House of Lords
Thursday, 27 March 2014.
Prayers—read by the Lord Bishop of Chester.
Death of a Member: Lord Kimball
Economy: Business Investment
Through industrial strategy and our structural reforms, we are setting the long-term direction needed to give businesses the confidence to invest, export and grow. Business investment was £123 billion in 2013, accounting for more than half of overall investment. The OBR forecasts that it will grow by 8% in 2014. At Budget, we announced further funding for innovation, including £42 million for the Alan Turing Institute and £74 million on cell therapy and graphene centres.
My Lords, the economy is growing, and unemployment and inflation are down. This is supported by an improving outlook in our export markets. We are cutting corporation tax to 21% this April, and to 20% in April 2015. At Budget, the Chancellor announced measures to reduce business energy costs and doubled our export finance scheme to £3 billion. These and other reforms are improving the business environment and providing long-term certainty for businesses, investors and employees.
Will the Minister tell the House the full story shown by the Office for National Statistics, which is that business investment since 2010 has been flat, faltering or falling, and that we are in a state in which it has shrunk, by comparison with 2010, by about 7%? Whatever happened to the march of the makers?
Business investment is a very narrow measure, which excludes investment by firms in skills, innovation and organisational change. When estimates of these types of investment are included, the UK’s performance is much improved, as we tend to invest heavily in these types of knowledge asset. It is also important to recognise that quality of investment is as important as quantity.
Yes, I have noticed that. Having said that, we are doing much in terms of the Green Investment Bank, which has invested directly and indirectly in 22 projects from five dedicated funds. It has directly committed £791 million, which will mobilise a total of £3.3 billion when fully deployed.
My noble friend will no doubt be aware of the Pacific Alliance treaty signed by Mexico, Colombia, Peru and Chile, which Costa Rica and Panama are shortly to join. Given that this represents the seventh or eighth largest trading bloc in the world, what steps are Her Majesty’s Government taking to encourage trade and investment with this important area?
My noble friend is right. I am aware of this and the Government are working hard to increase trade in this area. My noble friend Lord Livingston recently headed up a successful trade mission to Colombia and Mexico, with some promising leads. I take this opportunity to congratulate my noble friend Lady Bonham-Carter on her excellent work as the Prime Minister’s trade envoy to Mexico. Exports of British goods to Mexico increased by 51% between 2009 and 2012.
My Lords, is the Minister aware that the banking system here is responsible for 80% of the loans to small businesses in this country, unlike in the US? This intermediation system is bursting. Until the Government look at the issue of capital and equity support for businesses, we ain’t going to regenerate this economy in all parts of the country.
I am afraid I do not accept the negative attitude that comes from the noble Lord. In fact, much has been done to provide financial support for businesses. Over the last quarter of 2013, the banks lent an average of £4 billion each month to SMEs. In the same period in 2012, the average was £3.1 billion. Respondents to the Bank of England’s Credit Conditions Survey reported that the overall availability of credit to the corporate sector increased significantly in the final quarter of 2013.
In the light of the good news that Hitachi is intending to invest in rolling stock manufacturing capacity and that Siemens is investing in wind farm equipment manufacturing in the UK, what further efforts are the Government making to use their procurement strength to ensure that we get more manufacturing capacity invested in the UK and more apprentices?
My noble friend is right to highlight the excellent news that Siemens is to invest £160 million in the Hull area. Hitachi’s announcement that it will move its global rail headquarters to the UK is a further vote of confidence in companies investing in the UK. Among other actions, the Government recently announced a new college to train the next generation of world-class engineers working on the construction of High Speed 2, and we hope that it will train up to 2,000 apprentices. This will provide further opportunities for young people to have secure, long-term careers.
In response to an earlier question, the Minister said that GFCF was a narrow measure. However, is it not true that it also includes expenditure on buildings, including houses for rent? Therefore, the figures conceal a considerable loss of money in terms of the productive economy.
I am not sure that I agree with the noble Lord on that. What matters is the decisive action that the Government are taking to protect the economy in this period of global uncertainty. Our economic policy objective overall is to achieve strong, sustainable and balanced growth that is more evenly shared across the country and between industries, and that has a focus on property, too. We want to create the most competitive tax system in the G20, make the UK the best place in Europe to start, finance and grow a business, and create a more educated workforce that is the most flexible in Europe.
Can my noble friend perhaps have a chat with the noble Lord, Lord Kinnock, to see whether he can help us by pleading with his masters in Brussels to allow us to get on with investing in a nuclear energy programme? That would be really helpful. I see that the noble Lord, Lord Kinnock, shakes his head—he cannot do it.
My Lords, the UK is committed to a strong and enduring partnership with Algeria, which is a key regional partner playing an important role in supporting regional stability. Building on a visit by my right honourable friend the Prime Minister in January 2013—and, indeed, the appointment of my noble friend as trade envoy—the UK plans to continue the high level of engagement that has characterised the relationship in recent years. The UK-Algeria high-level dialogue in January this year saw further progress on a range of issues, including security, trade, migration and education. The third meeting of the strategic security partnership will take place later this year.
My Lords, given the enormous interest and desire to learn English in Algeria, whether in schools, universities or the government sector and in the private sector as well, can my noble friend indicate how we are helping to fulfil this widespread ambition and opportunity? Further, given the growing commercial links, can my noble friend comment on whether a double taxation agreement, moving this forward, is now taking place because it is a great advantage to some of our European partners who already have such an arrangement?
I take this opportunity, if I may, to pay tribute to my noble friend’s work as a trade envoy. His work has facilitated some major contracts for British companies, including most recently the International Hospitals Group and Surrey Satellite Technology. Turning to his specific questions, of course, English is a powerful tool in our trade across the world and I am delighted to state that the British Council is upgrading its services. It is reopening a teaching college in September, supporting English in schools. Also there is agreement for 100 Algerian PhD students to take up places at UK universities. On the issue of the double taxation agreement, some noble Lords may know that these negotiations have started, are continuing and, indeed, we have exchanged draft texts on the agreement.
My Lords, if one looks across the wider MENA region, Algeria remains stable compared to other countries in what is a difficult and troubled region. The campaign, as the noble Lord has pointed out, has begun for presidential elections on 17 April, and the UK looks forward to working with whoever the Algerian people elect. On the specific issue of observers, I cannot give an answer now but I will certainly check that and write to him.
My Lords, my noble friend will be aware that our Government are involved in projects designed to promote stability and peace in Algeria. To what extent are the Inter-Parliamentary Union and the Westminster Foundation for Democracy involved in such projects? What mechanisms are being established so that there is proper evaluation of the outcomes?
I think the organisations to which my noble friend has alluded, not just in Algeria but across the world, play a very important role. It has to be made clear that this is not about interference; it is about the value of sharing good practice and governance procedures. I would point out that Algeria increasingly sees itself as an exporter of stability. For example, it recently hosted peace talks between the Malian Government and opposition groups, and it co-operates well on border security with Mali. Over recent months, Algeria and Tunisia have also increased their co-operation on security issues of mutual concern.
Will the Minister acknowledge that the British Council’s commitment in Algeria has been highly commendable and, on many occasions in recent years, courageous? Will he further acknowledge that the very welcome strengthened engagement of the council in Algeria, which he referred to, is in spite of significant cuts by the Government in grant in aid and has been made possible by the strengthened commercial performance of the British Council?
The noble Lord will know that I certainly agree with his first statement. On his second statement, the British Council is supported by the FCO and by Her Majesty’s Government. Together we are demonstrating how important the British Council’s influence is, not just in Algeria but across the world, and long may that continue.
My Lords, the majority of police officers serving in London and elsewhere do their jobs well, serving their communities with dedication and professionalism. We must build on this. We have established the College of Policing, which has the remit to set standards and promote good practice. Ensuring that the police maintain the highest levels of integrity is a core function of the college and it will be shortly publishing the first ever code of ethics for the police.
My Lords, I am grateful to my noble friend. Is it not the case that undercover police operations play a vital part in the fight against terrorism and serious crime? Is it therefore not important that the unhappy and unfortunate events of past years should be put aside as soon as possible—having regard, of course, to due process—so that brave men and women are not discouraged from volunteering for this dangerous work?
I do not quite take that position. We are facing a grave crisis of confidence and it is important that, whatever the value of these operations, we learn from the mistakes of the past. Certainly we need to investigate the criminal activity that may have led to them occurring. It also makes it more important that such operations are properly authorised and supervised. The Government have already put in place improved arrangements for the authorisation of undercover work, including a requirement to notify deployments to the independent surveillance commissioners. In addition, HMIC is reviewing all law enforcement undercover units and will report at the end of May.
My Lords, I wish to declare my interest in the Question of the noble Lord, Lord Trefgarne, on the reputation of the Metropolitan Police. It was my interest and my request to the Home Secretary to look into corruption within the Metropolitan Police surrounding the investigation of the murder of my son in 1993 that prompted the paper review by Mark Ellison QC. Does the Minister agree that the Metropolitan Police needs urgently to clear up those elements that brought it into disrepute in the first place in order that it can concentrate on fighting crime, upholding the law and regaining the trust of the British public, especially the black community?
Those noble Lords who were here on 6 March to hear the repetition of the Statement that the Home Secretary had made to the House of Commons earlier that day will have attended a most poignant occasion. The noble Baroness was in her place to hear what had happened, which was indeed shocking. As my right honourable friend the Home Secretary said, policing stood damaged by the revelations in Mark Ellison’s review. She has made it clear that she is determined that all that can be done to find out what happened will be done. I know that that determination is shared by those currently in charge of the Metropolitan Police and by those conducting reviews and investigations. I hope that this reassures the noble Baroness of the sincerity of this Government in tackling what lay behind the tragic period leading up to and after her son’s death.
Does the Minister share my disappointment about the way the police have been dealing recently with domestic violence? After all the work that has been carried out, what can be done to bring those forces that are clearly not meeting the needs of women up to the level of excellence of those forces that are?
This is another area on which we have received a shocking report, and the Home Secretary commented on it this morning. Those noble Lords who listened to the “Today” programme will have heard a woman called Kimberley talk about her experience of the investigation made into her complaints. It is not good and the Home Secretary is determined to tackle this scourge. As she said this morning, she expects chief constables to respond to the report, and I would say that they owe it to the victims of these crimes to do so.
My Lords, many noble Lords will recall the high-profile visit made by the Metropolitan Police to the right honourable Damian Green MP before he became the Minister for Policing, but I do not suspect that many will recall the last high-profile visit made by the Minister for Policing to the Metropolitan Police in support of the excellent work done by the overwhelming majority of police officers every day to keep us safe in London. Perhaps the noble Lord could tell us when such a visit was last made and why we have not heard about it.
My Lords, as my noble friend will know, the Commissioner of the Metropolitan Police and other senior officers meet the Home Secretary and the Minister for Policing on a regular basis. The last public engagement was the launch of the trial of body-worn video equipment that took place late last year and which was also attended by the Mayor of London. Contact between the Home Office and the Metropolitan Police is on an everyday basis because it is such an important link for us. I hope that my noble friend will be reassured by my earlier comments in answering this Question. We recognise the diligence with which the majority of police officers perform their duties on behalf of the public.
My Lords, perhaps I may preface my question with a reference to the Home Secretary’s Statement to Parliament made on 6 March on the Ellison report of the inept investigation into the murder of Stephen Lawrence and related matters such as the inappropriate use of undercover police officers. She said:
“Stephen Lawrence was murdered more than 20 years ago and it is deplorable that his family have had to wait so many years for the truth to emerge”.—[Official Report, Commons, 6/3/14; col. 1064.]
I agree entirely with the Home Secretary’s view on the intolerable delay following the first highly unsatisfactory investigation into the murder of that young man.
The Metropolitan Police and policing generally have indeed had their reputations severely damaged by this and other incidents and revelations, but without trying to defend the indefensible, I would like to ask the Minister whether he would acknowledge that the relatively new captain and vice-captain of the Metropolitan Police Service are men of experience, determination and integrity and that, together with the many honest, brave and commendable police officers, they must be given the opportunity to redress the wrongs that have been revealed. I say “brave” officers because two were killed on duty last year and no fewer than 4,890 officers, both male and female, were injured and needed medical attention.
My Lords, it might help the noble Lord if I just say that I have made it quite clear that we recognise the sense of duty with which our police officers undertake their tasks, and indeed our confidence in the Commissioner of the Metropolitan Police.
My Lords, I thank the Minister for the content and tone of his answers. The further revelations published in the Independent newspaper today of a secret investigation into persistent corrupt networks within the Metropolitan Police are really beyond shocking. I am grateful to the Minister for his answers today, but can he tell us what action the Government will be taking in regard to these allegations as well?
I think the noble Baroness is referring to Operation Zloty and the discovery that some of the material that we were hoping to be able to use to investigate further may have been destroyed. There is a determination among everyone who is currently engaged in this matter to get to the bottom of it and to get to the truth. I am confident that we will achieve that. It may take time and there may be obstacles in our path but we are determined that the truth should be known. Indeed, by finding the truth, we will also help the police themselves regain that confidence that they should surely have about the way that they protect us.
My Lords, the Foreign Secretary made a Statement on 24 March, saying that he was,
“deeply concerned by the reports that 528 individuals were today sentenced to death by a court in Al Minya in Egypt”.
He urged the Egyptian authorities,
“to ensure full respect for defendants’ rights”,
“hope they will review this unacceptable sentence”.
On 6 February, as noble Lords may be aware, the Foreign Secretary also publicly raised concerns about the arrest of Al-Jazeera journalists in Cairo and about freedom of expression.
My Lords, since last summer, the Foreign Secretary has, understandably, condemned some of the actions of the new regime in Egypt and called for maintaining a dialogue with that regime. However, during that time we have seen not only the trial of the 20 Al-Jazeera journalists and the death sentences for the 529 accused on Monday but the prosecution of peaceful women student protestors, who face life sentences, and a whole host of other acts of repression and denial of basic human rights. Will the Government make a statement in the coming weeks, in the run-up to the elections that are due to take place in Egypt, outlining what other action has been taken in addition to dialogue and condemnation—for example, on export licences and co-operation in other matters—and what discussions have taken place in the EU and the UN to ensure some international co-ordination of efforts to persuade the Egyptian Government to stop this path towards repression and to open up the political space there if there are to be serious democratic elections in the future?
To begin with the noble Lord’s final point, he is of course quite right that openness and having a free, fair and fully pluralist style of elections are something that not only Her Majesty’s Government want to see but, as he has acknowledged, something that the UN is pursuing, as is the noble Baroness, Lady Ashton, in her capacity at the European Union. I reiterate once again that the UK Government remain deeply concerned about sentencing including, most recently, the sentencing to three years in prison of the democracy and human rights activists Ahmed Maher, Ahmed Douma and Mohamed Adel. The UK believes that the freedom to protest peacefully is vital in any democracy and calls on Egypt’s interim leaders to ensure that they uphold all Egypt’s international human rights obligations. The Foreign Secretary spoke to Foreign Minister Fahmy on 7 January and raised various concerns over Egypt, such as the arrest of human rights activists and journalists and the violence, including fatalities, at protests. I am sure representations will continue during what we hope will be free and fair elections later this year.
My Lords, the Egyptian Ministry of Justice is on record as saying that most of the 350 people originally sentenced to death were actually tried in absentia and that if they turn up in court they would be entitled to retrials. However, the Egyptian Government are insisting that the death sentences were handed down only “after careful study”. Have the Government advised the Egyptian authorities that, along with the UN human rights commissioner and 16 Egyptian human rights groups, we view these actions as being in breach of international human rights law and intolerable in a 21st-century democracy?
My noble friend sums up sentiments which are, I think, widely shared across the House. The UK of course opposes the death penalty. We believe it undermines human dignity and there is no evidence that it works as a deterrent. If an error is made, it is of course irreversible. We review the death penalty strategy each year, including priority countries where necessary. Our views have been well documented and continue to be shared across the board particularly, in this context, with the Egyptian authorities.
My Lords, the verdict and sentences of death passed this week are a breach of international law, as has just been said. The UN human rights commissioner has said the same. However, along with the detention of the Al-Jazeera journalists and other matters raised, they also show a high level of contempt for the rule of law. Will Her Majesty’s Government take a significant role in not only condemning the decision—that is something that we can all easily do—but in really leading international opinion to insist on a proper and fair appeal process?
It is important to reiterate that the justice system in Egypt should be seen to be both transparent and fair. As my noble friend pointed out a moment ago, certain people have been tried in absentia. It is important that we see openness and justice being served. To mention the Al-Jazeera journalists specifically, we have raised our concerns about cases of freedom of expression at the most senior level with the Egyptian Government in recent days, and the Foreign Secretary discussed them with other European Foreign Ministers at the European Foreign Affairs Council. I reiterate that the UK believes that a free and robust press, alongside other matters, is the bedrock of democracy, and an open, transparent and fair justice system is also an important part of the democratic process.
My Lords, my noble friend will be aware that the proposed new Egyptian constitution also privileges military trials for civilians, irrespective of whether they are military employees. What representations are the Government making on this aspect of the constitution, which will allow for more miscarriages of justice, rather than fewer?
The constitution in Egypt is primarily something that we should leave to the Egyptian people. We should be ensuring that there is fairness and a pluralist democracy in place. The Egyptians have promoted the fact that there was 98% agreement to the constitution, but this is on the basis of only 38% participation. One positive element that comes out of the constitution, which I am sure my noble friend acknowledges, is that minority groups and minority interests are well protected, and that is a welcome development.
Business of the House
Timing of Debates
Order of Consideration Motion
That the amendments for the Report stage be marshalled and considered in the following order:
Clauses 1 to 4, Schedule 1, Clauses 5 to 12, Schedule 2, Clauses 13 to 19, Schedule 3, Clauses 20 to 51, Schedule 4, Clauses 52 and 53, Schedule 5, Clauses 54 to 58, Schedule 6, Clauses 59 to 62, Schedule 7, Clauses 63 to 65, Schedule 8, Clauses 66 to 70, Schedule 9, Clauses 71 to 74.
Motion to Agree
My Lords, in our 2012 report we recommended an increase in ad hoc committee activity, including an additional committee unit. In our 2013 report we recommended a further additional committee unit. As a result, more ad hoc committees have been appointed this Session than ever before.
The Liaison Committee discussed the work of the three ad hoc committees appointed in the present Session with their respective chairmen: the noble Lord, Lord Harris of Haringey, chairman of the Olympic and Paralympic Legacy Committee; the noble Lord, Lord Howell of Guildford, chairman of the Soft Power Committee; and the noble Baroness, Lady Noakes, chairman of the Personal Service Companies Committee. All three were enthusiastic about the work of their committees, although the time constraints of the two short ad hoc inquiries had meant that the programmes of both committees had been telescoped. The next Session will be the last in the present Parliament and, as such, may be compressed, so we decided not to recommend the appointment of any short ad hoc committees during the 2014-15 Session.
We discussed the work of this Session’s post-legislative scrutiny committees with the noble and learned Lord, Lord Hardie, chairman of the Mental Capacity Act 2005 Committee, and the noble Lord, Lord Shutt of Greetland, chairman of the Inquiries Act 2005 Committee. Both committees have now reported and already have had a very marked and significant impact.
The increase in Select Committee activity during the past two Sessions has been well received, as has been the practice of inviting Members of the House to put forward their own proposals for ad hoc committees. This is a thorough and open process and allows all Members of the House to put forward their suggestions. This year’s deadline of 15 January was advertised on the front cover of Red Benches in December 2013 and through the party Whips and I routinely mentioned the opportunity for Members to submit topics when I went on my usual tour of the party groups and the Cross-Benchers’ meetings.
Twenty-two members of the House put forward proposals for ad hoc Select Committee activity in the 2014-15 Session by the deadline of 15 January. As was the case last year, our consideration was a two-stage process. On receipt of the proposals, a limited amount of research was carried out by the Committee Office to assist our first deliberation. At our meeting on 4 February, we shortlisted a number of the proposals for further scoping work by the Committee Office, which assisted our final recommendations at our meeting on 4 March. I am happy to say that, perhaps in part because of the thorough process that we followed, the committee was unanimous in agreeing the recommendations that are now before your Lordships.
Several Members of the House called for a Select Committee on foreign affairs. The noble Lord, Lord Howell of Guildford, also proposed that the House should appoint a further ad hoc committee on an international relations subject to succeed the ad hoc Committee on Soft Power and the UK’s Influence, which he chaired during the present Session. We were attracted to the proposal put forward by the noble Lord, Lord Howell, but do not think it appropriate at this late stage in the Parliament to set up any new sessional Select Committees, whether on international relations or any other subject. We were attracted also to the proposal put forward by the noble Lord, Lord Tugendhat, for an ad hoc committee to consider a range of issues relating to the Arctic, which could cover defence security, environmental security, energy security and the consequences of the redrawing of world trade routes in a hostile environment. The Arctic is an area that is moving, changing and developing very quickly and brings many significant questions to the fore. We think that this would be a good choice for an ad hoc committee on an international relations subject in the next Session.
The noble Baroness, Lady Massey of Darwen, proposed the establishment of a Select Committee on affordable childcare, following a debate in the House on 9 January 2014, and the committee agreed to support her proposal. Access to affordable childcare is an important factor both in women’s participation in the labour market and in child development.
We also agreed to support the proposal put forward by the noble Baroness, Lady O’Cathain, for a Select Committee on ICT, competitiveness and skills. This is another topic in which there is considerable interest and expertise in the House, expressed most recently during the Oral Question on 25 February on careers guidance in schools. We also agreed to recommend a new post-legislative scrutiny committee for the 2014-15 Session and to support the proposal of the noble Baroness, Lady Garden of Frognal, for the establishment of a post-legislative scrutiny committee to examine the Extradition Act 2003 and the law relating to extradition.
I hope that your Lordships will support the committee’s decision to maintain the unprecedentedly high level of committee activity in Session 2014-15. Inevitably, it was not possible for the Liaison Committee to recommend to the House all the proposals received, but I hope that your Lordships will agree with me that this is a well balanced group of committees and subject areas.
On 13 March, nearly two months after the deadline for receiving proposals from Members of the House, I was sent an e-mail on behalf of a number of Members of the House asking,
“the Liaison Committee to create an ad hoc select committee on reform of the civil service to start work immediately”.
I hope that noble Lords will understand that this struck me as a bit of a bolt from the blue in that it sought to bypass what is an open, transparent and established selection process. I found it difficult to understand how a topic that received no support on 15 January could suddenly emerge by 13 March as the most urgent and important topic that we should address. I am therefore pleased to see that the noble Lord, Lord McNally, has now tabled an amendment referring to the possibility of a Joint Committee on the Civil Service, particularly asking the House to agree that, if a message were received from the House of Commons inviting the House of Lords to appoint its share of such a Joint Committee, the Liaison Committee would meet again to consider the proposals. I am very happy to agree to that and accept the amendment of the noble Lord, Lord McNally, as it reflects our normal procedure—as one would expect, given that the noble Lord was until recently a member of the Liaison Committee. Of course, I cannot prejudge the decision that the Liaison Committee may make if we were to receive any such message from the House of Commons.
Finally, I turn to the question of follow-up. As several committee chairmen observed to us, the downside of ad hoc committees is that they cease to exist once they have reported and are thus unable to engage in follow-up. Accordingly, we considered how that point of weakness might be addressed. On the one hand, the new ad hoc committees were set up as fixed-term entities. Any likely follow-up mechanism would be difficult to limit in both time and resource. A further consideration is that, once ad hoc committees have reported, the protection of parliamentary privilege ceases. On the other hand, committees exist to make recommendations and, if those are not followed up, the value of the committee report is diminished. I am glad to say that the follow-up report of last Session’s Committee on Small and Medium-Sized Enterprises and exports is expected to take place shortly and that the Government have agreed to provide a further written response to the report of the Select Committee on Public Service and Demographic Change approximately one year after the publication of their first response. The Liaison Committee expects to receive that further government response in June 2014. Our report invites future ad hoc committees to identify clearly the issues that they wish to be followed up roughly a year after they have reported.
In conclusion, I commend to the House the work of all our committees. The House of Lords now has a wide range of sessional and ad hoc committees and we must also remember the important work of pre-legislative scrutiny committees. Inevitably, some attract more publicity than others, but all are worth while, because this is an area of activity where this House really delivers added value. I beg to move.
Amendment to the Motion
At end to insert “with the proviso that, in the event that the House of Commons invites the House of Lords to appoint a Committee to join with a Commons Committee as a joint committee on the Civil Service, the Liaison Committee will meet again to consider the proposal”.
My Lords, let me make it clear that tabling the amendment in no way changes my opinion of the Lord Chairman of Committees—a comrade in arms. I have tabled the amendment because the Lord Chairman said, in response to the e-mail to which he referred, which was signed by me and the noble Lords, Lord Norton, Lord Hennessy and Lord Forsyth:
“When the Liaison Committee last met, I had heard by word of mouth that particularly in the Commons there were Members interested in a Joint Committee on Civil Service Reform. As no formal process had been received the Committee could not consider this in great detail, but the general feeling of the Committee was that the terms of reference would need to be considered carefully. The subject is a large and important one, and Members felt that it was unlikely that justice could be done to such a complex issue in the parliamentary time available before the 2015 election”.
However, the report to the House refers in no way to that discussion. I am in no way casting doubt on the Liaison Committee, but I felt that without this amendment being accepted—I am very grateful that it is accepted—if the other place called for a Joint Committee, the response would be that the Liaison Committee had already discussed it and we were not in favour of it. That would be a disgraceful response if the other place expressed an interest in such a Joint Committee on the Civil Service.
I served on the Liaison Committee for nine years and I am pleased that recent reforms have made it less arthritic. However, the Liaison Committee should be able to respond very quickly to need. I do not believe that the fifth year of this Parliament is a dead or fallow period, particularly when the Executive are pressing ahead with such an important thing as Civil Service reform. The idea of a Civil Service chosen on merit and politically neutral is one of the great reforming gifts of 19th-century Liberalism to our governance. We should not let that go away casually while Parliament is not looking. It is not acceptable that Civil Service reform should go ahead without proper parliamentary scrutiny.
In passing I would say that I recently had the honour of serving in government for three and a half years and my impression was that we still attract talent into our Civil Service and that it is still based on a very strong ethos of public service. If we are not to throw that away casually or by the back door, Parliament will have to be very alert. I therefore put down this marker to the Liaison Committee. Some very distinguished Members from all parties in the other place have pressed for such a committee. I hope that the Liaison Committee will react nimbly and positively to such a request.
I shall speak briefly. As the noble Lord has pointed out, I added my name to the e-mail that was sent. I say to the Chairman of Committees that I think it is a bit bureaucratic to say that the deadline was 15 January when we had a major debate in this House on the Civil Service in which almost every speech expressed concern about maintaining the integrity of the Civil Service and its political independence. After that there were moves at a very senior level in the other place to have an initiative on a joint basis between both Houses. Therefore, we made a request for a committee to be established after the deadline because of the circumstances that occurred in both Chambers of Parliament. I say very gently to the Chairman of Committees that, if the Liaison Committee is so concerned about its procedures that it does not take account of what is being said in both Houses of Parliament, perhaps more flexibility needs to be introduced into these procedures.
I am very concerned indeed by some of the proposals being put forward for reform of the Civil Service. When I was Secretary of State for Scotland, we were in government but I always felt that I was in opposition. The Civil Service in the Scottish Office was pretty committed to establishing a Scottish Parliament and we were pretty committed to not establishing a Scottish Parliament. We were also committed to a whole range of quite radical reforms that went against the grain. I have to say that I never, ever experienced anything other than complete and total professional service from the Civil Service. If you gave it a lead, it would respond, and respond with great professionalism and integrity.
I observe the Civil Service now; I observe the degree to which there is turnover in important departments such as the Treasury; I look at the numbers of Permanent Secretaries who seem to survive for less than 12 months; and I look at the proposals that are coming from the coalition to politicise and increase the number of special advisers. These are all hugely revolutionary and important changes and when, come the general election, each political party will no doubt have something to say on its views on the Civil Service, it will be important that we have an informed debate.
I therefore regret the fact that there will not be an opportunity for us to have a proper look at these issues so that people can make up their minds as to what the right way forward is. I very much hope that, as the noble Lord, Lord McNally, said, should a proposal come from the House of Commons we would respond to it so that the expertise and experience that exist in this House in all quarters can add to what is a central debate to the future of our constitution and good government in our country.
My Lords, I make it clear that I make no criticism of the procedures of the Liaison Committee, which were perfectly fair, although I agree with the noble Lords, Lord McNally and Lord Forsyth, that there is an issue for Parliament here. The proposal that there were issues of such importance affecting the Civil Service that they required investigation had the support of not only the Public Administration Select Committee in another place but all the chairmen of the Select Committees that examine departments. It was a unanimous proposal from the Liaison Committee in another place. These are issues of importance, which may well be in the manifestos for the next general election. As I said in my remarks on 16 January, it would be extraordinary if Parliament did not examine them when there is such senior support for that in the House. While I absolutely understand the procedures that were followed by the Liaison Committee and have never sought to overturn either its recommendations or the list of subjects that it has proposed, I hope, as other speakers have, that if the House of Commons goes ahead with setting up an examination of these issues, the Liaison Committee of this House will be flexible enough to agree that this House should join in that investigation.
My Lords, I must confess that I did not realise that my noble friend Lord McNally had put down this amendment. If I had, I would have put my name to it. There is something seriously wrong with our Civil Service today and there is no better place than your Lordships’ House to give consideration to how it should be reformed.
Amendment to the Motion agreed.
My Lords, I am sure that the House is anxious to get on with the Budget debate, as I am, so I shall not delay it for more than a few moments. However, paragraph 12 of the report that we are considering draws attention to an extremely serious situation, where the work of the ad hoc Select Committee on Personal Service Companies has been seriously handicapped by the fact that the Treasury Minister concerned refused either to give oral evidence or to allow his officials to give evidence. That was on the grounds that we were concerned only with the administration of the situation, whereas quite clearly the whole thing operates within a legal and legislative framework that is the responsibility of the Treasury. We ought to have been able to question Treasury Ministers on the implications of that legislation for the subject that we were discussing. The committee’s report clearly says that this situation is “unfortunate”, but I am not clear what representations the Liaison Committee is making to the Government, and perhaps to the Chancellor of the Exchequer in particular, about this extremely unfortunate situation, which has handicapped the ability of the committee to carry out its work.
Motion, as amended, agreed.
Arrangement of Business
My Lords, we now have two debates during the rest of our sitting today. The first of those debates on the Budget is not time limited and colleagues will know that I have been keen to table government-led debates on a Thursday where we are not strictly time limited. The second is time limited. It is a Question for Short Debate, which may last only one and a half hours. It may therefore be helpful, particularly to those who are in the second debate, if I give an advisory speaking time on the Budget debate. We have 30 speakers for today’s debate on the Budget. If Back-Bench contributions were to be kept to 10 minutes then those on the QSD later could be assured that they would complete their work by 7 pm.
Motion to Take Note
My Lords, the UK’s economic recovery has finally taken hold. No major advanced economy grew faster in the fourth quarter of 2013 than the UK’s. Employment is at record levels. Some 1.7 million private sector jobs have been created since early 2010 and over the same period more than four private sector jobs have been created for every public sector job lost. Inflation of 1.7% last month was the lowest for more than four years.
During this debate last year I argued that the Government’s focus on deficit reduction could go hand in hand with a successful strategy for growth. Some noble Lords disagreed. At that time the independent OBR had forecast growth of 1.8% for 2014. Last week the OBR forecast growth of 2.7% for 2014—nearly a whole percentage point higher. That is the biggest upward revision to growth between Budgets for at least 30 years. However, there is clearly more to do to ensure that our recovery is balanced and will protect us against future shocks, so today I will speak about how the Government are taking the difficult decisions to rectify the mistakes of the past so that everyone in the UK experiences the benefit of the recovery.
In the build up to the financial crisis the UK economy was characterised by severe imbalances and long-running structural weaknesses. In 2008, UK investment as a percentage of GDP had been the lowest in the G7 for a decade and our level of productivity was also lower than that of our peers. The economy had become increasingly reliant on the services sector. Manufacturing had fallen from 19% of the economy in 1997 to 11%—not helped by the long-run decline of North Sea oil. The UK financial system had become the most highly leveraged of any major economy, with a total balance sheet inflated to more than 200% of GDP. Total household debt had risen from around 100% of income at the start of the decade to more than 170% and the saving ratio had collapsed to just 0.2%.
Imbalances were also building up in the public finances. In 2005-06, public expenditure had already increased to 41% of GDP while revenues were at 38%. Despite the buoyant economy, we were spending more than we were earning. All of this meant that when the financial crisis hit, the UK economy was among the most vulnerable and it was for that reason we experienced the biggest recession of any major advanced economy apart from Japan. By 2009-10 we were running the highest structural deficit in the G7, borrowing one pound for every four we spent. The deficit had climbed to 11% of GDP and every year that deficit adds even more to the debt that has been accumulated. Faced with a challenge of these proportions, restoring balance between public expenditure and receipts was the only credible option.
Following the financial crisis our economy was hit by further shocks. Some 40% of UK goods exports go to the euro area and as the eurozone crisis intensified it weighed on UK export performance. Commodity prices rose steeply between 2009 and 2011, increasing costs for households and businesses. In addition, it became apparent that the financial crisis had had a deeper and more lasting effect than we previously anticipated. The UK economy shrank by 7.2% in the aftermath of the crisis. Of course a crisis of that scale would have an impact on millions of households.
In the face of such a daunting economic challenge, it is essential to have a clear and comprehensive plan. I remember that in the debate last year, the noble Lord, Lord Desai, said that there was not much to say about the Budget because the Government had a plan and they were sticking to it. I chose to take that as a compliment, and we have continued to stick to our plan. Our plan made it clear that we would: fix the economy and deal with the deficit; cut tax to encourage investment and entrepreneurialism; back businesses across both the sectors and the regions; reform welfare, the cost of which had spiralled out of control; and invest in schools and skills so that the youth of today could drive the economy of the future. We put that plan in place. We have adhered to it, and we are delivering results with it. I would like to spend my time with noble Lords this afternoon discussing just what that plan has achieved to date and what more needs to be done to embed this recovery for the long term.
The scale of the fiscal challenge we faced required urgent action. This meant not just committing to reducing the deficit but doing it in a way that gave markets faith that it would be delivered, and helped keep interest rates low. Such is the level of the UK’s accumulated debt that interest payments alone are forecast to be almost £60 billion in 2015-16, which is more than the annual budget of the Department for Education. Maintaining market confidence in the Government’s determination to restore sustainable public finances is critical. A one percentage point rise in gilt rates would add around £8.5 billion in interest payments by 2018-19, a risk my noble friend Lord Higgins has questioned me about before.
Again, this Government’s decision to deliver the majority of the consolidation through reduced spending was the only credible option. However, the severity of the financial crisis and its impact on the UK public finances mean that returning to a sustainable path will take time. The independent OBR predicts that in 2018-19 we will have a surplus for the first time in 18 years, but even then our work will not be complete. Accumulated debt will still be in a position to make the public finances vulnerable. Without maintaining a continuing grip on the public finances and running surpluses during good years, debt will not fall, and future Governments risk being hampered in their ability to support the economy at times of stress, which we are sure to have. As my right honourable friend the Chancellor said in his Budget speech last week, we aim to,
“fix the roof when the sun is shining”.—[Official Report, Commons, 19/3/14; col. 784.]
This Government are committed to improving fiscal discipline. The creation of the independent OBR has given confidence to the reliability of the economic forecasts, and public pay restraint has been a tough but necessary action. The welfare cap announced at Budget, which was debated in the other place yesterday, will further tighten fiscal discipline and place the welfare system on a sustainable footing. Every other part of government spending is carefully managed, and welfare is too large an area of spending to be left without strong controls. As a result of all the measures laid out, public finances are now returning to a sustainable path.
Monetary policy formed the first line of defence following the crisis, supporting the economy and stimulating demand. By keeping the bank rate low and through quantitative easing, the Monetary Policy Committee has helped maintain low interest rates, reducing costs for households and businesses. Furthermore the Government have updated the remit of the MPC that ensures the committee provides greater transparency and certainty. Finally, the Government have created an entirely new macroprudential framework with the Financial Policy Committee at its heart. This fiscal and monetary action rescued the economy from crisis and provides a stable framework for us to continue to address some of the challenges which have impeded the UK’s economic performance.
At the heart of these challenges is the UK’s productivity challenge. This Government recognise productivity growth increases real earnings and improves the day-to-day lives of people around the UK. The future path of productivity growth is the most important judgment in the OBR’s economic forecast too and, by its own admission, the key uncertainty. Historically, the UK’s level of productivity was weak compared to many of our international peers and, despite some growth through the 1990s and early 2000s, when the financial crisis hit, UK productivity was still below the rest of the G7.
The causes of the UK’s weak productivity performance are hotly debated, and the implications are far reaching. While I am sure that in our debate this afternoon noble Lords will offer some excellent insight into possible areas for action, I shall address what I think are some of the key areas, namely, business investment, access to credit and skills and infrastructure.
Investment by businesses is a key driver of productivity growth. It improves their capital stock and enables them to produce more outputs with fewer inputs. More recently, business investment growth has returned, up 2.4% in the fourth quarter of 2013, and 8.5% compared to a year before. The OBR has forecast that investment will grow strongly in the coming years as uncertainty recedes and credit conditions improve. However, business investment is still considerably below its pre-crisis peak, and, as with productivity, UK investment over the longer term is weak compared to our international peers. There have been only five years since the late 1970s when we did not have the lowest investment in the G7.
The Government have a simple strategy for encouraging business investment: we want the UK to be the best place to set up and do business. We have already committed to reducing corporation tax to 20% by 2015, and last week the Chancellor announced that we would both extend and expand the annual investment allowance, which will give virtually all businesses a 100% allowance on new machinery or plant.
We also addressed the high energy costs that burden businesses, particularly manufacturers, by capping the carbon price support rate—a problem the noble Baroness, Lady Worthington, anticipated in her eloquent contribution to this debate last year. To help address the historic problem of imports outweighing exports, we are expanding the reach and support provided by UKTI. The Budget also doubled the amount of lending that UK Export Finance can make and reduced the cost of those loans to exporters. That positive business environment not only supports our home grown success stories, such as Jaguar Land Rover, but also attracts overseas investment and jobs; recent examples are Hitachi with rail and Siemens with wind turbines. However, businesses cannot invest if they cannot access credit.
When the Government took office, bank lending had fallen to record lows as a result of the financial crisis. There is also evidence that innovative, new, high productivity firms—the drivers of growth—struggled to access the credit they needed to get off the ground, which further exacerbated the UK’s weak productivity performance. Opinions divide on whether that was a result of constrained supply by banks, or lower demand by businesses that were just not confident enough to borrow. However, either way the outcome was the same: existing businesses, SMEs in particular, were not accessing the credit that would enable them to invest and grow.
Action has been taken. The Funding for Lending scheme was introduced to provide incentives for banks and building societies to boost their lending to the real economy. In November 2013, as mortgage lending to households was recovering, the scheme was focused on SME lending. Credit availability for small businesses is now increasing at its fastest rate in almost four years, and gross lending to SMEs was 13% higher in 2013 than in 2012.
Further, the Government are supporting increased competition within the banking sector and are nurturing alternatives to the banks, such as peer-to-peer lending and initiatives with equity finance. Specifically, the Business Finance Partnership has already unlocked £1.5 billion of additional lending to small and medium-sized businesses exclusively through non-bank finance. However, for productivity to grow and UK businesses to succeed, both domestically and globally, takes more than just investment. The Government must remove supply-side blockages, too, which means investing in infrastructure and skills.
The quality of this country’s transport, energy, communications and water networks is vital to improving our productivity. That infrastructure enables the rest of our economy to work, and we have underinvested in it for decades. Our national infrastructure plan sets out how the UK’s infrastructure needs will be delivered over the long term. We have published a pipeline of projects and programmes worth more than £375 billion, and at last week’s Budget we published further analysis of how we expect that to be financed. That builds on the long-term funding we have already announced for sectors such as roads, rail and flood defences and the steps we have taken to support private sector investment. We are continuing to reform our planning system, and are focused on ensuring that these projects are delivered on time and on budget.
The final ingredient for a productive and competitive economy—many would argue the most important one—is an educated and skilled population. That is why the Government are boosting funding for apprenticeships, removing the cap on student numbers, and increasing investment in science and innovation. The changing nature of the labour market means that the economy demands higher skills. Investment in skills and education ensures that the UK is able to compete in the global economy. Equipping the country’s workforce with the skills businesses need will provide more opportunities for our young people to find employment and reach their full potential.
Building a resilient economy is the only way in which to improve and maintain living standards. Given the scale of the financial crisis that we have experienced, it is no surprise that earnings growth slowed. Paul Johnson, the director of the IFS, acknowledged that falls in real earnings are a direct but delayed result of the 2008 recession. But throughout our time in office, this Government have taken huge steps to make sure that our policies impact households fairly across the UK. The personal allowance will increase again to £10,500 from April next year, meaning that a typical basic rate taxpayer will be more than £800 a year better off in cash terms. Fuel duty has been frozen until the end of Parliament; we have helped local authorities to freeze council tax in every year of this Parliament; we have increased the tax-free childcare cost cap, against which parents can claim 20% support, to £10,000 per year for each child; and we have made it easier to save and for people to access their pensions—a change that has been well received, on an issue that is perhaps closer to the hearts of Members of this Chamber than to those in the other place.
The most important way of getting money into people’s pockets, and helping them to raise their living standards, is to make sure that as many people as possible are in employment. Those figures I referred to in my introduction—1.7 million new private sector jobs, with four private sector jobs created for every public sector job lost—are a real demonstration that this Government’s policies are working, and the recovery is happening. But let us be clear: increasing growth and productivity is the only way to ensure that people feel the recovery for the long term, because it is productivity which determines real earnings growth. As we see the recovery take hold, the OBR predicts that earnings will grow faster than inflation this year and throughout the forecast period. It expects real household disposable income per capita to grow at 0.5% in 2014 and 1.2% in 2015. That improvement will be supported by a continuing strong employment performance.
In conclusion, it is indisputable that we have an improving economic picture, with growth and jobs up, and inflation and the deficit down—but there are, of course, significant challenges remaining. The Government’s economic plan has bolstered stability in the markets, given confidence to businesses and provided security for households, but there is no doubt that the job is not done, and we must continue to boost productivity and address the challenges that face our economy head on. We are now taking the next steps in our long-term economic plan, and last week’s Budget provided the right mix of policies to address the challenges that remain. I believe, as does my right honourable friend the Chancellor, that with the help of the British people, this Government are securing this country’s economic future.
My Lords, I want to start with Tommy Cooper. When he was asked to explain how he did his sleight of hand magic, he said, “Watch my hands and ignore what I say”. Of course, that was easier said than done, because Cooper’s patter was utterly hilarious and compelling. Our Chancellor has a well practised line in patter, but if you watch his hands—in other words, what he actually does—you quickly detect the difference between what he says and what he does. He is adept at saying one thing while doing another.
Over the past few years, the Chancellor’s constant refrain in response to those calling for a Keynesian boost to get the economy moving has been, “You can’t cure debt with more debt”, but this is precisely what he has done—though not directly of course, although public debt has in fact significantly gone over his forecast. He has not overtly adopted a plan B; rather, he has resorted to off-balance-sheet measures to boost the economy. By making £120 billion in government guarantees available for additional mortgage borrowing, he has provided the private sector with a massive incentive to ignite the housing market and with it the feel-good factor.
That was last year. In this year’s Budget, the Chancellor tells us we are not saving enough, but in the next breath he announces that pensioners can now access their pension pots to finance consumption. The OBR forecasts that the savings ratio will fall from 7.2% in 2012 to 3.2% by 2018. That is before taking into account early pension fund withdrawals.
Anatole Kaletsky has rather colourfully dubbed the Chancellor a stealth convert to Keynesian Thatcherism. The Chancellor has arranged for the private sector to take the strain and privatise the borrowing that the economy needs to get us out of recession—all helped along, of course, by quantitative easing and ultra-low interest rates. This treatment has worked. As the Minister said, the UK’s growth rates have exceeded expectation and are ahead of all other major advanced economies. However, it could have worked earlier and the UK could have avoided three years of damaging economic underperformance if the Chancellor had adopted policies to boost borrowing earlier in the Parliament.
The IFS has spotted another important gap between words and actions. Despite the Chancellor’s protestations that he is ruthlessly holding the line on fiscal discipline, he has introduced permanent tax giveaways paid for by unspecified spending cuts and temporary tax increases, thus weakening long-term public finances. He has yet to spell out how he will achieve his target of cutting public expenditure by 2018 to the lowest share of national income since 1948.
GDP growth is being fuelled by a borrowing binge and house price inflation. We all know how that story ends. Will the Minister please explain why the Government expect the outturn will be different this time round? The long delayed recovery we are seeing is welcome but it is the worst—that is to say, taking the longest to get back to the previous peak in output—in our history. Output remains 15% below what might have been expected absent the financial crisis. The OBR forecasts that the output gap will close by 2018, with the prospect that there will be a permanent hole in UK output. If this forecast is correct, improved productivity is the only way to achieve above-trend growth and recover the lost ground, as the Minister said. The OBR notes that our productivity is exceptionally weak.
The substantial increase in employment is welcome, but it has led to a reduction in real wages and, therefore I presume, productivity. This may be explained by the move from good full-time jobs to a mix of part-time, sole trading, temporary contract and zero-hours contracts, and with many graduates and professionals now working in jobs for which they are well overqualified. The data on pay tell a grim story. Real average earnings have fallen by nearly 10% since 2008 and, measured by RPI, will show no recovery by 2018. Low pay and low productivity are no recipe for sustained growth or, indeed, for fairness.
The Chancellor flirted last autumn with the idea of a large increase in the minimum wage, but that came to nought. He could have been bolder and adopted a policy of requiring the public sector and those companies that hold government outsourcing contracts to pay the living wage. This would lift many working families off benefits and out of the clutches of payday lenders. Economic growth built on decent pay is more sustainable, let alone fairer, than growth based on excessive personal credit.
As the Minister said, increasing capital investment is essential to improving productivity. After four years of declining capital investment by both government and the private sector, there are welcome signs of a pick-up, with the OBR now forecasting 8% growth in business investment and 4.5% growth in government investment. The changes in the Budget to encourage business investment are also welcome. Now that increased funding is being promised, will the Minister tell the House what other barriers need to be removed if he is to achieve his ambitious infrastructure plan?
Investment in the energy sector is essential to getting prices down and to keeping the lights on, as the margin of electricity generating capacity over peak demand shrinks over the next few years. The shortcomings of energy policy have been laid bare by the Government’s dramatic intervention to introduce a £7 billion package to cut energy bills, secure investment in nuclear power and bring mothballed gas generating plants back into service as standby capacity.
But all that comes at a very high cost. The nuclear investment is predicated upon a gas price set at twice the current level and inflation linked for 35 years, all of which will give the investors—EDF—a very handsome 30%-plus return. The standby gas generation arrangements that the Government put in place will have to be underpinned by very expensive back-up contracts to provide gas. New offshore wind will, DECC calculates, be some 30% more expensive than the cost of new nuclear power—all this in a world in which energy prices are falling. The Chancellor promises a shale gas revolution but, to date, only one shale gas well has been fracked in the UK and, assuming that further drilling proves the reserves to be commercially viable, production will come on stream in volume only in the next decade.
The failure of energy policy to create a competitive, functioning energy market that is attractive to investors has forced the Government, in effect, to renationalise the energy sector by taking direct control of pricing and investment. This policy of intervention is not working on any level. Emissions are up because of the increased coal use, supply is less secure because of inadequate investment, and costs are up because of the high cost of new low-carbon supplies and the intermittent nature of the source of energy.
As the noble Lord can see, I am speaking from the Back Benches. The wide-ranging competition policy announced today is welcome, but there is a need for a root-and-branch review of our energy policy.
The Chancellor’s measures to boost saving and to stop pensioners being forced to buy annuities from a cartel that gives poor value for money are bold and welcome. When he announced the decision to allow pensioners to access their pension savings, the Chancellor acknowledged that pensioners would need free, impartial advice if they are to get the best out of the choices they now have. The promise to provide that advice must be met in full if pensioners’ interests are to be protected in what is a fiendishly complex and, frankly, rather rapacious industry.
I end on a note of caution. I was a director of the National Bus Company when it was privatised by the then Conservative Government in 1987 into more than 80 separate companies. By the way, it was not my policy but that of Nicholas Ridley. Employees were given the option of staying in the indexed final salary scheme, which had government backing, or taking their chances in a deferred contribution scheme. The pension salesmen’s seductive patter and the promise of a share of the commission generated by the transfer to a defined contribution scheme proved irresistible to many, who then saw their pensions fall short of their expectations, let alone the guaranteed level of the NBC scheme that they had left. This House has an opportunity to make sure that that sort of thing does not happen again by providing proper information and making truly independent advice available to people who are making a decision that is irreversible at an important time in their lives.
My Lords, since the days of Asquith your Lordships’ House has been excluded from any direct influence on the Budget process, but the number of noble Lords who have put their names down to speak in this debate demonstrates how much we appreciate the opportunity to comment on the state of the economy and the potential political consequences that flow from it.
However cautious the Chancellor of the Exchequer and other Treasury Ministers have been, there can be no doubt that the UK economy is on the mend. Output is growing at its fastest rate since before the financial crash; unemployment is falling as new jobs are created in the private sector, as the Minister indicated—more than replacing those lost in the public sector; inflation at 1.7% last month is the lowest for four years and is now below the Bank of England target of 2%; and it is now estimated that by the last quarter of 2014 the economy will be greater in size than it was before the 2008 collapse.
For the two coalition parties the political challenge is clear. The result of the Fixed-term Parliaments Act means that we now know that the date of the next election will be the first Thursday in May 2015. To do well in that election, both our parties will have to demonstrate that the economic policies of the coalition are working and that a return to a Labour Government would put the economic recovery at risk.
As noble Lords will be aware, the coalition has been successful in persuading the electorate that the financial crisis in 2008 was the result of the Labour Government’s profligacy. I accept that this is slightly unfair as it ignores the effect of the subprime mortgage collapse in the United States, but the success of the argument is demonstrated by polling figures, which have consistently shown that the Government are better trusted to manage the economy than Labour. Of course, Labour has not been helped by the refusal of the shadow Chancellor, Mr Balls, to show any remorse for Labour’s period of economic stewardship.
The major attack from Labour, which the noble Lord, Lord Hollick, touched on, has been that growth is not resulting in an improvement in living standards. There are probably two main reasons for this, of which only one is the direct result of government policies. Clearly, the increase in VAT to 20% had a significant impact on household budgets which is still working its way through, but the major factor outside government control which is not often mentioned has been a significant adverse movement in trade prices. As Ben Broadbent, a member of the Monetary Policy Committee, has recently noted, for many years the terms of trade were in our favour. The emergence of China as a source of cheap labour sharply reduced the real price of goods. Our trading strength lay in services, the price of which rose steadily. However, this trend started to reverse in 2003. Growing demand from emerging markets produced a large rise in the price of commodities, of which we are a net importer, and the price of tradable services rose less quickly. Therefore, after a decade in which global trends helped to push down the real price of consumption for UK consumers, the past 10 years have seen the opposite.
On both those issues, it seems that the news is quite good for the coalition. Indirect taxes such as VAT are under government control, so I would have thought that before the election the Government would be unlikely to increase direct taxes, as they did between 2009 and 2011. The cost of imports seems to have stabilised and the prices of our services have started to rise.
The second big political argument in recent months has been over spending plans for the five years after 2015. The legacy inherited by the coalition in 2010 was the double whammy of an unsustainable deficit of government spending over income and a crippling government debt burden. George Osborne and Danny Alexander, the two relevant Treasury Ministers, have committed their respective parties to further steps to eliminate the deficit and reduce debt after 2015, although naturally there are disagreements to come between the two parties as to how in practice this will be achieved. In the mix of tax increases and spending cuts, I suspect that the Tories will be more likely to avoid the former, whereas the Liberal Democrats will not wish to rely solely on the latter. However, the two parties are united in opposition to Ed Balls’s recent proposals, which appear to concentrate solely on deficit reduction, ignoring the debt burden.
Will the coalition parties be able to claim in a year’s time that the economy has recovered on their watch? The portents are good at present. The polls are indicating a surge in economic confidence from both business and the consumer. Surveys by the employer organisations indicate a significant increase in proposals to invest. Although the overwhelming factor in the return of growth obviously comes from what Keynes described as “animal spirits”, the Government can claim some credit. I have often thought of government policy as analogous to a swan, sailing serenely on while declaring that there is no alternative to the austerity programme but underneath the water the legs are paddling furiously to create initiatives to promote economic activity: infrastructure spending, with Crossrail the largest infrastructure scheme in Europe; the regional growth fund; the Green Investment Bank and the business bank; the development of an industrial strategy by the Department for Business, Innovation and Skills, with concentration on key areas of industry; and the stimulation of the housing market by the Help to Buy scheme.
So far as concerns the Labour attack on the reduction in living standards, which the noble Lord, Lord Hollick, referred to, I think that the news is also good. The increase in the personal allowance to £10,500 will clearly help the standard of living of the less well-off, and the improvement in living standards is beginning to show in the figures. The 1.7% headline rate of inflation was identical to the rise in pay in December and January. If you strip out the lumpy effect of bonuses, pay in January went up 1.8%, so incomes are now back to rising more than the rate of inflation.
Notwithstanding the return of confidence in the economy, I see two main pitfalls ahead. The first, to which the Minister referred, is our productivity record. Although real output is now more than 6% higher than in 2009, total real wages are lower. The feel-good factor from economic growth is not there, and by far the major factor in this has been the fall in productivity. Workers are simply producing less output than in the past. As the Minister indicated, a major key to increasing productivity and reversing the downward trend is more business investment, so the Government must pray that the confidence expressed in business surveys follows through to actual expenditure.
Secondly—I turn to a number of our Tory colleagues here—there is Europe. If the recovery in the eurozone stalls, as it is our biggest trading partner we will clearly feel the chill. More particularly, I have little doubt that if there is any chance of a referendum on Europe resulting in a vote to leave, business investment—the key to jobs and productivity increases, as we all accept—will falter. In 2012 for the first time ever Britain exported more cars than it imported. Can we imagine the multinational companies which own our major manufacturers committing significant new investment if they felt that the United Kingdom would leave the European Union?
My Lords, we spoke briefly before this debate started about the role of the Civil Service. The Minister probably sits in the same office in the Treasury that I once occupied, and I can imagine the process running up to the Treasury. Indeed, the noble Lord might even have had to go through the indignity that I went through of having to be photographed holding a blank document, this being the cover of the Budget document even before it had come back from the printer, while looking over the Chancellor’s shoulder and pointing at it, saying, “What wonderful proposals we have here”.
The Civil Service is extremely good at helping Ministers put a gloss on an indifferent story. It does it through statistics. The Minister referred to the growth in small business lending in the past 12 months. If he looked at the level of lending to small businesses in the past decade, or the past 20 or 30 years, he would note that it is still extremely low. There are carefully selected data. The Minister told us that output growth is at its strongest—indeed, it is the strongest of all the world’s developing nations. However, it is also a level of growth and achievement that is still lower than the pre-cyclical peak. We are the only economy still to be producing less than we produced in 2008. The Minister refers to reducing our dependence on debt but the OBR forecasts a further decline in the savings ratio.
The noble Lord, Lord Razzall, talked about inflation being back to forecast at 1.85%. He is correct in that, but it is 1.8% above a figure of 12 months ago, which was in itself 8% higher than inflation and prices would have been had we managed to achieve the 2% target throughout the period that the Government have been in office. This is just playing with statistics. The issues about cost of living and the squeezed middle arise because of the failure to keep inflation under control during the early years of this Government, when it consistently, over a period of 49 months, ran at a higher level than the 2% forecast.
There are some things in the Budget which I find commendable, such as the increase in capital allowances. I ask the Minister why it has taken such a long time to do this but it is entirely sensible, as is the increase in resource to the Department for Business, Innovation and Skills for export-led activity, albeit that it is an extraordinarily modest amount of money. Nevertheless, an extra £3 million advanced to UKTI can only be helpful.
Looked at from a macro perspective, the Budget has little economic consequence. It is a pre-election Budget. It is the last Budget we will have before the election that is likely to have any impact on voters’ expectations and general sense of confidence and well-being.
How is the Chancellor doing against his primary goal of eliminating the deficit? First of all, it was a pretty poor goal to set. The Minister, as a former partner of that eminent finance house, Goldman Sachs, will recognise the fundamental flaw in looking at only one side of the balance sheet, and yet that is what the Chancellor does. He does not have regard to public investment and he treats revenue and capital expenditure as the same. That has been the practice of Governments over many years and it leads to a failure to realise that there are extraordinarily attractive opportunities for public investment, particularly when interest rates are low and when public capital creation as a percentage of GDP is running at levels lower than at any time in the past 25 years.
The Minister deals regularly with financial institutions, seeking to persuade them to invest in infrastructure. I doubt very much whether he will say this but I suspect that, in his heart, he thinks that this is a wasted exercise. Quite frankly, the amount of money he has got into new investment, as opposed to buying investments made under previous Governments, is very small and the amount of risk transfer is almost zero. Why are the Government not spending more at a time when they are able to borrow at zero rates of interest for important capital projects? I am not talking about borrowing to support revenue projects. There is a need to get welfare expenditure under control. It was never the intention that people could make it a lifestyle option to live off the taxpayer through benefits. There is a need to get a grip on that and the Government are doing so. However, to conflate that with the issue of capital expenditure is clearly wrong.
I mentioned earlier obfuscation on statistics. The Chancellor said that he has reduced the deficit to 5.5% of GDP, compared to it being 11% when he came into office, claiming that he has halved the deficit. This is a sleight of hand, as any self-respecting economist would know. Even at our current levels, our deficit will be higher this year than the deficits in Greece, Italy and Ireland.
The OBR discloses the sleight of hand. If the deficit is adjusted for the cyclical recovery which has taken place, government borrowing figures are worse than they were 12 months ago. I do not think we heard the Chancellor say that in explicit terms when he spoke in the other place, nor have we heard anything close to that from the Minister.
The recovery, inasmuch as we have one, is built on candy floss. The upswing is cyclical in its source. This is not a recovery based on investment or exports. This is no march of the makers, as we were promised by the Chancellor. The labour market is tightening and capacity gaps are closing, yet business is sitting on huge cash balances. However, business chooses not to invest in new capital capacity because demand is being met at the moment by low-cost, low-productivity labour. It is simply easier for a business to meet any short-term increase in demand by employing more people on zero-hours contracts than to invest in important manufacturing capacity. The blame for that lies with the Government for not building the right environment for confident capital investment, and not least the Conservatives in government for the uncertainty they have unleashed over our future relationship with Europe.
The Minister talked about trends in productivity. Let me tell him that, since the end of the Second World War, labour productivity in this country has increased by 2.2% per annum. This is not significantly lower than our competitor nations. Our problem is not productivity of labour, but productivity of capital. However, labour productivity has not increased at all since 2007. Declining labour and capital productivity do not augur well for the future, and the impact is already with us in the declining share of world trade currently taken by the United Kingdom. I believe that this lack of confidence explains why SMEs are not borrowing. I wrestled with this when I was a Minister: was it that the banks were not willing to lend or was it that SMEs did not want to borrow? I have concluded that it is much more the latter than the former.
We have the wrong sort of growth, in the same way my doctor tells me that I have the wrong sort of cholesterol. We have growth that is based on a consumer boom that has been unleashed by low rates of interest and encouraged by a profligate and reckless Government who are stoking a boom in house prices and disregarding the inevitable consequences, while doing absolutely nothing to close the gap between the number of new family homes we need and the number being built.
Private sector debt as a percentage of GDP is rising, while government debt has doubled in the period that this Government have been in office. Debt will have risen to twice the level it previously stood at after 350 years of government: so much for their sound management of the nation’s finances.
I should like to close with a brief comment about quantitative easing. I was in office when QE was introduced, but I do not think any of us envisaged that it would last this long. A new deputy governor has been appointed at the Bank of England to look specifically at QE. Will the Minister give consideration to whether we should not seriously examine the possibility of off-setting the gilt-edged securities owned by the Government through the QE asset purchase programme against the gilts that were issued? Perhaps he would like to respond to me in writing on this. The first thing you do when you find that a company is in difficulties is say, “Pay off your debts with your surplus cash”. Why are the Government not doing this? It would reduce debt as a percentage of GDP at a stroke. The impact on inflation is likely to be low and could probably be handled through sterilisation activities in the money markets. This has not been publicly debated or raised as a possibility but, given the existence of surplus capacity in the economy and restrained inflationary pressure, I cannot see any significant reason why the Government should not look seriously at it as a possibility. The alternative, of seeking to sell the QE-purchased gilts back into the market while continuing to fund a deficit of 5.5% of GDP, is unthinkable.
My Lords, the reason that the Bishops sit on the government side of the Chamber, I am told, is the recognition that the task of government is so difficult that the Government need all the help available to them. Managing the economy in recent years has been an enormously difficult task and we can only express relief and, indeed, gratitude that things seem to be moving on to a more normal plane despite all the challenges ahead, about which the Chancellor himself is fairly candid.
The present Budget reminded me a bit more than its immediate predecessors of the iconic Budgets of the 1980s, with their emphasis on deregulation and personal freedom. There was a similar tone, which the unexpected radical announcement in relation to defined contribution pension savings illustrated. I have always been a cautious and strictly apolitical supporter of many of the policies introduced in the 1980s. I could recall only too well the moribund character of much of the 1960s and 1970s in my formative years. The British economy did need opening up in many of the ways achieved in the 1980s, and it was significant how few of the changes made then were actually reversed by the long subsequent period of Labour government, apart from an increasing trajectory for public borrowing, as has been noted.
However, an underlying problem of the past 30 years has been the difficult interplay of freedom and responsibility in our society. Greater freedom demands a greater degree of responsibility in the exercise of that freedom and in how to deal with its fruits, if it is genuinely to serve the common good, otherwise greater freedom is likely just to generate a greater selfishness and individualism in all its guises. The sense of necessary responsibility is something which not only individual citizens have to recognise but the institutions of society and, especially, Government themselves.
Any society which increases the degree of freedom available to its citizens is liable and likely to generate an increasing disparity between winners and losers. Some will take advantage of the new freedoms, and much greater and more concentrated levels of personal wealth will emerge, while others will tend to sink to the bottom of the pile and form part of a growing underclass. That seems to me to be just what we have seen in the past 30 years. At the top of the pile, the rich get seemingly ever richer; and if the plans for inheritance tax are brought in, wealth will tend to be even more entrenched in particular families. We are told that 30% of our income tax in the UK is collected from 1% of taxpayers. However, that can be presented in two entirely different ways: as evidence that the rich are indeed paying their fair share of our taxes but also as evidence of the very imbalances which I indicated just now between the rich and the poor. Both may have a degree of truth.
I speak of a growing underclass. What is the evidence? The prison population has doubled in the past 30 years. The problems of ingrained poverty in a benefits-dependent culture, which noble Lords have referred to, are a new set of problems for our society and are well recognised. There are stubbornly high figures for child poverty. Beyond economic measurement, there is the strong perception that social mobility in our society has actually tended to decrease. That was the subject of a five-hour debate in your Lordships’ House just two weeks ago, in relation to our education system. I was able to sit through much of the debate and was struck by the fact that at the end of the day, for all the fine talk, people did not really seem to understand or know why there had been this decline in social mobility or, indeed, where the answers might be found.
A few months ago, I heard the former boss of Tesco, Terry Leahy, on “Desert Island Discs”. At the end, he was asked whether, today, someone like him from a working-class estate in Liverpool might rise to an equivalent position. He said that it was possible but much less likely. The reason he gave was the absence today of the social institutions which surrounded his upbringing and protected and encouraged him: the family, the local church—in his case a Roman Catholic church—and other local institutions.
All these supported the schooling that he received. That brings me back to the Budget. If, as surely we all hope is the case, we are now at the beginning of a new period of economic growth and prosperity, how will we avoid some of the problems that we have seen in the past 30 years? I will briefly doff my mitre—an imaginary cloth mitre—in three directions.
First, we must all do what we can to support strong social institutions in our society. Unavoidably, that must include the family. Independent estimates tell us that the cost of family breakdown to the Exchequer is something like £45 billion a year, a figure that the noble Lord, Lord Freud, accepted a few weeks ago in response to a Question. Of course, families can take a variety of shapes and all deserve support. Indeed, all who care for children, whatever their immediate circumstances, deserve and need our complete support. I just do not think that we will achieve a strong and renewed sense of family life in our society without having, in some sense, marriage as a core institution in the spectrum of actual family relationships. The Budget includes a modest introduction of transferable allowances within marriage and civil partnerships as both a symbolic and an actual gesture, and that is to be welcomed. It is very modest and I hope it can be built upon in the future.
Secondly, we must welcome unreservedly the Government’s commitment to maintain the real value of our overseas aid programme. In an ever more globalised world, the great disparities in wealth will be an ever greater source of instability. The notion of the common good is not just a national idea; it is a transnational and international idea. Wealth always brings power, and lasting peace is ultimately built upon some form of power-sharing.
Finally, as I said earlier, freedom has its in-built dangers. I can welcome the deregulation of defined contribution pension savings but only if robust protections are put in place to safeguard people against the misuse of those freedoms—here I agree entirely with the noble Lord, Lord Hollick. These protections include much better education about financial realities at all levels of our society, from school upwards. I am always struck by how the younger generation seem not to have been taught to think about these things, but pension saving is, if nothing else, a very long-term requirement. One has to look only at the way in which payday loans have been advertised in our society to see the equivalent dangers that are going to arise.
Let us be clear: in the future most people in our country are going to have some form of defined contribution pension pot. That is the whole trajectory of pensions changes in recent years. Robust advice and information must surely be made widely available if these new freedoms are to end up being used responsibly and wisely and in genuinely serving the common good in our society.
My Lords, it is always a pleasure to hear the right reverend Prelate making his remarks in the House. Indeed, it is always a pleasure when there is more than one Bishop on the Benches. Of course, the original purpose of the Bishops being in the House of Lords was not for their spiritual qualities at all but because they were some of the great landowners in the country. Those days have gone but they still make a very useful contribution.
When I was Leader of the House, I had a meeting with the then Archbishop of Canterbury and said I thought that the Bishops ought to speak more often in the House; just coming here and saying prayers and doing nothing else was not good enough and they ought to be able to make more of it. These days they do and it is very welcome indeed, and what the right reverend Prelate said was absolutely right.
Of course, ever since I started to take an interest in Budgets and such matters, there has always been a debate as to whether Budgets themselves are useful and whether the debates that follow them are useful. The view was, and it is still held, that it is better that changes in taxation and so on are made separately when they are ready than for there to be the great anticipation of the Budget and then letdown. That has been so as far as I can remember: some people think that they are useful and some do not. The very first Budget that I ever heard was that of the noble Lord, Lord Healey, in 1974—it was lovely to see him here in the House the other day. I was then a new Member of Parliament and on a committee in the House of Commons chaired by, as some people will remember, Ian Mikardo. He called a meeting of the committee to coincide with the Budget Statement. I went to him and I said, “I want to listen to the Budget and I actually want to make my maiden speech later on that day if I can”. He said, “Well, you’ll learn better as you’ve been around a bit longer, but I understand. If that’s what you want, I’ll change the meeting of the committee so that you can listen to the Budget”. Ian Mikardo said—as he used to say to everybody: “I’m not nearly as nasty a man as I look”. So he agreed to that and we got on extremely well.
The second moment in all these 40 years that I remember is that Budgets can occasionally be used for demonstrations. I remember the 1988 Budget, the first Budget of my noble friend Lord Lawson. At the crucial time in the Budget when he was announcing very substantial tax reductions, the honourable Member for Banff and Buchan, one Alex Salmond, rose up in absolute fury at these proposals, shouting, “Outrageous! Outrageous! Outrageous!” and the Speaker had no option but to name him. I was then the Leader of the House and had to move the Motion that the honourable Member be excluded. He was thrown out in the middle of the Budget debate for not being able to accept the fact that we were reducing taxation. That was Alex Salmond in those days. Mind you, I was an expert at that, because I happen to have thrown more people out of the House of Commons on Motions than any other Leader of the House since the war, which I think is a really obscure record.
However, I do not think that this Budget, whether you approve it or not, is likely to be forgotten, because it contains some substantial and important points, in particular the long overdue changes to the savings and pensions regime. I was very pleased that that was done and, what is more, that it seems to have been universally accepted across the nation. That is also a very good sign in a Budget. I am not sure that I agree with the noble Lords, Lord Hollick and Lord Myners, on this. In my view, the savings ratio will improve as people realise that they have a much better arrangement for dealing with their savings than they had. I think that the measure will be a great encouragement. I guess that those who sell annuities will be busy mopping up the last of the defined-benefit schemes from companies that still have them.
I do not think that we could have expected there to be any greater changes in the tax regime in this country, but, much as I would like tax rates to be reduced, I would like Chancellors not necessarily to reduce taxes but to get them on to a better basis. Nearly all our taxes have some serious flaws in them at whatever rate they are. For example, I have nothing against capital gains tax—it is an essential part of the process—but very much of our capital gains tax is taxing inflation. We should be able to find a better way of taxing real capital gains than taxing inflation. Let us look at stamp duty. I was in the Treasury 30 years ago, probably in the same office as the Minister—it might have had a coat of paint on it since I was there. I am told that it has not; it used to have terrible lino on the floor in my day. I tried to persuade the officials in the Treasury that stamp duty was a bad tax. It is a tax on change, and we want to encourage change, but the Treasury looks at it another way and says that it is a jolly good, easy tax to collect. That is why it is very difficult to get a rational discussion about stamp duty, but somebody has to face up to the fact that it is not a good, helpful tax.
I am delighted that the Prime Minister said that he hoped to have a look at inheritance tax in the near future, because, again, there are illogicalities in that which need in this day and age to be looked at. Of course, I would like all the taxes to be down—most people would—but there are exemptions and all sorts of things which should not be in a modern tax system.
The view I take is that we have had a good Budget Statement. I am not convinced that we can do away with Budgets—I fear that we are going to have them for much longer and they are often constructive—but I hope that my right honourable friend the Chancellor will continue to tackle the anomalies that are in the tax system to get them on a more logical and reasonable basis.
My Lords, as with the eager anticipation of the first cuckoo of spring, we have been greeted in recent days by the suggestion of some stirrings—this time amidst our economy—and it would be entirely churlish of noble Lords in all parts of this House, including on these Benches, to seem reluctant to acknowledge such stirrings.
So what have we been told? Well, supposedly, growth is now well and truly back. Sales are up; house prices are flying again; and unemployment is falling. One can almost feel Sir Humphrey striding in with a beaming face and announcing, “I have good news, Minister”.
Might this just be an appropriate moment then for the Prime Minister’s own, dignified yardstick for recovery to be the appropriate measure for improvement rather than excitable pundits and pre-election spin? This is what the Prime Minister said when he came into office four years ago:
“We want to create a … more balanced economy, where we are not so dependent on a narrow range of economic sectors …We will support sustainable growth and enterprise, balanced across all regions and all industries”.
He went on to say that the Government’s most urgent task was to tackle our public debt.
With the Prime Minister’s own scorecard before us, what do we see? I regret to say that we see telltale signs of headline growth which do not give the full picture. Yes, of course, we can tackle a range of economic indices over the short term and, these days, you do that with that deadly cocktail of cheap credit and government debt, laced with, as the noble Lord, Lord Myners, artfully pointed out, a dash of presentational panache. That cocktail is exactly what lies beneath last week’s excitement. As a recent column put it, we have become,
“drugged up on cheap money, subsidised credit and rock-bottom interest rates”.
What about those two measures that the Prime Minister rightly put to us: reduction of public debt and rebalancing? While there has been much talk of paying down debt, according to both ONS statements and the most recent OBR forecast, net sector public debt is expected to rise from £1.2 trillion in 2014 to £1.5 trillion in 2018. This year alone, the Government are likely to spend £100 billion more than they take.
Equally worrying is how short we have fallen measured against the Prime Minister’s second yardstick: rebalancing in general and, as we have heard in this House today from my noble friend Lord Hollick, productivity in particular. We have heard so much about rebalancing our economy in the past few years. Now that the growth siren is being sounded, it is hardly the balanced version. I said earlier that the Government would hold themselves to account against economic rebalancing between sectors and regions. That is not happening. We can all admire the crispest of last week’s soundbites—“We must make more, build more, produce more”—but the hard fact is that there are few signs of this kind of serious investment in machines, infrastructure and skills which produces the kinds of shift that the Minister spoke of. We are still waiting for business seriously to rebound. In the mean time, infrastructure investment, as the noble Lord, Lord Myners, pointed out, proceeds slowly, most of it being in the south-east. Let us consider this analysis in the recent IPPR research on transport, which states that,
“where transport infrastructure projects involve public sector spending … the spend per head of population is £2,595.68 in London but just £5.01 per head in the North East”.
This is not rebalancing, neither by region nor by sector. There is, truly, no march of the makers. Growth, such as it is, is being led by the south-east and by business services. That makes it vulnerable, and much of the country is not feeling the benefit.
Why are those headline numbers ultimately so worrying for us? Because, at their heart, they do not sufficiently fire the single most important engine of sustainable growth, that which has been referred to so freely in the House today—productivity. Indeed, the Minister acknowledged the importance of that. The productivity gap is back with a vengeance. Our workforce is once again 25% less productive than France and Germany and even further—29%—behind the United States. Hence, the recovery, regrettably, is not what it seems. As my noble friend Lord Hollick said, many of the jobs being created, which produce falling unemployment statistics, while low wage, often part time, make little of our country’s talents and, let us be frank, are undignified, let alone not doing anything for the sustainable growth that the Prime Minister spoke of. Low-paying, low-productivity jobs are the sign of a troubled economy, not a healthy one, however helpful they are to pre-election unemployment statistics.
The trap set for the economy—inadvertently, perhaps—is the inevitable crushing headache that results from too much of the cocktail referred to earlier. It is the headache of short-term flickers. We know that for the economy to be resilient and the recovery to follow it, it must travel to sustainable economic growth via innovation—a reference that the Minister made earlier. We know the facts. Innovating businesses create more jobs and grow faster. Two-thirds of the productivity in this country, according to NESTA’s index, is the result of innovation.
Innovation as a national strategy, as we have seen around the world, is surely the most important driver of long-term prosperity. We know exactly why: because those two elusive measures to which the Prime Minister referred of rebalancing and productivity are at the heart of an innovation economy. Look at the three areas of our emerging competitive advantage today. First, there are the big differentiators: advanced manufacturing, aerospace and pharma. Secondly, there are the smaller fields of video games, visual effects, design and the creative industries. Thirdly, there are the potential golden eggs of the economic future: graphene and biotech. Once you look deeper at those real engines of growth, not just the sectors but the firms, a picture emerges and all the evidence shows that innovative, high-growth firms create the high-productivity jobs of the future. Some 7% of businesses in the UK classified as high growth in the past decade are responsible for half the new jobs.
What do those firms all seem to have in common? Again, the evidence is clear. They are not concentrated in particular sectors. Pleasingly, they are not found predominantly in one part of the country. That is good news when it comes to rebalancing. Rather, one factor links them all: they are disproportionately likely to innovate. Those pockets of the innovation economy, from semiconductor clusters in the south-west of England to the creative industry hopes of the east of Scotland, will be the heartbeat of any sustainable recovery.
We know that the most imaginative global economies—the US, Finland, Korea and Israel—have substantial measures of supportive public policy and effective financing to drive their innovative capacities. They have active, assertive, long-term, growth-oriented government. So, although modest measures in that regard were welcomed last week, I fear that they do little to attack the real causes of low productivity in the UK.
Then there comes the rhythm of announcements. Consider the new graphene centre, but this time against the science capital budget dramatically, drastically cut in 2010, followed by a series of small new initiatives in subsequent years that account for a tiny fraction of the amount previously cut. These are pinpricks in comparison to the opportunity and the need. For example, what progress has been made in using government procurement budgets to drive innovation in our businesses? Such a move—as the Minister acknowledges, at no extra cost—will have a transformational impact. For example, 2% of government procurement towards innovative businesses would be an extraordinarily potent measure.
I fear that such ambition comes second, certainly over the next 12 months, to the lure of the announcement. Too many timid programmes, often disconnected, are launched with fanfare and quietly closed 18 months later. We would instead hope for an assertive, ambitious national programme running right through government which drives the innovation revolution and would produce the type of real, sustainable growth that all parts of the House want.
My Lords, there is a scene in Quentin Tarantino’s film “Pulp Fiction” in which the heroine collapses into a drugs overdose. Dramatic action is needed, so the hero stabs her heart with an adrenaline shot. Between 1986 and 2008, the banking system overdosed. Bankers were out of control; politicians failed to regulate the system. The result, as your Lordships know, was a financial heart attack. Since then, the system has had continuous doses of adrenaline to its heart via quantitative easing.
Recent economic data appear to show a recovery. As we have heard, the economy is growing, the deficit is down, inflation is improving and employment is rising. We seem to be on the road to recovery, but the recovery is modest relative to the amount of financial medicine which has been administered. GDP is still 1% lower than at its pre-crisis peak. Five years into the recoveries of the 1980s and 1990s, it had risen by 15% and 19%. We also now have the new phenomenon of underemployment, and wages continue to fall year on year. As a result, household debt remains high and money lenders are busy.
In other words, the financial adrenaline has not really worked as expected. Although progress has been made, the patient is not yet out of the recovery room. Why? As several noble Lords have already so eloquently explained, people seem frightened to invest long-term or in improving productivity. Exports are poor. Instead, money has gone on consumption: share buybacks and housing. As a result, those markets have inflated and housing is now unaffordable in certain parts of London. The situation is compounded by interest rates at 0.5%. In contrast, the recoveries of the 1980s and 1990s started with average rates of 9% and 13% respectively. A low base rate is another form of emergency medicine. Like quantitative easing, it cannot be sustained. At some stage, rates will have to normalise. What will happen to mortgage holders and small businesses then?
As your Lordships know, economics is both art and science; there are many views. Some believe that we are now in a phase of stagnation similar to that suffered by Japan over the past 25 years—the Japanification of the UK. As a businessman trained to look at the downside, it may be worth briefly exploring that scenario. The intersection where politics meets economics provides a good starting point. How does the way we conduct politics affect the economic decisions that we take?
I have three points for your Lordships’ consideration. First, there is the difficulty that politicians face in speaking plainly about the choices before us. That is because the short-term demands of modern democratic politics outweigh the need to plan long-term in economics. Political careers are short; economic issues are not. Secondly, I would cite the adversarial nature of our politics. PMQs makes for good viewing but it is unclear exactly what it achieves. We have seen how political rancour in the United States has threatened economic stability. The third issue is the lack of expertise in certain areas within the system and the political difficulty of hiring high-level professionals on private-sector-type pay packages.
I believe that voters sense those issues, particularly the tension between the promises that politicians make and their ability to deliver. It is perhaps this which accounts for the disquiet with certain aspects of our system.
There are no easy answers. However, in the event of a stagnation, it may be necessary to reconsider the way that we conduct our politics. I wonder whether a policy of “hiring the best” might lead to big changes in procurement, infrastructure, reform of our tax code and bringing housing development forward. I know that reform of the confrontational political system is anathema to many—but perhaps a circular debating Chamber would lead to a more thoughtful exchange. Would a modernised form of royal commission help solve the great imponderables of the long-term future of the NHS and of the welfare and pensions systems? What of other benefits in this redrawn landscape, such as the extinction of political cliché? Imagine our world free of the words “change”, “fairness” and “one nation”.
Another film by Quentin Tarantino depicts people adapting to their circumstances in times of war. That is what our leaders did a century ago to fight the Great War. Perhaps the battlefield ahead is economic, not military. In that event, we may need to reshape our politics to meet this challenge.
My Lords, I rise to address a widespread concern about a single sector of our economy, the NHS, and to pursue the statement from the chair of the Royal College of General Practitioners, Dr Maureen Baker, who described the Chancellor’s Budget as,
“yet another blow for patients and for general practice”.
I should declare my interest in the NHS.
General practice provides about 90% of all NHS patient contacts and yet its funding now stands at an all-time low of 8.39% of the NHS budget. People justify the squeeze on GPs because they had a good pay rise in the 2004 contract. We need to remember why that increase occurred. At the time there was a recruitment crisis in general practice and GPs’ incomes had fallen behind those of comparable professional groups. This was a catch-up settlement. Since then GPs’ pay has fallen by 11% in the four years 2008 to 2012, and we are now back in the situation we had in 2004—a recruitment and retention crisis. Advertisements for GPs which five years ago would have generated 40 to 50 responses now generate none or possibly one. Young doctors who would have become GPs four or five years ago are now looking for jobs abroad. Indeed, they are looking for careers abroad; they are not going to come back. At the other end of their careers many GPs are retiring—far too many—at the age of 50. The inevitable results are delayed hospital admissions and more expensive and prolonged hospital treatments due to delayed interventions. These unnecessary hospital expenditures absorb excessive funds and lead to further cuts to primary care, and so the downward spiral continues.
A recent King’s Fund report points to the growing consensus that if we are ever to sort out the demands of an increasing and ageing population at a time of financial constraint, the NHS must deliver services closer to people’s homes and focus more on prevention rather than simply treating people in hospital down the line. The funding crisis is undermining this objective and indeed threatening the capacity of the NHS as a whole to meet the challenges ahead.
Some may argue that this is a matter for the Department of Health and the distribution of funds within the NHS. That is only partly true. My concern is that the overall funding of the NHS is the problem. The demand for the NHS to find £20 billion of so-called productivity improvements by 2015 has, in fact, led to swingeing cuts alongside efficiency savings.
The NHS chief executive, Sir David Nicholson, recently pointed out that although politicians say that the NHS has been protected financially, this is only relative to the extraordinary level of real cuts in other public services, and crucially, neglects the growth in the demand for healthcare—which, of course, always rises due to demographic changes and other factors. Also in 2015-16, around £3.8 billion, or 3.3% of the entire NHS budget, will be transferred from the NHS to local government as part of the ring-fenced “integration transformation fund”. There will in fact be a 2% real-terms cut in the healthcare budget in 2015-16; and we will have had a real-terms cut of 1.4% for the period from 2009-10 to 2015-16. The NHS is therefore expected to meet the demands of more and more people with less and less money. By international standards, the NHS is, as we know, a low-cost service.
The only way that such huge cuts could be achieved while improving or at least maintaining the quality of service to patients would be through major reconfigurations of services. However, progress with these essential changes is hampered by the activities of the competition authorities and the tendency of politicians to fight to preserve local services even when these are not viable.
To add to the pressures on GPs, £104 million of this year’s savings by local authorities is coming from the direct withdrawal of services. The number of district nurses has plummeted by 40% in the past decade—and as always when these things happen, the buck seems to stop with the GP. Some 87% of councils now respond only to needs classified as “substantial” or “critical” under the fair access to care criteria. As a result, the number of older people receiving publicly funded services has fallen by 26% since 2009-10. The decline has been 21% for working age adults. What this does to the economy as more and more people are sick and not obtaining treatment does not bear thinking about.
As a result of all this, GPs are experiencing ballooning workloads. It is apparently quite normal for a GP not only to work 11 to 12 hours a day—as many of us do—but to deal with 60 patients per day, some over the phone but most of them face to face. GPs regularly do this, day after day. I regard it as unacceptable to expect any human being to make complex and responsible decisions in relation to so many people each day. Any of those 60 people might be facing a life or death situation and the wrong decision could, in fact, cause them to die. The reality is that errors will be made. Patients will suffer as a direct result of the financial pressure on the NHS and therefore upon general practice. Some 49% of GPs say they feel they can no longer guarantee safe care for their patients. If our health service collapses the Government will find it incredibly difficult to achieve any of the objectives that the Minister set out today.
Any opinion poll will tell the Chancellor that rectifying the problem and reducing the risks to patients is a top priority for voters, and yet there was nothing in the Budget to alleviate these problems. I appeal to the Minister to draw these concerns to the attention of the Chancellor.
My Lords, I thank the Minister for launching this debate. Indeed, it is difficult to think of a more significant debate. If we want a world-class health service, world-class education and world-class transport, we can get them only if they are founded on a world-class economy.
Last week’s Budget was about jobs, business and Britain, so let us consider the employment figures that were issued that day. They showed that more people in this country are in work than ever before—more people employed in the private sector than ever before, and, best of all, more women in employment than ever before. These are not just figures that we can bandy around or statistics for economists to consider; these are real people’s lives. We have higher employment, lower unemployment and more people on the right path in this country as a result of the measures that have been taken since 2010. But let us not take the words of politicians or pundits, or even the words of economists. Let us trust business.
The day after the Budget, as has been mentioned, Hitachi announced that it was going to base its global—yes, its global—rail business in the country. A few days later, Siemens announced investment that will create more than 1,000 jobs in renewables. Business believes in Britain. We should similarly believe in and back business to invest in this country. To secure jobs is one thing but we should also focus relentlessly on building up skills and talents, particularly in our young people—training them to be able to take up these jobs, not least in engineering and manufacturing. In that, we should all pay tribute to my noble friend Lord Baker of Dorking for his work with university technical colleges. I should mention also the JCB Academy and the work of my noble friend Lord Bamford. These initiatives are making a difference.
If Hitachi and Siemens demonstrate that businesses are coming to Britain and want to base their operations here, we also need to act to ensure that British business gets the best bang abroad. What we saw in the Budget was a real commitment in doubling the funding for exporters to £3 billion and cutting the interest that they will pay by one-third. This is urgent and necessary, and it will make a difference. For too long, we have relied on the European market. Europe takes 40% of our exports but when I studied economics Europe took around two-thirds of our exports. We can see the way that that market is going. However, it is still a significant market and we are focusing on getting our businesses into every corner of it.
We are still so far away from grasping the prize that the BRICS economies and the so-called new MINT economies offer to us. The “Great” campaign from the Foreign and Commonwealth Office and BIS is significant in this area but we are starting from such a low base. When I was in Rio in 2011 with the “Great” campaign, I discovered that we export four times less to Brazil than Italy does. Italy is a fine country but it is one with no language, cultural or historical links to Brazil. Yet through effort and connection it has made that happen. It exports four times more to Brazil than the United Kingdom. The BRICS economies and the MINT economies are there for us. The whole of Africa is there for us to ensure that we put everything in place to enable our businesses to go out there and do the business.
The Budget threw a helpful and necessary light on pensions. In reality, it was seeking to address people’s trust in pensions. Over the past week, reports of the death of the annuity have been greatly exaggerated. The annuity is a fine financial vehicle for delivering certainty, security and a de-risked retirement. I do not believe that the changes introduced in last week’s Budget will mark the death knell of the annuity. It will still be a product into which millions will decide to put their funds but the crucial point is that it gives individuals the choice of when to take a particular financial vehicle, how much to put into it and what to do with their savings, which they have been building up for decades. This is about freedom and choice. Crucially, it is about trusting us all, as individuals and across the country—everyone with a DC pension pot—to do the right thing.
The Budget was about belief in the individual. If the right environment is put in place, people up and down the country—all of us—and businesses will do the right thing. Businesses will invest and back their workforces. They will get out there and build, make, manufacture and export. It was a Budget that believed in Britain, rooted in the reality that we are at our most brilliant and best when we work together and come together. We saw this in 2012 with the Olympic and Paralympic Games, so excellently steered by my noble friend the Minister. We see it across the country, in the smallest economic and social acts and in communities and businesses, from Inverness to St Ives. We are at our best and we are better together. Together, we all need to continue on this journey to try to secure and sustain Britain’s economy. We are on the right road but we have barely begun the journey. It is in everyone’s best interests, whichever corner of the country or perspective you come from, to have a high-employment, low-inflation, high-productivity and low-interest rate United Kingdom economy that is focused on and fit for a national, European and global future.
My Lords, it is a pleasure to speak in this debate, which is my third successive Budget debate, and I am sure it will come as no surprise if I focus much of my attention on the parts of the Budget that relate to energy and the environment. However, if noble Lords will bear with me I will begin with a more general observation.
I watched the Chancellor of the Exchequer last week and have listened to the Minister this afternoon, and I congratulate them both on eloquently presenting a very seductive argument: “We, the Government, have been making the hard decisions to get us to live within our means and so reduce our deficit, grow the economy and give everyone a higher standard of living as a result”. How appealing—what Government would not wish to try to achieve those aims? The problem, as the noble Lords, Lord Hollick and Lord Myners, have eloquently pointed out, is that it is easy to say one thing but then do something else. This Government have shown that they have not learnt from past mistakes and are instead relying on sleight of hand to boost the economy, creating another unsustainable housing bubble, increasing government debt and shifting borrowing on to the private sector, where it will necessarily cost more. The Government have also avoided making the tough decisions needed to make our economy resilient for the future. That is nowhere more evident than in the case of energy policy.
The truth is that most people’s judgment of how well they are faring is not measured by one simplistic GDP growth metric. Their sense of security and optimism for the future is determined by a complex mixture of factors, including the extent to which social capital and cohesion are being maintained and how much they believe that the Government are standing up for their interests, now and in the future. That our economy is finally clawing its way back to good health despite, rather than because of, this Government’s actions is good news. However, there is a huge way to go before that will be felt by everyone, up and down the country, and an even longer way to go before the Government can claim to be tackling the really big challenges facing this country.
A good example of the Government’s, and in particular the Treasury’s, failure to accept and tackle big challenges is provided by the response in the Budget to the dreadful floods that we experienced this winter. By necessity, this Budget included a £140 million fund for repairs to flood defences and a further £200 million for pothole repairs—a problem exacerbated by the extreme weather that we experienced. We can expect these sorts of cost to increase over time as the impacts of climate change become more apparent.
However, until recently, spending under this Government on flood defences was in decline. At the time of the floods, the Prime Minister acknowledged that climate change was one of the most significant threats we face. However, in this Budget, in which a whole section is devoted to risk, there is scarcely one mention of climate change and none at all of the singularly high exposure of the UK Stock Exchange to international coal assets that risk becoming stranded assets, significantly devalued as the world collectively starts to take action to reduce its emissions of greenhouse gases. Taken overall, this appears to be one of the least green Budgets produced in recent times, from the supposedly greenest Government ever. Is it perhaps the case that the Prime Minister and the Chancellor do not see eye to eye on this issue? If this is so—and I believe it is—is it therefore any surprise that investors have no idea what they should believe or trust in when making their investment decisions?
As graciously acknowledged by the Minister, 12 months ago the focus of my speech was on the fact that the Chancellor had failed to mention a new inflationary tax on electricity, which began in April last year and was set to double year-on-year, raising the Treasury around £4 billion from electricity bill payers over just three years. This year, this almost universally disliked policy did warrant a mention, only for it to be announced that, less than a year after it started, the policy has been changed and the tax frozen. The curious thing is that the Chancellor now appears to be seeking credit for reducing the impact of a tax that he introduced which distorts competition against our European neighbours and, even in its frozen state, will still add around £9 per megawatt hour, taking an estimated £1.5 billion per annum off bill payers for no obvious purpose other than revenue raising. Attempts have been made to justify this tax on the basis that it will encourage investment in low-carbon infrastructure. The fact that it is has already been so drastically altered, and that this was always likely to be the case given how poorly thought through it was, simply serves to confirm that no investor worth his salt would put any store by it at all.
Given the pressure the Government were under before the Autumn Statement to reduce electricity bills, I am also curious to know why the announced change was not trailed at that time. I can only conclude that it was because the Government’s Energy Bill was still being debated in this House. The one purpose it could be argued that this tax—known as the carbon price floor—was performing was to help return gas-fired power stations to a state of profitability relative to coal stations. The plight of gas and the roll back to old unabated coal was repeatedly raised as a concern in this House. With the carbon price support now frozen, the roll back to coal is much more likely. A cynic might argue that, because of this tax, the Treasury now has an incentive to protect the rich revenues being generated from our ageing and inefficient coal stations. It is now in the Treasury’s interests to maintain them for as long as possible in a state of suspended animation. Perhaps this explains the expunging of any real mention of climate change from this Budget.
The problem is that, in addition to being huge contributors to climate change, unabated coal stations also contribute massively to poor air quality and diminished human health and so are rightly subjected to regulations requiring that they be cleaned up. Meeting these regulations would require investment over the next few years that will only ever patch up these stations for another decade or so at the expense of more long-sighted investment in low-carbon alternatives, which will last for many decades. This kind of short-term investment will deteriorate our productivity by decreasing the efficiency of our electricity fleet still further—more inputs of coal but fewer outputs of kilowatt hours. How will this help address our productivity challenge? Thanks to the frozen carbon price support, the investment will not even ensure prices are lower, since the big six can happily pass the costs of this tax on to the consumer for as long as they remain vertically integrated. There we have it: the Government’s ideology in a nutshell—failing to make the difficult decisions, failing to stand up to vested interests and favouring a short-term quick fix over doing the right thing in the longer term.
If this stop-start policy on energy were affecting only gas and coal investments that would be bad enough. However, the change of heart will also have an impact on investment in renewables and nuclear. The Energy Act, which we worked so hard to try to improve last year—to no avail—introduces new support mechanisms for these technologies but the level of that support is capped by the Treasury through the levy control framework. The level of that cap was set on the assumption that this electricity tax would proceed as announced last Budget. This is no longer the case. Therefore, the cap is very likely to be insufficient to support the level of investment needed to meet our targets. Can the Minister reassure the House that when it states in the Budget that,
“the buying power of the Levy Control Framework will be unaffected by other Budget decisions”,
this means the basis on which the framework was calculated will be revised? If this is true, when might we hear from the Treasury what that new level will be? If it is unchanged, I fear we will have wasted a great many hours of parliamentary time last year labouring under false pretences. An unchanged cap on the amount of support for energy market reforms will inevitably lead to the cannibalising of one low-carbon technology by the other, with existing coal stations carrying on unaffected, paying into the Treasury coffers but damaging our resource efficiency, our climate and our health.
There are signs that this is already happening, with plans to convert Eggborough, a coal station, into biomass having been derailed and a dedicated biomass plant being dropped. Despite the welcome announcement from Siemens this week that it will build a manufacturing plant for offshore wind in Britain, even offshore wind farms are being discarded. Meanwhile the great white hope of Hinkley Point nuclear power station—a project the Minister is well acquainted with—has run into state aid problems, potentially causing the construction timeline to slip even before it has begun. The most depressing aspect of all of this is that had the Treasury and DECC listened to the debate in this House and accepted more amendments, including the one that was won here to introduce a more cost-effective policy to constrain unabated coal and boost investment in all alternatives, we would not be in this predicament.
Rather than showing that this Government are up to the task of tackling the long-term challenges facing this country, this is a Budget based on short-term thinking and a misreading of where our future prosperity lies. Rather than learning from the past, they appear to trying to reproduce it by fuelling another dangerous housing boom, pursuing the chimera of growth based on oil and gas—that is clearly no longer cheap or easy to extract—and failing to understand that we are stronger as a country when we acknowledge and face up to the real global challenges ahead of us that we cannot escape. I hope that before this Government leave office, which, given their short-term thinking, they seem to have accepted is likely to be very soon, we will see a Budget that is genuinely sustainable and wholeheartedly embraces the benefits brought by the low-carbon industrial revolution that we are now embarked on, as we lead the world in tackling climate change.
My Lords, the prophet Jeremiah wrote a short but remarkable letter to his contemporaries long ago who had been sent into exile in Babylon. The letter has shaped Jewish and Christian thought on how communities of faith should engage with the wider society down all the generations since. The prophet’s advice is to,
“seek the welfare of the city where I have sent you … for in its welfare you will find your welfare”.
On behalf of all on these Benches, I warmly welcome the evidence of economic growth and I welcome the measures taken in the Budget to deepen that recovery. With my right reverend friend the Bishop of Chester I warmly welcome the reaffirmation by the Chancellor of our country’s commitment to spend 0.7% of our national income on overseas development.
The grant of £20 million for the maintenance and repair of our nation’s cathedrals is also hugely welcome. Our cathedrals contribute to the common good as places of worship, meeting points, and agents of regeneration and support for those in need. Sheffield Cathedral is currently completing a major reordering project. It strives to be a place for all the people of the city and is home to the Archer Project, which cares for the homeless on a daily basis.
Along with many on these Benches, I urge the Government to pay much closer attention to the effect of the cuts in government spending on the poorest in society. However, my appeal to the Government and to this House today is that measures are taken to ensure that growth in the economy is rebalanced to benefit not just a single city but the whole of the United Kingdom. Britain has one of the world’s truly global cities, London, where the economy is undoubtedly growing and investment is focused. We should all welcome that growth but too many of our urban areas outside London are failing to achieve their growth potential. Since 2010, 79% of private sector jobs growth has occurred in London but, in the same period, Britain’s next nine largest cities accounted for just 10% of all new private sector jobs created, according to the Centre for Cities report this year.
Regional imbalances have serious consequences for our overall economy. We are not releasing the creative potential of our great cities to the benefit of their regions and the nation. This has serious consequences for the well-being of many. Youth unemployment and underemployment, for example, is a major challenge in South Yorkshire and blights many lives. As the recent Sheffield Fairness Commission powerfully illustrated, inequality between and within regions and cities has serious consequences for the overall sense of cohesion and fairness of life in the United Kingdom.
The imbalance of growth by region is leading to a widening of the economic gap not only between London and the rest of the country but also between what city regions, such as Sheffield, contribute to the national economy and what they could contribute. As our economy begins to recover, I urge the Government and your Lordships’ House to give serious and strategic attention to the question of what kind of economic growth we want and how we achieve a more balanced economic recovery across the regions. This would be a suitable and urgent subject for a cross-party parliamentary commission or working group looking ahead five, 10 or more years.
There are a number of urgent areas which such a group or commission needs to address. We need to rebalance our economy back towards manufacturing. I welcome the significant measures in the Budget which support this. More is needed. The current Sheffield Master Cutler has put forward a strong case for an independent office for manufacturing competitiveness mirroring the recently established Office for Budget Responsibility.
We need to strengthen further the links between universities, research and industry, as commended by the recent Witty report. The Advanced Manufacturing Research Centre in Sheffield is a model for the future. It is a partnership between the University of Sheffield, Boeing, Rolls-Royce and other leading companies. The centre is attracting manufacturing and production back to the United Kingdom by research-led innovation and stimulating investment and growth. This year, the centre launched an innovative apprenticeship scheme with 150 new places this year and another 250 in each year to come.
We need to develop patterns of regional collaboration and growth between cities, particularly in the north of England. We need a major shift in the balance of power to make decisions and determine investment between national and local government. The United Kingdom is one of the most centralised economies in the world. Local authorities control just 5% of money raised locally through taxation. The OECD average is 25%.
Finally, we need a significant shift in the proportion of central government expenditure and resource allocation back to the regions. The large cities of the north of England have been disproportionately hit by reductions in local government spending and in investment in transport, culture and the arts and in other areas. If we do nothing, we will see the gap between London and the regions continue to widen to the detriment of the whole country. I urge the Government and this House to address this problem with imagination, courage and vigour and develop a strategy which will rebalance economic growth across the whole of our nation.
My Lords, it is often said of my former constituency of Worthing that people go there to die and forget what they came for, and there is some considerable truth in that. Many people have come to Worthing to retire, and many of them have provided for their retirement by saving and have been extremely prudent. It has therefore been quite heartbreaking for them to find themselves in the situation that has existed for the past five years or so, and I do not understand how some of them have continued to exist, given the appallingly low rate of return which they have had on their savings.
We understand very well why it has been necessary to deal with the problems of economic management. You cannot take the fiscal measures you would like to take because of the deficit, and therefore you have to resort to monetary measures, so interest rates have been as low. But none the less we have tended to ignore the effect which these low interest rates have had both on pensioners and on savings. Therefore, I believe that this Budget is the Budget they have been waiting for. At long last, something is being done to help them. Some of the measures are quite direct: the abolition of the 10% rate on savings income and the introduction of a pension bond which will give a rate of return significantly higher than market rates.
The overall Budget is extremely imaginative. I was very surprised by one of the BBC commentators who said that it will be seen as a run-of-the-mill Budget. I think it will be a Budget that many people will remember as an extraordinarily imaginative Budget, given the fact that the Chancellor has virtually nothing to give away. He has taken steps, particularly in the annuities market, that will give people a great deal more freedom. In that respect, I shall make one point. There has been some suggestion that people in final salary schemes—the few schemes that survived Gordon Brown’s effect on final salary schemes—should switch into a defined contribution scheme and take advantage of the Budget. That would be wrong. They would do much better to stay where they are in the final salary scheme. On that side of things, the Chancellor has been very helpful.
There are other measures, for example the doubling of the investment allowance, which will certainly aid the recovery of the economy. I feel bound to say that, welcome though it is, much of the investment coming in is from overseas, and we still find ourselves in a situation where investment from domestic sources, despite the huge cash balances flushing around the economy at the moment, is not really coming. At all events, the investment allowances will help.
The coalition Government’s overwhelming priority—and I pay tribute to the fact that they have been unanimous on this—has been to reduce the deficit. As I have pointed out on previous occasions, saying we have cut it by a third means that we are still borrowing at two-thirds of the appalling rate of the previous Government, with a huge increase in underlying debt, which has been referred to by a number of other speakers. Although we have not made progress as fast as we would have liked, we are moving towards the deficit having been reduced by 50%. The target for abolishing the deficit has moved back but is, none the less, coming into sight.
What I really welcome is the statement made by my noble friend this afternoon, which I do not think anyone else has made from the ministerial Bench. He said that what we have to do is not to move towards reducing the deficit but towards a surplus, because that is the only way in which we will reduce the total actual debt, rather than the deficit, which will be inherited by our children.
Other aspects of the issue are relevant. The savings ratio, in particular, has been referred to. As was pointed out in the OBR report, it has fallen to 5% from 7.2% in 2012. To some extent, that change reflects increased borrowing and expenditure, which has led to part of the recovery over the past year or so. The savings ratio is beginning to go up again, but again the measures in the Budget will help to increase the savings ratio. That will be very important if we are to have the resources we need for further investment in the economy.
Some aspects of the present situation still remain puzzling and paradoxical, such as the way in which employment has stood up, and increased remarkably well, but productivity has not moved. Obviously, we must move to a situation in which productivity also goes up, as a number of noble Lords have referred to.
I will make one other point. I am still completely puzzled as to why the Treasury works off one economic forecast and the Bank of England off another—the latest OBR report even has a diagram that shows the way in which they diverge. Some unanimity of view on that in government would be appropriate. I worry that the monetary policy under Gordon Brown’s much praised measures, which I always had doubts about, is in the hands of the Bank of England and the fiscal side is in the hands of the Treasury. It is not the least bit clear—this came up in a Question from the noble Lord, Lord Barnett, the other day—who is responsible for co-ordinating the two, and that is important.
None the less, the measures that have been taken by the Bank of England are to be welcomed. We have found a situation in which QE has played a useful role. At long last the Bank got away from the Monetary Policy Committee’s obsession with interest rates rather than the price and supply of money, and is taking more action on that side of things.
In that context I will take up a point made by the noble Lord, Lord Myners, who I see is not in his place but who made a very good speech earlier. The idea that somehow we will have to sell off the gilt-edged securities which have been purchased by the Bank of England as part of QE is, it seems to me, quite absurd. There is no reason to suppose that the rates, terms and duration of the debt that we bought then will still be appropriate at the point where we sell it off. It would clearly be much more sensible simply to issue fresh debt which is appropriate in terms of its structure. It is important that we should move towards more co-ordination of fiscal and monetary policy.
Finally, there is a very good analysis of the output gap in the OBR report. We are moving gradually towards eliminating that gap, but it is extremely difficult to know what it is because we do not know how much productive capacity has been destroyed in the course of the crisis from which we are just emerging. None the less, I am sure that it is right gradually to move towards a point where the output gap is closed and we can go on to a sustainable long-term growth rate, rather than mopping up excess capacity.
Overall, the strategy is paying off. If I may mix a metaphor, while we are some way short of Winston Churchill’s “sunlit uplands”, none the less it is very important that the Government stand firm and stick to the course to which they have set. We are making progress and we must continue to be determined in dealing with the deficit, getting things on an even keel and rebalancing the economy in the way in which a number of noble friends and noble Members have suggested today.
My Lords, this is an encouraging Budget. It is clear that the outlook for employment is improving, business investment is clearly moving forward, and business confidence has substantially improved. It is always the most vulnerable who benefit most from the extra job opportunities. However, exports remain a worry, and I hope that the Government will concentrate, among other things, on looking at more import substitution and home sourcing, particularly in sectors which we know will now grow, such as—I hope—housing. Housing is the great conundrum in our economy and still remains largely unresolved, with a huge shortage of supply and too much demand.
In the current circumstances, it is right that while combining a commitment to correct the financial deficit, the Government should now convert their austerity theme to one of sustainable growth. The best levers they can pull are to continue their emphasis on improving skills and on improving infrastructure helped by low-cost private sector funding, to focus on their industrial strategy to partner improvements in key sectors, and to encourage export growth and import substitution.
I am surprised that few Members of this House have concentrated on the main subject of the Budget: pension reforms. I have worked with Steve Webb since 2002 on determining Liberal Democrat policy on pensions, so I will concentrate on that. I am proud of what the Government have achieved in the pension field. We have built on the work of Adair Turner’s Pensions Commission and the early work done by the Labour Government. The triple lock on the state pension has protected the most vulnerable in the recession, and the basic state pension is now worth a higher share of the average wage than at any time in the past two decades. We are introducing a single-tier state pension to provide a simple, decent state pension, set above the basic means test, so that working people will know what they will get in retirement from the state and can therefore plan accordingly.
We are seeking to reverse the decades-long decline in private sector pensions provision. Barely one worker in three in the private sector paid into a pension at the time the Government came in, and urgent action was required. In 2012, we began the process of automatic enrolment, and 10 million people have already gone into workplace pensions. That has been a great success; more than 3 million workers have been automatically enrolled, and only one in 10 has exercised their right to opt out. A combination of employer contribution and tax relief from the Government makes an attractive proposition to people who were not otherwise making proper pension provision. That has given rise to the biggest rise in workplace pension coverage since figures began to be collected in 1997.
The Government still need to make sure that these pensions savings are invested in value-for-money schemes that will be well governed, and that individuals do not build up multiple-stranded pension pots but follow them when they change jobs so that a worthwhile sum can be built up. Having ensured that the vast majority of workers build up a worthwhile pension pot on top of a simplified state pension, the Budget has taken the opportunity to look at the choices people will face in retirement, reduce complexities for consumers in their financial planning for their retirement and generally encourage more long-term saving.
I was interested to see that Janan Ganesh, a Financial Times commentator, wrote this week:
“Historians of the coalition government will have to work out how Britain came to be governed so radically by such pragmatists”.
It is interesting that we in this Government have achieved the biggest fiscal contraction since the war; the public sector payroll expansion of 13 years of the Labour Government has been undone in one Parliament; we have had multiple public sector reforms in education, the health service and welfare; and now the Budget is throwing all the old pension orthodoxies on to the bonfire. My noble friend Lord Lawson—who, sadly, is not with us today—recently said on the radio that the coalition was now pointless. However, we have to ask, as the FT columnist said, whether the Government have been able to govern more radically than a single-party Tory or Labour Government could have done, particularly in the area of pensions.
The Budget proposals will end the closed market for annuities and open up choice. Potentially, savers can better control their financial planning for retirement, and that will encourage innovation among fund managers to come up with new products. The annuities market has been far too closed, uncompetitive and complacent, as the Financial Conduct Authority has recently shown in its report. The opportunities of this change are matched, however, by a number of dangers, and we must use the next year for proper consultation to get the right safeguards in place for these major changes.
There are a number of things that the Government have to concentrate on. Mis-selling will not go away. As the noble Lord, Lord Hollick, warned us—sadly, he is not in his place at the moment—the last revolution in personal pensions in the 1980s gave rise to the worst mis-selling opportunities of our generation. I well remember, as an employer at that time, resisting employees who were being persuaded by slick salesmen that they should give up their defined benefit pensions for their new personal pensions, which they were being offered by these salesmen.
We have to watch, because, when we make these radical changes, mis-selling will continue. The Government must be vigilant and people should not be allowed to fritter away their pension pots through bad selling. The Government have initially started to provide independent advice; it must be mandatory, and it has to be very well organised. The 400,000 people entering retirement each year need that independent advice. There is also a danger that, if the newly freed pension pots flood into markets such as buy-to-let property, the older generation will add to the burden on the young if prices are simply pushed up further and first-time buyers are more out of reach in the housing market.
We must also remember that tax relief on pensions savings has been justified largely as a reward for long-term saving. However, if it encourages short-term spending, it has to be questioned. There is huge inequality on tax relief on pensions savings. If you cap the lump sum free-of-tax payment, on which the cap has up to now been £312,000—that is the sum that people can take tax-free from their pensions if they have the maximum pension allowance—at average earnings of, say, £30,000, there is a saving to the Exchequer of £2 billion. So there is a huge subsidy there that is going to the better off in society. To contain pension tax relief to the standard rate of tax, which has long been a Liberal Democrat policy, would save the Exchequer £10 billion—so we have to justify that tax relief, and we have to ensure that in a time of austerity the principal beneficiaries of tax reductions are those on average or below average earnings. There will be public anger if it is not concentrated on those people.
Finally, we have to ensure that there are major reforms here. We need reform. It is positive that it is being done, but we have to ensure that we do not simply become an onshore tax haven for the better off because of these new schemes. The Government have initiated a pensions revolution, which we should welcome. The changes will have major long-term consequences. We must use the coming year to ensure that this revolution occurs fairly and efficiently and is not susceptible to any short-term electoral advantage ahead of the election, which could be deeply damaging to society and the long-term cohesion of this country and the economy.
My Lords, there has been much concentration on productivity during this debate, and it is clearly the case that, if recovery is to be sustained and debt and deficit are to be dealt with, productivity is a key component. But I want to think a bit about what we produce as well as how we produce it and, as my noble friend Lord Holmes concentrated on, the social effects as well as dry economic statistics.
In the Budget, the Chancellor gave a general exhortation that we should export more, build more, invest more and manufacture more. It was said, correctly, by many people that the recovery is fragile. There are worries about balance, the supply side, skills, the output gap and unemployment. There is clearly a long road ahead, during which public expenditure will continue to be under pressure. Yet if we think back to the advance of technology and the spread of knowledge as well as the opportunities that they have given us over the years, and if we think about the United Kingdom—a free society with a long and reasonably untroubled history, with a language that has become the leading language of the world and a long tradition of successful higher education—it is quite puzzling how we went into quite such a deep hole in 2008 and why it is taking us so long to climb out of that hole into a sustainable recovery.
What has happened? My first theme is that I think that we have tended to have the wrong idea about economic change. Too often, we have seen it in terms of obsolescence—that things will disappear—but, if you look around, you can see that nothing we make, have made or that we do completely disappears. The employment patterns within that marketplace change, but they do not disappear. New things come, but old things do not go. To go to the romantic end of such a theme, somebody somewhere is knapping flints and thatching a cottage; somebody is still writing a book standing up, like Voltaire or Surtees, and that book will be bound by hand. Of course, in larger industries the changes are much more dramatic—in steel or coal or the subsidiaries of the steel industries, the foundries. Those energy-intensive old industries can become very unfashionable, but there was a time when structural steel looked as if it would go out altogether in favour of prestressed concrete. I shall not trouble the House with a detailed analysis of why, but steel has come back and, largely, prestressed concrete has gone out. Then we remember British Leyland. I come from the north-east, where Middlesbrough is the leading dock for exporting and importing cars; we are now a net exporter of cars, as my noble friend the Minister said. However, what happened to our car designers?
With the opportunities for technological change in the diversity that has been available, what has held us back? Why are we not very considerably more successful in short order than we are today? I think that we can look for myths—big ideas, and worst of all Utopian big ideas, which from time to time have gripped us. The first, which has largely gone, will be all-embracing central planning. Of course, there is a role for government in infrastructural planning because there is no way in which to get the money together unless the Government get involved. But as with HS2 or Hinkley Point, there is a great struggle to get to the decision on a new airport, or whatever—and if the Government get involved in too many areas and go in the wrong direction and the end of the road comes for the National Coal Board, the British Steel Corporation or British shipbuilding, what disasters follow from that? They are distortions and long-term disasters, social as well as economic.
The second myth on which I want to touch is that of the interpretation of the post-industrial society. This was the brainchild of Daniel Bell. He foresaw and calculated the rise of the knowledge economy but he never thought that one thing would push out another. He thought only that the emphasis and proportions would change. However, in tabloid-style simplification, both the political system and, regrettably, the schools came to the wrong conclusions. No longer was it considered sensible to go into a foundry, optimise power steering pumps for motor cars, go into steel or coal—never mind about carbon capture and storage and the huge need for knowledge in that area—and still less to become a plumber or a potter. I think that Daniel Bell would be horrified by the interpretation that was put on the fashion that followed. There is a need to invest in capital, of course, and to have a capital allowance—what a good idea—but, if you do not have the people who know what capital goods to buy or how to operate them, you do not buy those tools and those machines. Again, one comes back to social influences and people. Where are the people who can make the right decisions? They are certainly not economists.
We may now be in danger of building another myth called the global race. The problem with races is that they have only one winner. However, I thought that with economic development everyone has the possibility of winning. Admittedly, some people win more than others, but are there any real losers? If we characterise life in language which implies that this is a zero-sum game, we make a mistake.
Where is the Chancellor of the Exchequer in all this? I go back to his very cautious, rather general language. I think he understands that timescales are long and that, if you go in a wrong direction, it takes a long time to put it right, and that there is much complicated interaction within the process of putting it right within society. It is not just an economic problem but a social problem and a cultural issue. A whole raft of things have to be thought through. He, quite correctly, can enable only to a degree. Success is in the hands of society; he cannot command it. It needs to be decentralised to those who live in the real world, where Utopian myths go hang.
My Lords, I start by thanking the usual channels for giving us an extra week in which to consider the Budget before we debate it. Things that first of all seem too good to be true often benefit from this rather longer consideration. For instance, the pension reforms mentioned by many noble Lords may be welcomed a little bit less when you realise that annuities are an important source of long-term finance for investing in our infrastructure—investment which concerns many noble Lords. Or is the Chancellor after the early tax revenue from the consumption that early withdrawals will produce? My party is absolutely right to call for a more considered and careful scrutiny. Pensions have to be a consensual matter, not a political toy. The noble Lord, Lord Stoneham, just reminded us of the pensions mis-selling scandal which resulted from a previous change.
What about the public finances? I think the Minister told us that they are not bad. Headline borrowing is down. However, my noble friend Lord Myners reminded us that the OBR tells us that, if you take into account the upswing in the economic cycle, the figures are actually worse than a year ago. Growth estimates are not going to do very much for this because what the Minister did not say is that the OBR is concerned that the recovery may not last, as it is largely cyclical.
Where are we looking for the recovery? The Minister mentioned industry. There are modest incentives to invest more, export more, train more and do more research. This will require better management by business—the people referred to by the noble Viscount, Lord Eccles. I put it to the Minister that it also requires better management by government.
Every year, the Government pay some £90 billion to private contractors and the voluntary sector to provide public services, and that is going to rise. Unless this is well run, we will end up with a weak and sickly state and poor civic life. Most of this money goes to a small group of companies that seem to be good at winning contracts but mediocre at delivering services. In some cases, they are dishonest. These services are central to our civilised society, as is banking. Like the banks, these companies are becoming too big to fail. I put it to the Minister that part of a Budget should be to examine the Government’s competence to manage these enormous sums, and not just hide behind commercial confidentiality, as happens at present. It is no good having a policy if you cannot manage it. The few figures released in the Budget show that failure of the Government’s contractors to deliver on things such as disability benefits, the jobs programme and other schemes is stacking up huge costs for the state.
The Minister declared that raising productivity is most important, and I agree. Does he agree that subsidising low pay through the tax system also encourages low productivity? Instead of subsidising low pay, surely it makes more sense for the Government to encourage people to run their businesses better. With his background, the Minister must know that subsidising low-paid, low-skill jobs through the tax system encourages a low-productivity economy. Housing benefit paid to people in work is also rising sharply. I put it to the Minister that this is another way of subsidising a low-pay, low-productivity economy. I agree with my noble friend Lord Myners that low pay is no way to encourage economic growth.
On 20 February, the Office for National Statistics gave the final productivity estimates for last year. It told us that output per worker fell compared with the previous year. We were told that we are 21 percentage points below the average for the rest of the major G7 industrialised economies. I agree with the Minister that we are not going to pay our way in a globalised economy if we stay like that, and neither is that how we are going to increase our exports to deal with our balance of payments. It is this that leads to the inequality described so graphically by the right reverend Prelate the Bishop of Chester. Unless we address this inequality, the economic recovery for which we are all working cannot be healthy and will not be balanced, as the Minister promised and as the right reverend Prelate the Bishop of Sheffield called for.
The TUC’s fair pay campaign demonstrates that many jobs being created are low pay and low productivity. Many exclude security, training and good prospects. Some employers insist on dehumanised terms and working conditions. Successful leadership means that people have to think that you believe in what they believe in, otherwise you get the social problems referred to by a number of noble Lords. No, it would not be difficult for a Labour Government to manage this better because the current level is so low.
I welcome the Budget’s encouragement for training, apprenticeships and qualifications to raise productivity, but the economy is changing, too. We are moving into the kind of economy that does not pay you just for your qualifications and knowledge but for what you innovate, as my noble friend Lord Kestenbaum explained. That kind of knowledge economy requires a different kind of investment that is less tangible. I put it to the Minister that it is strong investment in these less tangible assets that explains the success of many of our younger, newer rising businesses. Although you cannot touch these investments now, they are made in the hope of benefit in the future—not only in training but in designing a new service, in building a database or in producing something that is copyrighted. They involve branding and marketing. In this changing world, this kind of investment is just as important as the more tangible investment in machinery, buildings and transport.
I mentioned this in last year’s Budget debate, and someone must have listened because, on page 73 of its outlook, the OBR says that we do rather well at this kind of investment—better than most of our competitors—and we have kept it up. Good for us. So why do we not recognise this in the Budget’s tax and incentive systems? Surely this is part of our journey away from the low-tech, low-pay and low-productivity economy. It is this kind of economy that demands more and more group enterprise—the kind of enterprise that depends a lot on leadership, collaboration, adaptability, and ability to learn and relearn. It is the absence of these less tangible skills that concerns so many employers today.
There was a time when we were promised an industrial strategy that would produce balanced and sustainable growth. However, as many noble Lords have said, it looks as if we are getting a recovery based on low productivity, a housing boom, consumption involving households dipping into their savings, and increased borrowing. Instead of a recovery that works for us all, it is working for the few. Many have to make do with low wages and dehumanised working conditions. This Budget is going to produce neither the economy nor the society that I would like to see.
My Lords, I am pleased to speak in this debate and pay tribute to the Chancellor of the Exchequer for another successful Budget. Under this Government our economy is on the mend. The problems inherited from the previous Government were greater than we had imagined, but slowly things are turning around. This Government are striving to be the most pro-growth in living memory. However, tough decisions are needed to reduce the deficit, heal our economy and keep interest rates low. Our economy needs to be more resilient and balanced. This is the only way in which to secure a better future for Britain and our well-being.
We are indeed on the way to growth, and this Budget was the next step. It was a positive Budget, one looking not only to solve the problems of the past but to secure a better future. The Budget will also indicate that people can be trusted with their own money. More money in the pockets of working people often means more money in the hands of business, through consumer spending. It is welcome that the personal allowance will rise to £10,500 in 2015-16. I ask my noble friend the Minister if there is scope to increase it further.
Much has also been made of the ways in which this Budget will benefit pensioners. People work hard throughout their lives and it is only reasonable that they expect flexibility from, and a good return on, their savings. There will be no obligation to buy an annuity if savers do not want to do so. As someone who has been actively involved in the arrangement of pensions, I can say that some people were not happy with the restrictions on their pension funds when the time came for their retirement. I therefore welcome the revised arrangements. I am pleased to note that everyone who retires on these schemes will now be offered free, impartial and face-to-face advice. Financial education has been insufficient in this country for far too long. While I wholeheartedly support people having the freedom to do what they wish with their money, it is important that we make sure that they are in a position to make wise choices. With this in mind, I ask the Government: what is being done to ensure that advice is offered not only to those who are about to retire but to younger people who must learn the importance of saving for later in life?
Manufacturing declined massively under the previous Government and is enjoying something of a renaissance under this Government, but still the growth is not enough. We must not rely purely on financial services but begin to make things again and reactivate our manufacturing capabilities. I was born and brought up in a colony where nearly everything we had was of good quality and was made in Britain. We had British-made cars, clothes, household appliances, bicycles and food products—the list goes on. The Empire is now gone but the British people have the ability to be great again in manufacturing.
On many occasions in your Lordship’s House, I have stressed the importance of placing a greater focus on trade, in particular our exports. In January, our trade deficit was estimated to be £2.6 billion. Our deficit on goods continues to be partly offset by our surplus in services, but we cannot allow this to go on. The continued efforts of UK Trade & Investment must be acknowledged. I applaud the Chancellor for expanding the resources available to it and going through it. Doubling the amount of lending available to exporters and cutting the interest rates on this lending will be welcomed from across the board. The Chancellor was clear that we will have the most competitive export finance in Europe. Our exporters need the confidence that Government understand the crucial role that exporters play and are willing to support them at every turn. I know that a great deal of progress has been made over the past couple of years, not least in recent months.
It was encouraging that the Business Secretary visited the United Arab Emirates on a trade mission back in January and launched a UKTI Gulf investment team. I visit UAE frequently because I own properties in Dubai. The economy of that city is indeed lifting, and we should make use of the opportunities that are now opening to outsiders. I was also very pleased to see the Trade Minister open British business centres in Slovakia and Hungary earlier this month. The drive to boost our trade with central and eastern Europe is most welcome. However, this is not enough.
We need to look in more depth at opportunities with countries such as Brazil, India and China, where export prospects are greatest. A report last month from the manufacturers’ organisation EEF found that emerging markets now account for half of manufacturers’ priority targets. In particular, Brazil has become a top priority, with one-third of companies planning to increase exports there. It is very important that our Government fully realise this potential and capitalise upon it swiftly and assertively. They must develop strategies to target these markets rather than react to potential opportunities.
The report also found that there is a lack of awareness among manufacturers of the support available to them. This further confirms my already held view that we need to market the services of UKTI more effectively. In particular, I should like to see a much more concerted effort on expanding our trading links with Africa. I know Africa as I was born and brought up there. I am visiting Kenya, Tanzania and Zanzibar in three weeks’ time.
A recent report from the World Bank forecasts that sub-Saharan Africa will grow by 5.3% this year. There are several African countries where growth exceeds 7% per year. Countries such as Ghana, Ethiopia, Mozambique, Kenya, Uganda and Tanzania are seeing increased consumer spending and need further investment in telecommunications and education. We have historic ties with some of these countries. We must act now and connect our businesses at home with the overseas markets of the future. I should be grateful if my noble friend the Minister could inform the House of any further plans to focus on these lucrative emerging economies.
Of course, none of these ventures will even be possible if we fail to nurture the talent and innovation of our young people. That is why I applaud the announcement to extend further the apprenticeship programme, supporting 100,000 more through extra grants to businesses. As someone who has been involved in training in my own business—financial services—I appreciate the training of our young in every field to ensure our growth and well-being.
The Federation of Small Businesses welcomed both the reduction in corporation tax and the doubling of the annual investment allowance for small firms. However, it cited as problems poor communication and the fact that firms often do not take advantage of government schemes simply because they do not know about them. This is a problem that has been mentioned in relation to business and exports many times. I ask the Government for clarification on what is being done to improve the way in which their policies are communicated to SMEs and others who can benefit from them. I also ask the Minister whether he believes that the Government will meet their exports targets. If the growth in exports continues to be slow, what plan do the Government have to deal with this?
Finally, the people who are paying 45% tax are often entrepreneurs and businessmen, who create jobs and generate revenue for the country. They should not be penalised and I feel that consideration should be given to reducing their tax rate from 45% to 40%. I would appreciate my noble friend’s comments on this point.
I believe that this was for the most part a good Budget. The Government are on course, as is our economy. However, I shall be grateful if, in his closing remarks, my noble friend is able to answer some of the points that I have raised.
My Lords, what a difference one year makes. Last year, we were all worried about a triple-dip recession and the Chancellor’s Budget was a PR disaster of a kind unknown before. This year, we have had only the small accident relating to bingo and beer, forgetting that we are “all in this together”. Perhaps baccarat and Bollinger should also have been offered relief.
This year, we have recovered. I have been saying for some time—indeed, since before this Government came to power—that, given the depth of the recession that we faced, we could not but have a very hard austerity policy to eliminate the deficit as soon as possible. It was not a very popular thing to say. I said it in a letter in the Sunday Times in February 2010, along with the noble Lord, Lord Turnbull—the only other Member of this House to do so—and many economists, and there were long letters from various of my Keynesian friends saying that I had taken leave of my senses. However, I believe that the primary task of any Government taking office in May 2010 was to eliminate the deficit as soon as possible. It has to be said of the Chancellor that, unlike all his predecessors in the post-war period, he is the only one who has stuck to a strategy which he himself has outlined. Most other Chancellors have deviated from the strategies that they have put forward.
It is not all over yet. We are not out of trouble and we are going to have perhaps another five years of pretty tight economic conditions before we get back to what we believe to be the new normal. The noble Viscount, Lord Eccles, asked why our recession was so deep compared with everybody else’s. That is explained quite a bit by the fact that when we began to lose manufacturing in the 1970s, we replaced it partly with public sector jobs and partly with service sector jobs of two kinds. The higher-paid jobs, for the highly educated, were in the City and the lower-paid jobs were in retail and so on. The people who could not achieve the kind of income that they were making in manufacturing realised that they could sustain their living standards only by borrowing. Therefore, from roughly 1990 to 2007 we sustained our living standards by borrowing. However, the growth rate was not sustainable and it was not sustained, and this economy will not get back to that rate.
It is very important to understand—many people say this—that, had we gone on growing after 2008 at the rate that we had been, the gap today would be 15%. How do we know that we could not have sustained that growth rate? We know because the fundamentals of that rate were very weak. Therefore, we now have to form a new growth path where the rate will not necessarily be as high as the one we were used to. One problem that we will have to face is where that growth is to come from. It will not be easy to bring back manufacturing. People imagine that we have a blank page on which to bring back manufacturing, but there are substantial economies competing with us, especially the emerging economies, which are very good at manufacturing—not only in the low-tech and medium-tech industries but even in high-tech industries. Therefore, we are competing against Brazil, China, India, Indonesia and so on.
If we are to bring back manufacturing, we have to find out where our comparative advantage lies. It may be that, as my noble friend Lord Haskel pointed out, it lies in innovations relating to abstract things such as apps and computers and so on. There, our real comparative advantage is in ingenuity rather than in manufacturing as such. Therefore, when we have made the austerity adjustment, we need to think through what we are going to grow with. That will require a large investment in skilling the population and so on, and it will not be an easy task.
One of the things that many people say is that the Government could have borrowed more and could have spent more. The answer is that the Government did borrow more. They have often been criticised for the debt-to-GDP ratio being very high and public debt having doubled. Until we get rid of the deficit, debt goes on rising. The Government have not borrowed on the fiscal account and spent the money but they have borrowed through the Bank of England. Borrowing through the Bank of England is what has kept the interest rates low. Such recovery as we have had is because low interest rates have meant that a variety of zombie firms survived and households feel richer than they really are.
To that extent, QE has given us some sort of relief but it is misleading relief. At some stage we will have to taper off from what the Bank of England has done, and whether we adopt the suggestion of the noble Lord, Lord Myners, is something that I hope the Minister will come back to when he replies from the Dispatch Box. It is an interesting idea that we cancel one part of the debt with another.
That said, the problem will remain that we will have to start producing a fiscal surplus one of these days. It will not be possible that we, having got to zero deficit, start spending once again. The crucial point is that there was a time in the 1960s, 1970s and 1980s when public spending had a large multiplier. The reason for that was that we had a good demographic situation and healthy manufacturing industries. Those two conditions allowed for the multiplier to be high. We no longer have a good demographic situation and we no longer have a manufacturing industry, except for high-tech industry. Therefore, multipliers will be rather low. This is as true of us as it is of many other economies. We are in a post-Keynesian situation, and we will stay there. To the extent that we can steer the economy, we will have to rely much more on the private economy itself having the health and the capacity to be able to generate its own growth, rather than think that someone can crank a handle and growth will occur.
That era ended in 2008 and is not coming back. There has been a lot of debate about productivity growth. I remember from when I was doing this sort of thing professionally, that in the public sector productivity is measured by salary. The output of a public sector worker is what that public sector work gets paid. The output of a private sector worker has a wage component and then there is a profit component. Productivity can be measured when we are actually producing solid things. It is about the hours worked and the value of the output. It is very difficult to measure productivity in the public sector economy. What has happened is that a number of public sector workers have been shifted from the public sector to the private sector. The high salaries that employees used to make, which we thought of as high productivity, have been swapped for private sector jobs. They are probably being paid less and indeed, their productivity, as measured, would be even less than the wage they get.
The productivity gap that we are all worried about may be a statistical illusion. This is my conjecture and it ought to be checked out by people who do this sort of thing for a living, which I no longer do. We ought not be misled into thinking that either productivity is too low or that we do not have enough spare capacity in the system, and so on. I do not know what the spare capacity in the economy is, or whether it is even a valid concept any longer. If we did not have spare capacity and were having a recovery, we should have inflation, but we do not have inflation. If we have a positive growth rate of, say 2.5%, and we do not have inflation, there must either be spare capacity somewhere or we are in a very happy position. These valid questions open up how much the structure of the economy has changed. If we can begin to grasp that, we will be better off.
I have one final point. It is very tempting to think that the people who pay more than 40% tax are middle class; they are not. They are a minority of the population. Please measure class at least by deciles of income and exclude the top three deciles and the bottom three deciles, so that the people in the middle do not pay 40%. Please do not be kind to 40% taxpayers. Please do not be kind to people who pay inheritance tax. Things are bad enough as they are. We do not have to exacerbate inequality or give money to people who do not deserve it. Both things are an inefficient use of money.
My Lords, I heard the speech of the noble Lord, Lord Desai, last year, and I greatly enjoyed it as he always talks with such wisdom. I enjoyed it even more this year. If one had to conduct a Desai test before Budgets, this one would definitely pass by comparison with some of the others. During his long career in politics and economics, the noble Lord, Lord Desai, founded the Centre for the Study of Global Governance. I do not know whether he would agree, but whether it is global governance or national governance, successful governance is always a balance between competence and fairness. One can reinforce the other.
If we look at the Budget from that point of view, it was a distinct success on the side of fairness. I echo what my noble friend Lord Sheikh said about raising the income tax threshold. That was one of the most significant things in the Budget and one of the top two or three priorities. Liberal Democrats claim great credit on this front, and I would give them a fair measure of credit, but none the less it was clearly a success, whoever claims it. When Labour left office people were paying income tax on £5,600 a year. It was scandalous that they paid income tax on such a low level of pay. The income tax threshold is now rising to £10,000 a year and from next year it will be £10,500. It cost £12 billion to make this change, which is undoubtedly a big ticket item by any standard, but it was the right thing to do.
The Chancellor has also accepted the Low Pay Unit’s recommendation for raising the minimum wage and is generally encouraging about the living wage. The noble Lord, Lord Haskel, mentioned that in his speech and I entirely agree with what he said. It is not just a matter of rewarding people for their restraint, which has been considerable in the past three or four years, but producing an economy that has an incentive for higher productivity. Subsidising low wages is no good at all in the long run. There may be some sort of consensus, at least on the Back Benches, about this issue. That is also an area in which the Government are absolutely on the right lines. Companies that are cash rich can certainly afford higher pay now. Given that inflation is less than 2%—1.7% on the latest reading—there should be no adverse effect on that.
With regard to competence, the Chancellor clearly was right to keep a firm grip on government spending. I recognise that there has been a lot of criticism of him over the past two or three years from what I call a Keynesian point of view. As someone who read economics at Cambridge when the influence of Keynes was very high in the late 1950s and early 1960s, I can well understand that point of view and where it is coming from. The noble Lord, Lord Hollick, made that point and others will no doubt do so. I see the noble Lord, Lord Skidelsky, in his place. As the biographer of Keynes, I defer entirely to him.
None the less, it is fair to make two points. First, as the noble Lord, Lord Desai, said, to some extent we are in a post-Keynesian situation. Things have moved on since Keynes was alive and doing his marvellous work in economics, for which we are all still greatly indebted. Secondly, the Chancellor has been extremely flexible. He has considered these points and has steered a middle course—a third way, if you like—between a classic Keynesian point of view and a non-Keynesian point of view. He has been flexible and sensible. The noble Lord, Lord Hollick, quoted Anatole Kaletsky as saying that the Chancellor is a stealth convert to Keynesianism. The Chancellor has proved able to learn from experience and reality and has provided a way forward which makes total sense to me. That is now history. We are now at the turning point. We have economic growth again and the question is how this can best be sustained. As I said, companies have cash in the bank, demand is increasing, which is what they need, and it is a good time to ramp up incentives to invest. Therefore, the Government’s approach is welcome.
As has been pointed out, we also need more public investment. We are a small and crowded island with strong democratic procedures in place. Therefore, it is always hideously difficult to get public investment going with any sense of urgency. However, I am sure that, given the background of the noble Lord, Lord Deighton, and his success in the Olympics, we have the right man in place to get public investment going.
In that context, as one who was born in north Lancashire and takes his title from that area, I am all in favour of fracking. I am certain that a sensible regime that both rewards the local communities that sit on top of the Bowland shale and allows the exploitation of gas and oil to proceed to the benefit of the economy and our economic security can be constructed. However, at the moment, mixed signals are coming from the Government about this. The Prime Minister is saying that it can be done quite quickly, possibly during the course of this year—there may be evidence on the ground—but the companies are saying something quite different and that we might not get a reasonable amount of production until the end of the decade. I would be grateful if the Minister could clarify the situation. It is important to have a good understanding of what is happening in this area.
Just as important as infrastructure are human skills and it is for that reason that I am strong supporter of what the Secretary of State for Education is doing. In all fairness, he is building on the work of the previous Labour Government in initiatives such as Teach First and the academy programme, but he is pushing forward with a vigour—some might say a ruthlessness, but a relentlessness anyway—that is, I hope, transformational. This is hugely important. It is just as important as infrastructure investment.
All that is very good but I must stress, as we have all done in different ways, that the economic recovery is fragile and there are some clear threats on the horizon. One, of course, concerns the economic measures which it may be necessary to take to deal with the political situation in Ukraine. Soft power should be used—I am right behind that—but it may come with a big economic penalty. It is an economic penalty we should pay, but it will none the less be there.
The second threat comes from deflation in the eurozone. Undoubtedly, the European Central Bank has done a good job in averting disaster and restoring a good measure of confidence. However, it now faces a much harder task in avoiding a prolonged period of Japanese-style deflation. If that materialises, we shall certainly suffer in the UK.
A further threat comes from the situation in China. For some years now, the Chinese economy has been propped up by debt-fuelled investment—I do not know what the noble Lord, Lord Desai, thinks about that—much of which has been squandered on speculative property ventures, useless infrastructure and excess manufacturing capacity. Now the day of reckoning is coming in China, I fear. There will be defaults of companies and credit will have to be reduced. That will have a considerable impact on the rate of growth of the Chinese economy, which will hurt us and the whole world.
Finally, we have our own imperfections. We are still not very good at exports; productivity is behind our rivals in Europe; and we are still too dependent on debt, rising house prices and domestic consumption. Therefore, there is undoubtedly a great deal to do. There is no room for complacency. The Budget has reinforced my view that the Government are heading in the right direction and I hope that they will keep to it.
My Lords, the Budget seems to have played pretty well on the day. However, if I was the Chancellor I might be a bit worried by that as it is part of the lore of politics that what goes down well in the spring frequently bombs by July. In the case of this Budget, the shine has begun to come off already. Indeed, in the area where the Budget was probably at its strongest—pensions and savings—fears have been expressed about the potential impact of people drawing down from their pension pots prematurely and the threat to providers of annuities, such as insurance companies. Be that as it may, the Chancellor’s far-reaching reforms in this area are to be welcomed, even though they will principally benefit the better off.
I note that the IFS has expressed concern about the risk that permanent tax concessions, such as the increase in the personal allowance, which are funded only by temporary tax increases and unspecified cuts in public expenditure—as the noble Lord, Lord Hollick, pointed out—will weaken the long-term outlook. Moreover, bringing forward revenue that the Treasury would have expected to receive anyway, as with national insurance changes, may be a cost to the Treasury later on.
This was indeed a Budget for pulling rabbits out of hats. As other noble Lords have said, it was full of conjuring tricks and sleights of hand. Take the announcement that the number of £1 million Premium Bond prizes is to be doubled. That sounds impressive until you learn that it is to be doubled from one to two. Much of the rest of the Budget displays a similar level of disingenuousness.
Reducing the deficit by a third is presented as good progress, but it was originally supposed to be eliminated altogether by the end of this Parliament and had already been reduced by a third last year. This is no better than Gordon Brown’s serial announcements of the same new money.
The Budget contains a fundamental misrepresentation of the Chancellor’s fiscal stance and its effectiveness. However, before I come to that, I want to say a word about the Government’s characterisation of the situation we face and the problem with which they are trying to deal. The policy of the Government over the past three years has largely focused on public debt; it has not talked much about private debt. The Minister reflected this emphasis in his introduction today. But let us be clear: private debt got us into this mess. Before 2008 our public finances were in reasonable order. You can argue that there was some letting go of the controls of public expenditure in the last few years but on the whole that was not the case. We had a low level of debt and did not have high levels of deficit. We had a very rapid expansion of private debt and that produced a bubble and a crash, which then produced a recession and public debt went up as a result.
We do not have a high level of public debt because of profligate Governments; we have high levels of public debt because we had a financial system which was out of control, creating too much private debt. It is important that we understand this sequence of events. That is not me talking: it is the noble Lord, Lord Turner, on the “World at One” on 30 December last year. I am sorry if it appears to labour the point but I do so only because it is so often misrepresented.
When I hear noble Lords to my left—I mean spatially, not ideologically, you understand—engaging in the same kind of misrepresentation, I often wonder whether they really believe it or whether they are indulging in political knockabout. They are not stupid, so I have to conclude that it is the latter, but I would hope that we can avoid such disreputable distortions of analysis in this House. At all events, amid all the focus on bringing down public debt and government debt, we have yet to come up with a solution to the problem of running a reasonably growing economy without returning to the increases in private debt which got us into so much trouble in the first place. That is the problem confronting the Chancellor, as he congratulates himself on a recovery based on a housing bubble and rising consumer spending, which this Budget does nothing to tackle.
I turn now to the central misrepresentation of the Budget; namely, that the Government’s strategy of cutting the deficit is working, reiterated as the central plank of the Minister’s introduction to the debate. On the face of it, this would seem to be self-evidently the case. The economy is recovering—is it not?—and recovering faster than anywhere else. But there are several things wrong with that. Is it because of or in spite of the Government’s policies? This recovery has been likened to a man who has been hitting himself over the head with a baseball bat saying that he feels better when he stops and attributing his improvement to the fact that he had been hitting himself over the head with a baseball bat. Then again, as I have said, according to the Government’s strategy on taking office, the deficit was supposed to be eliminated by next year, not four years later in 2018-19 as is now being forecast. The economy is forecast to recover to pre-crisis levels, but only this year, after six years, and 14% smaller than it would have been had the recession not struck. Moreover, what has gone has gone for good. The damage is irreparable.
As the economist Simon Wren-Lewis has conclusively demonstrated, the economy started growing once the Government abandoned their strategy of fiscal contraction, not in response to the strategy of fiscal contraction. From a peak deficit in 2009-10 there was substantial fiscal tightening until 2012-13. This essentially stopped in 2012-13 and 2013-14, whereas the original plan was for fiscal contraction to continue in 2012-13 and 2013-14. The figures show clearly how the strategy was abandoned as the recovery failed to materialise. I am not complaining about that, of course; rather, I am just pointing out that you cannot abandon a strategy and carry on pretending that it is still working. I was disappointed to hear the noble Lord, Lord Desai, say that this is the only Chancellor to have adopted this strategy and stuck to it because, as Simon Wren-Lewis has shown, it is just not true.
The final thing the Chancellor shamelessly glosses over is the full extent of planned austerity despite the economic recovery. He said:
“While the underlying structural deficit falls, it falls no faster than was previously forecast, despite higher growth”.
This goes to the heart of the Government’s argument: faster growth alone will not balance the books. Securing Britain’s economic future means that there will have to be more hard decisions and more cuts but, apart from talking about the welfare cap, the Chancellor has been completely unspecific about what these cuts might be. Presumably this is deliberate until after the next election for, if he were to come clean about just what he has in store for us, the public’s verdict on the Budget might be very much less favourable than it appears to have been to date.
My Lords, some insightful and important points have been made in this Budget debate which I hope the Minister will feed through to the Treasury, because I have certainly not seen some of them being made elsewhere. I was extremely pleased to be able to agree with much of what the noble Lord, Lord Desai, had to say, which has not always been the case. It seems that he sees things very much as I see them. Equally, however, some sharp and important points were made by the noble Lords, Lord Hollick and Lord Myners. It has always struck me that the QE creation of £380 billion-odd would have to be monetised because there was never any prospect of raising that amount from the bond markets when those markets are tending to fall.
I also congratulate the Minister on what I thought was a very clear presentation, whether people agree with it or not, of government policy and what is in the Budget. It is only fair to say that with a relatively limited scope, there are some measures which are good for the economy and for citizens. I welcome in particular the infrastructure measures, and again I hope that the Minister will get a move on and make them happen as soon as possible. The measures for improving export finance are important. I have observed previously that French and American export finance in particular is much more generous than it is in the UK, which often results in us losing orders.
I would like to focus on the measures relating to savings, both the ISA reforms, which I do not think anyone else has actually even commented on, and the pension reforms. I want to talk about them in the context of the all-important issue of the UK savings rate. Reference has been made to it, but no one has made the point that the main reasons for the problems and imbalances in the British economy going back 50 years are because we have had an inadequate savings rate. You can have too high a savings rate, which has been China’s problem, and you can have too low a rate, which has been our problem, as well as that of India. I think that what we really need is a national debate about the right savings rate and what would make sense to try and achieve it; that debate is well overdue.
First, however, I declare an interest as an adviser to the not-for-profit trade body, the Tax Incentivised Savings Association. The association acts on behalf of the various savings institutions and has embarked on a major process, with some 50 organisations, to produce a study on the problem of saving rates being too low and what might be done to fix it.
ISAs have been extremely important. They were really a cross-party creation because they were an adaptation by the last Labour Government of the previous PIMA regime. They have been hugely successful as a means by which people can accumulate savings for their retirement, and something like seven times as much per annum is now saved in ISAs as is saved in personal pension schemes. The reason for that is extremely simple: it is because ISAs are extremely simple. People have access to their money because it is not tied up in strings of nightmarishly complex legislation. By and large the providers of ISAs have offered a straightforward range of products, some more sophisticated than others, through which people can save. They are now supposed to be called NISAs—I always hate changes of name because you forget what has happened—and I think that they are going to be much more important than many realise in terms of helping to increase the savings rate and savings accumulation for people’s now much longer periods of retirement.
However, I should point out to the Minister that there is one small item that needs to be addressed. Generally, in a marriage at least, the man has the ISA. Statistically he is likely to die prior to his wife, but although the capital can pass to the surviving spouse free of inheritance tax, she loses the tax benefits of an ISA, which is tax-free in terms of income and capital gains. In a way the wife is being cheated because, if the husband has made that sort of provision for retirement for both of them, it is unfair that she should not participate if her husband predeceases her. Obviously it is the same case the other way round as well.
On the issue of the reforms relating to annuities, going back 13 years to when I was a Member of Parliament I used to get lots of letters from women with £10,000 or £15,000 in a small money purchase pension pot who quite rightly objected strongly to that money having to be put into a footling annuity which was going to be neither here nor there. My impression was that if these ladies had had access to the capital, they would have hung on to every penny right to the end as their reserve pot of money. I have always objected to the compulsory purchase of annuities, although obviously there is a concern that people may cash in and consume their pensions savings—indeed, the figures provide for some £2 billion of tax revenues from this source. I am not so sure they will but, again, it seems to me that it would make sense to consider some incentives for people not to do that. If people, for example, want to transfer their pension savings to an ISA, which is a much simpler way of managing their savings, why should they not be able to do that without incurring a tax charge on the way through?
My other old chestnut is that home ownership became popular because people saw it as a way of passing on some wealth to their children. It has always struck me that, if what might be left in people’s pension pots on the death of the surviving spouse could pass to their children’s pension fund free of tax, that would be another quite powerful incentive for people at all levels to save more in their pension scheme. Tax would of course be paid on it once the pension was drawn.
However, my main concern is the savings rate. All my life, at least in the 1950s and 1960s, it was stop-go balance of payments crises. We then discovered, with the freeing of capital flows, that large deficits could be financed by borrowing other people’s savings and selling the family silver. However, that was not without a price—although we have not had quite the same pattern of stop-go, we have always tended to end up with overconsumption, overborrowing and the need to put the brakes on. No one even talks much about current account deficits now. Although it is all very well to exhort people to export more, the current account deficit is, in essence, a function of public and private consumption less the savings rate compared with GDP. If that is 5% more than GDP, which it is now, there is going to be a current account deficit of 5%. No matter how hard we try to export, we are not going to tackle the current account gap unless savings are higher or consumption is lower.
I think it was the noble Lord, Lord Lawson, who discovered as Chancellor that the current account deficit did not matter much in the short term because it was financeable. However, in the long term, it still does matter. We found that we did not have a British company capable of building a nuclear power station and that the interests of most of our utilities, which were internationally owned, were often different from those of government. This is really selling the family silver to pay for cumulative current account deficits. There is a long-term price to pay, even though it may be possible to deal with it in the short term.
Finally, there is the other side of the coin, which is that although our generation here may be adequately provided for in retirement, the next generation certainly is not. Pension scheme contributions are nowhere near enough and the government commitments to welfare and health spending for that generation are simply not going to be affordable. Unless something gives—the most civilised thing would be for the savings rate to increase so that people can afford more of these things themselves—there is going to be a real mess in 20 to 30 years’ time. Even this House rather kicked under the carpet the fact that pay-as-you-go public sector pension schemes are likely to have a cash-flow deficit per annum as high as some £25 billion as early as 2017. There are plenty of studies pointing out that the overall welfare spending commitments that Governments have presently given are simply not going to be affordable in some 20 or 30 years’ time.
What is the correct savings rate? I have not seen a definitive answer. My common-sense view is that it should be an average of at least 10% over different periods, whereas it is now somewhere between 4% and 5% and forecast to go down to 3.2%. It is all very well saying that we have to use consumption to get the economy going—that is working but unless it is accompanied by measures that will lead to a higher sustained savings rate going forward, it is going to as usual end in tears, as some noble Lords have mentioned. I therefore go back to where I started: I am very hopeful that being able to save £15,000 per person per annum in a NISA will increase the savings rate. As auto-enrolment gathers momentum and contribution rates increase, or need to be increased, that will increase the savings rate as well. I commend the Treasury and the Minister to at least think about some of the tax points I have raised.
I close by saying that, given that this is now an appointed House, it is rather out of date that we are excluded from participating in the legislative process of finance Bills. It seems there is quite a bit more in the way of informed views and experience in this House on such matters than there is in the other place.
My Lords, from my perspective this has been a distressing Budget. It has all of the features that we have come to expect of the activities and the enactments of the Chancellor. I wish to examine some of these features, albeit briefly.
The Budget is highly political in the sense that it is dominated by the objective of gaining an electoral advantage for the Conservative Party, no matter what the long-term costs of doing so might be. The Budget promises a continuing attack on welfare provision and a shrinking of the public sector to a level not seen in post-war years. Apart from a token investment—equal to the amount of money to be spent on the repair of potholes in roads—in the Ebbsfleet housing project, which was announced in advance of the Budget, there have been no plans for any further centrally funded investment in social and economic infrastructure.
The Budget manifests the Conservatives’ desire to do nothing that might amount, in their perception, to undue activity on the part of the state. Some of the provisions of the Budget have been designed to appeal to pensioners and to those who are heading towards retirement. Such people constitute a significant part of the active electorate and the Conservatives have been fearful that, unless they appeal to those people, UKIP might seduce them. This is one explanation for the deceptively attractive proposal to allow people, on their retirement, to get their hands on the entirety of their pension endowments without suffering what has hitherto been a heavy tax penalty. This is likely to inject extra cash into the economy to stimulate it in time for the general election.
The critics have been quick to spell out the detriment from this provision. It would add an impetus to an already overheated property market as pension endowments are used to buy property to generate retirement incomes from lettings. This would compound the severely deleterious effect of the Government’s misguided Help to Buy policy. This liberalisation of the pension rules is also liable to lead to penury in old age for a substantial number of incautious people who will grab their wealth and spend it. The financial services industry is set to scramble wildly in an attempt to mop up the cash that has been liberated by offering pensioners all sorts of innovative financial products with deceptive inducements. Little has been done to protect gullible pensioners.
We should briefly remind ourselves of the current state of the economy and of the tasks that confront the Chancellor. At a time when it seems as if the economy is set to expand, there is a desperately poor export performance, which promises an eventual crisis. There is low productivity and low investment in a much diminished manufacturing sector. There are spiralling levels of household debt and there is a vigorous inflation of house prices, without any significant activity in housebuilding that might meet the needs of young people.
The nostrums of Keynesian economics, which were once widely accepted by the Conservatives, indicate that the Government should have taken a central role in addressing these problems. They should have become active in stimulating the economy at a much earlier stage of the recession. The means of doing so should have been a heightened level of investment in the infrastructure of the economy. There has been a lingering consciousness in the Government’s mind about the need for such an investment programme. There has been recognition of the need to invest in airports, rail links, sewerage systems, power stations and housing. In every case, the projects have been deferred until, supposedly, the economy is better able to afford them. In other words, there has been a complete inversion of the Keynesian logic.
Two major impediments have stood in the way of such investment projects. The first has been an ideological insistence that the projects should be financed and undertaken solely by willing providers from the private sector. The willing providers have not been forthcoming. The second impediment has been the concerns over the public sector borrowing requirement, allied to a desire to eliminate the budget deficit. With such an agenda, it has been impossible for the Government to fund investment projects. The budget deficit is due to the recession of the economy, which has reduced the flow of funds from taxation. It would be largely overcome if the economy could be restored to full employment.
A misconception has been affecting the common understanding of the borrowing requirement. It has been widely believed than any net borrowing denotes a burden of debt that cannot be sustained indefinitely. This fallacy has arisen from a failure to distinguish between the current account and the capital account of the Government. One should bear in mind that any successful business enterprise is bound to have a substantial and permanent burden of equity capital and financial debt, which corresponds to its borrowing via stocks and bonds. The enterprise is not liable to be criticised for the fact that, in order to sustain its capital investments, it is bound to borrow. The same should be true of the investments in social capital for which the Government are responsible.
In making their social investments, the Government have two advantages that are denied to private enterprises: on the one hand, they can borrow at much lower rates of interest than are typically available to private enterprises; on the other hand, whereas private enterprises must service their debts via insecure commercial profits, the Government can service their debts by the taxation over which they have control. The present Government have forgone the opportunity of undertaking much needed social investments at a time when the rates of interest on the necessary borrowings are at a virtually unprecedented low level.
When the Government have contracted to proceed, eventually, with an investment project, they have promised the undertaker a so-called market rate of return that is utterly exorbitant. The rate of return that has been promised to Electricité de France for building a nuclear power station is far in excess of the already excessive 10% discount rate that the Government typically use in their project appraisals. Moreover, the returns have been promised for a 35-year period. It would have been appropriate to finance this project, at far less cost, via the Government’s borrowings on their capital account. The cost of such borrowings could be serviced from the expected revenues of the project, but equally—logically—it could be serviced from taxation. In a wholly egalitarian society, it should make no difference which of these two means is adopted for financing investments in social capital.
From the perspective of the Conservative Party, which is averse to the strongly progressive taxation that is the corollary of a highly unequal society, the preferred means of financing such investments is by charging the consumer. However, there is an electoral disadvantage in imposing costs on the consumer. This has deterred the Government from making the social investments that are their responsibility, and this failure to invest promises social and economic problems in the future.
My Lords, this is a very timely debate, coming after a generally very well received 2014 Budget. The economy continues to recover, with forecasts for GDP growth being revised upwards once again. The budget deficit is coming down. The unemployment rate is continuing to improve. According to the latest CBI survey, manufacturing continues to recover. Inflation forecasts remain low. The economic background continues to improve, although there is still a long way to go.
The Budget has focused, quite rightly in my view, on measures to help business, as well as giving important help to savers and taxpayers, mainly at the lower end of the tax scale. My speech will focus in more detail on the above. I will also focus on the excellent report by the Economic Affairs Committee on the draft Finance Bill, published a fortnight ago. I congratulate the noble Lord, Lord MacGregor of Pulham Market, and his group on choosing the topic of proposed tax changes to limited liability partnerships, and on their thoroughness on what seems a complicated area of tax law.
Looking at the economy, first, I will highlight the Office for Budget Responsibility’s forecast for GDP improvement. As the Chancellor said in his Budget speech, a year ago the forecast for 2014 GDP growth was 1.8%. It is now 2.7%. This is a good sign of recovery. The 2015 forecast has also been revised upwards. Borrowing is also showing a marked improvement. Britain borrowed a horrendous £157 billion the year before the coalition came to power. The OBR says that in 2014-15 this will fall to £95 billion and, although it has taken longer than expected and there is a long way to go, predicts that it will come down to £18 billion by 2017-18. According to the Red Book, interest payment savings on the debt over this Parliament are expected to amount to about £10 billion per year by 2015-16 as a result of the Government’s consolidation plans.
Unemployment figures also show an encouraging trend. According to the Office for National Statistics, employment is up by nearly half a million people for the year ending January 2014. According to the Budget speech, 1.3 million more people are in work compared to when the coalition came to power. According to the ONS, the claimant count has fallen by 24% in the past year—the largest annual fall since 1998, according to the Red Book. Youth unemployment fell by 58,000 during the past year, which is also a good sign. I also applaud the imposition of the welfare cap linked to inflation—now supported by the Opposition, I see—although I know that cyclical unemployment benefits are excluded.
The next area that is showing an encouraging recovery is manufacturing. Last Thursday’s CBI Industrial Trends Survey showed a 3% rise from February in manufacturers reporting above-normal order books, suggesting that the recovery remains on track, driven largely by domestic demand. Anna Leach, head of economic analysis at the CBI, said that overall the survey of 368 manufacturers showed demand rising and robust output growth. Encouraging news emerged yesterday on manufacturing pay deals. Pay settlement figures in manufacturing rose to 2.6% in the first quarter of this year compared to last year’s average of 2.4%, in the latest sign that the squeeze on living standards is easing.
Another economic indicator performing favourably is inflation. The OBR forecasts that it will fall below the 2% target in 2014 at 1.9 %, and will not exceed it at any time until 2018. This Tuesday’s latest figures confirmed the favourable trend.
Turning to the Budget measures themselves, I will focus first on the welcome measures to help business. As the Chancellor said in his speech, when the coalition came to power the corporation tax rate was 28%. Very shortly, corporation tax will be down to 21%. The corporation tax rate cut has been a great help to companies. The second major boost for business in the Budget, as many speakers have said, is the increase in the annual investment allowance from £250,000 to £500,000 until the end of 2015. This has been warmly welcomed by the manufacturing and agricultural sectors. The third major area of help is company energy costs. The Chancellor can be congratulated on producing a £7 billion energy package that will cap a green tax and shield companies from rising renewable energy subsidy costs. The major manufacturers’ trade body, the EEF, and the employers’ group, the CBI, have praised all of the above, as well as congratulating the Chancellor on his apprenticeship funding, changes to the R&D tax credit regime, the extra support for UKEF to boost exports, and the decision to make permanent the seed enterprise investment scheme, which is such a help in financing new start-ups.
Moving on to measures for savers, first, I warmly welcome the Chancellor’s proposals with regard to pensions from 2015, allowing investors free access to spend or invest their pot as they wish once they have reached the qualifying age. I remember occasions when this was nearly achieved in the past but the efforts fell at the last fence, so I am delighted to see the Chancellor finally acting to give pension savers their freedom. I also welcome the new pensioner bonds for those over 65, paying up to 4% if held for three years.
Next, I warmly welcome the Chancellor’s plans to extend the ISA limit to £15,000 and the merger of the cash and shares ISA. According to the Daily Telegraph, these tax-free accounts are now held by no fewer than 24 million people. Sensibly, in a separate move, the Treasury has allowed—encouraged by a campaign by the noble Lord, Lord Lee of Trafford, and me, as well as by several other noble Lords from all sides of the House—AIM stocks to be included in ISAs. I also welcome the abolition of the 10% rate of tax on savings for certain savers and basic rate taxpayers. The increase in the personal allowance to £10,500 is most welcome, too. The limited increase in the starting level for the higher-rate band is also welcome, but more needs to be done to uprate this at least in line with inflation.
I turn to the excellent Economic Affairs Committee report on the draft Finance Bill. The report, not referred to by other speakers, was only recently published on 11 March. I understand that it is too soon for us to have a government response to consider today. The committee’s sensible conclusion is that the measures proposed are so different from the original proposals consulted on last summer that more time is needed to settle that question and get the legislation right. It also recommends delaying the limited liability partnership salaried members’ provisions to 2015. Can the Minister enlighten us on whether HMT will take on board the proposals? Will he respond to the recommendation put by the committee in relation to mixed member partnerships—here, I declare an interest—namely, partnerships including limited liability partnerships with corporate members? The recommendation was that HMRC amend the provisions so that they are drafted more precisely and rely less on guidance. I ask the Minister to take notice of this seemingly arcane area of tax law, because implementation of the provisions could cause chaos.
The Government have been right to stick to their course on deficit reduction. I listened with interest to the view of the noble Lords, Lord Hollick and Lord Myners, that there should have been increased government spending early in the Parliament, but this would have been a dangerous course, as the markets could well have been upset by a perceived lack of financial discipline in government finances and the cost of servicing the debt could have soared. I prefer the views of the noble Lord, Lord Desai. Recovery is heading in the right direction. There is a still long way to go, but the coalition’s approach has been fully justified. Finally, I agree with the noble Lord, Lord Flight, that this House should have more input on the Finance Bill, particularly as large chunks of it are not considered by the other place, meaning that you have legislation which is not considered by either House.
My Lords, I want to comment on some of the policies on energy, science, technology and exports that were in the Budget speech. I declare an interest as a director of a small company and as an emeritus professor at UCL and Cambridge. Some of the information about science expenditure was in supplementary information provided with the Budget speech and not in the version that we had from the Printed Paper Office. One question that one wants to ask is whether best use is being made of government expenditure on science and technology.
This Government certainly recognise the importance of science expenditure and there is a general feeling that the Chancellor has appreciated this more during his period in office. The previous Labour Government appreciated this, too, and had to overcome the lack of priority given to science and technology by the Thatcher and Major Governments.
The importance of the UK having a highly competitive science and technology area, and of its industrial applications, were raised in a recent report of the House of Lords Science and Technology Committee, which commented on the critical level of funding for parts of the UK scientific infrastructure—which I myself have seen accentuated in the areas of environment and engineering, as well as in atomic physics. That the UK did not have world-leading laboratories in hydraulics was a factor whose implications we saw in the floods of this year.
Importantly, the Chancellor said that policies for science and technology needed to be integrated with increased exports, but one has to recall that when the Conservatives came into power, the first thing they did was to indulge in various ideological decisions such as abolishing the regional development agencies, which were widely supported by industry and business. In Germany and elsewhere, such regional organisations of employers supported by government and local authorities are an important vehicle for encouraging exports. It is rather different from having a man from BIS coming to visit your company. That these organisations across Europe are extraordinary group activities is one of the reasons why they are so strong. As has often been commented on, the way that German industries in local areas work with the banks ensures expansion and adequate finance. It was surprising that the abolition of this very successful and growing area of our business in the UK was supported by the Lib Dems, who I had always thought were supporters of regional power and influence.
If we look at what has happened during the past three years, I suppose that we should be pleased that the Government have seen some of the error of their ways. Mr Willetts, in a rather nicely written piece that I have cited before, explained that when he came to power, he thought that the only thing the Government had to do was to get out of the way of business. He then stated that it was in fact very important that the Government lead, support and work with industry and science and technology to make important developments. A variety of specific initiatives have been taken, one of which was to focus on space. The UK is an important leader in applying work in space in a commercial way, as we saw just last week, with Inmarsat being located in London. That was a brilliant example of UK science and technology being widely recognised and used.
As part of the mea culpa article by Mr Willetts describing the evolution of government policy, he commented that, after being rather suspicious of the Labour Government’s Technology Strategy Board, the Government have become strong supporters of it. Although I did not hear any further mention of expanding it in the Chancellor’s Statement, it would be very interesting to know from the Minister whether that is planned. The amount of money being funded through the TSB is still small compared to the money spent in Germany, for example, through the Fraunhofer centres. The Fraunhofer centres also focus not just on very high-tech but give credit to important technology at the level of everyday living and small businesses—for example, how buildings get damp in strong rain conditions and what you should do about it. One of the Fraunhofer centres deals with that in particular. It was the noble Lord, Lord Sainsbury, who introduced the TSB, as he explains in his book on progressive capitalism.
One feature of the Chancellor’s speech, as of many speeches made by members of the Government, is the total absence of the word Europe. I was very gratified that the noble Lord, Lord Razzall, earlier commented that the most important feature for the long-term strength of UK industry, business, science and technology is that we remain in and active members of Europe.
The word from Brussels now is that because of our tendency under this Government to think of departing from Europe, in many European meetings in Brussels the UK’s point of view is simply ignored. They say, “You guys are on your way out; why should we listen to what you have to say?”. That was said by a senior British civil servant, now in Brussels, who said that the situation was serious. Last night, rather gratifyingly, we heard Mr Clegg talking about Great Britain, not Little England. I hope that that will be a feature of the next election. At the moment, we seem to be run by a Little England party. However, that was on Wednesday. On Tuesday, we had a speech from the Prime Minister saying that we greatly believe in Europe and that Europe is helping us with our development of full employment, so it varies from day to day.
It is important to keep reminding ourselves that areas in which the UK is a world leader are often those projects that we are undertaking with Europe. Airbus is a very important example. Rolls-Royce has only a small proportion of its work in the UK; most of it is now in Germany or in the United States. It is important for the Government to do much more to advertise that. When the Prime Minister flew to Beijing with his big delegation, he did not fly in an Airbus, he flew in a Boeing. When he arrived in Beijing, there was a big notice above his head, shown on television, reading “Boeing”. That is not very clever.
I also want to talk about energy and climate change. The Chancellor spoke about that in his speech and emphasised the fact that the UK is investing strongly in low-carbon sources of energy, particularly nuclear and wind. The fact that the UK is continuing its strong policy is one reason why we have some leadership in the world discussions on climate change. I am a vice-president of GLOBE, and many politicians from all over the world come to see what we are doing, both legally and by our policies. Indeed, our policies are coherent. I have been praising Germany in my speech, but the fact that it has a totally incoherent policy on energy—suddenly switching against nuclear—is a source of great difficulty in Europe.
However, the Government should not become too fascinated by the possibility of cheap gas. I notice that we had a fracking speech earlier this afternoon. The message from US politicians visiting London is that the reason why fracked gas is so cheap in the United States is that, as a result of legislation by President Bush, the costs of providing water for the fracking operation and for cleaning the water after the fracking operation are not attributed to the cost of the gas. In the words of American politicians, the water consumers of America are subsidising the cost of the gas. We need to be very careful about that.
I also notice that the issue rather reminds me of the Labour Government in the 1960s, when they asked whether they could abolish a railway going through Wales. Speaker Thomas, Lord Thomas, said, “Mr Prime Minister, that goes through 24 marginal constituencies”. I wonder whether the fact that fracking of gas would go through a lot of marginal constituencies in Lancashire may be the cause of the delay that we heard about this afternoon. To continue that point, the issue of water is one of the reasons why there was great concern about fracking in the UK; the Institute of Civil Engineers made some remarks about that that have not been explained by the Government.
I come to my last point. The Chancellor emphasised in his speech that the carbon price compensation for energy-intensive industries needs to be considered and implemented. However, it is very important that this is not just a handover of funds. Surely the funds should be handed over with conditions relating to efficiencies and new technologies implemented by the companies that are using this extra funding. In Stoke, for example, in the Potteries, they are using new techniques to make use of the gas coming out of the old coal mines. That kind of energy use should be supported. The other feature that the Government emphasised was the encouragement of combined heat and power. Many noble Lords have been commenting about that for 10 years or more and it is a very welcome development.
My Lords, it is a great pleasure to follow the noble Lord, Lord Hunt of Chesterton, who spoke with such authority on science and technology. I should also tell him that I am very familiar with the railway line that he referred to and, thankfully, it still does go through many a marginal constituency.
I think that the central thrust of the Budget thinking is right: we must as a nation reduce the deficit; we must press down on the debt, otherwise we will saddle future generations with that debt.
In general, Budgets can be broken down into three categories: calamitous, of which there are a few; routine, of which there are many; and transformational, of which there are very few. There is a strong case for suggesting that this Budget is transformational. It makes fundamental changes to the tax and budgetary system applying to pensions. It deserves comparison with the Budget of my noble and learned friend Lord Howe of Aberavon abolishing exchange controls. Another such Budget was that of my noble friend Lord Lawson of Blaby abolishing higher rates of income tax.
The fundamental change to pensions—and I disagree fundamentally with the noble Viscount, Lord Hanworth, on this point—is to give people power over their pension pots. I accept that we need a system of good advice, a point which was well made by the noble Lord, Lord Hollick, and the right reverend Prelate the Bishop of Chester. It is certainly true that we need to ensure that proper advice is in place for people. Subject to that, however, surely it is right to give people control over their own pension pots which they have built up over time. For the first time people will be trusted to manage their own pension pots. It is a major transfer of power to the individual. In fairness, it has been widely welcomed by all political parties. The added beauty of the move is that it does not cost the Exchequer any money; indeed, it will add to the country’s coffers as the amounts paid through drawdown will exceed the amount paid on an annuity in the early years. Admittedly, however, that will smooth out over time.
The Budget is also good news for the nation’s economy in terms of savings in general. That point has been made by my noble friends Lord Flight and Lord Northbrook, who are not in the Chamber at present, in relation to ISAs and the increase of the limit. That increase is also very welcome. Successive Governments have for too long neglected savers. Fairly recently the World Economic Forum pointed out that that needs to be addressed, and I think that it now has been. Another factor, which has not been mentioned overmuch, is abolition of the 10p rate for lower-income savers. Again, it is sensible to help people on lower incomes with their savings income. In addition there is the pensioners bond, which has certainly been mentioned. These boosts are very welcome. One of the key aspects of the Budget is what we are doing for savers.
In addition to savers, this is a good Budget for business. Business means prosperity and jobs. Increasing the tax breaks on business investment by business, doubling it to £500,000 annually, provides a significant boost to investment, and the Chancellor has also extended the life of the scheme. Cutting energy costs for business will also boost enterprise.
In this debate there has rightly been much talk about needing to rebalance the economy in regional terms. In that context, it is worth noting that half of the businesses that benefit most from the carbon price floor are in the north of England, and a further third are in Scotland and Wales. That is good news. We should also welcome the extension of the life of the business rate relief and enhanced capital allowances in enterprise zones. I declare my interest as chairman of an enterprise zone in Wales. This, too, is a welcome incentive to business.
It is a good Budget for savers and for business, and it is also a good Budget for export. We have seen in this Budget a doubling of the amount that the Government are making available, to £3 billion, and also a cut in the interest rate for exporters. Surely that is good news, too.
In relation to housing, there were one or two comments suggesting that the Help to Buy scheme was something that we should be ashamed of, but I do not believe so at all. For too long, successive Governments in this country have not concentrated on housing. We should welcome not just the Help to Buy scheme extension but the help that is now being provided for the development of Ebbsfleet. The greatest concentration and problem is clearly in the south-east and so Ebbsfleet, the help for Barkingside and in the redevelopment of Brent Cross are measures that should be welcomed rather than otherwise. So in many respects, this Budget will help the economy. It is helping savers, business and exporters.
Perhaps I might also mention some of the micro aspects of the Budget, which are in danger of being overlooked but which provide assistance to our tourist industry, as well as to our well-being as a country. There is help for the 800th anniversary of the Magna Carta, and for cathedrals and theatres. These aspects should not be neglected as they also provide a boost for our tourism industry, our country and our economy.
I believe this is a good Budget in many respects. Its legacy will be for savers but it continues on the right course for the country: of deficit reduction and bearing down on the debt. In concluding, I add my support, as a relatively new boy here, for this House having a greater role in relation to the Budget. That point seems to have been very well made and I hope that we can pursue it in the future because we have a definite and positive role here.
My Lords, we are invited to discuss the effects of the Budget on the economy. Let me state my views right at the outset. I believe that there are lots of small, good things in the Budget, which have been pointed out, but also quite a number of sleights of hand, which have also been pointed out. However, the effects of the Budget and of the Chancellor’s budgetary strategy in general on the economy have been largely negative. I believe that the austerity policy has slowed down the recovery of the economy and made it more fragile. It has also slowed down the reduction of the deficit, which I think we all want to see.
Many noble Lords have been discussing the challenges of the future and of the new normal. All those are very important. The noble Lord, Lord Desai, even said that we were living in a post-Keynesian age. But as long as we have spare capacity in the economy we are living in a Keynesian age. I, too, have my views about the future and I hope to be able to expound them in an interesting way in future debates. However, at the moment, we are not fully recovered and the recovery is not fully secure. I want to concentrate on the effects of budgetary strategy on the present situation.
One obvious thing to say from the start is that the Chancellor has failed to meet his deficit reduction targets. That is very obvious but it is not much mentioned any longer. He inherited a prospective deficit of £149 billion in 2010-11, equivalent to 10% of GDP. He promised to get this down to £20 billion or 1% of GDP—or zero, depending on your definitions—by 2015-16, mainly in spending cuts. By this fiscal year, the deficit should have been down to £60 billion. In fact it is projected to be £108 billion, or 6% of GDP. Now the Chancellor says he must cut spending by another £25 billion, which would be £62 billion in total over four years, to meet his target. The key question is: why did he fail on this crucial test—the test on which he staked his credibility in 2010?
In order to answer that, we have to start by distinguishing between fiscal tightening and deficit reduction. They are not the same thing. Tightening is raising taxes and cutting spending. The effect of these measures on the deficit depends on what happens to the Government’s revenue—the other side of the balance sheet—and that depends on what happens to the economy. Here we come to the key explanation of why the Government have failed to hit their targets. The Chancellor has done the tightening all right but the economy has not grown as expected. George Osborne expected the economy to grow by 2.3% in 2011, by 2.8% in 2012 and by 2.9% this year. In fact it grew by 0.9% in 2011, 0.3% in 2012 and 1.8% in 2013. The economy started collapsing almost from the moment George Osborne took office and because it did not grow according to plan the Chancellor has been forced to announce further tightening.
Was this just bad luck? I do not think so. The official line is—it is always is when policies do not work out as expected—that sound measures were blown off course by unexpected events; these being the Greek sovereign debt crisis, European stagnation and so on. Then the argument goes that to have abandoned austerity at that point would have been fatal. The markets would have done a bear on sterling and things would have been a lot worse. By sticking to his tightening, the Chancellor was able to continue to borrow cheaply. In his Budget speech George Osborne claimed that debt interest payments would have been £42 billion more had he not stuck to the policy.
I obviously do not have time in the two or three minutes left to say why I think that whole set of arguments is fallacious. But let me just say that the Chancellor’s policy was based on the wrong theory of the relationship between the Budget and the economy. It is as simple as that. He believed that if the Government cut their spending, the private sector would take up the slack. That is simply untrue when we are in a slump. If the private sector is tightening its belt—either reducing its debt or increasing saving—the last thing the Government need to do is to be tightening their own belt at the same time for the obvious reason that the two sets of tightening will reduce total spending in the economy. If there is a reduction in total spending in the economy there will be reductions in investment, output and employment. The Government cut their spending but so did firms and households. No wonder the economy went into a nosedive. I do not think it takes rocket science to work out that that would happen. The TUC just the other day suggested that we have an investment gap of £50 billion as a result of these policies.
What about the present upturn? Surely that is a vindication of austerity. It may be three years late—later than he thought it would happen—but it has still happened. I do not think that is as a result of austerity. It is true that employment fell less than output between 2011 and 2013 and the Government have congratulated themselves on the number of new private sector jobs that have been created—1.7 million on the present count as the Minister said in his introduction. However, the headline unemployment figure—the claimant count—has ceased to be a reliable measure of the amount of slack in the economy. In the past two years the private sector has created a large number of bad jobs—part-time, minimum-wage and zero-hour contract jobs—to replace the better jobs that have been lost. That is why productivity has fallen. Any job is better than no job, but we need a measure of underemployment and economists have been thinking of different sets of measures. On those measures, underemployment in the United Kingdom amounts to about 10% of the workforce and not 7%.
The economy’s growth in the past six to nine months has been in spite of the Chancellor’s Budgets. The reason for the resumption of growth is twofold: first, external conditions have been kinder, and secondly, there has been an aggressive policy of monetary easing. Since 2011, the Bank of England has injected £175 billion of new money into the economy. That, much more than fiscal austerity, has kept down the interest on government debt. It has also produced a boom in asset prices—homes and stock exchange securities—which has contributed to the feel-good factor and to an increase in confidence. By the same token, quantitative easing has produced a lop-sided and vulnerable recovery. Not only does it threaten new financial crashes down the line, but it has increased inequality. As John Kay of the Financial Times put it last year:
“The main effect of QE is to boost asset prices”,
“The one certain outcome … is that those with assets benefit relative to those without”.
I agree with that. To put it crudely, a recovery based on an asset boom will be weaker and less resilient, to use the Chancellor’s favourite word. I prefer it to “sustainable”, which has been hugely overused. It will be weaker and less resilient than a recovery based on a widely distributed upsurge of purchasing power.
I do not believe that the Chancellor has been much influenced by economic arguments; certainly, he has not been influenced by mine. His policy has, I think, been mainly driven by the ideological belief that state spending is inherently wasteful, that it destroys incentives to private wealth creation, and therefore should be cut to a minimum. The ballooning of the deficit in the slump simply gave him the opportunity to act on these beliefs. In doing so, he has prolonged the slump, caused unnecessary hardship to millions and seriously damaged the growth potential of the economy.
My Lords, I shall deal with two separate points and will make a separate declaration of interest on each. First, I was for a significant period early in my career a member of Lloyds Bank. In that context, I want to address one point which arises in the Chancellor’s address on the Budget. It is probably the only sentence in the whole thing that does not deal with the Budget. He said:
“Another abuse has been the manipulation of the LIBOR rate”.—[Official Report, Commons, 19/3/14; col. 786.]
In that context, I question the words “abuse” and “manipulation” as being too easily accepted without challenge.
When I joined Lloyds in 1959, I was sent to the training course at Ramsay Lodge in Scotland—it was part of the castle complex—which was owned by the Bank of Scotland and run by Lloyds. It was a wonderful training course, with the slight complication that it was in a building immediately adjacent to a residence for trainee nurses. There were 80 of them and 40 of us. It was a bit of an unfair match. There was a croquet lawn between the two buildings. In the course of 12 weeks, I do not think a single croquet match was played on it but by the end not a single blade of grass was left because of the clatter of boots.
Every week, we got a visit from a different director of Lloyds Bank who lectured us on a specific subject. In week 2, in September 1959, we got a lecture from a director on the subject of LIBOR. None of us had ever heard of LIBOR. I took proper lecture notes, and I still have them. I have been looking at them, and there is a very interesting distinction in them. When the director explained to us what LIBOR stood for, it was not what it was said to be when the scandal erupted three or four years ago. Then we were told it was the “London interbank offered rate”. On the training course, we were told that it was the “London interbank overnight rate”, and the director made no bones about the fact that the word “overnight” implied that it was take it or leave it, no option whatever. He freely admitted that it was the most profitable thing in the bank and made a fortune for everybody. If the word has been altered from “overnight” to “offered”, the latter would surely be manna from heaven to any lawyers defending it, because it would mean that you have a choice. If we have moved into the electronic age as regards the movement of capital, you can make that choice and manipulate it very much more easily and swiftly.
Can the Minister talk to the London clearing bankers’ association—and can the Treasury look at this—and find out when that word changed? What principles and rules were laid down for its application at that time? It may be that we have challenged and accused the banks because of the way that they operated under the old system, and that it has been replaced, and this is damaging our banking industry and the scale of fines and punishments that are now being imposed. That issue should be addressed, and I ask the Minister to look at it. The Bank of England may have some clues, and Lloyds Bank itself may have some, but there has been a significant change in that wording, which needs to be looked at.
Secondly, there is a very interesting difference between the attitudes of the two sides of this House as shown in the course of this debate, which puts me in a very interesting position. I want to declare that my father was a fully paid-up member of the British Communist Party. I do not know how many descendants of members of the British Communist Party sit on these Benches over here, but he would be horrified to see where I am now standing. He had two great hates in this life: the Conservatives and the Church of England. I think that he thought they were both the same; he never drew a distinction. He had a lifelong desire to see the destruction of both, and there were two great bad moments of my life as a young man. The first was when I joined the Young Conservatives and he immediately called me a class traitor who should be thrown out of the house. I said, “I only joined it because they’ve got the best-looking girls”. He replied “Yes—but they all stink. All Conservative women stink”. “Why, father?”. “Because they have such terrible ideas in their brains, and it rots their insides and they stink.” I said, “I’ll go and do some market research and will let you know”, and I never found any evidence to support it.
My father regarded the Conservatives as the enemy, but attributed the extreme poverty in which he had grown up to the Church of England—that was the cause of his problem with it. His mother had been the district nurse—the midwife on a bike, although nothing like the television programme—in Hammersmith. His father had died the year after he was born, and she had managed somehow to keep three children alive and fed. However, she then got a dreadful infection of her teeth, all of which had to be extracted, but could not afford the dentist’s fee. Therefore the church got the dentist who was part of the congregation to agree to do it free, but nobody would pay the seven shillings and sixpence for the anaesthetic, so she died in the chair as a result of the whole process being done in one night. The church then had three orphans to deal with, whom it initially put into a Church of England orphanage in south London. Two of the children were then sent across to Canada as boat children, where they were sold for $50 each to the first family who would take them; my father never saw them again. Meanwhile, he met my mother, who was in similarly unfortunate circumstances, in the orphanage in south London. She was 12 and he was 14, and they married 10 years later.
My father used to go on about how I had advanced to the point where I had been able to go to private school and see the comparisons and all the rest, but I should always remember that I was a working-class boy—as I always have. However, he would then talk about the socialists of the day and say, “They’re not real socialists—they’re chocolate box socialists”. Today we have seen the chocolate box socialist position on this Budget on the other side of the House. My father would have described it as “chocolate box”, first, because they have all joined because they have opinions which mean that they want to be identified with the pretty picture on the box, and secondly, the chocolates inside are soft-centred and far too bitter to swallow. That would be his reaction, and that is my reaction to the whole presentation we have had across the House. If my father had then asked me what I thought I was associated with on this side, I would say that the contrast is that this organisation has understood this political difference: you cannot spend money that you do not have, and you have to make the money first to spend it. That is the line we have taken, and it has been consistent here today.
However, my father would now be sitting on a cloud, laughing his head off and looking at me, saying, “Look, lad, I used to tell you it was clogs to clogs in three generations but you’ve done it in two, because your posh friends have just completely destroyed your entire position with your pensions”. I have five pensions, but then I was chairman of 11 public companies in 21 years, and so I had to put them together bit by bit wherever I went. I think that my pension is ruined by the Budget last week, and I would like to hear a reaction from the Minister on that. My position is that if you stop the flow of funds to the annuity companies and simultaneously withdraw funds from them, you will create a double whammy that will drive them out of business in very quick time. In that case, I expect very shortly to get a letter saying, “Sorry, we can’t pay you any pension this month, as we’ve no money left”. How long is it before that is going to happen, and what will the Treasury do to mount an oversight and monitoring process to ensure the continued health of the annuity companies?
My nightmare would be to see Labour come back into power and decide that it had to correct this by nationalising the annuity companies. The Labour Party cannot say that it would not do it, as it has form on this—to put it in criminal terms. It has had a look at taking money out of pension schemes; it has form, and it would do it if it had a chance, so it should not say that it would not do it, because it would. So we need to know how we would protect the annuity companies against that ultimate calamity.
I think that my father is having a very good laugh and saying, “I told you so—it serves you right for being on the wrong side of the House”. But I am absolutely in the right place and, from what I have heard, you guys are in the right place, too, and thank you very much.
My Lords, I think it is clear that this Budget had more than an eye on next year’s general election. Aspects of it are, of course, to be welcomed. There is the U-turn on the annual investment allowance, now to be doubled, up to the election at least, after originally being cut, and the doubling of export finance—albeit that the Government are to miss their export targets and are struggling to rebalance the economy. There is the news that the economy is growing again after three damaging years of flatlining, albeit with no recovery for millions of families who are experiencing a fall in living standards. There is good news for savers also, if you are one, but the prospect of being able to tuck away £15,000 per year into a NISA or to have the first £5,000 of savings income subject to a nil rate of tax will seem but a distant dream to those who the Centre for Social Justice refer to in its report entitled Maxed Out. I refer to those millions of people in the UK who are struggling under the weight of their personal debt, with squeezed household budgets, zero hours employment contracts and a rising cost of living. The budget does nothing for them—nor has it protected public services, which provide vital support for the most vulnerable in our society.
The noble Lord, Lord Holmes of Richmond, advised us when we were discussing these matters to reflect on the fact that the Budget was about real people’s lives also. I very much agree. I had brought to my attention just yesterday—and I pass it on to the Minister—the example of Mapledown School in Barnet, a secondary school for disabled children that provides vital care for 65 pupils, so as well as educating the children it also supports their carers. Because of cuts to the council, passed on by the council, the school has had a reduction of funding of some 25%, with heavy restrictions on the services that it can provide. So in winding up, perhaps the Minister could give that school some sort of message about when it is expected that it might be able to share in the benefits of recovery.
I propose to concentrate the rest of my contribution on the announcement on scrapping compulsory annuitisation—or, more accurately, the compulsion to take an income by way of annuitisation, or drawdown, from a DC scheme. It is, in the words of the IoD,
“the most radical reform to the pensions savings architecture in decades”.
That is possibly true and, given its ramifications, it is all the more to be regretted that this announcement came with no prior consultation, and with a paucity of underpinning analysis. Then there are major issues, such as the impact on the gilts and bond markets and government investment—a point stressed by my noble friend Lord Haskel. Also, how much of it can or should work for private sector DB schemes, what does the guaranteed guidance amount to and how can it be delivered? What does it mean for the future of the annuities market—a point just raised by the noble Lord, Lord James? Will it fuel a buy-to-let market? These are left as open questions for changes which are due to start in a year, and transitional changes which are due within days.
In his rush to get a favourable headline, the Chancellor forgot something else. The Government have eschewed the opportunity of building a consensus for this policy in advance. They ignore all the efforts which have underpinned so much of pensions policy development in recent decades, from the Pensions Commission through auto-enrolment to the single-tier pension. The policy is predicated on the importance of consumers having choice—choice, that is, in the decumulation of their pension pots. The mantra is that it is their money and we should trust them to make the right decisions about how it is deployed. Perhaps begging the question as to whose money it is, given that DC schemes get a contribution from the taxpayer on original investment and again on accumulation, we can agree with the importance of choice, provided individuals have the opportunity for an informed choice. However, we recognise that informed choice can be difficult given the complexity of the pensions marketplace.
The NAPF saw the Budget announcement as perplexing in its juxtaposition to auto-enrolment, which was designed to counter the fact that often people are ill informed and make poor decisions about planning for old age. It says:
“On the one hand the idea that savers can take their pension as a lump sum, albeit subject to tax, may be an incentive to save. However, this choice brings with it a significant burden of responsibility for individuals to understand the choices they are making. We know this is not always the case as people often underestimate how long they will live and overestimate how long their pot will last”.
The prospect that those in retirement will take more of their pot earlier produces considerable extra resource for the Treasury. There may no longer be the 55% exit tax charge, but there are still substantial revenue gains for the Treasury, reaching £1.2 billion in 2018-19, and some £3 billion overall by the end of that year. What are the estimated withdrawals from DC pots which generate these numbers, and what is the assumption about how they are invested? The Treasury is also, ironically, taking the benefit of some £850 million from the sale of class 3A national insurance contributions—effectively an annuity product—the cost of which will mean increased state pension payouts beyond the forecast period.
The Pensions Minister—perhaps we should call him Mr Lamborghini—has apparently declared himself relaxed about people blowing their pension pots and believes that the single-tier pension will preclude them falling back on the state for support. This analysis ignores the extent to which means-tested benefits for pensioners endure through the single-tier pension arrangements, and there will be many still invested in their DC scheme who have retired, or will do so, before the single-tier pension comes on stream.
We know that the annuities market is not currently serving consumers well, and the Financial Conduct Authority considers that people are getting a bad deal. Annuity rates have been in decline and the fundamental reasons for this are clear—people are living longer and we have been in an extended period of rock-bottom interest rates. However, matters are made worse by too few people shopping around for the best deal and suggestions that the insurance company providers are extracting super-profits from their annuity business. Recent figures show that someone with a modest pension pot of £24,000 could increase their annual income by 25% just by shopping around to get the best deal. The Government have not helped by their refusal to introduce a cap on charges.
However, the position is not all gloom and doom. Annuity rates for 2013 rose because of rising gilt yields and a more competitive pricing environment—the latter driven by the focus on transparency by the FCA and the ABI and the unwinding of some of the cautious pricing from gender-neutral changes. There is an inevitability about some of the factors which have driven rates down—longevity being one—but not all.
Some of the market failures can and must be fixed. However, in acknowledging the potential benefits of more choice, we must not lose sight of the important role that annuities play and can continue to play. They are the only financial product guaranteed to produce an income for life, with the investment risk and the longevity risk remaining with the provider. They also pool risk, which is reflected in the pricing. Having individual choice over individual pension pots runs counter to all this. Certainly one of the big questions that arises from these proposals is what the annuity market will look like in the future. Evidence from other countries suggests that many will not annuitise. What is the Government’s assessment of how this is likely to affect the market, particularly on pricing?
We need to better understand precisely what is to be provided to consumers under the guaranteed guidance. Perhaps the Minister can confirm that we are talking here not about advice, but guidance; there is a difference between the two—guidance is a weaker concept. There are substantial issues about ensuring the robustness and independence of what is to be offered, and there is a wider issue of whether a one-off, face-to-face session at the point of retirement—what happens to those who have retired already or those who retire in stages?— will be sufficient to fully inform consumers and equip them to make effective choices for the rest of their retirement. Frankly, I doubt it.
This all gives the impression of having been put together somewhat in a rush, without due analysis and with big questions remaining unanswered, and perhaps with a hint that under the guise of promoting choice the Government are looking to rake in another £3 billion in tax from pensioners. That is no way in which to develop a sound, long-term pensions policy.
My Lords, I am glad to be following the noble Lord, Lord McKenzie of Luton, and to be able to express a contrary view.
When the coalition Government took office in 2010, the country was in desperate need of a credible plan to eliminate the deficit and to manage the national debt. They adopted such a plan knowing that it would take several years and that there would be a great deal of criticism along the way. The Government were faced with an Opposition consistently critical and negative, whose alternative appeared to consist of inviting us to spend our way out of debt.
Given the great reliance of the UK economy on banking—greater than that of any other major economy—the turnaround was always going to be slow and painful. The welcome return to sustainable economic growth—I like the word “sustainable”, unlike the noble Lord, Lord Skidelsky—has vindicated the Government’s approach. Even so, there is a long way to go until the deficit reaches acceptable levels, as the noble Lord, Lord Desai, explained so clearly. The present path—call it austerity if you will—must be sustained. If anything, deficit reduction should be speeded up.
The deficit and the national debt, and the return to growth, are clearly the most important economic matters before us as a country, and have been well aired today. However, I want to concentrate on some supply-side aspects of the Budget that are essential to future prosperity. First, we should have fewer Budgets and Financial Statements. These provide opportunities to tinker, regulate and add complexity to the vast financial rulebook, which is unscrutinised by this House, as other noble Lords have said, but consume ever more resources in the public and private sectors. However, with the supply side in mind, I commend the Government for the sweeping reforms of our pension system in last week’s Budget. By reducing the constraints on individual choice, the reforms will revolutionise the way in which Britons save for retirement.
There is a risk that a few will blow their small pensions irresponsibly. We must, of course, allow for this in the cost-benefit projections and work through the details. However, we should trust people as we trusted them to buy their council houses—also substantial assets. The change to the rules on annuities, which many will still opt to go for, is the kind of radical supply-side reform that transforms people’s lives. Transformation was also the word used by my noble friend Lord Bourne of Aberystwyth. Such reforms have been absent for too long.
I was impressed by this year’s Red Book—a cornucopia of interesting information, simply written, and also, as we have heard, favourite bedside reading for my noble friend Lord Northbrook. I was struck by what it shows about the path of future taxation: national insurance, up from £107 billion this year to £138 billion in 2018-19; capital gains tax, more than doubling from £3.9 billion to £9 billion; and business taxes, close to my heart as a retired retailer, up from £26.6 billion to £32.3 billion, despite attempts to slow their growth. What a pleasure, I should perhaps say, to hear from the right reverend Prelate the Bishop of Chester about the social institutions that helped Sir Terry Leahy, also of Tesco, to make his way up from working-class Liverpool.
As a member of the business community, I have always been concerned about our standing in the world and have championed UK competitiveness. We have been lucky to have been served so well by Trade Ministers on both sides of this House, most recently by my noble friends Lord Green of Hurstpierpoint and Lord Livingston of Parkhead. Therefore, I welcome the improvements to export finance, to export support and, indeed, to the cost of long-haul flights announced in the Budget. Perhaps the Minister can let us have more details on the costs and the timing of these initiatives when he responds to my noble friend Lord Sheikh.
Those are of course only some of the ways in which government can help our exporters. Perhaps even more important than finance or trade missions is the support provided by our embassies on local political and administrative issues, which can, in my experience, be the difference between a successful and a very troublesome investment. More generally, the drivers of competitiveness and hence success, including export success, are: low taxes, where we have done so well on corporation tax—the Chancellor’s best policy for business, although more can be done, as others have said; the exchange rate and energy costs, the terms of trade, well explained by my noble friend Lord Razzall; and encouraging enterprise, education and infrastructure investment.
On enterprise, I hope that the doubling of the annual investment allowance will, by encouraging capital spending, improve productivity—an issue about which many noble Lords have expressed original and interesting views. However, government action is less important to enterprise and small business than the overall climate. Business will succeed and improve productivity only if it has the confidence to take risks and to invest. Our accelerating growth and the rise in employment to a record 30.4 million by the end of this year will certainly help. We have heard that for every job lost in the public sector over the past three years, we have created four in the private sector—I would add that many of these new jobs are in small firms—which in my view is better for long-term prosperity.
However, in business we also have to believe that success will be sustained and that we can get ahead in the longer term. This depends primarily on education. The Secretary of State is doing many good things. Free schools are rightly identified in the Red Book as a growth driver and now number 174. We just need more of them—even more “vigour”, in the words of my noble friend Lord Horam. I also welcome the 50 university technical colleges, fulfilling the dream of my noble friend Lord Baker of Dorking, and the 46 studio schools.
However, let us learn from Germany in this area too. Trades are learnt from sitting alongside experienced master craftsmen and engineers, and employers have a big role in vocational course design and standards. Therefore, there is more to do but I was delighted to see that apprenticeship starts have reached 1.6 million in this Parliament. These are helping many young people into the skilled jobs that we need in a productive modern economy, in manufacturing, ICT and services.
The Budget also helps long-term competitiveness by finding resources for infrastructure investment—not only the housing projects already mentioned, but the Mersey Gateway Bridge, the improvement to the overcrowded M4 in Wales, the A1 north of Newcastle, and continued rail improvement in our ever-expanding and congested capital, building on the miracle of Crossrail.
I end on a final theme, which is how we simplify what the public sector does so that we waste less money, make fewer mistakes and make it easier to do business. I was glad to hear of the Prime Minister’s ambition to see us ranking in the top five countries in the world in which to do business, and would like to refer to the World Bank Group data on this, kindly provided by the Library. Singapore, Hong Kong, New Zealand, the United States and Denmark top the chart at present. In the UK we already do well in the provision of credit and protection of investors. However, it is depressing to see that we score badly in the time that it takes to enforce contracts, register property, get construction permits or start a business, and even in the time it takes to pay taxes.
The proposed simplification of the tax system, though not new, is important. As someone who has campaigned for the politically unattractive combination of income tax and NICs, I am glad to see a small advance: allowing the self-employed to pay class 2 NICs through self-assessment.
How can we build a coalition for a simpler, less bureaucratic and less costly Britain? My vision is for a rule book that is half the size of what we have at present, with half the number of regulators, half the number of quangos and half the number of tsars as we shut things down as well as set up important new things.
We also need a new culture of good implementation that prevents the expensive crises that we see everywhere, from Stafford to the west coast main line, and the new regulation that often follows. Reliable delivery is one of the best things that the best in the private sector can teach the public sector.
I welcome the progress that the Minister has described but we need to keep our nerve, stay on the stony road and gradually bring our plans to fruition.
My Lords, that was an excellent speech. We are destined to stay on the stony road, according to government plans. It was an excellent speech in a debate in which there have been many excellent speeches on both sides of the House. Inevitably, I took much greater solace from those on my side than from the government side, but nevertheless the Minister introduced the debate very competently, as we would expect, and to all who have contributed I pay due tribute as to the quality of the debate. In the wind-up it will be appreciated that mentioning all 30 contributions would be above and beyond the timescale on which any of us operates.
Let us get this absolutely straight about the Budget. We are engaged in the American experience. This is a year-long election campaign that we are starting. The Americans, of course, extend that to two years, or more. They have almost continuous election campaigns but we have the full-blown one year, or a little longer, election campaign because we were ridiculous enough to agree to establishing a fixed-term Parliament under the auspices of the coalition. It means, of course, that the Queen’s Speech will be cobbled together on the lowest common denominator between the two parties, which want to differentiate themselves before the election. A few dusty Bills that have been locked away in departmental cabinets for so long can now be brought out to keep Parliament vaguely occupied while the MPs do what they always do. They will go back to their constituencies as often and as much as they can. I have never met a Member of Parliament, male or female, who was not absolutely assured that when it came to winning votes the best place they could be was in their constituency.
That is what we are facing and that is what the Budget is about. It is a pre-election Budget. The Chancellor is setting out to shore up his core vote. That is why the noble Lord, Lord Higgins, reflecting on his past as a Member of Parliament for Worthing, emphasised that there would be much joy in Worthing. I am not at all surprised. I reckon that there will be much joy in most of the constituencies that return a Conservative majority of 20,000 or more. Of course, we expect the Chancellor to take some cognisance of the needs of the nation, rather than the needs of those he seeks to shore up against what he probably regards as a somewhat unfair UKIP threat.
The noble Lord, Lord Palumbo, expressed the view that we should begin to pursue the objective of a new politics. However, I would not advance that argument in a pre-election year. There is no way in which we can avoid the circumstances in which a polarisation of debate will take place over the coming year. The noble Lord will have to bide his time and try to win support for his arguments later.
This Budget is highly political. The most striking thing about it was how political the Chancellor was in springing pensions reform upon the nation. As the noble Lord, Lord Stoneham, identified and my noble friend Lord McKenzie emphasised, pension reform in this country has been built on the basis of the parties reaching some modicum of agreement. Of course it has. Pensions have to be sustained over a considerable period of time and are fundamental to the welfare of our fellow citizens. However, this pension reform is not a product of consensus. It is true that my party had indicated growing anxieties reflecting the public mood about the way in which annuities worked and that reform was needed, but this reform was brought in in one fell swoop as part of a carefully guarded government secret purely for electoral and political considerations.
It is all the worse for that because the Chancellor and others will have to wrestle over this coming year with the issues identified by my noble friends. These issues include: how adequate independent advice will be offered to so many people; how we will deal with the situation where some people cash in their pots and then, potentially, subsequently fall back on society; and how we deal with the fact that there will not be a collective response to the development of pensions. We are all at different levels of risk and chance elements as far as the grim reaper is concerned, and that is why the concept of insurance is so important. However, the Government are in danger of throwing people on to their own resources and takings risks, and that is why this reform should never have been introduced in this way.
The second issue on which I wish the Minister and the Government to respond relates to the point made by my noble friend about housing inflation, low credit terms and easy credit being the basis of this recovery. My noble friend Lord Hollick explained that it was exactly these factors that helped to exacerbate the collapse and the crisis that we all endured. How can the Government pretend that they are on the high road to economic recovery when it is based upon the same factors that brought disaster in the past? I hope the Minister will address that point because my noble friend Lord Hollick was emphatic that it should be answered.
There are taxation changes in the Budget which, on the whole, are generally regarded as neutral—of course they are. This is because many of them are lost upon anyone who cannot take a joke such as, “Please have a free pint of beer on the Chancellor after you have consumed 300 prior to that”, or something similar on the reform of bingo. These are the classic budgetary tactics which are adopted in a pre-election year. We got them in pretty full measure, if nothing else.
What my noble friend Lord Haskel sought to emphasise is that the Government are ignoring the cause of difficulties in other countries. They always identify the economic problems of this country as if they happen in isolation—until they begin to tackle them. They have to take on board the fact that we are in a worse position in terms of the length of our crisis than is any other state except Italy. We are boasting about these marginally increased rates of growth after several years when there was no growth at all, and we are ignoring the fact that the United States, for example, is operating on a growth rate at the present time of 5%. The Government had better wise up and realise that they have something to learn from other nations which have tackled these issues differently. They have pursued entirely different strategies, but the Government purport to suggest that their approach, that of austerity, is the only one.
The noble Lord, Lord Low, accurately and eloquently defined how austerity is biting and the significance of that, while the noble Lord, Lord Skidelsky, launched a bit of an Exocet at the Government on the basis of the strategy they are pursuing by explaining just where they have got things wrong.
The Chancellor has got things wrong. He made the fundamental claim that the deficit would be removed by 2015, the year of the next general election. Now he is saying that it is going to take a little longer, deeply into the next Parliament, but not too deep. Well, that looks like failure if it is giving us a promise of the adoption of the Government’s strategy. The Chancellor has also indicated that the recovery would see borrowing reduced in such a way that he will set an example in how he has conducted the economy. But the Government have borrowed more in five years than the previous Labour Government borrowed in 13 years. He has also emphasised that the crisis has been a difficult one, but that he will tackle it in such a way that the country can rest assured under his governance. What has that meant? It has meant austerity of such a kind—I do not think that this has been given a sufficient airing in this debate—that wage earners have seen an average reduction of £1,600 a year in their resources as a result.
As far as the Government are concerned, it is not possible to do anything about the recession except stimulate the demand for housing. We are already finding it very difficult to meet that demand and we all know about the shortage of housing in this country, particularly in the London area. What are the Government doing? They are doing nothing about supply; rather, they are encouraging the development of enhanced demand through their scheme of lending support for mortgages.
The Government have also done absolutely nothing for young people. We all know that there are differences between the needs of the different generations, but what is quite clear is that although pensioners have not seen an enhancement of their position in the way they might have hoped—they are now to get this particular bonus from the Government—it is our young people who are really bearing the weight of the recession. It is our young people who cannot get jobs. In case the House thinks that I am talking about people who cannot get jobs because they are incompetent, what is the developing crisis in the universities about if it is not that people are not repaying their fees? Why are they not? Because they are not earning enough money—£21,000—to be eligible to have to repay their fees. It is causing a crisis in university finance and young people are paying the price.
The Government are also of course taking advantage of those who cannot fight back so easily—350,000 people visit food banks regularly, which is an absolute indictment of the society in which we live. I accept the points the right reverend Prelates made about their concern with the distribution of wealth and the very important point which the right reverend Prelate the Bishop of Sheffield made about seeing that support and economic development occur widely across the country and not, as at present, remain concentrated almost overwhelmingly in the south-east, with the disastrous consequences we have seen for house prices in that region.
In case it is thought that I have been critical of the Government but not faced up to the fact that painful measures need to be taken, of course we recognise that. I emphasise that the first proposal for a welfare cap was made by my leader, Ed Miliband, in June 2013. We were aware of course that the issue of escalating welfare payments had to be tackled—but that does not mean that we can indulge in a Budget which is purely about electioneering and consolidating the Tory core vote.
Along with the noble Lord, Lord Davies, I pay tribute to the very stimulating contributions from right around the House. The past five hours have simply flashed by. Like the noble Lord, Lord Davies, I hope contributors will excuse me if I do not refer to them all individually. I think the most helpful way to sum up is for me to try to break down the discussion into the five or six key areas and go through what I think were the pertinent issues and the points that I should address.
I begin with pensions and savings because, as my noble friend Lord Bourne said, this was a transformational Budget precisely because of what we were able to do in terms of the pensions revolution. With one or two exceptions here today, it has been very broadly welcomed, particularly by my noble friends Lord Wakeham, Lord Higgins and Lord Stoneham, as well as by a number of other noble Lords. I absolutely accept that the provision of expert guidance is a critical part of making this transition work. The Government have laid out a clear plan and commitment to that, which we will follow through. I was very taken by the very thorough analysis offered by the noble Lord, Lord McKenzie, of some of the potential impacts which will flow from a change this radical. He is absolutely right to bring those to our attention, and the consultation that we have started will attend to them very directly.
My noble friend Lord James referred to the risk to the annuity companies. A similar change occurred in Ireland and the health of the annuity companies was just fine. My general attitude to the financial services business is that in the same way as we have given pensioners the flexibility to respond based on their own requirements, I think we will find that pensions and insurance companies will be able to respond very flexibly to the new environment. I will certainly take away the request from my noble friend Lord Flight to have a look at the NISA tax issue with respect to the tax treatment of the surviving wife.
We have had this discussion—I think we had it last year as well; in fact, I am sure we had it last year as well—about whether our debt and deficit are really going down fast enough, or whether they have gone down at all. I thought that I was quite clear about the process we are going through, and my noble friend Lord Higgins echoed the way in which I approached it. The situation is really not that complicated. We inherited a record deficit. Until you get that deficit to zero, of course debt will continue to go up. The OBR tells us that we will be back in surplus by 2018-19. It is only at that point that the accumulated debt can begin to go down. We expect the deficit as a proportion of GDP to hit its peak in 2015-16 and then begin to come down.
It is a difficult, long-term process. There are many more cuts that need to be made in order for us to be able to accomplish that. My right honourable friend the Chancellor could not have been clearer about that. I really do not accept the suggestion of the noble Lord, Lord Skidelsky, that this is driven by some ideological rage to reduce the size of the state. It is driven simply by what I regard as an extremely sensible approach of reducing the amount of debt because debt will eventually overwhelm you and leave you with absolutely no protection against future shocks. It is true in personal finances, it is true in company finances and, while there is more flexibility in sovereign finances, ultimately you have to deal with the same issue. We were overleveraged and we have to fix it. I absolutely agree with what I think was the most popular contribution of the day, from the noble Lord, Lord Desai, that the deficit just has to be eliminated, and we have stuck to the plan to do that. My noble friend Lord Horam pointed to the fact that there are still some risks out there, whether in China or Ukraine or deflation in the eurozone. It is by no means plain sailing even if we stick to the plan.
I will talk about the recovery. The debate we had last year was about there not being a recovery. We have moved on from that. As the noble Lord, Lord Desai, said, we were discussing whether or not we were having a triple-dip. We have moved the debate on. Now the debate is about whether it is the right kind of recovery, which is a higher class of problem for us to be addressing. It is interesting that the essence of the Opposition’s position on this is the risk of, “It might look as though there are some of the components of all the mistakes we made”. If that is the best criticism that can be levied, that tells you something about the potential strategy of an alternative Government.
The Chancellor has been quite clear—and I think I was quite clear in my opening comments—that this is a recovery that has some challenges. It is a partial recovery. There are some real issues in the imbalances. I was not trying to disguise that. The Chancellor has not disguised that. Investment has not yet come back as we would have hoped, although there are some signs. That is not unusual at this stage of a recovery so we should not be surprised. Exports are not performing as well as we had hoped.
On investment, the noble Lord, Lord Kestenbaum, made the case strongly for innovation, as did the noble Lord, Lord Hunt, and my noble friend Lord Eccles. I think that there was a lot of agreement about our need to tackle the productivity question and, looking at our science and research capability, the intangibles in the economy which do not get measured in the productivity numbers quite as we would like. I take all that on board.
On the balance of the recovery, the right reverend Prelate the Bishop of Sheffield implied that all the employment growth was in London. That is not consistent with the ONS statistics, which show that it is much more broadly based than that. My noble friend Lord Holmes made an excellent point in saying how crucial the employment recovery is, because those are real jobs for real people. At the beginning of the recovery, there was perhaps a greater proportion of temporary work, but if you look at the employment improvement over the past 12 months, you see that it is fundamentally in good, solid, long-term jobs. The sector which has seen the most benefit in terms of employment growth has been professional science and technical research, so there has been a lot more substance to the employment recovery in the past 12 months.
My noble friends Lord Sheikh and Lady Neville-Rolfe talked about exports. There are a number of combinations. It is clear that we need to switch over time from the EU towards the BRICS and the MINTs. I am joining the Chancellor in two weeks’ time on a visit to Brazil, where we hope to address what my noble friend Lord Holmes pointed to as our underperformance relative to the Italians. I think that everybody welcomed the extra support for UKTI and UKEF, so that funding can be provided to exporters at the most competitive rates. We now want to support our exports in the most aggressive way rather than try to make available a facility which made us the good guys in terms of complying with OECD rules in the most gold-plated way. I am very much in favour of a much more aggressive approach.
It was inevitable in a discussion on the balance of recovery that mention should be made of house prices and the housing market. I think we all accept that we have a long-term challenge to build the supply of houses that this economy needs. We tried to attend to this challenge at this Budget as we have in previous fiscal events. The initiatives at Ebbsfleet, Barking Riverside and Brent Cross, together with the expansion of the Help to Buy equity loans scheme, which is available solely to new house purchases, should all add up to improving the pipeline by about 200,000 houses. This year, we have seen more housing starts than in any time since 2007, so a degree of normalisation is going on in terms of the recovery from the financial crisis.
On the argument that house prices have been inflated by the Help to Buy scheme, I think that the scheme has been much maligned. If you look at the data behind it, you see that 75% of the houses supported are outside London and the south-east. I do not think that anybody regards us as having anything close to a housing bubble outside London and the south-east. Appearing in front of the Treasury Select Committee this morning, the OBR described the higher inflation in London house prices simply as a function of excess demand over supply. The problem was a lack of supply of houses; it was not a bubble. I think that one defines a bubble in terms of people speculating and buying houses on the basis that prices will go up and up, but that is not what is driving house price behaviour in London.
There was a lot of discussion about infrastructure, particularly from the noble Lord, Lord Hollick, who asked whether we should have borrowed more to be able to accelerate development. From my experience over the past 15 months in trying to tackle this problem for the country, it is clear to me that you do not turn infrastructure on and off like a tap. The political debate about it mildly amuses me, because we spend all our time trying to take credit for the things that are being built on our watch whereas, of course, those are all things that other people did all the hard work on to get them to that stage by the time you are in government.
The work I am doing is really to make the next one, two or three Governments look really good by having a stable pipeline of terrific projects which will come through. Those are things such as HS2, which we are trying to do in a first-class way. That will also bring growth back to the north, which we have talked about. That is why we spent so long trying to get Hinkley Point right. There was misinformation about the Hinkley Point investment. It is of no surprise to anyone that it is currently going through state aid; something of that scale was always going to go through state aid; we accepted that. The noble Viscount, Lord Hanworth, said that this was a bad deal for the British. The basis of the deal is that the French will construct at their risk a nuclear power station, and it is their problem if they cannot build it on time and on budget. I am very happy to have signed a 35-year contract with them on the basis that they can do that, because that was a risk that I did not want our taxpayers to bear.
More broadly on energy, which both the noble Lord, Lord Hollick, and the noble Baroness, Lady Worthington, addressed, the focus on energy in the Budget was about ensuring that our manufacturing businesses remain competitive. A number of things have happened in the short term. This morning, Ofgem referred the supply side of the industry to the Competition and Markets Authority for review, which is a good thing. We need a good, evidence-based review so that we can look at the facts to decide what we need to do with the supply side of the industry. That is the right outcome given the noise around it and the shortage of facts and evidence.
On generation, I think we are in good shape in our nuclear plan. The new energy policy has enabled us to write contracts for difference which can support that investment. We have a series of wind and other renewables projects under way based on the same CFD process, and we will see at the end of the year how the new capacity market auction works to trigger gas investment. It is extremely tricky to get the right combination of securing supply, making prices affordable and decarbonising at a rate which balances all the different interests, but we have a plan and it will work.
We had a little discussion about quantitative easing. There were questions from the noble Lord, Lord Myners, and a response from my noble friends Lord Higgins and Lord Flight. I shall not give a point of view about that because I think it undermines the independence of the Monetary Policy Committee of the Bank of England, whose job that is, but I accept that exit from quantitative easing is an economic issue that will need to be addressed intelligently.
The noble Lord, Lord Davies, said that there is really nothing in the Budget for young people. I really could not disagree more. This Budget is all about shaping an economy which will provide the jobs and opportunities that our young people can succeed in. For me, it is completely the other way round.
There was a very interesting contribution from the right reverend Prelate the Bishop of Chester on social mobility. For me, there is no better measure of a successful society than whether that is working. I know that Terry Leahy was certainly a product of that; as was I. For me, education is absolutely at the heart of that, which underlies all the work that this Government are doing in that area.
There was some discussion of tax policy. There were very interesting suggestions from my noble friend Lord Wakeham about the longer-term plan to remove anomalies from some of the other taxes in place. Of course, stamp duty is a very profitable source of revenue for the Exchequer. The noble Lord, Lord Sheikh, mentioned increasing the personal allowance and bringing down tax rates. I would just point him towards the Chancellor’s comments that he is, ultimately, a believer in low taxes.
I should say as a coda that the noble Lord, Lord Northbrook, mentioned the Economic Affairs Committee’s recommendations. We will carefully consider and address those as part of the Second Reading. We decided not to address them today.
In short, and as noble Lords can tell, I believe that we have a plan that deals effectively with the extraordinary challenges and very high debt levels that we inherited from the financial crisis. As I have acknowledged and noble Lords have discussed, the economy faces many longer-term structural challenges that, crucially, we must address consistently over time. I think of our economic management as stemming and managing down the consequences of the crisis while at the same time putting in place structural reforms to position us to be a winner in the global economic race.
I thank all noble Lords for their contributions. The debate has been extremely stimulating. I apologise to those to whom I have not referred or answered in person but, as always, my door is open.
Prisoners: Indeterminate Sentences
Question for Short Debate
My Lords, I am grateful for the opportunity to have this short debate on the plight of individuals given an indeterminate prison sentence for public protection. This form of sentence was abolished in 2012, but many remain in prison, wholly uncertain as to when they will be released.
IPP sentences were introduced by the Labour Government in the Criminal Justice Act 2003. That Act placed a duty on courts to impose an IPP sentence on offenders who were convicted of violent or sexual offences if there was a serious enough risk that the convicted person might reoffend. A minimum term, or tariff, was placed on offenders, which they had to complete before qualifying for assessment by the Parole Board. It was planned that offenders would undergo rehabilitative courses when in prison prior to their tariff date, to help them “qualify” for rehabilitation. After being released, all IPP offenders would be out on licence for life.
Within two years of the sentence coming into force in 2005, almost 3,000 people had been given an IPP sentence. The figure rose to 8,233 by 2012. Courts had little discretion in choosing whether to impose an IPP sentence, and many offenders were given such sentences after being convicted of offences such as burglary and robbery. Some of these were granted relatively short tariffs—one was set as low as 28 days. The Parole Board was given no extra resources to deal with the huge influx of IPP prisoners. Consequently, there were never enough places on relevant courses, so that the majority of those serving IPP sentences were kept in prison well past their tariff. Many are still there, with no immediate prospect of release.
In January this year, there were 5,335 prisoners serving IPPs in our prisons, two-thirds of whom had passed their tariff. As the Parole Board currently releases some 400 of these inmates every year, at the present rate it will take nine years to clear the backlog. David Blunkett, who was Home Secretary when IPPs were introduced, recently admitted that the Government had “got the implementation wrong”. They certainly had.
Parliament reacted to these difficulties through the Criminal Justice and Immigration Act 2008, which granted courts more discretion in determining whether to impose an IPP sentences on offenders, and provided that such sentences would be used only if the expected tariff was longer than two years. According to the Howard League for Penal Reform, these changes increase the average length for tariffs but reduce the rate of new IPP sentences by a third, yet the number of prisoners who were released remained very low.
In 2012 the then Justice Secretary, Kenneth Clarke, abolished the IPP sentence entirely and replaced it with a two-strikes life sentence system. In spite of a number of attempts in both Chambers to get the abolition applied retrospectively, the Government have, regrettably, steadfastly refused to do so. Today, there are still more than 3,500 offenders languishing in prison past their tariff date, serving a sentence that no longer exists on account of crimes which they may or may not commit in future. This is surely absurd. Had these individuals been convicted after December 2012 and, likewise, if they had been sentenced prior to April 2005—when Section 225 of the 2003 Act became applicable—they would not be in this situation.
The situation is particularly stark for those offenders who were initially given a short tariff. At the end of last December, there were 982 IPP offenders in our prisons who had been given tariffs of two years or less. That represented 18% of all prisoners serving IPP sentences. Had these 982 individuals been sentenced after 2008, they would not have received IPP sentences and would have been released years ago. This is grotesque and totally unfair to the prisoners and their families. A further 2,405 had tariffs of between two and four years, representing 45% of all IPP prisoners. They have no idea how many years they will remain incarcerated. It is hardly surprising that as many as 24 people on IPP sentences have committed suicide while in custody. It is easy to understand why many people deem IPPs to be “life sentences via the back door”.
As might be expected, morale within the prison estate has taken a knock. Last year, the Howard League and the Prison Governors Association published research based on interviews with 102 senior prison governors. The majority reported that IPP sentences had a negative impact on both prisoners and prison staff. Furthermore, 92% said that IPPs resulted in decreased staff job satisfaction, since these prisoners were more likely to be disruptive. Discipline problems inevitably increased, particularly among those sentenced prior to 2008 with short tariffs who see others, sentenced for similar crimes after 2008, come and go while they still languish in their cells. One prison governor said that,
“invariably they could see no chance of release as they struggled to access appropriate courses ... This led to anxiety, resentment and discipline problems”.
Far from being rehabilitated, some prisoners can become more difficult as time goes by, especially if left to feel that they have nothing to lose and nothing to aim for. Prison governors also said that the additional demands arising from IPP prisoners had a detrimental impact on courses for other prisoners. The needs of individuals serving life sentences were particularly neglected.
The Government must surely find an alternative way of addressing these prisoners’ risks. Quite apart from concerns for justice, keeping inmates incarcerated beyond their tariff is a false economy. Every prison place apparently costs some £40,000 a year, so IPPs are costing more than £200 million a year in total. Furthermore, following the judgment of the European Court of Human Rights in the James, Wells and Lee v United Kingdom case, which was in favour of the plaintiffs, it is highly likely that more individuals will take the Government to court to gain compensation. In 2012, the European Court of Human Rights unanimously determined that detaining individuals serving IPPs beyond their tariff without progressing those individuals’ rehabilitation was “arbitrary and unlawful”. The Government’s attempt to appeal the decision was rejected in February 2013.
Under the LASPO Act 2012, the Justice Secretary has the power to put an order to Parliament which would require the Parole Board to direct the release of all inmates serving IPPs, provided that certain conditions are met. The Justice Secretary has indicated that he is not minded to do this, as he argues that it is not appropriate to modify sentences which were passed by the courts. I suggest to the Justice Secretary that he is ignoring the fact that, prior to 2008, the courts felt they had little option but to impose IPPs on someone convicted of any one of 153 different offences. I am sure that many sentencers would support such a move and, besides, the Justice Secretary must accept that he was given these powers for a reason. Indeed, I suggest that the Justice Secretary is acting unreasonably in applying a blanket refusal to use discretionary powers that Parliament has specifically given him and given him for a purpose. Parliament expected the Justice Secretary to use discretion; in refusing to do so, he is surely flouting the will of Parliament.
Consideration should also be given to converting the sentences of those given a tariff of two years or less to a determinate sentence of twice their tariff, which would mean—other things being equal—that many prisoners would be released immediately. The Government must also commit to increasing the funding of the Parole Board so that it can cope with the extra demands being placed on it, as well as providing the necessary resources for rehabilitation courses.
The introduction of IPPs in 2005 was, in no small part, the action of a Government trying to show that they were tough on crime even if the sentence itself was totally disproportionate to the crime committed. Now, this Government seem to be intent on giving out the same message and, incredibly, we learnt earlier this week that the Justice Secretary has tried to limit the number of books that inmates can read. Enough is enough. The Government must put justice and common sense ahead of politics, bring an early closure to the plight of those so unreasonably detained in prison, and remove what is increasingly seen as a disgraceful blot on the good name of British justice.
My Lords, I thank the noble Lord, Lord Wigley, for this debate. I also thank a number of noble Lords who have been drawing attention to the injustice suffered by IPP prisoners. These prisoners have passed their tariff expiry date but their release has been delayed, often for years after their tariff has expired, by a combination of delays. These delays include the time that prisoners spend on waiting lists before they can start offending behaviour programmes such as sex offender treatment programmes, healthy relationships programmes for domestic violence offenders, self-change and resolve programmes for violent offenders, thinking skills programmes for impulsive offenders, victim awareness programmes, and drug and alcohol rehabilitation programmes.
We welcome such programmes but the prisons’ capacity to deliver in time is questionable. The delays are unacceptable. These delays also include the time spent waiting for psychological and psychiatric assessments to assess what work or treatment prisoners need to undertake to address their mental health problems or cognitive deficits. Then there are delays in getting a transfer to another prison when a prisoner’s current establishment does not run a programme considered necessary to reduce his or her risk and waiting for parole hearings to be listed.
Until recently the Parole Board was making commendable progress in reducing the backlog of cases awaiting a parole hearing. However, the backlog is now rising again as a result of last year’s Supreme Court decision in the case of Osborn, Booth and Reilly—mentioned earlier—which has required more cases of recalled prisoners to be referred to oral hearings. The combination of all these delays means that prisoners who were given short tariffs by sentencing courts can end up spending many years in custody after the tariff period the sentencing judge considered appropriate to punish the offender for his or her crime.
There are four main reasons why the Government should take prompt action to end this indefensible state of affairs. First, the coalition Government have commendably acted to end this injustice for offenders being sentenced now and in the future. Noble Lords on all sides of the House welcome this initiative. They have done so by abolishing the IPP sentence, for which they deserve great credit.
However, it is surely illogical to recognise the need to avoid the injustice of IPP sentences for current and future offenders but to refuse to remedy the same injustice which is being suffered by IPP prisoners who are already in the system. What is the justification for this course? We have had a number of meetings with the Minister of Justice, but to date no acceptable reasons have been advanced.
The second reason is that the failure to release these prisoners on licence is storing up serious problems for the prison system. The IPP sentence has been the main contributory factor to the astonishing increase in the proportion of prisoners serving indeterminate sentences, which rose from 9% of the prison population in 1993 to 19% in 2012. This is simply unacceptable. The longer that existing IPP prisoners remain in prison, the greater the pressure of numbers in the prison system and the worse the delays in the system are likely to become.
The third reason is that there is no tenable principled objection, either legal or moral, to retrospective legislation in this situation. I am aware that the Government have argued that it is wrong to interfere with sentences which have been passed by the courts, but Governments of all persuasions have repeatedly done so over the years, for example, by altering the rules on eligibility for parole, by increasing or reducing remission, by introducing early release with electronic monitoring and in a range of other ways, so why not in the case of IPP prisoners? Retrospective legislation is objectionable when it interferes with existing sentences in a way which puts prisoners in a worse position than the sentencing court intended. However, I can see no objection to retrospective legislation which puts existing prisoners in a better position in order to avoid the anomaly of treating them worse than more recent offenders who have committed identical crimes but are now being given determinate sentences.
The fourth reason is that the necessary changes can be introduced in a way which does not unacceptably increase risk to the public, a point which is often stated by the Minister. Most offenders who would previously have received IPP sentences are now given extended sentences. These sentences include a determinate custodial term followed by an extended period of supervision. If the Government are not attracted by the idea of substituting simple determinate sentences for existing short-tariff IPP sentences, they could legislate to replace them with a form of extended sentence. This could provide for the prisoner to be released after a period equal to double the tariff followed by an extended licence period. This licence period could last for 10 years or even for an indefinite period. During the licence period, the offender could be recalled to prison if he or she breached licence conditions, reverted to drug or alcohol misuse, failed to engage with offending behaviour programmes or engaged in risky behaviour which indicated that his or her risk was increasing. If they wanted, the Government could provide for exceptions to be made. For example, IPP prisoners could be released on licence after double their tariff period, unless the Parole Board identified exceptional circumstances indicating that the offender presented a particularly high risk to the public.
For all these reasons, I hope that the Government, who have acted so courageously to prevent the injustice of IPP sentences being imposed on offenders sentenced in the future, will not close their mind to the need to end the identical injustice being undergone by IPP prisoners who are already in the system. It brings the criminal justice system into disrepute if different standards are adopted for those who can benefit now as against those who were previously sentenced and fell into the IPP category. I hope that the Minister will be more positive on this than the previous Minister.
My Lords, I am grateful to the noble Lord, Lord Wigley, for providing the opportunity to say a few words on this topic, which is close to my heart.
A little over six years ago, when delivering the judgment in the Court of Appeal in the appeals of Walker and James, I commented that the Secretary of State had not provided the resources needed to give IPP prisoners a fair chance to demonstrate to the Parole Board, once the time for review arrived, that they were no longer dangerous. I added that the consequence of that was that a proportion of IPP prisoners would, avoidably, be kept in prison for longer than necessary either for punishment or for the protection of the public. Since then, Parliament has repealed the provisions for the imposition of IPP sentences. However, as predicted, a significant body of prisoners remain incarcerated because they have been denied the opportunity to take the steps necessary to demonstrate that their release will not pose an unacceptable risk to the public.
There are at least three reasons why that state of affairs should not be tolerated. The first is that indefinite detention of that kind infringes Article 5.1 of the European Convention on Human Rights. That possibility was one to which we drew attention in Walker although we, and the Appellate Committee of this House, presided over by my noble and learned friend Lord Hope of Craighead, did not consider that that point had been reached in the instant case. However, as the noble Lord, Lord Wigley, pointed out, Strasbourg did not agree, holding in the case of James and two other applicants that their detention after the expiry of their tariff periods and until the provision of the appropriate rehabilitative courses was arbitrary and a breach of Article 5.1. Not all may be in sympathy with that decision, but indefinite detention for want of resources is manifestly objectionable.
The second reason why the current state of affairs should not be tolerated is that it is unjust. Defendants sentenced before the IPP regime was introduced or after its repeal, whose offending and past criminal records are not distinguishable from those sentenced to IPP, are being released from prison while the IPP prisoners remain detained. It is hard to understand why the change in penal policy that led to the abolition of the IPP sentence should not apply equally to those subjected to it.
The third reason why the current state of affairs should not be tolerated is that it is economically absurd. We pay some £40,000 per head to keep detained prisoners who will then become entitled to substantial compensation for their detention.
What, then, should be done? One can readily appreciate the objection to the wholesale release of all IPP prisoners who have served the tariff period. However, the noble and learned Lord, Lord Lloyd of Berwick, will make some balanced and principled proposals for the release of some of those prisoners, which have my support. I shall leave him to explain them to the House. There will, of course, be a risk that prisoners released will reoffend, but that is an inevitable consequence of release from custody, and one that has rightly concerned the Minister for Justice and his predecessors, not merely in the context of potentially dangerous offenders.
Three years ago Kenneth Clarke, when Justice Secretary, declared that prison was a waste of money and emphasised his intention to curb reoffending. Earlier this week Chris Grayling, the current Justice Secretary, was reported as saying that our rehabilitation system was flawed because of lack of support for those discharged from prison. That is the positive point that I wish to make.
Rehabilitation courses in prison are, of course, important. However, perhaps even more important are the steps that should be taken outside prison, in the community, to prevent young people who are at risk from entering the criminal justice system and to help those who have been discharged from prison from being sucked back into it. Rehabilitation can sometimes be provided more effectively in the community after discharge from prison than within the prison system. James was himself ultimately released on licence on the directions of the Parole Board in reliance of the fact that arrangements had been made for his accommodation in a hostel and for him to take part in rehabilitation courses in the community.
I should declare my involvement with three different organisations in the private sector whose work is relevant in this context: Endeavour Training, Youth at Risk, and the St Giles Trust. The first two aim to give young people who are vulnerable the self-respect that leads to respect for others and to integration within rather than outside society. The third, the St Giles Trust, trains ex-offenders to help others, both within and outside prison. I understand that it is government policy to rely heavily on the help of such organisations to prevent reoffending and that funding will be made available to those with a proven success rate. It is easier to demonstrate this for organisations that cater for those who have served prison sentences rather than those whose goal is to ensure that vulnerable young people do not enter the system in the first place, but I hope that the Government will bear it in mind that resources provided to both are likely to save money in the long term. I suggest that this is the lesson to be learnt from the IPP debacle.
The huge cost of keeping people in prison competes for resources with the cost of trying to keep them out of prison. The former always appears the more urgent. But whether offenders are potentially violent or not, society will be best served, and valuable resources will ultimately be saved, if we do not skimp in funding the steps that are needed to address the individual problems and inadequacies that are the root causes of the majority of offending and reoffending.
My Lords, I am most grateful to the noble Lord, Lord Wigley, for his initiative and to the noble Lord, Lord Dholakia, and the noble and learned Lord, Lord Phillips, for their very helpful introductions.
As a general principle, it is accepted in this country that people should be sent to prison because they have been convicted of an offence rather than because of the risk that they will offend. Indeterminate tariffs are even now available for the most serious offences, in the form of life sentences, and extended sentences now provide a way to manage and contain risk in relation to those convicted of serious violent and sexual offences which do not call for a life sentence.
As we have heard, the IPP sentences were brought in with the intention of applying them to just a few hundred prisoners. Things went wrong, and, after some attempts to deal with their unintended effects, they were abolished. It is neither here nor there that this chain of events spread across successive Governments. A number of options were tried: some worked, and this one did not. Even though IPP has now been abolished, approximately 5,500 IPP prisoners remain within the system, nearly two-thirds of them past their tariff. At the current release rate of about 400 a year, it could take nine years to clear the backlog.
I spent some time recently with an intelligent and engaging Somali prisoner who has taught himself near perfect English. This man was given an 18-month tariff, but last Christmas was his ninth in prison. What an injustice, and what a huge expense. One prison officer spoke to me of,
“a game of tag between the Immigration Services and the Parole Board which has produced deadlock for years”.
Two significant factors cause delay in release when the tariff has been served: programmes and process. Up to now the dependence on a particular kind of offending behaviour programme, on cognitive behavioural principles, as an important key to reducing risk, has caused quite a lot of problems—in particular, the shortage of supply of such courses, the complicated transport system between centres, and the exclusion criteria, which mean that those without certain educational skills or attainments, and some with learning difficulties or mental health problems, cannot enrol on these courses. Effective as the programmes doubtless are, for those eligible for them, as a criterion of reduction in risk they are only a proxy for a more complex and dynamic process of learning and change. A large body of recent research on desistance from crime supports the view that reduction in risk is a much broader process, engaging the whole person and their understanding of their own life and values, than has sometimes been thought. Indeed, mainstream research has shown that faith can be a significant factor for many.
Secondly, on the process for determining how far risk has been reduced, the Parole Board is under enormous pressure, which has grown greatly following a recent judgment requiring oral hearings in many more cases than before. I welcome the sensible suggestion made by the Prison Reform Trust that the decision on a move to open prison conditions should be made by the prison governor, as already happens with those on determinate sentences, rather than the Parole Board. If that is not done, then there is a strong case for reinstating the recently removed right to legal aid for IPP prisoners in relation to their recategorisation decisions.
The challenges that remain from the IPP experiment are obviously complex. Many of these prisoners have committed crimes which have victims, and the risk of further offending is not to be taken lightly. Many other well informed suggestions have been made towards resolving these issues, but if we attend to the two elements which I have mentioned—the programmes and the process—I believe that we shall be moving in the right direction towards a just and safe resolution of these difficulties. It is surprising that a manifest injustice like this has not attracted more attention.
My Lords, I do not intend to go into the background of the IPP sentence, which was so well described by the noble Lord, Lord Wigley, to whom we are all grateful for initiating this debate, but propose to concentrate instead on a particular group of prisoners who were given a tariff of less than two years before Section 225 of the 2003 Act was amended in 2007, of whom there are 773.
I start by giving the House a breakdown of that figure. These figures were given to me by the noble Lord, Lord McNally, in a letter he wrote to me on 24 August 2013. I suggest that they ought to be on the record. Thirty-seven offenders were given tariffs of six months or less. Of these, 11 are now more than four years over tariff. The remaining 26 of that group are five years over tariff—in other words, 10 times the tariff they were originally given. One hundred and eight were given tariffs of six to 12 months. Of these, 46 are four years over tariff and 59 are five years over tariff. Two hundred and eighty were given tariffs of between 12 and 18 months; 110 are four years over tariff and 98 are five years over tariff. Three hundred and forty-eight were given tariffs of between 18 and 24 months. Of these, 124 are four years over tariff and 92 are five years over tariff. I suggest that these figures speak for themselves—something very serious has gone wrong.
There are two reasons why there are so many IPP prisoners with short or very short tariffs. In the first place, there was no minimum tariff, as there should have been. That was a grievous mistake. Secondly, until 2008, the sentence was, in effect, compulsory. Provided certain conditions were fulfilled, the judge had no discretion. Therefore, an offender who would in the normal way have been given between two and four years for a robbery, burglary or simple arson, was given an IPP sentence not because he was particularly dangerous but because, until 2008, the sentence was mandatory, as I say.
When Section 225 was repealed by the LASPO Act in 2012, very few IPP prisoners had been released, partly, of course, because courses were not available for them but also because the release test which the Parole Board had to apply was exactly the same for them as for those serving life sentences for much more serious crimes. Therefore, it is not surprising that a large backlog of these short and very short tariff prisoners had built up. Parliament was well aware of this backlog, and of the reason for it. It was clear that something had to be done. By Section 128 of LASPO, Parliament provided the solution. It gave the Secretary of State the power to modify the existing release test, with a view, obviously, to speeding up the rate of release. Section 128 paved the way for the Secretary of State to take action. He could require the Parole Board to direct release if it was satisfied that certain conditions existed. It was, or would have been, as simple as that. There is nothing in Section 128, whether expressly or by implication, that requires the new release test to be based on an assessment of risk.
The first question is: should the Secretary of State exercise the power he has been given by Parliament? The second question is: if so, what should the new test be? As to the first question, the answer is very clear. Of course he should exercise the power he has been given. There are many reasons why he should do so, but the most convincing to me is the one given by the noble Lord, Lord Wigley. If these 773 prisoners, with whom alone I am concerned, had committed exactly the same offences but after 2008, instead of before, they could not have been given an IPP sentence; they could have been given only a determinate sentence. We know what that determinate sentence would have been—namely, twice the tariff they were given. They would all have been out by 2010 at the latest. Instead, they are all still in prison.
Prisoners, like everyone else, have a strong sense of just desserts. I know of no sentence that has created such a strong sense of injustice as the IPP sentence. I know that because of the many letters that I and others have received from prisoners and their families, and from a recent meeting that I had with their families, some of whom expressed the views that I have just tried to describe.
What reason, then, has the Secretary of State given for not exercising this power? Only that it would not be appropriate to alter sentences lawfully imposed by the court. The short answer to that is that if Parliament had not thought it appropriate, it would not have enacted Section 128.
I come to the second question. What should the new release test be? I wrote to the Secretary of State on 13 March, inviting him to consider converting the sentence of these 773 prisoners into determinate sentences equal to twice their tariffs. This would be fair because they would be the sentences that we know the prisoners would have received if the IPP sentence had not been available when they were sentenced. In his reply on 19 March, the Secretary of State said:
“It would be inconceivable and indeed irresponsible for the Government to release individuals that the independent Parole Board … assess as continuing to pose risks”.
What this seems to overlook is that these very same people, if sentenced after 2008 for exactly the same offences, would necessarily have been given a determinate sentence and would have posed exactly the same risk when released before 2010 as they would have done if released today.
Finally, I suggest that so far from it being irresponsible for the Secretary of State to exercise the power he has been given, it would be irresponsible of him not to do so. Indeed, it is his duty to do so in the interests of justice, for all the reasons I have given. In doing so, he would be righting a grievous wrong that these 773 prisoners have suffered—a wrong for which the Government ought to take responsibility.
My Lords, in 2008 the previous Administration recognised the difficulties that the mandatory imposition of IPPs had caused when they made the changes to increase judicial discretion and remove short-tariff sentences for sentences passed after July 2008. Yet there remain in prison many who were sentenced to IPPs before that date and whose short-tariff sentences were completed long ago, as the noble and learned Lord, Lord Lloyd, has just pointed out. He gave us the numbers and they are truly shocking. I pay tribute to the noble and learned Lord for his sustained and impressive campaigning on this issue over a long time.
In 2010, through the then Prisons Minister, my honourable friend Crispin Blunt, the Government publicly recognised that the present position was indefensible because it was clear that many IPP prisoners were being held well beyond their tariff dates for no better reason than that the Prison Service was unable to provide the courses necessary for them to satisfy the Parole Board of their suitability for release. Then, in 2012 this Government, to their credit, recognised the injustice of IPP sentences when they abolished them in the LASPO Act. Also in 2012, as has been pointed out by the noble and learned Lord, Lord Phillips, the European Court of Human Rights recognised the injustice when it decided the case of James, Wells and Lee v the United Kingdom, broadly on the ground that, given the lack of the rehabilitation courses necessary to establish suitability for release, the continued detention of the applicants in that case amounted to the arbitrary deprivation of their liberty, contrary to Article 5.1.
Neither the changes introduced by the Criminal Justice and Immigration Act 2008 nor the abolition of IPP sentences by the LASPO Act had any retrospective effect. The result is that we are now left, as the noble Lord, Lord Wigley, pointed out in his extremely helpful and informative introduction to this debate, with an impossible and indefensible injustice.
The current position is that on the one hand there are in prison many who are serving indeterminate terms well after their tariff sentences have been fully served, often with short-tariff sentences imposed before the two-year restriction was introduced. Many of those prisoners see, and have, no hope of early release because the necessary resources to secure their release are still not being provided in sufficient quantity or at sufficient speed. The system is still overwhelmed by its inability to cope with the stresses placed upon it. On the other hand, many of those sentenced to similar tariff terms more recently—after abolition—who would have received an IPP sentence before abolition have now been, and are being, released after serving their determinate sentences in full, well before those who are still held on IPPs, having been sentenced earlier.
What should the Government do? As the noble and learned Lord, Lord Lloyd, pointed out, the LASPO Act, by Section 128, specifically gives the Secretary of State wide powers to deal with the injustice of existing IPPs. The first power is to provide by order that, following a referral, the Parole Board must direct release if certain conditions are met; the second is the converse—that he may provide that the Parole Board must direct release unless certain conditions are met. The careful use of either power would enable the Secretary of State to put an end to the injustice highlighted in this debate that now disgraces our criminal justice system, while ensuring that prisoners whose release would genuinely present a serious danger to the public are kept in prison until their release is judged safe. Yet, despite the power contained in and legislated for in Section 128, the Government have so far resisted retrospectively altering sentences on the basis that those were sentences passed by judges acting in accordance with the law as it was at the date of sentencing.
Your Lordships’ House is very familiar with the arguments against retrospective legislation but, as my noble friend Lord Dholakia pointed out, they are generally deployed to avoid doing injustice to persons who were unaffected by restrictions before the passage of legislation. I have never heard them deployed in favour of continuing an injustice to those currently affected by unfair and oppressive legislation.
There is a further answer to the argument that bringing forward release dates now would overturn decisions of judges made according to the law in force at the time of passing the sentences. Many of the IPPs imposed were imposed because the judge’s hands were tied, often by judges acting through gritted teeth in compliance with what they regarded as, and what was, a bad law. That is no ground for demanding respect for those sentences now.
Whether the best solution is to treat all existing prisoners on the basis on which they would have been treated had they been sentenced after 2012, or to give them the option to be so treated, as the noble and learned Lord, Lord Lloyd of Berwick, suggests, or whether it would be best simply to introduce a presumption in favour of release unless continuing incarceration can be clearly justified, under the second limb of Section 128, the present injustice cannot in conscience be permitted to continue. If my noble friend’s response to this debate goes no further than saying that the Government will simply try a little harder to speed up the rate of release of prisoners caught by IPPs, that will not, I suggest, be a response that goes anywhere near meeting the need for a genuine solution. Tinkering around the edges of the old system will not be a solution.
It is important to remember that there is a special feature of IPPs. They were sentences imposed not for crimes that had been committed but for fear of crimes that might be committed in the future. It is clear that your Lordships recognise, as we all must, that public protection is an important function of punishment. However, it is also important that those involved with the criminal justice system and the public at large have the confidence that our system of justice is indeed fair and just. Where that system perpetrates and then maintains an obvious injustice, long after it has become recognisable and has in fact been recognised as such, our system cannot and does not deserve to command that confidence. We who support this Government have been proud of the rehabilitation revolution that we have introduced. The continued detention on IPPs of prisoners long beyond their tariff dates is the antithesis of that rehabilitation revolution, and we should end it.
My Lords, I apologise to the House for not being in my place when the noble Lord, Lord Wigley, started his speech, but I was unavoidably detained on the telephone. I therefore seek the indulgence of the House to continue with the remarks that I intended to make. I congratulate the noble Lord, Lord Wigley, on securing this important debate, and, as the noble Lord, Lord Marks, has done, salute my noble and learned friend Lord Lloyd who for years has tirelessly pursued the injustices and other issues connected with this sentence. I absolutely agree with every word of what he suggested and has put forward to the Secretary of State for consideration.
Rather than look at the legal side, which has been so well covered by other noble Lords, I shall focus a little more on some of the practical issues, particularly those that show a tremendous need for improvement within the National Offender Management Service. In doing so, I would like to refer to two reports which were published in 2008—longer than the length of World War II ago. One is by the Chief Inspectors of Prisons and of Probation and one is by the Sainsbury Centre for Mental Health, as it was then called, of which I am currently a vice-president and was formerly an adviser. I do so because one of the things that worries me in the reports of two inquests—one of which I reported to the House in June 2012 and one which took place last month—is that they disclose failures in the National Offender Management Service which ought to be eliminated.
In June 2012 I reported to the House the case of Shaun Beasley, who had been awarded a two-year 145-day tariff IPP in 2007. The Parole Board said that he needed to do a course, so he was sent from Littlehey prison to Parc prison in Wales, where he was told that the course he required was not available and would not be for two to three years. This was in early August and on 24 August he rang his family and said that he could not cope any more. His family immediately rang the prison; nothing was done; and he was found hanging in his cell shortly after midnight.
On 28 February this year, the inquest took place of Kieron Dowdall who, as an 18 year-old, was given a three and a half-year IPP tariff in 2006. In October 2010 he was sent to North Sea Camp open prison as part of his release plan. By early January 2012, when nothing had happened, his mood and mental well-being significantly deteriorated. He absconded and was picked up, having said that he was trying to kill himself. He was moved to Lincoln prison and suddenly from there, without warning, was moved to Stafford. When he got to Stafford he telephoned his family several times, saying that he had a feeling of hopelessness, and his family tried repeatedly to ring the staff at Stafford but were told to put their concerns in writing. He was found hanging in his cell on 27 January, shortly after which it was discovered that there had been an incomplete form on his potential suicide waiting in Lincoln prison which had not been forwarded to Stafford.
I mention those cases because in the report in 2008 put forward by the Chief Inspectors of Prisons and of Probation, they said that one of the main problems with the management of IPP prisoners was that there was no clarity over who had overall responsibility for them, and they recommended the appointment of a senior lead to look after their interests and their programming. I have bored the House many times over this because it has always struck me that one of the failings of our Prison Service is not to have someone, some named person, responsible and accountable for each type of prisoner and for seeing that what happens to them is consistent and is exactly the same all over the country. Any manager or Minister who wants something done sends for the person responsible and tells them to do it. If you do not have someone, nothing gets done. Nothing has been done with IPP prisoners. No one is responsible or accountable. It is no good managing these sort of people, with all their various needs, by committee.
They went on to say that the National Offender Management Service should do two things. First, it should collate and make publicly available up-to-date management information about IPP prisoners, including tariff length, ethnicity, location, assessments completed, needs identified, interventions required and progression. Those are not available. If you ask what these people need, whatever it may be, you cannot get an answer. Secondly, it should carry out an intervention needs analysis of those sentenced to IPP and an assessment of the resources required and available to meet those needs in a sufficient number of prisons at appropriate levels of security across the country.
Other noble Lords have already mentioned that one of the problems of the IPP prisoner is that, as happened with one of the prisoners I have talked about, Mr Beasley, when they arrive at the place they have been sent to for a course, it is not available. That is simply not good enough and will not do. Unless and until the Prison Service and the National Offender Management Service get their act together and put someone in charge who is responsible for evaluating these things, nothing will happen. The nine years to clear the backlog will go on and on because more people will not have completed their journey through the revolving door.
If I have one other wish, it is that the burden of proof, as it is sometimes called, should be re-examined in order to ease the pressure. The noble Lord, Lord Marks, hinted at that in his remarks. I think it would be irresponsible of the Secretary of State not to ease the pressure on the overstretched Prison Service by requiring the state to produce evidence that someone still represents a risk rather than the person having to prove that he does not. Until drastic action is taken, this wretched problem is going to go on and on because the resources will not increase, and without those, we will never correct this dreadful misjudgment.
My Lords, it is a privilege to follow the noble Lord, Lord Ramsbotham, and I join him and others in thanking the noble Lord, Lord Wigley, for initiating this debate. I spent some time this morning reading the report in Hansard of the debates held during the Committee stage of the Legal Aid, Sentencing and Punishment of Offenders Bill on 9 February 2012. They ended with the noble Lord, Lord McNally, the then Minister, moving that what is now Section 128 of the Act should stand part of the Bill. Having read those debates, I appreciate that several noble and noble and learned Lords who have spoken this afternoon took part in those debates too. They really are veterans of this campaign. Tributes have rightly been paid to the noble and learned Lord, Lord Lloyd of Berwick, who stands out as a leader on this issue. This is a sustained and admirable campaign to which I have introduced myself as a relative newcomer.
However, the issue itself is not entirely new to me. As the noble and learned Lord, Lord Phillips of Worth Matravers, pointed out, I sat on the appeals to this House against the decisions of the Court of Appeal in the cases of Walker and James, and had the great advantage of sitting with the noble and learned Lord, Lord Brown of Eaton-under-Heywood, who was in his place earlier, and the noble and learned Lord, Lord Judge, who was then the Lord Chief Justice. It gave us no pleasure to have to dismiss those appeals on the ground that the sentences that had been passed against the appellants could not be said to have been unlawful. Fortunately, our decision that their Article 5 convention rights had not been infringed was not followed when they took their cases to Strasbourg, so it is now clear that these prisoners will have claims by way of damages. However, that makes the situation even worse for the Government than we thought it was when we heard those appeals. There will be a large bill to pay for this mistake, in addition to the costs of incarceration, and it is growing day by day and hour by hour as we speak.
We all know that the way the IPP sentences were introduced was regrettable. The statutory scheme itself was ill conceived. As the noble Lord, Lord Marks, pointed out, it was overly prescriptive and left no room for the exercise of any judicial discretion. As a result, far too many prisoners were sucked into it. There is a warning here for this Government too. I need only mention the debate that is still going on about the wording of some of the provisions in Clause 14 of the Immigration Bill, with which the Minister will be familiar, to make the point. It is most unwise to leave judges with no room for manoeuvre. Legislation by its very nature is a blunt instrument. It cannot foresee everything that may happen in the future. Facts vary from case to case. It should be left to the judges to fine-tune what the Government seek to achieve. They can be relied on to follow the guidance and can make it fit the facts. There was no need to spell out in Section 229 and Schedule 15 what was required for them to assess dangerousness and it was entirely misguided for the then Government to insist on doing so. We all know, too, that the system was comprehensively underresourced. I need not go over the details, which have been so well rehearsed by noble Lords who have spoken before me. All I can say is that the situation they have described is one that everyone knows has no place in a decent society.
That all having been said—one can of course pile objection upon objection in looking at the situation we now have—the real point of this debate, as I see it, is to focus attention on what can be done to put an end to the situation. The most interesting part will therefore be what the Minister can tell us in his reply. It was his Government who, very commendably, provided an opportunity to find a way out when they introduced Section 128 of the LASPO Act. As the headnote puts it, that section gives the Secretary of State power, exercisable by order, to change the test for the release of, among others, an IPP prisoner. However, that provision came into effect as long ago now as 3 December 2012, yet here we are, more than a year later, and nothing has been done to put it into effect: no order has yet been made, nor has there been any announcement of when we can expect one.
On 9 February 2012, the noble Lord, Lord McNally, refused to be drawn when he was asked to say when an order under that section could be expected to be made. He said that time was needed to see how the probation rules could be adjusted in the light of the argument to which he had been listening. The Committee was told that a new system of offender management was to take effect as from April of that year and that it was expected to “result in improved targeting”. So the first question I have for the Minister is whether he could tell us what the result has been of the exercise which the noble Lord, Lord McNally, told the Committee about.
Looked at from the prisoners’ point of view, there has been no obvious improvement in their situation at all. Why, then, have no steps been taken to give effect to Section 128? Having asked that question, I have to say with all honesty that I entirely understand the view that the Secretary of State has taken, which is that he has to respect the rule of law. It is not open to him, with great respect, to alter the terms of these indeterminate sentences; nor is it open to him to alter the system that Section 239 lays down for the performance of its functions by the Parole Board. As the House made clear in its judgment in the case of James in 2009, the detention of these prisoners is, and will remain, lawful until the Parole Board gives a direction for their release. The default position—which is the position they are regrettably now in—is that, until the Parole Board gives that direction, protection of the public requires that they should be confined.
Moreover, Section 239(6) of the 2003 Act was not repealed. As a result, when he is giving directions to the Parole Board under that Section 128 of the 2012 Act, and indeed under Section 239, the Secretary of State is required to have regard to,
“the need to protect the public from serious harm from offenders”,
and the need to secure “their rehabilitation”. I cannot see an escape from that situation as the legislation stands at present—that is what the law requires. One simply cannot assume, without looking at the facts of each case, that all those in a given category are fit for release immediately.
However, the situation is not beyond repair. Section 128 of the 2012 Act requires the Secretary of State to steer a narrow course. As the noble and learned Lord, Lord Lloyd, said, it is his duty to exercise the power which Parliament gave to him. There are no short cuts but I cannot understand why he is unable to find a way to exercise that power in the way that Parliament contemplated. The headnote talks about changing the test for release. Can the Minister tell the House what the current tests are, what steps are being taken to see why they are not fit for purpose—as they obviously are not—and what thought has been given to changing them so that they are? I do not see that as changing the terms of the sentences; it is all about changing the test to be applied by the Parole Board. There is great force in the point already made that the power under Section 128(1)(b) should be used, which inverts the onus and requires the Parole Board to direct release unless the Prison Service can satisfy the board that the prisoner should not be released.
There is one further point that I should like to make. There are other things that could be done. The noble Lord, Lord Ramsbotham, drew attention to them in the debate on 9 February 2012. He said then, as he did this afternoon, that there was a need for someone to be,
“made responsible and accountable to the Secretary of State”.—[Official Report, 9/2/12; col. 437.]
Having looked at the idea, there is much to be said for that proposal. Again I ask the Minister: what thoughts have been given to the proposal that was made in that debate in 2012? If it is difficult for him to answer the question immediately, will he be kind enough to write to us to explain what the answer is to the various questions that have been put?
My Lords, this debate has highlighted the malign contribution to the problem that we are discussing today of Section 229(3) of the Criminal Justice Act 2003. The court is obliged to make an assumption of dangerousness on the basis of one conviction, which might of course be something dreadful such as rape or murder, where the dangerousness speaks for itself, but might also include, among the more than 100 cases that my noble friend Lord Wigley identified, a voyeur—that is, a peeping tom; exposure—that is, a flasher; or indeed, and I do not make this point facetiously but to underline the absurdity of the legislation, somebody who has sexual intercourse with a corpse, who might be somebody who needs rather a lot of assistance and psychiatric help.
The lesson that the legislation should show us is the absurdity of anything that seeks to bind a sentencing judge to make a decision that is based not on evidence but on diktat. An evidence-based decision about what an appropriate sentence should be is the only way in which justice can be done. This legislation has been put right and we are all grateful that it has. The court still has to assess dangerousness. There are still occasions when the court will decide that an individual defendant should never be released because he—or, very rarely, she—represents such a serious continuing danger.
I do not think that the judiciary would be deeply concerned about any interference with constitutional principle if we had a look at all the cases of those who are still subject to imprisonment for public protection, when the transcript will show that the judge made the order because he was in effect compelled, or felt that he was compelled, to do so, or by the application of the powers that have been given under Section 128 of the recent legislation.
My Lords, as other noble Lords have done, I thank the noble Lord, Lord Wigley, for putting this Question down for debate. He has raised an important issue for your Lordships’ House to debate this afternoon.
Imprisonment for public protection was introduced by the previous Labour Government in 2005. It was designed to ensure that dangerous, violent and sexual offenders stayed in custody for as long as they presented a risk to society. When Labour introduced IPP in 2005, it was for a very good reason: protection of the public, with sentences put in place to keep the most violent, persistent offenders off our streets. If a judge felt that offenders were a risk to society, they could hand down an IPP, which meant that the offenders had to prove to the Parole Board that they were ready to rejoin society by completing rehabilitation programmes. Punishment and reform went hand in hand.
I accept entirely that there were problems with the introduction and in 2008 changes were introduced to deal with some of the issues we have heard about today. Labour made changes to the administration of the scheme and proposed a new “seriousness threshold” that would have to be satisfied before the court could impose the sentence. This was to make sure that the sentence was reserved for very serious and violent offenders—those who are the biggest risk to the public. As a result of these changes, the number of offenders serving a sentence of imprisonment for public protection dropped, but serious offenders were released from prison only when it was deemed safe to do so. Evidence shows that there is a low rate of reoffending by prisoners released having served a sentence of imprisonment for public protection.
Instead, as the noble Lord, Lord Wigley, said, the Government’s new regime introduces a “two strikes” policy so that a mandatory life sentence will be given to anyone convicted of a second serious sexual or violent crime. Where is the public protection here? Effectively, the policy says, “We won’t make the mistake a second time”. Does the Minister believe that the new complicated system of extensions and parole for different sentences will keep the public safe?
Imprisonment for public protection was criticised for contributing to prison overcrowding, but what will the effect of this new policy be? Does the Minister know? Our prisons have serious problems; overcrowding is a real issue. I share the astonishment of the noble Lord, Lord Wigley, at the Justice Secretary seeking to limit prisoners’ access to books, as has recently been announced.
Under this Government, 17 local prisons have been closed, with 5,000 places lost in the prison system in the last year alone, leaving remaining prisons close to bursting point. Does the Minister agree that overcrowding in the prison system—pushed to breaking point by the Justice Secretary, with prison places lost before anything is built to replace them—is making it harder effectively to rehabilitate those still serving a sentence of imprisonment for public protection?
To work effectively, the Government’s new sentencing regime needs investment in the Parole Board. Lack of investment in the Parole Board and the shortage of courses for rehabilitation have caused, and are still causing, a backlog. Without proper investment, the Government’s new plan will face the same problems. What resources are the Government putting in place to ensure that these offenders are properly rehabilitated before they are released back into the community?
We are hearing reports that courses and activities are being cancelled, or that prisoners cannot attend courses, due to there not being enough prison officers to escort prisoners from the wing to the classroom. Now that imprisonment for public protection has been abolished, what is the plan for dealing with prisoners who remain within the system over their tariff? There is not one. The Government’s new policy will not avoid the criticisms levied against the previous system that it seeks to replace. It offers no solution to deal with those prisoners still in the system over their tariff. Let us be clear: the chances of being rehabilitated in prison are now lower than ever.
We cannot have offenders who come out of prison just as or more likely to offend as when they went in. We must also do all we can to make sure that the first crime is the last crime. To make a real difference, rehabilitation requires investment. We need investment in drugs and alcohol programmes and mental health services. We need rehabilitation courses to be available in all prisons and a more effective and joined-up approach to reducing reoffending in the long term.
What is most worrying is that a recent report from the National Audit Office found that fewer sex offender treatment programmes are being provided in prisons. In February this year, the BBC reported that, in 2012-13, there were around 11,000 sex offenders in prison in England and Wales but that only 1,092 treatment programmes were completed, while sex offenders in jails in England now make up 15% of the prison population. There are more sex offenders in prisons, but fewer treatment programmes.
The Government have been playing catch-up ever since they abolished imprisonment for public protection. Serious, violent individuals must not pose a risk to the public and proper due process must be followed before their release. They should be supported by courses and programmes and an effectively resourced Parole Board to allow rehabilitation to take place.
Judges need all the tools at their disposal to sentence people in the right way so that they are punished and reformed. The public will want reassurance that there are enough prison places over the coming years to keep safely behind bars those found guilty of serious crimes and that enough is being done to rehabilitate and reform prisoners to stop them reoffending.
The new regime needs the same investment in parole hearings and rehabilitation courses to make it work as was needed by imprisonment for public protection. There is no solution for thousands of prisoners over their tariff; the same problems remain. This is indicative of the fact that the revolution in rehabilitation promised by the Government in their review is nowhere to be seen. I again thank the noble Lord, Lord Wigley, for bringing this Question before the House.
My Lords, I thank the noble Lord, Lord Wigley, for securing this debate. The issue of how to manage those prisoners who are still serving indeterminate sentences of imprisonment for public protection is important and one that has generated considerable interest, not least in this House.
Indeed, our IPP prisoners could hardly have more effective advocates than the noble and learned Lords who have spoken this evening. Nor has their interest and concern been recent; it has been sustained and tenacious. At a recent meeting convened by the Bingham Centre, where the noble and learned Lord, Lord Lloyd, spoke, those issues were thoroughly discussed. Although I was unable to attend myself because of parliamentary duties, he was good enough to send me a copy of his remarks there, so the Government do not pretend to be unaware of the full range of anxiety that has been expressed about the issue.
Much has been said about the history of IPP sentences. Briefly, to remind the House, the IPP sentence was first brought into effect in 2005, by the Criminal Justice Act 2003, to target those offenders likely to pose a risk of serious harm to the public. Imposition of the sentence was mandatory in certain circumstances. More IPP sentences were imposed than were originally anticipated—that is something of an understatement. The noble Lord, Lord Kennedy, said that there were problems with introduction. That, too, is something of an understatement. I understood him to be rather unrepentant about the sentence as a whole, but be that as it may. It was not until the reforms introduced by the Criminal Justice and Immigration Act 2008 that a minimum tariff of two years was imposed, barring exceptional circumstances. Further, the mandatory requirement for imposition of the sentence in certain circumstances was removed—a “may” for a “must”. On 3 December 2012, the sentence was abolished by the LASPO Act. However, abolition was not made retrospective, so those prisoners already serving IPP sentences continue to do so until the independent Parole Board finds their assessed risks to have been reduced enough to be manageable in the community.
Although this Government have abolished the IPP sentence, it would not be right or appropriate in our view retrospectively to alter sentences that had been lawfully imposed prior to their abolition. When the LASPO Bill was being debated, a number of amendments were proposed in this House that would have changed retrospectively the sentences imposed by courts. However, none of those resulted in a change to the legislation to the effect to which some arguments have been directed this evening. That is usual—it is generally the case that when changes are made to the sentencing framework, they do not impact on current prisoners, and changes will not be made to sentences that were lawfully passed at the time they were imposed. One reason for that is because a court will have had regard to the range of sentences then available when imposing a sentence, so it will not necessarily be clear what sentence would have been imposed under a different statutory regime. Indeed, it would be quite wrong to assume in any individual case what sentence a court would have imposed under such a different regime.
On IPPs, at the higher end there will be IPP sentences that have been imposed where a life sentence might otherwise be available. At the lower end, given that the courts had found risk, it is not clear whether an extended sentence or a standard determinate sentence would have been imposed. Versions of the extended sentence are available under more than one recent statutory framework, but other considerations then arise: would the various thresholds for these sentences have been reached under different statutory frameworks? What would the length of the extended licence have been?
I hope I have said enough to demonstrate the complexity of trying to translate sentences imposed under one regime to another. In this case, the courts were specifically enjoined by the law to give priority to the consideration of risk. It would make it a particularly sensitive exercise retrospectively to change these sentences, which is what the conversion process would involve.
The Government also do not believe that it would be responsible or sensible, given the high risk levels presented by many of the IPP prisoners who remain in prison post-tariff. We do well to remember that many offenders who received IPP sentences, including those who remain in custody today post-tariff expiry, did so for serious crimes—notwithstanding the observations of the noble and learned Lord, Lord Judge—including attempted murder, manslaughter, rape and sexual assault of children. Any move to release those prisoners without due consideration of the risk they pose to the public would be wrong.
I know that many noble Lords have particular concerns about those offenders with short tariffs of less than two years imposed before the 2008 Act abolished such short tariffs except where there was serious previous offending. However, internal management information suggests that the clear majority of IPP offenders currently remaining in custody with tariffs of less than two years are there because they are assessed as posing a high, or very high, risk of serious harm to the public. This means that a serious offence could take place at any time. It would not be safe or appropriate to release these offenders on licence without due consideration of the risk which they present at the current time.
No one would claim that there have not been significant problems with IPP sentences. That is why we abolished the sentence and replaced it with the extended determinate sentence. There were practical issues arising from the number of IPP sentences with short tariffs that were imposed. The sentence did not command public confidence and led to apparent inconsistencies of sentencing. It meant that victims, the public, and offenders and their families were unclear about when an offender might be released.
However, we also have a clear duty to the public not to release IPP prisoners who continue to pose an unacceptable risk. It was never the intention of the sentence that offenders past their tariff should all be released, but only those who can be effectively managed in the community. It is for the independent Parole Board to determine whether an IPP prisoner has reduced their risk sufficiently to achieve release. The board does not, of course, take these decisions lightly: it examines reports from prison and probation and from psychologists where appropriate—and of course the prison governor provides information in the dossier—and decides whether the risk to the public remains too high to release an offender. All IPP offenders who have completed their tariff have the right to attend the regular parole review oral hearings, where release is considered. The Government consider that this is the best system for balancing the rights of the offender with our duty to protect the public.
I want to mention the NOMS work to improve the position of IPP prisoners, because this is clearly an important consideration. No prisoner should be left without opportunities to demonstrate to the Parole Board that their risk has reduced. I would also like to speak about the important work that has been undertaken to improve the prospects of progression for those IPP offenders who choose to engage with the opportunities presented to them. Examples of this work include: the streamlining of assessment, targeting and management processes, to ensure that IPP prisoners’ risks and objectives are identified as early as possible; reducing waiting times for transferring IPP offenders to open prisons, from over eight months to an average of two months; the refining of our commissioning strategies to maximise resources and focus investment on those interventions proven to be effective; and publication of guidance for those managing the sentences of IPP prisoners to ensure that the focus of sentence planning is on reducing risk in a planned and sequenced manner, and not solely on completing specific offending behaviour programmes.
The indeterminate sentence prisoners co-ordination group was established in 2010 to oversee the strategic management of all offenders serving indeterminate sentences, including both those serving IPP and life sentences. The group is led at director level within NOMS, with membership from senior representatives across NOMS. The group’s work has a particular focus on improving, wherever possible, the progression of these offenders through custody and then, should the Parole Board so direct, into the community. It achieves this by developing and promoting the most effective means of managing those serving indeterminate sentences and ensuring that resources are directed appropriately. This includes informing the development and co-ordination of strategies relating to offender assessment, sentence planning and delivery, access to interventions, parole processes, prison capacity issues and offender management in the community following release. I could give a number of examples of work that the group has delivered, but time does not permit me to do so.
As to interventions, it is a common misconception that IPP offenders must complete offending behaviour programmes in order to achieve release. Equally, it is a misconception that the completion of courses is a sufficient condition to secure release. Neither of these is the case. The Parole Board is under a general obligation to consider the offender’s risk level, which can be demonstrated in a variety of ways. In so doing, the board will take an holistic view and consider all available evidence. The completion of a number of courses is just one of a range of factors that the Parole Board will take into account.
In 2011, the Ministry of Justice carried out a research study into Parole Board decision-making in IPP cases. A summary of that research was published in 2012 and can be found on the Government’s website. There are points arising from that research that it is important to make. It suggests that programmes are far from the only relevant factor in release decisions. Release is to some extent related to the completion of programmes, but this is not a simple relationship. The research shows that the parole process is targeted on the individual and that only programmes specified to the individual’s needs, successfully completed and showing some impact on the prisoner, are likely to be taken as evidence of sentence progression. A number of other factors were important. The Parole Board members interviewed for this study thought that indeterminately sentenced prisoners benefit greatly from spending time in an open prison, for example.
My Lords, I can see that the Minister’s time is nearly up. I wonder whether he could deal with one or two of the arguments which have actually been advanced in the House this afternoon, in particular regarding Section 128. What did Parliament have in mind when that power was conferred on the Secretary of State?
It is of course a matter of statutory instruction what it had in mind. The Secretary of State is aware of the obligation placed on him to consider the matter. The noble and learned Lord has recently been in correspondence with the Secretary of State and I have endeavoured to give the Secretary of State’s reasons for the position that he has so far adopted in that respect. The question is whether the Secretary of State should exercise that power in the way that the noble and learned Lord and other noble Lords think appropriate and, if not, what steps are being taken to ensure that IPP prisoners are having the opportunity to obtain release via hearings from the Parole Board. On that and other matters, I will write to noble Lords because I have not sufficient time to deal with all the questions raised.
Reference was made to the European Court of Human Rights and the case of James, Wells and Lee and others. That is a decision which is not without difficulty and which has been considered by the Supreme Court in a number of contexts. I should declare an interest as an advocate in one of those cases. The decision by the European Court of Human Rights was indeed that there was an arbitrary detention because of the lack of provision of courses, and therefore a violation of Article 5(1), but it did not decide that the sentence was per se unlawful. There are of course further cases going through the courts and sometimes the facts do not quite fit the allegations. However, the Government are well aware of the consequences of that.
The noble Lord, Lord Ramsbotham, as ever made some useful observations about offender management. We do not deny that offender management problems exist in custody and we accept the recommendations of the latest inspectorate report on the improvements that need to be made. Some improvements have been made but more needs to be done, including a full review of offender management in custody which will commence next year. As the noble Lord and other noble Lords will know, an inquiry has been set up into deaths in custody. That was announced recently in answer to a Question asked by the noble Lord, Lord Ramsbotham, himself. I hope that that matter will inform decision-making in that respect.
Finally, regarding the Parole Board, there is liaison with it as a result of the Osborn decision. Increased resources have been made available to the Parole Board and there is regular communication between it and the Ministry of Justice to ensure that its resources are appropriately deployed to increase the possibility of hearings taking place.
The sentence itself was clearly ill conceived and its impact was wholly underestimated. The Government recognised that by abolishing it in the Act. The Secretary of State has not considered it so far appropriate to exercise the power given to him by the LASPO Act, on which there have been a number of arguments. However, the Government are extremely aware of the importance of IPP-sentenced prisoners having the opportunity for their release to be considered and to have the opportunity of proving whether they are no longer a danger. That is a matter of which the Government are painfully aware.
All the observations made by noble Lords this evening in this valuable and helpful debate will be taken back to the Secretary of State and if there are any matters that I have not fully dealt with in the course of it, I will endeavour to deal with them in writing.
Inheritance and Trustees’ Powers Bill [HL]
Returned from the Commons
The Bill was returned from the Commons agreed to.
Gambling (Licensing and Advertising) Bill
Returned from the Commons
The Bill was returned from the Commons with the Lords amendment agreed to.
House adjourned at 6.44 pm.