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Lords Chamber

Volume 722: debated on Monday 22 November 2010

House of Lords

Monday, 22 November 2010.

Prayers—read by the Lord Bishop of Lincoln.

Introduction: Lord Green of Hurstpierpoint

Stephen Keith Green, Esquire, having been created Baron Green of Hurstpierpoint, of Hurstpierpoint in the County of West Sussex, was introduced and took the oath, supported by Lord Griffiths of Fforestfach and Baroness Warwick of Undercliffe, and signed an undertaking to abide by the Code of Conduct.

Introduction: Lord Kerr of Monteviot

The most honourable Michael Andrew Foster Jude, Marquess of Lothian PC, QC, having been created Lord Kerr of Monteviot, of Monteviot in Roxburghshire, was introduced and took the oath, supported by Lord Fraser of Carmyllie and Lord Lang of Monkton, and signed an undertaking to abide by the Code of Conduct.

Competition Commission and Office of Fair Trading


Asked By

To ask Her Majesty’s Government how they will ensure that companies are judged by a panel of their peers following the proposed merger of the Competition Commission and the Office of Fair Trading.

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as a former deputy chairman of the Competition Commission.

My Lords, we are looking very carefully at the options, including that of retaining the Competition Commission-style panels. Our consultation proposals planned for next year will be aimed at preserving the best features of the current regime, especially the robustness of analysis and the objectivity of decision-making.

My Lords, I thank the Minister for that reply. Although this merger is to be welcomed, I am delighted to hear that it is planned to keep the best of both. Does the Minister agree with me that the independence and impartiality guaranteed by the panel system of part-time members drawn from a variety of backgrounds, including leading lawyers, economists, financiers and business people, ensures that companies can present their case to their peers rather than to salaried bureaucrats?

My Lords, I am very happy to reassure the noble Baroness, Lady Kingsmill. Her expertise in this area is recognised around the House. As she said, she worked on the Competition Commission as a deputy chair. Without doubt, the panel of peers, to which she refers, has done a marvellous job. There is no intention on our part to get rid of what is good; if we can, we intend to improve on what is already there. When the consultation paper comes out in the new year, I hope that she will speak strongly so that we shall have the advantage of her expertise.

My Lords, will the noble Baroness consider—in due course, at any rate—that in order to get the most skilled and experienced practitioners in business and the professions, as my noble friend Lady Kingsmill feels is desired, it is almost certain that we will have to engage part-time people, because most people with that sort of experience are not willing to give up their jobs to take another job in the Civil Service? In considering the Government's plans, will the Minister also explore whether it is possible to keep the staff of the investigating arm of the new body separate and distinct from the staff of the decision-making and more quasi-judicial part?

The noble Lord, Lord Borrie, with whom I have worked many times over the years, has the OFT as his expertise, so anything that he has to say on the subject is certainly worth listening to. When it comes to the consultation period in January, I am sure that all the points that he has just made will be taken into consideration. As I said before, we have absolutely no intention to ruin a good thing; the idea is to try to improve it. Therefore, the better the consultation, the better, and I look forward to his contribution.

My Lords, the Minister will be aware that at the moment, consumer credit regulation is split between the FSA and the OFT. What is the Government's latest thinking on whether that responsibility should devolve to the proposed Consumer Protection and Markets Authority?

Once again, that is a very good question that I cannot answer at this stage, because we are not in the consultation period. Such matters worry people. I come from a background of seven years as chairman of the National Consumer Council, which became Consumer Focus, which will now be merged with the CABx. There will be a whole new range of consumer representation. I think that it should be a very exciting and empowering time, and I look forward to it.

My Lords, the merger between the Competition Commission and the Office of Fair Trading will come as a consequence of the Public Bodies Bill. The Minister mentioned the forthcoming consultation; does she think that it would have been more appropriate to have the consultation before the legislation is passed?

Obviously, my Government do not think that, otherwise we would not be bringing the Bill forward at this time. That means that all the people with expertise who are taking part in debate on the Public Bodies Bill, whose opinions we are hearing—the noble Lords, Lord Borrie, Lord Whitty and Lord Dubs—will be feeding in to the process going forward that will start at the beginning of next year. I think it starts just in the new year, and we hope that the new body will be in place in 2013.

It may be worth my reminding the House that the previous Government were working on the possibility of merging the Office of Fair Trading and the Competition Commission, and it was only the election that stopped that work being completed. We are using some of the conclusions of that work to aid in formulating proposals for the consultation, and I hope for the support of noble Lords.

Does my noble friend not agree that consultation can be taken too far and that the previous Government taught us that you can go on consulting almost indefinitely and nothing ever gets done?

My noble friend sounds like a man who is scarred by many consultations. I, too, have taken part in consultations and have sometimes wondered at the end of them, “What a lot of talking”, but this is the country we have, and we consult. We hope to be fast and furious and to get everybody’s opinion in.

If the noble Baroness holds consultation in such relative contempt, does she not find some sort of embarrassment in trying to give us the Answer to the Question before there has been the analysis to provide a proper Answer? Does she not find some sense of embarrassment in that?

I do not think that is what I said. I said I think that we take part in consultation. This is a democracy. Sometimes it may be irksome, but it is very important that all opinions are heard, even the noble Lord’s.

Transport: Bus Stops


Asked By

To ask Her Majesty’s Government what powers exist to ensure that vehicles other than buses do not park in bus stops.

My Lords, the Traffic Signs Regulations and General Directions 2002—TSRGD—include powers to provide bus stop clearways, which restrict parking and loading where appropriate. Those traffic authorities granted civil parking enforcement have powers under the Traffic Management Act 2004 to enforce against contraventions. Elsewhere, this is a matter for the police.

I thank the Minister for that reply. Would he not agree that it is very regrettable that a number of local authorities do not seem to use their existing powers to make sure that the rules are enforced? A lot of transport consumer bodies have raised this issue because many disabled people, lots of older people and young parents with buggies find that they cannot get on to what are now generally accessible buses because there is a car parked in the way. Sometimes cyclists come up very quickly on the nearside and make them very scared. This is not working properly. Is there anything the Minister can do to make sure that local authorities use their enforcement powers?

My Lords, we encourage local authorities to use the powers available to them. A key point about bus stop clearways is that you do not need a traffic regulation order to set one up so they are easy for local authorities to implement.

Will the Minister help the House by telling it how many prosecutions have been brought by the police or local authorities for such bus stop contraventions? Could he hazard a guess about how many fewer there will be after the number of policemen has been cut?

My Lords, unfortunately I cannot give a figure for the number of penalty charge notices issued, and if I had thought to ask that question, I would probably have been told that they cannot separate general parking offences and bus stop offences.

My Lords, does my noble friend recognise that this is a particular problem for people with a sight handicap? It is very difficult for people, for instance, with a guide dog—I declare an interest as a former member of the council of the Guide Dogs for the Blind Association—to get on a bus when there is a large gap between the pavement and the bus because of a vehicle parked in the bus stop? As my noble friend said, the authorities have the power to prosecute for illegal parking in these circumstances. Will they be encouraged to use it?

My Lords, my noble friend is right that we have spent a lot of money on building buses that provide wheelchair access. That is wasted if an inconsiderate and selfish motorist parks in a bus stop. On prosecutions, we will encourage local authorities to prosecute and use the powers they have available, but we will not micromanage them.

My Lords, picking up the point made by the noble Lord, Lord Jenkin, the problem of which I am most aware is that of cars parked illegally on pavements. Can the Government encourage the police to enforce more effectively the regulations that prohibit this? Essex Police has a very good scheme, I am told, that is making a difference. Perhaps the Government could encourage other forces to take a leaf out of Essex’s book.

My Lords, I am not aware of what the Essex police have done, but I am fully aware that parking on pavements, especially when it is unexpected and there are no traffic signs allowing for such parking, is particularly dangerous to people with impaired vision.

My Lords, it is all right for the Minister to say at the Dispatch Box that he will encourage local authorities and the police to be more active, but the Government have plans to reduce significantly the resources available to the police and to cut local authority budgets by 30 per cent. Will he also address the question of whether the Highway Code is entirely clear about the obligations of motorists with regard to parking at bus stops?

My Lords, my officials take great interest and care in drafting replies to all Parliamentary Questions. During their research, it was discovered that there is an error in rule 240 of the Highway Code: it does not list bus stop clearways as somewhere you must stop. However, at the next printing that error will be corrected.

My Lords, will the noble Lord consider the fact that the police do not generally prosecute and the chances of them doing so are slight? Will he further consider that local authorities not only have the power, but that they keep the money they collect in fines for their own purposes? Will he ensure that local authorities are written to in order to underline the fact that they have the power and the money to effectively police such places as bus stops and disabled parking spaces?

My Lords, the police get involved where a parked vehicle causes an obstruction or a safety problem and they can have the vehicle towed away. Local authorities keep the revenue raised from parking fines, but they have to be hypothecated for transport-related projects.

My Lords, moving marginally from bus stops, is my noble friend aware that there is a strong correlation between cars parked in disabled parking spaces outside the main entrances to supermarkets and drivers with a criminal record?

I am not sure whether the Minister has fully answered the questions from two of my noble friends about how he anticipates that enforcement activity will be enhanced in the context in which local authorities will be facing a substantial reduction in budgets and policing will also be stressed. Where will the extra enforcement activities come from?

My Lords, I am fully aware of the forthcoming difficulties, but we have given local authorities increased flexibility by removing a lot of the ring-fencing on funding streams.

My Lords, surely, parking offences pay for themselves with regard to parking wardens. Can this not be done by parking wardens?

My Lords, the fines for parking infringements are set to deter illegal parking and to enable local authorities to recover the cost of enforcement.

Fulbright Scholarship Programme: Funding


Asked By

To ask Her Majesty’s Government what plans they have for the funding of the Fulbright scholarship programme in the light of the United States’ commitment to maintain its level of funding.

My Lords, we are still working our way through the detail of the spending review and cannot yet confirm the level of funding for the Fulbright scholarship programme from 2011. We recognise the importance of the Fulbright scholarship programme. Officials will continue to engage with the commissioners on these issues. We will communicate the outcome of the funding settlement as soon as we can.

I thank the Minister for that reply, but I hope that he can give me just a little more comfort. He will know the huge added value that the UK Government grant can leverage in the numbers of scholarships. The grant is modest, but it is crucial to increasing the number of awards. Does he agree that if the Government do not maintain their grant, it may affect that leverage? Is there not a danger that potential donors will think that the UK Government are not paying their rightful share?

My Lords, I want to make it clear that the United Kingdom Government are fully committed to the Fulbright scholarship programme and that we will provide the best possible settlement. However, we are not in a position to make that clear at the moment. The noble Baroness is right to stress that there are other funds that can come in, and I pay tribute to the Fulbright Commission for bringing in significant new funds from university partners, donations and research charities. I hope that that will continue. Nevertheless, as I made clear in my original Answer, we cannot make any commitment at this stage.

My Lords, I declare an interest as a former recipient of the Fulbright travel award, without which the course of my life might well have been changed. I am surprised by his statement that the amount is being considered. Is this not a treaty obligation, and does not the treaty set out very clearly that two-thirds should be paid by the United States-end of the arrangement and one-third by this end? The sums involved here, which he says are in the spending review, are unbelievably small compared with the overall picture.

My Lords, I pay tribute to my noble friend who is, I think, one of eight Members of this House who are former Fulbright scholars, and I think others wish to intervene later. Indeed, I can see even more. I accept that the sums are, as I put it, relatively modest, but this is not a treaty obligation. An agreement is in place that the United States would pay roughly two-thirds and we would pay one-third. However, it has not quite worked out like that and the United States has frozen its grant for the past five years. All I can say at this stage is that in the course of the spending review, we will consider the appropriate amount to put in, but as I made clear earlier, we remain committed to the programme.

My Lords, I also declare an interest as a former Fulbright scholar, even though I am on a different side of the House. Will Her Majesty’s Government ensure that they do not have to weather the embarrassment of breaking the treaty, which was set up in 1948 in equally austere times, with our closest ally?

The noble Lord is right to declare his interest. He is one of two Fulbright scholars on the Labour Benches. There are two on the Cross Benches, two on the Liberal Democrat Benches and two on the Conservative Benches, according to the research that I have done so far. I am sure that there are more because I seem to have an indication from another noble Lord, who shall remain nameless, that he might be one, but I do not know at this stage.

There is no breaking of treaty obligations in this matter. It is an informal agreement and we will do what we can. All I can say is that we remain committed to it, but I cannot give a final answer to the noble Lord or to the House until these matters have been considered in detail.

My Lords, I congratulate the Minister on the homework that his department has done, and declare my interest, having travelled as a graduate student to the United States courtesy of a Fulbright award from the United States. Is he aware that this programme is part of the offering of thanks made by the people of Britain to the people of the United States, and that it is a serious obligation? Will he bear that in mind when moving forward?

My Lords, I believe that this is a serious obligation on the people of both the United Kingdom and the United States. The agreement was set up back in 1947 as the result of suggestions, as I understand it, originally made by Senator Fulbright from the United States. I do not know from which side it came, but there is a commitment. All I can do is to repeat what I have said: we remain committed to the programme, but I cannot give any final figures at this stage.

My Lords, may I add my name to the distinguished list of names from all around the House and say how proud I am to be part of such a group? Does the Minister agree that Administrations, strikingly of all kinds, in the United States have maintained very generously their commitment to the Fulbright programme? Does he also agree that it enables people from every possible background and regardless of income, if they have the ability to benefit from them, to have the great advantage of spending time in the United States and really getting to understand that amazing country much better than they would without that opportunity?

My Lords, I am glad that we have now heard from a former Fulbright scholar from all four sections of the House, and I offer my congratulations to the noble Baroness. Again, there has been a commitment by all parties, but I should point out as I did earlier, that the United States grant has remained static for the past four or five years, so it has not been raising it. Although we have raised it in the past, we now have to consider where we are. All I can say yet again to the House is that we will consider these matters in due course, and we expect to finalise details of the settlement relatively soon in the new year.

I declare an interest as not having been a member of the Fulbright programme. Does the Minister agree that the equality of distribution of Fulbright scholarships around the House is a remarkable tribute to the memory of Senator Fulbright?

I thank the noble Lord for his contribution. I am grateful that although he is not a Fulbright scholar he has chosen to intervene, and that there are still four more who can.

On a slightly different topic, can the noble Lord say, as a non-recipient, whether he will continue to fund the Chevening scholarships?

My Lords, that is a matter for the Foreign Office, but obviously I am answering for Her Majesty’s Government as a whole. I understand that there is still a commitment from the Foreign Office to continue in that field.

My Lords, the Minister is in danger of giving mixed messages: strong support for Fulbright scholarships but no commitment to funding. Now we have heard about the Chevening scholarships. The Foreign and Commonwealth Office business plan calls for a strategy to enhance the impact of the UK’s contribution to conflict prevention by way of scholarship provision, yet a Written Ministerial Statement on 10 July said that there would be a £10 million reduction in its funding. Can the Minister state what that funding represents; when it will be put in place; and what programmes are to be curtailed?

I am afraid I will not be able to help the noble Lord on this occasion. I have made it clear that I am answering specifically on the Fulbright scholarships. We believe that there is value in all the scholarships that we have throughout government, and we will offer them support where we can. However, the noble Lord must recognise that difficult decisions have to be made about spending because of what we inherited from the previous Government.

Built Environment: Design Quality


Asked By

To ask Her Majesty’s Government what plans they have to promote good design quality in the built environment.

The Government believe that the quality of the built environment is crucial in creating liveable communities. In the context of the deficit reduction programme and the proposed major reform of the planning system, we are still considering future measures the Government can take to promote high standards of design, especially at local level. There will be a proposed national planning policy framework.

Does the noble Baroness acknowledge that the Commission for Architecture and the Built Environment—CABE—has made a very valuable contribution to improving design quality in the built environment, not least by making available across the country, to developers, planners and members of the public, the advice of excellent professional people? Does she agree that design quality is crucial to functionality, value for money and well-being and that it is desirable that CABE, in an appropriate future incarnation, should support local people to shape the physical development of their neighbourhoods to high standards of design?

My Lords, I know how much the noble Lord, Lord Howarth, cares about the built environment and design, not only from his letter to the Times on 25 October but also as he was responsible for the founding of CABE. The Government acknowledge that good design is indeed important to achieving value for money and happiness. I pay tribute to the work of CABE, which the Government greatly value. I agree that CABE has helped to raise the standards of architecture and design in public building and more widely through its internationally known design review service. On whether we are continuing to discuss future arrangements with CABE and the Department for Communities and Local Government, a further announcement will be made in due course. Part of the discussions will be about high standards of design and how they can be promoted at local level.

Will my noble friend confirm that the role of CABE is absolutely critical in energy conservation and sustainable building, which of course have become even more important issues since its foundation? Does she agree that it is very important that that kind of professional and practical advice is available to government from an independent source?

The noble Lord, Lord Tyler, touches on an important and topical point. CABE was established by DCMS in 1999 as the national champion for better design in England’s building places and spaces, and in regard to design for climate change. It became a statutory body under the Clean Neighbourhoods and Environment Act 2005. It is sponsored by DCMS and, since 2003, has been jointly funded by DCLG.

The Minister’s department used to be the design champion within Whitehall. I hope that that is still the case. Would she be kind enough to confirm it? In that capacity or in any other, how does her Secretary of State see the future of the Design Museum, whose funding is to cease in four years?

The Design Council remains the UK’s national body for design, but under the proposed option it would no longer be within the Department for Business, Innovation and Skills. Instead, it would operate outside the public sector, retaining its charitable and royal charter status. The proposal would reduce the Design Council element of BIS and refocus its activities—which cover, I imagine, what the noble Baroness was talking about. However, the key programmes that are valued by stakeholders would be preserved.

My Lords, I remind my noble friend that, during the passage of the Planning Act 2008, amendments were made, often at the insistence of the noble Lord, Lord Howarth of Newport, and undertakings were given by the then Minister about the importance of incorporating good design, not least for the benefit of disabled people, into the future planning system. Can the Minister give an undertaking that those amendments and undertakings will be carried over into the new planning legislation of which my noble friend has already spoken?

I thank the noble Lord, Lord Jenkin, for his question regarding the national planning policy framework. We will make an announcement about the framework and how best to take it forward as soon as it has been agreed. The implications for specific areas of planning policy, including design and related surroundings, will become clear during the process. Design for disabled people, especially with regard to the Olympics, is very much in the department’s thinking.

My Lords, my noble friend Lady Whitaker asked the Minister a question about the Design Museum; I believe that her answer was about the Design Council. Could she answer my noble friend’s question?

I am afraid that I have no information on the Design Museum. I would not like to lead the noble Baroness on a different trail.

Will the Minister take into account the importance of soft landscaping and greenery in any designs? In asking her to do so, I declare an interest as chair of the All-Party Group on Gardening and Horticulture.

My Lords, my noble friend asks an important question. I agree that the design of gardens and their surroundings, which came under the remit of CABE, are very important for the well-being that I mentioned earlier.

Arrangement of Business


My Lords, immediately after the proceedings on the Finance (No. 2) Bill, my noble friend Lord Strathclyde will repeat a Statement on the NATO summit. Thereafter, my noble friend Lord Sassoon will repeat a Statement on financial assistance for Ireland.

European Communities (Definition of Treaties) (Central Africa Interim Economic Partnership Agreement) Order 2010

European Communities (Definition of Treaties) (Côte d’Ivoire Economic Partnership Agreement) Order 2010

Motion to Approve

Moved By

That the draft orders laid before the House on 11 October be approved.

Relevant document: 3rd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 8 November.

Motion agreed.

Legislative and Regulatory Reform (Regulatory Functions) (Amendment) Order 2010

Producer Responsibility Obligations (Packaging Waste) (Amendment) Regulations 2010

Motion to Approve

Moved By

That the draft order and regulations laid before the House on 21 and 26 October be approved.

Relevant documents: 5th and 6th Reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 17 November.

Motion agreed.

Finance (No. 2) Bill

Second Reading (and remaining stages)

Moved By

My Lords, this year we have faced quite exceptional circumstances. The general election and necessary emergency Budget have resulted in a plethora of finance Bills. The Bill introduced by the previous Government before the election was considered as part of the wash-up process. The second Bill of the year was understandably short as this Government looked to enact fiscal changes to reassure the markets and the British people. This has left a number of more minor, technical measures that need to be legislated this year but for which there was no space in the other finance Bills. They are the measures before us today.

There is little controversy in this Bill. I am sure that noble Lords on the Benches opposite are well aware that all but one of the measures were announced or agreed by the previous Government. That exception is a minor measure to ensure consistency of treatment of capital allowances. This is not to say that the Bill before us is unimportant. The Bill improves the treatment for carers in Clauses 1, 2, 3 and 16. The vital and under-recognised role that they play in society is one that I know is championed by many on all Benches in this House. The changes introduced in these clauses simplify and align tax rules in small but important ways.

Businesses are supported by 10 clauses. Clauses 5 and 6 assure the future of the venture capital schemes that have supported over £10 billion of investment since their introduction. Clause 9 clarifies the rules on company distributions and Clause 11 fixes glitches in the debt cap rules introduced in 2009. Clause 10 assists real estate investment trusts in complying with their distribution rules.

The changes introduced to HMRC powers follow similar changes made last year. These align the penalty and interest rules across the taxes administered by HMRC to ensure consistency and predictability. The changes will also allow HMRC to be more efficient in its application of penalties and interest. Furthermore, the change in Clause 23 to the duty on long cigarettes will allow HMRC to tackle avoidance of tobacco duty—a cause widely supported.

While many of the changes in this Bill are technical and rather sterile there is a softer side. The encouragement of low emission goods vehicles, through changes in Clause 18, will help support a move to a low-carbon economy. Clause 30 allows the national employment savings trust to be established, which will help approximately 3.6 million people save for their retirement. Clause 31 exempts from tax trusts established to help those exposed to asbestos. This change will help to ensure the viability of such trusts—a matter of real importance.

This Bill has also allowed the Government to demonstrate how tax policy making will be improved. The clauses of the Bill were published in draft in line with commitments set out in the June Budget. This allowed eight weeks for consultation, during which over 60 comments were received. Changes were made to nine clauses as a result of these comments. This different approach will ensure greater predictability, fewer changes and better consultation. We have already made a good start on the first of these. My right honourable friend the Chancellor of the Exchequer has announced that the Budget will be on 23 March next year, giving four and a half months’ notice. My honourable friend the Exchequer Secretary has announced that draft clauses for the 2011 Finance Bill will be published on 9 December so that they may be consulted on.

This is a simple, straightforward Bill that eases burdens on individuals, businesses and HMRC. It is one that the previous Government all but proposed themselves. It is brief but important, and I commend it for consideration by the House.

My Lords, the Minister has done very well in presenting to us what is a non-controversial Bill. My remarks will be about not the technical aspects of the Bill as such but about the slightly broader context.

I recall that when I first came to your Lordships’ House and the Conservative Party was in power, I managed to wangle a day of general debate on the Budget as soon as it was presented in the House of Commons. Since we cannot amend the Budget anyway, we just discussed the Budget while it was still fresh and in the newspapers. I urge the coalition Government to follow that good practice by ensuring that, when the Budget is presented in March next year, we can perhaps have a day of general discussion on it.

Although I welcome the provisions on zero-carbon emissions vehicles and some of the Bill’s other provisions, I want to make two general comments on other measures that, while not strictly related to the Budget, are part of government policy. First, the well publicised proposal to withdraw child benefits from households that pay the higher rate of income tax is, I think, a bad move. Child benefit is currently paid to the mother rather than the income earner, and neither the mother’s income nor her partner’s income has ever been relevant to the mother’s entitlement to child benefit. I think that the Government’s proposal is a bad move, but if the Government are bent on taxing child benefit, they would be much better to include the benefit in the general income tax category so that everyone, whether they pay tax at the 20 per cent rate or at the 40 per cent rate, was taxed on child benefit. If the Government made it clear that the child benefit goes not to the mother but to the household—although that might require primary legislation—and if they were to tax child benefit across the board, people who do not pay income tax would still get the full child benefit and taxpayers would have either 20 per cent or 40 per cent of the benefit taken off them. That is the first thing that I wanted to say.

Secondly, I want to ask the Minister, in light of what has happened since the Budget and since the comprehensive spending review, what his estimates are for the growth prospects of the British economy. For the third quarter, the provisional growth rate figure of 0.8 per cent was better than expected, but it was lower than the growth rate in the second quarter. However, the figure for the second quarter has been revised downwards, to 1 per cent rather than 1.2 per cent. Does the Minister think that those successive three quarters of positive output growth give any assurance that growth will continue and, if so, at what rate? What does the Office for Budget Responsibility advise in that respect? Furthermore, in light of what has happened over the past three to four months, what does the government borrowing requirement look like? Are the Government’s borrowing predictions on track, or will borrowing be better or worse? I would be grateful if the Minister could advise us on that.

My Lords, I make no apology for treating the Second Reading of the Finance (No. 2) Bill in the same way as the Second Reading of other finance Bills. Exactly a year ago today, during the debate on the Queen’s Speech, I devoted my speech solely to the dangers of inflation. Nothing that has transpired since then has eased the scale of my concerns.

First, let me put my views into context, for fear of misrepresentation. After the crash, I supported quantitative easing as devised by Ben Bernanke. We were very lucky to benefit from his scholarly knowledge of the great depression. As a disciple of Milton Friedman, Bernanke adopted this policy, put to him by Friedman, at his 90th birthday party, shortly before his death. However, I doubt whether Friedman would have approved of quantitative easing mark 2 in the USA—and, above all, here—on the ground of it risking further inflation. Reasons for that have been given with great clarity by Alan Greenspan, the OECD and countless others.

Some of us, opposition veterans in the wars against inflation in the 1970s and Treasury Ministers later, will recognise only too well neo-Keynesian phrases such as “competitive sterling” and “stable inflationary expectations” as no more than euphemisms for creeping inflation. Indeed, Lord Kahn, the neo-Keynesian guru from the 1970s era, preached that,

“the right aim of monetary policy is not to secure a stable price level”.

Kahn’s disciples still prowl in the anterooms of influence, and their drugs of preference remain excessive demand and gradual reflation. These diehards are under the delusion that their drugs are stimulants. They are not. They are sedatives, because inflation retards growth and saps commercial will. Ludwig Erhard wrote:

“Inflation is not the result of a curse or a tragic fate but of a frivolous … policy”.

Can the Bank of England and its Monetary Policy Committee be relied on to reach the right judgments on inflation? After all, for about three and a half out of the past four years the Bank has overshot its inflation target. The governor’s letters of explanation to the Chancellors would fill a Treasury filing cabinet, but sometimes I question whether they were worth the postage. Our inflation rate is consistently double that of the eurozone and the United States. Whereas the Bank blames its errors on “price shocks”, I prefer to ascribe them to blind eyes turned to the glaringly obvious. So it seems, on the surface, does the Bank’s chief economist, Spencer Dale, who has counselled against an increase in money creation through the purchase of government bonds and warned about the perils of injecting further liquidity for fear of it worsening inflation, whereas the governor has often given the impression that inflation, though genetic in our case, is the result of a temporary surge.

It is not hard to account for some reasons why our inflation is double that of the eurozone and the United States. Sterling has fallen by 20 per cent against the euro and 30 per cent against the dollar over the past three years. The GDP deflator has risen by about 5 per cent at an annualised rate that is twice as much as usual. Spare capacity has not borne down on inflation, and the asset price index has burgeoned over the past two years. However, extra tribulations are flooding the pipeline—including the rise in VAT, the increase in gas and electricity charges by 8 per cent from next month, ascending food price inflation, already calculated at 4.4 per cent by the British Retail Consortium, as well as escalating petrol prices. Car insurance has leapt up by 38 per cent and rail fares will exceed inflation for years ahead. It is no wonder that a fortnight ago PIMCO, the world’s leading bond manager, urged caution, saying that over the next three to five years it sees multiple drivers of inflation and that,

“the balance of risk is certainly shifting from disinflation to inflation”.

Of course PIMCO is right. Quantitative easing mark 2 in the United States could be the thin end of another inflation wedge, just as it would be here where the United Kingdom is genetically prone to the disease of inflation. I share the opinion of the German Finance Minister that this undermines the credibility of US economic policy. “Clueless”, he called it. I also sympathise with the Chinese and the Brazilians for castigating the Obama Government for pursuing dollar devaluation as a means of dodging more prudent and effective policies.

Meanwhile the gold price seldom lies, and even silver is at a 30-year high. Cotton and sugar prices have surged by nearly 70 per cent since August. No wonder commodity brokers in the Chicago pits are in full cry. As for the notion that grain prices may have peaked, this may be correct. But before long they will rocket again due to higher demand in Asia and the Middle East. Reflation produces an illusionary joy ride. It is the so-called acceptable level of inflation founded on expediency. The visible effect may seem all right in the short term, except for those living on fixed earnings. The invisible effect—the inevitable medium-term consequence—is that when inflation accelerates, goods are priced out of markets and it becomes harder to create private sector jobs.

I have always believed that the prime economic duty of a Government is to maintain the value of their currency. That is why, as a member of the MPC, I would now join Andrew Sentance in seeking a small increase, if only as a necessary signal, to interest rates. I do not believe that this would disrupt business or consumer confidence. Alas, the credibility of the Bank is at stake—the same Bank whose complacency led in large part to a huge UK private-sector debt and the biggest house-price bubble in British history. They had better not get it wrong again—otherwise the wisdom of Ludwig Erhard will once more prove accurate. Inflation is the result not of a curse or a tragic fate but of a frivolous policy pursued by softheads allowing expedience to triumph over experience.

My Lords, I congratulate the Minister on the brevity and clarity of his exposition of this brief Bill. I was not looking forward to a 20-minute exposition of Clause 10, for example, and I was pleased that he dealt with it with such expedition. I shall base what I say today on an issue on which the Minister touched, which is how we make tax policy. During my time in the House, making tax policy has been characterised by a number of unsatisfactory features.

First, we have had hugely long Finance Bills, often with 500 pages of legislation, which I think have meant that, cumulatively, we now have the longest tax code of any country in the world. Secondly, these Bills have been produced with little or no consultation on huge chunks of them, with the result that they have sometimes been very poorly drafted and have had unintended consequences which have required the provisions to be repealed within short order.

Lastly, we have in your Lordships’ House established a mechanism for beginning to look at aspects of the Finance Bill through the sub-committee of the Economic Affairs Select Committee, which had one advantage. It meant that there was a certain amount of deliberative consideration of the non-political parts of the Bill—not the rates but the structure—and that officials and experts were able to give evidence and a report was produced. That was the good news. The bad news was that, partly because of the timetable and partly because of the attitude of the Treasury, it was almost entirely wasted time in terms of any effectiveness in what was, for those who were on the committee and their advisers, a very intensive period of work. This system of making tax law was fairly dysfunctional in many respects.

Some aspects of what the Government are now proposing are a great advantage. There is an advantage in producing, in effect, a draft Finance Bill with all bar the rate changes in it, several months before the Budget. In this case, I think it will be three and half months, which gives interested parties plenty of time to make suggestions. I hope that the spirit of accepting amendments that has been adopted with this Bill will be followed through as we move forward. One of the things that is clear in the way in which Finance Bills have been dealt with in the past—I am sure that this was the case when the noble Lords, Lord Sheldon and Lord Barnett, were dealing with them—is that, once the Bill gets before the House of Commons, the Treasury has no appetite for making the slightest amendment on the smallest comma, because in a sense that would undermine its omnipotence in the original drafting. The new procedure breaks away from that unsatisfactory way of doing things.

The other welcome development, which the Minister did not mention, is the establishment of the Office of Tax Simplification. One of the paradoxes, not just in our tax law but in law generally, is that it is easy to make it more complicated but difficult to make it simpler. It is a positive development that some real experts are now spending time cudgelling their brains on how to make aspects of the tax system simpler. I think that it will be a long job before they can claim total success, but it is a move in the right direction.

I have three suggestions for how the process could be improved even further. The first concerns the documentation that is produced at the time the draft Bill is published. I think it is the case in the US that the Treasury there spends more time in its Green Book than is typically the case here in our Explanatory Notes on explaining the reasoning behind the change. That has the advantage that those looking at the draft legislation can form a clear view about whether it is likely to achieve the aims that are set out for it. Sometimes the Explanatory Notes explain literally what the clause says but do not really explain with any clarity why it has been done in that way, or indeed why it has been done at all. There is an enhanced role there for explanation.

Secondly, it is not clear to me that there is an enhanced system of parliamentary scrutiny, either in place or planned, to take advantage of this three-and-a-half-month window that we now have with regard to draft Finance Bills. I know that the Treasury Select Committee in another place will look at this, but that committee has a very full agenda. I wonder whether its members will feel that this should be their top priority when they are looking at so many other things and have such little technical advice to assist them—it is a tough job trawling through all this stuff. As I say, I am not absolutely sure that there is a huge appetite for this in another place.

That brings me back to our own approach. There is now an enhanced opportunity for the sub-committee of the Economic Affairs Select Committee to look at the draft clauses of the new Finance Bill in the way that it has up to now; namely, by taking evidence from Ministers, from officials and from interested parties and then producing a report, but this time producing a report that gives the Government time to consider it fully before the Finance Bill proper is published. It is to be hoped that the Government will see that sub-committee of your Lordships’ House as having significant status when it looks at making changes between the draft Bill and the final version.

Thirdly, it was a retrograde step when virtually all responsibility for tax policy-making was taken away from HMRC and brought into the Treasury. I declare an interest as a former policy adviser on tax to HM Customs and Excise. For much of the Finance Bill one is talking about very technical provisions. I am yet to be persuaded that the Treasury has either the expertise or, frankly, the appetite for the kind of detailed consideration of tax policy that those officials in the revenue departments of old did. They often spent their entire careers working on tax policy, which meant that they had encyclopaedic knowledge of the taxes on which they were advising Ministers. As I say, I am unconvinced that the new arrangements, which have brought that power into the Treasury, are good for either the Treasury or HMRC, which is now being forced to be an executive arm only, rather than a policy-making arm. As these are the people who must make the policy work, they should have a bigger input into it.

As I said in the early part of my speech, the new timetable gives many more opportunities to ensure that tax legislation is better produced than in the past. I look forward to seeing these other developments, which should improve it even further, being adopted by the Government.

My Lords, with your Lordships’ leave, I will speak briefly in the gap. I congratulate my noble friend the Minister on introducing the Bill today. As he said, the Bill is entirely technical and enabling in nature. It is also, I fear, somewhat dull. That may be one reason why not many of your Lordships have chosen to add your names to the speakers list. However, my noble friend did not mention one point. A substantial part of the Bill is intended to replace technical aspects of our law with European law.

As my honourable friend Jacob Rees-Mogg pointed out in another place, Clauses 5, 6, 14, 18, 19, 20, 21, 22 and 23 are, in whole or in part, requirements of the European Union. Furthermore, related to what my noble friend Lord Newby said, the Explanatory Notes to the Bill provided by the Treasury offer in certain instances, as a reason for changing the law, merely the fact that it is necessary for United Kingdom law to conform to European law. It is disappointing that it seems irrelevant to consider in each case which has more merit. Other than that, I will not detain your Lordships; I just wanted to make that point, which my noble friend the Minister omitted to mention.

My Lords, I am grateful to the noble Lord, Lord Sassoon, for his introduction to the Bill. In the Bill we are told that its purpose is to:

“Grant certain duties … and to amend the law relating to the National Debt and the Public Revenue, and to make further provision in connection with finance”.

I intend to address those broader issues. I hope that, while the noble Viscount, Lord Trenchard, feels the debate has been dull, I might be able to liven things up a little.

I begin by referring to the comments of my noble friend Lord Desai and the noble Lord, Lord Newby. In particular, my noble friend Lord Desai referred to the difficulties in which the Government have now found themselves over their policy of removing child benefit from those families in which one member is a higher-rate taxpayer. My noble friend suggests that child benefit be treated just as a general taxable benefit, and the current structure in which it is simply paid to the woman be changed. I remind him that when the late Barbara Castle introduced child benefit in the 1970s, she was insistent that it should go to the woman for fear that men might, as she said, spend the benefit on drink and gambling.

The Chancellor has said that any woman who lives in a household in which there is a higher rate taxpayer and does not declare the fact will be fined. I suggest a credible scenario to the Minister. Let us suppose that a grandmother, who is a higher rate taxpayer, on the death of her husband moves in with her daughter and young family who are in receipt of child benefit. What will then happen? Will the grandmother be fined if she does not tell her daughter that she is a higher rate taxpayer, or will the family lose its child benefit? This is hardly a family-friendly policy and a number of similar scenarios can be constructed which demonstrate that this change in the law has not been thought through.

The noble Lord, Lord Newby, referred to the changes in the making of tax policy. I have pleasure in following him in welcoming the Government’s changes in tax-making policy. I had the privilege of serving on the sub-committee of your Lordships’ Economic Affairs Committee which examined the Finance Bill. His proposal that its role be extended and that more technical resources be made available to it is a very good one which the Government should take seriously.

As I said just now, I wish to focus my remarks on the wider issues of the national debt. In doing so, I will return to comments made by Mr Bernanke and to the speech of the noble Lord, Lord Ryder. I also want to refer to the overall fiscal stance in the June Budget, of which the measures in this Bill are part of the practical emanation. Two slogans have dominated the presentation of the Budget and of the Government’s policies by the noble Lord and his government colleagues: first, that the budget deficit is, as Mr Cameron has put it on numerous occasions, a burden on our children; and, secondly—the point often made by the noble Lord, Lord Sassoon—that when the Government took office Britain was on the brink of bankruptcy. These two propositions provide the foundation on which the case for the Government’s policies on the national debt and deficit reduction is built, so they are worth examining in detail.

First, let us consider the proposition that the deficit, and the national debt which results, are a burden on our children. While the scale of the nation’s indebtedness is a constant theme of government statements, I cannot remember a single reference by the Government as regards to whom the debt is owed. The answer, as is clear in the data published by the Debt Management Office, is that most of government borrowing is from British lenders, predominantly insurance companies and pension funds but also local authorities and some individuals. In other words, the taxes that are raised to pay the interest on the debt and to repay the premium are raised from British taxpayers predominantly to pay to British taxpayers. The accumulation of debt simply defines a pattern of income redistribution; it does not in and of itself result in a loss of income to Britain as a whole,

What of the fate of our children? If we are placing a burden on our children, the policies pursued today would result in lower GDP per head in the future. But by their own admission, it is the Government’s own policies, not the deficit, that are lowering the growth rate of the British economy; and hence lowering future GDP per head. That is the real increase in the burden placed on our children by this Government as compared with the budget reduction plans advanced by my right honourable friend Alistair Darling. Had the Government stuck to Labour’s plans, our children would enjoy a higher income per head in the future. The loss of GDP growth that is the consequence of coalition policy is the clear and present cost of this Government. Indeed, it is the Government’s lack of any growth strategy that is most disturbing. Will the Minister confirm the story in the Financial Times this morning, which stated that the expected White Paper on growth has been,

“quietly dropped after George Osborne, the chancellor, decided he needed more time to draw up a coherent strategy”?

The report continues:

“The much-awaited growth white paper, which was originally scheduled for publication last month, has been downgraded to little more than a discussion document. Aides admitted the government did not have enough serious content to warrant a white paper”.

No serious content and no coherent strategy—that sums up the Government’s approach to growth in Britain.

There is one sense in which the deficit could be a burden on our children, and that is of the taxation necessary to pay interest or reduce the debt were to reduce the GDP’s rate of growth. No argument to that effect has been advanced by this Government. Let us follow that up. Taken to extremes, it is obvious that taxation can inhibit growth. If taxes were 100 per cent of income, then nobody would be prepared to work or invest, even if those taxes were subsequently redistributed as interest payments. So has the deficit threatened to push taxes so high that growth prospects are damaged? Among the G7 economies, the US, Canada and Japan have lower shares of taxation in GDP than us, but Germany, France and Italy all have higher tax rates, and all the Scandinavian countries have tax rates that are higher than the UK deficit—they could pay it off in one year, yet they still sustain respectable rates of growth.

Of course, the transfer payments demanded by a budget deficit can be an unwanted restraint on other government spending policies. However, the core issue here is balance—which mixture of spending and taxation will secure the best long-term growth of GDP per head for our children? The Government’s slogan-driven policy does not just get the balance wrong, it does not even recognise that there is a balance to be struck.

What of the other pillar of Government sloganeering —the claim that the UK was on the “brink of bankruptcy”. The noble Lord has used this expression so many times that he must be able to tell your Lordships exactly what he means by it. Does he mean that the UK was about to run out of cash, as the Greek Government were? If so, how does he account for the ready supply of cash dispensed in the Bank of England’s programme of quantitative easing? Does he mean that the UK had difficulty funding its bond sales? If so, he should look at the Debt Management Office data which show that not a single gilts auction this year has been less than 40 per cent oversubscribed, and many were 100 per cent oversubscribed. Or is he referring to speculation about Britain being downgraded by the ratings agencies from its triple-A status? Would these ratings agencies to which the Government pay so much attention be the same clowns who told us that securitised subprime mortgages were as safe as Uncle Sam? Given their track record, are these agencies the sort of people who the Government listen to when shaping the economic future of the British people?

Before the Minister replies on the issue of being on the brink of bankruptcy—and I am sure he will reply in detail since that is a favourite expression of his—would he care to reflect on the words of Ms Rachel Lomax, who was, until recently, Deputy Governor of the Bank of England? Speaking in the City just a couple of weeks ago she said that the

“crisis conjured up by George Osborne”

was a “straw man”—a misrepresentation of the true position. She added,

“It's just not true. We weren't on the brink of bankruptcy”.

None of what I have said should be taken in any way to suggest that somehow deficits do not matter. I am arguing that they are simply part of the balance by which the Government seek to secure the best possible performance of the economy. An important part of that balance—

I have a Question next Monday on this specific point about bankruptcy, on which I hope we will all have an opportunity to comment. Is my noble friend aware of what the Conservative chairman of the Treasury Select Committee said regarding the exaggerated nonsense—a massive exaggeration—about bankruptcy? In a massive understatement of the real situation he defined it as being “slightly over the top”.

“A massive exaggeration” is a rather balanced statement from a Conservative Member of Parliament, and is balanced nicely by Ms Lomax’s statement, “It’s just not true”.

An important part of seeking balance in the economy is to avoid the slogan-driven hysteria that has characterised economic policy-making under this Government. It is not just that basing policy on slogans can lead to seriously unbalanced policies, but that slogans themselves can seriously damage economic performance. Words used by government Ministers to describe the economy include “shattered”, “busted”, and, of course, “on the brink of bankruptcy”. They have done this over and over again, which can lead to a serious loss of confidence in fragile international financial markets. There is increasing evidence that business and investor confidence has fallen, damaging investment prospects in Britain. Has the noble Lord noticed the conclusions of the latest monitor of UK business confidence for the fourth quarter of 2010, published by the Institute of Chartered Accountants in England and Wales? It states:

“The decline in the Confidence Index has accelerated this quarter, partly reflecting ongoing uncertainty about the path of the UK economy over the coming years ... Business leaders are becoming less sure about the UK's economic prospects for 2011 and beyond”.

That is the impact of this Government's slogan-driven policies.

We on this side of the House have argued for an economic policy based on a balanced appraisal of the relative contributions of fiscal policy and growth in restoring public finances after the ravages of the recession. We support the position taken by the head of the Federal Reserve System, Mr Ben Bernanke, to whom the noble Lord, Lord Ryder, referred. Commenting last Friday on the destructive grip of austerity policies, Mr Bernanke called for,

“a fiscal programme that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits”.

Those words describe the economic measures put in place by Alistair Darling. They were a measured and considered response to our current economic woes and the very antithesis of the Government's slogan-driven hysteria.

My Lords, the debate on the Bill this afternoon has been interesting and wide-ranging, even though it has been between relatively few of us. It has covered a fair amount of ground. I normally respond thematically to points made in debates, but I am trying to get to grips with the number of them. They cover a wide area and I will try to group one or two together. It is interesting that no noble Lord who has spoken has touched on the details of the measures in the Bill, as opposed to the process by which the new Government are going about making tax policy. I stuck my neck out in my introduction and said that the measures were uncontroversial, and I welcome the fact that they appear to be. I am grateful to have that confirmed.

I will start with one or two comments on growth and the broader strategy. First, it is important to remind noble Lords that we have been rolling out a very considerable suite of growth-enhancing policies, right from the start of the new Government. First, we sent a very strong signal to the markets that we had the deficit gripped and that we had indeed come back from the brink of bankruptcy. That is what has convinced the markets that interest rates can remain low, which underpins what business needs in order to invest.

My Lords, I come back to a point made in an earlier debate when I asked the Minister whether the differential between UK and US bond rates has widened or narrowed since 11 May. At the time, he shook his head, indicating that they had narrowed. In fact, as he has now been obliged to cover in a Written Answer, they have actually widened. The Government can claim no credit for the reduction in interest rates. It is a global phenomenon and, if anything, the risk to the UK economy is deemed by financial investors to have increased since 11 May, rather than decreased.

My Lords, the noble Lord, Lord Myners, is a master at selective quoting of the evidence. There has been a marginal widening of the spread over the 10-year Treasury, and there has been a significant narrowing against the 10-year bond, which is a much better comparator, and against all the other comparators that I look at on a daily basis. I am very happy to go on answering the noble Lord's questions on this point for as long as he would like, but the predominant evidence suggests that not only have spreads narrowed against the comparators but the price of CDSs on UK gilts has fallen considerably as others have gone up. That is proof that people get the message that we have the growth policies in place. It extends to cutting the deficit, low interest rates, tax policy, the focus on investment in infrastructure in a very tight spending review, the attack on regulation, and I could go on. Whether we shall have White Papers, Green Papers or discussion documents, there has been a very full suite of growth policies and there is plenty more to come.

As to whether I should explain what I mean by the brink of bankruptcy, the noble Lord, Lord Barnett, has already stepped in to point out what I was going to point out: that he has already tabled a Question for oral answer. He has got to the front of the queue, and I do not want to be discourteous to him. He will receive a considered answer.

For the time being, I refer the noble Lord to the first edition of the Oxford English Dictionary, volume 1, part 2, under “B”, which was printed some time in 1888. That is quite a good starting point. We shall return to that in answer to his Question in a few days’ time.

We are having some fun, but this really is a very serious matter indeed. The Minister has used this expression time and time again as one of the key factors that justifies the economic stance taken by Her Majesty's Government. Is he saying that he cannot stand at the Dispatch Box right now and tell us what it means?

My Lords, as I said, a Question has been tabled and I shall answer it then. I have already referred the House to the two meanings in the Oxford English Dictionary first edition of 1888, which I think explains it very well. We had a reference to PIMCO earlier in the debate from my noble friend Lord Ryder of Wensum. I refer the noble Lord to the comments of the founder of PIMCO a few months before the election when he talked about the toxic pile. He may or may not have been front-running a position, but when the largest bondholder in the world talks about UK debt in toxic terms, the point is well understood. The critical question that arises from all of this—

My Lords, perhaps I may help my noble friend by giving an example of a very dangerous toxic situation that was certainly inherited from the previous Government and of which the noble Lord, Lord Myners, is extremely aware: that is, the level of credit card debt in this country on which interest is being paid—I am not talking about the ordinary stuff that we pay off each month. That has not decreased. According to the Bank of England’s September figures, the level of credit that has been overrun is currently at £58 billion and interest is being paid at more than 15 per cent, which is £9 billion of interest due each year. The noble Lord, Lord Myners, was kind enough to write to all the banks asking them for details of what value they had on their books. Only one answered, and that was Barclays Bank—and I felt that it prevaricated in its answer. Does my noble friend agree that that is an example of the reservoir of potential toxicity that can make people very apprehensive about the fundamentals of Britain's economic situation?

I am grateful to my noble friend Lord Marlesford for pointing that out; I absolutely agree. Any country that has total debt—he is talking about wider debt—of 400 per cent of GDP, as this country has, is indeed skating on very thin ice.

Surely it is a matter of the purpose for which that debt is used. If the Minister is criticising people for taking out mortgages to buy their homes, which is the largest single source of domestic debt, that is a novel and important statement from the government Benches. Surely, Minister, you need to have regard to both the assets and liabilities on both the public and the private sector balance sheets.

I am grateful for the noble Lord’s attempts to put words into my mouth, but of course we want to see a steady and sustainable mortgage market.

I want to get back to the question of growth and getting the economy on track, which is where we got into this interesting debate but somewhat sidetracked from the main thrust of the debate this afternoon. The noble Lords, Lord Eatwell and Lord Desai, asked about growth, which is important. The question is whether the growth will be sustained and at what levels. I was just looking at the latest of the international forecasts issued: the OECD's November 2010 economic outlook from last week. It is now forecasting growth for 2010 to be 1.8 per cent, growth for 2011 to be 1.7 per cent, and growth for 2012 to be 2 per cent. Of course, we wait until next week to see what the OBR’s latest forecast will be.

On one point of detail from the question asked by the noble Lord, Lord Desai, I do not think it is correct to say that the quarter 2 growth numbers have been revised down. There has been some discussion about what was always seen as a surprisingly high number, but there has been no formal revision of those numbers. If there is, it will be on 22 December. Growth prospects remain robust in the view of most independent commentators, although, as I have said here before, of course the recovery is bound to be choppy.

We then had a couple of comments about child benefit policies. That links into the general state of the economy that we inherited. My right honourable friend the Chancellor announced the withdrawal of child benefit for families containing a higher rate taxpayer in order to make a contribution to addressing the deficit that we inherited from the previous Government. In current circumstances, it is simply wrong that the lower paid should be subsidising the better off. Times are very tough; this is a tough decision but a necessary one. There have been all sorts of suggestions as to how it could be implemented, but the Chancellor was explicit about the need to avoid a complex system of either means-testing or something that would require significant changes to the existing PAYE and self-assessment systems.

On child benefit, I did not argue that it was not inappropriate for the burdens of deficit reduction to be widely shared; I argued that the Government’s policy will not work. It has not been thought through. It is incompatible with the structure of child benefit as it is paid today. Perhaps the Minister would like to take my example of a top-rate-paying taxpayer who, on the death of her husband, moves in with a daughter who is receiving child benefit. Is that grandmother going to be fined by the Chancellor or will her daughter lose her child benefit? I do not think that is very family friendly. Do you?

I have explained the general and difficult principles within which we have had to operate. My right honourable friend has had to make difficult decisions on child benefit. The case study put forward by the noble Lord, Lord Eatwell, reminds me of the sort of things that were presented in a tax exam when I was struggling through my accountancy qualification. Of course there are complicated cases but, as I have explained, in the implementation of child benefit it has been important to avoid a complex system or one that required a fundamental rewrite of the existing PAYE and self-assessment systems.

I come back to the fundamental point underlying all this which is that growth prospects remain on track and, in answer to a related question from the noble Lord, Lord Desai, borrowing remains on track. I will give an update in parallel with the autumn forecast next week, in the normal course. However, in terms of the funding to date, the programme is ahead of the pro-rata schedule, so the Debt Management Office has raised £127.4 billion to date, which accounts for 77.2 per cent of the remit that it was given at the time of the Budget. That is slightly ahead of the pro-rata run rate. The DMO has carried out that mandate on very fine terms. If the remit needs to be changed in any way, that will come next week, in the normal course.

I thought there might be some points to address to my noble friend Lord Ryder of Wensum, but his advice was addressed to the Monetary Policy Committee. I listened with interest to what he had to say and note that in some of the things he has said in this area in the past he has proved prescient. I am sure that the Monetary Policy Committee is listening to his thoughts.

I turn to tax policy making. I was grateful to the noble Lord, Lord Eatwell, for welcoming the steps we have taken and to my noble friend Lord Newby. In answer to their questions, the Government welcome the contribution of the Economic Affairs Committee. If the new timetable gives the Select Committee time to look at the draft legislation, as it should, we would welcome any comments that it has on it. That will add the greater scrutiny and transparency that we wish to see. I take my noble friend’s point about fuller Explanatory Notes and will look to see whether there is any more that we can do on that.

On the question about whether it was right in around 2003 or 2004 to move responsibility for tax policy making wholly into the Treasury, from what I observe of how that operated then and now, there have been considerable gains from the physical collocation of a large part of HMRC’s headquarters and the Treasury. I certainly observe that HM Treasury’s tax policy making is absolutely informed, as it must be, by what HMRC brings to the table, even if the formal responsibility is not what it was originally.

On one final point, my noble friend Lord Trenchard talked about the number of European-related clauses. To get the record straight, in another place, the litany of such clauses was slightly erroneous because, on my list, Clause 14 on film tax relief has no European link, whereas Clause 4 on seafarers’ earnings has a European link. The list is a series of technical adjustments, whether it is the important question of the length of cigarettes to reflect an EU directive aiming at counteravoidance or technical adjustments related to VAT directives. These things are relatively technical and it is important to make sure that we align the details of our regime with what is changing in Europe.

I am afraid that I may have disappointed my noble friend Lord Newby, who commended me charitably for my brief opening, but I will not detain noble Lords any longer other than to say that we have had an interesting debate today. We have not talked in any detail about the clauses of the Bill, which I take to mean that the Bill—in the way that it removes some of the discrepancies that plague our tax system—is welcomed on all sides of the House. I commend this Bill to the House.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.

NATO Summit


My Lords, with the leave of the House, I would like to repeat a Statement on NATO which the Prime Minister has made this afternoon in another place. The Statement is as follows.

“With permission, Mr Speaker, I would like to make a Statement on the NATO summit in Lisbon. No one can doubt that NATO has played a critical role in preserving peace in Europe since it was founded in 1949. But the test for NATO now is whether it can meet the challenges of the present and future. That means real change—not just signing communiqués about change but showing real political will to bring those changes about.

I believe that NATO can be just as relevant for protecting our security in the future as it has been in the past and my interventions were focused on that future. There were effectively three summits: a meeting of all the coalition countries involved in Afghanistan, a summit on the planned reform of NATO and a NATO-Russia council. Let me take each in turn.

The first is Afghanistan. The summit with President Karzai, the UN Secretary-General and countries from across the world is a powerful visual reminder that Britain is part of an international coalition of 48 nations in Afghanistan. We are there because the Afghans are not yet capable of securing their own country from terrorists and these terrorists threaten the whole world. So it is for our own national security that we help them.

At the NATO summit, each and every one of the 48 nations in the coalition reaffirmed its ‘enduring commitment’ to the mission in Afghanistan. Britain is the second-largest contributor to that mission, with more than 10,000 troops risking their lives in the most dangerous parts of the country. The arrival of additional ISAF troops in the south has allowed us to transfer Musa Qala and Sangin to the US Marines. That, in turn, has allowed us to focus our forces in central Helmand, sharing the burden more sensibly and removing the overstretch our forces have suffered since 2006. Working alongside Afghan forces, this has helped us to drive the insurgents out of population centres in central Helmand.

We want to transfer security responsibility for districts and provinces to Afghan control as soon as the Afghan security forces are ready. The summit reached important conclusions about the timetable for this transition. It will begin in early 2011 and meet President Karzai’s objective for the Afghan national security forces to lead and conduct security operations in all provinces by the end of 2014. This commitment on transition is entirely consistent with the deadline of 2015 that we have set for the end of British combat operations in Afghanistan.

By 2015, Britain will have played a huge role in the international coalition and made massive sacrifices for a better, safer and stronger Afghanistan. We will have been in Helmand, by some way the toughest part of Afghanistan, for nine years, a period almost as long as the First and Second World Wars combined. Last week, we lost the 100th member of our Armed Forces in Afghanistan this year. This is the second year running that we have reached such a tragic milestone. The bravery and sacrifice of our forces is making this country safe. But having taken such a huge share of the burden and having performed so magnificently since 2001, the country needs to know that there is an endpoint to all this. So, from 2015, there will not be troops in anything like the numbers there are now, and crucially, they will not be in a combat role. That is a firm commitment and a firm deadline which we will meet.

The NATO summit also committed to a long-term relationship with the Government of Afghanistan, and Britain will be at the forefront of this commitment. Beyond the end of combat operations in 2015, we will go on having a relationship with Afghanistan based on aid, development, diplomacy, trade and, if necessary, military training and support.

On the reform of NATO, we agreed a new strategic concept to equip NATO for the security challenges of the 2lst century. Just as in our new national security strategy, NATO will shift its focus and resources still further from the old, Cold Wars of the past to the new unconventional threats of the future, including counterterrorism, cybersecurity, failing states and the proliferation of chemical, biological and nuclear weapons. Crucially, NATO agreed to develop a new ballistic missile defence system for Europe. This will help protect the UK and our other European allies from the growing threat from countries like Iran which are developing ballistic missiles. It will be in place by the end of the decade, paid for within NATO’s existing resources.

And just as Britain’s strategic defence and security review set out plans to make the Ministry of Defence much more commercially hard-headed in future, and to adopt a much more aggressive drive for efficiencies, so this summit has agreed significant efficiencies for NATO. These include cutting the number of command posts from 13,000 to less than 9,000, reducing the number of NATO agencies from 14 to three, and ensuring that all decisions taken at this summit are funded from within NATO’s existing resource plans. These changes will save Britain tens of millions of pounds and will allow NATO to focus its efforts on the front line.

There was also discussion at the summit on co-operation between the EU and NATO. It is crazy that, because of procedural wrangling, the only security issue these two organisations can discuss when they meet together is Bosnia. Everyone wants a solution to the Cyprus problem, but we simply should not allow it to go on holding up practical co-operation between the EU and NATO.

It was a very powerful sight to see countries which came together to protect themselves from the Soviet Union now sitting down and discussing sensible co-operation with Russia. And while the Soviet Union broke up years ago, relations between NATO and Russia had been strained in recent years. Two years ago, missile defence for Europe caused a major split in relations with Russia. Now, it is an issue on which we are working together. The NATO-Russia council also agreed practical co-operation on Afghanistan, enabling NATO to use routes through Russia to support our forces on the ground and working together to develop and sustain improved helicopter capabilities for the Afghan security forces.

There will remain challenges in working with Russia. President Obama and I both raised Georgia. Two years after that conflict started, it is time for Russia to abide by the ceasefire agreement and withdraw its troops from Georgian territory. But I judge it right that we do not let this and other bilateral concerns prevent us from working together where it is in our interests to do so. So we will work with Russia on countering drug trafficking, on tackling Islamic extremism, on countering proliferation and in the G8 and G20. The summit also praised the courage that President Obama and President Medvedev have shown in agreeing a new START treaty and agreed that early ratification would be in all our interests.

In 1949, the alliance first said that an attack against one is an attack against all. Today, the threats that we face are different and the world is more uncertain but NATO remains the bedrock of our collective defence. The future of this alliance is vital for our own national security. This summit was focused on that future; on securing an Afghanistan able to look after its own security, reforming NATO for the 21st century, and establishing co-operation with Russia on our vital security interests. Above all, this summit has shown that our alliance remains rock solid and that Britain's commitment to it is as strong as ever. I commend this Statement to the House”.

My Lords, that concludes the Statement.

My Lords, I am grateful to the Leader of the House for repeating the Statement made by the Prime Minister. As the main part of today’s Statement concerns our future role in Afghanistan, I would like to take this opportunity to pay tribute to all of our troops, including the 345 who have died during the conflict. They have all shown extraordinary courage and we honour them. I also pay tribute to the thousands who have been wounded. They cope with the most serious injuries with an extraordinary bravery and courage. In April I had the privilege of meeting some young men who had sustained horrific injuries and I was humbled by their dignity and their determination, likewise by the dedication of the staff who cared for them.

The best way that we in this House can support our troops is by at all times seeking to build unity of purpose. We therefore support the outcome of the NATO summit on Afghanistan. We also strongly support the Afghan security forces taking full security responsibility in 2014, which was agreed at the London conference at the beginning of this year and reiterated at this NATO summit. We support the Prime Minister’s objective to end combat operations by British troops by 2015, which is a logical counterpart to this plan. He is right to say that our troops have made an enormous contribution and paid a heavy price.

However, I have three sets of questions that I would like to ask the Leader of the House. First, the point is not simply to set a timetable but to make sure that it can be met. We must do all we can to improve the conditions on the ground to make the transition possible. Helmand and Kandahar may well be the hardest provinces to hand over to Afghan control. What milestones will the Government use to track progress in the transition plan for Helmand? Clearly, key to this will be building up the Afghan army. Does he recognise in particular the need for a more representative Afghan army, including the southern Pashtuns who are currently under-represented?

Secondly, can the Leader confirm that by providing training to Afghan forces, our troops could continue to play a role after 2015? Given that the training of Afghan forces often involves front-line exposure, can he tell us whether any troops will effectively still be in a fighting role beyond that date?

Thirdly, it is clear that a political settlement is essential to achieving a stable Afghanistan by 2015. We warmly welcome NATO’s endorsement of the Afghan-led reconciliation programme. Does the noble Lord agree that this requires reconciliation with those elements of the Taliban who are willing to abide by Afghanistan’s constitution, as well as engagement with Afghanistan’s neighbours, including Iran and Pakistan? What discussions have taken place with President Karzai about ensuring that reconciliation and wider talks move forward more rapidly during the next 12 months?

I welcome the determined attempt to improve relations between NATO and Russia. The Prime Minister is right that we should both seek to improve our relationship with Russia and continue to raise concerns where they exist. We welcome the joint work on the new missile defence system. It is a development that shows how the world has changed since the Cold War, as it will involve co-operation with, rather than isolation of, Russia.

Britain is, of course, a nuclear power, and in our view it will remain so in a world where others possess nuclear weapons. But this brings with it responsibilities. Does the noble Lord agree that the starting point for discussion on nuclear weapons should be a serious multilateralism, with the ambitious, long-term aim set by President Obama of a world without nuclear weapons? I therefore join the Prime Minister and the noble Lord in giving support for START, the new treaty with Russia. What is the noble Lord’s position on the aim of removing tactical nuclear weapons, a Cold War legacy, from continental Europe and Russia?

Finally, the new strategic concept for NATO is also to be welcomed because it understands the new threats that the world faces. The post-war Labour Government were founder members of NATO, and our belief in the importance of multilateral co-operation has not diminished—indeed it is enhanced. Does the Leader agree that the lesson of Afghanistan is that while NATO is a military alliance, when it comes to dealing with fragile states and preventing terrorism, it must pursue its objectives in the knowledge that military means can be successful only alongside political, civilian and humanitarian development?

We welcome the outcomes of the summit. We will co-operate with the noble Lord’s Government when they seek to do the right thing, working through NATO, for British security and international peace and stability, most importantly in Afghanistan.

My Lords, I thank the Leader of the Opposition for her constructive approach to this Statement and for her warm words and best wishes for continued co-operation not just with our NATO allies but particularly with Russia. Those of us who witnessed developments over the weekend felt that the summit was a great step forward in the building of that relationship in particular.

I thank the noble Baroness also for beginning with a tribute to those who have served and for a very personal tribute to those who have been injured. I sometimes feel that we concentrate too much on the number of those who have died. There are also those who have come back, some of them with terrible injuries, and we must do everything we can to make sure that they live a full life back in the United Kingdom.

I am grateful to the noble Baroness for saying that she and her party support the 2015 end date for combat missions. It was important to us to have set that end date, and the support of the Opposition is much appreciated. The noble Baroness asked questions about our timetable and milestones. The whole purpose for us giving a timetable is to maximise the pressure on the ground to be able to do the area-by-area, district-by-district transfer of power from coalition forces to the Afghan army. We will have to see how that develops over the course of the next two years. However, I am hopeful that, even next year, we will see a gradual start of a reduction of combat forces of British troops in Afghanistan. The noble Baroness also asked a question about post-2015 training. I can confirm that it is the intention where required that British troops will still be available to help train the army, the security forces and the police in Afghanistan. I cannot say exactly what their role would be if they came under attack but it is not the intention for these troops to be used in any way as on the front line. The intention is to train the Afghan troops to deal with any problems they encounter themselves.

I agree with the point made by the noble Baroness on reconciliation. We have always said that there is no sole military solution to what is happening in Afghanistan. There needs to be a process of reconciliation. We very much support what President Karzai has said about his willingness to reach out to all of his countrymen, provided that they cut ties with al-Qaeda and violence, and pursue their aims peacefully within Afghanistan’s constitutional framework. We believe that that is the right approach.

Turning to Russia and Russian relations, I am glad that the noble Baroness was able to welcome the new strategic concept and missile defence. On the question of removing tactical nuclear weapons, as the strategic concept makes clear, the greatest responsibility of the alliance is to protect and defend our territory against attack. Deterrence based on an appropriate mix of nuclear and conventional capabilities remains a core element of NATO’s overall strategy. As long as nuclear weapons exist, NATO will remain a nuclear alliance. The UK’s national nuclear deterrent is assigned to the defence of all nations in NATO in accordance with our NATO Article 5 obligations.

This summit was an important step forward. I hope that I have covered all the questions raised by the noble Baroness. If there are any that I have missed, I will follow up in writing.

My Lords, although it must be right that we do not let bilateral concerns prevent us from working closely with Russia, does my noble friend the Leader of the House agree that, at all costs, we must not reduce pressure on Russia with regard to Georgia and the continued occupation of South Ossetia and Abkhazia, which the Russians justify by the absurd suggestions that those are two independent states? We must keep up our pressure on that.

Secondly, with regard to the START treaty, again it is welcome that the summit agreed that early ratification would be in all our interests. Will the Government do everything they can to encourage all members of NATO to make those views known in the United States where the President is currently experiencing some unfortunate difficulties with the Congress?

My Lords, on that last point, not only is START important, it is vital to our interests. So I can respond positively and say, yes, we will encourage all members of NATO to make representations to make sure that that treaty is ratified.

On the question of Georgia, I agree with my noble friend that it is still an outstanding and difficult issue. We will not do anything to make Russia believe that this is not still an important issue for us. There are a number of other bilateral issues as well. However, we also believe that we should not allow those to hold up these very important talks and the summit. That is why we have gone ahead with them. My noble friend should not be overly concerned, however, that we have forgotten the plight of Georgia; we have not.

My Lords, we have come a long way since President Reagan’s star wars concept and President Bush’s proposal for interceptors in Poland and radar installations in the Czech Republic. That is an important matter, as is the improvement in relations with Russia two years since the conflict in Georgia. The Minister said that Russia should withdraw from Georgia, but is that not a pipe dream given the evidence that Russia is militarising part of Abkhazia on the Black Sea? What is being demanded by Russia on missile defence? What will be the decision-making process? Will Russia have some form of veto over the intercepts? Equally, what is being said about Georgia and Ukraine’s membership of NATO? As a result of the agreement, have we decided to put back very indefinitely the applications of Georgia and Ukraine to join NATO? What, if any, movement was there at the summit on the “frozen conflicts”?

My Lords, I am not aware that the last aspect of the noble Lord’s question was discussed. On his key point that the whole situation vis-à-vis Georgia is a pipe dream, we do not share that view and we believe that to be unduly pessimistic. Obviously, discussions are ongoing. In 2008, NATO and the UK condemned Russian military action in the break-away territories. Two years on, Russian troops remain in both separatist regions in considerably higher numbers than before the war. The UK Government strongly support the Geneva talks, which remain the only forum in which all parties to that conflict meet and which help to keep open the prospect of addressing unresolved security and humanitarian issues. We firmly believe that Russia should respect the territorial integrity of Georgia and other states as well as international law and human rights. That is why we call on all parties to play a constructive role in the continued efforts to resolve the conflict. Others may well have argued that we should have used the Georgia talks not to make progress on the greater issue, but that is not the view that we took. As I said to the noble Baroness, Lady Royall, Georgia is not an issue that we have forgotten.

Will the Minister accept my thanks for the Prime Minister’s expression of impatience about the blockage in the relationship between the EU and NATO? That blockage has gone on for far too long, so I am not surprised that he is impatient about it. Does the Prime Minister, or the noble Lord, discern any indication that those who have been causing this blockage—on one side Turkey and on the other side Cyprus—are thinking of changing their tune? If not, will we deploy our efforts to persuade them to do so?

Secondly, will the noble Lord respond to the question put by the noble Baroness the Leader of the Opposition about tactical nuclear weapons in Europe? While not disputing for one minute what he said in reply about the alliance maintaining the appropriate mix of conventional weapons and strategic nuclear weapons, I do not think that that is the same as working for the removal of tactical nuclear weapons from both sides in Europe. Will the Government support that process—of course, that will require co-operation from the Russian side, too—in the NATO committee that has been set up to look at that? Will the British Government put their weight behind that?

The noble Lord, Lord Hannay, is right to refer to the Prime Minister’s impatience on the issue of EU-NATO talks. On how we will take those matters forward and whether we can expect some progress, the summit declaration calls on the NATO Secretary-General and the noble Baroness, Lady Ashton, to present proposals for progress before the NATO Foreign Ministers meeting in April next year. Ultimate resolution of the EU-NATO impasse is likely to require a settlement in Cyprus, but we believe that practical co-operation can be improved in an incremental and sustainable way, led by Mr Rasmussen and the noble Baroness, Lady Ashton. We are working with NATO allies, EU partners, Mr Rasmussen and the noble Baroness to ensure that this happens. The point about this is that there is a fundamental change of view, or focus, on this issue, which I very much hope will bear fruit.

I have nothing more to add in response to the noble Lord’s extra question about tactical nuclear weapons. Perhaps it is something that I could follow up in a letter.

My Lords, there is clearly much to welcome in this Statement, particularly the greater co-operation with Russia. I have two questions of detail. First, on the drive for greater efficiency within NATO, the cutting of a number of command posts and the reduction of a number of agencies, is there any agreed timescale for those reductions? Secondly, on the question of the additional routes through Russia to support our forces on the ground in Afghanistan, particularly given the attacks on convoys through the Khyber Pass, is the increase in the number of routes significant? Is less fuel and equipment going to come in through Pakistan? Could my noble friend elaborate a little on this whole question?

First, on the question of reducing the number of command posts, the announcement was this weekend, and the intention is that the drive for efficiency should start at once. I believe that we will see progress within a few months. It is important that we should keep the pressure on and that progress should be made. Secondly, the important agreement with Russia that we should have a new overland route for convoys and other aspects of military support is extremely welcome. I cannot add any more to what I have already said on that, and it may not be possible to do so at this stage.

My Lords, first, I apologise to noble Lords and to the Leader of the House for not being present at the beginning of this Statement. I am finding it difficult to adjust to the rhythm of the business in this House.

In welcoming this Statement broadly, I press the Leader of the House on one specific issue. On 19 October, on the publication of the strategic security and defence review, following a review of the declaratory policy for nuclear weapons, the Government made a very welcome announcement that they would give assurances to non-nuclear weapon states in broad compliance with their NPT obligations that they would not use nuclear weapons against them. That was broadly welcomed in this House and beyond and brought us into line with the United States. However, in the strategic concept, that assurance is absent from statements on the use of NATO nuclear weapons. Can the noble Lord explain to the House how that came about, as our nuclear weapons and those of the United States are assigned to NATO? We now have two descriptions of when we will use these weapons which are contradictory. Can we expect the Government to press for alignment of declaratory policy in the process that has been signposted in the strategic concept of a further review?

My Lords, the noble Lord has my sympathy about his having a little difficulty in getting to grips with the rhythm of business, but I am sure that he will get used to it. He is a good attendee, and I am sure that that will happen very soon.

The thrust of the noble Lord’s question is that there is a tension between declared UK government policy on states that do not hold nuclear weapons and that of the strategic concept launched this week by NATO, which does not hold such a position. I do not know whether this tension is cosmetic or real, and I am unable to resolve that at the Dispatch Box. Perhaps I could consider the issue and give a little more thought to it before responding to the noble Lord.

My Lords, I add my thanks to the noble Lord the Leader of the House for this Statement and for this early opportunity to talk about the NATO summit in the light of the strategic defence and security review. The question I want to ask has been focused by those who have raised issues about Georgia. Earlier this year, I was fortunate enough to have a meeting with Giorgi Bokeria, the Deputy Foreign Minister in Georgia. It was, I would say, a combative engagement. He was sharp and intelligent. He was critical of the western nations’ response but he was a realist. The point he was really making was that it was not that he expected us somehow to come and invade Russia with him, but that he expected us to be a little clearer on what we were prepared to do in response.

This brings me around to the strategic concept as we now see it. That now has three sections in it, which are about corporate security, crisis intervention and co-operative security. One of the issues in past years has been—we see this in Afghanistan in particular—that crisis intervention and corporate security can stretch the resources of NATO, putting us in a position where it is difficult to know precisely how we move forward. Can the Minister reassure us that the Government are confident that, with the new strategic concept, we can respond effectively in each of those three ways and be clear that we have a response to the sort of questions that the Deputy Foreign Minister was putting to me?

My Lords, I understand very much the position that the right reverend Prelate found himself in when talking to those who have a clear government interest within Georgia. I, too, have met and discussed the situation with Georgians who feel strongly about it—unsurprisingly, if I may say so. However, like the right reverend Prelate, I have found Georgians with whom I have spoken have a realistic understanding of the West’s role, which is why in answer to an earlier question—I think it was from the noble Lord, Lord Hannay—I explained the case of the Geneva talks. That is the best place to resolve these issues, because all those most affected by them are represented in those talks.

The right reverend Prelate also asked whether I was confident that we can deal with our objectives in NATO and that the new strategic concept can deal with them. I am bound to say yes we are. We feel that this is an important step forward, not least in that the summit included so many different countries that are not officially members of NATO but are either supporting us in Afghanistan or, as the Russians themselves did, were playing such an important and distinguished role in the conclusions of this summit.

My Lords, while we must always keep up the military pressure in Afghanistan, is it not the case that, now that we have established a deadline of 2015 for the end of combat operations by NATO forces, the weight of our activities should shift to finding a political solution? If that is, as I believe, the policy of the United Kingdom Government, what steps will they take to ensure that Washington is persuaded that it should be their policy too?

My Lords, my noble friend Lord Ashdown is right. We have long said that the solution to the conflict in Afghanistan is not military. There has to be more to it, combining politics within Afghanistan itself with the support of aid, trade and all the other things that make up creating and building up a country in the modern world. I would not read it as such a difference between our own objectives and those of the United States. In fact, our objectives are not far away from those of NATO and, this weekend, there is an aspirational target for NATO to have achieved the end of conflict by 2014. The fact that we have taken this position on 2015 will not be missed by other countries, which will be asking their own leaders whether it is appropriate that they too should set a similar target.

Will the Minister reinforce the point made by my noble friend Lord Ashdown, in his perceptive article in the Times today, that if we are to honour the tremendous sacrifice of many of our young men who have committed themselves to the future of Afghanistan, the need for urgency in the political drive is critical? The countries that need to be involved in this undertaking—Britain, India, Pakistan, Iran, China and Russia—all have their own angle and their own interests in what might happen there. Who is really going to drive this forward? Every one of those countries has an interest and will be disappointed if the conflict there turns into civil war. Who is going to reconcile the situation and drive the political initiative forward?

In the first instance, my Lords, it will be NATO, supported by its key members. My noble friend is right in mentioning all the countries that have a direct interest, including the people of Afghanistan itself. As I said in response to an earlier question, we have all been clear, including the Afghanistan Government, that members of the Taliban and many other groups who want to talk, to play a part in government and to be part of the process of reconciliation are the ones who need to renounce violence, reject al-Qaeda and support the constitutional framework. It is in all our interests that that should be so.

My Lords, I welcome the reference in the Statement to failing states. Is there any further information that the Minister can provide on the discussions that took place with reference to the importance of failing states to NATO’s overall security position? Might action to help rebuild and reconstruct failing states be one of those areas where there could be more detailed co-operation in future between the European Union and NATO? Was that issue discussed at the summit, or might it be part of the discussions that will lead up to the Foreign Ministers’ meeting in April?

My Lords, I am sure that, on closer examination of the final communiqué, I would be able to find some reference to the subject of failing states. I know that that is an important issue for the noble Lord, and he is right to raise it. That was not the primary purpose of the summit, though; as we have been discussing over the past few minutes, that was to deal with the issue of the new strategic concept and with Afghanistan as well as rebasing the relationship with Russia. Just because these issues were not of primary importance, however, does not mean that they are not in themselves important. NATO is as keen as the rest of us to sort out these problems.

Ireland: Financial Assistance


My Lords, with permission, I will repeat a Statement made by my right honourable friend the Chancellor of the Exchequer.

“Mr Speaker, I would like to make a Statement regarding financial assistance for Ireland. I hope Members will understand that an announcement had to be made at the weekend, ahead of markets opening this morning. Last night, I spoke to the chair of the Treasury Select Committee and the Shadow Chancellor to keep them informed of the latest developments.

The United Kingdom, alongside the International Monetary Fund, the European Union, the eurozone and other member states, is participating in the international financial assistance package for Ireland announced last night. We are doing this because it is overwhelmingly in Britain’s national interest that we have a stable Irish economy and banking system.

The current Irish situation has become unsustainable. Its sovereign debt markets had effectively closed and had little prospect of reopening. While Britain’s market interest rates had fallen over the past six months, its had risen to record levels, and Ireland’s banks had become completely reliant on central bank funding to maintain their operations. In the judgment of the Irish Government, as well as the IMF and others, this situation could not go on.

Members will understand that it would not have been appropriate for us in recent weeks to engage in public speculation about whether Ireland should request assistance from the international community. I can now report that we have been engaged in intensive private discussions with the G7, the IMF, the EU and the Irish Government on plans for the eventuality that Ireland would request support. At the G20 meeting in South Korea two weeks ago, I was one of the European Finance Ministers who issued a joint statement that provided a brief respite. At the ECOFIN meeting last Wednesday, my colleagues and I discussed the Irish situation with Finance Minister Brian Lenihan, with whom I have also kept in touch directly. Following meetings in Brussels, the Irish Government committed to engage in a short and focused consultation with the IMF and the EU. On Thursday, a joint mission arrived in Dublin, and in the last few days I engaged with my counterparts in the G7, the euro area and the EU about the way forward.

Following intense work over the weekend between the Irish and international authorities, last night Ireland’s Prime Minister, Brian Cowen, made a formal request for assistance. This was followed by statements from the G7, the IMF, the Eurogroup and European Finance Ministers to,

“provide the necessary financial resources for Ireland to implement its fiscal reform plans and stabilise its banking system”.

The statements made clear that there were two components to the rescue package. The first puts beyond doubt Ireland’s ability to fund itself. The international assistance package will support an ambitious four-year fiscal strategy, which the Irish Government will set out later this week. This will see a fiscal consolidation of €15 billion by 2014, of which €6 billion will be implemented next year, as part of a strategy leading to a target budget deficit of 3 per cent of GDP in four years’ time. The second part of the assistance package is a fund for potential future capital needs of the banking sector. This will support measures to promote deleveraging and ensure restructuring of its banks, so that Ireland’s banking system can perform its role of supporting the economy.

Let me turn to how the package will be financed. This is a joint programme, with funding from both the IMF and the EU. The amount of money involved will in part depend on the IMF analysis of what is needed, and Prime Minister Cowen has said he expects it to be less than €100 billion. The international community is working on the rough assumption that the IMF will contribute around one-third of the total. The total European package will provide the other two-thirds. Based on the significant reform of the IMF agreed by G20 Finance Ministers last month, the IMF is well placed to play a leading role in this international effort.

The UK, of course, is an important shareholder of the IMF and we will meet these multilateral obligations. I would like to reassure the House that the IMF is currently well resourced and able to meet the cost of the package for Ireland. The European element of this package will primarily come from two sources of funding agreed in May before this Government came into office: the €60 billion European financial stabilisation mechanism and the €440 billion European financial stability facility. The balance between the European mechanism and the eurozone facility will be determined in the coming days.

The United Kingdom is not a member of the euro—and will not be a member of the euro while we are in government—so we will not participate in the eurozone stability fund. However, the previous Chancellor of the Exchequer agreed to UK involvement in the European mechanism two days before I took office. I made it clear at the time that I did not believe he should make that commitment. But it operates according to qualified majority voting and so we cannot stop it being used, and to exercise that vote at a time like this I judge would be very disruptive. So the EU will lend money to Ireland on behalf of all 27 member states and the UK must accept its share of this contingent liability, which would arise in the unlikely scenario that Ireland should default on its obligations to the EU.

On top of this, I have agreed the UK should consider offering a bilateral loan to Ireland, as part of the IMF and European package. I judge this to be in Britain’s national interest. Let me explain why. We have strong economic relations with Ireland. Ireland accounts for 5 per cent of Britain’s total exports abroad. Indeed, we export more to Ireland than to Brazil, Russia, India and China put together. Ireland is the only country with which we share a land border, and in Northern Ireland our economies are particularly linked, with two-fifths of its exports going to the Republic. Just as our two economies are connected, our two banking sectors are also interconnected. I should stress that the resilience of our own banks, which are now well capitalised, means that they are well placed to manage any impact from the situation in Ireland, but two of the four largest high street banks operating in Northern Ireland are Irish-owned, accounting for almost a quarter of personal accounts. The Irish banks have an importance presence in the UK. What is more, two Irish banks are actual issuers of sterling notes in Northern Ireland, so it is clearly in Britain’s interest that we have a growing Irish economy and a stable Irish banking system. By considering a bilateral loan, we are recognising these deep connections between our two countries and, crucially, it has helped us be at the centre of the discussions that have shaped the conditions of an international assistance package that is of huge importance to our economy. Of course, this is a loan and we can expect to be repaid. In fact, Sweden has also deemed it in its national interest to consider a bilateral loan to Ireland.

Now that the Irish Government have requested assistance, a lot of the detailed work of putting together the package can take place. I understand that Members are keen to hear the specifics, such as the rate of interest on the loans, the repayment periods and the contribution from each of the various elements of this package. I will keep the House informed. Later this week, the Secretary of State for Northern Ireland and my honourable friend the Financial Secretary will be in Northern Ireland to discuss the situation there. I will ensure there is a specific discussion in the House if there is a bilateral loan, as we will need to take primary powers. Finally, let me say something about the future of the various European support funds, which are being discussed later this year. Both the Prime Minister and I are very clear that when it comes to putting in place a permanent eurozone bail-out mechanism, the UK will not be part of that.

This is a situation of great difficulty for Ireland, and it is a tragedy when it did so much to improve its competitiveness with low taxes and flexible labour markets, but the truth is that it had hugely leveraged banks and a badly regulated financial sector—a pattern that we have had to deal with in our own country. In addition, because Ireland is a member of the euro, exchange rate flexibility and independent monetary policy were not tools available to it when the financial crisis took hold. The arguments against Britain joining the euro are well-rehearsed, not least by me, but while “I told you so” may be correct, it does not amount to an economic policy.

When this coalition Government came into office, Britain was in the financial danger zone. We have taken action to put our own house in order. Whereas we were once seen as part of the problem, we are now part of the solution. Ireland is a friend in need, and it is in our national interest that we should be prepared to help it at this difficult time. I commend this Statement to the House”.

My Lords, that concludes the Statement.

My Lords, I am most grateful to the Minister for repeating the Statement made by the Chancellor of the Exchequer in another place. I welcome the Statement on the provision of financial assistance to the Republic of Ireland. It should be clear to all noble Lords that this is in the best interest of the British economy. After all, not only is Ireland one of the UK’s most important trading partners, more important, as the Statement acknowledged, than Russia, India, China and Brazil put together, but British financial institutions have substantial exposure to Ireland. Can the Minister confirm that the exposure of UK institutions to Irish banks exceeds £50 billion and that the overall exposure of the UK to Ireland exceeds £100 billion? In these circumstances, providing support is a price well worth paying to assist in the economic recovery of our neighbours and friends and at the same time to secure the position of our own financial institutions.

The story of the financial pressures brought to bear on Ireland in the past few weeks should be a salutary lesson to Her Majesty’s Government—the lesson that careless talk costs confidence, and loss of confidence spells economic disaster. As is now well known, careless talk by Chancellor Merkel, suggesting that extra costs should be borne by bondholders, was the last straw that broke confidence in the Irish markets. However, this was against the background of continuous deficit hysteria, promoted not just by the traditional deficit hawks in Germany but also by Her Majesty’s Government. Instead of promoting deflation, will Her Majesty’s Government learn from the Irish experience and, as well as developing a sound growth strategy at home, promote growth strategies abroad?

There is some confusion in the Statement as to which part of the UK’s assistance is a contingent liability—that is, a guarantee only to be drawn in the event of default—and which part is to be up-front money. Will the bilateral loan that is contemplated be a contingent provision or an up-front loan? Once the funding is agreed, how and when will the provision appear in the Government’s accounts? Will this unexpected expenditure alter the Government’s declared objective of reducing the deficit to zero in four years? What measures are being taken to recapitalise the Irish banks—key measures such as those that were instituted by Mr Darling so successfully for Britain’s banks?

The big question that arises directly from this Statement is: if the Government can afford to commit substantial funds to the Irish recovery, why cannot extra funds be found to promote the recovery of British industry? A national investment fund of equivalent size would transform the financial circumstances of Britain’s entrepreneurs. It would be a timely boost to confidence and would ease the financial logjam that is holding Britain back. If there is money for Ireland, why is there not money for Britain?

Finally, is the noble Lord aware that if Britain were on the brink of bankruptcy, the Government would not be making the Statement we have heard today?

My Lords, I am grateful to the noble Lord, Lord Eatwell, for confirming that the Opposition are in support of the proposed package, and I appreciate that support.

He asked about the claims that the UK has on Ireland. The latest numbers I have seen state that on 30 June this year, total UK banking-sector claims on Ireland were $131.6 billion—ranking second only to Germany’s banking-sector claims on Ireland. Indeed, they are substantial. However, as I said when repeating my right honourable friend’s Statement, we in the UK have a well capitalised banking sector that is capable of withstanding any pressures from Ireland and elsewhere.

The noble Lord refers to growth. Of course this is absolutely critical; it is part of the Irish Government’s plans and is part of the plans in the UK, which we have already discussed at some length this afternoon. Indeed, I can confirm that of course the Government are very much engaged through the Europe 2020 discussions, and in other ways, to make sure that we promote healthy growth within Europe and globally.

The accounting for any bilateral loan that may be put in place will be a matter for the Office for National Statistics and the Office for Budget Responsibility, but my understanding is that, with a loan on one side and a matching asset that we will have in our claim on Ireland, there should be no effect on the size of the deficit, because this would otherwise be just a contingent liability. As I said when repeating the Statement, we would expect any loan that is made to be repaid.

As to why, if we are lending money to Ireland, there should not be other loans, this is an exceptional situation. Ireland is our closest trading partner which takes a high percentage of our exports. We are contributing to a European package and to a multilateral global effort through the IMF. By supporting the package for Ireland we will support the very many businesses across the United Kingdom that trade with Ireland. That is one of the critical reasons why it is in the national interest that we support the package.

My Lords, I thank the noble Lord for repeating the Statement. I wholeheartedly believe that the Minister and the Government are correct to extend their assistance and solidarity to Ireland at this time, not least because of our closeness as neighbours and trading partners and because of our mutual interests on the island of Ireland itself. It is understandable that the noble Lord and the Government maintained their silence on discussions up to an appropriate point.

Will the Minister ensure that, while everyone understands that extended assistance of this nature will require discipline and considerable restraint on the part of the Irish, the British Government will never lose sight of the fact that ultimately it will be growth that will take Ireland and many other nations out of the position in which they find themselves? Therefore, any constraints placed on the Irish as a condition of the loans and the assistance that we give them should not, if we can help it, constrain that growth to the detriment of Ireland's success.

I am grateful to the noble Lord for his remarks. It is important to remember that the IMF is very much involved in the negotiation of the terms of the loan and brings to the party very considerable experience of putting together loan conditions in similar situations. From its previous experience, it will be well seized of the need to see the Irish economy—along with other economies that have this problem—growing in future.

My Lords, perhaps I may draw the Minister's attention to Wolfgang Münchau’s statement in today's Financial Times. He wrote:

“At a time of extreme fiscal tightening, moderate monetary tightening and weak global demand, I fail to see where Ireland will grow”.

Perhaps the Minister will explain how he sees that Ireland will grow, and how its programme of accelerated fiscal austerity as a condition of the bailout will encourage growth in the Irish economy.

My Lords, I am not going to provide a commentary on the Irish economy. As I said when I repeated the Statement, Ireland will come forward with its own budget. It is for the Irish Government to explain their own economic policies in this difficult situation, and for the conditions of the loan to be appropriate to the circumstances.

My Lords, we on these Benches welcome the Government's decision to support the bailout. I am depressed but not surprised that the Chancellor feels that if he is giving support via a European fund, that is not to be welcomed, whereas if he is signing the cheque directly from the British Exchequer, that is great. However, no doubt that is politics. Perhaps I may take up the question of the noble Lord, Lord Reid, and the Minister's response, on the subject of the IMF and conditionality. As the Minister said, the IMF has a long track record of conditionality on the loans that it has made. Sometimes the conditions have been extremely contentious. What can the Minister say about the loan conditions that are being discussed? For example, have the partners who are making the loan pressed Ireland on its tax rates?

I am grateful to my noble friend for his questions. In response to his first observation, I point out that the Government do not accept the general principle that we should participate alongside eurozone members in bailing out eurozone countries. When it comes to putting in place the permanent bailout arrangements that will be discussed in Europe in the coming months, it is the intention of the coalition Government that we should not be part of any such arrangements. The normal process should be that the eurozone is responsible for its own processes. I cannot go into any more detail of the terms of the package which is being negotiated, but my right honourable friend the Chancellor has said that he will come back to another place when he has more to report.

My Lords, it is very reassuring to hear what the noble Lord has just said. However, the Chancellor has made a very sound case for why we need to participate in addition to the help provided by the IMF and the European Union. When we are borrowing heavily, it is rather strange to be lending to Ireland. We shall need to look very carefully, as suggested, at the terms of the loan. The Chancellor says that the matter will be raised in another place. Will we have an opportunity to debate it in this House as well, given the expertise which exists here?

It is difficult to avoid the view that this is something of a sticking plaster, leaving a number of other issues unresolved. Ireland is still in the eurozone, and the interest rates that are determined by the European Union and the exchange rate give it very little scope. Has not the eurozone grown too large and are we not in danger of this kind of situation occurring not simply in Ireland and Greece but also in other countries? The whole system is formulated in such a way that it is not possible for members to withdraw when it might be better for them to do so, rather than get into the kind of situation that we have seen here. Despite the fact that this is clearly not something that would be welcomed in Brussels, and given that we have an interest in the matter along with those in the eurozone, should we not consider whether a more flexible arrangement is becoming essential?

My Lords, any bilateral loan, as my right honourable friend the Chancellor has said, will require primary legislation. So it will go through the normal processes, including those of this House. It is in the UK’s interest to ensure that there is a strong eurozone. The present difficulties have brought to the attention of eurozone members—and of those of us who wish to see a strong zone but who are not in it—the fact that there are a number of defects in the architecture, of which the need for a permanent bail-out arrangement is one. We will work constructively with our partners in Europe to ensure that the eurozone is better able in future to withstand any buffeting of individual economies such as we are seeing at the moment.

My Lords, have Her Majesty’s Government yet understood that the euro was always designed for disaster? Do they not see that the longer the political class props it up, with its single interest and exchange rates and its lack of a federal budget, the greater and more ruinous will be the crash when it comes? Are they also beginning to get an inkling—just an inkling—that, behind the euro, the project of European integration is also designed for disaster, as I have often pointed out in your Lordships' House?

To be constructive, instead of throwing billions upon billions of good money after bad, why do they not spend a fraction of it on returning their currency to the PIIGS, Portugal, Ireland, Italy, Greece and Spain? Would that not be just one small step away from the insanity that is the EU?

It is always good to have the noble Lord with us on these occasions to share with us his big picture vision, even if it is not one that I or the Government share. We are where we are with the eurozone at the moment, and we must be constructive partners to make it work. It is clearly regrettable that articles of the European Union treaty, such as Article 122, which should have been used for such things as natural disasters, has been enabled to be used for a mechanism in which the UK was committed to be a contributor by the previous Government. There are certain things that we must get straight going forward so that the treaty is used for the purposes for which it was intended. There are a number of lessons, to which I have referred, but I repeat that it is absolutely in our interest to see a strong eurozone because, among other things, that is where 40 per cent of the UK's exports go.

My Lords, does not the Minister agree that the statements made by the German Chancellor and the French President at Deauville a month ago and thereafter were singularly unhelpful? I refer to the declarations in relation to the rate of interest and to tax levels in the Republic of Ireland and the demand that bondholders should bear a substantial part of the loss. Her Majesty's Government should be congratulated most warmly on having abjured any temptation to trespass on or to demean in any way Irish sovereignty and to accept those realities of geography, history and commercial intertwining which bind our two countries so closely together.

I am grateful to the noble Lord for his remarks. I shall not criticise other countries for the running commentary that they have given on certain aspects of the developing situation, but the noble Lord gives me the opportunity to confirm that the UK believes in tax competition in Europe. We certainly have not been and will not be a party to some chorus telling the Irish how they should set their levels of corporate taxation, any more than we would want people to lecture us on how to set it.

My Lords, I must first declare an interest, because the price of the beef cattle I sell has fallen by about £100 a head because of the turbulence in Ireland. Does that not show that this is not merely a matter of politics and economic theory; it is an episode which has a real bearing on the prosperity of people in our country? That should be at the centre of the Government's thinking about how to respond to the circumstances in which we find ourselves.

I am very grateful to my noble friend and completely agree with his sentiments. It is always good to be reminded that our economy has an important agricultural component to it and that that is part of what the Government’s possible contribution to this package is helping to protect.

My Lords, I welcome the help that is being given to Ireland. I am mindful of the fact that, in the city where I was raised, many sons and daughters of Ireland came to be our teachers, to look after our elderly and to be our doctors. Many of the large construction projects, such as the hydro dams, were built by Irishmen who worked so hard and were away from home.

The Minister said that the interest rates will be worked out, but for every point on the interest rates there will be more hardship for the people of Ireland. When the Chancellor announces the interest rates, will this House and the other place have a say in them?

Interest rates and the other terms of the package will be negotiated between the Government of Ireland, the IMF and those leading the European side of the negotiations, so they will not be the subject of discussion in your Lordships' House, except that any bilateral element in the package from the UK will be subject to primary legislation, so there will be an opportunity to consider the terms of any bilateral loan.

Can the Minister help me resolve an ambivalence that I detect in his answers? He seems to be saying that it is vital to our national interest to support the eurozone and equally important to our national interest not to be part of it.

That is precisely what I am saying. As was confirmed by my right honourable friend the Chancellor in another place, the Government are not going to take this country into the eurozone and, indeed, we are not going to make any preparations during the course of this Parliament to take us into the eurozone. I think that it is completely compatible with playing our part as an important part of the European economy to make sure that the eurozone is stable. I may be being thick, but I fail to see the contradiction in those two positions.

My Lords, the Government have done the right thing, and we support them, but now that they have become enthusiastic supporters of growth being a fundamental part of the solution in Ireland and in Europe as a whole, will they give a great deal more thought to how they can stimulate growth in the United Kingdom, as the new secretary of the CBI requested?

My Lords, we have been giving it very considerable attention, which is precisely why the first series of actions of this Government was around convincing the world that we had a plan to deal with our deficit so that we did not find ourselves remotely in the position in which Ireland has regrettably found itself. That is the way that we have managed to keep interest rates low and the foundation of our growth policies. We have then gone on, whether in tax, capital expenditure through the spending review, the economic infrastructure, the attack on regulation or in other areas, to build a strong series of growth policies in this country.

My Lords, Ireland broke away from the United Kingdom and gained sovereign control over its taxation, interest rates and currency, but all these things have been thrown away. Even interference in its budget is now a requirement. There is now a great economic crisis in the south of Ireland, and that is bad news for us in Northern Ireland and in the United Kingdom. I therefore welcome the bilateral grant that we in the United Kingdom will be giving to support the present dire distress in the south of Ireland. However, one thing that worries me in a broader sense—it is not specifically about the Republic of Ireland—is whether when other countries in the eurozone get into economic difficulties, as has already happened in Greece and in southern Ireland, we are still going to be required to support them financially.

My Lords, as I have explained in repeating the Statement, we take the situation in Northern Ireland extremely seriously, which is why my right honourable friend the Secretary of State for Northern Ireland and my honourable friend the Financial Secretary will go there later this week. As to the question of support for other countries in Europe, I will not give a running commentary on other countries and their economic conditions. But, as I have made completely clear this afternoon, the situation of Ireland is very different from any other country and our response has been commensurate with that.

My Lords, if it is true that relations between our two countries are the best that they have ever been, does my noble friend regard it as a happy conjuncture that we are in the situation where we can make the Statement we have made today in the interests of the old saying that a friend in need is a friend indeed? Will he also give any report on the behaviour of the Spanish and Portuguese markets during the course of today?

My Lords, as I said in repeating the Statement, we have given our support for a possible contribution to a package based on a very hard-nosed assessment of what is in the interests of the UK economy. That it coincides with the fact that we have had a long history with Ireland is important, but it is purely on the assessment that it is in the interests of the UK economy that we have contributed to the possible package. As to what is going on in the other markets, I am afraid that, because I have been detained throughout the afternoon in your Lordships’ House, I have not been looking at them.

House adjourned at 5.41 pm.