House of Lords
Tuesday, 29 January 2013.
Prayers—read by the Lord Bishop of Wakefield.
My Lords, we will continue to encourage others to recognise Kosovo, using opportunities in bilateral and multilateral fora, and we will provide support to the lobbying efforts of the Kosovo Ministry of Foreign Affairs. The Government are also part-funding a project to deepen Kosovo’s links with EU member states that do not recognise it, and to improve Kosovo’s image abroad through public diplomacy.
My Lords, that is a very encouraging Answer. The only problem is that this Government do not take enlargement seriously enough. I looked all through the Prime Minister’s speech and I could hardly find any mention of it. He mentions the Second World War and the fact that we brought peace and stability through enlargement. However, is there not much more than that? Should we not take a much closer interest in the dialogue between Serbia and Kosovo, which are to become independent European states?
The noble Earl raises an important issue, and I can assure him that we are steadfastly supportive of EU enlargement. We think that it is crucial, as he said, to bringing security and prosperity to the western Balkans and to wider Europe. The Prime Minister’s speech, which talked about a more diverse, competitive and flexible Europe, relies on an ever-enlarging Europe.
My Lords, I hope that the Minister will agree that those countries, particularly the EU countries, which have so far failed to recognise Kosovo, have done so for good—or at least for domestic —reasons, be it Catalonia, the Basque country, or Northern Cyprus. It is most unlikely that there will be any fundamental change by those countries unless and until Serbia and Kosovo itself reach an agreement. Therefore, the talks led by the noble Baroness, Lady Ashton, and brokered by the EU, stand the very best chance of resolving this problem of recognition.
I congratulate the noble Baroness, Lady Ashton, on her work in securing discussions between Serbia and Kosovo. She has personally led great efforts to secure these further discussions, supported of course by us and many others. Whatever individual countries’ reasons are for not recognising Kosovo, the UK’s position is very clear. We support Kosovo’s progress as an independent state which we recognise, and recognise that the independence of that state is irreversible.
My Lords, does my noble friend agree that this imbroglio has gone on far too long already? Are the British Government capable of persuading Serbia that the recognition of Kosovo would be a spur to its own EU membership and would be the best result for both countries? Will she personally, and other Ministers in government, support the respectable lobbyists in this country and elsewhere, who are now pressing hard for Kosovo’s recognition and independence?
The noble Lord is, of course, aware of the discussions with Serbia about its aspirations for EU membership. It is not being discussed as a precondition at the moment but, of course, Serbia recognises that stability in the region has to be the way forward in ensuring that every country can make its own individual journey towards further involvement in the EU.
My Lords, when the noble Baroness and other Ministers go around Europe steadfastly supporting European enlargement and encouraging other countries to join, as she put it, at the same time as Ministers are talking about the possibility of the UK’s withdrawal from Europe, does it not cause some confusion?
My Lords, it certainly does not cause confusion on this side of the House. However, if I can assist noble Lords opposite in the confusion that they may have, of course we believe that a reformed EU—a much more flexible and competitive EU—is better. That message is completely consistent with having an enlarged EU. The noble Lord’s confusion may well be in relation to some of the briefings that he has been getting from his Front Bench.
My Lords, what assurances can the Minister give the House that the opening of accession negotiations between the EU and Serbia will not be considered by the European Council until such time as Serbia has achieved a necessary degree of compliance with the membership criteria, in particular the key priority of taking steps towards a visible and sustainable improvement of relations with Kosovo in line with the conditions of the stabilisation and association process?
I can inform the right reverend Prelate that the UK is not asking Serbia to recognise Kosovo at this stage but we are making it clear that the future of Serbia and Kosovo lie in the European Union, as independent states, and that Serbia must accommodate itself to this reality before it joins the EU. Neither should be able to block the other’s path to the EU. As the right reverend Prelate will be aware, the accession discussions with Croatia were much tougher than those on previous accessions, and we will ensure that any future country wishing to be part of the EU family satisfies those very stringent preconditions.
My Lords, in response to the exchange between the noble Baroness and my noble friend about the European Union, I can assure noble Lords that we, too, seek a reformed European Union but wish to do so in co-operation with colleagues rather than by threatening them. We, too, believe that peace and stability in the Balkans is a matter of the enlargement of the European Union but, on the current enlargement, I wonder when the Government will publish their figures in relation to those people who may come to this country from Bulgaria and Romania at the end of the transition period.
The Government are making appropriate preparations in relation to people from Bulgaria and Romania who may wish to come to the United Kingdom. As the noble Baroness will be aware, the transition provisions for Bulgaria and Romania come off for the rest of the European Union at the same time, so the option for Bulgarians and Romanians to travel elsewhere in the European Union will also be open. I hope that the mistakes that were made—this is not a political point—in relation to Poland’s accession will not be made this time, because of the way in which we implemented the transition provisions.
My Lords, can the Minister confirm that the Government welcome the resolution passed by the Serbian Parliament on 13 January 2013, which calls for talks with the interim institutions of self-government in Pristina with the aim of securing security, peace, stability and better living conditions for the Serb community and for all other national communities in Kosovo and Metohija?
I am not familiar with the specific resolution to which the noble Lord refers but I can assure him that in our discussions with Kosovo we regularly talk about the issue of minorities there, and we ensure that all such discussions cover the views of the minority communities, including those of the Serbs.
Housing: New Homes Bonus
My Lords, the new homes bonus is not a regional grant. It is allocated to individual local authorities based on increases in their housing stock. Councils that build more new homes receive more funding. My department no longer produces regional statistics, not least because policies such as the new homes bonus do not operate on a regional basis.
My Lords, I thank the Minister for that practical Answer. It is the same one that she gave me on a Written Question on the same issue. I was appalled to find that the Government no longer keep regional statistics and therefore do not know the regional impact of their policies. If the Government do not know, then I will provide the information.
Is the Minister aware that in relation to the new homes bonus, which is a grant given to local authorities, the three northern regions of England, the north-east, the north-west, and Yorkshire and Humberside, get on average per head of population £8.78 new homes bonus in the current year, and that the four southern regions, the east, London, the south-east and the south-west—
My Lords, I am a little bit surprised by the noble Lord’s statement, and particularly his suggestion that there is a per person sum involved in this. The new homes bonus is paid against the background of new homes. It is based on the number of homes that are provided in any particular area and on the average of the council tax base across the country. Where there is a number of band A properties, a certain amount of money will be produced, across the country, and bands G and H will produce the same. If I could just correct the noble Lord, in the top 30 recipients of the new homes bonus, there are seven in the north. Bradford, Durham, Leeds, Manchester, Salford, Sheffield and Wakefield are working hard and doing well.
My Lords, I think that they are all more than aware. The new homes bonus has been an extremely important contribution to ensure that councils willingly accept new housing in their areas. This supports them, at least in terms of the housing provided, and gives them an incentive to ensure that new homes are built.
Is my noble friend aware that in the north-east of England, the North Tyneside Council has used the new homes bonus to undertake a welcome £3.1 million refurbishment of a public library in North Shields? That is welcome, but is not the point of the new homes bonus to act as a catalyst for the construction industry? Will she therefore join me in welcoming the news that in the north-east of England new housing starts increased by 25% over the previous period last year, which is an increase of 47% over the period in 2009?
My Lords, I am always grateful to my noble friend, because he knows the figures, and he has given them on several occasions. They show that the north-east is in fact working very hard to produce new housing. Of course, he is right: the new homes bonus is not specifically given for housing; it is given as a contribution to areas where new housing has been built. Refurbishing a new library to help with the increased population seems to me to be a perfectly acceptable use of that money.
My Lords, the noble Baroness said that the Government hold no national statistics on the impact of the new homes bonus. I wonder whether they have any statistics that show the impact on housing associations, region by region, of the bedroom tax. I speak as someone who lives in the Forest of Dean, and my own housing association, Two Rivers Housing, is being severely impacted by the bedroom tax.
My Lords, I have said that we do not keep regional statistics. We do not have regions any more; we have local areas. The regions are not recognised. We work on local areas now, which is far more exact and precise. I do not know the exact answer to the noble Baroness’s question about bedroom tax, but I am very happy to write to her.
My Lords, I am fascinated to discover that part of the country I live in is no longer recognised by the Government, but I am not surprised. Will the Minister accept that I live in the north-west of England, as does the noble Lord, Lord Greaves? Would she care to provide the House with figures on the impact of the RSG, plus the housing association grant, plus the new homes allowance, across the area which the noble Lord, Lord Greaves, and I live in?
My Lords, is it not the case that the south-west gets twice as much per head of this new homes bonus as either the north-east or the north-west, and that London gets more than twice as much? These are the facts, and the Government cannot deny that there is a transfer of resources from the north of England to the south of England through this bonus. Is that not right?
My Lords, I am afraid that the noble Lord is not correct about the basis of the new homes bonus. I have explained to the House that the bonus is based on the average across the country of council tax bands. In the north of England, the chances are that the councils provided are in band A, and in the south of England it is very possible that they are provided in bands E, G and H. Consequently, of course, the sums will be larger in some areas than in others, but then, of course, the cost of living is different across this country.
Children: Speech and Language
To ask Her Majesty’s Government what plans they have to co-ordinate their response to the recommendations of the Better Communication Research Programme; and how they plan to ensure that those recommendations are reflected in local authorities’ local offers.
My Lords, my department and the Department of Health are working with the Communication Trust and its partners to disseminate this excellent research, and I am grateful to the noble Lord, Lord Ramsbotham, for giving the House the opportunity to discuss this today. The research will help those who plan, commission and deliver support for children and young people with speech, language and communication needs to improve the way they identify those who need help and the effectiveness of the support they provide. We will take account of the findings of the research in developing plans for the local offer.
My Lords, I am grateful to the Minister for that reply. We have been waiting for the government response to this quite excellent programme since last June, and I remind the House that it consists of a report, two volumes of findings, four thematic reviews and 10 technical reports, which have been drawn up by experts over a considerable period and represent an absolute mine of evaluation, information and advice. I feel that we have not yet heard who will actually be responsible for driving the whole thing forward. The Minister mentioned the Departments of Education and Health, but there is also the Department for Communities and Local Government, the Ministry of Justice, the Department for Work and Pensions and others whose contribution must be aggregated to make the best of what is in this report for all the children in this country.
My Lords, I agree with noble Lord, Lord Ramsbotham, that this is landmark research which is undoubtedly the most extensive of its kind into the subject. The issues that it raises are so wide-ranging that they are clearly not the province of one agency or government department, as the noble Lord says, which is why we want to make sure that the research is widely available and disseminated as widely as possible. My department and the Department of Health are working closely with the Communication Trust to co-chair the communication council which the Communication Trust is facilitating. The council brings together representatives from government, local authorities, health agencies, the Royal College of Speech and Language Therapists, early-years settings, and schools, parents, young people and the voluntary sector. The council will keep up the momentum by developing a comprehensive dissemination plan for the research, sharing learning about effective approaches to supporting children with SEN and promoting better awareness of speech, language and communication needs.
My Lords, my profound apologies for over-eagerness, especially in view of the noble Lord’s excellent question.
The Better Communication Research Programme places great emphasis on regular monitoring of children’s language development over time so that when they need support, they can get it in the right way. How will the Government ensure that the need for regular monitoring is reflected in local authorities’ local offers?
We regard the solution to this issue as a local one. That is why we will be setting up the local offer involving children and young people with SEN and their parents and we will publish details of where parents can find all this available in one place. As young people will have an education, health and social care plan which will be reviewed every year, this will monitor the issues to which the noble Baroness refers.
My Lords, the Better Communication Research Programme report looked at speech and language therapy support in schools, and according to the report only 10% of mainstream secondary schools have such support. My noble friend the Minister will be aware that the provision of speech and language therapy throughout the country is very patchy. How can the Government ensure that anybody who needs this service can access it as quickly and efficiently as possible?
My Lords, I know that the noble Lord has vast experience in education and I am grateful for his question. We are sharing widely the good practice in the better communications research where speech and language therapists work with teachers and teaching assistants to provide support. He is absolutely right about a divergence in provision around the country and the shortage of funds, but it must be for local authorities and their partners to assess local needs and to make better use of resources so that they are directed where they are needed. Our proposal for a local offer will do this and will put parents and young people at the heart of decisions.
My Lords, the Minister told us just now that the Department of Health and the Department for Education are working closely together in this area. With respect, for many years the two departments have claimed to be working closely together but when it comes to determining who pays for what, they have been quite unable to agree. Can the noble Lord assure us that he will personally use his own best endeavours to ensure that, in future, there is a proper complementarity of responsibilities in terms of how the funding is found for special needs education and for speech therapy in particular?
I thank the noble Lord for his question, and he is absolutely right about the poor record in cross-departmental work, particularly in this area. I shall investigate the matter and write to him further about it. I think he will be pleased with what he sees in the forthcoming Bill on this.
Legal Services Commission
My Lords, the Legal Services Commission decided to cease the Community Legal Service grants programme following careful consideration of all the issues involved and a public consultation exercise. These grant-funded projects and activities do not necessarily provide direct advice to the individuals eligible for legal aid. Following the Government’s legal aid reforms, the commission’s focus must be on providing advice to clients who qualify for legal aid through its contracted providers.
My Lords, I thank the Minister for his Answer, but is it not rather depressing that these three highly respected and proven organisations are no longer to receive any public funding and are being put at some risk, and all for £650,000 per year? I am sure the Minister will agree that they all have a superb record over many years of helping often poor and disadvantaged people to obtain access to justice. Is it just coincidence that these changes to legal aid are coming at precisely the same time as radical reform of the welfare system is about to begin or is it, as seems much more likely to some of us, deliberate government policy to link these two things together so that if mistakes are made as a result of welfare reform—as they will be—there will cease to be any effective legal remedy for many people?
My Lords, I am always fascinated by the way in which the noble Lord dismisses £650,000 as a mere bagatelle, but let us also look at the facts. This scheme for funding such bodies was introduced in 2000 and the three bodies in this consultation were awarded three-year contracts at the end of the previous Administration. Since then, we have twice extended their contracts by one year so that what was originally a three-year contract became a five-year contract. However, as I have explained to the House before, I am afraid that we have to concentrate limited funds on bodies that are giving sharp-end legal aid advice. These three bodies, particularly the Advice Services Alliance and the local Law Centres Network, are umbrella bodies that do not give such advice. Therefore, although in happier days they could win such contracts and do such work, there is simply no money.
My Lords, is the Minister aware or does he appreciate the significance and importance of the Royal Courts of Justice citizens advice bureau? Having been a judge in that court for many years, I had personal experience of the advantages of the citizens advice bureau looking after unrepresented families in my court. Does the Minister realise that taking away the core funding at this moment, when the Government are also taking away legal aid for private family cases, is going to leave the public and the courts in absolute disarray?
The CAB at the Royal Courts of Justice is able to apply for legal aid contracts in the normal way for the part of its work that is directly legal aid work. As regards broader CAB work, the Government have carried out a number of initiatives to provide funding while voluntary organisations make the transition to a much more difficult economic climate. I very much appreciate the record and work of the Royal Courts of Justice CAB in providing legal advice to individuals. However, I can only say to the House—as I have done frequently as we have gone through this exercise—that we are concentrating our resources on the sharp-end providers and will continue to do so.
My Lords, does my noble friend know of any organisation that provides legal advice more cost-effectively than these bodies do? Has the Legal Services Commission worked out what the effect would be in respect of their former clients if the funding were withdrawn from them?
My Lords, again, I emphasise that the RCJ CAB was able to apply to the Advice Services Transition Fund and this has helped it to continue. How many times can I say this? I look at a budget each day and I see that hard decisions have to be made. Hard decisions are being made by charities and we have tried to give them help in the transition. Quite simply, the days when large amounts of government funds were available for these bodies are over and we all have to face that fact.
My Lords, why do those hard decisions have to be at the expense of the very poor and those needing help and advice? As my noble friend Lord Bach said, from next April, and particularly from next October, a brand new architecture of benefits—universal credit—will roll out to people who will, simultaneously, be losing large sums of money. Moreover, their claims will not be paper-based but will have to be online, even though something like a fifth of claimants do not even have access to a computer. As a result, they are going to need extensive help, support and advice at the very same time as the noble Lord is taking 40% of funding away from CABs across the country.
The legal aid welfare spend will still be some £50 million. We are also in talks with the legal profession and with charitable organisations to help them with adjustments. The noble Baroness is right that we are talking about the poorest. Two years ago, when I announced this exercise, I said that if you cut a programme designed to help the poorest in our society then you will hurt the poorest in society. We are doing what we can to concentrate limited funds on the needy, but it is simply not good enough for the Opposition continually to be willing to sign every blank cheque and never tell us how they would save the money.
My Lords, on 14 January, my honourable friend the Under-Secretary of State for Foreign and Commonwealth Affairs gave a Statement in the House of Commons outlining the UK’s deployment of two C-17 transport aircraft to provide logistical support to France as well as a small detachment of technical personnel deployed to Bamako airport to assist with the reception of the C-17 aircraft.
Since the announcement on 14 January, we have decided to extend our support to the continued provision of one C-17 in support of France for a further three months. There are currently around 20 people deployed in Bamako supporting liaison with French forces. Following a French request for additional surveillance support, we have deployed a Sentinel R1 aircraft to Dakar, Senegal, with supporting ground crew and technical support amounting to around 70 people.
EU Foreign Ministers agreed on 17 January to establish an EU Military Training Mission to Mali (EUTM) and work is ongoing to scope that mission. Today in Brussels, representatives from EU member states, including the UK, will meet to discuss the individual member state contributions to the mission. The UK is prepared to contribute up to 40 personnel to the EUTM, either in an HQ or a training team role. We do not envisage UK personnel fulfilling a force protection role, and it is quite possible that 40 personnel will not be required, dependent on the contributions from other member states. However, we will not contribute UK personnel to any mission until we are satisfied that adequate force protection arrangements are in place.
Also, today in Addis Ababa, the African Union is hosting a donor conference to discuss how the international community can support the African-led intervention force, AFISMA. The UK will offer £5 million for two new UN funds to support the strengthening of security in Mali—£3 million of this would be directed to AFISMA, and £2 million to activity in Mali that would facilitate and support political processes for building stability. The UK is also prepared to offer up to 200 personnel to provide training to troops from Anglophone west African countries contributing to AFISMA, though the numbers required will be dependent on the requirements of the AFISMA-contributing nations.
In addition, we have deployed a small number of advisers to Anglophone west African countries who will contribute to the AFISMA mission to assess their needs and to gain situational awareness. Ministers in the Foreign and Commonwealth Office will provide an update to the House on the outcome of the discussions in Brussels and Addis Ababa at the appropriate moment.
My Lords, I thank the Minister for repeating the Answer given to an Urgent Question in the other place. Under what circumstances would we agree to extend further our military deployments beyond those set out in the Minister’s Statement? What is the minimum period of time we anticipate being deployed on our surveillance and training activities? Will any of our resources deployed, whether personnel, aircraft or other equipment, be resources which would otherwise be deployed in Afghanistan? What is the estimated numerical strength of the forces in Mali against whom action is being taken? Will we extend our support operations if those forces move into neighbouring countries and our continued assistance is sought? Are there any circumstances in which our military personnel deployed in the support operations could be involved in a combat role other than in self-defence? What is the Government’s definition of “success” which would lead to the end of our deployments to Mali? Finally, will there be a Statement shortly on the work presumably now being undertaken by the Department for International Development and the need to achieve stability in Mali through a political process?
The noble Lord asked a number of questions and I will try to answer them. I may not have noted all of them. As to the question on the combat role, there is no question of our troops being sent out there in a combat role. Their terms of engagement in Bamaco are in self-defence. We are there in support of a French-led operation and in the expectation that the African countries round about will be in a position to pick up any of the military activities that are needed there. There will be a Statement shortly. We have these two conferences going on today and from both of those a Statement will come. We are not anticipating extending our position there but, of course, all these things need to be under discussion. However, we have made sure that this is a finite contribution for a short period in order to ensure that the African countries and Mali have stability. It is in our interests both to support the French in this operation and to ensure that Mali does not become ungovernable. We do not want to leave space for terrorism in this. The noble Lord asked about the strength of the Mali troops in the north. Our understanding is that their numbers are relatively small at the moment. We would hope that the engagement will be short and swift and that following this the Malian community can come together to build itself up.
My understanding is that this money will indeed come from the contingency fund and that currently no extension or upper limit has been set. However, all these things are under discussion because, at the moment, we are still awaiting the ongoing discussions in that area to find just what the extent will be.
My Lords, as the worry is about mission creep, can the Minister confirm that the training by our troops is going to take place in Bamako or in the countries providing the African forces and that our troops will not be training the Malian troops in the advance guard?
Our troops will largely be working with the Anglophone nations there: Nigeria, which is taking the lead, Gambia, Sierra Leone and Ghana. Their training will be in such areas as economics, the law of armed conflict, human rights and good governance. That is the sort of range of aspects where our troops are very well equipped to play a training role, but there is no suggestion from this initial engagement that they will go further than that. We certainly do not wish them to be involved in a combat role.
My Lords, I congratulate the Government on having taken the right decision. There are always, of course, unpredictabilities and uncertainties in an operation of this kind, but we have the same interest as every other member of the EU in the stability of north and west Africa and in preventing any al-Qaeda-linked regime from turning any country there into a base for terrorist operations to be subsequently directed at us. Does the Minister agree with me that it is very important in these cases that there should be the maximum degree of cohesion and co-operation between the AU and the EU and that developments in that respect have been quite encouraging so far but need to be sustained?
The noble Lord is absolutely right that this action is in support of stability in that part of the world. It is a well-leveraged contribution in support of the French activity and the French are taking the lead on this. Co-operation between the EU and the African countries is ongoing because there is a mutual interest in ensuring that this situation is contained and stability is restored.
My Lords, does the Minister accept that there is a worrying contrast between the very welcome assistance that she has announced to help Mali confront Islamic terrorism and our behaviour in Syria where we have recognised a national coalition working in cahoots with al-Nusra and al-Qaeda to overthrow what is, for all its faults, a legitimate and secular Government?
The noble Lord takes me into territory outside the remit of this Question. Obviously, he is a great expert on that part of the world. There are concerns across the countries in north Africa and further into Africa and, with this support for the French, we will certainly wish that to be contained within Mali.
That is what is under discussion at the moment. The EU is currently meeting to discuss how it can contribute to that. We have said that we will offer up to 200 personnel for training. They may not all be required because other EU countries may submit more. That is what we are waiting to see from the outcome of these discussions, but we have set a maximum on our contribution.
This has been a very impressive operation by the French and I take this opportunity to thank them. I ask the Minister to be very cautious about statements either for or against putting British troops in there, because, frankly, if we have learnt anything in the past 13 years, it is that you cannot predict the outcome of these situations. It would be wise to be cautious about that. However, I really do think that we need to congratulate the French on the way they have handled it so far.
I thank the noble Lord for that. Indeed, we need to exercise caution. We are well aware of mission creep and the danger of that. We have learnt lessons from other interventions and are applying those here. That is why we are doing what we can to find out as much as possible about the situation there. For example, the CDS and the UK’s special envoy on the Sahel will be travelling to the region this week to discuss further with the countries there what form the training could take and to give an assessment of what the threats and dangers are.
My Lords, the Government, like their predecessor, have seen the key response to the risks posed by ungoverned spaces to be an increase in the levels and quality of governance in those spaces. Given the French Defence Minister’s reported statement that the aim is total reconquest of that divided country, can the Minister tell the House what structure and system of governance the military intervention in Mali is designed to support?
The UK troops are there to provide training and not to impose any form of pre-arranged governance. They are to provide training so that they are better able to secure their land and to provide a peaceful resolution to the conflicts that have long pertained between the north and south of the country.
My Lords, it is surely right that we support our French partners and allies in Anglophone and Francophone Africa. Without that urgent intervention, Bamako would have been taken and there would have been a terrorist base in west Africa. Does the Minister agree that the intervention was wholly in accordance with international law, following the United Nations resolution, and that ultimately there will have to be national reconciliation and some political solution rather than a military intervention against the Tuaregs and others in the north?
Indeed, as the noble Lord will be aware, there was a draft UN resolution in December, which authorised the deployment of an African-led mission to support efforts by national authorities to recover the north. Events moved more quickly than that, which is why the French intervened in the way that they did and why we are supporting them to try to ensure that stability is restored.
Succession to the Crown Bill
The Bill was brought from the Commons, read a first time and ordered to be printed.
Motion to Take Note
My Lords, as a newcomer to your Lordships’ House, I feel an enormous responsibility in opening this debate on one of the most critical issues for our country: the challenges facing our economy. I value this opportunity to draw on the extensive experience of this Chamber.
The trauma caused by the global financial crisis and the ensuing recession required urgent action. This Government responded with a radical programme of reform, designed both to meet the immediate danger to our public finances and to raise the performance of our economy to ensure our competitiveness in a fast-changing, global environment. This programme has four key components and we are driving forward on each one of them. Let me briefly explain.
The first and principal building block upon which all other policies depend is the return to fiscal stability. In 2010, the UK’s budget deficit was forecast to be the biggest in the G20 and in our own peacetime history. This record deficit has been reduced by a quarter over the past two financial years, restoring market confidence in the UK and keeping interest rates lower for families and businesses. We have avoided the predicament of such large economies as Italy and Spain by gripping our deficit problem and securing financing rates close to those of Germany. This credibility has been hard won, but would be easy to lose.
Although recovery is taking longer than any of us would like, principally because of continuing problems in the eurozone, the economy is moving in the right direction. According to the IMF, our growth rates for both 2013 and 2014 are expected to exceed those of France and Germany. More than 1 million private sector jobs have been created since 2010—more than 1 million—with 2012 seeing the largest annual increase in jobs since 1989.
We cannot risk this restored confidence by compromising the disciplined management of our public finances. I anticipate many suggestions for where we may productively invest or spend. However, to retain credibility, as it is not possible to borrow our way out of a debt crisis, any extra spending has to be financed either by other spending cuts or by tax increases. As noble Lords will appreciate, we do not live in a world of easy choices. None the less, to mitigate the impact of the recession on ordinary families, the Government have prioritised reducing the income tax burden on 24 million people and cancelling the planned rise in fuel duty. The remaining three components of the Government’s programme are geared towards helping the economy to recover and grow within the framework of fiscal discipline.
The second component of this programme is monetary policy. The Bank of England has maintained a record low level of bank rate and has engaged in significant quantitative easing to stimulate nominal demand. This quantitative easing is estimated by the Bank of England itself to have had a positive impact in terms of reduced gilt yields, higher asset prices and a 1.5% to 2% rise in GDP. Last summer the Government and the Bank of England launched the Funding for Lending scheme, which aims to increase lending to businesses and households by reducing bank funding costs.
The third component involves reforms to our financial system. Many noble Lords present today will have seen the Financial Services Bill receive Royal Assent a few weeks ago. This legislation will strengthen the financial regulatory structure and establish a new system of focused financial services regulators. In addition, the forthcoming Banking Reform Bill will deliver structural measures to reform the banking system and promote stability and competition, including the complex issue of separating retail and investment banking functions. Our aim is to retain a vibrant finance sector, but one structured to avoid the systemic instability that caused the recent crisis.
I will concentrate my remaining remarks on the fourth and final component. That involves a comprehensive package of structural reforms aimed at rebalancing and strengthening the economy for the future, including an ambitious agenda of infrastructure investment. This is at the heart of my new responsibilities in government. These supply-side reforms will help British business compete in the global marketplace and will make Britain an even more attractive place to do business. The result will be to draw valuable foreign investment to the UK and drive our competitiveness forward.
Imperative to creating an attractive business environment is the tax landscape. The Government have cut the rate of corporation tax from 28% in 2010 to 21% from April 2014. This is the lowest rate in the G7—significantly lower than in France, Germany and the USA—and will act as a spur for job creation on these shores. Other tax reforms to encourage investment include increasing the annual investment allowance, which will enable firms to invest in new plants and machinery, while increased support through research and development tax credits and legislation for a patent box will give real financial incentives for innovation and creativity. In addition, £600 million has been allocated to the research councils and other projects to drive innovation and science.
Of course, while we want to promote a competitive tax environment for businesses, we must also ensure that multinational companies are paying the right amount of tax. This cannot be done in isolation; therefore we are working closely with the EU and the G20 to improve international tax transparency and identify gaps in the international tax standards.
For small businesses to grow, access to finance is essential. I have already mentioned the Funding for Lending Scheme, which facilitates more bank lending. We have also set up the Business Finance Partnership to improve non-bank lending channels, the Green Investment Bank to accelerate private sector investment in the green economy, and the business bank to bring together all the existing lending schemes under one roof. These are part of a whole array of incentives put in place to support entrepreneurs and small business.
To rebalance our economy, it is also crucial to develop our export markets aggressively and to support those companies with overseas opportunities. Up to £1.5 billion of loans will be made available through direct lending for the purchase of UK exports. In addition, the UKTI programme budget will be increased by £70 million per year, a measure that will help us to deliver services to more SME exporters and will refocus UKTI activities on the highest value opportunities and the key emerging markets. We are reinforcing the success that has recently led to our becoming Germany's chief trading partner and in 2012 setting a record for car manufacturing exports. Rebalancing our economy requires that we support growth in every corner of the UK. In line with the recommendations of my noble friend Lord Heseltine, we will be devolving more spending to local areas.
We are continuing our root and branch reform of the burdensome and costly planning system. We have already cut more than 1,000 pages of planning policy down to just 50. Under our better regulation agenda, we continue to cut red tape in many areas to protect business and society from unnecessary bureaucracy.
Developing our workforce through training and skills is critical to our current and future competitive success. Consequently, we have made sure that our higher education system gives better information about graduate employment prospects, and we have overseen nearly 1 million young people starting apprenticeships.
The final area that I want to address this afternoon, and a key priority, is our economic infrastructure. By modernising the UK’s transport, energy, water, waste and digital networks, we will create the right foundation on which businesses can compete and grow efficiently.
Total investment in infrastructure has increased from an average of £29 billion a year between 2005 and 2010, to £33 billion a year between 2010 and 2012. At the Autumn Statement, the Chancellor unveiled a further £5.5 billion of investment including £1.5 billion for our road network. This switch to capital expenditure was financed by reductions in current spending, consistent with our commitment to fiscal discipline.
My focus is on developing and delivering our national infrastructure plan. As I see it we need to do five things. First, we must get the right projects built that match our sector-by-sector strategy and ensure that these projects are mutually supportive. For example, the conception and delivery of our road and rail networks must be integrated.
Secondly—and I am really familiar with this—we need to build projects on time and on budget. This means that projects must be properly scoped, structured and resourced and rigorously overseen and managed. My Olympic experience over the past seven years has given me clear ideas about what is possible and about how to forge that critical collaboration between the public and private sectors.
Thirdly, we have to make sure that we deliver projects at the lowest possible cost. We are targeting savings of 15% against the current pipeline.
Fourthly, we must maximise the flow of private finance to avoid burdening the public purse, while still considering affordability in the long term for consumers. This may involve new government-sponsored programmes such as the up to £40 billion of infrastructure guarantees —the scheme that supports the Northern Line extension which has unlocked the huge development around Battersea Power Station or the recently re-launched PFI initiative; PF2 as it is now called. Alternatively, it requires us to ensure that the policy environment we create allows for sizeable private investment, which is the challenge that we are currently addressing in the energy sector, where a significant amount of this investment needs to take place.
In addition, the pension infrastructure platform has been established to consolidate the efforts of UK pension funds investing in infrastructure projects. The fifth and final point in this infrastructure plan is that we are conducting an infrastructure delivery review within Whitehall because we need to ensure we have the appropriate scale and range of skills in the Civil Service to deliver these major infrastructure projects.
To sum up, the UK is dealing with the consequences of the most severe economic crisis in our recent history. This is a global phenomenon and our room for manoeuvre is constrained. But, despite this challenging backdrop, I know that we can deliver growth. Our policies to stem the initial deficit crisis that would have otherwise devastated our country have worked. The Government have made great strides in getting spending under control, but that is a continuing battle. We have put in place a series of reforms, all within a disciplined fiscal framework, that will support our economy's recovery and contribute to the rebuilding of the confidence necessary to fuel growth. The financial markets are performing strongly because our strategy is working.
Our focus is now on the effective delivery of these reforms so that they are fully realised in the real economy. I emphasise delivery. My Olympic experience tells me that having a good plan is important, but all that matters in the end is the impact of what you actually deliver on the ground. What this country showed this past summer is that we have the people, the know-how, the creativity, the teamwork and the determination to deliver in a way that can take the world's breath away.
I accepted the invitation of my right honourable friend the Chancellor to join this Government to see whether we could apply some Olympic and Paralympic inspiration to our broader economy. I look forward with relish to that challenge and welcome your advice and support.
My Lords, it is a particular pleasure for me to welcome the noble Lord, Lord Deighton, to the Dispatch Box and to congratulate him on his appointment to the Treasury team. It is always a special delight to see one’s former pupils do so well. When I marked his economic essays back in the mid-1970s, I never imagined—nor do I suppose did he—that we would find ourselves in this situation. I think it is appropriate to report that his essays were typically examples of excellent economic analysis, and I hope and believe that he will put those skills to good use in re-educating the Treasury. It certainly needs it.
Today, he has been placed in an extraordinarily difficult position. It is rather difficult to defend the Government’s growth record when there is none—growth, that is. The latest figures are truly awful, with no growth at all in 2012, despite the heroic efforts of the noble Lord, Lord Deighton, and his team at the Olympics.
Taking the longer view, since the Government’s spending review in the fourth quarter of 2010, when it might be said that coalition policies replaced Labour policies, the UK economy has grown by just 0.4% over that entire period. Over the same period, the USA has grown by 4.2%, Germany by 3.6% and France by 1.5%. Accordingly, while the UK economy is now still over 3% below its pre-crisis peak, the USA is 2.5% above and Germany is 2% above.
The question before us today is: in the situation in which we find ourselves, what is to be done? How can we get Britain back on to a secure growth path? Should we follow the recommendations of the Chancellor of the Exchequer that we stick with austerity, accepting his declaration that “Britain is on the right path”? Let us call this plan A. Or should we adopt plan B, following the advice of Adam Posen, former member of the Monetary Policy Committee, and particularly of Olivier Blanchard, chief economist of the IMF, who said last week,
“if things look bad at the beginning of 2013—which they do—then there should be a reassessment of fiscal policy … We think that slower fiscal consolidation in some form may well be appropriate”.
That is the IMF view on Britain.
The answer to our question, “What do we do?”—the fundamental issue in this debate—rests on a consideration of three issues. First, how did the Government get into this mess and are they tackling it in the best way? Secondly, what is necessary to restore the UK economy to growth? Thirdly, what is there to prevent us following this path of restoration?
So, first, how did we get into this mess? As the noble Lord said, the Government inherited the terrible economic consequences of the international financial crisis—everyone agrees about that. These consequences were and are particularly severe for a country as dependent on financial services as we are. But then the crucial question is: in the past two and a half years, have the coalition’s policies made things better or worse?
The previous Chancellor, my right honourable friend Alistair Darling, had been battling the crisis since 2008, and by the spring of 2010 he had succeeded in beginning to turn things around. Recovery was under way at a similar rate to that in the US and Germany, so that George Osborne inherited an economy growing at an annual rate in excess of 2%. He killed that recovery stone dead. He destroyed business confidence by preaching the coalition dogma of austerity and by foolish and demeaning comparisons with the plight of Greece and other eurozone countries without their own currency and exchange rate; he slashed public investment so that in the past three years the Government have spent £12.8 billion less in capital investment than Alistair Darling had planned; and, with savage glee, the coalition set about shrinking the state and impoverishing the poor. This is all justified in terms of the Tory manifesto commitment to eliminate the deficit in one Parliament—a commitment, by the way, which will not be kept, for the deficit is not falling.
Recent figures published by the Office for National Statistics show that public sector net borrowing in the first nine months of fiscal 2012-13 was about £107 billion compared with £99 billion in the same period last year—a rise of 7.3%. I repeat: the deficit is over 7% up on the equivalent period last year. So the answer to the first question is that the coalition inherited a very difficult but recovering economic situation and proceeded to make it much, much worse.
What should be done to turn the position around again and to set the economy on a new growth path or, to put the question in a more practical fashion, how can businesses be encouraged to invest? Firms invest because they are reasonably confident in the future demand for their products. Without demand, if they are shackled by a framework of fiscal discipline, as referred to by the noble Lord, it does not matter how much cheap money there is, as no one will invest. That is why monetary policy is not working. Interest rates can go no lower and the first positive announcement effect of quantitative easing has now worn off. Quantitative easing may be inflating asset prices and ruining pension funds but cheap money will not encourage investment when the Government are intent on slowing the growth of demand.
However, if there is a prospect of growing demand then, to invest, firms need finance and access to the very best skills and technologies to secure markets in a competitive world. Demand is the key to making all the measures that the noble Lord referred to as his fourth pillar work.
That is why my right honourable friend Ed Balls has proposed a temporary cut in VAT to boost family incomes, together with the boost to demand and capacity that would result from bringing forward infrastructure investment, including building thousands of affordable homes. Enhanced demand prospects would then be underpinned by a British investment bank to boost lending to small businesses, complementing fundamental regulatory reform of the banks. To sustain confidence there should be a compulsory jobs guarantee for the long-term unemployed and, further up the employment chain, investment in skills and in transformational science and technology. That is plan B.
Why cannot this be done? “Because”, cry the coalition, “it’s a policy for borrowing more when debt is the problem”, and we heard a similar statement from the noble Lord today. But hang on, at the moment, as we all know to our cost, spending cuts are resulting in a growing deficit. How can this be happening? The IMF has provided the answer and it, at least, has acknowledged its earlier mistaken commitment to austerity.
The answer lies in the relationship between changes in spending and the overall performance of the economy. This is measured by what, in the economics jargon that the noble Lord and I used to discuss, is called the multiplier. If a cut in government spending of, say, £2 billion results, for whatever reason, in a fall of output of just £1 billion, then the multiplier is a half. That is what the IMF believed the multiplier to be back in 2009. The share of taxes in output is about 40%, so if government spending is cut by £2 billion and output falls by £1 billion, tax revenues fall by about £400 million. The fall in tax revenues is much less than the cut in spending, and so the deficit falls by £1.6 billion. That was the policy that the Government thought they were implementing.
However, what if the multiplier happens to be bigger than that? Supposing that it is as large as 2.5, the cut in spending results in a fall in tax revenue of exactly the same amount. You can go on cutting taxes until the cows come home and there will be no change in the deficit at all. All that will happen is that the economy will be driven further and further into the mire of depression.
In acknowledging a previous error, the IMF estimated the multiplier to be a bit less than two, so a £2 billion cut in government spending will drive the economy down by about £4 billion and, when cuts in revenue are taken into account, the deficit will fall by only £400 million. Throw in a depressed European Union and you arrive at our current miserable situation: ever bigger cuts and a growing deficit. But the good news is that what goes down can also go up. What if government spending is increased by £2 billion and the multiplier, optimistically, is 2.5? The economy then grows by £5 billion and the increase in tax revenues pays for the extra spending; there is no extra borrowing at all. I repeat: increased spending results in no extra net borrowing. Plan B is a strategy to cut government spending. And there is more. The government cuts—particularly those disastrous cuts in government investment—not only reduce output now by cutting demand; as the OBR has pointed out, they also cut future output by reducing the real productive capacity of the economy.
My Lords, I am a simple lad. Can the noble Lord tell me what the difference is between his party’s policy and that of the government Front Bench? He gave the figure of £2 billion as the extra borrowing and the extra expenditure that would be required. In quantitative terms, what separates the Opposition from the Government? How much money are we talking about?
The figure of £2 billion was purely for illustrative purposes; it was a simple number. I thought that people could do the arithmetic in their heads. The issue is directly whether we continue with a policy of cutting government expenditure or whether we are committed to an increase in expenditure, particularly on infrastructure. Your Lordships will note that the noble Lord did not say that his infrastructure plans fell outside the tight vice of austerity policy. That vice must be unwound. That is what I am talking about today.
As I was saying, there is more to it than that. As the OBR has pointed out, government cuts in investment cut future output by reducing the real productive capacity of the economy. This long-term loss of output brings with it a long-term reduction in tax revenue, in addition to the medium-term effect that I have just outlined. In other words, the Government are not just failing to cut the deficit now; they are increasing deficits for years to come. By contrast, if the IMF is right, the measures proposed by my right honourable friend will be substantially self-financing in the medium term and will stimulate tax revenues in excess of spending in the longer term. This point has also been argued by the Harvard professor and former US Treasury Secretary, Larry Summers.
Before we sign up to plan B, however, another issue must be confronted. Today, any Government’s finances can be devastated by a loss of confidence in the international bond markets. The noble Lord referred to this. After a particularly violent example of sovereign bond market hysteria, James Carville, the political adviser to President Clinton, famously remarked,
“I used to think if there was reincarnation, I wanted to come back as the President or the Pope … But now I want to come back as the bond market. You can intimidate everybody”.
Well, the bond market certainly seems to have intimidated the coalition. Whenever its destructive policies are challenged, it argues that unless the vice on Britain is tightened, the financial markets will lose confidence, interest rates will rise and any prospect of recovery will be destroyed.
There are three things wrong with that argument. First, no one is suggesting a spending spree. Plan B is a cautious expansion to begin the task of building the foundations for growth. Secondly, it is austerity that is now undermining market confidence. All three of the main credit rating agencies—Standard & Poor’s, Moody’s and Fitch—have put Britain on “negative outlook”, citing concerns over the weak recovery and the public finances.
Thirdly, let us consider the experience of the United States, which lost its AAA rating last year. Would you rather have our AAA rating and zero growth or the lower US rating and 3% growth in the last quarter? I know which I would prefer.
The noble Lord, Lord Deighton, outlined in his speech a number of desirable measures that the Government can take to help to build productive capacity—the structural measures to which he devoted the majority of his speech. However, the Chancellor’s commitment to cutting demand and shrinking the state—less Bullingdon Club, more Tea Party—is eliminating any significant impact of those worthy measures. The Government’s attempt to stimulate growth has been a failure; the Government’s attempt to cut the deficit is a failure; and, if informed predictions are correct, even the Government’s attempts to preserve Britain’s AAA rating in the markets will prove to be a failure.
The coalition is now responsible for the longest slump in the British economy in the past century—longer than the great depression—yet last week George Osborne said something truly chilling. He said:
“We can either run away from these problems or we can confront them and I am determined to confront them”.
What is it in the word “failure” that George Osborne does not understand? For the sake of this country’s economy, it is time for him to run away. He is the living embodiment of plan A and must accept responsibility for its failure. Perhaps I may suggest that an excellent replacement as Chancellor would be my former pupil, the noble Lord, Lord Deighton.
My Lords, I join the noble Lord, Lord Eatwell, in welcoming the noble Lord, Lord Deighton, to the Treasury Bench; I hope that he enjoyed the experience of renewed contact with the supervision of his former teacher.
When George Osborne took over the controls at the Treasury, he decided that fiscal policy would be governed not by the state of the real economy but by the state of the public finances, as measured by preset fiscal targets, particularly the rate of deficit reduction. Those targets were designed to reassure investors in government debt that the state was solvent and would remain so. Half-way through the life of this Parliament, we can say that the effects of that policy in terms of output and growth have been disastrous. Britain, like the eurozone, remains stuck in the slow lane. We did not grow at all last year, and we enter 2013 with a realistic prospect of a triple-dip recession. Despite our freedom to devalue and massive open-market operations by the central bank, British output is 3% lower than in 2008. The results of the fiscal targets are correspondingly dismal. A state with high debt where no growth has become the new normal will not retain the triple-A rating on its sovereign debt.
What has gone wrong? The central design failure is that the targets were set on the heroic assumption that the economy would recover despite the tightening of fiscal policy implied by the targets themselves. In a balance sheet recession, when the private sector is cutting spending to reduce its overindebtedness, that assumption was just wrong. Put simply, we cannot all deleverage at once. To save more, you spend less, and if everyone does that, including the Government, the economy shrinks. That is lesson number one to which the noble Lord might respond.
George Osborne blames the failure of Britain to grow on the eurozone, but that argument is circular, as it is following exactly the same policy as we are. It is the Chancellor’s own policy which explains the stagnation of the British economy, not the eurozone.
Mad economists are emerging from the woodwork to say that George Osborne is not cutting deep or fast enough. For example, Andrew Lilico appeared on the “Today” programme this morning telling us that the reason that the deficit is not going down is that austerity has not started. Apparently we are in the middle of a Keynesian boom. We need more cutting. Cut benefits, cut the welfare state, cut government, cut everything that can possibly be cut—and behold, the private sector phoenix will rise from the ashes. These Einsteins of finance never explain how bigger cuts are supposed to produce recovery, or, indeed, even cut the deficit itself. It makes one despair of economics.
The Chancellor can claim that the unemployment figures are slightly lower than they were some months ago. How can this be when output has not grown and may even have fallen? There is a puzzle here, but it is not a large one. The reason is that today, with a more flexible labour market, a fall in output is not necessarily, or immediately, reflected in a fall in employment. It may simply lead to a movement of workers into lower-paid, part-time or intermittent jobs or work training schemes, none of which count towards recorded unemployment. This has certainly been happening. It also explains why the Government can claim success in increasing private sector employment faster than the public sector is shedding employment.
I have no doubt that if the Chancellor continues cutting as hard and fast as Mr Lilico wants, those of us left with decent jobs or incomes will be able to have as many drivers, gardeners, trainers, cleaners, nannies, domestic servants, chefs, butlers and waiters as we can possibly want, and, no doubt, at the equivalent of Victorian wage levels. In other words, back to the world of “Downton Abbey”. After two centuries of industrialisation, what a wonderful solution to the unemployment problem.
The obvious alternative to blind faith in fiscal targets is action to restore the economic trajectory that underpinned the targets in the first place. The international organisations are now saying this; the noble Lord, Lord Eatwell, has quoted Olivier Blanchard, who has just said that the Chancellor should “ease up” on fiscal austerity, which is as near as an international civil servant can come to saying that his policy is dead wrong. Even Boris Johnson says we should junk the word “austerity”.
In plain English, “easing up” on austerity means stimulating investment. Public capital spending is not included in the current deficit target, so the Government can restart the investment machine without breaching their own targets on current spending. That is the only way to get the deficit down, or to meet their targets.
In this context, I welcome the Government’s announcement that they have approved the second phase of High Speed 2. However, I have two questions. Why will it take so long? The first phase is scheduled to be completed in 13 years’ time, and the second phase in 2033. Two years ago I asked the noble Lord, Lord Adonis, who had just stepped down as Secretary of State for Transport, how long it would take to complete this project with any sense of urgency. He said that it would take about five years. He is in his place, and I hope that he does not tell me that I have remembered that wrong. As I have said before, if only we had a Lloyd George in charge of this programme, we would get some movement.
My second question is: how will it be funded? According to the Financial Times, the Government will have to,
“start raising private sector finance to part fund the £34bn project”.
Why? Here is an opportunity for the Government to take advantage of the spectacularly low cost of their own borrowing—why it is so low is the subject of another discussion—to finance the whole thing itself. It is a genuine capital investment, which will yield an identifiable rate of return. Perhaps the noble Lord would give us some indication of how the Government will finance this project. I hope that they will not repeat the disastrous PPP schemes which made such a mess of the London Underground and Channel Tunnel projects.
Will an investment strategy such as I have proposed not cause the public debt to increase? This is the crunch question. The Minister said in opening that it would not be possible to borrow our way out of our debt crisis. If indeed the project starts reasonably expeditiously, the debt will go up. There is no doubt that it will be higher in 2015 or 2017 than it would have been otherwise, but so will the capital stock and the economy itself, while the increased output can be taxed to finance the interest cost of the extra debt.
There are, of course, obvious risks. The risk of a pro-growth strategy is that borrowing more than initially planned may spook the bond markets and lead to a rise in borrowing costs. However, it is a much smaller risk than putting one’s faith in pre-set fiscal targets which produce a stalling economy, without any guarantee that this will actually deliver on the fiscal numbers. Which strategy does the Chancellor really think is more likely to keep our AAA rating with the credit markets?
If the growth-first strategy makes sense for Britain, it should make sense for Europe as well. This country was a pacesetter in adopting fiscal targets as a guide to policy after the financial crisis. Why not be the first mover in showing how to reset policy and help lead Europe out of self-defeating austerity?
My Lords, I join with other Members of the House in congratulating the noble Lord, Lord Deighton, on his maiden speech from the Front Bench. Like other noble Lords on this side, I am delighted to find that he is not entirely still under the spell of his former distinguished teacher.
Growth ought to be the natural state of an economy. Most economies tend to grow over time. Financial crises, bad harvests and various other factors can, of course, delay or obstruct that growth. But growth is the natural order over time, because human beings have a natural instinct to make two blades of grass grow where one grew before and a natural instinct to innovate. Growth, it is worth remembering, does not come from Governments; it comes from individuals.
What, then, should our reaction be to the figures which were released last week and showed a 0.3% drop in GDP in the final quarter? The figures can always be sliced in many different ways. One can portray them, as indeed the noble Lord, Lord Eatwell, did, as saying that four out of the last five quarters have been negative; that the economy was flat all last year; and that the economy is still below the 2008 peak. On the other hand, you can formulate them a slightly different way: the economy grew by 0.3% in the last six months; although the economy is below the peak of 2008, if you exclude North Sea oil production it is only a whisker below that peak, and North Sea oil has been in dramatic decline with interruptions to production. The fact that there has been no growth last year is the same as in France, while the 0.3% drop in GDP in the last quarter compares with a drop of 0.5% in Germany; and, collectively, the whole of the eurozone is currently in recession. What I draw from all that is that when the dust settles and this is all in the history books, I suspect we will find that almost all the countries in this part of the world had a broadly similar experience, whichever way one tends to look at the figures at any particular moment.
We heard a lot about the views of the IMF, but we have not actually had the views of the IMF; we have had the views of Mr Blanchard. Christine Lagarde, the director-general of the IMF, has been extremely supportive of the Government’s strategy and we will only officially hear the views of the IMF in May, when we hear the results of the article 4 consultation. The noble Lord, Lord Eatwell, talked a lot about the multiplier effects. Interestingly, there was a report in the press at the weekend that the IMF has concluded that the multiplier effects, both of austerity or of any deficit spending, are extremely slight in the case of the UK. No doubt we will hear more about that when the article 4 consultation takes place.
There is no doubt that the figures for the last quarter were extremely disappointing, but the idea that some extreme excess of austerity is holding back the British economy seems to me very much open to question. The Government have shown that they are prepared to be flexible in their deficit reduction programme. They have relaxed the programme twice and put back the date at which they expect, and are aiming for, a fall in the total debt-to-GDP ratio. As my noble friend Lord Forsyth said, the difference between the Government and the Opposition is much exaggerated by both sides for the purposes of both sides. I do not think that the noble Lord, Lord Eatwell, is right in saying that the capital expenditure planned under the last Government was higher than that of this Government; in fact, the cuts that Alistair Darling put forward were bigger than those of this Government, some of which have been reversed. Can the Minister comment on that precise point?
Despite the small differences between the planned reductions in expenditure, it is true that if you compare the outcome of expenditure with the original Darling plan for reductions in expenditure, the latter was much tighter and more austere than what the Government have implemented. If you compare our austerity programme to that in other EU countries, it is difficult to argue that these cuts are savage or that this fiscal consolidation is sudden and dramatic. At the beginning of this crisis we had a deficit to GDP of around 12%. That was almost exactly the same as Greece’s. I am sorry to say that today Greece has a considerably lower deficit than the UK’s. Italy, France, Ireland, Portugal, and Greece all have lower deficits than we do. These have not been caused by growth—a solution somehow magicked out of the air by the party opposite. That is not how they have reduced their deficits. They have done so by making more savage cuts and far severer fiscal consolidations than we have made.
With a debt-to-GDP ratio of around 70% to 80%, which is where it is expected to peak out, if we go on adding to that overall stock of debt at the rate of 12%, as it was when we started off, or 7% or 8%, because the annual deficit is the amount that we add to it each year, we would soon get to a situation in which a debt-to-GDP ratio would be 100%. As economists such as Reinhart and Rogoff have argued, that is the level at which the overall stock of debt becomes dangerous for the long-term growth of an economy. They would argue that that is why Japan has had such a bad time for such a long period. If deficits really solved long-term economic growth, Japan would not have been stranded in the situation in which it has been for such a long time.
If deficits of 7% to 8% per annum have left the country not growing, is it credible that one of 10% or 12% will suddenly cause the economy to leap into life? We hear about the multiplier effects, but never about what is going to happen when these so-called stimuli are withdrawn. Anyone who thinks that this would be the real world experience of deficits ought to read the diaries of Mr Morgenthau, President Roosevelt’s treasury secretary, who expressed his disillusionment with the deficits being run in America in the 1930s. He wrote that all the United States had to show for it was unemployment at much the same level and no increase in production. In the UK today we are running deficits that are considerably higher than those run by the Roosevelt administration.
No. President Roosevelt initiated back to work programmes—that is true—but the private sector, the economy, was not generating growth. If the noble Lord, who is a very eminent historian, wishes to doubt that, just let him read the Morganthau diaries, because they are full of deep disillusionment about the pointlessness of the programme that he himself was implementing and the effect that it was having on the growth of the economy.
I am not arguing that deficit financing can never be of use or play a part in taking up the slack in the economy when the private sector is unable to borrow, but we are in a position where both public and private finances are under pressure at the same time. It is a much favoured parlour game to decide what Keynes would have thought of doing in this scenario today. Of course, the House is very fortunate in having the eminent historian, the noble Lord, Lord Skidelsky, who knows more about this subject than anyone else, to tell us. Indeed, we also have the noble Lord, Lord Eatwell, a most distinguished Cambridge economist—a university that is profoundly affected today by the shadow of Maynard Keynes. I am sure that the noble Lord, Lord Eatwell, remembers Milton Friedman’s comment about Cambridge academics and their theories, which have applications within 25 miles of Cambridge University.
This recession is indeed different from a normal cyclical recession. It is, as the noble Lord, Lord Skidelsky, said, a balance sheet recession, but it is a recession that has followed a severe banking crisis. As economists such as Rogoff and Reinhart have shown, I think quite tellingly, such recessions tend to last much longer than normal, cyclical recessions, and are much deeper.
So what can be done to stimulate growth? I believe that there are things on the supply side that can do this—training; lifting and relaxing planning controls, as the Government have done; infrastructure spending, very much as the Minister outlined, although if infrastructure spending is to be financed by cuts in current spending, that will squeeze consumption further, which has been one of the problems of the economy, because inflation has not come down, and it has been inflation that has been squeezing consumption and living standards.
However, the real problem of the economy, I believe, is not fiscal policy but the lack of credit in the economy and the failure of the banking system still to make credit available. The risk is that the new businesses that drive innovation and produce the new products will be strangled because of the lack of credit. The Government have introduced the Funding for Lending scheme. It is too easy to say what the effects of that are, but if it has a good effect, maybe it ought to be expanded further. However, they have been piling regulation upon regulation on and demands for more capital from the banks, and that, in the last analysis, is incompatible with more lending and makes more lending more difficult and more expensive for the banks.
The Government have said that they want to see new entrants into the banking sector, which I think would be highly desirable, but I am not sure that that message has got through to all parts, particularly the lower parts, of the Financial Services Authority. I noticed that the chairman of Metro Bank said the other day that if he had known what was involved in starting a new bank in the UK, he is not sure that he would do it again or would have done it in the first place.
We await the arrival of Governor Carney, and there are great expectations of him, but he will not exactly be a man on a white horse, and I think it would be unfair to regard him as that. He has talked a lot already about central banks doing more to promote growth. I hope, however, that the Bank and the Government will be cautious about more quantitative easing. There is in this situation, even now when we do not have growth in the economy, a danger of creating more asset bubbles. We have seen the consequences of the “Greenspan put” in the past, where central bank action has been taken to keep the financial markets buoyant and the result has not been that we have avoided a crisis but that the crises have got successively worse. When I look at the level of the stock market, which of course can be interpreted favourably in one sense, I wonder whether it is reflecting the prospects for the economy or the consequences of quantitative easing.
The Opposition have inevitably been very critical and the Government inevitably are in a difficult situation. I think it was Boileau, the French writer, who once observed that those who come to tell the people they are not well governed will never lack a welcome. The only surprising thing is that those who are telling the people they are not well governed are those who were in charge five minutes ago and helped to create the situation we are in. It is not an easy situation and, most of all, I think what we need are what Tolstoy called those two grand old warriors—time and patience.
My Lords, I, too, would like to congratulate the Minister on his leading role in a brilliantly successful Olympic and Paralympic Games last summer. He is the living embodiment of the vital role the Government can play to promote growth in the short term and, thanks to the legacy infrastructure, in the long term too. His appointment provides welcome substance to the Government’s claim to wish to boost infrastructure investment but will the Government provide the means to do it? He and his partners at the ODA received £9.3 billion from the previous Government, a level of support that was maintained by the coalition. We must hope that he will be successful in persuading his new boss that the entire economy is badly in need of this kind of commitment to invest in infrastructure.
As we have heard from other noble Lords, the UK economy is profoundly stuck. Real GDP is more than 3% below the 2008 figure and a significant 15% below where it would have been if long-term growth trends had been maintained. This sustained underperformance can be expected to impact adversely on the underlying production capacity of the economy and our skill base. The corrosive effect on the social fabric is high and under-investment in education, housing and public services is all too evident. Unemployment is up from 5.2% to 7.8% despite the recent downward trend and more than 900,000 young people are unemployed with a similar number of the total workforce out of work for more than 12 months. Yet the Chancellor’s response to this grim state of affairs was to say in his Autumn Statement that,
“turning back now would be a disaster”.
Turning back from his failed and indeed nonsensical policy of “expansionary fiscal contraction” would have been a wise choice. Expansionary fiscal contraction works as an oxymoron but not as an economic policy. The belief that cutting the fiscal deficit would boost business and consumer confidence and lead to economic growth and that private sector investment would fill the gap left by the coalition’s austerity plan was and remains profoundly flawed. In 2010, the OBR predicted that business investment would grow in real terms by 8.1% in 2011 followed by average annual growth of 9.5% in the following four years. In reality, it grew by 2.9% in 2011, 3.8% in 2012 and is forecast to grow by 4.9% in 2013. Many of our larger companies hold high levels of cash on their balance sheets but uncertainty about the outlook for demand—a word that was curiously missing from the Minister’s remarks—is proving to be a deterrent to investment. This flawed approach was in part sustained by a naive belief in the sanctity of the UK’s credit rating as measured by discredited rating agencies. Markets are sophisticated enough to realise that without growth the deficit will continue to balloon leading to further austerity and further weakness in the economy—a spiral of doom. As Larry Summers has pointed out, we are facing not just a fiscal deficit, but also growth, jobs, investment and skills deficits.
If the Chancellor is to address these deficits, he must first address the UK’s dramatic lack of aggregate demand. This is not just the view of his opposite number, my honourable friend Ed Balls, whose analysis has, most gallingly for the Chancellor, proved to be all too correct, but is also the view of the IMF, the World Bank, the WTO and many other major economic institutions which have all warned that austerity was hurting growth and have urged economies—not just the UK—to embrace stimulus.
The Chancellor is, of course, a realist. He knows that he must alter course and boost growth. Over the past year, he has introduced a number of supply-side measures, many good, some less so, but taken together they are unlikely to have much impact in the near term. The Funding for Lending scheme is to be applauded. The 89 steps of the noble Lord, Lord Heseltine, to leave No Stone Unturned in pursuit of growth are most welcome and were warmly embraced by the Government. However, his principal recommendation to gather together all business funding in Whitehall and pass it to the regions appears, unsurprisingly, to have encountered some resistance at the centre. All these supply-side measures provide evidence of a quickening pace but no real determination to boost demand, which is essential if these measures are to achieve their purpose.
However, I detect a change in the economic weather. Surely the most significant step towards a more balanced policy is the appointment of Mark Carney—not on a white horse—as the next Governor of the Bank of England. The Chancellor was initially rebuffed in his quest to hire Mr Carney but, to his credit, he persevered, upped his offer and landed his man—a man with a record of openness to monetary policy innovation, who has advocated that central banks target both inflation and nominal growth and believes that monetary policy measures to help the economy grow are not exhausted. Last week in Davos he advocated an activist monetary policy with the immediate aim—indeed, priority—of ensuring that the economy reaches “escape velocity”. I take this to mean that growth in the economy reaches a sustainable level where increased tax receipts can take over from austerity as the principal driver of debt reduction—a virtuous cycle of growth replacing a vicious cycle of cuts and persistent recession.
Therefore, Mr Carney is part of the plan B that dare not speak its name. He may deploy a range of initiatives such as forward guidance targeting growth and expanding the supply of Bank reserves to purchase a range of long-term assets with the aim of increasing spending. However, monetary policy can, as Mr Carney himself has emphasised, only take us so far. Bold fiscal measures are needed to help the economy move forward. Mark Carney has shown that he is adept at taking full advantage in a sellers’ market. I expect that in his discussions with the Chancellor he has emphasised the limits of monetary policy, however innovative, and secured an acknowledgement from the Chancellor that a series of fiscal measures need to be introduced to create the demand the economy so badly needs. It is vital that the Chancellor and his new governor work closely together to develop a co-ordinated monetary and fiscal approach to reach “escape velocity”. For his part, the Chancellor must adopt the most effective fiscal initiatives to increase demand and promote investment, particularly in infrastructure.
Temporary fiscal measures which boost growth will make it more likely that the medium-term targets can be met and will, I believe, so long as the medium-term framework remains intact, be welcomed by financial markets which have become increasingly concerned about the depressive consequences of untrammelled austerity, as we have heard from other noble Lords. I would like to see the Chancellor introduce a UK version of the successful temporary payroll tax cut in the US and reduce employees’ NIC by 2p in each of the next two years. The cost, after taking account of the tax generated by the additional economic activity, will be around £5 billion a year.
This weekend, the Deputy Prime Minister acknowledged that the coalition made a mistake in cutting much of its capital spending. Now is the time to reinstate the capital spending on the school build programme and on social housing. If we are to tackle the growing investment deficit in infrastructure and in energy, estimated to be £350 billion and £175 billion over the next 30 years respectively by McKinsey Global Institute, the Government must take action. Offering loan guarantees is a welcome step but only if it is accompanied by measures, such as the introduction of road pricing on motorways, which can provide private investors with an adequate rate of return.
Funding infrastructure remains a challenge, despite the Government’s exhortations to the pension funds to invest. The Government could consider the introduction of tax-free infrastructure bonds for individuals, taking advantage of historically low long-term interest rates and providing hard-pressed savers, who have been badly penalised by low interest rates, with improved returns. Many infrastructure projects are, inevitably, medium-term or long-term in nature and so is their effect on demand. Boosting short-term demand could be achieved by a reduction in VAT on building works at domestic residences from 20% to, say, 5% over the next two years. This would encourage households to invest to improve their properties and utilise the currently under-employed pool of construction skills.
The Government have a vital role to play in promoting growth. The Chancellor made a bold move in appointing an activist and innovator as the Governor of the Bank of England. He now needs to display a similar appetite for activism and innovation by adopting bold measures to promote investment and growth.
My Lords, I also welcome the Minister and am pleased to see a fellow businessman on the government Front Bench. As a serving FTSE 100 chief executive, employing around 50,000 people, I declare a very real interest in this debate. For the past four years, the economy has felt like walking up the down escalator. You have to work very hard just to stand still, and with real effort you might just move ahead.
The Minister has found himself, as a businessman, in the middle of an intensely political debate with a very simple business solution. To characterise the debate so far, we have, on the right, the belief that any expenditure—capital or otherwise—merely adds to national debt and, as such, undermines the financial health of the Government. It increases debt because you cannot borrow your way out of a recession, particularly a debt-led one. On the other hand, you have the equally misguided belief that all the Government need to do is pull the demand lever, loosen the reins and become the spender of last resort, boosting the economy and lifting it by its boot straps. We are told such spending would be good no matter what it is on. The Government will be the investors of last resort.
If I was a diplomat, I would say that both sides are right. As I am a businessman, I must say that both sides are wrong for one very simple reason. What matters, and will make both arguments right, is not how much is spent but what the money is spent on —that is, the quality of the investment. It is extraordinary to me, when I hear the Government talking about investment plans or the Opposition talking about how much money they would inject into the economy, that they talk about the amount spent, not the return on that money. Ultimately, it is the return on the money that matters. If the Government can invest in infrastructure that provides them with a cash return in excess of the interest on the money borrowed to build that infrastructure, not only will that not increase the deficit, it will actually reduce it because it is a good investment.
There is, however, a word of warning for those who take courage from these words and think that capital investment is all we need. It depends on the type of capital investment. If taxpayers’ money is to be invested, it must be invested profitably. I hear the very good point about HS2 made by the noble Lord, Lord Skidelsky. There is a very simple reason why the investment is not being accelerated and that is because, although the cost-benefit analysis currently shows a profitable project, the returns to government are, over 60 years, about one-third of the total capital cost. As far as the Government are concerned, it is a loss-maker. For as long as the Government invest in loss-making assets, their finances will be undermined, wealth will be destroyed and the economy will be pulled back.
How are we to reconcile the very simple principle of profitable investment? I use the word “profitable” in a very special sense—a sense in which it is not often meant, particularly in another House in this great Palace. I do not mean “profitable” in the sense that it is likely to win votes; nor do I mean it in the sense that it will be socially beneficial, but in the sense that it will produce a cash return. Where are such investments to be found? History would say that Governments have not been particularly good at investing in truly profitable assets.
The answer lies in a little story that I should like to share with noble Lords. I recall from my time as a young retail apprentice at the age of 10, being taken out with my dad around the local village. Every Saturday morning at 9 o’clock there was a queue of between 10 and 15 people outside the baker’s shop. One day, rather foolishly, I said to my dad, “He must be a very clever baker to have that queue outside”. The answer came back: “No. That is a wasted opportunity. That is money that is not being made. That baker should be opening his doors half an hour earlier and he would make more money”. There is a clear lesson there. Where there is a queue, there is demand; and where there is demand, there is potential for profit.
If we want to find a queue in this country, we need to look no further than virtually every part of the road network at 8.30 am and 4.30 pm. Here we have a government monopoly—a business that only government can effectively invest in. It would produce, by my calculations, 10 pence of government revenue for every passenger mile travelled. Projects and roads could easily be built that would pay for themselves and therefore fulfil our criteria of truly profitable investments. They would not meet that terrible test of all government ventures: they are not politically popular. None the less, if you need any convincing of the economic potential tied up in our road network, do a little mental experiment—it is always fun. Imagine a London in which the M25, the M1 and the Westway were permanently closed. Imagine the havoc that that would wreak on our economy and very quickly you can see how much damage it would do. Now reverse that concept and ask yourself: why not build more great motorways? A flyover from Croydon to central London could get commuters into London in 12 minutes—that journey takes about an hour and a half today at the wrong time, if you are lucky. Such projects could easily be built and financed. It requires a level of focus and discipline that the Government simply do not have but the answers are there.
Not only are there measures by which the Government could invest profitably in the economy, there are other free ways that they could do so. Legislation is relatively free and it can do much to liberate demand. I take issue with the noble Lord, Lord Eatwell, when he said that there is no demand. As a retailer, I can tell him that there is an enormous amount of pent-up demand in the UK. In my company, we have identified 1 million square feet of trading premises that we would like to open, but this year we will open barely 250,000 square feet. That is not because we do not have the money. We are generating £250 million more cash than we can profitably invest in our business, after paying taxes and dividends. That £250 million cannot be invested because at least 700,000 square feet is tied up in a chronically slow planning system that has no sense of the time value of money. For example, it took us nine months to get planning permission for a stock room for a shop that we wanted to open in Surrey Heath. The opening of the whole shop was held up for that time. There was no sense of remorse. The attitude was, “If we make the decision tomorrow, next month or in nine months’ time, it really makes no difference. We will make the decision when we get to it. Wait your turn”.
This is amazingly debilitating but, above and beyond that, there is a more profound problem with our planning system. The essence of it is that the shape that our economy should take is determined from the top down, whereby decisions are based on what activities take place in which locations, through a system of zoning and restrictions on use that is, frankly, Soviet in its approach to economic development. I am used to it now, but it still surprised me two months ago when I went to see the chief planning officer of a big town. We were proposing to open a store that would have taken £15 million. The planning officer said, “No, I don’t want you to open it there; I want you to open it here, on the wrong side of town, next to the single-lane road that is always blocked”. That store would have taken around £4 million, rather than £15 million. That was bad news in itself, but the really bad news came when he told us that we would have to wait four years for that site to become available.
Our planning system replaces the initiative and intelligence of hundreds of thousands of entrepreneurs with the uncomprehending dead hand of a small number of extremely overworked planners. Since the time of Stalin, the world has lost faith in planned economies. We prefer free markets; we need to take that lesson to county hall. The pent-up demand held back by our planning system runs not into the hundreds of millions but into the tens of billions. The message is very clear: liberate pent-up demand rather than try to push, encourage and incentivise demand that will not happen of its own accord. If we really want to be brave in our economy, we should not just free up use of brownfield sites; we should take a small fraction of the 92% of this country that is greenfield. We should take the ugliest sites closest to London and turn them into beautiful new garden cities, because then those tens of billions will become even more tens of billions.
The potential is there; the Government do not need to spend a penny. It is in the hands of the planner’s pen—we can create wealth and stimulate growth in this country. The rules of effective government intervention are very simple indeed, and they come down to one simple, pleasing principle: follow the demand that is already there. We must liberate the demand that is pent-up within our economy and abandon the crowd-pleasing subsidies, pet projects and announcements that we have to endure every two or three weeks about some brand new stimulus for some small part of our economy. We must seize instead the big structural opportunities and liberate the private sector to invest where it wants to and the public sector to invest where it can make money, not just for the taxpayers but for the whole country.
My Lords, I am afraid to say—yet another businessman. It is getting rather dangerous. In many cases anniversaries mean little— just dates in the calendar—but sometimes they are useful moments to take stock. Tomorrow will be the thousandth day that this coalition Government have been in office and it is a good moment to take stock of the economy. I must therefore thank the noble Lord, Lord Deighton, for securing this debate. As one of his sponsors at his recent introduction, I feel that I bear a personal responsibility, because for him it is going to be very tough to defend this Government’s record.
Any way we look at it, the scorecard on this thousandth day is lamentable. Last week, as has been mentioned by several speakers, we received the GDP figures for the final quarter of 2012. As we all know, growth was minus 0.3%. We are heading for a triple-dip recession—unheard of in modern times. It is no wonder that the Prime Minister was anxious to distract attention with his speech on Europe. I know that the Government get tetchy when my right honourable friend the shadow Chancellor talks about flat-lining, but with only 0.4% growth over the past couple of years, what else can we say? Noble Lords should compare this with Germany, which has experienced growth of 3.6% over the same period, or better still, the United States, where the figure is 4.1%.
America is a very pertinent comparison. In many ways, the American economy and ours are parallel. Yet, while we wallow, the Americans are experiencing improving growth. There is no need to take my word for it. Noble Lords should look at the Dow Jones index, which is racing ahead. Indeed, the Nobel laureate Paul Krugman, in a notable column in the New York Times last week, totally debunked the deficit hawks in his own country. The United States did not pursue a policy of austerity, but instead chose stimulus through massive public investment while interest rates were kept at rock bottom. The result is that deficit and public spending as a share of GDP have started to decline of their own accord. Contrast this with George Osborne, who slashed public investment and raised taxes on families. In doing so, he has killed business confidence and growth and we know the result. The deficit has increased as a share of GDP and is up more than 7% on the equivalent period last year.
The facts in America, as they are in our own country, are that, when the financial crisis hit, the economy went into a tailspin, tax receipts fell and unemployment benefits rose. However, unlike us, the Americans held their nerve, re-invested and, as the economy recovers, the deficit as a share of GDP is falling. It is really easy economics to understand, so why does our Chancellor take a totally different position? If our economy were recovering, perhaps it would all have been worth the pain, but it is not. Everything is heading south. Indeed, in America, recent forecasts suggest that the federal deficit will be below 3% of GDP by 2015, a number that I am sure we, too, could live with.
So, where are we on the 999th day of this totally misguided policy? Our economy is static; our people are suffering; our businesses lack confidence; the banks are not lending; companies are sitting on piles of cash instead of investing; and our trade gap is widening. It is a total disaster, much of which could have been avoided were it not for the obsessions of the Chancellor of the Exchequer.
My Front Bench brief is SMEs, an acronym, by the way, that I loathe. Combining small businesses with medium-sized businesses shows how out of touch people are. Small and medium-sized businesses have very little in common, except for the fact that they are not large. But as everyone else uses this definition, I guess I will have to live with it. Interestingly, SMEs have held their own during this economic crisis. Employment figures have been pretty constant over the past five years and so too have export achievements. It has been large companies and the public sector that have shed their workforces. It should never be forgotten that SMEs contribute more than half of the UK’s GDP.
This sector should be promoted and helped and it is here that I have some of my greatest concerns. It is absolutely true that this Government have spawned a multitude of financial initiatives to help SMEs. At one point, it seemed like a monthly occurrence that one programme or another was being announced to a baffled world. Although the Government may feel that they are doing well, the fact is that, in the SME sector, the situation is dire. No matter what programmes are announced, very little financial assistance seems to be getting through to the sector.
Many believe that the commercial banks take a significant cut out of government programmes in order to boost their own balance sheets. It is all so complicated and so difficult to understand one programme from another. To me, it all smacks of insufficient thought. I believe that the Government are making a grave mistake in looking to the high street banks to deliver their programmes. The truth is that the banks have forgotten how to relate to the SME sector. Five years of saying no, of being sceptical, of consigning troubled companies to the intensive care unit, now means that saying yes is hard to do.
Last month, I had the opportunity to visit the German Sparkassen banks. I know noble Lords are probably familiar with the German system, but what a contrast. More than 40% of corporate debt in Germany is channelled through these local savings banks. What impressed me was the long-term commitment that these banks have to their business customers, often going back decades. They stand on the touchline cheering their customers on. What a contrast to banks in our country. How many small companies have even met their bank manager? How many loans are accepted or rejected solely based on an online application, with never a human being in sight? In Germany, when a company gets into trouble, it seldom comes as a surprise and, if a banker is close to his customer, he can make an assessment based on something more than a computer print-out. I know some people say that we have had enough banker bashing, but until I see banks offering a real helping hand to SMEs, I will continue to criticise.
I would like to end by referencing my own area of business passion and that is technology. As some noble Lords will know, my whole business career has been in IT services, an area that I really care about. The Prime Minister seems to be captivated by technology, particularly the new business hub at Tech City. I am always sceptical about this. I have seen too many politicians who somehow think that they have become tech-savvy just because they can use the on/off button on their BlackBerrys. It is a lot more than that. We are blessed in this country, especially in London, in having all the constituent parts that are able to feed the new tech revolution—not just in IT but in fashion, media, advertising, pop music, and so on. All these are now converging into a new and very exciting tech revolution, much of it powered by smartphones and tablet devices. Mobile computing is here to stay and is becoming as ubiquitous as the pen and pencil of yesteryear. In addition, we have been swept away in the use of technology. This country does more online shopping than is done in any other developed county.
I end my speech today by asking the Minister a question that matters to the sector that I really care about. The Minister has been given the brief to speed up and manage infrastructure projects. Finally, we have had an announcement on HS2 and HS3, the first and second stages, and no doubt a major announcement on new airports will be forthcoming—if those in government can stop fighting among themselves—although, for the life of me, I cannot understand why it has to wait so long. Of course I know the answer, but why do party politics always have to take precedence over the national requirement?
When the Labour Government left office, we were ready to unroll universal broadband to all households by the end of 2012, but the coalition Government failed to make-good this guarantee. As a result, 5 million people are still denied access to even the most basic broadband coverage. Millions of families and thousands of rural businesses are suffering as a result. We have to be right at the forefront in IT technology, but we cannot do it without superconnectivity. Can the Minister give your Lordships’ House assurances on this development?
My Lords, it is a pleasure to follow the noble Lord, Lord Mitchell. I just wonder whether he is a little overenthusiastic in his belief in the Government’s ability to pick winners, especially in the IT sector. As I recall, billions were lost in the health service and elsewhere through IT projects that were not properly sourced and not subject to the disciplines of the marketplace—projects that arise from people spending other people’s money. It is also a great pleasure to welcome the noble Lord, Lord Deighton, to the Front Bench.
I have been surprised that, so far in the debate, people have concentrated on the deficit rather than the debt. The noble Lord’s predecessor, the noble Lord, Lord Sassoon—whom we miss so much—was subject to regular questioning from me, asking why we continue to refer to reducing the deficit and not the debt, when, of course, the deficit is simply the rate at which the debt is increasing. I never got a satisfactory answer to that. Therefore I ask the noble Lord, in briefing himself into his department, to look at the ComRes ITV poll that was carried out just before Christmas—which may have got lost in the tinsel and bright lights of the Christmas period—where people were asked whether they thought that over the course of this Parliament the Government were going to increase the debt by £600 billion, reduce it by £600 billion, or leave it much as it is. Only 6% got the right answer, which is that the debt will increase by £600 billion. I regard that as a really serious problem, because if you are asking people in the country to make sacrifices and to realise that Governments face difficult choices, first you have to make them aware of the extent of the problem. I really do not think it helps for politicians—from whichever party—to shy away from explaining just how serious a problem we have.
The problem, in short, is that the state is growing and the economy is shrinking. The latest OECD figures show that state spending has now gone up to 49% of our GDP. That is an extraordinary amount. I used to define communist or socialist states as states where the Government spent 50% of the GDP. In the year 2000, when Gordon Brown was Chancellor of the Exchequer, the Government spent 37% of GDP. I am sorry that the noble Lord who said that it is ridiculous to talk about a massive Keynesian boom is not in his place, because I must point out that there has been an astronomical increase in the share of our GDP that is being spent by the Government. Out there in the country, real wages and living standards are falling. The first thing that we have to explain is that we have been living beyond our means. We have been spending about 10% more than we earn and we have been saving nothing. We need to save about 10%. Now 10 plus 10 is 20%, so to put that right, living standards are going to fall by 20% unless we can get growth. It should come as no surprise that this has come about.
The national debt is now 70% and rising. It rose by £15 billion last month alone. I know that we are all supposed to take the line that the Chancellor has cut the deficit by 25%, but the truth is that he met the target last year only by putting in Billy Bunter's postal order, which is the £3.5 billion that will come from the 4G spectrum sale—money that we do not have now and will come around only once—and by throwing in the proceeds from the interest on the bonds that have been purchased by the Bank of England printing money.
We are engaged in a completely new scheme of quantitative easing, which has been done on a stupendous scale. We are now relying on the interest on that money that we have created to say that we are closing the debt cycle. I am profoundly concerned by that. Every time I ask an economist or someone I respect about this, I find it very difficult to get the kind of reassurance to which the country is entitled.
On the Government's policy, if you ask a Minister what they think will happen to the growth in the economy in the next 12 months, they will say, “We are not responsible for that. We have an independent body called the OBR”. But the OBR has been consistently wrong in all its forecasts. My noble friend Lord Lamont said quite rightly that all forecasters are consistently wrong. But it is worrying to say the least that this independent body that Ministers now rely on has been so far off the mark.
The truth is that the Government are stuck in a Bermuda Triangle. We have low growth, which means that the Government cannot make cuts in spending, and we have high spending, which is preventing us from getting the growth that we need. People may have forgotten this, but much is due to the efforts that were made by my noble friends Lord Lamont and Lord Baker, my noble and learned friend Lord Howe and others in the 1980s in making supply-side reforms and changes to the trade union law; the changes to our labour market policies. That is why employment has not gone up in this dreadful recession. Workers are now able to make arrangements with their employers to be flexible in the teeth of economic adversity.
The Government have made some mistakes, and we should admit to those mistakes. The noble Lord, Lord Eatwell, sent me a note to say that he had to leave the Chamber so I know that he will read this in Hansard, but it was sheer bare-faced cheek for him to argue for capital expenditure, which is right, and against the Government’s capital expenditure cuts, when the mistake that the Government made was to implement Alistair Darling's cuts in capital expenditure but actually reduce what was planned by Alistair Darling. The point is well made. Capital spending is required and we need further supply-side changes.
My noble friend Lord Wolfson made the key point in this debate. You have to look at the return on the money, and, on the whole, Governments are not very good at picking winners. Therefore, to choose a well-known liberal's favourite phrase, if you leave the money in the pockets of the people to fructify, you will get far more growth and far more for your money than if it is decided by committees in Whitehall with one eye to the next election. An example of that is this high-speed train. The high-speed train is the ideal political project. It is absolutely fantastic. It enables a Government to say that they are spending a large amount on infrastructure. It has a visionary appeal about it. And, of course, the planning, the implementation and the execution are so far ahead, you do not have to spend a single penny on it. In doing so, it creates all kinds of difficulties for the local economy and the blighting of property and so on. I would rather see the money being spent now on improving our transport structure and looking, as my noble friend Lord Wolfson said, at issues like road pricing and others that will help to make the changes necessary to get our economy to grow.
Again and again we hear complaints from both sides of this House about the banks not lending money to small businesses. I want to ask my noble friend, who I know has a background in banking and will be turning a fresh eye to this matter: how are the banks supposed to lend money to small businesses when at the same time they are being asked to increase the amount of capital that they have in order to support the lending that they have got? How are the banks supposed to find the money to lend to new businesses when they are being asked at the same time not to foreclose on mortgages and to try and keep businesses going? How are the banks supposed to find the money when there are companies—many of them now—substantial public companies, zombie companies, that are simply kept alive by low interest rates and by the banks not wishing to consolidate the loans on their balance sheets.
Of course, we are very conscious of the banking crisis and the impact that it had on our economy, but are we now not in danger of fighting the last war? Should we not be adopting a counter-cyclical approach to the capital requirements on banks in order to solve the problem? Frankly, producing lots of government schemes is not the answer. Better to have banks making commercial decisions with the balance sheet flexibility to be able to lend to these small businesses. This was a point that my noble friend Lord Lamont touched upon in his excellent speech.
How are the banks supposed to operate when the regulators, as a regulatory requirement, are requiring them to take Government gilts? We all know what is going to happen to Government gilts as the interest rates go up and quantitative easing unwinds. What is going to happen then to the losses being made as a result?
The reason that we are becalmed as a country is because the tax burden has become unbearably high. I am not here making a plea on behalf of people who pay high marginal rates of tax. If you earn between £8,105 and £42,475, taking the income tax and the national insurance payments that you and your employer has to pay, it is no less than 40.25% of earnings. Is it any wonder that we see so many part-time jobs, not full-time jobs? The costs of labour are unbearably high because of the burden of taxation.
For those on the other side who say it is all about tax dodgers and finding rich people, the top 1% of taxpayers now provide 24% of all the income tax but only 10.8% of the income. That is why the tax burden is now hitting people on low incomes and hitting them hard.
Indeed, I had the pleasure of chairing the tax commission for the Chancellor while we were in opposition. I remember that we agreed that we needed lower, fairer, flatter, simpler taxes. What are we doing? According to the TaxPayers’ Alliance—an excellent body—we have created 299 separate tax increases and 119 reductions. Whatever happened to that great crusade to have a simpler, flatter, fairer tax system? I tell you this: if we do that, the revenues will go up and the deficit will go down.
I welcome the rise in thresholds. The Liberals claim the credit as their policy. I see my noble friend is nodding with enthusiasm. I refer him to the speeches made while we were on the Benches opposite by the noble Lord, Lord Saatchi. It was also one of our recommendations in the tax commission report in 2006. My cautious right honourable friend the Chancellor felt that our programme of tax changes, which would have amounted to £25 billion, was more than could possibly be afforded in a Parliament where borrowing now goes up by £15 billion every month.
On quantitative easing, I would like my noble friend to explain exactly how it will be unwound. The Bank of England made gains on the gilts which have been bought through this process of about £60 billion a year ago. What is the value today? What will happen when interest rates go up? How will that gap be closed?
My noble friend Lord Wolfson is a grand and successful retailer and I echo what he said about planning. Perhaps the House will allow me one indulgence. My eldest daughter has just started her own business and opened a shop on the King’s Road in the worst possible circumstances of recession. Kensington and Chelsea is a Tory council but it took eight weeks to give her planning permission to put her name above the door—eight weeks while she was unable to trade and while it charged her rates for the privilege of waiting on it to give planning permission. It should be utterly impossible to operate in this way in the difficult circumstances that we have in the marketplace now. We have heard from my noble friend Lord Wolfson of the experiences of big businesses. At least he will have some clever people in his department who will be able to take on the planners. If you are setting up your own business, there is only you. In all the speeches we make about deregulation and supply side reforms, let us get down to the detail that is preventing businesses expanding and growing.
I have said that the economy appears to be becalmed. If you are becalmed, you need a wind of change, and that will come from reducing costs to businesses and reducing costly regulation. I have some sympathy with what the noble Lord said about reducing the cost of national insurance. We should stop thinking of new schemes that make life more difficult for business, such as changing the rules on paternity leave or introducing 1% pension schemes. I read in today’s Times that all businesses are to be asked to produce information on the ethnicity of their employees when they want to be out there selling to customers and winning exports.
What is going on in this country when, since 2008, our currency has been depreciating and our exports have gone up by 1% while exports in Germany, France and Holland have gone up by 9%? What is going on? Why are we not more successful in our export efforts?
On energy costs, what are we thinking of? By adding to the cost of energy on business, all we are doing is importing carbon from China, and China is lending the money to enable us to run a deficit while our businesses are disadvantaged as a result.
I have been saying for the past 15 minutes that we need to create an environment in which our businesses can go out and sell and are encouraged to do so. I was not making a particular point about devaluation: I was saying that we are more competitive as a result of the falling value of the pound relative to other currencies.
To conclude, my advice to my noble friend is to say to his right honourable friend the Chancellor of the Exchequer that no U-turn is necessary but a touch on the tiller is required.
It is a pleasure to follow the keenly felt and eloquent speech of the noble Lord, Lord Forsyth. It was not the first in this excellent debate. As the noble Lord, Lord Barnett, has reminded me, I am not qualified to add to the powerfully expressed views of some of our leading economists during the course of the debate, with others still to come. However, I shall offer some perspectives from the front line of the real economy.
I am involved as a director in a number of leading businesses in Europe and the UK, as well as a promising internet start-up. I am also an adviser to one of Europe’s leading private equity houses; as a result, I am exposed to a great number of portfolio businesses, chiefly operating in the UK and Europe. Anyone who works in the ever more complex and competitive global economy, or anyone who has ever happened across the rusting industrial archaeology of the old Eastern bloc—I am sure this is common ground on all sides of the House—will testify that government cannot substitute for entrepreneurs or for genuine corporate expertise. The noble Lord, Lord Lawson, reminded us of that at the beginning of the debate.
What can Governments do to promote growth? First and foremost, as others have said, they can maintain a stable economy in which business can plan with confidence—something we have resoundingly failed to do in this last period of our history, as we all recognise, whatever the mix of reasons for that. Surely it is plain that the route back from the dire circumstances we find ourselves in, whether it is route A or route B, is a long one.
Secondly, from Governments, we need tough regulation of our financial institutions—and we are probably about to have it. They have let us down. We need that regulation to ensure that they manage risk responsibly, which they patently failed to do; that they lend sensibly; and that they do not hoard huge rafts of assets—which they are still doing—that they have neither the skill nor the means to develop and grow. That is undoubtedly one of many causes of the absence of growth in the real economy.
Thirdly, Governments need to ensure that the climate for investors is friendly and internationally competitive. In my experience, the incentive regime for business start-ups in the UK works well. But there is a particular failing in the capital markets that I do not understand, and which needs investigating. Investment in start-ups by business angels or small venture capital companies is thriving. As a result, early stage companies in the UK are prospering in large numbers at the moment, particularly in the new technology sector. However, UK capital to grow these successful young companies into major regional or global players appears mysteriously absent. There are many strange failures in our capital markets that we need to work harder to understand. With a lot of these younger companies, highly professional and acute US players fill the void and snap up our best companies before they can grow in a UK or European environment.
There is a further difficulty in attracting substantial global investment into the UK, which I do not think anybody has mentioned so far. Major investors are nervous still about the instability in the eurozone. I am exposed to many of these investors—the giant US pension funds, or sovereign funds in the Gulf—and they have trillions to put to work; there is no absence of funds in the wider world. Rightly or wrongly, they wrap up the UK into their concern. So it is in our interest as a country, though perhaps we cannot do very much about it, to help to accelerate the painfully slow process of resolving the eurozone crisis.
Fourthly, Governments can help to ensure that UK business has access to the right skills, as several noble Lords have mentioned. As we all know, we have some educational institutions of global renown, but we do not begin to produce all the skills that we need for the UK economy. In business meetings in the UK now, I regularly find that I am the only British citizen in the room.
We need to motor our economy to attract rare skills from abroad, but our immigration rules may begin to handicap us. President Hollande’s early actions, and the response of France’s business elite to them, remind us that talented individuals with rare skills in great demand globally are highly mindful of the overall tax regime when they decide where to settle.
As the noble Lord, Lord Mitchell, noted, Britain is currently the most advanced e-commerce environment in the world. However, we saw the lack of critical skills in areas of rapid development such as mobile and data mining. Without resorting to an entirely directive approach to designing resources within our education system, the departments for business and education need to be more alert and fleet-footed in spotting critical skill shortages and speedily encouraging and incentivising the relevant educational institutions in the UK to meet them.
I have left until last our area of greatest comparative weakness, which many noble Lords have already mentioned: the UK’s persistent failure to invest in infrastructure. As others have mentioned, I note that the Deputy Prime Minister acknowledged last week that it was a mistake to cut into the Government’s capital investment programme when the deficit reduction programme was first agreed. Mr Clegg may not be aware that we as a country have been here many times before. He should ask his officials to dig out the analysis conducted by the Cabinet Office Strategy Unit during my time at No. 10 on why we had by far the worst transport infrastructure in the developed world. I wholeheartedly support all that the noble Lord, Lord Wolfson, said about that, particularly the wonderful passion that he expressed about our impoverished road system. A large part of the reason for that chronic underinvestment over many decades—indeed, for the past 40 years, as the study identified—was that Governments of all persuasions had cut capital ahead of revenue expenditure when a downturn occurred. This is not just a recent occurrence.
At the time of that study, I concluded that the main root cause was the culture of the Treasury itself, understandably determined at such times of national reverse to rein back public spending. Officials aggressively target the easy wins first, and tomorrow’s capital spending tends to carry far less political pain than today’s welfare cut. Thus we continually fail to invest in infrastructure to modernise our economy and, as many have said, make it more productive.
Last Friday, I journeyed from Düsseldorf to Frankfurt Airport, a distance of about 120 miles. It took no time at all. I travelled by a high-speed train, which reached a top speed of 200 miles per hour. The train stopped, most conveniently for me, not in the city centre but at Frankfurt airport itself. Frankfurt airport has four runways. Heathrow—our lead airport—is not integrated into our main rail network. As we all know, it has only two runways, and, as we are all painfully aware, it is always—especially in winter—absolutely bursting at the seams.
This month, the Chinese Government announced plans to build a seven-runway airport for Beijing. In the last decade, China has built a fraction under 4,000 miles of high-speed rail track. The UK currently has a paltry 68 miles of high-speed rail track, and we are already experiencing an almighty struggle to build only another 330 miles of track by 2033, in 20 years’ time. Why will it take 20 years’ time to build that absolutely critical national arterial train line?
We need a considered 20-year plan—we needed it long ago, but we are where we are—for modernising our road, rail and air infrastructure in the UK, and for incentivising the private sector to fund it. We also need a sense of urgency. Beyond that, we need a full-bodied integrated and strategic approach within Government to UK national productivity, encompassing skills and incentives as well as planning and infrastructure.
The Minister has resoundingly proved his ability to focus on a big challenge and to deliver it emphatically. Will he offer any hope that in the midst of this intensive and prolonged economic crisis, we can at long last begin a process of focusing systematically on UK productivity?
My Lords, I join in warmly welcoming my noble friend Lord Deighton to his Front Bench responsibilities. I listened with great interest to his opening speech. I must confess, however, that I am reluctant to join in this great argument between austerity versus Keynesian inflation, of which we have heard both sides in this debate. That is not least because both sides are in fact based on a wildly exaggerated view of the degree to which our economy in this country can be steered, manipulated, adjusted, rebalanced or anything else magically, by purely domestic economic actions, somehow to create growth and pull it out of a hat. In fact, I go further and say that the naivety of some of our economic gurus who pronounce on these matters never ceases to amaze me. It really is laughable to see the so-called expert analysts twisting themselves in knots, to coin a phrase, over whether GDP grew in the last quarter by 0.1% or shrank by 0.3% or more, when GDP itself is a questionable and highly inaccurate measure of economic activity and progress. I believe that it was invented only in the 1930s and it has in any case now been distorted beyond recognition.
Now the experts tell us that infrastructure spending can somehow be switched on overnight to “kick-start”—that is the phrase—the economy. I do not know what system they believe they are dealing with. They have obviously never worked in the construction industry or they would know that the rather ugly phrase “shovel-ready” is a meaningless term and that the best infrastructure projects take a minimum of two years to prepare—the best projects, that is—and to wind their way through all the permissions and controls that we still have in this country, even after certain reforms. I note what was said earlier by my noble friend Lord Forsyth, who reminded us that the HS2 scheme announced yesterday will take 13 years to get to its first phase. I am not at all sure where I shall be in 13 years’ time, or indeed where even the economy should be. I am not sure that these issues fit into our present concerns at all.
The reality is different. It is that our fate lies very largely overseas and it is our sagging exports, especially to the eurozone, that have hurt us. That is the problem now. That is what the December economic review from the Office for National Statistics emphasises, quite rightly, and the Office for Budget Responsibility also makes that crystal clear. I am sorry that my noble friend does not think they are always right but on this they are pretty clear indeed.
In the past six years, goods exports to the poor old European Union have fallen by 5%, while goods exports to non-EU countries have risen by 65%. Since 2009—that is, just over three years ago—our total exports of goods and services to non-EU countries have risen by 35% and to the EU by 6%. At this moment, 60% of all our overseas earnings come from outside the European Union. That trend will probably accelerate and will certainly continue.
On the domestic front, I am not against more major projects here at home to repair and upgrade our dilapidated infrastructure. On the contrary, we need a bit of the imagination shown by the Victorians and some of what has been called the lunatic optimism of the Brunels—father and son—and other great Victorians. I believe that some of these projects could be financed without spooking the international bond markets.
I see that a certain Professor Pissarides, a Nobel prizewinner, has been telling a Davos audience that good energy and transport projects with a strong payback in return, both in narrow and wider economic terms, can be financed with minimum impact on the public finances if sensible accounting practices are used. Some of us have been touting this idea around for at least the past two years. It is all brilliantly laid out in American Gridlock, a book by one of America’s best and most original economists, H Woody Brock, in which he speaks of the need for a completely new capital stock of higher quality. There is nothing very new about these ideas; it merely seems as though economists over here, on this side of the Atlantic, are at last waking up to them. They ought to be ideas that, frankly, transcend party politics and are not turned into a political football.
Still another domestic key to recovery is going for a policy of lower energy and power prices instead of the higher ones that we have at present. Again, my noble friend Lord Forsyth emphasised that. Energy costs here are stupidly high. We may not be able to match America’s low gas and electricity prices at present, for obvious reasons, but anyone who doubts that the value of cheap and abundant power supplies is key should look at the industries now flowing back into America—especially petrochemicals—and the hundreds of thousands of new jobs being generated. Britain is in fact superbly placed over the next decade for gas supplies, with both our own substantial resources and half the world trying to sell us more of both piped and frozen gas. It is a true buyer’s market and we should be making the most of it, rather than the least.
As I say, the real recovery is in export markets—whatever we do at home—and in our ability to be quick-witted enough, agile enough and far-sighted, innovative and creative enough to adjust to totally new world conditions in a network world. If we are looking for the queues that my noble friend Lord Wolfson, in his remarkable speech, said had to be there for demand, then that is where the queues should be forming for us to perform much better in the export market.
While we must of course remain constructive Europeans in a reformed and redirected European Union—we will be debating that matter in this House on Thursday—and while we remain close but not subservient allies of the United States, which is still a colossal market for us, the central priority must be the repositioning of the UK as a global network power. We must build with the utmost vigour on the networks available, of which the Commonwealth is certainly one, and other strong networks and bilateral links outside the Atlantic area.
We have to recognise that the global energy pattern has undergone two successive and enormous revolutions —the first towards lower carbon and greener energy forms on both the supply and demand sides, and the second towards shale gas and oil, and the associated new extractive technologies—entirely altering the global map of energy resources and the corresponding political significance, influence and market power of many countries, many of them with Commonwealth connections, to which we must have access, as well as being sources of savings and wealth to invest back in this country, as the noble Lord, Lord Birt, referred to just now.
In this new landscape we must deploy with confidence and without apology our exceptional British qualities, historic associations, English-language strengths and worldwide cultural influence to our direct advantage in rising Asia, Africa and Latin America. In doing so, we need to use the full range of soft power techniques, new and conventional, to protect and promote British interests, and to promote the British global reputation and powers of influence and attraction for our goods and services.
The potential is colossal. I wonder how many people know, for example, that the Association of Commonwealth Universities, based in London, connects up to 530 universities across this planet in an amazing network of common interests, services and exchanges. That sort of thing is as important for our prosperity as many a conventional trade mission. It also opens up, though exchange between individuals and scholars, avenues for enterprise for small and medium-sized businesses. I should certainly like to see the chambers of trade play a far bigger role in the international export scene, as my noble friend Lord Heseltine recommends, and I declare an interest as the economic adviser to the British Chambers of Commerce.
There is a hopeful message to be distilled out of this. It is not a disaster at all. The message is particularly and almost uniquely favourable to Britain. The essence of it is that we now live not in a world of power blocks and superpowers but in a world of networks. That is what the microchip and the worldwide communications revolution have brought about, and many economists do not yet seem to understand that. It is not just a question of Asia and the southern world awakening, with their vast cities of the future and their cultures and values—which incidentally are often superior to ours when it comes to family cohesion and education—and generally pulling ahead of us in technology. That is the story of the past 10 years and it is almost over. Those schoolbooks that we had about capital flowing from the West to the developing world are history. The wealth, as well as the research and technological skills, are now flowing the other way. The debt-laden western powers are now turning east and south for desperately needed investment and capital from the massive savings and the huge sovereign wealth funds of Asia. We have so much to learn and gain from India and China; it is not the other way round. They certainly do not want lectures from us.
This time round we also have to get even closer alongside not just the BRICS—Brazil, Russia, India, China and South Africa—but the great new energy powers, such as Australia and Canada, two of Britain’s most stalwart friends. They are in the lead, followed by a whole raft of new players such as Mozambique, Tanzania and Kenya in east Africa, and in west Africa Ghana, Sierra Leone and the Nigerian giant, which will soon be overtaking South Africa if it can manage its internal politics. There are also South Korea, where I have just been, with its once direct alliance with the United Kingdom, Turkey, Mexico, Vietnam and other new players and new markets alongside which we must move very tightly.
For Britain, once we have navigated through the present dangerous seas, it means that our luck will be in—unless we screw it up. We will be sitting plum in the midst of the world’s best network. We will be, even more than we are now, a safe haven for the world’s investors. We will be increasingly well placed energy-wise, as I have described. That is the good story of where we are going as a nation—the purposeful narrative, worth telling, even while the cold wind of recession keeps gusting around us. It means that in the totally transformed world ahead, Britain is promisingly placed to become the networking nation par excellence.
Europe of course remains our region, where we have to step forward and work out how to lead, for once, in the reform of the European Union that half the continent is waiting and longing for, and we shall debate this next Thursday. America obviously remains our close ally and a gigantic market but the evolving Commonwealth network is our family and lucky legacy. We should stake our hopes and future prosperity on the connections and gateways to the great new markets that it offers. That is where the demand will come from. Whatever measures we take here at home, that is the source from which our return to full and sustained economic performance will come.
My Lords, like other noble Lords, I welcome and congratulate the noble Lord, Lord Deighton. His predecessor, the noble Lord, Lord Sassoon, and I had many lively exchanges, and I am happy to tell him that although we disagreed most of the time, the noble Lord, Lord Sassoon, and I are now very good friends and we will share a meal shortly.
I agreed with the noble Lord, Lord Deighton, when he said that getting spending under control is difficult. I spent five difficult years as Chief Secretary to the Treasury, and I know from my stress at that time how difficult those years were, so I sympathise with him very much indeed and hope he has a bit of success in that job.
I recognise all that the Government are trying to do on infrastructure and in other areas. Unfortunately they have not yet had great success, according to the levels of GDP and growth that we have seen in the past two and a half years. That said, the best hope is that in the forthcoming year we will not have a recession. I am not one of those who like to think that a triple- dip recession is going to happen. It may well amend the figures, as we have seen already.
Despite everything, borrowing has increased, as my noble friend Lord Eatwell pointed out. Despite all the austerity that we have seen over the past nearly three years, borrowing has increased and little or no growth has come of it. I am bound to ask, with all the Minister has told us and all that we have heard, what the Government are doing to get growth going. That is what everybody wants to hear now, not next year, not at the end of 20 or 30 years when we see HS2 going—I may not be around at the time.
Blaming the EU, the eurozone, the world, the snow and everything else does not help us. There are two obvious reasons. The first is the deficit reduction plan. It was inevitably bound to result, as my noble friend Lord Eatwell explained so clearly, in what we have. Infrastructure has been promised. Many Governments, not only my own but many others since, have failed to achieve it. The present Government are doing their best, and I understand that the noble Lord is now the Minister for Infrastructure, so I hope his plans will succeed, but when will they succeed?
We are told that much money has been put into infrastructure. One of the Minister’s first Written Answers to me told me about the £5.5 billion that the Chancellor had promised for infrastructure plans. It is worth quoting what he said. Unfortunately he has already learnt from Treasury officials, because I asked,
“how much of the £5.5 billion … has been spent”—
to date. His answer is worth repeating:
“The majority of the £5.5 billion of additional capital committed … was allocated”—
note “allocated” not “spent”—
“for 2013-14 and 2014-15. £70 million was allocated”—[Official Report, 22/01/13; col. WA189.]—
not spent—this year. That is what it is. When I asked about the spending, he said that he does not hold data about spending. Perhaps he will have a word with his officials and look more closely at the Answers he is given.
As a number of noble Lords have said in this debate, we have not yet seen the expenditure. That £5.5 billion was inside the deficit reduction plan. It is not extra. We have not had any extra. We have not even had the £5.5 billion yet, and I doubt that we are going to get it before 2015, certainly not if HS2 is an example.
I shall not repeat everything that has been said, because my noble friend Lord Eatwell said very concisely and well what is wrong with the whole situation. It is no use blaming anybody. I am not blaming the Government particularly. We should not listen to the chief economist of the IMF too closely. Perhaps we should listen to somebody else in the IMF who arrived fairly recently: the new lady in charge. The fact is that the chief economist of the IMF has told us what the Government should now be doing. The Governor of the Bank of England has even had some new ideas about new supply side measures, and on infrastructure we have even heard that the Deputy Prime Minister did not realise what the Government were doing for the past two and a half years. They did not exactly get on with the job of dealing with infrastructure or, indeed, anything else.
Why we do not have money being spent can be summed up by that Answer I have just quoted. It is not being spent, and that is the problem. There is no use talking about why we do not have growth when the money is not being spent today. I know that developing major infrastructure plans is difficult, and it is as much the previous Government’s fault as anybody else’s, but the fact is that we are where we are now, and this Government have unfortunately not been spending money on infrastructure now. With all the good intentions in the world, it has all been allocated, not spent.
The other fine schemes that we have heard of are very good. The Funding for Lending scheme is a very good scheme, but again it is not being taken up to the degree required now for the obvious reason, which has been said, that there is not enough demand to force people to want to borrow. They are being told not to borrow. They should not borrow too much, and they are not willing to borrow. I wish all companies were like those that the noble Lord, Lord Wolfson, was speaking about. His company is highly successful. If every other company in the country was as successful as Next, we would be in a much better position than the one we are in today. Unfortunately, they are not, and they are not willing to borrow, whether guaranteed or not guaranteed. The Funding for Lending scheme is a very good scheme, and I hope it will eventually be hugely successful, but for the moment it is not. Others have been mentioned.
I have always had a great deal of respect for the noble Lord, Lord Heseltine. He did a great deal of work and produced a huge book. The Government support his plan, but he has said that even if all the bids that he advocates are in by this coming April, it will be 2015 before those schemes get off the ground, and I very much doubt whether those bids will be in by April this year. Unfortunately his schemes, although fine on paper, like everything else will not achieve what we require.
What are the other hopes for the economy? One “hope” is Mark Carney, the new Governor of the Bank of England. He said recently that he wants to see his target changed to nominal GDP. Some people do not appreciate that that does not mean dropping inflation but combining it with inflation. My noble friend Lord Peston and I tabled an amendment to the Financial Services Bill, which the noble Lord, Lord Newby, rejected, to delete the three little words in the Bank of England Act: “subject to that”. If the amendment had been accepted, the new Governor of the Bank of England would have had his powers immediately, but that was rejected.
Indeed, the noble Lord, Lord Newby, told us the other day that the Chancellor has rejected the new governor’s proposals, although he did not put it as bluntly as that. He said that they are not changing the target. If I may put it this way, they are typical Treasury words—as the noble Lord, Lord Deighton, is already learning—that do not answer the question. Have they dropped Mark Carney’s ideas? He did not say that they had not dropped them, just that they were keeping the same target. So we are stuck with it. My hope for Mr Carney is that he will ignore the target and just do it. The Chancellor cannot sack him because he is now the best in the world, as the Prime Minister has told us. He is unsackable, so my advice to Mr Carney, if he ever hears or reads it, is to ignore the target and just get on with the job of co-operating with the Chancellor and helping him to achieve what we all want to see—growth in the economy. As I said, that in no way means abandoning the idea of keeping inflation under control.
With or without the agreement of the Chancellor, I hope that the co-operation on monetary and fiscal policy that has been referred to will be achieved. I hope so, but I am not terribly hopeful. We are told that what the Government are doing now is because they cannot borrow any more, and that if the previous Government had not borrowed so much they would not be in this difficulty. In 2007-08 the previous Government themselves inherited a global financial catastrophe. It was not made in Downing Street. If the then Government had not borrowed, the present Government would have borrowed not only a huge debt but a recession as well—yet another recession. They saved that. The previous Government did at least leave them growth. That growth has gone and the debt is still there, so the inheritance is not the reason for a deficit reduction plan. Austerity is clearly not an answer. If nobody else can see it, I hope that Mark Carney can and will help the Chancellor to see it as well. The question remains for the Chancellor: what is he going to do about growth now? Is he going to spend any money? He has told us that he will not, that he cannot borrow any more.
In 2010, we were told that the Budget deficit reduction would be brought into balance in five years. The latest figure I have seen is from the Office for Budget Responsibility, which I am bound to say is not the greatest forecaster in the country on any list. The last I saw it was fifth out of 10. It is not my favourite forecaster, but it is the Chancellor’s favourite forecaster, and he said the annual Budget deficit will be down to 1.6% of GDP not in 2015 but in 2018. This was before the latest set of figures that we have seen, so if we are lucky it will be 2020 or beyond. I hope that long before then the Chancellor will be changed. We might even have one in the House of Lords, now that we can discuss these matters, so my noble friend could take over.
We have had lower growth for too long and we need to increase it. I hope, and it is only a hope, that the Chancellor, nearer to 2015, will see that he cannot go into another election with high borrowing and no growth and will do something to resist that policy and change it himself, if he is not changed.
My Lords, it is a pleasure to follow the noble Lord, Lord Barnett, who has often been a distinguished participant in these economic debates, even though I certainly disagree with what seemed to be the central thrust of his argument today, as so often in the past. Like other noble friends, I welcome my noble friend Lord Deighton to the Front Bench and wish him all success. I thought his opening speech was crisp and lucid with a number of very good fours to the boundary.
Before I go further I should like to declare my interests as per the register, with particular reference to Marsh & McLennan Companies Inc, which has a subsidiary by the name of Mercer. Mercer is heavily involved in pensions and I hope to say a word about pensions in the course of my remarks. However, I have had no input from Mercer over this speech and indeed, it does not know that I am making it, which may cause it some concern.
My first point is that the whole debate of austerity versus growth is completely facile and futile. It is totally misguided. The distinction is spurious because austerity is fundamentally a growth policy. It is at the core of our economic management. Unless we reduce the deficit and tackle the debt, confidence will fall, interest rates will rise and the crisis that we have inherited and are emerging from will return.
Like my noble friend Lord Howell, I will not enter into the sterile argument on which the Opposition seem to be salivating about one quarter’s provisional figures on the deficit. For the past year we have been flat-lining—the figures add up to zero. They may be adjusted more favourably once the fourth quarter is studied further. However, it is perfectly normal, after a serious recession, that there is an early bounce back and then a period of flat-lining or even a further fall. It has gone on longer in this case because we inherited a bigger crisis. Our banks are constipated. The continuing euro crisis all last year affected both confidence and our markets. In passing, oil accounted for 0.2% of the deficit in the fourth quarter because production has been substantially lowered, mainly as a result of maintenance programmes which are now being completed. Therefore we may feel a compensating bounce back in the next and subsequent quarters.
I think that GDP is really only one measure of performance and not a particularly reliable one. Here I again agree with my noble friend Lord Howell. However, it is one on which there are grounds for cautious optimism. Some City forecasts expect growth of 1% this year, rising possibly to 1.5% towards the end of the year. That is slower than the United States but faster and higher than the eurozone. Employment, not much mentioned from the Benches opposite today, already gives grounds to support that theory. Indeed, even between September and November, in the fourth quarter, there was an increase of 113,000 jobs. Another indicator, the savings ratio, is now around 7.5% which is higher than at any time since 1997, so the private sector seems to support a tight fiscal policy, although ironically that may in fact slow growth a bit when coming from the private sector. However, with real disposable incomes up by more than 2%, there is now the beginning of empowerment of the housing sector and the private sector generally. The Funding for Lending scheme is widely supported by the banking sector. It is helping to reduce banks’ funding costs and in the past two or three months there has generally been a sharp rise in credit availability, not least with £50 billion worth of guarantees for infrastructure projects.
Standing firm on our deficit reduction targets is absolutely vital but as progress is made—it is already being made with the deficit down from more than 11% to less than 8%—gradually some leeway will emerge and gradually new policies will be developed. That is as it should be. It does not undermine plan A. It simply builds on the progress that plan A will be delivering. I particularly welcome the way in which my right honourable friend the Chancellor has advanced his policies in reducing corporation tax. At long last we are becoming competitive there and I think that will reap dramatic and relatively early benefits to us —the Laffer curve will kick in. There has been a massive rise in the tax threshold for the low-paid, taking 24 million people out of tax. That is a very valuable growth policy because the money released back into the private sector recycles very quickly.
The focus by many commentators on our austerity programme is actually somewhat misplaced. There is a view among commentators, including those of the IMF, that the impact of tax rises and spending cuts, necessary for other obvious reasons, does not impose a major drag on growth. Other factors do come into play. I believe that lack of credit and liquidity are very serious ones. They are the real problem. Banks, to a unique degree in the United Kingdom, were massively overleveraged and underregulated for the first decade of this century. That was the distinguishing feature of the United Kingdom’s crisis. As they struggle to retrench, their lending is paralysed. They have also neutralised any benefit that quantitative easing might have delivered because they hoard the resources that it has delivered to them instead of getting them out into the economy.
The World Economic Forum competitiveness table shows the United Kingdom climbing to eighth position from the 13th that it occupied under the previous Government. However, overall productivity has still not recovered fully from the decline of those years. In part, I think this is caused by the chilling effect of banks not feeling able to force the issue on their huge portfolios of exposed loans because to crystallise them would severely affect their own balance sheets, as my noble friend Lord Forsyth said. Therefore, those loans are stuck in damaged and unproductive companies instead of being directed to new, more viable growth opportunities. Lack of credit is still a huge brake on growth.
There is another serious problem that many companies face. Quantitative easing has driven down yields on gilts which company pension schemes are obliged to hold in substantial quantities. As a result, the Pension Insurance Corporation tells us that since quantitative easing began British companies have had to pump an extra £150 billion into their pension schemes, denying themselves the use of that money and, incidentally, denying the Treasury some £30 billion in lost taxes.
My noble friend spoke of the need for structural change to rebalance our economy and revive the manufacturing sector. I welcome that very much and have a suggestion to make in the field of pensions. I was glad to hear my right honourable friend the Chancellor say in the Autumn Statement that the Government are determined to ensure that defined pensions regulation does not act as a brake on investment and growth. That is a very welcome chink of light but I would like to hear what action is contemplated and when it may happen. I hope that, in winding up, my noble friend may be able to enlighten me.
While quantitative easing is one factor, and a significant one—I hope it will not be resumed—I believe that at the root of the problem was the stealth tax of 1997 that withdrew tax credits from pension schemes, estimated then at around £5 billion per annum. Just as sustained deficits lead to accumulating debt, this revenue raid has by now deprived the trustees of such schemes of some £100 billion of capital. Further imposts have resulted from the levies to the Pension Protection Fund and the introduction of more demanding projected solvency requirements in 2004. Pensions regulators have often obliged trustees against their better judgment to forgo equities in favour of bonds. This toxic cocktail was completed by the credit crunch recession, the lengthening of life expectancy and, as I have mentioned, the impact of quantitative easing on gilt yields, with all the implications for the discount factor in calculating future liabilities.
Most of the burden of meeting the funding demands has fallen on employers dealing with a legacy of departed former employees. If and when interest rates rise, part of those deficits will bounce back. However, at present, many companies, mainly SMEs in manufacturing, are being starved of working capital and the ability to invest by the overhanging shadow of inherited liabilities to their pension schemes. It is no wonder that so many defined benefit schemes have been closed to new entrants. With the dramatic decline in the manufacturing sector in past years, many firms have contracted and have often diversified into specialist sectors with smaller workforces. They have closed their pension schemes but still have the bloated burden of the past and face regulation and enforcement powers that are volatile, onerous and sometimes very damaging.
I do not have time to elaborate more fully on this problem or to list some of the possible measures needed to mitigate this blight, but blight it is. I hope that the point has registered with my noble friend, and I am sure that it has. I am sure that he is already well aware of it and of the fact that things can be done. I hope at least that he may be able to assure the House that relief is at hand.
I am most grateful to my noble friend for giving way. I wonder whether I might tempt him on this very important point concerning how quantitative easing has artificially lowered gilt yields, which are used to calculate the liabilities, and therefore businesses are having to contribute money. Would a simple change not be to take the yields on corporate bonds as the measure instead of gilt yields?
My noble friend is absolutely right. That is one of the possible solutions and I hope that it is being considered. Indeed, there are others as well. This blight engulfs companies large and small, damaging—even destroying—their balance sheets. However, the SMEs that form the core and future of our manufacturing industry are the least able to cope with it. Their working capital is diverted, new investment is forgone, innovation and new technology are unaffordable, productivity suffers, credit worthiness is damaged, jobs go and companies subside.
In my past ministerial career, I have always sought to attract inward investment to this country, which is still very important indeed for the future. However, to focus effort and resources on that, while failing at the same time to bring justified and much needed succour to our home-grown existing companies, is surely most unwise. Therefore, I welcome the chink of light that the Chancellor has given us. I hope that the door will be flung open wide and the light will shine more brightly very soon. To relieve the problem would be to reawaken an engine of growth.
My Lords, I am grateful to the noble Lord, Lord Lang, for mentioning the pensions issue which is a gathering storm for this country as private sector pensions reel under the present problems. Those problems are complicated for all the reasons that he gave and are intensified by the economic crisis.
Like others, I welcome the noble Lord, Lord Deighton, to his new hot seat. I hope that he enjoys it and that he proves to be as good a student as he was all those years ago in Cambridge. There are many good tutors around the Chamber.
I think we all recognise the difficulty of the situation that we are in. We all agree with the noble Lord, Lord Heseltine, that this is the worst crisis that this country has faced in modern times. I happen to be in the camp—unsurprisingly, perhaps—which believes that austerity leads to more austerity. While we are discussing economic history, I think that President Roosevelt has a better record than President Hoover when confronted with the problems of the time. I think that the chorus of calls for change and greater expansion, which are growing much more widely than on these Benches, are now reaching into the Government. I hope that they will be heeded quickly.
However, my main purpose is to address some of the longer-term problems of the UK economy which have contributed to our being in the mess that we are in. It is very important that when we get through the present problems we do not just slump back to a situation of business as usual. This country is not a basket case—I agree with Boris Johnson on that note of cheer—but it has some long-standing weaknesses which need addressing and which we have been able to put on one side at different times of our recent history. The weaknesses are well known and I will not labour them but the shrinkage of the manufacturing sector has not been fully compensated by the rise in the services sector, with the consequence of a widening balance of payments.
The noble Lord, Lord Forsyth, referred to the record of Mrs Thatcher’s Government but we should remember the costs of some of those changes on the supply side in terms of the action that was taken against trade unions. About 3 million jobs were lost in the manufacturing sector. A heavy price was paid for that in some of the old industrial areas and some of the political ramifications are still very much reverberating. Both the noble Lords, Lord Lang and Lord Forsyth, were on the front lines of the battle in Scotland. That battle still goes on, albeit in a different form. Social discord was very high and the costs of all that were borne to some extent—quite a large extent—by the fact that the North Sea oil revenues were flowing and the Exchequer was benefiting greatly from that.
We still have the problem of the shrinkage of the manufacturing sector. We have been consumers and borrowers rather than savers and investors. Too few of our companies think long term and we have a relatively low spend on innovation. Indeed, at present, investment in new machinery appears to be at a lower level than in Austria, Turkey or Mexico. R&D figures are better: the UK is fourth in the EU, but efforts are disproportionately concentrated on defence and pharmaceuticals.
Low productivity levels were referred to by the noble Lord, Lord Lang, and others as reflecting inadequate skills and low capital investment. Industrial relations are still poor in some places and communication at work also leaves a lot to be desired. We must face the fact that a high proportion of our economy—the commanding heights in some sectors—is in foreign ownership. This raises the question of why there are relatively few British entrepreneurs able or willing to take on some of these sectors. We also know that we have a systemic tendency for rewards for top executives to outstrip performance and those of other employees. This inequality can have a downward effect on growth and this is important for this debate, as well as for equality. We have a concentration on traditional markets. As the noble Lord, Lord Howell, said, we have an improving presence in China, India and Latin America but it is still relatively weak compared to our major European competitors. Behind it all, we have the imbalances in our economy between the relatively prosperous south-east and eastern regions and the rest of the UK.
So what can we do about this? We know it is very complicated but there are some glaring weaknesses that the complexities should not stop us from addressing. First, can we learn some lessons from Germany and put an obligation on employers, widely accepted there, to train, not just young people but others as well? Can we not use the public procurement process to encourage all contractors to reach the high standards of training achieved when contracts were awarded for the Olympics, in the human relations side of which huge project the noble Lord, Lord Deighton, was so successfully involved? Furthermore, we know that many in this House would favour deregulation of the labour market and we heard the Prime Minister talk about that in his Bloomberg speech just last week. Why is it that the other economies around the North Sea, if I can call them that, all have regulated labour markets? They did not follow the deregulation, easy hire-and-fire, route of the English-speaking world: collective bargaining is still strong at sectorial level, as are extensive information and consultation arrangements and worker representation in boardrooms. This style of corporate governance has greatly assisted the development of long-termism, a more equal spread of rewards and good economic and export performance.
We also need to look at management culture and education. The UK often boasts of its world-leading business schools and universities but they often seem to be a transmission belt to put people into the financial services sector. How can they be more like staff colleges for a new North Sea economy and impregnate the other areas of industry and services? The noble Lord, Lord Lang, also referred to taxation. At present, the tax system favours borrowing over savings, debt over equity, capital gains over income and tax breaks for the wealthy rather than help for the poorest. Those emphases need to be changed. Can we restore a requirement in major takeovers to examine the social implications of bids and make takeovers a little harder? Perhaps we could re-examine the scope for the state to take golden shares in key UK companies while we still have some of these left. Every time we devalue, as we are doing now, British companies become cheaper for people in stronger currency zones.
The national investment bank, an idea espoused by the noble Lord, Lord Skidelsky, is clearly a way of trying to produce a more patient and readily available source of capital for research, innovation and SMEs. I would also like to see, as proposed in the report of the noble Lord, Lord Heseltine, regional policy restored and those regions that are particularly hard hit, because they are dependent on the public sector, given some help with new dynamism and entrepreneurial flair which needs to be extended beyond the capital and its favoured environs. I do not expect answers to these questions today, though I am sure we will continue to debate them. I have one particular question: are the Government likely to respond to the report of the noble Lord, Lord Heseltine, No Stone Unturned in Pursuit of Growth? That report got a good reception in the House and it is important that, with all the differences on display in this debate, we find things we can unite around. Many of the proposals in the report are very attractive to very many of us.
My Lords, I remember coming to this country as a boy in the 1970s, when my father was posted here as the Indian Army liaison officer with the British Army, and seeing a country on its knees. Just a quarter of a century before that, this country had the largest empire that the planet has ever known but, at that time, the world had written off Britain as a has- been. When I came back to England as a 19 year-old student in the early 1980s, Britain was the sick man of Europe.
I welcome the Minister and congratulate him on his amazing leadership in the Olympics. He has an impressive track record—to use a pun—of delivery, which is what this debate is about. If you fast-forward to today from the 1970s and 1980s, we are a country which is possibly entering a triple dip recession. Yet this country has shown, over the past three decades, that it can completely reform its economy and that, despite all these problems, we are one of the 10 largest economies in the world. With no empire we are still a very wealthy country with so much going for us. So what are we doing wrong? We cannot blame everything on the global situation or Europe. We seem to have come to a binary way of looking at the world: in or out of Europe, austerity or spending, tax cuts or tax rises. If only the world was so simple. As the noble Lord, Lord Forsyth, said, we know that public expenditure of 50% of GDP is not only unaffordable but not right. We also know that the coalition Government’s tough talk of austerity seems to mean that we cut everything, including higher education and defence, no matter how vital some of these areas are, as the noble Lord, Lord Skidelsky, said. Just look at what is happening, unpredicted, in North Africa now. How short-sighted are our defence cuts, particularly in regard to troop numbers, now that we are intervening in Mali?
We know that, even with the Government’s tough talk, expenditure is going up not down. As the noble Lord, Lord Forsyth, said, debt is going up, not down. We have heard throughout this debate that austerity may have actually worsened our chances of recovery. At the very least, it has sent out a very negative signal and sapped the confidence of our consumers and our businesses. The only thing this tough-talking austerity has achieved is maintained our triple-A credit rating, but it seems that we might be on the cusp of losing that, too. It is ironic that our current global financial crisis was caused by the lowest prolonged level of interest rates we had known. I am talking about interest rates of 5%. We have now had three years of interest rates 10 times lower at 0.5% and that is what is propping up our economy. What will happen when those interest rates increase?
The Government have, to be fair, tried a great many measures: quantitative easing, injecting liquidity, fixing the regulatory and supervisory banks and putting more power in the hands of the Bank of England. That is terrific. The Government are doing absolutely the right thing on schools and welfare. However, the Government need to be fair and firm and they need to go further in some of these areas. Our welfare bill, including pensions, is over £200 billion a year. There is still a benefits trap and it pays not to work. A trial of a scheme which requires compulsory community service for jobseekers has been successful. Could the Minister confirm that this will be rolled out nationwide? I remember an event organised by the noble Lord, Lord Forsyth, at which I spoke to the former Australian Prime Minister, John Howard, about Australia’s very successful welfare-to-work scheme. He explained that he thought it was going to be very unpopular but it proved to be very popular, including with the jobseekers themselves. That is not austerity—that is the wrong word. It is about being firm and fair, and that would be in the best interests of this country because work pays and it is good to work. Of course, if you genuinely cannot work, the safety net should be there to assist those who genuinely need it.
How do we therefore get this economy into growth? The appointment of the incoming Governor of the Bank of England, Mark Carney, sends a very positive signal—the appointment, for the first time in history, of someone who is not British shows what an open country and economy we are. It is going to bring in fresh thinking. For example, he has suggested that apart from inflation targeting we should have GDP growth targeting. Does the Minister agree?
To get the economy growing, not only do we have to cut wasteful, unfair public expenditure but we need to change the mindset and attitude from that of an entitlement culture to an aspirational culture. To generate growth, we need to be competitive. We have a situation in this country in which our taxes, overall, are far too high. Time after time, we have seen that reducing taxes not only increases investment in the form of entrepreneurship and foreign investment but creates employment. Increasing taxes, on the other hand, stifles the economy, jobs and consumers. As the noble Lord, Lord Forsyth, said, just today it has been revealed that this Government have implemented almost 300 tax rises. These increases are harming business. In my industry, the brewing industry, the beer duty escalator has contributed to killing our pubs—the heart of our communities. Our alcohol duties in this country are up to six times higher than in some of our colleague European countries.
As a proud manufacturer in this country, I know the huge potential that manufacturing has to spur the growth in our economy. Manufacturing creates jobs, not only through the people who work in the factories but through the supply chains and the service sector. We face an uphill battle in terms of balance of trade. Manufacturing is key to increasing our exports. My business has exported to more than 40 countries. The noble Lord, Lord Howell, said that the potential for exporting is enormous. At last the Government have woken up to the need to rebalance our economy in favour of manufacturing, but we need to go further. We need an industrial policy that targets a specific level of manufacturing as a percentage of GDP. Does the Minister agree?
It is good that the Government are reducing corporation tax to 21%, but are we being bold enough? What about Ireland reducing it to 12.5% and sticking to it, with all the problems that that country has gone through? Employers’ national insurance is one of the most unfair taxes. We should be offering a break to SMEs that create jobs. We should not be taxing the creation of employment but celebrating and incentivising it. We need to support SMEs, as the noble Lord, Lord Mitchell, said, particularly in raising finance. I have said it before and I will keep saying it: despite all the government schemes intended to encourage SMEs, they are not working. Finance is still very difficult to raise for all businesses, particularly SMEs, as the noble Lord, Lord Lamont, stressed.
We need to do much more to encourage our businesses to engage with emerging markets. I am the founding chair of the UK India Business Council. I have seen what UK Trade and Investment does and I applaud its efforts, but we need to do much more, particularly to correct the negative image of our economy created through the rhetoric of austerity that continues. It is spoiling a lot of the work that UKTI is trying to do.
One of the most important elements of recovery will be the creation of new businesses. If we invest in entrepreneurship, we could create those extra 1 million jobs that we are looking for, with tens of thousands of new businesses—small businesses. They have to employ just a handful of people and one can create a million jobs. Entrepreneurship needs to be celebrated and embraced. Businesses and the whole of Britain needs continually to understand and appreciate, as my noble friend Lord Jones constantly says, that it is businesses that create the jobs that pay the taxes that create the growth in our economy. We need policies to encourage optimism among our entrepreneurs, rather than gloomy rhetoric about cuts and tax rises.
One of the reasons that the United States consistently bounces back, year after year, is that it invests much more than we do in research and development. The Minister outlined some measures that the Government are taking to encourage it, but we need to do much more, not only in university research but in helping the private sector. Can the Minister really say that the Government are doing their best on this? Our higher education sector is the best in the world, along with that of the United States, despite our sector being underfunded proportionately by up to three times when compared with America. Just imagine how much more we could achieve if we had the same proportionate level of funding that the Americans put into higher education and research and development.
This has become a bit of a Cambridge University debate, with the noble Lord, Lord Deighton, and his supervisor, as well as the noble Lord, Lord Eatwell, followed by the noble Lord, Lord Wolfson, who was treasurer of the Cambridge Union when I was its vice-president. It goes on. He spoke about the quality of investments. We all know that infrastructure investment must happen, but it has to happen fast. HS2 is going to take 20 years. Is that some sort of joke—a high-speed network being delivered at slow speed? It baffles us all over here. What about airports? What is happening about that strategy? That needs to be implemented fast. These large infrastructure projects are desperately needed for our competitiveness.
The mindset of the Government needs to change and, in the words of our inimitable Mayor of London, Boris Johnson, this Government should “junk talk of austerity”. We need to do that because the Government have to be seen to be firm and fair, and positive and aspirational in their outlook. They need to make the cuts required in areas such as welfare, but they also need to show that we want to be more competitive in cutting taxes. We need to look outwards and work much more with developing nations, such as the BRICS countries. We must be confident that despite all our problems, we have so much going for us. Just imagine what we could achieve. On 26 January, it was India’s Republic Day. I am reminded of the words of Mahatma Ghandi, who said:
“Your beliefs become your thoughts. Your thoughts become your words. Your words become your actions. Your actions become your habits. Your habits become your values. Your values become your destiny”.
The time has come to change our beliefs and to believe in ourselves with confidence. Then we can determine our destiny.
My Lords, it is always a pleasure to follow the noble Lord, Lord Bilimoria, because he always introduces an element of optimism in what has otherwise been a pretty grim debate. Like everyone who has spoken, I congratulate the Minister on his appointment and wish him well. I certainly share the views of those who congratulated him also on his role in the most successful Olympic and Paralympic Games ever. I particularly urge him not simply to be a government spokesman in this House but to take an active role in his department. This is not always easy, particularly regarding financial matters, where this House is inhibited in some respects. However, the issue is important because we now have not only a generation of professional politicians in the other place, but we are getting pretty close to a generation of professional Ministers, and an injection of more realism from these Benches on those who are serving as Ministers would be welcome.
One of the curiosities of the present situation is that we have to put the question of growth, investment and so on in the overall economic context. It is true, as all Cambridge economists would say—there are more around the Chamber—that it is difficult not only for economists to forecast the future but to forecast where you are. This is certainly true at the moment because we have the strange situation where we appear to have an economy that we are told is about to have a third dip but, at the same time, the stock market is not doing at all badly and employment is increasing rapidly. The answer to this is probably to be found in the fact that wage inflation is virtually non-existent and it would seem almost that the unions have come to the view that they should go more for an increase in employment, rather than sustaining their members’ living standards. This clearly has serious implications for what might happen in the future, but none the less, this appears to be the case. The trouble is—as the noble Lord, Lord Skidelsky, pointed out—that the implication of that is that productivity is actually going down in the circumstances I have just described, at a time when we certainly, as an economy, want to have productivity going up. Therefore, the answer has to be that we must do something important to encourage aggregate demand.
Perhaps I might add just one other word in reply to the comments of my noble friend on the Front Bench. He actually referred to a “national infrastructure plan”. Those who have been in this place or another place for a long while have nasty echoes of George Brown and his ill-fated national plan, but I am not clear whether my noble friend will find that this has capital initial letters in Hansard. Perhaps he might clarify whether it is his intention that it should do so. There may be some argument for such an approach in the present circumstances with regard to infrastructure, but it is absolutely clear that the Government must continue to press on with their deficit reduction plan.
I am now rather puzzled by the position of the Labour Party. We were told originally, “Well, the Government are doing it too fast and too soon”—the implication being that something ought to be done. It was clearly the case that one could not go on as one was going on at the time when we came into power. What is the position now? The noble Lord, Lord Eatwell, with his usual reference to Keynesian multipliers and so on, seems to be saying that we should now take fiscal measures to stimulate the economy. In other words, he is saying that we should not cut the deficit but go on increasing it even more. He shakes his head; in that case, I am not clear where he stands on this issue. What does he want to do about the deficit? It is not apparent what he wants to do about the deficit, and whether it involves the multiplier as well. We look forward to some clarification in the wind-up speeches from the Front Bench.
The trouble is that if it is not possible to do it by fiscal measures one has to find other means of doing so, and lowering interest rates further is clearly not a possibility. Therefore, one inevitably has to resort to the question of quantitative easing. I share the qualms expressed by my noble friend Lord Lang and others about the effect of this on pension funds. The Treasury Committee is now, I gather, going to carry out a full report into quantitative easing, which will be helpful, but it does not seem to me that there is much alternative for the moment. It is certain that its impact is diminishing, but it seems to have some stimulating effect at the present time, which is something that we need in present circumstances.
Having said that, I am concerned about the fact that our monetary policy is confused and divided between the Treasury and the great Gordon Brown’s invention, the Monetary Policy Committee—a very unaccountable body. I am not at all clear that monetary policy is operating as it should. Until the innovation of quantitative easing, it was not a monetary policy at all: it was a Monetary Policy Committee without a monetary policy. All it had was an interest rate policy involving one interest rate. We are not clear as to how responsibility for overall economic management is divided between the Governor of the Bank of England—now incoming—and the Monetary Policy Committee on the one hand and the Treasury on the other. It is not clear to what extent there is a degree of co-ordination and—as I pointed out as the legislation was going through—they are working on two different forecasts. That is an extraordinary situation to find ourselves in. Having said that, I think it is important that we should continue to cut, but cuts must be made in a sensible way. Yesterday at Question Time, the issue came up about what is happening in south London, and the protests going on there on a large scale because of the proposal to downgrade the maternity unit at Lewisham Hospital. I have an interest in this, because my daughter was born in Lewisham Hospital. We went there because of its high reputation. Even more remarkably, her son was also born in that hospital because events happened much more rapidly than was expected; she had to drive 60 miles to get to the hospital and she and the baby arrived there at the same time. The hospital responded magnificently. To downgrade that hospital now would be a really appalling example of how not to do cuts—cuts made simply because another part of the NHS had overspent. It would be better to fire the people who overspent rather than affect Lewisham Hospital. I have digressed—but I am merely saying that I have a qualification in respect of my views on cuts. The cuts must be sensible and well judged.
On infrastructure, I would like to make two points. First, there is absolutely no point in having totally uneconomic infrastructure projects. In this context, whatever the political arguments may be on global warming and so on, to have a structure where the cost of the investment is to be met by imposing higher costs on existing consumers—some of whom may be dead before the new wind farms come in—is not a sensible way of proceeding. I am sure that my noble friend on the Front Bench, with his knowledge of microeconomics, will accept that if the pricing policy was right in the first place, loading the cost of the investment on top of that is certainly not going to give an optimum solution. But that tendency not to carry out a normal investment appraisal but to put the costs on the existing consumers appears to be happening with our normal, rather than high speed, railways. The regulators seem to have changed their view on what is the right way in which to make investment proposals in these large infrastructure areas. I hope that my noble friend in the Treasury will look carefully as to whether the regulators are really doing the job in this respect that they ought to do.
I gather that the Treasury Committee—of which I was chair for many years—has just made a report on the mini-Budget Statement. It says that it is important that the Chancellor should not create uncertainty with regard to his determination to reduce the deficit. I believe that that is the situation that ought to be avoided; it is important that we should remain resolute. At some stage, obviously, it will be possible to reverse the present policy, but that time has not come yet if we want to get growth in the economy.
My Lords, I, too, welcome the noble Lord, Lord Deighton. I must also express my condolences to him for the frustrations that he will inevitably face. There is a level of exasperation that is liable to render one speechless and that is how some of us on these Benches have been reacting to the Government’s economic policies. Others have been able repeatedly to highlight the failures and fallacies of these policies, with a seemingly undiminished fervour. The Shadow Chancellor, Ed Balls, is one such person. He has observed what should be clear to all of us, if we are not blinded by ideological preconceptions or by political allegiances.
The policies of the Government have been holding the economy in recession and causing untold misery to great numbers of working people, to people who are seeking to work and to people who, for one reason or another, are incapacitated. Perhaps the first thing that needs to be explained is the insensitivity of the members of the Government to the effects that their policies are having on a multitude of ordinary citizens who fall into the middle and the lower reaches of the spectrum of income and wealth. That such insensitivity is not an inevitable concomitant of Conservative politics is surely indicated by the nation’s experiences under the post-war Conservative Governments which, by and large, shared a consensus on social and economic policies with the Labour Governments. It was well understood by the post-war Conservatives that a necessary condition for the growth in the country’s prosperity was an assurance in the minds of the majority of its citizens that they would profit from their labours within a society that was destined to become increasingly egalitarian. The egalitarian instincts of one Conservative Prime Minister, Harold Macmillan, are deservedly well remembered. As Churchill’s Minister responsible for housing from 1951 to 1954, he was charged with the task of fulfilling the promise to build 300,000 houses per year, and he achieved the target a year ahead of schedule.
The present Government are also mindful of the manner in which a house-building boom can serve to alleviate a recession; and they may have been mindful of the effects of the house-building boom of the 1930s, to which local authorities contributed largely by providing social housing. However, in a manner that seems to be utterly perverse, the Government seek to relieve building contractors of their obligations under Section 106 of the Town and Country Planning Act 1990 to provide a modicum of social housing. Their thought is that the obligations to provide social housing are imposing a constraint on the profits of the building contractors. Here is a prime example of an economic argument, conceived in the abstract, that has no basis in fact and that bears no examination.
There is now a growing recognition, which is reflected in much recent literature, that better national economic performance is correlated with greater social equality. There is plenty of evidence for this among our European neighbours. In Britain, in recent years, the degree of inequality has been increasing rapidly and exorbitant rates of pay have become common in our financial sector. The justification that has been offered for such remunerations is that they provide incentives to effort and that they are necessary for attracting talented people to serve in the financial sector. The Government appear to have accepted such spurious assertions. The Government have gone further in reviving the doctrine of the trickle-down effect. This asserts that the economy is best stimulated when the greed and the enterprise of the rich are activated by abundant rewards. To this end, there has been a reduction in the top rate of income tax.
This Government have been influenced to a remarkable degree by tendentious economic doctrines that they have failed to re-examine in the light of our present circumstances. One such doctrine concerns the supposed crowding out of private economic enterprise by government initiatives that pre-empt the supplies of labour and capital. A misplaced faith in the alacrity of private enterprise has led to the mantra that social provision should be open to any willing provider. The willing providers have not been forthcoming, except where there have been easy pickings, such as in the provision of manpower services and in security. In the case of the private provision of health services, the Government are contemplating tilting the playing field so as to favour private providers.
The fallacy of willing providers has been evident in connection with the major infrastructure projects that this country so urgently needs to undertake, if it is to retain its competitiveness in the global economy. There is a further fallacy of economic thinking that is operative in this area. This is a belief that social and national economic decision making can be, and ought to be, conducted within the same framework as commercial decision making and according to the same decision rules. Within such a decision-making framework, one of the essential elements is the commercial rate of interest, which is allied to the concept of the rate of discount. The basic nostrum is that future earnings and economic benefits should be measured and compared via their discounted present values. A pound promised tomorrow is judged to be of lesser value than a pound given today, by virtue of the fact that today’s pound could be invested profitably to generate a return that is determined by the market rate of interest. Notwithstanding that the current interest rates are markedly lower, commercial project evaluation continues to be based on a target rate of return of some 6% per annum. This implies a rate of discount that diminishes the value of next year's pound by 94%. Some simple arithmetic will reveal the fact that, in these terms, a pound promised with certainty 15 years hence will have a present value of only 40 pence. At this rate, it is no wonder that commercial enterprises are concerned with the here-and-now at the expense of making provisions for the future.
It is precisely in making provisions for the future that the obligation of Governments must lie. It is in this respect that the present Government are in serious dereliction of their duty, which is to initiate and finance the major infrastructure projects upon which our future prosperity depends. Many of these projects must be seen within perspectives of time that extend well beyond 15 years. To finance such projects, which are the only sure way of stimulating the economy and of overcoming the recession, without causing a balance of payments crisis, the Government must borrow from the banks and on the open market, or they must guarantee the borrowing of public bodies. They must also raise taxes from those who can afford to pay them, including from large corporations that have proved adept at avoiding taxation. Unfortunately, it seems that the Government are incapable of contemplating such actions.
My Lords, I welcome this opportunity to discuss the UK economy and the Government’s role in promoting growth. Before I do so, I should like to extend a warm welcome to the noble Lord, Lord Deighton, in his new role as Commercial Secretary to the Treasury. His success as the chief executive of LOCOG in delivering the Olympic Games and the Paralympic Games last year deserves high praise. His previous eminent position at Goldman Sachs will also stand him in good stead not only in understanding the UK economy but also globally with his former firm’s contacts in, for instance, the US Government. His role is to lead on infrastructure and economic delivery, but I hope that he will also have time to assist our deliberations on the all-important banking Bill coming before your Lordships’ House later this year. His experience and background will be a vital influence on the success of that legislation. My noble friend Lord Sassoon has set him a high standard to follow, but I know that he will be more than equal to the task.
I move on to examine the state of the UK economy. Clearly, the latest GDP figures were disappointing. According to the FT, it was small and troublesome sectors, such as construction, and North Sea oil, which were particularly affected by maintenance problems, that had a big impact on the quarter. Excluding those, the economy actually grew by 0.7% over the last three months of 2012—a better performance but not a healthy one. However, it is encouraging that, according to the ONS, our volume of exports to non-EU countries has increased by around 35% since 2009, and I hope it will continue to be a source of strength.
There are some other, more encouraging signs according to the FT: broad money supply growth is picking up and mortgage rates have fallen as the Bank of England’s funding-for-lending scheme starts to help the flow of credit from banks to the real economy. The FTSE index of leading companies is at its highest level in four and a half years and there are signs of recovery in some major economies. The other bright spot is that people are continuing to find jobs. Half a million more people are in work compared with a year ago and these jobs, according to the ONS, have all been created in the private sector. I am not an economist but I find it difficult to reconcile the continuing poor GDP figures with the continuing good news on private sector job creation. I am not sure whether the diagnosis of the noble Lord, Lord Skidelsky, is correct.
Public sector net borrowing has also fallen from its 2009-10 peak of £159 billion to an OBR forecast of £108 billion for 2012-13. That is a major improvement but the one-off factor of the Royal Mail deficit transfer has helped the figures. However, unless growth picks up, I see that borrowing will decline much more slowly. Table 4.18 in the OBR December 2012 forecasts shows that it is not overall public sector current expenditure that is decreasing but the rate of increase in this expenditure. Therefore, if the economy does not grow, public sector net borrowing will not decrease significantly.
However, the Autumn Statement contained the most encouraging measures that the coalition has produced to encourage growth. The £5.5 billion capital package and support for long-term private investment in roads and science infrastructure is very welcome. The cancellation of the 3p rise in fuel duty was well received, especially by small businesses. The cut in corporation tax and the significant increase in investment allowance will be of great help to companies. The idea put forward by my noble friend Lord Heseltine of devolving a greater proportion of growth-related spending to local areas from 2015 has been welcomed by the CBI. However, I maintain my concern about whether the quality of the local enterprise partnerships, which have replaced the regional development agencies, are up to the task.
Measures to ensure that businesses—particularly smaller businesses—can access finance and support include plans to create a business bank, deploying £1 billion of additional capital. In addition, the Autumn Statement included funding to enable UK Export Finance to provide up to £1.5 billion of loans to finance small-firms exports. Both measures were particularly welcomed by the Federation of Small Businesses.
Looking at Labour’s reaction to the Autumn Statement from Ed Balls, and listening to the noble Lord, Lord Eatwell, I note their criticism, but I have yet to see a detailed Labour Party alternative plan to get us out of the mess that they created. Their general alternative seems to be to spend more. This is a dangerous path to pursue since it could well lead to our borrowing costs going up considerably.
I move on to the second part of the debate—the Government’s role in promoting growth. I am not of the belief that the Government should intervene to pick industrial winners. In a paper entitled Industrial Policy in Europe Since the Second World War, written last year, Geoffrey Owen of the LSE makes a tour through UK, French and German industrial policy since 1945. His conclusion is that, in the main, government intervention has not worked and that, instead, it would be far better to create the right economic conditions for the industry that I referred to a moment ago. UK government intervention failures included the de Havilland Comet, Concorde, the advanced gas-cooled reactor, British Leyland and ICL. British Aerospace and Rolls-Royce were the major successes. So, with some exceptions, these interventions were generally unsuccessful. Policy- makers tended to overrate the risks and costs of market failures and underestimate those associated with government failures. There is also a mistaken assumption that there were certain technologies that a country somehow needed to have, and that they were more likely to be achieved through centralised direction than through competitive markets. The cost to the taxpayer of ill-judged industrial policy was high.
I believe that it is more important for the Government to create the right business regime to encourage growth through simple and lower taxes, less but sensibly targeted regulation, speeding up the planning application regime—as my noble friend Lord Wolfson mentioned—better business education and encouraging bank lending.
We must not allow ourselves to become too pessimistic. I conclude by giving two examples of company bosses—at completely opposite ends of the spectrum in terms of size—who, despite their concerns, feel optimistic for 2013. Rob Law is a businessman who was turned down by “Dragons’ Den” but has still done well in the field of producing children’s suitcases. He summed up matters well in a recent interview in the Hargreaves Lansdown investment magazine, saying:
“I think the holy grail for government is to simplify the tax system. When you start out in business, unless you have an accountancy background, which most people don’t, it is hugely complicated. I think if you had a simpler tax system, you’d get a lot more multinationals coming here”.
Despite his concerns, his company has done well. He goes on to say:
“We’ve had a brilliant year”—
“We started production in the UK, grew our team to about 30 people and launched a couple of new products. We are now exporting to 97 countries”.
At the other end of the experience scale, Sir John Parker, chairman of Anglo American, has recently made some very optimistic comments. He has said:
“I think we mustn’t become too pessimistic. There are some reasons for optimism ... I think the fundamentals for UK companies are looking stronger than for many years. Non-financial companies have been generating significant cash surpluses over the last few years. Whilst profits have recovered, uncertainty has prompted companies to save rather than invest. But over the next few years I expect this uncertainty to fade, which should encourage companies to start investing again. I regard this as the key to a sustained economic recovery in the UK in the medium term”.
My Lords, I also welcome the Minister to the Front Bench and thank the Government for this important debate. I declare my interest as a landowner, detailed in the register of interests. I am also vice-chair of the parliamentary group for children and young people in care and leaving care; treasurer of the parliamentary group for children; and a trustee of the Michael Sieff Foundation, a charity promoting child welfare.
I rise in part to take issue with the very interesting speech of the noble Lord, Lord Wolfson. In the detail of it, he rather dismissed the idea of social investment at the current time—I hope that I am being fair in conveying what he said. We must not underestimate the importance of investing in early intervention, even at these difficult times. If we want to have a skilled workforce and if we need to compete with China and other nations around the world, we need to invest early in our children, because what happens in the early days and years of a child’s life is the most important determinant of whether they will do well in education and employment.
I welcome the Government’s commitment to early intervention. The right honourable Iain Duncan Smith has championed for many years this notion of intervening early to get the best outcomes. I was cheered recently to hear Andrea Leadsom, a Conservative MP and vice-chair of the parliamentary group for children’s centres, really highlighting the difference that can be made if one gets in early with children and children’s lives, or indeed in terms of the pregnancy of a mother and at certain times in adolescence as well. There is a flexibility to the mind where the neural pathways are able to be rejigged in certain ways, which can help people to do far better in education, in work and elsewhere.
Of course, there have been some positive outcomes with respect to the 100,000 troubled families that the Government have been focusing on recently and the Government’s investment in health visitors, which is very welcome indeed. However, I repeat that what happens early in life is the determinant, to a large extent, of future employability. Too often business people think, “The education system has failed. We need to put in our skills now at the age of 16, 17 or 18”—but that really is too late. We know from the research on early years education that good-quality early years education gives a huge boost to the educational outcomes of children. Indeed, a good early years experience can protect children against bad later educational experience. For instance, children having good early years experiences going to poor or middle-quality primary schools will do as well as other children going to good primary schools because of that good early experience. China is investing hugely in early years provision because it recognises its importance to its future economy.
I am afraid that despite the welcome attention from the Government in early intervention, the global picture is worrying in terms of children and family services, and in particular in terms of child protection. The 28% cuts across the board to local authority spending, the cuts in the number of youth workers and the cuts in other services are really impacting on children and families. Local authorities are maintaining their statutory services, so they are ready to protect the most vulnerable children, those harmed the most. However, all those other services around children and families are gradually being picked off. Statutory services are moving on to the back foot. Year by year we see more and more children being taken into care. All those good services that could have intervened earlier on are not there. To use an analogy, it is as if this is a football match. Over time, one is seeing one’s forwards being sent off, then one’s mid-field players and then one’s backs. One is left with the goalie at the back—the child and family social worker—trying to step in and feeling overwhelmed.
I have an example to express better what I mean. I draw noble Lords’ attention to the National Grid Transco young offender programme which is closely associated with Sir John Parker, the former chairman of National Grid Transco. In 10 years it has provided the programme to 1,000 young people. It has seen recidivism rates drop from a norm of 70% to less than 4% for those young men and women. Sir John Parker always highlighted—he was a tremendous advocate in business for adopting this programme—the cost to the nation of keeping these adults in prison. The year before last that was about £38,000 each per annum.
Recently, I have been hearing stories about some of the young men who have come through this programme. I heard how well they were doing in their jobs in the utilities. We have an ageing workforce and they were meeting a real need for new men and women in these areas. They were rising up the ranks and taking on responsibility very effectively.
I also heard about a man who got a home for himself so that he could be a lone parent to his two sons. Another man had lost custody and contact with his children but made sure that he quickly got a home so that he could have shared contact with his sons. In my own experience of visiting presentation ceremonies for National Grid in the past, I have been touched to see fathers with their young children. These young children now have fathers. A chief indicator for offending is that one’s parent was an offender themselves. Instead, these infants and young people are now seeing their fathers in a decent job, able to provide income to the family and setting a good example to them.
I hope that that example shows what a difference good social investment can make to the economy. I hope that the Minister will give an ear to the concerns of the chief economist at the International Monetary Fund and others about the risks of making cuts that are too deep. I am no economist, and cuts may be necessary in the current circumstances, but I am very concerned that we have seen this all before in the 1980s and 1990s. Youth services and children's services are cut and cut and we pay the cost in the long term. We will not get the educational outcomes we need for our population if we do not give families the strong support that they need.
The noble Lord, Lord Howell of Guildford, emphasised that one of the strengths of the east Asian economy was the cohesion of its families. In terms of our society, the noble Lord, Lord Alton of Liverpool, emphasises again and again the crisis in fatherhood with so many children growing up without fathers. We cannot overlook the need to support families as best we can, even in these difficult times, if we want the children and young people of the future to be productive citizens and not to end up on benefits or in the criminal justice system at great cost to the taxpayer.
My Lords, I am very grateful to have the chance once again to contribute to a debate on what has been and continues to be our Government's number one priority: promoting growth to reduce our national debt and restoring stability to our economy. It is important that we continue to have such discussions in order to continually monitor progress and exchange ideas about how we can assist our recovery further. I congratulate my noble friend Lord Deighton on his excellent speech at the outset of this debate. I also congratulate him on his ministerial appointment.
Concerns were raised last week following Friday's announcement that our economy contracted in the last quarter, so this debate is most timely. The Chancellor was clear in the Autumn Statement that, despite the inevitable blips, our economy is ultimately improving. The deficit has been reduced by a quarter since the Government came to power in 2010, significantly lightening the further pressure on our debt each year. Employment is of course a key driver of growth and recovery and we have seen more than 1 million new jobs created in the private sector in the same period. Unemployment is at its lowest level for 18 months and the number of people in work has reached another record high. Demand for manufacturing orders is also expected to rise in the next quarter. Taking such indicators into account, it is fair to say that we are still on a stable path to long-term recovery.
We also received extremely positive news just yesterday that the FTSE 100 index rose to above 6,300 points for the first time since May 2008. It has now gained nearly 7% since the beginning of the year. The fact that the value of our top 100 companies is at its highest for nearly five years can only be seen as a bold endorsement of the direction in which the City of London and our economy as a whole is heading. Such a rise will only increase investor confidence further and continue to build its own momentum—which in turn allows business to expand, provides further employment opportunities and increases dividends, ultimately giving people more money in their pockets and a greater sense of financial stability.
I refer to an encouraging report recently produced by UKTI which found that 46% of major financial service companies in the UK are actually overseas-owned. In particular, it emphasised how the United States uses the UK as a springboard from which to access the rest of Europe and that we are particularly well placed to benefit from the ongoing boom in the world’s emerging markets. One of the Government's key targets on the economy has been to ensure that Britain is seen as open for business, and this report evidences just how accessible we have made ourselves to overseas investment.
This does of course remind us of the wider global context within which we are operating and to which our own economy is closely linked. In such a globalised economy, we cannot be fully confident of future prosperity unless our neighbours, allies and trading partners are also in positions of reasonable financial health. Just last week, the IMF downgraded its global growth forecast for the next two years, mostly due to the continuing crisis in the eurozone, which is now expected to remain in recession throughout 2013.
We will continue to be vulnerable for some time and must not be knocked off our disciplined course of austerity. The more severe the illness, the more cautious the treatment will be and the longer it will take to recover. Now more than ever it is important that we have strong leadership. Our Prime Minister was clear last week in Davos that trade, tax and transparency are our economic priorities heading forward. As a businessman, I fully support this approach.
The Government have already been taking numerous measures to stimulate growth: local enterprise partnerships and enterprise zones have been established; our corporation tax is now the lowest in the G7; and just earlier this month the expansion of the start-up loans scheme was announced. In particular, I commend the Government's continued commitment to seeing through the plans for the High Speed 2 railway line. I appreciate that there is some controversy surrounding these plans, but the wider long-term benefits to the United Kingdom simply cannot be underestimated. As the Prime Minister said, this project is an engine for growth in itself, ultimately creating tens of thousands of jobs. Reducing journey times between some of our major cities would be a significant step in addressing the north-south divide that currently exists in our economy and would regenerate regions that are sometimes overlooked.
I think that we would all agree that overseas trade is one of the most important elements to ensuring healthy, consistent growth. The Government understand this—one of their four aims to achieve growth is to encourage investment and exports. This is where we must create and maximise any and all opportunities.
I am concerned by the long-term decline in our share of global exports. We will not reach the great heights that we once did if we continue to buy so much more than we sell. That is why I am so pleased that the Government have developed a renewed focus in this area, with UK Trade and Investment actively encouraging small and medium-sized businesses to increase the exporting of their goods and services, particularly to emerging markets. I also welcome the wider commitment to double British exports to £1 trillion by the end of this decade.
I have previously mentioned in your Lordships’ House that over the past two and a half years I have travelled to a number of countries abroad and promoted trade between the United Kingdom and overseas countries. There are of course growing opportunities in countries such as Brazil, Russia, India and China. There are also prospects to do more business in the Middle East, central Asia and several African countries. I know some of these countries very well.
We should maintain and in fact strengthen our trade links with the USA and with other European countries. I am a great believer in the Commonwealth. We should build stronger trade links with other Commonwealth countries. I totally endorse what my noble friend Lord Howell said with regard to the Commonwealth countries. I believe that we have a good story to tell about provision of our services and manufacture of our goods. We must, however, make sure that our businesses are world-leading and globally competitive in order to attract inward investment and continue to increase further the potential for us to export to the rest of the world.
Our motor vehicle industry is a good example of where this is already happening. Last year 82% of all cars made in the United Kingdom were exported overseas. The total was 1.2 million vehicles—the highest ever. Britain is set to produce 2 million cars in 2017, following £6 billion of investment in the motor industry in recent years.
We have greatly improved our manufacturing methods and produced impressive vehicles which are now in greater demand. From trade comes growth, and from growth comes prosperity and stability. As a businessman, I have always believed that a successful organisation needs to produce very good products which should be competitively priced. It should then undertake an active marketing campaign. In doing so, it must always keep a close eye on its expenses. The Prime Minister has said that he wants every department in Whitehall to be a growth department, and he insists that every Permanent Secretary has growth as a key objective.
The Government are playing their part by giving business a positive and supportive framework around which to build and project itself. The Government are actively involved in improving infrastructure which will provide employment, attract investment and help businesses. Building up skills is also an important objective of this Government. We all believe in cutting red tape and giving more powers at local levels.
None of us has been naive to the fact that it was never going to be easy and would take some time for our economy to heal. The combination of the previous Government's financial mismanagement and the wider global situation was a mix so toxic that it caused damage on a monumental scale. However, I believe that these measures and a continued ideological drive towards growth as a means of rebalancing our economy will ensure that we continue on our path to recovery. I am confident that we will promote growth and cut the deficit if we maintain the course that our Government are pursuing. It will be a hard task that requires the co-operation of government departments, various sectors of the industry, the business community—in fact, everyone in the country. I am sure that Britain will live up to its name of being great.
My Lords, I, too, congratulate the noble Lord on his new appointment. I am afraid I was out of town when the Olympic Games were going on, so I missed the full glory of his achievements, but I am sure that he will match them in his new position.
It is a strange debate in which 25 men and only one woman are speaking. What is wrong with economics that it puts off women? It happened to us last Thursday when we discussed the banking union, and only the noble Baroness, Lady Falkner of Margravine, from the Liberal Democrats was speaking. The noble Baroness is also the only Lib Dem spokesperson, so she is unique in two different respects.
My perspective on this crisis has been different to that of many other noble Lords. It is a much deeper crisis than we think and will take much longer to sort out than we think. The idea that we will get rid of our deficit in five years was never on. We will have to work much harder for this because the roots of this crisis go much deeper.
There are three parts to this. First, around the early 1970s we started de-industrialising, losing our industry, and our industry started migrating to Asia. This happened not only to us but to many other European countries. Germany is an exception, to which I will come. Incidentally, Germany has never adopted any Keynesian policies that I know of. It has always been a non-Keynesian-run country and has always taken horrendous cuts in real wages. Even now, its consumption to income ratio is lower than in the UK, regardless of what growth it has. It is a very different kind of economy and we are not about to replicate Germany. We can forget that.
Conservative voters do not like infrastructure development, such as HS2. Forget about Labour; our prosperous people are anti-growth with regard to HS2. Our prosperous people are against the third runway. We have a deeply anti-growth mentality. This is not my main point, but I want to point out that we are somewhat perverse in our desire for growth. When it actually comes to our doorstep, we say, “Take it somewhere else, thank you very much”.
But to go back to my point, we got into de-industrialising early in the 1970s, and this happened to quite a lot of other countries. When we finally lost a lot of industry, some of which we could not keep here because we had priced ourselves out of international markets, we replaced it with a service sector through much of the 1990s. Economics is a strange subject. In neoclassical economics, it does not really matter whether you dig ditches or make a car or make candyfloss. It is all income. If you make candyfloss and not cars, you are still growing. In the 1990s, we had the longest boom, for 15 years, but it was entirely based on the growth of the financial services sector. Our wealth creation was in the financial services sector. I know it is no longer fashionable to like the financial services sector and we find it not socially useful, but we lived off that sector for 15 years. We did not reindustrialise or do anything about upskilling. I have been in this country for 45 years and every year we say, “We should have more apprentices, German-style”. Wow, there we go again. We have not reindustrialised; we have been happy with the financial services sector.
As a part of that, we stopped saving. Households stopped saving, and Governments stopped saving. Our crisis has arisen from over-spending, under-saving and over-borrowing. It was not only us; almost the entire western world under-saved and over-borrowed, and the poor, fast-emerging Asians were lending us a lot of their money. They were not only lending us money, they were also exporting goods to us which we bought with the money they had lent us. So, in a vicious circle, we went on having balance of trade deficits thanks to the money they had given us. It was like a drug dealer giving you money to buy drugs and then you need more drugs.
Getting out of an over-spending crisis is not easy, as the noble Lord, Lord Skidelsky, pointed out. This is a portfolio of a stock disequilibrium crisis, and it will take a long time for our savings to recover to anything like a decent standard. The noble Lord, Lord Lang, talked cogently about our problems with the pensions industry, and so on but, given our demographics, we need to get to a level of savings higher than what it was in the 1990s. The question is what we are going to do to get our level of savings higher than it previously was. How are we going to get to that stage?
I know that there is a clear division between Keynesians who think that one more bout of spending will get us out of this crisis. I have studied Keynesian economics and I have been a Keynesian economist, although I am not one during this crisis. Our problems arise from what we did during the prosperous years about spending. It is not what we borrowed after 2008 that is the problem; our problem is that we borrowed at the top of the boom and that our debt to GDP ratio went up in the good years. Had it been the case that borrowing was self-liquidating, we would not have been in this situation. So, to some extent, there is a problem, not about borrowing but what you spend it on. Some spending is self-liquidating, while other spending is not. Obviously, we had a balance between the public sector and private sector or, perhaps, between the wealth-creating sector and the welfare-creating sector. That balance went awry somewhere during the boom years. We started at 36% of GDP being spent by the state in 1997, when Labour came to power; it was 44% by 2007 before the crisis hit us. At the end of all the misery that this is going to cause us, we are going to return to 44%. All the adjustments, no matter how long they take, will only get us back to 44%, and there will still be a lot more structural adjustment to do when we are through with this. After we have eliminated the deficit and stabilised the debt level, we will start rebuilding the economy. This is just patchwork. We have to think about this problem more seriously.
I believe, and have always believed, that QE was a disastrous mistake. When you need to raise your savings, if you cut interest rates you discourage savings, a point made by the noble Lord, Lord Lang. Furthermore, we know that while households and Governments are in debt, corporates are in surplus cash and no one is investing. One reason could be, of course, that there is no demand, but another problem is the uncertainty about interest rates. Everyone knows that one of these days QE is going to come to stop and interest rates are going to go up. Until I see how interest rates are going to go up, why would I invest? Why would I invest now, when interest rates are 0.5%, when I know that they are going to 6% further down the line?
One thing that Mark Carney can do—although I do not think he will listen to me, if anyone—is to stop QE. Let us get out of QE as fast as we can. A very loose monetary policy and a very tight fiscal policy have so far not had much effect on the economy. We are bumping along at the bottom. Minus 0.3% is neither here nor there because, in any of these things, the standard error is plus and minus 1%. It is like opinion polls; we are always told that error is plus to minus 3%, so do not take the actual numbers assessed as serious numbers. We have been bumping along at the bottom for roughly three years, as has the eurozone economy. The Americans are doing slightly better. However, relative to their potential growth rate, they are also quite far down, and this is a problem of the entire western world.
It is not easy to be convinced, and I am not convinced, that a reinvigoration of the Government’s spending programme on the capital side will necessarily lead us out of this problem. This is partly because, if you are going to spend on investment projects, the pay-off is delayed and long. So your spending today is not going to bring economic growth immediately. The IMF studies show that if in one year the multiplier is one-half and in the second year it is two-and-a-half, the model needs re-examination. What sort of model is it? Next year it may be three-and-a-half or one-quarter, I do not know, but it is not a Keynesian problem—it is a very different problem—and we will have to bump along on the bottom.
Many of the policies suggested will not work, partly because of the delays which feature in infrastructure, as the noble Lord, Lord Birt, pointed out, and as we well know. So even if we planned to spend money, even if the Government were to announce £50 billion of investment, that £50 billion is not going to enter the economy at any time soon and, if it does, it will not lead to income growth rates. I am very gloomy about bumping along the bottom until confidence revives in the private sector and it starts investing again. The noble Lord, Lord Sheikh, mentioned that stock markets are feeling very happy. They must know something that we do not, but they are clearly feeling euphorious. People are into junk bonds and equity markets, so maybe there are some undercurrents of optimism, but we do not know what it is.
Everyone else has spoken about infrastructure, so I will not talk about that. One reform that I hope we can accomplish, I do not know how soon, is to start not taxing income but taxing expenditure. It is a long-delayed reform. If you have an economy which needs to save more, you do not tax income, you tax consumption and expenditure. Secondly, I do not think we should tax profits. We should tax material consumption or carbon emissions, but not profits. Nor should we tax employment, as we do with national insurance contributions. We are doing everything wrong. If we are going to permanently change the economy, stop taxing income and tax expenditure; stop taxing profits and tax material consumption; and stop taxing employment, as far as possible. If we begin to make those kinds of long-term changes, perhaps we will get back into the spending habit and, if the savings are there and interest rates fall back into the normal pattern, we will have growth coming from the private sector and not necessarily the public sector.
My Lords, when the noble Lord, Lord Desai, joined this House in 1991, I always found myself speaking on economic and trade debates from one of these Benches—either this side or that side—but there was something strange about it: he always seemed to be at a much higher level. I thought that perhaps the seats were higher. However, this was part of his life and I learnt much from him. When he first arrived, I wanted to know why we had so many economists. I had already asked the Department of Trade why we needed economists connected with trade, and I found that there were about 230 of them. This started when we had the desire for a relationship with eastern Europe. Somehow people felt that economists came from eastern Europe, where they were more intelligent or more highly trained. The noble Lord, Lord Skidelsky, is someone totally different—he is a trader at heart. He has entertained and amused me over a long period of time.
As I stand up to speak today, I am slightly worried. I did not want to insult the noble Lord, Lord Deighton, but I was not sure how to pronounce his name: “i” before “e” except after “c” or before “g”. Although Hansard cannot correct our pronunciation, it would be wrong of us in your Lordship’s House to get someone’s name wrong.
I stand here today to speak on behalf of the remains of my “gang”: the noble Lords, Lord Ezra and Lord Stoddart of Swindon, and the noble Viscount, Lord Falkland, who is in his place. We had the honour of serving on a Select Committee on overseas trade, back in 1985. We are going to make an approach and ask whether that committee can be re-established, and the Chairman of Committees will already have received a message from the noble Lord, Lord Ezra.
I was put on that committee because I would be young enough when it became important to do something serious about everything. This has been much the story of my life in your Lordships’ House. No one realised that I might be able to do something on my own. However, I did write a report. The Select Committee was called the Aldington committee, after Lord Aldington, and it had some quite bright people on it. We had an enormous amount of support and interviewed people from well over 100 companies. Our report asked, “What do we do when the oil runs out?”. This was in the 1980s—the committee was formed in 1985—and the oil was steadily running out. Everybody was spending the money from oil but not investing it. As it ran out, the balance of payments deficit began to grow, because people were not interested in the balance of payments. The deficit soared, particularly on visibles. It became so enormous that we could hardly support it. As we know well, today we have quite a lot of deficits on visibles. The total figure is around £50 billion, although there are some good aspects. In the pharmaceutical field we have a surplus of perhaps £20 billion; in food, excluding alcohol, it is minus £20 billion; with alcohol, it is a little less, because the whisky which my family used to make historically is probably doing quite well abroad.
However, does a balance of payments matter? I think that it does, but it is trade that I am interested in. I sail very happily in the wake of my noble friend Lord Howell in recognising that, if we do not trade with the world, we will no longer have an economy. Your Lordships know well that our visibles deficit with the EU is very significant. We have a surplus with non-EU countries—Egypt and the Middle East are among the greatest—but with that form of deficit and no investment following, we have a certain difficulty.
I declare an interest in that, having been involved in trade and the financing of trade, I do not like economists quite so much as they always find reasons why you should not do something rather than why you should. We have a scenario where we are looking for new technological growth and trade which is technology-led. We have forgotten that over a short period of time new technology has been developed in the United Kingdom. Because my father spent most of his life and all our family money motor-racing, I have an interest in cars. The success of Formula 1, which was built and designed over here, led to a revitalisation of the automotive industry. Our friends from India worked that one out, so they came over here and in a relatively short space of time completely revitalised Land Rover and other areas.
The same happened with the Japanese and Nissan. In my early days, surprisingly enough, I was meant to be doing economic, industrial and trade research. We acted for the Japanese. They said that they would like to invest in England, when we were more interested in selling to them. On the automotive front, it took a long time to get the go-ahead. We did a study on cars and forgot that the Japanese drove on the same side of the road as we did. That was quite a problem, but it was one of the reasons why we said, “Why don’t you come and make cars over here, because it will be more economic?”. However, they just wanted to make cars that lasted. So those were two areas of success.
For a while I was rapporteur of the European Council of Ministers of Transport, responsible for the standardisation of heights of bridges, bogie couplings, and so on, and the building of bridges across the Bosphorus, across Sicily and in Denmark. When you are on a committee and are young, the others know that they may have someone who can actually type. One of the things that I learnt in the Navy was to type seven copies and put holes through the a’s and the e’s. So I still believe in the written word.
We have considerable experience in transport. However, if we confine our experience, desires and ambitions wholly and exclusively to our own country, we will have forgotten what my noble friend Lord Howell described—the opportunities in the world and the willingness outside, in the Commonwealth and in a whole range of other countries, to co-operate with us on development. If we look at the mineral sector, it is logical that our Canadian and Australian cousins have experience and knowledge which we could easily put together to create and develop added value and wealth wherever we may be on the face of the earth.
I look back at the old-fashioned maps and charts. To me, Greenwich is the centre of the earth. To get to the west coast of America, you have to go east and right the way round; otherwise you have to go through the Panama Canal or round the south. Looking at our own relationships—not using the British language but the background, trading and culture—I believe that in co-operation with the Commonwealth and with other territories we could succeed very quickly and very well.
I turn to the doubtful area of taxation. I had a great regard for Michael Heseltine—now the noble Lord, Lord Heseltine—not at first, but when he set up the enterprise zones. That was when I went to Toxteth. We looked at what happened in Docklands and the regeneration. Although there were people who normally would never have invested in these sorts of doubtful ventures—we have only to look at the slightly disastrous beginning of Canary Wharf and the complete failure of developments of any significance to get off the ground economically in Docklands—it was the ability to claw back tax that permitted people to take an added risk. We should look at this again. Rather than having our foreign friends who want to live in London being told they will have to pay mansion taxes or things of that sort, I should like to set up a fund that would enable them to invest in infrastructure development and claw back that tax for a period of time.
I am not a dreamer. I am quite happy to think that, as age goes by, the things that are happening now will be history. We talk in this House about five, six or seven years before an economic upturn, but to me that is too long. I would rather see it happen at the moment. I should like my noble friend Lord Howell and others to go out in the world and sign the sort of Elizabethan treaties that we used to have, where we would buy the “turds of birds” from South America, as someone said; where we bought things because we needed them or could trade them on. Where are the great trading companies? They all seem to have died. I am happy to admit that I am in trade and that normally I sit below the salt.
My Lords, I add my rather hoarse voice to other speakers, who, almost to a man, congratulated my noble friend Lord Deighton, and welcome him to the Treasury Bench.
It is probably appropriate and relevant to declare an interest. I am a director of a food retailer that employs more than 24,000 people here in the UK. We trade from almost 800 stores today although, interestingly enough, 40 years ago, we had just the one store—as you can see, from tiny acorns. I am also involved in motivational speaking to new and growing SMEs and I mentor young entrepreneurs, so I see first-hand the vital role that those fledgling and expanding companies are playing in the success of growing the UK economy and dealing with the pent-up demand that my noble friend Lord Wolfson told us about. They create employment opportunities, they pay tax and in many cases they generate exports as well.
For our economy to grow, we have to liberate the energy and creativity of those companies and their people. The Government are able to offer a helping hand here by laying the foundations for lasting prosperity, and of course they are doing that, but in many areas the most useful thing that the state can do is step out of people’s way and allow them to get on with it. I want the Government, wherever they can, to make life as simple as possible for business to do business—particularly those businesses just starting out. They can do that by making the necessary processes of regulation as straightforward and easy as possible.
Bureaucracy and death by red tape have always been the bane of business, particularly SMEs, which are generally time-constrained and which, understandably, want to focus their often limited resources and all their efforts and energies on the prime objective: generating turnover, sales and sustainable profits and, as my noble friend Lord Wolfson said, a cash return. That is the life blood of business. Then the business grows and creates jobs. That is how capitalism works.
It was good to hear the Minister’s commitment to cut red tape here and now in the UK. I am delighted that the Prime Minister’s approach to our future relationship with the European Union reflects his determination to remove unnecessary regulation by Brussels, but there is still much to do at home. My noble friend Lord Wolfson spoke passionately. He highlighted the ways in which his company’s efforts to create jobs and wealth have all too often been frustrated by the planning system and by officials taking a top-down view of what is best for business and families rather than simply liberating the pent-up energies of the private sector and helping people to live, shop and work where they want to.
I could not agree more strongly that the way to encourage businesses to grow is by making the lives of business people easier and simpler. It is important for those microbusinesses, but it is also important for huge organisations. We need to encourage more people who do not even know that they have it in them to create businesses to realise their potential.
In quiet moments, when we relax and contemplate some of the riveting data on our economy and the global debt crisis, it might seem ludicrous to suggest that any meaningful contribution to solving our problems can be made by encouraging one person to follow their dream and start up in business, whether that business be building a better mousetrap or opening a shop. I speak as someone who spent 42 years building a business that started with just one small shop and ended up employing several thousand people in British retailing and manufacturing. Although I am no longer involved in that company, the other privately owned British retailer of which I am a director employs around 24,000 people. That, too, started as a single shop set up by two young men.
Today, we call such people entrepreneurs, and throughout the country there are potential entrepreneurs, similarly minded young strivers who could lead the way in creating jobs and wealth if we could just give them the confidence that it is worth taking the risk. Confidence, the feel good factor, is vital—as was mentioned by several noble Lords—not only in tempting the consumer to spend but in encouraging business to invest in growth. I meet so many entrepreneurs at conferences, business workshops and networking events that I know that there is a huge pool of talent, energy and enthusiasm out there. We just need more people from that pool to start making a bit of a splash.
It is tremendous that the Government have expanded the pot of start-up loans for young entrepreneurs and that we are helping them to get access to mentoring as well as capital to translate their ideas into action. It is also excellent news that the Government are increasing the annual investment allowance for SMEs and have cut both personal income tax and corporation tax. The many initiatives and incentives, illustrative of the Government’s commitment, are important and very welcome. They are steps in the right direction. We know that they are working because we have seen—I will not put a number on it because so many people have mentioned it—so many jobs created through the private sector. The figures that came out last week show all-time record numbers in employment. They are the best sign we have seen so far that the economy is moving in the right direction. To my mind, that is a far better guide than the marginal and so-often revised statistical fluctuations in GDP.
I know from my experience that young people starting a new business venture do not take the decision to push the button by studying learned papers on our economic prospects, whether they come from government experts or investment banks. They rely on their gut feeling; they rely on sniffing the air. The scent that they are hoping to pick up is the smell of confidence—confidence that things are moving in the right direction and that therefore it is a good time to invest.
A lifetime of experience in business tells me loudly and clearly that the elusive feeling of confidence is there. I say that without caveat or reservation. I accept that it is a delicate plant and needs nurturing. We must encourage it to blossom by emphasising the real progress that we are making in cutting the deficit, reducing the tax burden on most people and companies, keeping borrowing costs low and, above all, creating jobs. We need to redouble our efforts to simplify and streamline the workings of the Government, put as few obstacles as possible in the way of those who want to start their own business, and create even more employment.
You know, you do not need to be an international business school professor, a high-flying accountant or a Treasury wizard to recognise that job creation is fundamental to any turnaround. Every job that we can assist our entrepreneurs to create helps reduce the burden on the welfare budget and puts money into the economy. Even more important, it creates in people’s hearts the feeling of pride and self-worth that is beyond price. That has huge spin-off benefits.
I commend the actions of the Government to date and hope that they will do even more in the next two years to provide the incentives, the conditions and the supportive environment to encourage and liberate entrepreneurship. That has the potential to create a truly virtuous circle of job creation, increasing individual prosperity and growing national economic strength.
My Lords, I begin by adding my voice to the many expressions of congratulation and welcome which the noble Lord, Lord Deighton, has received warmly and genuinely from all sections of the House this evening. It is very good to think that there is now going to be someone in government with an economics background. However, I have to tell him—if it is not already blatantly apparent—that he has joined the board of a company that has been extraordinarily mismanaged over the past two and a half years. The record is extremely bad and was quite unnecessary. In the first two quarters of 2010, our growth rate was 0.3% in the first quarter and 0.7% in the second quarter. Then it just fell off a cliff because of the negative confidence impact of the declarations of the new Government.
In the light of experience, there must be very few people in this country who are not politically signed up to the Government or otherwise engagés in a party-political sense who would not agree that it is very regrettable that we did not continue on the trajectory set out by Alistair Darling in his Budget of March 2010 to reduce the deficit on a much slower path. That would have been a much better idea.
Remarkably, those things were predicted by a number of people at the time. Everybody has to pay tribute to my right honourable friend Ed Balls, the shadow Chancellor, who did something which I would never have dared to do as a Minister or shadow Minister, which was to make a very specific economic prediction. He said that the policies adopted by the new Government would bring about a double-dip recession. Sadly, he was all too right. The dangers which the Government were running were quite clear at the time, but so far we have had not a word of recognition of their mistakes. Not only was the basic macroeconomic judgment clearly wrong, but the manner in which economic policy has been adopted has been extraordinarily cack-handed and clumsy over that time. I will give one example in relation to VAT, which I mentioned in this House at the time.
I thought that it was quite reasonable to increase VAT, but not by 2.5% at one go, and certainly not to do so on 1 January. If you want to increase a consumption tax like VAT, and maximise the revenue impact but minimise the negative demand impact, which presumably any sensible person would try to do, the one thing you do not do is to deliver it on 1 January. Any shopkeeper, restaurateur, car salesman or anybody else could have told the Government that that is the lowest seasonal moment in consumer demand in the course of the year. The effect of putting on an enormous consumption tax at that point is to exacerbate the downturn of the economy and increase the volatility of the economy, when the aim of a stabilisation policy should be to reduce it. That was not a very intelligent thing to do, and it is a very bad record. That is the first, and fundamental, mistake. I will list five fundamental mistakes—five stupidities—of which this Government have been guilty over the past two and a half years, and that is the first one.
The second stupidity relates to infrastructure. Of course, it is a rather good thing to spend money on in a recession, because factor costs, labour costs, land and interest rates are lower. I am sure, by the way, that the noble Lord, Lord Deighton, learnt all that when he studied economics under my noble friend Lord Eatwell all those years ago. Indeed, in what he said this evening he showed signs of having done so and genuinely wishes now to put them into effect. I congratulate him on that. Perhaps this is a new broom in the Government, which is very welcome.
He mentioned infrastructure; the trouble is that a lot of opportunities have been lost irrevocably. We should have been spending that money on infrastructure over the last two years, as we have been in recession. It is not much use—or it is better than nothing but very much less use—now to plan to spend more money on infrastructure several years hence. In the case of HS2, that money will not be spent until the 2020s. I hope that we shall be back in power long before then and that the economy will be booming. That infrastructure spending might be contributing to an overheating of the economy, requiring an increase in interest rates. It will still be a desirable investment for the long-term productive capacity of the economy, but opportunities have been lost.
Particularly important opportunities have been lost—the broadband plan has been mentioned. They were all ready to be implemented in 2010, but the new Government simply cancelled them. The third runway at Heathrow was all ready to be implemented. Work could have been going on now—we really could have done with that infrastructure spending. Those opportunities have been gratuitously lost by the Government.
The third stupidity perpetrated by the Government relates to monetary policy. I can quite see that with such a very restrictive fiscal policy the Government’s only hope of generating some demand and compensating for the collapse of private sector demand was through monetary policy. Monetary policy obviously cannot be conducted by reducing interest rates, considering the level at which they now stand. A number of people around the world have come to the conclusion that quantitative easing is the best tactic in current monetary conditions, and one can understand that. An argument is to be had as to whether the type of quantitative easing adopted by the Bank of England in this case was the right one, or whether it would have been much better to have bought paper from the non-banking sector, thereby putting money directly in the pockets of the private sector, rather than to buy paper from the banking sector.
Be that as it may, it was completely crazy to pay interest—and as far as I know the Bank of England is still doing this—on the deposits of the Bank of England, which were being inflated in this way. I think that the interest rate that the banks receive is 75 basis points; the Minister can perhaps correct me if I have got that wrong. I should be delighted if the Minister tells me that this particular stupidity has come to an end. It really is quite extraordinary. There is no point whatever in having the banks simply accumulate deposits at the Bank of England. That is not the money supply; it may be a figure included in some of the indices, but it is not conceptually the money supply, it is not at all cash held for the purpose of transactions in the economy, and is absolutely useless from the point of view of investment, consumption or demand. The only purpose of this exercise is to get the banks to leverage on those deposits by extending their lending; by credit creation. The penalty for not doing that is being reduced by paying the banks for keeping those deposits on deposit at the Bank of England, by paying them the 75 basis points. To put it another way round, this is reducing the incentive for the banks to lend. This, therefore, is a question of the Government putting their foot on both the accelerator and on the brake—not perhaps as much on the brake as on the accelerator—but why do that? It is completely crazy.
I see that the Minister is good enough to nod. I hope that one of his early tasks will be to look at what is going on in this particular field, come to the right conclusion and get rid of this particularly foolish policy. That is what I believe it to be.
My fourth example of quite gratuitous stupidity on the part of this Government is, again, a contradiction between two different policies adopted simultaneously by the Government. One is the Government’s desire to see the banks lending more; to see greater credit creation, which is a sensible objective. The real problem for credit creation is confidence. The Government are doing nothing to contribute to confidence, so against that background, all these other technical attempts to generate greater bank lending are unlikely to be enormously successful. Nevertheless, the Government are apparently sincerely signed up to the cause of increasing credit creation in this country. However, at the same time, they are telling the banks that they are about to impose on them higher capital adequacy ratios, introducing Basel III.
I had this out several times in this House with the noble Lord’s predecessor, the noble Lord, Lord Sassoon. When I raised it, he said, “Ah yes, but we have had two or three exchanges in this House on this subject in the past two years. These new capital adequacy requirements will not come into force until 2018, so that’s all right”. It is not all right. I hope that the noble Lord will look at this again, because it is certainly not all right. I sat for a number of years on the board of an investment bank, with a lending book of many billions of pounds, and I can assure him that if the regulators—the Bank of England in those days—had said to us, “We want to increase your capital ratios in five years’ time”, we would have had to start right then. At the next board meeting we would have been discussing how to change our policies. In a market in which it is very difficult to raise new capital because the bank shares are on the floor, and for the same reason you cannot really reduce your dividend, and banks, for less estimable reasons will not reduce their bonuses, there is no way of achieving higher capital adequacy ratios other than reducing their lending book.
Banks will, therefore, now be adopting policies that are designed to follow a trajectory to get them to the capital adequacy position they need to get to by 2018. That goes completely counter to the Government’s expressed desire to get banks to increase their lending. It does not make any sense at all. Again, it is a complete and utter contradiction, and I hope that the Government look at that again and not take too long about it.
Finally, the fifth stupidity the Government have gone in for—again, not for very creditable reasons—is the decision to hold a referendum on our membership of the EU. This, of course, is a subject which I know we shall have a chance to debate in greater detail in two days’ time, and I will not trespass on this ground for very long. Nevertheless, it must be brought into an economic debate. This is a way in which a Government, who should have as a priority the creation of the maximum degree of confidence in the economy, reducing the risk of the environment in which investment and consumption decisions will be taken, are doing exactly the opposite. They are gratuitously, deliberately and unnecessarily creating a whole new area of risk, which is about whether or not this country will still be part of the European Union in a few years’ time. In the past three weeks, two Cabinet Ministers have said that from their point of view they can quite easily see their way to our leaving the European Union. You cannot do a worse day’s work in terms of undermining confidence in the economy than to do what this Government are doing on that particular front.
Once again, just as some infrastructure decisions such as abandoning the third runway at Heathrow were basically driven by party-political considerations, marginal votes and seats in west London and so on, I fear that this decision about a European referendum has been based on party-political considerations such as the need to appease the eurosceptics in the Tory party at the expense of the national interest. It is time that the national interest came first and last, because this economy is in a very difficult situation and we need to get out of this recession as quickly as possible. It is about time that the Government, in addressing that task, make sure that they adopt a position that is purely based on national interest, not on such short-term party-political considerations.
My Lords, the Minister is going to be tired of being welcomed to his new role, but let me join with others there. I also want to congratulate him on sponsoring what is not an easy debate so early in his ministerial career. It speaks of leadership and this House, on all sides, likes and appreciates leadership. I also want to thank the House for its indulgence. After the first four speeches, I had to join the Parliamentary Commission on Banking Standards or it would not have been quorate. I think we can all agree that getting the banks into a stable financial situation is a priority. Everything else that we may do for growth in the economy will all be reasonably for naught if we cannot sort our banking structure out, so again I thank the House for that.
I was able to hear the first four speeches and was then in plenty of time to hear the noble Lord, Lord Desai. Those speeches were all a sort of tour de force with the combat of different schools of economic thought. I dare not trespass into that territory—that is not where my intellectual capacities are—but I found it fascinating and I suspect, like many people, that I concluded that is very hard to listen to abstract theory and come away with conclusions. I hope that the House will not mind if I try to be simpler and perhaps a little more practical.
I do not think you have to have a grasp of economic theory to recognise that the previous Labour Government hideously overspent from about 2004, ramping up public spending so that when the financial crisis hit in 2008, because of our spending and debt levels we had no resilience and no cushion to deal with that crisis. I do not think you have to come with a background in economic theory to recognise that the very laissez-faire attitude towards the banks essentially led to the booking of absolutely false profits by those institutions and ephemeral tax revenues, which were taken as a permanent tax stream by the Labour Government.
I do not think you have to have an economics background to recognise that over a longer time than the Labour period—over a generation—we allowed our economy to become unbalanced. The noble Lord, Lord Desai, described that exceedingly well. We became overly dependent on the financial services sector. We failed to make sure that vigour extended beyond the south-east and covered the rest of the country. In perhaps the cruellest rub of all, we neglected providing the kind of skills to our young people who were not going to take the academic route but needed vocational training and apprenticeships. They could have generated the kind of jobs and economic strength that would come from those skills. We chose to neglect all those things; that whole series of imbalances is now being tackled by this coalition. Taking that long-term view and taking on the challenge of dealing with these absolutely fundamental weaknesses in our economy strike me as being some of the most important measures that this coalition has taken.
I want to name check in some sense Vince Cable—he has not been mentioned, at least while I have been here—for bringing forward, fostering and pushing an industrial strategy, something which we have seriously neglected. He has finally provided sector-specific support to industries that can lead us into growth, whether they are pharmaceuticals, green industries or aviation, and the development of the domestic supply chain—an area that really had no focus in the past. There has been investment in innovation and R&D and there is now an absolute sea-change in capital allowances, to encourage investment in new technologies by business. There is action on finance to deal with absolute market failure, which even those changes that we are making will not address. That is, in the Green Investment Bank, the British business bank and very substantial increases in export guarantees.
When the noble Lord, Lord Deighton, spoke, what excited me the most about his extraordinary speech was his focus on doing and delivering. In that context, I would like to add something slightly different to this debate, because as a doer and deliverer I am going to ask him if he might be willing to think small. We have such a bent in this country for looking at the large—the large business, the grands projets and the big bank—while we neglect the heartland of our economy. SMEs as a sector, not just in the UK but overall in the EU, account for all of our new job creation. That is not just in tough times such as these; it has also been true in the years of prosperity. New start-ups and small businesses are absolutely key to our growth and we have an enviable range of SMEs in the UK. Some 20% of all the SMEs in the EU are in this country. I do not think that registers on the general consciousness.
I recognise that this Government have taken steps to strengthen small businesses, from tax breaks to investors through the EIS, regulatory preferences, new support through UKTI and Funding for Lending. However, let me suggest that it is not enough and it is not brought into a coherent strategy and programme. The problems of SMEs are incredibly granular. I listened yesterday to Xavier Rolet of the LSE talking about the problems of raising equity for SMEs, in large part because all the rules are a scaled-down version of those written for blue-chip companies, rather than being designed for the small players.
I am on the SME Select Committee on exports, where I hear about the problems of protecting intellectual property for small exporters, especially for SMEs that decide to try to export to the BRICs. Again and again, this House has heard the complaint that small companies and microcompanies cannot access credit from the traditional banks. We lack those networks that supply such credit in successful countries, such as the community development finance institutions in the USA and the Sparkassen in Germany. This list could go on for several pages; I suspect that in today’s debate many more issues concerning SMEs will have been raised.
There is no point in trying to tackle this as a piecemeal add-on to various different policies in different departments. I wish that the Government would consider having a dedicated team working across departments, going through obstacle by obstacle with the single mandate of releasing growth in our SME sector. Frankly, the big guys can take over themselves; this is where we can make change and with small companies, small changes make an immediate impact. We all know what the impact on jobs would be if SMEs which were planning to expand, perhaps to hire just one more person, did it six months earlier than they had originally planned. The gain that we can get, with its impact on growth, could be tremendous if we agree to focus.
I move into the area of the noble Lord, Lord Deighton, by referring to small infrastructure. I am very supportive of the big infrastructure projects such as HS2. There is a whole range of them. We have neglected infrastructure in this country; I would not argue with that. However, as many people have said, large infrastructure has a long lead time and I want to make a plea for small infrastructure projects. In the Local Government Finance Act 2012, the Government put in place the legal framework for tax increment financing though a structure known as TIF1. This would allow local authorities to receive part of the uplift in business rates resulting from new infrastructure and, on that promise, to obtain the financing to enable those projects to go ahead in the first place. A perfect arrangement, your Lordships might think, for transport links to enable a new industrial park or for an opportunity to finance key housing.
This is not the time to go through the details of the legislation but, in effect, what the Government did was to give with the one hand, by creating the framework for TIF1. They then took away all the potential by severely limiting the period during which local authorities could capture those business rate increases. The argument is about general accounting and the relationship with the Treasury, and whatever else, but given that we need growth this is absolute madness. Just about every local authority in the country will have a few good, but small, infrastructure projects that would stimulate economic development locally. We need those to be breaking ground and I urge the Government to go back and capture that low-hanging fruit of small, local infrastructure projects which could feed quickly into growth.
Lastly, on small lending, this House is well aware that we are quite unique in the developed world in having so much of our banking service dominated by five huge players, all of them so like each other that few individuals or businesses ever bother to move their accounts, despite high levels of dissatisfaction. Everyone recognises that competition for these banks is one of the best ways to challenge what became a tainted culture and a lack of focus on the customer. But while new, big players may have a role, I want to argue for change to include a network of small players. This means community banks, specialist small business banks, crowd funders, peer-to-peer lenders and credit unions—in other words, to have real variety and choice capable of meeting much wider needs than our banks currently meet.
A lot of the enabling legislation is now in place, but to take it from a possibility and a theory to reality, recognition, action and support from our Government and our regulators are needed. It makes for a messier world but, I would argue, a more stable, capable and honest one. That is the argument that I would like to put to the Minister. Of course he must act on large projects and, with infrastructure, they would be a large part of his plate. Will he look at the small and the quick? We need economic growth now, not in 10 or 15 years’ time. It seems to me that we have many quick wins of which we are not taking advantage.
My Lords, this has been a most fascinating debate, which has covered a wide range of issues and it is therefore a testing ground for the new Minister, whom of course I welcome to his place. I am sure that he will enjoy these debates, as we all do, while recognising that replying to a debate with nearly 30 contributions, all of which merit real thought and response, is challenging. This is not least because the Minister is also replying to the debate about the most fundamental issue before the country, which is the present state of the economy.
The Minister will have noted that from the beginning the noble Lord, Lord Skidelsky, from the Cross Benches, wasted no time in emphasising two things. We should not be deluded by false claims on infrastructure, or the way in which the Government are recovering the economy. Mention of HS2 and HS3, which are more than a decade, or certainly several years away, before any work on them is done, scarcely fits into the pattern of the urgency of our need for recovery in the economy. My noble friend Lord Barnett buttressed that position by identifying how little has been done in the specific area of infrastructure investment, on which he had challenged the Government.
The Minister might have thought at that stage that at least we were on home ground in talking about infrastructure. The noble Lord, Lord Lamont, raised the very real and significant issue about regulation of the banking sector. The Minister will appreciate that behind these issues that we are discussing is the financial collapse a few years ago. This has thrust the financial sector into considerable turmoil. For the Government, it has presented a very real challenge in how we seek successfully to regulate the banks, so that nothing like the disaster of the past decade can occur again.
There were other issues in this debate that I hope the Minister will find time to address. In an interesting contribution from the business perspective, the noble Lord, Lord Wolfson, appeared to indicate that one of the best infrastructure projects in which we could get involved was building roads. Behind it he raised, as regards finance for the roads, the possibility of some system of road pricing. I have no doubt that the noble Lord, Lord Deighton, has already been warned about going where others have feared to tread in the past, but he would be wise not to be too enthusiastic about the concept of road pricing in anticipation of where the Government might go in due course.
The issue of quantitative easing came up. The noble Lord, Lord Forsyth, raised the matter first. He was supported from my Benches by my noble friend Lord Desai. Both of them were really asking what happens when quantitative easing ceases, and we seek to establish a more normal framework for our economy and currency. This is an interesting question, which I hope the noble Lord will recognise as germane and important to this debate.
The noble Lord, Lord Birt, stressed the issue of the development of the right kind of skills in an economy. This is a long-term process. We all recognise that, but we have heard too much analysis of what is wrong with our skills sector without effectively producing the strategy to cope with it. There is no doubt that for the long-term health of our economy we need to ensure that our people are readily skilled for a world in which technical change occurs so quickly. If that was not enough the noble Lord, Lord Lang, brought up pensions and the challenge that they present to the Government, and in this significant issue he was supported by my noble friend Lord Monks. The agenda is moving up, without the noble Lord, Lord Bilimoria, not failing, as he usually does, to give us an overview of the issues that are at stake and how they affect business. He was full of a somewhat doleful message. Of the Chancellor’s targets, which he set two and a half years ago against which his achievements must be measured, only the tattered banner of credit rating 3A remained, and one was not too sure how long that banner would last before it was shredded.
The noble Lord, Lord Higgins, picked up on this debate as having a certain dismal quality. It is certainly one that has raised fundamental issues. The noble Lord introduced a dismal element because he thinks that some of the solutions are difficult to achieve in the time that we need to achieve them. The Opposition agree with him. Meanwhile, my noble friends Lord Hanworth and Lord Hollick emphasised the failings of the Government in relation to the policy that has been pursued so far. I am not sure that the suggestion that the noble Lord, Lord Heseltine, had produced a document to which the Government should give their fullest attention was quite the response that they have so far given. While we know that that document is to be taken seriously, “seriously” is different from “being acted upon”. We await the Government’s indication that they are actually prepared to implement some of the suggested reforms of the noble Lord, Lord Heseltine.
The noble Lord, Lord Sheikh, suggested that the Prime Minister has committed himself to every government department having a growth objective. I do not know all government departments intimately, but I can think of one or two that would resist that concept. There is another challenge for the noble Lord as he beds himself down into Treasury matters. As he will be only too well aware, the Treasury is at the centre of all these issues, and the responsibility that he has taken on needs to measure up to that.
Those are the issues that have been raised in debate, but the fundamental point is the charge that is being made from this side of the House, buttressed by a number of contributions from elsewhere in the Chamber. That charge is straightforward—that we are quite possibly on the brink of a triple-dip recession. We are taking longer to emerge from recession than at any time in the past. The objectives and measures that the Chancellor put forward for success in his handling of the economy are all representations of failure.
The noble Lord, Lord Howell, found a glimmer of optimism in opportunities for improving exports. No one doubts the necessity for that, but when the pound is slumping to the extent it is, if we do not capitalise on that to develop our export potential, we are in a very serious position indeed. However, although the noble Lord, Lord Howell, is certainly better informed on these matters than I am, I do not think that exports are based too much on sentiment. I understand the markets that may obtain within the Commonwealth, but I am not sure that we get any favourable treatment as far as those sovereign countries are concerned.
This debate has laid bare the weaknesses of the Government’s present policy. We are at a crossroads because it will not be long before the Government recognise that they cannot pursue these policies for much longer without pushing the country into total despair. One speech was quite enlightening on these things. It was made by the noble Earl, Lord Listowel, on child welfare. I appreciated his contribution. At last we got to the costs which are being born of failure. The cutbacks that are occurring affect our people so grievously, and we have not seen anything yet. The vast bulk of the cuts in welfare are still to be enforced and implemented upon our people. The noble Lord must recognise that this leads to the parlous state which the economy is in. I hope that he will recognise serious authorities, such as the chief economist to the IMF, the chairman of the bank to which he had some connection, who indicated that he thought that the Chancellor is on the wrong path, or Boris Johnson, who takes a rather different view on the policies that are being pursued at present. We are at a crossroads, and the Government had better start making the right choice of route to follow, otherwise the Minister’s role will be less happy than he would wish it to be.
My Lords, I thank all noble Lords for the serial welcome. It was very kind of noble Lords to recognise the extraordinary work that went on to deliver the Olympic and Paralympic Games in the summer. That was a big team effort. In fact, many of the team are distributed around this Chamber. I appreciate all those kind words and receive them on behalf of a magnificent national effort.
I shall clear up a few housekeeping points. My name is pronounced Deighton, as in height, if you want the precedent for the English pronunciation, not as in weight. Thank you for pointing that out. There was also a suggestion that it would be useful to spend as much time as possible in the Treasury. The arrangement with my right honourable friend the Chancellor is that I should concentrate my time at the Treasury, which is why I will be supported very closely by my noble friend Lord Newby in this Chamber.
I found the debate highly stimulating. I will be able to do my job better for having listened to all the contributions. I shall leave this debate feeling hugely positive, despite the many challenges that we face with our economy. I propose to make my comments not speaker by speaker but rather consistently against the most important themes in the debate. I shall begin with a review of what I think we heard about fiscal policy—the macroeconomic policy—and I shall then review monetary policy. I shall then talk about reform of the financial sector and finally I shall talk about the selection of things that we discussed that might generally fall into supply-side reforms, including all the discussion around infrastructure and capital projects. If I do not manage to address everybody’s points, I shall certainly write afterwards. I shall also try to focus my comments on what my noble friend Lady Kramer called “doing and delivering”. I think that is what I am here to do, so my focus will be on what we can accomplish rather than on the more esoteric elements of economic theory.
I thought there was a lot that was agreed on. The way I have always operated, particularly in business, is by finding the areas of collaboration and forging ahead on them rather than labouring on the areas of disagreement. However, with respect to fiscal policy, it seemed to me that there was one fundamental disagreement between us, at least in simple theory. I think it boiled down to a very simple question. Should we inject more demand into the economy to boost growth? It is a very fair question. It is quite extraordinary to me that nearly 40 years later we are still arguing about Keynesian economics, how effective monetary policy is and the size of the multiplier. I think that was in the first week. It also convinces me that I made the right choice not to be an academic economist. The debate does not seem to have moved on in those 40 years—we are still talking about the same things—so I am glad that I went out and did something, which I was probably better at because that was not going to work.
It all sounds very easy—we should just go out and borrow more, spend it, and hey presto everything is better. That feels an awful lot like the situation we found ourselves in between 2008 and 2010 when we overborrowed and overspent when the economy was right at the peak of its performance. There has been a lot of discussion about confidence. When deficit levels are at the levels they are, I do not think you reintroduce confidence into the economy by going back on a spending spree. It just does not make any sense to me. I have listened very carefully to what everybody is describing as plan B. I do not think plan B is a plausible alternative. How does it get financed? More borrowing. How does that stack up against the bond markets and interest rates? We have saved £33 billion by being able to borrow at lower rates than had been originally projected because of our success in winning the confidence of the markets. We do not want to lose that. It is absolutely critical.
It is also not entirely clear to me that there is such an enormous difference between us. We were unable to surface just how much extra money the alternative strategy would involve borrowing and whether that would make a huge difference. I was much more persuaded by the argument, which I think matches the analysis in the independent OBR, that the principal problem with demand has been external demand, particularly the reduction in demand in the EU. The right strategy in the long term, which is part of the supply-side solution—my noble friend Lord Howell was very clear about that—is all the work being done to switch our focus in markets to the rest of the world— the so-called BRIC economies—where growth is actually occurring.
We also had a lot of discussion around the capital budget and whether it had increased since the original plans of the previous Government. I do not really want to argue about too many statistics because we have had a lot thrown both ways. Essentially the plan we have now is about £10 billion more than the previous Government’s original plan.
I accept the points made by the noble Lord, Lord Barnett, about when the money is being spent but we have to understand that capital spending and infrastructure spending are not, as the noble Lord, Lord Howell, said, a tap you turn on and off. There are long lead times. There are even longer lead times if you want to do this properly. A lot of this capital spending is not a panacea to solve a very short-term problem. In fact, thinking of it that way could create all sorts of difficulties and much more focus should be on ensuring that the projects that are mid-way through their gestation are now delivered into the economy in the right way. They are the ones that are going to have the immediate impact.
My noble friend Lord Lamont mentioned his concern about inflation. That was certainly one of the problems in 2011. The rise in commodity prices pushed our own inflation rate up, I think, above 5%. That had a significant impact on the cost of living. However, all the forecasters are looking at inflation stabilising over 2013-14 down towards the Bank of England’s target rate.
We have all referred to external agencies as supporters of our own cases. One side can produce the economists—the IMF. The other side can produce the chief executive. I could give a quote from the OECD that this is the right plan and we should stick to fiscal stability. We are all capable of producing people to support either argument. It just is not possible to bless your own strategy with the utterings of an external economist.
The noble Lord, Lord Desai, gave a very eloquent exposition of the long-term issues underlying the problems in the economy. I am not going to repeat that. I do not think that anybody particularly disagreed with much of it. However, I have a growth mentality and one of the things that attracted me to join this Government was that the Prime Minister and the Chancellor were very clear in their mandate to me. They said, “We need to deliver growth in this economy. We will support you to get that done in whichever way you can”. They convinced me that they were as committed to performance excellence as any of the other high performing organisations I have worked in. That is really what got me interested in doing this job. I was also very interested in the noble Lord’s comments on welfare. An absolutely key criterion in any of this has to be fairness. We can all argue about marginal decisions but I assure noble Lords that in my work at the Treasury the distribution effects of what we do are absolutely at the top of the criteria for assessing which measures we take.
On monetary policy, I was delighted to hear what I thought was pretty universal agreement that Mark Carney’s appointment was a good thing, if only because it speaks so highly of my right honourable friend the Chancellor’s recruiting skills. I was also a product of that although I was much cheaper.
We had a very interesting discussion about the impact of quantitative easing. Clearly, the noble Lord, Lord Eatwell, is less convinced about its current efficacy but I think we are all interested in what the new regime will have by way of new ideas. However, we should all be extremely cautious before we suggest that ditching the inflation target is the obvious alternative thing to do. That is far from clear and is certainly not the Treasury’s position. In answer to the question asked by the noble Lord, Lord Davies, I think that the Bank of England is paying 0.5% on the commercial bank reserves held by the central bank.
On banking reform—
I thank my noble friend for reminding me about unwinding quantitative easing. In summary, the central scenario predicted by the OBR is that it is expected to make a profit over its lifetime as the scheme is wound down but, as always with these things, that depends on a number of assumptions about the future yield curve, the exit, the pace of that exit, bank rate policy at the time and, of course, any changes to the size. However, those are the variables that go into that decision.
I think that all those who spoke about banking reform agreed that it was important to develop financing, particularly for smaller businesses, and that the Funding for Lending scheme, although in its early days, was showing every sign of being a successful scheme, so we are delighted with that introduction.
On the broader question of structural and regulatory reform, I could not agree more with the comments of a number of my noble friends that although it is absolutely critical to ensure that we have more resilience in the banking system so that the same mistakes are not made again, we have to be extraordinarily careful—I think the timing of the introduction of some of the measures reflects that—that we do not overshoot and significantly damage the banking system which exists to provide finance to the real economy. In my own mind, the real issue with many of these institutions has less to do with capital or liquidity rules and much more to do with the culture of leadership and management in those firms. We are beginning to see some promising signs of improvement there.
As regards the supply side, we have had many interesting contributions on small and medium-sized enterprises. I apologise to the noble Lord, Lord Mitchell, for the SME labelling, and note the comments of the noble Lord, Lord Birt. The United Kingdom is an extraordinarily successful incubator for small businesses. I absolutely take on board what my noble friend Lady Kramer said about thinking small. Two days ago I attended a small business forum. Everybody there was very supportive of all the initiatives that are going on. The discussion was all about implementation and taking advantage of things that are happening.
We have had a number of contributions on planning. No one ever puts forward the case that there should be more red tape, so we are all heroes in terms of our desire to cut it out and to enable faster planning permissions. As I think I mentioned in my opening speech, we have already cut 1,500 pages of planning policy and have speeded up the rate of approval of planning applications. My personal approach to this will be to follow through some of our projects to see where there are barriers and to use those as pilots for seeing where there are thematic problems that are holding up our delivery in the broader economy.
My noble friend Lord Lang referred to the defined benefit pensions issue. Rather than going through the details in my response, I will write to him separately on that. On the question of industrial strategy, I have sat in a number of meetings with my colleagues in BIS and they are absolutely focused on picking out where this country has competitive advantage and reinforcing that advantage in every way the Government can.
There has been a lot of debate on the subject of infrastructure. I want to focus on the fact that our investment in infrastructure is not about pump-priming the short-term economy. It is about modernising and improving our economy so that, over the longer term, its productive capacity is significantly enhanced. If, in the short and medium terms, that has the extremely attractive by-product of generating a significant number of jobs and short-term growth, then that is a dream package. However, that is the way around we should refer to it. There was quite a lot of discussion about roads: the ones that we have announced and have not built yet. There are a very large number of roads that we are currently building that were announced the time before: those are the lag periods. I am very interested in looking at schemes which allow us to take a longer-term perspective on creating the right investment package to support them.
The noble Lord, Lord Mitchell, was rightly concerned about broadband rollout. I have been focused on that as part of our rural broadband rollout and the urban strategy. Last month, the Chancellor announced a further £50 million to help 12 more cities deliver their ambitions for superfast broadband and I am working closely with my colleagues in DCMS and Broadband Delivery UK as well as the Economic Affairs Committee to drive delivery of that important rollout.
I see the value of smaller infrastructure projects, particularly those in local areas. This is highly consistent with implementing the reforms contained in the report by my noble friend Lord Heseltine, No Stone Unturned. For example, we have already launched 27 schemes with local authorities to help deliver that.
Before the Minister sits down, may I thank him for his answer to me that the interest rate paid by the Bank of England on bank deposits is 50 basis points, not the 75 basis points that I thought? Does he agree that any interest rate paid by the Bank of England to banks in those circumstances is undesirable, because it runs counter to the whole object of the exercise, which was to maximise the incentive on the banks to lend as much as possible?
Arts and Culture: Economic Regeneration
Question for Short Debate
My Lords, I welcome the opportunity to introduce this debate on a subject which I feel strongly about but which also has great topicality, given the cuts to arts budgets which are taking place, both nationally and in many regions and localities. These are, not surprisingly, the subject of widespread concern.
First of all, may I say what a pleasure it is that the Minister is replying to this debate? I have not previously had the chance to congratulate him publicly on his appointment but I now do so warmly. We have made common cause in the past on agricultural issues, not least in our concern for the survival of the red squirrel. Given that he will have to defend the Government’s record in the area we are discussing, I have a feeling that our former harmony might be temporarily dissonant—but I very much hope that that will, indeed, be only temporary. I am also delighted that my noble friend Lady Jones is on the Front Bench for the Opposition, as I know how much she cares about the issue being raised this evening.
I do not have any financial interests to declare but the register of interests does list that I am president of the Northumbrian Pipers’ Society, an important cultural organisation in the north-east which promotes the playing and appreciation of our own regional musical instrument. I have also for many years been a volunteer tourist guide for the great city of Newcastle upon Tyne and, perhaps most relevantly to this debate, I was also a Member of the other place representing Gateshead. The arts and culture have been hugely significant in that town’s economic regeneration but—through projects such as the “Angel of the North”, the Baltic art gallery, the Sage music complex and the award-winning Gateshead Millennium Bridge; this is not an exhaustive list—the benefits have also been felt throughout the whole of Tyneside, the north-east and the country. I feel hugely proud of Gateshead Council and the remarkable way that its members, many of whom come from a traditional industrial background, grasped early on the cultural agenda in the way that they did. I therefore take every opportunity to pay tribute to them and the way that they worked in partnership with other parts of the public and private sectors in the many projects that they pursued.
Indeed, given Gateshead’s record, it is frustrating that in the important Newcastle-Gateshead partnership of recent years, Gateshead’s achievements are often ascribed to Newcastle by those who do not come from the area. I am sure that the noble Lord, Lord Shipley, as a former leader of Newcastle City Council, will understand my frustration, while none the less recognising, as we both do, how important the Gateshead-Newcastle partnership has been in recent years, and how it has promoted economic regeneration..
The wording of the Question for Short Debate speaks of the contribution of the arts to regional and economic regeneration more generally in order to bring in the wider national and UK dimensions to the subject. Many of us believe that the arts, culture and the creative industries are a crucial part of our national economy, and it is my contention this evening, therefore, that supporting the arts and cultural projects nationally and regionally has to be a vital part of our economic growth strategy and policies for national economic recovery.
In documentation produced by the Arts Council, it is pointed out that our creative economy, as a proportion of GDP, is the largest in the world. Our cultural sector accounts for nearly 70,000 businesses and contributes £28 billion each year to the UK economy. The creative industries provide 1.5 million jobs and our arts and culture attract millions of overseas tourists, helping to promote Britain as a world hub of creative talent. However, if arts and culture are important to our economy nationally, they are also vital to our regions and localities and have played a crucial part in the economic successes of many towns and cities in recent years. Examples that come to mind include Liverpool, Birmingham, Bradford, Bristol and east London. Cultural projects and initiatives have also revitalised and reversed the decline of some of our traditional seaside resorts such as Folkestone and Margate, where the Turner Contemporary has attracted approaching half a million visitors since it opened in 2011. In the north-east, the Sage Gateshead has contributed £146 million to the north-east economy since it opened and currently supports 660 or more jobs. In 2011, the entries for the Turner Prize that were exhibited in the Baltic art gallery attracted a record number of visitors and had a positive economic effect. Overall, culture and the arts have contributed to a dramatic growth in the tourist industry in the north-east—a growth rate that has by far outperformed any other sector and brought our tourism industry right into the economic mainstream.
There is no doubt that arts and culture have made a great contribution nationally and locally in recent years. However, there is now considerable concern about the future arising from the Government’s current approach. I, like my party, am concerned that with the arts, as with the rest of the economy—as we have been discussing this afternoon—the cuts are too deep and too fast. To begin with, the Arts Council itself has had its budget cut by 30% since 2010. While I applaud the Arts Council in its work and recognise that, in implementing these reductions, it has sought to protect the artistic front line—by which we mean support for cultural projects and productions in some of the least well-off parts of our country—none the less, cuts of the order demanded now and for the future, on top of the economies already made, threaten the front line in my view. This is a view that is shared by many in the cultural sector both nationally and regionally.
My noble friend Lord Beecham had a Written Question on arts funding which was answered by the noble Viscount, Lord Younger, on 8 January, and I would like to ask the Minister some questions about it. My noble friend asked what proportion of central government funding for the arts in 2011-12 and 2012-13 was for capital funding, and what proportion was for revenue funding. The Answer surprisingly began by saying that the Government were unable to provide information on potential funding for the arts across central government because they did not hold the information centrally; it said that the information could be provided only “at disproportionate cost”. This begs the question: if central government spending plans are not held centrally, where are they held? The Answer gave information about the reduction in Arts Council funding and about DCMS funding in addition to Arts Council funding. This showed that the additional funding was being reduced overall from £2.198 million to £1.025 million and that for this year, 2013, no capital funding was envisaged at all in that part of the DCMS budget. Can the Minister explain this?
The Government have claimed that philanthropic giving might help fill the funding gap. The Culture Secretary herself has expressed hopes that this might double over the coming years. However, the figures that I have seen—and I do not know whether the Minister can confirm them—which were released in 2011, show a reduction in corporate giving of 11% and a reduction in individual giving of 4%. Neither of these figures augurs well for the future. Also on this question, I refer the Minister to comments from Sir Nicholas Hytner, director of the National Theatre, who, writing in the Observer, said that,
“80% of philanthropic giving to the arts benefits London, and almost invariably private funding follows public funding”.
If Sir Nicholas is right—and he obviously speaks from great experience—then charitable giving will not fill the gap and will not, in any case, help the regions, about which I will now speak further.
If the reductions in funding at national level are causing concern then the situation is even worse at regional level. As we know, the local government spending review was debated in your Lordships’ House on 17 January. Considerable concern was expressed about the cuts that local authorities were facing overall. The cuts—the result of the squeeze in local government spending—have already been felt in the arts and culture sector, but the likely effect of current and future cuts are even worse. It is not that local authorities want to cut back spending on arts and culture or that they think that such money is unimportant, but they have their overriding responsibility to continue providing services such as social care and child protection, waste collection and all the other main areas of service which local authorities have an overriding duty to provide.
I express my sympathy with councils such as Newcastle in the current situation. I think that it really does find itself between a rock and hard place—although I note that the council is continuing to discuss ways forward with arts organisation locally. Instead of cutting Newcastle’s money further, I hope that the Government will work with the city, and with other cities in a similar situation, to ensure that arts spending is not reduced in the way that is currently proposed in the consultation that Newcastle City Council has embarked on. What I say about Newcastle also applies, surprisingly, to places like Westminster, where they are also suggesting a total cut in the arts budget.
Unfortunately, I am rapidly running out of time. I shall conclude by referring to the coalition Government’s recent mid-term review. It is both regrettable and astonishing that the creative industries and culture and the arts have played so little a part in the review. In particular, no goals seem to be set by the Government for arts and culture for the next two years. Of the five commitments that are mentioned by DCMS in the mid-term review document, not one of them mentions culture or the arts. I wonder how the Government can explain that.
It seems to me that the Government need to demonstrate through new words and deeds that the arts, culture and the creative industries are indeed an indispensable part of this country’s growth strategy and that such a growth strategy should extend to all parts of the country. Nothing less than a fundamental change of heart by the Government will do in the face of the current crisis.
My Lords, it is a great pleasure to follow the noble Baroness, Lady Quin. We worked together in the early days of the directly elected European Parliament in a number of areas, when she represented Tyne and Wear and I represented the great City of Liverpool. I congratulate her on securing this debate on a topic which is close to my heart.
In the European Parliament and later as a member of the delegation to the Council of Europe, I took a great interest in cultural heritage and arts issues and I have no doubt about their relevance and importance to economic regeneration. It will come as no surprise that I intend to use Liverpool as an example of what can be achieved. As a former trustee of the National Museums Liverpool, I have always been aware of the wealth and diversity of what is on offer there, from the traditional Walker Art Gallery to the very modern Tate and from the Maritime Museum to the International Slavery Museum.
Michael Heseltine’s initiative after the Toxteth riots, way back in the 1980s, the garden festival and various other events led up to 2008 when Liverpool won the bid to become European Capital of Culture. Liverpool is one of the great old industrial cities, which has had to come to terms with its past in order to transform itself and to find a new image and identity. As we saw when Glasgow was the European Capital of Culture, there can be no doubt that the effect on Liverpool and the wider north-west region has been substantial. Apart from the many jobs that were created in preparing the infrastructure, thousands of jobs have proved to be long lasting. The Museum of Liverpool project was a physical result of that year, although it was not completed by 2008. However, since it opened fully in July 2011, more than 2 million people have visited it. Those numbers are way ahead of the projection.
I believe that Liverpool’s transformation into an educational and academic centre of learning, with its four universities and other institutions, owes much to its cultural and arts heritage and the way in which that was highlighted during the Capital of Culture year. Certainly the tourist figures are well up and now the port is beginning to revive with cruise ships calling in and finding so much of interest virtually at the foot of the gangway, in terms of the city’s artistic and cultural heritage.
This year, building on that experience, Derry—Londonderry—is the first UK City of Culture and a nationwide competition has been announced to find the UK’s City of Culture for 2017. I hope that my noble friend the Minister will be able to give us more information about these two events and their impact to date on Derry.
I think that we all still share a very warm feeling about the success of last year’s Olympics and Paralympics, and indeed of the Cultural Olympiad, which, apart from anything else, led to the regeneration of Stratford and has an ongoing legacy. I was delighted to learn, as a result of participating in this debate, that the Lord Mayor of the City of London has decided to make arts and culture one of the central themes of his mayoralty and is even now publishing a report on the economic, social and cultural impact of the City’s arts and culture cluster and its effect not only on the City but on the surrounding boroughs. However, I agree with the noble Baroness, Lady Quin, that the importance of government policies must reflect not only what London has to offer but the wider nation and the regions.
Funding is of course important, and the noble Baroness has pressed my noble friend on this score. Much is being done and I hope will continue to be done—and said—to support the work going on in many of the regions. I look forward to hearing the views of other speakers in this debate and, in particular, hearing what my noble friend has to say about future government policy in the area.
My Lords, I thank the noble Baroness, Lady Quin, for initiating this debate. I also extend my welcome to the Minister in his new role and look forward very much indeed to hearing his response.
I should declare that I am a trustee of Audio Visual Arts North East and a patron or supporter of several of the cultural venues in Newcastle and Gateshead. I spent several years over the past decade helping to build up arts and cultural venues in the north-east. I did it for three main reasons. The first was to widen knowledge and participation, because a more civil, equal and inclusive society is created when learning opportunities, the performing arts, libraries and museums are available to all. There is also evidence that health and well-being can improve as a result.
Secondly, we wanted to make the north-east an attractive venue for tourism and inward investment. I pay tribute to the leadership role of Gateshead, which the noble Baroness, Lady Quin, mentioned. The Sage Gateshead and the Baltic were major contributions to changing the image of Tyneside and the north-east and increasing tourism to the area. Newcastle, of course, played its role with a number of cultural buildings and venues, which were either expanded or newly built in the past decade—for example, Seven Stories, the National Centre for Children’s Books.
Overall, the cultural provision in the north-east of England is very strong. That has an economic value through the multiplier effect. I was interested recently to see that Durham’s Lumiere festival in 2011 brought £4.3 million into the local economy against spending by the county council of £400,000.
Those three principles still stand today; nothing has changed. Of course, that list would apply to all parts of the United Kingdom, not just the north-east. Generally, it would seem that for every £1 of public money invested in a cultural venue, there will be an average return of £4 to the wider economy.
For Newcastle Gateshead this has meant a major expansion in economic benefits. There are more than 2,000 full-time equivalent jobs across the north-east run by the 10 cultural venues in Newcastle Gateshead, with 1,200 full- and part-time jobs in Newcastle Gateshead itself. There have been 3.6 million attendances at cultural venues in Newcastle Gateshead and 900,000 learning and participation opportunities. Helpfully, nearly 900 volunteers are involved in delivering support. I quote those figures because they are impressive and we should recognise the enormous achievement of arts and cultural organisations in the region and congratulate the staff and the boards of those organisations on their achievements. We do not want to lose that, which is a point that I will return to later.
Underpinning all of this is the issue of free access. That is an absolute cornerstone of a civilised society. Free access to museums, galleries and libraries provides opportunities for individuals to develop themselves, to encourage reading, seeing, listening, thinking, learning and taking part. Free access is about ensuring that we actually deliver equal opportunities. Where payment has to be required in the performing arts, schemes that help those on low incomes must continue to be promoted by the Arts Council and all receiving organisations.
The fact that spending cuts would have an effect around now is not a surprise. Several years ago, we knew in Newcastle Gateshead that we had to ensure that the large increase in capacity in the number of existing and new cultural organisations could withstand a reduction in public spending whatever the Government, and that this would inevitably need to be done whoever won the election in 2010. Of course, in the north-east, the collapse of Northern Rock and the loss of so much of its cultural funding support from its high point a few years earlier have not helped. Close working, joint marketing, better procurement and maximising charitable donations can all help even if they cannot solve the impact of all of the cuts.
I pay tribute to Arts Council England because it has managed its funding cuts thoughtfully. Rightly, it demands excellence when it allocates money and it is right to emphasise the interrelationship of libraries, museums and cultural organisations. There is a crucial role now for the Arts Council to ensure that its support is not overconcentrated in London and is distributed across England to develop greater equality of funding and thereby of access. A very small switch in the proportions of Arts Council funding between London and the rest of England could have a major impact on the viability of organisations outside London.
Account must be taken by the Arts Council of the capacity of a region to develop its philanthropic base. So many firms are headquartered in London it is little wonder that levels of sponsorship are so very much higher in London. Nevertheless, more is now being done by the Arts Council to develop the potential for private giving across England through its funding streams and I want to recognise the progress that is being made.
Councils have an enhanced role now through increasing localism. I referred earlier to health and well-being. Now that substantial funds are being redirected from the National Health Service to local councils from April for the promotion of public health through health and well-being boards, the application of that money needs a lot of thought. Well-being is about the whole person and it seems to be right that public health moneys could be used to alleviate cuts in arts, culture, libraries and learning where a benefit in terms of well-being could be the identified. I refer, for example, to neighbourhood libraries, where closure could reduce well-being.
I turn now to the pupil premium. In the north-east of England it is worth more than £100 million additional money in the year from this coming April. I raise this because more than 600,000 children participated in an event at a cultural venue in Newcastle Gateshead in 2011-12. It is reasonable to suggest that some of this growing pupil premium could be used by the schools receiving it to ensure equal opportunities for their children. Children need their horizons expanding and it cannot all be done within the boundaries of the school itself. I am unaware that there are any discussions or initiatives taking place on this matter, but given the scale of the pupil premium now and from April it needs to be.
I want to mention the importance of artist development programmes. I am impressed by the potential here and cite as an example the record of Generator—the leading music development agency in the UK set up 20 years ago with the aim of developing a more sustainable music industry in the north. It was later asked by the Arts Council to assist other fledgling agencies in policy and programme development, governance and funding. It has managed to lever in £4 for every £1 received from the Arts Council, which has enabled it to support new talent, help create 50 new businesses, assist 107 SMEs and a further 173 new SMEs, as part of its business support programme which was completed in December. Generator works with emerging bands and artists; mentoring and showcasing talent; providing key help such as PR, booking agents, sources of funding and securing media exposure. Such a comprehensive and progressive artist development programme fills a gap in the market for effective development of artists at any stage of their careers. There may be potential for replicating it.
In conclusion, we need some clear thinking given the budgetary position of cultural organisations—not just in the north east but across England. I very much hope that all of those involved in current discussions on funding for arts and cultural venues, libraries and museums will think carefully about how each can help. By this I mean councils, venues, the Arts Council, sponsors, universities, colleges, and schools—particularly those in receipt of significant sums from the pupil premium. If you close a venue, you cannot reopen it easily. The loss and the damage could be profound.
Common sense demands that everyone works just a bit harder to find a solution. I want to agree entirely with what the noble Baroness, Lady Quin, said about the need now for people to take a step back and to work out how they can move forward and protect the cultural and artistic venues and libraries which are currently under such very great pressure.
My Lords, I also begin by thanking the noble Baroness, Lady Quin, for seeking out the opportunity for this debate, which is so timely and important for us all. Married to a Northumbrian—and an adopted Northumbrian myself —I was delighted to hear of her links with the Northumbrian pipers and also to hear the noble Lord, Lord Shipley, talking more of the north-east. However, I shall start elsewhere.
A decade ago when I arrived in Yorkshire—in Wakefield—there was much feverish talk of regeneration: a new hospital, new railway stations, a new shopping centre at the heart of the city and a new art gallery. There was the usual flood of scepticism, enhanced by a strong dash of Yorkshire realism. Would any of this ever happen?
The most extreme reactions in all this were to the art gallery. Here, west Yorkshire bluntness could find its ideal target: “We need a new art gallery like a hole in the head. There is enough modern art in the sculpture park already and no one can understand that anyway”. And so it went on.
Now, 10 years on, all these regeneration projects are complete—even the work on the railway stations has begun. We are amazingly fortunate to have received all this, and in the midst of one of the deepest recessions in modern history, as we have heard this afternoon. Most amazing, however, is the Hepworth gallery. The largest new-build gallery outside London for over a century, Sir David Chipperfield’s building has received universal accolades. With a target of 175,000 visitors for the first year, we achieved over half a million, and now we are heading for 400,000 in this second year.
The Hepworth effectively has placed the moderately-sized city of Wakefield, still recovering from the death of both the woollen industry and coal mining, on the map internationally. Barbara Hepworth, a daughter of Wakefield, and Henry Moore, a son of Castleford, just seven miles up the road, have given birth to the west Yorkshire sculpture triangle. That includes the Henry Moore Institute in Leeds, and the Yorkshire Sculpture Park and the Hepworth in Wakefield. The sculpture park is a great triumph, unique in England, and also a tribute to the passion and energy of Peter Murray, its founder. The Hepworth has already hosted at least one national book launch and also the nation’s salute to the 1662 Book of Common Prayer, the 350th anniversary of which was last year.
Talk of prayer moves me on to the cathedral in Wakefield, the nave of which will re-open in a month’s time after a year cocooned in scaffolding. A £3 million regeneration project supported by the Heritage Lottery Fund will make it a flexible venue for the worship of God, for which it was built, and an equally flexible venue for other cultural purposes. The largest venue in the very heart of the city, the cathedral will bring further economic benefits to the city and region just as the Hepworth has done. Of course, it is not only about the actual place itself in the case of the museum, the gallery or the cathedral but what it brings to the rest of the city and everything else thereabouts.
Talk of cathedrals comes close to my heart, having been the Dean of Norwich for some eight years. Here I declare an interest as a member of the Cathedrals Fabric Commission for England. In so many of our cities, cathedrals are responding to the needs of a changing society. In Norwich, we embarked on providing new facilities, which have further opened up that great building more effectively to the wider community. The development there is indeed the largest single development within a medieval cathedral since the Reformation.
Twelve million people visit our cathedrals every year. In 2004, a report showed that English cathedrals alone brought £150 million into the various local economies. That would be £186 million at present-day levels. Visitor numbers have increased since then by some 50 per cent, so noble Lords can do their own calculations on today’s figures—I think that it is probably about £200 million.
The benefits do not end there, of course. Cathedral music thrives here in this country as it does nowhere else in the world. Furthermore, speak to so many of our outstanding musicians, conductors, soloists and instrumentalists and you will find that their musical education began in cathedral choirs. With the advent of girls’ choirs, that is now equally true of women.
There is one more essential by-product of arts and culture in regeneration. This time it is not about finance and economics but, instead, about the nurturing of our common humanity. One serious impact in our area of the death of the coal industry has been a loss of sense of purpose in so many communities. That undermines what I would call our corporate self-esteem. The Hepworth and similar projects have begun to repair this essential element in community life. Every one of us will know how serious the loss of self-esteem is for individuals, sometimes even to the extent of people talking their own lives. It is no less serious corporately in communities.
I have tried not to drown noble Lords too much in statistics, but even the few that I have quoted tell their own dramatic story. My message to Her Majesty’s Government is that even a minimal increase in funding for our cathedrals and their upkeep, for example, will yield a bonus proportionately way beyond what any other investment can offer in these tough times. So, too, with the arts. In Wakefield we are grateful this year for Arts Council support for the Art House, another unique institution in our city which works particularly with the less well off, and sometimes the disabled, in the area of the arts and the creative arts. Frank Matcham’s fine Theatre Royal has also received funding.
However, still all these institutions and agencies are up against it. Spending on the arts and on culture is tiny proportionately to our national spending and budgeting, but the benefits that it brings in regeneration, economic development and, as I said, in terms of corporate self-esteem exceed what any of us might expect. I ask the Minister in his response to please be both realistic and generous in supporting regeneration by this most imaginative route.
My Lords, we are all very grateful to the noble Baroness, Lady Quin, for facilitating this debate. At the very outset I should declare several interests, in that my wife, daughter, son and daughter-in-law are all involved professionally in the creative arts, mainly in the music-related sector.
I realise that this debate has been projected by other speakers, largely in the English context, as addressing cuts in arts funding in England. Ministerial responsibility in this Chamber for the arts is primarily geared to England, though responsibility for the tools which encourage economic regeneration are not fully devolved. In any case, I believe that the nations of these islands can learn one from another in such matters. I hope that our experience in Wales with regard to the role of the creative industries in regional economic regeneration may be of assistance to others.
A debate was held in the National Assembly in Cardiff last Wednesday by my party. The Motion for the debate called on the Assembly to recognise and celebrate,
“the enormous contribution that the arts and creative industries make to the economy and culture of Wales”.
In his comments, our former Minister for Culture, Alun Ffred Jones, said:
“It is worth remembering that our culture is also an industry. It employs some 30,000 people in Wales, with an economic output worth around £0.5 billion”.
However, he emphasised that,
“we do not have to and should not justify expenditure on the arts by listing economic statistics. The arts have a value in their own right. It is an activity that develops confidence and creates interesting and imaginative people—the kind of people that employers want to employ”.
I wholly concur with that sentiment. Indeed, while the global companies of the past were largely concerned with manufacturing—that still has its place—key corporations of the future will increasingly be in the fields of communication, information, entertainment, bio-medical science and technology. These require high levels of creative imagination, a feature the arts are ideally placed to nurture.
The creative industries and the arts in Wales are supported through the complementary roles of the Arts Council of Wales and the activities of the business and enterprise department of the Welsh Government. That reflects the essential link between culture and the economy. The arts nurture the imagination, which generates the flow of new ideas and new products, which lend themselves to economic application via the creative industries. These industries in Wales overwhelmingly comprise small businesses. Of the 1,800 businesses in the sector, 94% employ fewer than 10 people. They make a significant contribution to the GVA of Wales and of the UK.
Many aspects of the cultural industries have a significant economic consequence for other sectors. They are a vital ingredient for tourism, with a knock-on effect on transport, hotels and catering. Major cultural projects can bring benefit not only to the city or region in which they are held, but to a wider economy and, indeed, to the Treasury and the UK generally. There is a danger that some people believe that the significant cultural activities of these islands occur only in London. That is patently not the case. One has only to think of the huge international significance of the Edinburgh Festival or, indeed, of the Hay book festival in Wales.
Showcase Scotland opens tomorrow in Glasgow. It brings into Scotland 180 holiday operators from overseas—an excellent example of how Scotland has succeeded in using the arts to underpin its economy. This autumn, Cardiff will host the WOMEX world music exhibition, an event that previously has been held in Gateshead. WOMEX will bring some 2,700 delegates to Cardiff, mainly from overseas, together with some 400 journalists. This represents not only an immediate input into our economy, but the potential of much more if we succeed in projecting a positive message and image.
WOMEX would not be coming to Cardiff were it not for the excellent Millennium Centre, a £100 million facility which has functioned as a concert hall, an opera house and a theatre. It attracts visitors from all over the world. It is a metropolitan, more than a regional facility, but without such infrastructure, it would not be possible to sustain, support and project the activities which now occur.
One does not have to look only at such major cultural infrastructure facilities. I give an example which may interest others in the Chamber. In my home town of Caernarfon, we succeeded a decade ago in establishing the Galeri Creative Enterprise Centre, at a cost of just £7 million. We could have secured 15 of them across Wales for the cost of the Millennium Centre. Galeri is the home of some 20 creative arts enterprises, ranging from music to graphic arts, cinema to drama, websites, television and arts-related PR companies. It generates some 400 events and performances a year within Galeri itself, and many more in the surrounding communities.
Galeri employs directly 36 full-time-equivalent staff and supports more than 50 full-time-equivalent jobs in the surrounding community, contributing some £3 million a year to the local economy. Galeri raises 75% of its turnover, but it is supported by a modest £300,000 a year grant from the Welsh Arts Council. An economic impact assessment recently concluded that for every £1 of grant funding, it generates £9.65 in the local economy.
Incidentally, the William Mathias Music Centre, which is based at Galeri, bringing music tuition and experience to adults, including some with learning difficulties, itself gives work to 30 part-time self-employed music teachers, providing a basic income without which they almost certainly would not all be able to remain living in north-west Wales. That activity also spawned the William Mathias Schools Music Service, which has outgrown its home in Galeri and now provides 80 peripatetic music teachers to support music education in schools in three counties in north-west Wales. Galeri is also the venue for the quadrennial international harp competition, which attracts competitors from 20 or more countries. Without that facility, none of that would be occurring in Caernarfon. Galeri represents a private and voluntary sector partnership with the public sector. I suggest that it is a model worth emulating.
Another vehicle for bringing cultural enterprise to communities across Wales is our national Eisteddfod. We may not be able to replicate that in all parts of these islands, but it is held annually in different centres, alternating between north and south. It costs about £3 million a year to sustain and is supported by a grant of about £500,000 annually from the National Assembly—again representing a very good gearing of public to private funding, bringing creative arts to every corner of Wales and stimulating interest as a result.
One problem with creative activities which are peripatetic, as with events organised by different host communities at different times, is that there is perennially a need to reinvent the wheel. Experience is not rolled forward. There is the danger of repeating the same mistakes. To avoid that, there is the need in the cultural sector to ensure adequate post-facto evaluation, which should be planned from the outset and perhaps should be a condition of public funding to ensure that ongoing maximum benefit is attained.
The physical facility is one thing, but we also need people with vision and a proactive attitude, and a framework to enable the arts to be an economic driver, not just a hobby. For example, more artists are active in Pembrokeshire than, probably, in any other rural area in Britain, but very few of them succeed in making art their full-time, primary source of income. With a little help, many of them could do that and work full-time at their art—not just in Pembrokeshire; I am sure that that is applicable more generally. Often, a support framework can make all the difference.
Whether it is major events and activities, and facilities, such as in Cardiff; in micro-grassroots activities such as Galeri in Caernarfon; or in a peripatetic festival such as the Eisteddfod, they all need a public, private and voluntary partnership. They all stimulate economic activity in the areas massively greater than the sums of public money that they require to sustain their viability. Surely the Government should think carefully before cutting funds for such a worthwhile dimension.
This debate matters to avoid us going down a blind alley of being penny wise at the cost not only to our diversity of cultural activities but, in the long term, to the regional economies in these islands.
My Lords, I thank my noble friend Lady Quin for initiating this debate, and for the characteristically powerful way in which she set out the importance of the arts in regional regeneration. She made a compelling case, drawn from her own experiences, the themes of which have found resonance from all around this Chamber this evening.
I welcome the Minister to his role and look forward to his response. I hope that he will be able to give some reassurance that the future policy of arts in the regions will be an improvement on our experience of the coalition’s record over the first half of its term of office.
At a time when our economy is stagnating, and business leaders vent their frustration at the Government’s lack of a growth strategy, investment in regional regeneration ought to be an obvious priority. It makes sense in helping to tackle the growing disparity between rich and poor, and between those in work and the unemployed, which holds back our recovery. We know, for example, that since May 2010 the number of long-term unemployed has risen by 60% across the UK as a whole, but by 83% in Yorkshire and 123% in the north-east. Similar disparities exist for youth unemployment. Meanwhile, figures for individual and business insolvency also show disturbing patterns, with the north suffering more than the national average.
Unfortunately, the current Government do not appear to have a coherent regional strategy. They were all too quick to scrap the regional development agencies when they came to power, but the local enterprise partnerships put in their place have limited scope and have been widely criticised for failing to distribute grants and loans effectively. Incidentally, I would be interested to hear from the Minister what proportion of LEP funds have been used to support the creative industries.
The lack of a regional strategy was confirmed recently by a government-commissioned report by the noble Lord, Lord Heseltine, No Stone Unturned in Pursuit of Growth. It is a searing indictment of the Government’s lack of understanding that the impetus for growth, based on new ideas and enterprise, will be driven not from the centre but from communities, cities and regions.
These same criticisms equally apply to the Government’s arts policy. The Government give every impression that, at the time of austerity, culture is expendable. We take the opposite view. Culture is not a fluffy add-on. Culture and tourism account for 7% of the UK economy, providing more than 3.5 million jobs; with a spread throughout the UK.
We believe that this is a key part of growth strategy for our economic recovery, as well as being the lifeblood of an innovative, diverse and civilised society. The cultural sector should be at the heart of the regeneration of our towns and cities, providing new leisure activities for families, encouraging businesses to move to the area and providing new talent and enterprise.
The record of the previous Government is a testament to the development of the UK as a world leader in creative talent. I point to initiatives such as free access to national museums and galleries; investment in regional theatres; the Renaissance in the Regions programme which revitalised regional museums; and the Creative Partnerships that worked with more than 1 million children around the UK.
As we have heard today, and in the last decade a number of northern cities have used the arts to drive their renaissance. These were cities such as Liverpool, the European City of Culture, which generated £800 million for the regional economy; Bradford, where the National Media Museum created an extra 536 jobs; the Birmingham Creative City initiative, which aims to create 100,000 jobs by 2020; and the Newcastle/Gateshead collaboration, which has created 1,200 new jobs. As we have heard from the noble Lord, Lord Wigley, not only the cities but small businesses and small enterprises from around the country are being revitalised, which can help to drive culture forward.
Unfortunately, instead of building on these initiatives, under this Government investment in regional and local culture has gone into sharp reverse. They have been hit by a perfect storm of squeezed funding. As we have heard, the Arts Council budget has already been cut by 30%, resulting in 21% staff cuts and a halving of their regional sites. Numerous arts organisations around the country have been forced to scale back their activity. Meanwhile, the cuts of 33% in local authority grants are squeezing local arts projects, with the LGA reporting that by 2020 up to 90% of cultural budgets will disappear and that high-profile councils such as Newcastle were already facing a 100% cut in their arts activities.
The regional impact of these cuts has been confirmed by the Audit Commission, which has said that,
“the most deprived areas have seen substantially greater reductions in government funding as a share of revenue expenditure than councils in less deprived areas”.
Can the Minister give details of any discussions held between his department and DCLG to seek to ensure that arts provision in the most deprived areas is protected?
Then there is the issue of corporate giving, initiated by the previous Culture Secretary, Jeremy Hunt. My noble friend Lady Quin referred to this. His idea was that the shortfall would be filled by boosting philanthropy. In fact, as we have heard, the contrary is the case. Figures released in 2011 have shown that corporate giving was down by 11% and individual giving down by 4%. There is also a widespread view among arts leaders around the UK that this strategy fundamentally misunderstands how philanthropy works, and how little it is likely to benefit smaller arts organisations outside London. Perhaps the Minister could clarify the department’s current thinking on this.
Finally, as we have debated on several occasions, the policy of Michael Gove, the Education Secretary, in excluding creative subjects from the EBacc sends a longer term message about the downgrading of the arts in the Government’s growth plan. As the noble Lord, Lord Rogers, has argued:
“Our writers, artists, designers, dancers, actors and architects are the envy of the world”.
I share the passion of the noble Lords, Lord Rogers and Lord Shipley, for the importance of arts in education. However, for the future it seems that these will not be the skills and attributes that the Government expect to drive our economic recovery. If the Minister disagrees with this analysis, perhaps he could explain what discussions have taken place with Michael Gove to ensure that creative skills are put back in the centre of the curriculum, where they belong.
If we are to measure the actions of the coalition so far, we can conclude that it does not see investment in the arts and culture as a central plank of regional regeneration. There has been little leadership on the issue from Ministers, little investment in new regional and local arts initiatives and no attempt to make it a statutory obligation for local authorities to fund the arts. It is a sad indictment, and a depressing legacy for a Government who took over at a time when the UK arts were renowned as being world-leading. What will change in the future to rebuild the confidence of the arts sector in the policies of the Government? What positive symbols of change might we expect to see by 2015, and how does the Minister expect the arts to generate the funding essential for them to play their part in ensuring that regions and localities can thrive again? I look forward to hearing what the Minister has to say.
My Lords, I congratulate the noble Baroness, Lady Quin, on securing this debate. I am confident that we will continue to work on many campaigns in great friendship. I would also like to thank your Lordships for your very kind remarks.
The role of art and culture in the wider economy cannot be overstated. The Government’s priority is growth; heritage, the arts and tourism are essential for this. Perhaps I may say straight away to the noble Baroness, Lady Jones of Whitchurch, that the recent Cabinet meeting in Leeds was precisely about regeneration and growth, for these activities are a valuable asset for local and regional regeneration. Indeed, the right reverend Prelate the Bishop of Wakefield particularly mentioned regional regeneration; the recent Cabinet meeting was an indication of that. The reception tonight of the Royal West of England Academy in your Lordships’ House highlighted for me just how vibrant and important the arts are in engaging in education, which my noble friend Lord Shipley referred to, and that these academies are at the heart of their communities.
In reference to what the noble Baroness, Lady Quin, has said about Gateshead and to what my noble friend Lord Shipley said about the north-east, that part of our country is extremely fortunate to have them both as champions. It is clear that the right reverend Prelate the Bishop of Wakefield is a champion of Yorkshire and of all that is going on there, including the Yorkshire Sculpture Park, the Hepworth gallery and other developments, as well as our great cathedrals. The noble Lord, Lord Wigley, is, of course, a champion of Wales.
My noble friend Lady Hooper referred to the Cultural Olympiad. In London this was a phenomenal success. I say again to the noble Baroness, Lady Jones, that was a positive symbol of is happening in communities up and down the country. Nearly 20 million people took part in more than 1,300 performances and events at over 1,200 venues across the United Kingdom. A lasting legacy of cultural and artistic engagement and participation, and working with the public, private and voluntary sectors, is the Government’s objective.
The Government’s policy on the future role of cultural projects and the arts in regional and economic regeneration is delivered by bodies that have the expertise and the regional presence to do so. These bodies include the Arts Council England, English Heritage and the Heritage Lottery Fund. In addition, VisitBritain aims to draw international visitors to Britain, while VisitEngland encourages domestic tourism. I say to the noble Baroness, Lady Quin, that it is not realistic for there to be cuts in all other areas of the public sector and for the arts, alas, to be immune. But I am conscious of what she and other noble Lords have said. DCMS Ministers are in discussion with the Local Government Association about how local authorities are approaching the pressures on existing budgets, and I acknowledge this.
The Arts Council has a strong regional presence and in turn is working closely with local authorities on arts funding priorities. I know that many councils recognise the important role that arts and culture have in creating and retaining jobs, and stimulating growth. I am very pleased that this Government restored the shares of the National Lottery distribution fund for arts and heritage to 20% each. A lot more lottery money is available to support the arts and heritage.
The noble Baroness, Lady Quin, also referred to funding. The Arts Council is responsible for allocating £2.9 billon of public and lottery funding to arts and cultural bodies over this Parliament, and is investing in capital projects, and supporting theatre, music, visual arts, dance and libraries. I say to the noble Baroness, Lady Jones of Whitchurch, that the Arts Council is investing in a creative people and places programme over the next three years, and £37 million will be allocated to priority areas around the UK where participation in the arts is lowest.
In the area of skills and access to finance, another strand of the creative people and places programme will provide match funding for businesses interested in offering apprenticeships and internships for young people. The aim is to support 10,000 placements between now and 2015. The priority of the Government is to encourage small and medium size enterprises, and many of your Lordships referred to this, including my noble friend Lord Shipley, the noble Lord, Lord Wigley, and the noble Baroness, Lady Jones of Whitchurch. The Arts Council is helping to address problems that artistic and creative businesses can face in accessing finance by providing business development loans of between £5,000 and £25,000 to help create creative enterprises.
A number of noble Lords, including the noble Baronesses, Lady Quin and Lady Jones, and my noble friend Lord Shipley, mentioned philanthropy. The catalyst programme has already seen £30 million being given to arts and heritage organisations to encourage match funding. On top of that, the scheme will also give £55 million to arts and heritage bodies up and down the country to build up endowments. Philanthropy all too often passes unnoticed, yet it is integral to some of our finest arts and culture. We should applaud the profound generosity of those donors across the country who already contribute almost £700 million each year to our cultural sector. I will have to write to the noble Baroness, Lady Quin, about the figures on private giving, if she will forgive me tonight.
Turning to tourism, the UK’s arts and cultural sector is, of course, essential to domestic tourism, as well as to that from overseas. Our diverse and magnificent cultural opportunities are a huge draw for visitors. Between 2011 and 2015, VisitBritain aims to attract an extra 4.6 million overseas visitors and £2.3 billion in extra visitor spend. I am proud to say that the top five UK visitor attractions in 2011 were national museums sponsored by DCMS which attracted 23 million visitors. Many of these institutions take exhibitions across the country. This year, Tate Modern is bringing the Turner Prize to Derry/Londonderry as the UK City of Culture for 2013. Last week, the Government launched the competition for the next UK City of Culture, which will happen in 2017.
My noble friend Lady Hooper highlighted Liverpool. Liverpool City of Culture 2008 saw a 23% increase in visitors over four years. That is a great achievement. The noble Baronesses, Lady Quin and Lady Jones, also referred to the City of Culture in that regard. The competition presents a unique opportunity for cities across England, Wales, Scotland and Northern Ireland to galvanise their culture, heritage, creative industries and tourism offer in a way that can help the local economy and create a lasting legacy for the future.
Our heritage presents the very best of our past and plays a crucial role in the future prosperity of our towns, cities and rural areas. The Heritage Lottery Fund provides funding for visitor attractions on a national and local scale, which has led to a doubling in the regional employment that is dependent on these attractions. I shall refer to two examples: at the National Railway Museum in Shildon, 79 jobs were created and £3.6 million was contributed to the economy of the county of Durham; and the Big Pit: National Coal Museum in South Wales offers a similar story, with 82 jobs created and £2.2 million contributed to Gwent. Visitor numbers went up by 83%.
The noble Baroness, Lady Jones of Whitchurch, made a point about the EBacc. This has come up many times before. The five core subjects account for about 70% of the curriculum. That means that schools have between another 20% and 30% of the curriculum, which I am sure will include creative arts and other activities that are clearly essential. The track record of creative enterprises in this country is very strong indeed. There will be announcements on this matter, but I am confident that we will continue to champion creative activity and the arts for young people.
I conclude by renewing my particular thanks to the noble Baroness, Lady Quin, and to all noble Lords. We have had a very good opportunity to air some legitimate concerns. We clearly all need to work extremely hard and effectively to assist the creative industries, the arts and all that goes with them in these difficult times. We have all accepted in our different ways across the party divide that they are challenging economic times. I emphasise, in particular to the noble Baroness, Lady Jones, that this Government strongly support the arts and culture sector. The investments I have outlined indicate that.
It is now my privilege to work with the Minister for Sport and Tourism and the Secretary of State, who was in Leeds on Monday talking to leaders in Yorkshire about tourism and the opportunities for that important county. These are positive examples of what this Government really think about arts and culture and regional regeneration.
Arts and culture are absolutely key to the reputation of our country overseas and they also make a key contribution to everyone in this country. This is an ongoing programme of work and there is very much more to do. Governments and Oppositions can never do enough. However, it falls to the Government and a number of key strategic bodies to ensure that culture and the arts remain a key element of economic growth and social well-being.
However, I believe that it goes beyond that. The arts and culture undoubtedly raise the spirit of the British people and they are a great source of pride to our nation. I believe these are sentiments that we in your Lordships’ House all share.
Electoral Registration and Administration Bill
Returned from the Commons
The Bill was returned from the Commons with the Lords amendments agreed to.
House adjourned at 9.41pm.