suggest that it would be appropriate to send those guilty into exile to the island of St Helena. This would have the added advantage that, if they wanted visitors, their obscenely over-generous pensions could help finance the much-needed airport on the island, which has been postponed as a result of the recession they did so much to bring about.
However appalling the shortcomings of the regulators and bankers have proved, there is a wider intellectual context to be considered. In his recent Yale lecture, Mr. Lionel Barber, the distinguished editor of the Financial Times, has added much to our understanding in this regard. He asked how financial journalists failed, along with almost all observers, to predict the financial crisis. His analysis provides a number of reasons which I do not have time to rehearse, but a major conclusion of his was that,
“too many self-styled experts treated the financial sector and the wider economy as parallel universes”.
One of the factors that contributed to this was predicted by Professor Wayne Parsons. In his pioneering book, The Power of the Financial Press, he argued, many years ago now, that public understanding was much better served by the press during that period in the 1960s and 1970s which saw the advent of economic journalists of the calibre of Sir Samuel Brittan, Peter Jay, Andrew Shonfield and Michael Shanks, who complemented the narrower reporting of City reporters. That cadre has now disappeared and the media have reverted largely to financial journalists, with their more blinkered horizons. There are exceptions, of course, of which Robert Peston and Gillian Tett are prime examples, but overall the press has been diminished by the demise of the economic editors.
Much, too, can be explained by the changing nature of the discipline of economics itself. I recall that, some 30 years ago, the noble Lord, Lord Dahrendorf, deplored the shift away from traditional political economy towards a new economic science, with all its mathematical pretensions. He is not in his place today, through illness, and I am sure noble Lords will want to send him their best wishes. The noble Lord was concerned that economic science would become so concentrated on developing sophisticated model-building that reality would be lost sight of, wisdom discounted and public understanding so confused that economic and financial policy-making would be severely compromised as a result. So it has transpired. Economic science yielded to econometrics.
Worse was to come. In the financial centres of the developed world, this led to a further mutation. Hordes of mathematicians, natural scientists, statisticians, computer scientists and engineers were employed to invent ever more devilish quantitative techniques. Except to those who contrived them, these innovations were largely incomprehensible. They induced a strong element of almost robotic remote controls that triggered a daily multitude of actions in response to new data or other changes. But they seemed to deliver the goods and were extraordinarily profitable. Huge salaries were paid to these modern alchemists and even bigger rewards to those company boards that engaged them, even though executive directors, and even more so non-executive ones, had little understanding of these new business tools and the wider implications of their extensive use. Heady techniques led inevitably to toxic assets and we now know what that led to. The essential point is that all the elements in the financial sector had adopted similar methodologies that made, in aggregate, for a vast monolith, rather than for a risk-spreading diversity, as Gillian Tett had warned. Whatever the power of these ingenious techniques in some narrow sense, they could not predict the future in a more macro sense and, in particular, they could not forecast their own demise, and that was to prove fatal.
What has to be done now to minimise the chances of a repeat fiasco? Tightening up regulation and legal requirements are all very well in themselves. More fundamentally, however, a radical refurbishment of the discipline of economics, in the form of a new political economy, is vital, together with a new culture of business ethics and corporate governance. Only then will the UK economy have an authentic context in which to operate.
My Lords, I find it a little curious that in the debate we have 20 Conservative speakers, led by that astonishingly powerful speech of my noble friend, yet the Labour Party has only been able to put up eight people. That is despite having created hundreds of new Peers since 1997. I fear this reflects, yet again, the dying embers of the Government. They seem to have lost the will to survive.
I start by reminding the House of just how long it was before the Government started to take action to deal with the economic crisis. Like the banks, they were in denial for months. I am no financial guru yet by September 2007 it was obvious, even to me, how dark the clouds were behind the sub-prime situation. The day before Northern Rock first alerted the FSA that it was running out of money I noted:
“The fatal assumption was that the capital outstanding on the pay-back date could simply be refinanced ... These loans were then manipulated into financial instruments which entered that most esoteric world of secondary markets ... The scale of the problem is hard to grasp ... Nor is it clear that the fallout from the original sub-prime crisis in America will be confined to the West”.
That was my own observation on 6 September 2007.
Little of what the Government have done over the past 20 months has helped to save Britain, let alone the world. Unfortunately, the Government have not had the benefit of the noble Lord, Lord Myners, for very long. It was only in October that he was lured from the pinnacles of the private sector on to the middle rungs of the ministerial ladder.
What is needed now is a firm strategy which takes advantage of the crisis to move forward. It seems to me that the Chinese Government have such a strategy—it is based on strength—while the British Government flap and gasp like a fish out of water. China has faced up to the problem from day one. It decided what it needed to do and what it could do, and is doing it.
In the West, we had the dramatic exposure of the illusion of prosperity fuelled by an orgy of consumer borrowing, with the lenders conspiring in a cocktail of greed, negligence and dishonesty, unchecked by naive and incompetent regulators.
I believe that the early cuts in interest rates were the wrong answer to a credit crunch. They suggested the possibility of a quick and painless fix. They have crucified savers. Do the Government recognise the extent to which they have spread poverty by the interest rate cuts? Do noble Lords realise that the rate of interest on the Post Office Instant Saver account, very much something for the less well-off, is 0.1 per cent? Think of what that has done to people’s incomes. Most importantly by, the cuts have used up the ammunition in the monetary weapon. It should have been kept to counter the fall in demand when the consumer woke up to what was happening.
I want to sound an alarm over the huge reservoir of toxic debt on credit cards. The credit card is a convenient and cheap way of running your financial life, provided you settle your debt each month, otherwise you start paying interest at rates which would normally be regarded as more appropriate to loan sharks than respectable financial institutions. For example, Egg is currently charging 16.9 per cent on overdue credit card debt, and our beloved Post Office MasterCard 19.9 per cent.
The interest-bearing credit card debt in Britain is vast. Let us just take the total unsecured lending in Britain today. It is £232 billion, of which nearly a quarter is on Britain's 67 million credit cards. That level of debt on credit cards has more than doubled, in real terms, since 1997. According to the British Bankers’ Association, the credit card interest-bearing debt is now £47 billion. That is over 3 per cent of GDP, or more than £780 for every person living in Britain. Worryingly, credit card debt is falling very slowly.
Therefore, I propose a new regulatory regime for credit cards. It would be under the FSA and would be largely self-policing. It might however be necessary to set up a central register of all credit cards in issue. First, credit card companies would have to do due diligence before issuing any credit card, so they would have to insist on the details of any credit cards already held. Secondly, no young person—we will determine the age later—would be allowed more than one credit card. Thirdly and most importantly, every debit balance on a card would have to be cleared at predetermined intervals, perhaps every six months. If not cleared, the card company would be obliged to suspend further debt.
The key to my proposal is that unless a credit card company could demonstrate that it had complied with the rules it would not be entitled to recover the outstanding debt from the cardholder. That would make them sit up and take notice.
I suspect much of this credit card debt is toxic to both borrower and lender. As unemployment rises, there will be growing distress, and because credit cards are at the sharp edge of consumer expenditure I fear it will hit those least able to bear it.
My Lords, I shall concentrate on a narrow field, perhaps a narrow byway, but if we want this country to emerge as soon as possible from recession and compete once again with some success on world markets, we must, it seems obvious, not burden our businesses with unnecessary costs, nor encourage, on any substantial scale, the wasteful use of scarce capital.
There are many ways in which that can and has been done, but in no field more spectacularly than that of energy. The current fashionable pursuit of so-called renewable energy must rank as one of the most lunatic policies ever adopted by western Governments. The point is that we face a looming energy crisis, as one quarter of our existing power stations face closure in the next few years largely as a result of the need to comply with existing EU environmental legislation. This imposes of necessity a huge demand on capital.
The pursuit of renewables is a distraction from that imperative. The expansion of renewables today means the expansion of wind power. However, wind power is inefficient. Even in this country, windier than some, government figures show that the load factor—that is, the percentage of what would be produced by turbines over a year if running at full capacity, even of offshore wind turbines—barely rises above 27 per cent. For between 55 and 110 days a year, depending on where they are sited, wind turbines are idle, the wind being too weak or, more rarely, too strong to power them.
Moreover, this absence of wind is very likely to coincide with periods of extreme cold, or, in the summer, extreme heat, when electricity demand surges. Therefore, when the demand is greatest, the supply is weakest. The consequence is that wind power needs to be almost fully backed up by conventional power stations if the country is not to suffer power failures when one of those moments arises, as it regularly does, when the wind fails at a moment of peak demand.
Therefore, as the House of Lords Economics Affairs Committee concluded in its report published last year on The Economics of Renewable Energy, wind power is an additional capacity, an optional extra, unlikely ever to permit a single conventional power station to close or avoid the need for one to be built. The House of Lords report concluded that the expansion of renewable energy would result in roughly twice the amount of new installed electricity capacity being required than if it was not being expanded.
The capital construction costs of installing wind power far exceed the costs of installing conventional power when they are measured in terms of the electricity they can deliver over a year. It has been estimated that per delivered megawatt the capital cost of wind is three to five times the cost of nuclear, 10 times the cost of gas and 15 times the cost of coal. This can perhaps be understood when it is realised that a nuclear station like Sizewell B can produce in a year as much electricity as 4,000 wind turbines. Nor should the cost be ignored of the new transmission lines required to transport the electricity from the uplands where it is produced, to the south and south-east where it is required; a cost that Ofgem has estimated at £17 billion.
Of course, no capital investment would be forthcoming to enable the Government to achieve their renewable energy targets without subsidies. The cost of these currently runs at some £1.4 billion a year, the majority being paid for by the all-too-unwitting consumer. If the Government’s renewable targets were to be met, this would rise to some £6 billion per annum—enough to build two nuclear power stations—and a cumulative total by 2020 of some £32 billion. Government figures indicate that that this would increase the proportion of consumers’ electricity bills that will be accounted for by renewable subsidies to 32 per cent for individuals and no less than 55 per cent for business users. These subsidies, of course, completely distort the market. They also have other disastrous effects, one of which is the industrialisation of those beautiful upland landscapes throughout the United Kingdom that attract visitors from all over the world, thereby threatening to undermine our tourist industry, one of our most successful foreign exchange earners and otherwise poised to enjoy a successful future.
Of course, the dream of wind power is fired by the vision of a cost-free, carbon-free fuel, but if you want carbon-free fuel, the choice should be nuclear. Nuclear power supplies the French with approaching 80 per cent of their electricity, as a result of which their per capita carbon emissions are not much more than two-thirds of those of this country. Germany, by contrast, has carbon emission levels above our own. Indeed, Germany is carpeted with some 20,000 wind turbines, almost 10 times the level in this country to date, yet has never managed to produce more than 5 per cent of its annual electricity requirement from wind. What a trivial return that has given them for all their investment.
So why must we persist in the pursuit of what I have previously called in this House the “will o’ the wisp” of wind power? Faced as we are with the need to find the capital for an enormous rebuild of conventional power stations, can we afford to more than double that amount, perhaps much more than double that amount—I have seen an estimate of £200 billion all told—and to do so by increasing consumers’ electricity bills by 30 per cent to 50 per cent? Will this not hasten the day when this country slips down the world’s economic rankings?
My party shows every sign of being likely to gain office next year, but I can spot very few signs of it being about to adopt sensible energy policies. Having identified the age to come as an age of austerity, why can it not, as far as energy policy is concerned, decide to cut the cloth to fit the suit, identify security of supply and affordability as the two priorities, and restore some freedom to the markets to choose the most efficient outcome? Would that not be a Conservative way? The alternative is blackouts, a slow road to national misery and a future in which this House will have debates on the energy crisis—not the financial crisis—with 37 speakers.
My Lords, the noble Lord, Lord Marlesford referred to the paucity of Labour Members on these Benches. I do not blame them. They knew that this would be a political game, that the noble Lord, Lord Forsyth, would give us another chapter of the Forsyth saga and that it would turn the economy into a political football: full stop, go home. Some of us have come here to maybe put the record straight, but I do not think that this is a sensible way to spend a Thursday.
The most interesting part of the debate was between the noble Lords, Lord Lamont and Lord Lawson. I am sorry that neither of them is in their place, but they will have to see me later if they do not think that I have got this right. The noble Lord, Lord Lamont, referred to the crisis being co-authored by the USA and Britain. He could have been President Sarkozy in his implicit characterisation of this crisis being one of Anglo-Saxon capitalism. The noble Lord, Lord Lawson, said that any idea of this being largely an international crisis ignored the fact that we had signs of leveraging going wrong and of bank lending and mortgages being made too easy—all very good. I must have been Rip Van Winkle and missed about 30 years and just woken up; it is rather ironic that, where I was, whenever the question of tighter regulation in financial services came up, the Conservative Party was complaining bitterly about it. Future historians will need to dig down and produce chapter and verse on all that.
The big paradox today is that, with the prospect of youth unemployment, inequality and all the problems of our society—regionally, sociologically and in many other ways—the logical pendulum swing at this time would have been towards more social democracy, but a Labour Government have inherited this Anglo-Saxon capitalist crisis. This is demonstrated, totally convincingly, in a wonderful book by a Financial Times journalist, Gillian Tett, Fool’s Gold. I will give noble Lords the flavour of a couple of paragraphs as I go along. It is not a Morning Star journalist saying this, but it is characteristic: “By early 2006 … contracts”—the collateralised debt contracts—
“looked to many like a particularly attractive way to place bullish bets. The big dirty secret of the securitization world was that there was such a frenetic appetite for more and more subprime loans to repackage into CDOs that the supply of loans had started to lag behind demand. Mortgage derivatives were an easy substitute, since there was no constraint on how many of those could be created, or at least not so long as some market players, such as JPMorgan Chase, were eager to hedge their risk by buying them. Ironically, JPMorgan Chase’s conservative stance on subprime loans thereby enabled others to continue rolling the dice on the mortgage boom, to a far greater degree than would have been possible if their bets had been limited to the world of tangible bonds”.
Can one find any better description of that world than John Maynard Keynes’s phrase, “casino capitalism”?
The Financial Times has been right on the mark by conducting over the past four or five weeks a review of the future of capitalism. I have heard none of that from the Conservative Benches. I am not surprised: that is where their money comes from and where their heart lies. The one Conservative leader who ever questioned this religion, 40 years ago, was Ted Heath, for whom many of us in the trade union movement had a high regard; that will not improve his reputation in Conservative ranks, either. He described the Lonrho affair—I think it was, I have not checked—as demonstrating the “unacceptable face of capitalism”.
It would be refreshing if any Conservative spokesman today, knowing where their money comes from—that is the sort of language we had about the trade unions, so they might like a little repayment—would ever criticise our capitalist system, which I call “outrider capitalism”. It is not the socially accountable capitalism that the Financial Times is looking for, and certainly not a capitalism which has no regard for the level of inequality. I heard nothing from the noble Lords, Lord Lawson and Lord Lamont—and I would not even expect to hear it from the noble Lord, Lord Forsyth—about the growing inequality in our society. The bottom to top ratio has gone from 10, to 20, to 30, to 40, to 50, to 60, to 70, to 80, to 90, and is probably going up again. That could cause a huge social crisis in our country. The Labour Government have done what they can to encourage young people’s entry into employment when they leave full-time education. However, the rise in unemployment resulting from the collapse of the capitalist Anglo-Saxon model will produce great problems for all of us.
The real debate ought to be about the future of capitalism. A banker said on the radio the other day, “The bank’s finances will improve because most of the stuff which will go wrong will fall on the taxpayer”. That is the doctrine; I am on the other side of the argument.
My Lords, I add my thanks to the noble Lord, Lord Forsyth, for calling this debate.
I want to focus my remarks on London and I declare my interest as chief executive of London First. London is a highly successful world city and the engine of the UK's economy but it is fuelled by professional and financial services, two of the sectors hit hardest by the recession. Therefore, I welcome the recent reports from the Chancellor's high-level group designed to improve their long-term competitiveness.
Sir Michael Snyder chaired a review of professional services, which noted that the legal profession alone contributes 1.5 per cent of UK GDP. Harmonised international accounting standards might lack glamour but are vital to our success. If the UK is a bridge between Europe and America, we have the most to lose if these economic tectonic plates drift apart.
The second financial services group, chaired by Sir Win Bischoff, reports today. I look forward to its findings and to a more closely co-ordinated and invigorated approach to promoting financial services. In terms of regulation I make just one point. We need to guard against overcorrecting for past mistakes—against fighting the last war. Erecting a regulatory Maginot line will do as much good as the original did the French. If it stifles innovation, we will all be the poorer. Nevertheless, we need to start now putting in place the architecture that will support future growth. The scale of the challenge is daunting. Restoring public finances will involve what the Institute for Fiscal Studies has termed “two parliaments of pain”. Post-Budget, it has calculated that the Government seek to tighten fiscal policy by 6.3 per cent of national income. Some 10 per cent of this will come from tax rises, 40 per cent from spending cuts, and the remaining half from measures still to be announced, effective in the Parliament after next. That is some challenge for the next Government.
Spending must take much of the strain but we need to be strengthening, not weakening, our economically productive infrastructure. In the previous recession, the previous Government ducked funding Crossrail, with the result that the Tube has become ever more stretched. As any squash-nosed, toe-trodden rush-hour commuter knows, we desperately need the modernisation of the Tube and Crossrail. Delaying either will undermine the capital.
Reductions in spending demand real efficiency savings, achieving better outcomes for less but also doing fewer things. I applaud one example and offer one suggestion. First, the new chief executive of the London Development Agency, Peter Rogers, has cut one in three of the LDA's staff and £11 million from its £40 million overhead. The public sector can deliver radical reform when there is the will.
Secondly, the Government have announced an additional £1.7 billion to help get people back into work. Separately, they have stated their aspiration to devolve some of this task from Jobcentre Plus to the private and third sectors. Surely the Government should use this new money to meet their own ambition.
We must also avoid own goals. As Richard Branson put it:
“Higher taxes may be politically attractive in the short term, but I think this could be a real hindrance to the next wave of UK entrepreneurs and international companies looking to invest”.
I agree. We need to be more, not less, welcoming. The tax changes in the Budget are in danger of presenting a “no entry” sign to would-be investors or a “bumpy road” sign to entrepreneurs. However, the level is a matter for legitimate debate; what is more concerning is the process. Businesses attach a premium to stability. Britain's tax certainty was undermined last year with the “non-doms” tax fiasco and now, with the Government breaking a manifesto commitment, more doubt has been sown. This is compounded by the deep uncertainty around how pension tax relief changes will be implemented. We simply cannot afford this instability. Britain needs to re-establish its credibility as a jurisdiction where investors, employers and employees can have confidence in our income, capital and corporate tax regimes.
As the Finance Bill goes through the Commons, I hope that Ministers will look at ways in which they can support competitiveness. I have three suggestions: tackle the business rates challenges facing the UK and London, so restoring empty building rates relief and putting in place an aggressive phasing of the coming revaluation; clarify the detail of pensions tax reform swiftly and equitably; and make clear, as has been hinted, that the new top rate of 50 per cent is a temporary measure.
We retain enormous strengths in adversity. London, the heart of our economy, is a cosmopolitan city, with great international links and an outstanding talent pool. The currently competitive pound is helping to attract tourists, who we welcome. We have an innovative business culture, a “can do” attitude and we speak English in the GMT time zone. We must take the right decisions now so that London and Britain flourish in the less-leveraged decade ahead.
My Lords, in past Gordon Brown comments, it has been fashionable to rely on country comparisons—on league tables—to claim that however difficult the circumstances, we were better placed to deal with them than others. Those claims are difficult to credit given outside analysis; for example, that of the IMF. But then one remembers the rubbishing of the IMF and the hints in recent years that perhaps it had become irrelevant given the then Chancellor's understanding of financial markets.
I think we are clear that we have dropped down the league table of nations and that we have no indication about how and when we will climb up again. As to the international action that has been taken, none can be sure how effective that will be. Two thoughts on that occur. First, although we were a sizeable player in the start of these problems—having three out of the world’s five largest banks, as has been said—we are a relatively small player in the outcome. Secondly, given demography, standards of living and public debt, Keynes’ general theory, if written today, would read very differently from his groundbreaking effort of 70 years ago. So whatever the effect of the action being taken, nothing indicates that we can just go back to where we were or that there is any reason to suppose that, in default of radical policy change, we will again climb up the league.
Before there are any mindless cries of “you have no policies”, we need to note that we are all right now mesmerised by the public debt and the Budget prediction that 2018 is the year when the poor rejected Prudence can return to polite society. If, in 1954, I had put forward the simplistic analysis of transfer payments put forward by the noble Lord, Lord Eatwell, I do not think that I would have got a very good mark. The only policy on offer is the reform of world financial systems. But that is for next time. Right now we need to decide on our national direction of travel. We need a hopeful list of things to do and a list of things to be avoided.
First, we are greatly aided by the onward march of science and its application. There is every reason to believe that what started with Arkwright and Abraham Darby will continue. Annoyingly for this Government this progress is not theirs to command, but it will continue and we need government as an enabler.
Secondly, there is nothing new in banking crises created by the careless, mindless overvaluation of assets. Look at the irreversible problem with French public finances created by John Law, a Scottish banker, in the early 18th century. But we need bankers also as enablers. The careless ones should shuffle off and be heard of no more. There are plenty of potentially sensible people to take their place provided that society encourages sensible behaviour and, by peer group pressure, achieves it.
Thirdly, we need the wealth creators—those who have the ideas or pick up the ideas of others, find the money, find the markets and create the businesses that make them wealthy: the Henry Wellcomes and Bill Gateses, and, earlier than them, the Ashmoles and Smithsons. The issue for society is not about their riches; rather it is about what they do with them.
The issue of the pay of those who manage or administer businesses or institutions which have been created by others is different. They are not to be confused with entrepreneurs. This is where there has been one of the most outstanding market failures of recent times. We are paying far too much to many ordinary senior managers and administrators who are competent and potentially self-disciplined. They are being paid far more money than it is sensible to pay them for what they do, and more money than it is ethical to pay in relation to average income. Here I agree most strongly with the right reverend Prelate the Bishop of Bradford. It is a most surprising outcome after 12 years of new Labour. Finally, we need to remember that any Government’s ability to enable us to climb back up the league is strictly limited. It is much more a matter of avoiding mistakes than of any constant stream of initiatives.
As I said earlier that we need a radical change in policy, I need to say why new Labour policies will not deliver. When Tony Blair, the brilliant sales director, became Prime Minister, he relied on Gordon Brown, the operations director, to run the shop. As always, operations prefers to be left alone at home to get on with it, the necessary detail having usually escaped the salesman. Gordon Brown had two golden rules and thus, it is said, a moral compass—the 40 per cent rules. The public expenditure rule was designed to woo prudence and, given continued growth, to enable continuous progress towards a more centralised state, at least for the more than 50 million people of England.
As the legislation flowed and the number of people in the public sector rose by 800,000, two verbal deceptions were practised. One was to use the word “investment” and the other to claim that the increasing number of public bodies were independent. All room to manoeuvre with the national balance sheet was eroded away and we now face a doubling of the first golden rule to 80 per cent.
The second golden rule was the 40 per cent tax rate, now to be 50 per cent—arguably, 60 per cent. So much for the acceptance of wealth creation as the driver of social progress. This crude move must count as one of the silliest U-turns on record, with wholly negative effects. As I said, we need to concentrate on what we pay in the first place and not to break tax promises. We need to be trusted worldwide. It is pure cynicism to keep claiming global credentials and then to do what has been done.
My Lords, I congratulate my noble friend Lord Forsyth on securing this well-timed and important debate, and also on his excellent speech in opening it. Much has already been said, and I should like simply to make the most fundamental point: that confidence is the key to recovery.
This is, in essence, a balance-sheet recession. It was triggered by the banks which, perhaps misled by the Government’s changes to regulatory mechanisms, by their injunction to the regulators to regulate with a light touch, by the expansion of public borrowing and by low interest rates focused only on the inflation rate, the banks increased their loan-to-capital ratios by irresponsible amounts. Banking remains the major problem, and the imperative is not for distractive witch hunts, but the restoration of confidence to the banking sector. Only then will it be able to lend again.
It is nearly two years since Northern Rock set off the alarm, and there has been an astonishing delay and complacency on the Government’s part in responding to that growing crisis. When the storm broke last year, they should have acted with speed and force to identify the extent of the toxicity problems and to separate them from the healthy parts of the banks.
Nearly 20 years ago, Lloyd’s of London, the insurance market, had a toxicity problem which nearly brought it to its knees. The Council of Lloyd’s addressed it by setting up Equitas to take over the toxic assets. Here I declare an interest, which is happily now almost extinct, as a participant in Equitas. Brokers, underwriters, underwriting agents, the Council of Lloyd’s and all other interested parties came together to co-operate in solving the problem, and Lloyd’s continued as a healthy financial institution. Of course, the comparison is not exact, but that kind of example could have been followed if there were sufficient drive and purpose. Even today in the banking sector, treatment by the Government of toxic assets has been slowly and hesitantly designed and slowly implemented.
The Government’s broad approach to the crisis has been, first, to flood the economy with money—money borrowed, money promised, money printed—hoping, no doubt, in the process to wash away the trail of their past record of mismanagement. Now they are relying on the Bank of England to print money to buy gilts from the banks. Prices go up, yields go down and thereby companies’ pension-scheme deficits go heavily into deeper deficit. That, in turn, reduces companies’ capital for new investment and slows recovery.
The banks’ first priority is, sensibly and understandably, to restore their balance sheets. When do the Government expect the banks to use the proceeds of quantitative easing to lend to industry? Will the Bank of England also buy corporate bonds to help businesses more directly? The formula MxV=PxT, with which the noble Lord, Lord Myners, is very familiar, has several variables. It is a risky business. Will the Minister tell your Lordships what estimate he has of the impact of this policy of quantitative easing on the velocity of money and what impact he anticipates it having on the recovery?
Nothing has damaged confidence more than the recent Budget. There is a bad record of past predictions and, on top of that, a worse record of future projections and no coherent plan for the future. It is perfectly clear that the Treasury’s future growth figures were chosen and inserted in the Budget tables only once it knew what was needed to give some fig leaf of balance. They bear no relation to reality, and the IMF, the IFS, the European Commission and other independent bodies have rapidly demolished them.
Having brought the country to its knees by excessive borrowing over the past decade and some £600 billion of debt racked up in the good years, the Prime Minister was forced back, in the words of the most reverend Primate the Archbishop of Canterbury,
“like an addict returning to the drug”,
and now hopes to raise some £700 billion of debt over the next five years. I do not believe that there is another country in the world that will have to borrow more in proportion to its GDP. With other major countries seeking to raise more than $2 trillion this year alone, and with sterling devalued by some 30 per cent, there must be a very real danger, as my noble friend Lord MacGregor pointed out, of a gilt strike and the loss of our triple-A credit rating.
Our Prime Minister likes to think of himself as King Midas. On coming to power in 1997, he set down what he called his “golden rules”, and proceeded to break them all. Two years ago, he spoke in the Mansion House of,
“a new golden age for the City of London”.
That claim lies in tatters. But 12 years ago he inherited an economy that constituted, by common consent, a golden legacy, and he destroyed it; 11 years ago he sold almost half the nation’s gold reserves at the bottom of the market, and put the money into euros. We can only be thankful that he did not leave them in sterling. That is the record of a King Midas in reverse.
It was Warren Buffett who said:
“Only when tide goes out do you discover who’s been swimming naked”.
This Budget reveals that the United Kingdom, after 12 years of Labour government, is less well prepared to withstand recession than almost any other country. What we need urgently now is a plan to reduce debt. We need plans to get spending down. Why did the Government scrap the three-year spending review this year if not to funk the difficult decisions? Above all, we need to restore confidence that this can never happen again.
In the past, the Prime Minister would move the goalposts and change the dates of the economic cycle. Well, this economic cycle will run for a generation. But he cannot change the dates of the parliamentary cycle, and soon we can elect a Government who will get a grip and start the painful task of rebuilding this country.
My Lords, I thank the noble Lord, Lord Forsyth, for giving us this opportunity to debate such an important subject. However, I hope that he will forgive me if I suggest that readiness for a little self-criticism might have helped to get things in perspective. Frankly, I found the interventions by my noble friends Lord Lea and Lord Morris very telling in this respect.
When I look back at the history and the origins of what faces us, one of the things that strikes me as highly relevant is the whole culture of deregulation for which the previous Administration must take responsibility. However, I am sad that when we inherited the role of government we were not more challenging in that respect. But when I say that we need to take regulation more seriously, I feel equally strongly that it is a rather mad way to run an economy in which everyone is set loose and there are regulators around to blow the whistle. It seems to me essential to have an ethos within finance, industry and society as a whole that has regulation to sustain the situation should things go wrong. In that, the drive for what is right is coming from within the system itself.
Frankly, I have always found it interesting that when people speak of Adam Smith, they seem to want to take from The Wealth of Nations what suits them in the immediate situation, but they do not remember that Adam Smith was a highly ethical man. His writings and his academic career speak for themselves. The Theory of Moral Sentiments is perhaps every bit as important a piece of writing as The Wealth of Nations.
From this side of the House, I reflect on the thoughts of one of my colleagues who I always greatly admired; the late Lord Soper. At the time of the fall of the Berlin Wall, Lord Soper adapted what has often been said of Christianity and said that it is not a question of socialism having been tried and failed; it is a question of socialism having demanded an ethic of which humankind has so far proved itself incapable. I have often reflected on those words. I believe that human society has always evolved by struggle—and I am not one of those who is keen to give up the struggle.
Obviously, the crisis that confronts us is economic in form, but my thesis is that its origins are very much in a crisis of values and a collapse of integrity. Greed and short-sightedness have too often taken precedence over responsibility, understanding of interdependence and long-term perspective. Certainly, it is in the realm of values that lasting solutions will be found. What is produced by any system cannot be better than the principles, values and effectiveness of those who operate it. This is a huge challenge to our educational system; a reassertion of the importance of philosophy and critical faculties as distinct from quantitative education.
My own view is that we live in a highly ideological age. I do not remember a more ideological time in my life. Of course, the centre of that ideology is an unyielding commitment to the market. I do not deny the importance of the market; I regard it as foolish to do so because the market is an important part of our system. But it is only part of our system. How does the market on its own meet satisfactorily—and I do not see the evidence that it does—the challenges of the environment, climate change, security and third-world poverty? In talking of level playing fields, we have to recognise that many countries in the third world have to be helped to become fit enough to take part on the playing fields at all.
If we are going to find the right solutions, it is time to look honestly again at the importance of the mixed economy, of accountability and of pragmatism, not dogma, about what fits best in the private sector and in the public sector. It seems to me that a healthy mix of the two is appropriate. Certainly we need a healthy rehabilitation of the concept of public service. That concept has been denigrated year after year, as it seems to be said that failed people in society go into public service while clever people go into merchant banks. We have to get back to the ideal where to consider serving the public in the public sector is, if you are able and are highly qualified, a very fine thing to do.
However, we must also accept that ethical investment is not an option, an add-on, that you might consider after you have got on with the really tough stuff of running a business. Surely, if the current crisis has demonstrated anything convincingly, it is that ethical investment is absolutely central to the successful and enduring appropriateness of management in industry. I am not sure that all my colleagues will necessarily cheer my reflection that perhaps the logic of the situation in which we find ourselves is that we ought to reflect on the relevance of democratic accountable socialism.
My Lords, in declaring my long-established corporate and financial interests in the City, I am saddened to hear the noble Lord, Lord Judd, excoriating bankers and banking, and the lack of regulation, in the way in which he has. It might shock your Lordships to hear me this afternoon come out and say that I have a number of investment bankers as close friends, and that I regard them as a very good bunch indeed. They are moral men and women who seek to do good and not to do evil, and such blanket condemnations do not befit this House. No class or group of people should be condemned root and branch, and certainly not here.
That said, I have just two points to make. First, I want to stress the need for a new economic understanding to replace the violent swings in opinion that we have seen on how to run things since World War 2. I agree with something the noble Lord, Lord Judd, just said, so correcting the balance. Secondly, I want to give a few pointers on how that might be done. I must tell the House that in those two tasks I am no futurologist, no seer, and, having been born with but two hands, unfortunately I am no economist.
On my first point, I assert that times have changed so much and we have all learnt so much; there are pendular accusations that this time free markets have failed just like the last time statism failed. Phrases such as, “That’s enough financial engineering; let’s get back to real engineering”, seem to me to be permanently redundant in the way we are having to live now. Although I am no economic historian, I suspect that such people will look back to the mid-1990s and say that that was when the doctrine of permanently high and ever-growing public expenditure was found to be a disastrous failure; that somewhere in the mid to late 1990s we began to cross an expenditure fault line which has had a devastating effect on our country.
That is demonstrable because if we were to continue with business-as-usual spending at current rates, by 2020 national debt would equal at least one and a half times our gross domestic product. This is certainly not a time for a welter of figures, but these few that I will give will do. Back in 1993-94, public spending was £283 billion. In the 15 years since, it has grown, largely under Labour, to the current £623 billion. That is a 5.4 per cent per annum growth at a time when inflation has averaged over the same period at 2.4 per cent per annum. So the real annual growth in public spending has been 3 per cent year after year over the past 15 years.
There are two friends and colleagues with whom I work closely in the City, Mr Malcolm Offord, and Mr Jamie Arnell, who have demonstrated to me, in a mercifully algorithm-free model, that if public spending had grown in exact sync with inflation, today public spending would be at £404 billion, not £623 billion. So the current public sector overspend is £219 billion. That is the end of the figures—no more, I promise. I hope that the Minister, who has the unenviable task of winding-up, will not leap up, either now or during his speech, to say that he does not see any overspend, he just sees investment in public services. Let him come canvassing with me in the forthcoming elections and tell that on the doorstep to people who experience the failures of public services.
I think that many across the Chamber privately recognise that we are spending too much and that we need to retreat across the public expenditure Rubicon—and do it permanently. I suspect at the moment there is much less of a consensus on tax rises with the temporary Nelsonian refusal to recognise that the problems of toxic assets, about which many in this House have complained, are now likely to be followed by those caused by the toxic taxation which was so brilliantly set out by my noble friend Lord Forsyth of Drumlean in his very important speech. He points out—I do not need to elaborate—that punitive taxation rates punish the poor probably more than they punish the rich.
Companies too are now rushing to the UK exits and to new tax domiciles. The litany of large corporate tax leavers and therefore people paying less and less tax is growing inexorably. Last week’s leaver was Informa plc, heading out of this to another tax domicile—another good plc’s profits and taxation lost to the Treasury. I have one question to ask the Minister, which I hope he will, with his characteristic courtesy, find time to reply to during his winding-up speech. Is it right that the Treasury is currently exploring ways of trying to stop this cross-border exodus—yes or no?
With these few examples I turn to my second point: what can be done? Self-evidently from what I have just said, we should reverse these destructive tax hikes; most importantly of all, we should ensure that the public sector is treated fairly but realistically. I agree once again with the noble Lord, Lord Judd—that is two agreements and one disagreement with the noble Lord—when he says that people in public service should be greatly valued. On the other hand, they have to be treated in a way which is fair in relation to those in the commercial world. Sixty per cent of private companies intend this year to operate a wage freeze, we are told. Another 10 per cent of private companies are actually going to cut wages. Listed companies are doing exactly the same thing. That is the new reality. The public sector has to recognise the new reality too. In return for the maintenance of their pensions for those in post, I think those in the public service should be subject to at least a two or three-year pay freeze in coming years to help rebalance the economy. To those who say this is impossible—we will have the noble Lord, Lord Lea of Crondall, back on the streets leading strikes, and all the rest—I think it is vital as a first step towards the permanent rebalancing of the state finances.
The vital part of any new understanding is threefold: no more public sector growth overall, ever again, in the way we have seen in the past 15 years, and the beginnings of substantial retrenchment; a new and permanent settlement on public sector wages with a fair trade-off for those in the public sector, whose work I certainly value, against their job and pension security; and a return to sensible, not punitive economic-activity-destroying, levels of taxation.
My Lords, I congratulate my noble friend Lord Forsyth on his fluent and penetrating speech. The Prime Minister still claims that the recession all stems from global causes, and that the United Kingdom is better placed to emerge faster from the debris than any other country. These assertions warrant brief scrutiny.
Before the collapse in markets, I submitted to your Lordships that our public finances were in disorder and demanded attention. In fairness to the Government, I also questioned the wisdom of the Opposition’s adherence to sharing the proceeds of growth. After all, public spending was exceeding Treasury forecasts year after year; the fiscal rules were fudged and fudged again—to use the words of the noble Lord, Lord Desai; taxes, let alone national insurance contributions, were rising at two and a half times earnings to enable Mr Brown to bloat the public sector; private borrowings were out of control; the savings culture was in chaos; private sector pensions were under pressure from constant Brown raids; and off balance sheet lay the costs of the poorly negotiated PFIs and the burden of gold-plated public sector pensions.
In short, as the Governor of the Bank of England later confirmed, the Government’s balance sheet was enfeebled by debt-fuelled spending in the Brown boom years. According to the OECD, UK borrowings are as much a legacy of the Government’s home-grown structural profligacy as global forces. The IMF has attested that the UK will shoulder the worst fiscal deficit of any G7 nation.
Against this backcloth, it was imperative for the Chancellor to provide a credible framework for dealing with our public finances after the disgrace of his autumn PBR. Above all, the Budget required economic honesty and responsibility. Instead, the Chancellor served up another dodgy dossier, with counterfeit forecasts ridiculed everywhere—even by the Treasury Select Committee yesterday in the other place.
When the Chancellor uttered the sentence that our growth rate would rise to 3.5 per cent in 2011, it confirmed that his forecasts were works of fiction. Only in one of the Brown boom years did we achieve a growth rate on that scale. The Prime Minister and Chancellor’s forecasts have damaged trust in the Treasury. It concerns me, as a former Treasury Minister, that for eight successive years their public spending forecasts have undershot the outcomes. Either Treasury forecasters are hopeless and deserve replacing, or they are victims of political interference from Ministers and spin doctors, with the apparent acquiescence of the Permanent Secretary. The Select Committee should carry out an inquiry. This incompetence, or abuse, cannot be permitted to persist to the detriment of our fiscal planning and the reputation of our foremost department of state.
The UK’s recovery depends on the Government’s honesty about the true state of our public finances. How did the Chancellor in his Budget seek to allay these anxieties about our public finances? He announced efficiency savings. As my late noble friend Lord Deedes might have said, this hoary chestnut is a dead red herring. Noble Lords will remember the Gershon report of five years ago, which signposted efficiency savings. Well, the National Audit Office, as my noble friend Lord MacGregor has already pointed out, revealed that the Government have delivered a mere quarter of these promised savings in those five years. So why should we believe the Government’s word a second time around?
Treasury competence and honesty matter on several levels. Let me highlight just one. The UK is set to borrow a higher multiple of its reserves and a higher share of its GDP than any major nation. In the next five years the UK will need £700 billion of debt finance—that is £270 billion more than the Chancellor fancifully estimated in the PBR. Billions must be raised in the gilt market, as my noble friend Lord MacGregor reminded us. The peril is that confidence in the gilt markets will wilt further, as the Chinese Government warned us yesterday, if the Government do not explain how they intend to get a grip of their public finances, especially if inflationary pressures surface again. I recognise that deflationary, not inflationary, fears reflect the conventional wisdom. Yet for me, the greater menace is a resurgence of inflation. The Governor of the Bank of England still writes letters conceding that inflation is too high; the CPI and food price inflation hover around 3 and 8 per cent respectively. By the time the printing presses ease up, the UK will have doubled its monetary base, broad and base money spiral, with M4 reaching nearly 19 per cent. If the oil price hardens even by a slice of its last rise and sterling stays weak, inflation will threaten the glimmerings of recovery.
The Chancellor and the Treasury should come clean with us about the state of our public finances and provide us once and for all with a credible framework for setting them right. They should dust off copies of the excellent White Paper, The Government’s Expenditure Plans 1980-81, published under the auspices of my noble and learned friend Lord Howe of Aberavon in 1979. One of its aims was to plan for spending that could be compatible with objectives on borrowing and taxation, with a realistic assessment of the prospects for economic growth. We have not been given a realistic assessment, but we must have one, otherwise the markets will crucify this country and it will be the fault of this Government and this Government alone.
My Lords, like other noble Lords, I thank the noble Lord, Lord Forsyth, for facilitating this debate. I am rather dauntingly aware that I am neither an economist nor a businessman; in fact, I am an academic philosopher. I want to concentrate on one thing in my speech. It is an abstract point, but I hope that it will not be arcane or without interest. I shall concentrate on the value or price of toxic assets or sets of assets that are included under that general rubric—CDOs, mortgage derivatives and so on. This is an important issue, as the banking sector will have to be reformed if it is to play a central part in the economic recovery to which we all look forward. Yet we have grave difficulties in trying to understand exactly how we are to do that without getting a grip on the idea of value or price in relation to some of these more exotic instruments.
It is often said—in a way, it is obviously true—that the last 30 years have seen the triumph of economic liberalism. However, there is a paradox. The development of these assets has been a product of economic liberalism and deregulation, yet those who have lauded the development of these assets have neglected one of the central themes of economic liberalism, which is that value and price are fixed in open markets by the relationship between the buyer and the seller, and value is subjective; it is about the preferences of individuals, whether they are buyers or sellers. However, many of these assets have become detached from any clear relationship to a market in which value understood in that way can be credited to them. Let us take the case of CDOs. They are sub-prime mortgages, which is a bad thing in itself, but then they are divided, subdivided, bundled up and sold in different ways to different groups of people. People have a remote understanding of how that relates to ordinary market transactions.
Many people will say that that does not matter, because the value of these assets can be fixed by mathematical modelling of one sort or another. I heard someone making this claim on the radio last week, saying that we need not worry about the relationship between these assets and normal markets because the value of these assets can be fixed by mathematical financial mechanisms. Anyone who has read, even superficially, the economic liberals will know that a great deal of their thought is characterised by the rejection of those sorts of mathematical models. The reasons for that are twofold. First, people such as Hayek argued that markets are too complex and dynamic for any mathematical model, however cleverly constructed, to capture. The second and perhaps more important point—again made by Hayek and Mises, in particular—is that a great deal of the knowledge that is utilised in a market is not propositional knowledge, which is the only kind of knowledge with which mathematics can deal. Rather, the knowledge that is important in markets is tacit, implicit knowledge; it is knowing how rather than knowing that. Yet you cannot bring into economic models in any straightforward way, if at all, this tacit, implicit knowledge. Economic models require things to be made explicit that are always actually going to be implicit. There are therefore big buffers or road blocks in the way of an ability to produce models of assets that are not traded in a normal market context.
If any of that is true, as I think it is, we are facing the paradox that economic liberalism has been threatened by products that are themselves a product of economic liberalism but have been created in the face of the basic understanding of price and value within an economic liberal philosophy. If, however, it is impossible to bring those assets into relationship with normal market understandings and transactions, we have to do what the noble Lord, Lord Lawson of Blaby, argued earlier, which is to separate out the exotic—the casino, if you like—aspects of banking from the normal, everyday family and businesslike aspects of banking.
If we cannot find a regime—I am not remotely in a position to suggest what it might be—to bring an understanding of the value of these complex commodities into relationship with, as it were, normal understandings of markets, we have to divide those sorts of assets and how they are dealt with in banking and so forth from those assets that we all understand and are part and parcel of normal market activity. Behind this rather esoteric debate about the nature of knowledge lies something very important: you cannot get way from the idea that economic value is subjectively determined in market exchanges, and that cannot be fully captured by economic models, however complicated they are.
My Lords, I, too, congratulate my noble friend Lord Forsyth on securing today’s debate. I am very grateful for the opportunity to contribute on such an important and timely topic.
This debate comes just two weeks after the Chancellor delivered the Budget but, according to the National Institute of Economic and Social Research, the economy in this country is contracting faster than in the 1930s and far more than was forecast by Mr Darling in his Budget. Nearly 2 million people are unemployed at present and this figure is likely to rise. In addition to losing their jobs, large numbers of people are having their houses repossessed. On the Government’s own figures, the national debt will double again to £1.4 trillion; every baby will now be born owing £22,500; and interest repayments have risen to £43 billion a year, which is more than the schools budget.
In recent months, much has been said in your Lordships’ House about leadership. Instead of strong leadership, we have seen mismanagement of the economy, with the Government appearing to be in crisis-management mode, lurching from one disaster to another. Rather than strong and decisive action when it was most needed, Labour has dithered on important decisions, and this has resulted in the massive debt in which we as a nation and people all over the country find themselves. Today, we find ourselves less well prepared than any of our major competitors.
I think we all appreciate that fiscal responsibility must be the foundation of any economic policy. Rather than having excessive expenditure and failing to save when times are good, to my mind it is essential that a Government learn to live within their means. That is not just a good policy for the Government; it is an important lesson for every household up and down the country. We must all appreciate that there is not an endless amount of credit to be had and that restraint is good. British households have the highest debt of any major economy. The number of bankruptcies and repossessions is rising, and this legacy will take years to overcome.
As the chairman of an insurance organisation, I firmly believe in trimming expenditure and feel that the Government must be prudent. I believe that we can cut waste without affecting front-line services, and this is an important goal. There is too much waste in public services—in bureaucracy within the NHS, the police and other areas. By cutting this waste, we will not hamper their efficiency but improve it. Better front-line services are important to everyone, and we must be committed to cutting waste where it exists and ensuring better value for money for the hard-working taxpayer. We must strive to achieve this to ensure that help is in place for those who need it—the sick, the poor and the unemployed—when they need it.
I am an employer. All employers create wealth and provide employment. A number of employers and entrepreneurs earn more than £150,000 a year, and these people will be penalised by the imposition of the 50p tax rate. I firmly believe that higher taxes for the wealthy are counterproductive and that they stifle the creation of wealth for the country.
My business is financial services. In future, the banking and financial services industry needs to exercise proper housekeeping and better risk-management measures. There needs to be a change of culture. We need to revitalise the industry and to think carefully before we apply very strict regulations. The industry of course creates a considerable income for the country.
Most of us have elderly parents and relatives, and we should believe in a fair approach to pensions so that older people do not suffer and are comfortable in their retirement. Older people make a huge contribution to society but this is not always reflected by government. It is important that their potential is recognised and supported. Their savings need to produce an appropriate yield.
I have a number of friends who are doctors and I feel that we need to look carefully at all aspects of the National Health Service. This means that proper funding is needed and, where risk exists, it must be eliminated to ensure that patients benefit. A&E departments and maternity units are vital to communities, and these must be preserved and not cut. All this can be achieved by prudent spending and cutting back on unnecessary waste in the system. Front-line services such as the NHS do not have to be affected in the economic downturn if we are prudent about where the money goes.
Now is the time when we need to help ordinary families; instead, this Budget taxes the people who can least afford it. The national insurance contribution in 2011 will hit everyone earning £20,000 a year or more when we should be starting to see the economy grow further. My party wants to help families. On that note, I shall end as my time is up.
My Lords, I congratulate the noble Lord, Lord Forsyth, on gaining this timely debate and on his excellent speech. As an engineer, I enjoyed the emphasis that he placed on numbers. I intend to spend my time discussing the relationship between stimulus funding and low-carbon obligations.
There is an inconvenient truth—not Al Gore’s—that most of the methods available to us to reduce carbon dioxide production and meet our climate change obligations are more expensive than those that they replace, and that we are going to have to find huge sums of money to pay the subsidies needed before the private sector will invest in them. That is clear in the Budget, where an overall additional package of £1.4 billion is identified to support low-carbon projects, and this builds on existing policies, which, quoting from paragraph 1.32 of the Budget, are already enabling £50 billion of low-carbon investment over the three years to 2011.
How are we going to pay for all this in the long run if indeed low-carbon energies remain more expensive than their predecessors? There may be some low-cost options, such as nuclear energy, and we might even change our lifestyles and reduce our consumption if forced by economic circumstances, but there is no time to discuss these today and they will probably not change the situation. If we are not just to print more money, we will be able to pay for this only by increasing the output of our economy and improving our current account balance. In the absence of the large margins enjoyed by the financial sector in the recent past, this will have to be done by reviving industry and business.
However, our industrial record in recent times has been appalling. For example, overall, the UK’s trade balance has deteriorated at a rate of 20 per cent annually since 2000, approaching a negative £60 billion, or nearly 5 per cent of the UK’s GDP, in 2006, and our current account, of which the balance of trade is the major component, has been in negative territory consistently since 1997. The reason that the deficit has not ballooned more than it has is because of the net positive balance being produced by the financial sector and through the sale of our assets, whether they be airports, aeroplane wings or whatever. None of these is sustainable. These issues were clearly laid out in a report of the ERA Foundation published in March this year.
That brings me to the point that I wish to make today: we should ensure that stimulus funding is focused on reviving industry and business so that we can afford to implement high-cost, low-carbon technologies, rather than it being spent almost entirely on the high-cost energy technologies themselves. If we spend too much on high-cost, low-carbon projects, we will merely drive the nation more and more into debt and end up not being able to pay for the means to meet our climate change targets.
The Budget contains a strategic fund of £750 million to support business, but a third of that is contained in the £1.4 billion to be spent on low carbon. Even some of the additional money going to the TSB is also to be earmarked for low carbon, so the rest of business will get only about £450 million. This is far too small in relation to the other sums of money that are being bandied about. Our obsession with low carbon ignores the fact that there is much more to our industrial base. If we are to increase the volume of the high-performance, competitively priced products and services that we produce and sell so that we are rich enough to meet our carbon targets, we will have to find projects that support a broader technology base, and it will also be necessary to improve the efficiency and thereby lower the cost of our communication, transport and health systems.
Stimulus funding should be spent on projects that will ensure that our workforce possesses the skills broadly needed to support industry and business. We need to be able to harness the latest communication technologies, including optical, wireless and satellite transmission. We need to design large, complex software systems, to implement state of the art microelectronics, including control systems, data processing, coding and storage, and to be expert on sensors and actuators, as well as the complex instrumentation now essential in healthcare. A thorough understanding of the characteristics and application of newly developed materials is equally important and is relevant to all branches of industry, from aerospace to pharmaceuticals.
The list is long, but without our industries bringing their technology bases up to date across a broad spectrum they will not be able to compete internationally. Stimulus funding methods must be found as soon as possible to encourage all of industry to do this, to bring their levels of R&D spending up to internationally competitive levels. If we spend our stimulus funding almost solely on low carbon industries we risk broad industrial collapse and we will deny the stimulus that the bulk of our industry deserves.
My Lords, two weeks ago today, I was at the meeting of Lloyds Bank’s intensive care and corporate rescue operation, which is now responsible for running the combined Bank of Scotland and Lloyds Bank book. I was representing another financial institution at that meeting and came away with a number of strong impressions of what is going on in the undergrowth of the corporate rescue world.
At present the Lloyds Bank activity employs 180 staff in intensive turnaround operations; it has had to set aside a separate unit to cope with the very large multi-bank invested operations, which are causing serious concern, and on which it needs some assistance from the noble Lord, Lord Myners, in a way with which he will be familiar and of which I shall remind him in a minute. The other great impressions are that there is a world of difference between the quality of the problems of the ex-Lloyds Bank book and those of the ex-Bank of Scotland book. It would be worthy of the Government’s attention to think very hard about the implications that this might carry for the Scottish economy. The book of Scottish debt is fragmentary, relatively minor, with many start-up operations. The smaller the business, the harder it is to rescue. One will be full of very deep forebodings about the extent of the impact of the collapse of those businesses collectively on the Scottish economy.
As to the rest of the book, the problems are considerable, but the team is confident that within six months it will have cracked the burden of most of the turnaround situations and have them on recovery. We need that, because it is a staggering amount of debt, which runs into tens of billions of pounds and is by far the biggest corporate rescue book ever attempted in this country. It must represent an enormous amount of the lost GDP of this country that these businesses are locked up in corporate rescue. We need to have them back as generative, thriving businesses again, without which there is not the slightest prospect of the Chancellor’s optimistic 3.5 per cent GDP in a couple of years ever being fulfilled. I should think that a high proportion of that is sitting in Lloyds Bank at the moment.
We can go back to the famous remark made by the Prime Minister to the effect that he would save the world, but I do not recall him ever saying that he would start by saving Ireland and Australia. He should have warned us. At present, the Allied Irish Bank and the National Australia Bank are ripping off Lloyds Bank merrily at every opportunity by calling in the significant loans on which they participated in a syndicate, forcing Lloyds Bank to buy them out simply for the preserve of keeping the Lloyds Bank—or Bank of Scotland—interest alive long enough to do a rescue. This is a progressive dumping of toxic debt into Lloyds Bank, which I am sure was never intended and would never have been allowed under the old London rules. It must be stopped now.
I know that the noble Lord, Lord Myners, will say that London rules cannot come back and that the Bank of Scotland does not exist on the same basis. I am sympathetic to his arguments, but the sort of activity that is going on could easily be addressed by the FSA if it were to take it on. It would not be so difficult for it to have the same supervisory role to ensure that facility positions are maintained and not called in unfairly to make the national economic situation worse.
A week ago, I was in the world headquarters of the Ford Motor Company in Detroit at precisely the moment when the news came through that the Chrysler Chapter 11 proceedings had gone ahead, that it would shut down for three months and that there was a strong risk that General Motors would do that as well. The whole of the Ford Motor Company went into overdrive at that moment to check out the status of every supplier that it had, and a very strange pattern emerged. It turned out that a large number of the principal Chrysler suppliers effectively could not have continued to supply Chrysler even if it had stayed open for the next three months, because its banks in America had stripped out every penny of its facility in line with every pound of cash generated.
When I asked Lloyds Bank how it was getting on with automotive component suppliers, it said that it had about 20 all in the distress situation. I wonder seriously whether there is a bottom-up implication. It will not come from top-down failure of a big company like Chrysler, but a bottom-up failure of component suppliers to keep servicing the 910,000 people in the British automotive industry. FSA supervision of the maintenance of facility positions would be a hugely constructive element to keep the economy marching on its industrial army.
Beyond that, we have to look at the rescue structures that Lloyds Bank will engineer. There are basically only three types of rescue: trade out, reconstruct the balance sheet or a Treasury solution, which is the polite word for selling off everything you can. The trade-out solution is rather like the Loch Ness monster, the Holy Grail or nymphomaniacs. Everybody believes that they exist, but nobody has ever come across them in real life.
My Lords, the noble Lord, Lord Myners, may be an exception.
There will be no trade-out solutions, because they do not happen. Businesses fail because they have been successful and they have overexpanded beyond the market’s capacity to sustain their business, so there has to be a major cutback. If those banks are allowed to dump debt on to Lloyds progressively, that also means that Lloyds will have to finance a huge proportion of the write-off debt required to make those businesses survive into the future.
I wish that the noble Lord, Lord Myners, would now accept that he cannot have London rules back. Will he please get the FSA to do what it can to substitute for the essential London rules to keep a reasonable chance of getting as much of that business back to being generative of GDP for the future of this economy?
My Lords, I get the feeling that a lot of people think that we have sold our birthright for a mess of pottage. What an extraordinary mess we are in. I used to think that I knew what an instrument was; I thought I knew about debt and equity. Now I am completely confused. When I get confused in your Lordships’ House, I seek the advice of the archives, and I suddenly realise what the best instrument is. When noble Lords have a minute, they should nip down the Corridor to look in that little case showing the tally sticks. The tally stick was introduced before the Norman Conquest as a measurement of debt.
As I sit here today, I realise that I am in this Chamber, unfortunately, because of the Tory Party of Lord Liverpool and Sir Robert Peel, who decided to burn government debt by putting the tally sticks in the boilers, and your Lordships’ House burned down. I thought that that was an instruction and advice that I could give to the noble Lord, Lord Myners. Burn the government debt or convert it into equity. Those are the possibilities. When people keep talking about trillions and billions, the general public—if there are such people—do not know what that means. All we know is that it is a substantial amount of money.
I began to get worried about the emerging economic crisis—I get worried only because when I was a young Peer in your Lordships’ House, when no one would speak on economic affairs, I spoke, and I would say, “I am very worried that we now have a 16 per cent bank rate, which means that people are borrowing at 21 per cent; inflation is at 22 per cent”. Every 10 years, there is an economic crisis when those eminent people from the other place who speak so well come and try to make political points. We do not need to make political points; the country is in a complete mess and has forgotten its fundamentals.
Like the noble Lord, Lord Broers, I suggest that those fundamentals are creating added value through trade—as I explained before, my life has been trade. We are not a self-sufficient economy. Throughout our history, we have always had to import most of our basic raw materials but have been able to create added value—sometimes in our country, not least in the textile industry in Leeds and Bradford—but also in other areas where the raw materials had added value created by our technological skills.
Now we have the strange situation where no one worries about balance of payments any more. Yes, it is minus £50 billion this year, but every economist will tell you, “It is not the balance of payments that matters, it is how you finance it”. I look at what we used to call manufactures, or visible trade. Last year, we had a deficit of £100 billion on visible trade. We are net importers of energy and oil now. On every factor that relates to trade, we are moving into deficit. We were supported by the financial services industry contributing to a surplus of perhaps £50 billion, but that has probably gone out of the window. We have a trade problem.
If we look at it another way, we have a trade opportunity. We were always a mercantile nation wanting to attract foreigners. If I had been sitting in the Politburo in the Soviet Union a few years ago, I would be looking at the United Kingdom now and saying, “This has gone entirely according to plan. We have effectively decimated and ruined the strength of the United Kingdom on a worldwide basis. Now, at last, the foreigners are leaving their shores, frightened that they will be overtaxed or destroyed”. At this stage, with sterling having gone down by goodness knows how much since 1947, it has halved against most currencies, with the exception of the Australian and New Zealand dollars, a bit of Portugal and quite a lot of Spain. Our currency has depreciated. If you present it in another way, now must be the best possible time for those who have liquidity and opportunity to invest in the United Kingdom economy. Whether that will happen depends on their strength of confidence that they are investing in a secure economy.
If I were moving a Motion today, I would have to go back to the 1621 Council of Trade, whose instructions in their mandate were:
“To take into their consideration the true causes of the decay of trade and scarcity of coyne and to consult the means for the removing of these inconveniences”.
I rather respect the noble Lord, Lord Myners, because we can smile at each other and I know about the difficult position of someone who has not been a Minister before and who wants to speak openly and honestly but is often constrained by his officials. Can he please tell me in simple terms what is the total obligation of Her Majesty's Government in debt, bonds, gilts and everything? The only good advice that I gave people was to say, “Why don’t you buy war loans”, which everyone wanted to get rid of. The war loan has been one of the best performers. Perhaps we should issue new defence bonds, new health bonds or new tax-free bonds, to encourage money back. What is the total figure?
Secondly: what is the cost of the British bureaucracy? We have 520,000 civil servants; we have an enormous amount. At the moment, you would advise people: “Don’t go into the private sector, go into the public sector, because you will be protected”. If you calculate forward, depending on your age, given the net benefit, with pensions, it is the best sort of job to go for. I suddenly discovered when I was researching my speech that quangos have been replaced by non-departmental public bodies. I found that they spend £43 billion. At a meeting, I said £43 million, but then I rather jokingly said, “I think I have made a mistake; it is £43 billion”. What is that expenditure for? If we need only £1.5 billion for the new strike aircraft, £43 billion seems a large amount of money. The Minister would do me a great favour if he could tell me the total level of Her Majesty’s Government’s obligations for, say, the next 10 years, and the total level of their expenditure.
My Lords, I join others in thanking the noble Lord, Lord Forsyth, for initiating the debate and compliment the right reverend Prelate on a thoughtful, poignant and, for me, rather nostalgic speech. I was delighted to be reminded of so many landmarks in the city in which I grew up. I commend the right reverend Prelate to the incomparable Victorian cemetery in Undercliffe.
I focus my remarks on the role that higher education can play in shaping the future economy. It is reassuring to hear several speakers in the House today with connections to the world of higher education—chancellors of universities, former vice-chancellors and distinguished academics. I declare my interest as chief executive of Universities UK.
One thing that we can be sure of is that the economy and the employment market will look very different after the current recession. The financial services sector, one of the UK’s biggest graduate recruiters, has shrunk dramatically during the past 18 months. Professional services firms have also cut graduate recruitment. We need to ask: what jobs will replace them?
According to the recent BERR and DIUS publication, New Industry, New Jobs, of which I am sure that my noble friend will be aware, there will be,
“a continued focus on ensuring that our economy is driven by high levels of skills and creativity. Britain is, and will continue to be, an economy driven by the creation and exploitation of knowledge”.
It also states:
“the world economy is set to double in size and a number of trends in the global economy will present significant new opportunities for British businesses”.
Those opportunities include emerging industries such as life sciences and pharmaceuticals, advanced manufacturing, low-carbon technologies and the creative industries. The Government's approach in setting out the direction in which they believe that the economy is going over the next 10 years is to be welcomed, although of course those are predictions, not sure bets.
What is clear is that the status quo of the current economy, with a large financial services sector and a small industrial base, will no longer remain. The Prime Minister himself said in a speech on Tuesday to school head teachers:
“'We need to start building for the new world, not in our financial system, but in our education system—not at bank counters but in classrooms”.
I suspect that many noble Lords would agree with that sentiment.
Many of the growing businesses to which I referred earlier are predominantly graduate-level professions. That means that we need existing graduates to go into those professions, but we also need to increase the pool of graduates to meet demand. UK universities produce 260,000 graduates each year. Yet the report by the noble Lord, Lord Leitch, said in 2006 that, by 2020, the UK would need 40 per cent or more of adults studying at level 4: in other words, at degree level or above.
Seventy per cent of the 2020 workforce is already in work, so that is where we need to address their skills needs. It is clear that the traditional form of higher education—going away from home for three years to study for a degree—although important is no longer the predominant model of study. Many people now study part time while in work. Indeed, in 2006-07, there were more than 500,000 part-time undergraduate students and a further 300,000 students studying part time for postgraduate qualifications.
The higher education sector has ever closer ties with business and is actively engaged in improving the variety of systems that are already in place to make it easier and more effective for employers to engage with the sector. Universities UK, with the CBI, has highlighted some contemporary examples of workforce development through employer-HE partnerships. These show that universities and business are aware of the need to collaborate and communicate so as to produce high-quality graduates with the high-level skills that society needs now and in the future. They are working together on the development of foundation degrees and vocational degrees, as well as vocational modules, as part of academic degree programmes. All this will be ever more relevant as the class of 2009 enters one of the most difficult labour markets for decades.
Not only have universities been trying to tackle the downturn by providing their own graduates with the skills that they need, but they are reaching out to their local business communities. There is now a contact point for businesses to use at every higher education institution in the country. Universities can offer multiple opportunities: staff training at all levels, with bespoke courses designed for the specific needs of business; business schools that help to improve leadership and management skills and development programmes to improve the customer experience; and consultancy services that help to improve company practices. They engage with business through work placements and similar schemes. Universities and higher education colleges have a strong record in fostering innovation, enterprise and skills, and in helping to create wealth and job-generating opportunities.
To conclude, as part of the debate today we need to consider not only the future prospects of our economy but what kind of worker we need to participate in that economy. I am sure that with continued public investment from this Government and any future Government, and with the right kind of private investment and partnership, we can build on the existing strengths of our already excellent higher education system to help to rebuild the British economy for the challenges of the next century.
My Lords, like other speakers, I congratulate the noble Lord, Lord Forsyth, on securing this debate. At this stage in the batting order, it is always a little difficult to find something original to say, but I have alighted on something of interest.
The Financial Services Global Competitiveness Group has produced a report which the Minister has done his best to keep away from the House. It seems to have been released to the press in advance, but I cannot get a copy from the Printed Paper Office. Perhaps this is why. The report calls for a predictable and stable tax regime to help London to retain its position as a world leader in financial services. According to the Press Association, the group said that tax needed to be,
“stable, sustainable and competitive in the long term”.
This does not reflect well on the budget income tax increase to 50 per cent, which the Treasury hopes will raise an extra £2.9 billion by 2011-12. The IFS, in a study on the original 45 per cent new tax rate proposed in the Pre-Budget Report, suggested that it will cost the Exchequer rather than raise money, and concluded instead that the optimum higher tax rate should be 43 per cent. It suggests that the fiscal behaviour of high net worth individuals may change but not to the Treasury’s favour.
Anatole Kaletsky took up the theme in the Times of 27 April. The Chancellor, he states, decided to make significantly less likely,
“the benign scenario of rapid economic recovery … In terms of Treasury revenues, these reforms are likely to be self-defeating, or at best, utterly futile … behavioural changes, such as changes in work patterns, relocations abroad and conversion of wages into corporate profits or capital gains, will mean that the Treasury raises much less than the £2 billion of revenue predicted. And even in the unlikely event that Mr Darling’s pre-election tax gesture did manage to raise the odd billion, these sums would be far too small to have any impact on public borrowing projections”.
Anatole Kaletsky went on to argue:
“Even if higher taxes were justified in the long term for reasons of social equity, the decision to rush forward this reform amid a recession will do serious damage to the economy and the public finances. Hopes of the quick improvement in UK economic conditions assumed by Treasury forecasts rely more than ever on maintaining the City’s role as the dominant centre of global financial and business services”.
“The Budget Red Book says the financial sector provided 25 per cent of the £47 billion in Britain’s total corporation tax before the recession, plus a ‘significant’ proportion of income tax and national insurance receipts. The financial and housing sectors between them accounted for half the total growth in tax revenues from 2002 to 2007, but are expected to decline by 1.75 per cent of GDP, or £25 billion, this financial year. That is more than half the total decline in tax revenues expected as a result of the recession—and the Treasury’s hopes of … recouping half the revenues lost from finance and housing by 2013”.
Overall, the new higher rate of tax seems to be deliberately designed to stop the UK’s financial and service sectors returning to the predominance they enjoyed. I am surprised that the Minister did not advise the Chancellor against it.
I want next to concentrate on two areas covered in considerable detail by other speakers; first, the economic background to the Budget compared to the growth forecast presented by the Chancellor and, secondly, the state of public finances as revealed in the Pre-Budget Report and the estimated weak economic growth. Moving on only five months, the figures have deteriorated rapidly. As other speakers have mentioned, even the dreadful revised 2009 forecast could be optimistic. Only two days after the Budget, the ONS reported a contraction of 1.9 per cent in the first quarter. According to the FT, the European Commission has predicted a decline of 3.8 per cent. Shortly after the Budget, the IMF predicted a 4.1 per cent full-year contraction in GDP in 2009.
As other speakers have noted, just yesterday, the National Institute of Economic and Social Research predicted that the UK economy would decline by no less than 4.3 per cent this year. The Treasury Select Committee in its report on the Budget says that there is considerable uncertainty around the Government’s GDP growth forecast for 2009-11. It believes that predicting a return to growth in the last quarter of 2009 is questionable and that the sharp recovery predicted for 2011 might be too optimistic. All that weight of opinion from independent commentators suggests that the Chancellor may be calling the recovery too early. If he is incorrect, that will have a further negative impact on the Government’s finances. In particular, the assumption that the economy will grow by 3.5 per cent in 2010-11 looks very optimistic.
The debt situation is also horrendous. Table C3 in the Red Book shows 2008-09 borrowing at £90 billion, which is up 16 per cent from the time of the Pre-Budget Report. For 2009-10 it is £175 billion, which is up a staggering 48 per cent from the PBR and represents 12.4 per cent of GDP. Borrowing for 2010-11 is forecast at £173 billion, which is an increase of an even worse 65 per cent. According to the same table in the Red Book, as the noble Lord, Lord Ryder, has stated, total borrowing over the next five years totals £700 billion.
The Treasury Select Committee notes that the Chancellor’s forecast for public borrowing and national debt represents the worst fiscal outlook since the Second World War. What is particularly alarming is the rapid increase in borrowing, which is so exceptional, and there is concern that the UK may lose its AAA credit status, which would not be helpful for the gilt market. The status is vital to attract international as well as domestic investors. The Government have squandered the golden legacy left by our party. They exacerbated the problem of finances by selling the gold reserves. Labour Governments always run out of money in the end. Debt levels were high going into the crisis and now we are saddled with it for generations to come.
My Lords, as the noble Lord, Lord Northbrook, has pointed out, the National Institute of Economic and Social Research has just published an excellent report on the future of the UK economy. Although I had no part in that preparation, I should declare an interest as a governor of the institute. When Mr Gordon Brown first became Chancellor he did three things. First, he launched an attack effectively on the private sector pension schemes of this country. Over 10 years or so, they have been virtually destroyed as final salary schemes. He combined that with introducing a system of tax credits, which I debated from the Front Bench with the noble Baroness, Lady Hollis, of such complexity as to be almost incomprehensible even to the Inland Revenue. As my noble friend Lord Forsyth pointed out, the Revenue grossly overpaid and then effectively persecuted people in order to get the money back.
Secondly, he dismantled the system of financial regulation introduced by my noble friend Lord Lawson and introduced the tripartite system, which we all know has turned out to be a complete failure and, indeed, a disaster. Thirdly, he gave independence, so called, to the Bank of England. This was widely welcomed, but not by me because I pointed out at the time that he had combined doing that with taking control of funding from the Bank of England and putting it into the Debt Management Office in the Treasury. I am glad to see that the Minister agrees with me. However, funding is absolutely crucial in the link between fiscal and monetary policy and is a major determinant of the money supply. I have stressed before that it is very important indeed to distinguish between monetary policy concerned with the supply of money and interest rate policy concerned with the price of money. I see that again I carry the Minister with me on the point. I am glad of the debate with him at Question Time and grateful for the various letters he sent to clarify points that may not have been entirely clear on the Floor of the House. We should all be grateful to Ministers who follow matters up by correspondence.
The Government have been using interest rate policy and monetary policy as if they are synonymous, but they are not. They are related, of course, but they are not the same thing. What is curious is that although the then Chancellor decided to set up a Monetary Policy Committee, for the past 10 years we have not had a Monetary Policy Committee. It ought to have been investigated under the Trade Descriptions Act. What we have had is an interest rate policy committee, a one-club golfer concerned with a single interest rate with a variable relationship to other interest rates, and that is the only thing it has had. Only recently has it been concerned with monetary policy in the sense of controlling the money supply.
The situation is now terribly confused. On the one hand the Government are lending and guaranteeing vast sums of money to the banking sector while on the other they are seeking to fund their deficit by borrowing back from the banks. It is extremely difficult to find out what on earth is really happening. Be that as it may, the Government introduced the dreadful concept of quantitative easing—if they mean an increase in the money supply, I do not understand why they cannot say that rather than “quantitative easing”—and, curiously, did it by going out into the market and buying government debt back. At the same time, the Debt Management Office is moving in the other direction. Why did the Government decide to do it this way rather than the traditional way of either underfunding or overfunding the borrowing requirement? The answer to that is because the Bank of England no longer has control; that lies with the Debt Management Office. Have we any reason to suppose that the Debt Management Office, whose main concern is to borrow as cheaply as possible on behalf of the Government, has any idea what to do about general economic management? Perhaps the Minister can tell us how many people expert in demand management reside in the Debt Management Office. The whole thing is split between the Debt Management Office on the one hand and the Bank of England on the other. The sooner we give back control over funding to the Bank of England, the sooner we will have something like a coherent policy.
I agree with the Minister that simply concentrating on the money supply is difficult to do because of the problem of the velocity of money as well as the quantity. Again, I carry the Minister with me, so I hope that we can persuade him to make other active interventions in a field where he has shown that he is making great efforts. However, it is a question of the extent to which the Government are going to fund the deficit since it is utterly inconceivable that they will fund the borrowing they now have to undertake at present interest rates. We have to ask this: who are they going to borrow the money from? I am afraid that this is a rather complicated and technical point, but it is crucial as to whether they borrow from the banks, in which case there will be an increase in the money supply, or whether they borrow from what in the jargon is called the “non bank public”, in which case the effect of the deficit and fiscal laxity will be sterilised. I hope very much that we can achieve a greater degree of clarity on this.
I have pressed the Minister to give the Government’s forecast for the money supply. He has said that they do not have a forecast. It would be a very strange Treasury model if it did not give a forecast, but, at all events, I accept what he said in his recent letter, which was that there have not been forecasts previously. However, what there has been is a specified range for what is expected to happen to the money supply, which was abolished by Mr Brown in 1997. It would be immensely helpful if we could have some idea of what is really happening, because the relationship between the money supply figures, the money supply and aggregate demand is crucial in determining the extent to which we get growth. In the context of growth, there is terrible confusion as to whether it is the underlying productive potential which is going up or the extent to which that potential is used. I suspect that what will be claimed to be growth in the next few months will be the utilisation of excess capacity which is now unemployed, rather than otherwise. However, at all events, these are crucial issues and we must have a much clearer statement from the Government as to where they stand on this whole area of policy.
My Lords, I thank the noble Lord, Lord Forsyth, for introducing this debate on what will clearly be the dominant political issue in the period between now and the next election and well beyond it. I greatly enjoyed his withering analysis of how things have gone wrong, and I am only sorry that he did not then go on to explain how, were he a benevolent dictator in charge of our affairs, he would get us out of the mess that we now are in. I look forward to the speech of the noble Baroness, Lady Noakes, because I am sure that she will fill that gap.
A number of noble Lords have discussed who is to blame. I think that there is now near-consensus, with the exception of Downing Street, that, although there is a significant US component to the situation in which we find ourselves, most of the problems we now face are home-grown. It is obvious that we had a housing and credit bubble of our own making which was bound to burst at some point with disastrous consequences. The comments of the noble Lord, Lord Marlesford, were particularly interesting, because, as we have concentrated on banks and housing, we have not concentrated on credit card debt, which is another huge and immensely expensive bubble for those who have been caught up in it.
If we can agree that this is largely a home-grown problem, what are our prospects now and how can we attempt to make sure that they are as positive as they can be? The background that we have to assess is how bad things are and how quickly we can expect an upturn. I am relatively positive about the real economy and relatively negative about the state of the public finances. The speed of the upturn will be rather greater than most people believe for a number of factors, of which I shall mention two. The first is that we are not totally dependent on ourselves or on Europe and America for an upturn. The balance of the world economy has moved, and continues to move, towards China, India, Brazil and elsewhere. Those economies are not suffering to quite the extent that we are. Growth is continuing in many of them, and it is interesting that surveys coming out of them in recent days show more optimism. Although I do not believe that they will be the locomotive of growth, I think that they will play a much more significant part in pulling the world out of recession.
Secondly, the technology of decision-making speeds everything up. As people form a view that we are out of the bottom, it is so much easier now to take decisions quickly and internationally, and implement them using modern technologies, so that one can see the whole timetable of decision-making around new investments and opportunities being concertinaed. So, as sentiment changes, people can make decisions quickly and implement them more quickly than ever before, which will play a significant part in how quickly we move forward.
The two areas on which we have concentrated today are, first, what we are going to do about the plight of the financial services sector and, secondly, how bad are the public finances. As for the financial services sector, I share the concerns of the noble Lord, Lord Wakeham, that we are a very long way from being out of the wood. I gather that, as we have been holding our debate today, the Bank of England has announced, somewhat prematurely, that another £50 billion of quantitative easing will take place, which suggests that it does not believe that we are out of the wood. I share that view. What should we be doing about reform of the financial services sector? There are two things I think we should do and one thing I think we should not.
The first, to which a number of noble Lords have referred, including my noble friend Lord Oakeshott and the noble Lord, Lord Lawson, is splitting the banks between the utility function and the casino function. There is a widespread feeling in the country that that is what people want to see. I think it will be to the benefit of consumers and to the long-term benefit of the financial services sector and I hope that the Government will revisit it.
Secondly, there has clearly got to be a completely different view about modelling and risk within the banks. When you talk to senior bankers, they say, “Well, of course, all our models proved to be completely useless in the end, they were wrong and they have led us into this mess”. They seem to be passive consumers of models, as if these were created by some deus ex machina, rather than having gone along with them because it fitted their own prejudices at the time. I strongly agree with both the noble Lord, Lord Smith of Clifton, and the noble Lord, Lord Plant, that we need to take account of political economy, of animal spirits, of some things that cannot be measured, in assessing risk. I hope very much that the banking sector tries to grapple with those intangibles rather than with equations which, not only they could not understand in most cases, but have led them to the pass in which they now find themselves.
The one thing that I hope the Government and the banking sector do not do is to return supervision of every aspect of the banks to the Bank of England. It seems to me that there is a considerable degree of nostalgia about the success of the Bank of England in managing the banks. If you go back to the great banking crisis of the 20th century— the accepting houses crisis of 1914, which Lloyd George sorted out very quickly, when the Governor of the Bank of England was asked how he knew which bonds were good and which were bad, the Governor of the Bank of England said, “I smell them”. There is a lot of nostalgia, particularly on the Conservative Benches, for that sort of old-fashioned approach; that, somehow, if only you got back to the Bank of England, the smelling of the bond or the raising of the governor’s eyebrow would deal with supervision of the banks. I do not believe it. I think that if you tried now to put back the clock, you would have a couple of years of complete inertia in terms of supervision, as the FSA and the Bank argued about who was doing what and which individuals were doing what. At this point, that would seem to be almost the worst thing you could possibly do.
Moving on to the public finances, which will clearly have a major part to play in how well the economy does, we have supported the principle of a fiscal stimulus at this point. We have not agreed with the detail of it, if the VAT reduction is a detail, because we think it has not been the most effective way of doing it, but we have supported it for two principal reasons. First, if businesses go bust at this point because of a lack of demand and a lack of lending, they cannot be recreated as quickly as they went bust. There is a long-term as well as a short-term cost in businesses—viable businesses in many cases—going bust. The same applies to individuals. We know that if individuals are unemployed for any significant period, their ability to hold down a job diminishes and they lose self-motivation which means that, even as the economy turns up, many of them never get a job again. That is a major cost and for the noble Lord, Lord Forsyth, to describe public borrowing at this stage as stealing from our children seems to me to be a very misleading way of looking at it. However, if you accept that we need to have had a fiscal stimulus at this point, it is clear that we cannot continue with the level of borrowing as the economy begins to grow.
As we think about how we measure and balance the various claims on government, we get back to the interesting interventions of the right reverend Prelate the Bishop of Bradford, whose maiden speech I greatly enjoyed—I once went to see Bradford City and spent most of my time looking at the hills beyond—the right reverend Prelate the Bishop of Portsmouth, and the noble Lord, Lord Judd. It is a major indictment, not just of this Government but of us as a society, that UNICEF rates this country as virtually the worst place in the civilised world to be a child. As we move forward in the new environment, those are the kind of issues that any Government have to grapple with and that they should be looking to as one of the key principles on which to base spending decisions. It is a challenge for David Cameron to articulate what kind of nation we want to be, not just what the level of the borrowing requirement will be. The speeches he has made up to now, such as the one at Davos, address these issues in ways I was sympathetic towards. My concern is that the rhetoric is not matched by the policy restrictions. We now need details of how he is going to implement some of the rhetoric; otherwise, his rhetoric will be severely undermined.
How are we going to bring down the debt? Clearly, it has to be a combination of various tax increases and expenditure reductions. To see a 50 per cent tax rate brings mixed emotions to Liberal Democrats, as this was our policy for quite a long time. However, we dropped it for the reasons that were so eloquently given in the House of Commons by Stephen Byers. Although I suspect the matter will be with us for some time, some of those arguments have force.
There needs to be fairness about the burden of tax and any tax increases going forward. One glaring problem is the level of capital gains tax, which is far too low and should be increased. On public expenditure, there are two components to dealing with the issue. First, there has to be better use of existing public finances. The work that Sir Michael Bichard is doing seems to me to offer help and guidance as to how that might be done, but there have to be real cuts in real programmes. Difficult decisions need to be made. We have set out some, including looking at our long-term defence commitments and public sector pensions. Further, I say to the noble Baroness, Lady Warwick, we have to look at how we fund universities and at how many young people will do full three-year degrees at university.
The current crisis forces us to question the assumptions on which we run our personal and national finances. The debate has concentrated on the difficulties we now face. Our challenge is how we can turn these into new opportunities, both for individuals and for the economy as a whole.
My Lords, I follow other noble Lords in congratulating my noble friend Lord Forsyth on securing the debate and on his masterly sweep across the territory. The debate is particularly timely, coming so soon after the Government’s dismal Budget just over two weeks ago. My noble friend Lord Lamont was supported by many of my noble friends when he said that the Budget set out no clear path to the future.
I shall confine my remarks to the economy and not to the various issues that have been raised by some noble Lords about structural issues within the financial sector; that I suggest would make a good debate for another day.
I doubt that the Minister when he responds will have the humility to accept the Government’s share of blame for the economic mess we find ourselves in. I wager that he will not acknowledge the dishonesty of the claim to have ended boom and bust; indeed, he may even try to deny there has been a boom. This year’s Red Book made an attempt to prove there was no boom ahead of the bust. Those clever people at the Institute for Fiscal Studies immediately spotted the Treasury’s creative use of statistics. That can now be put alongside the rest of the dodgy accounting which has been the hallmark of this Government. It remains the case, as yesterday’s report from the National Institute of Economic and Social Research showed, that since 1997 the Government have built up to the biggest bust since the 1930s.
I have no hopes whatever of an acknowledgment from the Minister of the Government’s economic mismanagement. My noble friend Lord Ryder set out the decade of foolish policies of the current Prime Minister in this regard. Indeed, I expect the Minister to give the usual bluster about global forces and what my noble friend Lord Lawson called economic flu from America. I also expect random statistics relating to the last Conservative Government. Let me get in first: this is all wearing about as thin as his Government’s record for economic competence.
Several of my noble friends have referred to the story on growth. Even the Red Book admits, at paragraph B.61, that this downturn is forecast to be deeper than that in the 1990s. We will take no more lessons from the Benches opposite about that period. The extraordinary trampoline forecasts in the Budget were discredited by the IMF’s forecasts minutes after the Chancellor sat down, and further shredded by the ONS’s release a couple of days later, showing, as other noble Lords have said, the first quarter of the year falling by 1.7 per cent. We are expected to believe that this can not only bounce back into growth by the end of this year, but also that significantly above-trend growth will start to accrue after 2010. This is for the fairies.
Economists outside the Treasury—the economic community and business groups—are united in their incredulity. My noble friend Lord Wakeham wisely reminded us that Chancellors should be careful to use credible forecasts. My noble friends Lady O’Cathain and Lord Lang both referred to the need for confidence and trust to return before we can move forward with credibility again. There is no sign of that yet. These growth forecasts underpin an annual deficit leading to borrowing of over 12 per cent of GDP this year. Only last year, the Prime Minister declared that when borrowing went up to 8 per cent in the 1990s it was “totally out of control”. Who is out of control now?
Debt is forecast to rise to £1.4 trillion, or 79 per cent of GDP. If the growth figures prove optimistic, as many believe, so, too, will these dreadful debt figures. They are not just bad in the UK context, but in international terms. Old arguments about rises in borrowing not mattering because we had lower debt stocks at the outset of the recession were always somewhat dubious. Now they are demonstrably irrelevant, as even the OECD’s forecasts show that our debts soar above the rest of the G20’s.
The IFS estimates that it will take until 2032 for debts to return to the 40 per cent of GDP that Mr Brown’s former friend prudence recommended. As my noble friend Lord Sheikh has reminded us, debt will rise to over £22,000 for every person in this country. That might not sound a lot to a rich man like the Minister—
That figure is not much short of average earnings, my Lords. In the next two years, the Government will need, by their own figures, to raise nearly £350 billion of debt in net terms, although all the risks, as I have said, are on the downside and we may need to raise more. By 2013, they will have raised more than in the whole of the previous 300 years. My noble friend Lord MacGregor reminded us that we did not know where this comes from, that overseas investors will be frightened off by our weak currency and that we are faced with a high and rising interest rate. I add that, at this level of debt, we are crowding out private sector borrowing, which my noble friend Lord Reay would require to realise his vision of our energy future, not to mention the partly opposing vision of the noble Lord, Lord Broers. As my noble friend Lord Higgins reminded us, we need much greater clarity about the money supply implications of both this level of borrowing and the Bank of England’s monetary policy actions.
The picture on expenditure is depressing. In its masterly deconstruction of the Budget, the IFS demonstrated that this was a Budget of expenditure cuts and tax rises from 2011 onwards, the timing being doubtless dictated by electoral reasons. Overall, current expenditure growth will be slashed to 0.7 per cent in real terms and capital spending will be decimated. Once the growing burden of interest costs, welfare costs and similar costs are taken into account, there will be a severe expenditure squeeze of around 2.3 per cent in real terms up to 2014. We have been given no information on which budgets will be cut. The IFS also demonstrated that the 3.2 per cent figure of GDP will necessitate either further tax rises or expenditure cuts after 2014 if the Government’s forecasts are to be achieved. This fiscal tightening that will be necessary beyond 2014 has not been analysed by the Government, so we can only speculate about the impact of that on spending and public services.
All this will require major cuts in some departmental budgets, a far cry from the picture of ever increasing public expenditure over the past decade, of which my noble friend Lord Patten reminded us. This will not be met by yet more illusory savings dreamt up by the Treasury; it will require hard decisions and there is no evidence that the Government can face up to that.
Several noble Lords have referred to the 50p tax rate, or the 51.5 per cent rate when national insurance is added in. I was grateful to the noble Lord, Lord Butler, for saying that it was a mistake in his wise and wide-ranging speech. Even on the Treasury’s estimates, it will raise only £1.8 billion in 2011-12, which is a drop in the £170 billion-plus ocean of borrowing. This is nothing to do with balancing the books; it is no more than a crude political trap into which we are not stupid enough to fall. My noble friend Lord Northbrook set out the views of the IFS and, more surprisingly, those of Mr Anatole Kaletsky, that this increase may not raise anything.
My Lords, if the noble Lord will just wait, I will come to that. As I said, the rate may well be counterproductive if you look at the IFS analysis, but the biggest problem is that it will drive away entrepreneurial and managerial talent from our shores. This has happened before under Labour Governments. High rates of tax will not only drive away those on whom our economy now depends but will act as a deterrent to inward investment in future. We will remove the 50 per cent rate as soon as we can, but my honourable friend Mr George Osborne has explained that our first priority is to remove the additional national insurance of 0.5 per cent that the Government have pencilled in for next year. This is a tax on the many and a tax on jobs.
The noble Lord, Lord Oakeshott, asked me about stamp duty on shares. I have tried to find out about that during the debate but he will have to wait for the manifesto. There is nothing special in that.
My Lords, I am not making a backtrack or a forward track; I am just telling the noble Lord that I could not find out about that this afternoon. I am clear that when we have the nation’s finances under control we will return to the policy of low taxes which served us so well in the past. This is not because we favour the rich but because we want to support our economy and not destroy it.
This Budget read the last rites for new Labour and few will regret its passing, but we do regret the human tragedy that the Government’s policies have inflicted on the people of this country. I agree with the right reverend Prelate the Bishop of Portsmouth that this debate is also about morality. Personal insolvencies are running at record levels as the unrestricted growth in personal debt takes its toll. My noble friend Lord Marlesford spoke about the credit card debt which will lead to even more insolvencies, unless it is dealt with—
My Lords, the noble Baroness says that we are now discussing morality. Has she anything to say about the way in which these new instruments in the City of London, which were cynically organised to enrich the people involved in these trades, have nothing to do with morality?
No, my Lords, I did not say that at all; I said that I was not going to cover the financial sector in my speech, and I am not saying anything about it whatsoever.
Unemployment is growing at the fastest rate ever and is likely, even on the Government’s own figures, to rise well above 3 million, 40 per cent of whom are expected to be young people. Higher education is increasingly not an option; costs are spiralling while government cuts have reduced the number of higher education places available. Graduates who cannot find jobs are likely to find themselves swelling the ranks of those who are not in employment, education or training, which have already grown by 230,000 since 2000.
House repossessions continue to rise, with 75,000 expected this year. At the last count one—yes, one—mortgage holder had been assisted by the overspun mortgage relief scheme. Child poverty has been rising, and figures which came out this morning show that it has risen even further. The Government have no policies at present that will mean that they will meet their target of cutting child poverty in half by 2010. That means that at least 600,000 children will continue to live in poverty. The right reverend Prelate the Bishop of Bradford, whose maiden speech we all enjoyed so much, referred to the problems that that will bring. Pensioners dependent on income from their small savings are struggling with the impact of minimal returns. These are all personal tragedies.
It is at most 13 months until the next general election. The best that we can hope for is that this Government do no further damage in the mean time.
My Lords, we have enjoyed a frightfully good debate, which was thoroughly thought-provoking, in most cases was very well informed by people of great accomplishment and experience, and, with one exception, was conducted in a very good spirit. I thank the noble Lord, Lord Forsyth of Drumlean, for giving the House the opportunity to discuss such an important issue.
I apologise immediately to a number of those who have participated, particularly the noble Lords, Lord Reay, Lord Plant, Lord Broers and Lord Judd, and the noble Baroness, Lady Warwick; because of time considerations I shall not deal specifically with the points that they raised, but I found their comments remarkably interesting, informing and certainly worthy of further consideration. I am sure that that will be the view of other Members of the House.
I also welcome the right reverend Prelate the Bishop of Bradford and congratulate him on an excellent maiden speech. It was a speech full of sunshine and hope. I can imagine him sitting there in the grandstand at Valley Parade, looking out across the sunlit roofs of Bradford and celebrating the excess, or rather the success, of his community. To the extent that they were excesses, they would be good Yorkshire excesses, which would no doubt be slept off by the following morning.
My Lords, as a supporter of Plymouth Argyle, I look forward to the opportunity of playing in the Championship against Bradford and being with the right reverend Prelate. He talked about the achievements in child poverty, the investment that we have made in education and the potential to invest for the future. He lifted our spirits. But, dear me, after that it became profoundly difficult when, time after time from the opposition Benches we heard a hint of a mean-spirited view. It is a view of society which pursues the narrow self-interest of the rich, the affluent and the prosperous, with little concern for those who are now struggling.
I heard a sequence of presentations which could be summarised as penny-wise and pound-foolish—early savings now but at huge cost for the future. I heard appeals for a reduction in the top rate of taxation, but I am not sure how Peers on the Conservative Back Benches will react to the unequivocal and clear statement from the noble Baroness, Lady Noakes, that the Conservative Party will support the 50p top rate of tax and will do nothing to remove that in the immediate term. I am sure that her colleagues in the other place will be pleased to know that she has stated that that is now the Conservative policy. I heard references to inheritance tax and to stamp duty—
My Lords, with all due respect to the noble Lord, Lord Forsyth, it is very difficult to square the contention that the tax will produce no proceeds with the fact that it cannot be avoided or removed. Clearly, the noble Baroness is of the view that it will contribute towards debt reduction, and the noble Lord, Lord Forsyth, seems to be affirming that case.
My Lords, just let us clear this up. I outlined the view that has been expressed that it will raise nothing, or could even be negative. Clearly, that is one of the things that we will need to analyse when we are in power again and have access to further data. At the moment, I set out what we would expect to do once we got back into power.
My Lords, in a debate in which we have been honoured by the presence of the noble Baroness, Lady Thatcher, we have just seen a fairly swift U-turn from the Conservative Front Bench on an issue of some importance.
Since last autumn, economic conditions have worsened here and in every country. A crisis that started in the developed economies has spread to emerging and developing countries. My noble friend Lord Lea of Crondall intervened to point out that this was a global issue—an inconvenient truth as far as many were concerned when it came to the debate, as they were not willing to acknowledge that this was a global problem rather than a purely domestic challenge.
For the first time since the Second World War the world economy is expected to contract by 1.3 per cent, according to the IMF, while many of the biggest banks in the world have had to be rescued by their national Governments and a number of countries have approached the IMF and other international financial institutions for emergency support. These are quite exceptional circumstances. World trade is now falling at the sharpest rate since the Second World War and production has fallen in 54 out of the 57 largest economies. Manufacturing output in Germany, Japan and France has fallen by 20 per cent in the past year. That has nothing to do with policies pursued by this Government. This is a global phenomenon, the consequences of which we are managing successfully.
By the end of last year, the German economy had shrunk by more than 3 per cent; the Japanese economy by nearly 5 per cent; the UK economy by 2.3 per cent. On Monday, the European Commission published forecasts expecting the world economy to contract by 1.4 per cent this year, with the eurozone economy shrinking by 4 per cent. As an open economy, the second biggest exporter of services in the world and the eighth biggest exporter of goods, we are of course affected by the collapse in demand in other countries. But because of the unprecedented co-ordinated action at international level, and the measures that the Government announced in the PBR and more recently in the Budget, we are expecting a move for growth to resume towards the end of this year. I was encouraged by the comment of the noble Lord, Lord Butler, that he did not rule that out and that the pace of recovery could be quite rapid, given the circumstances that led to the downturn in global economic activity. I also took encouragement from a very wise, well informed and well expressed contribution by the noble Lord, Lord Lawson, in which he reminded us that the sun does rise in the mornings and that recessions do come to an end. I would have encouraged others in the House to resist the temptation to talk down Britain and the economy for political advantage, fearing that the recovery might come too soon for their own particular electoral purposes.
The noble Lord, Lord Lamont, spoke about the need to address the fractures in the banking sector—
My Lords, the noble Lord, Lord Myners, had a bit of a go at us for politicking, but he has done precisely the same thing. The reality is that not one person on our Benches wants to delay the recovery, believe you me, not by one second. It is wrong to imply that that is what we are doing for electoral purposes.
My Lords, the Government recognise the importance of the banking system to ensuring that the economy begins to function effectively. That is why we have been doing, and will continue to do, everything possible to stabilise the financial system and restore confidence to the markets. I reassure the noble Lord, Lord Oakeshott, that I am not complacent about the need to address regulatory shortcomings. Our regulatory system did not perform as well as it should have done, but the regulatory systems elsewhere also failed to deliver to expectation.
The noble Lord, Lord Lawson, made a very informed contribution on Glass-Steagall and narrow and broad banking. I started some time ago with a view very similar to that of the noble Lord, and I know that he is informed by his experiences as a director of Barclays in the past. References were also made to the views of the Governor of the Bank of England on this point. If you look carefully, however, at what the governor said, you will see that he talked about finding the concept of narrow banks instinctively attractive—he saw it as an intellectually appealing argument—but he then went on to talk about the realities and suggested that this model was altogether too simple. The right response is through strengthened regulation, increased capital requirement and appropriate allocation of liquidity against risks. We have conflated different forms of banking under a single institution, with a view that a single culture is appropriate. Our experience has shown that that is not the appropriate model to supervise, govern and regulate such institutions, but Glass-Steagall is not the answer to this particular problem.
My Lords, the Minister slightly misrepresented what the Governor of the Bank of England said. The governor said that it is a very complex matter and deserves further investigation. Although it is very complex, however, it can be done and needs to be done. I deeply regret the fact that the Government are not prepared even to look into this seriously and that they just dismiss this out of hand, which is not what the governor has done.
My Lords, I am grateful to the noble Lord, Lord Lawson, for that observation—albeit that it is one that I am now going to correct. The governor in his evidence to the Treasury Select Committee said that he found the concept of narrow banking instinctively attractive and that it had some real validity, but that the model would see deposits gravitate towards the broader bank, which would earn a higher ROE and would be able to pay higher rates of interest.
In a moment, my Lords. We are producing a White Paper on banking regulation and the outlook for the financial sector immediately after purdah. We will not dismiss the concept of narrow banking in that, but rather debate and discuss it, and suggest why it is not appropriate—a number of narrow banks were among the first to fail in America, for instance—and explain how we can draw on the strengths of the concept through a different formulation.
My Lords, I promise the Minister that this will be the last time that I shall intervene in his very interesting wind-up speech. First, I was not alluding to the Governor of the Bank of England’s evidence to the Treasury Select Committee. I had in mind the important speech that he made on 17 March, in which he did not make that point; my summary was more accurate on the position that he took in that speech. Furthermore, the point about deposits is clearly invalid, much as I respect the governor, because only the narrow bank would be permitted to have retail deposits.
My Lords, of course a truly narrow bank would be the Post Office, in terms of the academic approach to such institutions.
Let me carry on talking about banks and the financial system. As a result of the actions that we have taken since last autumn to prevent the collapse of the UK banking system and more generally to put the banking sector on a stronger footing, banks will be able to lend more to support commercial undertakings and to meet the needs of personal borrowers. For instance, the RBS is increasing its lending by £50 billion, Lloyds is increasing its lending by £28 billion and Northern Rock is increasing its lending by £14 billion.
The noble Lord, Lord James, always makes interesting interventions. I am aware of his preference for the London rules, but I believe that he understands why I think that they are no longer viable in the context of a more global banking system. However, I will speak again to the FSA about what it could be doing in this area. I do not propose to make any comments in response to his suggestion that, as a result of his meeting at Lloyds Bank, he believes that he has discovered evidence that Allied Irish and National Australia Bank are ripping off the system. If there is any malpractice, it must be a matter for the authorities to investigate.
Like the Government, the independent Bank of England has recognised the need to stimulate demand, so we now have the lowest interest rates on record. This is providing help now to those on variable rate mortgages and loans. Since October, over 4.5 million households with tracker mortgages have been saving £230 per month.
The noble Lord, Lord Lang, was the first of your Lordships to raise questions about quantitative easing. He asked a specific question about velocity. It is worth reminding the House that policies to manage the quantity of money in addition to the price of money were introduced specifically at the request of the MPC. The MPC has made further announcements today of its intention to continue working within the programmes and authorities given to it by the Chancellor of the Exchequer, which are intentionally broad in order not to impede its freedom of decision-making. I note that these decisions are being taken in accordance with a requirement that the MPC manages to a 2 per cent inflation target at all times. We have changed from the approach of monetary aggregate management that characterised the policy of previous Governments in that, rather than targeting money supply, we target the inflation outcomes. Money supply is one of the factors that the MPC keeps under very regular review to ensure, we hope, that it will continue its excellent record of maintaining close adherence to that target.
I am not in a position to reply to the question asked by the noble Lord, Lord Lang, about the impact on velocity. These things take time. Nobody expected to see for some time a discernible change in V, which is the most difficult of the factors in that equation to forecast. However, it is closely linked to confidence and, to the extent that we are seeing some recovery in confidence, that should lead to an improvement in velocity.
The noble Lord, Lord Ryder, referred to the governor’s anxiety about inflation. The Bank’s view is that CPI will return to the 2 per cent target in 2011. Clearly, the MPC is at the moment more focused on an undershooting of that target rather than an overshooting. I will not comment on whether the MPC needs to be renamed in order to meet the requirements of the Trade Descriptions Act.
The Chancellor also set out in the recent Budget further help for homeowners and for those who are prevented from taking their first steps on the housing ladder. That help has been welcomed and includes: the introduction of a scheme to guarantee securities backed by mortgages, which will ease the flow of mortgage finance; the extension of the stamp duty holiday until the end of this year; and an £80 million extension of the government shared equity scheme, which has received interest from more than 30,000 people since September.
Every major country has acted to stimulate demand in its economy through difficult times. So we have seen major fiscal boosts announced in the United States, China, Germany, France and Spain. The total fiscal support provided by G20 countries will amount to some $5 trillion. Here in the UK, the Government announced a £20 billion fiscal stimulus in November, including a temporary cut in VAT to 15 per cent—worth on average £260 per household—and we brought forward £3 billion-worth of capital spending on national infrastructure.
The Government also recognise the challenges faced by businesses. Measures announced in the Pre-Budget Report have delivered £3 billion to improve business cash flow, complemented by £2 billion in lending support. Since October, nearly 40,000 businesses have had a free “health check” from the Government’s Business Link advice service, helping them to access credit and defer tax. Since November, more than 100,000 businesses have deferred payment of almost £2 billion of tax under the HMRC Business Payment Support Service.
To further support business through the downturn, the Budget announced £3 billion to improve business cash flow and encourage future investment, up to £5 billion of trade credit insurance support, and a doubling of the rate of capital allowance relief to 40 per cent for one year.
It is worth remembering that the UK is the sixth largest manufacturer in the world. Although manufacturing output as a whole was down 14 per cent on a year earlier, by February 2009 government support in the UK and globally should bolster the manufacturing sector, and that will respond to the very strong and well argued case from my noble friend Lord Haskel for the pursuit of a balanced economy. By supporting businesses and households in this way in both the short and medium term, we can ensure that Britain is in the best possible position to take advantage of the upturn when it comes.
Of course, these measures put new pressures on the Exchequer, and they come at a time when our automatic stabilisers are working to full effect—tax receipts are falling and demands on social support are rising. However, the Government know how fundamental sound public finances are to a country’s economic prospects, and we remain committed to keeping the public finances on a sustainable path over the medium term.
The noble Lord, Lord Ryder, referred to borrowings over the next two years as a percentage of GDP being very high in relation to other countries but he did not refer to the starting point—that our borrowing as a percentage of GDP within the G8 countries is very much at the favourable end. Therefore, although the borrowings will be high over the next two or three years—and we have no shame about that—we start from the point where borrowings as a percentage of GDP are the lowest in the G8 with the exception of Canada.
Changing economic conditions mean that further fiscal consolidation is appropriate. The UK is not alone in having to do this—a number of other EU member states announced consolidation packages. We believe it is fair that this consolidation should focus on those who are best placed to contribute. Therefore, last month’s Budget set out new income tax measures which will affect only those with incomes above £100,000. It is only fair that these individuals with the highest 2 per cent of incomes make a fair contribution, reflecting the fact that their incomes have grown by twice the national average over the past 10 years. The two income groups that have enjoyed the greatest relative benefit over the past 10 years are, first, the very lowest paid, as a consequence of our national minimum wage and credits and benefits which have gone to the most poor, insecure and vulnerable in society, and, secondly, the most rich—the top 2 per cent. It is only appropriate to call on that second group to make their contribution to meeting the need to support the economy, British industry and British families.
Protecting tax revenue is a crucial element of consolidation, so we are cracking down on tax fraud. We are putting in place new measures to send a clear signal that cheating on tax is wrong, to deter people from doing it, to reassure those who pay the right tax and to encourage those who do not to come forward.
Some people say that we cannot afford to take action to stimulate the economy but the truth is that we cannot afford not to. Inaction of the type that we saw during the recessions of the 1980s and 1990s left entire generations to fend for themselves. Thousands were allowed to slip into the kind of long-term unemployment that can leave scars on communities.
The noble Lord, Lord Newby, captured the essence of the argument that spending money now to support British business, businessmen, families, individuals and pensioners will have a lower cost than doing nothing and seeing a decline in the economy as a consequence. To avoid repeating the mistakes of the past, the Government are delivering extra support for people through Jobcentre Plus, to pensioners through enhanced payments, as announced in the PBR, and extra support to business.
The noble Baroness, Lady O’Cathain, spoke of the need to talk in simple terms about what we are doing in economic management. The financial crisis has caused a steep and synchronised global downturn. Global economic developments will have a profound effect on the fiscal position of many countries, including the UK, with debt likely to rise significantly in all advanced economies. Every economy will see public debt increased. The Government have made a judgment on the appropriate pace of consolidation on the public finances, taking account of the uncertainty around prospects for the economy, the need to support the economy during the early stages of recovery and the need to deliver sustainable public finances.
Money is being well spent. I can assure the noble Lord, Lord Patten, that when he is out on the doorsteps canvassing in Wincanton this weekend, he will have regular reports from voters on how they see the real value being delivered by the Government’s initiatives to support them through these difficult times. I give way to the noble Lord, Lord Patten, out of great respect for him.
My Lords, with all respect to the noble Lord, out of more than 3 million incorporated companies in the United Kingdom, how many have moved overseas? We are talking about fewer than can be counted on the fingers of two hands. We have taken action to make the UK a location of choice for international business. We are the European headquarters of so many global companies and are constantly working to ensure that our tax system makes it an attractive location for companies with international activities. There is no cross-border exodus of which I am aware, and we are committed to take action.
Given that I have accepted a couple of interventions, I shall go on with my endorsement for two more minutes if the noble Lord, Lord Forsyth, will permit me to do so. The noble Lord, Lord MacGregor, among others, asked about funding. Gilt yields are historically low. The premium of sterling borrowing to bund and euro rates is low, and contrary to the suggestion of the noble Lord, Lord Forsyth, the yield curve incline is fairly flat. On 23 April, Robert Stheeman, the CEO of the Debt Management Office, said that he had every confidence that the DMO would be able to fund the Government’s requirements.
I know why the NIESR is such a good body now that I know that the noble Lord, Lord Higgins, is the governor. It said in its spring review last month that even at its peak, it did not expect debt interest to exceed levels seen in the early 1980s. The debt service costs are lower than in the early 1980s because inflation and interest rates are so low. When we faced these problems in the past, it was against a background of 14, 15 or 16 per cent inflation and even higher interest rates. There was not a lot of talk about that from Members on the Conservative Benches today when they spoke about economic management.
The noble Lord, Lord MacGregor, asked about the assumptions on interest rates in the Budget. They are derived from forward yield curves; they are not forecasts. He also asked me to speculate on the impact of interest rate changes on the cost of public finance. It is simply impossible in complex economies to hold all other factors constant and move one factor, because there are consequences of a change in interest rates, so you then need a multiple factor model. Although I would like to answer the noble Lord’s question, I cannot. I am not going to answer the question from the noble Lord, Lord Selsdon, about the quantum of debt, because first he asked about total debt, then about debt over the next five years and then about the total cost of bureaucracy. I suspect that what is bureaucracy to one person is efficient implementation to another. I will certainly write to the noble Lord on the debt figure. If I can find someone who will help me to define bureaucracy for the purpose of giving him a numerical answer, I will do so.
We are looking forward to the economic upturn. At the heart of this year’s Budget is our ambition to build for the future. That means funding to unlock housing projects that will build thousands of new homes, ambitious targets for our digital communication infrastructure, investment in our national transport networks and hundreds of millions of pounds to support low-carbon energy generation. The financial services global competitiveness review—which, I must tell the noble Lords, Lord Northbrook and Lord Forsyth, was published this morning before the debate started—talks about the optimistic outlook for the financial services industry. The noble Lord, Lord Northbrook, raised a point about tax—perhaps he was being a little mischievous. The review was jointly chaired by the Chancellor of the Exchequer and Sir Win Bischoff and includes a number of leading people from the business sector. You could not put a cigarette paper between them in their view of the right approach to taxation for an efficient economy.
I have greatly enjoyed the debate and hope that I have answered most of the questions. I very much look forward to the summing up of the noble Lord, Lord Forsyth—at least, I think I do. I once again congratulate him on stimulating a debate that has brought out the very best of this House in the calibre and quality of the people who sit on these Benches.
My Lords, I do not want to disappoint the Minister, but I was not going to spend a lot of time going over the arguments or responding to his points. We have had a very good debate. Like him, I love this place because I cannot think of anywhere else that would have two former Chancellors, very experienced Ministers, professors of economics and industrialists all contributing to a debate of this kind. I hope that, if nothing else, it will get across to the country the extent to which we are in a very big jam. We need urgent and effective action. I hope that it may even impress on the Minister that hoping that something will turn up and doing nothing until the election because it would be politically difficult will not be in the interests of his party or the country.
There is a whole range of issues to which I do not think that the Minister responded, but the speeches that we have heard stand for themselves. I beg leave to withdraw the Motion.
Motion to Take Note
My Lords, I am sure that this will be a much calmer debate than the debate that we have just had, dealing as it does with one of the Government’s outstanding successes: government communications. We will see.
First, I thank the journalists and government officials who gave evidence to the committee, and I pay particular tribute to Sir Robert Phillis and his highly skilled team, which reported in 2004. I also thank our committee clerk Chloe Mawson, and our committee specialist Peter Hills-Jones, who have both rightly moved on to higher things. They both made a major contribution to the work of this committee and its predecessor on the BBC charter. Last, but in no way least, I also thank the very hard working members of my committee, some of whom are here this afternoon.
Let me make clear from the start my belief that there is an important role for government communications; I can hardly say less given that, when I was Secretary of State for Social Services, I ran a very high profile campaign on HIV/AIDS using radio, television and the press. I do not deny for a moment that the Government are entitled to advertise when, for example, there is a public health danger or to employ press officers to answer questions about departmental policies. There is no disagreement on that point.
Indeed, I would go further and say that as many high-flying civil servants as possible should serve for a period in the press office so that they understand what is involved and, frankly, to keep their feet firmly on the ground. That might prevent the kind of conversation that I once had with the Treasury about public spending, in which I pointed out that the cut that it was proposing went smack against what had been in my party’s manifesto, and got the reply from one of the Treasury officials, “Oh, Secretary of State, that’s just politics”. The more you can keep civil servants adjusted to what is actually happening outside the House, the better. I therefore welcome the Government’s sympathetic response to our proposal that as many officials as possible should have press office experience, and their assurance that they will examine ways in which this can be done practically and with the least cost.
I have no quarrel with the principle of government communicating either with the public or the press, but we then come to crucial questions about the scale of government communications and their purpose. The committee believes that it is of the utmost importance that information provided by the government service should be accurate and impartial, and that there should be no hint of party political bias. This is obviously of the greatest importance now in the period leading up to a general election. If government press officers were to be misused to put out party messages, that could be an unfair influence at a crucial time.
Special advisers have a different role from that of departmental press officers, but they too are governed by the Civil Service Code. In reviewing the effort of the government communications machine as a whole, it is obviously crucial that its cost should not be excessive. On the question of cost, it is clear that there has been a substantial increase in the costs of the government information machine under the present Administration. That simply cannot be denied. It was clear from the beginning in 1997 that changes were to take place. In his evidence to us, Sir Robert Phillis explained that,
“the Labour opposition before the election was very, very effective in its news management, and on taking power I think the view was that much of the old”—
Government Information Service—
“system was not well equipped in the skills of news and media management … as the Labour opposition had been before they took power”.
In the two years following the 1997 election, 17 of the 19 departmental heads of information left office and a number of political special advisers were appointed to work in communications. What has happened since? The number of press officers in government departments in Whitehall has increased by 72 per cent in the past 10 years. In December 1998, there were 216 press officers. By September 2008, this number had risen to 373. At the same time, the number of special advisers has also risen sharply by no less than 92 per cent since 1996. In that year, there were 38 special advisers. In 2008, there were 73.
In terms of overall cost, it has been extraordinarily difficult for the committee to find a total of all government spending. Departments such as the Foreign and Commonwealth Office, the Ministry of Defence and the Department of Health were able to provide such information, which sometimes raised a range of questions. For example, the Department of Health planned to spend double the amount on communications in 2008-09 than it did in 2007-08; that is, £107 million compared to £52 million.
But the extraordinary point is that the Government are unable to give a total cost figure for all departments. The suspicion must be that if they did so that figure would be very high. They say that there are problems here of definition, but that ignores the fact that three government departments were able to provide such information. They defended in a generalised way the increases that had taken place. They said that the demands of the media were now much greater than ever before, while ignoring the fact that many of the so-called new news platforms do not have their own reporters, as we pointed out in a previous report, but rely on agency copy and do not carry out an investigative or truly reporting role.
We did not have time to go further into this issue without unduly delaying our report, but perhaps I may suggest that this would be a proper subject for the Public Accounts Committee to investigate and see whether the public are getting value for their money. It is ludicrous that the Government cannot make some estimate of the money that the taxpayer is spending in this area.
Other members of the committee will speak for themselves on the subjects in this report that they consider important, but there are two particular areas where we made proposals and where the Government’s response causes me concern. The first is special advisers. We said we believe that it is of key importance that Ministers made clear at all times that special advisers must follow the guidance available and stay within the limits set down. The Government’s response was complacent. They said:
“The Civil Service Code also applies to special advisers and this makes clear that they always act in a way that is professional and that deserves and retains the confidence of all those with whom they have dealings”.
The Government were saying not that special advisers should act in this way but that they always did act in this way. Their response was dated 2 April. A few days later on 11 April, this explanation was effectively blown out of the water by the case of Damian McBride, a special adviser to the Prime Minister—a very senior special adviser at that—misusing public funds to try personally to smear political opponents. If ever a special adviser was guilty of dragging politics into the gutter it was Mr McBride. It marked a new low in British politics and raised the question why a man like this was ever employed inside the Government, let alone at No.10.
Let us be clear where responsibility for special advisers lies. Again, I quote from the Government’s response to our report. They say that the Ministerial Code makes it clear that the,
“appointing Ministers are responsible for the management and conduct of their special advisers”.
I repeat, the “appointing Ministers”. So, if those words mean anything, it is that the Prime Minister is responsible for his special advisers and other Ministers are responsible for theirs. Being responsible does not just mean saying that when something goes wrong, “I take full responsibility and I have sacked him”, it means making it clear to special advisers from the start what they are expected to do and what under no circumstances they can do. That is what taking responsibility means.
I welcome the fact that in their response the Government agree with us that codes of conduct will now be made available not just to special advisers but also to Ministers. However, by itself, that is not enough. Ministers must recognise that they are responsible and accountable for the conduct of their special advisers and they must do their utmost to avoid any abuse by them.
My second concern is on announcements to Parliament. The committee recommended that the Prime Minister should draw to all Ministers’ attention the guidance in the Ministerial Code that the most important announcements of government policy should be made in the first instance in Parliament. The House will note that we recommended that the Prime Minister should make this clear. The Government’s response was, again, deeply complacent. They said that our recommendation simply reflected the current position. When Parliament is in Session, they said, the most important announcements of government policy should be made in the first instance to Parliament. The Government therefore proclaim themselves totally satisfied, and yet three weeks after that response, where does the Prime Minister choose to make his statement on MPs’ allowances, the abuse of which had rightly caused grave public concern? He did not make it in Parliament where he could be questioned and where by definition it was most relevant and, I would argue, most appropriate. He did not even make it to the Lobby, where he could be questioned. He made it as a deliberate act of policy to YouTube where there was no opportunity for questions. Quite rightly, the policy eventually came to grief. The Prime Minister was not exactly in Oscar-winning form, but the graveyard humour over his performance should not disguise one fundamental point. By any measure, it was probably the most extraordinary bypass of Parliament that any of us can remember.
I do not deny for a moment that over the years and in previous Governments there have been attempts to bypass Parliament. Of course that is true. I remember remonstrating with one Minister of the Conservative Government in the mid-1990s when I was on the Back Benches on the grounds that one popular newspaper seemed to be getting an extraordinary string of exclusive stories from his department. So I do not quarrel with that, and what I emphasise and underline is that the recommendations of this all-party committee apply to all Governments of whatever persuasion. But what I do say to the Minister is this: in almost 40 years in Parliament, I cannot remember a time when politicians and Parliament itself were held in lower esteem than they are today. There are many factors to this, but the impression of sleaze is added to immeasurably when the Prime Minister’s own special adviser conspires to reveal untruths about the personal lives of political opponents and uses public money to do so, while the best way of downgrading Parliament and making it irrelevant is by deliberately ignoring it and making statements outside the Chamber.
The truth is that in spite of the Phillis committee report and in spite of our own report, there is still a very long way to go. If we believe in democratic government, it should not be about fixing the news, about burying bad news on a day of world catastrophe, or about trying to blacken the personal reputation of opponents. There is a challenge here for government and for any party that has aspirations to be a Government. We need honesty and openness, and the responsibility for achieving those must rest on Ministers themselves. That is one of the key recommendations of our committee.
My Lords, I thank the noble Lord, Lord Fowler, for introducing the report of the Select Committee on Communications with the clarity and fluency that we have come to expect of him. He will forgive me if I do not agree with all the party political points that he made. Many of the recommendations of the committee are well taken and well argued, and I hope that the Government will give them serious consideration. However, there is one small but rather important gap in the report on which I wish to concentrate.
In his evidence to the committee, Sir Robert Phillis said that the central problem, the focus of his report, was not just “press management or spin” but rather the question of trust—the,
“breakdown of trust between politicians, the media and the general public”,
and the consequent disillusionment and disengagement from the democratic process. I would have liked the Select Committee to concentrate on that important question and suggest what we might do about the breakdown of trust between those three agencies.
Democracy, we all know, requires enlightened public opinion. Enlightened public opinion in turn depends on the public having access to accurate facts and to unbiased analysis. For both, the public depend on politicians in general and on the media. If those two groups of people, politicians and the media, are known to resort to lies, or to mischievous and self-serving spin, the public have no basis on which to form their opinion and to make reasonable demands. They also become cynical and fall easy prey to populist demagogues, who claim to tell the truth as it is but in fact do the opposite. We must therefore find ways of guarding the integrity of the public realm and ensuring that our political system is respected for its honesty and truthfulness. Sadly, for the past several decades, this has not been the case.
Politicians and journalists are among the most distrusted groups. A reasonable degree of scepticism is obviously necessary, but total cynicism and mistrust spell disaster for a democratic system. Journalists start with the assumption that all politicians are liars; and politicians for their part start with the assumption that journalists have their own agenda—which often is true—that they are feral beasts, as Tony Blair once called them, and that they are out to trip up the politicians, to take their remarks out of context and blow them out of proportion.
Both groups therefore approach each other with mutual contempt and suspicion, and what we hear and see on the radio and television is each trying to avoid being caught by the other. That, naturally, alienates the public and stifles a robust and public debate. Let us think of the occasion when Jeremy Paxman asked Michael Howard the same question several times, which has now become part of popular legend in this country. Was that a reflection on the politician, or a reflection on the interviewer who did not know how to get the information out by indirect means and had to repeat the same question so many times? Changes are needed in our political culture; it is not just a question of the mechanics of communication. The media need to realise that many of our politicians are honourable men and women who are guided by a spirit of public service and wish to do well by their country. Politicians for their part need to realise that many of our journalists are persons of integrity and wish to expose misuse of power and ill judged decisions. We need therefore to create a culture of mutual respect.
That culture requires changes both in the media and among the politicians. Politicians need to be more honest and open with the public—I shall say something both about politicians and the political culture and, a little later, about journalists and the media culture, as well as the changes we need to ensure the mutual respect that I was talking about earlier.
Politicians need to explain why they have taken certain decisions. What alternatives were available to them? What problems did each of these alternatives raise? Why did only a particular policy or decision seem right to them? They need to disclose all the relevant facts, which is what Sir Robert Phillis talks about when he stresses the principle of transparency and openness as central to any good governance. Politicians need to share their doubts, be tentative, and open to criticisms and new ideas. They need to answer questions honestly and not resort to long-winded statements that all but avoid the questions asked. Sometimes, listening to even very sensible people on the television and the radio, I wonder why otherwise sensible people spend so much time avoiding the question when the question could easily be addressed and answered.
Ministers should be more accessible to the public if we want the public to have ownership of the decisions taken by the Government. They need to travel more widely, meet groups of citizens, debate their policies with ordinary citizens and invite new ideas. I am thinking of the kind of thing that I read about when Bill Clinton first became President and went round the country meeting ordinary citizens in city halls and debating with them why the country needed a radical new direction on race. Rather than concentrating only on the press conferences, which are obviously important, we should also be thinking of Ministers addressing selected members of the public on a regular basis. In short, I very much hope that Ministers and others, not only in this Government but all Governments in future, treat the public with respect and are less self-righteous and dogmatic in their approach to their decisions. Political power has a tendency to breed its own pathology, its own isolation, its own secrecy, its own self-righteousness and dogmatism, and we need to guard against it.
Let me now turn very briefly to what I think the media need to be doing. The media need to take a balanced and nuanced view of the matter in question. Rather than blow up isolated remarks, constantly looking for a gaffe by politicians and jumping on it, which makes politicians nervous—rightly so—and prevents any kind of public debate, they should learn to ignore these isolated remarks and concentrate on the central issues. Nor should they be one-sided and concentrate only on discrediting institutions. When individual politicians or Members of Parliament misbehave, obviously they should be exposed, but not in such a way that the institution gets discredited. Take, for example, the debate about MPs’ and Peers’ expenses. Naturally, some people have misbehaved and this needs to be exposed, but at the same time, it is equally true that there are several Peers I can think of easily who attend regularly but never claim their attendance allowances. I also know Peers who are entitled to travel first class by train, but prefer to travel standard class. When people are told only one side of the story and not the other, an impression is created that all Peers and all MPs are out for their own benefit, which is not the case at all.
The second important thing to bear in mind about the media is that journalists should be subject to the same norms of public decency as public figures. We in Parliament declare situations where there is a conflict of interest. I can think of many cases where journalists write about matters where they have business, political or ideological interests. Would it not be proper that they should declare their business and other interests and not work or write on subjects that involve conflict of interests? There has to be a sharp separation between facts and opinions. Facts should be rigorously checked, and prompt corrections—not delayed corrections in the corner of a newspaper, but prompt and prominent corrections—should be available when so-called facts are proved to be wrong.
I have also often thought that the idea of cross-party parliamentary committees, holding public meetings where editors of major media might be asked to explain their coverage of public events, might have something to be said for it. Just as we have Select Committees where Ministers are cross-examined, I do not see any reason why editors or producers of major programmes cannot be cross-examined and asked to explain why they took a particular stand or represented the event in a particular manner.
An independent and publicly funded body could also be set up to audit periodically media coverage of important events and public figures, and to grade different media on a scale of objectivity and accuracy. This is what we do in relation to schools when we name and shame them. Why should not the same policy be applied to the media and other vehicles of information?
It is striking that in a recent survey just under 10 per cent of those interviewed trusted national newspapers, but 70 per cent trusted the publicly regulated broadcast television and radio. The point I want to make is this: the media cannot just be private business. They wield public power; they influence public opinion; they shape the alternatives that the Government consider, and in so doing shape the policy of the Government; and, even when they are privately owned, they are public institutions. They should therefore be guided by basic norms of public accountability. Such norms should be voluntarily enforced as far as possible, but, when necessary, I do not see any reason why they should not be subjected to sensitively calibrated and sensitively enforced legal constraints.
My Lords, I am grateful for this opportunity, not least at a time when respect for all politicians is low, to debate the recommendations of our Select Committee on Communications, and particularly to follow the excellent contribution of the noble Lord, Lord Parekh.
We also have the Government’s response, which I am afraid I must describe as somewhat meagre and rather dismissive. As a member of that Select Committee under the excellent chairmanship of the noble Lord, Lord Fowler, I found the evidence we heard informative, certainly, but also, when read together with our recommendations, it could be seen as a useful basis for further improvement within government departments. Certainly, that was not adequately recognised, as the noble Lord, Lord Fowler, has already said.
Perhaps the two most important aspects of how government communicate their policies and campaigns to their citizens through the media are: first, how effectively and impartially they achieve this; and, secondly, that announcements should be made as widely available as possible for use via all relevant communication channels.
Although there have been improvements to how government communications are delivered as a result of both the 1997 Mountfield report and the 2005 Phillis report, there is little doubt that more needs to be done; and that need will probably continue for some time. One suspects that trailing announcements before they were delivered to Parliament did indeed take place in the past and that it still happens today—as does leaking such information to perhaps more friendly members of the media. Equally, from the evidence we heard, it is likely that on some occasions in the past “difficult” journalists have been excluded from briefings relevant to their own area of expertise. Clearly, every effort must continue to be made to eliminate that kind of behaviour.
Most of the issues raised in our report have already been more than adequately covered by the noble Lord, Lord Fowler. I can only concentrate my few remarks on underlining some particular areas, which I hope the Government will revisit.
I, too, hope it will be possible for the Government to find ways to publish the annual cost of each government department's communications campaigns—and, indeed, the Government’s—and whether that cost has increased or decreased. The Select Committee heard evidence that the reason this has not been easy is the difficulty in separating this aspect of a department’s spending from the rest of its work. Of course, that is understandable and we have already heard why. However, it is increasingly important for citizens to know this for a number of reasons, many of which have already been mentioned.
One example is certainly the involvement of special advisers who, although bound by the code of conduct for special advisers, are nevertheless appointed as supporters of the Government and are not civil servants. It is certainly helpful that the Government’s response to the Select Committee has accepted, as we have heard, that each Minister, who is ultimately responsible for their special advisers’ conduct, should also have copies of the relevant code supplied to them. Again, as we have heard, in light of the recently exposed disgraceful behaviour of Mr Damian McBride, that decision was clearly wise.
Secondly, the lobby system and ways in which it could be improved have been more than adequately covered in the report and subsequently. However, I urge that major press conferences—and as much government information as possible, once Parliament has been informed—should be made available on all media platforms, including TV and the internet. Frankly, the more that we have that done, the better.
It is certainly an important step, that it is now policy that civil servants in charge of communications within each government department should increasingly be of a senior rank. Indeed, it is perhaps significant that those seen as high flyers in the Foreign Office have often held this kind of role in other government departments, as well as in the FCO itself, as part of their career development for high office.
Thirdly, although there are plans afoot to improve the service provided for regional and local media, if more government information of this kind is made generally available on more media outlets, including the internet, the easier it will be for local journalists and broadcasters to do their job effectively.
Finally, I support the points that I know other noble Lords will be making later on about the need to achieve a more effective partnership with the third sector. The very fact of the partnership with the third sector is, to me, excellent news. I come from a time when the third sector was not exactly seen by Labour Governments as part of the team at all. It was increasingly seen as taking jobs from other people rather than as playing the important role that is recognised today.
In their response, the Government point to the increasing role of the Office of the Third Sector, with its 43 third-sector strategic partners, and to the work of the Government Communication Network. I emphasise the point that was made so effectively by CABs in their evidence to us on the need to consult with them early when planning campaigns, such as the take-up of tax credit schemes, which will involve their expertise. When this is done, a far more effective delivery partnership can take place, which is of real benefit to the Government and, indeed, to the third sector partner and the client citizen. Vitally, however—and this really is my last point—the third sector must also be given the resources to do its job effectively.
My Lords, I, too, would like to thank my noble friend Lord Fowler for ensuring that the debate on this report takes place, and for his excellent chairmanship of our committee. We said in the report’s introduction that its purpose was to consider what progress has been made since the Phillis review was published in 2004, and to make recommendations for further improvements.
The Phillis review report suggested seven main principles that should underpin all government communications, two of which are:
“Use of all relevant channels of communication, not excessive emphasis on national press and broadcasters”,
“Co-ordinated communication of issues that cut across departments, not conflicting or duplicated departmental messages”.
These principles are relevant to the two subjects that I would like to address: first, regional newspapers and, secondly, the voluntary sector, concentrating on Citizens Advice and its bureaux. Here, I shall re-emphasise some of the points that the noble Baroness, Lady Howe, made in her final remarks. As an aside, it is worth noting that the voluntary sector is now absorbed into the third sector, thereby disguising in its title the all-important function of volunteering.
Regional newspapers are already having a hard time owing to increasing competition from all sorts of digital media, even before the rapid shrinking of the economy which is affecting so many sectors. This makes it more important than ever that they should be able to receive timely news from government sources and not be regarded as an afterthought. Opinions vary on how much improvement there has been in communication with the regional press media over the past five years. Some say that there has been very little; others say that the quantity has improved but not the quality. This arises partly from a lack of understanding of the role or needs of the regional press, and the need for more media literacy among some of the press office teams in Whitehall and elsewhere.
Another comment was that regional press releases can so often be copies of national press releases with a few local statistics added on, a far cry from the Phillis suggestion that each region should be able to do more than simply regurgitate Whitehall press releases.
A suggestion was made that each region should have a cross-departmental head of communications who is based in the region and who understands it. This person should be both confident and well-informed enough to be able to brief quickly on a range of subjects. This suggestion is very much in line with the Phillis principle of communicating issues that cut across departments.
A widely held view is that relations between the regional newspapers and government departments vary greatly. They can be very good when a department and the region have interests in common, and where the ministerial team realises the importance of regional media. Difficulties can arise when people working in departmental press offices have no idea how newspapers work and struggle to deal with deadlines.
A frequent cry of pain can be heard from journalists who are sent from pillar to post. They start off calling the government press office, believing that is where the information is, only to be told to ring the regional office, which tells them that they are talking to the wrong people and should ring Whitehall. As a result what should have been a simple process becomes mired in confusion. Also, press offices in certain departments can be elusive and are keen to end a call as quickly as possible rather than try to be helpful. However, there is some good news: When press officers have been journalists themselves, they have a greater understanding of what is needed. Some departments take the initiative and will contact journalists with story ideas. Regional media emergency forums can produce clear and useful communications.
To summarise, the recommendation in our report that addresses the problems that I have just highlighted says that regional press officers should be trained to have a better understanding of regional and local media, that they should become more proactive in their engagement with the sector, and that more senior officials and Ministers should be available for interviews. The government response says that the Permanent Secretary for Government Communications is committed to improving the level of engagement with local journalists and producers. As this is a huge commitment that affects all government departments, could the Minister please tell me in his response how successful this far-reaching commitment is likely to be?
I turn now to Citizens Advice and its relations with government communications, although some of the comments will apply equally to others, especially umbrella organizations in the voluntary sector.
Before going any further, I shall provide a few statistics, but I promise that they are the only ones that I shall mention. They are important because they emphasise the size and reach of the citizens advice bureaux and illustrate the important contribution that they make. The bureaux dealt with nearly 2 million clients who presented about 5.5 million problems in 2007-08. Adviceguide, the Citizens Advice public information website, had about 9.5 million visitors with problems in the same year. There are 426 member bureaux with 16,000 volunteer staff, who all have to be trained; 4,000 new volunteers are trained each year, but it is made clear that many volunteers stay for a long time. The volunteer recruitment line received 12,000 new applications last year. This must show that the voluntary sector is alive and kicking.
The reason why the word “bureau” has been dropped from the CAB’s official title will be that much of the advice it now gives is on its public information website, Adviceguide, which, as well as providing direct advice, is also able to guide the user with links to relevant government information. However, it is made clear that this is not a case of one-size-fits-all. This is amply borne out by the number of inquiries made in person at the bureaux.
On the government side, establishing Directgov as a single website portal is aimed at providing a starting point for individuals needing to find information about all government services and reducing the hassle of multiple sites with different designs and organisational approaches. However, logging on to Directgov cannot overcome the lack of co-ordination between government departments or the complexity of form filling that challenges the individual inquirer or claimant. Also, a departmental website to which a link was provided by Directgov might appear inscrutable. For instance, the user might want an update on leaflets and find that there is nothing there. However, it is reassuring to note that Revenue and Customs is an exception, as it provides useful lists of leaflets and what has replaced them.
The helpfulness or otherwise of the internet, whether it is Citizens Advice’s Adviceguide, or the Government’s Directgov, is inevitably restricted to the computer-literate who have internet access. Sections of the population cannot use these sources of information for other reasons, and they need to be able to talk to someone who can help them. CAB service users come from a variety of backgrounds, which will be familiar. Face-to-face users are most likely to be within the C2, D and E social classes, have long-term illness, live in social housing and/or are over 60. Added to these categories are those who cannot read or write, have mental health problems or do not speak English very well. That is a formidable list. As more and more government information is switched to the internet, departments must recognise how important it is for Citizens Advice to be able to keep its bureaux up to date.
Changes to legislation which have to be communicated to the public by the Government often involve the CAB service as a distribution channel. It would be sensible for the government department concerned to bring Citizens Advice into the planning at an early stage. In this way, based on its experience, it can advise on whether the campaign makes sense and when it might be best to run it. Sometimes statutory instruments are published at the last minute, which does not leave enough time for amendments to CAB’s guidance to be published for the use of advisers and the public before the law is in force.
Also, Citizens Advice needs support from government departments to check their material and to make sure that they get accurate information out to the bureaux in time. It finds departments’ responses to this appeal for help inconsistent, which can often make it difficult to meet deadlines.
Citizens Advice could help with the problem of unclaimed credits and benefits is very important, especially in view of the summing up of the Minister, the noble Lord, Lord Myners, in today’s debate on the economy, in which he stressed the value of pensions. In the opinion of Citizens Advice, more could be done to find ways of distributing the £3 billion of unclaimed pension credit. That is such a large figure. It believes that a shared strategy could be crafted which would mean more openness and partnership between government and organisations it could trust to find new ways to reach those who are not responding to present methods. That will not happen unless the Government really want it to. Citizens Advice believes that this would be an excellent example of government communications really making a difference.
At a time when the Government are relying more and more on the internet for communicating with the public, special attention must be paid to the needs of those who cannot be reached by the web. The local voluntary services in general, and Citizens Advice in particular, are able to meet this need. They in turn are reliant on the Government making sure that they have prompt and accurate access to new information. Allied to this is the need for departments to involve the voluntary sector in forward planning and also being prepared to check their material for accuracy so that it can be disseminated in good time. I would be grateful if the Minister could reassure me that these matters are being taken seriously by government departments and that progress is being made in these important areas.
My Lords, I will come to our esteemed chairman, the noble Lord, Lord Fowler, at the end of my speech. I want to begin by commending the contribution of my noble friend Lord Parekh. He is not a member of the Communications Committee, but his measured and non-partisan analysis of the appalling political culture into which we have sunk in the past few years could make one feel—as I often do these days—like cutting one’s throat, while at the same time giving one a reason to feel that perhaps all is not lost and that we can recover from this slough of despond into which we seem to have fallen. Perhaps then we can find ways of making those of us directly involved in the political process, those commenting on it and the public whom we all seek to serve not only feel better but look better.
I intend to make a very short contribution to the debate, not least because most things have already been said, as is inevitably the case when you are the tail-end Charlie. I want to make three brief points. First, I do not want to get too far into the vexed territory of special advisers. I think that enough has been said on that subject here and, unfortunately, elsewhere. I am sure that your Lordships will be glad to hear that I do not feel compelled to add to that quantum, nor do I want to go too much into “on the record” and “off the record” briefing, which was none the less an interesting element of some of the evidence we heard. I would recommend to noble Lords who have not read the report in detail to look at that evidence, particularly from some of the journalists. However, I will just observe that the tension between the wish of any Government to be open and their anxiety to be in control of the interpretation of their policies has been around a long time. It seems to me unlikely that it will ever go away, no matter what forms of structures are put in place. When this tension is allied to a natural journalistic fondness for having an inside track, the phenomenon of the unattributable briefing and the prevalence of unnamed “senior sources” will continue to influence our perception of how we are governed as it comes to us via the media.
I would refer your Lordships to the evidence we heard from the respected Guardian journalist, Jackie Ashley. Speaking of her off-the-record contacts, she said:
“What they say to me when they know it is unattributable is what they actually think … What do I do as a journalist? Do I say I will not take an unattributable quote, so I am not going to represent what you and a lot of your colleagues are saying, or do I say I will only take something with your name to it, in which case I am not giving the readers a true sense of what is happening in Parliament?”.
I refer to that quote because what it points up is that we all live to some extent in an ambivalent relationship to the way that information is conveyed. We want to feel, when we read about the Government—any Government—in the newspapers or on websites or wherever, that we are getting information that the Government do not want to give us. That is part of what it is to be human. We think that we are entitled to know things that people do not want to tell us, and we believe that what we do not know is being withheld from us for malign and deliberate reasons. At the same time, we want to feel that everything is on the record, everything is open to us and that there is no culture of secrecy. We would be really miserable if there were no culture of secrecy; it would leave us with nothing to feel paranoid about. We need to examine our own motives as citizens in thinking about how government information is conveyed.
It is clear from much of the evidence that we heard that there is still value in a system of regular, on-the-record press briefings and that these should be as open and as accessible as possible, and that, in the main, major policy announcements should be made to Parliament before they are shared with John Humphrys. I am glad to see that the Government’s response reinforces this view, albeit a little complacently, as others has pointed out. I hope that my noble friend will underline this again, when he comes to reply.
On the role of the voluntary sector, we heard evidence, chiefly from the CABs, as other noble Lords have mentioned, that there is work to do to ensure that a lot of the important information that the Government need to provide to citizens, the sort of information that rarely gets anywhere near the news—nitty-gritty stuff about tax, healthcare, education and benefits—to which people need access to improve, or just get on with, their lives, is still not getting through as efficiently as it should. The voluntary sector is absolutely crucial to improving the penetration of this kind of information into harder-to-reach sections of the community, to which the noble Baroness, Lady Eccles, referred, which perhaps do not have access to computers or are hindered through language or cultural difficulties from using the most widely available routes to information.
I cannot compete with the experience and depth of knowledge of my colleagues the noble Baronesses, Lady Howe and Lady Eccles, on this issue, but I would ask my noble friend if he could say a bit more than is in the Government’s response about how better working with the voluntary sector is to be achieved, and specifically about the role of the Office of the Third Sector in bringing about a more integrated approach across departments to improve the take-up of benefits. The CAB’s evidence on what it described as the “fragmented” administration of benefits between departments was very telling.
Finally, I address the issue raised principally by the noble Lord, Lord Fowler, and by others as well, on the numbers of people employed in government communications. My noble friend Lord Grocott, who is not in his place today, was a formidable member of this committee until a few months ago, and I mean no disrespect to his successor when I say that he is missed. As the committee embarked on the inquiry that gave rise to this report, and at intervals throughout, my noble friend reminded us that when thinking about government communications, we should not only be considering how the Government communicate with citizens, but crucially how the citizen communicates with the Government.
Nowadays, the range of ways in which he or she can do that is vast—far greater than we could have imagined a generation ago. There are websites, blogs, e-mail, e-petitions, requests under Freedom of Information legislation, telephones and there is even old-fashioned snail mail, which still works. There are, no doubt, many more which I have not identified. The figures provided by the Department of Health—I refer your Lordships to pages 86 to 90 of the report—are instructive in terms of the numbers of ways in which communication from the citizen to departments is being conducted. Of course, quite a lot of this traffic is generated by journalists and others with a professional rather than a personal interest in eliciting information, but it all adds up to a great deal of what might be called noise in the system and to the necessity for a lot of people to be engaged in trying to manage it and make sense of it.
Although the committee expressed concerns about the numbers and the costs of communications staff in government departments, I do not find it too hard to understand why there has been in some cases a significant increase in both over recent years. There is a high expectation among certain groups that information will be forthcoming quickly and that it will be both accurate and comprehensive. This is not an unreasonable expectation, of course, but it is not always easy to meet, given the number of different ways in which it can be demanded. At present we see—this was the thrust of the contribution made by my noble friend Lord Parekh—an exceptionally low level of trust in, and a high level of pretty intrusive interrogation of, government information. Money spent on attempting to make sure that it is as robust as it can be seems to me to be in principle a good investment, although clearly such expenditure should be regularly and rigorously reviewed.
I said that I would be brief but I have not been; I am sorry about that. I add only my thanks to our chairman for leading us so ably on this occasion, as he has on all others, and for his excellent, although occasionally discomfiting, opening speech. I also add my thanks to our team of clerks, who provided us with their usual excellent service. As ever with these inquiries, I learnt a huge amount more than I contributed. However, rather more importantly than adding to the sum of my knowledge, the report provides, I believe, a valuable and timely overview of a highly topical set of issues. I hope that the Government will take its recommendations seriously.
My Lords, I welcome the opportunity to debate this report and I add my thanks to the noble Lord, Lord Fowler. There were moments during this inquiry when I was reminded of a previous committee inquiry that the noble Lord chaired. Its remit was the broadcasting of sport and the broadcasting of religion, both of which subjects elicited lively differences of views. In that instance, the noble Lord managed to bring together those with and without religious belief and to rebuff those—including the noble Baroness, Lady Howe—lobbying hard for bridge to be included as a sport. This inquiry into government communications involved the need for equally deft steering in bringing together, under a unanimous report, those on the committee who had direct experience of the subject but via rather different governments.
Five years ago, as has been said, the report of the Phillis review of government communications was published. The Government are to be commended for having set the review up and for implementing many of its recommendations. However, the problem that Sir Robert Phillis was addressing back then, which he put to us as the,
“three-way breakdown in trust between government and politicians, the media and the general public”,
is still alive and kicking. The relationship between people and politics is, to put it bluntly, severely dysfunctional, as the noble Lord, Lord Parekh, said, and it is essential that it is remedied. In part this is due to spin, scandal and sleaze, but it is also due to the fact that the public feel alienated from the political process; they are not simply confused but ignorant about what we do at Westminster.
One of the report’s recommendations is that,
“the Leader of the House … should reinstate a weekly briefing on parliamentary business”.
The Government do not agree, but their response is interesting. They say:
“The Leader of the House … believes that the House itself should be the main focus of her statements and announcements .... She further encourages more sustained media reporting of the actual work of Parliament in the public’s interest”.
I am delighted that the Leader of the House wishes this, but the problem lies with the word “sustained”. I believe that this should mean greater access and an enhanced facility for the media to cover the work of Parliament in such a way that what happens in Parliament becomes understandable to the public. I fear that what the Leader of the House means is more of the same.
Let us take broadcasting. Here I declare an interest as an associate of an independent production company. Various rules and regulations mean that television coverage is not allowed to reflect the way Parliament really is. The Hansard Society conducts an annual audit of political engagement. In its most recent publication, when people were asked where they obtained most information and news about politics and current affairs, 76 per cent of respondents said that they did so from television. However, what do people see on their television screens? On the one hand, they see shots of a more often than not near-empty House of Commons, with a Minister bent over the Dispatch Box intoning on some topic and occasionally giving way. Alternatively, they see a packed Chamber of heckling, baying men and women not allowing their fellow MPs, let alone the Prime Minister, to be heard. I call that brilliant communication. I know that the Minister will refer to the excellent BBC Parliament channel but, excellent though it is, it is a digital channel and it has a small, though growing, audience.
The production company of which I am an associate—a highly respected, highly regarded maker of prize-winning documentaries and political programmes—has tried in vain to get the go-ahead to make a series about the workings of the House of Commons in order to achieve exactly what the Leader of the House purports to want. However, where access is concerned, there is a culture of “no”. Of course, I cannot make this point without noting that this House, thanks to the excellent work of the Lord Speaker, is far more flexible.
Continuing on the broadcasting theme—here I agree with the noble Baroness, Lady Howe—the Phillis review states that one of the main principles that should underpin government communications is “openness, not secrecy”, and that, to this effect, Lobby briefings should be televised. I carried out a little research here and found that the Lobby system has inglorious origins. In 1870, Speaker Denison stopped members of the public wandering into the Lobby to, as he put it, “inconvenience” Members of Parliament, and a list of those allowed access was established. Over the years, there evolved a “quasi Masonic”, as one of our witnesses, the current chair of the Lobby, put it—a relationship of mutual back-scratching between politicians and Lobby journalists involving exclusive briefings given on an unattributable basis.
Change came only when John Major, who recognised that the level of secrecy was ridiculous, allowed journalists to attribute stories to the “Prime Minister’s spokesman”. Nowadays, summaries of the Lobby briefings are on the No. 10 website. However, televising is resisted by some Lobby journalists as well as by the Government, although I cannot see why. It would assist journalists who are outside what is still an exclusive circle. As Jackie Ashley, who has already been mentioned by the noble Baroness, Lady McIntosh, told us:
“I would love to be able to just turn on my computer and click in every day and see what is going on”.
Would that not also be good for outside agencies and the public? It would also satisfy another of the Phillis review’s main recommendations—that is:
“More direct, unmediated”—
that is, not mediated by journalists—
“communications with the public”.
Of course, what cannot be televised are the off-the-record briefings, or the even more private conversations between those involved in government and the journalists with whom they have special relationships. Having been the Liberal Democrats’ Director of Communications as well as a journalist, I have experience of this from both perspectives. I agree with the noble Baroness, Lady McIntosh: these relationships, conducted properly, are an important tool in the coherent communication of the Government’s aims and intentions. When used incorrectly, as they appear to have been by Damian McBride, it is a disaster.
I digress at this stage to note that today is the 30th anniversary of the first Thatcher Government, when we got Bernard Ingham, who allegedly destabilised as many Tory Cabinet Ministers—I do not think that any is in his place today—as Damian McBride is alleged to have done for his side. I add that to the debate.
Then there is the matter, as so many noble Lords have mentioned, of using favoured journalists to leak policy and announcing policy first to an invited audience rather than to Parliament. A few months ago on the morning that Digital Britain—Interim Report was published, a breakfast was held at 10 Downing Street. The Times referred to:
“Top executives from media and telephone companies … to hear about Digital Britain”.
When, later that day, a Statement on the report was repeated in this House, the noble Lord, Lord Fowler, tackled the Minister, pointing out that such behaviour,
“would have been smack against the Ministerial Code”.
The Minister’s reply was that there had been a breakfast but,
“there was no prior disclosure of the report or discussion of its recommendations”.—[Official Report, 29/1/09; col. 387.]
They simply “exchanged pleasantries over pastries”.
Be that as it may, it seems curious timing. We live in a parliamentary democracy and we say in the report that,
“the most important announcements of Government policy should be made in the first instance to Parliament”.
We want open and transparent communications that allows everyone access at the same time. We on these Benches join the noble Lord, Lord Fowler, in being pleased that the Government accept the recommendation that codes of conduct for special advisers be supplied to Ministers as well as to special advisers. We are also pleased that the Government welcome the suggestion that high-flying civil servants should be given experience of working in communications. As they say in their response, the contribution that senior civil servants make to the communication of government policy is vital.
In conclusion, it is crucial to the health of our political system that there is effective communication between the Government and the public. Their prime concern should be to inform citizens clearly and unambiguously. As has been said so often before, the spinning must stop.
My Lords, I thank my noble friend Lord Fowler for giving the House the opportunity to discuss this report. The noble Baroness, Lady McIntosh, and my noble friend Lady Eccles both pointed out that my noble friend Lord Fowler has been an excellent chairman of the Communications Committee.
The committee has produced an important report calling attention to an issue that is at the heart of the public’s engagement with the Government and the political structure in general. With ever-falling voter numbers, and ever-rising cynicism and disillusionment, more needs to be done to communicate effectively, and above all honestly, with Parliament, the media and the public. One of the many recommendations made by the committee, quite rightly, emphasises the importance of the codes of conduct that govern the behaviour of Ministers, civil servants and special advisers. These codes of conduct have been thrown into the public eye in recent weeks.
My noble friend mentioned the Damian McBride affair, and I will leave him to respond to the comparison made by the noble Baroness between him and Bernard Ingham. The Damian McBride affair unfortunately showed an all too familiar failing of the Government. The immediate impulse, rather than taking a measured view of what actually went wrong, was to promise a new initiative. The code for special advisers clearly forbids the sort of behaviour that, rightly, led to a public outcry. The Government must stop looking for scapegoats and take the necessary steps to implement the existing rules.
The committee made very clear its concern about the lack of awareness, shown in the evidence, that civil servants appear to have of the various codes that they must adhere to. I have no doubt that this ignorance extends to Ministers and special advisers, too. The Government’s response to this concern was entirely inadequate. Having a copy of the code on your desk is not the same thing as knowing what it says, and most importantly, knowing that there will be consequences if you fail to measure up.
Will the Minister tell the House what happens when a Minister or a civil servant breaches the relevant code of conduct, by, for example, releasing information before a parliamentary Statement? The committee’s support for Parliament as the appropriate body to hear important government announcements before journalists is welcome. This issue is frequently raised in the House. Every time a new Minister or Secretary of State arrives on the Benches opposite, noble Lords take great pains to remind them of the value that the scrutiny that this House provides can have for effective government.
As the committee's report makes clear, the early release of information, whether by official interviews on the “Today” programme or by semi-official leaks, results in distorted public debate. Yet, time and again, that behaviour continues. I am sure that the Minister will repeat the government response that Statements to Parliament are fully supported by the Ministerial Code. As I have said, what good is that when Ministers are free to break that code whenever they choose?
Early release has a particularly damaging effect on the release of statistics and numbers, where it is much harder for even informed journalists, let alone the general public, to see what is spin and what is fact. We were keen to tighten the rules on pre-release of statistics during the passage of the statistics Act, but unfortunately our amendments were overturned by the Government. Our concerns were justified. The Government were rightly called to account over the early release of—I cite the Whitehall statistics watchdog—“premature, irregular and selective” crime figures in March this year. Does the Minister agree that it is exactly that sort of behaviour that does so much to damage the reputation of the Government?
The potential for political spinning appears to be equally tempting on other government-produced figures. The current economic climate has led to even greater incentives for Ministers to fiddle the figures and play with accounting standards. The recent Budget Statement shows just how far economic estimates and predictions can be stretched in the face of independent and objective analysis and disagreement. Does the Minister agree that the Conservative policy to establish an independent office of budget responsibility to prevent dodgy accounting would do a great deal to restore public confidence in government figures?
My noble friend’s committee has released a report that gives a timely warning of the constant vigilance that is needed to keep government communications up to the standards that the public have a right to expect. The Government’s response to the report shows worrying indications of complacency. The noble Baroness, Lady Howe, described it as meagre and dismissive. I hope that our debate will go some way to persuade Ministers that more must be done.
My Lords, I am grateful to the noble Lord, Lord Fowler, for introducing the debate and to all noble Lords who have spoken in it. I am also grateful to him for chairing the committee and producing such an interesting report. We can tell from the contributions to this debate that it raises difficult issues for any Government and fundamental issues about the culture in which we all operate. I am grateful to my noble friend Lord Parekh for attempting to define some of the issues that revolve around the culture which we all inhabit. He was supported by my noble friend Lady McIntosh, who also commented on some of those difficulties.
It is easier to analyse what is difficult and can go wrong than to be prescriptive on how to put it right. I merely say to my noble friend Lord Parekh that being critical of the media is one thing; working out in a free society how you can constrain them by law is a different matter altogether. I heard him say—I am not quite sure of the actual phrase that he used—that some mild or gentle legal reform might be necessary. The question of bringing the law, other than libel law, into constraints on the press raises fundamental issues about press freedom. He will know how sharp the reaction to any proposed constraints is from the media, and indeed from the wider public, lest those constraints benefit certain people.
My noble friend also said that it might be helpful if the press appeared before Select Committees. We do not need a Select Committee on the press. Select Committees have the ability to invite members of the press to their sittings whenever they wish, if in fact the press are relevant to their inquiries, and they do. The press are put under forceful questioning from Members of Parliament. From my reading of reports on Select Committee sittings, it seems that editors and journalists give as good as they get from Members of Parliament and members of Select Committees when they are challenged on these issues, so let us not suggest that this issue of culture can be easily resolved.
I entirely sympathise with the points that have been made. We are all distraught at what we regard as a reduction—we have not lost it completely—in people’s trust in parliamentarians. We all know some of the reasons for that, we all know that we must take steps to improve the situation as rapidly as we can, and we know some of the issues that have helped to cause it. However, we should also recognise, when we talk about some aspects being the nature of the culture that we inhabit, that from a parliamentary point of view the press at times looks over negative, overcritical, over challenging and unfair.
People from other countries will say that the British press is an example of freedom in a democracy and that the constrained press that operates elsewhere does not do the job that our press does, so in a sense we should take great care when we talk about changes in culture, although the committee’s report, which is about such important issues, does not raise very challenging matters when it comes to culture.
Whenever any difficulty occurs, damage is done to Parliament, parliamentarians and the relationship between Parliament and people. The noble Lord, Lord Fowler, said that he did not intend to introduce this debate in the same contentious way in which the previous debate had been introduced. He then got on to sleaze quite sharply, and identified one or two issues in a way that, to put it mildly, could be described as fairly critical.
Let me make the obvious point about the sleaze that he identified with regard to Damian McBride. I was away for a few days when the issue broke but by the time I got back he had gone, so I question the idea that there was a reluctance to deal with the issue and that it was not quite clear whether he had broken the code for special advisers. The answer is reflected in the sharp result that he has gone. I might add that the person with whom he corresponded has also gone from his private position as developer and editor of and contributor to the website that he was intending to operate. The Prime Minister made it absolutely clear that he would emphasise the Code of Conduct for Special Advisers, and an amendment was made to it to make it absolutely emphatic and a code that all special advisers are obliged to sign. It is quite clear that special advisers are not expected to use their position for party political purposes. That is clear in the code and will be enforced. I have been asked whether what the code represents is clear: it makes Ministers responsible for their special advisers.
This is not the first time that there has been an incident concerning a special adviser. There have been one or two in the past as well. However, we have to set that against the background that special advisers were introduced, first, I think, by a Labour Administration under a degree of criticism. We felt that we would get additional support and help from people who could be drawn upon for the particular roles they played and their relationship to Ministers. Over the nearly two decades during which the Opposition were in power, they used the special adviser system extensively and we have continued to do so. I do not think it can be argued that the concept of special advisers is flawed, but it is necessary for the code to be clearly enforced and that special advisers should know their limits. I want to assure the committee that the Government are taking this matter very seriously.
Another element of sharp criticism in this debate was the statement made by the Prime Minister on YouTube. The Government are enjoined to use every means of communication. When the Prime Minister, for the first time, used this form of communication, he was criticised for his performance, for having used it and because it was not a ministerial Statement. Let me make it clear: this YouTube broadcast was preceded by a Written Ministerial Statement to which Members of Parliament had access and which contained the information that was put out on YouTube.
Why did the Prime Minister act in this way? This was an exceptional circumstance. The House of Commons was going to deliberate on Motions before it about Members’ expenses, which we know has been just about the most inflammatory issue as regards the general public and its relationship to Parliament in recent months. It has cost us all dear in terms of reputation and, of course, Members of Parliament are greatly anxious about it. Therefore, there was a necessity for immediate action and a need for communication to Members of Parliament and to the wider public that action would be taken. Action, of course, was taken on that Thursday in the deliberation on the amendments.
I will present my next point with some care because I have the greatest respect for the noble Lord, Lord Fowler, who I know will be very concerned about the nature of the work of his committee. But there is just a tendency in this area to be “damned if you do and damned if don’t”. If all forms of communication were the tried and tested, and nothing experimental was ever used, the Government would look as if they were out of touch and showing no ability to relate to the public. If other forms of communication are used, the great danger is the suggestion that the Government are sidestepping the proper forms of communication and using something which is not fair. I recognise the criticisms, but I do not accept entirely their validity.
However, I accept the validity of the important principle of the primacy of Parliament and I want to reassure the chairman of the committee, the noble Lord, Lord Fowler, and the members of the committee that the Government support and advocate the principle on which this report on the primacy of Parliament was written and that Ministers should announce new policies to Parliament first. This principle is enshrined in the current version of the Ministerial Code, which was established in 2007. It is the Prime Minister’s guidance to his Ministers on how he expects them to conduct themselves in public office. Copies of this code are issued to Ministers on their appointment. There is no excuse for them not abiding by the code. On the occasions when failures occur, the press and the media are on to the issue very quickly, as are Members of the Opposition and other Members of Parliament. Indeed, members of the governing party can be critical as well. The primacy of Parliament must be maintained, but we ought not to get the issue out of proportion.
This Prime Minister and this Government make a large number of Statements to Parliament. I do not have the figures for this year immediately to hand, but noble Lords will recognise how many Statements of government policy are repeated in this House, and that is reflected in the fact that at times we are criticised for doing so. But if Governments are to be open and answerable to Parliament, then of course Statements form an important part of that aim.
There are two particular issues in the report that I want to comment on. The noble Baroness, Lady Bonham-Carter, referred to the Phillis review. The Government are proud that to a large extent we have fulfilled our commitments to the findings of that review and followed through on its recommendations, but the areas of some difficulty are things like the regional dimension of policies. I agree entirely with the noble Baroness, Lady Eccles, that the regional press is in considerable difficulty and we all know about the economic reasons challenging it at present. We must also consider the changes we have seen in the media generally. While the Government could be upbraided on the increase in the number of press officers and people employed in government communications, we have to set that against the enormous expansion of the media over the past decade, and indeed over the past five years. I refer not just to the 24/7 media, but to the extensiveness of that 24/7 media. We have to consider the sheer number of outlets that expect to have access to government services and the enormous thirst out in the wider world for information, which we should respect as the development of a free society in its expectation of access. We all agree on the important point that we cannot expect a democratic society to function effectively without access to information, but the issue lies in how it is presented.
Again, there are difficulties regarding the regional press. Most government campaigns are inevitably national in nature and therefore the national media are often the most cost-efficient way to achieve campaign objectives, so that is where they are targeted. However, I accept the point made by the noble Baroness, Lady Eccles, that some regard needs to be made of the regional dimension and I assure her that the Regional Co-ordination Unit within the Cabinet Office supports particularly the regional Ministers in their engagement with local media on key government issues.
The other point I want particularly to comment on was that raised by the noble Baronesses, Lady Howe, Lady Eccles and Lady Bonham-Carter, about the third sector. This is an important and growing dimension. I heard the criticism from the noble Baroness, Lady Howe, that she thought she could recall a time when Labour Governments were not so concerned about the voluntary sector; I dispute that. The third sector has changed a great deal. I was in the House of Commons as part of a Labour Government at the time to which she referred, the 1970s, and there were certain charities to which we were bound to relate. I was then interested in third-world development, and I assure the noble Baroness that we could not have achieved our objectives with regard to changing priorities in development aid without having the closest relationship with third-world charities. However, I accept her point. I think that she will in turn recognise that this Government are very concerned to engage with the third sector, which has an important role to play in providing services to our community. That is why we should make sure that we have effective communication with the third sector. I can only testify to the important fact that scarcely any significant government social legislation now occurs without the fullest consultation with the third sector. It would be impossible for us to deliver campaigns on issues such as obesity, in which I know the noble Baroness has taken a keen interest, without having significant regard for the work of charities and the third sector. That is true of a whole range of public policy. The noble Lord, Lord Fowler, mentioned in a modest way the campaign on HIV/AIDS in the 1980s, for which we all respect him and which was a significant breakthrough in government communication. I have no doubt that he, too, sought to engage the third sector in that. I do not therefore seek to deny the importance of being able to communicate in those terms if government communication is to be effective.
It is difficult to summarise a debate which covered the broadly philosophical and sociological while being rather precise in its analysis of where the Government have gone wrong in particular areas. This is a massive exercise. Substantial public resources are inevitably involved in the Government’s communicating their services to the community. It is not about politics but about government. It is about administration; it is about ensuring that our people are informed about how their lives can be enhanced, developed and protected. It is about them seeing how public health is advanced, how educational objectives are being met and how their social environment is being improved through effective government action, which is often consensual and not party political. It is very important that the Government have the resources to communicate effectively.
On the other side of the argument, inevitably, is the nature of government communication when it gets into more controversial areas, the most controversial of which arises when, from time to time, in these myriad activities carried out by a very large number of people, mistakes are made. Damian McBride’s mistake was a significant act by an individual that was completely outwith any government objective and any standards to which the Government subscribe, and it led to his removal from his position. These things will happen from time to time in the complex operation of government.
I hope that the House will recognise that it is right that the committee should identify errors where they occur. I hope on the other hand that the committee will appreciate that the Government’s response to the report is positive. We are grateful to it for having taken on another stage the crucial issue of successful communication. The Government responded constructively because we are based on firm principles of effective communication, which I know are shared by the whole committee.
My Lords, I thank everyone for taking part in this very interesting and very valuable short debate. I thought that all the speeches made very important points. The noble Lord, Lord Parekh, raised some very thoughtful issues. I agree with him that editors and journalists should be questioned by Select Committees; which is exactly why we did it. When we were examining the ownership of the press, that is exactly why we called editors and journalists and proprietors to us. I am not sure that everyone came with total alacrity, but the call went out and most of them did come. I am not sure that I agree with his diagnosis that much of the fault for the breakdown in trust belongs to journalists. It seems much more likely that Mr McBride, as a special adviser, did more to damage that trust than any journalist.
The noble Baroness, Lady Bonham-Carter, referred in passing to Bernard Ingham and said that, in her experience, he destabilised many Cabinet Ministers in the 1979 to 1990 Government. I served all but a few months in that Cabinet, and I have to say that he did not destabilise me, but I do, of course, concede that he had a strong view, at times, on some of the policies being pursued and he obviously had things to say; Lord Biffen comes to mind. The difference is this: I do not think—I think the noble Baroness will agree—that Bernard Ingham would, under any circumstances, have ever indulged in the kind of personal attack that was being plotted by Mr McBride. Under no circumstances would he have done so. He would certainly go for the politics, but he would not go for the person in that way.
There were a range of other interesting speeches. The noble Baroness, Lady McIntosh, gave her views on unattributable briefing, and I agree that that is an inevitable part of politics. Whether Ministers should give unattributable briefings is another matter. She said, and I quite agree, that Governments should always try to make Statements on the Floor of the House first. That is part of what we were saying. My noble friend Lord Astor of Hever, in a very good speech, made exactly the same point, and I agreed with him on the pre-release of official statistics and government policies.
The noble Baroness, Lady Howe, underlined the need for the total costs of communications to be published. I find it inexplicable that the Government cannot do that. I totally agree with the noble Baroness, Lady Eccles, that the Government need to do much more and take much more seriously, as all Governments should, the needs and requirements of the regional media and the regional press. I declare a past interest, as the chairman of two regional newspaper groups.
I think that was all the Back-Bench speeches. Then the noble Lord, Lord Davies, spoke, and I agreed—I put in my notes, “slightly unusually”—with much of what he said. That would be unfair, but I did agree with a lot of what he said. I am not sure, however, that the fact that Damian McBride has gone is a full reply to the fact that he has abused the system. Ministers must make it clear to every special adviser personally what is required and what is simply not permissible. That, it seems to me, is the lesson of the McBride case. I am not opposed to the concept of special advisers; what I am opposed to is the abuse of the system.
As for the YouTube defence, the Minister did a noble job as far as that is concerned; he is one of the very few Ministers who have attempted a defence of the YouTube question. I thought he protested a bit too much; he said the Prime Minister made a Written Ministerial Statement beforehand. That was very good of him, but it does not actually mean any more questioning than he would get on YouTube. I think the Prime Minister made a mistake; he should have said it openly to Parliament. The question of parliamentary expenses seems to me to be absolutely a matter of concern for Parliament itself; that was the proper way to do it. I do not in any way damn YouTube, but I do say that it should be used after a proper oral Statement has been made.
We have had a useful and good debate, and I thank again everyone who has taken part.
Manchester City Council Bill [HL]
Bournemouth Borough Council Bill [HL]
First Reading and Remaining Stages
The Chairman of Committees informed the House that, pursuant to Standing Order 150B (Revival of Bills), the Bills had been deposited in the Office of the Clerk of the Parliaments together with the declaration of the agent. The Bills were presented, read a first time, passed through all their remaining stages pro forma and sent to the Commons.
House adjourned at 6.05 pm.