House of Lords
Tuesday, 8 June 2010.
Prayers—read by the Lord Bishop of Newcastle.
Lord Clement-Jones took the oath.
European Union: Debts
To ask Her Majesty’s Government whether Article 122.2 of the Treaty on the Functioning of the European Union has been or could be used to require the United Kingdom to underwrite £9.6 billion of other European Union member states’ debts.
My Lords, EU finance Ministers agreed on 9 May that up to €60 billion of emergency finance can be provided to any member state in accordance with Article 122.2. Only where there are defaults on loan repayments would there be a cost to the EU budget. Member states would be liable for a share. Based on the United Kingdom’s contribution to the 2010 EU budget, the UK’s share would be approximately 13.6 per cent, or up to a maximum of around €8 billion. Euro-area finance Ministers have also agreed a €440 billion package of assistance to be provided through a special purpose vehicle. The United Kingdom has chosen not to participate in this, and there is therefore no question of any liability arising to the United Kingdom.
My Lords, I thank the Minister for that Answer, and I welcome him to his new position. However, I have to point out that this article can only be used legally to help with natural disasters, such as earthquakes and so on. Is he aware that the Eurocrats are also violating Article 125, which prohibits financial bailouts of any kind? If so, can he tell us what the sum of all this illegality is going to cost us? Secondly, since this year we have to send a further £9.7 billion in net cash to Brussels, and since the TaxPayers’ Alliance puts the cost of our overall membership at £120 billion a year, has the time not come to review that membership, starting perhaps with an independent cost-benefit analysis?
My Lords, there were several questions in there. I shall first answer the noble Lord’s question about Article 125—the so-called bailout clause—which states:
“The Union shall not be liable for or assume the commitments of … governments … A Member State shall not be liable for or assume the commitments of … governments … of another Member State”.
That does not rule out member states lending each other money. The noble Lord refers to a figure of £9.6 billion. The Government do not recognise that figure. If he can give us a basis for it, we will look into it.
My Lords, I wonder whether my noble friend can help me on this point. If we had been foolish enough to join the euro, what would have been our contribution to the Greek bailout simply as a result of being a member of the eurozone?
My Lords, a package of assistance was agreed in early May for Greece, consisting of €110 billion over three years and comprising an IMF standby arrangement of €30 billion and an intergovernmental package of bilateral loans from euro-area member states of €80 billion. This is, of course, subject to strict conditions. I think noble Lords would agree that it is not for me to speculate on what might have been.
Will the Minister confirm that neither party of the coalition would support any support for the euro?
My Lords, so far as I am aware, despite the best efforts of noble Lords opposite, there is a quite remarkable degree of agreement between the two parties of the coalition.
My Lords, does the Minister agree that it is in the UK’s national interest, as well as that of Greece, that collective action has been taken by the EU to prevent the complete collapse of the Greek economy?
My Lords, I quite agree with my noble friend. We must be alive to the risks that the current uncertainty poses because of financial-sector linkages well beyond the euro area. The UK’s support for the €60 billion euro element of the package represents a sensible position that strikes a balance between UK support and the need for the euro area to take the lead in resolving these problems.
My Lords, as the noble Lord is undoubtedly aware, the exposure of British financial institutions to the heavily indebted southern states of the eurozone is estimated at more than £100 billion. In those circumstances, if the European authorities asked for British financial participation in an activity that would strengthen the security of British banks, would the Government participate? Yes or no?
My Lords, I am not in a position to answer a hypothetical question today.
My Lords, does the noble Lord agree that any scrutiny by the EU of the UK budget would be unwarranted interference in our domestic affairs?
My Lords, I quite agree with the noble Lord.
Is the noble Lord aware that people simply will not understand why Britain has to make a contribution to the bailout of a member of the eurozone when the United Kingdom is not a member of that zone? What would our potential liability in a total bailout have been had we been members of the euro?
My Lords, the €60 billion euro element of the total €500 billion package is available in the existing EU budget, without a change in legislation, for any member state to drawn on. It is not confined to the euro area. While we declined to participate in the €440 billion element, we cannot and should not simply walk away. A strong and stable euro is in the United Kingdom’s national interest. More than 40 per cent of our exports are to the euro area, and I am sure the noble Lord would agree that it would be unwise to jeopardise that.
Does the noble Lord find it a little odd that all this questioning ignores the fact that, as a member of the International Monetary Fund and a substantial subscriber to its resources, we provide relief for any number of countries, both in and outside the euro area, and we should do so? That is the purpose of these institutions.
I cannot disagree with the noble Lord.
My Lords, given the strain that the weak members of the European monetary union are putting on the system, would it not be wise to consider possible contingency plans which could be used if one of them wished to withdraw?
My Lords, these are early days. Several countries have announced new packages of fiscal recovery measures in recent weeks. I am sure that my noble friend will agree that it would be inappropriate for me to comment on individual member states or to speculate on what might or might not happen.
House of Lords Reform: Committee Membership
To ask Her Majesty’s Government what will be the membership of the committee to be established to bring forward proposals for a wholly or mainly elected upper chamber.
My Lords, my right honourable friend the Deputy Prime Minister announced yesterday that he will chair a committee composed of Members of all three major political parties in both Houses. It will be charged with producing a draft Bill by no later than the end of this year. The draft Bill will then be subject to pre-legislative scrutiny of a Joint Committee of both Houses. Those serving on the committee will be Mr Mark Harper MP, the noble Lord, Lord Strathclyde, the noble Baroness, Lady Royall, Sir George Young, Mr David Heath, Miss Rosie Winterton, Mr Jack Straw and me, under the chairmanship of Nick Clegg.
My Lords, the best part of that Answer was the inclusion of the noble Lord himself in the list of members. Does he agree that it is important that the committee should have a deep understanding of the way that the House of Lords operates within the constitution in order to avoid some of the mistakes made by the previous Government when contemplating constitutional reform? Will he assure us that, unlike previous attempts at reforming the Lords, this one will be conducted openly and with full access for Members of this House to the committee to put their views and ideas?
I thank my noble friend for his comments. I think that Fabio Capello could not get a better blend of youth and experience than this committee. How the committee will do its work will depend on what it announces after its first meeting. But I agree with him. I hope that Members of both Houses and organisations outside will feel free to feed in their ideas and opinions. But it is a working group to draft legislation. It will not just go around in ever-decreasing circles, which has been the experience of the past 10 years.
My Lords, given the historic role of this Chamber as representing the interests of non-partisan civil society, will the Minister give us some assurance that the proposals before us do not represent an increase in underlining the partisan character of this House? I speak of course with some interest from these Benches and with the Cross Benches in mind.
I understand the interest that has been expressed. I can say only that the committee will take such considerations into its deliberations. Its conclusions will be reflected in the final draft Bill which will be presented for scrutiny by a Joint Committee of both Houses.
My Lords, I know that many Peers wish to speak. Perhaps we could have the Convenor next and then someone from the Labour Party.
My Lords, does the noble Lord, Lord McNally, agree that two fundamental issues must, or should, underline the deliberations of the cross-party committee? The first is the need to identify the clear and necessary functions of the House of Lords. The second is that any proposals put forward should necessarily enable this House to do its job more effectively.
My Lords, when we first meet I will draw those statements to the attention of the chairman, because they give a succinct work-in-progress for us.
My Lords, given that the coalition has clearly set out the policy that it wants to see in terms of the Bill to be presented to both Houses of Parliament, what is the agenda, the remit, for this committee?
The remit for the committee, taking into account what the Convener of the Cross Benches has just said, is to prepare a Bill. One of the great weaknesses of all our discussions over the past 10 years has been that no one has had a bone to chew on. We are going to produce a Bill.
My Lords, would it not be more useful for the Deputy Prime Minister to set up a committee to look at the performance of the other place, given the amount of legislation that has come to this House to be reviewed and revised without having been debated or even considered in the House of Commons?
My noble friend has always been skilled at getting an audience on his side and his point may well have merit. But the fact is that the three major political parties which fought the last election all had in their manifestos reform of this place. We are going ahead with those commitments as perhaps the other party should have done at some stage when it had the majority to do so.
My Lords, let us hear from the noble Lord, Lord Grenfell, and then from the noble Lord, Lord Tyler.
I am most indebted to the Leader of the House. It is almost as difficult to get into an Oral Question these days as getting into Fort Knox used to be. In light of the composition of this very cosy committee, if I may characterise it as that, the exclusion from which of all Back Benchers I find discouraging—to put it ridiculously mildly—can the noble Lord assure us that we will be given plenty of time for pre-legislative scrutiny because I expect that that exercise will be ferocious, and it should be so?
I could not agree more with the noble Lord, but the point is that this committee is about drawing up a Bill. It is not a debating society and therefore it is absolutely appropriate that those on the committee should represent the official policy of their parties. As I have said before, some of the speeches from the Labour Back Benches should really be made at Labour Party conferences to change Labour Party policy.
In the mean time, Labour Party representatives will be on this committee furthering what they presented to the British people at the last general election.
My Lords, does my noble friend recall that after the White Paper of 2008, the previous Government promised to bring forward for pre-legislative scrutiny precisely the Bill to which he is now referring, but never did so? In order to meet the concerns expressed on all sides of the House, I suggest that the sooner we get a draft Bill for pre-legislative scrutiny before a Joint Committee, as set out by my noble friend, the better. To accelerate that process, I would draw my noble friend’s attention—modestly—to the fact that the Second Chamber of Parliament Bill was introduced in the other House five years ago by Mr Kenneth Clarke, Mr Robin Cook, Mr Tony Wright, Sir George Young and myself.
The building blocks for this Bill are all around us. The work has been done in many committees; I have served on three over the past 10 years. But this committee is going to do a real job of work that will allow the proper work of Parliament on its proposals.
Schools: Modern Languages
To ask Her Majesty’s Government what proposals they have for the teaching of modern languages in primary schools.
My Lords, I beg leave to ask the Question standing in my name on the Order Paper, and I declare an interest as chair of the All-Party Parliamentary Group on Modern Languages.
My Lords, we are considering our priorities for the national curriculum, including what subjects it should cover. We will be announcing our plans in due course.
I thank the Minister for that reply, but as languages at key stage 2 are no longer to become statutory, will sufficient funding still be available for teacher training in this area? Research shows that learning foreign languages improves children’s written and spoken English, and languages are a significant part of the “vast divide” between state and independent schools, which only yesterday the Government said they want to close.
I start by paying tribute to the work of the noble Baroness as chair of the All-Party Parliamentary Group on Modern Languages. I know that she has kept the flame for modern languages burning and I agree with her wholeheartedly about that. I am a great fan of modern languages and, if it is not too rash a thing to say on my first outing at Oral Questions, of ancient ones as well. As the noble Baroness knows, over 90 per cent of primary schools are offering a language to some of their pupils at key stage 2—70 per cent to all pupils. I welcome also the progress made by the previous Government in attracting and training more language teachers for primary schools. I reassure the noble Baroness that the spending cuts announced for the current financial year should not affect funding for primary languages or for the training of teachers.
My Lords, does my noble friend agree that a problem here is that English is the second language for 27 per cent of pupils coming into schools?
I agree with the noble Baroness. Obviously that increases the challenges that primary school teachers have in teaching languages. However, I have already had the privilege of seeing many good examples where schools are coping with that challenge and managing to teach modern foreign languages as well.
My Lords, can the Minister reassure the House that the Government are aware of the importance of languages for our international competitiveness, particularly at the moment? Can he say a little more than he said in answer to the noble Baroness, Lady Coussins, about how the Government intend to continue the recruitment, education and training of teachers, which seems particularly vulnerable at the moment?
As to helping international competitiveness and business, I agree that modern languages have an important part to play. I also have a slightly old fashioned view that education is a good in its own right; I do not wholeheartedly share the concentration there has been in recent years on education being merely a means to a job. As to the funding for recruiting more language teachers, I understand the points made by the right reverend Prelate. As I said, funding is in place for this year. We will continue to look at the issue but in the context of the difficult overall public spending decisions in the CSR.
The Minister has already drawn attention to the fact that, although 90 per cent of all primary schools teach some foreign languages, slightly fewer than 70 per cent provide such teaching for all stage 2 pupils. Is there not a risk in this difference in provision of something which everyone accepts is of benefit to all children? Should it be applied selectively in this way?
I am grateful to the noble Lord for that important point. There will be a consultation as part of the review of the overall national curriculum and how it should be delivered. I hope that as many noble Lords as possible—I do not think many will need much invitation—will contribute to that review because it is extremely important that we get this right.
My Lords, does the Minister agree that whereas teaching primary school children modern languages is obviously of great benefit to them, it has to be sustained into the secondary system as well? There is, I suspect, an increasing shortage of suitable candidates, and the issue of training teachers will be resolved only if the teaching of modern languages in secondary schools is made compulsory to a higher level than is currently the case and more people are encouraged to take them on at university.
I understand those points very clearly. In regard to the overall review of the curriculum, its content and the question of what should and should not be compulsory, we shall need to reflect on those points and come up with conclusions in due course.
Given the continued need for more specialist teachers and the continued budgetary constraints, will the Minister join me in welcoming the British Council scheme which funds temporary cover for teachers to go away during term time, as well as their own time, to foreign countries to increase their language skills? Will he encourage other organisations to put their money into similar schemes?
My Lords, I will be very interested to hear more about the British Council scheme; it sounds extremely good. I would like to talk to the noble Baroness about that and to see whether we could encourage other organisations into it.
My Lords, following the excellent debate on the Academies Bill yesterday—and I hear what the noble Lord has said about reflecting on the teaching of languages in primary schools—I wonder whether, in the Government’s view, the Government’s primary academies should be obliged to teach every child a language. Have the Government made any assessment of the impact of schools opting out of funding provision for teaching languages in other schools in areas where it is a shared service?
The basic question about the overall content, how the curriculum should be constructed and how that applies to all schools is one that the Government are looking at, with regard to academies. There is a presumption that academies will have slightly more freedom over their curriculum than other schools. They are obviously under an obligation to provide a broad and balanced curriculum. Clearly, many academies are already providing excellent language teaching as part of those courses.
Israel and Gaza
To ask Her Majesty’s Government what recent discussions they have had about the situation in Israel and Gaza.
My Lords, the United Kingdom is in regular contact with the Israeli and Palestinian Governments and our international allies regarding the current humanitarian situation in Gaza and the wider issues relating to the peace process. As my right honourable friend the Foreign Secretary said in the other place, it is essential that there should be unfettered access to Gaza, not only to meet the humanitarian needs of the people of Gaza but to enable reconstruction of homes and livelihoods and permit trade to take place.
My Lords, in the face of threats to intervene and break the blockade by Iranian Revolutionary Guard naval units, why cannot the United Kingdom Government announce that they are prepared to challenge the blockade by providing a naval escort for a flotilla of ships carrying humanitarian aid into Gaza, aid which has been given prior clearance by the European Union in the way that Bernard Kouchner has suggested? Would that not be a far better way to proceed? The Israeli Government are far more likely to heed that kind of initiative.
I recognise the noble Lord’s strong feelings on this matter, but we simply do not think that that is the right way to proceed. We think that the right way is for the restrictions and the so-called blockade to be lifted beyond the present arrangements, by which some humanitarian supplies get in but not enough. We think that the right way forward is to put maximum pressure on Israel to do that. That is the sensible way forward for Israel’s own security and for the future prospects for the peace process.
I agree entirely with the Minister about unrestricted access to Gaza, but are there not immediate questions to be discussed with the Government of Israel concerning the ships themselves, their cargoes, now under arrest, and possibly the personal possessions of persons who have been arrested?
I cannot answer the noble Lord on the personal possessions issue. With regard to the humanitarian goods on these ships, the idea is that they should be shipped on into Gaza. However, unfortunately, it appears that the Hamas group has not been very keen on accepting all that aid at the moment. But that is the procedure that the Government of Israel are trying to adopt in the face of attempts to run the blockade or break the restrictions, which are apparently to be promoted by a number of countries, including some of the Iranian authorities.
Does the Minister agree that, while there is a great need to improve the access for aid and commercial goods into Gaza, it still requires any new regime allowing new materials into Gaza to take great care not to allow in weapons that might be used against Israel?
The noble Baroness is absolutely right. This is the dilemma. Israel does have the right to restrain the import of weapons, bombs and so on into the control of Hamas. At the same time, we all want to see the sufferings of the people of Gaza minimised and the maximum supplies of food, building materials, medical supplies and so on imported into Gaza. That is the dilemma that must be solved. The right way forward is along the lines proposed, with pressure on Israel to do that rather than creating some head-on conflict with Israel when it is the country with which we need to co-operate to achieve the two-state solution that we all want to see.
In the mean time, my Lords, will my noble friend confirm that the peace talks and the proximity talks are proceeding apace, despite the continuing weakness of the quartet mechanism, which is deeply disappointing to all observers? Will he reassure us that the sinister rumours that George Mitchell is less than even-handed between Israel and Palestinian lobbies are not true?
I can give that reassurance. I can also tell my noble friend that the Palestinian authorities have shown no inclination to withdraw from the proximity talks or from the talks that might follow them. For the moment that side of the situation holds together, despite all these unhappy developments in recent days.
The Minister must recognise that Israel has legitimate security concerns and cannot be expected to allow unfettered access. How, then, do the Government respond to the specific proposal from Bernard Kouchner that the European Union offers to provide some form of border monitoring for material entering Gaza to ensure that it is only for humanitarian purposes?
There may well be something in that idea. Of course there is the other border on the Egyptian side, which was open temporarily and has now been closed. All these matters are to be pursued to see whether we can find that key reconciliation between the need to end the suffering of the people of Gaza and Israel’s legitimate security concerns.
My Lords, while I recognise the appropriate need for Israel to be protected, the issue of building materials in relation to the people of Gaza is nevertheless important, given the recent campaign against Gaza involving bombing and the destruction of houses. What can Her Majesty’s Government do in the interim to encourage the Israeli Government to allow building materials to go into that country? Surely they are fundamental to the humanitarian effort.
The right reverend Prelate is right. The answer has to be that maximum pressure and encouragement must be placed on the Government of Israel to do what is actually in their own interest, which is to minimise the restrictions, to lift the blockade as far as they can consistent with their security and to continue to expand the amount of provisions already going into Gaza from Israel as well as from Egypt. That is the way forward and we should not be deflected from it.
Arrangement of Business
My Lords, it may be helpful for me to say a few words about the procedural Motion in the name of the noble Lord, Lord Howarth of Newport. The Motion proposes that the Local Government Bill should be referred to the Examiners of Petitions for Private Bills to allow them to consider whether the Bill is hybrid. The Companion to the Standing Orders explains that:
“Hybrid bills are public bills which are considered to affect specific private or local interests, in a manner different from the private or local interests of other persons or bodies of the same class, thus attracting the provisions of the Standing Orders applicable to private business”.
The Bill, like every public Bill, was considered by the Public Bill Office before introduction. It took the view that the Bill was not prima facie hybrid. A letter from the Clerk of Public Bills explaining why that view was taken has been placed in the Library of the House. The Companion makes it clear, however, that it is open to any Member who considers that a public Bill may be hybrid to move that the Bill be referred to the Examiners. As with all matters of procedure, while the Clerks can advise the House, it is ultimately for the House to decide whether the Bill should be referred to the Examiners. I should perhaps make it clear that if the Motion in the name of the noble Lord, Lord Howarth, is agreed to, the Second Reading will not take place today.
Local Government Bill [HL]
Motion to refer to the Examiners
That the Bill be referred to the examiners.
My Lords, I declare an interest as a resident of Norwich. I want to put it to the House that there is a strong prima facie case that the Local Government Bill is hybrid, and that it should therefore be referred to the Examiners to determine whether that is so. As soon as they saw it, a number of experienced colleagues said surely this Bill is hybrid.
The noble Lord the Leader of the House just told us the definition of hybrid Bills in the Companion, but perhaps it would help the House if I quoted the words again. The definition states that they are,
“public bills which are considered to affect specific private or local interests, in a manner different from the private or local interests of other persons or bodies of the same class, thus attracting the provisions of the Standing Orders applicable to private business”.
In the next paragraph, the Companion goes on to say:
“It is open to any member who considers that a public bill may be hybrid … to move that the bill be referred to the Examiners. Such a motion is usually moved immediately before second reading”.
These semi-mythological creatures, the Examiners, are the Clerks of Private Bills in both Houses.
I recognise that hybridity is not for amateurs. These are deep waters and a prudent politician does not even get into his bathing trunks, let alone plunge in. But I fear that, unlike my right honourable friend the former Prime Minister, prudence has never sufficiently been my watchword.
I regret that I was unable to give the House more notice of this Motion. The difficulty has been that the Government have advanced this Bill with extraordinary speed. We saw the Bill only on the eve of the long bank holiday weekend. That was followed by a day when the House was not sitting, so I was not able to consult the Clerk of Public and Private Bills until the following day, last Wednesday. I then had to discuss with Norwich and Exeter City Councils whether they wished to seek the advice of parliamentary agents and counsel. The lawyers then worked at top speed, with e-mails flying around all over the weekend and late at night. Counsel's formal opinion and a letter of advice from parliamentary agents were delivered yesterday, and in the light of them I tabled the Motion on the Order Paper for today. We could not have got to this point more quickly, and I have had no desire to wrong-foot the House.
In any case, while the concept of hybridity may be obscure and elusive, the issue before us now is simple. Do we consider that there are sufficient reasonable arguments that the Bill is hybrid to warrant referring it to the Examiners?
Plainly, the Government have sought to draft this Bill so that it is not hybrid. However, they are navigating tricky waters, and the House ought to satisfy itself on this point, since there are major implications for how we proceed depending on it. If the Bill were judged by the Examiners to be hybrid, after Second Reading, as I understand it, the Bill would go to a Select Committee which would receive and examine petitions and question witnesses and then report to the House before following the usual course of a Public Bill.
It seems clear to me that the Bill is hybrid on this ground most obviously, although there are others. Norwich and Exeter are treated differently from other local authorities under this legislation for the following reason. Since the Bill, significantly, does not repeal Section 1 of the Local Government and Public Involvement in Health Act 2007—the Act that permits the Secretary of State to invite a local authority to make a proposal for reorganisation into single-tier government—the Bill contemplates that authorities will in the future, after the Bill has become law, have the opportunity to make such proposals. However, the Bill specifies that Norwich and Exeter—just those two named authorities—are not to become unitary authorities. It seems plain as a pikestaff that the local interests of Norwich and Exeter are especially prejudiced for the future. In the language of the Companion, Norwich and Exeter are affected,
“in a manner different from the … local interests of other … bodies of the same class”—
other councils that may wish to propose unitary reorganisations.
However, I speak merely as a politician and not as a lawyer. Far more significant are the views of learned counsel. I will not attempt to paraphrase either the lengthy opinion of Mr Peter Oldham QC or the shorter but densely argued advice of Mr Alastair Lewis of Sharpe Pritchard, parliamentary agents. Both those documents came in after the Clerk of Public and Private Bills had given his opinion that this particular Bill was not hybrid. I will just say that Mr Oldham concludes his opinion with the words:
“In my view, there are proper and reasonable arguments that this Bill is hybrid”.
Mr Lewis says he believes that a further line of argument that he has put forward,
“represents a strong argument in favour of saying that the Bill is hybrid”.
What I am not proposing to the House in this Motion is that the House should decide here and now that the Bill is hybrid. Nor is this a debate about the rights and wrongs of the Government's policy on Norwich and Exeter—that is for Second Reading. What I am proposing is that the House should recognise that there are various views about whether this Bill is hybrid, all put forward in good faith by serious people—professionals who are competent to make such a case—and agree that all these arguments should be considered carefully and expertly by the Examiners so that they can determine whether the Bill is hybrid in accordance with the procedure that Parliament has provided.
It has long been established that there should not be a high hurdle for referral to the Examiners. Mr Lewis notes that the Companion says at paragraph 8.214 that the threshold for the hybridity test is whether there is a prima facie case. That means, as he puts it, that,
“if there is any doubt, the Bill should be referred to the Examiners”.
In that, he is following rulings of the Speaker in another place. The Speaker ruled on the Local Government Bill in the 1962-63 Session, at HC (1962-63) 669 col. 45:
“I accept the true position to be this, that if it be possible for the view to be taken that this Bill is a Hybrid Bill, it ought to go to the examiners. There must not be a doubt about it”.—[Official Report, Commons, 10/12/62, col. 45.]
Again, in the 1966-67 Session, the Speaker, at HC (1966-67) 732 col. 1221, referred to the “duty” to refer a Bill to the Examiners when the Bill was prima facie hybrid. The House will, I hope, acknowledge that, given the advice that I have quoted from two eminent experts, the threshold for referral has beyond doubt been crossed.
I hope that the Government will not oppose this Motion for political reasons. I hope that they will not seek to take advantage of the new-found situation in this House, since the formation of the coalition, in which they can use their majority simply to crush propositions that are inconvenient to them, rather than, in the tradition that makes this House so valuable, respect the arguments and respect the rights of minorities. Your Lordships’ House is not a House where machine politics should operate. It would reflect poorly on us and it would certainly cause bad feeling outside if the House were to dismiss without fair and proper consideration the arguments put forward in these opinions.
In the matter that we are dealing with now, the responsibilities of us all are as parliamentarians. We are dealing not with the merits of the Government’s policy but with the status of the Bill and with the responsibility of Parliament to ensure that it is scrutinised according to the correct procedure. It may be that the Examiners will, after due consideration, endorse the Government’s view of the Bill’s status, but we owe it to those whose lives and fortunes will be affected by the Bill to ensure that we do indeed follow the correct procedure. I beg to move.
My Lords, I am not sure how many noble Lords will want to take part in this debate, but I thought that it might be helpful if I put forward the Government’s view now, so that both views are available for further consideration. I thank the noble Lord, Lord Howarth, for explaining the reasoning behind his Motion and the opinions that he has received. I assure him that this Government have their view, which I shall put forward now.
The Local Government Bill was introduced into this House on 26 May and is scheduled to have its Second Reading, as the noble Lord mentioned, once this Motion has been disposed of. The Motion refers the Bill for determination of its status and so has taken precedence over Second Reading.
As the noble Lord said, the aim of the Bill is to stop the proposed restructuring of councils in Devon, Norfolk and Suffolk, which will save the taxpayer some £40 million. I will not take up the House’s time by presenting the rationale for the Bill, as we hope to get to that later this afternoon, after the Motion has been considered.
The Motion tabled by the noble Lord asks the House to refer the Bill to the Examiners. He has expressed doubts that the Bill should be treated as a public Bill on the basis that he believes—he has cited other authorities, too—it to be hybrid. I need to say at the outset that, despite what the noble Lord has said, he has left it to this very late moment to bring the matter to the House and has given little notice for the House to be able to deal with it. I must make it clear that the Government strongly believe that, whatever the noble Lord has said, the Bill is not hybrid.
That is not only my view. The noble Lord should be aware of the letter I received from the Clerk of Public and Private Bills on 3 June, which states that the advice of the Public Bill Office was that,
“the Local Government Bill currently before the House is not prima facie hybrid”.
A copy of this letter has been placed in the Library of the House, and I drew the noble Lord’s attention to it earlier. The letter also sets out clearly the reason why the Public Bill Office does not consider the Bill to be hybrid. It may assist the House, for those who may not have had an opportunity to see it, if I quote the relevant sections of the letter. This is a subject that not all Members will be intimately familiar with, hybridity being something which we do not often consider.
The letter begins by giving a definition of hybrid Bills—which act as the noble Lord, Lord Howarth, has already described. It states:
“A hybrid bill is defined as ‘a public bill which affects a particular private interest in a manner different from the private interests of other persons or bodies of the same category or class’”.
The letter goes on to give the Public Bill Office’s reasoning as to why the Local Government Bill is not prima facie hybrid. It states:
“The concept of ‘class’ is therefore crucial to deciding whether a bill is hybrid or not. Erskine May states that: ‘A class must be defined by reference to criteria germane to the subject matter of the bill’.
The Local Government Bill is a tightly drafted one-topic Bill which relates only to proposals made, but not yet implemented, for the creation of unitary authorities under Part 1 of the Local Government and Public Involvement in Health Act 2007. It does not affect Orders made under Part 1 of the 2007 Act which have already been implemented. So for the purpose of judging hybridity, the class, defined by reference to criteria germane to the subject matter of the bill, is those councils which have made proposals—as yet un-implemented—for unitary status under Part 1 of the 2007 Act.
Section 1 of the bill contains the substantive provisions preventing the implementation of proposals under Part 1 of the 2007 Act. Subsection (1) prevents any further Orders being made under Part 1 of the 2007 Act to implement existing proposals for unitary authorities. I understand that at the moment, the only proposal which has not been the subject of an Order is that which was made by Ipswich Borough Council. Subsection (3) revokes the Orders which have already been made (but not implemented) in respect of Norwich and Exeter.
The class of bodies affected by the bill is clear, and all members of that class are treated equally, so we do not think”—
this is from the Public Bill Office—
“that any hybridity arises. The fact that Norwich and Exeter are named on the face of the Bill, in the Titles of the Orders to be revoked, while Ipswich is not, does not make any difference to our view on hybridity. All three bodies are being treated equally”.
Those are the terms of the letter that has been sent out. It gives the full basis for why the Government do not believe that hybridity is an issue.
I am slightly surprised that the advice of the Public Bill Office does not satisfy the noble Lord, Lord Howarth, that the Bill is not prima facie hybrid. I hope that, having aired his concerns—which has given me an opportunity to clarify this issue—the noble Lord will withdraw his Motion requesting that the Bill be sent to the Examiners, not least because of the considerable delay to the future of the Bill. We have a long tradition in this House of respecting the advice of the Public Bill Office. The noble Lord would need to make a very good case for the House to depart from that advice, and I do not believe that he has done so.
Is not the problem—I am not sure that the noble Baroness has dealt with it yet—that the advice given by the Public Bill Office was given, as I understand it, before it had seen the evidence to which the noble Lord, Lord Howarth, referred? If there is, as a result of that evidence, any real doubt—a prima facie case, or whatever you like to call it—the Bill ought to go the Examiners. That is perfectly clear.
My Lords, my understanding is that the Public Bill Office has not changed its view as a result of that advice, and I intend to proceed on that basis. Before I sit down, I should make it clear that if the noble Lord decides to put his Motion to a vote, I will have no option but to ask the House to oppose it as, were he to succeed, it would delay the passage of the Bill and clarity for the future of the local authorities concerned, which need a decision.
I rise to support the Motion. Even in my greatest delusions of grandeur, I do not consider myself a constitutional lawyer. However, with very great respect to the House, I believe that this matter turns on a fairly narrow point to which I shall come in a moment.
The definition of hybridity stems from a ruling of the Speaker of the House of Commons in the Session 1962-63, and very much follows the words of the Companion which have already been quoted. The issue, therefore, is whether or not certain bodies or private interests, which stand on the same ground in respect of being private or being limited as bodies, are treated in exactly the same way. What is not spelt out in Erskine May, as I understand it, is whether or not there might be justification for treating bodies of that nature, which are of the same class, differently as different considerations relate to them. As I understand it, nothing in Erskine May casts light on that fundamental issue.
Since the enactment of the Local Government and Public Involvement in Health Act 2007, 13 orders have been made creating unitary authorities in Cornwall, Durham, Northumberland, Shropshire, Wiltshire, east Cheshire, west Cheshire and the city of Chester, Bedford County, mid-Bedfordshire, south Bedfordshire, Norwich and Exeter. The first 11 of those authorities gained unitary status in 2008. By 2009, those procedures were well set and, indeed, the transitional stages had been completed. The other two bodies with which we are concerned were dealt with by this House—if I remember rightly—on 22 March and, clearly, the transitional provisions have not begun to operate. Therefore, their situations are very different. If that be the basis of distinction, there would be justification for dealing with them differently. However, as far as I know, there is no rule which says that special cases need special exemptions: either you deal with all bodies in exactly the same way or you fall foul of hybridity. As I say, 13 orders have been made since 2007 and there has been no challenge in 11 of them. The other two were challenged in this House. Is that challenge valid, or not? That is the narrow issue that this House should consider.
My Lords, I, too, support the Motion. I declare an interest as a resident of Norwich and as a former leader of the city council. I wish to repeat a couple of points in addition to the excellent speeches that we have heard from all around the House. This Motion is not about the merits or otherwise of the Bill. It is certainly not about the merits or otherwise of unitary status. The debate is not even about whether the Bill is hybrid, despite the speech of the Minister, who is seeking to act as judge and jury—if I may put it that way—on that issue. The House is not being asked to decide that. That is a matter for the Examiners, as the noble and learned Lord, Lord Lloyd, put it so well. What we are discussing is a procedural “reasonable doubt” issue.
The most relevant guideline comes from the Speaker’s ruling, also on a local government Bill, which was quoted by my noble friend. I repeat it, because it represents a very low hurdle indeed. The ruling stated:
“I accept the true position to be this, that if it be possible for the view to be taken that this Bill is a Hybrid Bill”—
I repeat, “if it be possible”—
“it ought to go to the examiners. There must not be a doubt about it”.—[Official Report, Commons, 10/12/62; col. 45.]
I will not explain what the hybrid issue is; the noble Lord, Lord Elystan-Morgan, has done that very well. However, given that there is such a very low hurdle, is it possible, in the words of the Speaker of the Commons, for the view to be taken that the Bill is hybrid? Such a view should clearly not be whimsical or something that I thought up in the bath. In fact, we have the view of learned counsel and of parliamentary agents, Sharpe Pritchard, which has stated that it is strongly arguable that this Bill is hybrid. Others, perfectly properly, may take a different view.
However, we are not asking the House to judge that this afternoon. That is a matter of judgment. We are asking it merely to decide whether the arguments from QCs and parliamentary agents meet the very low hurdle of the test set by the Speaker, when he said,
“if it be possible for the view to be taken that this Bill is a Hybrid Bill”,
it should go to the Examiners. Opinion from learned counsel and parliamentary agents would seem to me not to be frivolous, but a serious one that should be explored by the Examiners.
Counsel’s opinion is, therefore, unambiguous and it seems to me that the Speaker’s ruling applies unambiguously, as the noble and learned Lord, Lord Lloyd, and the noble Lord, Lord Elystan-Morgan, argued. If the House ignored that ruling—and the Clerks’ advice was given in advance of them seeing learned counsel’s opinions to the contrary—that would flout not only the clear ruling of the Speaker and the House would be, if I may say so, behaving in a very high-handed way which all of us have studiously sought to avoid, precisely because we are not elected.
Whatever our views about the Bill—and I fully accept that they will be various—I do hope that we all agree that we should be seen to be meticulous and transparent in our procedures. If not, we cut away further at our distinguished history and that will leave us more exposed in the future. Whatever noble Lords’ views about the merits of the Norwich and Exeter case, I hope that they will support this Motion, because that would show the House of Lords at its most reflective best.
My Lords, perhaps I may make two or three points. First, this Motion is certainly not about the merits of the Bill. As far as the Bill is concerned, I was not in favour—and I am still not in favour—of Exeter becoming a unitary authority. On the contrary, as someone who spends a large part of his time down in Devon, it is important that Exeter should remain with the rest of Devon. However, that is not the issue. I totally agree with my noble friend Lord Elystan-Morgan when he said that it is a simple point—it is. Where are we? What is the dilemma facing the House? It is simply this: on the one hand, we have the Clerks. They have given their respected, respectful and highly considered opinion which states that the Bill is not hybrid. On the other hand, we are now in a position whereby an eminent Queen’s Counsel, who is experienced in this branch of the law, has also given a firm and unequivocal opinion that the Bill is, or could well be, hybrid. How can we resolve that? We cannot.
I am not in a position this afternoon to argue whether or not the Bill is hybrid, but I am in a position—and I hope that the rest of the House will follow me in this—to say that there is a clear argument as to whether the Bill is or is not hybrid. That being so, the procedures on how to resolve that are perfectly clear: the Bill has to go to the Examiners. The Examiners are there to assist the House in coming to a conclusion. It seems to me that we cannot come to a conclusion today, except by ignoring one or other reputable opinion by reputable people. I am not prepared to ignore one set of views in favour of another; I am not in a position to make up my mind. There is a clear issue here and, that being the case, the Bill should go to the Examiners and I shall support the Motion.
My Lords, it is appropriate that this has been a short debate. The noble Baroness, Lady Hanham, trailed her Second Reading speech but this is not a debate about the merits of the Bill. She told us that the Government strongly believe that the Bill is not hybrid. We know that they strongly believe that but others, equally strongly, take the contrary view. I perfectly respect the views of the Clerk of Public and Private Bills and I respect his role. I make no criticism whatever of the advice that he has given, which I think has been entirely proper. However, I think that it is wrong of the noble Baroness to invite the House to agree with her that the Bill is not hybrid, because that is not the issue or the role of this House.
The question is whether there are reasonable arguments for saying that the Bill is hybrid. The crucial point, made very well by the noble and learned Lord, Lord Lloyd of Berwick, was that opinion that this House should not ignore was provided to us after the Clerk had given his view. Therefore, we cannot question that there is doubt about the status of the Bill. The Speaker’s rulings have made it absolutely clear that, where there is such doubt, the Bill should be referred to the Examiners so that they can determine the matter. The noble Lord, Lord Elystan-Morgan, explained the nature of the doubt. My noble friend Lord Richard, a former Leader of the House and a QC—incidentally, not a supporter of unitary status for Exeter and Norwich—advised the House that it would be appropriate to refer the Bill. I do not think that this House can ignore the advice received from QCs or eminent parliamentary agents, and I very much hope that we will therefore refer the Bill to the Examiners.
Bill referred to the Examiners.
My Lords, a few moments ago when I was making the procedural statement, I explained that if the Motion was carried we would not continue with Second Reading. Therefore, we will not continue with Second Reading.
However, because the business has now effectively closed down rather sooner than we had anticipated, the noble Lord, Lord Levene, who has the next business, is not in his place. Therefore, I suggest that we adjourn the House during pleasure until 4.30 pm until we can find the noble Lord.
Question for Short Debate
To ask Her Majesty’s Government what factors they take into account when making sure that the United Kingdom maintains its competitiveness.
My Lords, I am very glad to introduce this short debate this afternoon, not least because it will mark the maiden speech of the noble Lord, Lord Sassoon, who is now Commercial Secretary to the Treasury. The issue of competitiveness has particular resonance for me since I served in two government posts in previous Administrations, the first in the Ministry of Defence with responsibility for defence procurement and the second working for the then Prime Minister with responsibility for a programme called “Competing for Quality”. Both posts were essentially based on the premise that competition brings with it efficiency and profitability.
For quite some time now, we have been living in an atmosphere of doom and gloom. The purpose of this debate, however, is more positive. It is to explore what policies will allow us, as a country, to export more goods and services and to attract investment—in short, to stop our morbid fascination with the financial crisis of 2008; to stop acting like carrion birds picking over what happened and who was to blame; and to start working out how we are going to make enough money to pay off our enormous debts. The time has come to stop wallowing in our condemnation of a group of greedy and unscrupulous bankers. Everybody enjoys the view from the moral high ground, but the new Government must tear their eyes away from the past and get to work fixing the economy.
The Prime Minister has said that he intends to reopen Britain for business. However, I would argue that Britain has never been closed for business. I am chairman of Lloyd's—an interest which I declare this afternoon—and in 2009, we made a record profit. Lloyd's is not the only business in the United Kingdom that has shown prudence and perseverance in facing up to the financial crisis. For example, in 2008, the insurance industry contributed £8.2 billion to the Exchequer. There are millions of men and women working up and down the country who are exporting goods and services. The starting point for this debate is to ask the Minister what his Government can do to help those exporters to operate in a competitive environment.
It is clear that the UK must grow its way out of debt, and the primary way to do this is both to sell our goods and services to the rest of the world and to encourage foreign capital into this country. The World Bank has described Britain as among the easiest places to set up and run a business. We need to decide once and for all: is this description of the UK as a place for international business to thrive and prosper a point of pride, is it something that we fear or is it even a point of shame?
I firmly believe that if we are to derive the enormous benefits of living in a globalised world, the UK must engage fully with the international economy. We cannot deal in half measures and mixed signals. For example, while immigration controls remain absolutely necessary, we should not throw the baby out with the bathwater by preventing experts from businesses outside the UK who want to set up here bringing their key staff with them or by excluding students, who are the lifeblood of a huge industry.
There are two areas to consider. The first is how we promote UK exports and offer practical assistance to help those exporters plug in to overseas markets. Here I pay particular tribute to the work of UK Trade & Investment. Lloyd’s, which is one of the leaders in this country of invisible exports, has received outstanding support from the staff of UKTI in the UK, and even more so from its staff, who are based in our embassies all over the world.
The second essential component is to ensure that we have a business environment in which people want to trade. Many factors make the UK attractive, but the most hotly contested at present are what our tax rates should be and what business regulations we should set. This is where the Government must once and for all take decisive steps to prove that they are on the side of business. When I served as lord mayor of the City of London in 1999, I was able to travel around the world saying that we had one of the most competitive tax regimes anywhere. This is no longer the case, and the totally spurious arguments that increasing direct taxation has little effect on retaining the best talent in this country, or in attracting new talent to come here, must be corrected.
Businesses today, even British businesses, do not have to trade in the UK if they are offered a better deal elsewhere. This is particularly true of financial services, which require no factories, warehouses or heavy industry, and can move easily from one jurisdiction to another. We have experienced this first hand at Lloyd’s, where only nine out of the 53 businesses that operate in the market remain domiciled in the United Kingdom. They are re-domiciling not only in the traditional tax havens but within the European Union, so it is critical that the Government take urgent steps to re-establish the UK as the most competitive location in the European Union.
The previous Government's levy on bonuses accrued a £2 billion windfall for the Treasury, but this kind of sudden taxation is playing with fire. One day there will be no bonuses, and no bankers left to tax, and you do not need a team of Treasury accountants to tell you that 50 per cent of nothing is nothing. I am becoming very concerned that the phrase “re-balancing the economy” is a sort of code for shrinking the financial services sector. That would be a mistake of huge proportions. If we want to boost manufacturing in this country, that is one thing, but we should not view a thriving world-class financial services sector as a barrier to this ambition. This is an industry that we happen to be very good at. It is an industry that has driven our economy and created hundreds of thousands of jobs. The hand wringing and recrimination that we have seen directed at the entire sector of more than a million workers in this country would not happen in other countries. Have noble Lords noticed the Germans castigating their car industry? Have any of your Lordships noticed the French castigating their wine industry? Not only does the financial services industry suffer in this way; so too does the other industry with which I was closely associated: the defence industry—another huge earner of foreign exchange and an employer of hundreds of thousands of people.
The domestic criticism of our financial services industry is being noticed overseas. One leading international banker very recently described the tax and regulatory environment in the UK as scary. In tax terms, the financial services punch above their weight. Last week, the lord mayor set out in a speech that UK financial services accounted for £61.4 billion in the tax take for the fiscal year ending in 2009. This equates to 57 per cent of the health budget, 75 per cent of the education budget and 150 per cent of the defence budget.
Today we need to move on, to be confident that we have learnt from our mistakes and to start once again building on what we are good at. I hope that the Minister and all noble Lords here today can send a clear message that we are proud that the City of London, and the whole of the UK, is a place where the world comes to trade.
The new Government find themselves at a crossroads. We can be ashamed of our success in certain sectors or we can celebrate it. We can pursue a path where we spend the next few years poring over the post-mortem of the financial crisis or we can take a pragmatic path—one that leads to jobs and money for British people. This decision needs to be taken now. The Government need to put business out of its misery rather than add to it. I hope that the Minister will be able to reassure us that this will be a feature of his department's forthcoming Budget.
My Lords, I congratulate the noble Lord, Lord Levene, on securing this important debate so early in this new Parliament. As we would expect, his speech was masterly and one with which I am in almost complete agreement. It is a great pleasure to take part in a debate on economic matters from the relative calm of the Back Benches, but it is an even greater pleasure to take part in a debate which features the first appearance at the Dispatch Box of my noble friend Lord Sassoon.
Usually a maiden speech is followed by other speakers who are able to say what a marvellous maiden speech has been made. But my noble friend has chosen to make his in a debate in which he will speak last. However, I know that he will make a marvellous speech and therefore have no hesitation in congratulating him on that in advance and on being a marvellous Minister.
Back in 1997, the UK was a competitive place to do business. We were seventh in the World Economic Forum's competitive league table. Last year’s report, the latest, shows that we have slumped to 13th. The UK will not lift itself out of the economic mess which the previous Government created unless our competitiveness is restored. It is as simple and as complicated as that. Growth and jobs are essential to our recovery and they will not come without a big improvement in our competitiveness.
I would like to focus my remarks on two aspects of competitiveness—tax and regulation, to which the noble Lord, Lord Levene, has also referred. Again back in 1997, the World Economic Forum ranked us fourth in the world for tax and regulation. The last report shows that we had slumped to 84th and 86th for tax and regulation respectively. This shows the scale of the task facing our new Government.
The Institute of Directors recently estimated that the administrative costs alone of regulation are now nearly £80 billion a year, which is not much short of 6 per cent of GDP. I welcome the coalition's plans for a one-in, one-out rule on new regulations and sunset clauses for both regulations and regulators. These initiatives should help to stem the tide of regulation but they may not involve a significant reduction in the burden of regulation. I hope that the Government will look again at whether there should also be a downward ratchet on the burden of regulation—for example, through the use of regulatory budgets, which decline year on year.
The EU is the source of most of our new regulations and those regulations typically offer low cost-benefit ratios. The Commission has never embraced the goal of reducing the burden of regulation as opposed to the administrative costs of regulation. What can my noble friend tell the House about our Government’s determination to make a difference on EU-sourced regulation?
Turning to taxation, I welcome the fact that the Government are committed to not implementing Labour's tax on jobs. I also welcome the corporation tax reforms where simplifying reliefs and allowances will allow the headline rate of corporation tax to come down. But while reducing the headline rate of tax is a good thing, if it is achieved only by shifting around reliefs and allowances, in the short term it merely creates winners and losers, and in the long term it is not enough to make the UK a more competitive place for business. We need a commitment to much lower business taxes as well, and the Government’s aim to create the most competitive tax system in the G20 is a good first step. But we must not take our eye off the nimbler fiscal regimes of the emerging economies because they will be the ones wooing inward investment away from our shores.
We have an inordinately complicated tax system which is a drag on the UK’s competitiveness. Our party had a clear commitment to an independent office of tax simplification, building on the excellent work of my noble and learned friend Lord Howe of Aberavon. Can my noble friend say whether the Government will press on with this? Do our Liberal Democrat partners share our aims in relation to tax simplification?
A competitive tax environment has to go beyond business taxation; it must embrace personal taxation too. Top rates of taxation and national insurance of 52 per cent have no part in a competitive tax system. I hope that my noble friend will confirm that the Government understand that our personal tax system can be as important as our corporate tax system in terms of encouraging enterprise within the UK and attracting businesses from abroad. I hope he will agree that a tax system is not a fair one for the UK as a whole if it actively discourages business and enterprise.
That brings me to my last point on tax; namely, capital gains tax. My noble friend will be aware that the coalition’s adoption of the Liberal Democrat’s policy on capital gains tax has no popular support in our party or with the business community. I shall do no more today than quote from Arthur Laffer’s article in last week’s Spectator:
“Raising the capital gains tax rate does an inordinate amount of damage to an economy … Raising tax rates on the rich and especially on capital gains is about as bad an idea for the UK as I could imagine”.
I do not expect my noble friend to reveal what will be in the Budget planned for later this month, but I hope he will confirm that our Government will have the competitiveness of the UK at the very heart of that Budget.
My Lords, I, too, congratulate the noble Lord, Lord Levene, on putting down his Question and I very much welcome his tone of optimism. But we really need to know and understand what is the coalition Government’s view on competitiveness, and who better to explain it than the noble Lord, Lord Sassoon. He comes with a formidable reputation and I look forward to what he has to say. I also congratulate him on his first appearance at the Dispatch Box.
For many, competitiveness refers to our ability to trade: the exchange rate for sterling. Some would say that all we have to do is reduce the value of sterling and we would become more competitive. If only life were so simple. Yes, with the recent devaluation of sterling, our exports have increased, but in addition we need to substitute imports because they have become more expensive. To increase our exports we need more of the brains, skills, supply chain, investment and all the other things, tangible and intangible, that go into successfully supplying goods and services. It may be complex, but what do the Government think is a competitive exchange rate?
Innovation, the ability to convert science and technology into products and services has become a race between nations to translate discoveries into economic success stories before other nations do so, and our ability to do this is crucial to our competitiveness. The Labour Government put a lot of effort into helping British industry win this race, so where do the coalition Government stand? Are they going to continue this effort or cut it? And to be competitive, most countries have built up an infrastructure to bridge the gap between research, technology and commercialisation. Here, it is the task of the Technology Strategy Board to deliver our national strategy and to bridge the gap. Its innovation agenda is crucial to our competitiveness. Does the Minister agree?
Equally important is how good our financial sector is at financing the enterprise and the new technologies essential to make us more competitive. The Hauser report and the recent report from the Council for Science and Technology lists many areas of new technology where we currently have a technical leadership and a defensible technology position, giving us a very good chance of becoming competitive. Are the Government going to accept these recommendations? Will they ensure that the finance is available?
Or is there no role for government in this? Tory dogma says that too much government stifles individual initiative and so it is best to rely on market forces and individual initiative. Others say that the state is an engine of progress in competitiveness. At the same time, Ministers speak of shifting the responsibility for this kind of support downwards from national to local, but local government has been a big loser in the first round of cuts. Are Ministers looking both ways? Where does the compromise lie?
The noble Baroness, Lady Noakes, spoke about taxation. Many say that the debate about capital gains tax is central to our competitiveness. They say that taxing capital gains saps initiative. Unfortunately, well meaning tax concessions to encourage this initiative have unintended consequences, such as hedge fund managers paying tax at a lower rate than their cleaners. Of course, the real way to tackle this from a competitiveness point of view is to tax consumption and not income. Is the Minister prepared to go along this route?
The noble Baroness, Lady Noakes, and the noble Lord, Lord Levene, spoke about regulation. All new Governments tell us that the less regulated we are the more competitive we become. Of course poor and outdated regulation needs to be cut, but this is not the real threat to our competitiveness. As I said in the debate on the Queen’s Speech, the real threat to our competitiveness is the absence of competition through unregulated market failure. On this the coalition agreement is silent. By choosing to be populist and ignoring the important, the Government will not help our competitiveness.
I agree with the noble Lord, Lord Levene, that our attitude towards world trade is very important. Will we be more competitive by being independent or by advancing international co-operation? Some say that to be more competitive we should abandon many of the rules of the European single market: “Trade with Europe on our own terms”, they say. How is the coalition going to manage our partnership with Europe to strengthen our competitiveness? This is crucial because, thanks to the Labour Government’s handling of this, the European Union has become our biggest market.
There are, of course, other considerations. How far do managers have to consider environmental and social issues—the triple context, as Tomorrow’s Company puts it. Are our businesses more competitive if the attitude of business owners is one of stewardship or one of shareholder value? Which reflects the more responsible economic model the coalition agreement talks about? Which is more competitive?
These are some of the elements that affect our competitiveness, and there are many more. The point that I wish to make is that our competitiveness is not a matter of destiny or chance; we have to choose. Our competitiveness will be determined by the sum total of these choices. What are they to be?
I am glad to attempt to straddle the oratorical gap left by the noble Lord, Lord Newby, who unfortunately at the last moment cannot be here, but I am sure that my coalition partner would agree fully with everything that I am about to say.
Two texts should underpin my brief intervention in this debate. First, after the mess that we have been left after 13 Labour years, we have to drag ourselves out of it altogether. That may take another very substantial period of time, which will mean cuts in public expenditure and higher taxation affecting us all. However—and here I echo the noble Lord, Lord Levene—I hope that it is not the sort of higher taxation that affects competitiveness. The second of my texts is that any changes in levels of taxation and taxation regimes that deter entrepreneurship, reduce job creation and lower tax receipts would be a bad thing for our citizens, all the more so if the competitiveness of UK business was damaged and foreign investment into our characteristically and happily open economy is discouraged.
My interest in industry in the City is long declared, along with my equally strong declaration of long-standing admiration for how the noble Lord, Lord Levene of Portsoken, has led so many great issues affecting the City of London. I make one other declaration, which may shock those of your Lordships of a rather sensitive disposition. I should come out this afternoon and reveal that a number of bankers are my close personal friends. It is really very counterproductive to excoriate across the piece everyone in any sector of our society; it is the greatest possible mistake. Indeed, living in these straitened times when the blame game has become a national sport, we had better realise that no great sector of society seems popular at the moment. The public sector, with its often unfairly so-called pen-pushers; the world of financial services, to which I have just referred; and, in particular, politicians—all of us are in “Sniper Alley” in one way or another. As we try to be more competitive economically, we should certainly try to be much less competitive in attributing blame and crawling over what has happened in the past, as the noble Lord said.
With the state that we are in, we know that something is not quite right, to put it mildly. The international league tables of competitiveness, to which my noble friend Lady Noakes has already referred, do not tell us all that much of use in the end in exactly how to pull up our economic boot-straps. They just tell us where we are by different measures. There are figures for competitiveness ranked by country, produced by the Centre for International Competitiveness. Then there is the World Competitiveness Yearbook, and the World Economic Forum. Someone remarked in my hearing how luminaries, loving to gather under spotlights like pigeons at a grain sack, not only started turning up at the World Economic Forum in Davos but migrated shortly afterwards to the literary festival at Hay-on-Wye, in a sort of moving caravan of commentariat. These types should listen with particular care to my noble friend the Commercial Secretary to the Treasury, because of his great financial expertise and the literary heritage that flows through his veins. I look forward to the speech that he is about to make to conclude our affairs today.
I hope that my noble friend will not find it too unwelcome if I ask, in the way of the times, that the excellent principle of transparency so much advanced by my right honourable friend the Prime Minister yesterday will extend to making a clear impact statement of the expected economic outcomes of any tax changes after they are announced. If we raise tax—and in particular, as my noble friend Lady Noakes, has said, the capital gains tax—too much, then jobs, profits and tax revenue will all suffer. It always has that effect, or at least history shows that it does. All our experience in the UK and the US demonstrates this. For example, over the 30 years from 1975 to 2005 when capital gains taxes were cut, revenues rose as a share of national economic output and in cash terms. However, when capital gains taxes were raised, the revenues always slumped. May it be different this time around? I do not know. History does not always repeat itself, of course. I am not an economist, just a simple Back-Bench Peer, but one who is fearful that if we go too far down the route of raising the taxes to which I have referred, then down, down, down will go profits, investments, wages and employment.
What I do know is that the new transparency much applauded by the coalition Government demands a clear and open impact assessment of any eventual proposals on taxation when they are known. I hope that if CGT changes have the effects feared by some on competitiveness or productivity—take your choice of term—then we must be clear that the changes in taxation are being produced for good economic reasons, not for political reasons that will have bad economic outcomes.
My Lords, I was privileged to lead a debate six months ago about the contribution of modern language skills to the UK economy, and I am grateful for the opportunity to update the House in today’s debate. I declare an interest as chair of the All-Party Parliamentary Group on Modern Languages.
I refer noble Lords to Hansard of 3 December 2009 for the details of the earlier debate. I shall not repeat it today, but it boils down to the fact that the UK’s competitiveness is being damaged by the inadequacy of foreign language skills in the workforce. Professor Michael Worton concluded in his review last year of modern languages in universities that Anglophone Britons are on course to become one of the most monolingual peoples in the world, with severe consequences for our economy and for business competitiveness. Many surveys of employers have recorded frustration at the lack of language skills among both school-leavers and graduates, to the extent that they are increasingly forced to recruit abroad to capture the skills they need.
The latest report from the CBI, published three weeks ago, says that over two-thirds of employers are not satisfied with the foreign language skills of young people and over half perceive shortfalls in their international cultural awareness. The report found that at least 4 per cent of firms knew that they had missed out on opportunities because of inadequate language skills but that a further 17 per cent did not know whether they had lost business or not, so the scale of the problem could be much bigger. Indeed, other research suggests a significantly higher level of lost business. The British Chambers of Commerce has claimed that 80 per cent of English exporters were unable to conduct business in a foreign language and that 77 per cent of them believed that they had lost business as a result. Research from Cardiff University’s Business School suggests that the UK economy could be losing contracts worth up to £21 billion a year because of a lack of language skills.
French is still the most sought-after language, but Mandarin or Cantonese is now coming a close second. In addition, with new markets opening up in Latin America, the Far East and central Asia, employers are also looking for people with Spanish, Russian and Arabic. German was mentioned by 34 per cent of respondents to the CBI survey, and Polish, Japanese, Portuguese and Korean are also on the employers’ wish list.
The importance of language skills is often underestimated and even dismissed by people who believe that English is enough in the business world, but that is very short-sighted. Yes, English is vital, and yes, we benefit enormously from so many other people wanting to learn it, but 75 per cent of people on planet earth do not speak English at all, and not all tender documents appear in English.
Competitiveness in academic research is another area being undermined by lack of language skills. Much cutting-edge research on, for example, climate change or counterterrorism is by definition international and comparative. Graduates from the US, China, India and other EU countries are more likely to have a language or two in addition to their main subject, whether that is law, chemistry, economics or geography. The British Academy is concerned that that may damage the internationally recognised distinction of UK scholarship. The fact is that there are large sums available on a competitive basis from EU sources for university research groups based in three or more countries, and it will become increasingly difficult for UK universities to put forward convincing applications for such funds.
In debates about competitiveness, the importance of the STEM subjects—science, technology, engineering and maths—is always and quite rightly a top-line issue. But the Minister should remember that languages have also been designated, alongside the STEM subjects, as strategically important and vulnerable—or SIV subjects, to use the acronym. Do the Government still accept that designation for languages? Will the Minister also undertake to liaise with his colleagues in the Department for Business, Innovation and Skills and the Department for Education to press the competitiveness case? That is needed, among other things, to inform and speed up the decision on the future of the cross-sector forum on languages, which was set up following Professor Worton's review but which now seems to be in limbo. Set up under ministerial chairmanship, the forum brought together schools, universities and employers for the first time to address the nation’s language capacity and it is important that it does not lose more momentum.
It would be a hugely welcome and motivating signal if the Government were to designate a Minister with specific responsibility for languages, with a brief that included all relevant departments, not just the Department for Education but also BIS and the Treasury. Indeed, I pay tribute to the noble Lord, Lord Davies of Abersoch, who as a BIS Minister in the last Government took responsibility for the languages issue on an informal basis, because of his personal commitment to language skills and his understanding as a leading businessman in his previous life of their vital importance to business success. Will the Minister replying today confer with colleagues and see whether a formal responsibility could now be allocated, as for science? Our shortfall in languages is restraining our competitiveness at just the time that we need those skills to contribute to our economic recovery.
My Lords, I thank the noble Lord, Lord Levene, for introducing this debate. He is my colleague on the Economic Affairs Committee and I know how strongly he feels about the subject. I should also like to express my delight at the appointment to the Treasury team of my noble friend Lord Sassoon. He brings a great deal of varied experienced to the post and will I am sure provide exactly the same strength of reinforcement to the government Front Bench as the noble Lord, Lord Myners, did under the previous Administration.
I approach this debate from a different angle from those that other noble Lords have spoken about. For the avoidance of any misunderstanding, I should state at the outset that I am the chairman of the Imperial College Healthcare NHS Trust. I was prompted to intervene by the Prime Minister's speech yesterday on the severity of the forthcoming public expenditure cuts. I support the objective of reducing the deficit. I support, too, the aim to cut waste, re-examine the role of government and, where appropriate, to shed functions, to make the economy more competitive and, over time, to make society better. But if the Government are to carry through their deficit reduction programme without damaging the economy let alone improving its competitiveness, the Government will need to mobilise all the support, skills, resources and dedication of managers in the public sector.
To put it in military terms, Ministers are the generals who issue the orders. The managers in the public sector are the troops who will have to carry through the fighting. By that I mean that they are the ones who will have to implement the spending cuts, choose which programmes to axe, initiate the redundancy programmes, renegotiate the pension plans and carry through the closures. That is a very difficult programme. I therefore urge Ministers not to repeat the error that the Thatcher Administration fell into of associating cuts in public expenditure with the denigration of the public sector managers whose task it is to carry them out. I was chairman for some of that time of the Civil Aviation Authority, which in those days incorporated the National Air Traffic Services, since privatised by the Labour Government, and I know what damage the denigration of public sector managers did and how much harder it became to recruit good people into the public sector to do the difficult jobs that were required.
I fear that we are already hearing in the background far too many murmurs about pen-pushers and bureaucrats ripe for the slaughter, as if the cutting of public sector jobs is in itself an objective rather than a necessary cost of what is being undertaken. Of course the Government want to maintain front-line services and to free the professionals who staff them to get on with their jobs, but they must remember that doing that in a time of cuts requires skilful and careful managers—the fewer the resources, the greater the management challenge. The cost-effectiveness of those programmes and thus the competitiveness of the British economy will suffer without the skill and the support of public sector managers. The same applies to the redesign of the management structures, the taking out of layers of management, the streamlining of functions and the consequential loss of management jobs. All that will, I know, be necessary, but it should be seen for what it is—a necessary public service that will make the services themselves more robust and more effective—not as a reason to rejoice in the fate of those who pay the price with their employment.
We hear a great deal from the Government—and not only from the Government—about the importance of improving the quality of management in the private sector in the British economy and we hear a great deal about what the public sector can learn from the private sector, as it can, although there is also a reverse process. However, we need to bear in mind that, if the Government are to carry through their programme, which I support, they will need the support of managers in the public sector. I urge them to value those managers and to show understanding of and sympathy with what they will be required to do and the losses that some of them will suffer. The Government should avoid the mistake of conflating reductions in public sector expenditure with the denigration of those who have to carry them through.
My Lords, I, too, congratulate the noble Lord, Lord Levene, on securing this debate on an issue of considerable national importance. He speaks with considerable experience not only in leading Lloyd’s—a market of excellence and global leadership—but in his many other successful functions in the commercial and public sectors.
I welcome the noble Lord, Lord Sassoon, to the Front Bench. Like the noble Baroness, Lady Noakes, I know that his maiden speech will be excellent. I have known the noble Lord for close on 20 years. He has an excellent reputation for the clarity of his expression; I have always known him to be somebody who answers questions in a forthright and straightforward way and never seeks to duck them. In that respect, he will be a blessed addition to the Front Bench, as we have struggled in previous debates to get any clarity at all about government policy from the noble Lord, Lord De Mauley, and the noble Lord, Lord Henley, who surprisingly has still not written to noble Lords after the Queen’s Speech debate last week. The noble Lord, Lord Sassoon, joins a long list of Swiss bankers who sit on the government Benches. He joins the noble Lords, Lord Freud, Lord Garel-Jones, Lord Brittan, Lord Waldegrave, and many others who have worked for UBS. It is good to know that our economic management is now in the hands of the gnomes of Zurich.
Competitiveness is absolutely vital to our economy. It comes from the value created that exceeds the cost of production. That is the edge that will give us economic competition. It is through being economically competitive that we get growth and it is through growth that we deliver our policy objectives sustainably in supporting education, health and other areas of national importance. The noble Lord, Lord Levene, in a speech given on 17 September last year, a few days after the anniversary of the collapse of Lehman Brothers, said:
“Competitiveness demands excellence, and continued excellence requires constant change and evolution”.
To be successful in that respect we need the right environment. Competitiveness is even more important in an era of globalisation, particularly when mobility of location is so important, as the noble Lord, Lord Levene, noted in his introductory statement.
The Government can create jobs but they cannot create the capacity sustainably to support those jobs if they are either imprudent in their fiscal policy or if the public sector begins to bear too heavily on the economy. However, as the noble Lord, Lord Tugendhat, said, there is good work done in the public sector. We must ensure that during this period, when we face the need for fiscal adjustment, we do not denigrate those who work in the public sector.
We clearly need a policy of fiscal caution. It was right to support the economy during the global recession but there now needs to be fiscal adjustment, as evidenced by the last Government in the Fiscal Responsibility Act. There is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation. There will need to be significant cuts in public expenditure, but there is considerable waste in public expenditure. I have seen that in my own experience as a government Minister. I hope that the Government will pursue with vigilance their search for waste and efficiencies without making cuts which are injurious to the provision of public service. The difference between the Government and the previous Government was on the issue of timing and when those cuts should take place.
There was flawed thinking about job creation in the past. I found it very frustrating to sit in meetings with some of my fellow Ministers talking about creating jobs in the green economy and biotechnology. The Government cannot create jobs. The Government can create an environment that is conducive to the creation of jobs, but they cannot create jobs and we mislead ourselves if we believe they can. We need to create a context for competition, incentives for capital investment, protection for intellectual property and promotion of high standards of governance. We also need high- quality business inputs in infrastructure, human capital and physical infrastructure—a subject that I am sure the noble Baroness, Lady Valentine, will speak to in a moment. We need predictable and business-sensitive administrative rules, and a technological infrastructure which promotes innovation.
The economies of the state are not the same as the economies of the business or the family. There is an important role for the Government in supporting economic activity. The noble Lord, Lord Skidelsky, made that very clear in a penetrating contribution to the Queen’s Speech debate last week. The economy is still operating at a rate in excess of 5 per cent below productive capacity. One of the questions that I would like to ask the noble Lord, Lord Sassoon, is: where are the sources of growth for the economy over the next 12 months? Mr Cable has suggested that consumer expenditure will reduce. We know that public expenditure will reduce. Over the weekend, George Osborne claimed the credit for persuading our trading partners to reduce their consumption through their own fiscal deficit programmes, so where does the noble Lord see the source of growth for the economy over the next 12 months? Where does he see the mechanisms for rebalancing the economy, to which the noble Lord, Lord De Mauley, again spoke yesterday? He spoke about the financial sector not growing as fast as other sectors. I find this difficult to reconcile with the fact that we need credit to support the economy. The noble Lord, Lord De Mauley, shakes his head but I have looked at Hansard and the noble Lord is very clear about manufacturing growing at a faster rate than other sectors. Therefore, I would like the noble Lord, Lord Sassoon, to explain to us the actions that the Government will be taking in that regard. I would also like him to tell us whether he believes that the fiscal adjustments that the Chancellor will announce on 22 June are likely to lead to an increase in unemployment. If there is to be an increase in unemployment, I would like him to confirm how much it will be. I would also welcome a comment from him on whether he agrees with the Prime Minister’s observation that monetary policy will have to tighten in the short term.
Finally, I would welcome a comment from the noble Lord, Lord Sassoon, on the banking commission, which is causing considerable uncertainty. When can we expect to have details of this commission? Will its membership be constituted in accordance with public appointment rules?
My Lords, we are all grateful to the noble Lord, Lord Levene of Portsoken, for introducing this short debate. First, I pay tribute to the former Minister, the noble Lord, Lord Myners, and to my noble friend Lady Noakes for encouraging a high standard of debate in the previous Parliament and for their legislative achievements, such as the Banking Bill, which did great credit to this House. I also warmly welcome the noble Lord, Lord Sassoon, in his new position. Like his predecessor, he brings great financial experience to our deliberations and a good grasp of matters political from his time at the Treasury. He will be an invaluable addition to the coalition.
To encourage a sound economic background to enable UK competitiveness to flourish, the coalition needs to get UK finances back on to a more even keel, which it is already starting to do. Without this, the cost of government and business borrowing could increase rapidly as markets worry about the state of the UK economy. You only have to look at Greece to see the consequences of delaying doing anything, and the Spanish situation is of concern, too. Taking a leaf out of the Canadian book in the 1990s seems to be the latest mantra and that seems a sensible one.
The latest edition of the IMD World Competitiveness Yearbook, which ranks the competitiveness of 58 economies on the basis of more than 300 criteria, puts the UK at number 22—down one place from last year. Five of the top 10 are from the Asia Pacific region. For the first time we are seeing the creation of a self-sufficient economic block of developing countries. They have money markets and technology that did not exist 10 years ago. The biggest loser is Europe. Only three old world countries, Switzerland, Sweden and Norway, broke into the IMD’s top 10 this year. The IMD attributes the old world's relatively poor showing to high levels of government debt, a weakening infrastructure and continued inefficiencies in European labour markets. Professor Garelli of the IMD stated that,
“obviously the UK is undergoing the uncertainties of the post election period but also faces the dual challenges of the huge financial cost of the crisis as well as the deindustrialization of its economy”.
The deindustrialisation means that the UK cannot suddenly change track and become a mass manufacturer as our labour costs are too high compared with the Far East and other relevant developing countries. We need to retain and develop our focus on specialist niche, higher value-added manufacturing. Like my noble friend Lady Noakes, on this front I strongly argue, even at this difficult time, against restrictions on capital allowances for manufacturers, which would be a short-term and retrogressive step. Will the Minister make the strongest representations to the Chancellor on this point?
One of our major economic strengths is in financial services, as other speakers have said, which has been demonstrated by the success of Lloyd’s. The noble Lord, Lord Levene, mentioned that last year. This area must be nurtured even after the banking crisis of the past few years. The balance that the Government must seek to achieve here is to combine the right amount of regulation—to avoid a repeat of the sub- prime crisis—with a regime that allows bank lending to recover. Capital adequacy of banks is crucial, but this regime must be agreed internationally, whereby UK banks are not put at a disadvantage to their global competitors. This is already proving to be a slow process.
Regulation is a key factor in other areas of the economy. Overregulation means that the UK will be at a disadvantage compared to other less regulated markets. However, a balance has to be kept to ensure that safety and quality standards are adhered to without gold-plating European rules and regulations.
Another area that the Government should focus on to make sure that the UK retains its competitiveness is tax rates. The Chancellor is correct to be considering reducing corporation tax. The proposed increase in national insurance for employees should be reversed as soon as possible, because it is an extra burden for business to bear against international competition.
Capital gains tax is another area that causes me, like my noble friend Lady Noakes, concern. The proposed hike in the rate will cause concern especially to the elderly, who need to resort to capital to fund their living expenses. This could also curtail the activities of those who previously had spare capital to fund start-up enterprises. I ask the Minister to use his influence to argue for a return of taper relief and/or indexation to soften the blow of this proposed hike. I should like to point out that while I am not opposed to a higher short-term gains tax within a year to avoid income being turned into capital, the rate should decrease, whereby after three years it should be about 25 per cent. High personal tax rates can discourage enterprise. I therefore hope that the coalition will reduce the 50 per cent top rate of tax as soon as possible.
In summary, like my noble friend Lady Noakes, I believe that regulation and tax are two of the most important areas in encouraging the UK to maintain its competitive advantage.
My Lords, I thank the noble Lord, Lord Levene, for introducing this important debate. I declare an interest and, I trust, a valuable perspective as chief executive of London First, the non-profit-making business membership organisation which champions the competitiveness of the capital.
London and the south-east account for one-third of Britain’s GDP. Productivity rates in this region are substantially higher than in the rest of the UK, and the region sports internationally competitive talent in creative industries, professional services and, yes, even banking. My speech today therefore focuses on how to nurture this valuable global talent hub at the same time as balancing the budget. Encouragingly, the Government appear to be proposing spending cuts to tax increases in the ratio of roughly 80 per cent to 20 per cent. That approach is supported by successful international examples of deficit reduction campaigns, such as that in Canada.
In seeking to cut costs without affecting outputs, the Government can usefully draw on experience in the private sector, born of the pressures of meeting customers’ demands in competitive markets. Money can be saved while focusing on key outcomes through efficiencies and cutting economically less productive programmes. Take the skills sector, for example. To increase efficiency, the alphabet soup of quangos could be rationalised, and recent research by London First suggests that significant savings could be made from skills programmes which have low market impact. However, an objective mechanism is required to remove low-value programmes across all departments. Cutting spending well is as important as the pace and scale of cuts.
Lastly, government should preserve investment in long-term productive infrastructure. Noble Lords have heard me championing the case for Crossrail many times before. Inevitably, the Department for Transport has to bear a share of spending cuts, and the business community strongly supports robust action specifically to drive down costs in the Crossrail project, but cuts to scope are a false economy. Crossrail and, indeed, the Tube provide the capital’s arteries.
On tax, the new Government should espouse three principles: fairness, competitiveness and stability. The Government have already set out a number of measures aimed at providing a fair tax framework, protecting those on the lowest incomes. Competitiveness in both business and personal taxes is also vital. We need to keep our existing talent and investment, as well as attract internationally mobile businesses and business people. If we fail, our productivity and our ability to grow in coming years will be damagingly constrained, as will tax yield.
Greater predictability in tax policy-making is equally important. Recent policy changes—for example, over non-doms or the bankers’ bonus tax—have undermined the UK’s reputation as a stable jurisdiction. I understand the previous Government’s reasons for introducing the 50 per cent top rate, but a firm indication in the emergency Budget that this is a temporary measure might prevent this having a lasting impact on the perceived risks of locating in Britain.
In closing, I shall mention three areas of policy which have no funding impact but which require sensitive application if they are not to have a negative economic impact. The first is international air links. The cancellation of runway three is not the end of the story. Heathrow is still running at 99 per cent capacity. We need this hub for international business travel to be world class, which it cannot be without addressing delays caused by this lack of resilience.
Secondly, I urge caution in revising the planning system while the property sector remains fragile. Reform may be necessary, but not as necessary as ensuring that the buildings we need get built.
The third area is the implementation of an immigration cap. People who contribute to our global talent hub, whether in business or as students, must be allowed to come and go. Poor implementation risks multinationals running their operations from elsewhere and damage to our relationship with emerging economies.
Finally, we need a new relationship between government and the business community. The lead-up to the election saw an unhappy fight between parliamentarians and bankers to be least favourite. The Government need to find a way of respecting the strengths of the financial community while fine-tuning their legislative response to the credit crisis, and the banks need to recognise the Government’s legitimate concerns while putting their own houses in order. I know that in this final area we can rely on the noble Lord, Lord Sassoon, to proceed with understanding and tact.
My Lords, I also congratulate the noble Lord, Lord Levene, on this debate, and I express apologies on behalf of my noble friend Lord Newby, who could not attend due to the retiming of the debate.
Clearly, there are many factors to be taken into account in encouraging competitiveness, top of which is to have a business-friendly Government. It is clear that right from the word go this Government are emphasising the need for the private sector to lead our recovery, and thereby the need to help and encourage business and industry. On the one hand, we are living through very difficult times when costs have to be cut and savings are needed but, on the other hand, we have to be sure that the drivers for our recovery are not discouraged.
It is encouraging that in the past few days, weeks or months we have seen a resurgence in manufacturing, which I very much applaud. Before I entered Parliament, I was the managing director of a small, 30-employee manufacturing company, so it is good to see a bit of a lift in that direction.
The low rate of sterling is of course advantageous for our exports. Also, because of the difficult circumstances in which we are living, many firms have had to cut costs over the past few years, so that in its own way will help with competitiveness.
As my noble friend Lady Noakes said earlier, we have to be very careful to ensure that bureaucracy and red tape are addressed. I know that this has been said many, many times by many, many people, but I assure her and others that we on these Benches are going to encourage the new brush and the new enthusiasm to cut back on red tape and bureaucracy. I believe that with fresh enthusiasm we can do a lot to help.
The noble Lord, Lord Levene, spoke about the future of the financial sector—something about which we are naturally all concerned. When there is much talk about rebalancing, with implied negativity towards the financial industry, of course he should be concerned. However, I would also say that the City and financial institutions need to be encouraged to invest in manufacturing, for example. So often in the past British and UK innovation, ideas and inventions, whatever they may be, have not been encouraged enough. I urge the financial sectors of all sorts to look, as we are all saying, towards production in manufacturing terms.
In the short time since the election there has rightly been a lot of emphasis on business. In that connection I refer to the debate last week in this House on the Queen’s Speech. The noble Baroness, Lady Wilcox, opened the debate with many encouraging announcements on the Government’s programme, when she reiterated the need to cut bureaucracy. She also spoke, among many other aspects of business, about the need to help businesses to start up. There were a number of points that were encouraging, among which was the emphasis that the Government will put on high-speed broadband and wider deployment. Certainly these signs are encouraging and I, along with others, look forward very much to hearing from the noble Lord, Lord Sassoon, with his wide experience and expertise. I am sure that he will make a great contribution to this debate.
My Lords, I, too, congratulate the noble Lord, Lord Levene, on ensuring this debate. It is also a great pleasure to welcome the noble Lord, Lord Sassoon, to your Lordships’ House, and to congratulate him on his appointment to the Government. I applaud him and look forward to his maiden speech. It is quite a lot for him to do in one evening but I am sure that he will rise to the occasion.
Every Member of this House knows what a privilege it is to be here, but the noble Lord, Lord Sassoon, is particularly lucky. As many of you will know, he served in the Treasury for a number of years. From 2002 to 2006 he was managing director of finance, regulation and industry, so it was he who was responsible for the Treasury leg of the tripartite relationship that was supposed to identify and regulate the systemic risk in British banking—a relationship that we all know failed somewhat spectacularly. Now he has the chance to put things right—that is what you call luck. In 2007 and 2008 the noble Lord, who was still in the Treasury, acted as Gordon Brown’s ambassador to the City and then he left the Treasury to become David Cameron’s ambassador to the City. He is certainly fleet of foot in all directions.
Every speaker in this debate has been absolutely right in stressing that in the global economy, sustaining and enhancing the competitiveness of Britain must be central to everything we do in economic policy. To gain some insight into this coalition approach, I read two recent speeches. I cannot deal with every aspect of them, but the Prime Minister’s speech entitled “Transforming the British Economy: Coalition Strategy for Economic Growth” dealt with three elements. On international action, he seems to think that if the Indian and Chinese markets are opened up more British goods would be sold. That depends on whether we can be competitive. Simply opening up the market on its own does not guarantee that we can take advantage without being more competitive.
On the aspect of modern support, I shall just cover the point about the banks. Will the Minister tell us whether the Government’s policy is that banks should rebuild their balance sheet or should they lend more? It will be difficult for them to do both at the same time. A number of references have been made in the debate to the question of rebalancing. The point has been well and truly made that the financial services make a huge contribution to exports. Getting that rebalancing right—if that is what we are going to do—while not undermining a valuable export service will be supremely important.
A section of the speech was entitled “Liberalise”. Apparently Vince Cable is going to be given the power to say no. Since he has not been given any other powers I suppose that that is something. There was one clear policy commitment in that section, which states that,
“our ambition is to have the most competitive corporate tax system in the G20”.
It is interesting that if we examine corporation tax rates in the G20 we find that 14 out of the 20 countries already have higher corporation tax than we do, and five have lower rates. If we are to be the most competitive we need to cut it by more than 8 percentage points which, to save the Minister looking up the figure, I have worked out. The rough size of that pledge is between £10 billion and £15 billion. It would be interesting to know how we will deal with that.
I was interested that throughout this debate, there have been plenty of pleas for getting rid of taxes. On taxes on bankers’ bonuses, the noble Lord, Lord Levene, warned us that there will not be any bankers left. I find it unlikely that nature will permit that kind of vacuum. The noble Baroness, Lady Noakes, told us that we do not want a tax on jobs and that we certainly do not want any increase in capital gains tax. I will be interested to see how the Government balance that. My noble friend Lord Haskel reminded us that when hedge fund managers are paying less tax than their cleaners, we cannot have got the tax system absolutely right, especially under a Government committed to fairness.
On funding economic growth, I notice that that my previous department, BIS, will suffer cuts of about £836 million—more than any other department. What is the real substance of those cuts and what will be their impact on the competitiveness of British industry? In previous debates, we have heard comments about the previous Government’s commitment to assist Ford with £1.5 billion in building a new engine plant and guarantees given to Nissan, Vauxhall and Sheffield Forgemasters. Will the Minister confirm that the coalition still plans to give that vital support to industry?
I must concur with the point made by the noble Lord, Lord Tugendhat, about the importance of not denigrating the vital role of the public service. We are all committed to ensuring efficiency in the public sector, but how we go about that will be vital. My noble friend Lord Myners stressed that we need to ensure that the Government create the right environment to ensure the creation of jobs, and made the vital point: where will be the source of growth? The impact of growth in demand stimulated by the falling exchange rate embodies a crucial lesson: industry will invest and competitiveness will be enhanced only if there is a prospect of growing demand.
The coalition has not put forward a coherent industrial strategy. That is the reality behind the rhetoric. There is no credible strategy for skills, no credible strategy for research and development, and no credible strategy for funding investment. There is no consideration whatsoever of the impact of its age of austerity on jobs, innovation and competitiveness. The core of the coalition approach amounts to liberalisation plus corporate tax cuts.
In the interests of time and ensuring that the noble Lord, Lord Sassoon, has plenty of opportunity to answer the questions, I will leave my comments there.
My Lords, I rise with considerable trepidation to address this most august of Houses for the first time. First, I thank the officials of this House, who have been so helpful and supportive in easing me into your Lordships' House. Last week, I listened to the well merited tributes paid to the noble Lord, Lord Myners. I know that he will indeed be a very hard act to follow, and I am very grateful to him for his kind words this afternoon, as well as to my noble friend Lady Noakes, who so ably carried the Treasury portfolio on the opposition Front Bench. I was tempted to remain sitting and just leave the two of them to get on with it, but I will carry on.
I am also particularly grateful to the noble Lord, Lord Levene of Portsoken, because the topic of this debate resonates with so much in my background. My great-great-grandfather came to this country from Bombay in 1858 as an inward investor to build trading links with the cotton mills of Lancashire and to establish a financial base for our family in the City of London. So it is absolutely in my blood to want our financial sector to grow and prosper and that it should support the needs of the UK’s industrial base. Whether this makes me a Swiss/Indian/Iraqi banker I do not know, but I am not a pure Swiss banker.
In the first part of my career as a banker, I advised on the privatisation programmes of the UK and many other countries—privatisation programmes that were so central to the structural reforms and growing investment flows of those countries. When I moved to the Treasury in 2002 as a civil servant, I was responsible for competitiveness issues. I made it part of my business to travel regularly to the major Asian economies, the Gulf states and to other countries to listen to the concerns of inward investors, to explain UK competitiveness policy and to argue for open markets for our exporters of goods and services. I am tempted to talk about other aspects of my time in the Treasury, but I shall stick to the convention of making this a non-controversial speech and perhaps respond to the noble Lord, Lord Young of Norwood Green, on another occasion.
In my new role as the first Commercial Secretary to the Treasury, I combine in my responsibilities both financial services and wider business policy, so the UK’s competitiveness is again a central concern of mine. I am therefore delighted that we are discussing how this Government intend to maintain the UK's competitiveness. However, we are here not simply to maintain our competitiveness; we are here to improve it.
This means, first, recognising those drivers of competitiveness where the UK is a leader but where we must work ever harder to preserve our advantages. I am thinking of the UK’s flexible labour market, of our pool of highly skilled talent, of our competitive markets and of our openness to inward investment and investors. On the other hand, the UK suffers from some long-standing structural weaknesses. The challenge here will be to set a clear medium-term policy direction while cutting our cloth in line with the new economic realities. In this category I put our infrastructure and energy policies, dealing with lower skills and planning policy, and translating our science base into profitable enterprise.
In terms of immediate action, we need to look at two drivers of competitiveness that have been much talked about today: tax and regulation. High taxes damage business and hamper investment. We need lower, simpler and more predictable taxation. For this reason, the Budget will set out reforms on corporation tax. We will set out a road map for the creation of the most competitive corporate tax regime in the G20. We also need to keep a hawkish eye on regulation. We will introduce a one-in, one-out rule, and sunset clauses will be imposed both on regulations and regulators so that the need for each regulation is regularly reviewed.
I should turn to some of the specific points raised in this important debate, but I recognise that if I addressed only half of the questions put by the noble Lord, Lord Haskel, we would be here all night. Your Lordships will perhaps forgive me, therefore, if I pick out just a few major points; I shall write on some others. With a couple of weeks to go before the Budget, a number of macroeconomic points, made particularly by the noble Lord, Lord Myners, and tax points, made by, among others, my noble friends Lord Patten and Lord Northbrook, we shall just have to defer for now. However, I shall try to respond to some points, starting with the questions put by the noble Lord, Lord Levene of Portsoken, about helping exporters, which I regard as critical. As I have said, I did a certain amount of that in my previous role. I believe that we must continue to work with UKTI and ECGD to ensure that their support continues to be targeted where it can most help our UK exporters.
The noble Lord, Lord Haskel, asked a number of questions about choice, of which I shall pick up on one or two—one of my answers responds to a point made by the noble Lord, Lord Levene of Portsoken. When it comes to the state versus the private sector, we advocate neither a laissez-faire model nor state control of the market. Regulation must at all points be proportionate and targeted and must help the aims of businesses and households.
Having said that I cannot talk much this afternoon about taxation, I want to answer a question asked by my noble friend Lady Noakes about tax simplification because it is not just a matter of rates. The noble Lord, Lord Young of Norwood Green, referred to headline tax rates. They are very important, but we also need a tax system that is certain, flexible and proportionate, so I can confirm that the Government will set up an office of tax simplification to suggest reforms to the tax system.
I talked about the need for putting downward pressure on UK regulation. The question of European regulation was raised by a couple of noble Lords. Yesterday, I was talking to Professor Mario Monti, the former commissioner, who has recently written a key report on how to drive forward the single market. Although not everything in that report would be endorsed by the Government, there are some critically important things, including a welcome approach that he suggests for the European Commission to put its own house in order for better targeted and better enforced regulation.
There were one or two questions and comments about skills and questions about savings being made in expenditure, including a question asked by the noble Lord, Lord Haskel. To indicate the importance that the Government attach to skills and to dealing with cuts in expenditure in a sensible and responsible way, within the recently announced £6.2 billion savings in 2010-11, there was a plan to reinvest £200 million in improving Britain’s growth potential, £150 million in funding 50,000 new apprenticeships and £50 million in capital investment in FE colleges most in need.
The noble Baroness, Lady Coussins, drew our attention to the important question of languages. It is easy to be complacent about this. Every time I go to China, I am reminded that the Chinese leadership is increasingly speaking English, and I feel very inadequate. I take the noble Baroness’s general point to heart, and I will feed back to colleagues the specific point she raised.
Another important issue raised by a number of noble Lords was public sector cuts and public sector workers. I admire and respect the contribution of public sector workers. Of course there will be savings from lower-priority schemes within the programme of spending cuts that is coming, but key front-line services will be protected, and we respect the public sector workers who provide those and all other services.
Finally, the noble Baroness, Lady Valentine, talked about the need for a new dialogue between banks and industry. All I can say is that I have policy responsibility for both banks and industry in my new portfolio, which is probably an indication that our Chancellor exactly takes her points.
I am embarrassed that the necessity for brevity in my speech this afternoon makes my comments seem no doubt both superficial and rather trite. However, we have highlighted some key factors that affect the UK’s competitive position, and they will certainly very much help me as I work on this agenda in the months ahead.
My Lords, I am sure that the Minister is about to sit down, but I hope that I may be permitted to congratulate him on his incisive maiden speech. He has spent much of his career advocating and critique-ing the work of the financial services industry in the City. As we heard from the noble Lord, Lord Young of Norwood Green, he has done so wearing many different hats and serving a number of different political masters with equal effectiveness and irrespective of their political affiliation. Now that he not only is a Member of your Lordships' House but bears the heavy responsibility of a Minister of the Crown, I am sure that he will fulfil those responsibilities with great distinction and that we can look forward in this House to his very perceptive insight into the future. I apologise for my interruption.
I am very grateful to the noble Lord. That is the sort of interruption that I can take. I am particularly grateful to be thanked afterwards as well as in advance. I end simply by saying that the prize, if we get all this right and can restore the UK’s position as the most competitive economy, is very clear.
House adjourned at 5.56 pm.