House of Lords
Thursday, 21 March 2013.
Prayers—read by the Lord Bishop of Bristol.
Probation Services: Outsourcing
My Lords, the Government are committed to tackling rates of reoffending, which remain too high. The Transforming Rehabilitation consultation, which closed on 22 February, sets out our proposals for revolutionising the way we rehabilitate offenders and we are currently considering the responses. We have proposed that providers will be obliged to report material breaches of community orders, suspended sentence requirements and licence conditions to the public sector, which will then advise the court or the Secretary of State. We are absolutely clear that relationships between the public sector and contracted providers are vital to make the reformed system work effectively.
I thank the Minister for that interesting Answer. As the Government are currently saying that the probation service would recall, but the private sector will supervise on a day-to-day basis, how would the service get the proper information to decide whether a recall to custody is justified? Would not such a system be open to legal challenge on the ground that the probation service was not involved in the day-to-day supervision and was therefore not in a position to recall?
My Lords, the public sector will continue to play a vital role in probation. This is about bringing together the voluntary community sector, the public sector and the private sector to ensure that rehabilitation works. While money has been spent on probation, a total of £800 million of the £3 billion budget, the results in terms of the effectiveness of probation have not been what we had hoped. I believe that this revolutionising agenda provides the right pathway for bringing together the three different sectors. However, the public sector will retain overall responsibility.
At the moment the situation is that all recalls which are received through the probation service are considered. I believe that the current figure is around 16,000 a year, of which some 5,000 sit within the prison population. The appeal processes are clear to prisoners. However, this is not the private sector taking responsibility away from the public sector or from the Government. Ultimately, the private and the public sector will work together on reoffending, as I have said. Moreover, we are seeing some great results. Peterborough provides a practical example of the three areas working together and showing positive results.
My Lords, is the Minister happy that the licence arrangements generally that we have in place in this country are effective and appropriate, in particular given the large number of recalls to prison from licence? This must add to the strain on prison places. Yesterday, I heard a criminologist from Finland describe the number of recalls in England and Wales as astonishing.
My noble friend raises a very important point. If we look at reoffending generally, 50% of offenders who serve a 12-month sentence still go on to reoffend. Currently, as I have already alluded to, the recall figure is in excess of 16,000, of whom 5,000 represent the 85,000 or so of the prison population, which is about 5%. No, it is not good enough, but we believe that the Transforming Rehabilitation programme that we have put forward, the consultation on which, as I said, closed on 22 February, will provide a practical way of addressing reoffending. It costs us, as an economy and as a society, very heavily.
Does the Minister appreciate that the recall of a prisoner is a quasi-judicial act, at the moment vested by law in the probation service? Henceforth, when this scheme operates, who will be exercising that power of recall, by what authority will it be exercised and what training will be given to that person to discharge that not uncomplicated task?
First and foremost, public safety will not be compromised in any sense. What we are putting forward in no way jeopardises that. As far as recall is concerned, once we have completed this particular consultation exercise, we will look at the concerns which have been raised. I will write to the noble Lord, detailing some of the specific proposals on that point.
The noble Baroness raises an important point. We need to ensure that when there are breaches of sentences, they are looked at effectively and in a structured way if recalls are issued. I have already alluded to two facts: circa 16,000 recalls are issued annually and, once they are assessed, the prison population currently represent only 5,000 of that figure. I believe that we have robust procedures in place to ensure that any recalls issued are reviewed and that the people who then are sent back to prison are sent back because they have reoffended. I am sure that all noble Lords will agree about the reoffending rates we see across the country. I was startled, in my own experience in local government, to see the level of youth offending, which was in excess of 70%. If you bear in mind that close to 50% of people go on to reoffend, we really need to take some drastic action to address this issue.
Is the Minister aware of the very low reoffending rate in cases such as the scheme operated by National Grid, where young offenders are trained to become very useful people? Does he know whether that scheme, or any similar schemes, operate with people who are on licence or is it only when people are completely finished?
Again, my noble friend raises a very important issue. I am aware of the scheme with National Grid, which addresses prisons and reoffending. To put this into context, when I visited Peterborough, I saw something very effective for prisoners coming in. If prisoners have committed the crime they have to serve that time, but it is not about leaving them at the prison gate. It is about identifying what skills and needs they have and then, by the time they leave prison, ensuring that they become productive, constructive members of society. That is what Transforming Rehabilitation is all about.
The noble Lord gave an interesting response to my noble friend Lady Corston but he did not actually answer the question. The question was specifically about the circumstances in which women might be recalled for relatively minor offences in situations where they might have been exercising their duty as a parent or carer. Will that be the case or not?
I fully understand and respect the sensitivity around the issue of female offending. Currently all probation trusts are required by NOMS Commissioning Intentions to make appropriate provision for women. I am also pleased to say that my honourable friend in another place, Helen Grant, the Minister who is looking at this issue, will be making an announcement in this regard. She has recently visited centres in Gloucester, Reading and London where this issue is being looked at sensitively. The announcements we will be making shortly as part of the consultation exercise will address many of the specific concerns that have been raised.
House of Lords: Oral Questions
My Lords, the guidance in the Companion on supplementary questions is crystal clear. We all of us in this House have a shared responsibility to follow it. I have written to the Leader of the Opposition, the Convenor and my noble friend the Deputy Leader to ask for their support in reminding Members of that guidance. I have also encouraged Members on my Front Bench to provide succinct answers so that more supplementary questions can be asked.
My Lords, exhortations by the Front Bench to be brief simply do not work. Members ignore them. Some thoughtless people hog Question Time, bully the House and ego-trip with long, garrulous statements—all in breach of the Companion. If both Front Benches are unable, due to wishing to be courteous, actually to enforce the Companion, why cannot someone else take on that responsibility? I suggest the Lord Speaker.
I have a number of points, my Lords. First, on the question of having a Lord Speaker, I know that the House looked at it in the previous Session and concluded by a considerable margin that it would prefer to keep things as they were. As for regulating the House, it is the responsibility of all those on the Front Benches not to speak too long and not to hog questions and take them away from the Back Benches, but it is also the responsibility of the whole House to make its views known if it thinks that Members are going on for too long or are asking too many questions.
As is often the case, my Lords, I do think that less is more. The Companion is extremely clear. It says that supplementary questions should be,
“short and confined to not more than two points … they should not incorporate statements of opinion. They should not be read”.
I think all of us will want to remember that.
If the noble Lord had been able to count the number of words that I gave in my Answer, he would see that it was spot on 75. The noble Lord has just forgotten his own self-injunction about pointing. I have spoken to my Front Bench, and I agree very much about the need for those initial Answers to be succinct. I also think that the shorter the questions, the tendency will be the shorter the answers. Long questions tend to lead to long answers.
My Lords, does the noble Lord agree that it becomes an embarrassment for people like me and the noble Lord, Lord Geddes, when we try to correct Members of the House, to be criticised by other Members for what we are doing when we are supposed to be self-regulating? It would be much easier if the Front Benches did a bit more.
My Lords, I think there are a number of reasons why supplementary questions are asked. I looked at some figures that took a snapshot of the first six weeks of this year. They showed, somewhat to my surprise, that nearly 230 Members of your Lordships’ House had either asked Questions or supplementary questions in that period, which I thought was rather an encouraging figure and higher than I expected. There is, however, a point which the noble Lord, Lord Campbell-Savours, raised: not all those 230 Members asked one question.
My Lords, I welcome all that the Leader has said. I just wish to place on record that I think that all Members would wish to ensure that those of us who feel a little nervous about asking supplementary questions should be encouraged to do so, and that we should have a much more accepting view in this House of those who feel somewhat reluctant to ask questions.
I agree with the noble Baroness entirely. One thing that Members of this House can do, particularly those who contribute more frequently in Oral Questions, is to observe our courtesies and give way to some Members who perhaps do not ask questions so often. I urge all Members to do so.
Food: Fast Food
My Lords, the responsibility deal’s calorie-reduction pledge challenges businesses, including fast food companies, to take action to help people eat fewer calories. This includes product reformulation. Responsibility deal partners report annually on the progress that they have made against their pledges. Annual updates for 2012-13 will be published on the responsibility deal website in summer 2013.
My Lords, the plain fact is that not a single fast food operator has signed up to the calorie-reduction pledge. I asked McDonald’s why and it said that it was because of concerns about the lack of clarity and vagueness in some of the Government’s definitions. If the calorie-reduction pledge does not work with fast food operators, how else can we make certain that they reduce calories in the 5.5 billion meals they serve every year in the UK?
In fact, my Lords, 32 businesses have signed up to the pledge to help people consume fewer calories, which is a responsibility deal priority. They include seven of our major retailers and some of the nation’s biggest food manufacturers, as well as Subway, which is a fast food company—so we do have one. It is a deliberately wide-ranging pledge, allowing companies and their customers to reduce calories through a broad range of actions. I say to my noble friend, however, that we will have fast food companies very much in our sights over the coming months.
My Lords, helping people to make informed choices on what they eat is really important. However, we have learnt in recent times that what is on the label is not always what is inside. I have stated previously that so-called healthy products such as low-fat yoghurts and cereals are jam-packed with sugar, which has huge implications for the threat of diabetes. Will the Minister consider statutory food labelling which is easy to understand?
My Lords, we certainly have not ruled out regulation in this area, but we can be encouraged by the progress that we have made to date through the responsibility deal in terms of calorie labelling. Some 47 businesses signed up to labelling calories at the end of 2012, while 5,000 fast food and takeaway outlets and around 9,000 high street outlets, including pubs, restaurants and coffee shops, will display calories.
My Lords, the national referral mechanism is a multi-agency framework designed to make it easier for organisations involved in a human trafficking case to co-operate, share information about potential victims and facilitate their access to tailored support. Between 1 April 2009 and 31 December 2012, 939 children were referred to this system by a range of front-line agencies.
I thank the Minister for that response. Will she join me in welcoming the steps that Eurostar is taking to improve measures to prevent child trafficking at St Pancras International station? Will she ensure that the UK Border Agency co-operates more fully with both Eurostar and the British Transport Police and does nothing to hinder any of these initiatives?
My Lords, human trafficking of adults and, especially, children is one of the vilest crimes. I congratulate my noble friend on her tireless efforts in this area. I most definitely welcome the steps being taken by Eurostar to improve prevention via St Pancras and will of course ensure that the UK Border Agency and the UK Border Force continue to work closely with all parties trying to prevent this crime. Indeed, UKBA is committed to developing its practices in support of victims. I can announce to the House today that from 1 April the UKBA team that handles trafficking decisions will be exclusively dedicated to that task and will not combine its work in this area with any other.
My Lords, I declare an interest as co-chairman of the parliamentary group against human trafficking. I am delighted to hear what the Minister has just said about UKBA and its concentration. Is she aware that many children do not go through the NRM but those who do go through are accommodated by local authorities, which do not have parental responsibility for those children under the Children Act 1989. Does she accept that it is very unsatisfactory that these children have no one with parental responsibility in this country other than, potentially, the traffickers themselves?
The noble and learned Baroness, Lady Butler-Sloss, highlights an important point, which is that we need to ensure that victims of trafficking are referred into what we call the NRM, the national referral mechanism, because it is through that mechanism that they then receive the support and care that they need. She might like to know—I am sure she is already aware of this—that, as part of the Government’s ongoing efforts to improve the way in which we support the victims of this terrible crime, we have commissioned the Refugee Council and the Children’s Society to review our arrangements in this area so we can ensure that best practice in certain local authorities is repeated in all areas. Their report is due to reach us some time later this year.
I like to think of myself as a plain speaker and I understand very much the point that my noble friend is making. However, the term “human trafficking” is one that is recognised internationally. Whether it is called “human trafficking” or “slavery”, the most important thing is that it is a vile crime and we need to stop it.
My Lords, in this week when many of us have been celebrating the role of Dr David Livingstone in ending slavery in east Africa in the 19th century, will the Government make that association between human trafficking and slavery in the 21st century and ensure that international institutions, such as the European Union, the United Nations and others, give appropriate attention to global action, not just national action, to end this horrendous trade in human misery?
The noble Lord is right. This crime crosses borders and is based on international gangs. In the UK, our law enforcement agencies continue to work with their counterparts overseas on joint investigations to ensure that we tackle this by prevention and not just support people once they are victims of this terrible crime.
My Lords, as the Minister will know, and as my noble and learned friend Lady Butler-Sloss mentioned, children who are accommodated in care are not made the responsibility of the local authority. When they then go missing, the police often do not follow them up with great astuteness. I have just read in the newspaper that there are to be two categories of missing person for the police. There will be those who have just gone missing and are lost and those who are worth following up. Will the Minister ensure that these children are in the category of those who are worth following up and are the responsibility of a local authority?
The Home Office is working with partners to address the issue of all children going missing from home and care through its missing children and adults strategy. In addition, work is being taken forward by the Department for Education to improve the quality and consistency of data about when and why children go missing from care. We are very much aware that children who are victims of trafficking sometimes go missing when they go into care because they come into contact again with those who trafficked them. Our priority is to ensure that that does not happen. Those children are very much our priority.
My Lords, I thank the noble Baroness for the answers that she has given at the Dispatch Box today. This issue unites rather than divides the House. However, the scale of the problem is shocking. We are talking about children sold into slavery or prostitution, or who disappear altogether. Bearing in mind the Government’s proposal to withdraw from the policing and justice provisions of the European Union, will she discuss with her colleagues how we will continue our co-operation with other European countries, given that, as she said, European and worldwide co-operation is so important in tackling this issue?
As the noble Baroness will be aware, we have signed up to the European directive on human trafficking and will be fully compliant by next month. We attach such importance to this issue that we wanted to ensure that the work that we are doing to co-operate across all boundaries was properly reflected by our subscription to that EU directive. There is no suggestion that we would want to do anything to weaken our commitment in that area.
My Lords, the whole House will agree that people who traffic those children are usually not only heartless but extremely determined and controlling. Does the Minister agree that those who are in the forefront of trying to identify and protect these children need to be even more determined than those who are trafficking them? Can we be assured that examples such as the one referred to will be made more general across the country and that the legislation will be reviewed more thoroughly?
The noble Lord is absolutely right that our priority has to be about raising awareness of this crime and ensuring that those who are at the front line in a range of different agencies can spot where somebody is being trafficked as, sadly, this is a crime where victims sometimes do not know they are victims. That links to a Question I answered some months ago about child sexual exploitation and the victims of that crime not necessarily knowing that they are being abused in the way that they are. We are investing money in making sure that the professionals at the front line are improving all the time in identifying them. Evidence of that is the fact that more people are being referred to the NRM than have been up to now.
My Lords, given the scale of the problem that noble Lords have mentioned, is it not surprising that since 2009 only 10 people have been convicted of trafficking children into the United Kingdom? Does that not suggest that there is a great deal more work to be done?
My noble friend is right. The level of conviction in this area is sadly low, although there are other convictions. People may have committed trafficking offences, but their conviction is for other offences: rape and so on. My noble friend’s point is valid, and I share it.
My Lords, is it possible for the Government to give a firm commitment that vulnerable people, particularly children, who have been trafficked will not be deported back to the country from which they have been trafficked as they are then likely to fall back into the hands of those who have trafficked them?
I refer the noble Lord to the point I made at the beginning about the UKBA now having a team dedicated exclusively to decision-making around victims, which is important in this area. In addition, it is important for me to be clear that the UKBA has a “victims first” attitude. We address the needs of the victim and investigate the crime against them before any consideration is made of an individual’s immigration status. That is secondary in situations such as this.
I have a background question. As the Minister knows, the Children Act was passed in 1989 and came into force in 1992. Many things have changed since then. Is it intended that there should be a general and comprehensive review of the operation of that statute incorporating the matter raised by my noble and learned friend Lady Butler-Sloss?
I am not aware that we have any plans to review that legislation in the way that the noble Lord proposes, but part of what the interdepartmental ministerial group which looks at human trafficking does is continual monitoring of the legislation to see that it is proper and appropriate for tackling this vile crime.
Business of the House
Timing of Debates
Motion to Agree
My Lords, the Liaison Committee’s report this time last year reviewed existing Select Committee activity and recommended an additional unit of committee activity, and a reduction in the resources available to the European Union Committee and the Science and Technology Committee to enable the redeployment of resources to support two new ad hoc committees and the appointment of an ad hoc post-legislative scrutiny committee. Over the past two months, the Liaison Committee has reviewed existing Select Committee activity in the light of these changes. Both this year and last, we discussed the work of the Communications Committee with its chairman, the noble Lord, Lord Inglewood, and concluded that the Communications Committee should be appointed as a sessional committee at the start of the 2013-14 Session. I have to point out that there is no resource impact arising from this recommendation.
We also considered a proposal to extend the orders of reference of the Joint Committee on the National Security Strategy to enable it to appoint a sub-committee. The Joint Committee already meets more than the three to four times a year which was originally envisaged and is well supported by Members of your Lordships’ House. The House of Commons Liaison Committee considered the Joint Committee’s proposal for a power to establish a sub-committee at its meeting on 27 February, and declined to support it. The House of Lords Liaison Committee did not support an increase in the Joint Committee’s resources and instead suggested that further thought should be given to the size and composition of the Joint Committee’s membership.
Last year, we recommended that, from the start of the 2012-13 Session, the number of sub-committees of the European Union Committee should be reduced from seven to six. We also recommended that the Science and Technology Committee should be allocated the resource of a single Select Committee. As we acknowledged in our report, this decision caused considerable unhappiness. As the noble Lord, Lord Krebs, chairman of the Science and Technology Committee explained, previously, the committee had the resources to conduct two units of activity at once. The reduction in resource to three staff members had required the committee to undertake one unit of activity rather than two, and the committee no longer had a sub-committee. In the past, the committee has typically alternated a long inquiry with a short one. The committee has been severely constrained in the present Session by having to drop the second simultaneous inquiry.
We recognise the important contribution of the European Union Committee and Science and Technology Committee to the committee work of the House. We believe, however, that the restructuring of committee activity which took effect at the start of the present Session needs further time to bed down. The reduction in resources for the EU and Science and Technology Committee in the present Session enabled an expansion of ad hoc committee activity. This has been a step change for the House of Lords, and has included the first ever House of Lords post-legislative scrutiny committee. The noble and learned Baroness, Lady Butler-Sloss, chairman of the Select Committee on Adoption Legislation, the noble Lord, Lord Cope of Berkeley, chairman of the Select Committee on Small and Medium Sized Enterprises and Exports, and the noble Lord, Lord Filkin, chairman of the Select Committee on Public Service and Demographic Change, were unanimous in their enthusiasm for the work of their committees, the commitment of the members and the support provided by the committee staff. We consider that the three new ad hoc committees have worked very well during this Session.
I encouraged Members from all sides of the House to put forward ideas for new committee activity for the next Session, and was delighted by the response. We considered the proposals received against the criteria set out in the original Leader’s Group report on the matter. I am delighted to report that the House Committee has agreed in principle that funds can be made available to support the work of a further additional unit of committee activity in 2013-14. This is at a cost of approximately £225,000.
This increase in activity can be managed without affecting the House’s overall aim not to increase our resource costs in real terms, partly as a result of savings that have been made in other areas. As an example, Members will be aware of savings being made through reducing the number of days on which mail is forwarded and removing linen hand towels, and of significant savings being made by making more documents available online, thereby leading to the reduction in printing costs. I am fully aware that not all of these savings initiatives met with universal acclaim at the time, but it is true that the savings that we have made in these areas have enabled resource to be redirected to support the core activities of the House. That is something to recognise and support.
The new Select Committees that are going to be set up are in addition to the extra unit of committee activity agreed to by the House Committee and the House this time last year. The Liaison Committee also decided to recommend two shorter, ad hoc committee inquiries to run consecutively. This means that we have been able to recommend ad hoc committees on five subjects, as follows: first, a committee on the use of soft power in promoting the UK’s interests abroad; secondly, a committee on the strategic issues for regeneration and sporting legacy from the Olympics and Paralympic Games, to report by late 2013; thirdly, a committee on the consequences of the use of personal service companies for tax collection, following the completion of the work of the committee on the Olympic and Paralympic Games legacy; fourthly, a post-legislative scrutiny committee to examine the Mental Capacity Act 2005; and, fifthly, a post-legislative scrutiny committee to examine the Inquiries Act 2005. This is in addition to the important pre-legislative and other scrutiny committee activities.
As Chairman of Committees, I am all too well aware of the fact that it is impossible to please all your Lordships all the time. However, I know that the Liaison Committee has put in hard work in recent months to produce a report which, I hope, may please some of your Lordships for some of the time. On that basis, I beg to move.
As the Liaison Committee is a committee of your Lordships’ House, could the noble Lord give a little more of the reasoning behind its failure to approve an ad hoc committee requested by my noble friend Lady Cox, who cannot be here today? The request was for an ad hoc committee into religiously sanctioned gender discrimination against women. I ask this question as one of the 70 Peers who supported that request. It is therefore surprising that the report that we are considering says that only two Peers supported the request, whereas in the letter from my noble friend Lady Cox to the committee of 22 November, she named three eminent Peers who supported her committee, the noble and learned Lord, Lord Mackay, and the noble Lords, Lord Carlile and Lord Dholakia, and said that 67 other Peers supported it. As far as I can see, of the committees that have been selected, not one was supported by a single other Peer. Therefore, I wonder whether the Liaison Committee has got this right.
Finally, I am sure that your Lordships would be disappointed if I did not bring the European Union into this somehow. Therefore, I once again must ask whether your Lordships really need seven European Union committees, whose suggestions and considerations are largely ignored in Brussels, whereas the House of Commons makes do with one European Scrutiny Committee. I have to ask the Liaison Committee to think again on this one—or, if not, to consider a request for this very widely supported and important committee at the earliest opportunity.
My Lords, not for the first time, I draw the attention of the House to the fact that, inexplicably, the House of Lords does not have a committee that deals with foreign affairs. There is a committee down the Corridor on foreign affairs, of which I had the honour of being a member for 10 years before I came here. We have Sub-Committee C, which met earlier this morning and which deals with European Union aspects of foreign affairs, defence and trade. However, when one looks at the whole world—which none of our Select Committees has a mandate to cover—the rise of China and the growing importance of India and South America, for instance, are issues that Sub-Committee C is not able to cover.
If I may say so, there is infinitely greater expertise in foreign affairs in this House than there is down the Corridor. I find it absolutely astonishing that whenever this issue is raised, we are told that we should not duplicate the work of the House of Commons. That is absolute nonsense. I urge the Chairman of Committees to consider this matter. I have talked to him about it privately. I hope that something will be done about it because it constitutes a major gap in the work of this House.
My Lords, I warmly welcome the Liaison Committee’s report. This is exactly the sort of steady early success and progress that those of us on the Goodlad committee, which recommended this initiative, hoped for. It is very good to see it.
I thank the House and the Liaison Committee on behalf of my committee, which produced its report, Ready for Ageing?. It was a great privilege to have the opportunity to do that. We are delighted that the membership of the committee was so well supported by the staff and that the issue has caught the public’s attention. However, I draw attention to a small problem with ad hoc Select Committees which I hope can be discussed at a later date. My committee, which published its report last week, has now ceased to exist. If the aim of the House in undertaking Select Committee work is not simply to publish a piece of paper but to have an impact on public policy and debate, that is a fundamental problem. To illustrate it crisply, how the Government respond and how the political parties think about such an issue is of fundamental importance. Although my committee has ceased to exist, it will continue to meet because we recognise that in the next two months or so we need to meet Sir Jeremy Heywood, Sir Bob Kerslake, a couple of Permanent Secretaries and senior figures from each political party. As I say, the clerks have supported us superbly. I know how to use a telephone but, clearly, if you want your ad hoc committees to have an impact, you have to provide the sort of support I have suggested: that is, an administrator for one day a week for six months to support the follow-through.
My Lords, I would not like the plea of the noble Lord, Lord Jopling, for a foreign affairs committee to go unsupported by other Back-Benchers. I fully endorse his view; we need such a committee. My experience as chairman of your Lordships’ Select Committee on the European Union was that we often found ourselves having to draw back from the frontier when there were issues that we felt needed attention because it was simply not within our mandate to go into them. It would be a great comfort for the House to know that the plea of the noble Lord, Lord Jopling, will be taken seriously and not just handed on down the line once again, year after year, without any positive response.
My Lords, I support the noble Lords, Lord Jopling and Lord Grenfell, in what they have said about the need for a foreign affairs committee in this House. Since arriving in this House, I have found it very odd indeed that the only way in which foreign affairs can be looked at is through the prism of the European Union. That is sometimes the right prism, but not always. As the noble Lords, Lord Jopling and Lord Grenfell, said, there is a very strong case for a committee on foreign affairs.
My Lords, the noble Lords, Lord Jopling, Lord Grenfell and Lord Jay, have put their finger on a fundamental point. I know that the Chairman of Committees—the noble Lord, Lord Sewel—is struggling in this very difficult task of trying to make all ends meet and to accommodate all the pressures, but there is the most enormous gap with regard to foreign affairs. The world is changing. We have plenty of complex business to do with Europe and we should have good committees focusing on that. However, the IMF tells us that the whole of Europe will contribute only 17% to the world’s GNP in four years’ time. It is, alas, shrinking in an expanding world. There is a vast new area of interest to cover. Our friends in the other place can cover some of it but under their remit they cannot begin to cover all the issues. The expertise, wisdom and understanding about how we cope with this new world are here in this House. Not to have a committee focusing on it is, to my mind, verging on a tragedy. The matter should be given consideration in the future, in the way that my noble friend Lord Jopling put with such eloquence.
My Lords, I do not disagree with what has been said about a foreign affairs committee—quite the reverse, I agree completely. I want to range a little more widely. First, I welcome the fact that the House is discussing the report of one of our domestic committees. We should do this more often. There are a lot of things happening around and about the House that individual Members of the House know very little about. It is good that the Chairman of Committees comes here and explains what is happening in the Liaison Committee. Lest anything I say subsequently be construed as criticism of the Chairman of Committees, I say quite equivocally that he is doing a good job—on the whole.
We have discussed the future of the Lords on innumerable occasions. We have referred to our work in dealing with, reviewing and revising legislation. We have excellent debates—and commend ourselves and pat ourselves on the back for their excellence. But one of our most important responsibilities is the third responsibility: scrutiny. The Chairman of Committees will have received a letter from the chairmen of all the Select Committees, asking for more debates on Select Committee reports. The letter states that it is repeatedly recognised, both inside and outside the House of Lords, that our Select Committees are among the most important, effective and well-regarded elements of our work. Therefore, they should be given greater support by the House, the Liaison Committee and the officers and administration of the House.
Will the Chairman of Committees confirm that the Liaison Committee has been cash limited in its consideration of this matter, so that to create new committees—I welcome all five of them—it has had to cut back on the good work of all the others? The Science and Technology Committee, which has done a great deal of good work, has been cut, as the Chairman admitted. The noble Lord, Lord Krebs, and others complained about that. It did remarkably good work, hailed as excellent not just in Britain but abroad.
The European Union Select Committee now has one sub-committee fewer. That means the other sub-committees work harder. I am surprised that the noble Lord, Lord Pearson of Rannoch, does not like them because these sub-committees scrutinise in great detail what comes from the European Union, challenging and questioning it. I would have thought that that was what he was in the business for. We do a good job on his behalf—well, almost—challenging and questioning what comes out of Europe.
My Lords, the noble Lord is very generous. The point I made was that we have seven European Union sub-committees whereas the House of Commons makes do with one. I also made the point that the conclusions of our seven European Unions sub-committees carry very little weight in Brussels. Furthermore, the scrutiny reserve has been overridden over 400 times in the last two years. Of course I agree that the other committees of your Lordships’ House are hugely valuable. They are taken very seriously nationally and we should have more of them. However, I believe that we should have fewer European Union sub-committees. I do not see why we cannot make do with one, as the House of Commons does.
My Lords, I think I was too generous to the noble Lord, Lord Pearson. I have been in Brussels twice recently. Everyone I came across there—the officials and commissioners—without hesitation or exception said that they recognise and respect the work of the House of Lords European Union Select Committee and its sub-committees. That came out loud and clear and I pass it on. The trouble is that we are limited. We wanted to travel more but cannot because of the limitations on cost.
Perhaps I may now deal with the Joint Committee on the National Security Strategy. I was really astonished by the response from the Liaison Committees here and in the other place. There is a National Security Council, which the Government have set up to take an across-the-board look at all aspects not just of defence and foreign affairs, but of energy security, cybersecurity and a whole range of things. The National Security Council is a powerful body in the country, and the Joint Committee is the parliamentary scrutiny and control over it. The committee just wanted to set up a sub-committee, but because of a lack of resources it is not allowed to do so. The committee consists of people with great expertise—chairmen of Select Committees in the House of Commons, people who used to be heads of, or used to work for, intelligence agencies in this country, and people who worked on the Intelligence and Security Committee. The Joint Committee is one of the most influential committees and is being constrained in its work.
I know that the noble Lord, Lord Forsyth, has a word or two to say. He always has an awful lot to say, and I am looking forward to what he will say once I have finished. I hope that further consideration will be given to this matter because the Joint Committee on the National Security Strategy should either be given powers and resources to get on with the job or it might as well be wound up. Even some members of that committee said that the other day. More money should be put into this area.
I do not know whether other Members agree, but there is money available for any issue to do with security here—for example, if Black Rod wants to try yet another way of getting cars in and out. If heads of state visit, money is available without question or challenge. However, if it is just a matter of us continuing to be more effective in our scrutiny, there is a challenge or question about money. We ought to try to have a little thought about our priorities and a discussion about making more resources available for the most valuable work that this House does in scrutiny.
My Lords, I support what the noble Lord, Lord Foulkes, said. I would take an approach totally different from that which the Liaison Committee seems to have taken. The House of Lords exists; it has just survived a major onslaught and an attempt to dismantle it. For the moment, we are here. It is an incredibly valuable and low-cost outfit, and it is mad not to maximise its capability to do committee work. The constraint should be the availability of Members of the House of Lords to do that work, not some cash-limit approach. We have something that is extremely valuable, and the committee should take a totally different approach on maximising the output of the House of Lords in the national interest.
My Lords, I am very happy to sit at the feet of the noble Lord, Lord Foulkes, when it comes to having lots to say. I have two short questions for the Chairman of Committees. I wrote to him suggesting that we had a foreign affairs committee. In a global world where we have to make progress outside the European Community from an economic point of view, it seems extraordinary that we do not have such a committee. I understand the reasons for constraint on resources, but can he explain why it costs £225,000 to run a Select Committee of this House? Where does the money go?
My Lords, perhaps I may add a few words in support of a foreign affairs committee. For a considerable time, I have been closely associated with debates on foreign affairs from both the Government and Opposition Benches. Each year it seems less intelligible that we do not have the resource to do the detailed and interrogative work that is needed in a committee format. There is great expertise in the House; that is without question. There is a great deal of experience in the House and I do not question that either. We all rely on a variety of sources, particularly in opposition when you do not have the resources of the Foreign Office to rely on in preparation for debate.
However, what is plainly absent is detailed interrogation in relation to significant problems, and the noble Lord, Lord Jopling, illustrated the two that have perplexed me to the greatest extent. We do not have the ability to interrogate with regard to that sort of information, making use of resources from outside in order to compile the most authoritative set of descriptions of those problems. It is a fundamental limitation, and it is one that spreads right across the House—not just to the Front Benches but to the whole of the Back Benches—and it is no surprise to me at all that that is why support for this proposition is heard on all Benches this morning. It is high time that that change was made. I regard it as urgent.
My Lords, for almost 50 years I have served in five different types of parliamentary institution: the House of Commons, the European Parliament in Brussels and Strasbourg, the Council of Europe Parliamentary Assembly, Stormont and, now, your Lordships’ House. Out of those five, without doubt the best parliamentary assembly for the quality of debate is your Lordships’ House. The worst, I am sorry to say, is the European Parliament because nearly all its work is done through committees. It meets in full session on only about four days in each of 10 months a year. Therefore, I caution against overloading this House with committees and reducing the time that your Lordships’ House sits in full session.
My Lords, I believe that someone has to answer the point made by the noble Lord, Lord Pearson, in making a comparison between the European Union Select Committee in this House—I declare an interest as a member of that committee—and the European Scrutiny Committee of the House of Commons. I will not take up too much of your Lordships’ time but the procedure is entirely different. The European Scrutiny Committee does not undertake individual inquiries and scrutiny of individual matters in the same way that your Lordships’ committee does. Therefore, the comparison is not a true one, and I believe that that should be made clear if we are discussing this matter.
Secondly, it is not just a question of whether or not notice is taken in Brussels. Our business is also to hold Her Majesty’s Government to account in regard to the attitude that they take to proposed legislation, to raise questions about that legislation, to get the Government’s answers and know the position they are taking, and perhaps to make recommendations. Therefore, the position of the European Union Select Committee and its sub-committees is very different from that of the House of Commons committee, and its work could not be done by reducing it to one simple committee, as is the case with the European Scrutiny Committee in the other place.
My Lords, does my noble friend agree that it is important that adequate time should be available to debate the reports of these committees? Can he say what mechanism exists for ensuring that, if a gap suddenly appears in the House’s programme, that space is filled if reports are waiting to be debated? I raise this because we suddenly find that we have an extra week’s recess in a few days’ time. Were there any reports which could have been debated at that point?
My Lords, perhaps I may add a small footnote to the comments of a number of noble Lords urging the formation of a foreign affairs Select Committee. I was in Oxford yesterday, where I was vigorously assailed by a leading member of another place about our failure to give sufficient consideration to Commonwealth matters. I explained that we debated them not infrequently. I also explained the enormous amount of work done, and commitment shown, by my noble friend Lord Howell. However, I think that it would go even further in helping to correct that false impression if we established the committee for which so many noble Lords have called.
My Lords, it is sometimes a very lonely job being the Chairman of Committees. I just want to say that I and other members of the Liaison Committee are here and, as I know the Chairman will say, we will certainly take all these things into consideration when we next discuss these issues. I did not wish the Chairman to feel that he was alone in these matters.
I thank the noble Baroness very much. First, perhaps I may deal with the matter raised by the noble Lord, Lord Foulkes, mainly because of the ringing endorsement he gave me for the way in which I have carried out the job. Knowing his interest in football and a far from gloriously successful football side, it felt a little bit like being the club manager whose team is languishing somewhere in the relegation zone, as soon as he started to make those comments.
It is true that the chairmen of virtually all our Select Committees have written asking that time be made available for the debate on their reports, that time has not properly and fully been made available at the moment and that there is a delay. To a very large extent, that is true. It will be discussed by, I think, the Procedure Committee at its next meeting. That is under way and being considered. The precise timing of when reports are debated on the Floor of your Lordships’ House is a matter for the usual channels and is not within the scope of any of our domestic committees. I am sure the usual channels would recognise the points that were made, particularly in relation to the additional week’s recess.
As regards the points made by the noble Lord, Lord Pearson of Rannoch, I will not go into details on the EU Committee, save only to say that if he is saying that the views of our EU Committee are not considered fully in Brussels, he should look at the proposals for the reform of a very difficult area of policy: the common fisheries policy. He will see that the Commission’s proposals follow almost word for word the recommendations made by this House’s EU Committee when it looked at the reform of the common fisheries policy some years ago. Therefore, at least in one highly controversial area of policy, the EU Committee’s voice is not only being heard but is being effective and carried out through implementation.
The noble Lord, Lord Pearson of Rannoch, also made various points about one particular topic not being selected. I am afraid that the quality of the submissions was such that there are bound to be a number of people who feel disappointed. We had 27 submissions for Select Committees, the vast majority of which one could have said yes to quite easily. It was a very high quality list of submissions, and it is inevitable that people will be disappointed. I have to say that the committee had previously set its face against being swayed by the number of people who had just signed up to support a topic. It really wanted to look at the quality of the topic, the importance and relevance of the topic and how it could bring forward a mix of topics that covered a broad and comprehensive range of subject areas.
Several noble Lords referred to foreign affairs. I hear and I welcome the comments that have been made and the argument to have a foreign affairs Select Committee. The established position of the House, which was repeated by the noble Lord, Lord Jopling, is that we do not duplicate the work of the House of Commons. In fact, we very rarely duplicate its work in the work of our Select Committees. We tend to bring a different perspective, a different set of skills and a different set of experiences to the consideration of what might seem to be the same topic or the same policy area, and a very different product is produced.
We have moved, let us say cautiously if not slowly, in establishing an ad hoc Select Committee in the foreign affairs area by looking at the use of soft power in supporting Britain’s influence in the world. That is something of an experiment. Let us see how that goes, see if it produces a distinctive value-added piece of work, and perhaps build from there out to have a more universal coverage of the foreign affairs policy agenda. That is something that I think we can judge perhaps better this time next year.
The noble Lord, Lord Forsyth, asked where the money goes. I would expect the noble Lord to pose a helpful question like that. First, the average cost is just over £200,000 per year, which gets swallowed up, most of it by staff salaries, clerks’ salaries, national insurance, pensions, lawyers, specialist advisers, witness expenses, travel, printing and postage. Those sorts of things all add up and pretty quickly come to what looks like a formidably large figure when you read it out, such as £200,000 for the cost of a Select Committee. Of course, that is nowhere near the real cost of a Select Committee if you try to put a monetary value on the contribution that Members bring to the deliberations of all our committees. I will quickly look to see what else I have.
The noble Lord, Lord Filkin, raised the very real problem of how you follow up once a Select Committee has reported. That is of significant importance, because clearly we would hope that the topics for the ad hoc committees in particular are selected because they are of sufficient importance to lead right the way through, from examination to the formulation of an approach, to implementation and to how far the work of the Select Committee has influenced the development of policy and the activities of government. You cannot just stop it dead once the report is in. However, a number of significant problems have to be sorted out before we can do that. One is that a Select Committee cannot sit quasi for ever, saying, “Well, we haven’t quite got that bit sorted out, and we need to do more work on that”. This is a real problem. The committee is meeting on 11 June, and at that meeting we can at least start to think about how we can address that issue.
I return to the question of cost. If the cost was an average figure that was arrived at by taking the number of committees and dividing the cost, and if the argument against having a foreign affairs committee is one of cost, presumably the soft power committee will cost the same as the foreign affairs committee, on the basis of the numbers that the Chairman of Committees has produced.
The argument there is that the ad hoc committee can be a focused committee, and can change perhaps its area of focus in the general area of foreign policy from year to year, with a different composition of people who had an interest in that area. That is the type of thinking the Liaison Committee is developing, rather than increasing the number of sessional committees. That is an argument that we can have and develop during the year, but I would be loath to set up a new sessional committee at the cost of losing the flexibility that you get with an ad hoc committee.
Can we pinpoint this a little? We cannot hold the noble Lord to the exact figures, but it would be very helpful to have an illustrative declaration statement of what a foreign affairs committee would probably cost. We have gone around the subject, but we have to tackle that basic point, as it is crucial. Of course, as my noble friend has pointed out, if one abandoned the idea of a soft power committee, a saving would be set against the cost of the foreign affairs committee. We need to pursue this. The noble Lord will have heard the views expressed in this House, and I think one would find them reflected outside this House. I therefore hope that this will be given very serious consideration.
I have tried to indicate that Members who have an interest in the foreign affairs area are pushing at a door that might not be open but is more than slightly ajar. Certainly the committee will want to look at and address the points that have been made in that area at its next meeting on 11 June. It will see what it can come forward with, perhaps not immediately but during the year, when it looks again at the range of committees and topics that it will bring forward for the following year.
Will the Chairman of Committees bear in mind, before the meeting in June that he has just mentioned, that the outside views to which my noble friend Lord Hurd has referred are growing and very urgent? They come from the Foreign and Commonwealth Office, where some of us have served and which, I understand, is very willing and anxious to have this kind of opening, and the House of Commons problem is always there. Certainly there is a valid view that the House of Lords can reinforce and follow up some of the House of Commons Foreign Affairs Committee reports in a constructive way, to the great benefit of both the House of Commons and the House of Lords. Quite aside from that, there is an enormous volume of views that the destiny, prosperity and interests of this nation lie increasingly in the world network—Asia, Africa, Latin America—and the Commonwealth network, and that is where your Lordships’ skill and expertise should be focused.
My Lords, perhaps I may reinforce the point made by the noble Baroness, Lady Royall, that one of the great advantages of bringing a report of this kind to your Lordships’ House is that it gives members of the committee, of which I am one, the opportunity to hear the views of the House. I am sure that every member of the committee who is here today has paid great attention to this debate and that it will be taken forward when we next meet.
My Lords, before the noble Lord answers the question on the Joint Committee on the National Security Strategy, of which I am member, I have to say that this House would benefit more from an effective foreign affairs committee than it does from what I regard as an ineffective Joint Committee on Security. I agree with the noble Lord, Lord Foulkes, that unless that committee can be made effective—it does require the ability to set up sub-committees in order to do its work, but I shall not labour that point at the moment—we would be better off concentrating our efforts on a committee that is supported and will work, rather than taking part in a Joint Committee which, at the moment, does not have a particularly good future.
I shall try to deal with the noble Lord, Lord Foulkes, yet again. The committee’s view was that the Joint Committee should revisit and constrain itself to working with its original remit, which was to meet, I think the term was, frequently but irregularly three or four times a year. That was the Joint Committee’s understanding. There are, in effect, two committees to deal with security issues. There is the Intelligence and Security Committee, which looks at the security services, and there is the Joint Committee on Security, a totally different creature that tends to look at a broader concept of security and deals with energy security, food security and so on.
The Joint Committee on Security is disappointing because, perhaps as a function of its composition and size, it has had recurring difficulty in sustaining interest from Members of the other place. This is largely because, as the noble Lord, Lord Foulkes, said, the other place has appointed the chairs of highly demanding Select Committees, and perhaps being on that committee is relatively low down on the order of priorities of its Members. It might be more helpful if the committee itself started a discussion on whether it could make itself more effective by addressing size and composition. Until then, it is clear that the view of the House of Commons committee and our committee is that there should be no expansion of its powers to appoint sub-committees.
My Lords, I agree entirely with what the noble Lord has just said about the unsatisfactory nature of both the size of the committee and the levels of attendance, particularly by Members of the House of Commons. It has to be said, however, that the chairmen of the various committees—home affairs, defence, foreign affairs and so on—themselves insisted on being members of this committee in order partly to ensure that it did not actually step on to their patch. That creates real difficulties for the effective work of the committee, which is precisely why it is difficult to find the interstices where we might be permitted to do something. There are some fundamentally unsatisfactory aspects to the existence of this committee that go to its mandate. I do not think that we will make a satisfactory committee out of conforming to the mandate: rather, the mandate has to change in order to make a satisfactory committee.
That might very well be the case, and I suggest that the starting-off point is to look at composition, size and mandate rather than giving the committee powers to appoint a sub-committee. The issue is much more fundamental than giving it the power to appoint a sub-committee. The remaining important and recurring point is that of a foreign affairs Select Committee. I acknowledge fully everything that has been said, and I am sure there will be proper and full discussion at the earliest opportunity.
My Lords, I want to raise a final point with which the noble Lord may agree, because we have discussed it. When reports, particularly from domestic committees, are put on to the Minute, would it not be helpful if there was some description of what they are about? We have had a full debate today, but all that is recorded on the Order Paper is that it concerns the first report of the Liaison Committee. Perhaps we could have some description of what is involved, and a period of notice for any debate. I would suggest possibly a week. Some of these committee reports are put on overnight, I would not dare to suggest, in the hope that they may just be nodded through. A brief description and a period of notice for these reports, most of which are extremely valuable, would help the House to debate them.
My Lords, the noble Lord has tabled two Questions for Written Answer for me on this very issue. In the spirit of openness, transparency, accountability, motherhood and apple pie, I hope that we can end this debate with a degree of agreement. However, the noble Lord has made a good point. It is right that rather than having a sort of sexy title such as, “That the First Report of the Liaison Committee be agreed to”, we should put on to the Order Paper a brief description of the main issues dealt with in the report. I hope that that is the essence of the reply I will make to the noble Lord when his Questions are answered, and I am sure that he will be at least partly satisfied today.
My Lords, I hope I will be forgiven for this, but I have to take this opportunity to correct a misapprehension that was mentioned earlier in this short debate. It was that the usual channels had agreed to the extra week’s recess that was announced a couple of weeks ago. The decision was not reached by the usual channels; it was the result of a discussion by Her Majesty’s Government.
Supply and Appropriation (Anticipation and Adjustments) Bill
Second Reading (and remaining stages)
Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.
Motion to Take Note
My Lords, yesterday’s Budget was extremely clear on the two issues which it set out to address: first, the challenges facing the UK economy; and, secondly, the Government’s response to these challenges. On the first, we are all very familiar with—and should never forget—how we got here. There was a massive financial crisis which has turned out to have even more serious consequences than we thought at the time; and after that bubble burst we were left with the record and unsustainable debt levels unwisely accumulated during the boom years. The recovery from this trauma is slower than any of us would have liked or, in fact, have anticipated. It has left us with both deficit and debt levels that are still far too high.
On the second point, the Government have been consistent in basing their policy response on their three key pillars: an unwavering commitment to the fiscal responsibility which is at its heart, reinforced both by monetary activism to support demand and keep interest rates low and by a reforming agenda of supply-side measures aimed at ensuring that the UK is one of the best places in the world to do business. This strategy has been pursued with careful consideration of the cost of living pressures on ordinary people, and the Budget therefore took measures to mitigate some of those pressures.
If there is an underlying mission statement or ideology to this strategy, it is one of economic realism. If our economy is to succeed in the global race over the medium and long term, we must have businesses that are world beaters. That must be supported by first-class infrastructure and a tax and regulation environment that fosters enterprise. These businesses must be able to draw on a highly educated workforce which is motivated to succeed because hard work is incentivised. That is consistent with what my right honourable friend the Chancellor described yesterday as the “aspiration nation”. I will expand on these individual components of policy and how they have evolved, which will, I hope, provide a framework for the contributions that follow.
First, on fiscal policy, there should be no doubt that the Government are committed to reducing the deficit. This commitment is key to retaining the market’s confidence—confidence which is measured daily through the record low interest rates that we currently enjoy. We should not take this confidence for granted: at our current levels of debt and borrowing we would be vulnerable to the potential fickleness of the markets if our commitment to fiscal consolidation wavered. It is like stretching a piece of fabric: you never know when or where it will split but the risk is always there. We hear arguments—as I am sure we will later this afternoon—for borrowing more, and opposite arguments for harsher spending reductions. I think that we have the balance about right and that we have adapted to the worse than anticipated economic environment in which we find ourselves.
The Office for Budget Responsibility—another of the Government’s important and brave innovations in the interests of transparency, so that we can all agree on what the numbers really are—is extremely clear on the reasons why our recovery is slower than it originally forecast. Unfortunately, none of these factors is within the control of any Government. Those reasons are, first, that the financial crisis was deeper and its consequences more pernicious than was originally understood; secondly, the depth and continuation of the well advertised eurozone crisis; and, thirdly, the impact of commodity price inflation, particularly in 2011.
That, if you like, is the bad news. However, there is also some extremely good news about how our economy is responding to these challenges, and I do not want to pass over that. In particular, our private sector has created 1.25 million new jobs. These are real jobs for real people, making a real difference to their lives and prospects. To put that into context, for every job lost last year in the unavoidable shrinkage of a bloated public sector, six new jobs were created in the private sector. It is a crucial success, and very good evidence that a vital element of what is described as rebalancing is, in fact, proceeding to plan.
An important ingredient in prosecuting this fiscal consolidation plan—particularly when growth and the tax receipts which flow from it are elusive—is the effectiveness of the Government’s spending controls. We must manage well the things that we do have some control over. That is really how our effectiveness as a Government should be measured.
Yesterday’s Budget was fiscally neutral despite the many stimulative measures it included. This was due to the rigorous financial management by my right honourable friend the Chief Secretary to the Treasury, who resisted the traditional final-quarter Whitehall spending splurge. That is precisely the sort of discipline that you see every day in the private sector and I am delighted that it is now being applied in the public sector too. We are focusing government departments on meeting targets that are consistent with our consolidation plan. We are keeping the lid on public sector pay, which is important. We are also continuing to extract further reform efficiencies in how we run government. However, we are still making space for a very valuable additional £3 billion per annum of capital spend from 2015 onwards.
I turn to monetary policy. We in this House have engaged in a very active and expert discussion about the role and efficacy of monetary policy—which was another big topic yesterday. Some of the subsequent analysis has said that monetary policy has not really changed anything while, on the other hand, other analysis has said that it has been a revolution. So, clearly, it is worth clarifying the policy.
I think that the Government’s thorough review of our monetary policy is most welcome. It was exactly the right thing to do in view of all the surrounding discussion and was very thorough. The updated remit has also been agreed by both the present and the next Governor of the Bank of England. The important points are as follows. First, we are retaining the existing model of flexible inflation targeting. Secondly, we have reaffirmed the primacy of the 2% inflation target. Thirdly, the updated remit provides for a much more explicit discussion of the trade-offs involved, particularly when monetary policy is responding to the kind of severe economic shock that our economy has suffered. Fourthly, the Government have requested that, by August, the Monetary Policy Committee assess the potential of so-called intermediate thresholds, the technique which has been utilised by the Federal Reserve in the US. The Government want to build on good practice in monetary policy both here and around the world in order to develop a best-in-class framework. We should therefore welcome it. It is transparent and includes the appropriate governance.
On a slightly more practical and specific level, there is also a clear determination to drive ahead with the implementation successes that we have had in monetary policy, particularly, for example, with the Funding for Lending scheme, which is transmitting the concept and goal of monetary activism into the real economy. We are seeing its impact on funding costs.
This is probably the right point for me to discuss the home-buying initiatives, which were an important part of the announcement yesterday. One of the obvious challenges for any Budget is how to create a meaningful stimulus to the economy and make a meaningful difference to people’s lives and aspirations, within the confines of extraordinarily tight fiscal management. I believe that the two help to buy schemes, as they are branded, are an extremely effective and creative way of responding to this challenge. The equity loan scheme will provide £3.5 billion to invest in approximately 74,000 new homes, while the mortgage guarantees will support a potential total of £130 billion of mortgages. These are bold and innovative policies but they will also require careful risk management.
Our focus on the deficit should not and does not mean that we cannot have a strong and reforming growth strategy. In fact, much of yesterday’s Budget was devoted to just that: how we can help business. In my own relatively short time at the Treasury, I have been extremely impressed by the attentiveness with which this Government listen to what business is asking for and the urgency with which we try to press forward with the corresponding reforms.
In my own area of focus—delivering our economic infrastructure quickly, well and cost-effectively—I have enjoyed the total support of my right honourable friends the Prime Minister and the Chancellor. That is why we have pushed through this plan to increase capital spending by £3 billion a year; why we are working on a significant upgrade of the capability within the key Whitehall departments responsible for the economic delivery of infrastructure; why we are focused on the delivery of the biggest 40 projects under our control; and why we have made available a very significant guarantee facility, which takes advantage of the strength of our credit, to be able to guarantee projects that need that one extra shove to move from conception into execution. Very importantly, we are also translating our policy of electricity market reform into a set of financeable contracts so that we can set about building the new electricity-generating capacity we require.
Overall, our supply-side reforms—I am not going to list them—have significantly improved our ranking in international competitiveness league tables. This is particularly true in tax, where we are now right at the top. Let us give credit: bringing corporation tax down to 20% from 28% in 2010 makes us the most competitive in the G20. When we look in the Treasury at the different ways to stimulate the economy, there is nothing that is more immediately impactful than reducing the rate of corporation tax, which is why my right honourable friend the Chancellor has focused on it. The introduction of the £2,000 employment allowance benefits smaller businesses and reinforces the positive employment momentum that has been established successfully in the past few years.
I believe that this Government have got the tax mood music just right. Lower tax rates for companies and individuals are essential for a successful enterprise economy, one that concentrates on growing the size of the cake so that we can have much easier discussions about how we share it. In return, however, we expect taxes to be paid, and we are right to push through strong tax avoidance and evasion measures domestically and I praise my colleagues in the Government for taking a lead in co-operation to address this subject internationally.
Ensuring that taxes are paid is one element of how this Government ensure that their policies are deployed fairly. Once again, this Government have led in transparency in setting out the distributional implications at each fiscal event—another innovation—demonstrating that those who can afford the most have also contributed the most to our deficit reduction. I also point to pensions and welfare as examples of good administrative reform that simplify and improve overly complex systems. Similarly, the simplicity and power of moving to a £10,000 personal allowance takes 2.7 million people out of the tax system altogether.
In conclusion, I fully accept that this country is facing a highly challenging economic situation. The slowness of recovery has left both debt and deficit at levels which still expose our economy to substantial risk. This has much to do with the precarious levels of public and personal debt that were the legacy of the financial crisis, and the continuing recession in the EU, our principal trading market. This Government are focused on fixing our debt problem and are utilising our relatively limited room for manoeuvre to support businesses and individuals who want to get on and succeed. It will take time. In a global economy, we are not entirely masters of our own destiny. But I believe, as does my right honourable friend the Chancellor, that we have the right mix of policies to address the challenges we face.
My Lords, I am grateful to the noble Lord for introducing this debate on the Budget Statement. He demonstrated that it was not a boring Budget. Indeed, the Budget was—let us say—revelatory. It revealed that, try as you might, you cannot spin economic failure.
Two weeks ago the Prime Minister declared that,
“there are signs that our plan is beginning to work”.
The reality is that the economy is stuck in recession—or as near recession as makes no difference. Just three months ago the OBR, an organisation that always looks on the brighter side of life, was forecasting growth of more than 1% this year. Now it has had to face up to reality and halve its growth forecast.
The Budget Statement also revealed that austerity does not cut deficits. Despite all the Government’s efforts, the deficit is not falling. Taking out special measures, in 2012 it was £121 billion; in 2013, £120.9 billion—a lot of work must have gone into shaving off that £100 million—and in 2014, £199.8 billion, all within the slightest margin of error. The reason deficits are not falling is obvious to all: no growth in output means no growth in tax revenues and significant pressure on social spending.
There was one further major revelation. This Budget of no growth, stagnant deficit and falling living standards revealed that the Treasury has run out of ideas. It does not have a clue what to do next so it is handing economic policy over to the Bank of England in the hope that it might think of something, even though all the evidence at home and abroad suggests that monetary policy is ineffective in the face of prolonged recession.
The scale of our problems is indeed daunting. They will not be solved by a £3 billion infrastructure programme, postponed for two years. In his Budget speech, the Chancellor boasted that,
“we can provide the economy with the infrastructure it needs”.
The noble Lord has special responsibility for the infrastructure programme. Will he tell us how much was actually spent on infrastructure projects in 2012, and how much will actually be spent in 2013—not allocated, not “in the pipeline”, but actually spent? More generally, will he offer his diagnosis of why the Government’s infrastructure policy has so far failed so dismally?
The growth problem will not be solved by policies, postponed to 2014, designed to pump money into the housing market. The shared equity scheme will only partially offset the deep cuts in capital grants for social housing in the previous spending review, and the new mortgage guarantee, available for new-build and existing properties, is more likely to give a further twist to the house price spiral than provide the major new-build stimulus that the construction industry needs. Perhaps when the noble Lord sums up, he will tell us the Treasury’s estimate of the impact of the guarantee scheme on house prices, how much of the expenditure will be a dead weight loss—funding purchases that would have taken place anyway—and the Treasury’s estimate of the cost of this scheme.
The growth problem will not be solved by the cut in corporation tax to 20%, another measure postponed to 2015. As for business investment, the Government just do not seem to understand that the key stimulus to investment is the prospect of demand for the goods and services that the investment will produce. It does not matter how low taxes or interest rates are if investment does not result in a marketable product for which there is growing demand. Yet, as the Chancellor himself admitted, this Budget does nothing to stimulate overall demand in the economy. The OBR forecasts that real wages will fall in 2013 and not recover for two years thereafter. The continuing squeeze on households severely curtails the prospect of any growth in demand, a fact to which our increasingly devastated high streets are an eloquent testimony.
I return to corporation tax. The Chancellor boasted that “headline” UK corporation tax will be far lower than headline corporation tax in Germany or the United States. Did not this boast give him some food for thought? Has he not noticed that the US economy, despite political problems between President and Congress, has sustained its underlying dynamism through the crisis and has already grown to levels of output way above the pre-crisis peak, while UK output languishes 3% below the peak? Has he not noticed the superior industrial performance of Germany, even among the difficulties of the eurozone? Has he not thought to ask himself, “If their taxes are so much higher than ours, how come they are doing so much better than we are?”.
The British economy is in dire straits. What is needed right now is a radical policy of expanding demand, financial reform and investment in the well-springs of growth. In the housing market, the Chancellor has accepted the argument for a boost to demand. Why has he not followed the logic of his expansionist policies in housing and stimulated demand on a wider canvas by cutting VAT and channelling more funding to the poor, who possess the great economic virtue of spending every pound that they receive?
The financial services industry, the mother of the mess that we are in, remains unreformed. The banking Bill that will come before this House later in the year is all about protecting the banks from themselves. There is nothing in it about the sort of banks that we need for Britain’s future. We need a financial system that channels savings to industry, large and small; we need a financial system that understands the needs of local communities and local industry; and we need a supply-side policy that does not just hope that private finance will be seduced into investment in infrastructure, science and technology and skills but actually gets on with the job. In this country, we are blessed with some of the greatest science-based universities in the world, yet, with just a few notable exceptions, we are steadily losing world share in cutting-edge applications across all industries, large and small, traditional and novel. Reversing that downward trend will require a fundamental rethink of company structures, company finances, supply chains and incentives. We need to learn the lesson from the US, Germany and Scandinavia that partnership and a sense of purpose between government and private industry is the bedrock of sustained growth.
The reaction from the Chancellor to these sorts of proposals is predictable. He said in his Budget speech that such ideas are from,
“people who seem to think that the way to borrow less is to borrow more”.—[Official Report, Commons, 20/3/13; col. 934.]
Has he not noticed that it is his policies that are leading to more borrowing and prolonged recession? Did he not read the OBR’s damning assessment of the Budget? It states:
“Given … the fact that the overall net effect of these changes is relatively small, we have not adjusted our overall GDP forecast”.
In other words, the Budget’s contribution to growth is nil and the Budget’s contribution to deficit reduction is nil.
The Prime Minister’s speech on the economy two weeks ago revealed him to be an economic fantasist. The Budget has told us even more about the Chancellor. He declared yesterday:
“We have got a plan to cut our structural deficit. Our … credibility comes from delivering that plan, not altering it with every forecast”.—[Official Report, Commons, 20/3/13; col. 934.]
He cannot admit that no growth and no cut to the deficit is not a forecast; it is reality. He cannot admit failure, face up to the real world and change course.
Albert Einstein defined insanity, as,
“doing the same thing over and over again and expecting different results”.
Well, the Chancellor is not mad—far from it. It is just that he has not a clue about what to do next, and he is willing to sacrifice the British economy on the altar of his own political career.
My Lords, the Chancellor yesterday gave us a Budget that fits the tough economic times that we all acknowledge. I congratulate him on not succumbing to the blandishments of the Opposition. I listened very closely to the noble Lord, Lord Eatwell, and thought that he summarised his own speech by saying that insanity is repeating again and again the failures of the past. He gave us exactly the formula of spend and borrow that the previous Government pursued and that left our economy so structurally weak that, when the financial crisis struck, we found ourselves in dire circumstances, overburdened with debt, and with a structural deficit, no resilience and a fundamental underlying economy that had been neglected for a generation. He now repeats that formula.
The measures in yesterday’s Budget were focused on helping ordinary families with the cost of living, on stimulating new jobs, especially in small and medium-sized businesses, and breathing life into the housing market. Let me make just a few comments on each of the three.
Ordinary families, as we all know, have been feeling the squeeze on their finances. For that reason, I am particularly pleased with a further lifting of the income tax threshold to £10,000 next year. My party promised it and it will be delivered a year early. With this step, nearly 3 million people will be out of income tax altogether; 24 million people will pay £700 a year less in income tax—a genuinely meaningful amount of money; and a person earning the minimum wage will have seen their income tax bill cut in half. I find it frankly extraordinary that, rather than embracing this progress, Labour wishes to substitute a 10p tax band. Under Labour, poorer people would today be paying more income tax than under the coalition. I find that the most extraordinary notion of “fairness”. If one adds to that the measures on fuel duty, childcare and even beer, one sees that ordinary working families now have a little more breathing space.
Childcare is an area where I once worked on Liberal Democrat policy. We made a very difficult decision not to include plans much like those announced this week in our manifesto, because when we looked at the economy that Labour had left us we saw that it was clearly unaffordable in the face of the economic collapse and uncontrolled borrowing environment. But childcare is one of the most challenging issues for working families. I took evidence from many mothers, and sometimes fathers, trying to weigh the long-term financial benefit of growing a career by returning to work against the immediate burden of the most expensive childcare in Europe. The coalition has already made 16 hours a week of free care available to two year-olds in the least well-off families and taken a more intelligent approach to the staff/child ratio in childcare, but we have all known that more is needed and this scheme will make a real difference to working families.
However, I agree that the question of growth is the one on which we have to focus. I looked at Bank of England numbers yesterday which came out ahead of the Budget and the OBR’s forecast. They made it absolutely clear that the most significant cause of undershooting our growth projections is the weakness in the eurozone and the damage it has done to our exports.
Despite that, the private sector has created 1.25 million new jobs, and many of those are in SMEs. Twenty per cent of all the SMEs in the EU are here in the UK. Small and medium-sized businesses are providing more than half the jobs, more than half the exports and, even now, more than half the patent applications. The Government’s employment allowance is therefore just what SMEs need to start adding that “one more job”. Often, that one more job will be a young person, especially if we continue to provide support through apprenticeships and the youth contract. It is right that the employment allowance should become a permanent feature of the structure of British business taxes.
The abolition of stamp duty for AIM will also make a difference, although it must be just part of building a proper framework for raising finance in this country. I have talked now to quite a number of small businesses that simply sold out to the Americans because they could not access the equity that they needed to grow. I have not seen the announcements that my colleague Vince Cable is making today, but if we can combine a revived AIM with the business bank, that, together with proper reform of our still dysfunctional banking system—and I address the noble Lord, Lord Eatwell, who structured this dysfunctional banking system, and the party opposite—we can get a vigorous and rebalanced business base that will provide well paid jobs for our people, especially our young people, who deserve the best.
Earlier in this coalition, we returned large areas of decision-making to local communities but not the funding that would give real power to that decision-making. Last week’s decision to draw departmental money for local growth schemes into a single fund, known now as the Heseltine pot, should overcome that. My noble friend Lord Shipley will speak more extensively for my party on these issues because he is the expert, but I just want to say this, particularly to noble Lord, Lord Deighton, because he is a man of wonderful practicality: I seriously hope that the Heseltine pot will finally release the capacity to get TIF 1 and TIF 2 going—tax increment financing for infrastructure projects, small as well as large, identified by local communities as key to growth.
Of course, though, the big news in the Budget was housing. We have a housing shortage at crisis levels, particularly in affordable housing and especially in London and the south-east. We are building scarcely one-third of what we need. Housebuilding played a key role in enabling the UK to avoid the worst of the Depression in the 1930s, and it has always seemed a no-brainer to drive forward house construction now. I have a strong suspicion that when Vince Cable wrote in the New Statesman that the Government could use their ability to borrow cheaply to support new infrastructure, especially housing, he had this expansion of help to buy in mind.
Help to buy uses existing institutions, so it should be able to take off pretty quickly. It is a massive injection into the housebuilding industry. I am going by the newspaper estimates of £12 billion in total. I notice also that on the back of this announcement, new shares in the housebuilding industry immediately soared—Barratt Developments was up 6.5% by late yesterday—and that response tells you that the market sees this as a way to get construction going. Once again, my noble friend Lord Shipley will say more.
I would very much like the opportunity for a more extensive discussion of monetary policy and monetary activism, because this is a new arena and it cannot be dealt with in the context of a brief debate like this. However, I am so glad that we are engaging in imaginative thinking and opening our minds, not just sticking constantly with conventional wisdom. This is a new opportunity. We are building a stronger economy in a fairer society, and this Budget furthers that goal.
My Lords, I recognise the limited amount of wiggle room that the Chancellor of the Exchequer has in the current economic climate, so much of what he proposed yesterday has to be cautiously welcomed. Arguments will continue over whether austerity has yet again trumped stimuli to growth, and will no doubt continue to smoulder for a time to come. I do not myself propose to pitch in on that topic, but I should like to make a few brief comments on one or two aspects of the Budget Statement.
First, and positively, from these Benches—understandably empty today of all days—we welcome the Government’s decision to keep their promises to the world’s poorest by committing 0.7% of our national income to overseas aid. From my own point of view, this is particularly bold in the context of the growth expectations, which have been revised downwards. I hope that this is something that we can all be proud of. Poverty is of course a relative concept but, together with many of my episcopal colleagues, because of our diocesan partnership links, I have travelled to some of the world’s poorest places. I can tell noble Lords that when you stare into the empty eyes of those who are starving to death, the argument that “Charity begins at home” wears a little thin. Through the Government’s commitment to the poor, many millions will benefit.
We are getting better at ensuring that the aid given is kept away from the grabbing hands of corrupt politicians. The distribution of such funding needs to be monitored and held in a framework of accountability. Of course, even though in my own mind this should not be a principal driver of aid, there is a very real sense in a global economy that such aid has an element of investment about it, for today’s aid may well be the foundation of tomorrow’s trade.
Aid is important but, as noble Lords know well, it is only part of the solution. The Government could be doing more to help poor countries to collect more of the tax that they are owed, by requiring multinationals to reveal the tax avoidance schemes that they are using in the developing world. Christian Aid estimates that poor nations currently lose $160 billion a year as a result of tax-dodging by multinationals—far more than they receive in aid from all rich countries. The pronouncements by the Prime Minister and the Chancellor on tax avoidance have so far been commendable. Now we look forward to the Government leading ambitious global action against tax avoidance at the G8 conference in June. That would show that the UK is serious about an international agreement to fight tax avoidance that hurts the poor.
I welcome the plans to invest an additional £750 million into subsidising childcare costs, in a country that has some of the highest childcare costs in the world. However, I want to note the concerns of Barnardo’s, the Child Poverty Action Group and the Children’s Society, which are worried that these changes will fail to help the families most in need of support. The Government’s scheme will assist those on high incomes, potentially up to a joint income of just under £300,000, but will do nothing to help parents working part-time on the minimum wage. In these times of austerity, it feels unjust not to be targeting help at those who are trying to work their way out of poverty.
I am also concerned about the proposal to set a firm limit on certain areas of welfare expenditure as part of controlling annually managed expenditure. Page 26 of the Treasury’s budget report seems very thin on detail, promising an update in June’s spending round. Assuming that these limits are binding, that is likely to put further pressure on millions of low-income families who are already being disproportionately affected by welfare cuts.
There are very good reasons why there is flexibility in this part of the Government’s balance sheet. The need for welfare expenditure varies with the economic cycle and, as the Chancellor has discovered for himself, it is not always easy to predict the future state of the economy. However, I hope that this announcement does not mean, for example, that every increase in unemployment will lead to a corresponding reduction in benefit rates. While I do not wish to overreact to an announcement that is clearly work in progress, I seek the Government’s reassurance that this will not mean further cuts in the real value of benefits and tax credits.
I sincerely welcome this Government’s commitment to overseas aid, and I hope that this bold act of generosity will be extended to ensure greater awareness of the needs of low-income families living in this country.
My Lords, I believe that this will go down as a successful Budget politically, particularly within the narrow scope for manoeuvre that the Chancellor had. It is perhaps correct that it should have been broadly an unexciting Budget. The one key initiative is the help to buy scheme, which seems to be somewhat the Neville Chamberlain strategy. As the noble Baroness, Lady Kramer, has pointed out, in the 1930s the economy was very much got going by the increase in housebuilding; indeed, few people realise that the most successful period of growth in the 20th century was 1935-40, when the British economy grew at 4% per annum compound. I point out that Chamberlain also addressed the other key problems of the time in that he cut public sector pay, which had got out of line with private sector pay, and he cut taxes substantially as well, generating demand without overborrowing. Perhaps there is a little more to learn from that period. However, these initiatives will have to be managed extremely carefully. They smack slightly of the Clinton measures that caused the housing bubble and all the trouble thereafter to the banking system.
My preference would be, if it were possible, to accelerate the infrastructure projects which the noble Lord, Lord Deighton, is appointed to manage, and I am sure that he will do extremely efficiently. Within the plan, there is about £200 million of investment in roads and other infrastructure and £200 million needed for power generation. That is massive scope to have infrastructure investment that will get the economy moving, but we have to get rid of the planning and environmental red tape, which is delaying that. I am convinced that there is the money for them. We have seen developments such as the recent Qatar involvement, but I am amused to learn that even the new road between Edinburgh and Glasgow is being financed by the Agricultural Bank of China, which has set up in this country to do business in that area.
We have to realise that the fundamental problem is less the banking explosion and more that Gordon Brown created a more than £100 million structural deficit. He relied on frothy income from an overheated financial sector and embarked on spending when there was not regular, sustainable tax income to finance it. We are stuck with that problem, caused by deliberate overspending, rather more than we are the parallel problems of the banking system.
Together with that was the policy of allowing people to borrow more and more. I remember asking Gordon Brown when he was Chancellor of the Exchequer whether he was concerned about the fact that consumer debt was far too high per person—about £18,000 per couple—and that house prices had gone up too much. His reply was that increasing individual indebtedness was fine because people could afford to service more debt. We have ended up with not only the public sector but the private sector overborrowed. The idea that you can stimulate growth by still more spending is, to my mind, a path to ruin. This economy cannot be turned into a growth economy by yet more consumer debt and more consumer spending.
It is clear that growth must come from either an increase in exports or an increase in capital investment. The scope for exports clearly lies with the BRICs and the Commonwealth. I welcome the Government’s initiatives, but a lot more could be done to improve our trade. We are lucky to have the Commonwealth relationship, which many have ignored or thought little of it, but those countries are substantial conduits to improve trade. There is clearly little scope in the eurozone; the economies are paralysed by the euro. Even if there is no collapse, the problem is not going to be mended easily.
As for the private sector here, in my view, we have an attractive tax regime and we have, broadly, to leave it to private sector companies to invest as and when they are ready. The private sector has built up massive cash reserves over the past three years. Even companies in the small and medium-sized sector have built up about £180 billion in cash reserves. The corporate sector has the money when the time is right for it to invest.
I understand but am slightly cautious about the case for using currency depreciation and higher inflation to ease the problems of overindebtedness, which is clearly what is happening. That needs to be watched very carefully or it could get out of control and worsen the situation. At least, as a result, we are now highly competitive internationally as well as taxwise. There is a huge incentive for companies to come here and do their business from here.
I end by pointing out that the private sector has already done a lot better than people realise. Let us look at the movements since 2010. Taking account of the reduction in the public sector and the significant downturn in North Sea oil output, the private sector has grown by about 4%. That is partly where the extra 1 million jobs have come from. I know that a lot of high-tech business in this country is starting to do very well indeed. I believe that the predictions for the private sector over the next year will turn out to be overcautious. I detect a significant pickup. Of course, North Sea oil output is about to turn in the opposite direction. We may be surprised by an upside to economic growth over the next year.
Overall, the potential is there. The Chancellor has been responsible and, as I said at the beginning, I believe that this will be seen as a politically successful Budget.
My Lords, the Budget Statement was trailed as a Budget for growth. I declare an interest. As chairman of Warwick Manufacturing Group, I work with many international companies on their growth strategies. I have learnt that to achieve sustainable growth, you must think of the long term, not of headlines or short-term profits. The Budget reminded us how difficult things are for the British economy. It did not explain why Britain has found it so hard to recover. Of course there is the global crisis but others are navigating the storm more swiftly than Britain. Whether Germany, the United States, China or the Scandinavian countries, those with a record of long-term investment in R&D have more to offer growing markets.
Unfortunately, Britain’s investment in R&D is lower than the OECD and EU averages. It is even well below our own target. Britain is a small country. In order to survive, we must export. In order to export, we must have products and processes that are internationally competitive. That means that our core innovation implementation has to be very good, but it is very patchy.
Worryingly, the OBR said yesterday that business investment will increase next year by very little, yet it is only by encouraging innovation and investment that we will create sustainable growth. As I said, that requires long-term commitments on capital, research and infrastructure. Of course, there are positive policies in the Budget, from tax credits to corporation tax, but the steps forward are too small, and they do not cover enough ground. For example, the Budget talks about £1.6 billion for an industrial strategy, including the aerospace institute, but when you look at the detail you see that this money is over 10 years, and £1 billion of it is committed to just one sector. Surely an industrial strategy should include other sectors, such as the automotive industry and other key export drivers.
As I said, there are things to welcome in the Budget. Often, they are the signs of the Business Secretary trying to shake off the shackles of the Treasury. I have a very high regard for the Business Secretary and admire his efforts on all sorts of matters, including his recent efforts on apprenticeships. I understand that Dr Cable will seek to undo his ties again today, on the investment bank.
I welcome the news that capital spending is being increased. I also welcome the acceptance of the Richards report, asking Sir Andrew Witty to look at how universities and LEPs can work together, and the endorsement of the report of the noble Lord, Lord Heseltine, No Stone Unturned. However, when we look at the budgets allocated, the stones still seem pretty firmly in place, and even where they are being turned over, the projects will not happen until after 2015.
The Labour Party under Ed Miliband is developing a long-term policy agenda that goes beyond the noise of annual budgets to create a critical mass of policies to support sustainable growth, but it seems a shame that long-termism should have to wait until the next Labour Government. What more could we do to encourage investment today? We need to look at the structures that support commercial R&D in Britain. Offering businesses incentives to innovate is useless if there is no innovation capability for them to invest in.
To grow, you must build on your strengths. In Britain, we have outstanding academic research, so we should use that as our super-magnet to attract industrial R&D spending. We need to shake up the whole system of research funding so that it attracts new business funding from companies large and small. Today, the weight of government R&D funding is completely insufficient to support business innovation. The Technology Strategy Board is an excellent organisation, but its budget is far too small compared with the research councils, while the Higher Education Innovation Fund is nowhere near enough to shape academic research priorities.
Next, we need a procurement strategy that helps smaller companies invest in innovation and hence start-ups. In the United States, that is the biggest spur. How do we get small companies a market in order to grow? It is so very difficult for small companies to grow because the market is not there. The only market you can get is export, so government procurement should be a huge help for start-ups. That means the Small Business Research Innovation Fund must be made to work. The Chancellor’s aim to increase the SBRI budget from £40 million to £200 million by 2015 is welcome, but represents only a tiny shift in overall funding.
Finally, we should establish a “one-stop shop” approach for industrial innovation budgets, with a sectoral or challenge theme. I have long been an advocate for government demonstrators and grand challenges as a catalyst for innovation. The Government have identified eight priority technology areas and have allocated them £600 million of capital funding. However, there is always a temptation for such programmes to minimise industrial partnerships. Businesses are awkward customers for bureaucrats, refusing to fit neatly into boxes. We should make attracting industrial innovation funding central to our grand challenges. I believe all these government funds should require matching financial investment from companies, with a proportion devoted to SMEs, to ensure commercial research partnerships are at the heart of all our innovation policy.
Despite all the publicity, in truth the Budget yesterday changed very little. There was little to spend and no new plan. We saw a few tired rabbits come out of the Chancellor’s hat, but little more. If we are to grow, it is essential that we invest in our long-term future. That is the real agenda for transforming our economy. Yesterday, the talk was of mortgages, petrol and beer. The danger is that we neglect our future for the sake of these headlines. When Governments focus on the short term, Budgets become just another missed opportunity. I fear that after three years of bad headlines, this Budget fits that pattern. Everything worth while has been pushed back to after 2015. Perhaps the Chancellor had a premonition of the future. Despite the fine words, actually delivering sustainable growth has been postponed to the next Labour Government. We are hungry for that challenge.
My Lords, myths can be important in politics, and there is now a pretty well established myth that last year’s Budget was a bad Budget. In reality, all the good news came out the day before Budget Day and therefore there was nothing left but criticism on Budget Day itself.
I am sorry that the Chancellor does not appear to have learnt the lesson from that. It is vital that we reassert the convention in Parliament that budgetary matters are first announced to the House of Commons. There are good reasons for that. Obviously it is the right of the House of Commons to receive the news first, but it also prevents the risk of market-sensitive information getting into the public domain and someone making a fortune out of it. I was therefore very concerned by the Evening Standard story last night. I have to say that, obviously in a post-Leveson mood, it made an abject apology in later editions for what was on the front page of the first edition, and that is to be welcomed. It emerged very clearly that it was in receipt of an embargoed copy of the speech. I believe that is totally wrong, not least because it discriminates between some journalists and others, and because it endangers the basic principle. I hope the Minister will give me an assurance that he will speak to his right honourable friend the Chancellor and ensure that that practice is abandoned forthwith and that the traditional view—which was exemplified by Hugh Dalton when he resigned as Chancellor when all he did was to have a quick word as he was going into the Chamber—will prevail.
I am grateful to the noble Lord. I think it should be a unanimous view in Parliament.
I believe this is a very good Budget that does a considerable amount to encourage growth. I particularly welcome, first, the help-to-buy proposals, both of them, which will ensure that there is a higher degree of growth than there would otherwise be. The Minister, in a speech that gave the impression that he wrote it himself, rightly said that there are risks here. It is not clear, if one is going to give guarantees to homebuyers—if one is going to subsidise in this way—that they are really able to meet the responsibilities of taking out a mortgage. We do not want to go back to the disasters of Northern Rock and so on, of which many of us in this House bear the scars, but both schemes are very good and greatly to be welcomed.
I very much welcome the proposal about helping small businesses by removing what the Chancellor rightly described as the jobs tax. Many small businesses are reluctant to take on a few more employees because of the up-front costs. I am sure that the employment allowance will be of considerable help to the state of the economy.
I now turn to the main point with which we are all concerned: the deficit. The Minister referred to it. What was clear from the business about the AAA rating and so on is that we have to press ahead. It is very good news that the slogan that had been emerging, “We have cut the deficit by a quarter”, can now be changed to “We have cut the deficit to a third”, but it still means that we are continuing to borrow more at two-thirds of the rate that the previous, disastrous, Labour Government were maintaining. Therefore, we need to look very carefully at what is being said.
If I may make a rather semantic point, in his speech the Chancellor referred to “cutting borrowing”. He should, of course, have said, “We have been successful in cutting extra borrowing”. Total borrowing continues to go up, and that is of serious concern, not least in relation to monetary policy. It is very important that we look at the new relationship that appears to be developing with the Bank of England. I was always very sceptical of what was always hailed as Gordon Brown’s great achievement of giving independence to the Bank of England because it means that we are handing over more and more power to a small group of people who are totally unaccountable with regard to one of the two main levers of economic management. I hope that we can make progress on this.
On the proposals the Chancellor is making, we certainly need to look at the inflation target and at whether other considerations can be taken into account. Having said that, it would be helpful to move now from what was just an interest rate policy for many years after the Gordon Brown change to a policy that is concerned with controlling the money supply, which is what one really means by “a monetary policy”. I remain a strong supporter of quantitative easing despite the unfortunate side-effects, particularly on private sector pension schemes and so on. If one is not able to do anything because of the deficit problem on the fiscal side, we really must have an active monetary policy. In that context, greater co-ordination between the Treasury and new Bank governor will be of crucial importance. As I have said time and again, and I commend this to my noble friend on the Front Bench, it is absurd that the Treasury is working to one set of economic forecasts and the Bank of England to another. We should have a more unified policy on the link between the monetary and fiscal sides of economic management.
Overall, however, the Chancellor has done everything that could possibly have been done to be helpful, to stimulate growth and to ensure that we continue to do so. However, we must continue to do all that we can to cut the deficit. Immediately after the election and the formation of the coalition, I stressed how incredibly difficult this was going to be on both the tax and expenditure sides. I have been proved absolutely right. We have to go on in the same way. Labour still seems to be saying that we are cutting too much too soon. I am afraid that it is absolutely clear that we have not cut enough fast enough. We must therefore press ahead with that.
My Lords, today’s debate in your Lordships’ House increasingly reflects a wider and urgent economic debate in chambers around the world. At one end of the argument, there is a fundamental belief, as we have just heard, that debt reduction for its own sake will eventually clear the path for strong growth. The alternative view is that debt reduction for its own purpose is not only an all too narrow goal but is destined to fail unless economic growth is pursued with equal and relentless vigour.
Although the Minister said that our focus on the deficit does not mean that we cannot attend to growth as well, that focus does not feel equally spread. With yesterday’s slashing of growth forecasts, we are beginning to confront the painful reality that the latter argument prevails. The evidence is sadly clear that the multiplier effect of austerity, its economic misery, let alone the human cost, is more severe than even the Office for Budget Responsibility had warned. In short, austerity as a fixed policy in the sand, and in the absence of a well constructed, ambitious, aggressive tapestry of active government, will never produce growth. However much pain is administered, however deep the incision of cuts, ultimately the failure genuinely and aggressively to grow the economy will lead to the failure to balance the books. The evidence was announced yesterday. At a time of unparalleled spending cuts, paradoxically, the UK’s national debt will rise to 85% of GDP.
If the urgent national imperative is growth—we are all united in that—and we know that it does not travel through austerity for its own sake, what might we expect from active government? The first thing is to dispense finally with the tired false choice of either a constant flurry of well intentioned interventions or staying, as we have heard in recent years, firmly out of the way. We must lay to rest the myth which says that you have a pro-growth environment only if government leave the stage. We urgently need intelligent and active economic policy which nurtures—indeed, drives—growth. Look at the most imaginative global economies, our real competitors: the United States, Finland, Korea and Israel. They all have large measures of supportive public policy and effective financing mechanisms—in short, active, aggressive, growth-oriented government.
Secondly, we know exactly what the engine of growth will be. We know now how clearly the path travels from innovation to economic growth. We know the facts. Innovative businesses create more jobs and grow faster. Hence, innovation as a national strategy is the most important driver of long-term productivity and prosperity. Yet, despite this, NESTA’s innovation index showed that innovation and investment in innovation declined by as much as £24 billion last year. This was at a time when we also know from the same index that fast-growing, innovative businesses make a disproportionate contribution to our national fortune. Just 7% of businesses in the UK, classified as high-growth and innovative, have been responsible for half of the new jobs in the past decade. The evidence conclusively shows that innovative, high-growth firms will produce the jobs of the future. They will be the productivity drivers of the economy of the future.
If we know that the road to growth travels through innovation, what might we expect from those with their hands on the policy levers, which the Minister dubbed “managing well the things we have control over”? This financial crisis offers the chance to put in place on a serious scale often talked of plans to channel large parts of the £220 billion government procurement budget to innovative businesses. As my noble friend Lord Bhattacharyya said, the announcement yesterday about the SBRI—the programme which drives government businesses to innovation—is certainly welcome and using the TSB as the catalyst is wise. However, the quantum is a pinprick in comparison to the opportunity and the need. The target yesterday was merely £100 million of redirected existing budgets in an annual spend of £220 billion. Consider what a little more ambition could have done at no extra cost. Just 2% of government procurement toward innovative businesses would be nothing short of transformational.
These are very modest steps in transforming government budgets from blank cheques to intelligent, demanding drivers of innovation, but it is on a tiny scale and at a time when new customers for innovative businesses will determine whether they thrive or go bust. My noble friend Lord Eatwell correctly identified the urgent need to stimulate demand. Can we not bring this part of our national effort to real scale, such that active government purchasing will have great and lasting impact on the innovation economy in society more broadly? We know—we have seen it around the world—that government being a lead customer was the major factor in the growth and development in Silicon Valley. It is no exaggeration that whether it is the GPS navigation system that none of us can live without or internet protocol software, government purchasing of these technologies in the United States was the basis of the most transformational global innovations of recent decades. Getting this to scale could be a central plank of the new growth, at no extra cost.
I urge for there to be no more tiny programmes, timid in scale, often initiated with great fanfare and then quietly closed 18 months later. We hope for an aggressive, ambitious, national programme running right through government, perhaps facilitated by the TSB, which does nothing other than force a procurement revolution.
I have made today a particular and practical remark about one of the engines which could power our desperate need to go beyond austerity and from innovation to real growth. It could be an engine which is fired up without any additional cost to the taxpayer and with no increase in the deficit, simply by dramatically, ambitiously redirecting current spend away from unimaginative vested interests and towards making government the most dynamic and effective customer for buying new products from innovative businesses.
The alternative is dire. A commitment to simply reducing national debt has not shown enough signs of enhancing our nation’s prosperity. Our growth programme is looking inferior to so many of our competitors. There may be no plan B, but it is becoming increasingly clear that something else is needed to deliver growth more comparable to the world’s most dynamic economies and, in turn, sustain the society that we must nurture here in Britain.
My Lords, last year we had the omnishambles Budget, with measures such as a “pasty tax”. Last year we had the Government making U-turn after U-turn, and the criticism that the Treasury had not thought things through or listened. This time, the Budget has so much in it that shows that the Government are genuinely trying to listen. For a long time, many of us have been saying that employers’ national insurance is a tax on jobs and that it should be removed and reduced for new businesses and SMEs, and the Government have listened and shown that in their NI initiatives in the Budget. Of course, they should go further, but this is a great start. Our fuel duties are some of the highest in Europe, and the Government have listened and cancelled the fuel duty rise in September.
In the brewing industry, in which I have declared an interest, we have suffered from beer sales drastically reducing for decades, and we have had the wretched and hated beer duty escalator, introduced by the previous Government, increasing the price of beer above inflation for years. There has been a tireless campaign by the British Beer and Pub Association and the Campaign for Real Ale, and the work of Andrew Griffiths, the MP for Burton, where I was yesterday with my joint venture partners Molson Coors at its the headquarters in the UK. All these campaigns have asked the Chancellor to stop that escalator. Eighteen pubs a week have been closing, with two pubs in London alone closing every week. Jobs have been lost and the average Briton has found that the cost of one of life’s simple pleasures has gone up. I pay credit to the Treasury Minister, Sajid Javid, who has listened to those concerns and not only removed the beer duty escalator but cut the price of a pint by a penny. Of course, the campaigns on both the fuel duty and beer duty were ones that the Sun newspaper got behind. In spite of that newspaper’s criticism of the press reforms, calling the Government the “Ministry of Truth”, it would claim that, “It’s The Sun Wot Won It”.
Could the Minister confirm that the Government have checked that they will be able to go ahead with the beer duty reduction? There have been complaints from organisations such as the WSTA that claim that it breaches EU rules by reducing duties for beer but increasing duties for wines and spirits. Could he confirm that the beer duty reductions could and should go ahead?
On the face of it, the Government have listened to business. They are concerned about business and have listened to consumers, and they are concerned about consumers. They have paid particular attention to the less well off consumers by raising the tax threshold to £10,000, but the reality is that we are two years away from an election, and this was the Chancellor’s last chance. The political reality sadly overshadows everything. We all know that the situation is so bad that we need drastic measures. Getting down to a 20% corporation tax is fantastic news, but we know, for example, that Ireland has gone down to 12.5%, which has made a huge difference in attracting inward investment and spurring growth. It was a bold move. We need to get this into perspective. Corporation tax brings in barely over 5% of tax revenue, but reducing it sends out huge signals.
The reality is that although the Government have reduced the deficit, they promised to eliminate it by the end of Parliament in 2015. We all know that they will be nowhere near achieving that, and the noble Lord, Lord Eatwell, who is not in his place, spelled that out clearly. Public sector net debt is predicted to double from £800 billion at the start of this Parliament to more than £1.6 trillion by 2017-18. Just this year alone, in spite of seeing the lowest ever interest rates, the Government’s debts will cost the taxpayer nearly £50 billion. That is far more than the entire defence budget. The reality is that the Government’s austerity plans for the past three years have not worked, because they were based on projections that showed that the economy would be growing at 3% a year by now. We know not just that growth has been slow but that the economy has been flatlining or been in recession. The reality is that the OBR has halved its growth forecast from 1.2% to 0.6%. In other words, we will be bumping along the bottom once again.
The Government have made a rod for their own back, once again for purely political reasons. I am sorry to say this, but the Opposition would probably have done the same: ring-fencing certain areas of the Budget such as health, international aid and schools. When you add all those ring-fencings together, it makes up well over 50% of the Budget, which means that what you can cut is under 50% of the Budget. In defence, for example, although the Government are helping the Armed Forces by giving the fines raised from the banks’ LIBOR scandal to the Armed Forces charities, which is terrific, and increasing the pay of those in the services by 1.5%, the reality is that in real terms all our workforce is being squeezed. Inflation has been well over 2% for three years, and real wages for all the people in this country will have seriously shrunk over the course of this Parliament. People are worse off, and are going to be worse off. With defence, we have had spending cuts, including nasty cuts in our troop numbers and our capability, when we continue to have black swan and grey swan threats. Yet we continue to intervene globally to the extent that even the current Defence Secretary has spoken out in protest.
Of course, the further good news in this Budget is that the Government are going to give the Governor of the Bank of England flexibility to help to generate growth in the economy, but why have the Government not been more specific about that growth remit? Why have they not set a specific nominal GDP growth target for the Bank of England, for economic growth and job creation, as well as targeting stability?
Of the more than £700 billion of public spending, welfare, social services and the National Health Service account for more than half the amount. Huge savings need to be made in those areas. Public spending as a percentage of GDP has reached 50%. This Government are reducing that proportion, but can the Minister confirm that they have a target of reducing public expenditure as a percentage of GDP to 40%? At that level, this country can still provide the world-class services that a top-10 nation such as ours deserves and still provide the safety net that our people deserve, while still providing the environment to generate growth where we need to invest.
This Budget has saved the Chancellor from his last chance saloon, but it will not have saved the country. Unfortunately, political reality has got in the way. The Government have failed to deliver growth in the past three years and failed on the promise to eliminate the deficit over this Parliament. Yes, there have been external causes, the global economic crisis, the eurozone crisis and the uncertainty of the world in which we live, which would have been challenging for any Chancellor. The previous Government blamed external factors for getting us into this mess, and this Government blame external factors for not being able to get out of it.
We must give credit where credit is due; there is much to be happy about both for consumers and for business. However, in this increasingly global world, there is nothing in the Budget about incentivising and increasing exports and doing business with countries such as India and China: the BRICs. As founding chairman of the UK India Business Council, I know that the good news is that Britain is still one of the top 10 economies in the world. When I accompanied the Prime Minister to India last month, I advised him that the global race is competitive. We need to be bold and optimistic and shout from the roof tops that we have the best of the best in the world, whether it is in education, professional services, accountancy, law, design and high-end engineering. We have the best institutions in the world, yet there is not enough in the Budget, as the noble Lord, Lord Kestenbaum, said, to invest in science and technology, innovation and higher education. We need to be bolder in getting our priorities right and generating growth and confidence for our consumers and business. In the words of the Duke of Wellington, “Fortune favours the brave”.
The Minister said that this was an “aspiration nation” Budget. My great grandfather’s motto was to “Aspire and achieve”, and my business’s motto is to “Aspire and achieve against all odds, with integrity”. That is just what this country needs to do.
My Lords, once the Chancellor laid down his strategy for five years, there was not much that he could do in each Budget. That is a consequence of having a long-term strategy. This Budget does not do very much, and I welcome it for that. I do not think that half way through a five-year strategy you should suddenly start listening to people who say, “Cut more”, or “Spend more”, or things like that. If you have a strategy, you stick to it.
Obviously, as many noble Lords have pointed out, external forces and perhaps the miscalculation of the growth process have meant that we are growing at a much lower rate than we expected when the strategy was laid down. I should also say that most other countries have been growing much slower than they thought was possible. So there are structural problems for the economy, as I have said before. We still regard growth as something that will happen automatically, or as something that we deserve. In retrospect, it is clear that some of the growth that occurred between 1992 and 2007 was unsustainable. A lot of it was engendered by easy credit and occurred mainly at the consumption end. Therefore, it was not sustainable. If we are to have growth again, as we will one of these days, let us make sure that it follows structural improvement in the economy and is not credit-driven but genuine productivity-driven growth.
There is not much to say about the Budget because it does not do very much. In the OBR and elsewhere, much emphasis is laid on public sector borrowing and public sector debt. However, we also have the problem of household debt. We have not done enough about the deleveraging of household debt. A chart on page 56 of the OBR report lays down the debt equity ratio of households and the ratio of debt servicing charges to household income. In my view, both those figures show that we are deleveraging far too slowly. Indeed, as the projection shows, the debt equity ratio will go up in the near future. The debt servicing charge income—the income leverage ratio—shows somewhat good results but that is because of QE, which has depressed interest rates, so the cost of servicing household debt is that much lower. That phenomenon should have danger signs attached to it because a lot of households are in negative equity and are just bumping along the bottom thanks to low interest rates.
QE postpones deleveraging. However, we have chosen to concentrate on public sector debt reduction and not to worry about household debt reduction. I hope that the Minister will comment on the fact that the household debt deleveraging problem is not being tackled by the Government to the extent that it should be. In that regard, I am alarmed by the house purchasing initiative. One of the great problems that we have experienced in the British economy, not just recently but for many decades, is that of overinvestment in housing. We have incentivised people to buy houses as opposed to other assets. Like many other economies, we got caught in a housing bubble and have regretted it.
I had hoped that the Government would encourage renting to a much greater extent than they have done. There should be a healthy rented sector for the younger generation and people entering the labour market. However, instead of having a healthy rented sector, we will enter yet another housing bubble. No doubt there will be tears at sunset given that table 4.1 of the OBR report shows the rate at which residential property prices will go up in the next two to three years. That is just a forecast; they may go up at a faster rate than that shown.
Once growth starts, a lot of the money which the OBR has generated, which is lying idle somewhere, will come into play and there will be much greater inflationary pressures for the economy once the recovery begins. There will also be a housing bubble, which will lead to the next financial crisis. I am normally a friend of plan A, but I am worried that there is a temptation for Chancellors to give money away for house purchase. If only we could get people used to the fact that you do not need to own a house and that if you rent one instead you can save your money and invest it in a more productive asset.
I welcome the reduction in national insurance contributions. Some noble Lords may remember that on the previous occasion we debated a Budget, I said that we ought to move away from taxes on income and towards imposing taxes on consumption. National insurance contributions should be abolished forthwith, if possible, and we should shift from income tax to a consumption tax. Further, we ought to have no zero-rated VAT commodities at all—a policy recommendation that got me sacked—and we ought to rely much more on VAT than on income tax for collecting revenue. I do not think that the Chancellor will do that. He is in enough difficulty as it is, and if he follows my policy he will only get into more difficulty, albeit that it would be the correct policy.
My Lords, I was hoping for several measures to be announced in the Budget, and each has been met: initiatives to generate investment to drive growth, particularly growth that can rebalance our economy away from overdependence on financial services and London; initiatives to get Britain building again, boosting the construction industry and getting houses built; action to implement the report of the noble Lord, Lord Heseltine, No Stone Unturned; action to help small businesses to encourage them to take on more people; and raising the income tax threshold to £10,000.
On investment, we must remember that public spending and borrowing can have a positive impact on growth. I refer to transport improvements, school repairs and improvements, water infrastructure, faster broadband, power stations and infrastructure investments that produce an income. It seems to me that borrowing small amounts, particularly at today’s low interest rates, need not cause problems with financial markets. I will come back to this in a moment in relation to housing, but the message is that infrastructure projects do not have to be big national schemes to generate jobs and growth.
First, the announcement on the income tax threshold was very good news because the threshold of £10,000 will be reached a year early. Since 2010, the Government have taken almost 2.5 million people out of paying tax. In my own region of the north-east of England, 106,000 people have been taken out of paying tax. That is a huge achievement for the Government, which directly helps large numbers of people on low incomes and increases their personal spending power.
Secondly, on small businesses, I was pleased to read last night the reaction to the Budget on the part of the Federation of Small Businesses, whose national chairman said:
“The FSB asked for a budget for small businesses and this is what has been delivered”.
The decision on national insurance contributions for small businesses is particularly welcome. I note the success of the Government’s policy on apprenticeships, which has seen 86% growth since 2010. Indeed, in my own region of the north-east, the growth has been 107%: in other words, a doubling over three years. This is very encouraging because it demonstrates the importance of the private sector vis-à-vis training for sustainable employment, in which small businesses play a crucial role.
Eighty-one of the 85 recommendations in the report by the noble Lord, Lord Heseltine, No Stone Unturned, have been implemented. That is very good news because it really matters. GVA per head between 1997 and 2010 grew in London and declined across the north—that is the north-west, Yorkshire and the north-east—against the UK average. In absolute terms, GVA rose in those regions, but in comparative terms the gap widened. This Government’s job must be to empower those outside London—private and public—to do more to drive growth.
For an indication of what has happened in recent years, let us take the contribution by English region to the national non-domestic rate pool. Last year—2011-12—showed the same thing: that every region outside London, including the south-east, contributed less than its share of population, with London contributing nearly 30%. That dependency is unhealthy for our economy and demonstrates clearly why the empowerment of England’s local enterprise partnerships and local authorities through the single-pot mechanism is so important. The crucial point is that devolving power from Whitehall in such key areas as transport, skills, housing and regeneration—building on existing capacities of other organisations such as the chambers of commerce—will drive growth faster than leaving all key decisions centralised in London.
However, it is important that devolution is real. An example of my concern about the impact of centralised power is the Highways Agency. Sometimes it is claimed that planning gets delayed because councils are slow. Actually, the problem often lies with government agencies. As an example, the Highways Agency is not regionally accountable and is charged exclusively with keeping traffic flowing, regardless of wider economic or social issues. It has a power to stop planning permissions. The immediate solution, requiring no legislation, is for the Highways Agency to have to obtain the Minister’s approval before it uses its power to stop a planning application. The real solution is to give the power to localities to decide for themselves on such matters, as part of a general devolution of power.
On getting Britain building again, the help to buy scheme should boost confidence; something needs to. There were only 98,000 starts in England last year and yet 230,000 households are formed each year. The numbers on housing waiting lists, the rise in demand for temporary accommodation and high rents in the private sector also point to the social and economic benefit of building more homes at below market rates. Councils, and their arm’s-length management organisations where they exist, have the capacity to build more homes, given that council housing is now self-financing. They could raise £7 billion and build up to 60,000 more homes over five years, contributing 0.6% to GDP in the process. That could be done very simply if the Government removed the borrowing cap on housing revenue accounts, relying instead on a prudential borrowing code to guarantee that only sustainable investment got the go-ahead.
Council housing has been self-financing since April last year. That is welcomed, but the average debt on a home is just over £17,000. There is scope for additional borrowing against the asset represented by that existing stock. While I understand the need for the Government to be careful about public borrowing levels, relaxing the housing borrowing cap need not be counted as public sector borrowing any longer. The UK uses a much wider measure of public debt than other countries. Council housing is now a trading activity, and international regulations already permit this to be discounted from government borrowing levels. Unfortunately, the UK does not currently adopt such an approach, and I remain puzzled as to why not.
This Budget provides many opportunities for growth. They need to be grasped. We need to manufacture more, export more and build more on our commercial strength. That is why my noble friend Lord Heseltine’s recommendation that LEPs should produce long-term strategic plans for negotiation with government was right. Also right was the recommendation to publish by the summer sector strategies in key sectors for growth—automotive, aerospace, life sciences, agritech, professional business services, information economy, construction, education, nuclear, oil and gas, and offshore wind. Producing these strategies is very encouraging because they cover the UK as a whole and not just London, so growth will be delivered outside financial services and London. There is a vision in this Budget. It points a clear way forward for growth. For that reason it should be commended.
My Lords, I am very glad that my right honourable friend the Chancellor stuck to plan A. It would be unthinkable to abandon it. There was no question that it would be abandoned. Yet there are some dangers. I quote one sentence from the Chancellor’s speech that is very relevant:
“I will be straight with the country: another bout of economic storms in the eurozone would hit Britain’s economic fortunes hard”.—[Official Report, Commons, 20/3/13; col. 932.]
Such a storm may have started in Cyprus. It was absolutely astonishing that the troika—the European Central Bank, the IMF and the Commission—should have agreed a package of measures that involved a levy on deposits in Cyprus’s banks: 6.5% on deposits under €100,000 and 9.9% on those above €100,000. That flew in the face of the EU-wide recognition that deposits in banks up to €100,000 are guaranteed. It was an astonishing thing to happen.
In case noble Lords feel that I am being alarmist, or that Cyprus is a mere minnow and we should not worry about it, I would remind them of a little history. On 11 May 1931, the small Austrian Creditanstalt bank failed. That triggered the financial collapse of central Europe. By 13 July, the German Danat-Bank collapsed and all German banks closed until 4 August. Between 19 and 24 August, we had a major economic crisis in Britain. Five days of Cabinet meetings failed to agree the spending cuts demanded by American bankers at the time, and that led to the collapse of the Labour Government. We cannot play these games with the eurozone trying to have it both ways. Only a few months ago, eurozone Ministers declared that they must absolutely make sure that in future there was no confusion between sovereign debt and bank debt. For Cyprus they have again produced a formula that has done precisely that. It is not surprising that the banks in Cyprus are closed.
What is the answer to that? The Chancellor pointed out that 40% of our exports are to Europe. I suggest that the Government do everything they can—Parliament as well—to focus the eyes of exporters beyond Europe. Let us make much more effort about Asia and probably also Latin America. They should become a real priority. I am not saying that the Government can do that: the Government cannot make exports but they can at least propose that as a strategic aim. We must take advantage of the Asian market. We have the inestimable advantage of having special links with Hong Kong, which is the financial centre of Asia. It is the third most important financial centre in the world after London and New York. That is something we really must look at and quickly.
I will quickly mention one or two other points. The shift in the responsibilities of the MPC is very interesting. It will become much more like the Fed. That is a very big responsibility and I hope it can measure up to that. It was right to stimulate the economy with some extra expenditure, but only £3 billion was given. Why so little an amount?
Here I come to the one mistake that the Chancellor made: the fuel tax. That was tempting politics but damned bad economics. Cancelling the fuel tax increases has already cost, by the Chancellor’s own figure, £6 billion. It looks as though, if it continues at this rate, it could cost up to £20 billion by the end of this Parliament. That is not a sensible way of spending money—the opportunity cost is extremely high—first, because it is being done in little slices of 3p and, as everyone knows, 3p is less than the variation in petrol or diesel prices between pumps. Secondly, all vehicles are becoming much more efficient. A vehicle that previously did 30 miles to the gallon now regularly does 40 miles to the gallon. There is therefore a natural and desirable trend for less fuel consumption as fuel costs rise. The United States would not be having its huge financial problems if it taxed road fuel at a sensible level.
There is also a serious lacuna in the Government’s thinking regarding their unwise energy policy involving massive subsidies for solar and wind power that are being passed straight on to the consumer through the levy on the electricity companies. That is a grave mistake.
I welcome the aim of the housing help to buy scheme and mortgage guarantee, but with some apprehension. As the noble Lord, Lord Desai, said, there are real dangers in the Government introducing or getting involved in subprime lending. There are echoes of Freddie Mac and Fannie Mae in America, which did precisely the same thing and whose collapse cost American taxpayers hundreds of billions of dollars.
We must recognise that you have to be delicate when dealing with the City. It currently produces 13.5% of Britain’s GDP. That does not mean that I am any sort of spokesman for the banks. Bank balance sheets are extremely fragile. The noble Lord, Lord Desai, referred to domestic debt; there is still £55 billion of credit card debt held by British banks. That is not the money that you and I spend each month and pay off; it is overrun debt on which the rates of interest are anything between 17% and 25%. The chance of it being paid back is remote, and the question that one must ask is: at what price do the banks have that debt on their balance sheets? If they have it at anything like par, that represents a serious danger. The banks sold off some of that debt about three years ago at rates of between 8p and 12p in the pound. If the outstanding debt were valued at market rather than nominal value, the banks would be safe.
My Lords, many noble Lords seem to agree that we are in a difficult economic situation. Some noble Lords have explained that this is because the Government’s plans to stimulate, rebalance and grow the economy are clearly not working. Yet we are told that there is no alternative and that one day the policy will work—but at what cost? The highly respected Trussell Trust expects the number of people in the north-west using food banks to rise to more than 230,000. That is the cost. Is this the kind of country we want to live in?
The Minister spoke of economic realism. Blaming others and factors outside our control is not economic realism. Adapting to and embracing, not blaming, the changes is realism. Our economic problems are many and complex and each requires realistic attention.
The noble Lords, Lord Flight and Lord Bilimoria, spoke of exports. The Government have tried to help them through devaluation. However, that does not really work any more. A lot of our exports are made up partly of imports and that does little for productivity. According to the Bank of England’s analysis, the major economies in the eurozone have seen their exports grow faster since 2009 than has Britain. Why? It is partly because of the drop in exports of financial services but also because those economies have not been able to devalue because they are tied to the euro. Their only alternative is to produce more goods and services that others want to buy. Here, devaluation allows some firms to stay in business and become “zombies”. Is this why employment is increasing but productivity is plunging?
It could be that some firms are retaining skilled labour in the hope of better times to come. Meanwhile, those people are not as productive as they might be. Also, firms may be investing in things other than plant and buildings—investments that are not being measured. They are so-called intangibles such as investing in business processes and systems, writing new and better software, enhancing their brand and investing in new concepts such as big data. Has the Minister seen the research that shows that this kind of investment is growing but not counted?
The Government also have to be realistic about the fact that the financial sector is changing, not only because of the loss of trust through mis-selling, excessive pay and market manipulation but because much of its business has become trading value. Trading in value is a zero-sum game—some get richer and some get poorer—whereas trading in goods and services that people want and need benefits everyone. Trading value as our major economic activity cannot be the right course, and people have now realised this. As my noble friend Lord Eatwell put it, that is why the Government have to put far more emphasis on trading in goods and services that people want and need. That is where our efforts should be going in this Budget.
The Minister emphasised the cut in corporation tax. Of course that is welcome, but the headline rate does not change things much. It is all the other facets of tax that determine what a business really pays. The cut in employers’ national insurance, when it comes, will affect far more businesses, as will next month’s rise in business rates.
Yes, this Government talk about making efforts to adapt and embrace change in their support of our industrial sector, the supply side. The Secretary of State for Business, Innovation and Skills has fought to maintain the size and excellence of our science base. The Technology Strategy Board is being supported and strengthened. That is fine but, as my noble friend Lord Bhattacharyya asked, is it enough? My noble friend Lord Kestenbaum also made that point.
I recently visited Bavaria and learnt that what we spend as a nation to support industry is matched by the single state of Bavaria in Germany, and it shows. What we as a country export to Germany is matched by the exports of the state of Bavaria alone. The reason is that for 50 years Bavaria locally has consistently maintained and supported the fundamental planks of a modern industrial strategy, the strategy that my noble friend Lord Kestenbaum described, involving skills, technology, innovation, procurement, infrastructure, finance and supply chains—a policy that can be roughly described as the Heseltine view. That view was expressed in his report and debated in your Lordships’ House on 6 December last year. In that debate, nearly all speakers welcomed his recommendations, and the noble Lord, Lord Shipley, did so today. They welcomed the active role of the state in promoting economic growth while devolving power to other centres away from London. In his Budget, the Chancellor, too, accepted some of those recommendations. Does this indicate a change in direction?
My noble friend Lord Bhattacharyya told us that rebalancing and growing our economy is a long-term project. It is a project done successfully by building, not destroying. There were many good things to build on in the fields of innovation, science, technology, local funding, skills and apprenticeships. Yet for short-term political gain, Ministers destroyed or talked down much of this. Indeed, they continue to do so.
If the Government want to build confidence—confidence that we can grow our way out of these economic difficulties—they must signal their commitment to continuity by indicating that all these elements, whoever created them, will be tackled and built on in the interests of our long-term economic growth and not talked down in the interest of short-term political point-scoring.
My Lords, I was able to speak in last year’s post-Budget debate. Twelve months ago, we all hoped that we would now be in a healthier economic position. We have admirably cut our deficit by a third and seen more than 1 million new private sector jobs created. However, the wider global situation, particularly in the eurozone, remains such that full recovery is still some way off and the continued growth downgrades have been inevitable. Above all else, what is important in such times is that we maintain discipline and stick to our course of austerity, particularly in the face of the confused calls from the Opposition for higher borrowing. More borrowing is not the answer to our problems.
It is crucial that we are seen to be taking the right decisions for the right people by helping those who genuinely want to get back into work, by nurturing the talent and innovation of our young people, and by helping businesses in need of assistance, as businesses form the backbone of our economy.
I am very supportive of bringing forward the £10,000 income tax threshold to next year, positively impacting on 24 million people. The more of people’s hard-earned money they are allowed to keep, the more empowered and encouraged they will feel to spend it. That will result in greater revenues to those parts of our economy that so desperately need them and, ultimately, in a healthier all-round cash flow to stimulate growth.
The scrapping of this year’s fuel and beer duty rises is also very welcome. Again, it is a measure that will affect the average person in their day-to-day spending and, I believe, provide that small but foundational level of help that people really do notice.
I should also like to express my support for the very difficult decision to cut further the budgets of some of our government departments. Diverting £3 billion per annum from Whitehall departments to the implementation of major infrastructure projects such as roads, railways and power stations will make more of a difference to the everyday lives of working people and create thousands of new jobs.
I also applaud the proposals concerning home ownership. These will help people to buy houses and will assist housebuilders, generate more business activity and create jobs.
I endorse the decision to protect our health, education and international development budgets, as well as the responsible decision to exempt military personnel from the caps imposed on other public sector pay rises. As someone who is interested in humanitarian matters, I am pleased to learn that we will continue to spend 0.7% of our national income on overseas development.
One area where I hold particularly strong feelings is the erosion of our competitiveness, which has without doubt been one of the fundamental causes of our continued stifled growth. This has been due to the red tape and bureaucracy implemented by the previous Government, coupled with the very challenging shift in global wealth from West to East. In short, when this Government came to power, the UK was no longer an attractive place to start a business. Much of this is already being addressed through the Enterprise and Regulatory Reform Bill, and I was heartened to hear of the Chancellor’s decision once again to reduce corporation tax. We already boast the lowest corporation tax rate in the G7, but we can now proudly say that, based on projections, as of 2015 we will also have the lowest rate in the entire G20.
Perhaps one of the most notable announcements made yesterday was the cut in companies’ national insurance contributions, removing huge barriers for smaller businesses and meaning that a third of all employers will not have to make any further national insurance payments.
I support the Government’s announcement that we will be taking forward the recommendations in the excellent report of my noble friend Lord Heseltine, No Stone Unturned: In Pursuit of Growth. I agree with the Government’s policy of taking robust action and improving our system of training and education, particularly in relation to apprenticeships and vocational training. This will enhance our manufacturing base and help in our recovery.
As someone who is widely travelled and has contributed a great deal on trade issues in your Lordships’ House, I shall now focus my remarks primarily on the export-led recovery. There is no more obvious a way to grow a country out of economic turmoil than by increasing trading links—in particular, levels of exports—with other countries. I have been very heartened by the efforts of UK Trade & Investment since the previous Budget. In particular, earlier this month it announced that its Trade Challenge Partner initiative will be implemented, with 99 partners drawn from trade and other membership organisations, with the aim of getting more of the members exporting overseas and further supporting those that already do.
I welcome the appointment of parliamentary trade envoys, who have the potential to make a real difference. I should like to see an expansion of the role and number of these appointments. There are plans to develop British business support networks in 20 priority high-growth and emerging markets, and I know that my noble friend Lord Green led a conference just last week to announce the establishment of the India trade network. These are exactly the kinds of initiatives that I should like to see more of. Anything that we can do to help SMEs to move into emerging markets must be embraced to the point where it is no longer viewed as a challenge for us to increase our exports but it is naturally accepted that it is in our country’s fibre to be a world leader in selling our products overseas. I hope to see this progress continue to develop as we move forward in rebalancing our economy and refocusing our efforts on what made us such a great and powerful manufacturing and trading nation many years ago.
We need to aspire to raise our game in international markets and to support the most vulnerable in our society as the economy charts a course to recovery. We also have to restore order to our public finances. I welcome the Government’s resolve and commitment; it is now time to deliver.
My Lords, yesterday’s Budget speech by the Chancellor contained a number of tax break announcements that are intended to stimulate our economy. These included measures for business, such as reductions in national insurance payments and a cut in corporation tax, and measures for individuals, such as an increase in the tax-free income allowance and tax relief on childcare.
However, hidden in the detail of the Budget but not mentioned by the Chancellor was an announcement relating to a Treasury electricity tax that could significantly undermine money saved by those measures. The carbon floor price was announced in 2011 and will start to be added to electricity bills from 1 April this year. The logic of the tax is to increase the cost of carbon pollution to provide a benefit for lower-carbon sources of electricity. It is claimed to be necessary because the market price for carbon, set by the balance of supply and demand for carbon emissions at a European level, has crashed to very low levels, failing to incentivise investment. To address this, the Treasury has invented a top-up tax, which is intended steadily to increase the cost of carbon pollution over this decade.
Starting in April, UK electricity companies will be required to pay a £4.94 per tonne carbon top-up tax, which is roughly equivalent to adding £2.50 per megawatt hour to wholesale electricity prices. A year later, the level will double to £9.55 a tonne or £4.77 a megawatt hour and in 2015-16 the level that was announced yesterday—or, rather, was not announced—doubles again to £18 a tonne or £9 a megawatt hour. Over the next three years, this single policy will raise the Treasury an estimated £4 billion to £5 billion in revenue. Yet the Chancellor forgot to mention it.
I am not against polluters paying for pollution: in fact, I am all for it. However, in the fight against climate change it is absolutely imperative that when we impose costs on the economy, we do so for very good reason. Sadly, in this case it is so badly thought through that this policy risks holding back recovery, increasing inflation and giving carbon pricing a bad name, undermining our ability to introduce more sensible policies later.
The reasons why the Government’s carbon floor price is such a bad idea are numerous and have been pointed out repeatedly since it was first mooted. Opponents include business groups, consumer groups and green groups. Everyone appears not to like this policy. The first obvious problem is that the tax fails to do anything for the environment. It does not deliver any additional environmental outcomes. The emissions it targets are already capped at an EU level and simply doing something here means that our emissions saved will be traded away across Europe.
The second, blindingly obvious, problem is that being unilateral it damages UK competitiveness at a time when we need to be boosting our competitiveness. Electricity prices are an essential input to virtually all economic activity. Steep rises in prices increase everyone’s costs and are inflationary. It is no wonder that the Budget yesterday appeared to be indicating to the Bank of England to go soft on meeting the inflation target. But the effect of this policy is likely to make it harder than ever to bring it under control.
The third problem is that rather than paying electricity companies when they invest in new low-carbon projects that come on stream, as the renewables obligation does and as the contracts for difference will, the carbon tax simply pushes up wholesale prices of electricity for everyone, rewarding those who have already invested for doing nothing new. It is a huge windfall for projects that have already received generous subsidies, be they existing wind farms or old nuclear power stations. This is of course good news for some generators but bad news for industry and consumers, who are paying twice for no good reason. The floor price is intended in a not-very-clear way to give investors confidence. However, being a finance Bill measure, no investor worth his salt is going to place any confidence in this policy lasting, especially since it has been implemented so appallingly.
Recognising that increases in electricity prices will be damaging to industries which rely on it, the Treasury has pledged to make around £250 million available to certain sectors to compensate them. That is a fraction of the revenue that the policy will raise. However, there is nothing in the Budget to compensate consumers and this comes at a time when public money to help poorer families cope with higher energy bills is at an all-time low, having been slashed by this Government.
Some may argue that the main purpose of the carbon floor price is to disincentivise the burning of coal in existing stations, which would be a noble endeavour. However, this policy is the equivalent of taking a sledgehammer to crack a nut and even then it may not be successful. Coal is experiencing something of a reversal of fortunes thanks to lower global prices as unused coal from the US enters the market. This, combined with high European prices for gas, is causing us to burn more coal. The disparity between the two fuels is so great in cost that even the hefty carbon floor price may not be enough to switch us out of it. It requires something in the region of a £30 a tonne carbon price for us to do that.
What would Labour have done differently? First, we know that investors in low-carbon electricity infrastructure are absolutely necessary for getting this country back to growth. They need policy certainty, which is why we are committed to introducing a decarbonisation target for the electricity sector. The Government have failed to acknowledge this and are proposing to wait until 2016 before doing so. We would also use simpler policies, such as the energy performance standard to secure the steady phasing out of unabated coal and usher in carbon capture and storage. That is simple to understand and unambiguous, and provides the clarity investors need to commit to new projects.
We would also work around the clock to achieve a solution to the low carbon price at an EU level, which is the only level where it matters. Fortunately, we still have some credibility in Europe, unlike the Tories, and we are able to control our MEPs. As we speak, the Conservative MEPs in Brussels are mustering to rebel in a vote in April that would help to rebalance the European carbon market—doing precisely what this heavy-handed policy is intended to do. The Government line is to support it. Yet, disgracefully, the party is not able to persuade its members to vote that way in this forthcoming vote.
In the short time available I have focused exclusively on one measure in the Budget. However, I have done so consciously in order to try to compensate for the Chancellor’s grave and negligent error in omitting to mention it at all. As companies and families sit down this week to try to work out how the Budget will affect them, the hidden electricity tax is unlikely to feature in their assessments. Indeed, it features in scarcely any of the mainstream media’s assessment of the impact of the Budget. Yet it is raising large sums of revenue and has a very material impact on costs.
This makes me fear that either the Chancellor simply is unaware of the detail of his Budget or he is purposefully trying to hide a significant additional cost to the consumer. Will the Minister inform the House what the Government’s assessment of the impacts of this policy are on inflation, competitiveness and the poorer households which currently are struggling to pay their electricity bills?
My Lords, like others I am sure, on these occasions one puts one’s name down for a debate and then perhaps regrets it, thinking it probably will be a mistake or gloomy. I was expecting a gloomy debate because of the background to the Budget—although not the individual Budget measures announced yesterday, many of which are very good. I hope that I will not annoy our colleagues in the larger coalition if I say that, self-evidently, the two best single measures are the abolition of taxation under £10,000 for the lowest income tax payers and non income tax payers if they have a really low level of income, and Vince Cable’s suggestion for an expansion of the housebuilding sector being agreed at just a little above the original figures that were promulgated.
I speak as someone who, in the early 1960s, studied economics at the greatest single Keynesian school in the whole world in those days—the University of Cambridge—just by chance and good luck. I was heartened today because we have had two outstanding Keynesian speeches. Unfortunately, they came from the other Benches and I wish that it had been from these Benches. We heard the first from the noble Lord, Lord Kestenbaum, who is no longer in his place, and then the second more recently from the noble Lord, Lord Haskel. Both gave an alternative message about what now needs to be done in this country on long-term capital and investment accounts and on the long-term realism that this economy needs, and I agree with them.
On the individual measures, it is very difficult to quarrel with the Chancellor. One newspaper writer rather unkindly said that the unique thing about George Osborne was that he was even more unpopular than the austerity measures that he keeps promulgating, which was an interesting description. There will be a reduction in national insurance and the abolition of national insurance at the relevant level. There is the modest start of the housebuilding programme for the future and the reduction in corporation tax. There are many other examples, too, which are all very good and one commends each one individually.
However, the total picture is a huge problem for this Chancellor because, as we all know, this country is locked into the utterances of the past. One of the mistakes of the coalition Government was the spokesmen from the bigger of the two parties repeatedly recalling the mess left by Labour. I suppose each incoming Government always say that about a previous one. But the previous Labour Government were mostly dealing with the international worldwide financial crisis of 2007-08 and its aftermath. Gordon Brown had to handle it very speedily. The amount of taxpayers’ money was colossal in doing that task, which reduced the funds so much so that the outgoing Chief Secretary said that there was no more money left, which was a realistic description.
There was also the excessive harping on and the hysteria in this country about the eurozone’s problems, saying that they are intractable and insolvable. Indeed, I hope that the noble Lord, Lord Marlesford, will not mind my saying that it was not the Germans or the whole Council of Ministers who insisted on the capital levy for the Cypriots. That was their own part of the transactions when the council said that Cyprus had to respond with an enormous amount of money to reflect the vast amount of money that they were getting in the bailout. Germany did not impose a particular suggestion on Cyprus. The Cypriots decided that themselves. As we know, they have now changed their mind and are doing other things. We are waiting to see the details of that as a result of the non-vote in Parliament.
Yes, of course, because the Cypriot Government then submitted those suggestions to them, which were accepted. That was the sovereign decision of the sovereign country of Cyprus, which made its own suggestions in response to the request from the Council of Ministers and the German Government, and quite rightly.
The difficulty now is what we do from now on and where we go. The reality still confronts us in this economy that, to quote another source from many years ago, one has to enlarge long-term public spending on public assets with a high multiplier effect. Government spokesmen in recent years have kept on saying that public sector is bad and wicked, and private sector is good, and that we should rely on the private sector to respond to the inaction of the Government, but that never works. We all know that, and the evidence is there. Huge global corporations will make their decisions irrespective of what national Governments do. Facebook would not be particularly responsive to particular individual national Governments in the world, for obvious reasons, and neither would Microsoft, although the national subsidiaries in different countries respond to some national government decisions, as we know. Equally, sometimes very high-tech innovative companies in different countries themselves make their own decisions and have particularly good fortune such as very strong bank support and other access to capital, which enables them to be free-floating and not respond to government. However, in the vast majority of businesses, whatever their size, and in particular small companies, the reality is that you wait until the Government are expanding the economy. That is not a criticism of the way companies run businesses; if I was running one now as I used to in the old days I would do the same thing.
The noble Lord, Lord Kestenbaum, who is not in his place now, earlier mentioned economies where public sector and private sector activity is mixed up together in a constructive whole. Bavaria, mentioned by the noble Lord, Lord Haskel, is a very good example of that, where a centre-right moderate Government, over many years, never said no to public spending as long as it was on long-term investment assets. It was nothing to do with short-term current account. The British Treasury is still far too short-term obsessed. Therefore, until we change, we will be stuck in that ominous way that was so ably described by the very able business editor of the Evening Standard yesterday, when he referred again to the Chancellor. He wrote that a wiser man, earlier on,
“would have been less aggressive, less dogmatic about the rightness of his policies, so that he would have had room to manoeuvre when they seemed not to be working. But Osborne has closed down all those options so today’s Budget is the work of a man who is in a hole but continues to pretend that the only way forward is to keep digging. The public finances remain in a dire state, and even a bit of sleight of hand with the numbers can’t conceal the fact that we have made absolutely no progress over the last 12 months”.
The terror of the slightest increase in our interest rates in this country will stop further action until there is a big change of heart.
My Lords, I sense that I am going to disappoint my noble friend Lord Dykes. I am not going to be gloomy, but I have to say to my noble friend on the Front Bench that my mood today is cautious for the following reasons. My noble friend was not in the House when I made my maiden speech in 2010. I am sure that other Members present recall it very well. That was a joke. At the time, with the help of a friendly app, I gave the account of how much the country’s debt was when I stood up and how much it had increased when I sat down. I do not have that app with me today, but I took a quick look at it yesterday, and I see that we are still escalating, at £500 per second.
My concern today is primarily about the debt. There have been some very good things in the Budget. I support things that others have mentioned today, particularly raising the personal tax threshold to £10,000, and for small business, the £2,000 threshold before NI is paid by employers. I support that even more so than corporation tax coming down. For a lot of very small businesses, it is not quite the same as other companies coming in from outside and choosing to invest here. For small businesses, anything that comes off the bottom line before you make a profit is particularly helpful.
The Chancellor said yesterday that the Budget was,
“for people who realise there are no easy answers to problems built up over many years”.—[Official Report, Commons, 20/3/13; col. 931.]
There has been a flavour today, and it is certainly more noticeable in the House of Commons, that whenever the inheritance from the Labour Government to the coalition Government is mentioned, a sort of groan goes around, as if we really should not mention the problems that we inherited. I use this opportunity to remind the House that a Labour Treasury Minister left that note in the drawer in the Treasury for the incoming Minister that said, “There is no money left”. In fact, that was only part of the story, because it was not only that there was no money left, but there was a huge debt: a debt of such proportions, and rising, that it brought together two political parties which historically had been opponents but which felt that there was a need to work together in order to address the seriousness of that problem.
Now that the Chancellor has come forward with the Budget, I hope that people across the House will recognise that these problems are bigger than many that we have faced in our lifetime. It is as serious as that. It is also important that the Chancellor continues to spell out the size of the problem and what that means. My noble friend Lord Marlesford mentioned Cyprus. I quite agree with the comments he made about the foolishness of what was said about top-slicing bank accounts. If anything was guaranteed to cause a run not only on Cypriot banks but on banks in other parts of Europe, that surely was the trigger. We will see what happens there. However, it is the case that when Governments lose control of the finances of countries, they have no hesitation in popping their hands into the personal assets of the population. We have seen these measures and their effects before.
I was very encouraged that the Chancellor made reference to the work of the Monetary Policy Committee. He said that the new remit,
“makes it clear that the committee may wish to issue explicit forward guidance, including using intermediate thresholds in order to influence expectations on the future path of interest rates”.—[Official Report, Commons, 20/3/13; col. 935.]
I know that my noble friend on the Front Bench is only too aware that, given the state of government borrowing, it will require an increase of just a few points in interest rates for that to give us very serious problems indeed.
I was not looking to the Chancellor to produce an all-singing, all-dancing giveaway Budget, taking lots of risks. He needed to be cautious. However, I have one or two concerns about some areas on which I hope my noble friend will be able to reassure me. I am indebted to an article I read in MoneyWeek which outlined the history of the state pension. The state pension was introduced in 1909. The article states:
“Men aged 70 and above could claim between 2 and 5 shillings per week from the government”.
“because back then the average working man could only expect to live to 48 years of age”,
the Government were not being that generous. Here we are, over a century later, and yet the liability to the public purse on pensions has resulted in an estimated £5 trillion of pension promises. I am not for one minute suggesting that we ban the state pension. However, I am worried about the implementation of Dilnot in putting a cap on the cost of care for elderly people. I know that that is not a popular thing to say. We would all like to do it and I am sure that most noble Lords have been through that situation on a domestic front with elderly relatives. It is very difficult. However, I must say to my noble friend that, rather like the state pension when it was first introduced, I am not convinced that we have the money, and particularly that we do not have the money at this moment, to underwrite that type of benefit in order to preserve the properties of the property-owning democracy. That is a strange thing for a Conservative to say. However, that I have to think twice about this shows the serious position that I believe the finances of the country are in.
I am equally concerned not that the Chancellor introduced measures yesterday to increase the housing stock—we all recognise the problems of the housing shortage—but that the taxpayer, not the Government, will underwrite mortgages for properties up to £600,000 for people who are not able to get a mortgage in the normal way. We know that the money supply from the banks is poor at the moment, and that that is affecting people’s ability to obtain a mortgage, but, as others have said, that will need careful handling if we are not to see some of the problems that we saw over the pond in America with what happened with its housing bubble.
My Lords, I should like to add a few words to this debate in the gap. I spoke for two minutes in a Question for Short Debate on 11 December last year on the impact of multinational companies’ financial practices and UK tax policies. I shall not speak for longer now on the same subject, not least for fear of my noble friend Lady Browning doing her mental arithmetic on my costs.
I support the plea of the right reverend Prelate the Bishop of Bristol earlier on this same subject. In replying to a debate on 11 December, my noble friend Lord Marland, at col. 1050 of Hansard, said that DfID had averaged expenditure of £20 million per annum over five years to support tax regimes throughout the world. He went on to identify specifically DfID spending £11 million in Sierra Leone, £8 million in Tanzania, £8 million in Rwanda, where the tax take rose six-fold, and £21 million in Afghanistan, where the tax take used to be 4% and has now gone up to 11%. DfID is, with the support of HMRC, building up its technical capacity to help further.
At this late moment in the debate I do not expect a detailed comment of any kind in the wind-up of my noble friend the Commercial Secretary, but a reiteration of a continuing commitment to this constructive and productive programme would be both welcome and reassuring.
My Lords, I am grateful for the contribution of the noble Lord, Lord Brooke, and that of the right reverend Prelate the Bishop of Bristol, who emphasised the progress towards the aid target of 0.7% of GDP, which this Government have fulfilled. It was driven towards strongly by the preceding Administration, so at least we have a note of unity across the House on the successful achievement of that position and its ring-fencing.
Another note of agreement—I am certainly happy with it and I get the impression from the debate that this might be so across the House—is that, as my noble friend Lord Desai said, this Budget does not do anything very much. That is certainly the case because the Chancellor has placed himself within a straitjacket and there is not much he can do when he is so constrained by his singular commitment to one objective. Of course, no one underestimates the challenges facing the Chancellor. We all know the difficulties over the debt and that external forces, particularly the difficulties in the eurozone, our largest overseas customer, do not help exports and the potential for an emergence from this crisis through export-led growth.
However, I cannot recall the Government or a government spokesman putting the crisis of 2008 into an international context. I cannot remember them ever since suggesting that there were difficulties other than those attributed to the Labour Administration struggling with the problems of international finance at that time. We all know that the first manifestations of crisis were in the United States, and subsequently in Europe, before Northern Rock reached a pitch at which we had to act. The international context rubs both ways.
We need to recognise from the experience of Northern Rock some of the dangers in the Government’s proposed housing measures. A number of noble Lords emphasised their support for these measures. The noble Baroness, Lady Kramer, quoted the Business Secretary as having expressed these views in the New Statesman, and he certainly did. Why did he choose the New Statesman? It is because he thought it was read by a thoughtful, constructive audience who had already been campaigning for an emphasis on housebuilding to inject some demand into the economy and some earnings into the construction industry. We all know that the construction industry is one of the fastest to regenerate if the demand is there.
I appreciated the point made by the noble Lord, Lord Flight, and the noble Baroness, Lady Browning, a moment or two ago, that we have to be careful with regard to this issue because we know that it was overborrowing for house purchasing that precipitated the crisis in the United States. I hope the Minister will respond to the questions addressed to him by my noble friend Lord Eatwell in his contribution to the debate. What, in the Government’s view, will the guarantee scheme mean for house prices? What is the cost of the scheme over the three-year period that it is meant to obtain? How much dead weight is involved in the scheme? Will there be support for purchases that have already been made? I hope the Minister will address these points, if only because anxieties about this issue were expressed as strongly on his side of the House as on mine.
We have questions as to whether the Chancellor has matched up to the challenge before him. So far, progress has been limited to almost the point of marginality. The Chancellor has failed to hit every target that he identified when he first took office. Of course, I recognise that one or two elements in this Budget have found favour. The noble Lord, Lord Bilimoria, declaring his interest, mentioned that a penny off the pint of beer was most welcome. I cannot think how many pubs will be saved by a reduction in the price of beer by 0.3%. However, I do not have quite the experience of the industry of the noble Lord, Lord Bilimoria.
I am grateful to the noble Lord, Lord Marlesford, who also indicated that we should have reservations about the intention to freeze taxation on fuel. There will be escalating costs involved in that over time, and the noble Lord identified them very clearly. That aspect may gain the Chancellor a little short-term credibility but it raises considerable problems. The Chancellor will be aware that these little gimmicks to brighten life up for the nation are happening two years before the next election, but of course there is a lot that needs brightening up.
Something that has not featured enough in this debate is what it means for a nation to be told that its living standards, which have already decreased significantly over the past few years, are destined to be reduced over the next two years, if not longer, as well. That shows itself most in the more desperate sections of our community, among the poor, who have of course been subject to the Government’s unremitting ideological onslaught on welfare, but it also reaches right across the community save, perhaps, for those millionaires who stand to see a considerable increase in their incomes from the decision taken last year to cut taxation from 50% to 45%.
We have had some interesting contributions on the question of infrastructure, and I hope that the Minister will respond to the questions put by my noble friend Lord Eatwell. How much has been spent on infrastructure this year? The problem with the Budget is that it is all jam tomorrow—or not tomorrow, in fact, but some 700 days after tomorrow. It is two years before the expenditure on and investment in infrastructure is due to take place. We need to know how much was spent in 2012 and how much will be spent in 2013. I fear that the answers may be somewhat bleak.
Within this framework, perhaps I may also emphasise the anxieties expressed by my noble friend Lady Worthington on the question of electricity prices. There are within this Budget and in the Government’s policies hidden costs that will manifest themselves in the most appalling way; that is, directly on those who are least well able to cope with them. Unless one is in a position to invest significantly, the consumption of electricity is a given cost in bills that have to be met when they are presented.
On my side of the House, my noble friends Lord Kestenbaum and Lord Haskel, along with my noble friend Lord Bhattacharyya in considerable detail, emphasised the fact that we need investment. We cannot get out of this situation without it. The IMF has told the Government that they cannot get out of this situation without paying attention to growth. My noble friends pointed out that at last the penny is beginning to drop in government to a marginal extent, but for the past three years there has been an unremitting commitment to one objective to the exclusion of any considered investment related to growth. That is why we consider that the Government have a difficult case to argue.
I appreciated the contribution of the noble Lord, Lord Shipley, who shifted the debate on to the local and regional dimension and referred to the Heseltine report. It is encouraging that the Government are at least paying lip service to some of the noble Lord’s proposals. When we talk about development in the regions and the problem of the domination of London, it is worth recalling that one of the first acts of this Government was to destroy the regional development agencies. I recognise that the local enterprise partnerships are different and it may be that they are able to make progress, but there is no reason other than the wilful action of the Government at the beginning of their term why things are so very difficult in the regions at this time.
I apologise for slightly overrunning my time. I hope that the Minister will recognise that we want to put this debate in the context of a Government who are failing the nation and causing a great deal of distress among many members of our community.
My Lords, I thank all noble Lords for their excellent contributions. I am still new enough in my job to find myself taking copious notes with lots of ideas to follow up on, so I welcome the debate. I may have a bias in my listening, but I have to say that the broad sense of the contributions suggests that this is a well crafted Budget that has delivered very well what can be delivered, given what I think everyone accepts is limited room for manoeuvre. The noble Lord, Lord Desai, said that once you have established a strategy you should stick to it so that people should not expect enormous deviation from one annual Budget to the next. I shall try to address the questions and issues that have arisen, and I shall do that in terms of subject matter so that there is some coherence rather than moving from one contributor to the next. I hope that that is acceptable to noble Lords.
On the deficit, I did not hear a compelling case for an alternative strategy to that which the Government have in place. We have pointed to the many exposures that would occur should we embark on another spending spree without getting the budget under control. I should point out that the OBR borrowing forecast shows a fall in every year of the forecast both in cash terms and as a percentage of GDP, and that is both with and without some of the special one-off changes such as the APF transfers. I concede that borrowing is falling more slowly than we would like, but that is because of the economic challenges and because we are allowing what the Economist has described as the “automatic stabilisers” to operate. Over the past three years, the UK has cut the structural deficit more than has any other G7 country.
A number of speakers such as the noble Lord, Lord Bilimoria, for example, talked about bringing down the level of public expenditure as a proportion of national income. I can confirm that the OBR forecast takes total managed expenditure down to, I think, 40.5% of GDP by 2017-18, which is the same level as it was in 2004-05. Several speakers, including my noble friend Lady Browning and the noble Lord, Lord Bilimoria, asked about the cost of borrowing. I can confirm that a 1% rise in government borrowing costs would add just over £8 billion to the annual debt interest by 2017-18. That provides some perspective on the risks we are trying to manage.
There was a lot of discussion about the impact of our weak export markets, the opportunity to switch into faster-growing ones, and how important conditions have been weighing against us. The OBR expects the euro area to contract by 0.5% in 2013, which follows a decline of 0.5% in 2012. Let me give noble Lords an example. In the year to the fourth quarter of 2012, goods export volumes to the EU fell by 2.5%, while our exports to non-EU areas grew by 1.2%. That gives a sense of the opportunity.
Some mention was made of international comparisons, particularly by the noble Lord, Lord Eatwell. With respect to Germany, I would just point out that the IMF has forecast that the UK will grow faster than Germany in both 2013 and 2014. With respect to the United States, our employment at just over 70% is now higher than in the US, where it is just over 67%. Those are some measures on which we are actually performing more strongly.
On monetary policy, I think the general mood of the debate was that noble Lords welcome a good and thorough review of this important area. I absolutely take on board the observations of my noble friend Lady Kramer, who believes that this is so important that it should be subject to a wider review. I also take on board the observations of my noble friend Lord Higgins that one of the reasons this needs to be managed extraordinarily carefully is the degree of independence that we have vested in the Bank of England, which is why I think we should welcome the clarity with which the new mandate has been defined.
I found particularly useful and interesting the contributions from those noble Lords who talked about what I would broadly describe as our industrial strategy, including, in particular, the speeches of the noble Lords, Lord Bhattacharyya and Lord Kestenbaum, as well as a number of other noble Lords. The Government are extremely interested in trying to get this right. The general sense that I got from the contributions was that while the ideas and policies are right, their scale, urgency and effective implementation need to be addressed with what I would describe as a private sector zeal. That is what I am in government trying to impart. The more we can accomplish that the better it will be. I would point to the money that has been applied to our world-leading sectors, in particular the aerospace industry. A number of noble Lords also referred to the importance of our science and research infrastructure. I absolutely accept those comments. In my own area of trying to define and improve our infrastructure, I am working with my right honourable friend the Minister for Business and Enterprise on incorporating the science base in the same way as we think about our digital or transport infrastructure. The utilisation of the Government’s own purchasing power as a way of incubating promising businesses is also an extremely valuable idea which the Government share and just need to implement effectively.
My noble friend Lord Flight reminded us of the structural change in the UK economy. If you isolate the difficulties that we have had in the financial sector, which was very large and suffered a very significant shock, and in the North Sea oil and gas sector—which is also very large and, certainly in recent years, mainly declining—you can identify in the rump of the economy some extremely promising stories for our long-term industrial future. We should not in any way ignore those.
In talking about our export markets a number of noble Lords said that we should switch to the faster-growing ones. The noble Lord, Lord Kestenbaum, in particular, and the noble Lords, Lord Desai and Lord Bilimoria, asked about our exports to the so-called BRIC economies—Brazil, Russia, India and China—and other strong emerging markets. Between 2009 and 2012 the UK’s exports to Brazil increased by 49%, to Russia by 133%, to India by 59% and to China by 96%. Those are very large numbers but, of course, come off quite a small base. My experience of the co-operation between the business department and the Foreign and Commonwealth Office is that the Government are extremely focused on working with our businesses, both big and small, to develop opportunities in those markets.
I now move on to what I would generally describe as some of the areas relating to fairness. The right reverend Prelate made a compelling case—supported by a number of other contributions from, for example, the noble Lord, Lord Davies, and my noble friend Lord Brooke—in essentially congratulating the Government and everybody who contributed on sticking to their commitment on overseas aid. Doing the right thing can sometimes be difficult but that does not diminish its importance. I think that the House offers its support to that continuation.
There was support for the childcare policies announced yesterday but also interest in how it will work for those at the lower end of the income strata. That is dealt with in the universal credit system, which has funding available to support people there.
There was also a discussion about utilising the new control framework which the Treasury is in the process of introducing on managed expenditure. As my right honourable friend the Chancellor said yesterday, it is really intended to turn unmanaged expenditure into managed expenditure. That will be implemented carefully to ensure that we manage any implications for the impact of our support policies.
The noble Lord, Lord Bilimoria, asked about the beer duty cut. That will go ahead and will come into effect next Monday. I understand from the experts in this area that any EU concerns on comparability should not be an issue.
Another subject that featured in a number of contributions, including from my noble friend Lady Browning, was pension reform and the affordability of the care caps. The Government have made it clear that we would implement those measures only if we could ensure that they would be paid for, and we would utilise some of the changes on national insurance and the three-year inheritance tax freeze to ensure that those are properly funded before they are introduced.
In the interests of time, I will move on to infrastructure. First, I confirm to the House that the Government are taking a long-term approach to capital spending as part of the 2015-16 round. That is why we have set in place the extra £3 billion a year, and we will also plan for a longer period than is customarily the case at the Treasury. In my view, one of the problems with the historical approach to capital spending has been the relatively short periods forward for which it is committed, which does not suit the longer gestation periods of some of the projects that it is intended to support. The plan of this Government is to fix that. Of course, that is on top of additional investments in capital spending in the Autumn Statement.
The noble Lord, Lord Eatwell, asked about the amounts of capital spending, and the noble Lord, Lord Davies, reiterated this question. We do not have the precise numbers for the capital spend for 2012-13 yet, but when we do I will make sure that those are passed on. I can say that public investment as a share of GDP is on average higher over this Parliament and the next than it was between 1997 and 2010.
Other questions were asked about the efficacy of our infrastructure delivery and the challenge of getting it done now rather than being eternally in a planning period. My noble friend Lord Flight referred to some of the red tape delays that we have encountered. We are now in the second phase of our Red Tape Challenge and trying to address some of those regulations that could perhaps reasonably be considered overzealous, which have slowed down some of those plans. For example, something I have been involved in has been looking to get the regulators of these sectors to standardise the approach to infrastructure access charges, which should make these developments much easier.
My noble friend Lord Marlesford asked whether £3 billion a year was really enough. That is £18 billion in capital spend over the next Parliament, and that is while finances are tight. The focus on managing down current spend to accommodate that expansion of capital spend, given the tightness of our fiscal position, is an extraordinary commitment to that level of spend.
The noble Baroness, Lady Worthington, gave a very detailed and passionate speech about the carbon price floor. This is a technical subject that is worthy of a much broader debate. All I can say is that the Government are extremely focused on solving this equation of how to ensure that sufficient electricity is generated in a way that meets our desire to hit our environmental targets, to get it all done on time and to leave our consumers with an affordable result. That is absolutely the intention and I am certainly happy to discuss policies which do not end with that result.
We had some discussion around financial reform and access to finance. My noble friend Lady Kramer very eloquently summarised how it was important to bring together all the initiatives that will compensate for the dislocation in the banking system; for example, through the business bank. The noble Baroness referred to the reduction in stamp duty to stimulate the market, in particular for technology growth companies, so that they can grow here with equity rather than selling out earlier than would be optimal, and I absolutely support that more strategic approach to bunching those initiatives together.
Finally, we had a number of interesting contributions around the initiatives announced in the Budget with respect to housing and the support that the Government propose to give to housing. Those contributions neatly summarised the balance of the argument. On the one hand, I think people accept that this is a critical area; it can and is intended to be highly stimulative to the economy. It is an area where you can get things moving quite quickly so in that respect it is a powerful initiative in the Budget. On the other hand, there was much wise counsel, and I certainly share the caution about how this is implemented to ensure that we both understand and manage the risks involved. In answer to the question from the noble Lord, Lord Desai, about how closely we manage the household debt situation, I would note that household debt in the UK has fallen as a proportion of income from 175% in 2008 to 144% currently, so it is coming down, albeit rather slowly.
In answer to some of the specific questions asked by the noble Lord, Lord Eatwell, I say that the scheme is intended to be self-financing, so the mortgage guarantee scheme will have a price for the guarantee which will be judged to meet the expected level of losses as one would actuarially calculate them. It is intended to be a market instrument in that sense. We have between now and the beginning of next year to work that through in detail with the leading market practitioners.
Jobseekers (Back to Work Schemes) Bill
My Lords, this Bill will ensure that, following the recent Court of Appeal judgment in the case of Wilson and Reilly versus the Secretary of State for Work and Pensions, the Government will not have to repay previous benefit sanctions to claimants who have failed to participate in mandatory back to work programmes. It will also enable the Government to impose benefit sanctions where a sanction decision has been put on hold because of the Wilson and Reilly case.
I shall briefly set out the details of the Court of Appeal’s judgment, but let us first be clear on what this case was not about. The court did not cast any doubt on the policy intention behind any of the schemes. In the words of Sir Stanley Burnton, one of the judges, the case was,
“not about the social, economic, political or other merits of the Employment, Skills and Enterprise Scheme”,
and the court noted that the use of mandation was appropriate in such schemes.
The policy intention of our schemes has been clear to all from the outset. I have said that the Court of Appeal judgment was not about the social or other merits of the employment, skills and enterprise scheme, but the judges were not silent on the broad principle underlying mandatory employment schemes. Lord Justice Pill said:
“A policy of imposing requirements on persons receiving a substantial weekly sum, potentially payable for life, is readily understandable. Equally, the means sought to achieve that end are understandable; claimants should be required to participate in arrangements which may improve their prospects of obtaining remunerative employment”.
Again, I say that the case was not about the policy intent of the schemes, which has been clear from their inception.
So what was the judgment about? The judgment centred on the Jobseeker’s Allowance (Employment, Skills and Enterprise Scheme) Regulations 2011, which for brevity’s sake I will from now on refer to as the ESE regulations. These regulations provide for most of the mandatory back to work schemes, including the Work Programme.
First, the court rejected the claimants’ argument that the ESE regulations were contrary to the European Convention on Human Rights—specifically, Article 4.2 on forced labour. Secondly, it rejected the claimants’ argument that the ESE regulations could not be enforced in the absence of a formal published policy.
However, the court found against DWP on two grounds. It found that the ESE regulations did not describe the programmes that they underpinned in enough detail. It also upheld the High Court’s ruling that letters sent to claimants when they were mandated to an ESE scheme were insufficiently detailed to comply with Regulation 4 of the ESE regulations. We have since laid new regulations and issued revised letters so that we can continue to mandate claimants to our schemes and ensure their continued proper functioning in accordance with the principle of imposing requirements on jobseekers in return for paying them benefit.
Your Lordships will not be shocked to learn that the department fundamentally disagrees with the court’s verdict in respect of the two latter grounds, which is why it has applied for permission to appeal to the Supreme Court the Court of Appeal’s judgment in respect of those two grounds. The arguments that we will make before the Supreme Court, if we are granted permission—
I will come on to explain that in a little.
The arguments that we will make before the Supreme Court, if we are granted permission, will not be affected by this Bill. However, we need the Bill to provide certainty that the Government are not in a position where we will have to repay previous benefit sanctions, and can impose sanctions where decisions have been stayed, in respect of claimants who have failed to take part in employment programmes without good reason. We have made it clear that we will take steps to ensure that claimants cannot expect a sanction refund as a result of this judgment, and there is a compelling public interest for taking those steps.
The Bill does not overturn previous appeals that have succeeded on the basis of good cause and it does not prevent claimants from appealing a sanction on the basis of good reason. Instead, it ensures that claimants who have failed to participate with no good reason do not obtain an undeserved windfall payment. We estimate that such a windfall could cost the public purse up to £130 million. That is money that would be better spent on people who take their responsibilities seriously, and it is in the public interest that we ensure this.
There is also an important public interest, as the Court of Appeal recognised, in getting people back to work by ensuring that jobseeker’s allowance is paid only to those who are actively seeking employment and who engage with attempts made by the state to achieve that end, and that those who do not do so face the appropriate consequences. The Bill will protect this public interest by ensuring that those who have not engaged with attempts made by the state to return them to work face the appropriate consequences, rather than receiving an undeserved windfall.
The Government respect the general principle that Parliament should not legislate to reverse the effects of the judgments of the court for past cases unless the situation is exceptional. However, it is entirely proper to enact such legislation if there is a compelling reason to do so. There is a compelling reason here on three grounds: first, the cost involved; secondly, the claimants affected do not deserve a windfall payment; and, thirdly, this is an unusual case in social security legislation where a court or tribunal decision has a retrospective effect.
The Bill will provide that any decision to reduce jobseeker’s allowance under the ESE regulations cannot be challenged on the grounds that those regulations were invalid or the notices given under them inadequate. It makes similar provision in relation to the mandatory work activity regulations in respect of notices given under those regulations.
I have said that we fundamentally disagree with the court’s verdict with respect to the lawfulness of the ESE regulations and the notices given under them. We believe that those regulations were correctly drafted. They were drafted to be flexible enough to encompass a wide range of programmes designed to support jobseekers into work. There was no clear and identified need to go further than the ESE regulations in order to lawfully mandate claimants to our schemes.
The Merits of Statutory Instruments Committee, as it was then called, published a report that covered the ESE regulations on 5 May 2011. The Merits Committee had a number of concerns, including the quality of the Explanatory Memorandum. To go off on a tangent, I want to acknowledge that there was a period when we were not servicing the Merits Committee adequately, and I have taken steps since then to improve that position. The Merits Committee had concerns, but the possibility that the ESE regulations were unlawful was not one of them. The committee drew attention to the fact that the regulations,
“interpret the Act very broadly so that future changes to the Scheme could be made administratively without any reference to Parliament”.
However, it did not go on to suggest that they went beyond the primary powers.
The Joint Committee on Statutory Instruments also considered the ESE regulations at its meeting on 15 June 2011. I am sorry to report that no fewer than three instances of defective drafting were identified, which the department acknowledged. However, the committee did not raise even the possibility that the ESE regulations were unlawful. The Social Security Advisory Committee, whose independent and informed advice we value greatly and with which we have a very constructive relationship, also considered the ESE regulations. Among other issues, it made a point about the breadth of the powers, but it did not suggest that they went beyond the primary powers. Similarly, those primary powers in the Welfare Reform Act 2009 received full scrutiny. The Delegated Powers and Regulatory Reform Committee regarded the delegations in the relevant part of the Act and the associated scrutiny procedure as unexceptionable.
We consider that the primary powers do not require that the regulations set out the fine details of the scheme. We believe that it is undesirable to do so, as a wide variety of possible arrangements could be made, depending on the nature of the labour market conditions in particular parts of the country. We also need to be able to respond to changing conditions and challenges quickly and effectively.
We believe that the flexibility that the ESE regulations provided was rational and desirable, and it must be remembered that the High Court ruled that the regulations were lawful. We therefore cannot agree with the Court of Appeal’s judgment. We also believe that the letters issued to claimants provided sufficient information on the consequences of not participating in our schemes. In addition to the information provided in the letter, claimants would have also discussed the precise details of the scheme with their jobcentre adviser, including what was expected of them and the consequences of not upholding their side of the bargain.
Nevertheless, following the High Court judgment, we revised all referral notices to comply with the judgment and sent letters clarifying the position to the then claimants impacted by the decision. That allowed us to continue to operate the schemes as intended—an intention that has been clear to all from the scheme’s inception, based on principles which the effects of the Court of Appeal judgment undermines and which the Bill is intended to protect.
It is right that we are able to operate our schemes as intended, giving jobseekers the opportunity to improve their chances of moving into work, with appropriate consequences for those who fail to take up that opportunity. It is right that government resources are targeted on those claimants who are actively seeking employment and taking all reasonable steps to improve their chances of securing employment and that resources are not wasted on those who have not met their responsibilities.
To pick up the question asked by the noble Lord, as soon as the judgment was handed down, the department explored all the options and avenues available to it to ensure the protection of the public interest. Once the decision to pursue emergency legislation was taken, that required legal advice, the appropriate consent prior to introduction and preparing the Bill products. We also engaged the Opposition, who rightly gave the matter thorough consideration. I am sure that all noble Lords will appreciate the time that that has taken.
As I understand it, this lay in the department without any suggestion of legislation for more than a month. If the department had been really concerned about it, the legislation could have been dealt with through the normal procedure. Instead, both the other place and your Lordships’ House are faced with emergency legislation, which is entirely unsatisfactory for examining such an important Bill in detail. All the subsequent stages will be dealt with on Monday. That is not adequate scrutiny. Does the noble Lord not feel some guilt or embarrassment at having to deal with it in this way?
My Lords, obviously, it is never desirable to have emergency legislation where one can avoid it. It would be desirable to run this through a more normal process, but we are caught by time constraints. The point that the noble Lord made about delay is accounted for by the various steps that we have had to take in that period.
In conclusion, the Bill guarantees some fundamental principles, which are about helping us to move people into employment and protecting the public purse. I commend the Bill to the House and I beg to move.
Amendment to the Motion
At end to insert “but that this House deplores the Government’s incompetence in failing to provide sufficient information about its back to work schemes, which led to the need to introduce legislation with retrospective effect; deplores the need to introduce fast-track legislation when it took the Government four weeks to introduce the Jobseekers (Back to Work Schemes) Bill into Parliament and in spite of the Constitution Committee’s ongoing concerns about the fast-tracking of legislation; seeks assurances that the appeals process will be robust, speedy and efficient, and that the criteria of the independent report to be prepared under clause 2 will be strengthened to include greater details regarding the number of sanctions, the nature of those affected, the appeals process, the support available to those affected and the effectiveness of the hardship and mitigation provisions; and further seeks assurances that adequate legal advice will be provided to those affected by the introduction of this legislation”.
My Lords, I thank the Minister for his explanation of the Bill, his officials for our meeting yesterday and the follow-up information that has now been provided, which we have the weekend to peruse.
This is a shameful day for the Government when they confront us with a Bill that is wholly retrospective in nature and which they are intent on fast-tracking through the parliamentary process. The Government have got themselves in a terrible mess because their ESE regulations purporting to introduce certain employment and training schemes have been struck down by the Court of Appeal as ultra vires and because the court judged that notices given to individuals under those regulations were inadequate. The Government ignored the advice of the Social Security Advisory Committee and, as we have heard, have not taken on board the comments of the Merits Committee and the history of defective drafting that the Minister acknowledged. I say as an aside that a longer-term issue arises from this about how we scrutinise secondary legislation, particularly some of the important stuff that comes through from the DWP.
It follows that sanctions for not complying with the ultra vires regulations which have been deducted from claimants are unlawful and that would apply to sanctions which have been stockpiled but not implemented should the DWP look to progress them. The Bill covers not only the regulations dealt with by the Court of Appeal but parallel regulations promulgated in the same manner. As we have heard, the Government have sought leave to appeal to the Supreme Court, which may yet finally settle this matter. The effect of the Bill is to cause those sanctions which are and were at the time unlawful to become lawful.
We now have the benefit of the Constitution Committee’s very robust deliberations on this Bill. So far as fast-tracking is concerned, it strongly disagrees with the Government’s assessment of the need for this. In particular, it points out that the Government were able to table amending regulations on the very day on which the Court of Appeal judgment was handed down, yet took four further weeks to get this legislation to Parliament, a point pressed by my noble friend Lord Foulkes. How does the Minister answer that point?
Even if we accept a truncated timetable, it is to be deprecated that the Government have been obdurate in being so limiting in the opportunity we in your Lordships’ House have to scrutinise the Bill. Undue haste and lack of attention to detail were what got us in this mess in the first place, and the risk is that we will compound it by so brief a process. I pay tribute to my noble friends Lady Royall and Lord Bassam for trying to get the Government to see sense on timing, albeit to little avail. Nevertheless, we intend to do our best in the time allotted to make sure that the full ramifications of this Bill are explored.
The Constitution Committee points out that retrospective legislation is not, of itself, unlawful but that, from a constitutional point of view, it should, wherever possible, be avoided. It urges that, in doing our work on this Bill, we should consider whether retrospectively confirming penalties on individuals who, according to judicial decision, have not transgressed any lawful rule is constitutionally appropriate in terms of the rule of law. Perhaps the Minister can help us on this point. On what basis do the Government consider that the rule of law should be set aside in these circumstances? Is it the belief that individuals would have somehow got off on a technicality, that the cost implications justify it or some other reason? Do the Government consider that different standards should apply when benefit recipients are involved?
For the avoidance of doubt, I should make it clear that we do not in principle oppose such schemes as the Work Programme or mandatory work activity and, indeed, we would have been responsible for some of the primary legislation which underpins the regulations in point, but we strongly criticise how the Government have gone about implementing some of them. The Work Programme in particular seems thus far to be little short of a disaster. There is an urgent need to develop effective programmes, especially to address the needs of young people.
We also strongly hold to the view that benefit claimants have rights but also responsibilities and that it is entirely reasonable for conditionality—the obligation to engage—to apply, and that a sanctions regime should underpin this. However, that sanctions regime should be reasonable, proportionate and transparent. In this regard, the amendment to the Bill in the other place which provides for an independent review of the sanctions regime, secured only by the interventions of my right honourable friends Liam Byrne and Stephen Timms, is vital. We plan to build on this in Committee to secure a wider review. We do this in particular because of a growing unease about the extended use of sanctions, beyond their role of underpinning conditionality, as a means of controlling benefit expenditure. As Stephen Timms pointed out in another place, there is growing evidence that it is the proliferation of sanctions which is driving the explosion of food banks across our country and, like him, we will wish to secure that any review covers a range of matters, especially how sanctions are being applied to individuals who have a mental health or other fluctuating condition.
We hear denials from Ministers in another place that the DWP does not have targets for sanctions. Can the Minister please tell us what management statistics are kept of sanctions and how these are routinely reported within the management structure?
If we have to live with retrospection then we need to ensure that there is a robust appeals procedure. Again we should be grateful for the intervention of honourable friends in another place for securing that commitment in the Bill. We will use our time in Committee to explore the extent of this commitment. The principle in this regard ought to be that individuals are in no worse position than they would have been in respect of appeals, hardship, good cause, mitigation than they would have been had the sanctions been properly made originally. For “stockpile” cases, where a sanction has not yet been applied, we need certainty on which regime is to be applied, as of course the system changed in October of last year.
It is understood that for the stockpile cases a withheld sanction will not be applied where somebody is now in work. Given that many people fluctuate between work and unemployment, the point at which the sanction is activated is therefore of importance. Can the Minister tell us what rules will govern this? Can he also say just how the rules will apply in relation to good cause or good reason when a sanction is activated some time after the failure to comply? What would have been contemporary evidence at the earlier time may be more difficult to adduce subsequently. Similarly, in relation to mitigation, what might have been possible earlier may be more difficult now. With regard to those who have actually been sanctioned, what, if any, information is now to be provided to them, especially given the view of the court that the original communication was defective?
The Minister will be aware of the provisions in the LASPO Act which become effective from 1 April and which deny legal aid support for welfare benefits advice. What will be the position of those seeking support for sanctions which have been stockpiled but now retrospectively applied? Will the old legal aid rules apply as though the sanctions were applied in due time? Can the Minister say what, if any, are the ramifications of the Bill for national insurance credits, which may have been restricted alongside the benefits under the sanctions regime?
There are a number of further issues we would wish to explore in Committee so that the full ramifications of retrospection in this Bill are understood. There are practical as well as constitutional issues arising from the Bill. We are told that some £130 million is at risk if this legislation does not proceed. That is likely an overestimate if not all the stockpile—for example, for those in work—will not proceed. Nevertheless, we have to be mindful that, whatever the sum, there is the likelihood that it will be recouped from further benefit restrictions if the Bill does not proceed.
We acknowledge that this gives the Government a dilemma, even if one of their own making. We are in this unhappy position because of the Government’s incompetence. It does not bode well for the growing chaos which is engulfing the department as it struggles with its benefit reforms. I beg to move.
My Lords, I want to address the Bill itself, but before I do that I want to make a few comments on the amendment before us today. When I first read the amendment’s text last evening, when it was produced, I had a bit of a flashback to earlier student days when you had composite Motions and amendments and the call for separate votes to be able to unpick the various parts. While I acknowledge that there are issues fundamental to this Bill that need to be raised, they are appropriately the issues that would and should be raised in Committee on Monday. I expect that we will deal with those issues, so the amendment as a composite presents a very difficult picture for people to decide upon. However, there is one crucial factor running throughout the amendment: the issues raised by the Constitution Committee of this House on retrospection and fast-tracking. Before I ask my noble friend to comment on that, I refer to two paragraphs in the Constitution Committee’s report—the last in respect of retrospection, and paragraph 12, which says:
“it is incumbent upon the Government to explain to Parliament why they have chosen to proceed by means of fast-track legislation and to reject the alternative options”.
I listened very carefully to my noble friend at the outset, and I hope that he comes back to that matter in his summing-up, when he may be able to give this House an explanation.
Subject to the Government providing those explanations, I support the Bill for exactly the same reasons as the Front-Bench Labour spokespeople in the other place, who said that they,
“do not want to risk an additional £130 million cut to benefit spending over the period ahead … Nor do we want to be in a position in which people who were sanctioned months ago—in many cases, well over a year ago—have to be refunded”.—[Official Report, Commons, 19/3/13; col. 825.]
I agree with the Labour Party Front Bench on those issues and why the Bill is before us today.
I want to say something about the nature of secondary legislation and its scrutiny. It is Parliament that passes and scrutinises regulations, and it will probably be Parliament that has to decide how it does those things in the light of any subsequent changes brought about by the courts. Of course we are not at the end of this process yet, as I have said already. There are important lessons to learn from these problems to see how we can move on in a better way.
The court determined on narrow issues and on insufficient detail and content of the schemes and regulations, and that the notices given to claimants did not specify the range of sanctions that could be used, but it upheld the policy intentions of the Government’s work schemes and backed the right to require people to take part in programmes that would help to set them into work. Up to 1 September last year, 200,000 people found work through the Government’s Work Programme. Appropriate work experience is a good thing, and it helps to build the confidence of jobseekers. Increasing employment levels in our country since May 2010 have meant that since that time nearly 250,000 fewer people now claim out-of-work benefits, in a period of huge economic difficulty. However, I wish to discuss the operation of these schemes. We know that there are no targets and no league tables for Jobcentre Plus on sanctions. Therefore, the key question I want to probe is how we can better undertake these tasks, which is fundamental to ensuring that we get the best out of existing programmes.
We know from the evidence provided by the DWP that the overwhelming majority of those who have been on the Work Programme are satisfied with it, but, of course, there is always room for improvement. Three-quarters of those who attended the programme said that they believed they were more attractive to potential employers and that their personal confidence had increased as a result. That is a powerful outcome for a group of people who are some distance from the labour market. Clearly, the majority think that they have got closer to it. However, the programmes could offer better outcomes in many cases. The first of these areas concerns engagement with the third sector. When the main contractors were appointed to run the Work Programme, there was much discussion about subcontracting to the third sector. I would be grateful if, when he sums up, my noble friend could tell us to what extent that engagement has occurred given the unusual skills of people in the third sector in dealing with individuals who find themselves in difficulty.
The second area that we ought to probe is the change of culture within Jobcentre Plus. There is a balance to be struck between codifying everything passed on to the JCP and giving advisers the discretion to interpret issues in the light of claimants’ circumstances. There is a question to be asked about the level of top-down instruction, which in the past has been very much the way of working. I looked up the instruction manual to ascertain what constitutes good reason or good cause for people not undertaking to do things they have been asked to do. You can read through 16 pages of guidance, plus another chapter. However, if you ask people in general what they would do in such circumstances, they reveal an all-embracing understanding of the issues. It is a very complex area and a vigorous interpretation of the guidance has led to the problems being experienced in some offices, particularly in relation to targets for sanctions, which have been mentioned today.
Ministers have had to come down hard on clear misinterpretation, but have signalled that they are pursuing the empowerment of decision-makers as a critical cultural change. There must be a role in all this for flexibility, discretion and sensitivity. The legal case behind today’s Bill has thrown up other cases. As regards the cultural shift that Ministers have outlined, a basic structure needs to be provided vis-à-vis the way Work Programme claimants are handled. That structure should have three components. First, there should be a meeting with the provider or JCP contractor. Often there is no face to face meeting between the provider and the claimant. However, it is necessary to have an intelligent conversation about their future needs. Those needs should be clearly communicated and agreed. The outcome also needs to be agreed between both parties, rather like the new contracts proposed for universal credit.
Secondly, it is important to try to fit the placement to the person. It is important to establish the work habit, obviously, but an appropriate placement is needed that suits the requirements of both parties. Thirdly, the Government should not get in the way of serious job opportunities. They need to give people space to find their own placements. Just yesterday, I heard a case of someone with a qualification in photography who was offered a job in a do-it-yourself shop but found a more appropriate placement in a photography shop, which was accepted as an appropriate placement. I welcome the independent review process. We now need to see new detailed terms of reference. I always make the plea to my noble friend the Minister that any evaluation, rather than being considered a milestone, should be rolling so that you can learn lessons as information comes before you. I hope that we will hear more about that later. I look forward to hearing the Minister meet the concerns of the Constitution Committee, but otherwise I am happy to support the Bill.
Could the noble Lord help me? I remember when the Liberal Democrats were on this side of the House all the handwringing about retrospection and fast-tracking of legislation. I am not clear from what the noble Lord said whether he is in favour of the Constitution Committee’s report or supports the Government on both retrospection and fast-tracking. Could he make that clear to the House?
Yes, I will. It is perfectly obvious that the noble Lord’s party did the same thing when it was in power. There was retrospection in legislation. I can think of the videogames legislation, which has some very great similarities to this Bill. My plea to the Government is to answer the questions posed to them by the Constitution Committee in this debate so that we can have that explanation. I quoted the two paragraphs of the report. I am sure the noble Lord has that in front of him, so he can look at paragraphs 12 and 15. Those are the two questions I want answered.
On the point about paragraph 12, as a member of the Constitution Committee I raise the point that in paragraph 5, and in footnote 8 beneath it, we made clear that the Government provided, both in the Explanatory Notes on the Bill and in the letter to the noble Lord, Lord McKenzie, that has been circulated, an explanation of why this fast-tracking was necessary. We were also clear that we made no comment in the report about the policy of the Bill and that this was a purely constitutional point.
My Lords, this Bill contravenes two fundamental constitutional principles. First, it is being fast-tracked through Parliament when there is no justification whatever for doing so. Secondly, the Bill breaches the fundamental constitutional principle that penalties should not be imposed on persons by reason of conduct that was lawful at the time of their action. Of course, Parliament may do whatever it likes—Parliament is sovereign—but the Bill is, I regret to say, an abuse of power that brings no credit whatever on this Government.
As we have heard, this morning your Lordships’ Constitution Committee, of which I am a member, issued a report on the Bill. We looked at this matter yesterday, necessarily as a question of considerable urgency. I pay particular tribute to our legal advisers, Professor Adam Tomkins and Professor Richard Rawlings, for their indispensable assistance. I am astonished that the Minister in his opening remarks made no mention whatever of our report. He mentioned other reports by other committees but he said nothing about the report of the Constitution Committee. Are the Government not interested in the report of the Constitution Committee on this important issue? Do they not wish to engage with the reasoning of the Constitution Committee on this important matter? Do they have, as the noble Lord, Lord German, asked a few moments ago, any answer to the reasoning and conclusions of the Constitution Committee? Surely, the House is entitled to know from the Minister, when he opens a debate at Second Reading on these matters, what the Government say about a report of this nature on constitutional issues.
Let me deal with the two issues in turn—first, on the fast-tracking element of the Bill. Your Lordships’ Constitution Committee published an earlier report, the 15th report of Session 2008-09, specifically on fast-track legislation. We pointed out, as is obvious, that there are real detriments when Parliament is asked to fast-track legislation. It means that there is no adequate time for committees of this House and the other place to consider and report on the implications of the proposed legislation. It means that persons and bodies outside Parliament have no proper opportunity to make representations to provide information to Members of each House. It also means that Members of the two Houses, as the Bill goes through its parliamentary stages, have no proper opportunity to consider its implications, propose amendments, reflect on matters and debate with Ministers outside the Chamber as to the proper way forward. For all those reasons, it must be obvious that fast-track legislation needs a compelling justification. It should be reserved for the most obvious cases of emergencies that of course occur from time to time. However, a compelling justification is needed.
What is the position here? It is clear; on 12 February in the Court of Appeal, the Government lost a case about jobseeker’s allowance. That is when the judgment was handed down. What did the Government do? They acted with commendable speed in one respect; on the very same day, they introduced fresh regulations that cured the legal defect prospectively from 12 February. The Government were able to act speedily because they knew what the judgment was going to say; they and the other parties are told by the Court of Appeal two or three days in advance the contents of the draft judgment in order for them to comment. The Government were therefore able, very properly, to act speedily.
The only remaining issue relates to the payment of benefits to those persons who refused to comply with the unlawful regulations prior to 12 February—the retrospective effect. What did the Government do? They took four weeks to address the matter. They laid the Bill before Parliament last Thursday, 14 March. Despite the fact that they took four weeks internally to decide what to do, they then told Parliament—I suppose, more accurately, they asked Parliament—to consider the Bill within just over one week, with one day in the Commons and two days for all stages in this House.
All that is in the context of there being no urgency whatever for this unseemly haste in parliamentary procedure. Why is there no urgency? It is for this reason: the problem has been cured prospectively by the fresh regulations. There is no urgency in relation to those denied benefits for the period up until 12 February, the retrospective effect, because the Secretary of State is appealing to the Supreme Court, as he is perfectly entitled to do. The law states that while an appeal is pending in the Supreme Court—while the Secretary of State is seeking permission from the Supreme Court to go there—there is no obligation on the Secretary of State to pay a penny back to the individuals who have been denied their benefits. If your Lordships are interested, it is Regulation 16 of the Social Security and Child Support (Decisions and Appeals) Regulations 1999, Statutory Instrument 991. Therefore, there is no immediate urgency.
As I said, the Secretary of State has sought permission from the Supreme Court to appeal there. Again, in stark contrast to the urgency with which he requires Parliament to address this Bill, the Secretary of State’s appeal to the Supreme Court is being conducted in the most leisurely of fashions. I shall tell your Lordships the facts. The Court of Appeal refused the Secretary of State’s application for permission to appeal on 12 February—the date of the substantive judgment. The Secretary of State has 28 days to apply to the Supreme Court for permission to appeal. When did he make his application? He made it 28 days later on 12 March, last Tuesday—the day of the deadline. The form that a party fills in when applying for permission to appeal to the Supreme Court asks whether the proposed appellant is seeking an expedited hearing and it contains a box for the answer. The Secretary of State ticked the box stating no.
As your Lordships will know, courts regularly order speedy hearings in urgent cases. I have contacted the chief executive of the Supreme Court, Ms Jenny Rowe, and she has confirmed to me what your Lordships would expect: that if an application for expedition had been made by the Secretary of State in this case, the Supreme Court would of course, as in any other case, have given it careful consideration. If appropriate, the court would have heard the matter speedily and it would, if necessary, have taken another case out of the list to accommodate this one.
We have the quite remarkable situation that the Minister is asking Parliament to fast-track this legislation, with all the detriments that that involves, even though there is no urgency at all in that he has no duty to pay up £130 million, or whatever the figure is, while an appeal is pending, and even though he has taken four weeks to prepare the legislation, and while he is conducting the appeal proceedings in the most leisurely manner possible. Therefore, there has been a distinct lack of urgency by Ministers in bringing the legislative proposals before Parliament and no urgency whatever in the Government’s approach to the appeal in the Supreme Court. The only expedition or emergency is here in Parliament, denying us a proper opportunity to reflect on and debate the legislative proposals in a properly informed manner. Reference has already been made to the report of your Lordships’ Constitution Committee. When we considered the Bill, we set out the circumstances and concluded at paragraph 11:
“For these reasons, we are unable to agree with the Government’s assessment that it was necessary for the Bill to be fast-tracked”.
I have explained to your Lordships why I take that view.
I ask the Minister to answer three questions on this topic. First, what is the urgency, given that the prospective regulations are in place and that while an application for appeal is pending there is no duty to pay out a single penny for the period prior to 12 February? Secondly, if this matter is so urgent, why did it take four weeks to bring the Bill before Parliament, and how can it possibly be justified to give Parliament only one week to consider the issues? Thirdly, if the matter is so urgent, why wait four weeks before seeking permission from the Supreme Court to appeal and why not seek an urgent hearing in the Supreme Court?
My second objection to this Bill—I shall be more speedy on this subject—is its substance. If the Secretary of State’s appeal were to succeed, the problem would go away. Those denied benefits for the period up to 12 February were correctly denied benefit and they have no claim. But if the Supreme Court upholds the judgment of the Court of Appeal or if, as I suspect will happen if this Bill is enacted, the Government do not pursue an appeal, this Bill will impose a penalty on persons who acted lawfully under the law as it existed prior to 12 February. They are being penalised for refusing prior to 12 February to act in a manner in which they had no legal duty to act.
The Bill therefore offends against a basic constitutional principle that people should be penalised only for contravening what was at the time of their act or omission a valid legal requirement. If this Bill becomes law, Ms Reilly, the claimant in the case, and others will be penalised for failing to attend schemes when at the time of their refusal they had no legal obligation to do so. It is quite irrelevant that the people adversely affected are jobseekers. Indeed, one might think that if the victims are from the most disadvantaged section of society, it is all the more important to maintain basic elements of the rule of law.
I have seen a letter dated 18 March from the Minister to the noble Lord, Lord McKenzie, explaining the Government’s position. For reasons I do not understand, the letter was not sent to the chairman of the Constitution Committee but we did receive it by a very indirect route. One sentence on page 2 of the letter, the substance of which was repeated today in the Minister’s opening remarks, stands out. The Minister said:
“It would … be unfair if claimants who have failed to comply with requirements … obtained an undeserved windfall payment”.
The Minister repeated that language today.
That approach misses the central point which I have sought to emphasise. The claimants complied with all lawful requirements in existence at the date of their conduct. It may cost—who knows?—£130 million as a result. But I take the view—I hope that I am not the only noble Lord who takes the view—that the rule of law is simply priceless. One cannot put a price on complying with the rule of law and basic constitutional requirements.
Your Lordships’ Constitution Committee has drawn attention to these matters at paragraphs 13 and 14 of our report. At paragraph 15, we concluded:
“In scrutinising this Bill, the House will wish to consider whether retrospectively confirming penalties on individuals who, according to judicial decision, have not transgressed any lawful rule is constitutionally appropriate in terms of the rule of law”.
I would be assisted if the Minister would answer that point and would address the reasoning and the concern of the Constitution Committee.
I am not impressed by the arguments that the legal defects identified by the Court of Appeal may have been technical in nature. That is quite irrelevant. The point is that the Court of Appeal found—this is the law unless overturned by the Supreme Court—that the regulations were unlawful and the people who failed to turn up for job schemes were acting perfectly lawfully under the law at that time.
In conclusion, I say to your Lordships that there is no justification whatever for fast-tracking this Bill. Moreover, if that were not bad enough, its contents offend against a basic constitutional principle. I very much regret that this Government should see fit to bring forward such a legislative proposal. If the noble Lord, Lord McKenzie, chooses to divide the House on his regret Motion, or perhaps more accurately his deplore Motion, he will have my support.
My Lords, like others in this House and like my noble friend Lord McKenzie, I have been in the Minister’s shoes. Let us be clear, therefore, that I, like him I am sure, support work programmes that skill claimants. I remember when one lone parent told me, “I have a future now”. I support them as long as DWP accepts good cause or good reason when the programmes are not appropriate. I therefore also support sanctions for people who can and should seek work but who knowingly refuse to do so without good cause, because without such sanctions the programmes become merely voluntary. I support these sanctions becoming increasingly tough so that the person knowingly refusing to comply becomes aware of the increasingly severe consequences of their actions. However, because I want to change behaviour and encourage good behaviour, I support the lifting of sanctions when the individual complies and comes into the Work Programme. While those sanctions last, I support a level of hardship payments so that vulnerable people—for example, children—have some degree of protection.
Such a simple, clear approach requires simple, clear communication with all claimants. I would hope that that is common ground around this House today. However, I say to the Minister that with this Bill the Government are not simply remedying some minor technical slip-up by the department, as Ministers would want us to believe. This Bill trespasses quite improperly on to new ground in four ways. Two of these have been well argued, by the noble Lord, Lord Pannick, in particular. It uses emergency legislation, normally reserved for national security issues. Why? It does so because the Government are not willing to trust the British justice system, presumably because they feel that they would lose in the Supreme Court. That is profoundly disrespectful to claimants. Therefore, we cannot scrutinise the Bill as we should, we cannot take it through the proper stages as we should, and, as the noble Lord, Lord Pannick, said, it is an abuse of Parliament. Worse, the Government make the Bill retrospective. Unlike the noble Lord, Lord German, I do not recall any retrospective social security Bill. It means, as the noble Lord, Lord Pannick, has said, that we are punishing people for actions which the courts have ruled were legal at the time they were committed.
My third objection is that the Government knew of the problem. The Social Security Advisory Committee, whose job it is to scrutinise regulations, warned that they were flaky, and the Government, as is their wont, ignored it. The Government, therefore, knowingly disregarded the very body set up to amber or red-light their regulations.
My final objection is that these so-called technical mistakes were far from technical. I ask your Lordships to remember that sanctions are not there to cut the benefit bill. They are there to change behaviour and bring people into the Work Programme. To change behaviour, you need to understand your client base and communicate effectively. That client base, at risk of sanction, is not for the most part made up of schemers, skivers or fraudsters, because that requires ingenuity, alertness and a certain competence. No; the sanctions pool includes the chaotic, the incompetent—unlike, of course, the DWP—the confused, often those with poor mental health, learning difficulties, weak organisational skills, and the functionally illiterate. It includes lone parents, the depressed, the poorly educated, and those with needy ADHD children. It includes young men, thrown out of their mother’s home by a new stepfather and now sofa surfing and living hand to mouth without any routine.
How did the Government handle this client group before the court intervened? First, they told clients that their sanctions from the Work Programme could last up to 26 weeks, but the department failed to mention that the first offence would require a sanction of only two weeks, the second of only of only four weeks, and only subsequent offences of six months. Secondly, and more importantly—and this is certainly not technical—they failed to tell claimants that they could end their sanctions by doing what the Government and all of us want them to do, which is to comply with the Work Programme. Thirdly, the Government in their letters failed to draw attention to the underpinning of a hardship regime which protects vulnerable people and children from, frankly, going hungry.
Not to tell people about this step approach to sanctions, not to tell them how they can end the sanctions and not to tell them that they could access a minimal hardship payment is not merely a technical failure but a travesty of our responsibility to claimants, many of whom, I repeat, have chaotic lives, poor mental and physical health, limited literacy and are highly confused and vulnerable.
The Minister assumes, as always, economic rationality, yet he knows as well as I do that most people sanctioned did not know that they could be sanctioned or what they were sanctioned for. The DWP’s own research, report 523 in 2008 and report 767 in 2011, revealed that between a half and two-thirds of those sanctioned did not know that this could happen and that, when it did, they did not know why. In some cases, because they were already having their benefits stopped to repay crisis loans, they were not even aware that they were being sanctioned at all. Benefit cuts therefore appeared to be something just arbitrarily happening to people like them to make them poorer. As the research concluded, not surprisingly the benefit sanction had little impact on their job-seeking behaviour because of the lack of clarity of communication. That is the Minister’s client base. Just think about it.
We are trying to change behaviour, rightly. We may be trying to instil sensible habits, organisation and reliability, rightly. How will that happen if the sanctioned person does not know he is being sanctioned, why he is being sanctioned, what he can do appropriately to end the sanction, or what, if he is in hardship, he and his children can do to survive in the meanwhile? He has been made, so to speak, a financial outlaw without knowing why and what the law is that he is sanctioned for breaking.
I do not challenge at all the right to sanction people who should but knowingly refuse to participate in the Work Programme. The word is “knowingly”. Those letters sent out by DWP did not tell claimants what they could and should expect if they did not comply—claimants who, above all, needed simple, clear information. The Appeal Court held that it should have done and it did not. That is not merely technical—it really is not—it is key to the moral as well as the legal validity of the entire sanctions process.
The noble Lord, Lord Freud, suggests that the Government should not have to pay out the £110 million to £130 million or so to rectify their mistakes to people who should have behaved differently and that the money would therefore have to be found elsewhere. I ask noble Lords on the coalition Benches mentally to replay this miserable tale, but this time substitute HMRC for DWP and taxpayer for claimant. If the Court of Appeal found that HMRC had acted illegally in fining—that is, sanctioning—taxpayers for, say, late submission because HMRC had failed to make taxpayers properly and fully aware of the fining/sanctioning regime, and that as a result the court argued that the fines collected were deemed to be illegal, what would the coalition Back-Benchers be arguing? Would they support emergency retrospective legislation to make legal what the courts found was illegal in order to avoid repaying those improperly collected fines? Somehow, I think not. Noble Lords on the Benches opposite might even be outraged that the Government were seeking to make legal what had been ruled by the courts to be illegal. They might even think that HMRC was trying to put itself above the law because it had the power to change the law by rushing a retrospective Bill through Parliament. They might think that and they would be right.
The DWP got it wrong; it is deeply regrettable, but it happens. What it must not do is rush through retrospective legislation in indecent haste to insulate itself from the consequences of its own mistakes and seek to make legal what was illegal. If any claimant tried that line, they would be sanctioned. Perhaps the department might regard our amendment as such a sanction.
My Lords, it is hard to think of a more unattractive, more unappealing and more unworthy Bill than this one. In its damning report, our Constitution Committee condemns the constitutional basis on which the whole Bill rests in direct and straightforward terms. Whether it is the issue of fast-tracking, of retrospection or, tellingly, a combination of the two, the report is unambiguous. I am not going to waste the time of the House by repeating the findings of the committee, rather, I shall mention comments made by two other organisations outside of this House. I certainly would not agree with the philosophy of one of those organisations because it is a campaigning group called Boycott Workfare. It puts the case about this prospective Bill rather differently from the Constitution Committee, but the implication is the same:
“This is almost unbelievably disgusting … [DWP] broke the law, now they want to retroactively change the law so that they didn’t break the law in order to keep £130 million out of the pockets of some of the poorest people in the country”.
The much criticised PCS union has surely got it right:
“The bill would set a dangerous precedent if passed—sending the message that when citizens defeat the government in court, it can overturn the court ruling retrospectively with primary legislation—effectively making the Government above the law”.
Of course, this is not the first time that the Government have behaved in this high-handed and unprincipled way, described by the noble Lord, Lord Pannick, in his brilliant speech as an abuse of power. Next week there will be a slightly more minor issue, but in my view still an important breach in the way a Government should behave. The House will debate the Government’s refusal to take any notice at all of the views of this House, reflected in a vote by this House, on a regulation arising from the legal aid Act. This state of mind and attitude towards law making is deeply worrying. The basic thing that Members of this House must do, from wherever we come, is to scrutinise Bills of this kind with particularly specific care.
It is, of course, obvious what the Government ought to do as a consequence of this debate: they should withdraw their Bill and expedite their appeal to the Supreme Court. However, on the assumption that they will not do the obvious thing, and that the Bill somehow becomes law, I will deal with one aspect of it, as briefly as I can. Clause 1(13) reasserts what of course should be obvious, which is that a person may,
“apply for a revision or supersession of, or … appeal against, a decision to impose a penalty”.
That is of course as it should be. We know that a person is entitled to show good cause or reason why they should not have privileges taken from them.
However, something essential to a person’s right to appeal is about to disappear. It is not, of course, mentioned in the Bill, nor is it talked about by the Government and nor is it really talked about by the media outside. It is a sort of guilty secret. It is the right to legal advice, paid for, if the person is eligible, by legal aid. Today, as we speak, a person who wished to appeal a mandatory recommendation would be entitled to legal aid to get some basic, fairly cheap, quality advice. A person seeking to appeal to the First-tier Tribunal would be entitled to legal aid for such advice. Whether it was the mandatory reconsideration or the next stage, the First-tier Tribunal, they would be entitled, if they were eligible, to legal aid. If we move forward 10 days to 1 April, that entitlement that they have now will no longer be there and they will not be entitled to legal aid. It is obvious that many of those involved in the Work Programme would be eligible for legal aid today. They are on JSA, many of them are young and many more of them will be without means in any event. Part of the value of advice is that it weeds out the hopeless case, so that the system is not clogged up with them. Another advantage is that it encourages the good case, ensuring that people are not, as in this case, being wrongly sanctioned when they otherwise might face no action. However, its greatest value is that it is fair and that it has been an important part of our legal system, and will be up until 1 April. My question to the Minister therefore is this: if the Bill is passed, will the Government ensure that all those who are sanctioned will be able to access advice, either on reconsideration or on appeal, if they want to? That is the position today and surely it should be the position in 10 days’ time.
Finally, I come back to one of the comments that my noble friend Lord McKenzie made in his speech and a question that he posed. If the Government refuse, then is it not clear that those persons whose cases have been stockpiled because of the unlawfulness of the regulations, and who want to appeal the sanctions decision made against them some time ago, will be put in a much worse position because of the Government’s incompetence? How can that be justified in these, or in any, circumstances? I look forward of course to the Minister’s reply. I hope he will reply to the questions that he has been asked by noble Lords around the House. The House is entitled to that, particularly given the circumstances of this Bill. I do not envy him his task in justifying the Bill. Whichever way you look at it, this is no way for a Government in a mature, responsible democracy, to behave towards their citizens.
My Lords, I support the amendment in the name of my noble friend Lord McKenzie of Luton. The amendment just about says it all: incompetence leading to retrospective legislation; unjustified fast-tracking; and the need for various assurances, to which we will return in Committee. I simply want to add two points, as well as reflect on the implications of retrospection.
My first point is a brief social policy one. I accept the Minister’s point that the case was not about the substance of the policy, but that is the context in which it is being debated and it helps explain some of the anger that is being expressed outside this House.
Of course, as my noble friends have said, we are not arguing that there should be no sanctions. Despite all the political talk about social security having been for too long all about rights and no obligations, benefits for unemployed people have always been conditional on requirements associated with paid work, and if those conditions are not met there has always been some form of sanction. However, over recent years, those requirements have been extended to groups not previously expected to seek work, and have become increasingly onerous. At the same time, the sanctions regime has been ratcheted up further to new heights under the Welfare Reform Act 2012, while at the same time the hardship provisions are being weakened.
Cait Reilly, the young woman whose appeal has led to this Bill, was required to give up voluntary work that she was doing at a local museum, which was highly relevant to the kind of paid work she hoped to pursue, in order to participate in a sector-based work academy placement that required her to give her labour for nothing. What was the sense in that? Ms Reilly commented that she agreed that,
“we need to get people back to work but the best way of doing that is by helping them, not punishing them”.
It is hardly surprising that claimants are experiencing this sanctions regime as punishment, because it is increasingly punitive. That is one reason why we need an independent report into the sanctions regime that goes wider than the one provided for in the Bill. We will return to this matter in Committee, as my noble friend Lord McKenzie has said.
My second point concerns the human rights implications of this miserable Bill. I speak as a member of the Joint Committee on Human Rights, but I cannot speak for the committee because the fast-tracking of this Bill has made it impossible for the committee to scrutinise it, as the noble Lord, Lord Pannick, has hinted. This is also to be deplored. Although there has been no formal human rights memorandum, the Explanatory Notes contain almost a full page explaining why the Government believe that the Bill is compatible with the European Convention on Human Rights. Yet it is clear from how it is couched that the Government acknowledge that they could face a challenge on the grounds that the legislation interferes with property rights under Article 1 of Protocol 1 of the ECHR. Indeed, they implicitly accept that there is such interference when they state that,
“any such interference is justified as there are compelling public interest reasons for doing so, given the significant cost to the public purse of repaying previously sanctioned benefits, and as the aim of the proposed legislation is intended to restore the law to that which Parliament intended”.
The Government also concede that:
“A claimant might also argue that legislation which removes their right to a refund of sanctioned benefits, or allows the Secretary of State to impose a sanction, notwithstanding the Court of Appeal’s decision, is a breach of their right of access to court under ECHR Article 6”.
They go on to explain why they believe that this is not the case, but end by saying:
“Even if the proposed legislation would interfere with a right of access to court, the Government considers that the interference is justified for similar reasons as for Article 1 of Protocol 1”.
Reading this as one of the few non-lawyer members of the JCHR, the Government seem to be well aware that they are treading on thin ice with regard to the human rights implications of this Bill and that at the very least there is a case to answer. As it happens, the notice of objection lodged in response to the Secretary of State’s appeal to the Supreme Court argues:
“The actions of the Secretary of State and the Act, if enacted, represent an interference in these proceedings that is contrary to the rule of law as protected by Article 6”.
This legislation is in effect interfering in the proceedings of the Supreme Court and pre-empting any decision that it might make. This is a serious matter. The Minister said in his opening remarks that the Bill would not affect the case before the Supreme Court. I did not quite understand that, so perhaps he could explain more fully in his response.
The notice of objection goes on to state:
“Mr Wilson would also wish to contend that the retrospective imposition of benefits sanctions on him represents a violation of Article 1 of the First Protocol”.
It is therefore clear that serious human rights questions are raised by this Bill, but that, because it is being fast-tracked through Parliament, having been pondered over for a month in the department, as underlined by the Constitution Committee—I was not convinced by the Minister’s response on that to my noble friend Lord Foulkes—the committee charged by both Houses of Parliament to advise on such matters has been prevented from doing so. This is surely a disgrace. The committee has already been effectively circumvented by the speed of passage of the Welfare Benefits Up-rating Bill through Parliament, despite its clear implications for the social and economic human rights of children, when it will cast 200,000 more children into poverty.
I return to the Bill in question. On the day after a Budget that says we can afford to cut the cost of a pint of beer, never mind the tax cut to be enjoyed by the highest earners next month, we are told that it is justified to override constitutional and human rights principles—which the noble Lord, Lord Pannick, said were priceless—for the sake of £130 million. Of course, we are then threatened with this £130 million being taken from elsewhere in the social security budget if Parliament refuses to go along with this charade.
As a lay person, I have been trying to get my head around the implications of retrospection. It seems to me like legal science fiction where the Government are able to operate in a parallel universe where they can say that what happened did not happen by the strike of a legal pen, or, more to the point, that what did not happen—that is, adequate notification to claimants of their legal position under the sanctions regime—did in fact happen. Somehow by the stroke of that legal pen, the administrative law principles enunciated by Lord Justice Pill and Sir Stanley Burnton in the Court of Appeal decision of 12 February can simply be set aside.
Sir Stanley Burnton made the point that:
“There is a constitutional issue involved. The loss of jobseekers’ allowance may result in considerable personal hardship, and it is not surprising that Parliament should have been careful in making provision for the circumstances in which the sanction may be imposed”.
He also said:
“The Secretary of State cannot avoid the requirements of the Act in relation to schemes by calling them programmes. It would be absurd to conclude that a scheme is subject to the statutory requirements only if the Secretary of State decided to call it such”.
Reading the judgment and reflecting on this legislation, it struck me that the parallel universe that I mentioned could have been devised by Lewis Carroll. Noble Lords will recall the pointed exchange between Humpty Dumpty and Alice in Through the Looking Glass:
“‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean—neither more nor less.’ ‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’ ‘The question is,’ said Humpty Dumpty, ‘which is to be master—that's all’”.
Unfortunately, in fast-tracking this legislation, the Government are proving that they are master—and abusing power, as the noble Lord, Lord Pannick, put it—and that they can make ultra vires regulations mean in retrospect what they wanted them to mean. Moreover, as the nub of the Court of Appeal judgment was that the claimants were not provided with the legal certainty required by the law, they are saying that they can create legal certainty in retrospect where legal certainty did not exist: a true Humpty Dumpty stroke if ever there was one. However, just because the Government are master, it does not make them right. I therefore hope that noble Lords will express their unhappiness with this fast-tracked, retrospective, constitutionally and human rights-dodgy legislation by supporting my noble friend’s amendment.
My Lords, what a sorry state of affairs we find ourselves in. I almost feel sorry for the Minister, or I would if this shambles were not entirely of the Government’s own making. This debate has made clear the depressing, and I suppose rather shocking, extent of the Government’s failings. It seems as though crucial regulations underpinning the conditionality regime of the Government’s flagship, if utterly useless, Work Programme, as well as various other schemes, have been ruled unlawful by the Court of Appeal, and the Government now want to rectify the problem that they have created by forcing this Bill through Parliament at breakneck speed.
My noble friend Lord McKenzie made the point that the Constitution Committee has said clearly that it disagrees with the Government’s assessment, and we have now heard that, as it were, from the horse’s mouth in an extraordinarily powerful speech from the noble Lord, Lord Pannick. This is only the fourth time that I have spoken from the Dispatch Box in your Lordships’ House, but I suspect that if I were spared to do so another 400 times I would never begin to match the power of a speech like that, and I congratulate him. I am glad that it is the Minister, not me, who has to respond to it. The point that the noble Lord made, which I think is very interesting, is that the Government, having decided that the matter could take four weeks to consider from the time when they got the new regulations laid and enforced in this House, suddenly decided that there was a panic. I would like the Minister to return to this in his response.
In response to my noble friend Lord Foulkes, I think the Minister implied that the Government spent those four weeks considering all the various options before deciding on this deeply attractive one out of the collection. Will he explain why the Government did not consider the options before the decision? Presumably there were always two possible outcomes from the judgment, yes or no, so it would have been possible for them to spend time in advance of the ruling considering what they might do if they lost the case. Why did they have to wait for four weeks to consider the options and then come to Parliament to tell us that, having waited for four weeks, we had to rush through this in days? I will be interested to hear what the Minister has to say.
The shambles is even more annoying because the Government were warned. The Minister seemed to imply that the Social Security Advisory Committee did not tell them that the regulations were illegal, but perhaps he could help me. I understood that the committee drew attention to the overly wide scope of the regulation that was being used. Was that not one of the points on which the Court of Appeal found against the Government? If not, perhaps he could correct me, and I invite him to do so now if he wishes.
The point that was being made by the SSAC about the width was that it meant that it was not necessary to come back to Parliament for specific approvals on particular schemes. It was not that this was likely to be against the law. The point was about parliamentary oversight.
I thank the Minister for explaining that, but of course it was on precisely the fact that parliamentary oversight and scrutiny of the nature of these regulations is important that I understand the Court of Appeal found against the Government. At the very least, this was a pretty heavy hint from the Social Security Advisory Committee, one that the Government managed to ignore completely.
Then there is the issue of retrospection, to which I barely need to turn after the speech from the noble Lord, Lord Pannick. As my noble friend Lord Bach noted, the worst aspect of this debacle is the combination of retrospection and fast-tracking. That is a particularly toxic mix, but it is what we are faced with. I look forward to hearing the Minister’s explanation of how the circumstances here make it necessary to bring forward this particular form of retrospection with this astonishingly foreshortened timetable, a point made by the noble Lord, Lord German. If the Minister’s response on that point is not compelling, I look forward to seeing the noble Lord join us in the Division Lobby should my noble friend Lord McKenzie decide to press his deplore Motion to a vote.
Like my noble friend Lord McKenzie, I am grateful to my noble friends Lady Royall of Blaisdon and Lord Bassam for trying to get us a few extra days to consider this matter. At least we now have the weekend to read the papers in more detail. I am also grateful that my right honourable friends Liam Byrne and Stephen Timms in the other place managed to get the Bill changed so that it would at least guarantee appeal rights for those affected by the sanctions process and ensure an independent review of that process.
It now falls to us in this House to do two things. The first is to register that this state of affairs is not right. The amendment in the name of my noble friend Lord McKenzie of Luton simply puts on record what we on these Benches think about the mess that the Government have got themselves into and the way they propose to get themselves out of it. I very much hope that the House will support it. We will then get down to the work that this House does best: doing our best, in the limited time that we have, to scrutinise the Government’s plans to ensure that there are no more disasters lurking in the undergrowth of this fast-tracked Bill.
There is a whole series of issues to which we will have to come back in Committee on Monday. For example, we know that appeal rights are to be safeguarded, but how can those appeals be robust when there is such a long time lag between the alleged breaches and the sanction being applied? As various noble Lords have said, how will the Government ensure fair treatment of a complainant who may have said that they had perfectly good cause not to comply with the requirement of a programme but who will struggle to evidence that months after the event? There is also the question of hardship. What kind of hardship regime will apply? The hardship regime is in the process of changing. How will the Government ensure that appropriate help is given to those who would suffer hardship as a result of sanctions?
Then there is the $64,000 question posed by my noble friend Lord Bach: will the Minister guarantee that anyone wishing to challenge decisions will have the same right to access to legal advice or aid as they would have done at the time the alleged breach took place, under regulations that have been found to be lawful?
There is so much more that I would like to ask, but we will have to wait until the dog end of Monday’s sitting, to which the remaining stages of the Bill have been confined. The message from today is clear: this is a shambles. I am beginning to wonder whether the Government’s entire approach to getting people into work is not itself a shambles. The evidence is clear. The Government are failing the unemployed of this country. They are failing to create jobs. They are failing to help them get back into jobs. Their flagship Work Programme—
I am so sorry, I could not catch what the noble Lord said from a sedentary position. Let me share a view with him about the Government flagship Work Programme, on which the noble Lord, Lord German, spoke so movingly.
The Public Accounts Committee described it as follows:
“Actual performance was even below the Department’s assessment of the non-intervention rate—the number of people that would have found sustained work had the Work Programme not been running”.
It was worse than doing nothing. I do not regard that as a success. There are other ways to do this. The Minister is aware that if Labour was in power, it would create real jobs for the long-term unemployed: six months of a proper job for 25 hours a week on the minimum wage. It would be compulsory, because we have never had a problem with sanctions, provided that they are fair and robust—oh yes, and legal.
I do not suppose the Minister will see the light today on that point, so instead I look forward to hearing answers to the various questions that have been asked, especially those from the noble Lords, Lord Pannick and Lord German. Our expectations are high. As there are no sitting days between today and all the remaining stages, the Minister will have to answer all our questions today. Unfortunately, on this occasion, we cannot wait for him to write to us, unless he does so very speedily. Perhaps he will also take the opportunity to do one other thing: will he apologise to the House, to the nation and especially to all those affected for the shambles that his Government have created?
My Lords, I thank noble Lords for their valuable and interesting contributions. I need to register some disappointment that the noble Lord, Lord McKenzie of Luton, has tabled this regret Motion on the Second Reading of the Bill. I am saddened by that approach particularly because it contrasts to the very constructive approach of his party in another place. I hope that he does not press the Motion to a vote.
I shall deal directly with the various points raised. The first is the point about government competence. The ESE regulations were drafted to be flexible enough to encompass a wide range of programmes designed to support jobseekers into work. Introducing new regulations for each individual scheme would have been more bureaucratic and expensive. We do not agree that the regulations were ultra vires, and have applied to the Supreme Court for permission to appeal. We believe that the primary legislation does not require that the regulations set out the fine details of each different programme, and, indeed, that was the position taken by the High Court. In fact, we believe that it is undesirable to do so and that this was not Parliament’s intention since a wide variety of possible arrangements could be made depending on the nature of the labour market conditions in particular parts of the country. It is important that we have the flexibility to amend these schemes to reflect the changing labour market conditions on the ground without going through a laborious legislative process which would delay change beneficial to the claimants.
I also want to point out that the ESE regulations were considered by the House of Lords Secondary Legislation Scrutiny Committee, the Joint Committee on Statutory Instruments and the non-parliamentary Social Security Advisory Committee, as I said in my opening remarks. None of those committees suggested that the regulations were outside the relevant Act’s powers. They raised different issues.
The Motion also makes reference to the High Court and Court of Appeal judgments that the letters provided did not contain sufficient information to claimants about the consequences of not participating in these schemes, a point which the noble Baroness, Lady Hollis, made with some vigour. That is not the Government’s view and that is why we have sought leave to appeal to the Supreme Court. Regulation 4(2)(e) of the ESE regulations simply required that the notice specify,
“information about the consequences of failing to participate in the Scheme”.
All our letters before the High Court explained that claimants could lose up to 26 weeks of benefit if they did not comply. That is clearly information about the consequences of failing to participate.
Claimants sanctioned under the ESE regulations knew perfectly well what was required of them. The notices that we sent to them clearly set out that they would face a benefit sanction if they failed to participate, and they have had detailed ongoing discussions with their Jobcentre Plus adviser about these schemes. The idea that these claimants failed to participate in these schemes because they knew that a court might decide that the regulations were ultra vires or the notice defective, particularly before any court case had been brought, is, quite frankly, ridiculous. There is no sensible case of unfairness to the claimants in this case.
As the noble Lord, Lord McKenzie, said in 2009 while debating the Welfare Reform Act in this very place:
“Of course there is a very easy way to avoid being sanctioned in the first place, which is to engage with the programme”.—[Official Report, 11/6/09; col. GC 136.]
These claimants failed to do so and must face the consequences of their actions. They are not deserving of a windfall payment as the result of a technical ruling by the Court of Appeal.
My Lords, it was clearly laid down in the primary legislation that that was an expectation, and they were informed by their advisers of that expectation. We are looking now at a subsequent finding by the Court of Appeal, on which we have asked for leave to appeal. However, nobody could have anticipated the finding, which is in dispute. There was a lot more information going to clients than was in that letter, because they were in communication with their advisers.
One of the fundamental points at issue here is that we are trying to design a much more flexible welfare system in which we individualise responses. That means that we do not send out loads of generic letters with long lines of prose about what will happen if you do this, that or the other. We are aiming to have a specific conversation with people through a flexible system.
My Lords, surely the Minister has accepted his own department’s research that up to two-thirds of those sanctioned did not understand that the failure to do as they were asked or told to do would result in a sanction. They did not know, and his department’s research confirms that.
My Lords, can the Minister help me on one point? I have been listening very carefully to what he said. As I understand it, he is telling us that the claimants fell foul of the legislation in terms of what it was anticipated to mean by the department. However, we all know that the meaning of legislation cannot always be anticipated with certainty when it is contested; it often requires a court decision to clarify what the legislation means. I think that the Minister is telling us that the claimants fell foul of the legislation as the Government wanted it to be interpreted but not, in fact, as it was interpreted. We have to look at what the Court of Appeal held to know what the legislation meant, not what the Minister hoped it might mean.
As noble Lords know, we are seeking leave to appeal to the Supreme Court to test that specific matter. I will shortly come on to the point raised by the noble Lord, Lord Pannick, about why we have fast-tracked this Bill. However, we have explored all the avenues and have not taken a decision to fast-track lightly. We have looked at other measures to prevent this course of action but none provides a sufficient guarantee. People have been concerned about the four-week period. We have also spent a significant period discussing, through the usual channels, agreement to expedite this legislation.
Let me make clear why the retrospective legislation is necessary. The Government respect the general principle that Parliament should not legislate to reverse the effects of court judgments on past cases unless the situation is exceptional. However, it is entirely proper to enact such legislation if there is a compelling reason to do so. Perhaps I may spell out the three reasons which make this an exceptional case. First, there is significant money involved—£130 million—in very difficult, austere times. Secondly, the money would go to a group of people who neither expect nor deserve to obtain a windfall payment. These claimants knew exactly what was required of them. They failed to participate without good cause and were rightly sanctioned. Thirdly, this case is most unusual in terms of social security legislation.
The noble Lord is repeating word for word what he said in his introductory speech. Why does he not reply and answer the important questions that have been raised? For example, why did he not ask for his appeal to the Supreme Court to be fast-tracked? Can he not answer the debate instead of repeating what he said at the beginning?
I am doing my best to explain the reason why this is exceptional. I did not explain it in detail at the outset, so I am really grateful for the opportunity, reinforced by the noble Lord, to explain the exception.
The third reason why this is exceptional is to do with the nature of social security legislation. In almost all cases regarding social security decisions, the decisions of a court or tribunal are only prospective in nature. That is because the most common way in which to challenge a social security decision, including the underlying regulations, is to bring an appeal to the First-tier Tribunal. If that happens, the normal route is followed and the decision of the tribunal will not have a retrospective effect because of Section 27 of the Social Security Act 1998. It is only because there is an anomaly in the text of Section 27 that it does not apply to judicial review cases. That is something that I suspect that this Government will come back to, to clear up. It is clear from Section 27 that Parliament recognised that wholesale retrospective disruption of the social security system was not desirable. That is even more true in a case like this, when the beneficiaries of that disruption are not deserving of the windfall that they would otherwise receive. That is why this is exceptional.
I turn to the reason why we need to fast-track the Bill. I want to respond to the rather witty way in which the noble Lord, Lord Pannick, put his view that there was no urgency by explaining to him and other noble Lords that we have applied for permission to appeal to the Supreme Court. If we are not given that permission to go ahead—and that could come out any day—we immediately become liable to pay back the sanction money of £130 million. That is why there is particular urgency and that is why we are fast-tracking this legislation. We need to provide certainty to taxpayers that we will not spend this money in this way, unnecessarily. The department will endeavour to process the stockpile cases in a robust, transparent and efficient manner. While there is clearly a trade-off between robustness and speed, we will aim to do that as practically as possible.
I thank the Minister, who has been very kind. I have one more question for him. He says that it is necessary to have certainty, but why not wait until the Supreme Court rules? If the Government win, as they say they are so confident of doing, there is no problem. If they lose, they can bring emergency legislation before Parliament to clear up the matter in a few days before anyone can complain that they have not been paid out. Why not follow that route?
The moment that there is a ruling—if there were to be a ruling—against the department, we would be liable from that moment to repay. What would we do? Would we obfuscate, say that we could not pay and were dealing with the paper work while we put through emergency legislation? We would be obliged to make the payments from the moment when the ruling came through. That is what this is about. It is why we are going ahead at this time and at this speed, which is clearly not something that we enjoy doing.
I turn to the review, which we have taken on in response to the Opposition in the other place requesting such a review. It will focus on the sanctions affected by the provisions of the Bill, which amount to roughly 25% of all JSA sanctions issued in the period. I have heard today concern from Peers about how DWP issues sanctions to JSA claimants more generally. I would like to make it clear that the department will discuss with the Opposition the terms of reference of the sanctions review. I assure noble Lords that the stockpile of claimants who are issued with a benefit sanction as a result of the legislation will receive the same information that is received by all claimants who are sanctioned for failing to participate in a scheme; namely, they will be told about their right to appeal, how to appeal and how they can go about claiming for hardship.
I will try to pick up as many of the questions that I have not dealt with as I can. I hope that the noble Lord, Lord Pannick, appreciates how closely we have studied the Constitution Committee’s report. I can tell him that Miss Reilly will not be affected by the legislation as she complied with the scheme that she was required to attend and was not sanctioned. I say to the noble Lord, Lord McKenzie, that we needed to put the regulations out within a day to keep mandating claimants going forward. The retrospective legislation required careful thought and an exploration of all the avenues. We also consulted the Opposition and the whole process took some weeks. I assure the noble Lord that there are absolutely no benchmarks or targets for sanction referrals. Sanctions will involve a temporary loss of benefit. We will not seek lump sums from people in work. We will look to use good cause and, for the more recent sanctions, good reason, but they are in practice the same.
As I said to the noble Baroness, Lady Hollis, a little earlier, the information given to claimants was not confined to what was in the letters. The sanction decision notice provides information on how to appeal and access other help. The noble Lord, Lord Bach, was concerned about legal aid. The first stage of the tribunal process is inquisitorial and legal aid is not required. It helps to ensure that everything that is relevant is considered. That is the job of the tribunal. I say to the noble Baroness, Lady Lister, that the Bill is compatible with the ECHR and will overturn some of the undesirable consequences of the judgment. That should not be done lightly but it is entirely proper to do so in the circumstances.
A number of noble Lords enjoyed having a go at the Work Programme. However, it has resulted in 200,000 people moving off benefits. The PAC report is somewhat premature in its conclusion about what is happening. I look forward to talking about that programme further in the months to come. I conclude by urging the noble Lord to withdraw—