House of Lords
Thursday, 4 February 2010.
Prayers—read by the Lord Bishop of Norwich.
My Lords, this may be a suitable time to remind noble Lords on behalf of my noble friend the Leader of the House of the guidance in the Companion. Supplementary questions should be short and confined to not more than two points. I am sure that my noble friends on the government Front Bench will respond in the same way with their answers.
We regard access to dental care as a serious and urgent matter. We are now investing more than £2 billion centrally in the NHS dental service. Access has steadily increased over the past five quarters, with 939,000 more patients being seen in the 24 months ending in September 2009.
I thank the noble Baroness for that Answer, which sounds very encouraging. Access has improved, but far too slowly to honour Mr Blair’s pledge of full access by September 2002. In the past two years, 3 million people have tried but been unable to get a dental appointment and 4.5 million have given up. The NHS operating framework 2010-11 places a clear duty on PCTs to ensure that everyone who wants access has it by April 2011. Can the Minister confirm that this is endorsed by the Government? What plans do the Government have to pilot and implement the Steele review, which focuses on registration and health outcomes, rather than numerical levels of access?
The 2009-10 operating framework does indeed set out the NHS goal of providing access to those who seek it. We absolutely endorse that. We have set ourselves a goal of delivering this by March 2011 at the latest. As I have just said, access has been rising over the past five quarters. We think that rising trend will continue. The noble Lord is right; we had to catch up on the fall in access and we intend to do that. As regards the Steele review, we have established a Steele implementation programme. We are working closely with a number of stakeholders, including the BDA, I am pleased to say, to implement those recommendations. We anticipate that the first pilots will be launched in spring 2010.
My Lords, I declare an interest as a member of the All-Party Parliamentary Group on Dentistry, along with the noble Lord, Lord Colwyn. I tabled a Written Question two months ago about the fact that many NHS trusts do not collect public data on dentists who tell trusts they will deliver NHS treatment, but then tell people who ring up that they take only private patients. Will my noble friend persuade NHS trusts to collect statistics on this matter?
The key point is that people access their dentists through the information which is readily available from their PCTs about which dentists provide NHS treatment. Those dentists are on that list because they provide NHS treatment. Therefore, we would not expect them to give the answer that was mentioned. We would prefer to approach this from the point of view of maximising people’s access to NHS dentists.
I am very grateful to the noble Baroness for her endorsement of the increasing access to dentistry. Of course we are very concerned about children’s dental health, which, I am pleased to say, has been steadily improving over the years. We and colleagues in the DCSF looked at introducing school dental examinations. The noble Baroness will appreciate that we felt at the time that this was not the right way to go because of the complexity of getting permission to inspect children’s teeth in schools and all the bureaucracy that that might involve. We thought that it would be better to ensure that parents were taking their children to the dentist and following proper dental hygiene.
That is a very important matter. There is no point in having increased access if you do not have enough dentists to do the job. I am very pleased to say that we have seen a steady increase in the number of dentists who are available. All 700 or 800 dentists who qualified in the past year have found positions. We have increased the number of students entering dentistry schools. Obviously we need to make sure that we are keeping up the supply of dentists to match the fact that there will be increased demand on our dentistry services.
PCTs have been given ring-fenced funding to provide dental services and in the past year 96 per cent of that funding was, indeed, spent. Part of our monitoring of PCTs’ effectiveness is about making sure that they not only spend the ring-fenced funding that they have been given to provide dentistry services, but that they do it effectively.
My Lords, one problem for consumers is knowing how to find an NHS dentist. Have the Government considered using the NHS Choices website for that and making its online search function more user-friendly so that consumers can identify which dentists are accepting NHS patients?
The noble Earl makes a good point. I am surprised to learn that NHS Choices and NHS Direct do not provide that kind of information and I undertake to look into that. These services point people in the direction of local helplines, but the noble Earl makes a good point and I will certainly look into it.
There have been three successful criminal prosecutions related to bribery by British citizens or companies abroad in recent years, and three non-criminal settlements related to allegations of bribery by British citizens or companies abroad by the Financial Services Authority and Serious Fraud Office.
My Lords, given that we put new legislation on the statute book just a few years ago, does the Minister share my surprise at such a low number of prosecutions? Is he aware that those of us who attended a crowded meeting upstairs last month heard from one of the whistleblowers in Kenya that nearly every one of the rampant cases of corruption there relates to a British company? He wondered why we were not prosecuting, which is why I tabled the Question.
My Lords, the UK is in the top one-third of the 38-strong OECD working group on foreign bribery proceedings in terms of prosecutions, convictions and non-criminal fines, ahead of some of our G7 colleagues. We are working well on this. It took some time after the change in the law in 2001 before the SFO was given appropriate authority. These cases take a long time to investigate—sometimes as much as two to three years. Then, if they are brought to court, they can last a considerable time. Our record over recent years in particular is good.
Yes, we do. As I have argued, the UK is already compliant with our international obligations following the 2001 Act; but our ambition, particularly in relation to Clause 7 of the Bribery Bill that we hope will receive its Third Reading next Tuesday, is to go beyond simple compliance and secure the most effective deterrent to bribery of all kinds in the public and private sectors, whether by rogue traders or corrupt public officials.
My Lords, noble Lords will remember that the Bribery Bill will receive its Third Reading on Tuesday. The Government have given a commitment that they will not bring it into effect until they have produced guidance for companies on how the Bill will operate. When do they think that guidance will come into effect?
I am afraid that is a difficult question to answer exactly. We will move forward very quickly with the guidance. We want all parts of the Bill to come into effect as soon as possible, because it is part of our attempt to show that we are at the forefront of dealing with bribery of this kind.
Does the Minister agree that Clause 7 of the new Bill, if enacted, will encourage British companies to audit and improve their policies on ethics, whistleblowing and corporate social responsibility, and therefore is to be welcomed? I declare an interest as a deputy chairman of a plc operating abroad.
I am grateful for that question. We have indeed had great help and support from industry, which does a fantastic job in providing jobs and exports for this country. The vast majority of firms always behave in an exemplary way. The fact that Clause 7 is supported by industry is very important to its passage through both Houses.
Is my noble friend aware that what the noble Lord, Lord Steel, said was entirely right. You cannot do business in almost any country in Africa or the Middle East without bribing the relevant people. Is it not the case that about the only people who do not seem to be aware of the scale of corruption and bribery in these countries are Her Majesty’s Government? The companies use agents and claim that they are therefore not doing the bribery, but that does not convince anyone at all.
I do not take quite as cynical a view as my noble friend. In any event, we are bound by our OECD membership and by what is right to ensure that bribery, which of course takes place in this world, is minimised and that, where it is discovered, it is dealt with. I make no apologies for saying that. The policy of any Government in this country cannot be other than to say that the law should be obeyed.
My Lords, what proportion of police resource is spent on international commercial corruption and how much is spent on corruption within our foreign aid budget? In other words, to what extent is it still true that foreign aid is poor people in rich countries giving money to rich people in poor countries?
I think it is fair to say that every country has its own laws, habits and customs around this subject. I am in a position to speak only about our country, and I am proud to say that if the Bribery Bill goes through, it will mean that we will be among the very top countries in the world in terms of dealing with bribery.
My Lords, I have had time to reflect. Indeed, I and other Ministers are meeting the noble Lord and some members of his committee this afternoon. However, I have to tell the House that an absolutely vital part of the Government’s support for the Bribery Bill is that Clause 12 should go through as it stands.
West Bank and East Jerusalem
My Lords, the European Union has consistently urged Israel to freeze all settlement activity in both the West Bank and East Jerusalem. We supported the European Union’s statement of 29 December, which made it clear that settlement activity prevented the creation of an atmosphere conducive to resuming negotiations on a two-state solution. We shall continue to make that clear.
My Lords, is the Minister aware that at least 1,200 illegal settlement units in the West Bank have been approved since President Obama’s speech five months ago, and that not only settlement expansion but also the appalling eviction of Palestinians from East Jerusalem continue, both of them with devastating effects on Palestinian human rights?
I had intended to quote from a speech by Mr Netanyahu a week ago but, in view of the guidance given by the noble Lord, Lord Bassam, I shall not do so. I therefore come to my question, which is to ask the Minister what action, not statements, we are considering with our European colleagues to support Senator Mitchell and President Obama in their, as I understand it, continuing aim to stop all illegal settlement activity in both the West Bank and East Jerusalem.
My Lords, the United Kingdom’s message on settlements has been both robust and consistent. Israeli settlements are illegal; they violate international law and prevent the creation of an atmosphere conducive to resuming negotiations on the two-state solution. The Prime Minister made that clear in his letter to the Israeli Prime Minister on 5 January. There are frequent ministerial meetings between representatives of our two countries, and the United Kingdom, both individually and as part of the European Union, continues to press on these matters.
Can the Minister confirm that our policy has been to support the United States in its negotiations on the Arab-Israeli peace process? Now that it is clear that the United States is blocked in its position, should we not be working much more actively with our European Union partners to support a European initiative for the Middle East peace process instead of waiting for the Americans to lead?
My Lords, it is not a question of waiting for the Americans. Strenuous efforts continue to be made by the United States authorities, certainly through Senator Mitchell. I commend to the House the statement of the Foreign Affairs Committee of the European Union in December, which was comprehensive and strong, setting out the European position of which we can all be proud. I would be happy to provide a copy of that statement to the Library. It is wrong to think of an either/or position; it is a question of continuing the pressure. Regrettably, progress remains slower than we would all wish.
Since President Obama called for a halt to existing settlements, has not George Mitchell, the United States envoy to the Middle East, indicated on the President’s behalf a softening of the American stance and the resumption of peace talks free of incendiary rhetoric?
My Lords, my noble friend makes an important point. We have to seek stepping stones that take us not to a settlement at this stage but to the negotiating table. Some of the statements made are not helpful in that regard, but my experience of the United Nations is that what is said before negotiations start is not as important as what is said within them. That endeavour continues and our Government are as active as they can be in seeking to persuade all the parties that until those talks start there can be no prospect of a two-state solution.
Does the Minister recollect that the Balfour Declaration made nearly 100 years ago by Her Majesty’s Government expressly provides that it is,
“clearly understood that nothing shall be done which may prejudice the civil … rights of existing non-Jewish communities in Palestine”?
Granted that those are the words of Her Majesty’s Government, should we not be even more enthusiastic than the President of the United States in pressing that case with all vigour?
My Lords, I confess that my study of the Balfour Declaration was not concurrent with it being debated in your Lordships’ House, although there may be noble Lords who were there. To some degree, it has been overtaken by the legislation of the United Nations in creating Israel as a state. The points made by the noble and learned Lord are well taken and in that sense they remain as valid as they were at the time of the Balfour Declaration.
My Lords, I recently visited Gaza as a member of a 60-strong European parliamentary delegation and guest of the Campaign to End the Siege on Gaza. The inhabitants of Gaza are living in conditions of great deprivation as a result of the effective blockade of Gaza, which means that only the bare minimum of supplies of food and medicines, and barely any of the materials that are so badly needed to rebuild the broken infrastructure, can get in. What are Her Majesty’s Government doing with their European partners to bring to an end this intolerable situation?
Again, I commend the statement of the European Foreign Affairs Committee in December. It is also true to say that while there was only a trickle of commodities and lorries getting into Gaza, that is improving. However, it has not improved far enough or fast enough. The United Nations is clear that there is not sufficient ability to reconstruct and take away some of the misery from the lives of Palestinians. We continue to press the Government of Israel. We welcome the improved access and the taking away of blockades on the roads, but we ask for full removal so that we can provide assistance through DfID and others to help to bring the Palestinian people back from the misery in which they are currently living.
My Lords, does the Minister agree that we are looking at the steady establishment by the Government of Israel of what are called “facts on the ground”, and that we are already at the point at which a viable Palestinian state is virtually impossible because of the spread of settlements and the control of aquifers? Will he and Her Majesty’s Government consider seriously how they can make a reality of what they constantly repeat, which becomes more and more vanishing in fact?
My Lords, I cannot share the noble Baroness’s pessimism that a viable Palestinian state is not possible. A great deal more good will on the ground, and a great more give and take, are required. The noble Baroness can rest assured that the United Kingdom Government do not stop simply at making or supporting statements in Europe. We are very active at ministerial level—with Ministers in Israel and in our talks with the Palestinian Authority—in seeking both to assist and encourage. Frankly, it is not helpful to say that we have an impossible task, because the only certainty is that those who do not want us to succeed will agree with that.
Agriculture: Chinese Lanterns
My Lords, we recognise the concern among livestock and horse keepers. Anecdotal evidence suggests that, while few animals have been affected, the impacts can be severe. Chinese lanterns are enjoyed by many but this should not be at the expense of litter in our countryside or injury to animals. Biodegradable lanterns are available and we will work with interested parties to promote the use of models that do not cause harm or environmental damage.
My Lords, does the Minister appreciate that large numbers of these lanterns are being set off, that each contains a lighted candle and bamboo and wire structures and that there is considerable anecdotal evidence of their harm to animals either at the time of their use or when found chopped up in silage or hay? Will he go further and seek an outright ban on these apparently enchanting creatures, shall we call them?
My Lords, no doubt the release of Chinese lanterns is fun and a part of celebrations. However, we emphasise that we expect the industry to move to the biodegradable lanterns that are available and do not contain wire. Those do not present the danger to livestock that has been reported, which has always been in terms of the danger from the wire.
My Lords, this is an extremely important issue because these objects are dangerous to the cattle and horses that may come across them. How long are the Government prepared to give the industry to sort itself out before they introduce a regulatory procedure banning these dangerous lanterns?
My Lords, the National Farmers’ Union officially brought a case to our attention recently, but the use of these lanterns for fun and enjoyment has been going on for several years and we should not exaggerate their impact. However, it is clear that biodegradable lanterns are available and we will talk to the interested parties and ensure that the industry moves over to such lanterns.
My Lords, I am fairly certain that it will not be in the Conservative Party’s manifesto either. I speak as a member of the National Farmers’ Union, which is not seeking an outright ban. The Minister is right in saying that there are ways forward on this issue, but does he not agree that one of the biggest problems is that people using these lanterns are ignorant of the threat that they present to livestock, crops and feedstock? Does he also agree that the key issue is to get the suppliers and manufacturers to give clear instructions on their use?
My Lords, I agree entirely with the noble Lord. The recent flurry of publicity, the efforts that the Government will make hereon and the industry will bring to people’s attention the care that needs to be exercised with regard to the lanterns. There is no doubt that there is irresponsible use—although I have to say that I participated in an event last year entirely ignorant of the potential consequences.
My Lords, I am aware that drastic action has been taken by a number of countries, although the incidence of the release of lanterns has been far greater elsewhere than we have experienced in Britain—I think that 1 million of them were released at one time in the United States, which sounds a prodigious number. The use of the lanterns in Britain has been fairly modest, but it is obviously a growing piece of celebration and fun. I entirely agree with the noble Baroness that we need to address ourselves to the matter. However, if we guarantee that the lanterns are safe, the issue of insurance will not arise.
My Lords, I pick up on a point made from the Conservative Front Bench about the education of the public in the use of these lanterns. Last week, in the village of Scourie in north-west Sutherland, a member of the public mistook Chinese lanterns for marine distress flares and the coastguard cliff rescue team was called out. Fortunately, the police identified them for what they were before the Lochinver lifeboat went to sea, but it is important that the public are educated properly in the use of these things, because life and limb are at risk when cliff rescue teams and lifeboats go to sea on mistaken errands.
My Lords, I am grateful to my noble friend, who is very knowledgeable about these issues. The advice that is given is that such lanterns should not be set off within five miles of the coastline for exactly the reason that he identified. We clearly have work to do in educating the public and that is certainly one dimension that we will need to bring to the public’s attention.
Transport: Motoring Lobby
My Lords, the Department for Transport consults a range of stakeholders as part of its commitment to evidence-based policy-making, and I consider all representations made to me, including those from motoring organisations. However, all policy decisions are reached properly and independently.
My Lords, I thank the Minister very much for that Answer. However, I believe that about 80 per cent of the transport budget is spent on roads—at least, 80 per cent of the capital budget. If, as I hope, the Minister would like to spend more on public transport, particularly on the railways, does he feel it necessary for political reasons to continue to appease the motorist? Does he have plans to review the appraisal schemes, which seem unfairly to favour the motoring lobby?
My Lords, I am glad to say that the noble Earl's statistics are incorrect. If you aggregate revenue as well as capital spending by my department, for the current year, its budget is being spent as follows: £4.1 billion on rail, £3.1 billion on strategic roads, and, in addition, £2.7 billion is being allocated to London, a good deal of which is going on public transport.
My Lords, does not the Secretary of State agree that the revenue raised from motorists is a very salient aspect of the finances of this country? The suggestion that they should be penalised in any way will not help that. Will he underscore his support for the fact that motorists should not be under too many coshes?
My Lords, motorists have legitimate interests that need to be properly protected by the Government. Indeed, we are doing so. We are now embarked on a five-year investment programme in the strategic road network, and £6 billion will be invested in improving the strategic road network and enhancing capacity. We are doing our duty by motorists as well as by other transport users.
My Lords, does the Minister accept that, in the opinion of many of us, the motoring lobby has been dictating transport policy in this country since it succeeded in abolishing the man with the red flag who used to walk in front of motor cars? Will he tell the House why appraisal schemes for road and rail matters are so different?
My Lords, as my noble friend will be aware, we have updated the new approach to appraisal and, in particular, our treatment of fuel duty—a matter of concern before—which now makes it possible better to capture the benefits that apply to public transport schemes. That change has been widely welcomed.
Motorways: Mobile Phone and GPS Signals
My Lords, the department has for several years used in-vehicle GPS data to produce interurban congestion public service agreement statistics. Anonymised Trafficmaster data are used to estimate average journey times between motorway junctions.
Mobile phone data are not currently used by the department, and I would not agree to using traceable personal data that raised genuine privacy concerns
What is the relationship between ITIS Holdings and the Department for Transport? Has the department made an assessment of whether safeguards are needed to deal with the privacy implications of the use of mobile phones, which the department says it is not using, but which ITIS is certainly using, to model traffic?
My Lords, something is clearly being done by the highway authorities with mobile and GPS signals to map out traffic. Can the Minister give us some suggestion, some clue, about what that information will be used for or is being used for because it must be being done under the eye of the Government?
My Lords, in respect of the GPS data, Trafficmaster has 70,000 vehicles with in-vehicle GPS units installed. That helps to generate data on congestion levels and journey times that are of immense value to the public at large, so I make no apology for the use of the GPS data. GPS signals are also used in tracking buses and enable the public to get real-time information on bus delays and availability, as well as other services that are available by means of GPS.
Does my noble friend believe that GPS is being used to its maximum for the benefit of the country? Will he look at the cost of taxis in central London, particularly with the Olympics in mind, and see whether we should not think about changing the way in which our black cab system runs in London? We should be using GPS more rather than the current extensive training scheme that is reflected in very high charges later.
I am sure that over time we can make better and wider use of GPS. We are doing so, for example, in the bus fleet. From April this year, operators of local bus services in England will receive a 2 per cent increase in their bus subsidy rate if they have fitted their buses with automatic vehicle location equipment, such as GPS equipment. This makes tracking the buses much more straightforward, and much better information can be given to travellers.
The Secretary of State has told my noble friend that he will inquire whether any contractors use GPS signals in ways which his department and many of us regard as inappropriate. If he finds that they are doing so, does he have the power to stop them, and will he use it?
I ask the Secretary of State the same question again in the hope of getting an answer. Should not people who have mobile phones be made aware that their mobile phones are being used by some people for tracking purposes to provide data of this kind?
Is the Secretary of State aware that many of us do not agree with the suggestion that black cabs should stop acquiring “the knowledge”? I would be very sorry to see us change over to sat-nav or to the Australian system in which the man gets out a map and starts looking at where you want to go.
Railways: High-speed Lines
My Lords, the Department for Transport is continuing its assessment of the detailed report from High Speed 2, which was received at the end of last year. If the Government decide to pursue proposals for high-speed rail, we will publish a White Paper that sets out plans by the end of March.
My Lords, I welcome my noble friend’s Answer. Does he agree that we should develop high-speed rail links from London to Scotland as a matter of urgency? I make the plea that we have not only plans but progress on developing the link. I also make a plea for the west coast.
My Lords, I have a report on my desk that extends to more than 1,000 pages. It examines the case for a high-speed line north from London that provides services all the way to Scotland. We are giving it intensive consideration and, as I say, I hope to come forward with proposals before long.
My Lords, the noble Lord will have noticed on his journeys that there is a lot of England between London and Scotland. Which places, east or west, are likely to be served by high-speed rail, and will this be integrated into the railway system—unlike Eurostar, which just goes from point to point?
My Lords, I am afraid that the noble Lord will have to wait until the White Paper to see which conurbations could be served by high-speed rail, but he makes a very valuable point; there are a large number of conurbations between London and Scotland, and it is very important that high-speed rail serves the needs of all parts of the country.
My Lords, it will not have escaped the Secretary of State’s attention that an election is pending. What realistic progress does he expect to make on any consultation on a White Paper that he produces in March? Given the reply that he has just given, will he also take into account the fact that he could blight the lives of thousands of people if he publishes his chosen route in March, given that it is not guaranteed to be the route of either of the current opposition parties?
I assure the noble Baroness that it had not escaped my attention that a general election might be coming in the near future. She can rest assured that if we publish a White Paper on high-speed rail, it will receive great prominence in our election manifesto. However, I am glad to note that her party and the Liberal Democrats also have commitments in respect of high-speed rail. Believing that we should put national interests beyond party interests, I hope that it might even just be possible that we come to agree on the high-speed rail plan, which could be of great advantage to the future of this country.
My Lords, will my noble friend assure the House that, when the White Paper is published, there will at least be an option for connecting High Speed 2 to the rest of the European high-speed rail link, which is HS1? A lot of stories are going around that people will have to get off HS2 somewhere in London and hump their bags to St Pancras to get on a different train. Does my noble friend agree that, for the benefits of High Speed 2 for the rest of the country, there has to be some shrewd running?
My Lords, does the Minister recognise that it is not just conurbations which benefit from high-speed rail? Rural hubs like Berwick-upon-Tweed benefit hugely from fast direct rail to London and Scotland. I hope that any proposals will not in any way make the situation on our line worse and will enhance the north-east line.
My Lords, is not the point about blight made by the noble Baroness, Lady Hanham, particularly relevant? Is it not important to ensure that, if there are to be cuts in expenditure, we do not provide information now which may not be implemented in terms of projects for many years?
My Lords, my noble friend is correct. For that reason we have not published the High Speed 2 report in advance of the Government publishing a White Paper. It is important that only those proposals which we intend to take forward for consultation are given the imprimatur of the Government so that we do not cause unnecessary blight.
My Lords, I am extremely enthusiastic about this development but hope that there will be a study among the thousands of pages on the Minister’s desk to ensure that, if the high-speed rail link goes up the west coast, it will not adversely affect the competitiveness of the north-east of England.
Business of the House
Timing of Debates
That a Committee for Privileges be appointed and that, as proposed by the Committee of Selection, the following members together with the Chairman of Committees be appointed to the Committee:
B Anelay of St Johns, L Bassam of Brighton, L Brooke of Sutton Mandeville, B D’Souza, L Eames, L Graham of Edmonton, L Howe of Aberavon, L Irvine of Lairg, L Mackay of Clashfern, L McNally, B Manningham-Buller, B Royall of Blaisdon, L Scott of Foscote, L Shutt of Greetland, L Strathclyde;
That the Committee have power to appoint sub-committees and that the sub-committees have power to appoint their own Chairmen;
That the Committee have power to co-opt any member to serve on a sub-committee;
That the Committee have power to send for persons, papers and records;
That in any claim of peerage, the Committee shall sit with three holders of high judicial office, who shall have the same speaking and voting rights as members of the Committee.
Asylum (Designated States) Order 2010
Access to the Countryside (Coastal Margin) (England) Order 2010
Welfare of Racing Greyhounds Regulations 2010
Occupational Pension Schemes (Levy Ceiling) Order 2010
Pension Protection Fund (Pension Compensation Cap) Order 2010
Rail Vehicle Accessibility (London Underground Metropolitan Line S8 Vehicles) Exemption Order 2010
Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010
Motions to Refer to Grand Committee
Economy: Enterprise and Innovation
My Lords, I start by underlining the importance of enterprise and innovation in business as this brings economic growth as its product. No doubt all sides of the House will be in general agreement with that, just as all sides of the House are presumably against sin, but equally no doubt this debate, which I am pleased to introduce, will produce varying solutions.
At the outset, as we will be talking about promoting enterprise in the private sector, I must stress that I have real anxieties over research that has shown huge increases in jobs in the public sector and precious few in the private sector in recent years. As a Scot, I am not proud of the fact that in Scotland one in four is employed by the state—over 600,000 people—which I am told is an increase of over 50,000 since 1999. I am not alone in my concern. Entrepreneur Sir Tom Hunter has criticised the size of that country’s public sector and warned of “mind-dumbing” dependency on the state.
I hope that in this debate we can identify the roadblocks that stand in the way of progress for private firms, particularly for small and medium-sized businesses and start-ups. We must never underestimate the importance of start-ups. Look at Taylor Woodrow, now a worldwide construction company, started by Frank Taylor with £30 and a bank loan of £400. Later on, I will be very critical of the Government in some respects, but I start by approving wholeheartedly of their decision to set up three manufacturing resource centres costing £70 million in Southampton, Loughborough and Brunel universities to help UK businesses to develop technological products of the future in the areas of metal, regenerative medicine and photonics. I will leave others to explore the large percentage of aid that seems to have ended up in government-held marginal seats.
Why me to open this debate? Noble Lords are entitled to ask that question. The answer is that business has been my life. When in 1990 I started up a firm from scratch, I found that much more testing than sitting on the government Front Bench in the late 1980s, although I would not have sat there if I had not as a businessman in the 1970s been so appalled at hearing Ministers talk of making the pips squeak with high tax. Noble Lords will recall that the top marginal rate of income tax was 83 per cent, plus the imposition of a tax surcharge on income from savings and investments, taking the marginal rate to 98 per cent. Who in their right mind, with all the risks of investing in small firms, would work for 2 per cent? That got me off the touchline and into the game of politics. In those days, I had followed closely what my party was planning for small businesses, starting in the early 1970s with the pioneering pamphlet Acorns to Oaks by my noble friend Lord Cope, then a younger man, and the emergence of the Conservative Small Business Bureau, which got massive encouragement from my noble friend Lady Thatcher.
And now here we are again. The Minister said recently:
“Confidence is the biggest threat. We need businesses to have confidence to invest in the future”.
We would all agree with that, but how does it square with the Government’s record? I hope that this will be covered in the debate, but if we are to have an export-led recovery—a low pound is not a bad start—it is not being helped by bringing in a 50 per cent tax rate on the so-called rich, threats to entrepreneurs that make them flee the country and the introduction of extra taxes on jobs.
I declare an interest as a director of two medium-sized businesses that are both dependent on innovation to stay in business. In fact, if it had not been for innovation, both would not be in business today. One deals with turning softwood into hardwood by a chemical process, thus preserving the shrinking supply of wood from hardwood forests, and the other manufactures high-class cashmere knitwear using the most modern machinery to compete with foreign manufacturers, who incidentally have no problem with redundancy payments or swingeing costs on health and safety. Concentrating on this business, we had no option in 2004 but to throw out all our main machines and replace them with the latest innovations. It was expensive and tough, as we had to ask many people to leave. Redundancy is a big cross to bear and I wish that there was some way of mitigating it, as I am sure that for some businesses the costs could well prevent necessary action.
Earlier I said that now, as in the late 1970s, we are looking at a difficult marketplace. In our business, if we are not exporting, we are quite simply out of business. What have we been told? The British Chambers of Commerce says that the blizzard of fresh red tape and taxes related directly to employment between April this year and April 2014 means that the cost for firms will be £26 billion in that period. These are horrifying figures and a far cry from 1997 when Ken Clarke passed on his golden economic legacy. All I seem to remember about that time was that Gordon Brown sold the gold. With hindsight, I do not think that that was a very good investment decision.
What did my finance director and accountant say when I said that I was speaking today? They said quite a lot. The finance director said:
“One of the biggest bureaucratic nightmares for us is Health & Safety. We are all on side to make working places safe but a whole industry has grown up. Commonsense and reasonableness are irrelevant—thus very onerous documentation resulting in our having to employ a health & safety consultancy at considerable cost”.
I am sure that the Liberal Democrat Benches will be pleased and honoured to hear that I am going to quote WE Gladstone, who said in 1890, when he disclaimed his belief in the nanny state:
“Thrift has to be encouraged by judicious legislation, not by what is called grandmotherly legislation, of which I for one have a great deal of suspicion”.
My accountant said:
“While most businesses can accept that credit rating would become more closely supervised in the recession, many firms are appalled by the increases in margins and the arrangement fees even when their results have held up in the recession. Clients cannot go elsewhere as High Street banks appear to have the benefit of a virtual cartel. Ministers tell us the new Enterprise Finance Guarantee Scheme is working. I hope it is as good as the SFLG scheme which was very effective where a viable business lacking the collateral for bank lending could get help. We hear a lot about the value of loans offered but this is not the same as the value of loans drawn down”.
Will the Minister tell us in his reply what percentage of loans offered are drawn down?
Over this difficult time we must cut away unnecessary bureaucracy and cut the time taken in setting up new businesses. At present, it takes twice as long here as in the USA, Denmark and Hong Kong—and I should know, as my daughter set up and runs an ice cream factory in Hong Kong. The number of forms needed to register should be cut and small business rate relief should be automatic, with the consequent savings for small firms.
In the turbulent months ahead—as they will be—can we do everything possible not to stifle innovation? It is to be hoped that we will adopt the Lawson mantra of “cut the rate and increase the take”, open every door to encourage export-led recovery, encourage entrepreneurs not to rush abroad and ensure that Governments of whatever party understand the importance of capital allowances to businesses. I support wholeheartedly my party’s plans for creating a new generation of entrepreneurs. After all, Sir Keith Joseph said, I think, that the interpretation of the French word “entrepreneur” was “an undertaker of risk”. All those who get involved in business have to take risks.
A work-for-yourself programme would help to move people into self-employment. It would build a network of business mentors, offer substantial loans to would-be entrepreneurs, support self-employment and franchising as a route back into work, and work with specialist organisations that already have a proven track record in this area, such as the Prince’s Trust and the Bright Ideas Trust. I hope that my noble friend Lord Hunt will elaborate on some of the measures that these Benches will support to cut the cost of red tape, get company tax to a more competitive level in the world and, above all, make sure that entrepreneurs do not end up as busy fools whom the banks and the Government leave with very little profit.
I conclude with two specific requests of the Minister. Will the Government join the USA and, I hope, Italy in making representations to the World Trade Organisation to stop China awarding export rebates of some considerable value for cashmere products that it exports? The figure is 16 per cent. It is as if I were to ask the Government here to discount all my cashmere exports to the tune of 16 per cent—an extraordinary situation. It is wrong and it is grossly unfair, but it is carrying on at the moment. I know that the Cashmere and Camel Hair Manufacturers Institute wrote on this matter to the noble Lord, Lord Mandelson, two months ago, but it has not had a reply. I know that the Minister, as a Welshman, will take this ball and run with it, because it will be a great help to our industry.
Secondly, and nearer home, as a Scot I am incensed that no new replacement nuclear stations are to be built in Scotland, thus depriving the industry there of work. That is a result of this Government’s handing over all planning powers to the Scottish Parliament, with the SNP Government setting their face against nuclear installations. That must be wrong. I hope that the Government might reconsider the situation and perhaps amend the Scotland Act to ensure that planning powers for strategic energy decisions come back to Westminster, ensuring as a result that Scotland will be able to continue to be a net exporter of power through the interconnector as it is at present.
We will get out of this recession by trading our way out, by businesses creating wealth—export-led, I hope—so that we, along with the British Chambers of Commerce, can say that the roadblocks to progress have been removed. I beg to move.
My Lords, I congratulate the noble Lord, Lord Sanderson, on securing this timely debate. For 30 years, I have been the director of Warwick Manufacturing Group at the University of Warwick. We have spent those three decades working on enterprise and innovation with businesses around the world, so I am happy to declare an interest.
It took a global economic tsunami for both major parties to see that economic expansion will not be as easy as the financially driven growth of the past two decades. Whether it is a “green investment bank” or a “UK innovation investment fund”, everyone is now playing “innovation” mood music. Of course, you never know what music the other band will play after an election. We know where we stand on this side of the House.
Everyone now agrees that exporters, manufacturers and new start-ups must drive the economy forward. The question is how. We could boast that Britain is the sixth-largest manufacturing nation, but the truth is that much of our manufacturing depends on the research of others. For example, although many companies make cars here, most do their research and development elsewhere. If we look at the world’s most recently successful economies such as Japan, China, Singapore, Korea and India, we see the importance of an integrated infrastructure where companies do a lot of local R&D in an environment that encourages their investment. British pure research is world class, well funded and second to none, thanks to this Government. Unfortunately, we often do not take advantage of the commercial opportunities that our research gives us.
There have been many attempts to bridge that gap. In 1992, the right honourable Peter Lilley, then Secretary of State for Trade and Industry, came to Warwick to announce the creation of an innovation unit in the DTI. That was followed by the White Paper of the noble Lord, Lord Waldegrave, on science, engineering, technology, wealth creation and quality of life.
Those moves remain the benchmarks on these issues. Unfortunately, the good ideas were not backed up with money, so the fruit withered on the vine. Since then we have had a lot of policy papers about innovation. The problem has been that innovation simply became a buzzword. It was not directly linked to science and technology funding, and successive research assessment exercises ignored economic impact. At last that is changing under this Government.
At the same time, “manufacturing” became a dirty word for policy-makers. There was a perception that manufacturing meant trouble and we should leave it to others while we concentrated on high added value, whatever that meant. We have some excellent manufacturing sectors in the UK. They are golden nuggets and we can use them to build on. Some of these golden nuggets, like aerospace and life sciences, have that status precisely because of the Government’s direct and indirect support for their products. We need to expand from those narrow sectors into new business areas.
Integration is the key to doing that. We spend a lot of money on innovation, from research councils to RDAs to capital funds, but all that needs to be integrated to work. If we are going to fund R&D, start-ups and research, we need to have a single agency for doing so and to make the funding process simple and fast. Our problem is not that we do not spend enough money but that we do not use that money with real purpose, with our objectives integrated across government for economic impact. For example, the £2.5 billion automotive assistance fund announced by the Government last year was hard to access and lengthy to apply for, and so did not integrate with what business urgently needed. We were draconian while our competitors were fast on their feet.
We need a change of culture, so I propose the creation of an arm’s-length innovation bank to develop technology as a source of wealth creation. If we put together all the different sources of funding from applied science across Government, we could create a £1 billion-a-year applied research fund with no extra funding. We should integrate both funds with other funding, like enterprise capital funds, the higher education innovation fund, launch aid and the regional venture capital funds. This would create an innovation bank, which would encourage entrepreneurs, researchers, business leaders and inward investors to create wealth in Britain. It could be a one-stop shop.
We must keep focused on one thing in everything we do: real economic impact. That would mean giving leadership of the innovation bank to people with business experience, setting them clear priorities and offering them the freedom to achieve their goals.
Next, in an economy as regionalised as ours, we need to give the power to make decisions at the local level. A couple of weeks ago, after a debate, I wrote in the Birmingham Post about the importance of local leadership to economic growth. It is fortunate that the local leader, Mike Whitby, has been to India and China and seen what they do, and has come back and put forward certain proposals. We need local and regional leaders with a real understanding of what is going on in the outer world. In China they send their mayors—I have seen this and spoken to them—to other parts of the world to see what is going on. Here we need to develop local leaders with the same vision and give them the power to deliver national aims in a local way.
We need to prioritise our funding and then regionalise the funding structure. That would create some real joined-up thinking that linked our research base with our industrial competitiveness. Of course that involves risks, but risk is a part of enterprise and the core of innovation. Not all businesses succeed, and many experiments fail. Out of every 100 companies that venture capital supports, four succeed. However, we must offer people the chance to succeed, not throttle them with bureaucracy.
What Governments can do, at most, is create an environment where other people can come and set up their manufacturing companies, start-ups and so on. Governments cannot do start-ups and should not fund anything. Rather, the Government must create a framework for success.
My Lords, I thank my noble friend for introducing this debate which, as noble Lords have said, is one of the most important matters that we can discuss. So often in this House we talk about how to spend money. It is marvellous that we can now discuss for a short period how we might create some. It is a privilege to follow the noble Lord, who is a recognised expert in this area, and I was delighted that he ended up talking locally because I am going to talk about what I see locally. I come from the north-west of England.
I first declare my interests. I am deputy chairman of the company, Midas Capital plc, which is a fund managing company. I am chairman of RockTron Ltd, which is a highly innovative company where we own the technology to beneficiate fly ash at coal-fired power stations. There are millions of tonnes of fly ash at coal-fired power stations throughout this country and billions of tonnes worldwide.
We have now completed our first plant at Fiddlers Ferry power station near Warrington. That processes 100 tonnes of fly ash per hour. We turn it into a range of added-value products. That plant was funded by Scottish and Southern Energy. We are now looking to expand the business worldwide and raising the finance to do it will be a major task. We won the Nicklin medal in 2009, which is the prestigious medal awarded by the Institution of Chemical Engineers for the most important innovative idea in this area in the whole world. Twenty countries applied for the medal and we won it in the UK. We also won the Rushlight award recently, again for this highly innovative technology. I tell the House that from my experience of being involved in that industry.
Most of my life I was in the farming and food business. Everyone who is in that business knows that the life is a struggle so I had to struggle very hard to survive at all. You either try to make your money first and lose it in farming or else you struggle.
Following on from various activities, in 1995, we started Campus Ventures in conjunction with the University of Manchester. That was set up with European funds and we ran a business incubation unit especially for technology companies. The idea when we formed it was that most of the new ideas would come out of the universities, particularly the University of Manchester. But in practice, most of the people we encouraged came from larger companies. They had innovative ideas which the major companies that employed them were not prepared to support. We had the funds, the technology and the people—who are the key and I will return to that point—to help them. We could provide facilities such as office space, technology, computers and so forth to get them going.
We ran that for 10 years until 2005. I was chairman for the first five years and president for the second five years. During that time we started 184 companies, of which 155 are still in operation. None of them became very large companies, but we were able to get them off the ground. They are still running and are still active parts of the economy of the north-west of England.
I learnt from that the importance of having much more money than we had, both to start ideas and, more importantly, to fund the companies as they grew. So in 2001, I started to raise money for a major fund to make that possible in the north-west. I went round the institutions and ultimately raised £19 million from mainly the pension funds in the area, some from the RDAs and some from the banks, which was interesting at the time. Then I had to find somebody actively to manage it. It is interesting that I was able to raise the money on the basis that it would assist the north-west economy before I had a fund manager. We then appointed a fund manager: Enterprise Ventures is run by Mr Richard Bamford and based in Preston. That was a 10-year partnership arrangement, which has run until today.
I am still chairman of what we call the RisingStars Growth Fund Ltd but I do not manage the fund. That company has now introduced 34 new companies. Two of them are on AIM. It is now a success, in that we are feeding money back to the investors. We started RisingStars II in 2006; it has made 14 investments and is working extremely well. What is the key to making it work? We laid down these rules at the very beginning. The key is that we have a range of skills in management that can offer advice to each level of a company; we do not make big investments at the beginning, but feed the money in as the company reaches certain standards; we follow the company at all stages; and we make sure that it has the money that it needs every six or 12 months as it grows. That is one of the key issues. It has been a highly successful operation. I am very pleased that we have been able to operate it.
The Northwest Regional Development Agency now has £184 million due from the EU and the RDF scheme. I understand that it will be distributed this year. That could make an enormous difference, provided it is given to venture capital companies that have certain standards of operation. What we do not want are large venture capital funds that want to make large contributions but not get involved in the management of these small start-up businesses that need an awful lot of assistance. That has to be a key issue.
My noble friend has made many interesting political points with which I agree entirely. Success in this area needs an environment that makes it possible and encourages people who are probably now one-man bands to start employing people. A lot of people I know, including my son, who runs my family business, will not employ anybody. He says that it is not worth it; it is only an extra problem and he would rather do it himself. He is limited to what he does but that suits him. Many people take that view: why would you employ somebody, given the responsibilities and difficulties? These are issues that any future Government must tackle in a large way.
We are now in the most competitive world that we will ever see. If we do not get down to wealth creation, the economy of this country is doomed to be even worse than it is now.
My Lords, I join noble Lords in congratulating the noble Lord, Lord Sanderson of Bowden, on having initiated this debate. I am pleased to follow the very interesting contribution of the noble Lord, Lord Wade, although what I have to say will be rather different.
As we move out of recession, it is not enough to speak just of a return to growth. We must speak of a transition to low-carbon growth. As someone who is not especially party political, I was pleased that this figured prominently in Mr George Osborne’s speech of a couple of days ago. In response to issues of climate change and energy security, Governments all over the world are gearing up for investment in new energy technologies. This issue is transformational in nature. The fossil fuel industries of oil, gas and coal, gigantic though they are, are now sunset industries, at least in their current form. This situation is creating a new competitive environment, to which the UK must respond and which will be truly global.
These changes will no longer be led—certainly not only and perhaps not even primarily—by the western countries. Twenty years ago, China contributed less than 2 per cent of world R&D spending. Now that proportion is 20 per cent and is still rising. China overtook Japan in 2006 and is closing fast on the US in terms of overall levels of expenditure. In its recent stimulus package, China allocated a very high proportion—some 58 per cent—to investments in infrastructure, environmental technology and renewable energy sources. The leader in the world is South Korea. It invested fully 85 per cent of its stimulus package in these areas. If you track what has been happening in South Korea, you will see that it has a detailed forward plan for a wholesale transfer to renewable sources of energy over the next 20 or so years. It is a very detailed and very impressive plan. It does not simply respond to the crisis of climate change but is very much driven by the urge to substantiate a new competitive position within the world economy.
Of course, we have our own plans. Indeed, there has been a proliferation of them over the past couple of years—for example, the low carbon transition plan. However, we will need an awful lot of innovation to implement them. It will involve—in this respect I differ a little from the noble Lord—a new level of industrial activism and a certain level of government intervention. In my view, my noble friend Lord Mandelson is right to say this. However, business firms have to be in the driving seat. Markets have a flexibility and capability of innovation which Governments certainly do not possess. The key thing, as my noble friend Lord Bhattacharyya said, is the “how?” of this. What kinds of connections will most effectively stimulate new economic growth and job creation in these areas? Entrepreneurs must be in the driving seat. President George Bush is famously reputed to have said that the reason the French are no good at business is because they do not have a word for entrepreneur. We do have a word for entrepreneur and noble Lords on this side of the House recognise the crucial importance of entrepreneurial activity in promoting economic growth.
What would an activist strategy look like? I mention three main points. First, it should concentrate less on renewable technologies than on the more basic areas of innovation that underlie them. A good example is industrial biotechnology, where I feel that significant investment from private and state capital needs to be made. The industry recently produced a very interesting and extensive report for the Government. A crucial area of innovation, among others, will be third generation biofuels, which will be a gigantic business across the world. They will supplant ethanol, which has very notable disadvantages. Not only will third-generation biofuels be renewable, they will displace large chunks of the fossil fuel industry in the short, medium and long term. They will also possibly be capable of recycling CO2 through the atmosphere due to current innovations. Therefore, it is crucial not just to support specific interests such as wind power but to look for what lies behind them. That is where the most important generalisable innovations will occur.
Secondly, in this area as in others, there is a lot of loose talk about innovation. By and large, we cannot predict where innovation will come from. Innovation does not tend to be linear. It does not necessarily follow what we are doing today. The best innovators are lateral thinkers. The most important sources of innovation are those which came from the side field. No one anticipated them but they have been transformational. The internet is an obvious example of that, in which, incidentally, the state played an important role; it was not just generated by private enterprise—initially, anyway.
Given that one cannot predict innovation, it makes sense to concentrate on the innovators, and we need to create circumstances in which we promote them. Universities have a key role in this and I should like to ask the Minister to comment, if he is able to, on Canada’s interesting scheme for attracting top talent back from the United States to its universities—the Canadian research chair scheme—which has been enormously successful. That could be copied here.
Thirdly and finally, we have to try to change the climate of public opinion on science. In biotechnology there is a great deal of prejudice against some really promising processes. We cannot allow a culture in which science is undermined, and I should like the Minister to reaffirm his belief in and commitment to the integrity of science as crucial to economic progress.
My Lords, my noble friend Lord Sanderson of Bowden highlighted some of the challenges facing innovators and entrepreneurs. I thank him for his contribution and reiterate some of his comments, particularly regarding roadblocks for small and medium-sized businesses. We need to change direction to enable businesses to expand. It is surely unacceptable that red tape, bureaucracy and extra burdens placed on UK businesses are not shared by our overseas competitors while we all compete in a global market.
I remind noble Lords of our family farming interests.
My comments will reflect on these issues, but from a rural perspective. Some 34 per cent of small and medium-sized businesses are based in rural areas. Many years ago, farming and land-related work would have been the main source of employment, but today myriad businesses are based in the countryside. Farming is as important as ever and food security is a challenge for all Governments worldwide.
The UK agri-food sector’s contribution to the economy in 2007 was some £80.5 billion and is the UK’s largest manufacturing sector. Food and farming employ 3.6 million people. The Government’s Food 2030 strategy states:
“We will try and find the best way of doing things and will only regulate where we need to”.
When talking with farmers all over the country, the burden of regulation, inspections and red tape is always raised. Why do we in this country always appear to gold-plate regulations? I give the example of the common agricultural policy single payment and support schemes regulations introduced in 2005, which dealt with cross-compliance for England. The EU regulation defining good agricultural and environmental conditions was spelt out in a mere 13 lines. By the time the regulation had been put into English law it had become 700 lines.
A Game and Wildlife Conservation Trust publication of 26 January this year lists 10 Acts and one set of regulations to cater for the management and protection of wildlife. They range from the Game Act 1831 to various provisions in the Agriculture Act 1947, the Wildlife and Countryside Act 1981 and the Conservation (Natural Habitats, etc.) Regulations 1994, with specific laws for hares, pests, badgers and deer along the way. Not only are there many such documents for anyone wishing to carry on an economic activity to consult, assimilate and obey, but they are often unhelpfully drafted. The Greenhouse Gas Emission Data and National Implementation Measures Regulations, which came into force on 31 December last year, list 27 definitions; 11 of these state,
“has the meaning given to it in”,
followed by a reference to other legislation. These regulations cover activities that will be in the planning and prototype stage now for inclusion in the emission allowance trading scheme from 2013. Does innovation have to be made so complicated by the Government? It is costly, time-consuming, energy sapping and downright discouraging.
The proliferation of regulations and the difficulty of applying them are exceeded only by the Government’s mania for licences. It is undoubtedly a good way of pulling in income for a bankrupt Treasury, but it encourages neither start-ups and small-scale innovation, nor, where there is no funding for local authorities, proper scrutiny of the resultant economic activity.
The Government are right to look at simplifying regulation, although it is regrettable that Defra failed to achieve its 25 per cent target by December, achieving only 16 per cent. There is too much duplication within inspection agencies coming on to farms; information held is not shared between departments, and the financial cost for both farmers and the public purse is wasted. Surely regulation should be effective, efficient and co-ordinated.
The second area of frustration experienced particularly in rural areas is the lack of adequate broadband provision. Some 160,000-plus homes are without broadband access and they are to be found in very rural areas. In some parts, even where broadband is available, the 2 megabits available are totally inadequate, and at peak-user time it is nearly impossible to do meaningful work. Those who are able to have full-time good broadband facilities do not appreciate the difficulties found by those living and working in rural communities. A couple of years ago, I complained that BT was slow in fixing telephone faults because their teams were busy in towns installing broadband. Rural areas suffered as a result.
If a market town has more than 10,000 inhabitants, it is classed as a conurbation and lumped in with city centres and suburbia. However, in practice, it is the hub for a number of rural villages and outlying areas, and has a very different profile. Many market towns have been hit harder by unemployment and retail closures forced by the recession, but funding for initiatives associated with recovery has been directed towards areas of concentrated deprivation. By definition, rural areas are dispersed and not seen in that way. High-speed broadband is essential and should be going to not only the cities but rural areas, which should not be left lagging behind.
As the noble Lord, Lord Wade, mentioned, farm profit has, over the years, been difficult to achieve, but is affected particularly by poor broadband standards. The most popular form of diversification has been the letting of buildings for non-farming use. In today’s climate, fast broadband is a prerequisite. It may sound a little trite, but the giant Apple corporation started life in a garage. I believe that rural diversification into small businesses is critical and will eventually lead to big businesses. For this reason, rural areas should be treated in the same ways as our cities.
My Lords, I entirely agree with what my noble friend said about broadband. She made an extremely important point. I congratulate my noble friend Lord Sanderson on the subject of this debate and his excellent speech. I wish to make three brief points.
First, if “enterprise” and “innovation” are the key words—as they are in this Motion—the creative industries in Britain must be included. Industries such as film and television, on which the Select Committee on Communications that I chair has just reported, and industries such as music and games, play an increasingly important role in our economy, yet they tend to be overlooked in the orthodox surveys of British industry. My claim is that these industries should be taken very seriously indeed. They are important in terms of employment and overseas earnings. There is no doubt that Britain has vast talent which has already achieved much and could achieve much more.
The British television industry employs something like 80,000 people and has overseas earnings of more than £1 billion a year. That figure could be substantially more, for reasons that I will come to. The film industry employs about 35,000 people and also has overseas earnings of about £1 billion. Within those industries, you have skilled men and women: not just producers, directors, actors and writers, but also staff in post-production studios, special effects experts and animators in British companies like Aardman, which has a worldwide reputation. In the past few years, we have seen outstanding productions: films like “Slumdog Millionaire”, television productions like “Planet Earth” and “Inspector Morse”—not to mention “The Apprentice” from the noble Lord, Lord Sugar.
However, not all the trends are encouraging. We are a long way from those distant times when Roy Thomson called commercial television a “licence to print money”. Over the past four or five years, there has been a dramatic fall in spending by the public service broadcasters on British-originated programmes—down 15 per cent since 2004. The decline has affected all sectors, but particularly children’s programmes and news. In films, independent film-makers struggle to raise finance while the industry has to cope with heavily subsidised competition from overseas.
My second point is that the Government must be involved in tackling the issues facing the industry. The Government alone cannot solve all the challenges, but at crucial times they can certainly help. They could have helped with the video-on-demand proposal put forward by the BBC, ITV and Channel 4: Project Kangaroo was turned down by the Competition Commission, with the effect that American companies are now filling the space, to our national disadvantage. I will give another example. I was struck by the number of those giving evidence to the committee who mentioned the theft of their products and the infringement of their copyright. One example is file sharing—better described in my view as piracy. With the noble Earl here, I will not go too far down that road, except to congratulate the Government on bringing forward the Digital Economy Bill. However, I hope that that is not the end of their ambitions.
One form of crime that causes film-makers great concern is camcorder crime, where a new film is recorded on a camcorder or other device and then put on a DVD and sold. A distinguished British contributor, Timothy Richards, told the Communications Committee that,
“these are not students, these are not young people out on a lark. This is sophisticated, organised crime that is engaged in the piracy”.
That is the threat. The rewards are high. Another witness told us that £20,000 to £30,000 bounties are offered for the first high-quality capture of a film. The result is that the industry has been pressing for a considerable time for there to be a specific criminal offence. The reply of the Government is that this is covered by the Fraud Act 2006. They have been saying for a long time that a test case is imminent. It was imminent for months and finally in November it was heard in Newport magistrates’ court in the Isle of Wight. I am not entirely sure that the case qualifies as a test case. Nevertheless, a man was convicted of camcording on a mobile phone and was fined £150 plus £60 costs. I do not believe that that is much of a deterrent. The case received so little publicity that the Secretary of State for Culture, Mr Bradshaw, wrote to me about two weeks after it had been heard saying that it was imminent. The news had not even reached the department, let alone the public. My view, which is shared by the industry and the committee, is that there is a very strong case for a specific offence here.
My third point is that films and television are global industries. The British film industry has for years suffered from the fact that there is no global distributor. Distribution is dominated by the big American studios. In television, we have an opportunity in the potential of BBC Worldwide. Worldwide is the commercial arm of the BBC—I emphasise “commercial”. It has been extremely successful. It has made about £1 billion a year and has profits of around £150 million—and that is in a recession. Its problem is not success, but that it does not have the money to expand. It is unrealistic to think that that can be done through the licence fee. That is why we advocated private capital being introduced, and the creation of a public/private company. The BBC should retain a substantial stake, but private investment should have the majority share. I suggest that the Government are already sympathetic to this view, and I hope that they will confirm today that what we need is a decision by the BBC Trust. To date, it has not been enthusiastic, although there are all kinds of advantages, not just for the BBC but for the whole of the British television industry. It would be a vast and profound mistake to turn our back on this. It is an opportunity for the creation of a British global brand. In a week when a long established and successful company, Cadbury, fell into the hands of a debt-laden American company, that might have some advantage.
My Lords, I thank the noble Lord, Lord Sanderson, for initiating the debate, and I appreciate the opportunity to have an input. Enterprise and innovation are hugely important to creating growth in the economy. In June of last year, the Prime Minister asked me to assist small to medium-sized businesses and encourage enterprise among the young. This is something that I have been doing for the past 12 years. I have visited schools, universities and colleges of further education, and have spoken to hundreds if not thousands of small businesses across the country. Since June, as an adviser to the Government, I have been up and down the country meeting small businesses. I have also reviewed the advice available to the businesses through the Business Link centres. I have held question and answer sessions attended by thousands of small businesses. At these sessions, I have made myself available to the audience, to draw on my 45 years of experience in running businesses of all sizes. The noble Lord, Lord Hunt of Wirral, quoted in this House something that I did not in fact say but that he got from a national newspaper, as an example of how busy I have been.
In this relatively short period as an adviser to the Government, I have concluded that the Government should create an environment where business can start up and flourish. They should intervene where there is failure in the market and where barriers to growth exist but having created those conditions, they should not interfere any further.
Rolling up your sleeves to turn an idea into a business is one of the most rewarding things anyone can do. The past 18 months have been challenging for many businesses. However, having been through more than one recession in my business career, the climate is not new to me. Survival is all about realism; tightening one's belt and constantly reviewing the day-to-day activities of one's business. One thing I have learnt is that these times can provide new opportunities. In speaking to the SMEs, I have made it clear that, in the face of a downturn, they have a choice of either complaining about things not being as good as they would like them to be or getting on with things and viewing this as a wake-up call and a chance to take a fresh look and to think about where they are going next.
I have seen businesses where entrepreneurial spirit has kicked in—where business owners have taken stock and gone out and found new markets and sectors in which to operate. I recall that when as a young man in 1967 I started my business—not in a garage, as the noble Baroness, Lady Byford, put it in relation to my colleagues at Apple, but in similar circumstances—there was no question of going to a bank to get finance. The reality then, and now going forward, was that banks wanted to do business but expected sound business cases to be put in front of them. It is unrealistic and, more to the point, undesirable to expect banks to lend as freely as they have done over the past 10 years. Some might join me in saying that that was irresponsible.
Small businesses need to be proactive. If they are not happy with the response from their bank, they need to shop around. However, if five or six banks say no, there is a distinct message there: it is time to re-evaluate their business or business idea. When I found that a bank would not lend me any money, I went back to my proposal, took account of what the bank had said and reworked my plan either to get some finance or to delay until I could meet the bank’s criteria. I am not saying that banks always get it right. In the past six months, I have repeatedly asked to see evidence of bad practice. There are a few examples, for sure, but the situation is not as bad as some would like us to think.
During most of my career, I have found that banks practise a thorough and professional approach, and in my case they were a good barometer. They made me think more than once about many of the ideas that I put forward. I have met people with unrealistic expectations and no track record, and I have also come across businesses with poor or disastrous balance sheets. It is highly unlikely that any ordinary bank will provide money unless the person with the proposition puts in some equity themselves or provides some security. That is the harsh reality. People cannot simply jump out of bed on a Monday morning and say, “Today I’m going to start a new business enterprise”, especially if they have no experience in it but just think that it is a good idea. In fact, not everyone is cut out to run a business. Regretfully, I have to say that the disappointment expressed by some people who have been turned down by banks should, in many cases, be translated as an excuse for their own failings and inadequacy. I have met many innovators enthused by their ideas but they have no experience of the realities of sales, marketing or commerce in general. I encourage these people to consider getting the idea off the ground by collaborating with partners who share the enthusiasm of the idea but have different skills. Banks, venture capitalists and other investors will be interested in propositions where all aspects of an idea have been covered. I tell those starting new businesses that it is better to have 50 per cent of a business that is going somewhere than 100 per cent of a business going nowhere.
I am grateful to the noble Lord, Lord Fowler, who has already raised this issue, and I am sorry to bring it up, but I can assure your Lordships that this is not an advert but a fact. My involvement in the TV show “The Apprentice” has gone according to my plan. I can confidently say that millions of young people have been inspired by this programme; they have been made aware of business and enterprise; and they are ready and eager to enter the exciting world of business. Your Lordships should be encouraged by this. There is certainly no lack of desire out there and it would be wrong to think that there was.
The noble Lord, Lord Sanderson, should note that this week is Apprenticeship Week. This time last year, I helped in a campaign to encourage enterprise and apprenticeships for the DCSF. Over that month, there was a 10 per cent rise in employers taking on apprentices. The website got 100,000 hits per week, compared with 50,000 before the campaign started. The noble Lord should note that his colleagues who sit on the Green Benches have unfortunately prevented me assisting further under the guise that that would have some conflict with my current role as an adviser to the Government. This is a classic example of political heckling—getting in the way of progress. To prevent my use as an asset is counterproductive, to say the least.
Getting back to business, there are always hurdles or obstacles to overcome but a determined individual will overcome them. Too often, a lack of finance is used as an excuse, but we need to make it clear that there are no free lunches out there; people have to put up some of their own assets or cash. That is how it was in the past and that is how it should be in the future.
The Government have rightly stepped in with temporary schemes, such as the enterprise finance guarantee scheme, to support lending. That scheme was created to support loans of up to £1 million to businesses that have propositions on the border-line—between those that the banks are willing to finance and those that are simply not viable. In my opinion, it is unreasonable to rely on government alone to instil confidence and create an atmosphere that encourages people to take the leap and start a business. It would, I dare say, be very helpful and encouraging if the media in general and certain business representative organisations took a more positive stance and reported the successes more. In my short time as a government adviser, I have been disappointed by negative comments and moaning, particularly from those who purport to represent small businesses. Such talk is hardly helpful, to say the least, and certainly does not send out encouragement to those who are considering entering the world of business.
My Lords, reading the title of today’s debate, led so effectively by my noble friend Lord Sanderson, stirred memories for me of the exhibitions that I organised many years ago, the concept of which I believe could be adapted to be of use again today.
I start by telling your Lordships of my experience, going back some 25 years, when I picked up the phone one day to be asked whether I would take a call from Denis Healey—now the noble Lord, Lord Healey—who was then Chancellor of the Exchequer. I said yes, of course, and he came on the phone. He said that, as Chancellor of the Exchequer, he had responsibility for chairing the National Economic Development Office and that they were looking for someone who could take over as chairman of the Clothing Economic Development Committee. Furthermore, he said he had heard that I was a man of ideas, and I thanked him for the compliment. I said that I did not know anything about the clothing industry, other than having a liking for nice clothes. Then I told him that I was chairman of the Conservative Party in Greater London and that my big idea would be to defeat his Government at the next election. He laughed and said, “We will win”, but he went on to ask whether I would accept the role of chairman of the Clothing Economic Development Committee. I said yes, as I had told him of my position and also that I liked a challenge.
When I started in that new role, it soon became clear that the industry was in trouble—mainly because of the growth of imports, which led to the decline of clothing manufacturing in the UK—and that jobs were being lost. I spent the first few months of my chairmanship organising and getting to know my committee. Once I believed that I had got to grips with both the industry and the unions, I felt that we should do something different. I had initially thought that I might have problems with the unions but they were positive and helpful throughout. I made many friends in the unions and we worked together well.
After much discussion and sweet talk, I finally managed to convince my committee that I should organise what I came to call a “back to front” exhibition, where, instead of manufacturers exhibiting their products, we would invite retailers to show the products that they imported and ask British manufacturers whether they could compete. So the concept of Better Made in Britain was born.
Our first exhibition was for the clothing industry when 22 major retailers exhibited and 200 manufacturers attended. The exhibition was opened by HRH the Princess of Wales and it was visited by many politicians and trade union leaders. Over the following years we ran exhibitions in many different sectors of industry, including the following: clothing, footwear and knitwear; soft furnishings and floor coverings; hardware, DIY and building products; food and drink; food packaging and supermarket equipment. In all, we ran more than 20 different exhibitions.
One main benefit was that manufacturers who could not normally get to meet buyers could in one day talk to a large number of buyers directly and conveniently. Without being immodest, this “back to front” concept, which was new, caught the imagination of industry and brought back a very large quantity of previously imported goods to be made in Britain. As well as these major exhibitions, a number of retailers also ran special open days in their stores, particularly when a new store was opening. On those occasions, they asked British manufacturers to view the goods they imported to see whether they could be competitive—and they were.
I was also asked by the Government to head up a special mission to the Far East, which was followed by organising a trip to Northern Ireland by a group of Japanese businessmen who were keen to open up business in the Province. As well as Better Made in Britain, we established the quality mark, which was a standard of excellence in manufactured goods based on the British standard kitemark. I believe that these concepts could be updated and used today, and that the Government should encourage the right person to organise it. Times are difficult and jobs are being lost daily, so I hope that this concept—or a version of it—will be considered positively, as I have experience of it being successful. I hope that today’s debate will reaffirm the importance of the role of enterprise and innovation in our country and the stimulation of much-needed economic growth.
My Lords, I also add my congratulations to the noble Lord, Lord Sanderson, on initiating this debate. I shall talk briefly on industrial growth before moving on to other matters.
First, I believe that the competitiveness of Asian countries in manufacturing will be so great that we will be struggling to retain manufacturing in our country. I am not being alarmist, but it was possible a few years ago to move successfully from low-tech to high-tech industries and R&D-intensive industries. In my visits to India and elsewhere, I have seen how much that gap in R&D is being exhausted, as my noble friend Lord Giddens said. We can no longer rely on hoping that we will move up the advanced technology ladder and that Asian countries will be behind. We have to consider this problem seriously and, as my noble friend Lord Giddens said, perhaps green technology is a direction in which we can go.
I shall now move on to something completely different as I do not believe that we should talk only about manufacturing when discussing innovations. I want to talk about financial innovation. Because of the severe financial crisis, it has somehow become fashionable to say, “The financial sector is too large; we ought to pare it down. Manufacturing should be larger and the financial sector smaller”. It is almost as if someone somewhere can determine the proportions in an optimal way. We cannot afford to lose any part of competitiveness in British industry. The City of London is the best thing that we have done in many centuries. In deciding government policy on financial and banking reform, we have to be very careful not to stifle the innovative energy of the City of London, because our financial services expertise is so great that we have been able to compensate for any balance of trade deficit on commodities by earning surplus on financial services.
The large financial sector will have to be restored to its original size and we will have to encourage more innovation in the financial industry so that we keep up our lead, as that is where our comparative advantage still lies. Whatever we do about banking reforms, we should not stifle the growth of hedge funds or of different new products such as CDSs and CDOs. Perhaps more new products will be introduced. It often happens that, after a burst of innovation, depression follows that first surge, and people believe that innovation is the trouble and that it must be restrained or stopped. But innovation is then fed into the system more properly and its progressive input continues, as happened with railroads and other things. I believe that the same thing happens with financial innovations. Things such as the credit default swaps may have looked bad in this crisis, but as we proceed they will be standardised and we will not be able to do without them. We will have to have those products as well as others. Whatever we do, let us not curb the City of London; because our chance of maintaining high levels of employment depends very much on having a competitive financial sector. Whatever happens in manufacturing, we will always need the financial sector.
My Lords, I begin by declaring, as a precautionary step, my business interests as per the Register of Lords’ Interests. I congratulate my noble friend Lord Sanderson on securing this Motion which identifies two of the most important components of economic growth. His excellent speech drew attention to so many aspects of what is needed and to the failures of the present Government to provide them.
Enterprise is not just a label for a government department or a buzz word for a policy to hand down from government but a mainspring of human endeavour. So is innovation. It was man not government who invented the wheel and every other invention that has formed our civilisation. Too often that is forgotten. Government’s role is to enable those human talents to grow and to create wealth, not to corral them into the constraints of a particular policy or agenda. In the 1980s and 1990s we demonstrated the way in which enterprise can release so much success and momentum in business development. Following the broken economy that we inherited on coming into office in 1979, it looked difficult then, just as it looks difficult now, but by releasing the mainspring of human endeavour through enterprise and innovation, by cutting taxes and reining back trade unions, by attracting inward investment in large quantities and using the resources of our academic institutions, we succeeded in turning the corner. I believe that we can do so again with the right approach.
Now, while other countries are emerging from recession, we must labour in the shadow of mountainous deficits and debts built up over not just the past two years but the past decade. We all know that unemployment is high and going higher, with more than 1 million redundancies announced in the past year alone, but the jobless figures disguise the extent of economic inactivity among the British workforce. The employment rate is only just above 70 per cent of the working age population, and if we take into account the shorter hours being worked, longer holidays, sabbaticals, the surge in part-time employment—100,000 in the past three months—not to mention the “bad back” count, it almost feels that we are back to the three-day week. That is a human tragedy.
The Government have brought in a raft of new schemes and measures to try to help business, but they do not help much when regulations introduced in the past year alone are alleged to have cost business £13 billion, according to the Government’s own figures. It seems that the new schemes introduced to help business through the recession have been a flop—they clearly do not respond to what business needs. The Government’s flagship package, Real help for business now, introduced in January last year by the Department for Business, Innovation and Skills, promised £18.7 billion in help. One year later, only £2.4 billion has been delivered. Clearly, these schemes are not working and, as a measure of the problem, exports have fallen by 25 per cent in the past year.
Let us look at some of the schemes. The Capital for Enterprise scheme, designed to bring real help for high-technology firms, was launched by the Prime Minister last January with £50 million to help small firms convert debt to equity. Nine months later, only five firms had benefitted. The £5 billion Trade Credit Insurance scheme, announced in April last year, was designed to give, in the Prime Minister’s immortal words, “real help with credit insurance”. Six months later, only just over £10 million has been committed. The Automotive Assistance Programme, launched in January last year with £2.3 billion in guarantees, was said by the noble Lord, Lord Mandelson, to provide real help for the car industry—so real that at the official end of the recession last September no loans had been made at all under the scheme.
Clearly, these schemes are not working, but the problems are even more acute. Manufacturing output has fallen by 12 per cent over the past decade. We must rebuild that manufacturing base as part of our diverse economy. It is the spirit of enterprise and innovation that is the key to that. We need a workforce that is well motivated and with high technical skills. In particular, we need to encourage knowledge-based jobs that will grow in number, linked to the academic strengths of our universities, as we did so successfully in the past.
However, we find that the biggest failure of all in this field has been the failure to motivate and train our young people. One in five is jobless and demoralised at the present time. Why, I wonder, do the Government pick this time to cut university funding by £950 million, saying that universities can survive on their own resources but threatening to fine them £3,700 for every student they take on over the government-imposed limit.
India and China are churning out hundreds of thousands of engineers and scientists from their universities every year. Like America, they have spotted that that is where future growth will come. But we find that across the United Kingdom in recent years degrees in science, technology, engineering and maths have fallen in number. In China, one third of all graduates are engineers, while in the United Kingdom it is 8 per cent and falling. The number of physics degrees is down 30 per cent in the past 15 years. Chemistry departments are closing at about one a year. By 2014, the Royal Society of Chemistry predicts that only six chemistry departments will be left in the country. I am told that there is a government department entitled Innovation, Universities and Skills. One has to wonder what it has been doing. It claims a science budget allocation that is up by 13.6 per cent, but one has to ask: why then did the newly formed Science and Technology Facilities Council enter its first full year of operations with a budget shortfall of around £80 million?
The root of the problem is of course the present calamitous state of the public finances, but that is not just a recent problem. The Government cannot hide behind a credit crunch of a global nature. The large and often unproductive increases in public expenditure of recent years, funded by tax increases, deficits and debt, have created hundreds of thousands of public sector jobs. But as my noble friend Lord Sanderson pointed out, in doing so they have squeezed out enterprise in the private sector.
The failure to stimulate investment and ease credit to companies means that business investment has fallen 20 per cent over the past year. Does the Minister believe that the answer to that kind of problem is to load business with national insurance increases and to bring in six-month paternity leave? Does he agree that it is profoundly serious that our GDP share of research and development is as low as 1.8 per cent below the European average and half the rate of countries such as Sweden and Finland?
The past 10 years have been years of the locust. Only in wartime have our national circumstances been so severely jeopardised and our wealth so consumed. It will need a massive effort and an entirely new attitude to turn the tide, but I truly believe that as a nation we can make that new start only with a new Government.
My Lords, today is almost the day of the Scots because there are a high proportion of us in your Lordships' House. Let the noble Lord, Lord Davies of Abersoch, who is to reply to the debate, look to Scotland on Sunday because I believe that French will also be spoken there. I thank my noble friend Lord Sanderson for giving us the opportunity of debating innovation and industry.
I declare a particular interest—I am a member of the Institute of Chartered Accountants of Scotland. The noble Lord, Lord Sugar, will be interested to hear that I am perhaps the only Member of your Lordships' House who signed an apprenticeship. I was an apprentice, and every member of the firm I joined in Glasgow on 1 October 1962 had to sign my deed of apprenticeship. With that in mind, my noble friend Lord Sanderson will be quite startled, perhaps shocked and surprised, to learn that in 1977 a relatively young accountant from the boondocks of Scotland—the county of Angus—sitting on the Bench where my noble friend Lord Hunt of Wirral is now, was landed with the Patents Bill. I was second under my noble friend Lord Belstead and we had to study the law of patents. I am only a chartered accountant, but to be a patent expert you have to be a scientist and a lawyer. I am neither. Fear not, as a young Scot, you get stuck in straightaway and I did.
The first major industry I was asked to study was the pharmaceutical industry. It is a long word, and perhaps one now calls it the bioscience or the drugs industry. Throughout the years, I have consistently tried to make an O-level study of that industry. I have looked at some figures. In 2008, the industry had a surplus of £6 billion. Its exports were £17 billion. Of the top 20 most effective medicines in the world, 20 per cent were discovered and produced in the United Kingdom. My noble friend Lord Lang referred to research and development. He will be interested to learn that 28 per cent of the commercial research and development in the UK is carried out by the pharmaceutical industry. It employs 67,000 people. That does not take into account the massive number of tiny, spin-off firms—are they called clusters?—all around the UK.
Looking at medicines globally, we will see that 54 per cent of the top 100 products were discovered and produced in the United States. Who is in second place? It is the United Kingdom, with 19 per cent. Even that great nation known so well to my noble friend Lord Selsdon and me, Switzerland, with two massive companies in Basle, has only 11 per cent in turnover and output of those top 100 medicines. How is that carried out? I took gentle advice from a paper entitled Life Sciences in 2010. The skills not just of those 67,000 but of many others in academic institutions around the United Kingdom, the encouragement given in schools and elsewhere, and perhaps even the advice and example of the noble Lord, Lord Sugar, show that if you want to you can do it. It is a matter not just of taking the first step but of taking the second and subsequent steps. That is when you need two qualities—perhaps we shall find out about that at three o’clock on Sunday afternoon—which are courage and persistence, so endemic in the Scots.
That makes me think of Robert Bruce and the spider, which kept falling as he watched it. After, I think, its 18th attempt, he saw the spider make it. That is what industry needs to do—particularly life sciences, bioscience and what I call the jewel in British industry, the pharmaceutical industry.
I mentioned that I was an impudent young Scot from Angus. I know that the University of Dundee is one of the world leaders in oncology, but I had been unaware that a very small company—I have had very minor dealings with it—CXR Biosciences in Dundee, is pushing forward in blood, plasma and other areas, tied in with the much greater example and help given by the University of Dundee.
I have one minute of my time left, which I will use to talk about innovation. In 1959, my military career was interrupted by a triple fracture of the leg while skiing, about a mile away from where my noble friend Lord Selsdon and I go. Complications were suffered, and I was sentenced to three summers in plaster and on crutches, undergoing a process then known as bone graft. It was carried out by Sir Archibald McIndoe and a particularly excellent and kind friend and surgeon, Sir Henry Osmond Clarke, who used the process of innovation to give me something called a bone graft. I am no scientist; I have not got one O-level, so I will not go on about that, but that innovation process enabled me to go on skiing until last year. I am particularly grateful for that. Innovation is not just in industry; it is not just in knowledge and skills; it is also in biosciences.
I conclude by thanking my noble friend Lord Sanderson and saying that, today, it is Scotland 1, United Kingdom 0.
My Lords, I, too, thank the noble Lord, Lord Sanderson, for initiating this interesting debate. It is a pleasure to speak in this important debate, during which many contributions will surely provide food for thought as the UK comes out of its current economic difficulties.
It is time for Britain to look not only at the inventions and research which get major headlines across the world—as important as those are—but at the potential millions of smaller innovations which can happen every day in companies across the country, and which provide a stimulus to economic growth.
I am talking about those workplaces where the whole workforce is engaged in continuous improvements and where everyone has a contribution to make. Once a company embeds that culture, everyone is not only empowered to make improvements but to start thinking in a different way—the kind of workforce mentioned by the noble Lord, Lord Lang of Monkton. It raises the consciousness of every employee, and gets them to think about what they are doing and how it may be done better. That might mean taking steps to reduce waste, to speed up processes or to increase productivity. All those activities are key to the significant and, more importantly, sustainable growth which the UK needs.
I have particular examples of that from my involvement with Semta, the Sector Skills Council for Science, Engineering and Manufacturing Technologies. I am sure that many noble Lords will agree that those sectors will be key to the economic recovery and will lead the way to the headline-making inventions I mentioned. However, Semta has not only been working with those companies on the cutting edge of technological breakthroughs, it has been supporting supply chains and those firms which turn great ideas into practical reality.
My noble friend Lord Giddens posed the question: where will future innovators come from? I suggest that they will come from many places. Through its compact activity in England and wider employer engagement across the UK, Semta has encouraged companies to embed qualifications such as the NVQ in business improvement techniques across the whole workforce. That qualification, which is an innovation in itself, helps an individual to understand and take responsibility for improvements in the way that they work. Our Government have supported that initiative by investing millions of pounds to ensure that businesses succeed.
Businesses succeed by having people who are trained and an innovative workforce to support their success. That enables someone to put those improvements into practice and measure their effectiveness, which is crucial. The ultimate outcome is to create a mindset where an individual is constantly thinking about their methods of working, initiatives that they can take and ideas that they have which will improve the outcome of their activity and, importantly, the company's bottom line. By investigating techniques such as visual management systems, set-up reduction and six sigma process mapping, people who take that qualification can use them to improve their own efficiency and that of their colleagues in the company.
Some firms have put literally hundreds of their employees forward for that technique. Others have nominated key individuals who can then cascade that learning through teams. By making a large number of small improvements to a system, companies are seeing a big impact on their productivity and profitability. By freeing all their employees to exploit opportunities and making innovation part of everyone's role, those companies are creating whole workforces full of people who think like entrepreneurs.
Within those companies, every employee knows the value of their contribution, and every person involved in a process is committed to making it a success. Although that hive of activity may not get the headlines of the new iPod or the latest drug, it contributes to the sustainability of the UK’s science and engineering processes, for instance. It means that those big breakthroughs have fewer unforeseen consequences and costs, and ensures that they are sustainable in the long term. Business improvement activity makes our companies exciting and rewarding places to work and the UK an attractive place to invest.
What I am sharing with your Lordships today is the possibility, the desirability and, importantly, the opportunity for the vast majority of the workforce to illustrate through their contribution the enterprise and innovation that they bring, and how that supports our objective of achieving company improvement, which in turn, stimulates economic growth.
My Lords, it is with a sudden feeling of horror, having consulted my noble friend Lord Lyell, that I realised that I will have been in your Lordships' House for 47 years next Monday. My noble friend is of course senior to me, because I came only in 1963, and he came in 1961, shortly after Gagarin got into space, whereas the noble Lord, Lord Reay, who has just left us, arrived only in 1964.
The problem in those days was that you had a duty to do, and you were required to do it if you were young, but you had to have a job because you had not got any money to live on. That was very difficult. Occasionally your Chief Whip and others would say, “Could you consider being an Under-Secretary?”. I did not even know that an Under-Secretary was a Minister. In fact, when I sat here first, this was the Barons’ Bench. When the Government changed, I did not know that you changed with them, so there were certain difficulties. From all that, you realised that if you wanted to be here, you had to change your job. Therefore, you had to do something yourself that earned you some money, which was extremely difficult when you were totally unqualified.
Over the years, I have spoken on economic affairs and this sort of activity in the 1960s, 1970s, 1980s, 1990s and now the 2010s. It has always been the same thing: we British have declining industry, manufacturing has gone out of the window. When I chaired various trade boards, I would argue that we could not live without manufacturing. The noble Lord, Lord Desai, who always seemed to speak after me, would say, “No, no”, that as long as we could fund our balance of payments deficits, there would be no problem, and that we can do that through financial services.
My philosophy is the creation of added value and of trade, which is effectively buying and selling—something that the noble Lord, Lord Sugar, was very good at. I remember that I wrote to him at one time when I was a director of an Italian washing machine company and suggested, when he was going into white goods, that he consider working with us. He brushed me off, I was cast aside. We then went and bought a company called Colston, which made fantastic dishwashers—desktop machines. They could heat the water hotter, so they could clean the plates better. How did they heat the water hotter? Charles Colston played squash, and he worked out that the rubber of squash balls had a certain quality: it got hot when you beat it about. If you put that as a seal in the washing machine or dishwasher, you could heat the water hotter.
Over time, these things began to interest me, and I wondered how and where we could lead this country forward. Being a Scot, I was naturally brought up on the philosophy that if no one else would do something, you should do it yourself. You always have to begin with the philosophy of conceptualisation—concept—and you end with the two words: relation and réclamation—being paid. Between the two, there is a fantastic word. It is called Walt Disney; it is called animation. It is about bringing the project alive. Then you turn round and say, “Who does that?”.
I hate the terms “private sector” and “public sector”. I loathe all the government names for ministries that have changed. Could the Minister tell me how much the rebranding of the good old Department of Trade has cost since his Government have been in power? It is now BISOF or something, and before that, it was BURP, and it has more Ministers than ever. The problem with our country is that intelligent people now want to go into the public sector because they know that they will have more power and influence. They do not want to go into the private sector. If they are intelligent and have outside interests, they can also calculate that the benefits of a secure job with a relatively indexed pension are important.
The first thing is how we convert the bulk of the public sector into productive areas because it has some great people. I worked on international projects, even with Taylor Woodrow. My noble friend Lord Sanderson was very kind to promote my great bank. Frank Taylor came to Midland Bank, and it gave him his first loan for the four houses. One day, I got a letter from him. “My Lord”, he wrote, “I would like to call to see you because your great bank assisted me many years ago, and I would be grateful for assistance now”. The amount had moved from £400 million to £1.4 billion, and I am afraid it was not possible.
I go to the basic principles of added value and buying and selling. That is what it is about. First, are you a buyer or a seller? I always used to say to my banking colleagues, “Can you tell me whether we are buying or selling money this year?”, because that is what it is about. Then you ask how you create that entrepreneur. You have to look back and say that we are in the worst mess since I started to speak on economic affairs. That means that we have the greatest opportunity for the young, but we may have a five-year problem. So let us start to look at those who are 14 years old now. What can they do? What would catch their enthusiasm? They will want to think of jobs, and they want to earn money. That may be the paperboy who offers to deliver something else.
When I got involved in the East End of London—I had to be a well known Labour Peer in order to get on down there—I used to drive an old car. There was a car wash that said, “Hand Wash”. I said, “I’d like to give you some business. Can I look at your kit?”. They said that they had an old bucket and got water out of the lock and did hand washing. I said, “What? With your hands?”, and they said yes. The human skin is better than anything else for washing and polishing cars. It is better than any chamois leather. I went and bought them a few buckets, and they became friends over the years. It was about the initiative of some of the young.
Those of us who were brought up at the end of the war remember when we did not have enough clothing coupons and when you could not go to school if you did not have a proper jacket. These are the things that I remember. In the country, you learnt to be a scrounger. You learnt that it was wonderful if you could swap two eggs for a bottle of whisky with the American forces. They were enjoyable times.
When I worked in the East End, I was chairman of Hackney Quest. We had more GBH per square metre than anywhere else in the world. Some of the young people knew how to fiddle. There was a young boy who could cut a £5 note in half with a Gillette Blue razorblade and double his money overnight. He used a bit of starch, and there you were. He did it for me in front of the police, but he gave it up and went on to great things.
My suggestion is that we do not look at ourselves. I know I have to go on trying to earn some money somewhere, but we should look at that age group and try to encourage them to think at an early age because some of those young children are switched on.
My Lords, this debate is timely and crucial, and I join noble Lords in congratulating my noble friend Lord Sanderson of Bowden. I declare an interest as a small business owner. The economic downturn has, of course, brought great misery to many in Great Britain but, in particular, to small and medium-sized businesses. It has been a time of great distress to see good, long-standing businesses that have served local communities go under because of cash flow, credit and regulatory burdens. Against this backdrop, we ask people to take a risk to be at the heart of innovation and enterprise, but we also say to them that assistance is complicated, hard to access and very bureaucratic.
My grandfather came to this country in 1938 seeking a life of opportunity through economic mobility. Of course, when he came, and when my parents came after him, he faced huge discrimination, prejudice and cultural expectations, but still he knew that a good education, having ambition and hard work were the most important components you needed to succeed. I come from a culture that believes in enterprise and, as someone who started a business aged 19, I reaped the benefits of that spirit. I believe that it should be heartily encouraged, and yet we make it so difficult for people and offer them so little support that that spirit of adventure is quickly lost. That is unfortunate for this country. When my son wanted to start up, it was very difficult for him to access credit from the banks, and he had to return to his parents, who took out loans on his behalf.
I hope that the Minister will tell noble Lords why exports, business investment and savings have fallen as a proportion of national income under this Government, why we have the highest youth unemployment ever, why there are so many more children living in workless households in Great Britain than in any other European country and why child poverty continues to grow. We know that huge sums have been spent on education in the past decade or so, so why are so few children taking stem subjects that are crucial to innovation, research and development and taking on the challenges we face on climate change, renewable energy and medical advance? During the past decade, there were many reports that highlighted the need for a better skilled and better educated workforce, for example, the report by the noble Lord, Lord Sainsbury, The Race to the Top, or that by the noble Lord, Lord Leitch, on responding to competitive global markets through a more skilled work base and the need to upskill, as well as to reskill.
I come from the inner city of Leicester. It was once among the richest cities in Europe through its manufacturing, but now the local authority is among the biggest employers. Like other inner cities, we have an ageing population and high BME communities that bring their own challenges. In Leicester, educational results are among the lowest in the country and, while we have two excellent universities in the city, students who have little to stay for leave, and another nail is hammered into the coffin. I am passionate about the progress my city can make. I want it to be once again an international player. With a population that has so many historical ties with the Indian subcontinent, there are huge opportunities to be explored. I am saddened that the Government have not encouraged them more.
I am ever the optimist, but I feel we are letting down people who are willing and able, at this difficult time, to get up and do things. The Government have created huge uncertainty for students hoping to go to university. By cutting back on budgets for FE colleges that train adults who wish to reskill or retrain, the Government have made it incredibly difficult. It is complicated for small firms to take on apprentices, although I heard this morning that the Government are taking on our idea of rewarding small businesses with a bonus payment for every apprentice they take on. The Government have finally seen sense. In National Apprentice Week, I congratulate my noble friend Lord Hunt on introducing the modern apprenticeship in 1994, from which many people have benefited.
Great Britain has always been a world leader in new ideas and new technologies and in producing some of the greatest thinkers in the world. We cannot afford to drive this down. The Government brought in schemes last year, and I am sure that the Minister will remind us of many of them. Can he tell us the take-up on those schemes and the cost-benefit to the taxpayer? My noble friend Lord Lang of Monkton clearly highlighted the failure of many of the schemes which the Government trumpeted so enthusiastically. Economic growth comes when people feel confident. Great Britain is full of people with new ideas—the innovators and creators of enterprise—but the Government lack the experience, the vision and the drive to excite people such as my grandfather, who came to this country with a dream.
My Lords, I thank the noble Lord, Lord Sanderson, for the opportunity to discuss this, especially as I am chairman of the All-Party Group on Entrepreneurship. I declare that I have interests, which are on the Register, in several small businesses.
I start from the point that SMEs fuel growth in the economy. They grow and expand and are eventually swallowed up by the big businesses, which rationalise and downsize in trying to become more efficient the whole time. If we do not have SMEs and that growth, there will be no one to pay taxes in the future and no one to pay our pensions. Everyone needs to remember that. The trouble is that the sort of people who innovate in small businesses are very different in character from the sort of people who run Governments, large companies and large organisations. They are risk-takers and will sail very close to the wind to get something done. Otherwise, they do not get off the ground. They have to do that. People who run the big things, such as the ship of state, need to be much more risk averse; they cannot afford to take these sorts of risks the whole time. We must have the right climate in which innovators can prosper.
Then there are the barriers—the Government and regulation—and what one should do about them. We need to disband departments that are dedicated to tinkering with existing regulatory regimes. They are always adding to the burden. The trouble is that a small business does not have the time to read it all, absorb it and implement it. The noble Baroness, Lady Byford, talked about rural enterprise. My wife runs a business. Four large pamphlets arrived that revise all the various codes. There is also the new employment stuff to worry about, as well as all the health and safety regulations on explosives and pesticides and all sorts of other bits and pieces, because of the large quantities of fertiliser. It is a nightmare.
We need to remember that we employ someone to get some work done to enhance the business. We are not employing someone to become an arm of the social services. Small businesses should be widely exempted from having to continue to employ people who just do not fit in, for one reason or another. There should be far greater discretion. My wife would certainly have expanded into other areas of business by now if she did not have to take on employees to do so. She deliberately decided not to expand into two businesses because of the danger in employment.
I am about to become involved in a small business in the alternative energy field, which is developing some intellectual ideas from one of the universities in this country. The first thing the accountant said was, “Don’t manufacture over here. Manufacture overseas. It’s a killer otherwise”. That is not a very good start for UK plc.
Given what has happened recently, I have become very aware that the Government are not good at distributing money efficiently in small tranches. Why should they be? They do not have that skill. As I have just said, risk-averse people, not risk-takers, go into government. The two do not understand each other. I sometimes think, when I look at the distribution costs of the small amounts of money that filter out to the sharp end, that it would be cheaper to hand out £10,000, free and unaccounted for, to everyone who had a good business idea. We would save money and might get some good stuff out of it. I ask noble Lords to remember the story of the 10 talents.
We talked earlier about banks. In a crisis such as this, the banks play a little naughtily, so a small business has to be careful that it is not left vulnerable. When the banks tried to address the problems with their balance sheets, they started to call in the loans from businesses with good cover. They could threaten the director who owned a house and guaranteed the loans because they knew that they would get the money and that that would go against the balance sheet. They did not call in loans in the case of dodgy businesses because they knew that they would lose out.
Starting up a business is very high risk. One of the big problems with getting money is that you tend to end up going to friends and family or business angels. It is a different game; it is not government-type or bank-type money. Where the Government do try to help with tax incentives, they can make it difficult to claim them. HMRC is very sceptical about whether you really did try to get a business going. If you have a very good year, you have to pay tax up front for the next year and you have a cash-flow disaster on your hands. The biggest danger is to have a profitable year; it is a killer.
Rates on empty buildings when you are waiting for planning permission that is held up for years are another killer for business. What do you do? You pull the building down or go out of business. Then there is the rural infrastructure and the ratings on fibre. There is a lot of dark fibre running down the railway lines—it used to belong to Global Crossing—but it is uneconomic to put signals down it because of the ratings structure, which is based on Victorian water pipes.
Then we come to the high earners who have spent money and who support the few small manufacturing businesses that we have. Those businesses can cater to the very high value market because they can afford to pay high labour costs. If we drive them overseas by taxing them enormously, they, too, will disappear, which is not to the good.
What positive things can we do? I talked to a serial entrepreneur who was absolutely positive that we could teach entrepreneurship and enterprise to people at an early age. I think that entrepreneurship is a combination of talent and teaching. We should teach it so that those who have ideas know roughly what they are doing. Mentorship is also essential. You have to find a mentor to show you the way through the minefield. Always walk behind someone who has done it before. Those things need to be encouraged and certain organisations are doing very laudable things in that area.
I entirely agree with the noble Baroness, Lady Byford, about rural broadband and the infrastructure. People who do well in life and make money and are our key people tend to go to the rural areas; they want to get out of the tower blocks and the big conurbations. We need to be able to get them well connected so that they do not have to commute in the whole time. This will help the green economy. The highlands could also start to be repopulated, because you can now run a business from anywhere with the internet, as long as you have a reliable connection. In the knowledge economy—this takes us back to taxation—we must be very careful not to drive people offshore.
I am afraid that I must have a quick dig at the noble Lord, Lord Fowler. I entirely agree that we need to protect copyright and intellectual property. I am very firm about that. However, cutting off people’s broadband—the lifeline of their business—because their children or someone else is piggybacking on it is not the way to go about it. The noble Lord and I will probably always disagree about this. We need new business models that can be driven by the internet. There are very good ways of doing that.
To sum up, we need to reduce overnight the regulatory impact on small businesses and we should use the Government’s procurement policy to drive business to SMEs. The United States has some very good initiatives and we should look at what it is doing. I take the point made by the noble Baroness, Lady Verma, about most employment in an area being with the local authority. Again, we must have government policy to get businesses going. A lot of government policy is risk-averse and militates against them. Innovation Initiative UK is trying to introduce large businesses and government to SMEs and to explain to the large risk-averse organisations that it is not necessarily risky to deal with an efficient and innovative smaller business—because it is innovative, it can be hugely beneficial.
My Lords, I, too, thank the noble Lord, Lord Sanderson, for introducing this debate. I am a serial entrepreneur and I find it reassuring that there are so many in your Lordships’ House who share my passion for this area. The noble Lord talked about rates of tax being at 98 per cent at one time. Every time I have started a business, the rates of income tax have been very high indeed—as high as he said—but that never seemed to bother me. I never thought about tax. I was always interested in being independent and setting up a business; I was interested in all the joys that come from allowing something to bloom and grow. We talk about 50 per cent tax. I do not like 50 per cent tax. If I had my way, I would put it back down to 40 per cent and tax bankers’ bonuses by 80 per cent. We would probably be better off. As the election approaches, people will bang on a lot about the rate of tax. It is worth saying yet again that, when this Government came into power, capital gains tax was 40 per cent. It is now 18 per cent. As an entrepreneur, I have my mind fixed on that rate, not on the rate of income tax. It is to this Government’s credit that we have kept and encouraged entrepreneurship in this way.
I shall divide my speech into two sections. In the first I will talk about a great British success story—the IT education industry. In the other I will make the case yet again for the UK’s equipment-leasing industry, which I believe holds the key to increasing capital investment in these difficult days.
Ten years ago, in an act of amazing generosity, Microsoft approached me and one other person with a simple request. British children needed to have access to computer technology at home and at school. Microsoft wanted a charity to be formed to make that happen. Noble Lords may not believe this, but it gave us a cheque for £1 million and told us not to involve it any longer but to get on with it. We set up the e-Learning Foundation. I declare my interest as its current chair. In those days, laptops were expensive, broadband did not exist and the teaching profession was highly sceptical. It was so sceptical that when the Government introduced the Laptops for Teachers initiative, it became known as the “laptops in boxes” initiative. Many computers were never opened by teachers. Those days have gone.
While he was Prime Minister, Tony Blair was instrumental in setting IT targets for schools. I may have my facts wrong, but I think that one of the targets was that in every school there had to be one computer for every seven children. That was thought to be impossible then, but today that sort of target would be laughable. There are laptops in every school and in homes they are ubiquitous.
Last year, the Government announced the Home Access project, in which £300 million would be made available to ensure that children in socially disadvantaged areas had access to computers at home and at school. In this 24/7 world, education is not just confined to the classroom. Lessons can continue at home and projects can be completed in the student’s own time. As well as bringing our school children into the 21st century, the Government have spawned a new, world-beating industry—education technology.
Every January, an exhibition called BETT—British educational training and technology—is held. I first went to BETT 10 years ago when it was very small with few attendees. Today, it is huge. The exhibitors take up all Olympia and the demand for space outstrips supply. Britain is now the world leader in education technology, by which I include education software, hardware, content and all associated services. This new industry employs 25,000 people in the UK and exports £250 million.
I should like to give your Lordships just one example of a British company, Promethean, which has become a world leader in this area. The company makes intelligent whiteboards. It is now possible for teachers to run their classes using these boards on an interactive basis. Teachers can write on the boards, access the internet and show videos. Tests can be set and pupils can use their own laptops and handhelds to reply. Feedback is instantaneous. The Government injected some early funding into Promethean. Private equity came later. I read that it is now considering an IPO.
I relate this background to show that this Labour Government are able to support and have supported new industries of this sort, thus supporting the quest to make our children IT literate and to raise education standards. At the same time, they have created an environment that has caused a new British industry to flourish. It is an industry that, without question, is the best in the world. What I recount today is just one example, but there are many more.
On my other topic, my whole career was in the leasing of high technology. I declare my interest. I formed a company called Syscap Ltd. I sold it to private equity, but I still have a small shareholding. I have regaled the Minister, my noble friend Lord Davies, with what I was going to say today and I received a sympathetic reception. I also heard what my noble friend Lord Sugar, who is not in his place, said about the SME marketplace.
The leasing industry in this country is responsible for one-third of gross capital formation. In other words, of all the capital assets in this country, one-third is financed by leasing. That is very important. It gives the benefits of better cash flow, secure funding, quick decisions and no need for an overdraft. It is everything that an SME wants. It gets funds to companies quickly. It is a conduit from the banks to small companies. Yet there are tax disadvantages on which Her Majesty’s Revenue and Customs is being very difficult. If Barack Obama was, “Yes we can”, I am afraid that HMRC is “No we can’t and never will”.
There are special capital allowances on high-technology equipment. The problem is that the only people who can use them are the users and not the owners. At a time when many companies are just coming out of recession and are not generating profit but want new equipment to boost their productivity, they cannot use these benefits because they are not making a profit. The situation is crazy. With a flick of a switch, which would enable the owner or the user to use these capital allowances, it could all be changed and there would be a dramatic inflow of funds to the SME marketplace. I hope that the Minister has listened to what I have said and I will be interested to hear his answer.
My Lords, I, too, congratulate my noble friend Lord Sanderson on securing this debate and for the way in which he introduced it. I record some interests as a Member with involvement in three small to medium-sized enterprises in the north-east of England. None has had the great fortune, talked about by the noble Lord, Lord Mitchell, of having Microsoft arrive on our doorstep, giving us £1 million and telling us to go away and get on with it, but we always live in hope.
I want to focus on the importance that enterprise and innovation have on productivity, which is what we are talking about. Productivity in the UK has been falling back against our major competitors significantly. We are losing ground against the G7, especially against France and Germany. That is partly because enterprise and innovation are only part of the picture. Competition, investment and skills are also required. Enterprise creates competition; competition drives innovation; innovation demands investment; and investment requires skills. Our competitors have got their heads around that virtual circle and we need to get ours around it.
Analysts have cited a large number of factors which lie behind the UK’s poor productivity performance. Chief among these have been the limited availability of skilled labour; relatively low levels of capital spending on R&D and infrastructure investment; the slow pace of innovation; and the decline in the relatively higher-value end of manufacturing. A lack of competition, overregulation, financial market volatility and poor labour relations have also been put forward as explanations for that.
The noble Lord, Lord Sugar, is just entering the Chamber, so I will make one compliment and come to a criticism later. When he said that the Government should intervene where there is market fear, but should not interfere, there were cheers on all sides of the House. That was a profound and welcome comment. However, there are some different views from the small business community. On Monday evening, I had the privilege of attending the annual dinner of the Federation of Small Businesses, which represents 215,000 members and businesses around this country. They make a huge contribution. John Wright, the national chairman, addressed policy-makers in the audience on what he regards as the three most urgent requirements for the Government to understand at this time, and we all should sit up and take notice. He said that the first urgent requirement was access to finance and that it is the number one concern. The noble Lord, Lord Sugar, said that if you had a case you could get the money. But that is not what John Wright said and he is representative of a large body of small businesses.
We have to remember that small businesses do not necessarily have between 50 and 250 employees. They often have one, two or three people. That is what small businesses comprise, and they form the vast majority of businesses in the country. They feel that the lack of access to finance is a brake on an emergence from the recession. It explains why we went into recession first and why we are going to come out of it last. It is particularly galling that banks which have been rescued at vast cost to the taxpayer and in many of which we now retain a majority shareholding are sitting tight on our money. It is not reaching the small businesses that so desperately need it.
The second of the three points raised by John Wright is the need for tax simplification. It is not immediately on the agenda, but that is what he has said. We have just overtaken India as the country with the longest tax code in the world. In 1997, Tolley’s Yellow Tax Handbook ran to 5,000 pages and was the culmination of nearly two centuries of tax regulation. By 2009 the handbook ran to 11,500 pages. Complexity in the tax system adds dramatically to the cost of running a business, and a paradox that was picked up by my noble friend Lord Sanderson and let slip by the noble Lord, Lord Myners, earlier this week is that this complexity reduces the tax take. When will the message get through?
The third point made was the essential need to encourage innovation. John Wright stated that small businesses drive innovation. Every year some 500,000 people start up their own businesses and 60 per cent of all commercial innovations come from small firms. They should be supported, not ignored. So often we see this Government get hung up on the flavour of the month in terms of particular technologies or fashionable concepts. Like investment bankers, they seem to get excited about and invest more in the ideas they understand the least. The message we need to stress is that innovation and enterprise are for everyone. They are the universal principle at the heart of every successful economy, and whether that innovation or enterprise comes from a car mechanic, a plumber, an insurance broker, a knitwear manufacturer, a computer programmer, a bioscientist, a teacher, a nurse or a police officer, the effect is the same: productivity increases and customers and clients get improved value for money. That is what we are seeking.
The people from the small business sector attending that dinner represent the backbone of our economy. They are not the cause of recessions, but all too often they are the first casualties. It is their efforts which create the jobs that so often government agencies and departments take the credit for, and they create the wealth that our public services depend on. They want a Government who are on their side, not on their back.
My Lords, I apologise once again for my bad habit of speaking in the gap, but having seen that the debate today includes the words “enterprise” and,
“innovation in stimulating economic growth”,
I thought that it would be the last debate to which I had any possible relevance given my career in bankrupt businesses. On the other hand, from the 11 public companies that I have handled in that respect, some 30,000 people are today drawing a wage. In a roundabout sort of way, I seem to have achieved exactly what it is that noble Lords today have been seeking to stimulate. Why is that? Those 11 companies had one thing in common apart from being bust. They had all gone bust for the same reason, because they had been successful. In being successful, they had become overambitious and had been seduced by low interest rates into borrowing more money than was relevant to expand their capacity beyond the ability of their markets to sustain the uptake.
I bring to the attention of this and any Government to come that there is huge potential for achieving what noble Lords are seeking, by reactivating the conditions of success in such companies through proactive effort to reduce the overcapacity of businesses that have gone bust in this way, either by merging unsuccessful businesses or by carrying the cost of writing off the overexpansion which has been sustained. That was the key to getting such businesses to work in the past and I think that it is a totally ignored and undervalued part of the present Government’s attempts to reactivate the economy. It is hugely important that the Government should become more proactive about this, and I hope that the Government to come will be very proactive.
My Lords, I join all other noble Lords in thanking the noble Lord, Lord Sanderson, for bringing this debate before us. It is very apt not only for the reasons indicated by noble Lords on all sides of the House but also because we did not need Anatole Kaletsky writing in the Times this morning to tell us that UK plc is facing a crisis in its capitalist model; namely, the economically liberal, democratic model that we have been used to both in this country and the United States for the past 25 years or so. Following the trade union reforms of the early 1980s and the big bang in liberalising City institutions in 1986, along with possible blips in the early 1990s, the model has delivered unparalleled economic growth until the events of last year overcame us. As we know, that model is under attack by France and Germany, which wish to impose extremely onerous regulations on the City of London because Monsieur Sarkozy and Frau Merkel appear to believe that it was the Anglo-American model of capitalism that destroyed City institutions. I have no doubt that a government of any persuasion will see off that Franco-German challenge, particularly if the Tory party comes to its senses and rejoins the mainstream Conservative grouping within Europe.
That economic model is also under serious attack from China. We can forecast what share of world GDP China is going to obtain over the next 10, 15, 20 or 30 years, but the more important question is whether the Chinese model of a non-democratic, command and control economy, which is beginning to be followed by India and Brazil among the newly emerging economic powers, will result in us wanting to change our economic models. That is very relevant to the debate that the noble Lord, Lord Sanderson, has introduced. I do not think even the surviving members of old Labour on the Labour Benches would really want to go back to the days of command and control in our economy. It is generally accepted on all sides of your Lordships’ House that the way this economy has been run for the past 25 years, irrespective of who has formed the government, is the right structure.
However, this is an opportune moment to pause and ask what it is that Her Majesty’s Government, whoever runs it, can do to address the issues that noble Lords have been discussing today. If we look at the structure of the economy before the crash, some 40 per cent of it was in the public sector, 15 per cent in banking and finance, about the same percentage in manufacturing, up to 10 per cent, as the noble Lord, Lord Fowler, indicated, in the creative industries and the balance in leisure pursuits such as pubs, restaurants and theatres: all the things that people do in their spare time and which attract tourists. What can the Government do in these various sectors?
Let us take the public sector first. A number of noble Lords have indicated that the public sector is the major employer in their towns and cities. Manifestly, whoever forms the next government is going to have to cut public expenditure, which is a euphemism for sacking public sector workers because that is where the overwhelming bulk of the money goes. The next Government must be absolutely clear that they are going to have to manage the process, particularly in a lot of northern and Scottish towns, of people leaving the public sector and going into unemployment.
In the banking and financial sector, it is clear that the Government are going to have a role. We cannot go back to where we were, and what produced the crisis, because it must not be allowed to happen again. There will be significant debates as to whether we ought to introduce what the Americans had with the Glass-Steagall Act and ask whether we should separate banks’ activities and proprietary trading from their retail deposit taking and investment banking structures. Everyone will agree that we need better regulation of the banks and we cannot have people approving the Northern Rock type of business model ever again. But here I slightly disagree with the noble Lord, Lord Mitchell, in that we have to be careful not to kill the goose that lays the golden eggs.
I am not one who believes that the whole banking community is going to go and live in Zug. Anyone who has been to Zug will realise that the attractions of Mayfair far outweigh the attractions of Zug, particularly for their wives or partners. On the other hand, that does not mean that the bankers must be subject to penal taxation in the way the noble Lord has indicated. We must be careful and ensure that our banking employees have fair, not penal, taxation.
What can the Government do elsewhere? Having considered the banking sector and the public sector, we are still left with more than 50 per cent in a combination of the manufacturing and creative industries. We have huge advantages in this country. We have four of the top 10 universities in the world in Oxford, Cambridge, University College London and Imperial College London; we have 52 Nobel prize winners in science spread across the economy; we are ranked eighth in the world for our flexible labour market efficiency; and we are still the sixth largest manufacturing employer in the world—our output is sixth in the world.
We have a significant base on which to build but the Government, of whatever persuasion, must do a number of things. They must ensure that we have the right infrastructure—noble Lords have referred to the railways and broadband. As the noble Lord, Lord Giddens, said, they must develop the green agenda. The Government are quite right to use the strategic investment fund announced in the 2009 Budget to invest in low-carbon sectors. This is absolutely essential because the green agenda not only deals with climate change but also creates jobs. Wherever possible, the Government must improve the education structure of the country and target the education of our young people to ensure that they all have skills for the future. They must encourage links between universities and business based on the model of Silicon Valley and Stanford. It is calculated that Massachusetts Institute of Technology students have created 25,000 companies with sales of $2 trillion, which would make that the 11th largest economy in the world. There is no reason why we cannot build on the strength of the Oxford and Cambridge business parks to do that. It would be an absolute scandal if the report in today’s paper is correct and one in four state schools can no longer offer physics at A-level because they cannot get the teachers to teach it. That would be scandalous and must be the Government’s top priority.
Finally, the Government must of course cut regulation. You have only to go into any form of business to know that regulation is excessive. We all know how it happens: an incident occurs; it is reported in the papers; the permanent secretary says to the Minister, “This is what you need to do, Minister, because otherwise the Daily Mail will slaughter you on its front page”—and so we get another regulation. The Government are not eager to do this, but that is what happens.
There is a deep flaw in the Government’s DNA, irrespective of party. In the House of Commons today, fewer than 20 per cent of Members have any business experience at all. I have not done the analysis, but I suspect that it will get worse after the next general election. We should not expect the kind of changes that Governments of any party will need to implement to meet the aspirations enshrined in the Motion of the noble Lord, Lord Sanderson, unless the composition of the House of Commons is changed, with more people in government having experience of business.
However, I am not pessimistic because the DNA of the British people is still there. After all, we created the industrial wonder of the world 150 years ago and I see no reason why we cannot do it again. I remain optimistic.
My Lords, I declare the interests set out against my name in the Register. I congratulate my noble friend Lord Sanderson of Bowden on initiating an outstanding debate. He, of course, has not only business and ministerial experience but a great deal of experience of the real world, which came across in some very important points.
I understand why the Secretary of State cannot be here, but we have in the Minister someone who also really understands the business world. The Secretary of State explained that he is at the biannual Joint Economic and Trade Committee talks with India at Lancaster House. I do not know whether the Minister has seen the recently published book by Dietmar Rothermund, India: The Rise of an Asian Giant, but much in that has been reflected in the debate. It is about this Asian giant whose role in the world’s future will be unique and important. It is vitally necessary that we should talk about our mutual interests in taking the world further forward.
As the noble Baroness, Lady Wall of New Barnet, said, the debate gives us all food for thought. We have had some excellent exchanges. The noble Lord, Lord Sugar, and my noble friend Lady Verma pointed out that this is National Apprenticeships Week. I am grateful to my noble friend for paying tribute to what has been done and for indicating that we embarked on this road when I had the privilege of being Secretary of State for Employment. It is an important road and I am pleased to continue travelling down it as the non-executive chairman of McDonald’s Education Company, where in the past 12 months 5,000 employees have embarked on a programme that has been described in the week as,
“Opening doors to a better future”.
As my noble friend Lord Selsdon put it, despite all the other problems that we have talked about in the debate, there are some exciting opportunities for the young. It was good of my noble friend Lord Lyell to give us the benefit of his experience, too.
In many ways, as the noble Lord, Lord Razzall, pointed out, healthy economic growth, sadly, now seems like a distant memory and a remote possibility. The mismanagement of the economy by the Government has led us into the longest and deepest recession on record. The six quarters of recession over which the Prime Minister has presided have seen a 6 per cent decline in this country’s GDP since the beginning of 2008. As the Chancellor he sowed, as the Prime Minister he reaps, but for millions of people it has been a bitter harvest. Overhanging the debate is the appalling burden of debt, where interest payments alone will cost £4.4 billion next year—who knows how much will have to be paid out eventually?—and it must all be funded by growth in the private sector. We have a long way to go to get back even to where we started.
A couple of weeks ago, the First Secretary of State challenged the figures that I had cited of the numbers of businesses that had, sadly, gone under in Labour’s recent great recession. I can confirm today that what I said was not contrary to the fact, as he suggested it was, that almost 3,000 more companies have gone bust or become insolvent in Labour’s recent great recession than in the recession of the 1990s. I have checked the figures and they are depressingly correct.
The Government’s answer appears to be to have more schemes, and we have heard about many of the schemes that people have in mind. However, I am reminded of the words of the late, great Iain Macleod, who once said:
“Labour may scheme their schemes, Liberals may dream their dreams, but we have work to do”.
Many noble Lords who have contributed to the debate have pointed out what we should do, including my noble friend Lord Fowler, with his strong advocacy of the creative industries, and the noble Lord, Lord Giddens, with his suggestion for investment in new technologies. I remember the noble Lord, Lord Bhattacharyya, once welcoming me to Warwick when I was the Cabinet Minister for Science and telling me about all the things that he had in mind. I was very excited by them, because he is not only a businessman but also, if I remember rightly, an engineer. Sadly, we have a lot of evidence that, although some of these schemes may sound good, they are not being taken up. My noble friend Lord Lang gave us the figures: £18.7 billion of taxpayers’ money has been promised through various schemes, but only 13 per cent of that has been delivered. That paltry percentage also came too late to be of any assistance to most struggling companies.
My noble friend Lord James of Blackheath specialises in this area and understands the significance of insolvency. I suppose that a lot of people would have been helped if only we had had in place a large, bold and, above all, straightforward national loan guarantee scheme. I reckon that Ministers are now slowly and grudgingly implementing a pale shadow of this scheme. We have wasted a lot of time and money, both luxuries that British businesses did not have as the recession bit.
As I have said, we have had lots of ideas. However, one of the messages that have come across in the debate is the need to cut bureaucracy and red tape. My noble friend Lord Bates had an important message from the small business sector. In many ways, the message of this debate has been that a responsible Government would empower firms and individuals within the private sector to do what they do best, which is innovating, expanding and flourishing—or, sadly, from time to time, failing—but on their own merits. It is not for the Government to pick winners, which I believe is now generally accepted. Unfortunately, I feel that in the inner recesses of the Labour Party—this was not reflected in the debate—is still a section that regards the private sector with distrust, as being part of the problem, whereas, in this debate, we see it as a very large part of the solution.
My noble friend Lady Verma and the noble Lord, Lord Bhattacharyya, pointed to the importance of innovation. I shall certainly study further the ideas of an arm’s-length innovation bank and a framework for success. As the noble Lord, Lord Sugar, knows, these ideas can catch fire and suddenly take off, as his programme has shown. We have a lot to learn from all this.
I return to regulation. To ensure that we start punching our weight, as the noble Earl, Lord Erroll, and my noble friend Lady Byford pointed out, we have to take an axe to regulation. It takes twice as long to start a business in the UK as in the United States. Several instances were given of where we need to improve. My noble friends Lord Wade and Lord Feldman remembered business incubation units. So many ideas exist. However, Ministers have become so distracted by crisis management that they have lost sight of the longer-term needs of the country. The worst and most pernicious effects of a recession may be mitigated in the short term by a combination of loose monetary policy and public expenditure, but the long-term prosperity of the British people will depend on a successful enterprise economy.
Ultimately, it is the private sector that creates wealth, not Ministers. That requires a higher savings ratio and increased investment. It requires a war against disproportionate, unnecessary red tape and bureaucracy. My noble friend Lady Byford called it all unacceptable; I could not agree more. Our economy will not recover under a lethargic, dying Government who, sadly, seem to have run out of ideas, energy and time. We cannot go on like this. Our economy, as my noble friend Lord Lang of Monkton said, will not regain its confidence and impetus until we have a strong lead from a new and energetic Government with vitality, clarity of purpose and a genuine commitment to enterprise.
My Lords, I begin by offering advance congratulation to the noble Lord, Lord Selsdon, on his 47 years. I shall address the specific questions raised in this excellent debate, but, before that, I shall step back and answer its theme, which is to call attention to the role of enterprise and innovation in stimulating economic growth.
Basic economics tells us about the three factors of production that determine economic growth: capital, labour, and technology. However, as Michael Porter pointed out in the 1990s, you need to make sure that human resource, physical resources, infrastructure, knowledge and capital are joined together. It is really technology, knowledge and innovation which contribute to economic growth in the long run. Innovation pushes up productivity, reducing the costs of production and giving us additional money to invest in the economy. In that regard, I agree with the comments of the noble Lord, Lord Lang. As the Prime Minister said on 8 January,
“We know that growth is ultimately created by enterprise and innovation, and by the dynamic and talented genius of people who are in businesses and companies”.
The Government are supporting growth for the future. We are investing in the capabilities that we need to create the jobs of the future, and in the skills, science and infrastructure that we need in every part of Britain. Our advanced manufacturing is strong and is built on our capabilities in science and research. We have earmarked almost £1 billion for cutting-edge projects during the past year through the strategic innovation fund. We are creating more than 35,000 new advanced apprenticeships to build a new British technician class. We are also making huge new investments in digital infrastructure and high-speed rail. To reinforce the comments of my noble friend Lord Giddens, we have a clear commitment to renewable and nuclear energy. Our carbon targets and our big investments in low-carbon technologies will help ensure that the UK builds real new strengths in low carbon and is a world leader in this growing sector.
However, we are not complacent; we know we need to do more. It is very clear— certainly to the Government if not to the Opposition—that we will secure the recovery and then halve the deficit over four years. Cutting support to the economy now risks choking off recovery. The economy is stronger now because of the actions that we have taken to support the recovery.
However, the economic future around the world—I was in Davos last week—is still uncertain. We need to be frank about cutting the budget deficit and make sure that we do not undermine confidence and demand. However, listening to some of the comments made today and to the shadow Chancellor in the other House, I begin to wonder whether we have any industry at all. The reason that we are so optimistic about the future of British business is that Britain is still the world’s eighth-largest exporter. We are still the sixth-largest manufacturer: advanced engineering accounts for a third of all exports.
The noble Lord, Lord Fowler, made an interesting point about the importance of the creative industries. I visited Aardman Animations, the Wallace and Gromit company. It is a wonderful example of British innovation and a truly international business. We sometimes forget that the UK has Europe’s largest creative industries sector, set to grow at more than 4 per cent per year and employing 1.3 million people. I shall host a meeting of the industry in the next month or so.
UK manufacturing activity increased in January at the fastest pace in 15 years, adding to evidence that the recovery is gathering pace, but we should not forget that the UK has the largest industries in Europe for life sciences, information technology, creative industries and financial services. Yes, we have many challenges in the financial services industry, but it is an important part of the economy and we need to make sure that we are competitive but realistic about the challenges that it faces.
The UK’s technology and communications sector accounts for more than 10 per cent of GDP. The noble Lord, Lord Lyell, commented on our science capability, and it is clear that that is a strong part of the economy. However, so is our defence, security and aerospace industry. We are number one in Europe in attracting inward investment and R&D investment. The UK is already a net exporter of low-carbon goods and services, life sciences products and business and financial services.
We are, rightly, proud of the fact that the UK ranks fifth in the world and top in Europe for ease of doing business, according to the World Bank. We have committed to moving up to fourth place next year. The OECD reports that the UK has the lowest barriers to entrepreneurship in all OECD countries. The average cost of starting a business in the UK is just £20, compared to a European average of £382.
As the noble Lord, Lord Wade of Chorlton, commented, with his experience of 155 businesses, the SME is critical to the UK. There are a record number of businesses: 4.8 million SMEs at the start of 2008, which was over 1 million more than in 2000. SMEs employ 13.7 million people—they are the lifeblood of the British economy. Employment in SMEs has grown by 1.6 million since 2000, and on average 260,000 businesses have registered for VAT or PAYE each year since 2000. Enterprise and innovation in Britain are alive and well; Barclays estimates that 1,296 new businesses started up every day in England and Wales every day in the past 12 months.
There are challenges, however. We need better role models. Over the past 30 years there has been an overemphasis on celebrities and sports stars and perhaps, if we are to encourage entrepreneurship and innovation, we need to re-establish some role models. We have done so with teachers and doctors by investing in those areas; we now need to “role-model” entrepreneurs on a wider basis in the UK.
In the Government’s ambitious response to Alan Milburn’s report on social mobility, Unleashing Aspiration, we agreed with the vast majority of the panel’s 88 recommendations on fair access to professions. This confirms our commitment to promote the aspirations of all young people, whatever their background.
There is no doubt that invention and entrepreneurship are at the heart of our national advantage. Few believe that this is random. The US, as has been mentioned a few times, is a favourable environment for commercialising invention, where people are supported in taking risks. We need to improve our ability to do that, and there are definitely lessons that we can learn from the US.
We also need, however, to compete on the global stage. We need to export for growth, and we need an international mindset among the UK’s small businesses. But we have to be in a trading block, not isolationist; we are very much part of the European trade continent. Total UK exports make up 29 per cent of the UK’s GDP. Firms that export have high growth aspirations, but they also have many more chances of success.
The comments made by the noble Lord, Lord Feldman, on the fashion industry, are important. They highlight the fact that exhibitions are hugely important for a range of industries, which is why UK Trade & Investment is investing more in the trade access programme to help small companies, entrepreneurs and innovators with exhibitions around the UK and internationally.
I mentioned earlier that I was in Davos last week at the World Economic Forum. I met executives from Nike, Siemens, Merck, Wipro and Deutsche Bank, to name a few companies. They all commented that Britain is highly regarded as a centre for foreign investment because of its innovation, its universities, its scientific capability and its great workforce. So those who talk down our capability or say that we have none and we have no manufacturing are making a huge mistake.
A key area that a number of noble Lords have mentioned is access to finance. My noble friend Lord Myners and I are working extensively with the banks to ensure that finance continues to be available to all firms of all sizes. Generally, SMEs are able to get the finance they need. Around two-thirds of applications from small firms with a turnover below £1 million are approved, and over 80 per cent of loans and 90 per cent of overdrafts in the medium sector are approved.
There is no doubt, though, that SME demand for finance remains a key issue and remains down compared to 2007 levels, although this is due in part to SMEs taking advantage of low interest rates to repay their debts. I will be meeting with the credit officers of all the major banks involved in dealing with entrepreneurs and small businesses next week to discuss these issues and to make sure that they are there with access to finance as demand recovers.
One or two people have said, “Well, some of these schemes haven’t worked”. It is interesting, though, that the enterprise finance guarantee has had an 83 per cent drawdown, and of the 7,792 loans 6,456 have been drawn, which has resulted in £647 million being injected into the economy.
I could go through the other schemes, whether VAT, the deferment of tax, empty property relief; you name it. I will not go through the list, but an extraordinary number of serious measures have been introduced, and I would say that they have had a profound impact on the economy.
The crisis has highlighted—I think the noble Lord, Lord Wade, mentioned this—that we need a better way of getting funds into the market. The Rowlands review has highlighted that the venture capital industry needs to be stronger in the UK. We have set up an innovation fund that now has £325 million available, but we are also setting up the growth capital fund and there are other ideas floating around. We need a framework to bring these together, and we are thinking about that at the moment.
There have been quite a few comments about enterprise and skills. The reality is that we need to embed enterprise at primary and secondary school level. Pupils have to be encouraged to develop enterprise skills—being creative, taking and managing risks, problem-solving and adopting a can-do attitude—across the curriculum.
Activities like Make Your Mark clubs and Make Your Mark challenges, co-ordinated by Enterprise UK, are very important, as have been the National Enterprise Academy and the National Council for Graduate Entrepreneurship. It is encouraging to see that last year we had a record number of people starting apprenticeships—240,000, up from 65,000 in 1997.
This morning, I was at a get-together hosted by the noble Baroness, Lady Coussins, on language skills. If we are going to be a competitive, entrepreneurial and innovative society, it is clear that small businesses need to improve their language skills. That will require a partnership between universities, business and schools.
If we are going to have such a society and grow on the success that we have had in the past decade, though, we need to tackle underachievement by key groups so that you have an opportunity irrespective of your gender, ethnicity or location. That is why women’s enterprise is getting so much attention from us as a Government. Women run about 15 per cent of our 4.8 million small businesses. If we had the same percentage of women in business as in America, we would have another 700,000 businesses. If women had the same start-up rate as men, an extra 150,000 start-ups per year would be created. This week, I met a group of black African and black Caribbean business people with whom we are working to see how we can get more success in that ethnic minority group. Huge progress is being made but there is much more to do.
I now turn to the subject of regulation. We clearly need good regulation. We have seen improvements in health and safety and we need to ensure that that balances the rights of individuals and businesses but does not hinder business. We are the first Government to measure and commit to real reductions in regulatory burdens. Since 2005, we have published annual departmental simplification plans. We have made £2.9 billion annual business savings, rising to £3.3 billion by May 2010. But there is no doubt that this is a continuing challenge and that is why I went to Brussels a few months ago to see how other countries are doing. It is a challenge not only in Europe, but in the US, Canada and throughout the world.
I could not agree more with the Minister. He is seeking to defend the regulatory regime in this country. But is he aware that the World Economic Forum has a ranking for countries? In 1997, we were fourth. We are now languishing in 86th position in that table. How does he explain that?
I have already referred to the fact that when you look at the ease of doing business in the UK, the OECD ranks us very highly. When you look at entrepreneurship and foreign direct investment into the UK, the reality is that this is a continuous challenge for all Governments, but we are continuing to attract foreign direct investment into the UK and people are still starting new businesses. There is no doubt that the world is getting more complex. It is a challenge for all countries, which is why we have given this a huge focus, in the same way that we have given focus to public sector procurement. A number of noble Lords have mentioned that we need an efficient public sector procurement. The public sector spends around £220 billion per year on goods and services. We are committed to seeing more SMEs bidding for and winning a fairer share of contracts. That is why we are working to implement the Glover report.
Another issue was mentioned by a number of noble Lords. The noble Baroness, Lady Byford, mentioned digital requirements. We need the right infrastructure. Infrastructure UK, which is a new body, provides strategic focus in the Government across the full range of infrastructure sectors. It raises the bar on how infrastructure investment is planned, prioritised, financed and delivered. I hosted a breakfast this morning with Infrastructure UK and a range of financial institutions to look at how we might get more investment into this sector. It is clear that we need to be a digital economy. That is why the Digital Economy Bill is so important and is why we are committed to two megabits universal broadband throughout the UK. Infrastructure investment is a challenge right across major nations. That is why Infrastructure UK has been created and why we are giving it the right type of focus.
My last couple of points are on the right tax environment. The UK has the most competitive corporation and capital gains tax rates in major developed nations. The main rate of corporation tax at 28 per cent is the lowest ever rate and the lowest in the G7. Strong public finances are necessary for the long-term health of the economy and for jobs in the long term. We need a competitive tax environment for small firms.
Finally, we need the right support for innovation. We can all quote from different tables, but the one that I would like to quote from is that the OECD ranks the UK second only to the US in research excellence. As my noble friend Lord Giddens highlighted, we have and should continue to build on a successful partnership between universities and business, particularly in the area of research. The Technology Strategy Board has £1 billion to invest in this spending review. It is also important that a number of these projects have been in partnership with the EU.
We talk about innovation and enterprise. If I had been closing this debate in 1989, there would not have been an internet. There were very few mobile phones and the Berlin Wall was still up. The past 20 years have seen huge scientific and economic progress around the world. Britain has the strength, innovation and creativity to be a key participant in the growth of the world economy in years to come. The Government’s focus is on supporting enterprise, fostering knowledge and helping young people to develop the skills and capabilities to reach their personal and economic potential. We are investing in infrastructure, ensuring open and competitive markets, building on our industrial strengths and, in particular, providing active and strategic government. Enterprise and innovation are at the heart of a successful economy. That is why we are backing them so strongly. I thank the noble Lord, Lord Sanderson, and I will respond to him in writing on cashmere sweaters and nuclear power.
My Lords, I thank all noble Lords who have taken part in this debate. I particularly thank the Minister for his reply. At one stage, it was a little like what Sir Walter Scott said about the debating skills of the Duke of Wellington—he sliced the argument into two or three parts and helped himself to the best. With that final comment on today's debate, I beg leave to withdraw the Motion.
National Security Strategy
This is an opportune time to address the national security strategy. It follows very quickly after the publication of a Conservative policy for a national strategy and the appointment in this House and in another place of the Joint Committee on the National Security Strategy. Let us look at the history. Many noble Lords will be familiar with the original announcement by the Prime Minister setting up a ministerial committee in 2007 and the publication of the national security strategy in March 2008, which was followed up in June 2009. Sir David Omand wrote an interesting paper on the implications for the intelligence agencies in February 2009. The noble Lords, Lord Ashdown and Lord Robertson, led a group in the IPPR giving an independent national security strategy and their views on that. It is against that background that I would like to discuss present progress and the actions that need to be taken.
I do not think there could be any dispute in this House about the need for a national security strategy. Not many would challenge the view that this is now a much more dangerous world for our own country and all countries. If I reflect on the time when I had some responsibility for national security as Secretary of State for Defence and when I was chairing the Intelligence and Security Committee, I see that some challenges have taken on much greater significance. Quite clearly, the threat that jihadist suicide bombers now pose throughout the world is much more severe. There are now risks of nuclear proliferation, particularly in one or two less than stable states. There are increased concerns about the growth of poverty, the impact of climate change and concern about food and water security. The risks that they pose for a mass migration of people create new challenges for us as well. Most recently, there have been discussions and concerns about cybersecurity and the increased risk of potential cyberattacks; and energy security, with the interesting activities of the Chinese, who are clearly seeking to secure their supplies without any universal observations as to how that leaves other countries in the future with regard to security of energy supplies for their own people. The most recent events in Haiti draw attention to the profound and enormous risk of natural disasters, and the challenge they pose to national resilience.
Against that background I look at the strategy and consider its progress to date since its first publication. The paper certainly covers a very wide canvas. So wide was the canvas that, when it first came out, the Intelligence and Security Committee reviewed it and wondered whether any benefits would flow from it or it was merely a paper exercise. The Times leader described it as “a damp squib”. Certainly when one looks at it, ranging all the way from terrorism and swine flu to flooding in Tewkesbury, one sees the enormous range of subjects that it covers and the challenges that it would pose in any implementation.
In what is, I hope, a reasonably bipartisan approach to this problem, it is not too unkind to say that it is not the greatest achievement of this Government that they definitely talk the talk, but it is not always clear as to whether that talk is then subsequently implemented. For instance, I noticed that one of the original recommendations was that the Intelligence and Security Committee—my own area of interest—was to be upgraded. That was two years ago; I am not aware that any of that has yet happened. Look at certain other reports that have been directed at this issue, such as that of the noble Lord, Lord Butler. How many of its recommendations, which were accepted in full by the Government, have yet been implemented? I notice that the Financial Times in February 2009 said that:
“Most of the initiatives in Britain's first national security strategy have been delayed, watered down or quietly dropped since Gordon Brown unveiled the document to ‘safeguard the nation’”.
It is against that background that we need to readdress this issue and give added impetus and incentive to it. What is needed here is a strategy that requires, if it is to be effective at all, the involvement of all the relevant elements of government. Perhaps we did not need to the Chilcot inquiry to draw attention to this problem but it shows the limitations of sofa government, which is totally inimical to the real involvement of all the necessary elements in government that must contribute to proper decision-making. I will look at the different elements that must be crucial. I will refer in a moment to the Conservative policy document, which I commend because it re-establishes, under the chairmanship of the Prime Minister, the primacy of the Foreign Office. The need for diplomacy is given a much higher priority. I think it was last week that we heard in this Chamber about the abandonment of the overseas price mechanism. I understand that this was a decision imposed on the Foreign Office by the Treasury. The future efforts of the Foreign Office will be dependent on the current exchange rate of the pound. Given recent turbulent times, what an impossible position that presents the Foreign Office with in planning and maintaining effective programmes.
If I look closer to my own experience, the downgrading of the Ministry of Defence is extremely serious. It is not something that is ignored by our forces on the ground. They know the seniority of the Secretary of State for Defence. The Secretary of State for Defence is, effectively, one of the most junior members of the Cabinet; he is junior to the Chancellor. I certainly did not regard myself as junior to the Chancellor when I had the privilege to be in the Cabinet. He was an equal, senior member of the Cabinet. When you are also junior to the Chief Secretary you really are in trouble. When you go on to say that there is a £36 billion black hole, as the House knows very well, in the Ministry of Defence forward procurement programme and overall financial situation, it is not difficult to see how that happened. We have this most unfortunate situation—some of it accidental or not planned—where there is an annual change of the Secretary of State for Defence. I referred to this in the House yesterday. There is no other business in the world, let alone any major government undertaking, that would say, “You will have a new head every year”. What sort of confidence can those in the forces have that they are led by people with real understanding and experience of what they do? That is an elementary point.
My concern is that whatever strategies are produced and whatever plans are made, at the top of what matters is the leadership given. What is the organisation and priority? The co-ordination of the top departments of government of foreign policy, defence planning and capability, home security and resilience, and domestic cohesion needs leadership of a high order and that of the Prime Minister. It also needs, most importantly, to bring in the role that the intelligence agencies can play. Some of the background and experience of the best people could have contributed so much to avoiding some of the challenges that we face. Many of us mourned the sad news in the last week of the death of Sir Percy Craddock. I noticed a quotation of his:
“Good intelligence means looking backwards as well as forwards”.
Learning some of the lessons of the history could have saved us an awful lot of the problems that we face now.
Against that background, I welcome the Conservative proposal for a national security council. I notice that the Prime Minister said that we have it already. However, it is a question of emphasis, priority and recognition from within the government system, as well as from the public, that this is a top council. It is not just another ministerial Cabinet committee, but one that is given the highest importance and chaired by the Prime Minister with the Foreign Secretary as his deputy, and with the Chancellor, the Ministry of Defence, the Home Office, DfID, the Security Minister, the CDS and the agencies represented. I also welcome the proposal that, if we are in conflict, there should be a war Cabinet, with the leaders of the opposition parties invited to attend. That is very important, as is that higher profile at this time.
The national security council must draw up a comprehensive strategy; review the national interests and make proper risk assessments for them; and regularly report on progress. That is the most important aspect. From that flows the need for the strategic defence and security review. Obviously, I welcome yesterday’s announcement that this is to start. It is accompanied, as is everything under the present Government, by that little code word “not until after the election”, but is something that I am confident a Conservative Government—if the Conservative Party is successful—will wish to carry through. They will not only carry it through but undertake that it will be done in future on a quadrennial basis, in the same way that the United States operates. To have left this for 11 years in the changing international situation is extremely undesirable.
The UK is not alone in this situation. We must work with our allies. I was struck that, on the day that the defence Green Paper came out, Robert Gates, the US Defense Secretary, said that the US needs allies and cannot do it alone. Rather more publicity was given to the point that we might work more closely with the French. I welcome that. It is even more important in the military sense now that they are fully involved in the NATO military structure. There are many other countries that we have not worked with previously, particularly in the field of intelligence and security and the fight against terrorism, that can be our allies as well.
We do all this against what will undoubtedly be a very severe limitation on resources. Therefore, we must focus and prioritise. We must be flexible. I again quote Robert Gates. He said yesterday, “The wars we fight are seldom the ones we plan”. I thought that followed up very well the recent statement by my noble friend Lord Carrington, who quoted the statement that he made in 1970 when he became Defence Secretary. He asked the Chief of Defence Staff, “How many conflicts have you been involved in since the last war, and for how many have we been prepared?”. The answers he got were 41 to the first question and one to the second. Any country that has lived through the Falklands conflict, the liberation of Kuwait, the conflict in Bosnia and the involvement in Afghanistan knows that we have added another four for which we were not prepared or did not anticipate that involvement.
The challenges that we face will not decrease. It is a very unstable world. The priority for us all in this House, in Parliament and in government is the security of the United Kingdom and of its citizens. It is from that secure base that we can then make the contribution that I hope we will to making the world a safer place as well. I beg to move.
I am very grateful to the noble Lord, Lord King, for introducing this debate and for the way in which he did it because I wish to have two contexts in my mind when I discuss this. One is the defence Statement made in both Houses yesterday, which will continue to influence this debate. The other is the important contribution from the Front Bench yesterday, which is that we need some degree of all-party involvement in these emerging policies. It does not mean that we have to exclude party politics entirely; indeed, you will never be able to do that. However, our security services—I use that phrase in the widest sense—will expect no less of us than that we give very careful thought to the nature of these threats.
The noble Lord, Lord King, said in his opening remarks that we live in a profoundly dangerous world. I am not sure that the world is more dangerous than it was at the time of the stand-off between what was then the Soviet Union and the United States. You think of the Cuban missile crisis. However, what is fundamentally different is the pace of change, the incredible instability around the world, and therefore the increased unpredictability of what is going to happen. At least you knew what the stand-off between the Soviet Union and the United States was about. You could see the structures of them. Now you cannot see those structures any more. The quotation about the number of predictable wars makes that point rather well. Therefore, we have a duty to give very careful thought to this and to look at it in depth.
As regards the national security strategy, I can do no better than echo the words of the House of Commons Defence Select Committee, which called it one of the most important innovations that this Government have introduced. I say that particularly of the 2009 updated policy statement, which was an improvement. The noble Lord, Lord King, said, expanding on Conservative policy, that if the Conservatives won the election, they would set up a national security council. I understand that and the arguments he made underlying that. However, I am not sure that what he described is essentially different from what is involved in the 2009 update paper. If I remember rightly, paragraph 8.4 of the conclusions of that paper talks about the Prime Minister chairing the committee which brings all of these together and involves other organisations, individuals and the private sector. There is not a great deal between the parties on this. There might be a slight difference of emphasis, but I do not think that there is an enormous difference.
There are two areas on which I want to spend a bit of time, although there is an enormous area you can cover. In a way, the biggest danger we face—we all know this—is the increasing fragility of so many states and the expansion of non-state actors, the so-called terrorist groups or whatever, who are sometimes linked to ideologies, religion, protest movements or nationalism. There is a whole range of them. Combined with that we face the profound dangers of increasing scientific knowledge, easily available, on the production and use of weapons of mass destruction, however you define them, and it covers a wide range of issues.
When I chaired the House of Lords Select Committee on Intergovernmental Organisations—an ad-hoc committee—we looked at pandemics and whether we wanted a different process for dealing with a pandemic that came about as a result of a natural cause as opposed to one that came from terrorist causes. The net conclusion was that you needed the same response for dealing with the pandemic, regardless of where it came from. You might have a different strategy for the organisation that spread the pandemic—if that is what has happened—but you needed a similar strategy.
I wish to make two other points in the final minutes allocated to me. First, if I am right about this increasing instability and fragility, we might need to revisit the debate which has exercised me for many years; namely, that concerned with spreading democracy. I am very strongly in favour of that and I think that we all are. However—I say this in the context of the present troubles around the world—in a way the rule of law is now infinitely more important as a first step in order to provide the stability that we need in so many nations.
At Question Time the other day I mentioned the arc of states that runs from the Horn of Africa through the Middle East and Afghanistan and up into central Asia. There are many others as well, but that is a profoundly dangerous area. Given Britain’s reputation on the rule of law and the English common law pattern that is so widely spread around the world, we have a real opportunity to improve what we do in helping countries to develop a legal structure. That need not necessarily involve—I emphasise this—imposing our legal standards on a country which has a different culture and a different background. Rather, it could involve helping them to develop structures that have coherence, predictability and apply, as far as possible, to the whole society. That would begin to challenge the concept of corruption, which is a major cause of instability. One of the issues here is that most of these countries recognise that they need the rule of law, mainly because they want the advantages brought by business. Therefore, they want the rule of law, but they are not always willing or able to deliver it. We need to think about that.
The Minister will remember that last year I tabled a Question on cyber warfare. I remain acutely concerned about that, and I know that he is also acutely concerned about it. It was discussed at the G8, and I think that those involved in the Meridian process—I believe that is what it is called—are looking at it. I emphasise that we all appreciate the profound dangers of cyber attacks. Whether states are doing this themselves or are doing it through other organisations is up for discussion. However, it is certainly coming from some states and many other organisations. Although I do not regard this as an answer, I like some of the things that are laid out in the 2009 document. However, I am still not convinced that we would not benefit if we looked for some sort of international agreement such as we have on chemical and biological weapons or nuclear weapons in order to set a standard for ruling out this type of warfare on the part of nation states. You will not stop it altogether, but such a measure might provide the standard we need in order to deal with this.
My Lords, the noble Lord, Lord King, has chosen a vital subject for debate. We are a global power, both in terms of defence and foreign policy. We are constantly assured that everything is being done to enhance our security. In the same week, however, we have been told—as the noble Lord said—that the FCO, which operates extensively abroad, faces, as a result of exchange rate movements, a cut of £100 million, and may have had to reduce its work—in fact, has had to reduce its work—on counterterrorism and on capacity building to help conflict prevention in Africa. It has valuable contacts in danger areas such as the Yemen and Somalia and collects invaluable biometric data through visa-issuing posts overseas, a vital weapon in the fight against terrorism. I hope that the new strategy group will ensure that such an essential source of information and influence should not be cut off by a Treasury ruling.
In any future security strategy, decisions must be made after full consultation with any of those involved in decision-making. In a recent report to which Permanent Secretaries have contributed it is clear that under Tony Blair major policy decisions were made by him within No. 10 and the Cabinet Office, although not by the Cabinet. Those who were to implement the actions were not consulted first.
The Islamist threat is, of course, immediate and continuing. However, we must not forget the strategic threat from China in terms of cyber attack, not only on our defence installations but our economic estate, and from Russia. We are a vulnerable island. Command of the seas and air and the possession of a sea-based deterrent are vital to our economy and survival. There will be difficult choices to be made. The new committee should be able to ensure informed consultation, followed by review by a Cabinet exercising collective responsibility, not a Prime Minister acting alone.
Money is, of course, an issue. The first thing to do must surely be to review and reduce the present vast and complex system of committees and sub-committees which constitutes the Cabinet Office today. It should be possible to take the axe to some of this proliferating undergrowth. But there is a daunting picture of thousands of interlocking units. Some useful things are being done under the present system, but nothing which can justify ignoring the constitutional duty to place decisions where they belong—in Parliament for implementation by ministries. Collective ministerial responsibility needs to be restored and the JIC should meet weekly, as it used to. Whatever the special contribution of unelected advisers, they should not replace the civil servants who advise ministries and execute policy.
One of the major failures in the system in recent years has been the plethora of ill-thought-out legislation—much of it knee-jerk reactions to the media—and the extensive involvement of, for instance, McKinsey’s in the work of the ministries and the Cabinet Office. Our foreign and defence policy should not be decided in the Treasury, still less by the PM alone. It will be for the committee responsible for the national security strategy to play a full part in providing the reorganisation needed to restore effective Cabinet government. It should be better able to operate a national security strategy, once the organs of government work as they should. Of the 27 secretariat groups and units, the most powerful and valuable are probably the Delivery Unit and the Strategy Unit, both now located in the Treasury. This gives the Treasury powers beyond its proper remit. There needs to be more transparency and accountability.
Turning to the defence review, I hope that the committee will recognise that we are an island, a maritime nation. We need to have ships able to operate in the Atlantic and protect our shores, and to deliver troops anywhere in the world. We must be able to deliver Trident and maintain our submarine fleet. Russia has not produced a new fighter bomber without hoping to bring pressure to bear on NATO members with a common border. Again, the deterrent is better than war.
On a different, but none the less important, issue, we need not least to take action to improve numeracy in the schools, to teach physics, chemistry and languages, and to fund defence research in the universities. We shall need graduates with these skills in a modern Army.
It will be for the committee to return us to a government system which is not presidential and is fully accountable. The responsibility to execute policy decisions, and to advise, should return to the ministries. Only then can we proceed to an agreed national security strategy. Power to make strategic and tactical decisions must no longer rest, as it largely does at present, inside the Treasury. The latter has a part to play, but it should not be able to make decisions on defence and foreign affairs. If, by retaining deterrents, we can check potential aggressors, we should also consider reclaiming ownership of the nuclear industry and gas supplies. Moreover, I hope that part of our defence strategy will be to develop our own industrial base. What the noble Lord, Lord Davies, said in the previous debate was encouraging. We are a maritime nation, but we are also merchants. To thrive in those areas will be an important part of defence strategy.
My Lords, I strongly agree with the noble Lord, Lord King of Bridgwater, that part of the problem that we have suffered under the current Government has been the style of government, the constant churning of Ministers, Prime Ministerial dominance over the Cabinet, the downgrading of the Cabinet, and the Government’s dominance over Parliament. I remind him, however, that his party is making a strong request that after the next election there should be single-party government, clear Executive dominance of Parliament, and a Prime Minister who will have all the power that Tony Blair had. Perhaps, when the Constitutional Reform Bill hits this House and the Conservative Party wants to strike as much as possible out of it, the noble Lord will remind his party leader of what he has just said.
In yesterday’s Statement, it was announced that the Defence Green Paper would pave the way for a strategic defence review which would be,
“set in the context of the National Security Strategy”.
We were missing a further stage which, in turn, depends upon our view of Britain’s place in the world. That is what is lacking in much of our discussions. It is particularly lacking in the Conservatives’ national security strategy.
We have a consensus among the parties about the need for a wider definition of national security and for that to be reflected in the way in which Whitehall is organised. However, of the three papers mentioned by the noble Lord, the IPPR paper is by far the most substantial and is the most critical of what one has to call the outdated consensus of British foreign policy.
The Conservative paper states that the party is committed to,
“a liberal Conservative attitude to foreign policy which champions an enlightened vision of the national interest,”
which will be,
“a distinctive British foreign policy”.
The paper does not tell us what any of this means or what such a policy would be. What does one do when the definition of objectives is difficult? One proposes a reorganisation of structures. The document does not say anything more about costs. When David Cameron launched it, I asked him how the party would manage it all in the context of sharply reducing costs. He seemed unable to answer.
Last summer, William Hague remarked in a speech that this is not an east-of-Suez moment. This is an east-of-Suez moment which should make us think very hard about what that means for British foreign policy. The old-style image, which we heard about from the noble Baroness, Lady Park, of the UK as a great trading nation standing alone and defending itself properly in a dangerous world—Britain as an exceptional country—is part of what we must re-examine.
We must also re-examine what I call the “white man’s burden” view of the world, in which the United States and Europe, through NATO, maintain international order on their own. I rarely agree with anything that I read in the Daily Mail, but Correlli Barnett’s article this morning was spot on. We are stuck with the old 1950s myths of British exceptionality, determined to go on overspending to maintain our ability to protect Chinese goods on Korean-built ships going through the Straits of Aden because that is what Britain has always done—just as we went on defending the route to India for 20 years after we gave India independence.
The Liberal Democrat approach is to accept that we are now in a G20 world, not an Atlantic one. A global shift is under way and it is in our interests to co-opt other actors into sharing the ability to cope with the various threats that we face. The Indian army is the largest single contributor to UN forces. The Indians and the Chinese must accept that they, too, must share the responsibility for dealing with failing states and with the problem of climate change.
The drivers of insecurity must also be addressed. One fundamental problem of insecurity for this country and others is that we have, across the Middle East, an unresolved conflict between Israel and the Arab world. We are also supporting a number of regimes, including in Yemen, which are not providing the political, economic and social development that their populations need. Unless we address that, we will face further insecurity following our failure. That is why my party is so much more critical of the US approach to the Middle East conflict than either Labour or the Conservatives. We want to see closer European co-operation with France, the Netherlands, the Nordics, the Balts, the Poles and others: structured co-operation of the sort that the IPPR report suggested. We accept the necessity of international engagement, which means close co-operation within Europol and Eurojust, and all the other things that the noble Lord, Lord West, did not mention when taking through the Borders Bill, but which I am sure he recognises are extremely important.
Lastly, we recognise—my noble friend Lady Hamwee will say more about this—that when we talk about resilience, the trend towards the centralisation and professionalisation of government in this country has been taking us in the wrong direction. Resilience in a crisis means local resilience, with local people being engaged as volunteers, taking responsibility back from the centralised police and government that took it away from local communities. There are many issues here that I will leave my noble friend to cover in more detail.
My Lords, I add my thanks to my noble friend Lord King for giving us the opportunity to debate this important subject. In my few minutes, I will focus on the single issue of cybersecurity. I am a member of Sub-Committee F of the European Union Committee of this House. We are looking at cybersecurity on an EU-wide basis. I will not run before the committee's conclusions, which will undoubtedly be debated on the Floor of your Lordships’ House in due course, but we have picked up some lessons that are relevant to our debate this afternoon. We had interesting evidence sessions, one of which involved the Minister himself. He was extremely frank and helpful, and I place on record my thanks for his contribution.
I will make two broad points. The first concerns the level of public awareness of the prevalence of, and threat from, cybersecurity breaches. I hold up my hand: when we began this inquiry in September, I saw the problem as being primarily one of lonely anoraks in their bedrooms getting their intellectual kicks from breaking and entering the citadels of computing power—places like the Pentagon, the Ministry of Defence and major banks. I saw it as an intellectual rather than a criminal challenge, although clearly some criminal intent was involved. I have had a rude awakening. My cosy assumption probably was accurate five years ago, but now everything has changed. Criminals and others are hard at work in cyberspace. However, I suspect that I am typical of the general public in assuming that cyberattacks remain a minority problem, and I believe that we have to do more to raise awareness about them.
Secondly, there is a rising prevalence and frequency of attacks. I may be suffering from what advertising men call selective perception: when you want to buy a car, you always see advertisements relating to cars. Perhaps it is because I am on the cybersecurity inquiry that I keep seeing news about it. I see allegations about Indian and Chinese-inspired hacking. I see that the Davos World Economic Forum devoted a session to it a week or so ago. Does the Minister agree that public awareness is on the low side, and that the frequency of attacks is increasing? If he does so agree, I think that we need to look at the punch in the government document, Cyber Security Strategy of the United Kingdom. It is a perfectly worthy document, but it is dull. It is not going to encourage or raise intellectual curiosity or awareness of the problem, and I think that there is a great deal more to be done in that regard.
The scale of attacks and their sophistication are quite staggering. If you go on to Wikipedia—that essential support for a Back-Bench Member of your Lordships’ House so far as research is concerned—you will find listed what are called botnets, which are collections of autonomous and automatic software robots. The largest of them is called Srizbi. With 450,000 bots, it is capable of delivering 60 billion spam messages a day and is clearly able to overwhelm any individual computer system. You will see quite frequently cropping up in the list on Wikipedia botnets with a capability of delivering 1 billion to 10 billion spam messages a day. We also have Trojan malware, whereby software is inserted into a person’s computer without them knowing about it, and messages which appear to originate from them in fact originate from someone completely different. There are also cyberprivateering and cybermercenaries. Most worrying of all was what one of our experts at Sub-Committee F said. You may think that you have an anti-virus system but, whereas four years ago it would have stopped 80 per cent of the viruses that are around, it now stops less than a third—probably only about 20 per cent. Ways have been found to get round the systems. Certainly John Donne’s famous phrase, “No man is an island”, applies in the field of cybersecurity.
In the last minute or two available to me, I should like to ask the Minister a couple of specific points. In doing so, I accept that there is no silver bullet—there is no single answer to the problem that we face. The first is the question of our structural response. A good structural response by the United Kingdom requires interface between our Civil Service, cyber experts and regulators. The Civil Service tends to be arts-led and have a very hierarchical structure. Cyber experts are engineering-led and, because it is a fast-moving, predominantly young person’s industry, it has very flat organisational structures, if indeed any organisational structures at all. Regulators tend to be law-led with a heavy reliance on process. Is the Minister convinced that we have so far managed to find a way to tie these very different disciplines together in a way that will give us an effective response to the many challenges that lie ahead?
Secondly, I should like to ask him about international standards and international collaboration. Here, I follow the point made by the noble Lord, Lord Soley, and I shall not use up any more time making it again now.
Thirdly, I have two practical suggestions. Would it not be a good idea if it became a requirement for internet service providers to report the number of infected machines? So far, there is no requirement to do so, except on a voluntary basis. I understand that about 2 to 5 per cent of such cases are reported, but that is almost certainly an understatement.
Finally, in order to reduce the level of petty crime at an individual level which collectively can become very large, should there not be some effort to make sure that credit card companies give better and fuller details of the entries on credit card slips? Noble Lords who might challenge a £100 entry might not challenge one for £2.50, but if it happened to be the result of cybercrime and was repeated, collectively it could add up to a very substantial sum.
I fear that this subject will be an increasing part of our future world. I look forward to hearing from the noble Lord how he proposes we meet the challenges.
My Lords, it is nearly two years since the publication of the first national security strategy for the UK. This debate is overdue and I applaud the noble Lord, Lord King of Bridgwater, for tabling it. I also welcome the very recent and extremely belated establishment, with its first meeting next week, of the Joint Committee on this document to monitor what has happened or is to happen as a result of this strategy.
First, I want to welcome the document. Its gestation was quite lengthy, and here I declare an interest, as I and others suggested that it was necessary some time ago. The Government deserve credit for producing it, but no doubt in the course of this debate we shall hear criticism of it. The noble Lord, Lord Soley, in describing it as a policy document, put his finger on one of the points: it is not exactly a strategy. However, it is right to establish the principle of seeking to articulate plainly and coherently the challenges to security faced by this country. I see from their Green Paper that the Opposition also recognise this need and that, if elected, will write a new national security strategy—building, I hope, on some of the strengths in the existing document.
That brings me to repeat a sentiment that I expressed in my maiden speech, and which I was very glad to hear the noble Lord, Lord Soley, refer to—that is, the need to seek as far as possible cross-party consensus on the nature of the threats to national security. I think that the opposition undertaking, if elected, to invite the leaders of the main opposition parties to attend the so-called “war Cabinet” is a good one, even if the invitation will not necessarily be accepted. I myself should like to see the invitation extended to participation in the national security council, which I hope may be established. I well recall the noble Lord, Lord King, arguing that the Intelligence and Security Committee should be chaired by a Member of the Opposition to demonstrate its non-political approach. Indeed, he chaired that committee during the first years of this Government.
Of course, I understand that parties will make different decisions on what to do about various threats. That is very understandable, but some consensus on what they are would be worth striving for. The public, who in my experience give unstinting private support to the covert work of my former service—the Security Service—would welcome national security being less of a political football.
Thirdly, I draw attention to the lack of definition of national security. That is not a surprise, it having been the policy of successive Governments to avoid defining it. Definition would be prescriptive given that the threat to it changes and the concept of what it is evolves. In most of my career, and in the career of the noble Baroness, Lady Park of Monmouth, it was understood to apply narrowly: to defending the United Kingdom from threats of terrorism, espionage, sabotage and attempts through subversion to undermine parliamentary democracy. It was not generally used in relation to wider defence or other issues. At some stage, in the wake of 9/11, its non-existent definition was considerably broadened to include other threats to the country’s security: international organised crime, energy supply, pandemics, natural disasters, civil emergencies, with defence also being brought under the same heading. I do not dissent from that but I observe that it happened without deliberate discussion and that there were signs that labelling an issue “national security” was seen in some quarters as a way of attracting funds.
We should recognise, first, that it has happened; secondly, that there are implications for legislation enacted when the earlier—narrower—definition was implicit; thirdly, the real challenges to prioritisation from this document and the danger of lack of focus; and fourthly, the position of the devolved Governments, who have no responsibility for national security, but who have responsibility for some of the subjects covered by the paper.
Finally, I should say a word on cyberthreat. The cosy assumptions of the noble Lord, Lord Hodgson, were not accurate even five years ago. This is not a new threat although it has increased rapidly and exponentially. The document is misleading in implying that the establishment of the Centre for the Protection of National Infrastructure in 2007, before I retired from the Security Service, was the first step in defending the UK from cyber attack. This area is covered by acronyms; there are lots of different units and organisations. But extensive work has been going on to protect the UK from this threat for many years, primarily led by GCHQ, my service and others. In the early 1990s it was the National Infrastructure Security Co-ordination Centre—another mouthful. Now the Office of Cyber Security has arrived, plus the Cyber Security Operations Centre, and the Opposition, if elected, plan a Cyber JTAC—the Joint Terrorism Analysis Centre—the success of which is widely recognised and imitated internationally.
Since my service proposed to Sir David Omand, then the intelligence co-ordinator, that we should establish a JTAC to pool skills and to share the Security Service’s responsibility for assessing terrorist threats with others from different departments and perspectives, I could not object to the establishment of a JTAC for cyberthreats. But, as with the national security strategy itself, the focus should be on what improvements result from these new structures, not the structures and their names themselves.
My Lords, on 12 July, a notorious date to many noble Lords, including a good few of us here today, I was asked down and received lunch from the then Leader of the Opposition on becoming Prime Minister. She asked about my duties in your Lordships’ House. When I said that I was an opposition Whip, she asked what that was. Your Lordships may remember that the Tornado aircraft was first known as the multi-role combat aircraft, so I said that I was an MRCP. The leader said, “I didn’t know that you were a member of the Royal College of Physicians”. I said, “No, multi-role combat Peer”. That applies also to my noble friend Lord King, who introduced the debate. He has done many jobs, but he was quite humble. When I put my name down to speak, I thought that we would be discussing one aspect of what he said—military security. As always, I was a good bit wrong.
Nevertheless, within six years of that interesting talk with the then Leader of the Opposition, I found myself in my first and only ministerial job. I became aware of the enormous range of skills that have been displayed by the noble Baroness, Lady Manningham-Buller, let alone by my noble friend Lady Park and many others, on intense security within the United Kingdom. I trained for several years as a chartered accountant and I am a member of the Institute of Chartered Accountants of Scotland. Its great motto, and mine, was “Zero errors. Make no mistake”. That certainly came home heavily to me in my duties, as many noble Lords will know.
Perhaps I may give an example. Sheets of paper used to come across my desk and I had to compare them. There were three sheets of paper and I noticed that an accent on a particular name was wrong. I said, “Look, zero errors. If there is an error here, the lawyers are going to ask how much more we have got wrong”. That brought home to me, a mere amateur, the enormous depth of security and care that must be achieved. It was referred to by my noble friend when he was talking about the cyber effect and all of that. I and anyone else in what I call the retail end of this subject—I am the most humble speaker here today—certainly learnt to read, to speak and, above all, to remember that you will receive only the information that you need to know.
Much happened during my noble friend’s time and mine. Although I received only the information that I needed to know, it did not stop me gleaning much more from other sources. My noble friend was honest in his defence of one aspect of his duties when he said that there was a quick turnover. The four years that he shared with me was about as long as any of the jobs that he has done among his many duties. For my part, it was five and a half years, so both of us must have done something right and perhaps not got too many things wrong.
Will the Minister advise me? I have received in some of my briefing a concept known as CONTEST. I understand that it is an acronym for counterterrorism strategy. There are four aspects to it: prepare, pursue, protect and prevent. The two aspects of prevention and preparation would be up my street and I might be able to take on board part of their discipline. However, I hope that the Minister will be able to elaborate and stress what those entering this arcane and critical world of counterterrorism and security will be able to pursue. Will the Minister write to me or answer me today? I am looking to 2012, and many of us will remember what happened 40 years ago in Munich. Between now and 2012, will the Government please note any security measures that they have for the millions of people who will come to our capital for the Olympic Games?
I thank my noble friend for giving us the chance to debate the subject today and I apologise to him for misreading the Order Paper—perhaps I need new glasses—and thinking that he was going to concentrate on military security. I hope that I have got one or two things right.
My Lords, I, too, thank the noble Lord, Lord King of Bridgwater, for securing this debate. In a past life, the noble Lord was both Secretary of State for Defence and Secretary of State for Northern Ireland. If he will forgive me, I would like to, as it were, mimic his career by moving between those two fields, because there are at least some aspects of this issue that can be illuminated by the Northern Irish experience.
One point that is not often made is that, on 9 December 1975, the Daily Telegraph carried out a poll that showed that two-thirds of the British people wanted to get out of Northern Ireland immediately. It is not difficult to see why. Between 1971 and 1975, we lost more British soldiers in Northern Ireland than have been lost thus far in the campaign in Afghanistan. The truth, as all of us in this House know, is that that mood of public opinion was not responded to. Today, I think that the British people would take the view that the decent settlement that we now have in Northern Ireland justified—at least to some degree, if anything ever could—the sacrifice of those young men. We must hope that we will be able say that some day about Afghanistan.
The Northern Ireland story, despite its present difficulties, is, by and large, a success story for our characteristic approach to national security. It is a victory for our typical virtues, as we like to see them: pragmatism, compromise and willingness to include violent extremes if they give up violence. In 2002, the noble Lord, Lord Mandelson—himself an impressive Secretary of State for Northern Ireland—argued that the United States, in pursuing its war on terror, should reflect on how the British fought terrorism, opting to negotiate with the IRA through its political wing rather than to defeat it.
All that I respect and understand, but a serious feature of what might be called the characteristic British approach to national security is perhaps less impressive and requires some comment. That is a strong tendency in discussion of these matters to downplay the role of political ideology and, in particular, the political ideology of those who declare themselves to be the mortal enemies of our state. The Government’s recent documents, the National Security Strategy of the United Kingdom—the 2008 and 2009 versions—reflect that tendency. Reference to ideology—whether we are talking about al-Qaeda or dissident Irish republicans, which are mentioned in those documents—is scant indeed. There is none at all in the first document. The second document, which in some ways is a better and more expansive document, has almost a whole paragraph devoted to the ideology of al-Qaeda, but that is an incredibly scanty reference to what surely is a central question. In fact, the first document is more vivid on how the impact of climate change could be destabilising for the United Kingdom than it is on the ideology of al-Qaeda or dissident republicans.
To take that further, the Statement read in your Lordships’ House on 20 January—the most recent Statement on security and counterterrorism—arising from the Detroit affair was again silent on the matter of ideology. At the very same time, Mike Leiter, head of the National Counterterrorism Center in the Obama Administration, was giving evidence to both congressional and Senate committees. He talked about a scale, scope and depth of radicalisation in the United Kingdom that was not to be found in the United States. I do not want to enter the debate as to where the Detroit bomber was radicalised, but we must surely note that we are avoiding an issue and giving the impression to the world that we are sticking our head in the sand in our documents and statements on these matters.
Why is that important? First, we need to be clear about what we are defending in our way of life. We are not being clear. The recent debate on Britishness, for example, initiated by the Prime Minister, fizzled out. I dare to say that not a single Member of your Lordships’ House is surprised that it did. It is also important to say something else. Although concern for civil liberties, which was very marked in your Lordships’ House in the debate about 42 days, is a crucial and defining feature of the British tradition, we must recall that democracies can and do take exceptional measures to survive certain types of threat and then abandon those exceptional measures when conditions change and permit their abandonment. Annexe A of the Intelligence and Security Committee’s document Could 7/7 Have Been Prevented? shows how very far we are from being any type of surveillance state. We should keep that in mind when we discuss these matters.
Finally, our ideological agnosticism, so characteristic of the British cast of mind, often coupled with a tendency to blame others for causing terrorism, such as reactionary Ulster Protestants, stiff-necked Israelis or George Bush, is both a strength—I admit that it is a strength—and a weakness. We must recall that we have a situation where dissident republicans are now so active in Northern Ireland that, despite the obvious threats of an al-Qaeda link to the United Kingdom, we have had to make a major shift of intelligence resources back to Northern Ireland to deal with the problem there.
This tells us that there may be some problem in our approach, even where we have been largely successful. It may be in part because we have not taken seriously enough the business of delivering a killer blow to pernicious ideologies and have almost stepped away from the question. The Prime Minister’s preface to the national security document states that we no longer face the threat that we faced from fascism or from the Soviet Union and the current threat is not as challenging to the way of life of the United Kingdom. In the sense that no large state, with the possible exception of Iran, is involved in international terrorism, I see the point, but the threat that we face today is stronger if we take, say, women’s rights seriously than the ideological threat from the Soviet Union. It is certainly not less than that threat.
It is essential that we are not shamefaced in defending our values. If we are, we send out a permissive signal to terrorists that they have at least half a point, as significant parts of our metropolitan elite did during the Troubles and, by so doing, merely extended the agonies that unfortunately still continue to plague us.
I, too, congratulate and thank my noble friend Lord King of Bridgwater on obtaining this timely and important debate on these extremely wide documents. I find myself following the noble Lord, Lord Bew, not only physically, as it were, but because I want to say comparatively detailed things about Northern Ireland and then about ideology.
Both strategy documents more or less ignore Northern Ireland terrorism. There is one sentence in paragraph 6.26 of the 2009 document, and that is about all. We all hope that the political situation, currently having difficulties, will get back on track, but we must not lose sight of, nor underestimate, the potential for the security situation in the Province to slip back, and that is a worry at present. The section of these documents that emphasises the importance of border controls to anti-terrorist operations seems to ignore the fact that we have a land border as well as airports and seaports. As we all know, the land border between the United Kingdom and the Republic of Ireland is completely porous. It was highly porous even when we had half the Army helping to police it, and it is even more so now. Therefore, no systematic checks are possible on that part of our border, however clever the digital system is at airports and seaports.
In these circumstances, it is extraordinary that, for example, the list of countries whose citizens need visas to enter the UK, so that they can be checked and so on for any terrorist affiliations on the way in, is different from the list for those entering the Republic of Ireland. So far, insufficient effort seems to have gone into trying to co-ordinate the two lists. Much closer co-ordination is needed between the laws of the countries within the common travel area if it is to work in the anti-terrorist field, quite apart from anything else.
I also want to talk about ideology and particularly the Islamist side. I have told the House before that my wife's family has a long Christian connection in East Jerusalem; in particular, they have an interest in a hotel and a children's charity. Our Muslim friends all confirm that so-called Islamism is a distortion of true Islamic teaching. Of course, Christianity has many variations that all claim to be the correct version, so we should not be surprised that Islam does too. Islamism has its roots in opposition to western colonialism, when a century or so ago we tried to replace the collapsing Ottoman Empire, particularly in Egypt where the Muslim Brotherhood started. In its various forms, it has long had difficulty getting to power by election or popular demand. That is why it has turned to terrorism. If we say or do anything to foster the idea that we still want to govern Muslim lands, we give Islamists excellent propaganda ammunition.
As and when Islamists gain strength anywhere, the greatest sufferers are other Muslims. When there is a terrorist incident here, all peace-loving Muslims feel society’s hands and eyes turned suspiciously against them straightaway. It is the same overseas. We should therefore listen carefully to mainstream Muslims who seek to counter the Islamists. I am thinking for instance of the Quilliam foundation, which does excellent work. They urge us to pursue the battle of ideas. We want to be friendly with Muslim nations and to trade with them to mutual advantage; we do not want take over Muslim lands.
The exception to this statement in the West is Israel, which is why building settlements in occupied land, which was discussed in an Oral Question at Question Time today, has a much wider baleful influence than it has even internally in Israel and Palestine. It is a real driver of terrorism all over the Muslim world. I do not mean for a moment that it is the only driver or the original driver of Islamism, but it now plays into the hands of extremists. We must always so conduct ourselves that they have the least convincing arguments for recruiting. That means helping Muslim countries to achieve better living standards, often through the ability to trade. Many of them have excelled at trade for much longer than we have; the Levantine trader is a very old phenomenon. It also means not resorting to excessively repressive measures, such as those which the noble Lord, Lord Bew, discussed just now, that go against our liberal principles and which ultimately create martyrs for their cause. The western way of life is not perfect, but it is the better way and will prove to be ideologically stronger in the end, and we have to fight the case.
My Lords, I thank my noble friend Lord King for initiating this timely debate. The main threats to our national security in the 21st century come from an array of challenges such as nuclear proliferation and energy security. However, terrorism stands out as a tangible threat, as we sadly experienced in July 2005.
On our military involvement in Afghanistan, Members in the other place paid tribute yesterday to the latest servicemen to lose their lives in the region. We have a duty to our citizens and Armed Forces to shoulder the collective task of formulating a robust security strategy for an increasingly dangerous world. We need a comprehensive approach to national security that will call on the expertise of many rather than on the opinions of a select few. Heads of government departments such as the Foreign and Commonwealth Office, the Home Office, the Department for International Development, the Ministry of Defence and the Chancellor should form an integral part of any decision to embark on military action overseas. This was seen to be lacking in the Iraq invasion. The last defence review took place some years ago, and since then we have experienced September 11 in America and 7 July on our own territory. An annual status report should be introduced that will enable decision-makers to determine the progress of existing security policies.
Border security is crucial to enhancing our national security. It is in our best interests to work with our European partners to achieve this aim. We must also strengthen our historic alliance with the United States. We must innovate and update our defence capacity if we are to maintain our military prowess on the world stage. Failure to do so may jeopardise our standing in the UN Security Council. Foreign policy and national security are linked and should be treated as such. The success of our foreign policy will work to promote our national security and interests at home and abroad. We can take the lead, along with our international partners and supranational organisations, to prevent conflicts from occurring. It is especially important that we adopt this method for Commonwealth countries, particularly as we are bound by history. When I spoke on this subject recently in your Lordships’ House, I made that point.
The shared border between Afghanistan and Pakistan has become a hotbed of terrorist strategy and activity. The region is set to account for approximately 75 per cent of investigated terrorism plots in Britain. Closer co-operation with Pakistan and assistance to that country is crucial to our success in Afghanistan and to safeguard our own security. Failure in Afghanistan could have a devastating effect in terms of our national security and stability in the region. History tells us that the war in Afghanistan will be challenging for our servicemen and allies.
Our troops do not have adequate equipment and support in order to fulfil their important tasks. What action is being taken to remedy that unacceptable situation? Furthermore, it is imperative that we build the infrastructure of the country, combat corruption and win the hearts and minds of the people of Afghanistan to stop radicalisation in that area.
The internet has undoubtedly enriched many areas of everyday life. However, it has also heightened the possibility of cyber attacks. Terrorists and extremist groups are using the internet to convey their messages to a worldwide audience at minimal cost and with minimal effort. A successful national security strategy should pay particular attention to this growing threat.
This country has a proud history of promoting democratic values around the world and in our local communities. Although we are in a heightened state of external threats, legislation must not be allowed to compromise our civil liberties. It is important to strike a balance to ensure that no ethnic or socio groups feel as though they have been targeted. We must foster greater integration and tolerance in our communities.
The 7 July terrorist attack in London was an immense tragedy. Most disturbing was the fact that two of the suicide bombers who carried out the attacks were born in Britain. As a Muslim, I totally condemn any form of terrorist or extremist activity. Nearly all Muslims are peace-loving and law-abiding citizens, but I accept that there is a problem with a tiny minority. In regard to suicide bombings, I should like to state categorically that Islam forbids the committal of suicide.
In the Holy Koran it is written:
“Whoever kills a human being then it is as though he has killed all mankind; and whoever saves a human life it is as though he had saved all mankind”.
In addition to taking security measures to combat terrorism and extremism, we need to examine fully why some young people undertake these unacceptable activities. At the present time, I feel that we are concentrating more on what I call firefighting. We need to look equally at the root causes of the problems and to undertake remedial actions. To enable us to do this we need the input and participation of the Government, police, security services, local authorities, voluntary bodies and members of the Muslim communities. I add that the media and politicians need to refrain from the use of inflammatory language. We also need to recognise the considerable achievements of the Muslim youth who act as role models. I would like the Minister to comment on what I have said.
I conclude by saying that the question of national security covers a multitude of areas, which is why a narrow approach to the issue will never succeed. Our national and domestic security should be the shared responsibility of many government departments and agencies. Co-operation with our partners in the European Union and other supranational organisations is vital to ensuring that we further our national interests while protecting our national security.
My Lords, I too thank the noble Lord, Lord King, for giving us the opportunity to hold this debate. I am very much an amateur or lay person in this area, but I do not apologise for taking part because in a representative democracy the Executive cannot rely on, “If you knew what I know”. It is entirely obvious that there should be a strategy and tactics, but they are not the same as policy, as the noble Baroness, Lady Manningham-Buller, said.
I want to talk about just a few of the attributes of a strategy. It should be owned by all who need to implement it, and they are more than the MoD, the Treasury, central government and the agencies of central government. That raises issues because anything cross-departmental seems to highlight the different cultures of government in their different guises. There are differences in the levels of government and differences from those outside government who need to work as partners—and I have no doubt that the international dimension adds to the problems. Government departments speak different languages from one another and from their agencies such as the police, fire and rescue services, which in turn differ from each other and from local government, as well as from the private sector—which owns so much of the infrastructure that has to be protected—and, indeed, from individual citizens. The most basic requirement of any strategy is that it is joined up, and I agree with the need for political consensus as far as possible in that.
The language is important both in talking the talk, as the noble Lord said, and in walking the walk. To talk of the “war on terror” seems to me in itself to be a concession to the terrorist. I am not sure about the “battle for ideas”. Terrorism as a threat, a crime and a tragedy is not comparable to, say, the Second World War, and on a daily basis road traffic accidents are more deadly, but terrorism causes more anxiety. Perhaps that is because in a fast-moving media age, we watch its results from our own living rooms. We did that on 9/11 and 7/7, on which occasion the ordinary—the bus in Tavistock Square looking at first glance like an open-top tourist bus—had become terrifying. In my view, the media should also be partners in the strategy. You might say that they have only a tactical role, but I think they have more because it is to the media that the public turn.
The strategy should recognise how people may behave in different crisis situations, and I do not know what might be done with our technology in 2010, but certainly in July 2005 the load on the mobile phone networks was immense. That was important because in part they were being used operationally. The load would have been reduced if the media—as a partner in responding—had broadcast, for instance, requests to use landlines or to text. Broadcasters and viewers were hungry for information and footage. A pretty good media centre was set up, but not enough up-to-date footage was available. Old footage was repeated again and again without a timeline, so it was not clear whether the advice being given was up to date, and confusion arose from this. If the media had been in a partnership role, the problem might have been anticipated and avoided.
I said that our language should not play to the terrorists’ agenda, and taking measures without looking at the broader consequences is also a concession to terrorism. Central to all this—as the noble Lords, Lord Bew and Lord Cope, mentioned in particular—is to ensure that we are not led into the erosion of the liberties and freedoms that we seek to protect. To take a deliberately extreme example, it is perhaps superficially attractive to say that the torture of individuals may be for the greatest good of the greatest number but, at a practical level, as we have seen over the centuries, it is a very effective recruiting officer—and at what cost to the liberties of every individual if torture becomes acceptable? We lose the moral high ground and we lose standing in the battle of ideas. The same applies to detention without charge. Internment in Northern Ireland in the 1970s itself triggered violence. Trust between the community and the security services was destroyed and the chance of winning hearts and minds was lost.
Seeing things from the point of view of individuals affects planning. I was a member of the London Assembly part of the Greater London Authority which reviewed what happened on 7/7. Our focus was communications and we expected to concentrate on technical matters. However, our review became as much about the people as the technical. We met passengers from the trains and the bus. This impressed on me not only the extraordinary things that some people are capable of but that strategists and planners have to put themselves in the minds of those affected. The responder’s own response needs the personal dimension.
One example is communications. On that day, the tube passengers caught in carriages which were not bombed were literally in the dark; they did not know whether the train might catch fire, whether to open the doors and so on. Through understanding the difficulties that causes, the problem has been acted on. I dare say some of your Lordships have been on tube trains which have stopped unexpectedly and the driver has immediately made an announcement. Even if it is only to say, “I do not know why we have stopped”, the passengers know they are not abandoned.
Similarly, we are good at setting up emergency centres but do we take into account that most of us are used to looking after ourselves and feel anxious if we cannot take our own decisions? The process for someone at an emergency centre without his normal medication is that a doctor or a nurse dispenses it. However, if you are, say, a diabetic and used to managing your own condition, this is quite disabling.
We all like to be reassured that someone is in charge. I pay tribute to the work of many local authorities which have coped with emergencies. Carl Minns, the leader of Hull, which suffered appalling floods in 2007, said that the council was able to show strong community leadership, providing a voice for the local community and taking the pressure off the emergency services so that they could concentrate on operational matters—and, of course, local knowledge helps to identify those most at risk.
So plan for people; make the processes fit the people, not the other way round. In evidence to the London Assembly, Tim O’Toole, then managing director of London Underground, made this point:
“Invest in your staff, and rely on them. Invest in technology, but do not rely on it”.
I finish by reiterating an earlier point: of course Liberal Democrats want to bring to justice those who threaten or breach our security, but not by becoming what we are fighting. We support measures to make us safer, not less free.
My Lords, I join everyone who has taken part in the debate in thanking my noble friend Lord King of Bridgwater for introducing this important debate and for doing so with such cogency. The range of speakers and their contributions have reflected the scope and breadth of the concept we now call national security—a phrase which has relatively recently entered the British bureaucratic vocabulary. The subject is no longer confined—as it was at one time—to diplomats, the Armed Forces and the intelligence community.
The noble Baroness, Lady Manningham-Buller, asked a pertinent question about what we mean by “national security”. I think she is right to say that in no official document—or, indeed, in any issued by my party—have we attempted a definition. That is part of the difficulty.
Whereas in the Cold War, when we talked much about defence and deterrence, we used to think about security in terms of the functioning of the organs of the state, power and ordered government, we now mean something much broader, which has to do with the capacity of society as a whole to function through emergency. It means a form of daily safety; it has a much larger human element; and it encompasses not just threats of a man-made, traditional kind such as a war but also other things that can constitute such disruption to a society, if they succeed or do damage, that they affect security in a fundamental sense. Very poor societies, if hit by a tsunami, for instance, can travel back so far in their development that their nature is changed. We therefore need to have in mind when we talk about national security a much broader concept. There are no boundaries. It is no longer a question of abroad and at home; it is the interaction of these two. The threats and hazards that we face take place and interact on both sides of national borders.
I think that there is much consensus in the Chamber on what we are confronted by and what we should try to do next about it. We are in the process of making a new institutional framework, about which I shall say more in a minute, in order to cope with it. Despite there being much consensus, the noble Lord, Lord Wallace of Saltaire, struck a rather different note in his vision for the future of this country, which was much narrower than what I heard from other parts of the Chamber. We are much stronger as a nation if there is fundamental agreement and broad consensus on what we are trying to do. I hope that this debate and others like it, which I hope will take place, begin the process of teasing out the issues.
Earlier this week, the Home Affairs Select Committee in another place published a report on the Home Office’s response to terrorism. The committee said:
“The structures that are now in place may be suitable for combating the terrorist threat as currently constituted, but we are not confident that government institutions have the desire to constantly adapt to meet ever-changing threats”.
That is an illuminating comment. The committee distinguishes between structures and institutions. It seems broadly to be saying, “The structures are OK, but institutions are falling short”. Considerable progress has been made on confronting the major threat to our country in the past decade or so—terrorism—for which the Government and the agencies should be given credit. On that, the committee is in effect saying that it is satisfied. Institutions, on the other hand, come in for criticism. What I think is being said is that government as a whole, and possibly Parliament as well, are not doing so well in that area—we have heard comments, on which I shall not elaborate, about the phenomenon of sofa government, which it is important not to repeat.
It was against the background of a lack of a really strong institutional framework that three years ago my party said that there needed to be a national security council to provide an integrated and comprehensive approach to national security. The way in which one needs to go about making policy these days is different because of the changed nature of the threats and hazards that we face, and one therefore needs to adapt the structures and institutions of government to meet them. It is fair to say that the Government have gone some way towards adopting these ideas but, as the Home Affairs Committee points out, there is still some way to go. The immediate impression that you get from the committee’s report is that while there has been progress on counterterrorism, as a part of policy it lacks proper integration with other aspects of national security policy—indeed, I would say, with other aspects of CONTEST.
Other noble Lords have outlined very well the nature of the strategic context in which the UK finds itself. I will not go into an exhaustive analysis. The factors that aggravate the causes of insecurity are well known, and noble Lords have spoken about them. They include globalisation, climate change and demographic changes—population tends to be a considerable intensifier of some of the threats that we may face in future—and they are a background to our immediate problems. It is fair to say that the chances of conventional state-on-state conflict are low, although not absolutely to be excluded; we should never forget that the problem of Iran confronts us even now.
The UK, along with others, has to contend with proliferation and, as has been mentioned by other noble Lords, the potential and sometimes actual destruction of the supply of essential commodities. The worldwide increase in wealth and wealth generation has put pressure on natural resources in a way that we have not hitherto seen. Alongside the benign side of things like the development of China, we also see challenges from countries such as China, Russia and Iran. Other noble Lords have mentioned some of them; indeed, the cyber threat deserves a debate in its own right since it is a significant issue now and has very many facets.
It is also fair to say that states increasingly use proxies, whether they are organised criminals, terrorists—Iran does this—or insurgent groups. Sometimes, to come back to what noble Lords have been saying, they interfere in the personal computers of ordinary citizens to launch cyber attacks. The non-state actor has emerged as a phenomenon over the past 20 years and is beginning to reach a significant level of offensive capability against ordered society. I fear that the militarily capable non-state actor—a terrible term for these individuals—who is not part of organised authority but is challenging both the power and authority of the ordered state will be a challenge with which we will have to deal for a significant part of this century. Their aim, of course, as many noble Lords have said, is to undermine the principles and freedoms that we are trying to defend.
The terrorist and the organised criminal are soulmates. They help each other to exploit failed or failing states and increase the fragility of states that are not well founded. The convergence of these various actors and the combination of these challenges is one of the reasons why we need to organise our Government to be able to meet them in a similarly combined fashion.
The Government need to adopt and embed a comprehensive all-hazards approach in developing their capabilities and responses. As I hope our Green Paper made clear, we think that we need to clarify the strategic connections between the different risks, focus departmental attention on those connections, identify where cross-departmental working is required and develop a cross-government planning process to ensure joint working.
The noble Baroness, Lady Hamwee, rightly said that departments have different cultures, and that is a real barrier to working together. The Government have made some real progress in this area with their notion of the pools. The funding and the pooled effort have shown how difficult it is to get it going and how worthwhile it is when you actually succeed. But this approach needs to be taken a good deal further. I am sorry, I am exceeding my time.
In approaching these challenges, built on a national security approach, the last thing that the Government have to do is to provide real leadership. My noble friend Lord King made that point very powerfully. It is important, and communication by government is also extremely important. The noble Baroness, Lady Hamwee, made that point and I agree with her, although I am not sure how easy it is to have the media as a companion in that area.
We need more transparency and more trust in the public. We must allow individuals to participate in their own security and contribute to it. That is an important part of a modern approach to national security. Individuals, communities and businesses can make a very real contribution. Finally, of course, so can minority communities. It is very important that we recognise that there is an ideological challenge and that we face it together. We must face the challenge of radicalisation together as a society because in the end, it lies at the roots of our ability to protect ourselves as a secure nation.
My Lords, I join the rest of the House in extending my grateful thanks to the noble Lord, Lord King, for initiating this timely debate. This is something that I would like to have even more discussion about. One can tell from some of the overruns that noble Lords have a lot to say about it. It is an extremely important subject for a nation.
I am not surprised that the noble Lord raised this, given that he is an ex-TA officer. I worked for him as his head of naval intelligence when he was Secretary of State and, when he was chairing the ISC, I was chief of defence intelligence, so I have worked with him and have known him for a long time. I know his depth of knowledge. I thought that his tour d’horizon of the threats that we face was very pertinent, as other noble Lords said. I also thank all the other noble Lords who spoke. There is a great deal of knowledge here and there were a lot of interesting facts. I am not sure that I will be able to touch on every single comment that was made, but it is important that those comments are laid down in Hansard.
There is no doubt that this debate emphasises how in this House we realise the importance of our national security. I can assure noble Lords that that is also close to my heart and has been ever since I marched up the hill at Dartmouth 45 years ago. It is great that there is a cross-party flavour. At times, there will inevitably be some political aspects—that is the nature of life—but, wherever possible, matters to do with security and defence should ideally be on a cross-party basis. I am pleased that overall our national security strategy seems to have been welcomed, as it is a timely thing.
Before I say something about our national security strategy, I must thank the noble Baroness, Lady Park, who has a great depth of knowledge in this area. She was a FANY in the Second World War. She stressed on a couple of occasions that we are a maritime nation. You can imagine how that warms the cockles of a sailor’s heart. It has been a good week. The Prime Minister said in PMQs yesterday:
“We are committed to the aircraft carriers. The future policy of the Navy is being organised around them, and I hope all parties will support the aircraft carriers”.—[Official Report, Commons, 3/2/10; col. 298.]
The first English admiral was created 700 years ago today, so you can see that it has been quite a good week for me.
The national security strategy talks about security for the next generation. It is the updated version of the strategy produced in 2008. We had never had a national security strategy before in this country. The noble Baroness, Lady Manningham-Buller, said that she had something to do with it and I am pleased about that. I tried to push this in 1993, when I wrote my paper on the need for a grand strategy for the United Kingdom, but sadly we were unable to achieve it until 2008. It is right that we have one now and everyone here believes that that is correct. We are really only talking about tweaks and things.
The update strengthened our national security framework. It updated our assessment of threats and reported progress over the past year in which it has been in place. It set out how we will tackle some of the wide-ranging and evolving challenges to our national security. It has not just been sitting there as a document; it says how we will go about these things. The noble Lord, Lord Bew, said that he felt that the second document was better; I think that it is. It is a living document, but we need to do more. It must be done again and again. We will refine it and it will get better; that is what we must try to do. It provides a comprehensive basis for planning and delivering the first and most important function of government, which we would all agree is protecting our people and way of life. Many things have sprung from it and I will touch on some of them.
We laid out our principles and core values. A number of speakers talked about that, including the noble Lord, Lord Sheikh, and the noble Baroness, Lady Hamwee. It is important that I go through those. They were behind our thinking when we prepared the security strategy, ensuring that our work was grounded in the core values of fair play, human rights, openness, accountable government and the rule of law. My noble friend Lord Soley particularly stressed that issue. It is also important that, in countering terrorism and other security threats, we are proportionate in our response and focus on striking the right balance between security, liberty and human rights. Again, a number of speakers touched on that important issue.
Wherever possible, we will tackle security challenges very early. Looking back more than five years, I think that there is no doubt that we were not quick enough to pick up on extremism being fostered in certain areas. We have to tackle such things early. At home we need partnerships at all levels to prevent extremism and to respond to domestic emergencies. A number of speakers have talked about that. Overseas, we must work through multilateral institutions and partnerships. In government we have developed a more integrated approach and will retain strong, balanced and flexible capabilities to address the threats that we have identified. The noble Lord, Lord King, touched on the need for that.
Security for the Next Generation created a national security framework that sets out why threats occur, who or what threatens us and how and where security threats occur. The new aspects of security considered in the framework include the Government’s first cyber security strategy, which I will come back to later, since it is very important and deals with a real threat; a wider assessment of the changing security picture, including our analysis of the security implications of the global economic downturn; and assessment of some of the key characteristics of the UK, such as what is special about it, what makes us different and the implications that these have for our national security priorities. The noble Lord, Lord Wallace, touched on whether we address those things; I think that we have. The framework also considered a stronger effort on serious organised crime, because that is crucial and very damaging. It is something that has developed to a very worrying extent. Its roots develop and cross into terrorism and other things. There was a commitment to look at the national security implications of our increasing dependence on space and a commitment to working in partnership with industry to look at maritime security challenges.
The noble Lord, Lord Wallace, referred to Chinese goods on a Korean ship. I would put it differently: shipping is still focused on London. It earns us £18 billion a year. We are still very reliant on trade. We are the biggest investor in many parts of the world; we are certainly the biggest EU investor. That all makes money for this country. We have a global requirement for a capability to look after that.
The paper stated that international terrorism was the most significant and immediate threat to us. We have seen further attempts to attack the western world, such as Abdulmutallab’s failed bombing over Detroit. We reflect on that. In a sense the strategy falls out of that, although they were back to front initially. CONTEST 2 is recognised as the best counterterrorist strategy in the world. The noble Lord, Lord Lyell, said that it is based on pursue, prevent, protect and prepare, as it was originally. These things merge; they are not distinct stove-pipes. There are cross-cutting measures in there and it is co-ordinated by the Office for Security and Counter-Terrorism in the Home Office. I am happy to send the noble Lord, Lord Lyell, a copy of our Olympic and Paralympic security plan so that he can see what is happening.
Ideology was touched on by the noble Lord, Lord Bew, and the noble Lord, Lord Cope, in the context of Northern Ireland. More widely, it is part of our “prevent” agenda. We had, I fear, paid lip service to that until about two and half years ago. We have now definitely done a lot more. We have put a huge effort into it. Have some bits of it been absolutely right? No, but this has been going on for two and a half years and is something that we have really focused on. Again, this is something that can improve and that we must grasp. If you look back 10 or 15 years, we did not realise what a threat this was. We did not come to terms with it quickly enough.
We recognise that there was not a lot on Northern Ireland in the paper but, let us face it, I could have produced an immense document just on Northern Ireland. It was quite hard to compress it. However, I assure noble Lords that, in terms of allocation of resources, security forces, personnel and a determination to meet the challenge, we are absolutely there.
It is important to adjust to changing circumstances. Therefore, since the failed Detroit attack, we have announced how we will strengthen our protection against would-be terrorists. We intend to extend the Home Office watch list, using it as a basis for two new lists: a no-fly list and a larger list of those who should be subject to special measures. We are working in partnership with security agencies abroad to improve the sharing of information on individuals of concern. However, we have not stepped from a blank sheet into this; we are tweaking and improving. I am afraid that all the time these terrorists are trying to find ways round and into us to cause damage. They will keep thinking of new things. We are thinking of new things. We look at red teaming in this. How would you try to do that? We always have to try to stop it, but whenever an incident occurs there is always something that you can learn. We must not be, and are not, complacent about it.
It is because we recognise the global nature of the threat that our response must be truly global as regards plots against the UK—our interests originate in various parts of the world. We and our allies are clear that the terrorist threat from al-Qaeda in the Afghan-Pakistan border region, the FATA, remains the most significant security threat to the United Kingdom. The UK military and civilian effort in Afghanistan supports the Afghan people in rebuilding their country, ensuring that it cannot be retaken by the Taliban and cannot again become a base for al-Qaeda, because, at the top-hamper, al-Qaeda and the Taliban are joined at the hip. Further down, at worker-bee level, that is not necessarily the case, but at the top it is. I was commander-in-chief when we invaded Afghanistan. On the initial invasion, we were horrified at the extent of the training camps and the laboratories doing all sorts of nasty work. We must never let that happen again.
The noble Lord, Lord Sheikh, mentioned Pakistan. We are working very closely with Pakistan. It is key to that region. I have great concerns about Pakistan. We are working in close partnership with its Government to try to develop the capability to bring terrorists to justice. There was talk of the FCO’s money. About a quarter of the FCO’s counterterrorism funding goes to initiatives in Pakistan—£8.3 million was spent in 2009-10 and a projected £9.5 million will be spent in 2010-11. I think that the noble Lord, Lord Sheikh, mentioned equipment. I was slightly surprised at that. I assume that he was referring to equipment for the British Army in Afghanistan. The British Army there has never been so well personally equipped. One has to be careful. When you go into a new domain, inevitably your equipment will not be right for it. It takes time to catch up. When I was sunk in the Falklands, my ship was not very capable of defending itself against massed air attacks close to land. That is just a fact of life. If you are in the military, you get on with it—you bloody well do the job—but, sadly, it means that things are suboptimal initially. But that is what has to happen. Now, out in Afghanistan, they have very good personal equipment.
Looking outside the FATA, we also have to recognise that AQ has affiliates, allies, people who are inspired by it, who seek to exploit other areas of weak governance such as the Yemen, Somalia and the Sahel. My noble friend Lord Soley referred to the fragility of some of these states and how we have to keep an eye on them and look after them. These things were identified in our strategy. We identified Yemen in this way. This was not a new shock to us. The Yemen has been at the forefront of an international effort against terrorism. As I say, we have for some time assisted the Government of Yemen. By next year our commitment to Yemen will total some £100 million. We are also increasing our capacity building in Somalia. This is a really difficult place in which to operate. We contributed considerable money to the African Union mission there, but it is a problem. This leads into the aspect of piracy and the ability to tackle it.
We will continue working to tackle the terrorist threat globally through multinational institutions. We do a lot of work through the G20 on the economic downturn. This was emphasised in the defence Green Paper, Adaptability and Partnership, published yesterday. It was presented in this House by the noble Baroness, Lady Taylor. I was very sad to miss that debate, in which excellent questions were raised. I read it in Hansard and I would have liked to be present. The Green Paper makes it very clear that our alliances and partnerships will become increasingly important and that NATO remains the cornerstone of our security.
We are tackling the security challenges of the modern age, such as the growth of cyberspace and the changing threats posed by serious organised crime, which were touched on by my noble friend Lord Soley. That is why we published the UK’s first cybersecurity strategy. The noble Baroness, Lady Manningham-Buller, is absolutely right. Lots of good work had gone on before. A lot of work was done by CESG in Cheltenham—I am sorry about the initials—and the Security Service. There has been a lot of good work within companies such as BT, with which we have been in dialogue. However, it was not co-ordinated and focused. The answer to the noble Lord, Lord Hodgson, on whether the number of attacks is increasing is yes. Is public awareness of it low? Yes. I said to the committee that he referred to that this was absolutely the case. We need to be really concerned about this, as we are.
We produced the cyber security strategy and we set up the Office of Cyber Security. I have been all over it like a rash since that happened last summer, putting huge pressure on it. It was unable to ease up for Christmas because we have to do a lot of things. There are whole areas of legality. Can you go back down on to something? How do you get attribution? If someone takes out a power station, which could be done—although we have protected our own—is that an act of war? If you bombed it, it would be, but is it an act of war if it takes place in cyberspace? What will we do in terms of cyber warfare? We have state actors, serious crime actors, criminals who clone and take details of individual bank accounts and hackers who might think that they are funny but actually can do serious damage that costs industry huge amounts of money. Of course, we also have the terrorists, who are very cute. At the moment they use the internet for radicalisation, but they will learn how to do other things. There is a lot that we must achieve. We are in discussions on an international agreement, mentioned by my noble friend Lord Soley, but it is the sort of agreement that is extremely difficult to reach.
In the document, we also recognise the threat from hazards such as natural disasters and accidents. The noble Baroness, Lady Neville-Jones, touched on the breadth of this and I think that what we have done is appropriate. Yes, we have to work with the public. We produced CONTEST at an unclassified level so that our public could read it. That was jolly difficult; I cannot tell you of the battle that we had in trying to achieve that, but it was a huge success.
Out of our national security strategy we have produced the first ever national risk register, which is unclassified. Local resilience forums around our country are able to look at it, find what all the threats are and work out priorities and preparedness in terms of terrorism, natural hazards or industrial accidents. We have provided the forums with a template where such incidents are likely to happen. That is a huge step forward. This all-hazards approach is a flexible and sound basis for dealing with changing requirements. The Civil Contingencies Secretariat in the Cabinet Office works with the Office for Security and Counter-Terrorism in the Home Office. There has been talk about how we can hone this. I think that it works quite well. Perhaps we can refine it a little, but it works well, people talk and there is a lot of debate across government.
I turn to how this Government manage these issues. There is all this talk of a national security committee, but we effectively have that already. The Prime Minister, who I have to say is very involved in this, chairs the Ministerial Committee on National Security, International Relations and Development—it is a horrible title and perhaps we should start calling it the NSC. He does listen. Noble Lords suggested that he did not, but I cannot think of any occasion when he has not listened to what I have told him. He takes this seriously. On that committee are the Secretaries of State of all the key departments. I sit on that committee and all the other sub-committees. The Chief of the Defence Staff is normally there, as are the heads of the security agencies and the top security people in the police, if appropriate. We all sit there and these matters are discussed. Then, a series of sub-committees looks at specifics. For example, one sub-committee looks at protective security. It met on Tuesday. I took to it an issue on maritime security and another issue—I am sorry, but I have just remembered that I cannot mention it. Anyway, the committees are looking at these things all the time. I almost fell into that one. I repeat that these things are looked at. Could this be streamlined or made better? I think that probably it could—perhaps we should look at that. However, it works jolly well and that is important.
The committee also asked the National Security Forum to discuss specific issues. This was set up by the Prime Minister. I chair it. It has a group of experts, who are Nobel prize winners and people from the fields of diplomacy, counterterrorism and so on. They all sit down and are terribly difficult to run as a committee because they all have amazing ideas of their own. They are all well connected and we are able, under my chairmanship, to advise the Government. The sort of things that we have given advice on are risks to energy supply, nuclear issues, maritime security, space security, the Green Paper and so on.
I have almost said enough. In conclusion, the importance of the security of our people and country is uppermost in the Government’s mind. I know that it is important to all of us in this Chamber. I believe that this has been demonstrated by the speed with which we have responded to changing threats, demonstrated by the Detroit bombing and other incidents—I found the Home Affairs Select Committee report very surprising and actually wrong in some areas. It has been demonstrated by the huge efforts that our Armed Forces are putting into Afghanistan. It has been demonstrated by the lead that we have shown in bringing the international community together this week to discuss Afghanistan and Yemen. I did not expect much from the Yemen thing, but more came out than we could have hoped for.
In the past two and a half years, we have produced the first United Kingdom national security strategy, with everything that has followed from that. It is something that we can refine. We have produced the first national risk register, informing the public and local resilience forums. We have produced the first cybersecurity strategy—again, a huge amount of work is being done on that. We have produced the first science and technology strategy concerning counterterrorism. We have also produced CONTEST 2, which is recognised as the best counterterrorist strategy in the world. We should be proud of that. I am sure that the Chamber is pleased by that, but we can do more to refine it.
These are important issues that we need to discuss more, because it is important to our nation that we discuss them. We will continue to work with all our partners, because this is about partnership, whether it is at home or abroad, to protect our great nation and its interests, which will enable our wonderful people to go about their daily lives freely, with confidence and, I hope, in a more secure, stable, just and prosperous world. We must now go away to achieve that.
My Lords, I start by thanking the Minister for his reply. He is always an engaging and charming speaker, even if he cannot always remember what he has been doing. He ranged widely in the time available. As he and my noble friend Lady Neville-Jones rightly said, this is an extraordinarily wide-ranging subject. I am very grateful to other noble Lords who spoke. Inevitably, given the time constraints, they had to concentrate on fewer issues.
I am sorry that the Minister missed the Green Paper Statement yesterday. He missed out one bit of the Green Paper in his enthusiasm for naval pursuits. The Green Paper encourages a more purple approach, with an end to inter-service rivalry. I also say that he is not quite right about carriers. We discussed this yesterday. The paragraph after the one in the Statement concerning carriers appears to contradict what the earlier paragraph said. We will wait to see what happens. I also have a warning for the House, from the very good programme that Mr Dan Snow is doing on the Navy, that the ambitions of the Navy have proved very expensive for this country over the years. I had forgotten that it was the ambitions of the Navy that led to the introduction of income tax in this country. We will see how we get on now.
I plead guilty to the charge levelled by the noble Lord, Lord Bew, and my noble friend Lord Cope: the item that I should certainly have raised myself was Northern Ireland. In the circumstances, and as the noble Baroness, Lady Manningham-Buller, knows well, this is on the list of areas that we cannot ignore. As my noble friend Lady Neville-Jones said, in a line that I was going to accuse her of pinching before I realised that I had never used it, there is no longer home and abroad in the considerations that we face.
When I listen to the Minister, at the end of his cheerful contributions I think, “Thank God it’s all going so well”, but then reality breaks through. No one is in any doubt that we face some really difficult challenges and that some serious mistakes have been made: we have only to look at our present situation in the world. The Strategic Defence Review will be the most difficult that this country has ever had to conduct. As the noble Lord, Lord Wallace, said in referring to whether or not we are east of Suez, we face some really major challenges at this time. All these security issues are interlinked, which will present us with very serious problems. I am very grateful to all those who have taken part in this debate and I beg leave to withdraw the Motion.
Corporation Tax Bill
The Bill was brought from the Commons and read a first time.
Taxation (International and Other Provisions) Bill
The Bill was brought from the Commons and read a first time.
EU: UK Convergence Programme
Motion to Approve
My Lords, I welcome this opportunity to debate the information provided to the European Commission under Section 5 of the European Communities (Amendment) Act 1993.
Each year, the Government report to the Commission on the UK’s economic and budgetary position and our main economic policy measures, in line with our commitments under the stability and growth pact. By formally sharing information from the Pre-Budget Report with our European partners, we can help to maintain an appropriate and effective level of macroeconomic policy co-ordination in the European Union, contributing to stability and growth.
A year ago, as the world economy faced crisis, the European Council agreed a European economic recovery plan, which rightly called for a fiscal stimulus from member states equivalent to around 1.5 per cent of GDP. The Council encouraged member states to allow borrowing to rise to support the economy, acknowledging that this would lead to a deepening of deficits in the short term and that the stability and growth pact should be applied in a manner which reflected the current circumstances.
We welcomed the publication of the European economic recovery plan, which showed that the Government were right in taking bold action in the PBR in 2008 to support the economy through fiscal stimulus. Furthermore, it provided support for actions to front-load public expenditure and assist small and medium-sized businesses.
The Pre-Budget Report was delivered during a year in which the global economy is forecast to have had the longest period of sustained negative growth in 60 years. The crisis first took most economists by surprise but has since brought about a huge debate and interest in the subject, even if a lot of that has been with the view that the dismal science has become even more dismal.
However, the overriding commentary centred first on the role of the market and then on the role of the Government as we took decisive action to stimulate the banking system, stabilise the economy and provide support for future growth. This action has helped to limit the impact of the recession and, as figures released last week showed, the economy posted growth of 0.1 per cent in the final quarter of 2009, reflecting the Chancellor’s forecast in the PBR that growth would return by the end of last year.
Growth is expected to pick up progressively to 1.25 per cent in 2010, as credit conditions ease and the macroeconomic stimulus conditions continue to feed into the economy. Thereafter, growth is forecast to rise to 3.5 per cent in both 2011 and 2012, supported by net exports and investment, with the adjustment of the UK’s flexible markets helping to bring into use the significant spare capacity available. However, the latest estimate makes clear that we must tread carefully and although the prospects for the economy are improving, markets are not up to full running speed. The economy faced a monumental shock. There are encouraging signs that recovery is under way but it is at this stage fragile. The challenge we now face is securing the recovery and promoting long-term growth while ensuring fiscal sustainability.
The Chancellor announced in the PBR a plan to more than halve the deficit over four years. But with the uncertainties that remain and growth still delicate, the PBR provided for continued support until recovery is secured with the focus of fiscal policy shifting towards consolidation from 2011-12, when the economy should be better placed to support necessary fiscal tightening. I have said before that failing to offer the support that the economy requires could damage the recovery and incur unwelcome and long-lasting damaging effects. That is why further support is being offered to business to ease problems with cash flow and access to bank lending by deferring tax rises and extending tax allowances. This has included the extension of the Time to Pay scheme. To date, it has helped 160,000 businesses to spread £4.8 billion of tax payments over a timetable that they can afford. The small companies’ rate of corporation tax will be frozen this year to help 850,000 businesses.
Our support has entailed that the number of business failures has been running at about half what it was in earlier Tory recessions. For home owners, the PBR announced that the Support for Mortgage Interest scheme, which provides cover for mortgage interest payments for those who have lost their jobs, has been extended for a further six months. I am pleased to say that our actions are working. The latest Council of Mortgage Lenders figures show that the rate of repossessions is half what it was in the last recession. More than 220,000 home owners are receiving direct support to avoid repossessions, through schemes such as Support for Mortgage Interest, the mortgage rescue scheme and Homeowners Mortgage Support.
The tax and benefits system is also providing important help to families, with the tax credits system having provided support to 400,000 families whose income has fallen during the downturn. Many benefits and tax credits are linked to the September RPI, which was negative. This would have meant no increase in those benefits. Instead, we announced that the basic state pension will rise by 2.5 per cent in April. Child benefit and some disability benefits will also rise by 1.5 per cent. These measures provide real help to the vulnerable in our society.
To ensure that we will not see a repeat of the financial crisis, the Government have insisted on wide-ranging reforms to the financial sector. As well as strengthened regulation we have been very clear that there must be an end to the short-term bonus culture in the banking sector. It is important that remuneration policies encourage a prudent long-term approach to performance, risk and value creation, and do not incentivise excessive risk-taking. For that reason we announced in the PBR a one-off levy on banks of 50 per cent on any individual discretionary bonus above £25,000.
In the US, President Obama was clear in his recent announcements that the fierce lobbying against regulatory improvements was one reason he felt compelled to introduce proposals to limit the size and scope of US banks. Here in the UK, our fears that banks were not moving quickly enough to reform their pay and bonus policies was also one of the reasons we decided to introduce a bank payroll tax.
The Chancellor has put in place support to secure economic recovery but we have also taken action to meet the other challenges of maintaining the long-term growth of the economy. The recession has had a marked impact on the labour market, but unemployment has risen by far less than expected by independent forecasters. The latest ONS figures this month show that ILO unemployment fell for the first time since 2008. That is coupled with the claimant count having also fallen for the second consecutive month and by more than market expectations. But the impact on the labour market has been significant for young people, so the PBR announced that every 18 to 24 year-old will be given work or training after six months out of the labour market, rather than after the previous limit of 12 months. Investing in the skills of young people is vital to ensure that we do not repeat the experiences of the 1980s and 1990s, which saw whole generations of young people lost to unemployment.
The Chancellor also announced investment in key industries of the future—in digital, bio and low-carbon technology—to build a stronger and more diverse economy and to help drive long-term sustainable growth. This has included an additional £500 million of lending available to small and medium-sized enterprises through a 12-month continuation of the enterprise finance guarantee and the creation of a new growth capital fund, along with the £325 million UK innovation investment fund.
We also introduced a “patent box”—a reduced rate of corporation tax applying to income from patents from April 2013—to strengthen the incentives to invest in innovative industries. We set out additional funding for low-carbon industries and energy efficiency, including the Warm Front programme. It was important to provide support to the economy when it needed it; policy, here and in other countries, needed to adapt to the extraordinary global situation. Not to allow borrowing and the deficit to rise would have led to greater costs in the long term—costs and consequences which would have damaged the pace and scale of recovery and future growth.
It is also important that support in the downturn must go hand-in-hand with steps to rebuild fiscal strength once recovery is firmly established. Setting a credible consolidation path to ensure the sustainability of the public finances is a critical element of the Government’s macroeconomic strategy and is essential to the long-term health and prosperity of the economy. Sound public finances will support investment and growth by helping to maintain low, long-term interest rates and a stable economic environment.
Sound public finances are necessary to get the growth we need, so it is imperative that we consolidate in order to provide the conditions for future growth, and that we do so in a way that supports growth because, in turn, growth will make it easier to lower the deficit and pay back debt.
At ECOFIN in October last year, Finance Ministers agreed to start unwinding fiscal stimulus measures as soon as possible, and by 2011 at the latest. That is exactly what the Government have committed to do in the PBR. Indeed, we have already begun to reverse the temporary fiscal stimulus, as planned, while maintaining support for the economy as it enters recovery.
As a result of the combined effect of lower revenues resulting from the economic shock and our commitment to provide extra support to the economy during the downturn, borrowing will rise to £178 billion in 2009-10, 12.6 per cent of GDP. As the economy recovers and the deficit reduction plan starts to take effect, this will fall to £176 billion in 2010-11; to £140 billion in 2011-12; to £117 billion in 2012-13; to £96 billion in 2013-14; and then to £82 billion in 2014-15. That £82 billion compares with £178 billion for 2009-10.
Excluding public sector investment or capital spending, and taking into account the economic cycle, the budget deficit is expected to fall by around two-thirds to 1.9 per cent of GDP by 2014-15. The Fiscal Responsibility Bill, which will have its Second Reading in this House next week, will enshrine in legislation the Government’s plans to more than halve public sector borrowing as a share of GDP by 2013-14. This will ensure that the Government’s commitment to fiscal consolidation is backed by the force of law.
We have set out a clear plan of consolidation over the medium term, taking a judgment on the appropriate pace of adjustment in 2010-11 and beyond. Tightening fiscal policy aggressively in 2010-11 would present risks, but we will be able to support much more rapid tightening from 2011-12. Clearly, in the event that growth turns out to be more robust than forecast, borrowing will naturally fall faster and it will then be possible to reduce the structural deficit further in the medium term.
To secure consolidation, the Pre-Budget Report announces tax rises for those with the greatest ability to pay, while ensuring that those on the lowest incomes will be protected, including the restriction of pensions tax relief for those with gross incomes of £150,000 or more a year, and an additional 0.5 per cent increase in employee, employer and self-employed national insurance contributions for those earning more than £20,000.
There will be further constraints in future, however, and lower spending will be essential. That is why we must continue to press for efficiency and clarity in setting our priorities. The Pre-Budget Report announced £12 billion of savings from greater efficiency, £5 billion from scaling back on or cutting lower priorities, and £4.5 billion from reducing the cost of public sector pay and pensions. Our priority is to protect the most important front-line services on which people depend—schools, healthcare and police. Callous cutting of public spending in the past led to long-term damage to the economy and society. It will not be repeated under this Government.
I have noted the amendment tabled by the noble Baroness, Lady Noakes. In the EU, many countries have experienced a profound shock to their public finances as a result of the global economic downturn. Some 20 member states are currently in the excessive deficit procedure process. The recommendations adopted by the ECOFIN Council in December 2009 provide a co-ordinated glide path towards sustainable public finances, which utilises the flexibility provided for under the stability and growth pact while, rightly, taking into account national economic circumstances.
These have been testing times, and people all around the world have been affected, but the actions taken by this Government have helped our economy to start to emerge from the crisis without sustaining profound and long-lasting damage. There will be more to be done—not just now, but over the next few years. That is why the Pre-Budget Report was looking not backwards but forwards. It sets out action to meet the challenges to secure the recovery, to build our future and to ensure that we have the means to do so while controlling public finances. That is the programme set out in the 2009 Pre-Budget Report and that, with the approval of the House, is the basis on which we will send updated information to the European Commission.
I look forward to your Lordships’ contributions to this important debate and beg to move.
Amendment to the Motion
As an amendment to the above Motion, at end to insert “but regrets that the assessment does not demonstrate that the Government have a credible plan to deal with the United Kingdom’s deficit and that the United Kingdom’s debt and deficit ratios will remain outside the limits set by the stability and growth pact throughout the period to 2014-15”.
My Lords, I thank the Minister for moving the Motion and shall speak to the amendment standing in my name.
The convergence report that we are debating is based on the Pre-Budget Report, as the Minister said. That report was received with no acclaim whatsoever. I have not heard one businessman say that it inspired confidence. Expert commentators, such as the Institute for Fiscal Studies, took no time at all to expose its weaknesses.
The report we are now considering should have been submitted to Europe by the end of December. Indeed, our PBR debate in December had been arranged before the Christmas Recess to allow the House to debate the appropriate Motion of approval, but the report did not appear in time. It appeared only late last Thursday. Noble Lords may well have noted that although it is dated January 2010, it was clearly written last year. For example, at paragraph 4.11, it states that the VAT reduction “will” expire on 31 December 2009. Why was it not published in December? My money is on the Government hoping against hope that the Q4 GDP figures could be flourished as proof of the extraordinary statement in paragraph 2.6 which says:
“The Government’s action has been successful in averting the more severe downside risks to the economy”.
The Minister knows full well that the debt-fuelled policies of the Prime Minister were responsible for the longest and deepest recession in this country since the 1930s. The UK was the last country in the developed world to emerge from recession, and then with a puny 0.1 per cent growth in Q4. It is clear that we cannot be confident at this stage that we are yet out of the woods.
Staying with paragraph 2.6, it states that the Government’s action,
“has limited the severity of the downturn and its impact on businesses and individuals”.
Unemployment has already gone up to nearly 2.6 million and could well rise further, as the Minister’s right honourable friend Ms Cooper said last week. Beneath the surface, increasing part-time work masks a larger decline in full-time employment, and 20 per cent of young people are without a job. There is evidence that more people are now leaving the workforce, as more than 8 million people are economically inactive. It is also far too early to reach a judgment on business insolvencies, as the Association of Business Recovery Professionals pointed out last week. Previous recessions have shown a marked insolvency lag, and it expects insolvencies to peak in 2012, assuming the recession has finished, and to continue at a high level in 2011.
The UK has signed up to the stability and growth pact, which allows the EU to monitor the medium-term budgetary strategy of member states. Thanks to the only sound economic decision made by the Prime Minister when he was Chancellor, the UK remains outside the eurozone, and hence we do not fall within the penalty regime that applies to eurozone countries, but we have agreed to abide by the same budgetary rules, which require us to keep our budget deficit below 3 per cent of GDP and to keep debt below 60 per cent of GDP.
Two years ago, when the Government submitted their convergence report on the back of the 2007 PBR, they asserted that they were well within the debt and deficit rules, but we all remember that the 2007 PBR was cobbled together at high speed in October 2007 for the purposes of the election that the Prime Minister bottled. That PBR showed an unbelievably rosy picture of growth in order to frank some unrealistic public expenditure plans. The previous PBR had already resulted in the European Commission criticising the UK for having the largest structural deficit in the EU, and noble Lords will recall that this was the era when the Prime Minister regularly redefined the rules on cycles and deficits in order to justify carrying on borrowing to fund yet more public expenditure.
It is all so clear now that we have suffered more than other countries in the EU because of the Prime Minister’s policies. The Government produced their financial projections back in 2007 because they suited their political ambitions rather than to be honest about the nation’s finances. A few months after that PBR, and despite continuing optimistic growth forecasts and assertions about meeting the golden rule, the budget for 2008 showed that the UK would incur a deficit greater than the 3 per cent treaty limit, with the result that the Commission evoked the excess deficit procedure for the UK. By PBR 2008, the Government could conceal no longer the fact that the UK was headed for recession and that deficit and debts would be way outside the treaty limits for the whole period up to 2012-13. The Commission, recognising the global recession, as the Minister explained, recommended, inter alia, that we reduce our deficit to below 3 per cent in 2013-14 and do more in 2010-11. As the Minister said, in December last year, the EU Council formally recommended that the UK take corrective action by June this year and reduce the deficit below 3 per cent in 2014-15. The PBR does not do that.
Although several other countries are in the same boat, as the Minister said, we are clearly the sick man of Europe—and we have the longest recovery period allowed to any country in Europe. If we read the convergence report, it is as if none of this had happened. There is no reference to the excess deficit procedures or to the EU Council’s recommendations. I dread to think what the Commission and the Council will make of this document. The PBR projections are set out as if it is the most natural thing in the world to have a treaty deficit ratio of 12 per cent. that is four times the norm, and to reduce it to 4.6 per cent—this is still 150 per cent of the norm—by 2014-15. The treaty debt ratio, which is expected to finish this year at 73 per cent, will carry on rising—peaking on a treaty basis at 92 per cent.
There are two important issues behind the forecasts in the Pre-Budget Report that are being submitted with the convergence report. First, the forecasts are only as good as the assumptions that lie behind them. This is a truism, of course, but I remind the House that they rest on growth that will rise to more than 3