My Lords, the economic outlook is grim, and yesterday’s Budget makes it grimmer still. It was pure fantasy land: the last gasp of a spent Government. Much of it will not be implemented. It has been variously dismissed as pie-in-the-sky, irrelevant and so on, and has had a pretty substantial panning.
The Minister was recently reported to have said that every bank needs a dour Scot; since his recent experience has been in the Treasury rather than the City, perhaps he was really referring to the Treasury. There are two types of dour Scot: the one who is genuinely not prepared to spend beyond his means, and invests for the future; and the other, who is dour only in manner. I have much sympathy with the genuinely dour Scot, the present Chancellor. He inherited an appalling legacy from the other dour Scot, his predecessor, and has largely fought off the “forces of Hell” from Downing Street, which had been, if not authorised, then at least not discouraged by the Prime Minister, who was still last summer clinging to the absurd belief that this election would be all about Labour investment versus Tory cuts, and who created on the back of an envelope the Personal Care at Home Bill, with the huge black hole in its financing so ruthlessly exposed by your Lordships’ House. No doubt the dour Scot the Chancellor has had to fight hard for even the Budget, against the profligate tendencies of the dour Scot the Prime Minister.
The Budget was also a failed attempt to get credit for clearing up the messes which this Government, and especially the former Chancellor, have themselves created. I must briefly refer to the background. In 1997 they inherited the legacy of a strong economy—a £6 billion budget deficit, compared to £167 billion today. As a demonstration of this, the UK was then ranked seventh in the world for competitiveness, while it is now 13th; and fourth in the world for tax and regulation, while it is now 84th and 86th. For the first two and a half years, with prudence at his side, the then Chancellor retained control over spending, though pensioners will not forget that one of his first acts with regard to advanced corporation tax has since drained tens of billions of pounds from pension funds and has, in part, contributed to the serious decline in pension provision under this Government.
All hell was then let loose. With the benefits of an internationally benign economy and economic environment; lower inflation, not least because of the impact of widespread cheap imports from the Far East and China, in particular; overdependence on financial services for tax revenue; and, above all, fuelled by huge government and personal borrowing, the then Chancellor was able to spend money as if there was no tomorrow or any reckoning on debt. I used to be alarmed, Budget after Budget, by his monotonous churning out of new public sector schemes, proclaiming loudly the large expenditure programmes attached; and by the extent to which capital expenditure then was off balance-sheet. This was all without regard to the rise in government borrowing. Dour in demeanour and, no doubt, prudent with his own spending, he loves spending everybody else’s money, and so the huge fiscal deficit grew.
I pay particular attention to the waste. So much of this extravagant programme has been unnecessary. Billions have been wasted to no good effect and no lasting benefit—indeed, often no benefit at all—to the citizen by, for example, the identity card project; the National Health Service IT projects; the Rural Payments Agency fiasco; and the £1 billion revealed by the National Audit Office to have been incurred in reshuffling Whitehall departments to give a false impression of dynamism and to satisfy certain ministerial egos. A huge number of quangos have been set up to administer this, regulate that and advise on the other—a huge bonanza of public sector jobs for the boys and girls. I believe I recently saw a figure of £43 billion for quangos. Vast sums have been spent on management consultants and other advisers for work that, in many cases, civil servants should be doing. Billions have been lost in fraud on the tax credit schemes.
There was a £7 billion cost to the taxpayer of Gordon Brown’s decision to sell Britain’s gold reserves at the bottom of the market, against the advice—so press reports suggest—of the Bank of England. We will know the truth shortly, as a result of the Information Commissioner’s decision that the Treasury should release the details. I could go on. It is no wonder public spending now makes up 52 per cent of GDP, compared to 40 per cent when Labour came to power in 1997. Yet it is the private sector which is the engine of growth and profitability. That is an indication of the huge public expenditure incurred by this Government.
To conclude by looking back, the golden rules—easily manipulated—have been consigned to the dustbin. The proud and oft-repeated boast that this Government had conquered boom and bust is dead and buried, but not forgotten. The verdict of history will be harsh.
Time and again yesterday, the Chancellor put the blame on the international crisis. I do not blame this Government for the international banking crisis, though in retrospect the removal from the Bank of England of macro-prudential control over the financial sector did not help. However, I do blame the Government for making our economy one of the weakest among the G20 to face the crisis when it came, and one of the slowest to recover from the recession. This was the consequence of the overspending, the overdependence on the City, the decline in manufacturing, which the noble Lord, Lord Mandelson, was boasting about a short while ago, by over 9 percentage points—the largest fall in history with almost 1.7 million manufacturing jobs about one-fifth of UK manufacturing firms disappearing and the huge increase in borrowing, even before the crisis and the bailing-out of the banks. That is the charge.
The Chancellor tried to claim credit—modest, I grant you—for the small decline in the borrowing figures compared with the pre-Budget statement. He was clutching at straws, for the overall figures are still huge. They are dependent on growth forecasts over the next few years which most outside commentators regard as wildly optimistic, including the Governor, who said the other day that the recovery will be more painful and longer than most people are prepared for. Even Anatole Kaletsky declared them as “not worth the paper they are written on”, rather like the Government’s Fiscal Responsibility Bill.
The Government’s argument that they should not be cutting expenditure now because of the recession is a false excuse—a cover-up for their unwillingness to face the facts and take action before the election. That is so clearly revealed by their decision to put off the Comprehensive Spending Review until after the election. But as the Institute of Directors has pointed out as an example of the need to take action now, in the first three years of the Labour Government, total public spending fell by 4 per cent of GDP and the public sector deficit tightened by 5 per cent of GDP, yet GDP growth was faster over those years than at any other time in the Labour Government up to 2009.
All we have had in terms of action and savings programmes is a great emphasis on efficiency savings—not very encouraging when the Government have achieved only £10 billion of the £35 billion on efficiency savings sought in the last Comprehensive Spending Review. Speaking as an ex-dour Scot, or a dour ex-Scot, and as a former Chief Secretary, I absolutely subscribe to the view that efficiency savings will only achieve so much. The Government are, in a number of cases, trying to deliver the efficiency savings twice. In the Personal Care at Home Bill, they left a black hole for local government to fill in terms of spending on that Bill and they said it could be achieved by efficiency savings, when they had already achieved all the efficiency savings that they possibly could. So there is a great limit on efficiency savings.
I regret the failure of this Government always to seek value for money in government spending—there are so many government spending programmes when they simply have not sought value for money—and their constantly erasing the test of affordability. One example of this is the Norwich and Norfolk order that we debated earlier this week. The Government went ahead with it, ignoring the fact that the Permanent Secretary in the department had said that it failed the tests of value for money and affordability—both key tests. So the Government have failed heavily on that front. Every government programme should be subject to these tests.
When government spending needs to be reduced on the scale now required, whole programmes sometimes need to be rejected. Sometimes the only response can be—I have had to say this as Chief Secretary—“It is a nice idea, but I simply have not got the money”. The Government have not been prepared to do that. I was described in the headlines when I was Chief Secretary as “Mac the Knife”, which was a reference to a current pop song at that time. But sometimes ruthlessness has to be applied and I regret to say that the Government have failed to do this in their massive overspending on programmes. Just before the election in 1987, when the Labour Party was in opposition, I costed the party’s programme and all its commitments. It was quite clear that it had no idea of the cost of those programmes and it became a major issue in that election.
After all this, the Government’s target is for a fiscal deficit quite close to that which existed when the noble Lord, Lord Healey, had to go to the IMF for loans in 1976 after the four years of so-called reductions in the fiscal deficit. He had to go because he had run out of lenders elsewhere. That brings me to the nightmare scenario which I have raised in this House before—that the international financial community is casting a very sceptical eye over the reality of the fiscal deficit. Sterling has already declined recently against the dollar by 22 per cent, and the international lenders upon whom we depend are wholly unconvinced by the Government’s position and await the outcome of the election.
I have only two questions for the Minister. First, what proportion of gilts is now held by overseas investors? I am quite sure that it is many more than in 1976, although there is a much greater risk. Secondly, what are the Government’s plans for coping with the ending of quantitative easing—the further unloading on to the market of up to £200 million in gilts? The nightmare scenario would be further declines in sterling, which would include the effect on domestic inflation, and the need to push up gilt yields, including interest rates, to secure the lending—with consequent further misery for all, increasing the cost of mortgage borrowing, and a whole host of other things. The other consequence would be that the costs of debt interest would outstrip even the largest of all departmental spending programmes. Debt interest is already £35 billion and is estimated to increase by 2014 to £71 billion, even if the Government achieve all their objectives.
This Government have for years been spending beyond their means. That is what the fiscal deficit implies and, just like any family that does that, the day of reckoning comes. I come back to where I started. Yesterday’s Budget was unreal. The real work will have to start after the election.
My Lords, I congratulate the noble Lord, Lord MacGregor of Pulham Market, on initiating this debate. As a not-quite-so-dour north Londoner, my views are very different from his.
The aim of Labour economic policy is to reconcile economic efficiency with social justice. In pursuit of this end, since 1997 a whole raft of policy initiatives has been introduced. The initiatives include active labour market policy—protect the worker, not the job— and provide retraining as workers move between jobs. That is very important in an era in which job destruction is much higher than it was 20 years earlier. The initiatives also include heavy investment in education and skills training, which is necessary in an economy that has become much more skewed towards symbolic occupations than manufacturing ones. That will not be reversed too far, whatever happens to reinvestment in manufacturing. There has been strong investment in family-centred policies, including the setting up of day care centres thereby making it possible for a substantial proportion of mothers—including single mothers—to be in the labour force.
These policies have been successful. As an economist, I know that the best way to look at the economic health of a society is by looking not at the unemployment rate, but at the employment rate. The UK employment rate for 2007 was 75 per cent. Moreover there has been a decent and increasing minimum wage. Compare that with, for example, Germany, where the employment rate in 2007 was only 66 per cent, or France, where it was only 64 per cent. These achievements accompanied important achievements on the level of social justice. If anyone still wants to talk about the, to me, somewhat risible notion of the “broken society” they should look at the book that is about to come out by Jane Waldfogel, an American academic, which compares Britain’s anti-poverty strategies with those of other industrial countries and finds that Britain has done better than virtually any other industrial country in limiting poverty. It has, in fact, done better than some of the Scandinavian countries where poverty, including child poverty, has actually increased over this period. The combination of those successes in Britain is a considerable achievement.
Do these policies still have bite in a period of recession and on the point of recovery from recession? You bet they do. On the most recent unemployment figures, unemployment has started to decline, but it is much more important to note that throughout the recession employment remained above, and is still above, 72 per cent. These policies make it possible for this country to recover much more effectively from recession than many industrial competitor countries.
Against the backdrop of financial crisis, it is obvious that we need policy reorientation. I am not a Labour tribalist and I am sure that the Government have made mistakes along the way, but a policy reorientation is clearly necessary and it has to have three key elements. First, I think it is clear to everyone that more regulation of financial markets, both nationally and internationally, is imperative to do two things: first, sharply to reduce system risk; and, secondly, to reduce inequalities that have become socially destructive. This is not an easy balancing act, because it has to be achieved against a background of ensuring that markets can function in such a way as to draw on their creative and innovative properties. Markets have the qualities of innovation and creativity that Governments do not by and large possess. The further work that is needed to stabilise both the national and global economic system will have to balance these things out, but the Prime Minister has displayed very able leadership on the world scene, as has the Minister.
Secondly, there has to be a return to industrial activism. Industrial activism should not be equated simply with the re-stimulation of manufacture. Against the background of energy security, climate change policy and other areas, it is important, and indeed possible, for the UK to recover competitive manufacture in certain poor areas. However, industrial policy will also have to cover a range of other industries because we will still live basically in a post-industrial economy for many years to come. Therefore, the stimulation of the creative industries, for example, is very important, and, despite what was said about the Budget, there were a number of very important innovations in it, including a green investment bank to help to re-stimulate active industrial policy.
Thirdly, there has to be a return to long-term policy. Deregulated markets do not provide long-term policy. This has been plain in the background to the economic collapse, but it is also plain if you look at various industrial sectors such as the energy industry. It is quite interesting that Ofgem has now accepted that deregulated energy markets do not provide the long-term investment that is needed for the future or a long-term planning framework.
I repeat that I am a sociologist and an economist and not really a Labour tribalist, but when I look at current Tory economic policy, which is based on continuing deregulation—this in turn is based on rolling back the state in an era, and in all these areas, in which we need more activism on the part of an intelligent state, not an overbearing one—it is impossible for me to see how it can cope with these new demands.
My Lords, we in Britain have a lot of which to be proud. We are still one of the 10 largest economies in the world, and four or five of our universities continually rank among the top 10 universities in the world. Yet we must not delude ourselves. We are a small nation, we have dreadful weather, we have little landmass, and we have few natural resources, although I hope that we strike oil in the Falklands. In fact, our main asset—our only asset—is our people. With the odds stacked against us, it is crucial that we maintain a sense of balance in our country and our economy, and here we have been failing abysmally.
As a small country, we can flourish only if we have the right economic environment to attract inward investment and the best brains and create a highly skilled, highly creative, value-added economy. How can we possibly achieve this with a top tax rate of 50 per cent, one of the highest in Europe, the forthcoming 1p rise in the national insurance rate and the non-dom levy? This kind of tax burden is anticompetitive, and if we lose our competitive edge, we will fall into oblivion, especially given the rise of India, China and Brazil. I could go on.
Not only is excessive tax a burden on business, a disincentive to entrepreneurship and a burden on the consumer, but it is a disincentive for overseas talent. We are driving people away. As the noble Lord, Lord MacGregor, said, not that long ago we were one of the five most competitive countries in the world when it came to tax. Now we are nowhere near that. Why are we in this position? The reasons behind these elevated and anticompetitive tax rises are disheartening, to put it lightly. As the noble Lord, Lord MacGregor, said, in 1997, government spending accounted for 40 per cent of GDP, similar to that of the United States. That figure rose to 52 per cent last year, and is expected to rise by another percentage point this year. We are pouring our life's blood into a bloated and inefficient public sector, while watching our dynamic private sector suffer.
Let us not make the great recession the excuse; government spending increased from 40 per cent in 1997 to 47.5 per cent before the recession in 2008. The public sector is not delivering, yet it is overpaid and full of jobs for life and gold-plated pensions. This is not fair. It is not a balanced economy. This is in addition to government borrowing because we did not save for a rainy day; this is in addition to trillions of pounds of funding for the financial sector; this is in addition to UK personal debt at close to £1.5 trillion, public sector debt at £848 billion—53 per cent of GDP—and 8 million inactive people of working age in a population of 60 million.
I thank the noble Lord, Lord MacGregor, for securing this crucial debate at this crucial time: the day after the Budget and before the election. If the election is going to be decided on one subject, it will be the economy. I welcome some good moves in the Budget. The Chancellor mentioned £35 million for university enterprise capital and £270 million to fund 20,000 university places in science, maths and engineering. This is great. We have some of the best higher education, but as a function of GDP we spend less than half of what the United States spends on higher education. Are we rewarding our excellence in higher education? Any cuts in higher education spending would be cutting off our nose to spite our face. Because of our success in higher education, we attract 60,000 students from the European Union. How many of our students study in the European Union? It is a small fraction of that number, yet we contribute £6 billion to the European Union. Is this fair? Is this a sense of balance? Thanks to not being in the euro, we have not been straitjacketed and we are not suffering as badly as the PIGS countries. It may be that the IMF will bail out Greece.
I welcome the £4 billion extra spending for Afghanistan. We have troops fighting two wars, yet defence spending is less than half the percentage of GDP that it was 30 years ago at the time of the Falklands war and the Cold War. We have been fighting wars non-stop for nine years now. Is what we are spending fair? Are our troops getting the best equipment, welfare, support, care and employment after they stop serving? What about the families, the widows and the wounded who are not receiving the care that they deserve? Where are the Government's spending priorities? Is this a sense of balance? The winter of discontent is swiftly becoming the spring of discontent—look at British Airways. This is déjà vu; this is Groundhog Day.
I welcome the measures for small businesses. I hope that the banks will lend £94 billion and that growth capital will be provided to small firms, which make up nearly 60 per cent of private sector employment and generate 50 per cent of private sector turnover. Small firms desperately need help. From everything I still hear, I gather that they are not getting the funding that they need. As the noble Lord, Lord MacGregor, said, manufacturing as a proportion of our economy is far smaller now than it was 12 years ago. It is no excuse to point to India and China and the developing of the east. We have continually to invest in higher value-added manufacturing, at which we are good.
We cannot change the past. We cannot reverse the decisions that were made leading to the crisis—the FSA being asleep on the job, the Bank of England being stripped of its powers, and Britain lagging six months behind the United States and Bernanke in dropping our interest rates and being straitjacketed by inflation targeting when we should have been looking at the economy as well. When we did it in October 2008, it was too late; we should have done it earlier. However, we can decide the future. Like a business, it is possible for us to survive by cutting costs, but you cannot progress by doing that alone. We need to sell. We need to go out into foreign markets much more than now.
We have a lot to be proud of—our great history, our great institutions—and we cannot let this country down. Once again, we have projections for growth that are not substantiated and, once again, the Opposition and the Government do not seem to be able to articulate clearly what the British people really want: a clear vision and path for our country. That is desperately needed. This Government are feeding the monster with low cuts and high taxes. We have to get lean; we have to get keen. We need to restore a sense of balance and fairness. We need to encourage and enable business through a competitive tax regime and to return public spending to 40 per cent of GDP. We need the politics of aspiration, not the politics of envy. That is going to take leadership, vision, and guts.
My Lords, I thank my noble friend Lord MacGregor for initiating this debate, which is important coming as it does just after the Budget and just before a general election. I too was going to compliment the noble Lord, Lord Myners, on his remarks last week about dour Scotsmen. Certainly it is important that dour Scotsmen—I emphasise “dour”—should be present in every bank. I can think of no better example than the progress that HSBC made under the undoubted leadership of Sir William Purves. I am also interested in what the noble Lord, Lord Giddens, had to say, but I have certain reservations about economists. After all I remember that, when my now noble and learned friend Lord Howe of Aberavon was at the Treasury, a letter was sent by a lot of economists to the Times. I am delighted that he took no notice of what they had to say.
I return to my remarks in the debate here on 4 February, at col. 307 of Hansard, when I deplored the fact that one in four people in Scotland was employed by the state. That situation has reared its head again. It is not a good omen for sorting out the massive deficit and giving the market the right message. The most depressing headline in the press recently read “Relentless march of state spending”, and the article stated that the private sector now made up less than half the economy. I cannot do better than quote the OECD economist who said that the 52 per cent figure “definitely” signified that something was wrong. That was last week. Now we come to the morning after the day before, and what do we see as a headline? The verdict of the City on the Budget was “swift and damning”. The article stated that,
“shortly after lunchtime … the gilt market … crumpled. Investors around the world started selling British government bonds”,
and the market closed last night with the pound at a two-week low against a dollar level of $1.49.
No doubt the Minister is sick of hearing—he has heard it already today—about Denis Healey and the IMF, but these recent acts, not by politicians but by the marketplace, are deeply disturbing. It saw a Budget that failed to address any concrete plans beyond this year for addressing the deficit, together with projections that are very, very optimistic.
Those of us in business do appreciate the help given to us in concessions on capital allowances and other measures, but I ask whether the Government are fiddling while Rome burns. After all, Portugal’s credit rating has just been downgraded and our deficit is two times the size of that country’s. I hope that in his reply the Minister will assure us if he possibly can—and I am not sure that he can—that our credit rating is beyond doubt.
As I go around, I hear constant grumbles about the new 50 per cent tax on high earners and other taxes affecting not just high earners but middle England and, dare I say it, middle Scotland as well. However, if we are to retain high-flying executives, this measure will have to be reversed as soon as possible. As an employer, I sincerely hope that the next Government, while taking tough actions to tackle the £160 billion-odd deficit, will not introduce the tax on jobs due next April.
I conclude by using the well known word of my noble friend Lady Thatcher, whom I see sitting in her place. If we are the next Government, we must not be frit to tackle this situation.
My Lords, I emphasise that in this debate there are many positive features about the high-technology and industrial aspects of the UK’s economy and its future prospects. Many of these result from government measures focusing on manufacturing and technical services, as well as continuing to work with the City, which provides a very important component of the UK economy that contributes to manufacturing as well. I declare my interest as the chairman of a small consulting company and a former head of the Met Office.
I endorse the remarks of my noble friend Lord Giddens: the UK is a remarkable example of a dynamic population and Government. As I visit other countries, including in Europe and the United States, I am much struck by how perhaps 60 or 70 per cent of young people in the UK still have an ambition to form their own company. The figure is very much lower on the continent. The United States, in contrast with the UK, is finding it extremely difficult to make adjustments to its own governmental and bureaucratic agencies to deal with the issues of climate change and energy shortage. The way in which this Government have, albeit slowly, come round to making very profound changes is, I think, an example of where the economy will benefit in future.
The specific point that I should like to make is that the European Union is, as I hope all noble Lords will agree, central to the development of the UK as a strong economy and that this will be threatened if the next Government withdraw their involvement. The UK Space Agency, which has already been mentioned today, was launched to ensure that the UK’s expenditure on space projects in Europe leads to greater UK participation and success. Over the past five years, the UK space industry and our scientific activities have already been very effective in utilising our EU framework project funding, but I regret that there are other examples of where EU research programmes have not led to the UK’s industrial involvement, and that is something at which the Government must work very hard. This will require a Government who are positive about the EU. It would be nice to think that we were going to have a Government who finally had the courage to fly the European flag over their Parliament building, as they do in all other countries in Europe with the exception of, I believe, the Czech Republic.
The other feature is that this Government have moved away from the very curious views of the previous Government. I was a chief executive working for that Government in the 1990s, when it was suggested by many of the chief executives of government agencies that the investments by those agencies were not being used as effectively as they might be to encourage UK business. I was told at the time that that is the kind of thing they do in France but not in England. That sort of attitude has gone with the coming into power of the present Government, and we have had very effective methods of using public procurement to help UK business.
There are still ways in which this could be considerably improved. The overseas representation of the UK could be more proactive on behalf of UK business—one hears this comment made over and over again. The UK could encourage its government agencies to have overseas branches. For example, there is a branch of the Environmental Protection Agency of the United States in Beijing, in what will be one of the largest countries in the world for an environmental market. The Environment Agency in Britain would not be allowed to do that. Other European countries use their overseas aid and development programmes to help their businesses. Those countries are always very surprised that the UK overseas development programme is not used as effectively as it might be to work with UK industry. This approach has broad-based support in the UK, and I am not convinced by the DfID approach of apparently favouring so many overseas suppliers of goods and services which one knows very well can be provided by the UK. That might be something that a different Government would change.
If the UK is to contribute in future to the enormous tasks of helping vulnerable countries with growing populations and climate change, this will require very long-range collaboration between Government, industry and the scientific community. Such countries have enormously growing populations and huge areas of water shortage. If you go into the main offices of Mitsubishi in Tokyo, you will see displayed in front of you all the kinds of new industrial projects that they are working on in those countries to help energy and desalination. This will be an enormous industrial and economic project for the future. There is mass migration to coastal cities in Africa and Asia, which will require very innovative and large industry. This requires collaboration on a very long timescale between businesses and government. The kind of approach we have at the moment needs to be changed.
I endorse again the point made by my noble friend Lord Giddens that in the UK, industry and business could work more closely with Government on energy, if we moved away from the idea that you can change your electricity supplier every couple of weeks, which is the current policy. You cannot have combined heat and power, which would almost double the efficiency of the use of fuel, unless you have an agreement between the user and the provider that may last for 20 or 30 years. It is very good that Ofgem is moving in this direction.
The interventionist approach of Government is essential. We have seen the successes of that, but it has in no way led to a diminution of interest by university students, or by plumbers and plasterers, at all levels of Britain, who want to participate and to generate new industries and companies. I see this in many examples. My noble friend Lord Giddens referred to his origins. I come from a very classical family of professionals, most of whom had absolutely nothing to do with business and forming companies. The number of my friends, colleagues and relatives who have formed companies in Britain over the past 30 years is quite extensive, but hardly any of my friends on the continent have done so. That is a measure of how Britain is moving in a positive direction, and this Government have greatly helped.
My Lords, I congratulate my noble friend, Lord MacGregor, on introducing this debate, not least because his timing appears to be impeccable. We need to broaden the debate a bit beyond the Budget. Before I concentrate on the question of the overall management of the economy, I would like to deal with one particular problem which has always been my concern—namely, the question of pensions. Having represented for many years the constituency of Worthing, about which it is said that people go there to die but forget what they came for, I think this is a crucial issue. If we compare the situation now with the situation in 1997 when this Labour Government came to power and when I had the privilege of entering this House, we see that the deterioration in the position on pensions is absolutely appalling. At that time, we had a massive system of final salary schemes in existence, where the amount invested in the UK was greater than in the rest of Europe put together. Over the past 13 years, that system has virtually disappeared, to the tremendous loss of all those who might otherwise have benefited from it.
There is also a serious tactical problem for existing pensioners. The recent uprating was dependent very much on a particular moment in time, as far as the relevant index is concerned. The figures have changed since that decision on uprating was mentioned. Having said that, we underestimate the catastrophic effect on many prudent pensioners who were relying on their savings and on the return on those savings. With interest rates of less than 1 per cent as far as the Government is concerned, their return is impoverishing them in their late years, in a way which has never happened previously.
I turn to the question of the overall management of the economy. What used to be called the Red Book, though it is no longer red, is very much preoccupied with forecasts. There is a very simple fact about debt. If the forecast is for an even greater increase in debt, and the actual amount of debt is less than that, that does not mean that the actual amount is not horrific. The fact that the forecast was even worse is neither here nor there. The Government forecasts on growth, of 3 to 3.5 per cent in 2011, are overoptimistic. They have said that these are partly because of easier credit conditions, and I will come back to that in a moment.
I also have a technical point about the way the Government look at the economy, and in particular what they describe as a growth-cycle approach, which compares the trend level of economic growth with cyclical movements and the so-called output gap. It is very clear from the figures in chart B3 in the Red Book that we are now forecasting a very large output gap indeed, but this way of looking at it is, in many ways, misguided. I much preferred the older system, where one looked at the proposed growth in productive potential and then compared it with the growth in demand. The way this looks at it ignores, or smoothes out of consideration, the fact that we have lost a massive amount of productive capacity as a result of the recent economic crisis. Therefore, to look at it in terms of trends, rather than what is happening, is inclined to be misleading.
I turn to the crucial point I have in mind on monetary policy. The noble Lord, Lord Myners, and I have exchanged views on this before. I will try not to repeat what I said previously too much, or I will apparently appear on his blog with a critical comment, although how he finds time to write a blog I cannot imagine, given his many other duties. The problem is that there is a gap in organisation between the Bank of England and the Debt Management Office as a result of the change Mr Gordon Brown introduced in 1997. The Debt and Reserves Management Report 2010-11 is a huge volume setting out the objective of the policy, which includes being consistent with monetary policy. However, there is no mention whatever in the report of how it is being made consistent with monetary policy. There is a lack of co-ordination between the Debt Management Office and the Treasury, on the one hand, and the Bank of England on the other.
The figures show that, despite quantitative easing, what has been happening to the monetary supply is quite extraordinary. The leaders in the Times seem to think that it has gone up as a result of quantitative easing. However, I refer the Minister—and I hope also the noble Lord, Lord Mandelson, who was in earlier, because it is crucial to implementing the proposals for small businesses—to the latest Bank of England statistical release. It shows that growth in M4, and in particular credit lending, has been plummeting for a long time. Quantitative easing, so called, was introduced, but the reality is that the actual money supply and growth of M4 lending, which is the broad measure of money supply, has plummeted. The tables are very disconcerting because they show that Government’s plan for recovery cannot operate if the money supply is behaving in the way it is. It would seem that the Monetary Policy Committee is underestimating the effect of this and the fact that quantitative easing does not appear to have had the effect the Government intended. This is a very serious matter for the management of the economy and I hope that it will be taken into account by a future Government under the Conservative Party.
Finally, when often in the past I spent many weeks or months in the preparation of a Budget, I thought I understood what it was all about. However, I never really understood it until I saw the headlines the following morning. In that respect, I do not think the Chancellor of the Exchequer can be very satisfied with the response he has produced.
My Lords, I participate in the Lord Speaker’s outreach campaign. This means that I go to conferences and schools and explain who we are and what we do in your Lordships’ House. Last Friday, I spoke to about 60 A-level students at a school in Dagenham. At question time, one student told me that he has local politicians who say that they do not want him—Dagenham has got BNP councillors—and national politicians who run down the country, politicians who are themselves a bit dodgy. His question to me was why he should bother with politics. This encounter set me thinking. Surely this bright young person has everything to look forward to. However, he was accusing us of saying otherwise—that he has no future—and, listening to some of the things that are being said, I think he has got a point. Some of us are talking down our future, particularly our economic future.
Of course the situation is difficult; of course we have a lot of debt; of course we need new jobs; of course the economy was in recession—but if you talk down our ability to win through with phrases such as, “These problems are not solvable by a Labour Government”, or, “We will end up like Greece”, of course people will wonder if it is worthwhile bothering. Most people do not know that this is just rhetoric. What they do know is that this talk can affect their jobs, their quality of life, their homes and, yes, their future. We know that we are in a fragile situation and that if we talk ourselves down like this we can help precipitate a sterling crisis and deter inward investment.
On Tuesday in this House, yet again, Members on the Tory Front Bench insisted that the lights would go out; that we would run out of electricity. How can they be so certain? We know that this is political scaremongering, but think about its effect on the confidence that the noble Lord, Lord Bilimoria, said was so important. Think about its effect on the confidence of someone planning the future of a business in these difficult times. Do you ride out the storm or do you prepare for the worst? Do you cancel investment plans and make compulsory redundancies or do you ask everyone to tighten their belts and for a while defer investment? I know what decision I want them to make, and running down Britain will not help them to make it. What will help them to make the right decision is the temporary cutting of business rates, doubling investment allowances and doubling entrepreneurs’ capital gains tax relief, as was announced in the Budget. There is a line between being a prophet of doom and being constructive. I believe some have crossed that line.
It is not all doom and gloom: we have low inflation; we have low interest rates; job losses are less than expected; and prospects are looking up, especially in the car industry. We are better off than we thought we would be 12 months ago. We still have to be careful not to precipitate a double-dip recession, and yet the shadow Chancellor writes and speaks of his concern about a sterling crisis and a government default on our loans. One way in which he can reduce the likelihood of that happening is to stop talking Britain down.
So what did I reply to that young student in Dagenham? I said that some may be running us down for their own political ends but that most of us were concerned that we should have a strong and fair economy when he starts work. We are not going to let the past bury the future. We believe that we can change society and save it from itself. This is what the debate should be about—policy reorientation, as my noble friend Lord Gidden put it.
A picture is emerging. In recent weeks, Ministers have indicated that the Government would like us to concentrate less on ownership and more on stewardship. Why? Because we have learnt that some of the activities in the financial sector have benefited the few at the expense of the many; that the single-minded pursuit of share price benefits the few but not the many; that what the few call financial engineering, the many consider dishonest cooking of the books. Taking a bigger share of the pie benefits the few; increasing the size of the pie benefits us all. This new knowledge helps us to draw the picture of our new economy—a fairer economy. The proposals that Ministers have made during these past weeks in regard to corporate governance, the management of salaries, fiscal policy and regulation chime exactly with this new vision.
I thank the noble Lord, Lord MacGregor for moving the Motion. His timing is perfect. Budget time is the one time of the year when the economy really has the nation’s attention.
I started by pointing out the dangers of talking Britain down. Not only is it dangerous but it is also untrue, a point made by other noble Lords. So let us not talk ourselves down. Let us be positive; let us be fair; let us be reassuring that we are going to work our way out of this recession and pay off our debts, and that we do not need a change in Government to do it.
My Lords, we were treated by the noble Lord, Lord MacGregor of Pulham Market, to a speech that led me to believe that the world began in 1997, when the wicked Labour Government marched on to the scene. The fact is that he was responsible beforehand for some things to which I wish to draw your Lordships’ attention.
Privatisation is described variously as selling the family silver, if you are Harold Macmillan, or creating a workforce of shareholders, if you are the noble Baroness, Lady Thatcher. The problem with selling the family silver is that it cannot be done again. Companies in the public sector that had low debts were sold cheaply in an unsophisticated marketplace. Most small shareholders sold out very quickly. The newly privatised companies geared up their balance sheets immediately, paying out huge, unearned dividends to their shareholders. They then told the regulators, some of whom were pretty toothless, that there was insufficient money in the coffers to upgrade their networks. Then they turned to their customers to pay for repairs and upgrades. In other words, taxation was transferred from the Government taxing people to the newly privatised companies raising prices to take money from people—at a level, of course, that would never have been allowed had those companies remained in public ownership. All this was overseen and encouraged by the noble Lord, Lord MacGregor of Pulham Market, in his role as Chief Secretary to the Treasury, together with his friends the finance men and corporate lawyers in the City. The taxpayer was robbed.
It gets worse. When the noble Lord was appointed Secretary of State for Transport, he presided over the privatisation of the railways. I went to see him with the late Robert Adley and pleaded with him to adopt a better model. My advice was swept aside and, instead of listening to professional railwaymen, he preferred to listen to clever lawyers and merchant bankers, who once told me that you could privatise any business, however weak, if you provided potential investors with sufficient returns—in other words, bribes. Was this what the noble Lord who introduced this debate intended when he was in office? Is this the sort of thing that we can expect from the Conservative Party, in the unlikely event—in my estimation—of its being returned to office?
My criticism of the Labour Party is that it allowed this robbery of the ordinary citizen to continue when it should have taken steps to stop the rape of industry and the demutualisations of institutions and building societies. Alas, it was still in thrall to the City and its manipulations. Even when Railtrack deservedly went into liquidation, Labour created an almost unaccountable successor, Network Rail, which spends taxpayers’ money extravagantly and with totally inadequate checks.
We do not think that public ownership and mutualisation are bad. We are certainly against grandiose bureaucracies, the creation of quangos and the centralisation of decision-making, but we believe that many changes could be made in spending plans that would both save money and create jobs in Britain.
The cupboard of things to sell is now almost bare. As the Conservatives say that they are averse to tax rises, we can expect their agenda to contain cuts upon cuts. As far as possible, to quote the Daily Telegraph this morning, they will choose to avoid the middle classes.
As a result of these policies, many of our industries are now controlled by foreign owners whose interests are unlikely to be influenced by their effects on Great Britain. The cost of regulation is vast, both in itself and in the money spent by companies in trying to obstruct the regulators, and, as the noble Lords, Lord Giddens and Lord Haskel, said, it does not reflect the longer-term priorities that are essential in any large infrastructure industry.
We could have a railway to challenge those of Europe—a power industry where there is no mention of the lights going out. Whatever arrangement succeeds the present Government as the outcome of the forthcoming election, it should concern itself with satisfying the end customer and not with placating greedy people in the City.
My Lords, I must apologise to the noble Lord, Lord Bradshaw, for getting up too quickly; I must have been too keen. I congratulate my noble friend Lord MacGregor on introducing this debate and managing such excellent timing. I say to the noble Lord, Lord Haskel, that I was the candidate in Dagenham a very long time ago, although I did not win, as one might imagine. I would say to his schoolboy that he would be slightly less disillusioned with politicians if he got the truth from this Government.
At the moment we are involved in a complete phoney war. This Government are trying to spin a narrative that Labour would avoid cuts in the short term and that the Tories would cut at once and pitch the country into a double-dip recession. That is not true at all. I do not think that the public expenditure review promised by Labour in the unlikely event that it was to win the election would happen; I suspect that, like the Conservatives, it would have an emergency Budget after 50 days, when the serious issues as to how we are going to bring this deficit down would be tackled.
The only thing that could go wrong is that there could be a hung Parliament, in which case all the critical decisions would be deferred—the first 50 days would be spent trying to form a Government rather than tackling the whole question of the public finances. The Government who emerged might well represent the majority of Members of Parliament in another place, but they would not give any voter anything that he voted for; manifesto commitments would be binned as discussions took place about how a coalition Government should go ahead. I am quite convinced that a hung Parliament would be the very worst solution for this country, for the simple reason that everybody would anticipate another election coming up shortly and therefore they would not want to have their fingerprints on hard decisions. I suspect that the IMF would be round very shortly afterwards to tell us how to run our economy.
Government spending is being reduced as we speak. I am amazed that the Chancellor yesterday came out with this extraordinary statement:
“I know there are some demanding immediate cuts to public spending. I believe such a policy would be both wrong and dangerous”.—[Official Report, Commons, 24/3/10; col. 255.]
I suggest that he walks across the road to the Foreign and Commonwealth Office, where he will find that it is cutting expenditure as we speak. That is, of course, because the pound has devalued so much against foreign currencies that the Foreign Office is running out of money. I know that the Treasury Minister will say that the sterling amounts going to the Foreign Office have not changed, but I do not think that the Foreign Office will see it that way. A noble Lord who formerly ran the Foreign Office has told me that, in past times when there were exchange movements, either the Foreign Office paid money back to the Treasury or the Treasury compensated it for any loss of money, so that it did not suffer as a result of movements in the exchange rate.
If you look now right across the public sector, you see signs of people cutting expenditure with recruitment bans and so forth. I was talking to somebody the other day who is on the finance committee of a London borough; he says that they are working now on the basis of 15 per cent cuts, which will of course be brought about by cuts in government support to local government. This is taking place at the moment. I therefore find great difficulty in aligning the Chancellor’s saying that cuts will somehow be avoided during the next 12 months with what is actually happening. It is all very misleading.
There was an interesting vignette in Questions yesterday. Noble Lords will remember my noble friend Lord Selborne asking whether funding would come through for Ordnance Survey so as not to threaten its handing out free maps. There was tremendous support for Ordnance Survey carrying on as it has done for so long. I was rather cowardly; I did not want to find myself, like somebody in a Bateman cartoon, getting up and saying that if it was the Government’s proposal—as I am sure it is—to cut the Ordnance Survey grant, I suspected that it was just the start of something that would happen with quangos across the country during the next 12 months. It would be very surprising if Ordnance Survey got away without some reduction in its grant and I believe that the same will happen to a large number of other organisations. As they, too, are very well represented in your Lordships’ House, I am sure that we will hear a cacophony of complaints during the next 12 months as everybody says that this is end of civilised life as we know it. This will be the world that we have to get used to.
We have a major problem to tackle. We have already seen the yields on 10-year gilts rising from about 3.6 per cent to more than 4.1 per cent. An independent economist said the other day that, had it not been for quantitative easing, 10-year gilts would have had to pay out another 1 per cent. We face very serious problems, which, regardless of who wins the election, must be tackled. My honourable friend the shadow Chancellor of the Exchequer, George Osborne, said on the “Today” programme this morning that he saw reductions in public expenditure having to take 80 per cent of the burden of closing the deficit and taxation taking 20 per cent. The position of my party on this is one of honesty. I wish that I could say the same of the Labour Party.
My Lords, when I have been asked to give advice to small businesses, I often tell them that they should take a step back from the day-to-day mêlée and try to see the wood for the trees. Coming half way in this debate, I say that we, too, should take a step back and look at how the UK economy got to where it is today and at the real cause of the financial crisis that started just over two years ago.
The financial mess that we have experienced was not, as some might say, the fault of the UK Government, any more than it was the fault of the US, French or German Governments. It was caused in part by the creation of immoral financial products by our American cousins, who went on to package them up and sell them to banks, including many British ones, falsely labelling them as AAA instruments. An influx of foreign banks came to play in the UK market and, together with British banks, irresponsibly dished out vast sums for highly overvalued assets such as real estate.
There was a fast-buck culture: hedge funds and individuals manipulating markets by spread betting and short selling, artificially depressing values of banks and hurting real investors. People made millions without doing anything productive. Sitting in front of computer screens, they never produced anything or created employment; they simply preyed on the misfortune of others. It was morally wrong. It was a worldwide problem, not exclusive to the UK.
Now that I have got that off my chest, perhaps we should turn to what has been done about it. Despite a time of great uncertainty, the Prime Minister and the Chancellor stepped up to the plate and made the right decisions. Not a single retail investor lost their deposit and the banking system did not collapse. The UK’s actions to rescue the economy and shore up the banks have been copied all over the world. Can others honestly say that they would have done anything differently? There have been a lot of “I told you so” comments. The honourable Member for Twickenham in the other place, for example, seems to have powers of clairvoyance, claiming that he saw all this happening. Well, it is easy to say that in hindsight.
Noble Lords should correct me if I am wrong, but I understand that the leader of the Opposition opposed the action taken on Northern Rock. If Northern Rock had been allowed to go bust, private savers would have lost their money. That would have created a run on all the other banks. It was simply unthinkable. Again, if I have interpreted things correctly, the leader of the Opposition and the shadow Chancellor are now threatening to choke off recovery by cutting support to the economy. Surely this would lead to a decade of low growth and austerity.
Despite the dire predictions of some, we have managed to avoid the mistakes of the recessions of the 1980s and 1990s. Repossessions are half what they were back then and only half as many businesses have gone under. The rate of job losses is four times less than if we had replicated what we experienced in the last recession.
Since my appointment, I have talked to real businesses and real banks. I do not rely on surveys and headlines that skew the message to fit certain agendas; I concentrate on the facts and make my own judgment. My message today remains the same as it always has been. Banks are now, quite rightly, returning to proper lending practices based on balance sheets, profits and collateral. That is how it was when I started out; that is how it should be; and that is how we will get this economy to recover. In fact, I hear from some banks that they have a lack of demand and are concerned about nervousness among their clients.
I am encouraged by the announcement in yesterday’s Budget that the Government will build on their financial intermediary service and set up a national credit adjudicator for small businesses to ensure that they are treated fairly by banks when attempting to raise finance. I have been similarly encouraged in the recent Q&A seminars that I have carried out during the past three weeks with more than 1,600 SMEs in Bolton, Birmingham, London and Newcastle. I will not say that they were all jumping up and down with excitement, but they had digested and understood the climate that we find ourselves in. They are reorganising and rethinking their strategies positively.
I am pleased that the Government are now offering entrepreneurs further encouragement, such as doubling both the entrepreneurs’ relief threshold on capital gains tax and the annual investment allowance on capital expenditure. At the same time, they are ensuring prompter payment to those people by government.
The quickest and cheapest way to get the economy back on track is to endorse the words of my noble friend Lord Haskel and stop talking things down. Believe it or not, we need some help from the media; they should start reporting some of the good news out there. I have met hundreds of businesses that are doing well. They are expanding; they are taking on more people; they are selling more goods and services. We need to hear more of this, at least to encourage the others to think positively.
There are indeed important economic issues to discuss, but I urge your Lordships to reflect and look objectively at the period that we have come through. It has been tough, but we have come through it thanks to the actions taken. There is a brighter future ahead of us. The numerous initiatives that have been put in place in the past year and in yesterday’s Budget are evidence that the current Government are best placed to take us forward.
My Lords, we owe a debt of gratitude to my noble friend Lord MacGregor, first, because it is the right moment to talk about the economy and the Budget and, secondly, because it has given the government party a great opportunity to stand up in this House and defend effectively what it has been doing. It has been quite disappointing to hear the rather few noble Lords from the government party who have spoken at all.
I agree with what the noble Lord, Lord Sugar, said at the beginning of his speech, but not about those three things that you would do about economic problems that seem to have echoed from the Labour Benches. One is that you blame the previous Government. But that was 13 years ago—surely it is a little difficult to talk about that. There were, of course, some echoes from the past. The noble Lord, Lord Giddens, rather reminded me of Messrs Balogh and Kaldor with his reference to what he called the “symbolic activities”. I wondered whether he was about to recommend the reintroduction of a selective employment tax. On taxation—I am sorry he is not here, but he can read this—I was surprised that he did not talk again about the wealth tax because the last time he spoke in your Lordships’ House, he recommended the reintroduction of a wealth tax. We all remember what happened to Denis Healey’s attempts to do that in 1976—I remember it very well. The problem was that they never could find a way to avoid raiding the cash flow of small companies. I think the noble Lord, Lord Sugar, would probably agree that that is a non-starter.
Then we heard from the noble Lord, Lord Hunt. I love his idea that he would like the European flag to fly over Victoria Tower. I actually thought, from the earlier part of his speech, what he would really like is a flag with a floating polar bear on it.
Nor is it enough to say that we must not talk Britain down. It is not about what people say, it is about what is actually happening, which is serious. You cannot blame the media. What is happening in Greece is more serious. However much people try to conceal it, Greece is in a hell of a state. It could bring down the euro, and that could bring down the whole European endeavour, an endeavour which I strongly support.
I want to talk specifically about an issue which I believe to be important. The noble Lord, Lord Myners, knows that I am going to talk about it. I refer to credit card debt. According to the Bank of England, total interest-bearing credit card debt at January this year was £61.5 billion. That is a huge sum by any measure. The average rate of interest being charged is 17.8 per cent. Of course, for any bank, credit card lending can be wonderfully profitable—provided that the interest is paid and the debt is eventually repaid—just as sub-prime mortgages were very profitable and were even given the imprimatur of that one-time god-like figure, Alan Greenspan. Noble Lord should look at what he said about sub-prime mortgages in his book The Age of Turbulence, published too soon for his own record.
The rates charged for credit card debt vary between 12.5 per cent and 35 per cent. That means that the total interest liability on £61 billion is more than £900 million of interest per month. We do not know how much of that is actually being paid, but I would guess that it is a pretty small proportion.
There are some 66 million credit cards in the UK. Credit card spending is about £10 billion a month—about £120 billion a year. Therefore, credit card debt is about 50 per cent of turnover. That is an enormous figure by any business standards. Many people have more than one credit card. I understand that some 60 per cent of all credit card holders pay off their credit cards each month and do not enter a debt situation. That means that the debt is shared between about 26 million credit cards. That is roughly a debt of £2,000 per credit card, which works out at interest of about £7 a week for each cardholder. For some, that is viable; but for many, it will be a dark shadow over their lives.
In general, credit cards have been losing out to debit cards, the use of which has been increasing rapidly; indeed, the total number of plastic cards reached 169 million by the end of 2008, yet the debt on credit cards rose by some £8 billion during 2009. We know that a number of the credit card lenders have been securitising their debt, moving it on to the books of associated companies located outside the UK—our old friends, the special purpose finance vehicles, or SPVs. In effect, it means that the debts are handed over to debt collectors. Some £9 billion of credit card debt has been securitised in that way, but it is still shown as part of the £61 billion by the Bank of England. However, I understand that the rate at which this credit card debt of £9 billion has been sold off is between 10 and 20 pence in the pound. I assume—although perhaps I should not—that the asset value of that credit card debt in the bank balance sheets has been reduced
I ask the Minister a crucial question: what has the remaining £50 billion of credit card debt on the banks’ balance sheets been valued at? If it is still valued at 100 pence in the pound, I would suggest that that represents a heavy burden of potential toxicity which could imperil, again, the financial system.
I congratulate the noble Lord, Lord MacGregor, on securing this debate. I also welcome the wise contributions that he and other speakers have made. I declare that I am chief executive of London First, a not-for-profit business membership organisation.
In talking to businesses in the capital, I detect a little more confidence and optimism than a year ago; yet that confidence is fragile. London has fared better than many parts of the UK, but that does not mean that the recession has not bitten deeply.
I will give noble Lords just a few statistics to give an indication of the depth of the recession. UK electricity demand in the first three quarters of 2009 was down by 6 per cent on the equivalent period in the year before. In the construction sector, there was a 20 per cent drop in orders, with a reduction in actual activity of around a quarter. Central London had 22 million square feet of vacant office space in mid-2009. Finally, retail and leisure businesses tell of a consumer in search of value, premium quality, and yet reducing peripheral expenditure. In London especially, overseas visitors, helped by the exchange rate, have bolstered both footfall and sales volume.
Looking forward, growth is by no means assured. After predictions of V-shaped recessions, W-shaped recessions and even a saxophone-shaped recession, the current preoccupation is with the prospect of a corrugated roof-shaped recession. However, it is the UK's strength in the service sector—including retail, logistics, creative industries, lawyers, accountants and, yes, bankers, and led by London—which has the potential to provide the growth to steer us clear of recession.
Successful business is fundamental to national economic well-being. However, the past few years have seen a decline in the willingness of the Government and the Opposition to acknowledge this fact to the electorate. The credit crunch and recession have coincided with a steep decline in the quality of the relationship between national politicians and the business community, and all three major parties have sought to position themselves as antipathetic to the wealth generators. This is economically, and thus ultimately politically, unsustainable.
After the election, there will be an onus on both business leaders and the Government to work together to restore their relationship and to build a successful and sustainable economy. After all, the wealth created by the private sector is the only means by which public services, from schools to bin collection, from hospitals to defence, can be sustained.
As the shadow Chancellor has been heard to say, we are all in this together. That means that the unloved bankers are on the same side as the rest of business and as the voters. Bankers fulfil services which businesses and consumers need and value. The voter wants businesses to succeed, for their employment and for the taxes they pay. But it goes wider than that. If we assume that UK growth can come from trading with ourselves, on this small island, we are much mistaken. It will not even be sustainable to hitch our fortunes to Europe. The real growth in the next decade will be in Asia; we must hard-wire London and the UK into that Asian growth. We must make it easy and attractive for Chinese and Indian companies and individuals to build their businesses and careers here in the UK and for companies to export their advice as invisible exports to these growing economies. That means that we cannot make tax policy or regulation in isolation; we have to remain competitive and compatible with overseas markets and other international cities. We cannot separate the interests of London and the UK from the international environment in which they operate. Monetary and fiscal policy has also to support international confidence in the UK's ability to tackle its debt. A run on the pound is the last thing we need.
On yesterday's Budget, a good point was that there were no surprises. The Strategy for National Infrastructure, announced alongside, has much to recommend it. In particular, the National Infrastructure Framework, while a long time coming from this Government, is good news indeed as a way of prioritising the most crucially needed investments. A similar approach would work well in determining where spending cuts could be made more widely across government. I also welcome the planned review of why construction costs of major infrastructure in the UK are higher than in neighbouring countries. I hope that both these initiatives from Infrastructure UK can carry on beyond the election, whoever is in power.
It is clear to everyone that the Budget that really matters will be the one after the election. What does business want from the post-election Chancellor? It wants a coherent plan for tackling the deficit. The Government have mapped out targets that any Government will find ambitious; many have strong views on whether it should be addressed more quickly or slowly. My point is that it should be tackled wisely, with clever cuts, both from efficiencies and from stopping those programmes which provide the poorest return. I stress that the Government should not cut those programmes and projects which are politically easiest to cut, but those which offer the poorest return. The new Government must make evidence-based judgments in a consistent way to deliver on this agenda.
I agree with the proposal that action to address the deficit should be made up roughly of 80 per cent spending cuts and 20 per cent taxation. But even in this order of magnitude, tax rises should be broad based, rather than at the margin, which could further compromise our competitiveness. Such changes should be clearly signalled. Rabbits out of hats such as the 50 per cent higher rate, the non-doms provisions or the changes to pension allowances create uncertainty, leading internationally mobile, highly talented people to reconsider whether the UK is the right place to be. The spending which must be protected is that which builds economic capacity—infrastructure in general and transport in particular. Crossrail and Tube upgrades are not a matter of comfort for London commuters but of necessity, to them and to the UK economy. After all, 70 per cent of UK rail journeys begin or end in London.
My final point is that the primary objective is not to get elected or cut the deficit or to increase or reduce taxes or to improve public services. The goal is to achieve sustained UK economic growth. The Government's role is to do all that they can to create an internationally competitive business environment which can support that growth. All other objectives depend on success in that goal.
I thank my noble friend Lord MacGregor for securing this timely debate. At present, we have one of the largest budget deficits in the developed world. I am deeply concerned about the state of British finances and the impact of the national deficit on our GDP. Government debt currently stands at more than 50 per cent of GDP, and the deficit this year will be £167 billion, which is a record high. According to the Government's own projections, they will be borrowing £734 billion over the next six years, taking our national debt to £1.3 trillion. The level of national debt has risen so drastically that next year we will spend more on debt interest than on education. These figures are extremely worrying.
We need to look at how this dire situation came about. The present crisis came to light because the banks were reckless in their lending and the regulatory authorities failed in their duty to ensure that proper practices were being undertaken. The situation was compounded by the fact that the Government had borrowed excessive amounts, no adequate controls were exercised on spending and there has been a considerable wastage of the country's resources. Furthermore, the Government failed to take appropriate actions to generate revenue in different channels. With regard to expenditure, in my own business operations I have always believed that my expense ratio should not exceed an acceptable percentage of the revenue. Now that we are in a state of crisis, we need a clear plan to steer us out of this unfavourable situation and put us on a path to recovery.
The glaring failure of financial regulation must be adequately addressed, to the extent where a similar bailout by taxpayers of institutions becomes a distant possibility. I am in favour of plans to give the Bank of England greater responsibility concerning financial regulation. The economic downturn exposed the failure of the current system. We should seek international agreement on banking reform and the application of levies, if need be on a limited national basis. We now have a lower credit rating than other highly industrialised countries such as Germany and USA. We need therefore to safeguard Britain's credit rating with a credible plan to eliminate a large part of the structural deficit.
At this juncture, I declare that I am the chairman of an insurance broking and financial services organisation. We need to maintain and strengthen our role in promoting Islamic finance, which is based on mutuality, ethical behaviour, transparency and the acquisition of assets which give it more stability. Growth in the Islamic banking sector globally is nearly 30 per cent per annum. Therefore, there are further opportunities for our country's involvement. Had the financial institutions undertaken a greater volume of Islamic products, the financial problems we are facing would probably have been less severe. We must, of course, promote our financial services industry, but it is also imperative that we manufacture and export specialist goods such as precision machinery and pharmaceutical products. We have the expertise and resources to produce and export such goods. We need to have a balanced economy and encourage ideas which will further promote our manufacturing sector.
A large number of opportunities are presented by the improvement in the standard of living in countries such as India and China. We should be increasing our exports of high-value goods and financial services to these millions of potential new customers. It is important that our future economic strategy recognises the importance of small businesses, entrepreneurs and innovation to our recovery. Small and medium-sized companies play a vital role in job creation; it is therefore essential that those enterprises are not burdened by excessive bureaucracy. Cutting waste and reducing the layers of bureaucracy in our public services is vital to increasing efficiency in our industries.
The 1 per cent increase in employers’ national insurance contributions will impact small and medium-sized businesses the most. The national insurance increase is estimated by the Federation of Small Businesses to cost 57,000 jobs. Furthermore, it is imperative that the banks increase their lending to small and medium-sized enterprises. The increase of tax to 50p will affect businesses as well as entrepreneurs who generate wealth for the country and create jobs. The tax is therefore counterproductive.
The level of youth unemployment is now one of the highest in Europe. Young people have the potential to make a vital contribution to our economy and society. It is the responsibility of those in government and commerce to work together to develop a strategy that will help our young people to weather the economic storm. Independent scrutiny of our fiscal policy is vital to repairing the fragile economy and building trust among the public, a large number of whom contributed to the recent bank bailouts. For this reason, I support the proposal of the shadow Chancellor to create an independent office for budget responsibility if the Conservative Party forms the next Government.
The Budget delivered by the Chancellor of the Exchequer was in fact a long political statement that lacked substance and constructive thinking. The Chancellor did not give us enough indication about what his party will do to tackle the present crisis. The Government wasted the years when we had economic prosperity and failed to make hay when the sun was shining. We need to rescue the economy from the dire state it is in by implementing the eight clear and transparent benchmarks suggested by the Conservative Party. In addition, it is imperative that we take remedial action immediately, rather than delay taking the strong medicine which will cure our illnesses.
The plan put forward by the Conservative Party to right 13 years of wrongs committed by Labour is one that will have Britain up and running again and will maintain our position as one of the leading nations in the world.
My Lords, I thank the noble Lord, Lord MacGregor of Pulham Market, for securing this debate. He took one view of the British economy under the Labour Government’s stewardship and will appreciate that I do not share that view. In fact, I take the opposite view—more like that of the noble Lord, Lord Giddens.
Labour has made many mistakes, but on balance, it has got most things right. I mention as examples expansion of education, social justice, mild redistribution, the reduction of child poverty, the National Health Service, development aid and so on. When I contrast this with Tory policies, I begin to see the fundamental limitations of the Tory policies. To start with, the Tories have not quite worked out what the role of the state is in the economy, especially in a period of recession. Deregulation is hardly the answer. Talking about spending cuts does not really help us much because often they are not costed, or if they are, they are wrongly applied and can easily create a grave and social and political crisis. The Tories were wrong to oppose the bank nationalisation, and they were also wrong to oppose the stimulus package to restart the economy.
I could go on, but my concern here is not to engage in a party political debate; rather I want to concentrate on one specific area, which has not been talked about and which will have to be addressed by whichever party comes to power. I want to speak about how the recession has impacted on the ethnic minorities. The unemployment rate among white men is 8.3 per cent. Among ethnic minorities, it is 18.2 per cent. If you take those between 16 and 24 years of age, it is 20 per cent among the white population and 48 per cent among the ethnic minorities. This is stark, striking and very disturbing and if we are not careful, it could easily generate a cycle of permanent unemployability.
Why has this happened? Unlike previous recessions, this one has impacted disproportionately on ethnic minorities. There are three or four reasons for this. The public sector is no longer as sheltered as it was in the earlier stages of the recession. Most ethnic minority workers work in manufacturing industries and these have been hardest hit. There is high incidence of discrimination when redundancies take place, as many reports have shown. The Government pledge last year to shield ethnic minorities by targeting support at disadvantaged groups has not been fully implemented. This was one of the major findings of the IPPR report a few weeks ago.
It is not just a question of unemployment among ethnic minorities. Ethnic minority businesses have also been hit harder than other businesses. The gap between the amount of business finance they seek and the amount they receive from banks and lending agencies is much greater than with other communities. They are more likely to be rejected for loans. They are also significantly more likely to feel discouraged from applying and they pay higher rates of interest than many other businesses. This again has been confirmed by several reports that have recently come out.
Now some of these discrepancies between ethnic minority business and the rest of the population can be explained in terms of business risk, limited collateral assets that the ethnic minorities have and the financial track record of these communities. However, these factors do not fully explain all the differences. This has been shown by the Runnymede report and, more recently, by the report from the Department for Business, Innovation and Skills. I think we need to be very careful in exploring how banks and building societies give out loans and whether their policies are discriminatory.
What then should we be doing so far as ethnic minorities are concerned—both business and workers? I will end by suggesting three or four ideas at the rate of one a minute. First, the Government introduced the Social Fund budgeting loan scheme to help poorer people access credit. This could be extended to include those not on benefits, including ethnic minorities. Secondly, the Government might consider increasing the number of job placements in disadvantaged areas through which the Future Jobs Fund scheme creates jobs for young people. Thirdly, billions of pounds are spent on procurement—that is, on buying from the private sector. The Government should ask for the details of the diversity of workforces before contracts are offered. They should also think in terms of addressing the barriers that the ethnic minority businesses face, not just in terms of lack of information, but also in terms of lack of bidding skills and the way in which business contracts can be executed.
In this connection, I was disturbed to hear about the way in which the Olympic Games have impacted on ethnic minorities. One had hoped that the fact that our society is diverse and multi-ethnic had played an important part in our winning the Olympics. But if you look at the way in which the contracts have been awarded, or the way in which the workforce has been employed, one begins to see that ethnic minorities have not had their share of either the contracts or the employment.
For all these reasons, I think an ethnic audit is crucial. More money needs to be spent on Jobcentre Plus and other employment agencies in areas with high ethnic minority populations. James Purnell, when Work and Pensions Secretary, floated this idea and it was heavily criticised on the ground that he was arguing for discrimination in favour of ethnic minorities. I do not think that was the intention of the proposal. The idea was to concentrate resources on those whose disadvantages are greater.
Finally, the Government should think in terms of helping to tackle asset inequalities. If you are going to tackle these, ethnic minorities should be made aware of their eligibility for existing saving schemes, especially ISAs, Premium Bonds and saving gateways. In all, what I have been trying to argue is that although we are in a recession and the Government are slowly negotiating their way out of it, they need to take a multifocal view, not just an abstract view, and concentrate on those pockets of the economy where the impact is disproportionately felt. I wanted to draw attention to the ethnic minorities.
My Lords, when my noble friend Lord MacGregor called for a debate on the economic state of the nation, I thought, with his background as Minister of Agriculture—I remember those days extremely well—that he would accept, and that your Lordships would be prepared to consider, the important contribution that agriculture, food production, forestry and rural development make to the economy of this country. I declare my farming interests.
With the magical capabilities that my noble friend has, which many others have had the pleasure of witnessing over a few years, he could certainly pull a rabbit out of a hat. As he indicated in his opening address, though, clearing the country's debt might take a little longer.
The total farmed area of land in England is more than 9 million hectares—20 million acres, in my language. It continues to increase in value—the best arable land is now around £13,000 per hectare—but it is not immune from the recession that we have been going through. The noble Lord, Lord Bilimoria, spoke of the small land mass that we have in this country, but I remind him and your Lordships that the workbench of the land area is one of the largest industries that we have producing goods for this nation.
While there has been growth, banks have been very accommodating over many years, but facilities for overdrafts now amount to some £63,000 per farm on average. That is an incredible hangover that farmers are facing. Trade in food and drink does not help our economy as much as it should or could, showing an accrued trade gap of minus £4.3 billion. Sadly, production is declining when it should be increasing. We need to do more than pay lip service to food security. Yet the Minister, who I am delighted to see in his place dealing with agricultural questions, may remind us that 2008 was a record-breaking year for exports of food. The weak pound is making us more competitive. We are exporting one-third of our lambs, mainly to France, enabling farmers to build strong relationships for high- quality products.
The continuing decline in dairy herds is a concern. They have halved in the past 10 years. There is the incredible situation where we are slaughtering 40,000 cattle every year because of bovine TB, as we have done for the past three or four years. We know, and the Minister knows, that the disease is still spreading like a prairie fire. The result is that we are importing well over £1 billion of dairy products into the United Kingdom when we should be increasing our production from our excellent pastures.
As we now face a hungry world, continually talking about feeding a population of 9 billion in the not too distant future, and endeavour to increase production of both food and energy, I hope that the Government will do more to help by removing some of the barriers of the costs of administration. If anyone thinks that I am calling for more subsidy and grants to famers, I am not. Farmers are prepared to face the market. My noble friend referred earlier to existing quangos. I remind noble Lords that the National Audit Office published figures showing that the administrative cost of processing the single farm payment by the Rural Payment Agency is, on average, £1,743 per farm. That amount is more than the cheques that many of those farmers received, and compares badly with the figure of £285 for Scotland.
Defra funds the rural development agencies. Among eight different agencies interpreting European legislation, eight steering groups and eight communication plans, we get multiple newsletters and multiple confusion. There are no drivers for efficiency in rural development and I submit that there is a lot of overlap and duplication inherent in the system.
According to the Bank of England, lending to agriculture increased by 5.7 per cent last year but credit facilities shrank by some 13 per cent. Lending remains strong, favouring core farming activities rather than farm diversification, but I hope that the next Government will encourage growth in rural development and do everything possible to remove red tape and burdensome regulations. We have to cut costs by cutting wasteful administration and by the better use of waste generally through encouraging the use of anaerobic digesters to produce energy from products that currently pour into our infill sites.
Change is inevitable and demands a considerable increase in research and development. British agriculture can respond, help the economy and meet the demands of consumers. Our colleges are full of enthusiastic and optimistic future farmers. We cannot let them down.
My Lords, I thank the noble Lord, Lord MacGregor, for giving us the opportunity to discuss his arguments, especially because I recently wrote a letter to the Financial Times disagreeing with exactly those arguments. That letter was signed by three former deputy governors of the Bank of England or the Federal Reserve and a number of other distinguished thinkers.
We made two simple points, both of which are in support of the existing government strategy. The first was that this is not the time for further squeezes on public expenditure. The recovery is still weak, and it would have been non existent without the fiscal injection that we have had. This injection was opposed by the Conservative Opposition but supported by all reputable organisations like the IMF and the OECD. The argument for it was taken from a standard first-year economics textbook: if the private sector cuts its spending, as now, in order to reduce its level of debt, the public sector should act to maintain a level of demand and prevent intolerable rises in unemployment.
That is what you read in every introductory economics textbook, and it is exactly what has been done. We had the private sector worldwide, in order to deleverage, cutting its spending. That is the cause of the world recession, and it leads to a collapse in tax receipts. The reason for the deficit that everyone is worrying about is the collapse in tax receipts that happened as a result of the world recession, with a small contribution coming from the policy-induced fiscal injection on top of that.
Now, though, what is the right way to correct the deficit that we have got into as a result of the fall in output? It is, simply, a growth in output. That is what will correct the deficit because it will increase tax receipts. So the strategic question facing any Chancellor is how to be sure of achieving the growth. The answer is that you can be sure of achieving the growth only if you maintain the fiscal injection long enough to be sure that the growth is under way—and we cannot yet say that. Everyone connected with business knows that the private sector has a lot more deleveraging to do, which is why it would be madness to follow the Conservative Opposition and have further cuts immediately. There is no convincing evidence that that would increase growth, and plenty of evidence that it would decrease it. It would make it even harder to get back to a good fiscal balance because we would not get the rise in tax receipts. That is a disaster for employment, for which we of course need growth, but it is also not good for the future of the public finances.
My second point concerns the debt. As we know, the rating agencies are threatening to downgrade our debt unless we do what the noble Lord, Lord MacGregor, proposes. What are the facts about our debt? First, relative to GDP, our debt is the lowest in the G7 except for Canada’s. Even when it reaches its peak, which it will in 2014, it will still be below the G7 average and below its level, relative to GDP, during most of the past 200 years.
Secondly, there is absolutely no problem with rolling over our existing debt. People seem to be unaware of this. Our debt has over twice the time to maturity of the debt of any other G7 country. For example, our average time to maturity is 13 and a half years, which compares to four and half years for the United States.
Thirdly, unlike some countries, which are, of course, in trouble, our debt is denominated in our own currency, mostly owed to our own citizens. There is actually no possibility of a default by the British Government. It is as simple as that. Does any sane person think that the British Government could default on their debt? I do not believe so. It is also extremely unlikely that the Bank of England would allow sustained UK inflation to be above inflation elsewhere, which would reduce the relative value of our debt.
So what are the rating agencies doing when they make these remarks? They would be astonishing if it were not for the agencies’ even more astonishing ineptitude over the past five years. We should simply take no notice of what they say, and opposition politicians who join their chorus are simply damaging our country. Nobody would want to be in the position that we are in, but we have the right strategy to get out of it and now is not the time to talk it down.
My Lords, like other noble Lords, I am grateful to the noble Lord, Lord MacGregor of Pulham Market, for initiating this debate. It is unusual for this House to have the opportunity to discuss the Budget the day after it is announced, but nevertheless extremely welcome.
The economic background to the Budget is depressing. The Labour Government inherited a strong and growing economy in 1997 with very little debt and a competitive tax regime. Initially they stuck sensibly to Conservative spending plans. Then they started to come up with stealthy ways to raise extra money. This began with the raid on pension funds. It was followed by selling a considerable part of the gold reserves at rock-bottom prices, losing £7 billion. Then they decided to go on a spending spree in health and education, which sadly has produced much less than it should have done. They introduced fiscal rules—the golden and sustainable investment rules—which they proceeded to manipulate and then break when times got difficult.
Even before the banking crisis, our finances were in a weak state. To make matters worse, the Government encouraged a huge growth in public sector employment so that 6 million people now work for the state. State spending amounts to 53.4 per cent of GDP, and no fewer than 25,000 people earn £100,000 or more. Thus it is wrong to blame the world economic situation for all our troubles, as we were already in a difficult situation before disaster struck. It is extraordinary that the Government are taking credit for solving the economic crisis that they played a large part in creating.
Turning to the Budget, I start, as always, by praising certain measures. I am in agreement with David Frost, director general of the British Chambers of Commerce, who said that,
“the Chancellor has clearly recognised the need to place business at the heart of this Budget. Doubling the annual investment allowance, help with business rates, and allowing entrepreneurs to keep more of their gains will prove especially popular”.
I also welcome the increase in the ISA limits to £10,200 and the stamp duty relief to first-time buyers below £250,000, although I disagree with the means of paying for it.
Commentators are on the whole less kind to the Budget speech itself. Ben Broadbent of Goldman Sachs commented:
“We recently highlighted the clear pattern in the historical data that significant fiscal corrections are better for the economy, and better for debt reduction, if they occur through reductions in current spending rather than cuts in public sector investment or hikes in tax rates. On this score the Government's pre-existing plans did not measure up well. Today's budget does nothing to alter that, nor does it offer any detail on where cuts in current spending, such as they are, will fall”.
Michael Saunders of Citigroup commented:
“The UK's fiscal plans remain relatively unambitious compared to other high-deficit countries. Moreover, the Budget has no proper medium-term public spending plans and, without those, the UK cannot claim to have a credible plan to return to fiscal sustainability”.
The Chancellor delivered the Budget Statement in an ultra-calm manner disguising the terrible figures, in particular, of the budget deficit. It is not surprising but staggering that he failed to mention that Britain’s national debt is going to rocket to £1.4 trillion by 2014-15, more than twice the level of just a year ago. I suppose we should rejoice that the borrowing figures have gone from the truly horrific to the simply terrifying. This year they are £11 billion lower than forecast at the Pre-Budget Report and £14 billion lower for the next financial year. However, the absolute level of borrowing is still horrendous.
The Government forecast that they will halve the deficit over the next four years, but this still relies both on spending cuts which have not been properly detailed and, almost certainly—as other speakers have mentioned—on overly optimistic growth forecasts. I accept the 1 to 1.5 per cent growth forecast for 2010, but the 3 per cent forecast for 2011 seems much too high, as does the 3.25 to 3.75 per cent figure for 2012 and beyond. I ask the Minister what the debt figure would be if growth only managed to be 2 per cent in 2011 and 2012.
It is all very well for government departments to spell out their cost savings, but it is difficult to put them into context when we do not have the absolute spending figures of each department in a Comprehensive Spending Review. Table 1.2 in the Red Book tells us that there is a relatively small total net increase in government spending of £1.4 billion for 2010-11, balanced by an £850 million net inflow over the next two years. The largest spending increases are the extra £600 million additional winter fuel age-related payments to pensioner households and the £550 million fuel duty phased increase. Can the Minister tell me what the £230 million savings labelled “reprioritised spending” from BIS and DfT are, as well as the £475 million “reprioritised spending” from DWP? It is interesting that the largest revenue gainer over the next three years is stated to be the Liechtenstein disclosure facility, which is said to bring in no less than £500 million over the next three years. Is this based on known tax avoidance moneys there?
Of course, there had to be a stealth tax lurking in the Budget and, after careful research, it turns out to be something that the Chancellor failed to mention. Personal allowances were frozen but, with the latest inflation figure at 3 per cent, will the Minister confirm that the revenue gain to the Exchequer would be about £1.8 billion in 2010-11 and £2.2 billion in 2011-12?
Overall we have far too little information on how the deficit is going to be reduced—I await publication of the IFS analysis later today—except that, in the next four years, the £78 billion to be saved will consist of £19 billion extra taxes and £38 billion cost savings, of which only £11.8 billion have been identified. Where are the rest of the savings coming from? In the Pre-Budget Report, government departments were asked to find savings of £11 billion without damaging front-line services.
Finally, there seemed to be an answer to where spending cuts might fall, but even a cursory examination of yesterday’s departmental press releases reveals questionable figures. For instance, how can the Department of Health save £550 million from staff sickness absence in the NHS? A key difficulty that any Government must face is predicting tax revenues in the next few years. For instance, financial services provide 25 per cent of corporation tax revenue. I am sceptical that it can recover from £36 billion to £42 billion in 2010-11 in such a difficult economic climate.
My final thought on the Budget again focuses on what was not said yesterday. Rises in national insurance will hit those on incomes of just £20,000, and firms face an annual bill of £4.5 billion from the increase in NI payments. A six-pronged attack will see the NI rises; the freezing of personal allowances; the threshold for 40 per cent tax frozen; 50 per cent tax rates for those earning £150,000 or more; personal allowance withdrawn for those earning more than £100,000; and withdrawal of pension tax relief. This, according to Deloitte’s, amounts to a £15 billion raid on the middle classes by 2012. Is this the message to encourage business and economic recovery, and to enable us to compete with other countries?
My Lords, it is always a pleasure to take part in economic debates in your Lordships’ House. This is the latest in a series that we have had in recent months. It is beginning to have a Groundhog Day quality. The arguments being advanced across the political divides have not changed at all in that period.
In terms of how we got to the current position, yes, the Government overspent in the good years. It was irresponsible to ratchet up deficits when growth was at an historically high level. Yes, the Government fiddled their own rules to enable them to get away with it and, yes, when the crisis broke, the size of the financial services sector meant that the impact on growth and the public finances was particularly severe. However, the Government moved swiftly to recapitalise the banks and to give a significant fiscal boost and, yes, that boost had a positive impact on unemployment levels and repossessions. There is a major fiscal tightening happening this year. The IFS has shown that this amounts to some £23 billion in terms of the ending of the temporary fiscal boost that the Government gave in 2009, so it is incorrect to say that this is a standstill year under government plans for the overall fiscal position.
For the future, it seems that there are two linked questions. How quickly should we reduce the deficit? More important, what kind of economy do we want to see in the future? We should start by recognising that the balance of the world economy is shifting rapidly eastward. I agree strongly with the comments of both the noble Baroness, Lady Valentine, and the noble Lord, Lord Sheikh, about this, not least, with what the noble Lord said about the need to develop the Islamic finance capacity in London.
There is agreement about the kind of economy that we want: it needs to be rebalanced away from financial services. Everyone is agreed in extolling the virtues of the manufacturing sector to achieve that. If we are to have a stronger manufacturing sector, we will need more concerted government action. Simply leaving this to market forces, along with tweaking tax rates, whether corporate or personal, will not have a big impact. We need a bold vision for how to rejuvenate manufacturing. The place to start is where the Government have started: with infrastructure. The Institution of Civil Engineers has demonstrated a need for around £400 billion of infrastructure expenditure over the next decade if the country is to be at the leading edge in its infrastructure. There is a particular pressure and impetus for infrastructure expenditure because we need to rebuild the energy sector and move towards a low-carbon economy.
The Government have, in the Budget, made a tentative first step in this direction with their plans to establish a green investment bank, for which they are looking for a fund of £2 billion. That is probably rather less than 5 per cent of the amount that we need for infrastructure expenditure. Therefore, although this is a good first step, I would welcome any thoughts that the Minister might have about how the Government could build on it. More generally, when it comes to rebalancing the economy, the Government make the right noises but are too timid. The Conservatives, too, make the right noises but have, as far as I know, no specific policies to achieve what they claim they wish to do.
On the deficit, the Budget has changed nothing. There was nothing significantly new in it and the arguments advanced on all sides are ones that we have heard for some time. Not surprisingly, our approach to deficit reduction has not changed as a result of yesterday’s activities and announcements. We have set out criteria for determining the point at which the deficit should begin to be reduced. We judge that now is too soon. We have identified an initial £15 billion of expenditure cuts and several areas—for example, public sector pensions—where costs have to be reduced over the longer term. We have set out how the banking sector could be required to increase its lending to small and medium-sized businesses. Although we welcome some of the initiatives that the Government announced yesterday, their track record to date in persuading the state-owned banks to lend to small businesses is not encouraging.
We have also set out a package of tax changes that would create a fairer system in that those earning less than £10,000 a year would not need to pay any income tax. We have suggested that, as part of the Comprehensive Spending Review process, we should follow the Canadian example of consulting widely with the population at large and stakeholders with a big economic interest so that we can, we hope, tap into ideas that others have, rather than those of the parties on their own. We have suggested that the parties should seek to agree, in consultation with the Bank and the FSA, a timetable for and scale of deficit reduction.
We simply do not believe that, with the major rebalancing of the public finances that we are going to see, a single party—possibly elected on less than 35 per cent of the popular vote—should be able to force through its policies on its own. Although I am sure that this will pain the noble Lord, Lord Hamilton of Epsom, recent polls show that many people believe that it would be in the country’s best interests if no single party formed the next Government. Many more people who will vote in six weeks’ time take that view than believe that the Conservative Party should form a majority Government. We look forward to the election with great anticipation.
The Government are committed to big public expenditure cuts from 2011. However, we have no idea at all how they are to be achieved. They have said what they are not going to cut—popular big items such as education, health, the police and international development—but nothing whatever about whether they mean that other areas of public expenditure should be cut in real terms by 15 to 20 per cent. As far as the Conservatives are concerned, they use language designed to make your flesh creep but are totally silent on what they will do. They have been much clearer about which taxes they will cut. They will cut inheritance tax and stamp duty on share sales. They will cut taxes for those who are married and remove the proposed national insurance increases. These are big additional expenditure items, but on the other side of the balance sheet there is total silence.
Given that both Labour and the Conservatives clearly intend to give no indication before polling day of how they are going to bring public expenditure under control, voters are not going to be able to decide how to vote by comparing detailed expenditure plans. Instead, they are going to have to ask themselves which of the parties’ economic teams they most trust to sort out the public finances and the economy in general. That is why we approach the next election with such confidence.
My Lords, I congratulate my noble friend Lord MacGregor on securing this debate within 24 hours of what we hope will be the last Budget from this Government. I also congratulate him on a marvellous opening speech. Yesterday we had an empty Budget, containing nothing of substance to show how our country’s finances will be put on an even keel. On that, at least, I agree with the noble Lord, Lord Newby. Predictably, the Chancellor aimed his darts at those whom he considers rich, but even he cannot escape the fact that millions of people who are not rich will be worse off in the next financial year as personal allowances are frozen.
As many of my noble friends have pointed out, 13 years ago the Labour Party inherited an economy that had been growing for five years, with public finances moving strongly in the right direction. The UK was a competitive place in which to do business and, as my noble friend Lord Higgins pointed out, we had a pensions system that was world-beating. All of that has been squandered by wanton economic management. We have just emerged from the longest and deepest recession since 1921 and the past 10 years have seen the weakest decade of growth since the Second World War. We were the last country to emerge from the recession and our recovery looks as if it will be one of the weakest. Debt is forecast to rise to 70 per cent of GDP; the small amounts shaved off the forecast yesterday have not changed the overall picture. In the competitiveness league tables, the UK’s overall ranking is now down to 13th and, on tax and regulation, as has been pointed out, we come in at a dreadful 84th and 86th. My noble friend Lord Plumb talked about the way in which the farming industry is weighed down by regulation, but that is the story throughout the whole economy. Of course the UK suffered from the global financial crisis, which has tipped economies the world over into recession, but the policies pursued by the Prime Minister made the UK particularly vulnerable.
The Chancellor kept saying yesterday that the Government had made the right decisions when the crisis occurred. Even if that were true, and I shall not get into that, he conveniently ignored the fact that bad economic decisions were made consistently by his predecessor. In the years of plenty, the Prime Minister could not resist the temptation to borrow, in the reckless belief that he could spend today and taxpayers could, and would, pay later. My noble friend Lord MacGregor reminded us that much of that spending was wasteful. We went into the recession with one of the highest structural deficits in the developed world. The Prime Minister was a past master of creative accounting. The golden rules, as we have heard, were routinely abused and many liabilities stayed out of sight, Enron-fashion. Not content with government borrowing for ever increasing public expenditure, consumers were encouraged to borrow, thus creating the myth of healthy economic growth. Personal debt levels rose to above the value of GDP in the UK. I hope that the Minister will be able to answer the penetrating question from my noble friend Lord Marlesford in relation to credit card debt. The Prime Minister’s vain boasts about economic prudence, about abolishing boom and bust and about golden rules were just that—boastful and vain.
What this country needs now is a credible plan to reduce the deficit. That is what the Governor of the Bank of England, the IMF, the OECD, the CBI and the European Commission have called for. Without a credible plan, we may well go the way of Greece and Portugal. As my noble friend Lord Hamilton suggested, markets are already pricing in the fact that our credit rating is under pressure. I say to noble Lords opposite that we do not talk the country down—the markets are doing that—but we do talk this Government down, since they are responsible for much of the mess that we are in.
The universal judgment on yesterday’s Budget is that it does not represent a credible plan. First, a plan has to be based on credible assumptions. The Government are sticking to growth forecasts beyond 2010 that are 50 per cent higher than the consensus. I hope that the Minister will answer the question asked by my noble friend Lord Northbrook about the effect of using a lower, 2 per cent growth figure in 2011.
Secondly, we have to show that the deficit will be eliminated and debt will be brought down as rapidly as possible. The Government have a structural deficit in their plans until 2016-17, which, at the very least, lacks ambition. Public sector debt increases until 2014-15 and, after that, reductions look tiny. After the Pre-Budget Report, the Institute for Fiscal Studies estimated that it would take until around 2030 for debt to reduce to the Government’s former prudent limit of 40 per cent of GDP; I doubt that the Budget has improved much on that.
Thirdly, we believe that we must make a start on reducing the deficit as quickly as possible—I was grateful for the support of my noble friend Lord Sheikh on this. It is not enough to say, “We will be good, but not yet.” Starting does not mean cutting savagely and it certainly does not mean making cuts that harm our recovery from the recession. Demonstrating real commitment by making hard decisions today, rather than talking about it, is a part of credibility.
Fourthly, we must be transparent about how the deficit is to be eliminated. The Institute for Fiscal Studies has in the past hour quantified the gap in the Government’s own figures at £46 billion annually, or £26 billion if full credit is given for the Government’s £20 billion of savings, about which the IFS has considerable doubts. Will this gap be found from expenditure or even more tax increases? The PBR had already taken the contribution from taxes to deficit reduction beyond the 20 per cent point at which evidence suggests it will be harmful. Credibility demands transparency about the sources of deficit reduction.
Fifthly, we need a Comprehensive Spending Review so that departments consider carefully how they will deliver expenditure reductions. The Government’s decision, using uncertainty as the most flimsy of excuses, to defer a CSR until the other side of the election was cowardly. Even the Labour-dominated Treasury Select Committee criticised that. A CSR will help to demonstrate that plans to cut expenditure are credible and not just fantasy, like most of the Government’s efficiency targets.
Sixthly, we have to reform our public services, which means a lot more than playing at office relocation and having yet another shot at better procurement. It is already a tragedy that under this Government public spending now accounts for more than half of GDP on the IMF’s figures. Inefficient and unresponsive public services are part of the problem and not part of the solution. A plan that ducks reform lacks credibility.
Lastly and most importantly, credibility demands a commitment to growth and jobs. The noble Lord, Lord Bilimoria, and the noble Baroness, Lady Valentine, spoke broadly on this theme. We need a Government who are passionate about enterprise and wealth creation, not about state intervention. The Budget made some gestures towards business, but the Government had already defined the future in terms of a 1 per cent hike in national insurance for both employers and employees. This has been universally condemned by British business. It will lead to increased unemployment and reduced growth. I can assure my noble friend Lord Sanderson that my honourable friend George Osborne places the highest value on being able to avoid as much of this as possible.
The Budget is not a credible plan. The fact that financial markets moved downwards yesterday but did not crash merely shows that they are focused on what will happen beyond the election. Markets will be really spooked if they think that there is any chance that the current Government will remain in charge of the economy or, I say to the noble Lord, Lord Newby, if there is any chance of a hung Parliament with the Liberal Democrats holding the balance of power.
All Labour Governments eventually run out of other people’s money. It is the destiny of Conservative Governments to come behind the messes that Labour Governments make of public finances. In Norse mythology, Ragnarök is the final doom of the gods. A series of disasters and battles leaves the earth laid bare and most of the gods killed. That is what the past 13 years have been like—battles, destruction and disasters. We take comfort from the fact that the doom of this Government is now near at hand and we hope that it will be final. In the story of Ragnarök, after the final doom, the surviving gods bring renewal, hope and abundance. That is what our country deserves and, if we are allowed to form the next Government, we will strive mightily for it.
My Lords, I thank everyone for their contributions. In particular, my special thanks go to the noble Lord, Lord MacGregor of Pulham Market, for securing today’s debate. I was not aware that the noble Lord, Lord MacGregor, had been known as “Mac the knife”. I remember the words of the song. They do not make a great deal of sense, they are somewhat circuitous and they are very repetitive. One can understand why this descriptor might have been used. There is a reference which states:
“And now MacHeath spends like a sailor
Could it be our boy’s done something rash?”.
Surely these were not the words that would have been applied to the noble Lord. Perhaps we should be thinking of someone else in “Mack the knife”. Certainly, as I listened to some of the observations from the opposition Benches, particularly those which decried the achievement of our economy and the strength of our people, the name of Sukey Tawdry sprang to mind.
Last year, the global economy contracted for the first time in 60 years, following a succession of severely damaging shocks, including the worldwide financial crisis. All countries have been affected, and the impact has been felt by households and businesses across the world. The economy showed a huge shock and contracted by around 6 per cent during the recession, but latest data have shown that growth returned at the end of 2009. The Government’s support for the economy, along with action from the Bank of England such as interest rate cuts, have prevented the recession turning into a severe depression.
The claimant count of unemployment is much less than economists would have predicted, given the severity of the downturn. Unemployment has risen markedly in a number of other countries, compared with our own experience. Financial support and advice have helped 330,000 homeowners stay in their homes and limited the number of repossessions to 46,000 last year—a figure significantly lower than the 75,000 forecast by the Council of Mortgage Lenders. More than 200,000 businesses, employing more than 1.4 million people, have been helped with cash flow by spreading the payment of their tax bills.
This year, the economy is forecast to grow between 1 per cent and 1.25 per cent. However, reflecting the weaker outlook for the euro area, the growth forecast for next year has been revised down a little to 3.5 per cent. The noble Lord, Lord Northbrook, who is normally very flattering in his comments about the Bank of England, expresses some doubt about these numbers. I should point out that these are the Bank of England’s own growth forecasts.
We have to be wary. The world economy is still in a period of great uncertainty. It is clear that a strong and lasting recovery depends on continued support, and for this reason the budget actions required to meet the critical challenges ahead—the challenges of securing the recovery and of bringing down debt while still protecting front-line services, and of promoting sustainable growth and creating job opportunities—will be fundamental for our future prosperity.
Government action has played a critical role in helping limit the impact of the recession on families, households and businesses. They have also demonstrated their resilience in weathering the storm. Nevertheless, the global economic recovery is still in its very early stages. Withdrawing support too soon could jeopardise this recovery. That is why we have made the choice to continue support for the economy.
For young people, every 18 to 24 year-old will have access to guaranteed work or training after six months out of work. In the Budget, we extended this guarantee until March 2012. This has been funded as a direct result of unemployment turning out to be much lower than forecast.
For homeowners, we have made the decision to maintain help through support from the mortgage interest scheme until June. For first-time buyers, we announced yesterday a doubling of the stamp duty limit from £125,000 to £250,000 this year. To fund this, we have had to increase the stamp duty on mansions worth more than £1 million.
For business, the Time to Pay scheme, which has helped businesses spread £5 billion worth of tax payments over a timetable that they can afford, will continue. This is much welcomed by people in the business community.
The downturn has led to increased pressure on the public finances. Last year, in the Pre-Budget Report, the Chancellor forecast that borrowing in the 12 months to December would reach £178 billion. However, as a result of supporting the economy, in December, January and February tax receipts have been higher than forecast. This means that this year the borrowing forecast has been revised down by £11 billion to £167 billion, and in the following year borrowing will be even less than that, at £163 billion. As the economy recovers, together with the revenue from tax increases already announced, borrowings will fall progressively to £74 billion in 2014-15. As a share of GDP, borrowing is forecast to be 11.8 per cent in 2009-10, but will subsequently fall to 5.2 per cent in 2013-14, and thereby will have more than halved over the four-year period. This addresses the bulk of the structural deficit. By the end of the forecast period in 2014, borrowing, as a percentage of GDP, will have fallen to 4 per cent.
Our plan to halve the deficit over the next four years is the most ambitious deficit-reduction plan in the G7 countries, and we are firm in the belief that the pace of consolidation is correct. To start consolidating too early, as the noble Baroness suggests, could risk the recovery. To go too fast when there is still such global uncertainty would be foolhardy in the extreme—playing games with the lives of British families, British workers and British small businesses. That is possible to contemplate from a position of privilege and wealth, but is not salient to the lives of most people in our population or those who will be thinking how to vote in the forthcoming general election.
We have already outlined tax measures that will reduce borrowing by £19 billion in 2014, with the biggest burden falling on those who can afford it most. We are determined to continue our successful drive to prevent avoidance and evasion. Measures in this Budget will bring in additional tax receipts worth half a billion pounds each year, while protecting £4 billion in revenues by 2012-13, including tax agreements such as that already signed with Liechtenstein. We are now ready to sign tax information exchange agreements with three additional countries—Dominica, Grenada and Belize.
I am sorry to interrupt the noble Lord. I am a bit puzzled about the arrangement with these countries in Latin America. The noble Lord is now referring to it as a tax information agreement; yet earlier today we were told that it was a double-taxation relief treaty. Can he explain exactly what it is?
I apologise. I was not in the House for Questions.
Tax information exchange agreements are critical to ensuring that residents of this country with bank and other investment arrangements in another territory properly report that information to our tax authorities. That is very separate and different from double taxation agreements.
I am conscious of time and that many questions need to be answered, including from the noble Lord, Lord Marlesford, but I want to make it absolutely clear to the House that nothing in the tax information agreement is aimed at the noble Lord, Lord Ashcroft, at least as far as I know. Of course, if those on the Tory Front Bench know anything further about his affairs, that may be relevant, but I assure the noble Lord, Lord Marlesford, that this proposal, which after all was volunteered by the Government of Belize when entering into this agreement, is not targeted at the noble Lord, Lord Ashcroft, alone.
I am sorry. The noble Lord, Lord Trimble, did not speak in the debate, and I need to press on and respect the wishes of the House that one should not overrun. If the noble Lord wanted to intervene in this speech, he should have participated in the debate rather than come in at this rather late stage.
As I said, we have already identified significant opportunities for cuts and efficiencies of £20 billion to help us to meet our goals. Long-term sustainable growth will also be crucial to reducing borrowing, and it will be key for the future strength of our economy. The first component of our growth strategy will be to support small businesses to grow and to create jobs, and, as we emerge from the debris of the crisis, a flow of safe and reliable credit will be indispensible. Businesses rely on finance for investment and expansion. In the past 12 months, RBS and Lloyds have provided £79 billion in new loans to small and medium businesses, and for the coming year further agreements are now in place to provide for a total of £94 billion of new business loans, with nearly half going to SMEs. To ensure that the tax system does not discourage investment decisions during the recovery, we deferred the planned increase of corporation tax for smaller companies to April 2011, which will help a further 850,000 businesses.
The Budget also announced a temporary cut in business rates for small businesses to reduce their fixed costs, which will help them to make the most of opportunities as the economy returns to growth. We also made important commitments to invest in infrastructure—a point that was highlighted by contributions from a number of noble Lords, including the noble Baroness, Lady Valentine. Infrastructure UK, the body that we have set up to advise on our long-term infrastructure needs, published a strategy yesterday that sets out how to deliver the infrastructure that is needed for the transition to a greener, low- carbon economy. We will provide up to £1 billion of investment from the sale of infrastructure-related assets, and seek to match this with at least £1 billion of private sector investment to fund the new green investment bank.
The last aspect of our strategy for growth will be to foster a climate of research and innovation. This will mean developing new skills for growth through the £270 million modernisation fund, which will enable universities to identify and deliver efficiencies and to fund 20,000 extra undergraduate places. We also want to remain an attractive place for innovative industries and to support high-tech and high-value British business. Measures such as the patent box, which will provide a reduced rate of corporation tax on income from patents, will help us to achieve this.
Overall, our growth package will cost £2.5 billion, which will be funded partly by switching resources from existing budgets and by revenue from our tax on bankers’ bonuses, which turned out to be more than twice as high as forecast. By investing in growth now, our economy will be in better health in years to come and will continue to reap the rewards.
One final area is financial services—a sector that has been the centre of attention for the prominent role that it played in the global crisis. While many feel that it has been both the devil and the victor of strong and stable industry, it is nevertheless vital to the economy. The Government intervened to protect savers and to underpin the banking system. That was the right decision. As the Chancellor said yesterday in the other place, we will sell our shares in RBS and Lloyds, as well as in Northern Rock, in a way that maximises value for the taxpayer and recoups fully and more the money that we have invested. We have prioritised building a more resilient financial system that is properly supervised and regulated.
A competitive and profitable financial services sector will generate sustained wealth and jobs, but we will have to do more to strengthen the global banking system, which is why we are working with G20 countries to introduce new capital and liquidity rules by the end of the year. Yesterday, we proposed an internationally co-ordinated systemic risk tax so that financial sector activities reflect and pay for the systemic risks that they present to society. It will be crucial to get international co-operation, however, as we would risk harming the UK economy and UK employment if we acted alone.
The Budget also announced steps to improve governance, the oversight of remuneration and competition in retail banking, and measures to improve access to banking services for those who have traditionally been excluded from mainstream financial services.
My noble friend Lord Giddens said that he was not tribal, but he made a very thoughtful contribution to the House’s deliberation on the debate secured by the noble Lord, Lord MacGregor. He highlighted three challenges: first, the need to address the regulation and supervision of financial markets, which is clearly a high priority for us; secondly, a return to industrial activism, of which my noble friend Lord Mandelson is a clear advocate; and, thirdly, the return to long-term planning and policy, particularly on areas such as infrastructure, to which we have already spoken. My noble friend Lord Davies of Abersoch was sitting with me on the Front Bench while my noble friend Lord Giddens was speaking, and he is very committed to infrastructure development.
The noble Lord, Lord Bilimoria, made an interesting speech from the Cross Benches. I could see that he made it from the Cross Benches; it was less easy to conclude that from listening to what he had to say. It was sad that he was not in the House when the noble Lord, Lord Sheikh, made his speech. Perhaps he would like to look at the noble Lord’s speech, because it had some interesting insights both into national economic management and into the management of private businesses. I was sure that people could agree with certain parts of his speech, but I found it more difficult to believe that people could agree with the whole of it, as he seemed to talk first in terms of increasing expenditure on defence, education and a number of other areas but then immediately coupled that with a call for a rapid reduction in public expenditure.
On taxation, let me remind the noble Lord that the UK has the lowest corporation tax rate and the lowest capital gains tax rate in the G8 countries. We have just doubled the entrepreneurs’ relief on new business creation, and we have business and tax rates that are below the average of those of the EU’s G15 developed economies, so we are competitive on those issues. However, we must recognise that individuals and companies are mobile, and we must ensure that we remain competitive.
We have today—I suspect that the noble Baroness, Lady Noakes, has not had a chance to read this—published the tax framework for business, which sets out six key principles that will drive our decisions on corporate tax decisions. I suspect, however, that she was rather pleased to have been handed details of the IFS’s report during the debate. I heard the shadow Chancellor on the “Today” programme this morning, and I thought he sounded remarkably hesitant and unsure of his ground. It was not a convincing performance at all in the hands of Mr Evan Davis. The shadow Chancellor was waiting for the IFS review rather than having the knowledge and self-confidence to reach his own conclusions. Perhaps that is also why the shadow leader of the party contemplated introducing crowdsourcing as a new net-based method of trying to understand the Budget. My noble friend Lord Hunt of Chesterton also spoke about the need for industrial activism.
The noble Lord, Lord Higgins, made, as always, a thoughtful intervention. He raised a number of questions on pensions. I would prefer to write to the noble Lord to give him a full and complete explanation. He referred to lower interest rates and the impact on the savings of those who retire. We must remember that when we had very high interest rates under Conservative Governments, it was because we also had high, uncontrolled inflation. The real rate of interest is important, and for many savers, it is positive, unlike the circumstances that prevailed for at least part of the time that the noble Lord was a Treasury Minister.
Perhaps I might write to the Minister about the point he has just made. Will he explain why the latest Bank of England figures show that M4—the measure of broad money lending—decreased by £5.3 billion in February? Does he think that is consistent with the policy of economic growth?
The Bank of England does not target monetary aggregates. That went rather out of fashion when it failed as a policy instrument in the 1970s and early 1980s. In respect of assessing QE, the Bank of England has said that it has a preferred monetary aggregate: the rate of lending into the private economy of broad money excluding interbank transactions. The noble Lord, Lord Higgins, is shaking his head, which always fills me with alarm because I know how well informed he tends to be. Taking out interbank transactions and transactions within the financial sector may well be the explanation for the phenomenon he described. If it is not, the noble Lord can rely on me to respond to him.
I am aware that I am at the 20-minute point, but there were a couple of interventions, so I shall take advantage of the House and speak to the allotted time. My noble friend Lord Haskel made a powerful speech about the danger of talking down the economy and having a negative impact on business confidence. Those who relish talking down the economy must do so with great care because of the damage that they are doing. My noble friend talked about the great successes that the Government have had in terms of job losses, business failures and repossessions compared with previous Tory recessions.
The noble Lord, Lord Bradshaw, made a focused contribution on privatisation and the role that financial market players’ values have played in the crisis. It was a thoughtful and helpful speech.
The noble Lord, Lord Hamilton of Epsom, spoke about the gilt market, among other things. I had to go back and remind myself what gilt yields were when he was a Minister because he warned us that they are about to go up, conceivably to 4 per cent. I am sure that the House will be pleased to hear that the average three-year yield is now 1.88 per cent. The average equivalent figure during the period of the noble Lord’s service as a Minister, which I believe was from 1988 to 1993, was 9.5 per cent. We are grateful to the noble Lord for reminding us of how the cost of borrowing can spiral out of control. The memory must be painful to him, but it is clearly not painful to us.
The noble Lord, Lord MacGregor, asked about foreign ownership of gilts. We should be pleased that people want to buy sterling assets. In an open market with professional leadership of the DMO, we should be pleased that sterling continues to be a very attractive currency for international investment.
My noble friend Lord Sugar reminded us of an inconvenient truth for the Opposition: that the recession has been global. There were five contributions from the opposition Benches before there was any acknowledgement that this is a global recession. My noble friend reminded us of the real danger of the Tories choking off recovery.
I shall wind up very shortly. The noble Lord, Lord Marlesford, asked a number of interesting questions. I was alerted to the fact that he was going to ask questions about the credit card default experience. Credit card companies are reporting quite large losses at the moment. I need to check with the FSA about whether I can answer some of the detailed questions he asked, but our major banks are required to comply with international accounting standards and their accounts are regularly reviewed by their auditors, their audit companies and the necessary and relevant regulators. I have no reason to believe that our banks are knowingly and intentionally in some way concealing under-reported liabilities in respect of credit cards.
If I had more time, I might ask the noble Baroness what her party would have done to restrain the growth in credit extended to the private sector. This was surely a matter of free choice. I agree with the noble Lord, Lord Marlesford, that many people appear to be using their credit cards recklessly, and we have introduced measures to limit some of that danger, but we must recognise that people should be free to make their own decisions.
I have already referred to the excellent contribution by the noble Lord, Lord Sheikh. My noble friend Lord Parekh spoke about the vulnerability of ethnic minorities. He made a very helpful speech, and I will make it my job to become even more informed on this subject. It speaks to the financial inclusion agenda that the Government have been acting on. The noble Lord, Lord Plumb, reminded us again that agriculture is an important industry and that we must do everything we can to ensure that British farmers and British produce remain among the best in the world and that we must not burden that industry—or any industry—with unnecessary regulation.
The noble Lord, Lord Northbrook, mentioned Liechtenstein. I queried the figure because it looks large, but I am assured that HMRC offered it with confidence. I am delighted that the noble Lord referred to the increase in ISA limits. Due to the noble Lord, Lord Lee of Trafford, raising the issue in the House some time ago, we are now looking at whether AIM shares will qualify. As always, the noble Lord, Lord Northbrook, gave a namecheck to Michael Saunders, for which I am sure he will continue to be most grateful. I found it rather easier to agree with the views of the noble Lord, Lord Newby, than with the views expressed from the Conservative Front Bench.
The economy has returned to growth, but there is still a risk that we could slip back into recession. It would be reckless, extreme and insensitive to the people of this country if we took premature steps to withdraw vital public support for the economy as we emerge into growth and prosperity in the future.
My Lords, we have had a wide-ranging and—I think all noble Lords can agree on this point—timely debate. I am grateful to all noble Lords who spoke. I particularly thank my noble friend Lady Noakes for her response to the debate, with which I agree, and my noble friend Lord Plumb. Time prevented me from commenting on agricultural matters, except the Rural Payments Agency, but coming from a rural area, I agree with his remarks on the dairy sector and on some of the bureaucratic costs inflicted on farmers.
I thank the Minister for his response. If he had not spent so much time just repeating the Chancellor’s speech, we might have had a slightly shorter response. I never knew the words to “Mack the Knife”. It was merely a phrase used by the media to reflect in their headlines the efforts that I was making to get value for money for the taxpayer. I did not know that the Minister is a pop fan, but I congratulate him on his memory or his research.
Time prevents me making any further comment, and it would be superfluous because I am sure we will return to these matters after the election. I therefore beg leave to withdraw the Motion.