My Lords, I regret to inform the House of the death of Lord Goodhart on 10 January. On behalf of the House, I extend our condolences to the noble Lord’s family and friends.
To ask Her Majesty’s Government whether some European Union countries distinguish between freedom of movement for work and for other purposes, and how United Kingdom practice compares.
My Lords, the free movement of persons for work and other purposes is provided for in the treaties and CJEU case law and largely governed by the free movement directive. All member states are bound by this directive, including the UK, and implement this through their respective domestic legislation. The directive sets out that in order for an EU citizen to reside in another member state beyond three months, they must be exercising a treaty right; that is, working, self-employed, self-sufficient or a student.
My Lords, has the Minister’s Answer not got to the nub of this? The three-month practice is what most countries in the EU follow—namely, that you can stay for three months and, if you have not got a job by then, off you go. We do not do that. Surely if we adhered to the same practice as most other EU countries we would be in a much better position to negotiate a sensible way forward.
My Lords, the Government do not comment on other member states’ implementation of the free movement directive. We are about to begin these negotiations and it would wrong to set out our position in advance, but the Government are clear that at every step of these negotiations we will work to ensure the best possible outcome for the UK.
My Lords, I have been reading in the newspapers that the EU is demanding that we will have to give free movement of labour in return for access to the single market, but the United States has access to the single market and I am sure that it does not give free movement of labour between Europe and the United States.
My Lords, that will certainly be determined in negotiations as we exit the EU.
My Lords, will the Minister, rather than answering a question she was not asked, answer the question she was asked by the noble Lord, Lord Dubs? He asked why we do not now apply the three-month rule, not what we will apply when we have a new relationship. I understand that she is not prepared to say that, but will she now answer his question and say whether she thinks that if we decided now to start applying it we would put ourselves in a much better position when we start the negotiations?
My Lords, I think I did answer the noble Lord’s question. Each member state implements the free movement directive through their respective domestic legislation, all of which have different nuances within them.
My Lords, I thank the Minister for that confirmation that EU law on free movement is sound and not a charter for layabouts or benefit scroungers and that, if the strict conditions for eligibility are not enforced, that is a failure not of Brussels but of the UK Government and notably the Home Office, which the Prime Minister presided over for six years. Will the Minister offer the further reassurance that EU free movers contribute enormously to our economy, to the Treasury and to our society, and that it is a two-way street, with millions of UK citizens having taken advantage of EU free movement rights?
My Lords, I do not disagree at all that the EU free movers contribute to the economy. We were talking yesterday about doctors, nurses and various other people who contribute to the public sector. I cannot remember the first part of the question, but I think I answered it previously. Each country enshrines the free movement directive in its own legislation.
My Lords, if the noble Baroness will not comment on the detail of discussions in response to my noble friend Lord Dubs, can I repeat the question I asked her on 30 November? Do the Government make any distinction between the free movement of persons and the free movement of labour? Could she answer without conferring?
I am not entirely sure, but all those distinctions and discussions that will be taking place will be solidified in the fullness of time as we go through this process.
Will the 180-day tax residency rule be applied, with all those working in nation states paying their taxes in the countries in which they are resident?
All people who are resident in a country for more than a certain number of days a year are liable to pay the taxes of that country.
Does not the fascinating Question asked by the noble Lord, Lord Dubs, reveal that the so-called absolute—fundamental freedom of movement of labour—is not fundamental at all? There are all sorts of variations developing, particularly under modern movement conditions. Does the Minister accept that those who keep arguing that this is a binary choice between absolute freedom and being in the single market simply have not grasped the reality of the situation at all?
My noble friend raises the point about different countries’ implementation of the directive although we have not, as a Government, done a comparative analysis. However, he is absolutely right.
My Lords, will the noble Baroness write to me, and put a copy of her letter in the Library, setting out in detail the Government’s reason for failing to implement and for failing to answer the question of the noble Lord, Lord Hannay, and my noble friend Lord Dubs?
My Lords, it is not a failure to implement; it is a difference in each country’s implementation of its legislation. This country is more than generous in its implementation of that directive.
My Lords, after Brexit, why will we not be like the 168 other countries on the planet which have not made the mistake of joining the EU and which simply decide for themselves who comes in, how long they stay and on what conditions?
My Lords, as we exit the European Union, one of the balances to be struck is about controlling immigration and at the same time ensuring that we have the skills in this country needed to meet our economy.
To ask Her Majesty’s Government what steps they are taking to ensure continuity and stability in trading arrangements for United Kingdom businesses in the period between the conclusion of the Article 50 Brexit negotiations and the commencement of new trade arrangements between the European Union and the United Kingdom.
My Lords, we want a smooth and orderly exit from the EU, and to provide certainty where we can. How the Government achieve that will depend on the nature of the agreement reached with the EU, but it would not be in the interests of either side—Britain or the EU—to see disruption. The Government are considering all possible options, focusing on the mutual interests of our own country and of the EU.
I thank the Minister for that familiar Answer. The case for government working on a transition deal to provide continuity and certainty for Britain, and for British business in particular, at the end of Article 50 is overwhelming. For one thing, it is difficult to find a single person who thinks that a successful exit and incorporation of EU law into British law can take place within two years; for another, we know that the negotiation of a new arrangement cannot start until the Article 50 process has finished. Either the Government are not working on a transition deal, in which case they are severely letting Britain and British business down, or they are, but they are not telling us. Which one is it?
The noble Lord, with his usual forensic skill, puts me in an interesting position. Let me just repeat what has been said. As a Government, my fellow Ministers and I have had numerous conversations with business, and the noble Lord is absolutely right that there is a considerable amount of interest and concern in certain quarters as to what will happen at the end of the two-year period. We are very focused on that. As the Prime Minister has said, we want to avoid a cliff edge. We want to provide certainty where we can and are looking at all the options, although I am not in a position here and now to go into that. Clearly, some of those options will be dependent on what comes out of the negotiations, but rest assured we are very mindful of this issue.
Would my noble friend distinguish between a transitional negotiating phase and the transitional implementation phase? Surely there is no reason why the negotiations might not be completed in two years, whereas the implementation, in order to avoid a cliff edge, might take place over a longer period. But that is entirely different from what the noble Lord was suggesting.
My noble friend is absolutely right, and once again we need to be very precise in the use of our language here. In many treaties there are periods for implementation. In other treaties, heads of terms might be negotiated and they are a bridge between those heads of terms and the end date. We need to be very clear what we are talking about.
My Lords, to remove potentially years and years of uncertainty over tariffs and regulatory instability for business, would not the clearest signal to British business be for the Government now to indicate their intention that the UK retain membership of the customs union? Have the Government ruled this out?
The noble Lord raises an issue that the Government are analysing and assessing. There are a range of options open to us regarding the customs union and other aspects of our relationship with the EU. I will just repeat that we want to have a smooth and orderly exit, and as the Governor of the Bank of England pointed out yesterday, such an eventuality is in not just our interests but the interests of the EU itself.
My Lords, would the Minister perhaps respond to the point made by the noble Lord, Lord Wood: that you cannot start the negotiations for the new external relationship until after the withdrawal negotiations are concluded? I know that is the view of some people in Brussels, but I hope he will say that it is not the Government’s view and that their intention will be, after triggering Article 50, to begin the negotiations on a new external relationship without delay, and not to accept that they have to wait until the other negotiation is complete.
The noble Lord speaks with great authority on this, and he is absolutely right: there is nothing in Article 50 to suggest that we cannot negotiate the exit treaty and our new relationship with the EU at the same time. Indeed, paragraph 2 of Article 50, which I have in front of me, makes the point that the arrangements for a country’s withdrawal will be negotiated,
“taking account of the framework for its future relationship with the Union”.
My Lords, does the Minister agree that Article 50 implies that it can be revoked within the two-year period? Is a corollary of that not that if there is any doubt about that—this goes back to the question of the noble Lord, Lord Hannay, about what has to happen within the two years—or if the negotiation is not reaching a reasonable conclusion, the Article 50 Bill can make provision to reverse engines or revoke the Article 50 timetable?
The noble Lord makes an interesting hypothetical point; however, the Government are aiming to have a successful outcome to the negotiations. It is a matter of government policy that, once given, our notification will not be withdrawn.
Will my noble friend confirm that we remain full members of the World Trade Organization in our own right, and will he tell us what we get for our £5 million annual subscription?
My noble friend is absolutely right. We will continue to remain a member of the WTO and place our schedules with the WTO in due course. In terms of our contribution to the WTO, our membership is very valuable in a range of ways. We will seek to build on that relationship in the years to come in order, as my right honourable friend the Prime Minister has said, to become a global beacon for world trade.
My Lords, in response to the previous Question, the noble Baroness, Lady Williams, said that the Government will be working for the best possible outcome for the UK. Can the Minister say precisely what that is, in terms of jobs and the economy?
First and foremost, it is critical that we continue to build on the excellent competitive edge that this country already enjoys, the good statistics we have seen coming through and what the Governor of the Bank of England said yesterday about the outlook for our economy. That means providing certainty in the short and medium term, building on that and making sure that our businesses enjoy access to the markets of Europe in as free and frictionless a way as possible, while ensuring that trade from Europe continues with the UK.
To ask Her Majesty’s Government what steps they will take to tackle the prevalence of underage gambling online, in the light of the Gambling Commission’s report Young People and Gambling 2016.
My Lords, the protection of children from being harmed or exploited by gambling is one of the core objectives of the Gambling Act 2005. The level of participation of children aged 11 to 15 in gambling has remained relatively static. There are strict controls in place to prevent children from accessing gambling online, via the Gambling Commission’s licence conditions. Where there is a failure to prevent underage gambling, the Gambling Commission will take regulatory and/or criminal action.
I thank the Minister for his reply. The survey of the Gambling Commission found that nearly one in 10 of 11 to 16 year-olds were engaged in gambling-style games, usually on a smartphone. Does the Minister share my concern that the prevalence of this would seem to normalise this behaviour at a very formative time in young people’s development, which may lead to very serious problems later on? What more can Her Majesty’s Government do to limit their exposure to adverts and games that are explicitly trying to encourage gambling?
My Lords, of course I share the right reverend Prelate’s concern that there might be risks attached to social gaming. These gambling-style games were considered in detail by the commission in 2015, which concluded that there was no compelling reason to impose additional regulation on the social gaming sector, particularly given that it is subject to extensive consumer protection, such as the Consumer Rights Act. As far as advertising is concerned, there are strict controls over advertising and the content of gambling advertisements already. Gambling advertising was part of the recent call for evidence in the gambling review for the first time, so we await that evidence.
My Lords, I welcome the Minister’s reference to the triennial review, which, despite my scepticism, has actually started. One of the problems with that review, which he has alluded to, is that it talks about gambling limits in certain gambling premises, but one can walk into any premises and put down any amount of money on a mobile phone. Surely it is time for the Government to have a bit of joined-up thinking here and see what the implications are of this absolutely unregulated level of gambling, which affects not just children but everyone in our society.
My Lords, the noble Lord is right that the gambling review was initiated in October last year—despite his scepticism, as he says, so I am glad that he acknowledges that. He is also right to draw attention to the possibilities of online gambling. The gambling review has always looked at different things—namely, the stakes, prizes, number and locations of gaming machines. As I have already said, this year we added advertising to that. The view of the Gambling Commission, which is the statutory adviser to the Government on gambling, is that the current requirements for age verification are effective in preventing underage gambling, but we keep the regulation of online gambling under review and will not hesitate to take action if it is needed to protect people from gambling-related harm.
Will the Minister undertake to ask the gambling review to look at specific problems for young adults with learning disabilities or with other aspects of impaired mental capacity who, although they are over the age of 18, can still be particularly vulnerable to being hooked into quite inappropriate gambling activities? I declare my interest as chair of the National Mental Capacity Forum.
I cannot confirm today that it is part of the gambling review because that has already been started. However, one of the three core licensing objectives is to protect people who are vulnerable from gambling-related harm.
My Lords, the Gambling Commission report clearly shows that in just one week a staggering 32,000 11 to 15 year-olds entered betting shops, many of them playing on highly addictive fixed-odds betting terminals. Does that not show wholly inadequate levels of supervision in betting shops and their failure to meet the licensing objective of protecting the vulnerable from harm? What action are the Government going to take or recommend that the Gambling Commission takes?
I cannot say now because the gambling review is looking at just that matter. The point of the review is to look at these things and provide recommendations. The call for evidence has just been completed, and we will be consulting on that call for evidence soon.
My Lords, I hope the Minister will accept that the Gambling Act 2005, which I was responsible for as the then Secretary of State, gave us one of the most highly regulated gambling regimes in the world. Gambling changes rapidly, though, and, as the right reverend Prelate the Bishop of St Albans made clear, young people can gamble in the privacy of their own rooms on smartphones. Many of the new gambling products know no borders, which creates a regulatory challenge. Therefore, in the context of the gambling review, will the Minister undertake to look at ways of increasing the regulation of those forms of ambient gambling that we can control—specifically, gambling and betting shops on the high street—and ensure that a regulatory review is undertaken not only of the speed of play and the number of machines but also of the planning consent that has led to the outbreak of betting shops, driven by the availability of these machines on high streets across the country?
I congratulate the noble Baroness on her achievement with the Gambling Act. However, things have not stayed the same since then; for example, the Gambling (Licensing and Advertising) Act 2014 brought all gambling websites that provide gambling to British subjects, including foreign websites, under the licensing regime. We realise that this is a fast-moving environment, and the Gambling Commission monitors it on a continuing basis. As I said, we will not hesitate to take action if it is required. However, our statutory adviser has said that age verification is working well.
My Lords, in his initial Answer to the right reverend Prelate, the Minister mentioned the action the Gambling Commission could take against people offering underage gambling. Can he tell us, first, in how many instances it has taken action and what the consequences were and, secondly, how it takes action against overseas providers of those sites?
My most up-to-date information is that there have been 11 occasions when the Gambling Commission has asked payment providers to prevent payments to unlicensed websites. On all 11 occasions the payment provider either terminated its relationship with the unlicensed operator or took steps to ensure that those websites were no longer available to consumers. There has also been great success with foreign unlicensed gambling websites. The key to this is that gambling is no good if you cannot transact money, so we stop payment providers. They are not prepared to deal with unlicensed—and thereby illegal—operators. I have figures here to show that it has been very successful.
To ask Her Majesty’s Government what assessment they have made of progress made on the sale of the Green Investment Bank.
My Lords, on behalf of my noble friend Lord Barker of Battle, and at his request, I beg leave to ask the Question standing in his name on the Order Paper.
My Lords, the sale process is commercially confidential and I am unable to provide details of progress at this time. However, the Government have committed to providing a full report to Parliament once the sale is completed. The Government launched the sale process on 3 March 2016 and we expect it to be complete before the end of the financial year.
My Lords, I congratulate my noble friend on his new position and thank him for that Answer. The Green Investment Bank is the jewel in the crown of the Government’s green energy policy. There is huge concern at the moment that the preferred purchaser may have a mind to purchase the whole of the Green Investment Bank and dispose of the individual parts for a price higher than might be paid to the Government. What further assurance can my noble friend the Minister give the House today about the future of the Green Investment Bank and its integrity, excellent work and the huge success story continuing after privatisation?
My Lords, the Green Investment Bank has been a huge success—I do not think anyone doubts that. From a start-up four or five years ago, it has developed into probably the finest financial institution in this space. The Government have two objectives: first, to get value for money—certainly not to sell the assets for less than they are worth; and secondly, to free up the Green Investment Bank so that it can use its expertise to back more sustainable projects in the future.
My Lords, I give credit to the coalition Government for setting up the Green Investment Bank. It was a very good move and I deeply regret the privatisation because I feel that we will, perhaps, lose some momentum. However, in a debate yesterday in the other place the right honourable Member for West Dorset said that the privatisation of the Green Investment Bank would be judged on its increasing the spend over the last full year, which I think was £700 million. Is there any commitment within the bidders’ bids—I do not think this is confidential—to increase investment so that the good work can continue?
My Lords, I think the Green Investment Bank has spent just over £2.5 billion so far and has brought in about £8 billion of private investment to complement that, so it has committed a total investment of about £10 billion. Clearly anyone who buys the Green Investment Bank will want to see that investment grow. That will be very much part of the negotiated discussions that we are having with interested parties.
My Lords, I declare an interest as a trustee-designate of the Green Purposes Company. Given Nick Hurd’s very strong statement in the House of Commons yesterday that the Government’s number one priority was to obtain the right value for the Green Investment Bank—which we get—surely the integrity of the bank going forward should at least be an equal priority. Can the Minister confirm that please?
The Government’s commitment to the integrity of the Green Investment Bank was made clear by enshrining its five green, core purposes in the articles of association of the company and the assurance that, if the company wants to change those green purposes, it has to get the agreement of the independent trustees, of whom the noble Lord is one.
I welcome the noble Lord to his new Front Bench duties and look forward to working with him. The issue that has just been raised is important. Surely it is now clear that the trustees will be unable to prevent the green mission being changed, because the way that the deal is structured means they can be bypassed. Is it right that there will be no obligation on the new owners to continue investing in the UK, contrary to the requirements of the Act passed by this House?
On the latter question of whether the bank may invest overseas, I understand that it is already considering projects in India and east Africa. One purpose of introducing private capital into the Green Investment Bank is to give it more flexibility to develop the business in future.
The question of the noble Baroness, Lady McIntosh, was about the possibility of the bank being broken up for profit-taking. Is that possible, or will it remain completely intact?
My Lords, no business would say that it will be intact for ever. Interestingly, the Green Investment Bank manages an investment fund of £800 million. It is the biggest investment fund in the renewable sector in the UK. It has a whole series of investments in that fund, and of course some will be sold in future.
My Lords, the suggestion in the Sunday papers was that the integrity of the bank was under threat. It is not sufficient just to support the objectives of the bank; this is about its integrity. Can we have an assurance from the Government that they are seeking to protect that integrity as well as the objectives?
I can give an absolute assurance that, in assessing which company or organisation might acquire the Green Investment Bank, the integrity and commitment of that company to the green purposes of the bank is crucial.
One of the interesting comments in last Sunday’s press about the issue was that Macquarie bank was one of the favourites to buy the Green Investment Bank. The Minister will be aware of Macquarie’s ownership of Thames Water, where it has stripped probably three-quarters of the assets of the company, to the extent that it will be unable to fund the Thames tideway tunnel. Is that a good example of integrity?
As the noble Lord will know, the Government signed confidentiality agreements as part of the sale process and I cannot comment on any individual purchase or otherwise.
That the debates on the motions in the names of Baroness Massey of Darwen and Lord Robertson of Port Ellen set down for today shall each be limited to 2½ hours.
That this House takes note of the Institute for Public Policy Research’s annual State of the North report, and the case for equality of opportunity and sustainable productivity.
My Lords, I am pleased to introduce this debate as a proud Lancastrian and therefore a northerner. I am someone who also cares about deep divisions, any sort of division, in our society.
The so-called northern powerhouse must not just be a catchy label. Northern regions can be powerful only if they have real power, economically, politically and in their public services. I am not talking about devolution; I am talking about decentralisation. The Institute for Public Policy Research North, whose report we are discussing today, suggests ways of contributing to this power and releasing the energy of the north. I welcome it strongly.
I am delighted to see colleagues with such a wealth of experience and expertise taking part today. I look forward to their contributions. I am only sorry that time will be so limited. I note that some will talk with great expertise of cuts to local authorities, so I shall leave that to them. They will also discuss many other issues.
I shall explore part of the current story on the state of the north, then look at some possible ways forward. I shall look first at social mobility, a component of power and potential. When I was growing up in the north many years ago, social mobility was a term unheard of. You got on—hopefully, but not always—if you passed the 11-plus. In the working classes, where I came from, if you ended up not going to mills or the mines, then you had succeeded—at least partially. That situation is now much more complex. I hope to examine some of that complexity today. The situation is much more multidimensional, going beyond mills, mines and steel, which are of course mainly gone. A productive and ambitious northern economy needs to have its own potential for social mobility and high productivity. The potential is there; many dynamic things are happening, but times are a-changing.
The IPPR’s report begins by stating that its previous year’s annual report was full of confident projection of northern powerhouse potential, in relation to the economy, jobs growth, attractiveness for foreign investment and educational improvements, but there is a warning that the decision to leave the EU will affect the northern economy in terms of trade, access to skilled labour and EU funding. One worry is that devolution appears to have stalled and that the focus on rebalancing has been overtaken by an initiative to develop the industrial strategy.
We may all speculate on why so much discontent and anger were expressed in the northern regions during the European referendum and, of course, in the result. The areas most at risk from leaving the EU, but which could also benefit from new trade arrangements, voted to leave. Only Manchester, Liverpool, Stockport and Trafford voted to remain. People in the north were dismayed at neglect and disregard, at the perception that decisions were made in the south and that power and money resided in the south. The northern regions are more than three times as dependent on EU trade as London. The director of the IPPR has argued that Brexit negotiations should focus on the needs of the areas that voted strongly to leave. He has a point.
Brexit must not be bad for the north; we must be vigilant. In relation to productivity, the northern regions are growing faster than other regions. The weakening pound may be playing to northern manufacturing strengths, but disruption of trade with Europe is still to be feared.
A recent CBI report states that the most productive area of the UK is now almost three times more productive than the least and that wide geographic differences are the root of much inequality in the UK today. Parts of the north suffer disproportionately.
The State of the North report on social mobility states that many regions, and not just the north, have fallen behind London and the south. For example, more than half the adults in Wales, the north-east, Yorkshire and Humber, the West Midlands and Northern Ireland have less than £100 in savings. Young people who want to get on are moving away from many communities—again, not just in the north. Home ownership among the under-44s has fallen by 17% in the last decade; the gap between housing is accentuating the wealth divide. The average weekly pay of workers in Blackpool of £333 is half of that in Southwark—£639—and several, but not all, of the lowest hourly pay averages in the country are in the north.
I add to these figures concerns for transport, education and the issue of poverty and health. Wherever there is poverty and concerns for health, which occur frequently in the north as reports on equality have shown, a whole population may be damaged from before birth onwards. An OECD report last year pointed out that the UK has the worst performance of intergenerational earnings mobility among OECD countries. The Social Mobility Commission, chaired by Alan Milburn with the noble Baroness, Lady Shephard, as vice-chair, identified four fundamental barriers that are holding back a whole tranche of low and middle-income families in communities in England—again, not just in the north. These factors are: an unfair education system; a two-tier labour market; an imbalanced economy; and an unaffordable housing market. Our education system seems intractable, with more emphasis on passing exams rather than the soft skills, such as communication skills and teamwork, which are required by industry. Not enough emphasis is placed on the early years, although that is improving, and sport and the arts are being neglected. We need to look again at what we are doing to our children.
My noble friend Lady Corston chaired a committee last year which produced a challenging report, Overlooked and Left Behind. It pointed out the inequalities between academic and vocational routes to work for young people and the importance of advice in making transitions and choices. Speaking of young people, I am delighted to learn that the Children’s Commissioner for England is developing a new project to look at childhood in the north of England and the opportunities for children provided by devolution and regeneration. This project will seek to understand the regional differences in children’s experiences and how these impact on outcomes. This will surely be a project to follow. The report of the Commission for Housing in the North, published by the Northern Housing Consortium, points out that a response to housing in the north is local flexibility and the use of public investment, developing new partnerships and revitalising places.
I am highlighting just a few points; I know that other noble Lords will elaborate more. Let me now discuss the possibility for development. The CBI report on regional growth, which I mentioned earlier, identifies four main drivers of regional productivity: ensuring a strong school performance and results at GCSE and—recognising that school is not enough—work training and development; transport links that widen access to labour, also examined by Transport for the North; better management practices; and a higher proportion of firms that export and innovate.
These concerns link with the views of IPPR North. In 2015, it set out four tests for the northern powerhouse: to generate a better type of economic growth that combines rising productivity with more jobs and better wages for all; to liberate the potential of people through improvements to the development of skills, starting with the youngest, including pre-schoolers; to invest in future success, particularly in terms of innovation and building infrastructure for the future; and to rejuvenate local democracy by giving people a genuine involvement in the way that the north of England is run. These tests are still important—I have touched on some of them already—but times and contexts move on. In the 2016 report, IPPR North praises the progress being made in relation to transport, infrastructure, finance, trade and investment, and the schools strategy. But there is a caveat—clouds on the horizon. Wider events, with Brexit a large influence, mean that business confidence is threatened and the prospect of inclusive growth in the north looks distant.
The IPPR makes three recommendations. The first is the formation of a northern Brexit negotiating committee, to enable the north to be heard and to build trade relationships with regions and nations within and beyond the EU. This recognises that the Government’s industrial strategy is an opportunity to take a more proactive approach to structural challenges. The second recommendation calls on the Government to adopt a place-based approach to industrial strategy with the core principles of regional differentiation, co-ordinated investment and devolution. Local economic resilience needs to be fostered and developed. Thirdly, local enterprise partnerships should conduct resilience audits that set out the post-Brexit threats to their economies and develop strategic responses. Government should be asked to back this strategy as part of a new round of devolution deals with each local enterprise area.
As the report also states:
“The North has distinct economic assets and interests that present both opportunities and threats as the UK prepares to leave the European Union”.
It warns that the patchy development of combined authorities, metro mayors and devolution deals in the north affect the formulation of a coherent response to Brexit.
I have attempted to give a flavour of this exciting report and touch on some of the issues facing the north in relation to its economy and underlying structures, such as health, education, housing and transport. Much is positive; much shows forward thinking. The importance of local enterprise partnerships and the encouragement of local democracy are at the core of progress in the north. Will the Government heed the warning signs of the IPPR report and consider its recommendations? I beg to move.
My Lords, I remind the House that there is a five-minute time limit for Back-Bench speeches, so if the clock says five, I am afraid that you have gone over.
My Lords, first I thank the noble Baroness, Lady Massey, for introducing this timely debate so elegantly. Her view of the dangers of centralisation came across powerfully. My own contribution is from the perspective of small business in my part of the north, especially Cumbria.
Before venturing further, I need to declare my personal interests. I remain on the board of, or am otherwise involved in, my family’s activities in Cumbria. They include farming, forestry, leisure, mineral extraction, housebuilding, aggregates and horseracing.
This is my first encounter with the work of IPPR. I had rather imagined them to be a left-of-centre think tank with rather predictable views. I am very pleased to repent of my ill-conceived prejudice and I commend its website to anyone who has not seen it: they have a treat in store. Nor do I have a problem with many of the IPPR’s recommendations. I like the idea—as does the noble Baroness—of resilience audits. I also support, in principle, the concept of a northern Brexit negotiating committee, subject always to the details of its composition.
With all reports, whether they come from government or think tanks, I find myself asking who the authors have been speaking, and listening, to. I am usually left with the feeling that the conclusions reached, where business is concerned, are garnered from those men and women who are pleased to call themselves “business leaders”. Many of them are in command of large corporatist businesses and dislike risk—and certainly uncertainty—of any kind. By contrast, those of us in the SME sector wake up every morning of our lives to personal risk and uncertainty. We do not complain: it is the life-blood of our very existence. The cohorts of officials advising Ministers have problems understanding the sector. Why would it be otherwise? They have never been near a risk-taking enterprise.
What has become increasingly evident lately, however, is how remote from the business environment the political class has become: witness perhaps the fact that only two of the 23 noble Lords taking part in this debate will be responsible for paying the wages tomorrow morning. My request that a better way be found to hear what the SME sector has to say is not special pleading; it is essential because we represent such a large proportion of the nation’s economy and its growth.
Where I do take issue with the report is where it says that, after such encouraging progress in the north, “dark clouds are gathering” and,
“uncertainty now pervades the northern mood”.
I see no sign of the northern powerhouse flagging. I am old enough to be rather wary of industrial strategies, but whatever the Government are doing in the north—and it amounts to a great deal—it seems to me to have been an enormous success and I thank them for it. Less good is the situation in my own county of Cumbria—what has sometimes been described by noble Lords as “north of the north”. We face the usual challenges of infrastructure needs and connectivity, as well as problems with skills and education—the matters elegantly described by the noble Baroness.
We will not lack opportunities post-Brexit. I believe that there is scope for further development in our traditional strengths of agriculture and tourism. Significant investment is already coming into the county. We have the nuclear coast and major shipbuilding orders, and there is investment in energy and pharmaceuticals, with more besides. However, looking ahead, enduring benefits for Cumbria will not be achieved unless and until the burning issue of local governance is resolved.
For a number of years I sat on Cumbria County Council. I am delighted to see in his place, and due to speak, the noble Lord, Lord Liddle, who serves with great distinction on the council and enjoys a formidable reputation there. I hope that he will throw more light than I am able to on the problem of devolution. I believe it is a fact that our LEP had to accept what amounts to a pitiful settlement through Cumbria’s failure to agree a devo deal.
In Cumbria we have half a million people—there are more sheep than people—and we are governed by 600 elected representatives, plus their support staff. It is small wonder that one civil servant in exasperation told me, “You are over-governed and under-led”.
In conclusion, I look forward to hearing what the noble Lord, Lord Liddle, has to say on this local matter, but I wonder whether the Minister might consider reminding the world how much my county and others like it could stand to gain with a degree of reform, which has worked so well elsewhere.
My Lords, I thank the noble Baroness, Lady Massey of Darwen, for initiating this debate. I add to her list of places in the north that voted to remain my own city of Newcastle upon Tyne.
I congratulate IPPR North on its incisive report. Its recommendations urging local enterprise partnership resilience audits in the face of Brexit and the creation of a northern Brexit negotiating committee to speak for the north in the absence of the devolved structures now available in London, Scotland, Wales and Northern Ireland are critical. IPPR North is also right to identify the adoption of a place-based approach to industrial strategy, encouraging regional differentiation, co-ordinated investment and devolution as its basis and ensuring that all parts of the north and not just the big cities can grow.
A hard Brexit will damage the north’s economy profoundly, with fewer exports and fewer jobs as we exit the single market and the customs union. The north must keep access to the single market and the customs union. Over half of our exports go to the European Union, and the prospect of those exports queuing up at foreign borders because we have left the customs union is too dreadful to contemplate. Leaving the single market will create tariff barriers, which will result in lower exports.
Mention has been made of the northern powerhouse. The Government were right to create it as a flagship policy but it has to date suffered from being more flag than ship. However, the signs are encouraging, not least in the work of Transport for the North, whose role will inevitably relate not just to investment in transport infrastructure but to the wider economic development of the whole of the north.
I want to suggest to the Minister a six-point plan—which is not exclusive—to boost growth and productivity in the north. If there is no plan, the economy of the north risks being squeezed by the economic strength of London and the south-east in one direction and Scotland in the other, which could well see an economic resurgence if its wish to stay in the EU results in a referendum vote that means it leaves the UK.
Turning to the six points, first, I want to see the introduction of regional targets for the Department for International Trade for foreign direct investment, which is currently assessed only across the UK as a whole. I draw attention to the fact London got one-third of all new jobs from foreign direct investment in 2015-16.
Secondly, the Government should be encouraging the private sector to invest in the north to boost development. As an example, I pay tribute to Legal & General’s investment in Newcastle, including a £65 million investment in the Science Central site. This is good news, but we need more of it.
Thirdly, we need a major boost to our secondary schools, as there has been in London, which now has a much higher achievement rate than the north—and, of course, much higher funding per capita. The CBI demonstrated in its December report that that is a key factor in driving up productivity and therefore wages.
Fourthly, will the Government look at using some of the apprenticeship levy from April to promote employment and higher-level skills development in areas that have done less well since the crash?
Fifthly, the north’s universities need to work even more closely together to promote innovation across the whole of their sub-regions so that more people—not just those in the big cities—can benefit from their job creation.
Sixthly, the north needs a bigger share of the country’s communications investment in both transport infrastructure and digital support for SMEs to enable them to grow faster and export more. Its share has been far too low, as I think the Government now acknowledge.
In conclusion, the north has a huge cultural heritage, which we want to protect and promote. Much of that was forged by the Industrial Revolution. We need a new revolution, one that drives a sense of common purpose across the north to invest more, to make a success of devolution and to bridge the productivity divide. Places that feel left behind need new thinking. I hope the Minister will agree that to leave policy simply in the hands of the Treasury, which thinks only in terms of innovation driving growth, does not help the left-behind places. Those places need intervention to address the barriers of skills, poor connectivity and lack of investment.
My Lords, noble Lords will not be surprised that an Archbishop of York is keen to contribute to this debate on the state of the north of England, but, as I remind myself, one title held by all Archbishops of York is Primate of England and Metropolitan.
In focusing on the north, I want to avoid any suggestion that the north and south of England can be spoken of as if a latter-day Hadrian’s Wall has been built from the Dee to the Humber. We are one nation, and I, for one, want to see the bonds and sympathies between all people of this land strengthened. It is very good that the state of the north is being debated today in your Lordships’ House. The state of the north is important because, unless we get things right in the north, the whole country will be more divided, less prosperous and unhappier. In short, the whole country needs the north to flourish.
The report looks, in very interesting ways, at the variable economic resilience of areas of the north. I want to focus on another sort of resilience that is just as important as economic resilience: human resilience, the resilience of the people of the north. Any plans for greater prosperity and flourishing in the north must build on that vital characteristic, the resilience of the people.
Over more than 30 years, the economy of this nation has shifted from manufacturing industry to services. Successive Governments have seen the City of London as the economic powerhouse. The result has been to suck energy and resources southwards. London has become an exceptional capital city. It is an exception to the ways of life and the economic prospects of the rest of the country, especially in the north.
The report from IPPR North warns us that the uncertainties surrounding the Brexit vote could set the recovery of the north back very badly. But the status quo before 23 June was not serving the north well. If we are, indeed, poised to “take back control”, how will the people of the north be offered the chance to take back control of their own lives and communities? Brexit cannot just be about more control for London.
It is certainly heartening that the Government have understood the need for an industrial strategy. Making things matters. So do good employment practices. Our economic system is supposed to reward risk-takers, but the people who bear the greatest burden of risk these days are being rewarded with zero-hours contracts, fake self-employment and low pay. Much of the resilience of the north and its people stems from the long history of pride in the jobs that our industrial past created. We may not get the old industries back, but we do need jobs in which people can take pride, and which reward their resilience.
The report expresses cautious optimism about the Secretary of State's approach to a place-based industrial strategy. I share that optimism. It is significant that the Secretary of State comes to this role with a background in community policy. If, as I think he does, the Secretary of State “gets” communities—if he gets the way in which the resilience of the people is an asset on which the economy can build—then there are some sparks of hope for a realistic, resilient northern economy to emerge. The people of the north cherish their history, their toughness and their contribution to the well-being of the nation. That is what has made the north resilient for decades, even for centuries. Our economic policies must build on those assets and not undermine them.
We need more devolution from south to north—devolution of powers and of institutions. We need Cabinet-level figures to champion the north—people who know the qualities of the north from their own experience. We need a more diverse economy that draws on the skills of northern people. If Brexit prompts a shift in that direction, it may just be worth the uncertainty that we are currently experiencing. I am grateful to IPPR North for this excellent report and I urge your Lordships to reflect carefully on it.
My Lords, I am grateful to my noble friend Lady Massey for initiating this opportunity to shine a spotlight on the north of England. It is always a pleasure to follow the most reverend Primate the Archbishop of York, who talks knowledgeably about his particular archdiocese.
If the reality of the northern powerhouse never quite lived up to the hype generated by its jazzy title, as my noble friend Lady Massey suggested, it is none the less welcome that the Government have injected energy and resource into the future of the north. The policies were not always consistent, with cuts in local authority funding running against the grain of the northern powerhouse. There were some contradictory strategies at work. But as the IPPR reminds us, with George Osborne and the noble Lord, Lord O’Neill, moving on, it is not yet clear that there is an effective champion in the Government for the northern powerhouse. I hope that we will hear something about that today. Indeed, the Prime Minister struck a rather different tone, referring to her interest in all cities and regions—an approach that risks losing the focus and momentum that the north needs. One message from this debate will be to ask the Government, “Where are the top-level champions at the heart of government?”.
There are welcome bright spots in the north. There are vibrant city centres. They are a little too dependent on shopping and drinking, in my opinion, but none the less huge improvements are taking place in some cities. There are well-performing areas such as Warrington, Cheshire and York and North Yorkshire, but in too many other places the dynamism that built the great industries of the north and the accompanying cities and towns has faded along with those industries.
So we have the situation of a rather lop-sided economy in the UK, with—according to the Eurostat figures—the UK having three regions in the EU top 20: London; north-east Scotland; and Berkshire, Buckinghamshire and Oxfordshire. Only the rest of the south of England does better than the EU 28 average. It is not just a northern problem, of course; it is a Welsh problem, it is to some extent a west of England problem and it is a problem for others as well. Regions outside the south-east are struggling to come up to scratch against some European standards.
Now some people who supported leave might claim that the north has been held back by EU membership and that, if we take back control, our natural enterprise and flair—and, no doubt, unleashed animal spirits—will transform matters. This is a fantasy. As the noble Lord, Lord Shipley, said, the north is lagging behind the best on a number of issues, including: education and training standards, which is a point well developed in the IPPR report; higher levels than average of poverty; life expectancy rates below the national average and particularly below the average in the south of England. Productivity needs big improvement, the urban environment needs improvement and transport, too, needs improvement. Where in the great northern cities are the underground railways that so characterise many of our continental counterparts?
These in fact are all national competences. They are not EU competences at all. They are nothing much to do with the EU, although the EU regional funds have been useful contributors. It is important, too, to remember that a lot of the companies that are engines of growth in the north are foreign owned, often European owned, but also Far Eastern owned. They include BASF, Tata and Nissan—and, of course, recently Siemens in Hull, making a huge contribution in this important year for Hull.
I had hoped that our cities would reach this northern European standard. We have still got some way to go and it is important that we continue to make people in the north aware of just what other people are doing. Brexit will not help with that, but it is important that they learn. My father used to say, “What Manchester does today, London does tomorrow”. I am proud of what Manchester has achieved since the 1990s, but let us be honest about it. It is some time since we have been able to say that those remarks of his remain true. We are still some way off the best and have got a long way to go.
My Lords, I declare an interest. I am a partner in a farming business in Northumberland and historically have had involvement in a number of businesses in the north-east. I was also, five years ago, a member of the Adonis review on the economy of the north-east. I, too, appreciate the comprehensive introduction to this debate by the noble Baroness, Lady Massey, and I welcome this report. Recognising that it covers the whole of the north of England, my comments will focus specifically on the north-east.
As a region, the north-east has the most positive balance of payments of any region in England. This is a remarkable achievement and something of which we are proud. However, this means we are even more vulnerable if trading—particularly trading with the European Union—is disrupted by the impact of Brexit. The north-east boasts the second highest gross value added in the UK economy, at 2.8% in 2016 according to House of Commons figures published in December. This performance must be maintained, whatever the world looks like after Brexit. Earlier this week, your Lordships discussed this very issue. During Tuesday’s debate on the economic impact of Brexit, the noble Lord, Lord Beith, highlighted that 58% of the north-east’s exports are to Europe. The IPPR report further highlights this, placing the north-east in the “dynamic but vulnerable” category.
This important region must make sure that its voice is heard throughout the Brexit negotiations so that it can pursue an agenda beneficial to the north, as recommended in the report. As has been mentioned, large companies such as Nissan are very important to the economy of the north-east and it is excellent that it has committed to post-Brexit investment. However, as in every other region, the business community in the north-east consists of tens of thousands of SMEs and their future is crucial to the economy of the north. This being the case, it is vital that they continue to be supported throughout the Brexit negotiation process, as much of the success of the northern economy is tied to theirs. They need encouragement, continued access to capital funding to improve skills and support to access markets here at home but also, importantly for the region, overseas.
Noble Lords will not be surprised that I also refer to the rural economy and its importance to the north. A Newcastle University study in 2013 found that two-thirds of rural businesses in the UK are SMEs and microbusinesses. This is not surprising, but what is not well known is that the rural economy in the north grew in the decade between 2004 and 2014 faster than any other sector in the region, according to the North East local enterprise partnership figures.
The rural economy is vital to the region and makes up approximately 20% of England’s economic activity. It would be remiss of me not to refer to the importance of agriculture in the rural space. The common agricultural policy is a hugely important element of EU membership. The support it provides is currently crucial to the survival of many farm businesses in the north of England. I could go into a lot of detail on this, but I will confine my remarks to the following.
The north of England has a higher proportion of hill and upland farming than any other area of England, from the Peak District, through the Pennines to the Lake District and the Cheviots. They may not be seen as the most obvious drivers of economic growth, but the dependency of other sectors on the uplands of Britain, particularly in the north, is massively important, from tourism, water capture and flood management to the environment and the contribution the uplands make to climate change. Of course, agriculture as a whole is vital, but the uplands are particularly vulnerable in a post-Brexit world if some form of ongoing support is not recognised as essential when the common agricultural policy is demolished. Farmers recognise that change is inevitable post Brexit and they may have to change, but upland farmers have fewer options.
I make these points because we need integrated solutions that bring the rural, the urban and cities together to succeed. The economy of the north-east is dynamic and has huge potential, but it is vulnerable and this needs to be recognised. There has been great work towards this so far, but it must not be derailed by Brexit. We need to ensure that current progress is maintained.
My Lords, I add my thanks to those of previous speakers to the noble Baroness, Lady Massey, for initiating this very important debate. As usual, I declare my interest as a vice-president of the LGA.
My working life and my involvement in local government for the past 30 years has taken place in the northern metropolitan district of Bradford. People are generally surprised to hear that Bradford is the fifth-largest metropolitan district in the country and that two-thirds of its area is rural. It has a rapidly growing population of 531,200 and is the youngest city in the UK. Some 23% of the population are aged under 16, compared with 18.8% nationally.
Most Governments, of all political colours, have tended to be London-centric in their thinking. The result of the referendum in many parts of the north was certainly in part a reaction to what many regard as the opinions of a Westminster elite. This divide was cemented even more by the sneering tone of some commentators implying that voters in the north lacked the intelligence to vote the right way.
The previous Chancellor of the Exchequer was wise enough to realise that the north has much to offer, much that could be developed, and that the UK could be economically stronger if the potential of the north could be developed. The Northern Powerhouse Strategy in the Autumn Statement showed that the present Government are taking seriously their approach to addressing the key barriers to productivity in the north. The IPPR’s State of the North report helpfully identifies three key issues to build business confidence and economic resilience: securing a northern voice in Brexit; clear principles for a place-based industrial strategy; and a focus on local economic resilience alongside growth and devolution.
Yorkshire currently has no agreed devolution deal in place, so the lack of a unified voice across the north is potentially damaging, particularly to the Leeds city region and to Bradford. It is important for the north to find its own voice and promote itself and its constituent cities, towns and communities on the world stage. The IPPR view that an effective national industrial strategy should allow for regional differentiation is particularly relevant to the Leeds city region and to Bradford in particular as they are diverse and the city region does not comprise a single city or solely an urban environment. Creating more jobs and getting people into good jobs is key and inclusive growth is central to Leeds city region’s economic strategy.
As a district, Bradford is committed to creating a high-value, high-skilled economy, driven by innovative and productive business that delivers growth, jobs and opportunity for all. Devolution and differentiation offer opportunities to develop local solutions for harder-to-reach unemployed and underemployed people. An example of this is the project Get Bradford Working which addresses the gap in nationally commissioned approaches. Such local initiatives would benefit from more support, as national solutions tend to lead to a focus on people who need help the least. Locally designed and implemented services can respond better to local business need.
IPPR’s call for greater public investment in infrastructure and research and development is an important message. The north receives less government R&D spend than London and the south-east. Public resources could deliver better economic and social outcomes if targeted in areas with greater opportunities for market growth. Key for Bradford is investment in transport infrastructure, including a high-speed northern powerhouse rail stop for the city and other trans-Pennine improvements, including electrification of the Calder Valley line. Delivering inclusive growth across the north will require significant long-term investment in social capital as well as physical infrastructure and the need to see social infrastructure as driving the well-being agenda.
Any industrial strategy for the north must recognise the need for local solutions and genuine devolution, including fiscal powers, which are key to the delivery of those local solutions. Long-term resilience is dependent on physical and social investment to deliver truly inclusive growth.
My Lords, I wish to address my remarks to the northern issue, not necessarily the town or the city. I congratulate the noble Baroness, Lady Massey, on securing this debate on the excellent State of the North report. She said at the beginning that basically decentralisation is what she is concerned about, not devolution, but those two things are two sides of the same coin if we are to find a framework, on a spatial basis, to develop the north—not the tribal basis of each of us talking for Hull, for York or wherever. What contribution and framework do we need to meet the real development of the north? It almost takes me back to when Michael Foot, when he was leader of the Opposition, asked me to find an agreement between the Scots and the English regions after the failure of the first Scotland Bill in Parliament. I talked to them all; they all had the same problem. They were concerned about high unemployment and about growth; they were concerned that growth was really in the south and not the north—very similar arguments in Scotland as in the northern regions. I had to find an agreement about that.
I want to concentrate my remarks on the business of devolution, because it is the same framework. The devolution I mean is what we introduced in Scotland, Northern Ireland and Wales; we produced an elected government in London—a regional government—and a cities policy, and all this was part of devolution. It found a role for the local government within a framework; that was what was essential for us and we did it. Tragically, this was opposed all the time by the Tories and scrapped when they came in in 2010. Even with RDAs, which everybody thought were successful, they kept development agencies for Scotland, Wales and Northern Ireland, but took them away from the English regions and gave us these enterprise boards or something—what do you call them? They do not have the resources or the powers and do not compare to an RDA. To that extent, the Tories took the view that they were more concerned with local than regional government. That is an important difference.
When Osborne came along—whatever his full name is—he gave us “northern devolution”. It is not northern, because it does not cover all the north; it certainly does not cover Hull and anything east of the Pennines. It is not devolution; it is local government reform. I quite welcome that, if that is what we are going to have. It lacks the regional dimension, which is absolutely essential if we are to get the northern economy moving and to recognise the disparities between the north and south. There is a similar argument between Scotland and England as within the English regions themselves.
We have to look at what northern devolution was. I note that all the report on northern devolution dismisses the rhetoric of “powerhouse”—it is certainly not that. However, the report says that devolution is waning, and that it is,
“too partial, piecemeal and parochial”.
That is because the Government have always been against the regional dimension. They always want to see it within the local government framework—so do I. However, strategic thinking needs a strategy.
I am glad to see that the Government now recognise two things. First, Mr Clark, the Secretary of State, is now looking at spatial economic development. We have a Minister who represents every centralised issue in government. The department that matters now is the one for energy and industrial strategy. The Government are right to pursue that, but they do not like to use the talk of regions. That is another difficulty. How do we bring that together?
We need to be talking about the places of growth, and not only in each city or small area but in the region of the north. The north runs from Liverpool to Hull. We need a strategy that shows that as a place of growth. We need to use the Humber—the greatest source of energy we have at the moment. It is an energy estuary; it is environmental and developmental in a fundamental way. It is not just about culture—I leave that on the side—it is about economic development, and that is important. But you need a framework for that. The framework is crucial and we do not have it at the moment.
The argument for Brexit in negotiations was really about redistributing power and resources, not back to the centre but to the regions. Let us see where the money goes. That is a constitutional change—a further balance between the north and the south. I believe we should stay in the European Union but, leaving that aside, if there are negotiations and money is to come back, let it go to the regions. Let us have constitutional change.
Scotland wants more powers for devolution, and probably to stay in, as it has said. I have combined with my colleague Gordon Brown to see if Scotland and the north can form a powerhouse together. If you want a real powerhouse, put Scotland and the north together for the same reason: to redistribute the power and resources and begin to develop a northern economy. Find a framework; it is strategic.
Thank goodness the Government are partly there with Transport for the North, which is now looking for a regional solution, because that cannot be done with local government boundaries. This House will very shortly be debating new powers for Transport for the North which are regional. Let us start looking at the north as a region, not tribally representing Liverpool, Manchester, Hull or wherever. Let us get back to thinking strategically.
My Lords, I am glad to be following the noble Lord, Lord Prescott, and agree considerably with his remarks. I will not be as demonstrative in what I have to say and will limit my remarks to the part of the region which I know best, Yorkshire. I declare three interests. First, I love living in Yorkshire and have a very personal interest in the debate as a resident. Secondly, I am an elected representative for one of its towns. Thirdly, like the noble Baroness, Lady Eaton, I am a vice-president of the Local Government Association—and, I suppose, fourthly, I intend to be unremitting in making the case for the north.
The picture painted in the IPPR report, The State of the North, is one I recognise. The analysis reflects much of what was done by the regional development agency, Yorkshire Forward, 10 years ago. The analysis then, as now, is that the challenges for Yorkshire are poor connectivity, relatively low skills and inadequate investment in new businesses to transform the region from its 19th-century industrial past. The sad fact is that since the demise of Yorkshire Forward, there has been no significant progress in addressing those challenges. The consequence is that that the lives of 5 million people in Yorkshire and the 15 million in the north as a whole have been blighted. The challenges are clear. Poor connectivity within the region and to the rest of the country is a drag on investment. Major transport investment is part of the solution, and the comparators with London are stark. In London, the Government have invested £1,870 per head on major transport projects, whereas in Yorkshire and the Humber region it is a mere £247 per head. The figures for infrastructure investment are even more stark, with London getting £5,426 per person, while in Yorkshire the equivalent figure is £581.
The relatively low skills in the north are cited as one of the factors discouraging inward investment. Educators at all levels are taking up the challenge, but people need to have some expectation that developing skills will lead to a better job and therefore income. Encouraging adults to acquire new skills can be challenging when the job opportunities are not obvious. It is a bit of a vicious circle.
Areas such as Yorkshire have been, literally, the powerhouses of the country for a century or more. Yorkshire still plays a massive role in generating the nation’s electricity but the transformation from the industries of an earlier era—coal, textiles, steel—needs major and sustained investment, and a vision shared and agreed with those communities.
Despite warm words from the Government, none of this has happened. The northern powerhouse has apparently run out of steam. Improved connectivity priorities agreed across the north in the Northern Way group a decade ago are still awaiting implementation. To make matters worse, the Government have systematically and deliberately divested many of these same areas of the north of the resources to tackle these challenges.
Being starved of resources leads to a lack of capacity to deal with the big issues beyond the day-to-day. The Government’s own figures show that Leeds City Council for example will this year have £l,555 per household to spend on local services, which should include investment in encouraging new business and regenerating derelict areas. Meanwhile in Surrey, residents will have £1,993 per household of expenditure. If the spending power for Leeds, which is typical of many of the northern industrial towns and cities, was at the same level as it is for Surrey, Leeds residents and the council would have an additional £140 million every year to invest in making a difference.
What The State of the North demonstrates, and the Government’s own information illustrates, is that the 15 million residents of the north have had a poor deal. We do not want to be patronised. We do not intend to bring a begging bowl. But we insist that we be given the tools so that we can get on with the job, and that means the Government being bold enough to let go of the reins and let those of us who live in the north work together to release the talents, creativity and determination of northern folk.
My Lords, many of the points I wanted to make have already been made, and I will not repeat them, but I do want to emphasise one or two points. When we talk about the north, I sometimes think it is a bit like the way we talk about Africa, as if it was one monolithic place. The north is not. It is very diverse, differentiated and complex. For example, we have heard about Bradford having a very young population, 23.6% being under the age of 16. Where are the jobs for them? It is all very well to have a thriving city of Leeds, which has a large manufacturing base; but if that is not integrated and if the success of Leeds means that its environs have vulnerabilities, there is a potential problem. In the rural areas of north Yorkshire and parts of west Yorkshire there is low productivity in the farming and tourism industries, low-wage economies, and problems with housing and house prices, particularly with second homes or those living in the metropolitan areas wanting to live outside those areas. House prices rise and there is a problem with the continuity of community and with families being able to stay where they are. I mention that because we often talk about industry or industrial strategy as if it were an end in itself. The purpose of wealth creation, the purpose of industry and work is to create a good society. That is why I was pleased to hear earlier the call for an integrated approach. Industry is not an end in itself.
There are two elements in the report that are worth paying attention to. Much has been said about devolution, so I will leave that out. The first is resilience. We need to remember that in the wake of Brexit, however particular communities voted, the split is pretty even in most places. Leeds voted to remain; Bradford voted to leave. We still have to pay attention, not just to those who won the referendum, but to those who are very concerned about the future. For example, what will happen if the European subsidies to the farming industry are removed? Are the Government really going to compensate within the United Kingdom for what is going to be lost? That is creating an uncertain future. I gather that £350 million has already been committed to the NHS every week. We keep hearing figures cited, but there is a finite pot of money—so what is going to give? We need honesty and realism as that is taken forward. The resilience largely depends on the nature of the people and the tools they are given to shape their own future. Local leadership has to be established, or continued, that is inspirational and dynamic. I want to pay tribute to some of the leaders of our local authorities, who are expected to do more and more with less and less. There are excellent examples in some of the authorities that my diocese covers.
Connectivity is, in the end, where resilience will lie. I speak as someone who comes originally from Liverpool. I once went to Hull, although I am sure I will head back in the coming year. I am now in Leeds; I have lived in Bradford and studied there as well. When we talk about the northern powerhouse, too often we speak in terms of east-west connectivity, purely in terms of the M62 corridor. That is what we mean by the trans-Pennine route. What happens to places such as Harrogate? What happens to the post-industrial towns of Halifax, Huddersfield, Kirklees and Calderdale, which do not seem to figure too well in the ruminations about connectivity? There is no point linking up Liverpool, Manchester, Leeds and Hull if we are not addressing certain questions, which I have raised in this House before. For example, Bradford has two stations but they are not joined up, so one cannot come off the north-south route and get across, unless something is done within Bradford to join it up. If we do not do that, we are militating against the possible thriving, not only of some of the northern Yorkshire towns and communities but also the west Yorkshire towns.
I have run out of time, so will leave it there. Integration and connectivity are essential.
My Lords, I congratulate the noble Baroness, Lady Massey of Darwen, on bringing this debate to the House. In my view, nothing is more important for the future economic well-being of this country than the wholesale energising of the proven and potential power in the north of England. As Brexit draws ever nearer, it is urgent that the IPPR’s well-thought-through and detailed report be taken seriously and urgently, by which I mean it should lead to action. As in all other regions, the north is vulnerable to Brexit. Luck will play a part in its future, and so will grit. However, policies, structures and history are the chief themes of this report, and the response to those by some in the north itself and by some down here in London—the Great Wen, as it used to be called, and the name seems ripe for revival—will define the future.
On the face of it, the north is a powerful beast—an economy of £300 billion, more than Scotland, Ireland and Wales lumped together. Were it to be an independent federated part of this country, which in my view would be very desirable, it would be the 10th largest economy in Europe. In 2015 the north grew faster than anywhere else in the UK, including London.
Against this, there is the history of the north, a walk on the dark side, which, save for one glorious world-defining era, does not promise well in its relations with the Great Wen of power in Whitehall. It has been a punishment block. William the Conqueror harrowed it and destroyed it as much as he could, while Henry VIII followed his example and had his usual go at blundering away at it. It became a vast, largely empty landscape of castles, cathedrals, monasteries and small settlements, with many sheep and few people.
The people of that area rose to the challenge, their genius providing the cradle for the greatest revolution in history, the Industrial Revolution, and the north came back. It is astonishing that we had 35% of the world trade at the end of the 19th century, yet by the middle of the 20th we had all but frittered it away. The coup de grace was delivered by the Conservative Government of the 1980s, and over a period of about a dozen years almost 3 million skilled jobs and some great world industries were laid to waste. As an act of national self-harm, it defies comparison.
There was no follow-up plan, nor, I am sorry to say, did the Labour Party provide one. The north was left to die—closed shipyards, empty factories, lost skills, empty towns, subsidence, subsidy and sorrow. But it has slowly, albeit patchily, built itself up again by its own initiatives. Now it is ready for a great leap forward, if only this Government would have the foresight and the nerve to give it the investment that it needs in education, business and communications, where the north has been left behind. We are faced by a Brexit that could badly threaten the north’s recent steady increase in prosperity and confidence. Threats and bullying words from Europe—including, surprisingly, from Germany, which I have admired over the last half-century—seem designed to stall any continued prosperity. However, over the centuries we have had a habit of responding well to threats from bullies, and now we have to get ourselves organised.
Infrastructure is the key, as many have said. It is shameful and ridiculous that there are no first-rate transport links between Liverpool across to Hull and from Hull up to Newcastle. Local infrastructure is far behind the European best. There is a skills shortage that could be remedied by the immediate expansion of technical departments in schools and colleges, instead of this faffing around with pointless new grammar schools and wasting energy on destroying the autonomy of universities. We have spent £40 million on a garden bridge in London without a brick being laid. That would have gone a long way in Hull and secured many of the scores of arts institutions that have been decimated in the north over the last year or so.
Why is there no vision for the wealth-making skills in the north when we are in clear danger? Vision led us to fast-build aeroplanes when the Second World War seemed imminent, for instance, and they were utterly vital. Who is defending the country now with anything like that foresight? We are throwing £50 billion to £60 billion at a railway line from London to Birmingham. Such a sum could bring riches to Liverpool, Manchester and Leeds. What better way to shore up this country against the projected ruins of Brexit than to attempt with all our might to turn the north once more into a system of fortresses, this time of glitteringly contemporary business, high-tech manufacture and trade? Brexit is an opportunity for the north but confident commitment is what we need.
The north is well prepared for the impact of major change, but it needs to happen very quickly. How wonderful it would be if we could cut the deadly dither and exhilarate ourselves in a brave new world of decisions and action. A hundred years ago in the trenches, the British Army sang a song that went:
“We’re here because we’re here because we’re here”.
Great lyrics. Those men went on being there, and won through. So, you Brexiteers, “We’re here”, thanks to you—now get on with it. Have a vision. Take the opportunity in the north and stop moaning about how difficult it is. You got us here. Redeem your fibs. Turn your bluster into blast-off. The north, like Barkis, is willing. It can be the salvation of this country, but only if those inside the Great Wen would lift up their eyes to the northern hills, which is where they could find all the strength they need if only they had the guts to seize the moment.
My Lords, it is a pleasure to follow the noble Lord, Lord Bragg, not least because only a few hours ago I was listening to him on the radio asking searching questions about the philosophy of Nietzsche. I thought it was going to be a sharp change of gear but actually he brought some of the same broad perspective to his very enjoyable speech today.
I welcome this report and the suggestions it makes. I want to look at it alongside another valuable report—the North East Chamber of Commerce’s manifesto for the year ahead. I pick out one thing initially from the latter report: dismay at the failure to make progress on the devolution deal for the north-east of England. You might think that where every local authority in the region has Labour leadership they would manage to agree with each other and make progress, but no such thing has happened. They disagree with each other and the Government have not been helpful either. I would like to see the Labour Party get its act together and start to reach agreement on the devolution process and the Government to stop making as a precondition of progress on devolution the creation of an elected mayor, which is not a relevant concept for this kind of region. The two sides should now get together and start making some progress.
However, there is a lot more we need in the north-east of England. Sometimes when people from my part of the world hear debates about the north they feel that quite a lot of it is about the Midlands, rather than areas which are to the north of much of Scotland and feel that sense of remoteness as well. We have a superb higher education sector in the north-east of England but there is also a large skill shortage, which the IPPR report points out. We therefore need to strengthen both our further education sector and access to it, which is very difficult given the large distances involved in much of our region. In my home town of Berwick, for example, it is no longer possible—because the Labour council would not agree to it—to have support for young people going to further education colleges in Newcastle. The only feasible way to do that is to go by train. Lots of people are denied the access that would improve their skills and give them opportunities in the labour market. As the IPPR report identifies, partly as a consequence of this we are short on the knowledge-based industries and the rate of progress and expansion of knowledge-based industries is slower in the north-east than nationally and the skill shortage must be part of that.
Of course, there are infrastructure improvements we want to see. I spent a lot of my time in the Commons arguing for dualling of the A1 and I am still arguing for it because progress even on what was agreed under the coalition is still slow. When we hear talk of HS2 we are actually more interested in what happens to the east coast main line and increased capacity and improved reliability on it. There are many infrastructure decisions which, as other noble Lords have pointed out, would make a huge difference to our potential in the region.
Brexit features in both reports and both sound loud warning bells about the dangers in a region where 58% of exports are to European Union countries. There is a particular fear about a potential period in which we may have left the European Union—and the Prime Minister has not shown herself interested in staying in the single market or the customs union so it may be on this basis—and still do not have new trade deals with other countries to fill any of the potential losses when exporters to Europe will find themselves faced with tariff barriers and non-tariff barriers, which are sometimes more significant than the tariff barriers for being able to export into a country or a whole region such as Europe. We really need a different approach.
I am terribly sorry that I did not hear the beginning of the noble Lord’s speech, but he is on about Brexit and the north-east.
I apologise to the noble Lord, but he is depriving me of the opportunity to make a very important point, with which I want to conclude.
The process of dealing with Brexit requires communication between the Government and the north-east of England. In November, I read in the Evening Standard that the Secretary of State for Exiting the European Union, David Davis, had agreed with the London mayor, Sadiq Khan, that he would have a monthly face-to-face meeting both before and after the triggering of Article 50, so that the position of London could be understood at every stage of the negotiation. As far as I know, there is no such arrangement for the north-east of England. The IPPR report suggests a resilience committee to deal with that and open up that communication. In some way or other, the Government have to listen to the north-east’s special concerns and set up a mechanism to ensure that it is listened to throughout this process.
My Lords, along with 1 million private sector businesses, some 15 million people call the north of England their home. Compare those 15 million with the populations of sovereign countries: 11 million in Belgium, 5 million in Denmark or the 6 million combined population of the three Baltic countries. However, as we have heard, despite its significant population, and in the absence of devolution, the north does not punch its weight and many, especially those living in deindustrialised rustbelt towns, feel both disaffected and alienated.
Since 1855, when Elizabeth Gaskell published her famous social novel, North and South, the phrase has pointed to disparity, but in our own time austerity cuts have accentuated poverty, exclusion, educational failure, crime and lower life expectancy. It is a fact that a baby girl born in Manchester can expect to live for 15 fewer years in good health than a baby girl born in the London borough of Richmond. Consider that Londoners currently benefit at the rate of more than £65 per head from investment in cultural infrastructure, compared with less than £5 per head for the populations based outside the capital. Or take employment. UK employment rates are at an historic high: almost 2.4 million jobs were created between 2006 and 2015, but during the same period, across the north of England just 360,000 jobs were created. For too many workers in the north, wages have failed to increase in line with the national average.
Remedies might include the creation of a northern wealth fund, using new money saved or generated in the north for the north; a pan-northern digital platform; more innovative regeneration; and housing policies determined in the north, where Manchester, Leeds, Newcastle, Liverpool and Sheffield will face a shortage of 86,000 homes by 2030.
For me, two leading priorities are transport infrastructure, which has been referred to, and education. I should like to hear from the Government what progress is being made not only on the direct high-speed east to west line but on reopening and renewing local lines and dealing with gridlocked roads feeding our northern motorways. Last Sunday, it was reported that two more of the most senior managers of HS2—which is now said to cost some £56 billion—have quit their jobs. Andrew Tyrie MP, chairman of the Commons Treasury Select Committee, questioning its credibility, has said that it risks being “scarcely worth the candle”. It is an argument I set out in this House in October 2015. Compare that £56 billion, which the noble Lord, Lord Beith, mentioned, with infrastructure investment in the north.
Turning to education, my other priority, I am the first from either side of my family to have had the opportunity of higher education, in Liverpool, and I draw the House’s attention to my registered interests. Sadly, significant numbers of bright young people in cities such as Liverpool still do not get the same opportunity that I, and others who were beneficiaries of the post-war education legislation, had. We urgently need to improve life outcomes for children and young people in the north. Sir Michael Wilshaw, the head of Ofsted, said that the northern powerhouse will “splutter and die” if more is not done to improve performance in the region’s schools. He points out that four in 10 secondary schools in Liverpool are rated as inadequate, and that the number of teenagers gaining good grades is falling. He also said that “politicians need to act” and that,
“We cannot fight for social mobility with political immobility”.
A northern teaching premium to help schools struggling to recruit the highest-calibre teachers, and perhaps a “teach later” programme, might help.
The region’s 23 universities, six of which rank in the top 20 for research excellence nationally, should be empowered to become the drivers for transforming our region’s schools. The wonderful university of Liverpool John Moores, with its 21,000 students and 2,500 staff, has generated an estimated 2,493 jobs in industries across the north-west of England. By spending £186 million per year, it significantly contributes to the region’s economic and civic life. Manchester University has its own venture capital fund and has attracted £300 million of private funding to university spin-outs—crucial in creating jobs and leading-edge technology. The excellent annual Educate North & UK Leadership Awards and their conference celebrate these achievements. The whole sector is desperate not to see that success compromised by Brexit or by the Government’s higher education legislation. The Government must listen carefully to concerns that a dead hand is being placed on those crucial institutions.
I welcome today’s debate and am grateful to the noble Baroness, Lady Massey, for giving us parliamentary time to discuss these important questions.
My Lords, I, too, am very grateful to the noble Baroness, Lady Massey, for this debate. I want to concentrate on the north-east.
In 1954, I went to live and work in the north-east. I lodged at 195 Durham Road, Stockton-on-Tees, with a Mrs Aucutt. Mrs Aucutt was a very significant figure. She worked for the council and controlled coal rationing. There is a certain irony in that when we think about the state of the coal industry in County Durham and along the coast of the north-east. There is not a single deep mine left. Much the same has happened in our part of the country to shipbuilding and to those firms that participated in the nuclear power industry in the days when we were building gas-cooled reactors. Global economics and political decisions have changed the scenery dramatically. Even steel is in trouble.
At that time, there were many headquarters of companies operating in that part of the north-east. Of course, they had with them many professionals who lived in the area. At much the same time, I bought myself a bicycle and bicycled across the wilderness between north Stockton and Middlesbrough. The visibility was not always very good and there was a strong smell of burnt cheese most mornings. To the left was ICI Billingham. What has happened to ICI was then unthinkable.
When we think about these things, we should remember—because it is much more important to think about the future than about the past—the huge changes that have taken place and consider the legacy. Middlesbrough is the third-largest port in the country. The chemical industry, which is born of companies such as ICI and Billingham Synthonia and so on, is going ahead strongly. There is the North East of England Process Industry Cluster, with a fantastic website which I recommend. It is doing extremely well both domestically and in exports, with very good success in building its supply chains effectively. One member of the cluster is an American corporation called Huntsman, valued at $5 billion on the New York Stock Exchange. It has among its subsidiaries a business that was called in my day British Titan Products. That was a very sound, steady British business bought in the late 1970s by Huntsman, which is a truly global corporation with subsidiaries all over the world. It still has a manufacturing plant on Teesside and an innovation centre. We should work even harder than we do to attract inward investment from such corporations which have had a successful time in the north-east of England. So not all is gloom.
The north-east also has iconic places; this is important because, if you want international business to come with middle-sized enterprises into the north-east, it must be attractive. There is Durham; Shakespeare and the opera come to Newcastle; there is the Beamish museum; there are Jonathan Ruffer’s great efforts in Bishop Auckland; and there is the Bowes Museum. Why is the Bowes Museum not a national one? The idea has been about for a long time; it meets every standard. Is it just because it is in the north that it has never been made a national museum? Such recognition would be a great boost—a psychological move maybe, but that is not to be despised. We all need confidence, and recognition helps.
My Lords, I thank my noble friend Lady Massey for securing this debate, which has engaged so many excellent speakers. Like many speaking today, I was born and bred in the north of England and, although my working life has been spent elsewhere, my ties to the north are still very strong. In my home town of Bradford in Yorkshire, I have seen over the years both the decline in its traditional industries and the determination to recover its economic potential. So I read the IPPR’s annual health check on the northern economy with great interest. It contains some nuggets of good news, such as the latest GVA stats, which show that, in 2015, the north’s economy grew faster than any other part of the UK. It has now passed the £300 billion mark and is worth more than those of Scotland, Wales and Northern Ireland combined; apparently it is the 10th largest economy in Europe. There is no doubt, therefore, of the enormous economic potential of the northern powerhouse.
However, last year’s optimism has been replaced by the shadow cast over the region by the Brexit vote. Given the north’s dependence on EU trade—which is greater than that of anywhere else in the country—and the legacy of its industrial decline, the report argues that the north has the most to gain or lose from Britain’s exit from the European Union. One thing that I found most telling was that the northern areas most vulnerable to the economic turbulence caused by Brexit are those that voted most strongly to leave the EU. The report argues strongly that Brexit negotiations should focus on the needs of the areas that voted overwhelmingly to leave and that the Brexit vote in the north makes the Government’s northern powerhouse more important than ever. I agree: you have only to contrast areas such as Humber, Tees Valley and the Sheffield city region, which had the highest percentage of leave votes in the north, and the city of Manchester, which has benefited from economic development and where 61% voted to remain, to realise that the benefits of the northern powerhouse have been felt only in certain parts of the north so far.
As I have seen in visits to various parts of the north in my role as chair of the National Housing Federation, the,
“patchy development of combined authorities, metro mayors and devolution”,
mean it cannot as yet match the response of the devolved Administrations for Northern Ireland, Scotland or Wales, or even that of the Mayor of London. So I echo other speakers today in asking the Minister to recognise the IPPR’s call for a northern Brexit negotiating committee to determine the type of Brexit that would best suit the north and to unite the northern voice in negotiations. Does the Minister agree that to ensure sustainable productivity in the north there is a need to build direct relationships with regions and nations within and beyond the EU, to develop and enhance the north’s particular trade interests?
The author of the report calls the Brexit vote,
“a cry of community outrage at the imbalances of wealth and power, played out … within and between the regions”.
It is a reminder that many areas in the north, particularly those post-industrial communities outside the city centres, have not shared in northern economic growth, and are vulnerable, for example, to any post-Brexit restrictions on trade. I am therefore anxious, like my noble friend Lord Monks, that the Government’s new economic and industrial cabinet committee’s focus on,
“delivering an economy that works for everyone”,
to ensure that the,
“benefits of growth are shared across cities and regions up and down the country”,
could dilute our focus on the north. I fear that this would be a mistake. We must not allow support for the northern powerhouse to falter. The announced investment in infrastructure, culture, housing and the quality of life in the north, the devolution deals in Sheffield, Greater Manchester, the north-east, Tees Valley and Liverpool, and the work to raise education and skills levels, must be supported. Yes, this is important for the success of the north, but it is also important for the success of the UK as a whole.
My final point is that the two key issues of high-level skills and housing are inextricably linked. In the past 10 years, 75,000 highly qualified British residents have been lost from the northern powerhouse regions, which seems to have been masked by highly qualified workers coming in from outside the UK. In a poll of 2,000 graduates by an alliance of the north’s largest housing providers, 55% said that the quality of housing would be a key factor in deciding where to live if they were to move. Cost of housing was a very close second. Affordability and availability of housing is a unique selling point in the north. The alliance argues that if local authorities, housing providers, employers and universities came together, they could develop joined-up strategies to attract and retain many more highly qualified people. Does Minister agree that the Government could be instrumental in assisting them in developing innovative new products to buy or rent, specifically aimed at the graduate market, to attract the very graduates that the north so clearly needs?
My Lords, I too congratulate the noble Baroness, Lady Massey, on securing this timely debate. Of course, the anchor for our debate is the IPPR The State of the North report, which was published on 9 December. It is quite instructive, however, to go back 16 days to 23 November, because that was when Her Majesty’s Government produced a document, the Northern Powerhouse Strategy. It is a 30-page document—well, there are 10 pages blank—with a splendid foreword by the Chancellor of the Exchequer. It helpfully sets out in a table that the north of England has a GDP greater than 22 European Union states. But the document does not tell us about the democratic deficit. It does not tell us that the north of England is on a totally separate footing to Scotland, Wales, Northern Ireland or London. There are 20 pages of commentary about the northern powerhouse with barely a reference to the European Union, save for a couple of paragraphs on page 18 indicating a UK government guarantee on certain EU-funded investments signed up to prior to the Autumn Statement last year. There is neither a note of doubt about the issue of Brexit, nor any exuberance about any opportunity—silence.
The IPPR document published 16 days later attempts to plug the gap. It is a wide-ranging report on the north of England economy and its pages set out the Brexit concerns. Its number 1 recommendation is that there should be a northern voice at the Brexit negotiating table. It calls for,
“the formation of a Northern Brexit Negotiating Committee to determine the type of Brexit that would best suit the North, to speak with one voice”.
For me, a further striking point of the IPPR paper was its cover. In showing a map of the north of England, it showed it as what many of us have often thought of as three regions—to come back the point made by the noble Lord, Lord Prescott. If those three regions existed, it would pretty simple for them to co-operate, to talk for the north and to become a power base for the north. The diversity of cash-strapped and debilitated local government, ill-fitting combined authorities, mixed devolution and several LEPs does not easily convert into northern clout.
I want to talk about two further things. Can the Minister provide any further insight into the prospect of devolution in Yorkshire? Yorkshire is an understandable brand; I have lived there all my life—nowhere else. The efforts of the Yorkshire tourist board, the Yorkshire County Cricket Club and the Yorkshire Post make it clear what Yorkshire means. The cricketers say that if you get a strong Yorkshire, you get a strong England. I say that if we get a strong Yorkshire, we will get a stronger north. Does the Minister have something to say on whether he can see daylight with regard to devolution for Yorkshire?
My final point is that the ever-helpful House of Lords Library paper includes copies of the Hansard report from 17 June 2015—19 months ago—when the House discussed transport in the north. We heard a day or two before that of the indefinite delay in the electrification of the trans-Pennine railway, while there was nothing at all about the Calder Valley line, which the noble Baroness, Lady Eaton, referred to and which greatly concerns me. That is the line from Manchester to Leeds and York via Huddersfield. Is there any news of a start date for that?
My Lords, as a northerner gone south I welcome this report and its focus and am thankful to the noble Baroness, Lady Massey, for introducing this important debate.
I have spent a great deal of my life trying to stimulate integrated local economies in what appear from the outside to be unpromising contexts. In doing so, one has learned quite a bit over the past 30-plus years about how the world can look from Whitehall and the desks of researchers who are overconfident about the value of the papers they read by other researchers, and talkers in the press who often live at 60,000 feet above all the action. I am interested in what the world looks like through the eyes of practitioners engaged in the detailed work on the ground of rebuilding local economies. What is valued by the research community, who are chasing grants and their next funding, and what counts on the ground in practice may be very different. This is a helpful report but, like many other similar reports, it is overconfident about the role of the public sector—its structures, frameworks, policies and the like—and does not pay enough attention to the details of the business and social entrepreneurs actually doing the job on the ground.
I have been involved in the Olympic project in east London for over 17 years, in thousands of practical details on the ground that are generating quite a legacy. I have discovered that today there is still one story at 60,000 feet in Whitehall—about how we have successfully used this event to regenerate the east London economy—and quite another story to be told, on the ground, about what made the fine words and statements deliver in practice.
I will repeat my well-worn mantra: the way into understanding macro changes—in this case in the northern economy—is in the micro and the local community. The economies of the north are made up of thousands of local economies that need to thrive. The question is, as always, about the practical detail: this is where the devil sits. Real economies, in the north and in east London, are built by entrepreneurial people who take problems and turn them into opportunities. They are not built by government structures, frameworks and all the other clutter that this report is in danger of relying on too much. The public sector has an important role, yes—not in swamping those of us who rebuild these local economies in politics and red tape, but in creating the conditions within which business and social entrepreneurs can thrive.
Reference is often made to the history of the northern economies. My own city of Bradford’s economy was built not by the public sector and government paraphernalia but by wool entrepreneurs such as Samuel Cunliffe Lister and Sir Titus Salt, among others. How much time have these researchers spent with northern entrepreneurs in our own day, looking at what the world looks like through the eyes of these practitioners? This is where the rich grain of gold is to be found—not in generalities but in detailed practicalities.
As I engage today in 10 towns and cities across the north, in areas with great social and economic challenges, I am coming across some fantastic opportunities to rebuild our economies in the north. However, to do this the traditional siloed thinking and overreliance on reports like this will have to go. We live in a digital age; everything has changed. The job of the state is to create the conditions within which entrepreneurs can thrive, not to research and measure them to death with little purpose other than to feed the beast which is government.
I shall illustrate briefly one such opportunity in one northern community, a place where I am working. I have worked in west Cumbria on and off over the last 15 years. Successive Governments have poured billions of pounds of taxpayers’ money into the nuclear industry there and into the local economy. We have been right to do so: the nuclear industry really matters. However, the way successive Governments have done this has created a profound dependency culture in local communities—what the local MP described at one recent meeting I attended as “basket-case government structures”. Have we learned any lessons from all this previous activity? No: I learned many years ago that government is not a learning organisation. It too easily repeats old formulas and past mistakes, despite all the millions we spend on research keeping our universities in business.
An opportunity to work with the people of west Cumbria—particularly the next generation of young people, who I am already engaging with—is emerging, an opportunity to innovate and do things differently as new investment makes its way up the M6. I am already working with key business leaders in the nuclear industry there, and local entrepreneurs, to explore what an entrepreneurial culture might look like for a new generation. My interests are in the register. Later this summer, on 28 September, Professor Brian Cox will join me and my colleagues as we replicate a very successful science summer school there which we have been pioneering together over the last five years in east London, exploring how Britain can become the best place to do science and engineering in the world. Cumbria desperately needs a new narrative that takes it out of 1970s and puts it and its important industry firmly on the global map as a place of nuclear excellence. Who better to explore that modern narrative than Professor Brian Cox?
The question for the Government in this important piece of the northern economy is whether they will allow my colleagues and me to innovate. Will they allow us to move beyond the traditional silos and create a truly entrepreneurial and—yes—safe and responsible community, or will a thousand little pieces of legislation and a lack of continuity and bold leadership miss the moment and leave the next generation wondering whether it has a future in the north? I hope it does. Look at the health data in Cumbria: the effects of a dependency culture are in plain sight.
My Lords, I congratulate the noble Baroness, Lady Massey, on obtaining this debate and I declare an interest in my role as a Cumbria county councillor, about which the noble Lord, Lord Cavendish, was far too generous.
For us in Cumbria, the northern powerhouse came as a beacon of hope. But today the flame has been reduced to a flicker. Why and what can be done about it? Cumbria is a county with enormous economic potential. The national parks stretch continuously from the Cumbria coast right into Yorkshire, and with Hadrian’s Wall and all its cultural history it is one of the great places to visit—and to live—in Europe and the world. If the northern powerhouse could reignite the 19th-century dynamism of the great northern cities to its south, and if only the right local infrastructure were in place, Cumbria could become a compelling attraction for small business entrepreneurs, innovators, consultants and the rest.
As for Cumbria’s west coast, which the noble Lord, Lord Mawson, just spoke about, in the 19th century a few made their fortunes out of coal, iron, steel and shipbuilding there. In the 20th century, the workers and families they left behind lived through decades of acute depression and, since the Second World War, a longish industrial decline. Now, however, there is a real prospect of billions of new investment. GSK is putting £350 million into Ulverston, in south Cumbria. The Trident replacement programme in Barrow is taking on highly skilled workers. A £2 billion wind farm is planned off the Barrow coast, and a £20 billion new nuclear power station at Moorside next to Sellafield will generate 7% of Britain’s electricity, with a £2 billion investment by National Grid to carry it to the rest of Britain.
But for those developments to lead to a lasting rebalancing of Britain’s economy, there has to be a coherent economic plan, and they need supporting infrastructure. I shall explain to your Lordships how bad things are. The Cumbria LEP made a bid last July for 12 key projects, to be completed by 2020, to help support this new investment. The cost would have been £165 million, but the Government are offering us £12.6 million—less than a 10th of what we asked for.
In addition, we have argued for government commitment to a £130 million improvement to the Cumbrian coast railway, which connects all these projects and runs from Carlisle to Whitehaven, Barrow and Lancaster. At present, the journey from Carlisle to Lancaster is longer and much bumpier than the Virgin Trains ride from Carlisle to London. The new Northern Rail franchise will improve the rolling stock a bit, but only if we get Network Rail investment in track and signalling can this be transformative in what will be a hugely important area. The £3 billion of extra rail investment that George Osborne promised the north is, frankly, inadequate. Unlike the noble Lord, Lord Alton, I am not arguing that the sums committed to HS2 should be cut; nor am I arguing that London’s Crossrail should be stopped. I feel very strongly that, if we are serious about rebalancing, we have to increase our overall commitment to transport investment.
At the same time, there has to be much more joined-up thinking in Whitehall. I support Greg Clark. I think he is a great Minister who is developing an industrial strategy, but that strategy has to put the nuclear innovation at its heart. Why spend all this money on new nuclear in Cumbria when all we will have is imports by foreign companies if we do not make ourselves a centre of nuclear excellence?
But more than that, we have to develop our universities and have much better schools and higher apprenticeships, and we have to support the vital public services. How can it make sense for the Government to support a plan to build a new nuclear power station in west Cumbria, which will require a workforce of 6,000, at the same time as we are proposing to cut services at the local hospital?
Finally, in Cumbria we need to get our act together, as the noble Lord, Lord Cavendish, said. Our structure of two-tier government is hopeless and, at a time of continuing public austerity, disgracefully costly. However, there is no incentive for reform unless the Government put money on the table and bang heads together, showing a lead. Without that, I am afraid that the remaining flickers of the northern powerhouse will die out.
My Lords, I too thank the noble Baroness, Lady Massey, for instigating this important debate. I also thank IPPR North for a very incisive report, which I think takes the debate on slightly, as I shall explain in a moment.
I never thought that I would say this in a debate, but I agree with the noble Lord, Lord Prescott. If the strategic argument and the strategic framework are not sorted, then in everything we have been talking about we are simply tinkering at the edges. This is a northern issue, but it is not just about our towns, our regions or our cities; there is a northern dimension that needs to be dealt with here.
I am in the middle of reading a great book by an author called Philip McCann. It is called The UK Regional-National Economic Problem and its subtitle is Geography, Globalisation and Governance. It deals with specific regions. He argues that the UK economy is decoupling into three economies. That is brought about not by government policy but by globalisation and the way that different parts of the UK now trade globally. Therefore, there need to be different responses, and policymakers at the centre, through a framework, need to think strategically about what that actually means. I do not believe that there is a policy to deal with this—there is tinkering but no strategic policy.
For example, the London economy acts on agglomeration, which we assume is the be-all and end-all of every economy in the world. However, in Europe, and particularly in some of our regions, including the north, the approach is more polycentric, which is about how the cities and towns work together, how the rural and urban work with each other. That is not based purely on a city region devolution basis; it goes much deeper than that. The northern powerhouse is based predominantly on cities, particularly Manchester, and not on the whole northern area.
The book also shows that there is no trickle-down effect and that the prosperity of the south-east and London is not shared equally across the whole country. Half the UK’s population live in regions where productivity is below that of the poorer regions of the former East Germany. The weak, long-run productivity performance of the UK is largely a result of the fact that productivity benefits do not spread across the country but remain largely located in the south.
Meanwhile, the highly centralised and top-down UK governance system, which is being tinkered with but has not been significantly reformed for our economy, is appropriate only for governing a country whose economy is homogenous. That is not the case in the UK. This mismatch between the UK’s imbalanced internal economic geography and its overcentralised governance system on a regional-national basis is the key issue that has to be addressed if we are to unlock the economic performance of all regions in the UK. It is a deep-seated problem which will not go away, and tinkering with a few quality issues will not solve that. That is why we clearly need to grasp an understanding of how our economy works at the city, town, sub-regional and regional levels. Without that we will not unlock the potential of the north and other regions in this country to deliver the economic performance that they can achieve. The IPPR report, in talking about a plan for the greater north, begins to tackle that strategic policy issue.
Therefore, I ask the Minister: what work is really going on, not just in relation to cities and devolution at a local level but in relation to the conundrum between the regional and national economic problem? That needs to be addressed if we are to achieve total and prosperous economic development. It is so fundamental that not addressing it will mean that all devolution of skills, business development and other issues, which noble Lords have talked about, will not have maximum effect. It is so fundamental that it needs to be addressed. Yes, we need to address the local level and the polycentric at city and town level, and at the level of urban and rural working together, but we also need a policy framework that untaps the potential at the regional level and in the wider north. Again, I agree with the noble Lord, Lord Prescott. Transport for the North starts to address that but it needs to go much deeper and much further.
My Lords, I too thank my noble friend Lady Massey for instigating this debate. I will speak about the Tees Valley. The IPPR report states that the Tees Valley is going through a transition. That may be so but we have well-worked-out ambitions for growth in four major sectors: advanced manufacturing, energy, digital, and health innovation. We also have a highly productive workforce, a strong business and enterprise birth rate, and a good record of high-growth firms. We struggle with relatively low levels of research and development because we are a branch-plant economy, and a new industrial strategy needs to address this.
I will mention our creative economy, because we have bold ambitions there. Middlesbrough Council aims to have a culture thread, which will run right through successful development of the region’s people. Middlesbrough has 90 first languages spoken by the pupils in its schools. There is a new agenda to build confidence and enjoyment in speaking, known as oracy. This helps to build confidence in expression and it also helps higher achievement across the entire curriculum. The Middlesbrough Institute of Modern Art—MIMA—concentrates on building positive change. Its recent exhibitions have addressed migration, immigration, housing and healthcare. Darlington will soon be home to a new theatre, which will incorporate world-class children’s theatre and a centre for creative education. These are distinctive, creative projects in themselves, but we can note from them their dedication to inspiring people in the Tees Valley, who have a real gift for invention and for collaborating with each other.
To look at some of the biggest challenges, the IPPR report notes that the region does not provide enough jobs and that the current economy excludes too many people through unemployment. There is also a problem with the levels of pay. The median level of pay for full-time workers in the Tees Valley is 5% less than the national median level of pay. In too many cases, work is not a route out of poverty. Young people and their families need to see a system where education leads to decent jobs and where jobs lead to decent pay. If they cannot see opportunities, they will not see the point of trying. There is nothing new about this, nothing that we have not seen before, but these challenges still remain in the north of England and have to be met.
Skilled people and organisations across the Tees Valley are doing very creative, ambitious work, and the region is investing strongly in itself, but we need to create more jobs and more routes into jobs. I will make six suggestions that might help in this respect. First, we need to make sure than any structural funding lost in leaving the European Union is replaced; that has already been addressed but it needs to be continued. Secondly, we need to ensure continued access to European markets in our priority investment sectors, including chemicals and advanced manufacturing. Thirdly, we need to develop new trading arrangements and support for Tees Valley firms in helping them to diversify their activities. Fourthly, we need to press on with a new industrial strategy, and that strategy needs to prioritise principal economic growth in regions such as the Tees Valley. Fifthly, we need to help and support the Tees Valley in working with its four prime strengths—advanced manufacturing, energy, digital and health innovation. In doing so, we will help the region to create 60,000 new jobs, including apprenticeships for young people. Sixthly, we ask that all government departments join fully in the devolution process. There is a chance here for the north, including the Tees Valley, to have a new start. We need those voices to be listened to. The problem in the north-east is that we have not really been able to find the leadership that we should have—a point made by the noble Lord, Lord Shipley. The noble Lord, Lord Beith, said that in some ways that is down to the Labour Party. We definitely have the leaders there but we have not given them the authority to speak for the region, and we need to do more of that in the future.
My final point touches on a point made by the noble Lords, Lord Shipley and Lord Alton, that we have northern powerhouses because we have our universities. In my part of the region, the north-east, we have five universities which employ about 15,000 people. There is great talent, innovation and ability in the universities. If I were the Prime Minister, I would do one thing, which Jim Callaghan used to do when he was Prime Minister: he sent for people to come down and talk to him about the issues. I have done so a couple of times. It is very impressive to be sent for by the Prime Minister to listen to your opinions. The Prime Minister should send for the vice-chancellors of the five north-east universities—maybe more, but that is a different issue—and say to them, “What can you do to help the north? What is your town, what is your culture and what are the things that you’ve got?”. Bring them to the table and let us see if we can go forward on that basis.
My Lords, this is obviously a debate for praising the noble Lord, Lord Prescott; I thought he said it all. Brexit transfers power from Brussels to London. England is the most centralised area in the whole European Union. The devolution to Scotland, Wales and Northern Ireland has to some extent modified the centralisation of power within the UK, but the regions of England have continued to lose out. Cuts to local authority spending now are making that go further. It is a cultural imbalance as much as an economic one. I agree strongly with the right reverend Prelate the Bishop of Leeds that people in London sometimes talk about Yorkshire as if it is part of Africa. When I first came into this House, I remember a Conservative Peeress saying to me, “I have just been to Yorkshire, and parts of it were quite nice”. The media, as we all know, are also heavily concentrated in north or east London and report things that happen in Islington or Tower Hamlets in ways they would never think of reporting if they happened in north Leeds or east Bradford. That is all part of the problem with which we have to deal.
It is therefore an increasing disadvantage that the north, as a whole, lacks an effective political voice within the UK system of government. Scotland has an effective voice on the Barnett formula, the geographical distribution of public funding, and in negotiating with London on the terms of international trade. Wales and Northern Ireland also have good institutionalised positions. But the north lacks anything comparable—certainly not comparable with London government itself. That matters in particular when we have a Conservative Government drawn largely from the Home Counties, with only a handful of Ministers who have any feel for, or sympathy for, the northern counties. Now that George Osborne and William Hague have gone, Greg Clark is the only one among the senior members of the Cabinet who appears to have sympathy and understanding for the industrial towns and cities that contributed so much to Britain’s prosperity over the past 200 years, but which have been left behind since the balance of Britain’s economy shifted, under Margaret Thatcher, from manufacturing to finance. There is a real danger that the north will be squeezed further between London and the devolved national governments as the Conservatives negotiate Brexit.
The State of the North report notes that the English regions, as a number of noble Lords have said, are significantly more dependent on trade with Europe than London itself. Yorkshire trades with the continent. Hull and the other Humber ports depend on handling trade with the continent. Two-thirds of Yorkshire’s food exports go to the European continent, eased by the rules of the single market and protected by the registration of regional denominations by the EU. Some of our producers are just beginning to wake up to the fear that they might lose that. The idea that food can be traded freely without international regulation is absurd. Food goes off, and dirty processes on food spread disease, so there has to be international regulation, and European regulation is some of the best. European regional funding flows into the economically weaker parts of Yorkshire, redistributing funds that a southern-dominated Conservative Government in London might be reluctant to redistribute to the north within a purely national framework.
Previous State of the North reports have detailed the low levels of investment in infrastructure in the north, in transport in particular, as noble Lords have said. I have been using the trains across the Pennines since I first taught in Manchester in 1967, and some of the rolling stock has not changed since then. The speed has hardly improved, either. The previous Labour Government, amazingly, neglected the north’s infrastructure, even cancelling tram networks in Liverpool and Leeds when plans were well advanced. It is not clear from recent announcements whether the east-west rail corridor from Oxford to Cambridge will now carry a higher priority for the Government than northern Crossrail, which is vital to realising the concept of a northern powerhouse.
The concept of a northern powerhouse, as the previous year’s report from IPPR North said, is itself difficult. The 2015 report said:
“The government has excelled in being largely unspecific as to what exactly the northern powerhouse is”.
That represents a lot of the cynicism in the north as to whether the northern powerhouse concept is merely rhetoric or is actually going to lead to money being redistributed. When George Osborne appeared with a number of Chinese investors alongside him, to suggest that perhaps the Chinese could pay for the northern powerhouse rather than the British taxpayer, our cynicism increased.
The north of England has been left behind by successive Governments. The rhetoric of a northern powerhouse was a welcome sign that things might change, but we have not seen the money yet. Canvassing for the referendum in June, I was painfully aware that in the former council estates of West Yorkshire, people planned to vote against London as much as against Brussels, and against politicians as much as against bankers. Head teachers tell me that school budgets are being squeezed. Two head teachers in Bradford told me that they fear they might go bankrupt in the next two or three years, as flat funding comes up against increasing salaries for their teachers.
Councillors tell me that local services are in danger of disappearing as cuts get deeper. Companies recruit directly from eastern Europe because, they say, they cannot find local workers with the skills or the motivation that they are looking for. Extra rounds of spending cuts and the likely downturn that will accompany a hard Brexit will worsen the situation across the north, so I strongly support the message of this IPPR document, which says that we need a more effective voice for the north to rebalance the British economy and rebalance the political system of the UK.
I stress the fiscal redistribution dimension of this because we have not talked much in British politics about the imbalance of funding for local authorities across the UK as a whole. The Scots, Welsh and Northern Irish now bargain with the Government about the balance of income and expenditure. The rest of us do not have a chance to do so. It is extremely important that we now begin to bring into the open the argument about how far rebalancing the economy allows us also to shift funds from the richer areas of the country to the north. The noble Lord, Lord Mawson, talked about a dependency culture, but in the estates of north Bradford, which I know that he knows well, the sense of hopelessness is partly because the local authority cannot do anything for you either. Children’s services, social services and so forth have been cut, so people do not see their local authority and they feel alienated from the entire political system.
Education is also a tremendous problem. I have seen figures that suggest that by the time children enter reception class at school in large parts of Bradford and Leeds they are already a long way behind their counterparts in London. I am conscious that FE colleges in the north are also being cut. As a Latvian cheerfully said to me when I canvassed him during the referendum, “The one good thing about Brexit will be that you will have to go on depending on people like me because you aren’t going to find people to build houses within Britain”. The supply is not there. There are not enough places. Building companies in Yorkshire, I was told some weeks ago, want to carry on recruiting directly from eastern Europe because they do not have the confidence to set up the sort of training schemes to train people who are less well motivated. In Bradford, the one training scheme that I am aware of was oversupplied in terms of applicants for its building apprenticeships by 100% or more.
I have one final comment. Depending entirely on FDI is not the answer for the region. We need local economic leadership, which means encouraging local entrepreneurs and local companies. Allowing those local companies as they grow to be taken over by foreign multinationals does not provide us with local incentives and local leadership—everything that we need. Banks, centralised in London as they are, also need to put money into the region. We need an institutionalised presence for the north in the process of Brexit, but we also need a stronger voice for the north in the British political system as a whole.
My Lords, I congratulate my noble friend Lady Massey on securing this most interesting debate, and on an introduction that has been a stimulus to all contributors. Two developments dominate the whole issue of the north at the present time. One is obviously Brexit, on which this Government are inspiring little confidence that they have a structure of priorities in place for the negotiations. Several noble Lords in the debate and the IPPR report itself emphasised that it is essential for a negotiating committee to be set up for the north to protect its interests and advance its cause in the negotiations with Europe. The UK as a whole has a considerable dependence on exports to the European Union, which is why these negotiations will be of such significance. The country as a whole exports 44% to the EU, but the north-east exports 58%. That is why it is so important that negotiations take place that safeguard the economic interests of the north.
Developments in relation to Brexit also reflect the fact that the north is a significant part of Europe. After all, its economy is as large as Belgium’s, as was indicated in the debate. It is larger than the majority of countries in the European Union. So we cannot disregard the significance of the region in these discussions. That is why the IPPR reached its conclusion, which I am sure this debate has gone a considerable way to broadcasting and endorsing.
The Government have also been riding high on the other development of great significance to the northern economy—the powerhouse of the north. Thus far, we would have to say that there has been great talk but very limited government commitment of resources. The concept had a somewhat weak start when the Chancellor seemed to concentrate on that part of the country of most direct interest to his own constituents. That is not of course to disregard the enormous significance of the city of Manchester, but it is also obligatory on any concept of the powerhouse of the north that other significant cities be included. The right reverend prelate the Bishop of Leeds emphasised that it is not just the cities that need consideration but the smaller towns that are satellites to them and the surrounding countryside. They will also require real consideration if their interests are to be protected.
The fact that the Government’s commitment has concentrated overwhelmingly on transport shows the significance of the link between cities, but that plays only a limited part in the development of the wider northern economy, to say nothing of the fact that thus far very little has been heard of other significant cities. My noble friend Lord Prescott reminded us of the significance of Hull in this debate, but many cities in Yorkshire are important. Leeds has had some prominence in the Government’s considerations, but there is so much more to do. Concentration on transport has had a limited demand in this respect. The Government are promising £13 billion to be spent on these links in the next few years, whereas the IPPR indicated that effective links could be established only if £50 billion—four times that amount—were spent. That is an indication of the challenge that lies before us.
My noble friend Lady Massey and the noble Baroness, Lady Pinnock, commented on the existing local authorities. The Government’s local government settlement still ensured that a great deal of resources went to the wealthier southern parts of the country, and the northern region got its usual poor deal out of that assessment. That is an indication of what needs to be done, not least on the issue of education. I was delighted when my noble friend Lord Bragg raised the issue of further education. He was supported by the noble Lord, Lord Beith, and others. There is no point in our talking about reskilling our nation while at the same time reducing the viability of the further education colleges. In my own former constituency, the Oldham College, which was a significant contributor, has had its resources truncated so much that it is now being linked with two other colleges for provision—a sure sign that this is about constraint on expenditure rather than expansion of provision.
However, unless we address ourselves to the skills of the nation, the resilience of the people that was referred to by the most reverend Primate the Archbishop of York cannot be catalysed into effective activity without the necessary education and training. I hope we will soon see the Government giving some priority to this. That is the only way we will see our economy thrive on the skills of our people, rather than be dependent on the introduction into the economy of plumbers and contract workers from eastern Europe to meet the needs of our employers. We need progress in this area.
Finally—and I am not asking the Minister to reply to this point because it is at a nascent stage—several noble Lords, including my noble friend Lord Liddle, have emphasised the problems in Cumbria. I know of several businessmen who are taking seriously the challenge of improving the position in Cumbria. They are looking, and have been for some time, at what we had such excellent news about yesterday: tidal schemes in Swansea and the fact that the Swansea lagoon can prove viable. We have estuaries off the northern and southern coasts of Cumbria, and it is to be expected and hoped that intelligent business activity will address itself to the possibilities of progress there.
My Lords, the publication of the IPPR’s annual State of the North report has given us the raw material for a debate on the state of the north, and the noble Baroness, Lady Massey, has provided us with the opportunity. I am grateful to her for her opening contribution, particularly her focus on the way that social mobility has changed over generations. I thank her for setting the scene for the debate, and all noble Lords who have contributed. Having sat through the debate for nearly two and a half hours, I have to say that there is very little with which I disagreed. Indeed, as somebody who for 41 years in another place represented constituencies in London and then Hampshire, I felt a growing sense of guilt at the apparent preferential treatment that my constituents had received for such a long time, compared with those in the north. I hope to try to reassure the House that the Government are determined to see a fair distribution of resources.
The noble Baroness, Lady Massey, quoted from the summary of the IPPR report, as did other noble Lords. It is worth quoting one sentence:
“All this, however, presents new opportunities”.
Maximising the full potential of the economy of the north, which has in many ways lagged behind that of London and the south-east, is vital. The noble Lord, Lord Bragg, in a speech that could have come out of “Henry V”, exhorted us to raise our sights and unlock the potential of the north. As the most reverend Primate the Archbishop of York said, it is important for those who live and work there that we should do this. I found what he said about the human resilience of those who live in the north very moving. It is in the interests of not just the north but the whole of the UK that we should unlock the potential. The point made by the noble Lord, Lord Curry, about the contribution to the balance of payments is well worth making—the fact that there is a major contribution to the balance of payments, which at the moment is in deficit. We should do all we can to unlock that potential.
Noble Lords made many helpful suggestions in the debate about how we can raise our productivity and bring about a sustained rise in wealth, prosperity and opportunity. I hope to respond to as many points as I can in the time available, but where I cannot, I will write to noble Lords and deal with their issues. We have debated this issue a number of times in this Chamber. We had an exchange at Questions on Tuesday. The IPPR report helps us make further progress and I am glad it found favour in the eyes of my noble friend Lord Cavendish, who reminded us of the importance of small and medium-sized enterprises. Along with the noble Lord, Lord Liddle, he made a plea for a reform of governance in Cumbria. I will certainly pass those comments on to the Secretary of State at DCLG. The question of whether Cumbria is going to get the importance it deserves may be answered in the forthcoming by-election up in Copeland, which may focus the minds of all political parties on making sure that that part of the world gets a square deal, but that is beyond my brief.
We are determined to take action to support and strengthen local economies across the north. As noble Lords will be aware, that was an aim pursued with unwavering enthusiasm and dedication by my noble friend Lord O’Neill of Gatley in his work at the Treasury, and I pay tribute to his contribution. In response to the point made by the noble Lord, Lord Monks, I reassure him that colleagues in government will continue to work to realise my noble friend’s vision for a true northern powerhouse—one with a vibrant, resilient and growing economy; a flourishing private sector; modern and efficient transport links; and a more highly skilled population—and to do so, as we move to leave the European Union, with a negotiated outcome that works for all parts of the United Kingdom and shows the world that we are open for business. I hope to say something later about the very forceful points that were made about a voice for the north. The noble Lord, Lord Shipley, reminded us of the importance of the single market and produced a six-point plan, to which he will get a six-point letter in due course.
Reading the IPPR report, I was struck by some of the deeply ingrained challenges that we are trying to overcome; in particular, the productivity gap, which has been the case for decades now and, indeed, was picked out for mention in the Motion before us. Currently, productivity in the north is 13% lower than the UK average and 25% lower than in the south. Clearly, there is a complex range of factors behind that, many of which noble Lords have highlighted previously and did so again today. I will pick up three.
First, connectivity remains a challenge for many people and businesses. To give just one example, congestion on the M62 means that it can take more than two hours to travel the 40 miles between Manchester and Leeds. That is not only frustrating for local people but a barrier to local businesses and the jobs and growth they can bring, and potentially a deterrent to inward investment. I take the point made by the right reverend Prelate the Bishop of Leeds that connectivity is not just linear. What we need is a spider’s web, rather than a telephone wire, to reach out to the communities that are not directly on the main roads or railway lines. I will write to the noble Lord, Lord Alton, about the stations he would like to see reopened. As a former Secretary of State for Transport, I share that enthusiasm.
Secondly, skills have consistently lagged behind the south at all levels. The north has a higher proportion of people with no qualifications than the UK average and a lower proportion of graduates. I will certainly pursue the suggestion made by the noble Lord, Lord Sawyer, about the role of vice-chancellors in making progress in this area.
Thirdly, it is still more difficult to set up and grow a business in the north compared with the south. Connected to that, we find a lower level of entrepreneurialism in this region, although in saying that I take nothing away from all the dynamic and resilient businesses that exist in the north, some of which were referred to in the debate. We were reminded by the noble Lord, Lord Mawson, and others of the history of the great entrepreneurs of the north, particularly those in Bradford.
The IPPR report identifies some excellent examples of successful local economies but, in short, there remain clear areas for improvement, which were highlighted in the debate. The northern powerhouse strategy we published at the Autumn Statement seeks to address these underlying challenges. In saying that, of course I recognise that there are other issues that we need to address—the noble Baroness, Lady Massey, mentioned housing—that are not touched on in the report. We know that lasting changes will not happen overnight, but already we are making substantial progress, as the report acknowledges.
There are signs that our hard work is beginning to pay off. Foreign investors are responding. In 2015-16 the north of England saw inward investment projects increase by nearly a quarter from the previous year, faster than the UK average. In October, the French rail builder Alstom confirmed that it will build a £20 million technology centre in Liverpool, creating up to 600 jobs. In the three months to October 2016, the north saw a record number of people in work—more than 7 million people—and an employment rate of 72.5%, close to its record high. The noble Lord, Lord Liddle, and others mentioned other successful business that either have been established or are growing.
I shall summarise briefly some of the action that we have been taking to support that success, starting with our work to improve the transport networks that businesses and hard-working commuters rely on every day. We are investing £13 billion in transport in the north over the course of this Parliament. Already we have started to take forward important improvements such as upgrading the A1 in North Yorkshire to motorway standard, upgrading the trans-Pennine rail route to take nearly 10 minutes off journey times between Manchester and Leeds and establishing Transport for the North, to which the noble Lord, Lord Prescott, referred. Last night I was reading his intervention in what I think was one of the first debates of this Parliament when he spoke about his work on the Northern Way. I pay tribute to what he did when he was in government to improve infrastructure in the north.
At the recent Autumn Statement we went further, committing to upgrade the A66 to a dual carriageway across the Pennines and to make major improvements to Manchester’s M60 ring road to ease congestion. The noble Lord, Lord Liddle, asked about Cumbria’s coastal railway. The new rail franchise for the northern and trans-Pennine express networks will deliver altogether more than 500 new railway carriages and 2,000 extra services each week. This franchise includes the Cumbrian Coast line to which he referred. Improving connectivity is vital to unleash the north’s economic potential so that the whole can be greater than the sum of its component parts.
As my noble friend Lady Eaton said, better transport links make it easier for people to find jobs, for firms to find workers and for ideas to be shared and developed. That is not just the case domestically within the UK, but in terms of international links as well. In my time as Secretary of State for Transport, one of the things that I took forward was giving the go-ahead to a second runway at Manchester Airport, which is now the UK’s third busiest airport—the busiest outside the south-east.
Skills was a theme that ran through our debate, mentioned by the noble Lord, Lord Beith, the noble Baroness, Lady Pinnock, and others. We have been working to ensure that people have the right skill sets for their chosen career. We have welcomed the findings of Sir Nick Weller’s report into schools performance in the north and committed £70 million to improve outcomes in northern schools. We continue to explore how we can improve everything from careers advice to high quality apprenticeships and world-class teaching. There is more that I would like to say, but time precludes it. However, to respond to the noble Baroness, Lady Warwick, who asked if the Government would consider housing products for the graduate market, in the Northern Powerhouse Strategy we have committed to work with the northern city regions and other local stakeholders to develop innovative proposals for attracting skilled workers. We are funding groundbreaking projects to develop the north’s strengths in science, the arts and sport, including providing £235 million to the Sir Henry Royce Institute for Advanced Materials.
I turn briefly to our responses to the IPPR report. As I have said, a lot of activity is already taking place. The report makes three suggestions as to how we can go further. The Government will work to get the best possible deal for all parts of the United Kingdom as we leave the EU, engaging with businesses up and down the country and continuing to back northern trade. Listening to this debate, I was struck by the number of representations about the potential relative disadvantage of the north in accessing the decision-makers. Without going beyond my brief, that is certainly a point of which my colleagues in government should be aware, given the strength of feeling that has been expressed throughout this debate. That is one of the most important lessons that I have learned.
Our industrial strategy will represent a comprehensive plan for the success of British businesses across all sectors and places, positioning the UK for long-term, sustainable growth as we move towards exiting the EU. A consultation paper will be published shortly.
Will the Minister explain the difference between—as pointed out in the report—a place growth strategy and the other critical northern house which tends to get debated? Is it the Humber?
I hope the document on industrial strategy to which I have just referred will shed some light on the important issue that the noble Lord has raised. I hope he will excuse me if I move to my final comments. I am conscious that I have not dealt with a whole range of issues about devolution to local government, about local enterprise partnerships, about employment and wages and about those museums—to which I have an answer that will now have to be converted into a letter.
We are determined to keep up our relentless drive further to enable the sustainable economic success of the north. We are taking action on a number of fronts to tackle the deep-seated structural issues that have held back the economic prosperity of the north for too long. There is more to do. To continue our progress, we will keep working hand in hand with those who know best: local businesses, authorities and other organisations. Together, we can keep seizing the opportunities for growth that benefit not only businesses and individuals in the north, but the UK economy as a whole.
My Lords, I thank the Minister for that thorough, respectful and inclusive response. I am grateful to him for some reassurances. I am glad that he reminded us of the importance of MPs and elections. I hope MPs will read this debate. I thank all noble Lords who have taken part in this thoughtful, wise and sometimes entertaining debate. It has also been challenging, as it was meant to be.
When I came to the Chamber today, I had not realised that so many parts of the north would be represented. I have sympathy with my noble friend Lord Prescott’s concerns about a strategy for the whole region. As many have pointed out, each region has its own characteristics, from population to industries, culture and cricket. I say to the noble Lord, Lord Shutt, that mentioning Yorkshire cricket to a Lancastrian is not the right thing to do. Has he looked at Yorkshire’s record recently?
We have moved between many topics: small business, housing, education, agriculture and so on. We have also heard of initiatives such as Get Bradford Working and the North East England Chamber of Commerce. I do not discard culture as unimportant. Culture is really important. Opera North is one of my favourite companies and the north has many cultural seats of excellence, as it does in sport. They are all important for local pride and local interest.
The most important thing that has emerged for me today is this issue of the urgent need for dialogue between the Government and the north. Many people mentioned this, particularly the noble Lord, Lord Scriven. Investment has also been mentioned many times. The issue of local councils is difficult. As the noble Baroness, Lady Pinnock, said, give them the tools. I know they are cash-strapped. I think we would all plead with the Minister and the Government to listen to the north and make Brexit an opportunity. That opportunity will be lost if the north is not encouraged and supported. I stress again the need for a positive dialogue between the Government and the north to achieve our ambitions.
To ask Her Majesty’s Government what is their assessment of the current treatment of the Rohingya in Burma.
My Lords, I declare my interest as a board member of the Burma Campaign UK and co-chair of the All-Party Parliamentary Group on Democracy in Burma.
In November 2015, Burma had its first free and fair elections, after over two decades of remorselessly oppressive military rule. Supporters of liberty across the world, including many in this House, rejoiced. It seemed that the resilient bravery of Aung San Suu Kyi and her National League for Democracy had triumphed and another cruel dictatorship had been ended.
Thirteen months after that election result, the reality in Burma is, I am afraid, tragically different—so different that two weeks ago 14 of Aung San Suu Kyi’s fellow Nobel Peace Prize laureates and nine other distinguished internationalists issued an open letter to the UN Security Council, saying that,
“a human tragedy amounting to ethnic cleansing … is unfolding in Myanmar”.
They went on to detail the well-documented reality, supported by satellite images, of multiple killings, huge mass displacements of people, destruction of villages, torture, arbitrary arrests and murder of children in the Rohingya communities of Rakhine state.
These atrocities were ostensibly an armed response to the killing of nine Burmese policemen in October. As the laureates have clearly said:
“The truth about who carried out the attack … is yet to be established, but the Myanmar military accuse”,
Rohingya groups. They continue:
“Even if that is true, the … response has been grossly disproportionate”.
The laureates say that it is,
“one thing to round up suspects, interrogate them and put them on trial. It is quite another to unleash helicopter gunships on thousands of ordinary civilians and to rape women and throw babies into a fire”.
Together with denial of access of humanitarian aid to areas that have been devastatingly poor for many years, these atrocities have created an appalling humanitarian tragedy. UNHCR estimates that more than 43,000 have fled to Bangladesh, only to be sent back. Some international experts are warning that there is a real potential for genocide. The Bangladesh head of UNHCR has accused Myanmar’s Government of ethnic cleansing, saying:
“It has all the hallmarks of recent past tragedies - Rwanda, Darfur, Bosnia, Kosovo”.
In an unprecedented passage that conveyed their deep concern and sense of urgency, the laureates said:
“Despite repeated appeals to Daw Aung San Suu Kyi we are frustrated that she has not taken any initiative to ensure full and equal citizenship rights of the Rohingyas”.
Daw Suu Kyi, they say, is surely the leader who has the,
“primary responsibility to lead … with courage, humanity and compassion”.
Instead of such leadership, the Myanmar Government’s response to the outrages taking place in Rakhine has been to establish a manifestly sham presidential commission of inquiry. It simply sustained the deceitful propaganda of “no human rights violations”, “no malnutrition” and “free access” for the media. All of it is, so far as we know, endorsed by Aung San Suu Kyi. Last week, Anna Roberts of the Burma Campaign UK called the commission’s report a “farce” and said that,
“it is time for the UK to support the establishment of a genuinely independent UN Commission of Inquiry to look into the totality of the situation in Rakhine State”.
It is also essential that the UN Secretary-General leads in negotiating access for humanitarian aid.
Those demands echo the concluding paragraphs of the powerful letter of the Nobel laureates, who want the UN Secretary-General to visit Myanmar within weeks:
“It is time for the international community as a whole to speak out … more strongly. After Rwanda, world leaders said ‘never again’. If we fail to take action, people may starve to death if they are not killed with bullets, and we may end up being the passive observers of crimes against humanity”,
wringing our hands “belatedly”,
“and say ‘never again’ all over again”.
In November, in an Answer following evidence of malnutrition among Rohingya children and reports that the Burmese forces were restricting humanitarian aid to Rakhine state, the noble Lord, Lord Bates, listed the detail of UK assistance to Burma and Rakhine and said:
“We will continue to monitor and support the delivery”,
of the Burmese Government’s commitment “to restoring humanitarian access”. I ask the Minister first for the results of the monitoring and any action taken, especially when the presidential commission makes the derisory claim that access to Rakhine for media has been unimpeded. Secondly, will the Government give urgent and insistent support to the calls for strong action by the UN Security Council and the Secretary-General made by the Nobel laureates?
When the UNHCR speaks of “ethnic cleansing”, and Prime Minister Razak of Malaysia, the US Holocaust Memorial Museum and Dr Azeem Ibrahim of the US Center for Global Policy all speak in measured, well-informed terms of impending genocide of the Rohingya people, there is surely a grave reason for sounding the alarm. We act now to safeguard those whose ethnicity makes them victims of this most terrible persecution.
My Lords, I am grateful to the noble Baroness for securing this debate, which, due to the events she outlined from late last year in Rakhine state, is very timely. No one underestimates the progress that has been made in Myanmar and the challenges that lie ahead, especially as the military finds its proper constitutional place. Change will not come overnight for Myanmar, but there should be red lines for Her Majesty’s Government and the international community. Transition will not always suffice as a reason for Myanmar’s problems.
The UK taxpayer is funding development and democracy-building work. DfID’s budget is nearly £100 million this year alone. Will Her Majesty’s Government provide details on how much of the £19.2 million allocated for humanitarian assistance to Rakhine has been delivered? Relief NGOs have to deliver aid regardless of race, gender, ethnicity or religion and so do Her Majesty’s Government, so I look forward to the update on whether the aid blockade has been lifted so we can comply with these international standards.
Also, will my noble friend the Minister say why Her Majesty’s Government were not alongside 14 countries, including Canada, the USA and Turkey, that released a joint statement on 9 December demanding humanitarian access to north Rakhine state? I have raised before in the House the need to ensure that UK visas to Myanmar citizens should also be issued on a non-discriminatory basis, so will she please contact the Home Office to investigate the numbers and types of visas issued and whether any have been issued to the Rohingya Muslim community?
DfID’s programme for democratic change in Myanmar has a fund of £25 million, so I wonder how we can evaluate this project when the Rohingya are disenfranchised and the situation has gone backwards. A Rohingya Muslim, Shwe Maung, was elected as an MP in 2010, but then the Government removed temporary identification cards so the community—his voters—were disfranchised. He is seeking asylum in the United States. In addition to DfID, there is FCO funding for the Westminster Foundation for Democracy’s work. In fact, Parliament’s Library and research facility services are being offered to support the new parliament. Will my noble friend outline how, without an independent inquiry into the allegations of potential crimes against humanity being conducted, we can possibly assess the situation, which should help us inquire as to whether we should give the further support to Myanmar that I have outlined?
The UK has a role in many multilateral institutions. On 29 December the Nobel laureates that the noble Baroness mentioned, including Malala, asked the UN to put the issue on the Security Council agenda. Have Her Majesty’s Government put this on the agenda, and is it on the agenda for the Human Rights Council meeting next month at the UN? A week today, the Prime Minister of Malaysia, under the auspices of the OIC, will hold a meeting relating to the situation of the Rohingya Muslims. Will Her Majesty’s Government send a representative to observe that meeting in the light of the forthcoming Human Rights Council meeting? The Advisory Commission on Rakhine State, led by the Kofi Annan Foundation, will report in the second half of this year. Will my noble friend please extend an invitation to him to come to the United Kingdom Parliament so we can ask questions of him once the report is published?
Finally, as our noble friend Lady Anelay is Minister for the Commonwealth, and as Bangladesh as well as Malaysia is being significantly affected by the displacement of the Rohingya Muslim community in the region, will she speak to the Secretary-General of the Commonwealth? Perhaps her engagement might assist. Should DfID money for Rohingya, rather than being given for humanitarian assistance in Rakhine state, be redirected to Bangladesh, so that it might be able to accommodate some of the 43,000 people who have fled over the border?
In four minutes it is not possible to ask all the questions that, in light of recent developments, noble Lords need to ask, so will my noble friend Lady Goldie arrange a meeting with our noble friends Lady Anelay and Lord Bates so that interested Peers can get a full briefing on all aspects of this issue and where and when red lines will be drawn? A democracy that is religiously, ethnically and racially discriminatory will at some point become something that the UK taxpayer can no longer support.
My Lords, I, too, commend the noble Baroness, Lady Kinnock, on securing this important debate. I first visited Myanmar nearly 30 years ago, in 1988, shortly after the putsch that brought the military to power. At the time I was a correspondent for BBC World Service, which to this day has a reach in Burma unequalled by any in the contemporary world. In the past few years there have been many changes in the country, especially after the 2015 elections, the first democratic elections in decades, which brought Aung San Suu Kyi to power as Prime Minister. There is a freedom of the press now which would have been unimaginable only a few years ago.
In September 2015 I chaired a conference for Chatham House in Rangoon, the first held by any international think tank there. But substantial and wide ranging though the reform programme has been, there is still much to be done, nowhere more so than in the treatment of minorities, especially the Rohingya. Historically, minorities have always found difficulties in south-east Asia, as states too often have been defined by majority faiths, whether Buddhist, Islamic or Christian. An exception in that regard is Indonesia, whose 1945 constitution guarantees all faiths. It is fair to say that none of these minorities in recent years have faced problems as great as the Rohingya of Rakhine state have faced.
The present Government have taken some steps, notably the commission headed by my former boss, Kofi Annan. The suggestion of the noble Baroness, Lady Berridge, of inviting Mr Annan here when his report is concluded is helpful. The establishment of that commission was a step forward, but I remind the House that it is an advisory commission and is not scheduled to report for six months. I am not sure we have that much time and the danger of a new exodus of boat people from Rakhine state is all too real.
With the appointment of António Guterres as UN Secretary-General on 1 January I believe we have a new opportunity. No one has come to the post of Secretary-General of the UN as well qualified as he, not least because he is a former UN High Commissioner for Refugees. He has visited Burma/Myanmar several times. In his address to the Security Council on 10 January he asked the Council to make greater use of chapter 6 of the charter, which allows the body to investigate and recommend procedures to resolve disputes that could endanger international peace and security. I urge the Minister to look at those possibilities. As a permanent member of the Security Council and as the former colonial Government in Burma, we have a particular duty and responsibility on our shoulders. Rakhine state is an issue that threatens not only regional peace but potentially international peace. It is a threat to peace that could all too easily feed into the mythology and ideology of global jihad. That is the last thing we need to see.
Finally, we are a substantial aid donor to Burma. Can the Minister clarify how much aid is actually going to Rakhine state—if she cannot say now, perhaps she will write to me—and whether some of our aid is specifically earmarked to bolster the fragile peace process there? An escalation of present tensions, which is all too possible, could pose very substantial dangers to the wider achievements that have taken place in Burma in recent years.
My Lords, the plight of the Rohingya Muslims is indeed desperate and the emergence in 2016 of an organised militant insurgency has only deepened the severity of that crisis. But such an escalation is hardly surprising. As the excellent report into the situation in Rakhine state by Crisis Group puts it:
“People pushed to desperation and anger, with no hope for the future, are more likely to embrace extremist responses, however counterproductive”.
The systematic persecution of the Rohingya people by the Burmese Government, most obviously manifested in the denial of citizenship to Rohingya Muslims, has created a fertile recruiting ground for militants. It is a simple human truth that people who have no say in their future and no means to participate in the democratic life of their country are liable to resort to extremism in order to achieve those means. The violence of the recent Government crackdown, with reports of mass killings, rape and the destruction of villages by the Burmese military, will only further stoke anger in the Muslim community at both a domestic and an international level and increase the threat of a spiralling cycle of radicalisation.
Yet the Rohingya community is not, for the most part, a radicalised community. According to Crisis Group, community elders and religious leaders have repeatedly eschewed violence as harmful to their ultimate goal of democratic participation in the life of their country. While that remains the case, there is still hope that progress can be made towards reconciliation, but the longer progress remains stalled, the greater the danger that Rakhine will plunge into ethnic cleansing and civil war. The situation is delicate. The fledgling civilian government of Burma still sits in a perilous position. The path to community reconciliation and full citizenship for the Rohingya people will inevitably be tempered by the very real threat that Burma could slide back into military rule.
However, progress towards those goals remains a real possibility. There are parliamentarians in Burma who are committed to defending religious freedom, and every effort should be made to equip and support them. The Rakhine commission, set up in August at the request of Aung San Suu Kyi and chaired by Kofi Annan, is also a positive development and it is vital that the international community support its work. Of course, little can be achieved if the violence in Rakhine escalates further. If reconciliation is to remain a real possibility, the military must cease its heavy-handed response to recent violence. I hope that Her Majesty’s Government are making that message clear to the Burmese authorities.
It would be helpful to know what Her Majesty’s Government are doing to push for independent monitors to be granted access to northern Rakhine and what can be done to encourage the Burmese Government to move towards full citizenship and rights for the Rohingya community in the medium term. Without cause for hope that the situation can and will improve through peaceful, democratic means, more angry young people will turn to extremism and militancy and the cycle of violence will only deepen.
My Lords, I too thank my noble friend Lady Kinnock for initiating this debate. I declare an interest as a trustee of the Burma Campaign UK. The Amnesty International report on the situation in Rakhine quotes a Rohingya farmer, whose home was burned down by the military. He said:
“There is no one in Wa Peik now. All the houses are destroyed. We are in very difficult times, no food, no clothes, we are just sleeping in the fields ... we are at breaking point”.
The Rohingya have been described as the world’s most persecuted people. They are not welcome in Burma or in neighbouring countries. As we have heard, this most recent attack on the Rohingya started with the October killing of police officers—an act that cannot be condoned. However, the security forces have retaliated with such violence that many innocent Rohingya have suffered. According to Human Rights Watch, credible reports of killings, rapes, burning of villages and forced relocations have occurred. Humanitarian access has been denied by the Burmese Government to the thousands of Rohingya who are reliant on that aid and healthcare.
As the noble Baroness, Lady Berridge, said, in early December, the diplomatic missions of 14 countries—allies from Europe, Scandinavia, the US and Canada, but not the UK—joined to issue a statement as friends of Myanmar. It said that they were “concerned by delays” and urged,
“all Myanmar authorities to overcome the obstacles that have so far prevented a full resumption … tens of thousands of people who need humanitarian aid, including children with acute malnutrition, have been without it now for nearly two months”.
That has not happened.
The Foreign Office Minister, the noble Baroness, Lady Anelay, made a visit to Burma in November while the violence was taking place. According to the press release before her visit, she was going to discuss civil and political rights as well as the situation in Rakhine and have discussions on sexual violence. I hope the Minister today will give a report of that visit including whether the violence—including sexual violence—against the Rohingya that was taking place during that visit was raised and whether she called for humanitarian access to be reinstated. Can she also explain why the UK did not sign up to the joint statement? Surely only concerted international action and pressure has any hope of achieving a change of approach by the Burmese army.
Aung San Suu Kyi has been rightly criticised for her approach to the current crisis but we must be clear that the Burmese army is committing these human rights violations. The army still has a block on constitutional change and retains control of the key ministries that command the police and security forces. The military is operating with impunity at home while being welcomed with open arms abroad. As far as the army is concerned, it has no need to go further down the road to more democracy. That is why I think the British Government must reconsider their programme of free training of the Burmese army. The atrocities against the ethnic groups, most especially the Rohingya, that were happening before the elections are continuing even after the election of the NLD Government. We have no idea if the soldiers we have trained have gone on to commit sexual violence and human rights violations in Rakhine or elsewhere in Burma. How long are we prepared to let this situation continue? That is why the international community and the British Government’s attitude to Burma should be reappraised.
In September, the Minister of State at the Foreign Office wrote a blog celebrating success with Aung San Suu Kyi. He said:
“A big focus for us will be the UK’s ongoing commitment to supporting the peace process and promoting inter-communal harmony”.
I commend that commitment but we need to change our approach. We should provide assistance and support in the areas where progress is being made but maintain or even increase pressure in other areas mainly where the army is involved. That is why I hope the Government will support the establishment of a UN commission of inquiry into the situation in Rakhine state.
I believe that we best support Aung San Suu Kyi and the NLD Government by putting pressure on her to speak out over human rights violations She has the ability to mobilise international opinion which is the only hope of getting the army and the country to change. As friends of Burma, being critical may be the best way forward.
My Lords, the election of the NLD Government was an event from which the whole world took hope. The election of “the Lady”, who is a remarkable person, not least because she is probably the world’s most famous supporter of Cowdenbeath football club, was something from which the world took hope.
That hope was perhaps overestimated because she was taking over some powers in a country which is largely Buddhist. We have a perception of Buddhism as a religion which is peaceful, and for the most part it is. However, as people who work around the world in countries such as Sri Lanka will tell you, there are some quite fanatical people within the Buddhist religion. I have friends who work in an LGBT organisation in Sri Lanka, Equal Ground. They face appalling intimidation and threats of violence from Buddhists. The situation into which the NLD Government came was more complex than we recognise.
We have perhaps also underestimated the extent to which the Burmese army remains a powerful force within that country. Whichever Government had been elected democratically was always going to have to calibrate and judge which battles they would pick with the Burmese army. None of that defends what is happening in Rakhine. It is unfair that those people who have the worst public provision, the worst poverty, are not being supported by their Government.
Given that we are a former colonial power and we have connections with Burma in ways that other countries do not, are the British Government going to use their unique power and influence with the Government in Burma? For example, there is a document in our briefing pack which others may have passed by. It is a document from UKTI about the opportunities for British companies to sell health services to Burma. I agree that that is right. The health services in Burma are some of the worst in the world. The Burmese economy is growing and the NLD has come to power on a promise of developing a universal health network throughout Burma. I hope that some of the best of the NHS and the private health companies in this country would be there helping Burma to develop those health services. However, will they do so on the basis of the values to which we subscribe in our NHS: universal access to healthcare according to need and not according to ethnicity or ability to pay?
It is only by the UK as an international player with a unique relationship in Burma being able to bring influence which the NLD Government cannot that we are going to hasten the access to universal justice in Burma.
My noble friend Lord Bruce of Bennachie is unable to speak today because he had to get a plane. He has visited Burma on a number of occasions with the Speaker of the House of Commons. It has been clear for many years that the relationships between the rest of Burma and the Muslim community in Rakhine are not good. It is for us as outsiders to try to ensure that this situation does not escalate to the point at which the military can seize another opportunity to intervene. It is also for us to hold the NLD Government to universal standards which we believe to be necessary for them to be considered an acceptable Government.
My Lords, even as we meet today for this important debate, the United Nations’ special rapporteur on human rights in Burma, Yanghee Lee, is there. When the noble Baroness, Lady Goldie, comes to reply, I would be grateful for her assessment of that visit and the contribution the UK Government are able to make to it. What is her response to the well-documented reports which detail the plight of the Rohingyas and, as we have heard in the debate, point to mass rape, mass displacement and the murder of men, women and children; the burning of houses; and crucially, the denial of access to the affected areas for humanitarian aid.
In a letter to the Guardian on 28 November a number of us, including the noble Baronesses, Lady Kinnock and Lady Nye, and my noble friend Lady Cox, called for the international inquiry which has been referred to during the debate. We said:
“The international community cannot stand idly by while peaceful civilians are mown down by helicopter guns, women are raped and tens of thousands left without homes”.
When I raised these atrocities in a Parliamentary Question, the Minister referred me to the Rakhine Investigation Commission. That commission’s interim report said that there were,
“no cases of malnutrition, due to the area’s favourable fishing and farming conditions … and … no cases of religious persecution”.
That is palpably risible. Human Rights Watch has described the investigation as little more than a “Myanmar government whitewash mechanism”. Can the Minister tell us whether the Government will support the calls that she has heard throughout this debate for the establishment of a United Nations commission of inquiry so that the truth may come out? Let us recall what the noble Baroness, Lady Kinnock, said to us about 23 of the world’s most prominent human rights voices, including a dozen Nobel Laureates, calling on the Security Council to end,
“ethnic cleansing and crimes against humanity”,
in the Rakhine state.
Just as the emergency in Rakhine requires an urgent response, so does the conflict in Kachin state and the northern Shan states. Kachin camps for initially displaced people have been bombed. On Christmas Eve, following the bombing of a church at Mongkoe, two Kachin Christians, Dumdaw Nawng Lat and Langjaw Gam Seng, simply disappeared, believed to have been abducted as a reprisal for taking journalists to see the bombed church. Have Her Majesty’s Government raised this case and taken action to secure their safe return to their families? How does the Minister respond to Christian Solidarity Worldwide’s campaign to end restrictions on humanitarian aid to Rakhine, Kachin and the northern Shan states, to which the noble Baroness, Lady Nye, referred earlier?
Burma’s courageous cardinal, Charles Bo, whom I had the privilege of hosting in this place last year, said in his Christmas message:
“Just sixty years of history—more than 22 to wars and now three wars going on. In the last sixty years, we have buried thousands in these wars of mutual hatred, displaced millions … Wars have exported our girls to modern forms of slavery … At this very moment, thousands are refugees—they have no home”.
We all have a responsibility to ensure that Burma’s history and present are not its future, and that the hopes of a democratic, federal and peaceful Burma, in which people of all ethnicities and religions have an equal stake, are realised and not dashed. Along with others, I pay tribute to the extraordinary and phenomenal work that the noble Baroness, Lady Kinnock, does with the Burma campaign and with the all-party group here in the House, and thank her for giving us the opportunity to raise these important questions on the Floor of your Lordships’ House today.
My Lords, I too thank my noble friend Lady Kinnock for raising this vital issue today. Since 2012, following communal violence, tens of thousands of Rohingya remain in camps. Hundreds of thousands had already left for Bangladesh, and since the October crackdown, an estimated further 43,000 have fled across the border. But even fleeing across the border is not the end of the story. Amnesty International says hundreds been detained and forcibly returned, with an uncertain fate. The UN refugee agency says Myanmar’s neighbours should keep their borders open if we are to avoid the desperate scenes we saw in 2015 of thousands dying at sea. What representations have the Government made to the Bangladeshi authorities on the status of fleeing Rohingya people?
In the historic election campaign that has already been referred to in this debate, Daw Suu Kyi said she wanted to improve relations between the two communities. But as we have also heard, the question is whether she has much leverage over the military, which still wields great power and controls the most powerful ministries. At the end of December last year, the noble Baroness, Lady Anelay, said in Written Answer HL4205 that when she visited Burma from 9 to 12 November, she,
“urged Burmese Government Ministers to set up a full and independent investigation into all reports of human rights violations”.
As we have heard, the presidential commission, which is headed by a general and includes the head of police, has presented an interim report saying that there have been no human rights abuses. Does the Minister believe that the commission’s membership meets the criteria set out by the noble Baroness, Lady Anelay? What is the Government’s response to the interim report published on 4 January?
As we have heard, separately, Kofi Annan is heading another advisory commission, looking into the general situation in Rakhine state, after being asked to in August by Daw Suu Kyi. A problem with Kofi Annan’s commission is that its mandate focuses on broader development issues and building the relationships between the two communities. That is an important job, but it is not investigating the human rights violations which we have heard so much evidence about. The noble Baroness, Lady Anelay, indicated in the same Written Answer:
“Any judgment on whether crimes such as war crimes, crimes against humanity or genocide have been committed is a matter for competent national or international courts”.
That is of course the case, as we have heard in other debates. Nobody challenges that, but the key concern that we have heard from Members of this House is to ensure that evidence is gathered and that any investigation is independent and effective.
I conclude by asking the noble Baroness whether she will respond to the call from my noble friend and other noble Lords and at least acknowledge that it is now time for the UN to step in.
My Lords, first, I thank the noble Baroness, Lady Kinnock, for initiating this timely debate. As the debate has indicated beyond doubt, we are very fortunate to have in the House a wealth of expertise on Burma, and I am indebted to colleagues for their valuable contributions.
Indeed, there are Members of this Chamber who have done much over many years to encourage the political transition to democracy in Burma. We welcomed the election last year of a Government who are more accountable and democratic and have less military influence than has been the case in many years. However, we should be under no illusions. Members have consistently referred to the anxiety about this, and political transition in Burma still has a long way to go before it can be regarded as being completed.
Let me make it clear to Members who expressed justifiable concerns about events in Rakhine state that this Government share the deep concerns that have been articulated about the situation in that area. It is a region with a long history of intercommunal violence. Both the Rakhine and Rohingya communities have been marginalised, but the Rohingya have suffered particularly bad discrimination and periodic waves of violence. British Ministers have raised this issue many times, both in this House and in direct discussions with the Government of Burma. We fully support the Burmese/international Advisory Commission on Rakhine State, headed by former UN Secretary-General Kofi Annan, which aims to provide independent advice on resolving intercommunal tensions.
I turn to the recent escalation, which has naturally featured prominently this afternoon. We condemned the attacks on police posts in October that triggered the latest wave of violence, and we also have grave concerns about the security response to them. The media blackout means that it has been hard to ascertain exactly what has been happening. Nevertheless, a substantial body of reporting from credible sources, including human rights organisations, witness testimonies and satellite images, suggests the military is carrying out serious human rights violations, including arson, sexual violence, extrajudicial killings, torture and arbitrary arrest. The noble Baroness, Lady Kinnock, quite rightly and very eloquently referred to these concerns.
The latest assessment from our embassy in Rangoon is that some areas outside the main area of security operations have received limited and partial humanitarian assistance, with improvements in December. Within the area of operations in Maungdaw township, some localised humanitarian access has been resumed since December, but this remains patchy and changeable, and the majority continues to be denied.
We are deeply concerned about the lack of humanitarian access to the 160,000 Rohingya who remain dependent on food aid. We are especially concerned for the 5,000 children and the pregnant women who were being treated for severe and acute malnutrition before the latest wave of violence. Organisations working on the ground estimate that more than 27,000 refugees have fled to Bangladesh since October. We are grateful to the Government of Bangladesh for giving them sanctuary. The UK is also the largest provider of food aid to the 34,000 Rohingya refugees already living in official camps in Bangladesh. Since 2014 we have provided nearly £8 million to address the humanitarian suffering of Rohingya refugees and the vulnerable Bangladeshi communities that host them. UK-funded humanitarian programmes have benefited 82,000 people in the south-east of Bangladesh.
The noble Lord, Lord Williams, raised the question of United Kingdom Government action and our particular response to Rakhine state. I reassure the noble Lord that the UK has long been one of the biggest bilateral humanitarian donors to Burma and to Rakhine state. Since 2012, we have provided over £23 million in humanitarian assistance, including food and sanitation for over 126,000 people.
Over the last three months, this Government have intensified work behind the scenes to respond to the escalating crisis. I understand and sympathise with the sentiment almost universally expressed across the Chamber about who is doing what, who is saying what and what is happening. I reassure noble Lords that the Minister of State for Foreign and Commonwealth Affairs, my noble friend, Lady Anelay of St Johns, visited Burma in November and raised our concerns directly with the Minister of Defence and the military-appointed Minister of Home Affairs. She met Rohingya leaders and called explicitly on the Government of Burma to allow full and immediate humanitarian access to the affected areas in northern Rakhine. She also pressed for a thorough and independent investigation into all reports of human rights violations. I emphasise that these messages have been reiterated by our ambassador in Burma to State Counsellor Daw Aung San Suu Kyi, and five different Cabinet-level Ministers. The messages were repeated by our Ministers in the Foreign and Commonwealth Office and the Department for International Development to the Burmese Minister of Commerce when he visited London in November. We also expressed our concerns in the UN Security Council. I noted the call by my noble friend Baroness Berridge for a meeting between my noble friends Baroness Anelay and Lord Bates, and her view that an invitation might be extended to Mr Kofi Annan. I am sure that these interesting suggestions will be reflected upon. I reassure noble Lords that there is already a liaison between my noble friends Baroness Anelay and Lord Bates—a “liaison” in the most respectable sense, I hasten to add.
The Government of Burma have responded by committing to resume humanitarian access and to conduct an investigation into allegations of human rights violations. Some aid has begun to return. As of 27 December, the United Nations World Food Programme reported that it was able to reach 28,000 beneficiaries in 169 villages in northern Rakhine state. However, much of the aid is still being blocked by local authorities reporting to the military, especially in the area where security operations continue.
As noble Lords have indicated, the Burmese Government have established a Rakhine Investigation Commission headed by the military-appointed Vice-President Myint Swe to investigate both the October police post attacks and the subsequent security response. The noble Lord, Lord Alton, referred specifically to this. However, the commission’s interim report largely denies the accusations of human rights violations. We do not find this assessment credible. The noble Baroness, Lady Kinnock, articulated such concerns in a very cogent manner. We urge the commission, when it issues its final report at the end of January, to abide by its stated mandate to conduct an independent investigation. That is the key: it should be independent.
I will try to cover some of the issues raised by noble Lords in the course of the debate. The noble Baroness, Lady Kinnock, raised the role of the United Nations and to some extent I have covered what has been happening there. The new United Nations Secretary-General has been in office for only a few days, but as the noble Lord, Lord Williams, rightly pointed out, this is a person with impressive experience and he will have a definite desire to use his office to good effect. The United Nations is already actively engaged on Burma.
My noble friend Lady Berridge raised the matter of the United Nations Human Rights Commission. This is a multilateral negotiation with concerned international partners and Ministers are currently considering our position and how we should engage with that. She also brought up the issue of support to the nascent Parliament in Burma. We are proud to be supporting that Parliament in putting through the secondment of two members of staff of the House of Commons. Making this support dependent on the actions of the military could perhaps impede Burma’s legitimate democratic development. This is a very delicate situation, to which some noble Lords alluded, and I will deal with that in further detail in a moment.
An issue that particularly exercised my noble friend Lady Berridge and the noble Baroness, Lady Nye, was the ambassador’s statement on 9 December. I would not want any confusion or misunderstanding to arise about that. Well before that statement was issued, the British Government, through the diplomatic reach of our Ministers and our ambassadorial presence in Rangoon, had been engaging with all levels of the Government of Burma to urge an immediate resumption of humanitarian aid and access. We have also discussed the issue in the United Nations Security Council. On 12 October our embassy made a very clear statement about its views on what had been happening. We have not only expressed our views on the record, but have been trying to engage with diplomatic initiatives and endeavours that will produce a tangible consequence. That is why we have proceeded as we have.
The right reverend Prelate the Bishop of St Albans reflected with great sensitivity and wisdom on the delicate political balance in Burma. That is at the heart of how the international community responds. This is a nascent democracy, and though others may have their individual views on how that democracy is functioning, in my opinion it is immeasurably better than the regime that has ruled Burma for decades. We have to be very careful and recognise that under international law Burma is an independent state. The international community wants to support, provide help where it can or, indeed, challenge when events seem to be taking place that raise huge concerns, but at the same time we must be respectful of the status of that embryonic and very young democracy. Nevertheless, Her Majesty’s Government are pressing for openness and respect for human rights.
A number of other matters were raised, but I am running out of time to deal with them. There were some specific questions: the noble Lord, Lord Alton, raised the case of a journalist, but I will have to write to him because I do not have the information that he requires. My noble friend Lord Collins raised a number of issues, but I hope that I have been able to deal with those in my general remarks.
In conclusion, it is clear that a solution must be found to the enduring problem of intercommunal tension in Rakhine. In order to reach that solution, all parties must work constructively with the democratically elected Government to de-escalate tensions and identify ways to build intercommunal harmony. More immediately, this Government are deeply concerned about the current situation in Rakhine. We continue to express our concern to the Government of Burma at every possible opportunity. We continue to impress upon them the urgent need to facilitate humanitarian access and to investigate allegations of human rights abuses. We will continue to do all we can, working with our key international partners, to encourage progress and to alleviate humanitarian suffering.
I thank the noble Baroness, Lady Kinnock, for bringing this very important debate to the Chamber.
That this House takes note of the future capability of the United Kingdom’s armed forces in the current international situation.
My Lords, let me start by paying just a moment of tribute to Lord Lyell, who died yesterday. He was the secretary of the All-Party Defence Group and a formidable and energetic supporter of Britain’s Armed Forces. He will be greatly missed by the House and by many of those whom he met.
This is a very timely debate—never more so to those of us who watched yesterday’s press conference in New York. On a distinguished panel last year, I was asked what I believed was the greatest threat to the safety and security of our country. I considered some of the immediate and looming challenges and threats, some of which are pretty formidable: the migration flows that have suddenly ended up on our shores; the spread of religious experience extremism and jihadi violence plumbing new depths of savagery; a restive and resurgent Russia; a rising China; and the disruption by North Korea. Add to that fragile and failed states spreading mayhem across borders, international conflicts, climate change, cyber warfare and the global proliferation of lethal technology and weapons. On top of all that, there is the rise and dominance of organised crime, population growth, pandemics and financial instability.
That is a pretty formidable cocktail of trouble for us to face. However, my answer to the question of what was the greatest threat is actually different: it is ourselves. We are our own worst enemies. We are short-sighted, penny-pinching, naively optimistic, complacent and ostrich-like to the way in which the world has become interconnected and more fragile, unpredictable and incendiary. We are grossly unprepared and underresourced to meet the challenges of the coming years. These threats are potent and deadly, and some of them are very urgent.
At the end of the Cold War, I made a speech at Chatham House in which I coined what was to be a much-quoted phrase when I said that there had been a “bonfire of the certainties”. The fall of the Berlin Wall had unleashed a flood of optimism that had made Kremlinologists redundant overnight and robbed us of the albeit dangerous manageability of the Soviet/West confrontation. Some were even rash enough to say that it was the “end of history”. All of us took a substantial peace dividend and defence budgets were cut radically over the next five years. I believe we are now seeing another bonfire, this time of the post-Cold War certainties. In doing so, we have left ourselves vulnerable and, in many ways, unready. If we look at the way in which we have responded to this new world of regional conflicts, violent civil wars and other violent manifestations of the turmoil that I have already listed, we see that it hardly measures up to the scale of what faces us.
If anyone doubts my contention that we are our own worst enemy, just let them look at the debate in both Houses of this Parliament on 29 August 2013. The President of the United States had drawn a red line on President Assad using chemical weapons on his own people in a conflict that was already tearing his country apart and spreading to every part of the Middle East and beyond. Consequently, when the sarin gas attacks on civilians were confirmed, President Obama rightly decided that a military attack should be mounted to degrade President Assad’s war machine. Our Prime Minister at the time agreed, said he wanted to join this wholly justified action and recalled Parliament in order to put it to the House of Commons. The Commons, with my own party playing an opportunistic and disgraceful part, refused to give permission for the UK to join the response to the hideous chemical attacks on civilians.
The Prime Minister, having been defeated on an issue of grave military consequence, not only did not resign, which you would have thought in all honour he should have done, but instead swiftly closed off the possibility of even reconsidering the decision. It did not need John Kerry, the outgoing US Secretary of State, to remind us of this last week and lay the blame for President Obama’s retreat from his red lines on the British House of Commons on that August day. We all already knew it and we must all share the responsibility, even those of us who supported the government position, for the carnage that followed. Tears for Aleppo will never be enough. I love my country. I care about its future and the safety of our people in a very troubled world. That is why I am ashamed that that night this Parliament, where I have served for 38 years, did what it did. As events have spiralled into horror since then, with a line coming directly from that vote, my shame turns to anger.
Now, in eight days’ time, we will have President Donald Trump as the leader of the western world—the Donald, with his Mexican wall, with new protectionism and isolationism, with his serious questioning of NATO solidarity, with a belief in torture and with Lieutenant-General Michael Flynn as his key security adviser. Perhaps we do not actually need more enemies in the world today.
We in this country have Brexit. Going against the grain of history, our country is about to embark on a tortuous journey, with no known destination, that will absorb people, time and talent and will suck the energy out of our political system just as the challenges to Europe come crashing in on us. Our influence on our European neighbours will dramatically and inevitably diminish. Although they will still need our military, as Europe finds Trump’s America turning away we will find it difficult to take the lead that we usually claim. Reports this week that Britain’s claim to the Deputy SACEUR position has been challenged by France are just the latest evidence of that slipping influence. Our Foreign Office, the soft-power arm of government, at the same time as bearing the burden of maintaining our influence in the rest of the world, will be eclipsed by the Brexit vortex as its budget, already smaller than the budget for the US Embassy in Baghdad, will come under renewed pressure.
In our crazy complacency we seem quite oblivious to the fact that the relative peacefulness of the world today, as we look over a new precipice, has been achieved by our nuclear deterrent and by our institutions and processes, which require diplomacy, intelligence, involvement and, crucially—when it is required and at the end of the line—decisive interventions. Where will the space be left for all that as we paddle through the treacle of dismantling 40 years of integration?
What confirms again that we are our own worst enemy is the attitude to spending on defence and security. Yes, I agree with and welcome the fact that we are spending the NATO target of 2%; we are right in many ways to crow that we are among the few who do. That is good so far as it goes, but we should wait for a moment. After all, have we stretched the definition of 2% to get there? Are we not confusing percentages with capabilities? Who can doubt, as well, that the Brexit devaluation of the pound will now have a serious effect on the defence budget? I hope that the noble Earl the Minister will tell us how much it is estimated that blow will cost his department.
In 1997-98, as Secretary of State for Defence, I led the strategic defence review with, among others, my noble friend Lord Reid. It radically remodelled and modernised our post-Cold War forces. In the preface to the review, I said that post-Cold War problems,
“pose a real threat to our security, whether in the Balkans, the Middle East or in some trouble spot yet to ignite. If we are to discharge our international responsibilities in such areas, we must retain the power to act. Our Armed Forces are Britain’s insurance against a huge variety of risks”.
That is as true today as it was when I wrote it. The question is whether we in this country have properly retained that power to act. Some doubt will be cast on that by the distinguished speakers who will speak after me in this debate.
The Minister will undoubtedly tell us at the end of the debate that there is formidable hardware in the pipeline, from Trident to the carriers that were the centrepiece of my 1998 review. The question remains, though: is it enough to meet the challenges we are facing when so many of them are urgent and so potent?
My worry is that we are sleepwalking into a potential calamity. My depressing catalogue of threats, after all, does not even take account of what I said in 1998 of trouble spots yet to ignite. As I wrote those words, we could not have foreseen the conflict the very next year in Kosovo, the attacks of 9/11, the implosion of Syria, the whole of the Arab spring and, indeed, the rise of Daesh/ISIS. We have today a crisis of optimism—hoping for the best and failing to prepare for the worst.
You might legitimately ask, having heard my gloomy assessment and warning, what we should be doing. Here are just a few of my thoughts. First, we must retain and protect our own defence industrial base. That alone gives us some real control in the UK. At the same time, we must encourage and participate in joint projects with our European NATO allies. European contributions to NATO are not just limited by financial shortcomings but by wasteful duplication, and we must continue to press our NATO allies to boost spending and capabilities. If they—and we—did that, we might help expand the growth in our economies.
Secondly, we must continue to promote our values and principles on the world stage. We must defend NATO as the cornerstone of our national and collective defence and tell the people of this country, and indeed the wider world, how essential the alliance remains. Article 5, where an attack on one is an attack on all, is not a choice; it is a solemn obligation. Anybody who questions it questions the whole basis of collective security. Our communication policy on this whole issue is, frankly, pathetic.
Thirdly, we must be aware of and act on the dangers inherent in the present confrontation between Russia and the West. Without the tripwires and warning arrangements of the Cold War, we are in grave danger of making a mistake or a miscalculation with potentially catastrophic results.
Our much-reduced military is still among the very best in the world. Our diplomats have few peers internationally. Our intelligence services are relied on by most of the free world. It is now time for our Government to recognise the dangers to Britain and to live up to their high standards. Never in my lifetime was bold and courageous leadership more necessary and more urgent.
My Lords, before we hear from my noble friend Lord King, I remind the House that this is a time-limited date with Back-Bench speeches limited to four minutes. Timing is particularly tight, so I entreat Peers to wind up immediately when the clock displays four minutes.
My Lords, I think I can say to my noble friend Lord Younger that no Member of this House taking part in this debate is unaware of the restriction he has just put on it. They deeply regret it as well. It is very disappointing that the House has not had an opportunity for more time on this debate on such an important issue very commendably launched by the noble Lord, Lord Robertson. We say this House should draw on its wisdom and experience. I see in the Chamber at present four former Defence Secretaries and three former Chiefs of the Defence Staff, all of whom—expect for the noble Lord, Lord Robertson—will be limited to four minutes for their contributions. I have probably lost a minute already by this intervention.
I broadly support a lot of what the noble Lord, Lord Robertson, has said. The House of Commons Defence Committee in its report said:
“The world today is at its most dangerous and unstable since the end of the Cold War”.
I recognise that the Government face severely limited resources and an extremely difficult situation, inheriting what I think is a pretty unbalanced procurement programme. As a result, we have some impressive capabilities coming forward and, as long as nobody attacks us before 2025 or 2030, we will be in good shape to meet them. I do not want to be too cynical about this, but there is a real imbalance in the resources and the capabilities we have at present.
Julian Lewis, the chairman of the Defence Committee, said that the last time we faced a combination of a threatening Russia and a growing terrorist threat was in the 1980s. I notice the proportion of GDP we spent on defence was about 5% then. While we pat ourselves on the back and say we must stick to 2% and make sure we do not go below it, it is important to draw that illustration. I was much criticised when I conducted “Options for Change” for daring to reduce our Armed Forces to 350,000 men in uniform. As I look at the 144,000 that are now indicated as our present strength, you will understand that I have great concerns.
I also have great concerns about the present programme. The noble Lord, Lord Robertson, already mentioned the problems of the Brexit exit—the effect on the currency and what that might mean on the cost of £12 billion of overseas procurement. I also look, as all Defence Secretaries have, at “efficiency savings” and wonder how they are actually always going to be achieved.
President Putin’s reassertion of Russian interests in many parts of the world and what seems to be a pretty dangerous undercover media operation at the moment, which may be seeking to destabilise some of the Russian minorities in the Baltic countries, illustrate a major problem there. Some noble Lords may have heard a Polish Minister on the “Today” programme this morning welcoming the 10,000 American troops who have just moved into Poland. On their very border there are 100,000 Russian troops exercising in a fairly provocative manner at present.
I want to make a few final points. I hope sincerely that President Putin and his colleagues realise how easily accidents can happen with mobilisations and provocations and how easily conflict can start. We do not have to have the memories of the First World War and our memories of the Second World War where war started by accident involving the wrong people at the wrong time that was not meant to happen. I take that factor very seriously.
I have two further points. The noble Lord, Lord Robertson, mentioned what has added to the Russian reassertion of its interests: the problems of ISIS and the total destabilisation of the Middle East. Added to that now we have Brexit and the new President Trump. On Brexit, I hope that there is no question that the sensible co-operative arrangements that currently exist, such as on anti-piracy off the coast of Somalia, will continue. It is in our national interest and in the interests of our European friends and partners because they need some of our capabilities. I hope those undertakings and operations will go ahead, Brexit or not, without interruption and without too much legal argument about whether they should now be permitted.
The key point I want to make, which was well made by the noble Lord, Lord Robertson, is that the key to our defence is NATO. While we were concerned about certain comments from President-elect Trump, I am encouraged by the further remarks he has made in his conversations with our Prime Minister. I also hope that the appointment of General Mattis may reinforce support for NATO. That is the core of our defence and, if I have one thing to say today in the lavish time allotted to me by the noble Viscount, Lord Younger, it is that we must ensure that, through all these instabilities, the importance of NATO and support for it are fully maintained at the present dangerous time.
My Lords, Russia, a superpower in nuclear terms, is massively investing in military capability, yet with the financial clout of Italy. Its economy is on a war footing: something has to give. There are its actions in Crimea and Ukraine, and now threats to the Baltic states and cyberattacks in Estonia, France, Turkey, Ukraine and the USA. There is aggressive intrusion into NATO air space and near misses. Russian nuclear submarines are threatening our SSBNs. Why is Russia doing all this? Putin is a revisionist, believes in spheres of influence and understands hard power. His loose talk of the use of nuclear weapons is a particular concern. We must strain every sinew to understand him and keep open a dialogue.
There is instability in the Middle East. It is difficult to identify a country that is not in turmoil—Syria, Iraq, Yemen and Libya—and countries such as Jordan, Turkey, Lebanon and Egypt are under severe strain. The flexing of muscles by Iran and Turkey, as regional powers; the Sunni/Shia divide; Russia’s recent success as a key power broker—where will this all go?
The threat of terrorism, grown as a result of events in the Middle East, is not at present existential, but should terrorists ever get hold of improvised nuclear devices or a lethal virus, all that changes. Afghanistan is still at risk of collapse. Stability in nuclear-armed Pakistan is still a cause for concern. In Korea, will the US allow Kim Jong-un to develop a functioning ballistic nuclear-tipped missile able to strike the US? I doubt it very much. What then?
China is threatening freedom of navigation in the South China Sea, there is the Senkaku Islands stand-off with Japan and the re-emergence of the Taiwan issue. That is all made more worrying by the stalling of China’s economy. As the largest European investor in that region, with responsibility for global shipping, can we ignore it?
Then there is cyber. The growing reliance of our society and military on the internet entails lots of vulnerabilities that were not foreseen. The Russian takedown of a French television station, had it been a bomb, would have been an act of war, but nations do not know how to respond as there are no international agreements. All I would say is that some rather naive politicians in the Treasury think this means that we can save money on defence; it actually means that we will have to spend more.
In the face of these threats—and there are others—what have the Government done? They have shown staggering complacency and self-delusion, when it is quite clear to experts and lay men that defence needs more resources. When in coalition, they reduced our military capability by 30%, and our forces remain underfunded. There is minimal new money. It is in theory being produced by efficiencies. The HCDC has pointed out the creative accounting in the 2% of GDP spent on defence, the figure that the Government gave. Spending on pensions does not win wars, and the 2% of GDP is not the target but the very minimum that any NATO nation should spend. Our nation should spend more.
Having robust defence forces makes a war involving our nation less likely. If a small conflagration in a distant part of the world developed into a war that threatened our national survival, the best welfare provision, National Health Service, education and foreign aid programmes in the world would be as nothing. Preventing war, and defending our nation and people if it happens, are more important than any other government spending priorities. If Ministers get defence wrong, the nation will never forgive them. The costs in blood and treasure are enormous. The Government have a choice of whether we spend what is required to ensure the safety of our nation, dependencies and people or not. At present, I believe they are getting the choice wrong.
The US military and, to a lesser extent, ours, have together ensured that there has been no world war for more than 70 years. The US now expects us and others to step up; it is right that we do so. It is no use the Government pretending otherwise. There is not enough money in defence. In particular, notwithstanding the Defence Secretary calling this the year of the Navy, the Navy has too few ships to do what the nation expects. Our great nation has effectively only 11 escorts fully capable of operations, which is a national disgrace. Delays in ordering the Type 26 frigate have led to the ordering of extra, highly overpriced offshore patrol vessels to fill the Clyde yard with work, because there is an agreement that we will subsidise the yard whether ships are being made at all or not.
However, I congratulate the Government on their commitment to the deterrent successor programme, but I and many others believe that the capital cost of the programme should be met from the central contingency fund. Does the noble Earl agree?
The really good news in defence is the new aircraft carriers, welcomed and eagerly awaited by the US and our other allies. The Government must purchase enough Sea Lightnings to have the squadrons on board. I was very surprised to see articles in the papers recently about mothballing the second carrier and the date for the “Queen Elizabeth” slipping. I end by asking the noble Earl to confirm that the “Prince of Wales” will be completed and operated concurrently with the “Queen Elizabeth”, and that HMS “Queen Elizabeth”, will sail in March for sea trials and enter Portsmouth for the first time before the summer, as previously stated by the Defence Secretary?
My Lords, it is a privilege to follow such well-informed speeches as the three that have launched the debate. In particular, I congratulate the noble Lord, Lord Robertson, on introducing the debate. He spoke with great sincerity and sometimes considerable passion.
As I remember, Phileas Fogg had 80 days to go around the world; four minutes will not allow me any kind of tour d’horizon, so I will confine myself to a number of propositions that underpin my views on defence. Some have already been hinted at in the debate
First, Russian ambition will be emboldened by the military, political and diplomatic success it has enjoyed in Syria. Some months ago, the noble Earl who will respond to the debate expressed reservations when I described some behaviour and achievement on the part of Mr Putin as being game and first set. I hope he will excuse me if I say that it is not that any more: it is game, set and match in Syria.
The transatlantic alliance is essential for the security of Europe and for the United Kingdom, whether we are inside or out of the European Union. Every effort must be made to convey to the new Administration in the United States that it is not just Europe’s interest that is served by that relationship but that of the United States as well. I believe that the United States would be more likely to be persuaded in the way I suggested if every European member of NATO were urgently to achieve the minimum—as has been pointed out—target of 2% of GDP per annum on defence spending.
In the face of Russian ambition, Europeans can no longer get defence on the cheap. It is an interesting reflection that whereas the term “burden-sharing” used to be used when one went to Washington, the assessment of Europe’s contribution is now expressed in—shall we say—more trenchant and less suitable terms for this debate.
Proposals for a European army in the circumstances are not credible, because they would inevitably create duplication and divert necessary expenditure from the main thrust of NATO. If European members want to increase their contribution to NATO, they can best do so—again, this was hinted at by the noble Lord, Lord Robertson—by adopting the principles of force specialisation, interoperability and common procurement. Remember, it is not how much you spend, it is how you spend it. It is necessary that NATO—and Europe, given some of the remarks that have come out of the United States—is able to provide a full spectrum of capability.
Two developments ought to attract our attention most particularly. The first is the deployment by Russia of nuclear-capable missiles in Kaliningrad. The second is the report that Russian generals have now endorsed the use of battlefield nuclear weapons—eerie echoes, one might think of the Cold War. These developments, in my judgment, underline beyond question the conclusion that deterrence is best provided by both conventional and nuclear means, all as set out in NATO’s strategic concept.
My Lords, it is a pleasure to follow the independent-minded noble Lord, Lord Campbell of Pittenweem. The Royal Air Force that I had the privilege to lead in the mid-1980s was close to 100,000 personnel and more than 30 combat squadrons. Today’s Chief of the Air Staff has a force of less than a third of that in personnel, and a quarter in squadrons. Yes, airframes and perhaps even people are more capable than their predecessors, but with such small numbers, they lack a key fighting quality: resilience in combat against other than a very poorly equipped or incapable foe.
The Army and the Royal Navy have faced similar reductions in the past 30 years in their musclepower. What, then, should the Armed Forces be expected to do? Rule out unforeseen operations of the scale or intensity fielded in 1982 to recover the Falklands, or in 1991 to throw the Iraqis out of Kuwait? Indeed, enduring operations on the scale of those in Iraq and Afghanistan are no longer feasible without strong Allied involvement. Even the more limited scale of offensive operations now in hand, mainly by the RAF, is stretching the human side of this activity.
Brexit adds a new dimension for the Armed Forces. We must surely maintain the many excellent military-to-military contacts we enjoy with forces in Europe and North America. The increasing vision of trade with Commonwealth and overseas partners should be matched by greater contact with their military units.
A good start was the recent visit by RAF Typhoon aircraft to Malaysia, Japan and South Korea, and by the successful Red Arrows displays in the Middle East and China. These deployments demonstrated operational reach and logistic support over thousands of miles. They made many new contacts and were widely noted and appreciated.
What is the bottom line? We lack strength in numbers. We are not well placed to deal with an inevitable unforeseen, least of all against a capable foe. The more independently minded we become, the more capability we need in a dangerous world. Surely the two must go together.
The first choice in threat resolution has to be soft power, whether by diplomatic, economic or other non-military means. But success in such endeavour will surely be strengthened if it is backed by well-found hard power. We do it for the ultimately adverse scenario with the nuclear deterrent. We need more conventional hard power for the rest.
My Lords, I am grateful to my noble friend Lord Robertson for bringing forward this debate today and to my noble friend and colleague Lord West for his machine-gun delivery of detailed points crammed into four minutes. I would prefer to lob the odd artillery shell—I will reduce the number to four—in order to speak more slowly.
The first is the situation in which we find ourselves in the world. My noble friend Lord Robertson admirably outlined it: a revanchist Russia asserting itself politically and diplomatically as well as militarily; the Middle East partially undergoing radical transformation and partially in war and turmoil; in the Far East, China flexing its muscles; a complete sea change in the battlefield through international terrorism—asymmetric warfare has already occurred; and cyberwarfare and hybrid warfare, updated versions of PSYCH-OPS on a global scale, which are being deployed by Russia in particular but also by others. That is the situation.
I am not one of those who believe that we can respond to all of that merely by military means or by arms—of course not—but they are an essential component of any comprehensive response. Yet, as has been said, we are now below critical mass in numbers, power and range of capabilities. The Army is at its smallest since the Napoleonic era, and even targets for the number of trained personnel are not being met. I was surprised that the Government’s response was not to increase the numbers but to redefine what was meant by “trained”—which rather begs the question about the capability behind it.
In the Navy, our surface fleet has halved, even in the period since my noble friend Lord Robertson and I were at the Ministry of Defence. A very unfair comparison is sometimes made in the form of the old cliché that we have more admirals than we have ships. It is unfair because the service produced by our admirals goes well beyond the number of our surface fleets, but it illustrates where we are now. We have 19 in our surface fleet, possibly 11 at any given time in operational terms, and 35 admirals. Arithmetically, that is not quite double the number of ships, but then of course admirals do not have to be regularly refitted—at least most of them do not. So we effectively have half the number in our surface fleet as we have admirals. Similarly in the RAF, as the noble and gallant Lord, Lord Craig, pointed out, we have between five and seven operational squadrons, compared to 30 to 35 only 20 to 30 years ago.
Thirdly, at the bottom of this is finance. Let us leave aside whether the efficiency savings quite properly pointed out by the noble Lord, Lord King, can ever be achieved, and let us leave aside even the £700 million cost of the fall in the value of the pound. The truth is that our spending, including our contribution to NATO, has been subject to what I can only kindly call “creative accountancy”—cooking the books. We are now including in the 2% a substantial amount of wages and pensions. I recall that when a Belgian official was explaining to Andrew Neil, the well-known commentator, how 80% of their budget went on pensions, he said, “What you have to understand is that we really don’t have an Armed Forces; we have a very well-defended pension scheme”. I abhor the prospect of that thin end of the wedge being used. I am not suggesting that our expenditure on wages and pensions is anything like that of Belgium, but it is very worrying indeed—and the leadership after Brexit must come into question.
My final point is unashamedly political. It would be easy and very tempting for the Minister in response to point to the shambles of the Labour Party leadership on defence. But I know that he is too big a man to do that—I say that hopefully. I hope that he will be wise enough not to do it for this reason: one can accept that while accepting that almost everyone who will speak here from every side of this House has a long-standing commitment to sound defence and the defence of this country. So first, I ask the Minister with a political P to bear that in mind.
Secondly, I understand that there will always be the normal robust exchanges with the Treasury, but there have been occasions in our history—I was part of one of them with my noble friend Lord Robertson—when our whole defence team was so concerned about the situation that we said to the Treasury, “Thus far and no further—because otherwise you will have to do it without any of the Defence Ministers”. I congratulate the Minister on what he has done so far and hope that he will bear those last two points in mind when it comes to future discussions with his colleagues.
My Lords, I, too, welcome the discussion opened by the noble Lord, Lord Robertson. In my meagre four minutes, I will address merely one issue that has come to the fore recently: the notion of a European army—a European military capability, because of course it would have to have the other sorts of capabilities.
Brussels has made no secret of its wish to set up its own joint headquarters, which would oversee, and presumably in due course command, the shared military assets provided by member states. Details about the wider development of that force are few, but the argument is that it would enable the Union to be taken more seriously as an international force.
Rather more worryingly, it has also been suggested that our agreeing to support the setting up of such a capability could be the price we pay for access to the single market in our Brexit negotiations. Britain’s contribution to any European force is seen as essential for such a capability to be convincing. Apart from the French, we all know that the other EU member states simply do not have the resources or capabilities necessary. I know that the Government are currently opposed to the notion of a European army and I very much hope that they will continue so to be.
First, the development of the force is unclear, but the EU has a track record of getting increasing jurisdiction over its instruments and it is highly probable that, ultimately, Brussels would control the military assets of member states, rather than member states retaining the authority to decide whether they wish to involve themselves in a particular EU security initiative. As a nation, we must retain absolute control over all our Armed Forces. Such powers should never be ceded to anyone. That does not mean that we cannot take part—there have been some very successful examples, including EUFOR in the Balkans and security operations tackling people-smuggling gangs in the Mediterranean and piracy in Somalia. Those are entirely satisfactory.
Secondly, as has already been discussed, we are seeing the not unexpected re-emergence of Russia as a formidable military neighbour of the European Union. But if Europe were to rely solely on the contribution of European member states to defend their interests, it is unlikely they would be able to summon the resources necessary to deter President Putin, who makes no secret of his ambitions for greater influence in the Baltics and eastern Europe. Moreover, the very establishment of a so-called European army could well be perceived in Moscow as a threat to Russian security interests and a sign of a more aggressive European posture. This is the last thing that we need in the coming decade.
Thirdly, the establishment of a fully fledged joint operational headquarters would consume considerable resources. Senior officers would have to be contributed by member states, with all the necessary and expensive infrastructure to support them and their families. In 2008 the EU as a whole spent more than €200 billion on defence. By 2013 the sum had dwindled to €170 billion and all analysts reckon that it will soon shrink to about €150 billion. In the face of such declining resources, creating yet another major EU structure simply does not make sense. To imagine that European nations would be more prepared to increase their defence expenditure for a European military capability when they have shown a collective reluctance to meet the 2% target for their NATO capabilities seems wildly optimistic. But, of course, unless they did so there is no way that that the Union could be taken more seriously as an international force.
Fourthly, and most fundamentally, by establishing its own command structure, the EU would be setting itself in direct competition with NATO, with the duplication of a structure that works well already and has shown itself to be adaptable. Why on earth would we want to replicate it? We have a situation—others will no doubt talk about it well—in which we are suffering from inadequate military capabilities, inadequate financial resources, inefficient use of defence expenditure and limited defence industrial capabilities. Surely we do not want to compound the problem by going to Europe. I ask the Minister to ensure that we stick very firmly by our non-support for the European army and that any suggestion that it could be a bargaining tool in our Brexit negotiations is killed dead.
My Lords, realising the need for brevity, I must begin by thanking the noble Lord, Lord Robertson, for his admirable speech. I will make just one point. I endorse the initiative by NATO to move battalion-size battle groups into each of the three Baltic states and Poland. It is a sign that NATO has, to a limited extent, roused itself in posting around 1,000 personnel in those four countries. I certainly welcome today’s movement of United States troops into Poland, where they will take the lead, with Romania, in one of those four battle groups.
I am concerned that the deployment in the Baltic states will not come earlier than the spring. Is it not possible to hurry up that deployment, particularly of the United Kingdom-led force—with France and Denmark—in Estonia? This is urgent. There is a period ahead of us when the United States Administration, under the new President, will take—as the custom is—until the spring before the political appointments are made. Therefore, there will be a period of uncertainty.
We are all concerned—many noble Lords have spoken about this—at the continued aggressive attitude of Russia, which threatens the NATO powers. Following its outrageous behaviour in Georgia, the Crimea and Ukraine, it has relentlessly threatened the eastern border of NATO. It was, I think, the noble and gallant Lord, Lord Craig, who referred to the large number of Russian troops along the border, the continued illegal overflight and incursions and the build-up of military resources, particularly nuclear weapons, in the Russian enclave of Kaliningrad.
Mr Putin will no doubt use his usual posturing to claim that the NATO four-nation battle groups are threatening Russia. He is, as we know, a master of disinformation, but I cannot understand how he might argue that this purely defensive move—which it is—can be construed as threatening Russia. Certainly 1,000 troops in each of the Baltic countries and Poland could hardly be suggested to be an invasion force. What the four battle groups will be is a warning trigger that any incursions by the Russian military, or even their “little green men”, will clearly trigger the Article 5 arrangements and all the consequences of that. I believe that Mr Putin must realise that any repetition of his Ukraine adventures in the territories of NATO members will lead to an immediate, full-hearted response. Surely this admittedly small but very important disposition of troops will cause Mr Putin to hesitate. He would fail to do so at his peril.
My Lords, I am very conscious that I am speaking after a number of people who have much more knowledge of the defence of this country and of defence internationally than I have. I pay tribute to my noble friend Lord Robertson for what was an excellent start to this debate. The only area to which I wish to address my remarks at the moment is cyberwarfare. However, before I come on to that, in relation to the conventional defence industries, we are awaiting an industrial strategy from the Government. It is critical that we take into account, within that strategy, the very significant effect of the defence industries in the economy of this country. It is something people frequently forget, particularly when they criticise expenditure on defence.
I was very much aware of the reference by my noble friend Lord West of Spithead to the fact that cyber is not the cheap option for defence—indeed, an increased investment in cyberwarfare will probably mean an increase in the defence budget—but I echo my noble friend Lord Robertson in saying that we are in danger of sleepwalking to calamity. That is particularly true of cyberwarfare. Just a few feet along the corridor, in the House of Commons, during the Second World War, democracy was threatened when bombs were dropped on the Houses of Parliament. Indeed—let us be honest about it—the allied bombings in mainland Europe were aimed at critical infrastructure.
The critical infrastructure of this country is so vulnerable that within minutes this Parliament could be brought to an end and this country to a complete halt, because our world is now so interconnected, so networked—from our heating systems to our communications, hospitals and transport. A clever cyberbrain could bring all of them to an end immediately. It is critical to understand that, particularly in the light of the very powerful words of my noble friend Lord Robertson about the situation in Syria. We have seen what has happened to Aleppo: brought to its knees—decimated—by bombing, over a period of months and years. The same consequences could follow the use of cyberwarfare.
My fear is that we are not investing enough in our cyber capabilities. Our enemies undoubtedly are, and there is evidence of their interest in cyber. We need to raise our game. We need to address skill shortages in certain areas. Many commercial cyber businesses can throw huge amounts of money at attracting the most talented, skilled people in cyber. They are expensive. We must make sure that they are part of the defence of our nation.
We have talked today about the decline in the numbers of our Armed Forces. I am not suggesting that we replace the troops on the ground with cyber capability: they must be complementary. How much better could we do, however, in our defence capabilities in the south Atlantic, for example, if we had a more sophisticated cyber capability alongside the garrison? Would we need a garrison in the south Atlantic if we had a more advanced cyber capability?
This country has ethics and morals around the operation of our defensive, and offensive, capabilities. There are ethical issues around the use of cyber as a tool of war or defence. You can cause chaos in a city by cutting off the power supply to hospitals and air traffic control—to any aspects of modern life. We need to ensure that we have that ethical debate as well as the concrete debate about how we fund our cyber capabilities. I hope that in doing so we get ahead of the game. We have heard about the decline in numbers in our defence forces. We see the threat to NATO and from Brexit. This is another threat, but because it does not involve great vessels, aeroplanes or anything that we can touch, and because it is complicated, we tend to forget about it. We cannot afford to do so.
My Lords, I draw the attention of the House to my entries in the register of interests. I congratulate the noble Lord, Lord Robertson, on securing this debate and his excellent speech, and many other noble Lords on their speeches, including the noble Baroness, Lady Liddell of Coatdyke.
The threat to world peace has been vividly described, and we have far too little invested in defence. I was surprised to read in the Times of 6 January 2017 an article by Deborah Haynes with the headline, “Navy battling to save £500 million after bungled deal for ships”. I would describe the article as authoritative because it included much detail and quoted a former First Sea Lord. There was speculation that one option was to cut the size of the Royal Marines. The noble Earl, along with the Secretary of State, are political members of the Defence Board. Both of them know that recruiting and retention for the Royal Marines, despite the high standards required, is excellent. They know that the Royal Marines need core manpower strength to fulfil many of the specialist roles with which they are tasked. They also know the uniquely high proportion of badged members of UK Special Forces that is drawn from the Royal Marines and the uniquely high proportion of marines who pass the arduous selection process.
My noble friend Lord Slim, a great man, who knows more than most about these things, has often reminded the House that if you require Special Forces troops you need a sufficient pool of talent to recruit them from. The same is true of the other specialist troops drawn from the corps, not least the mountain and arctic warfare specialists. As the noble Baroness, Lady Liddell of Coatdyke would be interested to know, we also have our own cyberforce, drawn from highly intelligent members of our corps.
There is insufficient time to list the other vital tasks performed by the Royal Marines, other than the main one: manning the 3rd Commando Brigade. I very much hope that the noble Earl, and the Secretary of State, will not permit any cuts to the corps. It would be deeply destructive to punish success and destabilise the morale of one of the few fully manned formations of the highest quality in UK defence—and, for that matter, elsewhere.
I have little time left but I ask the noble Earl to confirm that if there are barracks closures—and that is likely—new state-of-the-art barracks will be built in suitable locations with all the necessary communications, computer, fitness and other important facilities, and with proximity to challenging training areas. Will there be wide consultation with the chain of command before any final decisions are taken?
Finally, I understand that the new aircraft carriers will be able to take a commando unit with all attached ranks, weapons and helicopters. I understand that they will have all the necessary command communications and control systems that are crucial for amphibious operations. Is there currently a plan to replace the landing craft capability of the assault ships—the landing platform docks? That role is currently provided by HMS “Bulwark” and HMS “Albion”. If we as a country desire expeditionary capability, we must have the specialist and best troops to do the job.
My Lords, like many other noble Lords, I congratulate the noble Lord, Lord Robertson, on his admirable introduction and thank him for tabling this important debate. Inevitably with such a predictably large number of speakers and the four-minute time limit, there is little that is new or unknown that anyone can add, but I hope that the aggregation of some common concerns will have impressed itself on government.
Quite apart from being an old soldier, I must declare an interest as a member of the Joint Committee on the National Security Strategy, and I would like to begin my contribution from that viewpoint.
Like many other members of the Joint Committee, I had hoped that government would have learned its lesson from the disastrous 2010 SDSR, which contained so many imponderables and loopholes. Naively perhaps, we hoped that hints that the 2015 SDSR would follow and be based on a national security strategy would result in just that, because in logic other requirements, such as the comprehensive spending review, could have been based on the national security strategy as well. But no, they were published simultaneously, and I submit that 23 June 2016 rendered both out of date.
Many factors have to be taken into account when planning the defence of the United Kingdom, on which the capabilities of our Armed Forces must be based—not least partnership arrangements with neighbouring countries. Until 23 June, these were with fellow members of the European Union, but now bilateral arrangements will have to be made with each. It is true that some are members of NATO, but its continued existence, in its current US-reliant form, must be in doubt after 20 January, as the noble Lord, Lord Robertson, and others have pointed out. It is also true that all are members of the OSCE, but since the early 1990s in former Yugoslavia this has not featured on the military horizon.
In thinking about the current inadequacies in each of our Armed Forces, which other noble Lords have spelled out in some detail, I could not help casting my mind back to the options for change exercise in 1991, to which my noble and gallant friend Lord Craig referred. As Adjutant-General, I was responsible for implementing the reduction in the size of the Army by a third over three years, from 156,000 to 104,000. Our key worries about implementing the requirement can be encapsulated in two words—uncertainty and sustainability. Uncertainty coloured our thinking about force structure, in the context of the lessons of the first Gulf War, which included the inadequate size of infantry battalions, not having been assimilated, and the emerging requirement to provide contingencies to peacekeeping operations and post-conflict reconstruction.
Sustainability coloured our thinking about the ratio between cuts to teeth or tail. Noble Lords will therefore appreciate that we wondered whether we were being required to make a jump too far, in isolation of consideration of the current international situation. To jump to today, plans to cut the Army yet further, to 82,000, were made before 23 June, and I submit that that needs to be rethought in the light of the changed international situation.
Of course resources are the key, and we all know that there is unlikely to be any more money. I have mentioned before in this House that Field-Marshal Carver, whose military assistant I was once privileged to be, had two definitions of the word “affordability”—can you afford it, and can you afford to give up what you have to give up in order to afford it? One of my main reasons for calling for a review of both the national security strategy and SDSR 2015 is to enable an affordability test to be carried out on the capabilities of the United Kingdom Armed Forces planned before 23 June 2016 to determine whether they are appropriate in current and future international situations.
My Lords, I draw the attention of your Lordships’ House to the interests I have declared in the register. I act as an adviser and consultant to Lockheed Martin here in the United Kingdom. I start by associating myself with the words of my noble friends Lord Robertson, Lord West and Lord Reid, and those of the noble Lord, Lord Campbell, and the noble and gallant Lord, Lord Craig, all of whom I agree very strongly with.
I believe that the 2015 Strategic Defence and Security Review is a more coherent and impressive strategy and framework than the 2010 document, which, as we all know, was largely designed to make painful and difficult cuts in the capability, capacity and strength of the UK Armed Forces. The most important element in the 2015 strategy is the Government’s very welcome and positive commitment to ensuring that the United Kingdom and our Armed Forces are able to contribute large-scale expeditionary and amphibious war-fighting capabilities against a technologically equivalent power. That is a very important commitment and aspiration. But, as we all know, herein lies the rub: even though that capacity and capability are vital for Britain’s long-term strategic goals, after several years of cuts to our defence forces we are trying to deploy and maintain that capability with pitifully few platforms and too few trained and deployable personnel.
If one looks at the strategy that the Government have set out—consciously and deliberately limiting salary increases to our Armed Forces—at a stroke, it made the work of the pay review body superfluous. They are restricting the important elements that will attract and recruit the people we want at a time when wage growth is significant and employment is high, so there is a very serious problem here. We have too few platforms and too few people who are readily deployable and trained.
In the time I have, I will make two or three points. Some have been made by noble Lords but it is worth dwelling on them. The noble and gallant Lord, Lord Craig, was the first to mention the importance of attrition. As far as I can see, no allowance at all is made in the strategy for any attrition of our key weapons and platforms. In times of peace that may be fantastic, but at times of war it is not such a clever strategy—particularly if, heaven forbid, we found ourselves pitted against a technologically equivalent power; that is not an impossibility.
Of the three armed services, my real concern today is the Royal Navy. The Royal Navy is under the greatest pressure of all the three services and has been cut disastrously to below a sustainable level, both in platforms and in people. I do not dispute for a second that the Type 45 destroyers and the Type 26 frigates will be much more capable platforms, delivering much more kinetic power. But there is one problem: they can only be in one place at a time, and we simply do not have enough platforms, particularly if we have to prepare for the possibility of the carrier battle groups. The Queen Elizabeth class ships would have to be defended entirely by Royal Navy assets. I think we are going to struggle to do that, and it is critical that the Government address that point.
The RAF is already operating flat out on its existing missions. The air police work in the Baltics, in Syria and in Iraq, and provide quick-reaction aircraft in the Falklands. Those are all fairly modest operations, and I do not see any spare capacity there at all. Although I strongly welcome General Carter’s new focus on deploying the Army at divisional strength with new strike brigades, no provision at all seems to be made in SDSR 2015 regarding where the air defence role is going to come from. Our Rapier forces are fully committed to defending the Falklands. Pulling them out of there would send a very unfortunate signal.
There is more work to be done. I do not think the strategy is complete. Of course, Ministers will have to make a very difficult set of decisions about resources. But the bottom line is simply this: these are the most dangerous times since the end of the Cold War. We are taking more risks with the defence of the United Kingdom than we reasonably ought to be taking.
My Lords, I am grateful to the noble Lord, Lord Robertson, for introducing so ably this important debate today. I speak with some trepidation as, like the noble Baroness, Lady Liddell, I do not have the level of experience in defence of many others who are taking part in this debate.
I begin by paying tribute to the many outstandingly brave men and women who serve in our Armed Forces. Through visits with the Armed Forces Parliamentary Scheme, I have had the privilege of seeing the extraordinary level of service they provide for our country.
It is important to acknowledge the commitment that this Government have made to spend 2% of GDP annually on defence—one of only five NATO countries to do so last year. The significant new investment in defence equipment is also to be welcomed, as is the pledge not to reduce the overall size of the regular Armed Forces. However, I also understand that there is some concern over what exactly should be included in defence spending and whether there are enough resources for the spending commitments that have been made, and I worry whether any shortfall will lead to further cuts.
We live in a dangerous and unstable world today with conflict in many countries, as we have already heard from other noble Lords. A consequence of this turmoil has been the refugee crisis; the UN estimates that there are approximately 65 million refugees across the world today, more than at any time since World War II, with thousands trying to come to Europe. It is hard to know exactly how wars will be fought in the years to come. As we have already heard, Russia again seems to be a threatening presence, and several hundred of our troops will join the NATO exercise in Estonia—our largest long-term deployment to a Russian neighbour since the end of the Cold War—to ensure our preparedness for a conventional war. Meanwhile, terrorism and cyberwarfare are two of the biggest threats we now face.
The year 2015 saw the formation of the 77th Brigade, as the MOD realised that,
“the actions of others in a modern battlefield can be affected in ways that are not necessarily violent”.
When one looks at how effectively Daesh has utilised social media, the importance of this specialist work cannot be overestimated. Our forces need to have all the tools to counter complex threats. Perhaps now more than ever, our Armed Forces must ensure a good understanding of other cultures. They are already deployed in more than 40 countries across the world in a range of roles, including building relationships and detecting early vibrations in order to help prevent conflict. Afghanistan, Iraq and Libya have taught us lessons about the dangers of failing to understand how our interventions will impact on a country.
It is the people in the Armed Forces who are so important. Thus it is imperative that we recruit and retain the right people. That can be challenging. The previous cuts to the Armed Forces created insecurity, and in today’s competitive world, industry can pay much higher salaries for those with technology skills and the engineers that we so crucially need. Are we able to recruit the people we need? Should more be done to attract reservists and support their employers? Most importantly, we need to keep the best. We must ensure that we look after those who serve, and their families, well. We rightly have a duty of care towards them.
I and other noble Lords debated the Armed Forces covenant in your Lordships’ House earlier this week. Perhaps we should do more to recognise the strain that military life places on families. It is with the support of their families that our military are able to do their jobs, and we in turn need to do all we can to support them and make their lives easier. Tomorrow’s future warfare is hard to predict in such a fast-changing and interconnected world. We must ensure that defences are in place to protect the UK, through adequate resources, a flexible approach to warfare and personal support for those who serve and their families.
My Lords, I join with others in thanking my noble friend Lord Robertson for this debate today and for introducing such wide-ranging coverage of the issues that we face. I was not at all surprised that he included personnel in that. As the very new chairman of the Armed Forces’ Pay Review Body, I was called in by the first Defence Secretary of the new Labour Government to be told that the staging of the pay award by the Tory Government that had caused so much demoralisation in the Armed Forces for several years was going to stop. Whatever the review body recommended, our Armed Forces would get—and the Labour Government honoured that agreement right the way through.
On the personnel that we have and the capability of our Armed Forces, we can have the best policies in the world, get a real 2% defence budget, make the changes and invest, but unless we have the continuation of professional Armed Forces personnel, backed and supported by their families, we will not succeed. Part of the worldwide reputation our Armed Forces have for their professionalism, talent and whatever they bring wherever they go is because we have this concordat.
The Armed Forces have their covenant, which is welcome and has been improved over the past few years, and they have the Armed Forces’ Pay Review Body, which is independent. There is a report due out shortly but I looked at its report from last year and it makes worrying reading. I looked at the previous three as well and they make incrementally worrying reading.
What do Armed Forces personnel and their families see? They—and I—see a Prime Minister who has been in office for nearly a year and has not made one major speech on international security or defence. How are they supposed to feel about that when so much of our security as a nation depends on them and their ability? Many of them see the 2% as smoke and mirrors. They do not understand why pensions should be included in defence spending. An accountant may be able to argue that but you will never convince our people, or many of us in the Chamber today, that that is spending on defence equipment and personnel. They saw last year the announcement by the Government that from 2016, for four years, the maximum pay award they will get year on year will be 1%. Our Armed Forces people are not slow off the mark; they know what is going on and in evidence to the review body they asked why that should be imposed on them when the very people who are imposing it—MPs—are getting more than 1%. Yet we expect our Armed Forces to continue to give the commitment that they have given.
The review body is independent. It has been respected by Governments across the piece. Yet in 2010, and again last year, the Treasury quite arbitrarily, without reference to the review body, cut the commitment bonuses—the commitment to go and do the job. It is in the report. It makes worrying reading indeed. Just 14% of our Armed Forces think that morale is high. If that were a company, it would be looking at itself and at what it could do to improve it. Just 36% were satisfied with their lifestyle and remuneration package. Just under half of them were dissatisfied with the impact on their partner’s career. Many partners have to put their career in abeyance when their Armed Forces partner is serving.
Paragraph 2.14 of the report was one of the most worrying aspects. The review body said:
“One of the most powerful messages … was that personnel were losing trust in their employer”—
the MoD, the Government. So I ask the Minister: do the Government intend to maintain the 1% for the next four years? If they do, do they not agree that that will affect recruitment and retention? Will the impact that the drop in the value of the pound—£1.50 the night of Brexit; £1.20 last night—will have on the MoD budget have to be met out of the MoD budget?
My Lords, as I am in charge of time management, I make a further strong entreaty that remaining speeches must conclude as the clock reaches four minutes.
My Lords, we all know that this issue has huge significance for the UK as we approach a new US Administration. As a layman, I am as concerned as anyone that NATO itself may be reconfigured under a new US President. The litmus test may well be in countries such as Ukraine. Even outside the EU, I believe we should remain true to the doctrine of EU enlargement and maintain the closest possible links with eastern Europe, Georgia and the Baltic states.
The prevention of war, our security and even the containment of migration are just as important for our Armed Forces as the ability to engage directly in conflict. I would like to make the case for the UK’s increasing involvement in peacekeeping, specifically in the UN and EU missions in conflict states. The 2015 SDSR vision describes a United Kingdom with “global reach and influence”, and it is right that we see the wider context of our defence policy. The strongest argument for increasing the UK’s role in UN and EU peacekeeping is the need to strengthen the international protection of civilians in civil war. A pressing example of this is in South Sudan, where we have committed up to 370 personnel to UNMISS. Training in the protection of civilians and in combatting sexual violence is now the priority following massacres and rapes that have prompted investigations and have caused aid agencies such as Christian Aid and Oxfam considerable concern.
Peacekeeping activity has one material advantage over the deployment of conventional forces. In certain areas such as the CSSF, the new version of the joint Conflict Pool, it can draw on the international aid budget. That indeed is one justification for keeping that budget above 0.7% of GNI.
Our security already depends on global co-operation, but is security taking over from conflict prevention? There are signs that Downing Street is taking a greater interest in the uses of the CSSF for reasons of security. I mentioned the containment of migration. The EU’s Khartoum process in north Africa is one diplomatic response to migration currently favoured by the FCO. This programme cultivates closer relations with Sudan and even tighter border controls along some of the continent’s longest frontiers. I am not sure that the programme will work, for all sorts of reasons—although the UK is currently chairing the process.
What about the EU CSDP missions in the Mediterranean, the sub-Sahara and the Horn of Africa? In the past 10 years, we have taken part in 11 EU missions, including Operation Sophia and Operation Atalanta, which were notable achievements. These are programmes to which we subscribed troops, personnel and resources successfully. Will the Minister confirm that our participation will continue, at least on a voluntary basis?
The commitment to South Sudan doubles the number of personnel assigned to UN-mandated operations, but this must be seen in context. The numbers are well below the thousands committed under John Major’s premiership in the 1990s. After the experience of Iraq and Afghanistan, our Armed Forces, as the noble Baroness, Lady Hodgson, said, are already developing a more subtle approach to defence policy through the use of smaller, irregular, specialised detachments that might be used in peacekeeping.
Finally, I hope that we shall stand by our friends in the Balkans, whatever our relations with the EU. Will the Minister confirm that our commitments to the programmes in Kosovo and Ukraine and to the monitoring mission in Georgia will continue? In defence, as in trade, we should not neglect our current partnerships in the search for new horizons.
My Lords, agree with it or not, Brexit was a decision to determine our own path. This debate requires us to consider critically whether we have the capacity to determine our own strategic path in the realm of defence and security. The extent of our global reach must reflect our economic and strategic interests as well as our security and military concerns in these changing times, which now make these considerations, as one analyst has put it, “supercharged”.
My anxiety is that there is a gap, if not sometimes a gulf, between rhetoric about our concerns and ambitions on the one hand and our constrained capability on the other. For example, not long ago the Foreign Secretary declared that we are “back east of Suez”. It is true that the Gulf and Asia are regions of growing global importance, and this country has new defence centres in Dubai and Singapore. We have some Army presence in Oman and joint training with Singapore after 70 years of this co-operation with only the US. A naval support facility has opened in Bahrain and the new aircraft carriers will have what is called “a presence” in the Pacific.
We may welcome and applaud the strategic intent but our capacity to sustain and resource effective presence and capacity remains limited. Our only garrison in Asia, in Brunei, is funded by the Sultan. We have small quantities of advanced, expensive equipment, of which the new carriers are the most obvious example, but sparse support capacity. In a navy of 19 surface vessels, an effective carrier group needs most of the deployable capacity. My spellchecker has substituted “deplorable capacity” for my intended words “deployable capacity”. The iPad technology seems to know a thing or two. We are talking not only about defence and security capacity. Intelligence, influence, diplomacy and trade considerations are part of our strategic reach and so affected by financial limitations.
This is surely the time to recognise the opportunities open to us, as well as the threats, and with realism to reconsider our ability to resource needs and ambitions. I, with others, including my colleague the right reverend Prelate the Bishop of Leeds, who regrets the necessity for his late withdrawal from the debate, have already suggested a new SDSR that addresses a global situation so changed in a short time. Peace in Europe and US commitment to NATO are no longer reliable bases for our policy. We must surely conclude that, as we see a more assertive Russia to the east and a new American President questioning the orthodoxy we have long accepted.
I am not proposing a crude attempt at empire restoration, but rather a recognition of opportunity and the need for us to resource new partnership and leadership roles. I need hardly add, too, that increased defence spending would move us beyond the mere preservation of an industrial base by stimulating innovation, employment, morale and prosperity in regions that have suffered most from deindustrialisation. Our words, aspirations and actions must be much more consistent.
My Lords, I am grateful to the noble Lord, Lord Robertson, for introducing his debate. I remind the House that I might still technically have an interest.
I return to just one issue that I raised at our last defence debate about the need for a large-scale overseas deployment exercise. That is where a division with at least two brigades is moved along a land line of communication of at least 500 kilometres and then the two brigades are manoeuvred around the area of operations. In other words, how do we know that our aspiration to be able to deploy at divisional level against a peer opponent is realistic? Computer-simulated or assisted exercises are no substitute. The British Army’s deployment on Exercise Saif Sareea in 2001 significantly improved the outcome of Operation Telic 1. Vital lessons were learned about equipment capability and hygiene in desert conditions.
We still have a fabulous officer corps and we should be proud of them. However, while they may be experienced in very difficult and complex operations, they are not experienced in large-scale deployments, moving brigades around the area of operations. That is a serious weakness.
Unlike many Armed Forces, we maintain a comprehensive capability and can deal with most threats. Most importantly, our capabilities are balanced—a strength that many overlook or are unaware of. But, to be a bit Rumsfeldian, there are known weaknesses, of which the staff are aware and are taking a known, calculated risk. The maritime patrol aircraft would be a good example. The risk has now become so unacceptable that something has been done about it. But there are also unknown, or at least unacknowledged, weaknesses. I hope your Lordships will forgive me if I forget about the sexy G3 stuff and produce a boring and, I hope, fictitious G4 example. I do not know whether my illustrative example is real, but neither does the Minister.
Take, for instance, a rough-terrain container handling truck. This equipment is absolutely mission-critical to the logistic operation. It is very low population, especially in theatre, it is expensive and it requires specialist equipment to move it around because it is rather large and awkward, but it is not immune to breakdown or operational attrition. How can we be sure that we have enough of this equipment and other types of specialist equipment, especially if we have not tested its capability in realistic conditions on exercise? It may well be that an SO1 somewhere is well aware that we have too few, but perhaps, given that there are two spare ones in the depot, no one really listens to the problem. It is unfortunate to experience serious logistic problems on a deployment exercise, but an absolute disaster on an operation. How can we be sure that our logistics work if we do not test them realistically?
Yes, such exercises cost money, but not very much compared to the positive effect and benefits. If we do not demonstrate the capability to deploy at large or even medium scale, we still have the cost of having that capability but without our opponents being deterred by our conventional capability or our friends feeling that they need our capability. We do not necessarily need to deploy in strength in, say, the Baltic states if we can demonstrate that we are able to deploy a potent capability. Therefore I hope my noble friend will tell me that I am ill informed if I believe that the forthcoming Exercise Saif Sareea in the Middle East is to be a pathetic battle group rather than a proper medium-scale deployment.
My Lords, when the military capacity of a nation or an alliance of nations becomes demonstrably inadequate, then it serves not as a means of defence but as an encouragement to the ambitions of its potential adversaries. Britain’s military capacity is utterly inadequate to meet the threats that are posed to us and our European allies by an expansionist Russia. We have allowed our Armed Forces to decline because for many years following the demise of the Soviet Union we failed to perceive any major threats to our security and that of our allies.
Nowadays, Vladimir Putin’s expansionist policies are posing a threat to the Baltic states of Estonia, Latvia and Lithuania. Such expansionist policies were pursued by Russia at the end of the Napoleonic era, when it annexed what are now Ukraine, Finland, Belarus, Poland and Lithuania. However, on Russia’s withdrawal from participation in the First World War, the Bolsheviks, who were eager for peace, signed away these possessions to Germany and its allies in the Treaty of Brest-Litovsk. A main agenda of post-revolutionary Soviet Russia was to regain these lost territories. By the end of the Second World War, it had achieved most of this and made further acquisitions in eastern Europe. Most of these gains were ceded at the end of the Soviet era.
I am recounting this history because it explains the desires and intentions of Putin’s regime, which aims at regaining lost territories and re-establishing Russian imperial hegemony. A factor that affects the Baltic states is the presence of large numbers of ethnic Russians. There is preponderance of ethnic Russians in the northern part of Estonia, close to the Russian border. Notwithstanding their allegiance to Estonia, these people could provide a ready pretext for a Russian annexation.
Wedged between Poland and Lithuania is the Russian enclave of Kaliningrad, previously known as Königsberg and once part of East Prussia, which nowadays has an exclusively Russian population. The Baltic Germans of East Prussia, who were the pre-war population, were expelled en masse at the end of the war. Kaliningrad is now a heavily fortified Russian base containing nuclear-capable Russian missiles and probably much else besides of which we should be fearful.
NATO is committed to defending the sovereignty of the Baltic states. Britain has contributed 500 combat troops to the region, to which it has also consigned four Typhoon jets for periods of four months in the year. At any one time, only two of these jets are operational. This provision, together with the lesser contributions of our NATO allies, does not constitute a realistic deterrent.
If the US were to disengage from NATO, as Donald Trump proposes that it should, then Britain would be expected to become a natural leader of the alliance. We are ill-equipped for such a role. The leader of the Labour party has proposed that, rather than sending troops to defend the borders of the Baltic States, we should aim at mutual demilitarisation. There could be no greater encouragement to Russia to pursue its territorial ambitions.
My Lords, not one member of the UK Armed Forces was killed in operations in 2016, thankfully. It was the first time since 1968 that no one had died, although sadly there were deaths on exercises. And yet, as the noble Lord, Lord Robertson, said with crystal clarity in his brilliant opening speech—and I thank him for leading this debate—the challenges that we face globally are, in his words, a “bonfire of certainties”.
The head of the Defence Select Committee, Julian Lewis, said that the last time this country faced a threatening Russia as well as a major terrorist campaign, the UK invested between 4.3% and 5.1% of GDP in defence. A measure of just how low our expectations have fallen is that here we are celebrating the minimum of 2%, and there are debates about how this 2% is measured. He suggests that 3% would be a much better level of spending. Does the Minister agree?
General Sir Richard Barrons, retired head of the UK’s Joint Forces Command, said that we are “dangerously squeezed” in manpower. Can the Minister confirm that there is a shortfall of 22% in our Maritime Reserves and 12% in the Army Reserves? As far as the Defence Medical Services are concerned, we no longer have military hospitals and what exists now is within the Queen Elizabeth Hospital Birmingham—attached to the University of Birmingham medical school, where I am proud to be chancellor of the university. There is a shortage of medical doctors being recruited, retained and motivated. Such undermanning has led to a reliance on Reserve Forces, which are also underrecruited. Can the Minister confirm this? This negatively impacts our capability.
Sir Richard Barrons also said in 2016 that the UK and its NATO allies had,
“no effective plan for defending Europe from a Russian attack because of splits in the alliance”.
He said that, while Russia could,
“deploy tens of thousands of troops into NATO territory within 48 hours, backed by warplanes and ships”,
NATO would take “months” to do that.
Professor Malcolm Chalmers of RUSI has said that the overall capability in defence and diplomacy has been severely restricted after Brexit. As we have heard before, RUSI also said that the position we have held as number 2 in NATO for more than 60 years could be transferred to another EU member to retain links to the EU. Can the Minister give his view on that?
The noble and gallant Lord, Lord Walker, spoke about the EU army. We have had the best of both worlds being part of the European Union. We are not in Schengen, we are not in the euro, and we are not into any further integration. There is no way we would have been into an EU army; it would have been a bridge far too far. And yet, we have to acknowledge that the peace for the last 70 years has not been because of NATO alone; it has been because of the existence of the European Union and NATO.
We are the fifth largest economy in the world—we were the fifth largest economy in the world, but because of the uncertainty the world sees before we leave the EU and the devaluation of the pound, we are no longer fifth. India has overtaken the UK as the fifth largest economy in the world and will soon overtake the UK as the fifth largest defence spender as well.
Can the Minister say whether we are doing enough in furthering defence collaboration with universities, particularly with regard to innovation and research? At Birmingham we have a defence club. The noble Lord, Lord West, has spoken there and the CGS General Sir Nick Carter will be speaking there next week. Collaboration would help with our strategic thinking and with our defence manufacturing base. Manufacturing is still 10% of our GDP; we must not lose that. The 2010 SDSR was negligent—thankfully, the 2015 one was much better—as 2010 was all about means before ends.
I conclude on the covenant. We have had a debate on the covenant. The covenant is wonderful; it is the promise that we make as a people to our Armed Forces for the service and sacrifice that they make. But are we doing enough to publicise the covenant within the Army family, within the troops, within the families, within the veterans and, most importantly, with the public so that we never take the Armed Forced for granted?
Finally, we are a strong soft power. We have oodles of soft power, but that soft power is no good without the hard power. The combination of those two makes Britain not a superpower, but definitely a global power, and we must never lose that.
My Lords, I thank my noble friend Lord Robertson for his excellent introduction to this debate. I also take another opportunity to thank him for his particularly distinguished and longstanding service to this country and the international community in the roles he has fulfilled. If we are paying tributes, it is also right to take the opportunity of this debate to put on record, without qualification, our appreciation and gratitude to all our service men and women and their families.
I have never been persuaded that percentages are a good estimate of what is necessary and how things ought to be done. It seems to me that we have to analyse very toughly what the real threats and dangers are in the uncertain future ahead, and then ask ourselves what we must do for ourselves in that situation and for the collective effort—the UN, NATO and the rest. That analysis is the starting point. What are the real threats, dangers and issues we face and what is necessary to meet them? We then have to face up to the issue of cost. Of course, a stable, secure and inclusive society in Britain is very much part of our longstanding defence.
I suppose I have to declare an interest in that, way back in the 1970s, I was Minister for the Navy, and I take a particular interest in it. I am totally persuaded that in the uncertain future ahead, the ability to deploy widely across the world with independent operating platforms is essential. Such platforms need the equipment and personnel to operate from them. What is perhaps a challenge is that the immense costs of our two carriers as currently planned could end up as a trap, because we could become so inflexible that we are not able to respond quickly and adequately to the real issues that confront us. Hence, the saga with the Type 45 destroyers is absolutely deplorable, because of course they are essential to the defence effort.
I will just say this as well. We have been talking about the essential availability of personnel and equipment, and it is irresponsible and wicked to send our service men and women into action unless we are confident about the ability to provide the necessary quantity of personnel and equipment. We also have a special duty of care and responsibility to look to the young people we recruit. We know that a disproportionate number of the young people going into the armed services are going into the infantry and that the attrition level in the infantry is higher than in any other part of the services. We must take that point very seriously indeed. We have spent hours in this House debating the care of children and our responsibility to them, and these people are very often little more than children. We have a duty of care and a responsibility to them, just as great as to anyone in society as a whole.
My Lords, first, I thank the noble Lord, Lord Robertson, for his brilliant speech. A key factor that he commented on is that percentages are meaningless. I am fed up hearing about this famous 2%—it is the capabilities that really matter. We had such a debate on 8 December. I re-read the whole of the debate, which I had the honour to lead. Much of it has been reiterated today. The noble Lord, Lord King, brought up an issue that we spoke about before, and I checked it out. Given that the key factor of government following the Prime Minister’s kissing the Queen’s hand is defence of the realm, it is absolutely ludicrous that we have only had two hours of debate on this issue. I checked with the Library and there has not been an open debate in government time on this subject, with no time limit, in anybody’s living memory. That is ridiculous and I ask the Minister for that to be considered. Leaving myself to one side, we have here so much experience and knowledge, and in these dangerous times it is ludicrous that we do not have such a debate.
This is a wealthy country. On the idea that somehow we have not got the moneys and we ought to cut back, it depends how we want to allocate it, which has been talked about. In practice, of course, it could be allocated. The Treasury does not have the last word about what does or does not happen, any more than a finance director does in a company. Following noble Lords’ comments earlier, if we get it wrong, the public will never forgive us. I would put it more strongly than that. If we get it wrong and the leadership gets it wrong, that would be criminal, to use a strong word—the idea that we cannot possibly have that sort of support. Having said that, with courageous leadership—and it is up to No. 10 and others to take note of what we have talked about today—it can certainly be done. We have said before that we need more moneys. Unquestionably, the real figures are such that to meet even the present programme we need at least another £2 billion a year. Could it be found? Of course it could, if, as I said before, it was said to the chiefs, “I want us to go on to a war footing tomorrow morning”. Of course, they would do a marvellous job, as I have said before, but we would be putting them in a pretty difficult position.
I ask the Minister whether we can have a major debate in due course. I will not go on; I have said it all before and many noble Lords have said it today. There should be a major debate on these subjects, in the interests of the realm.
My Lords, I congratulate and pay tribute to my noble friend, Lord Robertson, on a masterly introduction to and analysis of the current situation. It was a fitting beginning to a very interesting debate. The noble Lord, Lord Sterling, and I were both founding members of the Joint Committee on the National Security Strategy. A few months ago that Committee reported and said that the Armed Forces,
“will not be able to fulfil the wide-ranging tasks described in the NSS & SDSR 2015 … with the capabilities, manpower and funding”,
allocated. Doubtless, in half an hour’s time, the Minister will tell this House that the Government spend so much money that we are the fifth largest defence spender on the planet and that we are one of only five NATO members that spend at least 2% of GDP on defence. Both of course are true; but a number of Members of this House, over the last hour, have indicated that the 2% figure is not really what it seems. As we know, it includes £820 million on war pensions, £400 million on our United Nations peacekeeping missions and £200 million for pensions for retired Ministry of Defence civilian staff. For the very first time, it includes spending on the single intelligence account and on one-off items that cannot be counted towards the 2% in years to come.
On top of that, it should be seen in the context of so-called efficiency savings, which the noble Lords, Lord King and Lord Reid, both referred to earlier, which are the most nebulous things in government accounting. It is not surprising to me that the Defence Committee of the House of Commons said that this was “shifting the goalposts”, my honourable friend Nia Griffith, the shadow Secretary of State for Defence, called it a “sleight of hand” and my noble friend Lord Reid today has called it “creative accountancy”. It is fiddling the figures a little, I suppose, and I would be interested in the Minister’s response on those points.
The 2% figure should not be a target: it should be a minimum. That is the importance of it. In The House magazine back in the autumn, this was written: “It was a Labour Government who committed to the 2%, and a Labour Government who were a founding member of NATO—every time Labour have been in government, they have taken a responsible view of defence”. Those words were written by the current Conservative Secretary of State for Defence. He was of course right and, despite the rather daft musings of people in my leader’s office, I am sure that my noble friend Lord Touhig will also confirm that this responsible view of defence is the view of the Labour Party.
My Lords, speaking as I do towards the end of a long list of wise and knowledgeable contributors to this debate, I run the risk of having little new to add and merely repeating what has already been said with such eloquence by others. But there is one important point that bears additional emphasis because it is all too often forgotten—or, if remembered, it is usually paid only lip service. Throughout the history of warfare, surprise has been one of the most critical factors in achieving success. This may seem a statement of the obvious, but we should bear in mind that our opponents and potential enemies also recognise the importance of this dictum and, not unnaturally, they will usually seek to surprise us. They will also, if they are sensible, try to attack us where we are weakest. We should therefore not expect to be able to predict the location, timing or nature of any future conflict.
Most past wars have surprised us to some degree, and we have found ourselves inadequately prepared for the demands that they make on us. This is not, or at least not entirely, because of a lack of planning or foresight. The future is to a degree not only unknown but unknowable, and no amount of horizon scanning or scenario planning can make up for that. I am not suggesting that such activities are unnecessary; there are after all many facets of future conflict that can and should be subjected to careful analysis and for which we should prepare. One such example is the increasing importance of the cyber domain, to which several speakers have already referred, and on which I will merely say I entirely agree with them.
However, we run the risk of persuading ourselves that because we have new challenges we can forget about old ones. Just because the cyber domain is such a promising field for our enemies does not mean that we will never again face a violent attack in the physical world. It does not mean that our use of airspace above the battlefield will never again be contested or that antisubmarine warfare is a thing of the past. None of these, or similar, propositions is safe. We must prepare for the future as best we can, but we must also prepare to be surprised.
There is, however, an answer to this conundrum. The most important capabilities that we will need in our Armed Forces in the years ahead are the ones that have served us so well in the past: agility and adaptability. In this context, agility is our ability to use existing systems in new and innovative ways, and adaptability refers to the process of altering those systems quickly in order to meet the unexpected and unforeseen.
The design and production lead times for weapon platforms are long, and we have to do our best to match them with future needs. At the same time, we must recognise that something will come along that will surprise us, and make allowances for this. We therefore need a broad spectrum of capabilities that can be adapted rapidly to meet new challenges as they arise and as they are recognised, and the agility of mind, of doctrine and of training to employ our capabilities as the situation demands, not just as we have done in the past.
Finally, and as has been said frequently during this debate, all of this requires investment—in equipment, in research and development, in industries on which we rely for our adaptability, and in our people. We are currently doing a little better in this regard, but still not well enough; there are danger signs on the horizon. The noble Earl the Minister will no doubt point rightly to the quality of our forces. Quality is indeed more important than quantity, provided that we have lots of it. In this uncertain and dangerous world there can be no greater priority for the Government than matching our defence investment to the high level of risk that we face.
My Lords, I, too, thank the noble Lord, Lord Robertson, for the opportunity to engage in this discussion about the future. I also acknowledge the work that our Armed Forces carry out on our behalf, away from home and here in the UK, day in and day out, with little or no complaint or question. We also need to thank their families who are their rock and their support. As a team, they are the best.
The picture is not particularly rosy. The current international situation is becoming less stable and predictable. The post-Cold War global order may be at risk. Institutions such as NATO and the EU are weaker and global threats to the UK are increasing. Russia has re-emerged as a conventional and strategic antagonist. Right now all eyes are on the US, but the President-elect needs to be our ally and we should be his.
Unconventional terrorist threats continue, requiring international co-operation. In addition, climate change and mass migration are growing issues, which may effectively be tackled only multilaterally. Within this context, our Armed Forces do not currently have the capability to address the range of threats. Spending is down across NATO and the UK conventional Armed Forces are the smallest in the P5—and, of course, there is the Brexit factor to consider, which reduces our buying power.
Technologically and in terms of equipment, we do not necessarily hold an advantage. To ensure that the UK is able to insure itself in an unstable world, while promoting stability, trade and liberal values overseas, we must do everything possible to preserve and build our alliances and international institutions, while re-evaluating current defence policy in light of fast-changing global circumstances. New strategies should be developed to stay ahead of adversaries, not a commitment to fighting yesterday’s war.
In a globalised world, the UK Armed Forces will need the ability to deploy rapidly and take quick and parallel action across the globe. There is also a need to have sufficient conventional capabilities to be able to respond to any situation without having to resort to nuclear deterrence—short of course of the threat of nuclear attack.
The rise of hybrid warfare, cyberattacks on western interests and large-scale online assaults on allied nations’ systems mean that cyberspace should be considered an additional, non-kinetic strategic space. Informational systems and institutions must develop resilience against cyberattacks and the effects of anti-satellite warfare. Lawfare—the strategy of using law rather than traditional means to achieve an operational objective—is likely to be used more prominently.
On a more specific level, the UK must retain the ability to respond to any Russian attempt to test NATO’s commitment to Article 5 defence of the Baltics and other allied countries and interests in a resolute but proportionate way. To preserve the domestic and global economy, the UK must have the ability to ensure safe and open trading routes across the global commons, especially in the South China Sea and the Arabian Gulf.
The challenges faced by the UK are global, and require close co-operation with allies. These include the ongoing threat of foreign-initiated and foreign-inspired domestic terrorism, global terrorism, the migrant and refugee crises, climate change, and countering piracy. UK deployments of the early 21st century have largely been asymmetrical conflicts, with elements of peacekeeping, counterterror and nation building. UK defence policy may have focused on specialising in this operational environment at the expense of other capabilities. It should be reassessed in the light of future conflicts and not only in the light of counterterror operations.
In 2015, our defence spending was equivalent to about £46.5 billion, or 2.05% of GDP. In 2015-16, 56,860 UK Armed Forces members were deployed around the world. In April 2016, the number of regulars was 151,000, with 84,000 reserves—the smallest force of the UNSC P5. This was a reduction on the previous year.
Just before Christmas, General Sir Richard Barrons produced a private memorandum for the Secretary of State for Defence criticising the state of UK defence policy. Some of the key criticisms were that the MoD was working to “preserve the shop window” while critical technical and logistical capabilities had been “iteratively stripped out”. Sir Richard said that there was no military plan to defend the UK in a conventional conflict. He wrote:
“Counter-terrorism is the limit of up-to-date plans and preparations to secure UK airspace, waters and territory … There is no top to bottom command and control mechanism, preparation or training in place for the UK armed forces”,
to defend home territory. I would add that recruitment is sluggish at best, in particular in specialists and engineers, both regulars and reserves. I would expect the MoD to be defensive about the letter, but I am sure that many will see a grain or two of truth in it.
So what might the future look like? We should by then have cemented our defence relationships with key EU states, for security as much as defence. The challenges faced by the UK are global and require close co-operation with allies. These include the ongoing threat of foreign-initiated and foreign-inspired domestic terrorism, global terrorism and, as I mentioned, the migrant and refugee crises and countering piracy. More specifically, the UK must retain the ability to respond to any attempt to test NATO’s commitment to Article 5 defence of the Baltics or other Allied countries.
When the 2020 SDSR team sits down to start its planning, it will need to look at our defence policy in the light of possible future conflicts—which I have highlighted—and not only in the light of counterterror operations. With a clearer idea of our economy in the post-EU world, there may be a need to review our expenditure commitments in 2015 against the pressure to spend more.
What could be done to mitigate some of these issues? Investment in research and development. Falling behind adversaries in terms of numbers or spending may be fine if the UK is ahead technologically but will be a disaster if it is outnumbered and outgunned. The US invests a huge amount of money in its defence research programmes. We need to increase our work in conjunction with both universities and the private sector. The defence industry should become a sizeable part of the soon-to-be-published industrial strategy.
Perhaps we should consider less future spending on enormously expensive pieces of equipment. Our adversaries have only to knock out one, with comparatively cheap munitions, to hurt us enormously. We should spend more on equipment and forces prepared for a range of scenarios up to and including large-scale mobile warfare. Alliances for intelligence need to be secured. We need to review and increase cyber defences and technologies. This will help to deter our opponents and ensure that military forces can be deployed with maximum effect and efficiency. We still need more efficient procurement. The UK has smaller physical capabilities than comparable countries but spends more money on defence.
We were top of the soft power league both in 2010 and 2015. This position was deserved and in our current situation is no bad thing, but we need to use our diplomatic and soft power wisely to ensure that our allies take defence seriously. Collective self-defence is cheaper and more secure than all the alternatives.
My Lords, like others, I must commend my noble friend Lord Robertson of Port Ellen for securing this debate and for the manner in which he introduced it.
The title of the debate is most apt and highly relevant in today’s world. Change is sweeping the globe. People’s long-held views are changing, populism is in the ascendency and many political predictions have turned out to be false. However, in defence terms, we have always to be ready for any eventuality. We may be drawn into a conflict tomorrow and need to question whether we are prepared. I would like to spend a few minutes painting a picture of our defence capability as I see it.
My noble friend Lord Reid pointed out that we now have an Army smaller than the one we put in the field against Napoleon. The Navy has just 19 escorts, six of which have propulsion problems. We have no aircraft carriers and will have none until early 2020s. There are currently only seven RAF fighter squadrons, but two of those exist only by extending the life of the Typhoon until 2040. More, in an Answer to a Question from my noble friend Lord Moonie, the Government revealed that a third of our Typhoon and Tornado aircraft are in long-term maintenance and unable to fly. We have no marine patrol aircraft while the Russians increase their submarine activity around our seas. There is an overdependence on recruiting reservists and, despite millions being spent on recruitment, targets for all three services have been missed. Morale is poor. Fifty-four per cent of service personnel are dissatisfied with service life. This is made worse for the Army. A report by the National Audit Office on accommodation stated that poor housing was affecting morale, recruitment and retention.
The failings that I have identified are not the responsibility of our Armed Forces but rather the consequences of the Government’s policy of cuts, mismanagement and poor forecasting. I am sure that the Minister will dispute this, but the concerns and criticisms expressed across the House cannot be ignored and will not go away.
One thing that we can all agree on in this House it is that the service men and women in our Armed Forces are committed professionals and the best in the world. They are the best trained, the most highly motivated and very effective at what they do. But we have to make sure they remain so. That means that we have to make sure that our Armed Forces are adequately funded.
Two challenges face us: more investment and better use of current resources. Without that investment, we will not meet the challenges posed to NATO, the challenges posed by Russia—which has invested millions in modernising her weaponry—and the challenges posed by the growing sea power of China, not to mention the terrorist threat.
NATO remains the bedrock of our defence and is essential for ensuring the security of Britain and our allies at a time of increased global instability. Notwithstanding spin doctors, that is the official policy of the Labour Party. So I welcome the Government’s commitment to spend 2% of GDP on defence. However, I have to stress that that is a minimum spend. During the 13 years of the previous Labour Government, we averaged a spend of 2.3% of GDP on defence.
The second challenge is better management of our resources. HMS “Ocean”, essential to providing amphibious capability, had a £65 million refit completed in 2014 only for the Government to announce one year later that she would be decommissioned in 2018. We will now spend £60 million adapting one of our new carriers to perform its tasks. RFA “Diligence” is our only at-sea repair ship. Between 2007 and 2015, the Government spent £44 million on refits only to put the vessel up for sale last year. This is an appalling waste of scarce defence resources. We have to find more money for our Armed Forces, but we certainly have to manage better the resources that we already have.
Since this Government took office in 2010, defence has faced severe cuts. On these Benches, we think that that is enough. From the Labour Party’s point of view, my colleague, the shadow Defence Secretary, Nia Griffith, has announced a major review of defence spending. My noble friend Lord Murphy spoke about the 2% spending on defence, referring to the comments recently made by Nia Griffith. I share her concern that the present spending of 2% includes £825 million of war pensions, £400 million on UN peacekeeping and an estimated £200 million on pensions paid to retired civil servants. She said:
“Pensions are very important but they in no way contribute to … defence capabilities”.
Faced with a potential aggressor, how will the Government use pensions to defend Britain? Perhaps, like some latter-day Ethelred the Unready, they could use the pensions to buy off the threat.
I conclude my remarks by raising one major concern, which others around the House have also raised: the threat posed by a resurgent Russia—a Russia skilled in the use of cyberwarfare, because warfare is what it is, and a Russia that has one big and possibly critical advantage, as pointed out in a Times article on 22 December, written by Edward Lucas, in its President, Vladimir Putin. He wrote:
“Putin is decisive; we are not. He is willing to accept economic pain; we are not. He is willing to break the rules; we are not. He is willing to use force; we are not”.
I share Lucas’s concern that we may not be able to rely on the United States to help defend us in the future. President-elect Trump unsettles many of us—as he reassures some who are not our friends—with his pronouncements about Russia, NATO and the defence of Europe. In the past few years we have seen the Russian willingness to create problems and conflicts even on its own borders. The Russians then suggest mediation to mitigate and divert attention from the cause of the problem—Russian aggression in the first place. When they propose mediation, we in the West get excited because Russia appears to be co-operating in providing a solution—a solution to a problem that it created. We cannot secure world peace and security by pretending that an aggressor is not an aggressor and hoping that sanctions alone will be enough to prevent further incursions.
We in Britain, NATO and the West have to make it clear that the cost of aggression is a price too much to bear because, like it or not, in order to deter we have to be able to threaten. We are an island people with a proud history of defending freedoms. We are an international trading nation relying on keeping open the shipping lanes of the world to our commerce. We are on the verge of a major shift in our relations with our nearest neighbours in Europe. We face major threats from terrorists who will commit acts of war against our own people here in Britain. And we face state-sponsored cyberattacks. The phrase “We face an uncertain future” may be overused but, my God, it is most relevant today.
I readily confess to making some party political points in today’s debate because that is the right thing to do when we have such clear differences between the Government and Opposition, but I passionately believe that there is one issue that unites us all in this House: we want to continue to enjoy our freedoms and our British way of life. But to do that we have to be prepared to invest more in our defence.
My Lords, I am grateful to the noble Lord, Lord Robertson, for tabling this Motion, and appreciate the obvious wisdom that he brought to it. I also warmly thank all noble Lords and noble and gallant Lords who have contributed to this important debate so powerfully.
It has been said repeatedly in this House in recent times, and it is undoubtedly true, that the world is a more dangerous and uncertain place today than it has been for many years. Despite encouraging advances, the threat from Daesh remains substantial. Russia, as noble Lords have said, continues to show its force through both conventional and novel means. New theatres of conflict, most notably cyber, demand new and complex capability. The transition to a new US Administration has been seen by some as an opportunity to question, perhaps even attempt to undermine, the role of the rules-based international order.
In the 2015 National Security Strategy and Strategic Defence and Security Review, we wrote:
“The world is changing rapidly and fundamentally”.
We cannot claim to have foreseen the seismic political events of the past 12 months, but we recognised the uncertainty and volatility characterising our current era and we conducted our analysis and reached our conclusions accordingly. I align myself with the noble and gallant Lord, Lord Stirrup, in this area: no Government can predict the future, but we can prepare for the unpredictable. The SDSR presents a clear plan for doing precisely that.
I remind the House of the four most pressing challenges to UK defence and security, as identified in 2015: first, the increasing threat posed by terrorism, extremism and instability; secondly, the resurgence of state-based threats and intensifying wider state competition; thirdly, the impact of technology, especially cyber threats; and finally, the erosion of the rules-based international order, making it harder to build consensus and tackle global threats. The noble Lord, Lord Robertson, rightly warned us against complacency. We cannot be complacent about recent developments in our strategic context, but I am confident that this list of challenges is as accurate today as it was just over a year ago, and that the plan we have constructed to respond to them stands up to scrutiny.
In the context of enduring change and uncertainty, two principles must be central to our response. First, we must plan to be adaptable: the threats we face are varied and diffuse, and we must be ready to respond rapidly and effectively however and wherever they become manifest. Secondly, we must strengthen and deepen our international partnerships and alliances: now more than ever we must place an international approach at the heart of all of our defence and security plans. I will address both of these in turn.
Noble Lords will by now be familiar with the vision set out in the SDSR for Joint Force 2025. We start from the firm foundation of already world-leading Armed Forces. In 2010, however, the Government rightly optimised our forces around the ability to conduct a single, medium-sized, enduring operation, of the sort we were familiar with from Iraq and Afghanistan. Today we face a wider range of more complex tasks and more sophisticated potential adversaries. Joint Force 2025 has therefore set us on a path towards Armed Forces that are more agile, versatile and deployable than ever before.
We cannot plan with certainty for a discrete type and size of operation, so we must plan for flexibility. Joint Force 2025 will have the capability and skill mix required to conduct a wide range of complex operations concurrently, from deployments on the scale of the current counter-Daesh mission to more specialist operations, support for humanitarian assistance, and training and capacity-building with international partners. Furthermore, at the heart of Joint Force 2025 is the ability to deploy a highly capable expeditionary force of around 50,000. That is a step change in our ambition from the “best effort” deployment of 30,000 planned for in the 2010 SDSR. It will fully prepare us for the most substantial challenges to our national security, including a call to war fighting under NATO Article 5.
Increased agility and versatility increases our security. It sends a powerful message of deterrence to our adversaries, and lets our allies and partners know that we are willing and able to tackle our shared problems side by side. This point cannot be over-emphasised in the wake of last year’s referendum. We may be exiting the European Union, but—as I made clear in our defence debate before Christmas—we are neither withdrawing from Europe nor turning our back on the world. On the contrary, I assure my noble friend Lord King, the noble Lord, Lord Campbell, and the noble Baroness, Lady Jolly, that NATO will continue to be at the heart of UK defence policy, and we will remain a strong and influential European voice on the world stage.
That leads me to our second strategic imperative: the need to strengthen and deepen our international partnerships and alliances. In the SDSR, we wrote that our defence policy and plans will be “international by design”. Our interests are inextricably linked to global security and prosperity, and we will continue to play a leading role in protecting global stability. We cannot, and do not, hope to do this alone. It is not just a policy choice but a necessity that we become more deliberate in our international approach across all defence activity. We will build an international dimension into defence planning from the outset.
In practice, that means strong, strategic bilateral and multilateral relationships. The noble Lord, Lord Ramsbotham, was right. This begins with our closest allies—the United States, France and Germany. The US remains our pre-eminent partner for defence and security, and interoperability is at the heart of our relationship. Building on the Lancaster House treaty, we will further deepen our collaboration with France on capability, operations, science and technology, and counterterrorism. Germany shares our aspiration to expand our partnership on defence and security, and we will do so across all areas of defence.
But that is not where it ends. The UK will work to strengthen bilateral and multilateral relationships across the globe. We will build and sustain alliances and partnerships through a more comprehensive approach to defence engagement, which is now a funded core task for the Ministry of Defence. We will build and strengthen combined international military formations, whether with NATO or with partners and allies further afield.
I mentioned interoperability. That is being developed all the time. NATO remains the key vehicle for maintaining an integrated and interoperable military force, and we will work with alliance members to train and exercise together, and to share doctrine, tactics and procedures. We will also continue to develop collaborative capabilities with our key allies wherever there is an opportunity to share expertise and cost in the development of new defence technology. Taken together, and supported by the Government’s global defence and diplomatic network, this will allow us to build coalitions throughout the world in the pursuit of shared interests and in support of the rules-based international order.
Strengthening our Armed Forces and employing a comprehensive international approach to defence is the plan set out in SDSR 2015, and the Government stand by it. However, a plan is nothing without action, so I shall just outline briefly the significant progress that has been made. First, the ambitious plans for Joint Force 2025 are in train. The innovative 77th Brigade has reached initial operating capability; work has now begun on the first Dreadnought-class submarine; the first of our new aircraft carriers, HMS “Queen Elizabeth”, will begin sea trials this year; design and manufacture will begin on Crowsnest, the early-warning system for the helicopters that will protect the new carriers; RFA “Tidespring” will arrive in the UK in the spring for customisation; the contract has been signed to purchase nine P8 maritime patrol aircraft; and July 2016 saw the delivery of the RAF’s 14th and final Voyager aircraft for air tanking and transport. We are already delivering.
Internationally, we have also done a lot to demonstrate our commitment to working with allies and partners. My noble friend Lord King referred to the vulnerability of the Baltic states, as did my noble friend Lord Jopling and the noble Viscount, Lord Hanworth. That is exactly why we have agreed to deploy a battalion to Estonia in the spring and an infantry company to Poland in support of the United States, strengthening NATO’s enhanced forward presence. We are also deploying UK fighter aircraft to contribute to the NATO southern air policing task in Romania.
I understand my noble friend Lord Jopling proposing that we should try to hasten the deployment of UK forces to the Baltics. I was at the ARRC headquarters at Innsworth yesterday and can reassure him that plans for the deployment are well advanced. A careful judgment has been made and it is felt to be well worth ensuring that our forces are comprehensively trained and equipped prior to deployment. I am sure that my noble friend would agree with that.
It is not surprising that defence spending has formed a major theme of this debate. A number of noble Lords referred to the Government’s commitment to spend 2% of GDP on defence in every year of this Parliament. We should not downplay that; nor should we draw what appear to be very easy comparisons. Comparing like with like is, I suggest, flawed reasoning because the nature of defence spending inevitably changes over time. In the past, we have reported significantly more operational spend, such as during operations in Afghanistan. That has changed. New threats also require new spending. We have not historically included any spend on cyber. Therefore, it is right that, from time to time, like all NATO allies, we ensure that we are capturing all appropriate spend, and I emphasise that all adjustments are fully in accordance with NATO guidelines.
The noble Lord, Lord Robertson, warned that we should not confuse percentages with capability—and he is absolutely right. He asked the right question: have we retained the power to act? The SDSR laid out a clear and affordable strategy for delivering one of the most capable armed forces in the world, including an expeditionary force, as I have said, of 50,000 by 2025; £1.9 billion in cyber investment; new capabilities for special forces; and a commitment to spending more than £178 billion on equipment and equipment support—more than in previous plans.
I do not accept the accusation of creative accounting. I will just say to the noble Lord, Lord West, that defence spending is going up. When defence spending will increase by £5 billion over this Parliament, it is nonsense for anyone to suggest that there is no new funding. I hope that my noble friend Lord Sterling, the noble Lord, Lord Murphy, and others will be at least somewhat reassured to be reminded of that figure.
The noble Lord, Lord Bilimoria, the noble Baroness, Lady Jolly, and other noble Lords spoke about manpower, particularly that of the Army. It is true that ensuring efficiency was a driver in force design in 2010, as it was in 2015. However, strategic rationale was the primary basis for the figure of 82,000 regular Army personnel. The figure was based on an assessment of the type, frequency and concurrency of tasks that the Army will be required to conduct. Future Force 2020 described a move away from enduring stabilisation and towards a more adaptable posture. Joint Force 2025 builds on that principle, increasing the adaptability of all the services, including the Army.
The noble Lord, Lord Touhig, rightly emphasised the threat from Russia. We are not complacent about Russian behaviour or capabilities. We remain fully committed to NATO, as I have emphasised, and to our European partners, with whom we will deter threats across a wide spectrum in order to protect our people. NATO has developed a readiness action plan that gives it the tools needed to respond to short-notice or no-notice incidents in order to protect and defend alliance territory.
I understand the call by the noble Lords, Lord West and Lord Hutton, for more platforms for the Royal Navy. The Government share that desire. Not only is our fleet set to grow for the first time since World War II, but its high-end technological capabilities will allow it to provide a better contribution and to retain a first-class navy up to 2040 and beyond. We will maintain a destroyer and frigate fleet of at least 19 ships and look to increase that number by the 2030s, as has been mentioned; and I am sure that we can all take pride in the fact that the Queen Elizabeth aircraft carriers will be coming into service.
The fleet will also be supported by a very capable and renewed tanker fleet. A fleet of up to six offshore patrol vessels will support our destroyers and frigates in delivering routine tasks and will enhance our contribution to maritime security and fisheries protection. I can reassure the noble Lord, Lord West, that the in-service date of the Queen Elizabeth aircraft carrier has not slipped, and nor are there any plans for the Prince of Wales, the second carrier, to be mothballed.
The noble Baroness, Lady Dean, criticised my right honourable friend the Prime Minister and questioned her interest in defence. I respectfully reject that criticism. The Prime Minister has a close and abiding interest in defence. Indeed, one of the visits she made as Prime Minister was to the MoD headquarters to speak with the service chiefs. She has also visited our service personnel around the world, including recently on board HMS Ocean in the Gulf.
My right honourable friend is also well aware of the need to invest in security across the piece. That brings me to the subject of cyber, which was rightly emphasised by the noble Baroness, Lady Liddell, among others. Cybersecurity is vital to defence. As she said, our adversaries present a real and rapidly developing threat to our networks, systems and platforms. We are enhancing our cyber defence capabilities through the development of the Cyber Security Operations Centre. As I also mentioned, £1.9 billion will be invested in cyber across government over five years. We are ensuring that our Armed Forces are able to project power in cyberspace, are ready to assist in the event of a significant cyber incident and can respond to a cyberattack as they would to any other attack using whichever capability is most appropriate. We are building a dedicated capability to counterattack in cyberspace as part of our full-spectrum capability. Defence is delivering this capability in partnership with GCHQ through the national offensive cyber programme.
The noble and gallant Lord, Lord Walker, rightly criticised the concept of an EU army. I hope that I can reassure him by saying that no one is seriously proposing that idea. Despite the rhetoric and speculation that we have all read, we have seen nothing to suggest that any major European country wants an EU army. The joint letter published by the ministries of defence of Germany, France, Italy and Spain explicitly ruled that out, and we will continue to resist any EU initiative that risks undermining or duplicating NATO’s central role in European defence.
The noble Lord, Lord Bilimoria, called for greater collaboration with universities. I understand and agree with his point. Our innovation initiative has included the horizon-scanning unit known as IRIS, which will forge close ties with the academic community.
My noble friend Lord Attlee asked about the robustness and resilience of our logistics systems, the importance of which he rightly stressed. I can reassure him that we have the strategic base and associated enablers to underpin SDSR 25 and its wide capabilities. I will write him with an answer to his question on exercise Saif Sareea.
The noble Lord, Lord Burnett, raised several issues relating to the Royal Navy. In terms of investment and manpower, the Royal Navy attracted significant investment as a result of the SDSR, as he well knows. With regard to new assault ships, we currently have no plans to commission any. On the matter of our use of landing craft, HMS Albion and HMS Bulwark provide the capability needed to deploy and sustain the lead commando group ashore, by air and sea. They will remain in service until the end of the next decade.
The noble Earl, Lord Sandwich, raised issues of conflict prevention and peacekeeping. I have mentioned the Government’s intention to be international by design. That is in no small part motivated by the principle of conflict prevention: by working more closely with allies and partners we strengthen our shared ability to prevent conflict and ensure our own security. I can tell the noble Earl that we are increasing our contribution to UN peacekeeping operations in South Sudan, Somalia and Kosovo, we are continuing to support CSDP missions, and we are fully committed to Ukraine’s sovereignty and territorial integrity.
My time is up. I shall write to those noble Lords whose questions I have not addressed. I hope that it is clear that the Government fully recognise the breadth and severity of threats that face our country today. We know that in this era of uncertainty we can take nothing for granted. The approach that we have taken in the SDSR is the right one for strengthening our defence and security, and it is the one to which this Government are fully committed.
It is difficult to mount any form of attack on the noble Earl who is so gentle and so apparently reasonable that we are all disarmed at the end. But there is a long-standing belief that no plan survives the first engagement with the enemy. Since the SDSR was published last year, we have had the Brexit referendum, with profound implications for the direction of British defence policy.
Secondly, Donald Trump has been elected as President of the United States of America, with all the statements that he has made about NATO undermining, in many ways, a lot of the solidarity that is there. So there is a genuine reason for looking at SDSR 2015, if only to look at the activities of President Putin now that he is a major player in the Middle East.
I asked a question in the middle of my speech which the noble Earl may have missed. What will be the cost of the devaluation on the defence budget? Perhaps he could write to me.
My Lords, the time allotted for this debate has now elapsed and I must put the Question. The Question is that this Motion be agreed to.
That the Bill be now read a second time.
My Lords, I am delighted that the first Bill I am taking as Commercial Secretary is about supporting people to save. As we know, saving is a hugely important topic and a very personal one for people up and down this country.
The reality is that families in the UK are not saving enough. The saving ratio is near a record low and it is estimated that 21 million people in the UK do not have £500 in savings to cover an unexpected bill. In the current economic climate it is important that households keep setting aside what they can afford to build their financial resilience and save for the future. Saving benefits the economy, helping to create stable, long-term economic growth, and it benefits individuals, helping them meet their aspirations and prepare sensibly for the future. So we want to make sure that all people in this country, no matter their circumstances, have the tools at their disposal to save money in a way that works for them.
There have been a number of initiatives in this area over recent years. The personal savings allowance put an end to 17 million people having to pay tax on the interest they received on their savings. There have been substantial increases to the ISA allowance: from April people can save up to £20,000 in this tax-advantaged wrapper. The Autumn Statement announced further support for savers with the introduction of a new market-leading three-year savings bond from NS&I in spring 2017.
To help even more people save for the future, this Bill brings in two new schemes: the lifetime ISA and Help to Save. I will introduce them in some more detail. First, the lifetime ISA provides a new option for younger people who are looking to save for the long term. Essentially, this is designed to offer people more flexibility in how they save. For some people, the existing support that is available will be sufficient. There is already, for example, a good level of support provided through the pensions system, particularly thanks to automatic enrolment, a policy that has attracted support, rightly, on all sides of this House. It makes it compulsory for employers to enrol people into a pension scheme and contribute towards it.
However, when we did a consultation on pensions tax relief back in 2015, we found that younger people in particular could find pensions inflexible. So we looked at what more we could do to provide more choice and flexibility for them. That is why we designed the lifetime ISA to offer that as a complement to the pensions system. Adults will be able to open an account from the age of 18 to the age of 40, and carry on saving up to the age of 50. They can save up to £4,000 a year. They will earn a 25% tax-free bonus on their contributions from the Government, paid straight into the account, which represents a clear and attractive incentive to save.
The flexibility comes in how the lifetime ISA can be used. Savings under this scheme can be used to supplement your income in later life because you can withdraw funds, including the bonus, any time from the age of 60. But you can also use your savings to get on to the property ladder for a first home costing no more than £450,000. We know how important that is for many young people today. We were clear in our manifesto that we believe the chance to own your own home should be more widely available. Through the Bill, from April next year, people will have a new and more flexible way to save, which may be more suitable for their individual needs.
The other policy introduced in the Bill is Help to Save. This is another way in which we are looking to help people build up their savings, and this is specifically targeted at people on low incomes, for whom it can be a particular struggle to do so. In fact, research from the Centre for Social Justice estimates that 3 million low-income households have no savings at all. This is a serious statistic and one that we cannot ignore. Instead, we need to support and encourage more people to build up their resilience and become more financially secure. That is why it is the Government’s view that we should support those on low incomes who are trying to do just that by putting money aside on a regular basis. This Bill would therefore introduce a new Help to Save scheme no later than April 2018.
The scheme will be delivered by National Savings and Investments, building on its reputation as a trusted savings provider and ensuring that accounts are available nationwide. It would be open to any adult who is getting working tax credits, or who is getting universal credit and working enough to earn the equivalent of at least 16 hours pay at the national living wage. This means that there are around 3.5 million people who would be eligible for the scheme. Those eligible will be able to save up to £50 a month for two years—£1,200 in total—and then receive a 50% bonus on what they have saved. If, after those two years, they want to do that again for the next two years, they will be able to do so.
Help to Save offers a flexible way to save which we know that people value. First, there are no restrictions on what people are able to do with the bonus once they get it. Secondly, people will be able to take the money out at any time. There will not be any charge or penalty for doing so. That is why we see Help to Save as an attractive new scheme that would support and encourage people to save what they can. Having savings to fall back on can make all the difference to how well people can cope with unforeseen events that come their way.
Money Advice Service research in 2013 showed that 71% of UK adults faced an unexpected bill during the previous year. Research from the debt charity StepChange suggests that if a family has £1,000 in the bank, it is almost half as likely to fall into problem debt, by which is meant being in arrears with at least one bill or credit commitment. It is therefore really important that we take forward this scheme to help more people on low incomes build up a pot of money that can be spent however they want, but that might be particularly important in case of a rainy day.
The lifetime ISA and Help to Save are designed to do the same thing—namely, to reward those who are trying to save for the future and to encourage more people to follow their example. Whether it is young people saving flexibly for their futures or people on low incomes trying to set aside a bit of money each month, they deserve to have the tools to do that in a way that works for them. That is what these two new products offer. It therefore gives me pleasure to commend this Bill to the House.
My Lords, increasing saving in the UK is good for people and for the economy. In recent years, the Government have introduced a raft of reforms to incentivise saving. Freedom on accessing pension saving and LISA are just two. The Explanatory Notes observe that this,
“range of reforms”,
“to ensure that the right incentives and products are in place to meet savers’ needs”.
Unfortunately, it is increasingly difficult to understand exactly what the Government’s strategy is for savings, and for pension savings in particular. What are the “right incentives”, and why? What outcomes are they intended to achieve? What are the characteristics of the “right products”? Do they differ for different groups? What is the Government’s intention on tax relief to support savings? For employers, providers and consumers, the answers are increasingly confusing, complex and uncertain.
A LISA is another new savings product, but its introduction raises two fears that the Government have not addressed. The first concerns the risk that some people will opt out of a workplace pension in order to save into a LISA, believing that it offers a better proposition when it does not. The second is that the LISA is a government stalking-horse to trail the reform of pension tax relief and replace current workplace pension arrangements with a pension ISA. That would mean that the current pension saving regime—whereby income paid in pension contributions and investment growth on savings are both tax free and on retirement when savings are withdrawn, the first 25% is tax free, the rest being subject to tax—would be replaced with an ISA regime where contributions are made from taxed income but investment growth on savings and future withdrawals are tax-free.
Those fears germinated when, in July 2015, the Government issued Strengthening the Incentive to Save: Consultation on Pensions Tax Relief. Concerns grew that the Government wanted to address current fiscal demands and reduce the current budget deficit by heavily reducing pension tax relief at the point of saving, which, for those who had those concerns, would be at the expense of building an adequate level of pensions savings, undermine the momentum in workplace pension saving, have a negative long-term impact on the Exchequer, and mean that people retiring in the future would make a limited tax contribution but consume high levels of public services, which would be deeply unfair on future generations. Pensioners on modest retirement incomes would lose out from the removal of tax relief at the point of saving and gain little from tax-free withdrawal of savings as they would not be paying tax anyway.
A fairer distribution of pension tax relief from the higher to the lower-paid saver is desirable. What is a sustainable level of fiscal support for long-term savings, given today’s public deficit and debt, is a legitimate question. Tax relief for private pension contributions through incentives to employers and employees is big—£48 billion last year, although that is a noticeable fall on previous years, with the lion’s share going into defined benefit schemes. But there is a real tension that the Government are not acknowledging between a Treasury that sees tax relief at the point of saving as an undesirable cost, given the current state of public finances and Brexit anxieties, and those who believe that tax relief at the point of saving is an integral part of supporting people in building an adequate and sustainable pensions system for the future.
Under current arrangements, an individual choosing a LISA rather than a workplace pension may end up with a smaller savings pot in later life—50% smaller. For a basic rate taxpayer saving into a workplace pension, 50%—half—of the minimum 8% contribution would come from the employer contribution and tax relief. If they opted into a LISA, they would receive only a 25% bonus from the Government on their savings from taxed income. The more generous the employer pension contribution, the greater the potential loss from saving into a LISA rather than a pension.
The LISA is a long-term saving product, with penalties for early access, with the exception of the add-on access for house purchase, but ISAs do not have the governance, value for money and regulatory requirements that workplace pensions have. Mis-selling risks abound. The Financial Secretary to the Treasury commented in the other place that,
“we heard that the pensions system on its own is too inflexible for young people”,
so the LISA is,
“giving people a new option that has been designed with flexibility in mind”.—[Official Report, Commons, 17/10/16; col. 606.]
But the DWP evidence contradicts her. It reveals that young people have the lowest opt-out rate from auto-enrolment of any group. If there is a problem with accumulating savings for house purchase, Help to Buy schemes are the answer, not a new, long-term saving product.
The Treasury costings do not assume that people will opt out of their workplace pensions to pay into a LISA. That may be right: the majority of people save into a pension by inertia. But if the Government turn pensions into an ISA into which employers auto-enrol their workers, workers will save into an ISA through inertia too. The concern is that that is exactly what the Government intend to do. A LISA is likely to be of benefit to people who have reached the limit of their allowance in tax-free pension saving, or who earn sufficient to save in both a LISA and a workplace pension. That may well increase the UK’s savings rate—there may be an element of substitution. It will provide a new option for the younger self-employed—40 is the age limit for opening a LISA—but, given that the average age of self-employed people is 47, it will not be accessible to the majority.
The real concern with the LISA is that the Government are further blurring the line of vision on savings. The distinct concept of pensions saving is at risk. The Minister may well dismiss my concerns, but if employers are not confident in the direction of government policy on private pensions, that will influence their behaviour and put a downward pressure on employer contributions into workplace pensions. I believe firmly that it is already happening.
Financial capability in the UK is persistently low, so measures to tackle persistent undersaving are welcome. The Money Advice Service 2015 Financial Capability Survey highlighted that lack of saving is a key risk to the financial resilience of households. The statistics make depressing reading: 17.3 million—44% of the working-age population—do not have £100 in savings; only four in every 10 save something every month; low income is a barrier to saving for families with children and those paying down debt; 44% of working-age people in the UK with no savings are classed as overindebted. But some on lower incomes do save: 26% of working-age adults in households with incomes below £17,500 are saving every month. A buffer against financial shocks helps to avoid inappropriate debt. For a mum in a low-income household with young children, replacing a broken washing machine is her financial shock. Some 71% of adults experienced an unexpected bill in the past 12 months, resulting in unexpected costs of some £1,545, yet of the people with no savings, 76% could not spare the money to pay an unexpected bill of even £300.
The Government’s Help to Save scheme is welcome as a measure to help boost the resilience of low-income households. I just wish that the Government were more ambitious, particularly given their recent high-profile commitment to address the challenges faced by those who are just about managing. The Help to Save scheme is targeted at 3.5 million people in lower-income households, costing up to £70 million in 2020-21. This compares with the expected cost of £850 million a year by 2020-21 of the LISA bonuses and increase in ISA limits. A fairer distribution of those incentives should have been considered.
The intended government match on savings up to £50 per month could be greater than 50%. Many of the target population will not be able to save £50. If they save £30, with a match, it will take them two years to save the £1,000 figure which StepChange, the debt charity, says is the minimum amount needed to reduce the number in problem debt by 500,000. Why is it necessary to wait two years before the match is paid? Financial shocks can hit people every year. The Government argue that two years is the optimal time to embed a savings habit, but their own evidence suggests it can be nearer 18 months.
Only one in seven, 500,000 of the target 3.5 million, are expected to take advantage of the scheme. That is low. The Government have a lot of contact with this group through the social security system, so I conclude by asking the Minister whether the Government will commit to bringing forward a plan, no later than six months after Royal Assent, which targets achieving a 50% participation rate by the eligible population in the Help to Save scheme.
My Lords, this important debate has significant implications for younger generations. First, I congratulate the Government on the tremendous improvements they have made in recent years to the UK pensions landscape. As defined benefit schemes are on the brink of extinction in the private sector, I am delighted that the Government have made improvements that ensure defined contribution pension saving is now more user-friendly than it has ever been. Of course, if people have the opportunity of a good defined benefit pension, underwritten by their employer, that is hard to beat. However, some people with very small deferred entitlements in a final salary-type scheme may well be better off transferring their pension into a modern defined contribution scheme. We could not have said this a couple of years ago, but it can now be a sensible strategy for part of people’s past pension accruals.
Of course, defined benefit guaranteed pension income will not normally meet the costs of social care that many citizens will face. There is virtually no pre-funding of social care, either at public or private sector levels. Families are suddenly finding that a pension income is not all they need for a decent retirement. If you need looking after and have enough income or assets to be above the draconian care means test, you have to fund all your care costs yourself. That is why having some money saved up in case you need care is sensible advice for most families, especially baby boomers in our ageing population. But they do not know this. Most think the NHS will look after them from cradle to grave, as Beveridge’s national insurance scheme was often believed to achieve.
I am proud that this Government have acted to reform defined contribution pensions so that they can provide much better and more appropriate support for millions of people in later life. Some people will be able to use them to help to pay for social care, once the new pension freedom system is better understood, and perhaps with a little extra nudge from the Government. That would be a worthwhile focus of new saving incentives.
To be frank, I do not think the public or even the Government themselves, including my noble friend the Minister, have yet realised how positive the defined contribution pension changes are, how much better the landscape now is and how much more suitable for 21st-century realities. This is evidenced by last week’s astonishing infographic purporting to educate the public about retirement saving, which does not even mention the word “pension”, only lifetime ISAs, other ISAs and premium bonds. It is vital that the Government urgently revise this public guidance and recognise the important difference between short-term saving and long-term investment. Young people saving for retirement require the latter and also need extra money for care. Defined contribution pensions can offer more than just a guaranteed income. Of course, a pension is typically thought of as a lifelong income in old age but that is not necessarily enough to look after today’s or tomorrow’s elderly people.
With the new pension freedoms that ensure all pension savers should have flexibility and choice to use their pension savings as best suits themselves, the Government have already achieved the kind of flexibility that the Minister was talking about for younger people. Rather than effectively requiring most defined contribution pension savers to buy an annuity, pensions can better fit in with people’s changing lives.
The new regime does not stop anyone buying annuities if that is the right product for their circumstances, but they do not now have to do so and especially not when they are still relatively young. Most people reach their defined contribution scheme age and are still working. They will be best served by being in a pension and keeping it intact to grow, paying in more each year, so that they will have more money to support them after they finish working. That is also an important potential purpose of pension saving—to provide as much private resource as possible to support individuals during their retirement years.
There are also new behavioural nudges for people so that they do not have to worry about leaving money in their pensions for as long as possible. Under the old regime, with a 55% death tax, people would not want to die with money in their DC pension, because more than half would be lost in tax. Now, they can just leave the money there into their 80s and 90s. As I have said, if they need to pay for social care, they may have money in their pension fund. If they are lucky enough not to need care, the money passes on tax free to the next generation.
Pensions are now a product that we can be proud of and that can help people in different ways with the retirement costs they may face, rather than focusing only on ongoing income. We should be building on this success, not putting it at risk with the measures in this Bill. Of course, most people may not yet have enough money saved up, but as we look to the future and as the baby boomer generations reach later life, many of them will have—or could have—money that they could keep, rather than spending it too soon as will be encouraged by the lifetime ISA.
The combination of reforms we have seen since 2010 fits well with the theories of behavioural economics too. Behavioural science has proven powerful in driving much wider coverage of pensions across the workforce. The policy of auto-enrolment is just starting, bringing in millions more people to pension-saving, often for the first time, supplemented by a good employer contribution. The theory of inertia is ensuring that opt-out rates are far lower than anyone predicted, especially, as the noble Baroness, Lady Drake, said, among the young. The vast majority of those who are automatically enrolled into a pension are staying there. The young are clearly willing to stay in pensions, and this is a massive success so far. So it is simply not correct for Ministers to assert, as in the past, that people do not like pensions. That is yesterday’s story and is also partly a function of the fact that many do not yet understand just how good pensions are these days.
We are on the cusp of a major success in extending pension coverage for millions of people, but the measures of this savings Bill put us in danger of snatching defeat from the jaws of victory. Auto-enrolment is only just beginning, and has been a great success so far. Once again, the noble Baroness, Lady Drake, through her work with the Pensions Commission, can be rightly proud of sowing the seeds of this success. But it is work in progress—auto-enrolment will not reach all relevant workers and the full minimum contributions until 2019. Even at that stage, contributions will still be too low for most people, and millions, especially lower-paid women and the self-employed, will be left out altogether. More needs to be done, but the programme is working, and I and other former Ministers have had to battle to keep auto-enrolment in place. I congratulate the Government on doing this, but I truly fear the lifetime ISA in the Bill could derail the project before it is properly up and running.
As the state pension is being cut—the new state pension will mean lower pensions in the long run for most younger people in this country—it is vital that we ensure more people have more private income to add to their basic level of state support. That is why it is so important to continue to incentivise saving for retirement and help people build up as much money as they can to see them through their ever-lengthening later life. Using pensions could best achieve that. Distracting them with a lifetime ISA risks it.
Pensions have the right behavioural nudges. Individuals are automatically enrolled, to take advantage of initial inertia, and they receive extra from their employer to add to their own contributions, and hopefully even more money in tax relief from the Government. So the individual who puts £1,000 of their own money into a workplace pension scheme where the employer matches their contributions could receive a further £1,000 from their employer and an extra £250 in basic-rate tax relief—or even more if they are on higher-rate tax—and possibly even more from salary sacrifice. This means their own £1,000 can be more than doubled on day one.
When they reach later life, the money they have saved up will be waiting for them. They can take a quarter tax free and can leave the rest invested. Any money withdrawn will be taxed as income in that year, so there is a built-in tax brake on taking the money out quickly. The pension tax structure deters early unnecessary spending. Future Governments should therefore have fewer poorer pensioners to support. Is that not what we incentivise retirement saving for? It is also important to mention that the new state pension does not just lift all pensioners above means testing; it only lifts them above pension credit. But if all they have is a new state pension, a future Government, and younger taxpayers, could still have to provide housing benefit, council tax benefit and other means-tested help. So those who have no other private resources will potentially fall back on the state.
That is why I am so concerned about the introduction of this so-called lifetime ISA and why I beg your Lordships’ indulgence for my long speech today. This is the only opportunity to put on record the strength of feeling on this matter. We do not have an opportunity to amend the Bill, but it is important to make these points. It is a dangerous distraction that could undermine pensions and increase future poverty. There are many concerns and all I can do is put on record what the problems are and hope that the Government will take notice before it is too late. This is a money Bill, so I cannot change it, but I believe that it needs radical rethinking.
If used for house purchase, this lifetime ISA is okay—but we already had a help-to-buy ISA, so why did we need something new to complicate the ISA landscape further? However, when masquerading as a pension, this product is dangerous. It is also a complex product and should not be sold carelessly—although I fear there will be inadequate suitability checks. “Lifetime” ISAs will not last a lifetime, even though the purpose of giving a taxpayer bonus is supposed to be to ensure that people can support themselves privately in their old age. Today’s taxpayers are subsidising the under-40s to build up a fund that is likely to be spent at around age 60. This new product has the wrong behavioural structure and I am warning now that it risks becoming a new mis-selling scandal in coming years.
I cannot see who will be better off in their old age saving in a lifetime ISA than if they had put the same money into a pension instead. But people will be confused. Young people I have spoken to—some of whom are on higher-rate tax and have access to a generous workplace pension—have already been attracted to the idea of using a lifetime ISA instead of a pension. Only when I explain that they will lose their employer’s contribution and higher-rate tax relief do they realise this could be a mistake. How many people will be misled and may come back in future years and complain about being mis-sold this product? I have spoken to 30-somethings who clearly misunderstand. Here are some further examples.
Workers on basic-rate tax mistakenly believe that the 25% Government bonus is better than 20% tax relief. Of course, they are exactly the same. A 20% grossing up is equivalent to a 25% extra bonus, but who will explain that to customers? I urge the pensions industry to do more to help people to see the extra money from government, or other taxpayers, which is paid into their pension.
Some people have been attracted to the idea that they can get their money back if they need to, whereas pensions are locked until age 55. What they do not understand is that the Government take a heavy “withdrawal charge” from their fund if they want to spend it before 55. Unless they are buying their first home or are terminally ill, they face this so-called 25% penalty. But people think that that is merely taking back the 25% bonus. Once again, who will explain that it is far worse than that? They will lose far more than the government bonus and, indeed, some of their original amount. If they put in £1,000 and saw no investment growth at all, it would be worth just £937.50—which is another big danger of using the lifetime ISA for saving for retirement.
The dual purpose of this lifetime ISA will confuse people. Just when we have the opportunity to capitalise on the success of pension reform—auto-enrolment, pension freedoms—and the Pension Wise service, which offers real value to people and can help them save money until their 80s and 90s, along comes a new product that adds complexity and is unlikely to last so long.
Using a lifetime ISA instead of a pension will mean less money being put in on day one, less money growing, especially as much of it will be in cash—we know that that is what ISAs are predominantly used for—and more money spent more quickly in later life. Indeed, this lifetime ISA seems such a waste of taxpayers’ money. It will be good for those who have already filled their pension pot or their annual allowance, but it will not be good for those younger people saving for retirement. LISA contributions must stop at age 50. Fifty is only the start of the second half of one’s adult life, when pension savings could be stepped up, rather than suddenly stopping. I know that the FCA will try to impose regulatory requirements to protect customers, but with the best will in the world, reams of new disclosure documents are hardly going to help in practical terms. I believe that the LISA product introduced by this Bill is a—perhaps inadvertent—mistake. I have studied, managed and advised on pensions and pensions policy for nearly 40 years, and I share with noble Lords today my fears that this Bill risks worse retirement outcomes for generations to come.
My Lords, having just heard from two fantastic acknowledged experts on this issue, I shall be much more general and very brief. We ought to start by looking at the total lack of knowledge of financial services that the general population in this country have. They have no idea how long they are going to live or about what their savings are going to provide for them when they retire. There are worries at the moment as well about what will happen to our economy in the shorter term.
I congratulate the Government and their predecessor on introducing auto-enrolment, which is a great success. However, I share the worries that have been put forward about these being early days and we cannot really estimate at the moment quite what the benefits are.
The International Longevity Centre UK, which I am privileged to head up, recently published a report called Consensus Revisited. It elaborates on the ignorance that the general public have, saying that even with the planned changes to state pension age, people will still require sufficient savings to fund up to one-third of their adult lives in retirement, which is over 20 years. In 2012, women left the workforce at 63 while men left slightly later, which means that men are going to fund 21 years in retirement and women 26, which is a long time. I do not think the public really understand that or have grasped those figures.
In future, therefore, adequate retirement income will hinge on people saving enough through defined contribution schemes, but as yet we know that is not the case. Projections suggest that unless contributions into DC schemes rise, fewer than half of median earners will be able to secure an adequate retirement through auto-enrolment. On average, employees contribute just 2.9% of their salary to a DC pot, whereas members of defined benefit schemes put in 5.9%, so there is a big difference. The difference in the employer contribution is even starker: just over 6% for DC schemes but over 15% for DB schemes. So there is still quite a lot of worry, and there are many things to sort out before we get this right. Given the lack of knowledge about longevity and what the two previous speakers have so wisely said, I agree that we must be careful with the LISA because it could be a threat to pensions, damage pension saving and, at any rate, cause quite a lot of confusion.
I was privileged to attend a meeting of experts, who all agreed that we need to promote pensions and explain them much better. I hope the Government have plans to engage in that. User-friendly communications, more education and much more engagement are essential.
The other thing we ought to note is that there is quite a lot of feeling that more employer engagement is necessary. It is important to ensure that employers become more involved in pension provision and get engaged in retirement savings for their staff. I do a lot of work with Business in the Community, as I know the Minister has done for many years, and I have chaired the CSR All-Party Group for years and now do so jointly with a Member of the Commons. Perhaps through that we can do more to promote the best of this. At the moment, though, it is important that we wait and look again at the LISA threat. I agree with the noble Baronesses about its dangers. Perhaps there is a chance to look again in some detail at what we are discussing.
My Lords, I share the frustration of the noble Baroness, Lady Altmann, that procedures on money Bills allow us only a Second Reading on the Bill. Although I see the noble Lord, Lord Young, blanching a bit at the prospect of a Committee stage on this Bill, we are not going to have one anyway.
I start by acknowledging the importance of encouraging individuals to save and accepting that there should be a role for incentivising saving through the tax system—although not necessarily exclusively through that—recognising always that support given through the tax system invariably does nothing for those at the lower end of the income scale. The Minister in introducing the Bill talked about the increase to £20,000 of the annual ISA allowance or the increase in the personal allowance, but those are so far beyond the circumstances of millions of our fellow citizens that it is difficult to see in this context how they will help.
I will concentrate most of my remarks on the lifetime ISA but first I have a few comments about the Help to Save scheme. This is targeted at those in receipt of universal credit and with household earnings at least equivalent to 16 hours at the national living wage, or to those in receipt of working tax credit. Entitlement to the latter—as I understand it—requires an individual aged over 25 to work at least 30 hours a week. If they are aged under 25 they will get it if they work at least 16 hours a week but have a disabled worker element or certain responsibilities for children. Can the Minister explain the differential working requirements for eligibility?
As other noble Lords have said, the impact assessment expects that around 500,000 people will open accounts in the first two years, saving an average of £27.50 a month. This will be from a potential eligible population of 3.5 million from 2.5 million households, 90% of which will have annual income below £30,000. As we have heard, the scheme will cost £70 million. Can the Minister say—or perhaps write to me if she cannot—what proportion of these individuals, who will be individuals in work, are likely to be within the scope of auto-enrolment? Can the Minister also say how the administration of the scheme will seek to ensure that the necessary savings have come from the eligible individuals and not been provided by family or friends, with the opportunity of sharing the government bonus when it arrives? That would seem to be potentially defeating the system.
Given the woeful level of personal savings in this country, the opportunity to build a small nest egg is important. The impact assessment cites the Family Resources Survey, which suggests that half the households with income below £30,000 have no savings at all—no wonder, given the battering they have endured under this Government. We have heard other figures as well leading to the same conclusion. The StepChange Debt Charity published research in 2015 which found that 14 million people had experienced an income or expenditure shock in the previous 12 months. This might have been a job loss, reduced hours, illness, a business failure, a relationship breakdown or even a washing machine breakdown—but without any savings they had to resort to debt to try to cope. The extent to which Help to Save will provide some small level of savings which can be available in such emergencies is to be supported—although, as my noble friend Lady Drake pointed out, the Government’s own ambition for the scheme seems modest.
A year ago, the FT carried a story that the then Chancellor was planning to overhaul the pension tax relief system. No wonder, perhaps, when the annual cost to the Exchequer was running at some £35 billion, including the national insurance issue, but netting for tax receipts on pension income. Moreover, two-thirds of pension tax relief was going to higher and additional rate taxpayers—a wholly unjustified distribution of outcome—notwithstanding a succession of tightenings of the annual and lifetime allowances.
The Chancellor was reported to have his sights on abandoning the current system, by which tax relief is given at somebody’s marginal tax rate, in favour of implementing a flat tax, suggested at between 25% and 33%. Since then, matters have moved on, including the Chancellor himself. The consultation on pensions tax relief has concluded, with no clear support for the Chancellor’s position, but it was expected that Budget 2016 would produce fundamental changes. What we got was the announcement of lifetime ISAs and Help to Save—hence the Bill before us.
The rationale advanced by the Government was that they wanted to help young people save flexibly and ensure that they did not have to choose between saving for retirement and saving for their first house. The lifetime ISA can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn with government bonuses from the age of 60 for use in retirement. Amounts can be withdrawn at any time, but with a 25% charge to recoup the government bonus—the equivalent of which was referred to by the noble Baroness, Lady Altmann.
For retirement savings, the structure of the lifetime ISA is effectively a TEE system: individual contributions paid from taxed income—no tax relief on contributions—investment income tax-free at the fund level and retirement income tax-free. That is a wish of the Treasury secured and some of us—pretty much everyone who has spoken—fear that it is the thin end of the wedge. Despite the impact assessment assuming that individuals will not opt out of workplace pension schemes to save in a lifetime ISA, I share concerns voiced in another place and by my noble friend Lady Drake and the noble Baroness, Lady Altmann, that it could undermine the progress of auto-enrolment and add confusion to an already complicated pension system.
The impact assessment identifies several groups who are expected to save in the ISA, but there seems to be no encouragement to see whether needs currently unmet by auto-enrolment can be brought into that fold. Of course, this is the year of the auto-enrolment review. It is encouraging that opt-out rates have been below original expectations, but we should recognise that these are still early days, as the noble Baroness, Lady Greengross, said, and that, with increased employer and employee contribution rates, they are still due to increase.
Compared to the current pension tax arrangements —an EET system—individuals will typically get a poorer deal from the Treasury by using the ISA route to secure a retirement income. This is particularly because of the tax-free lump sum currently available, and because an individual’s tax rate in retirement will typically be lower than when they are in work. What the individual loses, the Treasury gains. Of course, these matters are not set in stone, and the tax system is likely to change—indeed, it should—but currently, an individual saving for retirement via an ISA rather than an occupational pension scheme, notwithstanding the limited 25% bonus, is likely to be worse off. How are these issues to be communicated to consumers?
As a retirement vehicle, it should be noted that contributions to the lifetime ISA must cease when someone reaches the age of 80. That is hardly a lifetime. The noble Baroness, Lady Altmann, made the point that that is just the age where one would expect pension contributions to be ramped up. Retirement income cannot be accessed tax-free until the age of 60, although there is an opportunity to access savings at any stage with a 25% tax cost.
There is little in the impact assessment about the extent to which it is envisaged that individuals will draw down on their savings for a house purchase or leave it for retirement. One might just comment that contemplating the purchase of a first home at up to £450,000 is a sign of the times.
The Budget 2016 document indicated that the Government would explore the prospect of borrowing against lifetime ISAs, provided the funds were fully repaid. Has any progress been made on that? One can see some merit in having an incentivised savings product that can be available to cover a number of circumstances, but this should not be used to apply a regime, particularly a tax regime, which is less favourable than the stand-alone arrangements would be for any particular component. That is particular mischief of this Bill.
The Bill is a missed opportunity. It was certainly a chance to address anomalies in the tax system and the skewed benefit to the better-off. It was an opportunity to address some of the access issues for auto-enrolment, but perhaps also to move away from tinkering with individual housing initiatives to do something more fundamental. It was also an opportunity to do much more to build resilience for the poorest in our communities.
My Lords, the provisions in the Bill appear at first glance to be quite straightforward. The Bill sets up the mechanisms to create lifetime ISAs and a Help to Save scheme. As the noble Baroness, Lady Drake, noted, the total cost to government in 2020-21 of the LISA is estimated at £830 million. The total cost to government of the Help to Save scheme in the same period would be £70 million. This is a very small amount. Can it really be correct? I would be grateful if the Minister could confirm that the impact assessment has this right. If it is right, does it not say something about the scale and ambition of the scheme? Does it not amount to tinkering?
According to the impact assessment, both schemes are driven by a desire to increase the level of household savings. In particular, the LISA will help young people to save flexibly for the long term and provide help with buying a first home. Help to Save will help working families on low incomes build up a rainy-day savings fund. All this sounds laudable, but there are some obvious questions and worries about both schemes.
The first worry is that neither scheme seems particularly likely to have much real impact. Both could be characterised as yet more confusing tinkering with the housing market and the tax system. Both are ways of avoiding directly addressing fundamental problems and both add to the complexity of an already very complex system. Neither scheme faces up to what is a major problem for households; namely, the level of debt that they already hold.
This debt is now again as high as it was in 2008. In the year to 30 November 2016, consumer debt rose by 10.8% and there are fears that, especially among less well-off households, some of this rise is being used to fund normal living costs when real wages are declining. The expected rise in inflation would make this problem worse. It may be true that increased debt-fuelled consumer spending is driving current economic expansion, but this is not a sustainable position. And it is true that for many households, particularly the low-income households targeted by Help to Save, paying down debt is a better option than saving.
The Government have correctly identified two real problems: the difficulty that most people now have in buying a first home and the lack of any financial cushion for those on low incomes. But the solutions to these problems need to be systemic and enduring; they need to be more than tinkering. To solve the housing problem, we emphatically do not need more demand-side schemes; we need more supply. Nothing else will have, or has had, any significant effect.
In July last year, your Lordships’ Economic Affairs Committee, of which I am a member, published a report which addressed the housing crisis. The report was called Building More Homes and, unsurprisingly, that is what it recommended. In particular, it noted that the private sector, as currently incentivised, would not build the number of homes needed, that the Government had no real prospect of reaching its target of 1 million new homes by the end of the Parliament, and that this target was itself much too low. The Committee recommended among other things that the cap on local authority borrowing to build homes be lifted. Only by doing this did we see any prospect of any real relief to our housing crisis. We did not feel that the many existing demand-side initiatives were likely to have much real effect. Most of these initiatives simply push those near the ownership threshold over the line. They probably contribute to price inflation and certainly do not provide large-scale or comprehensive help across tenure types.
I feel that this will be true of the LISA scheme in the Bill before us. It is not just that the measure is more demand-side tinkering, which it is; there is another serious problem and it is one of confusion. This issue was raised frequently as this Bill went through the Commons. The potential for confusion arises, as many noble Lords have said, from making a choice between a LISA, an employer’s pension scheme and auto-enrolment. How is this important choice to be made? Who will offer impartial guidance?
On 9 October last year, the Government announced their intention to create a new, single public financial guidance body to provide debt advice, and money and pensions guidance. This new body will replace the Money Advice Service, the Pensions Advisory Service and Pension Wise. The consultation was launched on 19 December last year and closes on 13 February. This new replacement single body will not be in place before autumn 2018. The LISA will be introduced next April and Help to Save a year later, at the latest—both before the new financial guidance body is in place. This seems like bad timing.
The Government clearly do not believe that the current financial guidance system is working well, and they will replace it. But in the meantime, it creates further financial complexity for individuals by introducing these new products. This is surely dangerous, especially if it leads to individuals making wrong decisions about pension provision or if low-income households are encouraged to take up Help to Save when they would be better off paying down debt. This is not a small or trivial problem. For many low-income households, saving may be an unsatisfactory and expensive substitute for debt repayment. Who will these households turn to for impartial advice?
The Bill itself is silent as to who will manage the LISA and Help to Save schemes, although it says that LISA account holders will be able to transfer their holdings between plan managers. It also talks of “account providers”—plural—for the Help to Save scheme. This all sounds as though there will be more than one provider for each scheme. However, in the Commons, on 17 October, Jane Ellison explained that both schemes would in fact be administered by,
“a single provider, National Savings & Investments”.—[Official Report, Commons, 17/10/16; cols. 607-8.]
Why is this? Why are the Government introducing a monopoly supplier across both these products and what is the point of the transfer provisions in this Bill if there is no one to transfer anything to? I would be grateful if the Minister could tell us why the Government have chosen to establish these monopolies. Can she say whether the Government considered commercial or mutual alternatives? If they did, why did they reject them or, if they did not consider them, why not?
It seems to me particularly important that we have answers to these questions in view of the provisions in paragraph 3(2) of Schedule 1, which seems to give the Treasury unlimited powers over claims for LISA bonuses and—more alarmingly—allows delegation of these powers to HMRC. This seems intrinsically unhealthy and probably not acceptable to potential commercial or mutual providers. Can the Minister say whether the Government have discussed these provisions with potential commercial and mutual plan managers and if so, what the response was? Schedule 2 gives the Treasury more or less the same powers to amend by regulation the details of the Help to Save product. It is extremely odd that Schedule 2 contains an entire section—part 3, paragraph 9—that defines an authorised account provider for Help to Save when there is to be only one monopoly provider. Is this a case of the Government changing their mind as the Bill progressed through the Commons, or of the Government preparing the ground for the introduction of multiple providers? I hope that it is the latter. The Minister was asked about this situation in the Commons, in particular why credit unions could not be providers of Help to Save schemes. There was no convincing or clear answer. When challenged, the Minister asserted that multiple providers would not offer value for money. As Gareth Thomas observed, no costings were produced to justify this claim; in fact, no evidence was given for it at all.
Rather confusingly, however, in the closing stages of the Bill in the Commons the Minister displayed an evident sympathy for using credit unions and a willingness to reflect on the idea. Can the Minister, therefore, update the House on the Government’s thinking on alternative providers for both schemes, and in particular on credit unions as providers for the Help to Save scheme? Can the Minister commit to allowing credit unions to be providers, and to allowing and encouraging alternative providers for both schemes?
My Lords, I start by welcoming the Minister to the esoteric world of Treasury legislation. In the light of the debate so far, she is no doubt taking some comfort in the words in parenthesis after “Second Reading”, which read “and remaining stages”. The noble Baroness will not always be quite so lucky.
I thank the Minister for introducing this Bill and those who have spoken in this debate. I will do my best to follow the pension experts and my noble friends Lord McKenzie and Lady Drake, who did a far better job than I could ever hope to do in mapping out the implications of this Bill for the pensions landscape.
Labour supports measures that allow more people to save for the future. At a time when household debt stands at record highs and when having tens of thousands of pounds of debt is regarded as the norm for many young people, policies that can contribute to bringing about a culture change towards saving must be welcome. That being said, we are not sure that the two measures outlined in the Bill—the establishment of a lifetime ISA and the Help to Save scheme—will do what they are designed to do. More worrying is the concern from some sectors that they will undermine the progress that has been made, specifically on auto-enrolment.
I will pick up on three points that have attracted cross-party consensus and discuss some of the issues that have arisen since this Bill left the other place: how lifetime ISAs will impact the pensions market, appropriate advice services and the factors involved in the Help to Save scheme.
One of the most contested aspects of the Bill is the impact that these measures, particularly the lifetime ISA, will have on the broader pension savings market. The Minister in the other place has said that the new ISA and traditional pension products are complementary, but pension experts do not share that confidence. Indeed, in the case of one or two pension experts, particularly the noble Baroness, Lady Altmann, that is something of an understatement. We must avoid adding to the already complex quagmire that is the pensions landscape. These proposals came out of a government consultation on reforming pensions tax relief in July 2015, which seemed to acknowledge the scale of the challenge that reform would present without providing conclusions on how to tackle these challenges. Instead, the then Chancellor, George Osborne, stated that it was clear that there was no consensus.
We are concerned that these policies have been thought up without full consideration of the short and long-term implications. The FoI request by New Model Adviser confirms that the DWP has not carried out its own assessment of auto-enrolment opt-out rates caused by the lifetime ISA because there is a Treasury assumption that people will not opt out of workplace pensions. Therefore, it did not feel the need to carry out its own separate evaluations.
My colleagues in the other place asked the Government to consider reviewing annually the impact that the lifetime ISA was having on the rate of auto-enrolment. The response to the FoI request said that the DWP regularly meets the Treasury to discuss pensions and savings policy, but I wonder whether the Minister can expand on that and explain, in the light of this new information, why a review would not be appropriate. I believe that many of the fears voiced about the impact of this scheme on auto-enrolment could be sensibly assuaged if we knew that a regular review was being carried out. As Tom Selby, senior analyst at AJ Bell, said:
“At this stage we are totally blind to the number of people who could opt out of a workplace pension ... Ideally the government would have tested how the lifetime ISA will interact with auto-enrolment ahead of the product’s launch next year”.
The Work and Pensions Select Committee was unambiguous when it said:
“Opting out of AE to save for retirement in a LISA will leave people worse off”.
A review would ensure that if such trends were identified, the worst effects could be mitigated. It is difficult to understand how the Government can disagree with something that seeks to safeguard one of the few positive changes to have taken place in the pensions industry in recent decades. I would be grateful if the Minister could address these concerns.
I now turn to the issue of appropriate advice which should accompany the rollout of lifetime ISAs and the Help to Save schemes. The Work and Pensions Select Committee, which I have just quoted, was clear about the possible negative impact that switching to a lifetime ISA could have on a person’s finances. Therefore, it is crucial that such implications are widely known and that information about these products is easily accessible. The FCA has stated that investors in the lifetime ISA should be given a specific risk warning about incurring the early withdrawal charge, which would lead to them receiving less from their lifetime ISA than they paid in. There are clearly concerns about how the product will work in practice. I think that the following quotation speaks volumes:
“I consider myself moderately financially literate. Yet I confess to not being able to make the remotest sense of pensions. Conversations with countless experts and independent financial advisers have confirmed for me only one thing—that they have no clue either. That is a desperately poor basis for sound financial planning”.
That was Andy Haldane, the Bank of England’s chief economist. When he admits that pensions have become so complex that even he cannot make the remotest sense of them, I think it is time to reflect on the quality of the service being provided.
In Committee in the other place the Financial Secretary to the Treasury stated that people would be able to access the relevant information about these products through government websites, as well as by working with the Money Advice Service and its successor. What materials do the Government envisage that the MAS will produce, and how do they intend to ensure that, once the MAS is abolished, continuity in the accessibility and accuracy of information will be ensured? Furthermore, what correspondence have the Government had with the FCA regarding communication requirements? This concern has been echoed by a number of speakers in this debate. Surely we are entering an ever-more complex scene, with less and less assurance that the right advice will be available.
I turn finally to the Help to Save scheme, which has been designed for those in receipt of universal credit or working tax credits. As the IFS has stated:
“Key issue is whether those who use Help to Save will be the under-savers”.
The saving gateway scheme, piloted in 2010, offered similar support. However, the IFS evaluation found,
“no evidence of an increase in overall savings”.
Can the Minister explain how the Government have used this lesson and adapted the current scheme appropriately? Furthermore, can the Minister expand on the rationale for the two-year limit? It would be useful to get a better understanding of the Government’s thinking on this matter.
I will close as I began, by thanking those who have spoken in this debate. I look forward to the Minister’s response.
My Lords, I thank all noble Lords who have contributed to the debate today, and I thank the noble Lord, Lord Tunnicliffe, for his very kind welcome. I certainly look forward to working with him and other noble Lords in this esoteric and interesting area and bringing light to the issues.
I think we all agree on the importance of people having effective tools to help them save money. As the noble Lord, Lord McKenzie of Luton, suggested, saving is important and we need the right quiver of incentives—and I welcome his support for Help to Save. I think there is an equal consensus around the need to encourage more people to save. I take the point that there may be more to do to publicise the progress that we have made on defined benefit pensions, described by my noble friend Lady Altmann—who is in a great position to encourage pensions saving and to explain how valuable it can be. However, I do not agree with her conclusion on the lifetime ISA: it has been supported by many, including the ABI, individual members and, indeed, Martin Lewis.
I turn to the link between the lifetime ISA and automatic enrolment, which was first raised by the noble Baroness, Lady Drake. I am well aware of her great expertise on pensions and, indeed, her role in the seminal Turner commission report—I remember well that huge report, which was very authoritative, arriving on my mat when I was responsible for pensions at Tesco, where we really cared a lot about helping people both to have a good pension and to save for their retirement. Those of us who care about pensions can be champions, as the noble Baroness, Lady Greengross, said. I share her respect for the work of Business in the Community, as she well knows.
I stress that we are fully committed to supporting people through the pensions system. Automatic enrolment will help 10 million people to be newly saving or saving more by 2018. The lifetime ISA is designed to complement that. It gives young people more choice in how they save for the long term. It is not a replacement for pensions. The Government’s policy towards employers reflects this. Employers have a statutory obligation to contribute towards pensions under automatic enrolment, as well as a direct incentive. Neither is the case with the lifetime ISA. Our impact assessment, based on an OBR-certified costing note, is clear that we do not assume that anybody will opt out of a workplace pension to save into a lifetime ISA—as the noble Baroness, Lady Drake, said.
The Help to Buy ISA is similar to the lifetime ISA in that it gives a 25% bonus to support people to buy a first home.
May I check the logic of that? Is the Minister saying that the OBR has certified that it is a reasonable assumption that nobody will opt out as a result of a lifetime ISA, or merely that it took that as an input assumption in doing its analysis?
As with all impact assessments, it is an estimate. We looked at the Help to Buy ISA, which is similar to the lifetime ISA in that it gives a 25% bonus to support people to buy a first home. That has not led to a surge in opt-outs. Instead, opt-out rates for automatic enrolment are still much lower than the Government expected, as several noble Lords said; they are currently 9%. The overall programme assumption was, I understand, 28%. We will of course regularly monitor the lifetime ISA going forward to make sure that it is achieving its aim—as the noble Baroness, Lady Greengross, suggested, and indeed as we do with all important policy areas. But I am not convinced, to respond to the point made by the noble Lord, Lord Tunnicliffe, that we need a formal annual review.
The noble Baroness, Lady Greengross, asked how many people using Help to Save were eligible for automatic enrolment. We set out our expectations of take-up of Help to Save. I am afraid that, as with all forecasts, there is uncertainty, so at this stage we are not able to say how many of these people will also be eligible for automatic enrolment.
Several noble Lords talked about guidance and communication. The Government announced in October 2016 that they plan to replace the three government-sponsored financial guidance providers—the Money Advice Service, the Pensions Advisory Service and Pension Wise—with a new, single financial guidance body, which I welcome. Through creating a single body we intend to make it as easy as possible for consumers to access the help they need to get all their financial questions answered. For example, this could be through helping families to balance their household budget or for individuals considering their options in retirement. Consultation on the precise design of the single guidance body is currently live and closes on 13 February. MAS, TPAS and Pension Wise will continue to provide guidance to consumers until the new body goes live.
The noble Baroness, Lady Drake, raised the issue of pensions tax relief, as did other noble Lords. Our responses to the Treasury’s pensions tax consultation indicated that there was no clear consensus for reform and, therefore, that it was not the right time to undertake fundamental reform to the pensions tax system. But obviously the Government have moved, with the Bill, to encourage younger people to save through the lifetime ISA—and that was a key theme that came out of the consultation.
The noble Baroness, Lady Drake, raised the question of mis-selling risk, which was also a concern of my noble friend Lady Altmann. I agree that it is very important for individuals to have clear information on their products. That is why we will publish factual information about the lifetime ISA on GOV.UK, as well as working with the Money Advice Service and its successor to ensure that they make appropriate and impartial information available. As was said, it is the independent Financial Conduct Authority’s role to regulate account providers, including how they sell a product to consumers. It is currently consulting on the approach and has set out its proposals.
Having said all of that, the communication issue has come up under several different headings. If noble Lords would find it helpful, I will undertake to look through Hansard at the various points that have been made on communication and set out in a letter to noble Lords who have taken part in this debate just what our plans are. That will enable me, for example, to check with the FCA about its current plans and take account of any consultation responses that may already be available. We need to make sure that at the point of sale providers are transparent about risks, including any potential early withdrawal charge and with information on automatic enrolment. That theme came through from almost all noble Lords who spoke. It is a very important area. As has been said, this is a Money Bill, but that does not mean that we cannot set out how we see these things being properly communicated.
The noble Lord, Lord Sharkey, questioned the impact assessment. I understand, from checking with the experts, that it is correct. I was glad that he raised housing because it is an important area. The OBR has noted that the effect of the lifetime ISA on house prices is highly uncertain and its predicted impact is significantly smaller than overall house price movements. As we know, a number of factors can affect house prices, which will be subject to change in future years. For example, we are taking steps to boost housing supply. Following the announcement of £5.3 billion additional investment in housing in the Autumn Statement, we expect to double our annual capital spending on housing during this Parliament. We will publish a housing White Paper shortly, which I hope will address some of the supply issues the noble Lord raised and allow this House to have further exchanges on this incredibly important issue for the future of our economy and our industrial strategy. I believe the lifetime ISA is one way to make sure that first-time buyers have the support they need to get on to the housing ladder.
I will address a number of technical points raised by the noble Baroness, Lady Drake. She asked whether the Government would commit to a 50% participation rate for Help to Save. The Government are not setting any specific target around take-up of Help to Save because we want opening an account to be an active decision by those who feel Help to Save is right for them. However, we will continue to work with the account provider and other interested parties to ensure that people are made aware of the scheme and receive the right support and guidance.
The noble Lord, Lord McKenzie, talked about eligibility for the under-25s. A person aged under 25 is eligible for working tax credit if they work a minimum of 16 hours a week and have a child or a disability—I am learning a lot from this debate. Our intention is to passport people into eligibility for Help to Save. This is a well-established way of targeting support at people on lower incomes. Importantly, it removes the need for people to complete a further means test to prove that they are eligible, which we know could deter people from opening accounts.
Perhaps the Minister will write in due course. There seems to be a disparity between the requirements for universal credit and for working tax credit. In universal credit you must have 16 hours at the national wage. For working tax credit, unless you fall within the disability or childcare categories, you need 30 hours of work. Why have the Government used those particular thresholds?
It is an important but esoteric point. If I may, I will write to the noble Lord. I am sure that in time I will understand these arrangements better. On his point about saving on behalf of others, individuals will pay into accounts and receive a government bonus. There will be no restrictions on what individuals do with the bonus or savings, or where the money has come from. However, HMRC will carry out additional checks on a number of accounts and will respond to any intelligence it receives from third parties where this gives rise to doubt about a person’s eligibility.
The noble Lord asked about the Government’s latest position on borrowing from lifetime ISAs. The Government continue to consider whether there should be flexibility to borrow funds from an individual’s lifetime ISA without incurring a charge if funds are fully repaid, but have decided that it will not be a feature when it becomes available in April 2017.
The noble Baroness, Lady Drake, said that the Help to Save scheme was not generous enough. On increasing the 50% bonus, our pilots for the saving gateway showed that a higher match rate of 100% made people only 5% more likely to open an account than a 50% match, and the amount of money saved into accounts was not significantly affected. On the two-year bonus period, I can make it clear that no one will be penalised for early withdrawals if they need to make any. The rationale of the scheme is to encourage people to develop a regular savings habit that will last beyond their participation in the scheme because it is valuable more generally.
I appreciate that this is a money Bill, but on the noble Baroness’s last point—I really do want the Help to Save scheme to work—the fact that the evidence shows that a matching contribution from the Government raises the participation rate by only 5% is not a reason not to match, because for those who are participating, their resilience is greater. A sort of apples-and-pears argument is being deployed here. A more generous match increases the resilience of those who do participate.
On the participation rate, all the behavioural evidence is that simply having good information does not necessarily deliver the level of behavioural response. More of a nudge, more of an active plan, may deliver more than a one-in-seven participation rate.
I take note of the noble Baroness’s point. There is a balance here. I have set out why we have got to where we have got to. Indeed, I look forward to debates on the statutory instruments for this Bill in the fullness of time. I am sure nobody has ever said that before.
The noble Lord, Lord Sharkey, asked about other providers. He referenced a discussion in the other place about the involvement of credit unions. We have appointed NS&I as the scheme provider to remove significant administrative and compliance costs associated with allowing different providers to offer accounts. An option where we fund NS&I to provide accounts while allowing other providers to offer accounts on a voluntary basis would not provide value for money, but—this answers his question—we shall not rule out the option for a range of providers to offer accounts as long as they deliver national coverage. We felt that the credit union did not do that. That is why the Bill has been drafted to accommodate different models of account provision, although other models are not in the current plan.
I am grateful to the noble Baroness for that answer and I understand the position the Government have taken. Are there ongoing conversations with credit unions and other commercial suppliers of both these schemes?
I believe that the Economic Secretary to the Treasury has had some discussions of which the noble Lord may be aware, but I should not want to suggest that we are about to change the situation. I have made it clear that the provision is written in an appropriately broad fashion. I can also confirm that the Government are not restricting the number of lifetime ISA providers. Provision will be open to any provider with the appropriate HMRC and FCA approvals.
When it comes down to it, this money Bill is all about supporting people who are trying to save, whether through increased support to those on low incomes through Help to Save or through the increased flexibility and choice for younger savers offered by the lifetime ISA. This is a Bill that supports people trying to do the right thing—those who want to save and to be financially prepared for the future. I am therefore pleased to commend this Bill and to ask the House to give it a Second Reading.
House of Lords
Thursday 12 January 2017
Prayers—read by the Lord Bishop of Birmingham.
Death of a Former Member: Lord Goodhart
European Union: Freedom of Movement
Brexit: Trade Arrangements
Gambling: Young People
Green Investment Bank
Business of the House
Timing of Debates
Faversham Oyster Fishery Company Bill [HL]
Bill passed and sent to the Commons.
Northern England: Opportunity and Productivity
Motion to Take Note
Question for Short Debate
Armed Forces: Capability
Motion to Take Note
Savings (Government Contributions) Bill
Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time, and passed.
House adjourned at 6.59 pm.