(14 years, 6 months ago)
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Baroness Wilcox
My Lords, it is a great privilege to open this debate on Her Majesty’s gracious Speech. I thank my noble friend Lord Henley, who will be winding up today. He is no stranger to being a Minister, and I am extremely grateful for his experience.
Our discussion will cover business and economic affairs, the environment, energy, agriculture and transport. These issues are essential to securing Britain's economic recovery and global success in the future, and the gracious Speech supports the Government’s ambitious agenda decisively to tackle Britain’s deficit, to address the fundamental causes of the financial crisis, to build a sustainable private sector recovery that is balanced across all regions and industries, to promote resource sufficiency and the protection of our environment, and, finally, to secure the right mix of public and private sector investment to modernise Britain’s infrastructure.
The Government’s most immediate task must be to reduce Britain’s record deficit. According to the IMF and the European Commission, this year it is set to be the largest in the G7 and the European Union. The Government are borrowing £1 of every £4 they spend, which is a drag on our people’s ambitions and efforts to foster growth.
The Government must take action now. With the support of the Bank of England and based on analysis from the Treasury, we have identified and committed to cut more than £6 billion of wasteful spending across the public sector. Focused on protecting the vulnerable and maintaining the quality of our front-line services, these measures will increase efficiency and value for money, and enable government to reinvest part of these savings in Britain’s long-term growth.
Wider reform is also needed to boost credibility and trust in the UK’s fiscal framework and financial regulatory system. With its statutory responsibilities enshrined in the budget responsibility Bill, the new Office for Budget Responsibility will make an independent assessment of Britain’s public finances and economy, putting us at the forefront of international best practice.
The Government’s budget forecasts over the past decade have underestimated borrowing compared with independent forecasts. On average, in that same period, their forecasts for economic growth have also been out by £13 billion. An independent Office for Budget Responsibility will ensure that policy is developed based on a more accurate picture of Britain’s public finances and prospects. Its first findings will inform the emergency Budget on Tuesday 22 June and future fiscal events.
Out of the millions of words written about this financial crisis, its causes are clear: reckless lending, excessive borrowing and poor financial regulation. Breeding confusion over the roles and responsibilities of its authorities, the current tripartite system—the Bank of England, the Financial Services Authority and the Treasury—has failed to do its job. We need to learn from these mistakes.
The Government believe that the Bank of England, with its clear remit for monetary policy, is best placed to strengthen the link between financial stability and macroeconomic policy and, as a result, monitor and manage risks and imbalances in our economy. The financial reform Bill will give the Bank of England the control to do just that.
The Government are also developing measures to establish a more stable and effective banking system and ensure that profitable businesses, especially small and medium-sized enterprises, can access the credit they require to succeed. Ultimately, it is these businesses that will generate the growth and innovation that we need but, to do that effectively, government must promote, not stifle, their enterprise. Our Government are committed to developing a new model for the British economy—one that is balanced across all regions and sectors, supports sustainable growth and enterprise, works with rather than against the natural environment, and enables us to seize market share in leading global industries such as low-carbon.
That demands that we set out a clear vision of how Britain needs to earn its living in the future and deliver the open, competitive business environment, skilled, flexible workforce and cutting-edge infrastructure needed to make it happen. To do that, the Government are working to free small and medium-sized businesses from unnecessary regulation, cutting through the burden of red tape that holds them back, and making it easier for entrepreneurs to start a new business.
We are reforming our tax system so that it is simpler, fairer and more competitive. As part of this work, the national insurance contribution Bill will bring forward necessary changes to safeguard jobs and support the economy. We also want to increase the potential for SMEs to sell their high-tech products and services around the world and to win public sector contracts. We will also make it easier for small businesses to do business with government by making opportunities easier to find and by simplifying and streamlining the procurement process.
We shall also work with our universities and colleges to strengthen their links with industry and ensure our people have the skills they need for the jobs these companies create. In addition, we will remove barriers to flexible working, helping businesses to recruit and retain talent and enabling individuals to balance work demands with their family responsibilities. In the coming months, we will consult fully with business and families to identify the best way to introduce this change.
Finally, to thrive, every modern business needs access to cost-effective and reliable energy, transport and communication networks.
In each of those areas, new technologies and the demand for sustainable solutions present us with significant challenges and opportunities. In energy and environment, we need to tackle climate change; use our natural resources more effectively; secure low-carbon energy supplies; and cut our carbon emissions. In the long term, economic growth depends on the raw materials provided by our environment and it is crucial that we gain a better understanding of their value and how we can best manage them in the decades to come. The Government will, therefore, introduce a natural environment paper, the first since 1990, setting out a new, more integrated strategy to the management of our natural environment, including action to protect wildlife and increase biodiversity. The Prime Minister has said he wants this Government to be the greenest ever, both in terms of action at home and internationally. If we succeed, the potential prize for Britain’s people and businesses is thousands of new green jobs and a lucrative share of the growing market for environmentally sustainable technologies, goods and services.
To ensure the finance is available to help us make the most of that opportunity, the Government are creating a green investment bank and will develop new green financial products and a range of wider measures. The energy security and green economy Bill is a key part of that programme, providing the right legislative framework to deliver a successful low-carbon future for Britain. To do so, it will help to increase energy efficiency in our country by enabling a pay-as-you-save approach. Our green deal will enable householders to benefit from efficiency measures and repay the cost of this work over time through energy bill savings, rather than having to spend large sums of money upfront.
As well as reducing carbon emissions and household energy costs, this green deal will support a green recovery. It will drive the creation of more green jobs, alongside clear quality standards and help green industries and expertise in this country to grow. Subject to detail and any necessary legislation, further measures may include energy market reform to secure our energy supplies and shift to low-carbon sources—that is in addition to our work with Ofgem to develop a security guarantee for our energy supplies; the introduction of an emissions performance standard to regulate the emissions from coal-fired power stations; a requirement for energy companies to provide more information on energy bills, empowering customers to make the right green energy choices for them, including information on the cheapest tariff available and useful comparisons of energy usage; and, finally, a framework for the development of a smart grid to revolutionise the management of supply and demand for electricity in Britain’s low-carbon future.
Some have queried why there was nothing in the gracious Speech on nuclear power. Quite simply, there is no need for a new Bill in order to bring forward new nuclear. The Government are committed to allowing the construction of new nuclear power stations provided they receive no public subsidy and, through the Office for Nuclear Development, we will continue to drive forward the actions needed to remove unnecessary obstacles to the deployment of nuclear power. This includes the completion of the draft nuclear national policy statement to be tabled in Parliament.
Also central to our low-carbon future is the creation of a modern, sustainable transport system for Britain. We have already made it clear that we do not support the construction of a third runway at Heathrow, or any plans for new runways at Stansted and Gatwick. We want to make Heathrow better not bigger, and to boost the performance of our airports for the people who use them.
Improving the framework for airport economic regulation is vital to this. And we will reform existing arrangements for setting price caps at airports to establish a more flexible framework focused around passengers. In addition, we are committed to establishing a high-speed rail network. Our vision is for a truly national network linking our major cities and including links to Heathrow and potentially other airports. In this way, high-speed rail could provide an attractive alternative for journeys which might otherwise be served by short-haul aviation.
In due course, we propose to seek powers to deliver the first phase of that network through a hybrid Bill later in this Parliament. But substantial work is needed ahead of this, and we will continue to develop our proposals. This includes carrying out a full and open public consultation with those who may be affected by any high-speed line.
Every day, new technologies are revolutionising how businesses connect with their customers and people communicate. Unsurprisingly, this has had a radical impact on the business of the Royal Mail. The postal services Bill will seek to tackle the fundamental and long-standing problems facing this organisation in a modern communications environment. It will aim to enable the Royal Mail to benefit from private sector disciplines and capital, including possible opportunities for employee ownership, ensure the continued provision of a universal postal service and safeguard the future of the Post Office network.
Also, as other countries roll out next-generation high-speed broadband, the Government will be looking at ways to enable a strong, market-led approach to its deployment in this country, ensuring that people and communities in rural, as well as urban, areas can benefit from this technology and businesses across the country can compete. Just as any family or successful business knows, it is taking a big risk on its future with too much debt—Britain cannot build its recovery without urgent action to reduce the deficit, increase market confidence and restore balanced, sustainable growth to our economy. The gracious Speech sets out and supports our Government’s measures to make that happen and sends a strong message that Britain is open for business.
We will have the talent, the technology and the tolerance to take our country forward. We will remove the over-restrictive ties that presently bind us; protect the vulnerable; and revel in the freedom that our unwritten constitution has given us and that has allowed this exciting journey to new politics, which our people have faith in us to begin. I look forward to our debate on these important issues.
Lord Myners
My Lords, I begin by congratulating the noble Baroness, Lady Wilcox, on her appointment to government. This must be the first time in many decades—possibly ever—that part of the debate on the humble Address has been led by two people of Cornwall. I also compliment the noble Lord, Lord Henley, on his return to the government Benches.
This will be my last contribution from the Opposition Front Bench, as I move to the Back Benches to make room for colleagues more skilled in the art of politics and opposition. I should therefore like to use the occasion to express my appreciation to the noble Baroness, Lady Noakes, for the detailed focus she brought to shadowing me when I was in government. I should also like to record my thanks to the noble Lord, Lord Newby, who introduced great vision and wisdom to our debates. And of course I should like to register my most sincere gratitude to my noble friends for their patience and support over 18 months. Finally, like others, I look forward to welcoming Sir James Sassoon to the House and to the Benches opposite. His experience of the real world will be indispensible to his new colleagues.
I will focus my remarks today on matters relating to the economy, public finances and the financial sector, because everything else depends upon this. My colleague, my noble friend Lord Young of Norwood Green, will also speak to these subjects and other matters in his closing speech.
The Labour Party lost the general election. We need to reflect on the reasons for our failure and develop a set of coherent proposals which will appeal to the aspirations of the broader electorate. We should be proud of many of our achievements while in Government, but we need to recognise that jobs cannot be created by interminable meetings in the COBRA war room. Government needs to work with the grain of the private sector, creating a pro-enterprise context with the right incentives and rewards for success.
We now need to focus on the challenges and responsibilities of effective opposition. We will not oppose for the sake of it; nor should we oppose proposals from the Government which we would have made had we been re-elected. For instance, I do not see why we should take issue with the intention behind the Equitable Life Payments Scheme Bill or the Terrorist Asset-Freezing Bill, although we will of course scrutinise the detail.
We will be vigilant in our analysis of and response to government proposals which we judge to be unfair, damaging to essential public services or injurious to jobs and business. We are told that the Government's legislative programme will be based on the principles of freedom, fairness and responsibility. The Queen's Speech tells us nothing about how the new Government will resolve the inevitable tensions between those fine words. We will be testing the Government against those principles. The Queen’s Speech is where the “dignified” part of the constitution passes to the “efficient”. The Government have been clear that in their view, to cite the coalition document,
“The deficit reduction programme takes precedence over any of the other measures”.
The Opposition do not dissent from the view that there needs to be a clear path to sustainable government funding, including a significant reduction in the public sector deficit, but we question the timing and pace of the deficit reduction programme. The risks of moving too soon or too late are not symmetrical. Over-hasty action will push the economy back into recession and a ballooning rather than a contracting of the deficit. That was the view of the Liberal Democrats until three weeks ago.
The economy is showing signs of recovery from the global recession, supported by the previous Government’s stimulus package, but private sector consumption and investment are still too anaemic, in my judgment, to make up for a very sharp fiscal tightening. The output gap, or excess capacity, is already in excess of 5 per cent of GDP. Any contraction in aggregate demand will be reflected in increased unemployment, loss of people's homes and business failure.
It has been entirely right and proper in the circumstances that the Government continued to support economic activity through a targeted programme of expenditure designed to protect the most vulnerable and facilitate the return to growth. This should continue until the private sector demand and investment process recovers. Our action in that respect in 2008-09 achieved a considerable measure of success, particularly compared with the experience of Tory recessions in the 1980s and 1990s. The strategy that we followed was sensible and well within the Government’s financing capabilities. Real yields on gilts are below 1 per cent, and nominal yields are below 3.5 per cent. The ratio of gross debt to gross domestic product is below that of all our major competitors, and still below the long-term average for the UK. The average maturity of our debt is more than 14 years. The private sector is currently running a surplus that represents nearly nine-tenths of the fiscal deficit. We must not lose sight of the interaction between the private and public sectors in terms of deficits and surpluses.
Fiscal tightening will work only if it coincides with a robust private sector recovery. If that is not the case, the Government's action will drive the economy back into recession with an increasing public sector deficit. In such circumstances, dogma and intransigence will be pursued at very real cost to people's lives. Recovery cannot be taken for granted, particularly if the public and private sectors here and overseas are engaged in simultaneous and unco-ordinated balance sheet adjustments. It is incumbent on the new Government in this respect to follow the lead set by their predecessor in shaping and influencing international co-operation on economic management. The new Chancellor will have his first test this weekend at the G20 meeting. We look forward to receiving his report.
I referred earlier to the position that Liberal Democrats took during the election campaign on the need to eschew early or harsh spending cuts. Mr Nick Clegg, the Deputy Prime Minister, justified his change of position in supporting George Osborne's spending cuts, having opposed them during the election, by saying on the “Andrew Marr Show” on BBC1 on Sunday 23 May:
“I don’t think anybody could have anticipated quite how sharply the economic conditions in the Euro zone would have deteriorated, and the need to show that we are getting to grips with this”
the deficit—
“suddenly becomes much greater”.
I look forward to hearing the views of the noble Lords, Lord Desai and Lord Skidelsky, on this arrant nonsense. European economies—our principal export market—are weakening. Gilt yields have fallen, signalling a sense of heightened anxiety about growth and risk, as further evidenced by increased risk tendencies within the banking sector. Sterling is strengthening, yet our Deputy Prime Minister now believes that these circumstances justify the introduction of measures that will weaken demand and that are likely to be harsh and regressive in their impact on our economy and society.
The coalition Government need to spell out those parts of the economy that they have identified as the engines for growth in 2010-11. What will act as a catalyst for an improvement in the private sector? What will improve demand and investment when so many countries are in retrenchment? The Minister talked about a balanced economy. How do the Government intend to balance the economy? What do they intend to suppress in economic activity? What activities do the Government wish to see diminish in importance in our economy? It is certainly most odd that in these circumstances Mr Osborne should have chosen last week to give high priority to reducing business support schemes and that Mr Cable should have failed to make the case for business. Perhaps Mr Cable has concluded that he is powerless to challenge Mr Osborne.
The Minister referred to wasteful expenditure. We are all in favour of cutting waste, but cancelling 10,000 university places is not cutting waste; it is cutting our capacity for the future. Cancelling 40,000 jobs for young people under the Future Jobs Fund is not cutting waste; it is blighting prospects. Cutting child trust funds is hitting the poorest and has no impact on public expenditure, as the assets within those funds have to be retained within the banking system.
The noble Lord, Lord De Mauley, last week failed to provide any credible answers to questions from my noble friends Lord Eatwell and Lord Kinnock on the impact of the Government’s announcement on unemployment, business failures and the cost of breaking long-term contracts. The noble Lord said that today’s debate would afford ample opportunity for answers to those questions. I heard not a single answer from the Minister to those questions. It is my sincere hope that Ministers will provide answers in the closing speech or by letter to those participating in this debate. I have no doubt that the answers exist within the Treasury, although they were clearly not shared with the noble Lord, Lord De Mauley, ahead of last week’s debate. When I sat on the Benches opposite, I made real efforts in my closing speeches to answer questions raised in debate, and when I was unable to do so, I tried to answer them as fully as possible in correspondence with noble Lords who participated in the debate. If I was slow in replying, I could always rely on the noble Lord, Lord Marlesford, to chase me. I hope that Ministers participating in this debate will respect the House by following the same practice.
A core element in the Government’s legislative programme is the establishment of the Office for Budget Responsibility to provide confidence in the management of public finances. We must wait to see whether this is a triumph of spin over substance. The independence and credibility of the OBR is hardly helped by the suggestion that it will be able to provide independent and credible economic forecasts ahead of the Budget in three weeks’ time. The OBR’s wish to accommodate the Chancellor by agreeing to such a rushed piece of analysis does not auger well. I do not have concerns about or issues of principle with the OBR. It could possibly be a useful addition to transparency and accountability, although the IMF’s cool reaction to the proposal suggests that we should not raise our hopes. But I have questions of detail to which I seek answers. How will the OBR be staffed? Will it have its own independent forecasters, or will it rely on Treasury officials? What resources will be allocated to the OBR, and will they be determined by the Chancellor? What savings in Treasury costs will arrive with the establishment of the OBR? How much time will it have to review Budget proposals before it publishes its commentary on them on 22 June? Sir Alan Budd appears well qualified to chair the OBR, but he is a political appointee, made while the Tories were in opposition in 2009. Will OBR appointments be in accordance with best practice and in open competition, without ministerial or special adviser involvement? How much will Sir Alan and his colleagues be paid? Sir Alan has recently worked for a well-known hedge fund and speculator. Has he now terminated all links with this group, which is led by a well-known Tory donor, or is there an arrangement for him to return to the group on completing his appointment at the OBR? I ask the same question about Mr Geoffrey Dicks and Novus Capital. When did Sir Alan and Mr Dicks last advise their clients and associates on public finance issues? Have they had any contact with these firms since the election?
Critically, we will expect the legislation that establishes the OBR to make it clear that this body should be independent of the Treasury, fully accountable to Parliament, and transparent in its processes—including publishing minutes, as we did in respect of the Council for Financial Stability. The key word in the OBR’s title is “responsibility”. Let there be no doubt that the Chancellor must continue to take responsibility for tax and spending decisions. He cannot evade them or use the OBR, or Mr Danny Alexander, as a human shield. Sir Alan will need to be careful not to be drawn into politics.
The OBR has little time to prepare its economic forecast and review the proposals that the Chancellor will announce to the other place on 22 June. It is clear that we will see draconian cuts in expenditure that will include the front-line provision of critical services. Taxes, particularly VAT, will also rise. Tax bands will be frozen and benefits cancelled or reduced. Anticipation of these cuts is already sapping consumer confidence, and businesses are placing new investment on hold until they see how bad things are going to be.
We can, however, take some encouragement from the moderating influence of the Liberal Democrats, who are deeply embedded behind lines in the coalition, as already evidenced in the cancellation of plans for raising the threshold for inheritance tax and in the proposed changes to capital gains taxes to bring them closer to the income tax rates. We congratulate the Liberal Democrats on their influence on the Conservative Party in this respect. Raising tax thresholds and the capital gains tax rate is a well argued Liberal Democrat priority, although I note for the House that in previous Budgets we judged it important when in government to encourage capital investment and business creation through low rates of taxation on capital gains. I look forward to hearing the Government’s explanation of their thinking behind increasing capital gains tax rates. The Liberal Democrats made great play in their election pitch about closing tax loopholes and frustrating tax avoidance, particularly in the banking sector. Will Ministers confirm that this is a high-priority action for the new Government and let the House know the actions that they are taking?
Let me now spend a moment on the banking sector. I sense that the European banking sector is moving towards a very difficult space, with heightened risk manifesting itself in wider credit spreads and a reluctance to do business with an increasing number of professional counterparties. This is similar to, although not as extreme as, the conditions that prevailed in 2008. This new Government must now exercise great care if we are to avoid a further banking crisis. The Government have proposed establishing an independent commission to investigate the complex issues of separating retail and investment banking. I wonder whether Ministers can cite a single example of this factor having a bearing on the failure of any UK banking institution, and I look forward to the answer from the noble Lord, Lord Henley, to that question.
From my experience, the failures of RBS and others were down to poor credit judgment, poor management and poor governance. Universal banking was not a causative factor. Yet the establishment of this commission is causing the banking sector considerable alarm, as is Ministers’ talk of the Government forcing banks to lend regardless of their commercial judgments of risk. The uncertainty that is being created is leading banks to review their lending commitments until the Government are clear about their intentions. This contraction of credit is another force that pushes the economy back towards recession. Will Ministers tell us when we can expect a comprehensive statement on this commission, and their policy thinking behind obliging banks to lend?
It is unfortunate that the uncertainty created by the new commission must now mean that the Government are not in a position to realise the full value of the investment taxpayers have made in Lloyds Banking Group and RBS. The taxpayer currently has a substantial gain from the aggregate interventions made by the Treasury and the Bank of England in 2008-09—something well in excess of £10 billion of gain as a consequence of well structured programmes of intervention and support. UK Financial Investments had well developed plans to work towards sales, which I imagine must now be postponed while this review is carried out, with the risk that the opportunity for gain will pass.
Finally in respect of banking, the new Government have talked of robust action on bonuses. Can Ministers explain what they have in mind and how their thinking in this area and their proposed actions differ from the actions of the previous Government? Are they considering the introduction of a special tax or a higher rate of corporation tax for those banks, or some direct involvement in decisions about remuneration? If they are going to do this for the banks, will they do it for insurance companies, hedge funds and others who compete with the banks? There is complete uncertainty here because of the lack of clarity about the Government’s intention. The time has passed for the Government to be vague about this. We need clear statements if uncertainty is to be addressed.
The Government are also proposing changes to the structure of banking supervision. Their thinking here is confused and the wisdom of making wholesale changes to the regulatory architecture must be very questionable at a time when the world’s banking system is showing loss of confidence. The Government talk about bringing forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation. When can we expect to see these proposals? Do they accord with the wishes and recommendations of the Bank of England? Does the Bank of England have the capability to perform these new roles or will people need to be recruited—possibly, ironically, from the FSA? When does oversight move to control? When does micro morph to macro?
In respect of macro-prudential regulation, will the Bank of England seek to influence market values of homes, property and businesses? Will it have powers to ration lending? How would those powers operate given the global nature of banking and financial markets? Will this macro-prudential regulation be co-ordinated with the work of the OBR? On these subjects, the Government are absolutely silent. How will the Bank manage the potential conflicts between its role in determining the price and availability of money, and its new responsibility for micro-regulation, where these two may move it in opposite directions? There is no clarity on these issues in the Government’s thinking at all. We look to the noble Lord, Lord Henley, to provide that clarity. I mentioned governance earlier. I hope that the new Government will continue to promote the cause of good governance and stewardship, and ensure that the UK continues to lead in this important area.
I have little time to comment on other matters in the Queen’s Speech, but I would express my general support for the intention to give all employees the right to request flexible working hours and the promotion of equal pay—two policies where the influence of the Liberal Democrats is again very clear. The same could be said for the enthusiasm with which the Government are proposing to focus on legislation to take action on climate change.
The Liberal Democrats endow the Government with a more caring complexion than would have been the case if the Conservatives had governed alone. The new Government are coming together impressively at ministerial level but the debate on the humble Address has already exposed Back-Bench tensions that will need to be managed.
For our part the Queen’s Speech contains a number of measures which we will wish to support, subject to detail. But there are other areas where thinking is simply flaky or reckless—areas where the interests of economic prosperity and stability are subserviated to dogma, blindness to risk and the hazards of foolish action. The Government can expect us to be unstinting in our opposition to such measures.
Lord Bilimoria
My Lords, I congratulate the Minister on her appointment. We have all witnessed the hard work that she has put in in this area. I also congratulate the noble Lord, Lord Henley.
Today, we have a huge public sector debt and a huge deficit. Working-age employment is at its lowest level since 1996 and we have over 5 million out-of-work benefit claimants. We are one of the most highly taxed economies in the world and Europe is on the brink of disaster. The previous Government blamed our crisis on the global situation and now the current Government are blaming the previous one for everything. Surely we have had enough of the blame game.
Being out of the euro has saved the British economy from being added to the list of the PIGS countries. For the euro to be truly effective, I believe that you need political, emotional and economic alignment. In reality, countries set their own fiscal measures, there is no emotional commitment and, as we know, there is no economic alignment—just look at Germany and Greece. Thanks to being out of the euro, we have not been straitjacketed by the euro interest and exchange rates. I am all for keeping a mutually beneficial relationship with Europe as a trading partnership.
On the subject of trading partners, I am absolutely delighted that the enhancement of the UK’s partnership with India was mentioned by Her Majesty in the gracious Speech. I agree with Larry Summers, who said that,
“the dramatic modernisation of the Asian economies ranks alongside the Renaissance and the Industrial Revolution as one of the most important developments in economic history”.
I am proud to be president of the UK India Business Council, supported by UKTI. India’s economy has grown by over 6.5 per cent while we have been in recession. British business, in particular our SMEs, could be doing so much more.
The coalition Government’s move to reverse the national insurance increase is welcome; according to the FSB, it will help to protect 57,000 jobs. On the other hand, the 50p top tax rate, the non-dom levy and the proposed capital gains tax increases not only send out all the wrong signals to the world but also hinder our ability to create a balanced economy. Many studies suggest that an increase in capital gains tax does not actually increase tax receipts; it is quite the reverse. For example, during the last century in the United States, virtually every time taxes were lowered, whether on employment, savings, investment or risk taking, tax revenues went up, not down. A small country such as Britain can flourish only if it is able to create a highly skilled, highly creative, innovative, open and value-added economy, and this can be achieved only by the Government creating the right economic environment that attracts both inward investment and the best brains. Creating a competitive tax structure is essential to enable this. As Winston Churchill famously said,
“for a nation to try and tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”.
The introduction of the Office for Budget Responsibility is a positive move, as is the plan to increase the Bank of England’s regulatory power. In my opinion, the FSA was asleep on the job and definitely not up to the job. I am convinced that, if the Bank of England had been in charge, much of the suffering in our financial sector and the economy over the past three years would have been prevented.
The welfare reform Bill is also welcome. We have a benefits trap in this country. Today, the difference between welfare support and a 40-hour week on minimum wage is just £37—hardly enough to inspire people in difficult times to seek jobs. As I have said before, in 1997 government spending accounted for 40 per cent of GDP, similar to the level in the United States. Last year the figure rose to 52 per cent of GDP. That is just not sustainable. We have a public sector that is not delivering; it is overpaid and full of jobs for life and gold-plated pensions. Setting a target for reducing public sector spending to 40 per cent of GDP is essential and would, in effect, wipe out our deficit.
This is not just about making cuts; it is about making the right cuts. Ring-fencing services for votes has led to an incredible sense of imbalance. On the one hand, the Department for Work and Pensions has a £135 billion budget, yet we skimp on national security and our Armed Forces while our brave troops are making the ultimate sacrifice for us.
I am delighted that the Minister has talked about supporting SMEs. There is talk of a £500 million loan guarantee scheme, but that is a drop in the ocean when compared with the £1 trillion of quantitative easing for the financial sector. Again, this is about priorities. Britain’s higher education sector punches above its weight and is the best of the best in the world, in spite of 13 OECD countries outspending the UK as a proportion of GDP. It is important that cuts in the area are completely avoided. Education is our future and the key to our competitiveness.
I believe that this Government can snatch victory from the jaws of defeat if they recognise that it is the private sector that creates the jobs that pay the taxes that pay for the public sector and that thus pay the people who genuinely need our help. We must never forget, as the Minister said, that by stifling business we kill the goose that lays the golden egg.
This was a game-changing election and I am very hopeful about this new coalition. However, our economy could either be “Con-Dem-ed” or “Con-Liberated”. For the economy, although things look incredibly bleak at this moment, now is the time to seize the opportunity—to go down the route not of the politics of envy but of the politics of aspiration. Now is the time to unleash the spirit of enterprise and achievement for which this great country has been famous for centuries and centuries.
The Lord Bishop of Wakefield
My Lords, on behalf of these Benches, I, too, congratulate the noble Baroness, Lady Wilcox, on her new role.
As all the analysts remind us, food stands at the top of the hierarchy of human needs, so some self-sufficiency in food production should be a priority for us. There is much to welcome, both in the gracious Speech and in the programme for government, on the subject of agriculture and food supply. The decentralisation and localism Bill picks up the heralded emphases on subsidiarity, removal of overregulation and a movement towards big society. Encouragingly, this retains some bias towards poorer regions and a real attempt to avoid the worst effects of the cuts in West Yorkshire, where I am based, and in similar post-industrial areas, where there are areas of related urban and rural poverty. Agriculture, indeed, in our part of the world can often be a subsidiary career standing alongside teaching, industry or commercial business within the same family. Moreover, the Bill will go some way, I hope, towards redressing the recent decline of local services in rural communities.
Only once have I found myself performing the role of a flying picket. It was unfortunately ill timed very early one January morning outside a dairy in Leeds where, in temperatures of minus 10 degrees, we protested about the absurdly low prices being offered by supermarkets to dairy farms for their milk. I am therefore happy to see in the programme for government the proposal to bring forward a Bill to introduce an ombudsman to enforce the grocery supply code of practice and to curb abuses by the supermarkets. I have been told time and again by local farmers of an almost piratical abuse of power—for example, premiums are demanded of smaller suppliers if supermarket chains are to market their products. Although it was not in the gracious Speech, I hope that this Bill will be a clear and urgent priority for government.
The programme for government happily mentions the huge potential of energy production from the waste products of anaerobic digestion. Like politicians, clergymen are not immune from being accused of purveying the dung of bulls, but on this occasion I am prepared to glory in it. Last month, when I was visiting Kellingley colliery, I spoke to representatives from the enormous Drax power station, who talked of co-operation with farmers, locally and further afield, in the production of biomass fuel to be used alongside coal. I am glad that Her Majesty’s Government recognise that the urban, industrial and rural are far more directly interdependent than is sometimes appreciated. I hope that this kind of process will be continued.
There remain crucial challenges to the rural and agricultural sector, not least from animal disease. One need only recall foot and mouth, bluetongue and BSE as relatively recent examples. The issue now of bovine tuberculosis remains critical and affects the financial viability of far too many farms. I hope that Her Majesty’s Government may be able to work with the Farm Crisis Network and other voluntary bodies, using the big society model once again—but, at the same time, providing the finance and incentives where these are needed—to rise to these challenges and to help to reduce the incidence of this disease.
Perhaps most crucial of all is the provision of an infrastructure that can encourage a proper self-esteem in the rural agricultural sector in these coming years. Many things, including disease, as I have just noted, and overregulation, have contrived to reduce self-esteem in this sector. Self-esteem is crucial to any individual or community if they are to move forward and prosper. Here, the gracious Speech offers much encouragement: high-speed broadband, reform of the Post Office locally, decreased regulation and dispensing with unnecessary quangos. However, I would plead for subtlety and care in taking forward reform. Post offices provide a vital lifeline for rural communities. Our churches can help in this by offering outreach services within our own buildings—I hope that we can be used further here. I trust, too, that we can make access easier to other facilities offered by post offices. For example, direct debit facilities with suitable support services can enable even the poorest in society to take advantage of the discounts available when paying utility bills.
The Book of Common Prayer—in a way, the Church of England’s title deed—includes prayers and thanksgivings for fair weather, for rain and for plenty. Quaint as the articulation may now seem, this reminds us of the crucial part played by food production and its wider role in human flourishing. The welfare of the agricultural sector and all those who work within it, alongside the care of our rural areas and populations, impinges indirectly but importantly on every one of us.
Lord Lawson of Blaby
My Lords, it is a great pleasure to follow the right reverend Prelate, who speaks with such authority about some of the problems of rural England. I also congratulate most warmly my noble friend Lady Wilcox on her maiden speech as a Minister. I cannot pretend that I agreed with every single word that she uttered, but she uttered them with enormous charm. Above all, I wish the new Government every success in the massive task before them and the resolve to stick to that task despite the deep unpopularity that inescapably lies ahead.
I warmly welcome the statement in large type at the end of the coalition’s agreed Our Programme for Government, which states:
“The deficit reduction programme takes precedence over any of the other measures in this agreement”.
Quite right. There must be no sacred cows and no sacred departments.
Meanwhile, I welcome the start that has been made in cutting public expenditure and reducing the public deficit, with an in-year cut of a little under 1 per cent of total public spending. This is, of course, only a minuscule fraction of what has to be done, but essentially it is an earnest of the Government’s intentions. The first Budget of my right honourable friend Mr George Osborne later this month will need both to get to grips with the immediate crisis and to set out, in convincing terms, the financial prospect and programme for the next five years. I wish him well.
I detect unease in some quarters about the promised increase in capital gains tax rates. In so far as I understand it, I fully endorse what the Government have in mind, which is perhaps not surprising, since I introduced a similar reform in my 1988 Budget. I do not have time to set it out now, but I refer noble Lords to cols. 1004-06 of the Official Report for 15 March of that year. That reform—it is not without interest that the Reagan Administration in the United States introduced much the same reform at much the same time for much the same reasons—worked very well and lasted successfully for more than a decade.
The previous Government’s foolish decision to undo that position, abolishing both indexation and the tapering relief, which was a rough and ready substitute for it, and replacing it with a capital gains tax rate of 18 per cent, has had three main consequences: it created a bonanza for short-term speculators; it led to a massive increase in tax avoidance and thus a serious and continuing loss of income tax revenue—the point is the income tax revenue, not the revenue from capital gains tax; and it greatly stimulated the buy-to-let boom, thus hugely inflating the housing market, which has been a major cause of the worst boom and bust that we have suffered since the war.
I welcome the fact that my right honourable friend the Prime Minister chose to make the economy the subject of his first major speech as Prime Minister. However, I have some questions about what he called “rebalancing our economy”, which he explained meant less dependence on banking and finance and a boost to manufacturing. Banking and finance are not only a major growth industry in the age of globalisation but one of the few major industries in which this country is a world leader. To have the objective of shrinking it would both amaze and delight our overseas competitors. Of course there need to be changes to reduce greatly systemic risk and I welcome the new Government’s decision to have an independent commission to look into how best to separate traditional retail and commercial banking on the one hand from high-risk investment banking on the other. As the Governor of the Bank of England, among others, has cogently argued, that badly needs to be done.
I have to observe that, far from assisting manufacturing, the Government, like their predecessor, appear to be hell-bent on clobbering it further by substantially increasing its energy costs in the name of an intellectually incoherent climate change policy. There is no time to elaborate on this today, but I commend to noble Lords the excellent and grim speech made by the eminent engineer Sir Alan Rudge to the Royal Academy of Engineering some six weeks ago. I hope that the Government will read it and ponder it. I add only that to impose this burden on British manufacturing industry unilaterally—for none of our competitors has the slightest intention of following suit—is not only suicidal but completely pointless, since even those most concerned about carbon emissions agree that it is only global emissions that matter. At the very least, I ask the Government to undertake to hold a fundamental review of UK climate and energy policy in the light of the outcome of the United Nations climate change conference to be held in Cancun in December.
Lord Bhattacharyya
My Lords, I offer my congratulations to the new Government, and to the noble Baroness, Lady Wilcox, on her appointment. I am lucky enough to have known her for some time, and I am sure that she will provide intelligence, experience and vision to her department.
Time is limited and the topic is huge, so I shall limit myself to a subject I know about—technology and manufacturing. From the minimum wage to the science budget, Britain is a better place today than it was 13 years ago. For all the rhetoric from the coalition, there is much that the new Government will not undo. I am pleased that thoughtful Ministers such as David Willetts accept that Britain has changed for the better. In that spirit, I welcome the measures in the gracious Speech to support industry and the Prime Minister's speech last Friday, in which he called for a rebalanced economy. I have long been a voice in the wilderness on that topic, and it is pleasant to have such support. The question is how we achieve balanced growth while reducing the deficit as the Government propose. If we improve our manufacturing exports by 10 per cent and cut manufacturing imports by 10 per cent by import substitution, this would contribute £50 billion each year to our balance of payments, which will ensure real growth.
An example is the steel industry. The vice-chairman of Tata Steel, which includes Corus, has said that in 1970 the UK consumed 25 million tonnes of steel; 95 per cent of this was produced at home. Today we consume only about 8 million tonnes, just half of which comes from the UK. Why? Because we have limited demand due to our industrial decline. Britain is the only European country to have had such a dramatic fall. We therefore need an integrated manufacturing policy that brings together all sources of funding, from banks to RDAs to research councils, in order to secure growth. Merely discussing industrial activism does not deliver business growth. I declare an interest: I am the director of the Warwick Manufacturing Group at the University of Warwick. Our funding is largely from the private sector from throughout the world and we contribute to the finances of the university, so I hope that the Business Secretary will not be too harsh on me.
As the coalition begins work, there seems to be some discussion of the role of “impact” in university research. It is true that in areas of blue-sky research and the humanities, impact can become a box-ticking exercise. In applied science and in technology, however, impact is precisely the right measure to judge research. Applied science is successful only if it is useful. For technologists, impact is not a way to secure value for money but a path to economic growth and productivity. The Engineering and Physical Sciences Research Council is already looking at impact, and it should be encouraged to do more.
I am no interventionist—there should be no return to a bailout culture—but we must not turn away good, profitable businesses looking to invest for the future. We have excellent manufacturers in Britain. Two years ago Jaguar Land Rover made a huge loss, but today it exports £6 billion-worth a year. The turnaround has been remarkable, but when the company was in trouble there was no one there to help. There are other excellent industries too: JCB, Rolls-Royce aero engines, British Aerospace and so on. We must not lose them.
As David Green, director of the think tank Civitas, has said, cutting industrial investment now, whichever way you want to cut it, would be like eating seed corn to get through the winter. I welcome the proposal for a green investment bank but a green economy will require contributions from every sector, from automotive to energy to healthcare.
I am a regular visitor to China and India, and industries in those countries are climbing the value chain at an alarming rate. We must help our industries compete and partner with these expanding sectors. Given the near double-digit growth of both China and India, we must move fast. Considering Britain’s historical decline in manufacturing, some, including our partners abroad, think that this cannot be done. Yet in my home region, Advantage West Midlands is helping firms build the skills and technology that will bring investment from the manufacturing giants of the new economies, while supporting productivity and innovation at home.
There appears to be a question mark over RDAs. Yes, they should look carefully for savings, but RDAs can make a vital contribution to future growth. The Government should retain RDAs that work well, because there is no substitute for them.
I come from Birmingham, where we have a long history of Liberal and Conservative coalitions, mergers and unions. I say to the Benches opposite that they will be best served by the radicalism of a Joseph Chamberlain, not the caution of a Neville. We need growth. We should focus on creating the jobs, technology and products that will increase revenues, reduce costs and attract investment. I look forward to the Government’s proposals on that.
Lord Teverson
My Lords, I also congratulate the noble Baroness, Lady Wilcox, on her appointment to the Government. When we were both sitting on the opposite side of the House, with the same portfolio, we agreed on many things, as indeed did much of the House. I look forward to that co-operation continuing, if with slightly different departmental interests. I am also delighted to be the third speaker from Cornwall on this debate.
One of the things that came through strongly in the initial coalition agreement when negotiations took place between the Conservatives and the Liberal Democrats was the detailed manifesto and list of points on energy and climate change issues, which are what I shall concentrate on today. That was extremely important as a joint agenda for this coalition Government. It was certainly reflected again in the formal coalition agreement that was published by the Government a week later and in the gracious Speech we heard last week.
I particularly welcome the energy security and green economy Bill. That includes at least three of the things that several of us from both sides of the House tried to achieve during the last couple of years of the last Government. First, there is a big move forward in energy savings. Again, I remind the House that just under half of carbon dioxide emissions are due to heating, and that we have in the Bill a large move forward to make sure that energy efficiency is much improved in domestic and business premises. That, with the green deal generally and the green investment bank, is a way of moving that agenda forward at last. It is good for improving fuel poverty, carbon emissions and energy security. I very much welcome it, although I look forward to seeing the details of what will be a large sum needed to convert our historic building stock into a much more energy-efficient estate. That will be quite a challenge in times of financial straitjackets and difficulty.
I also particularly like something that we debated during the last Energy Bill—that is, the emissions performance standards of power stations. At last we have bitten the bullet and we are there; we are going to bring that forward. It is an excellent advance and one that I look forward to debating and supporting in this House when the Bill comes through. Also in that area, we have the green bank and not just smart meters, which are already in the pipeline, but a smart grid. That is absolutely vital when we still rely so much in the renewable area on intermittent technologies. I hope that, under the Government’s programme, anaerobic digestion will come through. That is less intermittent and can help very much with heating.
Also important, though stressed less in the gracious Speech, was the mention of climate change and the conference in Mexico later this year. There are huge challenges in that area. We cannot forget that Copenhagen was—particularly for Europe, but also for the world in general—a failure. It was a deep failure to perform and find a way forward in this important area. The Government are right to emphasise that. I wait with interest to hear how we will tackle that, both as a nation and as Europe, to make sure that there is a positive result. Again, I welcome generally the indication that we will move forward as Europe to a 30 per cent offer if we can keep it on the table. That should be something that we strive for.
There are many other good things in the coalition programme, such as charging points for electric vehicles, no third runway for Heathrow and the high-speed rail network, which I am sure my noble friend Lord Bradshaw will talk about as well. What I hope most of all is that a tradition I came very much to welcome in the House during the term of the last Government—that of general consensus-building on climate change around the whole of the House—will continue over this parliamentary Session.
How do I sum up? The best words are those of the new Green MP, Caroline Lucas, who stated that the Queen’s Speech was, on the environment, “pretty half-hearted”. For the Green Party, that is praise indeed.
Lord Oxburgh
My Lords, I, too, welcome the noble Baroness and the noble Lord in their new roles on the government Front Bench.
Today, I will continue the energy theme and talk about electricity supply. Unfortunately, the financial crisis is not the only one facing this country. I believe that every informed observer recognises that we have a looming electricity shortage. Older generation plant is being withdrawn from service without a plan for timely replacement of capacity. The problem has been apparent for years. With every passing month the opportunity to make an orderly transition to a modern electricity supply system slips away. We are facing a crisis that is entirely of our own making. The situation has not been helped by 17 changes of energy Minister in the past 10 years. Energy policy requires both understanding and continuity. I declare an interest as a director of Falck Renewables and Blue-NG and as honorary president of the Carbon Capture and Storage Association.
The role of government is to steer a smooth transition from a fossil fuel economy to one that is economically and environmentally more sustainable. Electricity generation is the most complex part of energy policy. It is complex because different methods of generation have quite different characteristics and because electricity demand can vary by a factor of three. Furthermore, it is not clear whether in the long term electricity demand will increase or decrease. It will decrease because of energy-saving measures and greater efficiency but may increase through population increase and, indeed, through increasing electrification of the economy.
Overall, our priorities have to be pretty clear. We need security of fuel supply and electricity supply; environmental security in the form of minimal emissions of particulates and greenhouse gases; and all that at the lowest cost. The Government have to balance these priorities against each other, take a system-wide view of electricity generation and then provide a regulatory and financial framework which aligns the interests of energy companies with the long-term interests of the country. The framework needs to recognise that many of these companies are international and has to be sufficiently clear that it provides business with the confidence to make the 30 to 50-year capital commitment in the UK. Today confidence is lacking. Building this must be one of the highest government priorities.
Security of electricity supply requires a diversity of generation methods and energy sources. Within a decade there will be an increasing role for photovoltaics, tidal generation, biomass, biogas and other technologies. However, today the main ways that we have of generating electricity are wind, nuclear, coal and natural gas, and the near-term strategy will be based on these. But because their characteristics are so different they cannot sensibly be combined in any proportions that happen to be the outcome of short-term market forces or, indeed, the likes or dislikes of particular pressure groups.
In the absence of government steer, and with uncertainty about the future penalties for emitting CO2, the market would, if left to its own devices, produce a system built entirely on gas. Gas plants are flexible, the least expensive, quick to build, and the gas price risk is carried by the consumer. However, this would not be in the country’s best interests.
Time precludes discussion of the complications of different generation mixes, but as an example, the proportion of wind in the mix has implications for the proportion of nuclear. Both are relatively inflexible and because most of the cost of both is paid at the time of construction there is no saving in not using either to the full when they are available. The proportion of wind also has a major bearing on other aspects of the system; for example, whether to build interconnectors with a view to exporting electricity when generation exceeds demand and importing it when we have a shortfall. Danish experience in this respect is not encouraging but there are obviously other ways of managing wind intermittency. I make these points only to emphasise that there is no single correct answer to the balancing conundrum; but there are numerous wrong ones. Action is urgent because lead times are long.
We have to consider the system as a whole and the interactions, both near-term and long-term, between its parts. That includes the electricity transmission grid, much of which will have to be replaced over the coming decade.
In conclusion, I re-emphasise that we have to consider the system as a whole. There are political decisions, technical decisions and business decisions to be made. I hope that the Government will consult rapidly and widely, and then act decisively. I wish them well.
Baroness Byford
My Lords, I am greatly privileged and highly delighted to rise to my feet on this side of the Chamber in the debate on the 14th gracious Speech since I entered this House. I am glad that the grouping has placed agriculture alongside business and economic affairs, headed now by my noble friend Lady Wilcox, who richly deserves this post and brings her great experience of the fishing industry to her portfolio. I extend my best wishes to her.
Air, food, water and warmth are the four essentials of human existence and are all endangered by human activity. The Register of Lords’ Interests records my connections with farming and I make no apology for speaking on that subject to an audience that is primarily concerned with other aspects of our economy. Farming is a business, and although it employs only 2 per cent of the workforce on farms, some 14 per cent are employed in the food sector. The right reverend Prelate the Bishop of Wakefield clearly laid down some of his concerns and reflected on the dependency of people who live in towns and in rural areas.
Land capable of producing food is shrinking worldwide. Our climate is changing and the world population is increasing. In the UK, we have ideal climatic conditions for producing food, and yet, since the previous Government came to power, there has been a dramatic fall in UK food production from 86 per cent self-sufficiency in indigenous foods, and 75 per cent in all foods, to 72.5 per cent and 59 per cent respectively by 2008. Our food trade balance deficit has increased from £6 billion to £17.4 billion.
Farming in England is highly productive and broadly based, but in some areas is unprofitable. The drive for cheap food has kept prices low, with manufacturers, processors and retailers competing for market share. Legislation and regulation also involve the prime producer in additional costs. There are many examples of the costs of legislation, but I shall give just one example.
The need to comply with regulations on nitrate vulnerable zones has involved the construction of very large, effectively double-skinned, slurry pits, the erection of fencing to stop livestock from accessing watercourses, the introduction of systems to prevent fertilisers reaching watercourses and training for staff on the new rules. I am not against sensible legislation, but we have a superabundance of it, much of which lacks proportion. I also wonder what happens in other countries.
This Government are committed to controlling the growth of the deficit and, thereafter, to reducing it. Included in this first step is a saving from Defra of £162 million. In March, Defra was fined a total of £15.6 million for failures in 2007-08 in the provision of payments by the Rural Payments Agency and in the running of the rural development scheme. I have no reason to believe that the RPA will not incur further penalties for 2010. The Minister acutely needs to look at this area. The overhaul of that agency is urgent and imperative. In a Written Answer on 17 March, the Defra Minister stated that,
“the National Audit Office calculated the average cost for administering a single payment scheme claim as £1,743”.—[Official Report, Commons, 17/3/10; col. 899W.]
That figure applied to English farmers. The Scottish equivalent was £300, and its farmers are paid on time and correctly.
Today’s debate incorporates the environment and energy, both of which are important to farmers. Climate change is already having a profound impact in some areas and there are tough decisions to be taken about whether agricultural land should be given over to flood relief or even abandoned to the sea. The Campaign for the Farmed Environment is progressing well, and I welcome the move on the natural environment paper. Farmers have been recompensed for looking after parts of the environment, and for a long time they have looked after it well; but biomass and anaerobic digestion will become important energy resources in future.
On rereading the gracious Speech, I was particularly pleased to reflect on the Government’s commitment immediately to address the deficit reduction; to a swift curtailment of bureaucracy; and to the rapid extension of high-speed broadband, which will so help rural areas. I welcome my noble friend Lord Henley, who will respond in this debate, to his post. He is well qualified for it and I know that he has a demanding task ahead. I congratulate him on his appointment and look forward to working with him.
Lord Lyell of Markyate
My Lords, I am glad to follow my noble friend Lady Byford, and warmly to congratulate my noble friends Lady Wilcox—both on her speech and on her appointment to the Government—and Lord Henley. I am extremely grateful that, for medical reasons, I am speaking much earlier in the debate than my economic knowledge justifies. I apologise for the fact that, for sensible reasons, I shall not be present for the wind-ups. I will speak on the prospects for improved financial regulation; briefly on the environment and renewable energy; and briefly on the challenges of reform of this House and the House of Commons.
I congratulate the new Government on the thoughtful wording of the gracious Speech on the credit crunch. It stated:
“Legislation will reform financial services regulation to learn from the financial crisis”.
There is much to learn, and I listened with great interest to the speech of the noble Lord, Lord Myners. I speak not as an economist but as someone with a background as a commercial lawyer. I express my debt to Gillian Tett of the Financial Times for her excellent account of the origins and development of the crisis in her book, Fool’s Gold.
Financial services regulation certainly needs reform, but I hope that this will concentrate on the big picture—on the fundamentals of banking and accountancy—and not become a box-ticking exercise. One of those fundamentals is that banks should hold adequate reserves in relation to their assets and their true risk exposure. Under the Basel Accord of 1988, the required figure was about 8 per cent. In Basel 2 in 2004, it was thought that this could be reduced if it was replaced by entities such as credit default swaps and collateralised debt obligations, and much more freedom was given to banks to judge how risky assets might be. The seeds of the problem already existed, and this did not work. As we know, the innovative notion that credit risk could be adequately managed if it were sufficiently widely sliced and spread around the market proved to have built a house of cards. Governments here, in Europe and in the United States must reach a new accord and decide what reserves should reasonably be required and what role if any is to be permitted for these innovations. There may be a role for credit default swaps, collateralised debt obligations and so on; but a jaundiced eye must be cast on the lack of transparency which pervaded this market for too many years.
The second fundamental improvement relates to accounting practice. It is not acceptable that debt for which a bank is ultimately responsible, or on which it relies in time of crisis, should be hidden off the balance sheet in SIVs—structured investment vehicles. Care must be taken to ensure that statutory accounts once again give a true and fair picture of the bank’s assets, indebtedness and vulnerability to risk as a whole. If SIVs are to be used at all, their existence and extent must be clearly shown on the bank’s balance sheet.
I do not wish to be simplistic and those are just two points—there are many others. The expressed desire of the Government, articulated in the gracious Speech, to learn from this massive financial crisis is a very wise starting point.
I shall say a quick word on the environment and renewable sources of energy. A new Government is a time to take stock. I am not opposed to wind farms but I listened with care to what the noble Lord, Lord Oxburgh, said. Are they likely to prove economic and to justify the level of investment and subsidy involved? I hope we will also give new impetus to nuclear power, and I was glad to hear that mentioned by the Minister. We already buy a substantial proportion of our electricity from French nuclear installations. The problems of waste exist but are far from insurmountable. Nuclear power will, in the words of the gracious Speech,
“promote low carbon energy production and … secure energy supplies”.
I shall say a brief sentence on the plans for the reform of Parliament. Whatever system emerges, the essential requirement is that it should attract to both Houses people of the right calibre who are ready, willing and able to do the work. They must be able to live reasonable lives with clear, straightforward rules on pay, taxes and expenses as similar as possible to those that apply to all other citizens.
This, I believe, is a time not only of great challenge but of genuine hope, and I feel privileged perhaps to be able to play a further part.
Lord Haskel
My Lords, I, too, congratulate noble Lords opposite. I wish them every success. I also welcome the fact that a new generation has taken over. This is particularly apparent to me because the people with the real power in this Government are the same age as my children. Of course, it is absolutely right that a new generation should take over but there is one thing that worries me. My children and their friends hardly seem to be able to organise themselves, never mind organise the country, so the more mature members of the Government—such as the noble Baroness, Lady Wilcox, who opened this debate with such skill—will have to practise both ministerial and other skills. Indeed, her magic is already working. Instead of fighting each other, the boys and their gangs are playing together. This calms everybody down—especially those who do not really want to play because they do not like the rules—so well done there.
Today’s debate is about business and economics, and I start with the politics of this. When we last had a Conservative Government—when I first came into your Lordships’ House—we were told that we had to choose between a strong economy and a fair society. The two were mutually exclusive. It was John Smith and new Labour that turned that argument on its head, and for 13 years we had a Government who believed in a strong economy and a fair society going hand in hand. Indeed, that is what brought me into politics, and that is why under Tony Blair and Gordon Brown this country has become more prosperous, better educated and a healthier, nicer, more tolerant and greener place to live. I say to my noble friend Lord Myners: yes, I am proud of that. However, what I want to know is: will this Government continue with this policy? Even in an age of austerity, it must be right.
Turning to banking, it is wrong to delay action in favour of a technical review. During the election campaign one thing that came over strongly was how angry people are at having to bail out the banks and the effect that that has had on the real economy. The election may have toned it down, but the anger is still there and it will come back with compound interest. Inevitably, that will lead to a sense of betrayal. Wholesale reform is required now, not reviews and tinkering with regulation.
The coalition agreement has quite a lot to say about regulation and red tape. All new Governments start with a promise to cut red tape and regulation, but this Government promise to cut it and introduce new regulation at the same time. On the page of the coalition agreement which promises cuts, we are told that the banking regulatory system will be entirely reformed and bonuses will be regulated. My noble friend Lord Myners spoke about that. We are told that regulators will have new powers to define and ban excessive interest rates on credit cards and other examples are scattered through the document, such as the right to request flexible working and equal pay. I hesitate to ask how all this will operate with the one-in one-out rule, especially when the public use their promised right to challenge regulations. In reality, you have to deal with market failure; that is what you want the citizen to tell you about. Of course, poor and outdated regulation needs to be cut, but the real threat to innovation and enterprise is the absence of competition through unregulated market failure. By concentrating on the populist and ignoring the important, the Government have got this the wrong way round.
Innovation and enterprise brings me to the business section of the coalition agreement, where there are indications of some of the ways in which the Government will help business, but on the overall context within which business operates the paper is silent. Will we continue to be a champion for open markets and, if so, how will we achieve this when we all agree that economic power is moving east? Although these new strong economies have joined the G20 to play by the existing rules, we know that their participation is about writing new rules. Unless those rules create a level playing field, our commitment to being an open market champion could make us very vulnerable. I think we should know what the Government's views are on world trade.
Perhaps the Government do not really care. In spite of their fine words, maybe the Government have no confidence in British business and industry. After all, on page 7 of the coalition agreement, they refer to it as “rubble”. We have many fine businesses in this country—my noble friend Lord Bhattacharyya listed some of them—and to refer to them as “rubble” is a disgrace. That is yet another example of this Government's apparent fondness for running down Britain. I am sure that many noble Lords opposite feel rather embarrassed about that. We all go into politics to make a difference and I hope that this coalition will make a difference, not just to the country, but for the country.
Baroness Garden of Frognal
My Lords, I too welcome the Minister to her new post and look forward to working with new-found professional friends in this legislative programme. The first priority in the Queen’s Speech is,
“to reduce the deficit and restore economic growth”.
In this wide-ranging debate, I shall focus on using the talents and skills of the whole workforce to best effect.
Under the previous Administration, apprenticeships increased from around 65,000 to 250,000, with a completion rate of more than 70 per cent. That has to be a very worthy achievement. We warmly welcome the announcement last week of investment in a further 50,000 apprenticeships, with £150 million diverted from Train to Gain. That will be particularly relevant for adult apprentices, where the demand has been the greatest. Many of those might be within the public sector and it will be a challenge to ensure that placements can be taken up in the face of cutbacks in public sector employees. It is essential to engage the next generation in meaningful training for work, to re-skill adults, to encourage aspiration and to reward achievement.
Craft, manufacturing and service industries all have the potential to increase their productivity even in times of hardship. As the Minister indicated, crucial to that growth will be small businesses which will benefit from the intention that:
“The cost of bureaucracy … will be reduced”—
a very welcome intention.
The stringent cuts ahead should not be allowed to reduce opportunities for creativity and enterprise. What more can be done? One question we could ask is: why is it that women, who demonstrate great initiative and enterprise in other countries, are only in the UK half as likely as men to start up their own businesses? To that end, we have long argued for improvements in careers information, advice and guidance. It is not too soon to set out to children at secondary—even primary—school the range and variety of practical jobs which call for vocational skills and to interest them in business. Career ambition and aspiration is not just for academic and professional walks of life. Students should be aware of the opportunities which speak to their individual talents and motivation, whether for economics or catering, astrophysics or car repair, philosophy or care—and none of these is, of course, mutually exclusive.
Recent research from the City & Guilds Centre for Skills Development drew two important lessons: first, that vocational education works best when delivered in partnership with the community, including local employers and parents; and secondly, that the programmes are most successful when both vocational and academic learning are well integrated. We shall have a golden opportunity next year to raise the profile of vocational achievement when London plays host to the WorldSkills Competition. It can be inspirational to witness the levels of skills from young people at such competitions, and a challenge to our workforce to rival the best in the world.
Practical skills have key parts to play in economic regeneration, but so, too, must we concentrate on the country’s poor record of financial literacy. We battled in the last Session to have personal, social, health and economic education made statutory in schools and just lost that valuable measure in the final hours of the previous Government.
Personal debt in this country has long exceeded £1 trillion, too much of it unsecured and unmanaged. We are paying the price of lack of corporate financial literacy in the banking crisis. Ensuring that young people start in life with the basic tools of financial management will pay short- and long-term dividends for individuals and for the nation.
The positioning of further and higher education within the Department for Business, Innovation and Skills is indicative of the economic impact of these sectors. However, this does not in any way detract from the invaluable academic, social and cultural aspects of our lives. Will the Minister, in response, give assurances that universities and further education colleges will be supported in maintaining the highest standards of teaching and learning; that their administrative burdens will be eased; and that funding will reflect the long-term contribution they make to individual well-being and the national economy? We look forward to lively and productive debates as we find new ways of working collaboratively in the coalition Government.
Lord Monson
My Lords, the gracious Speech emphasised the Government’s commitment to freedom, fairness and responsibility—an admirable set of objectives on which I congratulate the coalition. How do specific legislative proposals in the gracious Speech measure up to these criteria?
One of today’s themes is agriculture. The space allotted to agriculture in the Conservative manifesto was rather thin and insubstantial, as Alice Thomson pointed out in the Times shortly before the election. Many more words were devoted to conservation, biodiversity and so on than to the growing of food, the plight of the hill farmer and the like. However, right at the end a brief reference was made to the Hunting Act, saying, in essence, that it ought to be repealed because it has “proved unworkable”. Well, that is largely true, but it is scarcely the main reason for having it repealed. The main reason is that the Act flies in the face of the principles of freedom and fairness.
I have no interest to declare, as neither I nor any of my family hunts, but I know many people who do from a surprisingly wide occupational spectrum. They are understandably aggrieved that this part of our rural heritage has been outlawed because of a majority who were mainly guided by emotion rather than by a cool, objective examination of the evidence. Rest assured that I will certainly not try to go through all the arguments again, but the fact remains that the great majority of veterinary surgeons and other animal experts and no fewer than four former directors of the League Against Cruel Sports have come to the conclusion that hunting is the least cruel way of controlling the fox population and that, on balance, foxes have suffered more since the ban than before, to say nothing of the extra suffering to livestock arising from a larger fox population.
One accepts that freedom needs to be tempered with responsibility. The noble Baroness, Lady Golding, who sits on the Labour Benches, together with Mr Lembit Öpik, who until recently graced the Liberal Democrat Benches in the other place, as well as others, put an enormous amount of hard and constructive work into helping to form the Middle Way Group, which rightly seeks to discipline that small minority of hunts that condone abuses or show lack of consideration to third parties. That was not only wrong but disastrous for the image of hunting. The middle way is the British way and surely the route that we should follow.
Unfortunately, the Prime Minister, Mr Cameron, and everyone in this country who would like to see an end to the hunting ban are all too likely to be stymied by what is the complete reverse of fairness. Realistically, I see no problem from Northern Ireland. However, honourable Members representing Scottish constituencies are a different matter. The Scots, like the Northern Irish, have unfettered power to make their own laws for hunting on their own territory, but the English and Welsh are denied that right. Is that really fair? Surely it is not, as most of the electorate in Scotland and Northern Ireland would almost certainly agree. In the absence of long-overdue self-government for the English on purely domestic matters—that need not cost money, as there would be no need for hugely expensive Assembly buildings—one fears that repeal of the Hunting Act is unlikely in this Parliament unless all MPs representing Scottish and Northern Ireland constituencies were involuntarily to abstain in any Division on a hunting Bill, which I suspect is asking for the moon.
There are so many other Bad Laws, to use the name of an excellent book by Philip Johnston, that need repealing that it would take most of the night to list them, but let us hope that the coalition’s slogan—freedom, fairness and responsibility—is indeed a binding promise, not simply a vague aspiration to be discarded when convenient.
The Lord Bishop of Ripon and Leeds
My Lords, I first acknowledge the need so well expressed in the coalition document and the gracious Speech to reduce our national deficit and, alongside that, the moral dilemma faced by the Government in just how to do that. I want to explore that.
The most basic principle needs to be that those with the broadest shoulders should bear the heaviest burden. There is much more in the gracious Speech and its notes about cuts than there is about taxation, although there is a reference to fairer taxation, and I look forward to discovering just what that means. I hope that the Government will acknowledge that fiscal adjustments are also there to be used as a part of the economic proposals. Our taxes are not simply a way of purchasing public services; they are also the charge that we pay for the opportunities and security that go with a nation where social bonds are strong. Mutual responsibility must be recognised as the key to our social fabric. Those who have done best out of the boom years should be at the forefront of the desire for generosity in a more astringent economy.
Some of us are old enough to have been brought up on that oft repeated cartoon from an earlier period of austerity in which a row of men—I fear that they are all men—are on a ladder rising from a flood, with the rich man at the top, the middle-class man below him, then the worker and then the unemployed at the bottom, his head barely clear of the water. The rich man is saying, “Equality of sacrifice. That’s the spirit. Let’s all take one step down”. It is that sort of inequality dressed up as equality that we need to avoid in our society.
Does the Minister accept the thesis of Richard Wilkinson and Kate Pickett in The Spirit Level, which has been cited several times in this House, that it is disparity of wealth that is most deeply damaging to society? Material inequality is harmful not only to those who are poor but also to those who find themselves having to protect themselves from resentment and discord. The last thing that we want is a gated society.
The notes in the reports that accompany the gracious Speech speak of the importance of mutuals and co-operatives in delivering public sector service. I welcome that emphasis, but I look to hear more about how that principle of mutuality is to be exercised in the economic sphere. What encouragement will there be of mutuals, from building societies to credit unions, to take a much more prominent place in the financial sector? Will the Government consider mutualisation as a way forward for the Royal Mail, with its unique loyalty to the Crown, and therefore to the whole of our society? Will its commitment to serving the whole of the population be preserved and nurtured? That will be one test for the concept of a big society, ensuring that that is more than a fig leaf for getting volunteers to deliver the state’s welfare obligations.
Welfare is in danger of following asylum as a term of abuse rather than of mutual generosity. The Government need to affirm and to celebrate welfare. One of the most distinguished previous occupants of these Benches, William Temple, coined the phrase “welfare state” in order to distinguish it from the “power state”, where those with wealth and power exercised coercive control over the citizens. The need for welfare at the heart of the state is as dramatic now as it was 60 or 70 years ago.
Finally, I highlight the needs of the third sector—not much referred to so far in this debate—because the third sector provides so much to enhance our mutual responsibility. Work in Leeds to enhance the learning of English, to encourage integration and to support children is holding its breath. Money destined for that work now appears to be threatened as departments assess their priorities. It is important for the Minister to reaffirm today the Government’s support for local initiatives—both by local authorities and by the third sector—which do so much to create that mutual dependence on which we rely for a flourishing culture, whether in times of affluence or in times of austerity.
Lord Jenkin of Roding
My Lords, I hope that the right reverend Prelate will forgive me if I do not follow on from his speech. I would like to say a few words about the subject touched on earlier by my noble friend Lord Teverson and the noble Lord, Lord Oxburgh, and talk about energy.
Let me say at once that I very much welcome what my noble friend on the Front Bench said about the future of new nuclear build. She will be aware that some anxiety was voiced when the Secretary of State at DECC was appointed, having regard to his well publicised, long-standing opposition to the nuclear industry. However, having read the coalition programme and read his speech in another place last week, I am now wholly reassured that the policy will continue as it has in the past and that we will get the new nuclear programme that is essential to the security to which the noble Lord, Lord Oxburgh, referred. I say to the Benches opposite that the only sadness is that it has all come 10 years too late because they thought they were winding up the nuclear industry and only discovered a few years ago that that would not be possible.
I also welcome the coalition’s policy statement about the need for a floor under the carbon price. This is widely regarded as essential by the nuclear industry. It is a crucial provision because it makes it clear that there must be a major incentive for low-carbon generation and a difference between that and higher-carbon generators. I understand that it is a matter for the Treasury—I am mildly surprised, but I am told that that is the case—and that DECC Ministers are hopeful that something may be said about it in the emergency Budget. All I would say to my noble friends on the Front Bench is that it would be a welcome assurance that would help to counter the uncertainty that is the real enemy of investment in this field.
Another anxiety that has been expressed by the industry is about changes that my noble friends have announced for the planning system, in particular, the abolition of the Infrastructure Planning Commission. I find it very reassuring that the Government have made it clear that the IPC will be abolished as a decision-making quango, but that its staff and the people who have been recruited to the commission will make sure that the application and planning processes for major infrastructure projects will continue and will be part of the Planning Inspectorate, with the hugely important change that final decisions will be made not by an independent quango but by Ministers accountable to Parliament. I was in touch with the chairman of the IPC, Sir Michael Pitt, before the election, and I discussed these proposals in detail with him. I was greatly reassured when he said that he regarded them as entirely workable. I hope that Ministers in the Department for Communities and Local Government, who are in charge of the planning system, will do their best to see that planning timetables will be no longer, and possibly shorter, than those envisaged in the Planning Act 2008.
In the last couple of minutes, I shall mention climate change. There is time to do only one thing: to draw the attention of the Government to a very important new report, called The Hartwell Paper—because it was put together at a conference at Hartwell House—describing a new direction for climate policy after the crash of 2009. We have had the failure of Governments to reduce carbon emissions under the Kyoto process. We have had the failure, which has been referred to more than once in this debate, of the Copenhagen process. We are also faced with the rising tide of public scepticism about climate change. They all inevitably lead to the likely failure of the successors to Copenhagen. There is not time even to outline the case made in The Hartwell Paper. I hope that it will be given attention because the theory behind it is that if you make cutting carbon and climate change the central objective, requiring unpopular decisions to be taken by a range of people, you are bound to fail. I shall quote one of the authors of the paper:
“It is not possible to have a ‘climate policy’ that has emissions reduction as the all-encompassing and driving goal. We advocate inverting and fragmenting the conventional approach: accepting that taming climate change will only be achieved successfully as a benefit contingent upon other goals that are politically attractive and relentlessly pragmatic”.
Those are the conclusions of a long, carefully argued paper, but I have come to the conclusion that if we are to fight climate change and reduce emissions, we cannot, to coin a phrase, go on as we are.
Lord O'Neill of Clackmannan
My Lords, I follow the noble Lord who, in other circumstances, I would call a friend, but that word seems to be used rather loosely in this place at present, so I shall not go down that route. Suffice it to say that we have debated and in large measure agree on a number of matters, but I shall not go down entirely the same route as him this evening, although I offer my congratulations to the Minister in her absence. However, her speech from the Dispatch Box this evening was uncharacteristically platitudinous when compared with the elegance and rigorous authority that my noble friend Lord Myners brought to the subject in the round. I hope it was not a valedictory address. I also hope that he does not view sitting on the Back Benches in opposition with too much enthusiasm because, as someone who would be quite happy, in the right circumstances, if not to show him, at least to tell him of the scars I bear from 18 years in opposition, I know that it is a pleasure that is grossly exaggerated. One gets the feeling that at least some on the Benches opposite return to power in much the same way as the Bourbons, having learnt nothing and forgotten nothing. The prescriptions that we are hearing are very much the prescriptions of the 1970s, 1980s and 1990s, but the problems are of a totally different character.
Tonight, I shall focus on a couple of areas relating to energy. I should start by declaring an interest: I have a position in two fuel poverty charities—one in Scotland and one in England and Wales—and I am also chairman of the Nuclear Industry Association. I want to draw attention to the plight of people who spend more than 10 per cent of their disposable income on keeping their homes warm and their water hot. Their number has increased considerably in the past six or seven years. It has done so in spite of a strategy, supported in large measure by the Liberal Democrats, who might even be prepared to accept some blame for it as well as credit because the Government responded to legislation that they promoted. There are three main reasons for fuel poverty: the straitened circumstances of the household; the price of gas and electricity; and the poor condition of the house, which is usually attributable to a combination of the age of the property, its construction and its inadequate insulation.
While social security for the poorest and winter fuel payments for pensioners and the elderly have, in many instances, exceeded inflation and have therefore been something of a help, the speed at which we deal with the inadequacy of our housing stock will be the most fundamental challenge to fuel poverty. What are the Government’s intentions here? There is no great reference to this in the election manifestos of both members of the anti-Labour alliance. There is now a kind of nod in the direction of affordability, but I am concerned about the future of the Warm Front programme, which is important because it is a means of improving the housing stock and keeping in employment people whose skill base is not all that great, but who can be important to the viability of households and, indeed, in the case of the elderly, to their lives. The surge in deaths among the elderly in the winter months is attributable in large measure to inadequately heated homes. A lot of good work has been done there, and we want that momentum to be sustained.
I will touch briefly on nuclear power. Despite the convolutions in the original statement about what Liberals can and cannot do to support nuclear power, I am reasonably hopeful that a fair amount of the programme will be carried out consensually. I have misgivings about planning—the previous speech highlighted one or two concerns that some of us might have—but we will have to wait and see. Part of the trick to recreating the nuclear industry in the United Kingdom will be our ability to support the supply chain.
When the Minister sums up, will he indicate what will happen to the promised £75 million loan which the previous Government agreed with Sheffield Forgemasters so that it could expand its capability, and say whether that assistance to the British industrial supply chain—this is not a subsidy; it is a loan, and interest will be charged on it—will remain? It is very important, if we are to have a rebalanced economy and a surge in manufacturing in the years ahead, that we have the fundamentals to create the new industrial base which this country requires to build its reactors, to put in its power stations and to serve international demand.
This is not just import substitution; it is the meeting of a major international shortage and it is fundamental to the next phase in one aspect of our manufacturing industry. If we do not get answers from the Government on this, our worst fears will be realised. At the moment, we do not have much faith in this Government’s capacity to understand the problems of manufacturing and to take it forward. If they can assure us this evening, some of our anxieties will be allayed, at least in small part, and potential investors in the nuclear renaissance in Britain will be extremely encouraged and very hopeful. The Nuclear Industry Association, which I chair, will certainly be very happy, as will all its members.
Lord Oakeshott of Seagrove Bay
My Lords, that was a sparkling and penetrating speech. I am sure that if the noble Lord, Lord Myners, leaves a gap on the Front Bench, the noble Lord, Lord O’Neill, will be well able to fill it if he so wishes. I, too, congratulate the noble Baroness, Lady Wilcox, on her appointment. Having had the privilege of working closely over the past few years with my right honourable friends David Laws and Danny Alexander, I think that David is a tragic loss and I very much hope that we will see him back soon at the highest levels of government. Anyone who knows Danny knows that he will do an exceptionally good job in David’s place.
I declare an interest as a pension fund investment manager since 1976. I now specialise in commercial property, and Vince Cable has just appointed me as chairman of his business advisory group of experts to give him private, informal, and indeed unpaid, advice on business and economic policy.
I will talk today about tax and tax avoidance as the Liberal Democrat Treasury spokesman. Tax was at the very heart of the general election campaign. Our pledge to take anyone earning under £10,000 a year out of income tax struck a real chord with people of all political persuasions and none: combining, as it did, fairness with incentives to work for our fellow citizens trapped by cripplingly high rates of tax if they come off benefits into paid work. That is why that same pledge is now at the heart of our coalition’s Programme for Government. We also welcome the support of the noble Lord, Lord Myners, for the coalition policy on CGT. May I say to him that the coalition’s door is always open?
It is worth reminding ourselves what the Programme for Government says about tax:
“We will increase the personal allowance for income tax to help lower and middle income earners. We will announce in the first Budget a substantial increase in the personal allowance from April 2011”.
That will be funded partly by,
“revenues from increases in Capital Gains Tax for non-business assets as described below”.
We will prioritise increasing the personal allowance,
“over other tax cuts, including cuts to Inheritance Tax … We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities. We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals”.
It is important that we remember all those words. A great deal of noise is coming from right-wing commentators, who are trying to chip away at this agreed programme of government, and indeed from Back-Bench Members of Parliament. I was both flattered and alarmed to be quoted by Mr David Davis in apparent support of his campaign against the coalition’s policy on CGT in a full-page article in the Daily Mail the other day, so I checked what I actually said. I was talking about the Tax Reform Commission of the noble Lord, Lord Forsyth, last year, and I am sorry that he is not in his place. I actually said:
“Raising the tax-free personal allowance, slashing fringe benefits and cutting business and personal tax rates by closing loopholes are all our priorities, too”.—[Official Report, 7/5/09; col. 677.]
That is what I said and what I say now, and it is the exact reverse of what Mr Davis implied.
Tax dodging in Britain is a deep-seated, pervasive, pernicious disease that infects our body politic and eats away at society. Of course, some of it has always gone on, and it is difficult to quantify, but I have been working pretty close to the heart of the City now for 34 years. I started at a time when tax rates were much higher than they are today, and I have no doubt at all that highly organised, aggressive, abusive tax avoidance, which used to be a marginal and rather spivvy operation that was frowned on by the main banks and institutions and shunned by top accountants and lawyers who were concerned about reputational risk, has now mushroomed out of all recognition.
Last month, a tax specialist at one of the big four accountancy firms, which by the way charge the British taxpayer hundreds of millions of pounds in fees for consultancy services, explained to me how they convert the hundreds of thousands, or indeed millions, that are earned every year by each of the partners in some of the main magic-circle law firms into so-called capital profits that are taxed at only 18 per cent. These same solicitors also charge the British Government and the British taxpayer millions of pounds for their advice. I do not know how these professionals, who pride themselves on their high ethical standards and high standards of corporate governance, look at themselves in the mirror in the morning. It is not just the private equity bosses who pay less tax than their cleaners.
Tax avoidance is obviously widespread in other areas. Last year, the Guardian exposed Barclays’ highly aggressive tax avoidance operations. Anyone who knows their way around the property market will tell you that precious few luxury houses or flats worth more than £10 million these days ever feature on Land Registry records with stamp duty having been paid. I am pleased to say that, with the support of many noble friends here, we have at least established that after 7 July no one can sit in this place who does not pay full British tax, but that just shows you what a battle this has been.
Taxing non-business capital gains at rates that are similar or close to those that apply to income tax will not just raise revenue to help low and middle-income earners; it is also essential in order to fight the tax-dodging cancer that is simply uncontrollable. There is a yawning gap between an 18 per cent capital gains tax rate and income tax rates of 40 or 50 per cent. As the noble Lord, Lord Lawson, said, CGT needs to be simple and straightforward, as it was under him in the 1980s. Taper relief, as Vince Cable has made clear, is an open invitation to avoidance. It is complicated and just does not work. I would like non-business capital gains to be indexed in line with the retail prices index so that you do not pay on gains over inflation, and to be included simply with income at whatever rate the individual pays. People of modest means would pay no tax on their annual exemption limit or 20 per cent above that, while those on an above-average income would pay a higher rate and pay more. Let us remember that the average income in this country is £24,000 a year. Only about 250,000 people have second homes, on which they have had substantial gains in recent years. Therefore, it is fair, right and essential that we stick to the whole coalition programme on capital gains tax and other things. I am sure that the Chancellor will do the right thing on 22 June.
Lord Higgins
My Lords, I congratulate my noble friend Lady Wilcox on her speech and on her appointment. I am sorry that she is not in her place. I assume that she has gone back to the department to make sure that Mr Vince Cable stays on the straight and narrow. We are relying on her to do that.
Looking back over the period of the Labour Government, one thing is absolutely clear; namely, that Mr Gordon Brown inherited the best economic situation ever inherited by a Chancellor of the Exchequer. As the former Prime Minister, he leaves behind the worst economic situation that we have probably ever faced. It is therefore crucial that we should proceed on cutting the deficit as soon as possible.
In that context, it is important to cut out wasteful expenditure. At a time when the Prime Minister is saying that we need to cut the size of the House of Commons to save cash, it seems to me that to move towards an elected and inevitably paid House of Lords is going in exactly the wrong direction. All that we would get in exchange would be a second-class House, which would not be as expert or as representative in terms of gender and race, and which would be whipped more and less able to defend the situation if the Government were to take excessive measures on human rights or whatever. I hope that we will avoid that increase in expenditure. It is not true, as Mr Clegg has said, that it would increase democracy. We already have 100 per cent democracy embodied in the House of Commons. Splitting it between the two Houses would reduce its effectiveness rather than increase it.
On taxation, I was very worried a few weeks ago when the IMF announced that the British indirect taxation system should be changed and that the zero rating on the most essential items for households should be eliminated and that they should be taxed. It is doubtful whether the IMF has any real expertise in this. Many years ago, I was involved in formulating the original VAT structure and had the difficult task of steering the whole legislation through the House of Commons. We spent an immense amount of time making sure that the structure of the tax was right. Over a period of two and a half years we published draft clauses, had pre-legislative consultation and had elaborate debates in the House of Commons. That produced the tax we now have. Whatever the Chancellor feels he has to do on the rate of VAT—when I was dealing with it it was at 10 per cent, but it may yet go to 20 per cent—he should not change the structure, which I believe is the best that we could have.
It is widely anticipated that capital gains tax will go up. If we are not to have a tax, because of inflationary gains, which is really a tax on wealth rather than a tax on a real capital gain, it is crucial that we should have either indexation or a tapering system, which existed under the previous arrangement before the Labour Government cut the rate. I am very worried that a number of people, particularly pensioners, may be taking mistaken decisions because they think that their gains will be taxed with no relief, and that then they will find out after the Budget that it was a mistake. I hope that the Treasury will indicate that there will be tapering or index relief so that people do not take mistaken decisions.
It would be very pleasant to have a long discussion on monetary policy, but I am running out of time. As I have said to the noble Lord, Lord Myners, on many occasions when our positions were reversed, it is crucial that we should have a clear policy on funding. It is extraordinary, but not generally understood, that the policy of quantitative easing has not led to any significant increase in the money supply. I am glad that I, as usual, have the assent of the noble Lord, Lord Myners. It would be very sad to lose him from the Front Bench. The Labour Government were immensely fortunate to have him as an expert during the banking crisis. Goodness knows what would have happened if he had not been there. We need a clear establishment of a situation where the funding policy is known. My very strong view is that the Debt Management Office should be returned to the Bank of England. We would then get a coherent attitude on monetary policy, which we have not had because the Debt Management Office has been frustrating the actions of the Bank of England on quantitative easing. If we do not have a steady growth in the money supply, we will not get the growth in the economy which is essential. Monetary policy has to be linked with the fiscal policy and the policy of cuts on expenditure and increases in taxation.
Lord Whitty
My Lords, this is a wide-ranging debate and I intend to say a few sentences about every area of it. First, I warmly welcome the noble Baroness to her position on the Front Bench. I am very gratified to see her there. Not only has she done the hard slog of opposition, but—I declare my interest as chair for at least a few more weeks of Consumer Focus—she was a distinguished consumer champion at the National Consumer Council. I am not entirely disinterested in saying this because I hope that she will ensure that her department, BIS, which has not always been that conscious of consumer issues, albeit that those issues are central to its remit, does not ignore the consumer dimension or the employee dimension. I also congratulate the noble Lord, Lord Henley, whose remit in Defra coincided with a little part of mine and that of the Lord Speaker before me. I think that the advice that we would give him is that nothing is quite as complicated as people tend to tell you that it is. I will leave it at that.
On the BIS part of the agenda, we have had references to financial regulation. Now that my noble friend Lord Myners is no longer influential in this area, I fear that we are not clear in which direction we are going. The banking industry and, above all, those who depend on banking services need to know what the future system of regulation will be. Will we abolish the FSA? Will we give a bigger role to the Bank of England? A commission is being set up to decide those things, but people want certainty. Above all, I hope that these issues are decided not on the basis of relatively arcane arguments about Glass-Steagall or whatever, but on the basis that we get a better service to business and to individuals from the banking system. We want more competition and more diversity, but not at the expense of less service and less choice to consumers.
There is a whole bit on regulation in the coalition agreement, in the manifestos and in earlier papers, particularly from the Conservative Party. Despite the fact that some of what the Government are arguing is sensible, the first thing that is picked out—the one-in, one-out process—is completely bonkers. The previous Government had a go at it. It cannot be worked in that way. There are other things in the programme on which the Government should focus. Looking at whole groups of regulation and the operation of a sunset clause for regulators would be much more effective than trying to have a first-in, first-out process. That is a bit of advice to those who believe in better regulation rather than less regulation.
On the Post Office, I was a bit surprised to see almost exactly the proposition of my noble friend Lord Mandelson, of which I was not entirely in favour, back on the agenda. I am not clear whether we are looking for capital for the Post Office or for a new organisation—presumably one of its competitors—to take over its management. Either way, we need certainty within the organisation. The employees need it, but above all customers, businesses and individuals need to know which way the Post Office is going. I am not at all convinced that the Bill that seems to be envisaged will do that.
On the environment and energy agenda, I have just two or three points to make. We need to pursue all aspects of the low-carbon agenda and, behind that, we need to reconvince the public that the fight against climate change is indeed one of the priorities of this Government and of society as a whole. There have been some rather unfortunate beginnings, but I hope that the Government can recover from them. The cut in help to business in terms of low-carbon investment is not a particularly helpful signal, nor is the dropping of part of the heat initiative. I am less confident than the noble Lord, Lord Jenkin, that dropping the Infrastructure Planning Commission will mean that nuclear power can play its proper part. I hope, therefore, that the concentrations on energy policy will be to provide not only for greener energy but also for a fairer cost of energy to consumers, whether they be businesses or individuals.
I welcome, I think, the commitment to the green deal, which will enable householders effectively to take out loans to improve the energy efficiency of their homes. However, that does not address seriously the position on fuel poverty to which my noble friend Lord O’Neill just referred. It will help a lot of middle-income groups and improve energy use among household consumers, but it will not tackle the problem of fuel poverty. We need a clear indication from the Government of where they intend to go on that front.
I am running out of time, so I will not go into detail on agriculture, which the noble Lord, Lord Henley, will no doubt be relieved to hear. On transport, the one thing that I want to do is to compliment the coalition on its decision not to go ahead with the third runway at Heathrow. That was a brave and important decision and I hope that the Government can follow through on the environmental agenda and on other decisions about the environment.
I was not going to mention this, but I shall, as the noble Lord, Lord Monson, who is no longer in his place, raised it. There is one apparently bad decision on the part of the Government. I do not believe that it is helpful to society or in the interests of rural areas to repeal the Hunting Act. I had some most unpleasant times in this House when I promoted the Bill. Straight repeal, which the Government seem inclined to allow via a Private Member’s Bill, is not a licensing system, is not a middle way and does not allow for local discretion; it is a straight repeal. That would be a regressive step by the Government and I hope that they do not give priority to it.
Lord Low of Dalston
My Lords, it is a pleasure to follow the noble Lord, Lord Whitty, and I, too, welcome the Ministers to their new positions. At the weekend I attended a lecture entitled, “Do we get the politics we deserve?”, which drew attention to the mixed emotions that the coalition has aroused. On the one hand we welcome the new politics of consensus and co-operation and of people working together for the benefit of the country. It would indeed be good if we could see a more bipartisan approach to the vexed question of social care and an end to the competitive auction on who can build and fill the most prisons. We breathe a sigh of relief at the prospect of stability and cheer on David Cameron as, like an auctioneer on speed, he knocks down the prized possessions of new Labour—going, going, gone. I welcome particularly the smack of firm government seen in the firing of the chairman and chief executive of the Student Loans Company.
Already, however, we can see the shine coming off as the Government begin to do the sort of things that Governments do: announcing measures to the media before Parliament; demonstrating the arrogance of power in a strident and partisan tone, so different from that of President Obama; tinkering top-down with the local government of Norwich and Exeter in a way that flies in the face of the proclaimed intention of pushing power downwards and outwards; and fixing the length of a Parliament in a manner that insulates itself against a loss of confidence. The answer to the last point is simple. Parliaments should be for five years unless the Government have first lost the confidence of the Commons. Lastly, the Government are threatening to swamp your Lordships’ House, which is already overloaded, with new creations in a manner that at one and the same time is unnecessary, runs counter to the Government’s longer-term aims and is antithetical to the spirit of the place. The Government have to be able to lose the argument. Will the coalition give rise, I wonder, to the canard, “Lloyd George knew my grandfather”? It will also be interesting to see whether Bills arrive here any better drafted and considered than before.
On the economy, the essentially parasitic nature of finance capitalism stands revealed for all to see. The noble Lord, Lord Skidelsky, spoke in this debate last year of the emergence of an insolent and largely footloose financial aristocracy or plutocracy as a direct result of the dominance of the financial services sector in our economy. I am amazed that this has not led to a greater crisis of legitimacy, for the shamelessness of the bankers far outstrips that of the expenses scandal. I suppose that the expenses scandal was a handy diversion. At all events, the crisis is still playing out. The markets coming after the banks is one thing—and it was a close-run thing—but we ought always to have been able to get over the meltdown in the financial sector when the banks had their Governments standing behind them. However, when the markets come after Governments, where do we go then? Have we now reached the bedrock on which the whole system rests?
We are certainly in a difficult position. Governments have had to raid their treasuries to an alarming extent. Even so, people question whether they have done enough and suggest that more might still be necessary. At this point, it is important to say that Gordon Brown has been unfairly criticised. The structural deficit was a manageable 2.6 per cent of GDP in the second quarter of 2008 when the recession struck and no one can seriously doubt that it was necessary to throw the kitchen sink at the problem at that point. Even so, the recovery is still fragile and the scale of renewed lending half-hearted. That being so, it seems to me a brave decision to take £6.25 billion out of the economy in 2010-11. I understand the need to reassure the markets, but I think that we should avoid turning reassurance into appeasement by buying into doomsday scenarios predicated on imminent bankruptcy and accept that a more measured approach not only is viable but may actually be less damaging. With the recovery still so tentative, at 0.3 per cent of GDP in the first quarter of 2010, taking 0.45 per cent of GDP out now runs the real risk of plunging us back into recession. It will certainly mean more job losses. David Blanchflower puts the figure at 140,000 and it should not be imagined that this can all be done just by freezing vacancies. Then there is the effect of the multiplier, which means that more jobs are lost because of reduced spending power. Recession costs much more to the economy in lost tax revenue and unemployment benefits than deficit reduction at a time of better economic growth.
It seems quite wrong that the ordinary citizen should be made to carry the can for bankers’ recklessness. With 55 speakers and still not half way there, I can give only the headlines, but perhaps I may mention five things that seem blindingly obvious even to a non-economist. First, there needs to be structural change. Retail and speculative banking should be separated. There is perhaps more to this than meets the eye, but the last Government were insufficiently robust on it. Secondly, we need a transaction tax. The sight of the bond markets opening in the middle of election night so that they could bet on the result was a barefaced example of the insolence to which the noble Lord, Lord Skidelsky, referred. Thirdly, those responsible for the deficit should pay proportionately more. Bankers’ bonuses, which amounted to £7 billion last year, should be subject to controls. Fourthly, contrary to what is frequently asserted, the UK has an internationally competitive tax regime. Taxation, particularly on high earnings, could afford to take more of the strain of deficit reduction. Finally, before general living standards are clobbered, it is imperative that big-ticket items should bear their fair share. I am glad that the defence review will include a wide-ranging review of Britain’s role as an international policeman—on Trident, I incline more to the Lib-Dem wing of the coalition—and it may be that economic necessity will succeed where penal policy has failed in reducing the demand for prison places.
If the coalition cannot adopt a balanced approach to getting us out of our present difficulties—recognising that we are all in this together—it risks undermining legitimacy and fuelling a widespread sense of injustice and even social unrest.
Lord Moynihan
My Lords, I warmly welcome the noble Baroness, Lady Wilcox, to her portfolio and congratulate both her and the ministerial team on the Front Bench today.
On the subjects of energy and environment raised by the Minister, I should like to address the specific question of the oil and gas business on the United Kingdom continental shelf, particularly in UKCS waters offshore, taking into account the recent Macondo oil well disaster and the loss of life in the Gulf of Mexico, and the previous disastrous Ixtoc 1 blow-out in 1979. In so doing I declare an interest: I have been a non-executive director of the Rowan group of companies based in Houston and today chair its HSE committee. Although we operate in the jack-up business, we are principally focused in natural gas, which is a very different market to the semi-submersible fleets used in ultra deep-water drilling such as BP’s Macondo oil well in the gulf.
It is clear that this is going to be an important issue for the Government and, in considering changes to our offshore oil and gas industry practice, I hope that in the light of the disaster we will all proceed with caution, consult widely and look to the industry as coalition partners when considering new measures for implementation on the UKCS, the vital objectives we should share for safe offshore working and the high priority to be given to environmental protection. The coupling of ultra deep-water oil drilling—in the case of the oil field operated by BP, 5,000 feet down in the Gulf of Mexico—with near-shore drilling projects would be unwise.
In this context, the US Government’s announcement of a moratorium on the approval of all new offshore oil and gas drilling permits failed to take into account some crucial issues which should be the subject of our attention in the North Sea—namely, that shallow-water drilling involves well developed and simpler processes for the extraction of energy resources. Notably, it has surface blow-out preventers. Jack-ups and shallow rigs in shallow water employ blow-out preventers above the surface of the water. These surface BOPs, which are so critical to safety offshore, are accessible for constant inspection, maintenance and repair and in emergencies can be controlled either remotely or by physical or manual manipulation. Access to their positioning above the water is very different from when the blow-out preventer is 5,000 feet down under water.
In the North Sea we focus extensively on clean natural gas. Shallow-water drilling sites predominantly involve clean natural gas resources with fewer environmental risks. The distinction between oil and gas in developing policy on this front is important. Also in the North Sea, wells in the shallow-water regions are drilled in predictable and mature reservoirs, and the reservoirs of greatest concern to us are the high-pressure wells. On the subject of lower pressure in the North Sea, a large percentage of the shallow-water rigs require positive external stimulation to produce the flow of oil and gas, significantly limiting risk or loss of control.
However, some key issues require consideration by the Government if we are consistently to ensure that our offshore drilling activities strive for improved safety levels. All safety cases now need to be reviewed, as should the legal and reporting processes to which they currently conform. These should cover both proactive and reactive issues in the context of safety, health and the environment and always be live documents and up to date. Detailed consideration could also be given to the design, capability and efficiency of the blow-out preventers I have mentioned. Their failure was the common denominator in both the BP well disaster and the Ixtoc 1 blow-out in 1979.
The time is now right for well control equipment and control systems to be further regulated. The HSE requirement in our country of a full inspection of all equipment every five years is too long—for example, Saudi Arabia has a three-year process—and well control training and certification should be regularly reviewed. An independent audit of the training programmes of the International Association of Drilling Contractors would also be welcome. Above all, absolute clarity in drilling operations as to who controls the well and who should shut it in is essential; the driller not the operator should always be responsible in this area.
Some of the measures I have proposed today would add additional costs to drilling companies, but these costs are surely worth investing in so that the oil and gas industry in the United Kingdom can work closely with government to ensure a safer, technically stronger and environmentally responsive energy sector both onshore and offshore.
In closing, I hope that BP’s chief executive, Tony Hayward, will not be sacrificed on the altar of American political expediency. He is a leader of exceptional quality and has reacted with authority, expertise and perseverance to an unprecedented disaster in ultra deep water. I wish both him and his colleagues well in resolving the technical and environmental challenges ahead.
Lord Truscott
My Lords, I, too, congratulate the Minister on her well deserved appointment. As Energy Minister in the former Department of Trade and Industry I had the privilege of working opposite the noble Baroness, Lady Wilcox, whose intelligence and tenacity I always admired.
Today I should like to address the issue of energy security, which was mentioned in the gracious Speech, and I look forward to seeing the proposed energy security and green economy Bill. I am pleased that it was included in the coalition Government’s programme for government, although I am still not clear how Ofgem is supposed to guarantee energy supplies—it would require a very long reach indeed—and I look forward to being enlightened when the debate is wound up. I refer noble Lords to my relevant interests as laid out in the register of interests.
As I documented in my recent Royal United Services Institute report on energy security, the European Union is becoming increasingly dependent on Russian supplies of gas as its mature fields in places such as the North Sea basin face decline and depletion. Short-term boosts such as the current gas price and potentially plentiful supplies of LNG or shale gas will not alter this basic fact although they may mitigate its impact.
Russia, as one of the world’s current three largest emitters of CO2, behind the US and China, is part of the climate change problem and so must be part of its solution. However, despite the recent passage of the new energy saving and energy efficiency law, the Russian Federation is one of the most energy intensive economies on earth, projected to approach the US as the world’s top emitter by 2030.
There is an urgent need for EU member states to engage in coherent energy diplomacy. It is vital that the political and diplomatic status of energy security, which is closely related to climate, food and water security, is elevated to the top of the foreign policy and security agenda. Europe has woken up late to a new great game over energy. Playing out from central Asia to the Gulf of Guinea in capital cities and energy ministries, we are seeing producers pitted against consumers in a scramble to secure energy supplies.
“The rules of this game”,
suggests economist Joseph Stanislaw,
“are still being written, but its broad outlines are already clear. It is no longer confined to Central Asia—as was the original Great Game of the 19th century, pitting the British and Russian empires against each other”.
The Russia-Ukraine gas supply spats of 2006 and 2009 were a belated wake-up call to European politicians to the importance of energy security. Nothing concentrates politician’s minds more than when the lights go out.
Europe’s main gas suppliers are Russia, Norway and Algeria. Together they supply 84 per cent of gas imports into the EU. Russia is the most important single supplier. Oil and gas now account for 61 per cent of Europe’s energy inputs. Left unchecked, projected rates of consumption would see energy dependency on non-European sources grow from 50 per cent in 2000 to 70 per cent by 2030. By 2030, 90 per cent of oil consumption would have to be met by imports; gas dependency would rise to 80 per cent, with projected imports from Russia expected to reach 60 per cent; and two-thirds of coal usage would be met from foreign sources. Russia has the largest proven gas reserves in the world and the second largest coal reserves, and it is the planet’s second biggest exporter of crude oil.
Having first launched talks in October 2000, the EU and Russia have repeatedly attempted to establish an energy dialogue that will cement long-term Russian access to European consumer markets and European security of supply. This dialogue has struggled to advance.
In 2006, oil and gas accounted for nearly 50 per cent of Russian federal budget revenues, more than 60 per cent of exports and 30 per cent of GDP. Unlike Moscow’s Commonwealth of Independent States’ customers, the EU pays world prices for its Russian supplies. These have provided Russia with the bulk of its foreign exchange earnings. Europe also provides an important source of foreign investment in Russia and is an important market for expanding Russian companies.
However, Russia’s refusal to ratify the energy charter treaty and the transit protocol, a set of international rules for investment and trade in the oil and gas sector, has undermined European confidence in Russian energy markets as a stable source of supply. This was compounded by the fallout from Russia’s pricing war with Ukraine, which led to supply disruptions for downstream EU member states.
The best hope for the EU is to try to enshrine the principles of the ECT and transit protocol in a new partnership and co-operation agreement, whose tortuous negotiations have already restarted following the conflict in Georgia. Fears that Russia will seriously diversify away from the EU to other markets, principally China, look largely misplaced. Given Russia’s reliance on European consumer markets, the ability of Moscow to use energy as a weapon is severely undermined.
Europe should continue to press for liberalism at home, but within a rubric structured on areas of mutual interest; that is, energy, trade and investment. It is in these areas that the EU will get Russia’s attention and have most scope for shaping a pro-Western outlook. In this context, the EU should continue to support early Russian membership of the WTO and, later, the OECD to encourage Moscow to play by the international rules of the game, embracing market principles, free trade and reciprocal investment and legal rights.
Lord Marlesford
My Lords, in 1966, Iain Macleod said of George Brown:
“There is a society for being nice about Mr Brown and I pay my dues like everyone else”.
Our Mr Brown’s fame, if not his name, will endure, as has that of another in whose mouth ambition turned to ashes: the flawed hero of the Scottish Play.
However, Mr Brown did have two achievements. For the first eight years of his chancellorship, he was a prudent steward of the sound economic situation which he inherited in 1997. That had resulted from the radical changes made by the Chancellors of my noble friend Lady Thatcher: the shift to indirect taxation of my noble and learned friend Lord Howe and the 40 per cent top tax rate of my noble friend Lord Lawson. Mr Brown kept public spending on a tight leash. He thus contributed to Mr Blair's second and third election triumphs. We should perhaps forgive him a lot for starting so well. Secondly, he constructed a series of plausible excuses for keeping Britain out of the euro. It is an historic bequest.
But, today, a new cloud hangs over the world economy. The fatal internal contradiction of the euro has raised the spectre of sovereign debt default within the EU. A single currency requires economic management, and economic management is about more than monetary policy. It is now clear that countries sharing a single currency must be subject to an overall fiscal policy and thus a dimension of political union. Setting targets under the 1997 stability and growth pact is not enough.
There is little point in seeking to fine those who are going bust. They must either perish or be bailed out. In the euro area, the second is the only real option. The earlier arrogance of France and Germany, when they said that they were too big and important to be subject to the rules and escaped a fine, has not helped today.
For the smaller and more reactive countries, membership of the euro has merely masked reality from their Governments, the European Commission and indeed the international financial community. They have no interest policy to bother about, no exchange rate indicators of economic performance and little worry with inflation. They can borrow and spend to keep unemployment at bay. In Spain and Ireland, a property boom provided a mirage of prosperity. Italy has a subterranean economy, largely managed by criminals and protected by corrupt politicians. We may end up with a bi-valve Europe: the euro area with integrated economic management and the rest of us with much more economic sovereignty.
What is the lesson in all this? Surely it is that whether you are a family, a small business, a big bank or a Government, ultimate survival depends on prudent housekeeping. How right Mr Brown was to use repeatedly the word “prudence”; how wrong he was to abandon it. The top priority is now to reduce both the budget deficit and the government debt. We here must all help with ideas. Let me put in my pennyworth.
Some quangos are completely out of control. They need to be cut back drastically. Many have become irresponsible pressure groups. They waste taxpayers’ money on madcap schemes and impose huge compliance costs on the private sector and other parts of the public sector. Natural England is an example. Many of us remember last year, when it imposed on the Highways Agency a cost of £600,000 to erect bridges for bats over a new bypass in Cornwall. Now it wants to introduce, at considerable cost to the taxpayer, sea eagles to Suffolk, where they have never been and are neither needed nor wanted by those who are trying to make a living from the land such as pig farmers—I declare my interest as a Suffolk farmer, but not a pig farmer.
The Civil Service needs tighter management. The economic outlook will ensure no shortage of good candidates for a tougher Civil Service. First, from now on, those hired should be pensionable at 65 rather than 60. Secondly, on fringe benefits, why, for example, should civil servants have an extra day of holiday after every bank holiday, known as privilege days?
Finally, I have a proposal to reduce unjustifiably high salaries paid to some in the public sector. Applications for posts where the pay level is expected to be above £100,000 should be submitted together with a sealed tender of salary wanted. Applicants would still state their case for getting the post and the selectors would draw up a final shortlist. At that stage, the sealed tenders of applicants would be opened and the selectors could take account of the salaries asked for by the candidates. I suggest that this could lead to some remarkable results.
Let us be clear. Wasteful public spending cannot keep an economy afloat. But it can sink it.
Baroness Kennedy of The Shaws
My Lords, I, too, extend my warmest congratulations to new Ministers and wish them well in their roles.
Like others, I express concern at the policies that the new coalition Government are embracing to deal with the dire economic situation which our country faces. The financial crisis was the work of people in the financial sector who acted in their own self-interest without fear of either legal or economic reprisal. The most dangerous activities could have been stopped: securitisation, sub-prime mortgages, triple B mortgage bonds, collateralised debt obligations and off-balance sheet accounting. Undoubtedly there were people who were blinded by the murky convoluted signs of it and just did not understand what was going on. The regulatory agencies proved toothless, also unable to fathom half of the machinations. People who sat on boards never queried the madness of it, too fearful perhaps about looking foolish but happy to pocket their remuneration. Men were chairing banks who had no experience of banking and thought that running a bank was no different from heading a PR firm—and who boasted, socially, that banking was “such fun”. Then there came the fall.
Some auditors need to account for their shameful failure to do any real accounting. Commercial lawyers also played disgraceful roles, pocketing fees for running their eyes over and signing off nefarious transactions. All these people were uninhibited by any moral scruples. People knew that the market was being rigged but were more interested in making money than in challenging the system. Why do I say with such confidence that they knew? Because one of the givens in life is that we all know that there is a reward-risk ratio, and the higher the rewards, the higher the risks. I recommend to this House a book called The Big Short: Inside the Doomsday Machine, by Michael Lewis, which carries a very good analysis of the cataclysmic period that we have just been through. The people who bore the risks were none of these masters of the universe I have just been speaking of. They were remunerated handsomely and demanded such handsome reward on the excuse of being risk takers. The people who bore the risks were ordinary members of the public, persuaded to take on mortgages far beyond their capacity to repay and now, as taxpayers, having to be responsible for the bailings out. They are the people being charged high interest rates and the people who are now not able to get bank loans to set up the small and medium-sized enterprises that are so loudly extolled.
Those who have suffered are inevitably those in the lower ranks of the banks. The financial sector ran wild under deregulation, bringing a crisis that is leading to remedies now in which the Government are invoking massive cuts which will fall on the shoulders of ordinary people. The call for debt reduction and massive cuts without first rebuilding the banking system carries the risk of taking us back into recession. We should be re-establishing strong growth and high employment. When people are employed, they buy things, and when people are buying things we are feeding our economy. When people become unemployed, they become a debt to the country, because we have to make sure that there are benefits at least to keep them out of some levels of poverty.
It is business as usual for the banking sector. The cuts and paying back of debts will inevitably fall disproportionately on the shoulders of ordinary people—those who work in hospitals, such as porters and nurses, as well as community centre workers, nursery school workers and so on. They are the people who will be confronted with unemployment and they will feel the greatest pain of swingeing cuts and reduction of services. My concern is that the new coalition Government will not be concerned enough about the whole issues of taxes and fairly sharing out responsibility for getting this country back into some sensible situation.
If we have learnt anything it is that capitalism and markets have to be properly regulated if we are to live in a decent, civilised society where the gap between rich and poor is not obscene. Markets are without morality and it is for government to inject the moral component into them. We should look at not just a decent minimum wage but a decent living wage for people. At the other end of the scale, we should be talking about the creation of a high pay commission. There was something wrong when in 1990 a review of salaries found that chief executives in companies were earning 55 times more than the average worker in those same companies. In just 10 years, by the year 2000, CEOs were earning 600 times more than the average workers in their companies. The Spirit Level, a book that has been invoked so often in this House, says that a country where the gap between rich and poor is high is inevitably a less happy place to live in.
What do we do about the banks? The Glass-Steagall Act was introduced in 1933 and was designed to control speculation, preventing commercial banks, which took the deposits of ordinary customers, from embarking on risky trading activities. We, too, should separate out high street retail banking from the risky casino banking activities of the investment banking sector. The large banks should also be broken up into smaller entities, as Nouriel Roubini, the economist, who foretold this crisis, is now recommending.
There are many things that this Government could be doing. The noble Lord, Lord Low, spoke of the way in which, if care is not taken, we are going to drive many more people into poverty and the divisions in our society will become greater. This new Government came into existence speaking of a “broken society”. It was not a view I shared; I happen to believe that Britain is a society rich in social capital. But the divisions will be great if we do not deal with this crisis in a humane way, where the pain is shared by all.
Lord Bradshaw
My Lords, I am going to speak about the bus and rail industries, in which I have no financial interest, although I have spent my whole professional career there. I want to talk about the financial problems facing the Government. First, I utter a word of caution about fares. The elasticity of demand in both transport industries is such that if you put up fares by 10 per cent you lose on average 13 per cent of the passengers, so you have less money in the till and fewer passengers—hardly a recipe for success.
Costs must be cut. I ask the Minister to say something about Network Rail, which is spending huge sums of taxpayers’ money and is inefficient, complacent and expensive. I believe that legislation is necessary to bring this organisation, which was created by the party opposite, under some sort of control. It is essential that it spends less money. Secondly, the train operating companies and rolling stock companies are quite ready to review straightaway the timetable and deployment of rolling stock, in the interests of greater efficiency and getting much more into the kitty.
It is necessary to delay the refranchising of three franchises—CTC, Greater Anglia and the East Coast. They are due to be refranchised soon, yet the Government have said, and we have supported the view of the Conservative Party, that we need a new franchising model, which will bring a lot more investment into the industry, because I cannot see that coming from the Government. I believe that the train operating companies and the rolling stock companies are quite capable of managing the fleet and the cascading of rolling stock within the fleet and might embark on a programme of life extension and refurbishment, which would create a lot of jobs in this country, rather than buying new trains from Japan, a process which the previous Government set up. They are unnecessary and unwanted and very expensive. We could make do with what we have, because it has a lot of life in it.
We should review the Thameslink and Crossrail service patterns. We need both, but do we need to run 12-coach trains through Thameslink at 24 trains an hour? That is a huge amount of capacity, and I am sure that it is too much; a rigorous appraisal needs to be made of the number of trains running and where they are going to. At the west end of Crossrail, people almost do not know what to do with the trains.
I welcome, of course, the work being done on high-speed trains. I believe that the electrification programme from the railways needs to be thoroughly reappraised. Although I live in the region of the Great Western and obviously speak in an audience of Cornishmen, I would say that say that electrifying the line west of Oxford is unnecessary, at least at the moment. We should concentrate our electrification on those lines where the cash flow is best, so that we buy the things that would give a return quickly, not spend money on things on which the return is problematic in future. We need to purge the rail division of the Department for Transport and almost forbid it to employ consultants. We should stop using the new approach to transport appraisal as a means of assessing transport schemes. It is inordinately expensive and complicated and, as an economist, I gave up reading the thing after page three. It gets so complicated that it is not an efficient guide as to where we should spend the money.
I agonised quite a lot over the question of buses. The concessionary fares scheme was never properly funded by the Labour Party and has been a constant source of trouble to both operators and local authorities. The age at which concession is available needs reviewing, and we might have to do the very unpopular thing of charging concessionaires 25 per cent of their fare in order to bring the system back into balance. Of course I would make exceptions for the disabled, the over-80s and various others, but the vast bulk of people would rather pay something towards the cost of their travel. A recent survey asked people how the scheme had affected their lives and one of the prime answers was, “We walk less”. I am sure that that was never in the minds of the people who designed the scheme.
Lastly, there is the issue of heavy lorries. Foreign lorries are using our roads and not paying, and we should do something about lorry-user charging to get more money in the kitty.
I hope that I have given the Minister a few ideas about how to save money in the areas that I know about. I am sure that other noble Lords could do the same.
Lord Broers
My Lords, I, too, take great pleasure in congratulating the noble Baroness, Lady Wilcox, and the noble Lord, Lord Henley, on their new appointments.
I shall speak to the first priority of the Government as set out in the second paragraph of the gracious Speech: the reduction of the deficit and the restoration of economic growth. As an engineer, I certainly do not have overall solutions to these immense problems, but I feel strongly that there are actions that we must take if there is to be any chance that we are to resolve them, and there are things that we should not do.
I shall start with one of the latter. We must not go on being afraid to face the magnitude of the problem, perhaps on the assumption that we will frighten people or be thought to be talking down the UK economy. The public and our partners and competitors overseas are not innumerate; the numbers are starkly clear for all to see. No matter how one tries to define “structural debt” as opposed to “cyclical debt”—the economists differ on this—our structural debt is several hundred billion pounds higher than would normally be accepted for a healthy economy. Before we can start to reduce the structural debt, the economy will have to recover so that the cyclical debt is contained and annual deficit eliminated. Even if we allow ourselves 10 years to recover, the annual sums of money needed to close the gap far exceed £100 billion, and may approach £200 billion. We have to get on with it—after all, the £6 billion that has caused so much anguish offsets only 14 days of borrowing.
Faced with these apparently insurmountable debts, what do we do? It is unlikely that we can find the sum needed in savings, no matter how savage the spending round, and only a limited amount can be raised by increasing taxes if the nation is not to revolt. We are going to have to get the economy growing again. I agree with the Prime Minister that there is no other course but to place much more emphasis on manufacturing. The question is: how do we do this? We could risk generating runaway inflation and further devalue the pound. After all, in 2008, on the previous Government’s watch, the pound was devalued by a staggering 25 per cent, much to the relief of industry, even if it demonstrated the weakness of our economy compared to others. Further devaluation might increase the competitiveness of industry and improve the balance of trade, but naturally it would make funding our deficit prohibitively expensive. Short of providing an unrealistically weak pound, we will have to find incentives that encourage investment in new ideas, and lower cost and more efficient funding for industry than is being provided by our banks. After all, banks that hugely reward their employees and at the same time aim to make large profits have to make all that money out of someone, and of course it is generally their customers.
To improve our industrial performance we must first develop a rational and competitively priced energy strategy, as mentioned by the noble Lords, Lord Lawson, Lord Oxburgh and Lord Jenkin. We must also make better use of our educational system and our science and engineering research base. Mike Lynch, one of our most successful entrepreneurs, recently said in the Times:
“If you look at the calibre of our students and the competitive advantage they bring, we should have a raft of internationally successful technology companies. Instead, there are only two software companies … in the FTSE 100—Autonomy”,
which is Mike’s company,
“and Sage. Our ambition should be to have … ten. Without technology companies the UK economy will be in massive trouble”.
A proposal that should help create high-technology companies has been made by Dr Hermann Hauser in his recent report to the former Secretary of State at the Department for Business, Innovation and Skills, The Current and Future Role of Technology and Innovation Centres in the UK. Dr Hauser proposes that the UK develops a translational infrastructure similar to that used in other countries that greatly benefits their economies by building bridges between universities and industry. At the moment our expertise in many subjects is scattered across the country in many small centres, few of which, if any, attain international levels of competitiveness in technology transfer. Hauser recommends that we concentrate our expertise in general areas such as stem cells and regenerative medicine, future internet technologies, plastic electronics, software, technologies addressing renewable energy and climate change, satellite communications, fuel cells, advanced manufacturing and composite materials. These should be concentrated into a handful of centres that are internationally competitive and attract the serious involvement of industry.
We have to do all that we can to encourage and support our manufacturing industry. After all, despite neglect, it still adds more than £l50 billion a year to the UK economy, accounts for half of exports and represents 13 per cent of gross domestic product. However, as Dick Olver, chairman of BAE Systems, has pointed out recently in the Financial Times, these statistics mask disturbing trends. Since 1970 the UK has suffered the sharpest decline in manufacturing as a proportion of employment of any advanced industrial economy. Olver goes on to say:
“Without action, that trend is likely to continue and, in a global environment, big companies will have fewer reasons to favour the UK when deciding where to invest”.
Other data produced by the ERA Foundation show that over the past decade our trade balance in finished manufactured goods has declined, at an average rate of 20 per cent a year, from a position of rough balance to a deficit of £55 billion. We need to reverse these trends if we are to recover our economy.
The Lord Bishop of Liverpool
My Lords, thanks to the Benches opposite, the United Kingdom has established its reputation on the world stage as a leading voice on climate change. It is the hope of many on these Benches that the new coalition Government will continue to show strong international leadership by what the United Kingdom says on the global stage as well as by the way it rebuilds a green economic recovery.
In the run-up to the election the Green Alliance’s report, The Last Parliament, made a powerful argument that now is the time for action. The report reminds us that over the next five years Parliament has the last opportunity to take action on the national and international stage and prevent runaway climate change. Failure to stabilise emissions in that timeframe will dramatically reduce our chances of keeping global warming below the predicted 2-degree rise in global temperature. The Government have declared that they want to be the greenest Government. This is not simply a desirable ambition; it is an essential requirement for a secure future.
I am interested to see how the Government’s plans will impact on the north-west of England. The region is the most renewable-energy-rich region in the United Kingdom, offering opportunities for its continued economic development, especially with the creation of green jobs and green economic growth, as well as contributing to the national economic recovery. We therefore welcome the plans for setting up the green investment bank. I hope there will be many branches in the north-west. However, it is with great concern that we learn of the intention to create local enterprise partnerships to replace the regional development agencies. The RDAs have a long track record and, especially in the north-west, have been an investor for—and not a cost to—central government. The NWDA’s investment in projects resulted in a net increase of wealth of £5.20 for every £1 invested. In 2009-10, the NWDA played a pivotal role in attracting more foreign investment to the region than any other outside the south-east, creating or safeguarding more than 14,000 jobs. The point of mentioning the RDA in a speech mainly about the environment is that the RDA is the key to developing a renewable energy strategy and green jobs in the regions as a major part of the development of the UK’s renewable energy strategy.
The UK faces challenging targets for carbon emissions. We cannot achieve these without the close integration of infrastructure planning, economic growth and energy generation. The proposed abolition of the regional spatial strategies seems to remove the mechanism to align infrastructure priorities with economic potential. We have a national requirement to develop a sustainable, reliable, renewable energy supply. The development of the national infrastructure must contribute to this. It is important that the Government replace the Infrastructure Planning Commission with a system that is not just, as they say, efficient and accountable, but that counts the carbon of new infrastructure planning. I have argued for this in previous debates and will continue to make the point that planning permission must take account of the carbon footprint; otherwise, it drives a coach and horses through any strategy for reducing our carbon emissions.
There is no mention of nuclear power in the gracious Speech. We must avoid falling into the trap of believing that nuclear is our primary and easiest energy solution. I share the concerns expressed about nuclear energy by the Secretary of State. I question the development of nuclear energy on the grounds of proportionality. The energy consumption of one generation burdens 100 generations with the problem of dealing with the waste. I urge the Government to strive for a rich energy mix, including the abundant—and as yet almost entirely untapped—renewable energy sources around our country. For example, up to 20 per cent of the electricity required by the United Kingdom could be provided by the waters and tides of our coast, predominantly on the west of the UK.
At home, the Government have an important role to provide the initiative for changes in lifestyle. I hope the government policies, such as establishing a full system of feed-in tariffs and encouraging home energy efficiency improvements, will encourage people to change their lifestyle. Without a change of lifestyle, the policies themselves will not deliver. The climate of political opinion on climate change has changed radically over the past five years. Through the new Government’s legislative programme, the momentum must be sustained if the climate of opinion and action is to change more quickly than the climate itself.
Lord Reay
My Lords, although they are not present, I pay tribute and express my thanks to the Ministers with whom I had to deal in the previous Government on energy, environmental and planning matters—the noble Lord, Lord Davies of Oldham, and, in particular, the noble Lord, Lord Hunt of Kings Heath. They were models of what Lords Ministers should be: immensely skilled in debate, extremely conscientious, and—possessing perfect manners—they ensured that the debates they led were always a pleasure for those who took part in them. I hope that we can produce Ministers worthy to tread in their footsteps; I am sure we will. Looking further ahead, I hope that we will never introduce a reform to this House that will make the achievement of their high parliamentary standards less likely.
I have no problem with being in a coalition. I once sat on the Liberal Benches. A coalition, of course, has differences of opinion within it. However, in one area, unanimity unfortunately reigns, with dangerous possible consequences. I refer to the policies on energy and climate change. Indeed, the coalition policies in that area differ little, if at all, from those of the previous Government. If anything, they aim to go further in the same direction. For example, the coalition’s programme promises support for an increase in the EU carbon emission reduction target from 20 per cent to 30 per cent over 1990 levels by 2020. Last week the European Commission pushed this proposal until, under pressure from France and Germany, it was forced to retreat, despite the support for the Commission from our own Secretary of State. The Commission was apparently attracted by the funds that it would be able to raise by selling additional carbon emission certificates. In other words, it was seen as a revenue-raising tax on industry. How can that possibly be sensible in the present circumstances?
The fact is that in our present economic predicament, the private sector, including our manufacturing industry, needs to be given every encouragement to restore growth to our economy. The whole point of being out of the eurozone is surely to be able to take advantage of our lower costs in world markets. No cost is more significant to industry in determining its international competitiveness than that of energy. How, then, can we afford an energy policy that promises extravagant additional costs for private customers and business alike, the effect of which can only be an increase in fuel poverty; the destruction or emigration of industry, with consequent further job losses; and the threat that the lights will go out as we persist in promoting inefficient means of producing electricity?
Governments are fond of claiming how many jobs they will create through their various schemes to promote green energy. They do not speak about the fear of the far greater number of jobs that will be lost in other sectors as a result of the increase in costs imposed on the rest of industry by the expense of the subsidies. Moreover, jobs in industrial sectors which depend for their very survival in all countries on government subsidies are exceedingly vulnerable, as we are beginning to see. Not surprisingly, across the developed world, those subsidies are now having to be reined in, with consequences that are entirely predictable. In this country, the Secretary of State says that there must be no subsidies for nuclear energy. Fair enough—that was also the policy of the previous Government. The eventual cost of decommissioning nuclear plants should be factored into the lifetime costs of power stations and paid for by energy companies. There should be a level playing field as far as possible, with industry choosing the most efficient technologies. However, in that case, why should wind power be subsidised? It has had plenty of time to reach maturity as a technology and prove that it can stand on its own feet, but it has failed to do so. The previous Government repeatedly had to raise the subsidies for offshore wind to have any hope of meeting their renewable energy targets, and did so again in April of this year. It is just the latest example of how Governments cannot resist picking not winners but losers.
The next example will very likely be solar power. Here we should be warned by what has happened in Germany. Germany, like this country, does not have a notably sunny climate. Nevertheless, thanks to feed-in tariffs, it has more solar power capacity than Spain. According to a study published last year by Ruhr University, which I have quoted before in this House, by the end of this year it is expected that more than €50 billion will have been spent on subsidising solar power in Germany, yet in 2008 solar power produced a paltry 0.6 per cent of Germany’s electricity. Sadly, however, we seem to be setting off down the same road. The coalition programme promises to introduce a full system of feed-in tariffs. However, the Prime Minister stunned everyone with the leadership he showed in establishing the coalition following the election result. In other respects also he has showed pragmatism and an ability to free himself from dogma. Let us hope that in the field of energy too he will eventually embrace reality and abandon childish dreams, and do so before disaster is brought down on this Government and this country.
Lord Desai
My Lords, I shall miss my noble friend Lord Myners and the noble Baroness, Lady Noakes, but I welcome the new team, whom I have known for a long time and shall have fun attacking.
Unlike many of my noble friends, I have always taken the view that the deficit has to be tackled and, along with 19 other economists, signed a letter to the Sunday Times to that effect. The noble Lord, Lord Skidelsky, then found an army of many more economists to demolish my case, but we shall see. The important point is that we should debate the timing of deficit reduction, not the need for it. Even on timing, the choice is not as wide as people think. We are in the midst of a recovery. Growth in the last quarter of last year and the first quarter of this year was fragile, but the figures have been revised upwards. We will most likely have a growth rate of around 1.5 per cent to 2 per cent this year. When the right honourable gentleman the Chancellor of the Exchequer announces his emergency Budget, it is important that he ensures that the path of deficit reduction is properly laid down without any confusion and that he makes it contingent on a certain growth trajectory. When the Office for Budget Responsibility checks the growth figures, I hope that it will follow the practice of the Bank of England and produce a range of likely growth figures, because we need to think about the uncertainty surrounding those figures and then look at the timescale of deficit reduction.
I produced a paper before the election with Peter Kenway of the New Policy Institute in which we calculated the rate at which the deficit would have to be reduced to bring down the share of spending from its present high figure of 44 per cent of GDP to, say, 40 per cent, which is what it was in 2002. The most important element in that calculation is that just keeping real current spending constant—zero growth—and relying on growth to bring in revenue may be a good and cautious strategy to begin with. If even that much is done, it will be good. What people historically call cuts in government spending in the UK are not actual cuts but occur when the growth of current spending is less than the growth of GDP. The growth of GDP will have to be watched carefully; at the minimum, to have constant real spending would be a good strategy.
The Liberal Democrat proposals for fair taxation are extremely muddled. The Liberal Democrats are good-hearted people but they have not really thought this through. In order to take about 2 million people earning between £6,500 and £10,000 out of taxation, they are giving another 20 million people more money than they are giving to the people whom they really want to help. People earning above £10,000 will get £700 guaranteed, while people at the lower end of the scale will get somewhere near £700 at most. If you help only the 2 million lower paid, that will cost £1.5 billion, but taking this course would add another £15 billion of cost for those who do not deserve the extra money. That is not fair; it is regressive and expensive. There is a simple way of achieving something better, which is not to raise the personal allowance but to give people who earn between £6,500 and £10,000 a tax rebate. In that way, only those people would get a tax rebate, not the rest. I suggest an even better measure—I have written about this and I hope that it will appear in print very soon—which would be to abolish the personal allowance altogether and convert it into a tax credit. Everybody would get a tax credit equivalent to the basic rate of taxation times the personal allowance, which is £1,300 in today’s figures. The advantage of that is that people who earn less than £6,500 who do not now pay tax would pay negative income tax and get a credit. In that way, you would help the really poor people through the taxation mechanism to a far greater extent than we are doing now.
It is a good idea to integrate income and capital gains in a single taxation framework. However, you should do that consistently. I suggest that the 20 per cent and 40 per cent rates be incorporated in the capital gains part of tax as well.
The noble Lord, Lord Higgins, decried the fact that the IMF has suggested that the zero rating of VAT be abolished. I proudly say that the IMF has at last seen the sense of what I was saying 17 years ago, for which I was sacked from the Labour Front Bench. That is not a bad lag for the IMF. I wish that the Government would catch up with the IMF and abolish zero VAT rating. If you are to cut the budget deficit and the debt, you have to choose carefully whether it is not better to increase taxation in certain respects rather than to cut spending. It is a fine balance but I have never understood the holy-cow nature of zero rating of VAT on children’s food, which contains far too much sugar and salt. Tax it and we will get a healthy population.
Lord Skidelsky
My Lords, I congratulate the Minister, the noble Baroness, Lady Wilcox, on her appointment to her important new responsibilities. I regret only having to turn my head to the left rather than the right to get the full flavour of the masterful performances of the noble Lord, Lord Myners, that I have come to expect and which, indeed, we got today.
In the Crimean War, it is said that Lord Raglan, a veteran of the Peninsular War, announced his plan of campaign to the assembled commanders by pointing to the map and saying, “We attack the French here”, at which point an aide whispered to him, “Sir, the French are our allies”. I trust that members of the coalition will not be afflicted by a similar cognitive dissonance.
The Government have already announced £6.2 billion of cuts, and further cost-cutting is promised in the emergency Budget of 25 June. Contrary to the noble Lord, Lord Desai, I believe that these will be real cuts if growth does not take place. That is why I would not make them until we have much firmer evidence of recovery than we have at the moment.
Why this stampede to austerity? The basic reason is a visceral, if vestigial, puritanism. We feel that more spending cannot be the answer to having spent too much already. Peter Oborne summed this up well in the Daily Mail. He said:
“Borrowing to save the economy is like trying to sober up a drunk by giving him a large whisky”.
The Chancellor said much the same some six weeks after the collapse of Lehman Brothers. He said:
“Even a modest dose of Keynesian spending”,
is,
“a cruise missile aimed at the heart of the recovery”.
That was in October 2008.
I have long argued that such propositions would be true if the economy was at full capacity. The boom is the time for belt-tightening. However, these propositions are not true for today. Everyone knows that output and employment are severely depressed. The OECD has calculated that the UK’s output gap is 5 per cent. Does the noble Lord, Lord Henley, agree or not agree with that estimate?
In my judgment, we are experiencing a good, old-fashioned Keynesian demand-led recession, which requires a good, old-fashioned Keynesian response. As Nobel laureate Paul Krugman writes:
“Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea. Not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts”.
By what mechanism do the Government believe that cutting the deficit will promote recovery? The usual argument is that it will restore business confidence. Surely the best way to do that and to reduce the deficit is to increase total spending from the low level to which it has fallen. The projected deficit has already shrunk from £176 billion to £156 billion without any change of policy. It will continue decreasing gradually as the economy recovers, unemployment shrinks and revenues grow.
The way in which the stampede for austerity has built up is frightening. I have yet to find a single solid reason for cutting the deficit now, especially in view of the disaster threatening to overwhelm the eurozone. People talk about the need to pay attention to the psychology of the markets. However, no one who has made any money on the market believes for a moment that financial markets are capable of judging risk accurately. As Warren Buffett said:
“A pack of lemmings looks like a group of rugged individualists compared with Wall Street when it gets a concept in its teeth”.
That is why politicians and public officials have a particular responsibility not to try to second-guess the financial markets by threatening disaster if certain policies are not followed. They do not know what the financial markets will think and, by playing up the risk of default or inflation, they can create a dangerous self-fulfilling prophesy—exactly the type of momentum that they do not want. If the markets believe what the Chancellor has been saying for the past year or so, they might make it impossible for him to eat his own words.
It is a tragedy that the very financial system that has recently been bailed out by the taxpayer is treated as the arbiter of fiscal policy—using the very deficits and debt that they have foisted on us as the pretext for savage fiscal cuts in recession. Regrettably, I do not agree with the noble Lord, Lord Lawson, that deficit reduction should take precedence over any other policies, but I agree with a famous predecessor of his, Winston Churchill, who, as Chancellor of the Exchequer, said:
“I would rather see finance less proud and industry more content”.
Viscount Eccles
My Lords, the noble Lord, Lord Skidelsky, has entertained us with much the same thesis on a number of occasions, but I wonder whether he does not exaggerate. He talks about the age of austerity; I suppose that he is referring to £6.25 billion of expenditure cuts, but the previous Government were, if I remember rightly, going to make £5 billion in efficiency savings. I suppose that economists would tell us that there is not really very much difference in outcome between cuts and efficiency. We will always live with economic uncertainty, but the question is: how capable are we of dealing with that uncertainty? All that we know for certain is that our economy is some 10 per cent smaller than it would have been if matters had proceeded smoothly, and that our structural deficit is unsustainably high. It may well be best if the pace of the deficit reduction was contingent on the pace of economic recovery. However, recovery first and debt management second is not a viable choice. It is always necessary for the two to proceed in tandem.
The Bank of England’s view of the near future re-emphasises the uncertainties. A 2 per cent central position between inflation and growth is so widespread between nil and 5 per cent that it amounts almost to a “don’t know”. In a period of such uncertainty, a mechanistic and one-solution analysis is of very limited use. The most favoured and oft-repeated parallel is the 1930s, because it is Keynes of 1936 who gets the star billing. I will not speculate upon how different his General Theory would be if written today. However, he would certainly take into account very differing circumstances—the most striking of which are the welfare state and the rise in per capita income which, in real terms and taking some account of lifestyle changes, is more than three times what it was in the 1930s. The economy of today is therefore radically different from that of the 1930s. Who, we might ask, is expecting Jarrow marches or some repeat of George Orwell’s The Road to Wigan Pier?
The underlying strength of today’s economy, its relative wealth and our welfare state mean that we can face up with flexibility to the judgments that need to be made as events take their course in a global economy. Our economy, even at a time of fragile growth, provides the room to take action and then to see how the unknown balance between economic recovery, indebtedness and inflation develops. We need to find out how much better we can do when the responsibility for finding solutions is shared between the centre and the many institutions which serve the people. We need to see how people react to changing circumstances. Many will solve their own problems.
The coalition is committed to fairness—equity between all members of our society—as we find our way back to economic and fiscal stability. I strongly support the test of fairness and carefully assessing public reaction. Despite the extraordinary mess which we are in and despite the absurdly centralised and bureaucratic mistrust of the people that we inherit, we will be agreeably surprised by the response to tough decisions and we will be able to promote fairness. I strongly support an increase in the personal allowance. It is right to replace the mechanistic, top-down and money-throwing recent past with freedom, fairness and responsibility.
Lord Hunt of Chesterton
My Lords, I, too, congratulate the coalition on its pragmatic pro-European and pro-nuclear policy. I am still waiting to see a European flag flying over our Parliament, as it does over others in Europe—although some Lib Dems believe in that. There were many good points in the speech of the noble Baroness, Lady Wilcox. It was a very green speech, and I look forward to seeing her influence in future.
I will comment on the points made in the Queen’s Speech about manmade climate change and economic recovery. Both are serious tasks, but there has been something missing in today's debate. I say to noble Lords that the huge government investments in the UK in the past 13 years have had a dramatic impact on the environments of the most depressed areas. That money was extremely well spent, and we should recognise that. I saw much of this in the recent election campaign in the West Midlands.
I declare my interests as a former professor of climate change, and the director of a small consulting company. As to the remarks of the noble Lord, Lord Marlesford—I am sorry that he is not in his place—I was a senior civil servant and I always flew economy class. Not all civil servants travel first class.
The rise in global temperatures during this century is a very serious matter. Several climate centres, including the Met Office, the Danish met office and the Chinese met office are predicting that the result at the end of the century will be nearer 4 degrees than the 2-degree target agreed at Copenhagen. It would be possible to keep to the last figure only if worldwide carbon emissions stopped growing. Because of the complexity of climate change science and policy—as the noble Lord, Lord Lawson, emphasised—we must have more open discussion. Scientific and engineering aspects must be considered. The Royal Society and others now advocate that.
Policies to deal with the situation must be international and realistic. However, they probably cannot be based on a Kyoto-style global agreement, as we saw at Copenhagen. One might compare the UK's ambitious plan to reduce emissions by 80 per cent by 2050 with China, which has stated in many public remarks that while its energy may be more efficient it will double emissions by 2050. Nevertheless, as the noble Baroness, Lady Wilcox, said, the UK must collaborate and trade with all countries of the world, particularly those which are rapidly industrialising. One way in which we can do that is through our development of nuclear power, and through R&D into future technology. I part company slightly with the interesting remarks of the right reverend Prelate the Bishop of Liverpool in believing that future nuclear technology will enable us to eliminate waste. An article in the New Scientist explains this.
As the EEC Commissioner for Climate Change recently commented when she came to London, carbon trading is now operating as an important aspect of making industry more efficient and stimulating energy emission reduction. In China, there are about five or six centres. There are others in the north-east states of America, and on its west coast. This may be one way in which we will find practical methods for reducing emissions. These should also be complemented by policies in the cities of the world. They are the areas where there is a maximum usage of energy, and policies have begun in London and around the world. We heard last night from the mayor of Mexico City, who was visiting London, about its remarkable policies, working with other cities. Policies to reduce carbon emissions can be similar to those for reducing air pollution, which is a major issue for people living in the cities of the world.
The Government should also, in the most cost-effective way, not only negotiate with other Governments and encourage cities, but work with United Nations specialised agencies, which are continuing. They were given leave to continue by the Copenhagen meeting. The World Meteorological Organisation is monitoring the climate. The Food and Agriculture Organisation is working on forestry. The International Maritime Organisation, the other side of the Thames, is working on reducing pollution from shipping. This is very cost effective, but gets little publicity in Parliament.
I will also comment on the work of the Department for Business, Innovation and Skills, which we have been discussing this afternoon. These three strands come together in government policies for research in industry, which the noble Lord, Lord Broers, emphasised. High-tech companies in the UK have made many comments about the importance of maintaining the taxation policies of the previous Labour Government, to provide tax relief for research in industry. Again I declare an interest as director of such a company. For example, a professor of chemistry at Cambridge explained how this had been essential for the establishment of several companies.
Another aspect of the previous taxation policy was to provide much better maternity benefits to companies through the taxation policy. This has enabled women to have much longer and more successful careers in high-tech companies. I am sure that the noble Baroness, Lady Wilcox, will approve. Finally, I again approved of other remarks that she made because they so departed from the policy of the Minister of her party in the 1990s. When I expressed the need to use government purchasing power to develop technology, a very senior Minister in the Major Government said that that was something that they did in France. I am glad that that is something that they now do in England: good luck to them.
Lord Smith of Clifton
My Lords, I thank my noble friend Lady Wilcox for introducing today's debate on the gracious Speech. She is the Minister dealing with business in this House, and I congratulate her on that and wish her well. Indeed, she and her portfolio are both highly relevant to the topic I will discuss today; namely, the role of women and their representation on the boards of major companies.
The previous Government ignored the issue, despite the strong efforts of Harriet Harman, who deserves much credit. When he was a Minister at the Treasury, the noble Lord, Lord Myners—I am sorry that he is not in his place—dismissed the idea of legislation in this area when I put it to him. I admired him greatly for most of his time as a Minister and said so; but where he fell down badly was in refusing point blank to look seriously at the paucity of women directors. In mitigation, he boasted that, when chairman of Marks and Spencer, he had the highest proportion of women board members of any large company. However, most of them were non-executive directors; and that record does not absolve him from the wrong judgment that he made in office.
The noble Lord is reported as intending to undergo theological training: not the usual form of hedge-betting that former financiers practise, but one that might start a trend. Who knows? The partners of Goldman Sachs may end up doing God's work after all. Theological training will give the noble Lord an opportunity for reflection, after which I hope he will be converted to the full and equal participation of women in the corporate governance of our major companies, and to the proposition that legislative provision should be made to ensure this.
It is a sign of progress, I hope, that in the course of the past few months, there has been some evidence of a growing awareness of the necessity of securing more women as directors. In March, the noble Lord, Lord Davies, then Minister for Trade and Investment, wrote to the chairmen of the FTSE 100 companies urging them to appoint more women directors. On 8 March, in answering a Question posed by the noble Baroness, Lady Howe of Idlicote, he agreed that,
“it is not acceptable that 25 per cent of the FTSE 100 companies do not have women on their boards”.—[Official Report, 8/3/10; col. 6.]
He added that the Financial Reporting Council would be instructed to ask companies the reasons for this lack, and to name and shame them.
It is quite disgraceful that women make up only 5.2 per cent of executive directors of the FTSE 100 companies. Though it was not mentioned specifically in the Queen's Speech, this initiative is being maintained by the new coalition Government. The Financial Reporting Council, under its new chair, the noble Baroness, Lady Hogg, is to review its code to require companies to have regard to diversity in their main board appointments. I wish her well in her new post, because she will have her work cut out.
Before the general election, it was reported in the Financial Times on 3 May that the Conservative equalities manifesto proposed that half the long-lists for directorships would have to be women; that directorships would have to be publicly advertised; and that any company with less than a third of women members would have to state in its annual report what steps it was taking to remedy the situation. These are much bolder commitments than those of the previous Government, and are to be welcomed as far as they go—which is still not far enough if the UK is to catch up with international best practice. Norway has been the outstanding pioneer in tackling this problem. It legislated to require companies to have women as 40 per cent of their directors by this year. In fact, the target was met in 2008. Spain has followed suit. France is going further in insisting that 50 per cent of company boards are composed of females by 2015. This is the kind of progress that is required; the imposition of quotas to be met by specific dates is the only way to remove the glass ceiling. Predictably enough, the Institute of Directors is already bleating about the proposed very modest changes to the FRC code. Ruth Sealy, deputy director of the International Centre for Women Leaders, has said:
“Nobody likes the idea of quotas, as it isn’t meritocratic. Yet meritocracy only works with a level playing field. It isn’t level in the UK”.
Male chauvinism is especially at work in the financial services sector. A recent survey of Oxford undergraduates revealed that women respondents regarded the City, and particularly the banks, as “unethical” and as having,
“poor promotion prospects for women”.
A month later, the Treasury Select Committee validated these opinions as reflecting current reality. The committee also cited evidence that the gender pay gap in the City was some 41 per cent compared with 21 per cent in the economy as a whole.
The question has been asked whether more women in senior positions would have prevented the current crisis. That cannot be easily answered, although there is some evidence that companies with the largest numbers of women directors in the United States are among the most prosperous. But women could hardly have done worse than the men who caused the crisis. However, that is not the point, which is that women should have the same opportunities to participate in senior corporate positions—it is hoped in ensuring success, but also in sharing the blame when failures occur.
I urge my right honourable friend Theresa May, the Home Secretary, who is also the Minister for Women, together with my honourable friend Lynne Featherstone, the Equalities Minister, to press hard for boardroom equality. They should ensure that the coalition Government, with their gross preponderance of men, follow the FRC code. The Queen’s Speech in 2011 should spell out how the Government intend to rectify the position and by when. I trust that the Minister, in winding up, will be able to reassure me on this point.
The Duke of Montrose
My Lords, Parliament now has a coalition, which, with any luck, will guide the policies of the United Kingdom for the next five years. As noble Lords will be aware, one critical event in this period will be the next revision of the common agricultural policy.
I declare my interests as a farmer and a livestock rearer. I should like to say how encouraged I was to hear the right reverend Prelate the Bishop of Wakefield raising some of the issues that affect the industry. In fact, as one of the Government’s purposes is, I believe, to encourage business and manufacturing outside the south-east of the United Kingdom, they could bear in mind that agriculture has a part to play.
Strange as it may seem, the founding principles of the CAP are, in my opinion, still valid. These were: to increase agricultural productivity by promoting technological progress and efficiency; to ensure a fair standard of living for the agricultural community; to stabilise markets; and to ensure availability of supplies. The new factor that we have woken up to is that the CAP must also protect and enhance the environment. This is being achieved by the transfer of financial support within the budget from what is known as Pillar 1 to Pillar 2. Part of the Government’s task will be to see that this is carried out equitably across all our partners in Europe.
Another factor is that, as negotiations under the World Trade Organisation progress, farming will become more and more exposed to international competition. It is vital that every effort is made to maximise progress and efficiency in order to maintain competitiveness wherever possible. Here at home, as we are faced with our own financial crisis and the Government have already identified proposals to cut £162 million from the Defra budget, that will be an immense challenge. Can the Minister give any indication of the key areas in which this is likely to be achieved?
Something which the whole industry would like to see, and on which my noble friend Lady Byford made some of her points, is a reduction in the cost of administering the single farm payment. It seems quite extraordinary that, by adopting a more sophisticated structure, the average cost of administering every payment in England was, as she said, £1,743, whereas I have been told that in Scotland the figure was £240. However, the Scots are certainly now having to address the structural shortfalls in their scheme and they will have to move to an area-based system, but unfortunately they are unable to make the necessary alterations until the review takes place in 2013. Their advantage is that they now have certified maps for all the major holdings and the costs are not likely to approach those experienced in England. What cost target do the Government expect to meet when they carry out the single farm payment this year?
An area of additional expense for both the Administration and for farmers is the newly introduced sheep electronic identification scheme, under which all sheep and goats born after 1 January will have to have two ear tags, one of which is electronic. This shows every sign of being as much of an administrative nightmare as the single farm payment has proved to be.
Your Lordships’ House has already heard of many of the aspects which appear to be unrealistic. They are already posing problems in Scotland where the Administration are looking for a system that could be considered practical. There is the worry that individual farmers with their own reading machines, some of which might be less than top-of-the-range technology, will be liable to create errors. Under the system that they introduced, once all the sheep are tagged, almost all registration of movement will be carried out by drafting the sheep through what are designated “critical control points”. These will almost all be livestock markets and slaughterhouses.
The markets, in particular, can have throughputs of anything from 1,000 to 10,000 sheep a day. Various systems have been under trial and even last week at my local market, with 2,000 sheep present, the operators were proudly trying to maintain that they had only a 10 per cent error rate with the young lambs. However, this means that there could be 200 lambs with buyers which are not showing up correctly on the records.
I ask the Minister to note the proposal currently going through the European Parliament, which contends that the only practical way forward is a three-year introductory period in which the regime is allowed to operate without any question of penalty. This would allow a realistic assessment of what requirements are practical and of the processes and technology capable of delivering what is required. Can we have some assurance that the Government will be prepared to pursue this argument when it comes to the Council of Ministers?
Lord Selsdon
My Lords, over the years that I have been in this House, I have found myself more and more confused by government. Government seem to try, in the interests of everyone, to do too much too often, and confusion reigns. I was brought up to believe that government could do only three things: tax, spend and legislate. I worked in the clearing bank sector, where, again, you did only three things: you took deposits, you made loans and you collected money.
The lifeblood of our country was effectively trade, and I apologise for having been brought up in the world of trade and having to say that I sat below the salt. However, when I look at the Annunciator, which lists the items covered by this debate, it seems that the word “trade” has almost disappeared from the agenda. I ask the Minister, when he comes to reply, whether he can recall who is responsible for trade these days.
I believe that if we look at the strength or weakness of our economy, the answer lies in trading ourselves out of the difficulty. These problems have happened historically, and perhaps I may quote a problem that occurred not so long ago when the monarch at the time set up a committee—not a quango or an ango—
“to take into their consideration, the true causes of the decay of trade and scarcity of coyne … and to consult the means for the removing of these inconveniencies”.
That was in 1621 after the Armada. Your Lordships will be aware that the Armada tapestries will soon be arriving for exhibition here and it will be very moving to see them. However, the theme will be the defence of the realm and the importance of trade.
If we are to trade, we must look at the situation today. Since the war, we have moved from an equal balance of payments—balancing in visibles or goods—to a deficit of £100 billion. We have moved from a currency that was relatively strong and stable to one which is almost the weakest in the world. To put it in simple terms, the kilometre now has the same value as the mile. When we have a balance of payments deficit on visibles, the depreciation of our currency means that we are a major importing nation, as we always have been. The cost of our imports has risen in direct proportion to the weakness of our currency and there seems no possibility of that currency strengthening. There were moments when there was a natural boom, such as when the retail trade purchased goods before Christmas when the currency was high and sold when the currency was lower. Vast expenditure took place when low-cost airlines brought foreigners here to do their Christmas shopping, instead of taking the British abroad on holiday.
Unless we have a stable currency and think of our future as a trading nation, we shall be lost. However, the United Kingdom is one of the few countries in the world which automatically has a worldwide role. That is not necessarily due to the Commonwealth but due to our history of being able to invest and to set up in whatever sector. We are good managers and we have the advantage of the English language. Take the shortage of food: it would be easy for the British agricultural sector, with the right support, to go into any country in Africa and to treble or to quadruple agricultural production. The Sudan was to be the bread basket of the Middle East and the Gezira scheme ran without problems for years. We need to consider those areas.
I have just written a Green Paper called Shipping it Green. I have raised this in your Lordships’ House before but, if we get together with the Commonwealth, we can control the largest sector of the world in many areas and in relation to the sea. Can the Minister tell me today who is President of the Board of Trade? What is the Board of Trade and what are the Minister's responsibilities? In the mean time, I see the noble Lord, Lord Myners, in his place. He might be able to answer my worrying question about the siphoning off of money into non-departmental public bodies, which are known as quangos. In my view, it has risen to somewhere around £50 billion to £60 billion a year. Can the Minister tell me the current budget for those bodies and by how much the Government propose to cut them?
Lord Lea of Crondall
My Lords, I should like to address my remarks to social cohesion in the developing government scenario. I was pleased to hear the analysis of the noble Lord, Lord Skidelsky. I put on record how indebted we are to him for the wonderful book he has written about John Maynard Keynes. Keynes is alive and well, thank you very much. There are lessons to be learnt from the 1930s, as the noble Lord has pointed out in that book, even though the world has changed substantially since then. I echo some of the remarks of my noble friend Lord Myners. I look forward to him being a thorn in the flesh of anyone in the Chamber from his new roving position on the Back Benches.
First, I ask the noble Lord, Lord Henley, whether he agrees that the disaster in the financial services industry has caused the explosive growth in the deficit. Unless we get that right, we shall not get anything right. Eighteen months ago, we were at an annualised rate of 2.5 per cent and now we are at 11.1 per cent. What has happened? There has not been a sudden pay increase for public sector workers. I hope we will not have a dialogue of the deaf. Mr Cameron said that he wanted consensus that we would all tick the same boxes: a fairer society, economic growth, an entrepreneurial spirit and so on. How can we have a mature dialogue unless we have answers to some germane questions? In the middle of all this, we have three or four totally separate black holes in the various analyses being put forward. I do not see why that is so.
The noble Lord, Lord Skidelsky, stopped short of making a point that I should like to make—I believe he would have made the point if he had wished to use this metaphor—that the doctrine of cuts relates to economic growth through the magical resurgence of animal spirits. We are not in the African jungle playing the tom-toms, so what are the animal spirits? Are they the same spirits which led to the disaster? Obviously, if you believe that, you will believe anything. I think that the gloves-on approach in this House in relation to the financial services industry, with some very notable exceptions—I do not want to embarrass my noble friend Lord Myners—suggests that we believe that the financial services industry is still untouchable because it is that part of the world economy which lays the golden eggs. Perhaps the noble Lord, Lord Henley, would kindly answer this question: is the financial services industry now laying golden eggs or is it laying landmines and hand grenades?
It is always the poor that get the blame. I am afraid we are heading in that direction now. The other day, even the Financial Times—my Bible in many circumstances, although not under the editor who is now director-general of the CBI—described many of the obscene salaries in the private sector, notably in the financial services sector, as salaries from another planet. But today's editor of the Financial Times ran a leading article last week on Britain preparing for battle with the unions. What about all the workers? Are they not part of Britain? What about the analysis before the battle? In 1961, Harold Macmillan, in a difficult economic time, had a private talk with George Woodcock, general secretary of the TUC, which led to the setting up of the National Economic Development Council.
At the moment, I do not think that social cohesion is viewed as important. On the contrary: people are moving away from each other at a terrifying rate. I say this in all seriousness to the Liberal Democrat part of the Government because this is a role which they can play and I wish them well in it. We should be looking at an analysis of industrial and economic players and not just at some sort of doctrinal presentation from politicians, worshipping at the altar of the bond markets. As Angela Merkel, hardly a radical socialist, said the other day, we really ought to work together, including in Europe, to ensure that that comes about.
The public sector is not always paid more than the private sector. If you want a top accountant or an economics expert from KPMG to come into Whitehall, you will have to pay them about 50 or 80 per cent extra, in brown envelopes. If we are not careful, we shall destroy morale in public services—in education and in health—which form part of the living standards of the people of this country, as was pointed out by my noble friend Lord Myners, the other day.
Lord Greaves
My Lords, I, too, wish the new Ministers the best of luck, which they will need, and success in their jobs. Indeed, I wish that for the whole coalition Government. Like everyone on all sides, during the past three weeks I have watched events—I have been on the periphery of them—and have been greatly astonished at what has happened. We now have a completely different political situation and we all must adapt to it.
As regards the environment, rural affairs and agriculture, I am disappointed that there is no Liberal Democrat ministerial involvement in Defra. That will make life a little more difficult for those of us interested in this area, but I am sure that we will find ways of getting round that and co-operating with Ministers who have been appointed in both Houses.
The Coalition: Our Programme for Government, which is an expanded version of the original agreement, contains a great deal of good sense. It contains some other stuff as well, but that is inevitable in a document of this nature. Many things that will be important in the next five years are not contained in the document. Inevitably, many areas could not be covered, because otherwise the document would have been like a telephone directory. Of course, there are also all those things that Harold Macmillan described as, “Events, dear boy, events”, which will turn into extremely important parts of the political scene and in two or three years’ time may dominate, but which we cannot forecast and therefore cannot improve. The idea that this is a blueprint in every detail for the next five years is evident nonsense; the politicians, including those at high levels in both parties of the coalition, who are going around saying that it is need to be a bit more realistic.
I want to concentrate on one or two omissions as regards farming. The noble Baroness, Lady Byford, and the noble Duke, the Duke of Montrose, touched on two that I want to mention particularly—the CAP and the Rural Payments Agency. On the common agricultural policy, the programme states:
“We also believe that much more needs to be done to support the farming industry, protect biodiversity and encourage sustainable food production”.
We could all write lengthy essays on the meaning of those words, but the important point is that much more needs to be done to support the farming industry. That is an important declaration of intent whose details will emerge.
I notice that the responsibilities of the Minister in Defra, the noble Lord, Lord Henley, will include sustainable development. I wish him the best of luck with that and I look forward to hearing him tell the House what it actually means. Whenever we have legislation that includes the expression “sustainable development”, we find it extremely difficult to get the Minister to tell us what it means. I therefore look forward to having those debates with him.
Basically, reform of the CAP is about two things: the size of farm support and what the balance of that support is spent on. The noble Duke referred to the famous Pillars 1 and 2, direct support to farmers and the rural development programme, including environmental work. There is a general consensus that there needs to be a movement from Pillar 1 to Pillar 2. However, it is interesting to note that the agreement hints at change in the balance of support from larger, more economically efficient farms in the lowlands towards hill farming and farming in the uplands. It is clear that farming in the uplands, vital as it is to the landscape, the local economy and the whole system of livestock farming, could not survive if left to itself within a free market. That would have disastrous effects. The Government are therefore to look at ways of providing extra support to hill farmers, in addition to the uplands entry-level environmental scheme, which will replace the current hill farm allowance. I say in parenthesis that it is vital that that transfer is a success.
As regards the Rural Payments Agency, as mentioned by the noble Baroness, Lady Byford, there is no mention in the coalition’s programme for government. The Rural Payments Agency administering the single payment scheme has a history of bureaucratic shambles. The latest is the delay in providing the new maps for many farms, which is causing great delay, distress and difficulty to many farmers. Several thousand were outstanding a few weeks ago and many more maps and missing data are disputed. It is true that the figures quoted for the cost per payment is much greater in England than in Scotland. I do not think that people would mind too much about that if the system were administered efficiently, but the combination of high bureaucratic costs and bureaucratic inefficiency is totally unacceptable. A large number of farmers in England will judge this Government by their success in sorting out the Rural Payments Agency. I say to the Minister that I believe that the Government have about six months to get this sorted out if they really want to keep the confidence of farmers in England.
Lord Ryder of Wensum
My Lords, I congratulate my noble friends on the Front Bench and pay full tribute to the skills of the noble Lord, Lord Myners, as a Minister over the past 18 months.
I expressed my disagreement in your Lordships’ House with the policy of the then Opposition of sharing the proceeds of growth when it was clear that, long before the collapse in the markets, Mr Brown’s public spending, underpinned by the so-called golden rule, was out of control. I urged the then Opposition to alter their line, alas without success. Later, in a debate last November, I sought to persuade your Lordships that a ramification of quantitative easing, and our exit from it, could be a resurgence of inflation. Today, CPI stands at 3.7 per cent and RPI at 5.3 per cent, nearly double the EU rate and the highest for 20 years. The UK has tripled its monetary base in a single year.
Alan Greenspan, the former Federal Reserve chairman, writing in the Financial Times a year ago, highlighted inflation as the real threat to Britain’s sustained recovery. He warned that the pending avalanche of government debt on to the global markets made inflation a special concern. Nearer home, at the same time, Spencer Dale, the Bank of England’s chief economist, warned about the dangers of injecting further liquidity for fear of igniting inflation. Let us hope that his boss, the governor, is no longer influenced by a Cambridge mentor of the 1960s and 1970s—the neo-Keynesian Lord Kahn—who preached that,
“the right aim of monetary policy is not to secure a stable price level”.
Kahn’s disciples still hover in the anterooms of influence and their drug of preference has always been excessive demand. An undimmed principle stands out to those of us active in the inflation battles of 30 and 40 years ago. Inflation cannot maintain high levels of employment in any but the shortest term. In the longer run, to keep up employment, larger doses of the drug are needed, accelerating inflation still further. The outcome is high unemployment, misery and potential social unrest.
No wonder that gold is strong as investors flee government-supplied currencies. Of sterling, the euro and the dollar, none, at the moment, inspires faith. The dollar may be the least weak, but a strong suspicion lurks in some quarters that even the US Administration will permit inflation to tackle part of their ballooning deficit.
Of course, an independent sterling provides us with more levers than the euro would, including the freedom to depreciate our currency, but it also enhances the risk of inflation being used to erode the value of public debt. Veterans from the 1970s battle against inflation and the then neo-Keynesian orthodoxy recognise the phrases “competitive sterling” and “stable inflation expectations” as no more than euphemisms for creeping inflation. We must not be seduced by the bogus charms of currency debasement designed to diminish sovereign debt. Nor must a feeble pound be used as a substitute for robust fiscal decisions and, if necessary, tighter monetary policy.
The OECD, in its economic outlook published last month, stated that the UK, almost alone, risked credibility on inflation. Of course, the OECD realised that inflation has exceeded the 2 per cent Bank of England target in no fewer than 24 of the past 30 months. The OECD predicted that interest rates could reach 3.5 per cent within 18 months due to the Bank’s failure to staunch inflation. That could result in a triple blow of higher taxes, higher spending cuts and rising interest rates. That is why we cannot be relaxed, let alone cavalier, about inflation.
It is certain that the Chancellor will implement changes on 22 June with inflationary implications. Manufacturers have reported rises in the cost of not just oil-related products but other materials, such as rubber and timber. Factory-gate inflation has just risen for the sixth month running.
The British are prone to inflation as a genetic disease. In effect, it is taxation without parliamentary approval. We must recover with sound money or we shall not recover at all. Unless the upward trend is checked, the Bank must act without delay.
Lord Jones
I thank the Minister for her exposition of coalition policy and wish her well in her department. It is good to follow the noble Lord, Lord Ryder. I recollect that he was the Government Chief Whip in another place—a veritable street fighter in the Maastricht debates. His considerations on whipping a coalition would be interesting were we to hear them.
Universities provided the backbone of the prosperity on which Britain was built. Today, they are laying the foundations of economic recovery not only in the United Kingdom but across Europe and the rest of the world. As a whole, the sector generates £59 billion per year for our country and its economy, making it bigger than either the pharmaceutical or the advertising sectors. More than 1,000 spin-out companies have been established across the United Kingdom from universities, employing more than 14,000 people. In addition, the universities bring in more than £5.8 billion in foreign currency from tuition fees and other activities. Surely British universities will be a major engine in the recovery machinery for Britain’s hoped-for economic resurgence.
There is a major threat hanging over our universities today. The sector faces huge financial problems. It is true that the universities have had a major increase in income during the past decade but, as the competition from overseas universities increases, so the shortcomings of our institutions become more apparent. Not only do equipment and buildings begin to show their age, but the best talent is often poached by institutions able to offer the latest equipment and facilities.
Too often, the university sector is dominated by a small number of institutions. That is particularly the case with research funding. I know that the apparent imbalance in research funding provided to institutions in Wales is the subject of an investigation by a supportive and successful Assembly Government.
Another area of concern is the sector’s inability fully to address the need for widening participation. Despite a decade or more of a programme to widen participation in the social backgrounds of the student population, today the scope remains remarkably similar to what it was in the mid-1990s. Some universities have embraced the widening participation agenda; others have paid lip service. Glyndwr University, of which I am honoured to hold the title of chancellor, has been leading the way in developing the economic agenda for Wales. The A55 expressway knowledge industries corridor project includes a number of exciting developments across north Wales, bringing the university even closer to private sector employers. It is the champion of widening participation, with one of the highest proportions of students from socially disadvantaged backgrounds of any university in the country. It has an excellent employability record for its graduates, and our students are doing exceptionally well.
The scale of achievements at that university is considerable. New industrial collaboration is being developed with some of the major employers—for example, with Airbus UK, with its 14,000-strong skilled workforce in north Wales. It is working in collaboration with University College London and local companies on a project to build the largest telescope in the world—a project that, if successful, could bring more than £200 million into the north Wales economy. That is an astounding university project and I wish it well. In all of this, the academic staff are supreme.
Lord Griffiths of Fforestfach
My Lords, it is a great pleasure to follow a fellow Welshman with such an intimate knowledge of the university sector, which I was in for the first 20 years of my career. I agree with almost everything he said. Before speaking on some issues relating to the economy and business, I, like most others today, congratulate my noble friend Lady Wilcox on her appointment as a Minister in the Department for Business, Innovation and Skills. She is exceptionally qualified for the job, having run her own family business, managed a significant multinational, been on the boards of various companies and chaired the National Consumer Council. On behalf of us all, I wish her well. I congratulate my noble friend Lord Henley, a former Minister, on his current appointment and on his courage in responding to such a wide variety of subjects in today’s debate. I do not envy him.
It is very easy to be depressed about the general economic situation. The UK fiscal position is, frankly, not good. One could say it is rather dire. The eurozone is in crisis, and the markets in the eurozone have been in crisis despite the €750 billion package that was meant to sort out everything. Global financial markets are jitterier than at any time since the aftermath of the financial crisis early last year. Despite this, there are some grounds for optimism. The world economy is growing at more than 4 per cent a year, and world trade has come back in the past 12 months by something like 10 per cent, after having dropped sharply in the recession. In the UK, the coalition Government are unambiguously committed to turning around the financial position, and the pace of the recovery in the UK at present, although fragile, is quite strong in comparison with last year and the projection for next year. Last year, GDP fell by 4.9 per cent; this year, independent forecasts put it at 1 to 2 per cent, and next year it is estimated to be between 2 and 3 per cent. We should take confidence from that.
The key to turning around our economy is sustaining the recovery. That means creating a low tax, enterprise economy that has incentives to save and to build up capital and in which government expenditure is under control. Like the noble Lord, Lord Desai, I think that economic growth is critical. It will lead to higher tax revenues and create more jobs. We have been here before. In the early 1980s and the early 1990s, painful decisions involving cuts in public spending were necessary, but we know that they produced long-term gains. After 1992, we had 16 years of uninterrupted economic growth quarter by quarter.
I believe we can return to that, but we face three challenges. The first is that in the emergency Budget later this month, the Government need to put forward some form of medium-term financial plan that lays out, for at least three years, targets for public spending, taxes, the deficit, public sector borrowing and money supply. They then need to stick to it. Drawing up such a plan is not difficult, and when the numbers are announced later this month they must show a significant reduction in the borrowing requirement as a percentage of GDP. There is no reason why this should lead to a double-dip recession. A medium-term programme that investors believe is credible will restore confidence in the foreign exchange and capital markets and encourage investment. The lower exchange rate—the pound has gone down by 25 per cent over two to three years—will help exports. If we fail in this, and if the Government fail in this, we could well find ourselves in the same position as certain eurozone countries.
Publishing a plan is not difficult, but sticking to it will be. At some stage, the Government’s resolve to balance the books will be tested. There could well be painful strikes, protests and marches, and even the possibility of social unrest, which was mentioned, cannot be ruled out. If we are to return to prosperity and stability, it must be faced. We must avoid the mistakes that Ted Heath made in the early 1970s.
The second challenge that we face relates to the banks. If the recovery is to gain momentum, the banks have to lend more off their own balance sheets and to raise more capital from the equity debt and credit markets for business. Without this, investment will falter and the recovery will be put at risk. At present, there is a lot of talk about new taxes on banks and new regulations on banks. We certainly need a different regulatory framework. I can see why the public are angry at the incompetence, greed and excessive risk taken by banks. Their anger—I say this as a banker—is not without substance. The problem, however, is that if politicians and regulators pursue populist policies that could be quite arbitrary, we might find that the banks, instead of helping the recession and helping growth, are a mortmain on it.
The third challenge is this; it is very important that economic policy is underpinned by a sense of fairness and justice.
Lord Lea of Crondall
I am grateful to the noble Lord for giving way in his last minute. When he referred to the banks, I expected to hear an agenda of banking reform, but his statement seemed to be, “Watch it. Goldman Sachs can do no wrong”. Is that not a bit like the Conservative Party’s caricature 20 years ago of the TUC doing no wrong?
Lord Griffiths of Fforestfach
This is a complex subject, and we do not have time tonight to deal with it in detail. Clearly, we need a stronger regulatory structure with very clear rules on capital, liquidity, the structure of compensation and so on; about that I have no doubt. It would be wrong for politicians and regulators to respond to the public anger by piling so much regulation and tax on to the financial sector that it cannot play its role in the recovery.
I am way over my time, but my final point is that the sense of fairness and justice as we face difficult times will be very important. Our enterprise economy should never become a Darwinian jungle. So many things can be done by the coalition Government to present the policies fairly. We are in difficult times. We have been here before, we have taken difficult decisions in the past and pain has resulted in gain, and I have no doubt that we can do it again. I wish the coalition Government every possible success.
The Earl of Glasgow
My Lords, it is encouraging to learn from the gracious Speech that the Government are still committed to a high-speed rail network, although we all appreciate that the service is unlikely to be in operation before 2025. What is not clear, however, is the planned reach of this north-to-south high-speed line. It is sometimes reported that the Government plan to go no further than Manchester or Leeds, and sometimes in the first stage no further than Birmingham, but surely the real value of a high-speed rail service is to reduce the travelling time on long-distance journeys—by that, I mean distances of more than 200 miles.
From the outset, the line must be planned to go all the way to Scotland. The 20 minutes or so that will be saved on the 120-mile journey from London to Birmingham hardly justifies the huge capital expenditure. On the other hand, the two hours or more that will be cut from the journey time from London to Glasgow will make a huge difference. Perhaps more importantly for the future, it will greatly reduce the need for the large number of polluting internal flights that now go between England and Scotland, and may eventually make them redundant altogether.
We are told that the tipping point—a new buzzword for me—is approximately three hours. That means that on a journey that takes no more than three hours, the traveller is most likely to take the train. If a journey takes more than three hours by train, the traveller will choose to fly. That certainly matches my experience. If I could get to London from my home in Scotland in three hours, I would certainly take the train. Five hours is just too long, so I come here via Heathrow or London City Airport, thus contributing to our carbon emissions.
Surely the main purpose of high-speed rail in Britain is to cover the longer distances at a considerably increased speed. Improvements to the existing network should be able to satisfy the needs of the shorter-distance traveller. I therefore seek the Minister’s assurance that the Government are now planning a high-speed rail route all the way to Scotland and that this decision will not be left until after the Midlands or north of England route has been established. I would be grateful to know the Government’s policy on this.
Another reason for wanting assurance on this concerns the whole of the Scottish economy. A high-speed rail service to London and the continent that starts no further north than Manchester or Leeds will put Scotland at a considerable economic disadvantage in relation to the rest of the United Kingdom. The population of England will continue to grow, while the population of Scotland, so much further away from most of Britain’s financial and industrial centres, will continue to decline. It is quite reasonable to expect the Scottish Government to shoulder the financial burden of a line from Glasgow and Edinburgh to the border, but I would expect the Government to finance the line as far as Carlisle.
Clearly, no engineering work on any new high-speed rail network will start for a good few years. I hope that we do not have to wait until Crossrail has been fully completed before it can get started. But when the building starts, in a time when we all hope that the country will be in a much healthier financial position, the objective must be to build the complete line from the Scottish border to the Channel Tunnel, not just a part of it as a first stage.
Finally, I hope that the Government recognise something that many of us on all sides of the House have stressed for some time; namely, that Britain’s future transport policy must be based on the train—not just the high-speed rail link to Scotland but a greatly improved and expanded existing service. We cannot go on building more motorways, bypasses and dual carriageways. We cannot go on building more airports and runways, and those ghastly terminal buildings. We are meant to be a country which is concerned about the environment and committed to reducing carbon emissions. Apart from the train being the most environmentally friendly mode of transport for passengers and freight, it is potentially—I emphasise “potentially”, because it is not necessarily the case at the moment—the most civilised and stress-free form of travel.
The more roads we build, the more cars and trucks will materialise to fill them. If this Government could have the courage to resist the cries of anguish from the very vocal car lobby, they should seriously consider a four-year or five-year moratorium on road building. Clearly, essential road improvements and projects already started must be completed and road maintenance must continue. But the money saved on major roadworks could go to improving the efficiency, comfort, convenience and capacity of our railways.
The main objective should be to persuade some of those people who cannot move without their car to occasionally consider the train as an alternative and, within, say, 10 years or so to reduce road traffic by 10 per cent. If that were to be the case, it might not even be desirable to build any more roads. Of course, to achieve that aim, rail fares would have to be cheaper, which is an issue for a much longer debate. In the mean time, I should like to think that the Government are thinking something along those lines and I look forward to hearing more details about the coalition’s plans for transport.
Lord Bates
My Lords, it is a privilege to follow my noble friend. I was reminded that the paragraph in the gracious Speech that refers to high-speed rail links also mentions the increase in broadband speeds. As well as having that physical network and infrastructure to embrace and encourage enterprise in the economy through high-speed rail—which I fully endorse as someone who lives in a peripheral region in the north-east of England—increasingly, the second part, the commitment to and the going forward of the major broadband infrastructure, will be extremely welcome.
It is a privilege to take part in this debate on the gracious Speech. I, too, along with my noble friend Lord Griffiths, offer my congratulations to colleagues on the Front Bench—the noble Lord, Lord Henley, and the noble Baroness, Lady Wilcox. The noble Baroness gave an outstanding opening address. She displayed her instinct for business and enterprise, and an ability to cut through bureaucratic waffle with a knife—a fish knife at that. I want to use my time to focus on the needs of business, particularly as they pertain to the north-east of England. I should declare my interests, as listed in the register of interests, in two small- to medium-sized enterprises in that region.
The gracious Speech states that the “first priority” of this Government,
“is to reduce the deficit and restore economic growth”.
That is about as clear as we can get it. The task is to get the ruptured pipe of debt under control before it wreaks irreparable damage on the fabric of the British economy. Time is not on our side, but as Abraham Lincoln said, you cannot escape responsibility for tomorrow by evading it today. That is the lesson of history that the previous Government ignored and which it falls to this Government to tackle.
But it is not just about cutting costs, it is about increasing revenue and sales. Our sales force is the 2 million-plus businesses out there who are fighting for their very survival. We need to free them up to do what they do best: to create wealth and create jobs. Cutting corporate taxes will enable businesses to invest more of their own profits and in turn increase tax revenues to the Exchequer. Even more important, in my view, is the strong message of deregulation through the gracious Speech because that helps both sides of the balance sheet, the public and the private sectors. By reducing the burden of regulation, not only do we free up business to create more wealth, therefore yielding more tax revenue, but at the same time we reduce the requirement for armies of bureaucrats to police and interpret the rules, and allow more resources from the public sector to be directed towards protecting front-line services.
Finally, I want to say something about the north-east of England and local enterprise partnerships, which are referred to in the gracious Speech. Over the past couple of years there has been a healthy and vigorous debate in the north-east region about the future of our regional development agency, One North East. In the spirit of the coalition, consensus is beginning to emerge about the way forward, and I for one welcome that. On the one hand there was a debate about whether we should have multiple local enterprise partnerships, based on Teesside, the rural economy and Tyne and Wear. Consensus is emerging around the fact that we are the smallest of the English regions in terms of population and geography and therefore we need one voice for the north-east region. On the other hand, there is a recognition that the current organisation of the regional development agency is too large and unwieldy. In trying to manage everything, it is failing in many ways to do something significant. At the moment it manages everything from housing quotas, transport, highways, planning, cultural and even forestry strategies, thus falling foul of the contribution of the noble Lord, Lord Myners—whose contributions from the Front Bench I have always enjoyed and no doubt will continue to enjoy when he speaks from the Back Benches—when he said that jobs cannot be created by interminable meetings in committee rooms. He is absolutely right. Jobs are created by businesses that make and sell things, and they deserve a Government who are on their side, not on their back. The role of an enterprise partnership should be focused solely on the need to promote enterprise within a region and to sell the region internationally.
On Saturday, I had the privilege of attending the rollout of a huge, 2,500-tonne pipe-laying rig, the first of its type in the world, which was launched on Teesside by the engineering business founded by Dr Tony Trapp, a former academic at Newcastle University’s engineering department. He has built a company without any government help which has a turnover of £150 million and employs 500 people, and which spins out lots of other businesses around the north-east. The north-east of England is now a centre of excellence for seabed and offshore engineering, and that is particularly significant given the commitment to new sources of renewable energy such as offshore wind farms. That is happening not only in this country, but around the world.
As well as legislation and money, we need to recognise that there is a place for inspiration and leadership. The north-east is the only region in the country which exports more than it imports, and we have many strengths, but in the past we have put far too much faith in government to solve our problems, and far too little faith in ourselves. Tony Trapp told me that his motto for success in business was ABC: ambition to achieve; belief in our talent and ability to succeed: and the courage to face up to the inevitable challenges along the way. That has worked spectacularly well for him and I believe it works for the north-east too. I also believe that it is a good mantra for the coalition Government.
Baroness McIntosh of Hudnall
My Lords, I begin by joining in the congratulations that have been offered to the two new Ministers. I should like also to extend my own commiserations to the noble Lord, Lord Henley, in the task he faces in summing up this extraordinarily wide-ranging debate. I should also like to congratulate my noble friend Lord Myners, who gave us an absolutely barnstorming speech. His intention to retreat to the Back Benches has provoked what it would be fair to say are lamentations around the House, so I invite him to consider his contribution today as perhaps the first of many final appearances at the Dispatch Box.
I want to talk about a particular aspect of business but, before I do, I should like to say something about transport. As a supporter of the stop Stansted expansion campaign for some years, I welcome the withdrawal of BAA’s planning applications for additional runways at Heathrow and Stansted airports and the part that the new Government’s declaration of intent has played in provoking that long overdue decision. How much it was attributable to government action and how much to BAA losing the will to live in the face of very well organised and effectively marshalled economic and environmental arguments I could not say but, either way, I hope the Government will remain steadfast on the critical issue of airport expansion. When they come to review aviation policy, I hope they will not revive the crippling uncertainties that have blighted communities in Sipson and north Essex for nearly a decade. When the Minister comes to reply I hope he can reassure me on this point.
I turn now to business, albeit of a kind that does not often get mentioned in the same breath as the City and high finance, so I am taking this opportunity to discuss the creative industries where they belong—in company with other significant contributors to this country’s economic effort. Too often they are assumed to inhabit a different bit of the political universe. The term “creative industries” covers everything from the mega-commercial, mega-successful worlds of computer gaming, blockbuster publishing and multi-million dollar film franchises such as Harry Potter and James Bond, right down to tiny one or two-person enterprises making, for example, hand-crafted jewellery, designing fashion or creating i-phone applications. The result of this diversity is a mass of output and a body of talented people whose skills are in demand all over the world. The UK creative industries are a success, accounting for, according to DCMS figures published earlier this year, 6.2 per cent of gross value added in 2007; exporting £16.6 billion worth of services in the same year, which was 4.5 per cent of all goods and services exported; and in 2008 there were coming up to 2 million jobs in the sector, of which 1.1 million were in the creative industries themselves and a further 800,000 plus creative jobs were within other businesses.
By any standards these are significant figures generated by businesses which deserve our respect and support and not the lofty disdain manifested, for example, in a curiously sour piece in a recent edition of Prospect, which makes the fundamental error of assuming that, because we talk about the economic benefits of a strong creative and cultural sector, we elevate the importance of those benefits over the quality of what is created. That is simply wrong.
In a thoughtful speech last month, the new Secretary of State for Culture, Olympics, Media and Sport, Jeremy Hunt, said:
“For me, culture is not just about the value of our creative industries—not just about more than 3 million visits to UK cinemas each week, more than 40 million visits to our national museums and galleries each year, or more than 14 million visits to the theatre in London alone—it is what defines us as a civilised nation.
I agree with that sentiment from the bottom of my heart, but I also recognise the economic impact creative industries have had and can continue to have as long as they are not cut off at the knees by the insensitive application of harsh economic correctives or the loss of support for fledgling enterprise.
The noble Baroness, Lady Wilcox, emphasised the new Government’s belief that economic recovery in this country must be led by the private sector, particularly SMEs. Contrary to popular belief, most creative businesses are in the private sector and many are SMEs—for instance, in independent television production, the fashion industry or, indeed, computer gaming—but their market is globalised and highly competitive and they need to be encouraged in two significant ways, both of which require government to play a part. The first is that many of them depend on high skills levels, including in design, mathematics and computing. I refer your Lordships to the findings on this subject in a report published earlier this year by the House of Lords Select Committee on Communications looking into the film and television industries. Higher education has an important part to play in delivering these skills—and here I acknowledge the remarks of my noble friend Lord Jones—and severe cuts to that sector will have a negative impact on our creative industries. Secondly, the commercial viability of, for example, London theatre, which has an astonishing track record of success both here and overseas, depends significantly on talent and material nurtured in publicly funded organisations such as the National Theatre, the Chichester Festival Theatre and the Royal Court. The recent 4 per cent cut administered to the Arts Council, which was more than to other DCMS bodies, makes me wonder whether the Government have yet fully understood the symbiotic nature of public and private enterprise in the cultural sector.
However, I recognise that, at a time when the national watchword appears to be austerity, there can be no expectation of special treatment and I do not ask for it. What I do ask is that our creative industries, for which the UK is very widely admired, should not be treated less well than other sectors and that their particular needs and unique contribution should be properly respected.
Lord Birt
My Lords, I share the universal delight in the ascent of the noble Baroness, Lady Wilcox, who during the day seems to have risen almost to the status of sainthood. I only hope that her trademark cheery beam will be maintained in the white-water ride ahead.
I offer a new Government my best wishes and my great hope, given the enormous challenges that they face, that in the national interest they will succeed. There is much of the new Government’s inheritance of which we may all be proud: our social, creative and academic vitality as a nation; our tolerance; our ease with diversity; our renewed spirit of enterprise; and the improving performance of our public sector. However, 2010 will surely come to be seen as a year, alongside 1945 and 1979, when a new Government faced the aftermath of a cataclysm: in this instance, the most severe economic shock of our lifetimes.
The urgent task, as I think we almost all recognise, is the elimination over time of the deficit, our pressing need to return to a position where, across the economic cycle, we spend as a nation only what we earn and not what we can borrow. The politics of reducing that deficit will be severe and testing for the coalition. But it can be done; and it must be done. I have no doubt from my own experience of managing both in the public and the private sectors that the deficit can be eliminated with minimal material damage to critical public sector outcomes. Indeed, many private sector organisations, their very survival in question, have faced up to far bigger challenges and in shorter order. However, I do not minimise the particular challenges that the public sector will always present, not least the intensity of scrutiny and the readiness to protest of all the interests affected.
Lord Lea of Crondall
The noble Lord makes play of a very interesting point about the recession-related deficit—in other words, adjusted for the recession. Does he happen to know the current size of the recession-related deficit?
Lord Birt
Perhaps the noble Lord will allow me to move to the end of my remarks and hear my argument in full.
There will be, for there always are, some low hanging fruit for the Treasury to pocket. Government can, and no doubt will, cease doing some things that they do now, but the scalpel will prove a more useful tool than the axe. After a long and unprecedented period of increased public spending, conducting a detailed, painstaking analysis of how every part of the public sector can be more productive will be fruitful.
There will be overcapacity, poorly engineered processes and low utilisation, as well as opportunities for shared services, outsourcing and multiskilling. There will be places where labour costs at every level will be higher than in the market, where smarter procurement can bring benefits and where best practice is not universal. Moreover, no part of the public sector should be excluded from a concerted drive to promote improved productivity. There should be no sacred cows, as the noble Lord, Lord Lawson, said earlier. The Government will need a keen sense of what can be done quickly and what may take a little time. A four or five-year framework will be sensible, as the noble Lord, Lord Griffiths, observed. The new Government will discover that while Whitehall has been gradually acquiring in recent years many of the skills needed to oversee large institutions, projects and programmes, the financial skills necessary for the forensic examination of a vast cost base are not yet present in government and will need quickly to be assembled. The new Government will need to reach out into the market for some vital and not just financial skills, and it will need to invest in them if the deficit is to be cut with care. Sometimes you have to spend money to save money.
The other main challenge of the new Government is to restore the health and stability of the economy overall, about which many of your Lordships have spoken. An early and credible plan for cutting the deficit, accompanied by real political unity, will do much to put us back on the right road. But the main task here is to be certain that we have truly identified the causes of our difficulties, both at national and global level, and applied the right remedies. Here I have yet to be reassured. We are two years into the crisis, and still we hear an array of competing views on regulation from technical experts, and we have had world leaders—even in recent months—still bashing bankers rather than explaining how international institutions, nations, regulators, financial organisations, corporations and individuals could all have managed risk more prudently, averting reckless excess, and can manage risk more effectively in future. We appear far from unanimity.
There was an understandable general urge to grapple with how and why we embarked on the war in Iraq. It is not too late for a new Government to bring similar independent scrutiny to bear on the causes of, and the cures for, our current maladies, including the origins of our own structural deficit, which puts us closer to the bottom than the top of the league of virtue among comparable countries. Only on the foundation of a deep understanding and a cool appraisal of all our difficulties can a better future be built.
Lord Brooke of Sutton Mandeville
My Lords, I shall come to my noble friend Lady Wilcox in a moment. First, once upon a time, the noble Lord, Lord Birt, and I used to meet across a table to discuss the 1994 White Paper on the BBC, and it is a pleasure to be linked consecutively with him once again.
Most of your Lordships’ House will probably have heard before from others’ lips what I am going to say next, but if only one noble Lord present tonight had never heard it before, he or she would alone make it worth saying again. It relates to the levee given by King George V in the palace in 1931, 80 years ago, when the sovereign asked Mr Jimmy Thomas, a member of his Cabinet, whether the international financial situation was really quite as serious as Mr Snowden, the Chancellor of the Exchequer, kept telling him. Mr Thomas replied, “King, it’s that serious that if I were you I’d put the colonies in the wife’s name”. The message of the last Labour Chief Secretary, Mr Byrne, to his successor in the coalition, suggests that he might have given the same advice. Perhaps it is no coincidence that the Conservative gains in this election were the largest since those they achieved in the election of 1931. That is what the deficit does to you. The highest compliment that I can pay to my noble friend Lady Wilcox is that I have every confidence in her ability and that of my and her noble friends in the Treasury to sort it out without my direct help. Of course, we shall all very genuinely miss the noble Lord, Lord Myners, who was and is in all senses my former constituent.
That has taken the first of my minutes. My remaining four will be devoted to four brief points or comments. First, after the deficit, on which debt interest is now taking more per annum than is spent in the Budget on schools’ revenue expenditure, the challenge to the Government is unemployment, especially among the young—hence the references to growth.
It is a conventional commonplace that it is SMEs that now generate jobs. Once upon a time, almost 50 years ago, I joined a firm of 10 foreigners to open their business in this country. Fifty years later, that worldwide business is now the largest of its kind in the world still in private hands, so we must have done something right. But what I remember from that original period is Messrs Kaldor and Balogh, perhaps in the context of the SET, making me spend a weekend every month providing proof to the Inland Revenue that I needed to keep all our money in the business, which, as the man building the business, I knew perfectly well already. So my first plea to my noble friends on the Front Bench is that they reduce the burden of unnecessary tasks on entrepreneurs when they need their energy to justify and finance the creation of new jobs.
My second plea is similar. I was proud to serve on a Treasury team of four Ministers under my noble friend Lord Lawson, all of whom in due course reached the Cabinet, two of them reaching No. 11, one of them reaching No. 10, and who helped my noble friend to carry through the massive simplification in the tax system that he achieved. I do not place on the Labour Government the whole responsibility for dismantling that simplicity—though they must carry some, especially in dismantling changes that they had themselves created—but it is high time that we got that simplicity back, even if some of Labour’s complications will make it harder. Simplicity in taxation makes it likely that people will take investment decisions, and better ones, for business reasons rather than for tax ones.
My third plea supports the coalition’s desire to rebalance the economy. I agree with the noble Lord, Lord Bhattacharyya, on the abilities still inherent in British engineering, on which the noble Lord, Lord Broers, also spoke. Those firms that have survived have done so because they are world-class, which they owe substantially to their R&D investment in technology. I reiterate to the coalition as a whole the advice of my noble friend Lord Waldegrave of North Hill in yesterday’s Times to the new Chief Secretary, my right honourable friend Mr Alexander. My noble friend was a distinguished Chief Secretary, and the first for over 30 years to have run a large spending department before he became Chief Secretary. A critical part of his advice yesterday was to keep a secret reserve in his hip pocket for subjects, like science, that departmental heads might not champion. I acknowledge that I speak as a former departmental Minister at a time when the Chief Secretary took precisely the opposite view.
Finally, a quiet word: the coalition should not believe everything that it reads in the papers, especially if it causes depression. As the first Viscount Slim said in the war, “No news is ever as good or as bad as it first appears”. A noble Lord earlier in this debate referred to rural broadband. I live in Wiltshire, a county notorious for an atmospheric phenomenon called the Wiltshire banana. I live at the end of a lane two miles from the nearest shop. Two hundred yards from our house lives and works the highly respected automotive engineer who won the £25,000 prize given by the Mayor of London for a contemporary “Routemaster plus” design, but who relies on online engineering to design buses for Brazil and trucks for China. Until a year ago, half way—or 100 yards—between us lived another couple. They ran another successful service business reliant on high-speed broadband but could not afford to buy a first home in Britain so moved to France, partly because they could afford a first home there but also because, on technology, they believed the 18th-century English novelist who said, “They order these things better in France”. It turns out that they do not, and rural France’s broadband is much slower than Wiltshire’s, endangering the whole of that couple’s business and their decision to move. It is a crucial imperative for the coalition that it persuades our compatriots at all levels to believe in themselves. As I sit down, with sympathy, I encourage my noble friend Lord Henley to act on that advice at the end of this notable debate.
The Earl of Caithness
My Lords, I, too, congratulate my noble friends on their appointment as Ministers, particularly my noble friend Lord Henley on going back into the job. I served with him in government some time ago; to see him back on the Front Bench is a delight. He has a difficult job at Defra. I hope that he will pay attention to what the coalition wants and that there should be no gold-plating. Defra has been notorious for gold-plating some of the many regulations.
I know that another aspect will be drawn to my noble friend’s attention. It was highlighted by this House’s sub-committee on agriculture and the environment in discussing animal testing to try to get a level playing field across Europe. So often gold-plating is not necessary in the UK but Europe is not doing the same as us, which leads to added costs. My noble friend has a difficult challenge ahead with CAP reform. That has been talked about, but to try to undertake CAP reform in a period when one has to feed a growing world population will be an even harder job.
I shed absolutely no tears that we see the end of home information packs. I fought them tooth and nail all the way through the House. They were a complete waste of time and money by the Labour Government.
I notice that the coalition will,
“deliver an offshore electricity grid in order to support the development of a new generation of offshore wind power”.
It says nothing about wave and tidal power. Can my noble friend say anything about the proposals for wave and tidal power, particularly those that will affect us in the north of Scotland on the Pentland Firth? The right reverend Prelate the Bishop of Liverpool talked about renewables in the north-west of England, but the north of Scotland is also an area where the grid system is absolutely vital to development.
I watched with interest the relief on the faces of those in the Labour Party as it lost power, knowing full well that it had landed the new Government with what is called, in rugby terms, the hospital pass. Yet again, a Conservative Government must pick up a worse financial situation than they handed on to a Labour Government, and this one is particularly bad.
Our Government want to make the banking system better,
“to serve business, not the other way round”.
The words that are missing from that are “the individual”. I do not think that the banking system serves the individual. However, I was delighted to read that the Government,
“will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way”.
Many of your Lordships will know that I have been banging this drum since, I think, 1997, when I made a speech on the issue from these Benches when the Conservative Government were still in power. In 2008 I introduced the Safety Deposit Current Accounts Bill, which—if it had been agreed—would have saved the banking sector from some of the financial problems that it came into.
I am a great believer in separating the retail and investment sides of banking, but it is not an easy solution. It is fraught with difficulties and I wonder whether this Government have the determination to do it. Separating retail from investment banking means that in the retail banking system the depositors should retain control over their money. At the moment, as your Lordships will be aware, if you deposit money at the bank, it no longer belongs to you; it belongs to the bank. You become an unsecured creditor. This is the result not of government legislation but of court cases in the 1800s—in 1811 and 1848. If we are going to reform the banking system, let us not tinker with it but look at what the real problem is. The real problem is how the banks work. There has been much criticism today of greedy bankers and the lack of regulation. That is true to an extent but the real problem is that the banking system itself is wrong. That is what needs to be reformed.
The ownership of deposits must return to the person who made the deposit rather than to the bank. That will also affect the money supply and inflation. By and large, it is the banks that create inflation. My noble friend Lord Ryder was absolutely right to drum that into us. It is something that we must avoid. Separating retail from investment banking and getting the banks to hold money for their depositors and not use that money for gambling purposes will reduce the money supply and go a long way towards stopping inflation. That is a courageous and bold step if the Government will take it. I hope that they will, but I fear that they will not.
Lord Giddens
My Lords, I think that I am number 47 in line to congratulate the noble Baroness, Lady Wilcox, on her excellent opening speech, to welcome the other new members of the government Front Bench and to congratulate my noble friend Lord Myners. I think that I am also about number 10 in line to offer comments on climate change and energy security. Since so many other noble Lords have spoken on this issue, I will keep my comments brief.
I generally endorse the policy outlined by the Government as described in the coalition programme document and noted in the noble Baroness’s speech. However, I should like to ask three or four questions or pose three or four problems. First, in the documentation that I have seen so far, the Copenhagen accord is not mentioned. What is the Government’s view of it as a potential way forward in international negotiations? The Government say:
“We will work towards an ambitious global climate deal”.
But how will they do that? What kind of climate deal do the Government have in mind?
Secondly, the Government are right to endorse feed-in tariffs and community-owned renewable energy schemes. However, it is impossible to see how one can have effective climate change and energy policy without a strongly interventionist state. The recent Ofgem report marks pretty much a volte-face in policy on the part of that organisation, recognising that a free-market approach to energy investment has major flaws. If the state has to play a fundamental role in climate change and energy policy, how will the Government reconcile that with their reservations about the state as outlined in other aspects of their policy programme?
Thirdly, the Government say, in my view quite rightly:
“We will introduce a floor price for carbon”.
But how will this be achieved and where will that floor price initially be set?
Fourthly and finally, as is well known, the Liberal Democrat partners to the coalition were originally bluntly opposed to investment in nuclear power. An agreement has been reached about such investment based on the premise that it can go ahead so long as no public investment or support is involved. EDF seems to agree that it can go ahead on that basis and invest in nuclear power stations. However, what will happen if that is not the case and public support is needed for an effective investment in nuclear power stations to go ahead?
Lord Plumb
My Lords, I join the other 47 speakers in offering my congratulations and good wishes to my noble friends Lady Wilcox and Lord Henley. She made a cracking opening in this debate and I do not think that any of us would envy my noble friend Lord Henley winding up this wide-ranging, but extremely important, debate. I also thank the noble Lord, Lord Myners, for his contribution on the economy and financial matters over the past year. It has been interesting to share some of the concerns with him.
Many farmers were encouraged by the statement in the Conservative Party manifesto promising to prioritise research and development, and to develop a long-term strategic agenda across the food chain that reflects the importance of raising production sustainably. It is worth quoting some interesting research carried out at Humboldt University of Berlin. It calculated that 35 million hectares of land outside Europe is needed, equivalent to twice the area of United Kingdom land that produces food, to meet the needs of a population of 9 billion people. It also claimed that the food needs of the world can be met only when the richer countries produce more, not less, as is often argued.
Sadly, as we have already heard, our starting point for growth is lower than it should be. We are importing some £32 billion worth of food, compared with exports of £13 billion. Those are the most recent figures, which will have changed with currency ratios. In addition, 40,000 cattle each year are slaughtered as a result of bovine TB, at a cost of some £100 million.
Regarding the Bills mentioned in the gracious Speech, it is essential that the proposed cuts of £162 million and budget savings do not harm competitiveness. I hope that the Minister will be in a position to tell your Lordships how Defra can reduce spending without hindering a forward-looking farming industry.
While food security should have priority, there will be three Bills of significance to which I shall refer—the energy security and green economy Bill, the decentralisation and localism Bill and the public bodies reform Bill. These are all important Bills. The encouraging signals to deliver greater levels of low-carbon energy generation will increase investor confidence in renewables, whereby farmers and growers can play a major role.
Revision of the feed-in tariff incentive for small and medium-sized anaerobic digestion plants is a key element, and planners must take note and act without delay on the contribution that they make when dealing with waste for the production of energy from waste products, including food, that currently pour into infill sites. Waste is power and could be the focus of energy policy. Energy from wind farms can be variable, but energy from waste is base-load power. Power from biofuels will continue to be commercially important for heavy vehicle transport in the foreseeable future.
On decentralisation and localism, the consequence of a commitment to abolish RDAs is something that a lot of people would say “Hear, hear” to. Creating local enterprise partnerships raises questions on the seven-year programme due to end in 2013. That programme is worth £3.9 billion and is part of the common agricultural policy. It should also be considered within the context of the future of the CAP, which we will debate in the future. The programme aims to support and promote sustainable farming, forestry and food sectors and brings wider benefit for the economy and the environment. I hope that the Minister can comment on these matters, but there is also concern as to whether returning decision powers for rural housing and planning to local councils will work. The question is: will the guidance to local authorities be robust or will localism prevail?
Public bodies and quangos are likely to be a target for financial cuts, which is understandable. However, it is important to target cuts that do not undermine food production. Farming is expected to operate like any other business where workers are protected by minimum wage legislation; so why maintain the Agricultural Wages Board? Cutting it would save some £500,000 per year; and I would include some of Defra’s quangos, such as the communications and policy departments.
Despite these problems, there are encouraging signs of an increased understanding of the connection between food and farming, which has led to a greater desire for fair trade both overseas and at home. Support systems for agriculture now rightly recognise the farmer as not only the essential food producer but also the custodian of our biodiverse countryside.
On Sunday 13 June, many people throughout the country will have the chance to visit farms. On Farm Sunday, farms will be open to visits by people who wish to see what happens on a farm and how food is produced, and also to learn about environmental policies.
In future, when we debate the developments that are needed and the CAP, we should embrace one word: “simplification”.
Lord Rana
My Lords, I, too, add my best wishes and congratulations to the ministerial team. They have a challenging job ahead.
Let us consider some causes of the economic crisis that we are all suffering. Over past decades there was a basic shift in the idea of wealth creation, which we now know was misguided. Individuals, financial institutions and Governments accepted a false idea that simply by adding inflated values to property we were creating real wealth. We came to believe that simply adding numbers—whether to derivatives on the financial markets, to property values or to the creation of service industries—was enough to create national wealth. People working in banks were led by sheer greed and lured by the attraction of earning huge bonuses for uncontrolled and unsafe lending.
We also encouraged uncontrolled consumerism, based on exploiting poor people in the developing world who were paid near starvation wages for producing goods for developed countries. We created an economic system based on inequality, injustice and exploitation. We tried—and failed disastrously—to build a modern economy based on financial services, property values and speculation. We now know that this model is not sustainable; it leads to boom and bust cycles.
I am not opposed to property as a means of creating wealth, but it is not enough to generate national wealth. We must shift our focus back to strengthening manufacturing as the primary generator of wealth and economic well-being. We need a more balanced approach to economic development that embraces manufacturing, service industries, banking, financial services, and IT and knowledge-based industries. The Government should focus on developing initiatives and incentives that will stimulate our manufacturing base.
We live in a global village where manufacturing skills are being transferred to developing nations at an alarmingly fast rate. We need to ponder how we can maintain a long-term wage differential when a worker in a developing country earns less than one-tenth of what is earned by his counterpart with a similar skill living in the UK. We continue to demand that workers in these nations provide us with the products that we need at ever cheaper prices. As a result, the gulf between the rich and the poor, and between nations, grows fast. People who toil to produce agricultural or industrial products, especially in the developing world, are not paid a fair wage.
We talk about global warming but we pay only lip service to addressing the problem, although we know that the real cause of global warming is uncontrolled consumerism, overconsumption and the sheer waste that people living in rich countries have got used to. Twenty per cent of the world’s population in the highest-income countries account for 86 per cent of total private consumption, while the poorest 20 per cent account for a minuscule 1.3 per cent; the richest fifth consume 45 per cent of all meat and fish, while the poorest fifth consume just 5 per cent. The United States, for instance, with about only 5 per cent of the world’s population, consumes 25 per cent of the world’s commercial energy and natural resources. The richest consume 58 per cent of total energy; the poorest fifth consume less than 4 per cent. Two billion people exist on less than $2 a day. Finite resources are being sucked from low-income countries with little benefit to them, further accelerating environmental degradation in those countries and removing the resources that the people there need to live on.
This situation is not sustainable. Society should be encouraged to be thrifty, with people eliminating wastefulness from their lifestyles and using only what is absolutely necessary for sustainable living. We should help to create a system whereby the 2 billion poor who receive less than a subsistence wage for their labour are paid a fair living wage. Multinational corporations that buy goods from suppliers in the developing world should press those suppliers to pay a fair wage to the workers whom they employ. By such actions, we will enable them to afford manufactured goods and have better food, better living conditions and better education for their children. By taking these measures, we will be increasing the global consumer base rather than asking the western consumer to spend more to regenerate the economy.
The economic downturn is a rude awakening for us. It should stir us to reassess our lifestyles in order to develop a society in which we respect nature and evolve a more caring and sharing world. We should partner developing countries to help them to grow out of the present recession. The future economic global planning strategy has to be to work together with the developing countries of Asia, Africa and South America to create a more balanced and sustainable economic order that will benefit all. We need a more balanced strategy—one underpinned by a fairer, more equitable, more measured approach, with equal opportunities for wealth generation and sustainable economic development.
Lord James of Blackheath
My Lords, by this hour of the evening I had confidently been expecting to rip up my speech on the grounds that everything that I had to say would have been said already. However, the only thing to which that applies is the congratulations to my noble friends Lady Wilcox and Lord Henley and, as that has been said so often, I hope that they will take it on the nod.
Unfortunately for your Lordships, my subject is going to be renewable energy, about which a great deal has already been heard, but it will come from a direction that no one has touched on at all so far. I should like an assurance from members of the previous Government that the undertakings given to this House in the last address on renewable energy before the election hold good and that the target of a 20 per cent reduction in carbon by 2020 is on course to be met. I have very serious doubts about it. I remind your Lordships that at that time we were told that between 8 and 9 percentage points of the target had been achieved from existing technology and that there was every expectation of the other 12 percentage points being reached between now and 2020. However, we were then told separately that, in order to achieve that, the Government had acquired control of five former estates from the Crown Estate and, in a report on the Crown Estate handing over the land, we were told by the Prime Minister, no less, that he was making available £75 billion for the completion of the wind farms to be placed on those estates.
Seventy-five billion pounds is a lot of money. It is nearly three times the amount that was originally estimated by the Select Committee, which suggested that wind could achieve the 2020 target had we started three years earlier. I would like to know where the £75 billion is today. I suspect that the previous Government have left this country in the position of one of those awful Twenty20 cricket matches with 70 runs to score off 10 balls, which is impossible. I do not think that we can get there by 2020, even with £75 billion. I hope that someone remembered to ask the outgoing Prime Minister, before he went back to Kirkcaldy, for the key to the safe holding the £75 billion. If we cannot spend it on the wind farms, can we please have it for reducing the national debt, as it would be very welcome indeed? Where is it?
If what I suspect is the case, what will we do about meeting the 2020 target? It matters financially. Apart from the need for a cheap source of sustainable energy, which is much more important at the moment than the issue of global warming—I confidently expect to die of hypothermia long before I am dead of carbon poisoning—is there an alternative fallback plan, which can be picked up by the new Government, for how to meet the 2020 target? If we do not meet it, Europe will crucify us with carbon penalty charges after 2020 and we shall have no defence against that if we do not hit the target. What will we do? There is a squeak of a chance of an alternative strategy. I hope that the new Government will make an urgent audit of the viability of the present 2020 programme and assess any alternative.
The previous Government ran a competition for clean coal among four possible contenders for a major government contract and each of them was ready to go with its final bid. My suggestion to the present Government would be to forget immediately the competition and to put all four of those contenders on to a contract, subject to the understanding that they must go for pre-combustion carbon extraction, not post-combustion, and that the contracts are paid on a commercially viable economic basis, with the eventual winner—the one producing the best result—having control of that project.
Some interesting and helpful data on this have come from Durham University and were provided to the ministerial advisory panel, the ACCAT. Had the Government started in 2009, which they clearly did not, they would have achieved 10 per cent of the entire 2020 target simply on pre-combustion coal cleaning. In the event, we are one year behind that. However, there is good news. Professor Gluyas of Durham University has undertaken an assessment—from my days leading survey work on the North Sea, I am not surprised about this—showing that there are 3 billion barrels of oil waiting to be extracted from the North Sea which are not included in any of the current reserves. Unfortunately, that is carbon-intensive, but if we follow the American example from Great Plains, North Dakota, it would be possible to take that technology, which is now ready to roll in Teesside, and to use the extraction of those 3 billion barrels, which would be a huge contribution, if cleaned, towards meeting the 2020 target. We could extract carbon on a clean-coal basis for three years to come, say, and then use the carbon extracted from that coal to wash through the high-carbon-intensive oil taken from the North Sea with the result that we would then have 3 billion clean barrels of oil, which would effectively close the gap in meeting our 2020 target. The technique has worked for 10 years in North Dakota—it is proven and it is good.
There are other things that we could do. We could easily devote more time and effort to the one renewable energy strategy where we are unarguably the world leader: seabed tidal work. Forget the waves—the waves do not work, but tidal does. We absolutely have to have a vigorous defence of the growing threats that Europe is bringing to our dominance of the Dogger Bank, which has the biggest concentration of tidal flows in the world. If we could find a way of linking it properly to the grid, it would be sufficient to provide the entire carbon-free energy needs of the United Kingdom. If the Government would give proper stimulation to a competition among universities and researchers as to how we could create the link between the grid and the tidal power, we would have a ready-made winner.
It is all doable, but not if we continue to believe that the old strategy left behind by the old Government is workable and will be delivered. It will not. We have to have a new strategy and it has to start now.
Baroness Kingsmill
My Lords, the hour is late and the debate has been long. I am the 52nd speaker, so I am not kidding myself that I shall say anything original. The debate has been an example of the House of Lords at its best. We may have a coalition Government—no one won the election—but it has been interesting to see tonight how much common ground there is between all three parties. That is a constructive approach. It is not to say, however, that we will not be a forceful and effective Opposition when we think it is appropriate.
I do not mind that lots of other speakers have congratulated the noble Baroness, Lady Wilcox. I want to add my congratulations. I have known her for a very long time. We spoke on similar platforms many times before either of us were Members of this place. I am delighted to see her where she deserves to be. I am grateful to her for her opening speech, even though I did not agree with everything she said.
I shall be brief because, as I said, I am the 52nd speaker. I have only four points to raise tonight. First, we have a very uncompetitive banking system, which might be the source of many of our problems. I say what the Americans have said; that if a bank is too big to fail, it is probably too big to exist. We need to sit and think about a review of the competitiveness of our banking system generally. We have the means to do that: we could ask the Competition Commission to do it. It is a good idea for the Government to consider that carefully at an early stage. It is interesting to note the recent significant increase in complaints from the public to the financial ombudsman. It is pretty obvious that the uncompetitive nature of our banking system means that it is not serving its customers appropriately.
The Government should also consider how they can lower the barriers to entry for new entrants to the banking system in order to make it more competitive. There are emerging banks, such as Virgin Money, and it would be sensible to create more competitiveness in the banking system by encouraging such banks to develop and grow. It would also be helpful if we expanded financial education for people generally so that they better understand some of the products and issues that they are getting themselves into when they engage with banks. Personally, I would like the banks to undertake an audit of all their products for customers to ascertain the fairness and reasonableness of their pricing.
My second point relates to small businesses. This is related to my point about banking. Since the beginning of the banking crisis, we have lost more than 30,000 small firms, and the drying up of bank credit is largely to blame. Despite the large sums of public money that have been poured into the banks, there are still many stories of profitable businesses with solid credit records being refused loans or offered them on such punitive terms as to be usurious. Good businesses are going to the wall unnecessarily as their cash reserves dwindle and the banks withhold vital credit. I do not want to appear to be attacking the City or banks. The City is and will remain a global centre of excellence not only in financial services, but in the law, accountancy, management consultancy and insurance. However, the banks must recognise the social and economic contract that they have struck in accepting bailout money. They need to fulfil their part in meeting their responsibilities to society and the wider economy. To paraphrase Luke 12:48, “From those to whom much is given, much is required”. It is important that we remember that.
Thirdly, we must look at issues relating to takeovers. I do not want to turn on protectionism or anything like that, but the furore around the takeover by Kraft of Cadbury’s drew everyone's attention to the fact that we do not give sufficient consideration in this country to takeovers by foreign corporations. It is all too easy for that to happen. We should also give some thought to who is entitled to vote in those circumstances because, as everyone is aware, there was a great piling-in of speculators after Cadbury became a target. We should reflect on and consider exactly how we should approach such takeovers.
Fourthly—I am grateful to the noble Lord, Lord Smith of Clifton, for raising the issue—we should consider the huge and offensive waste of female talent in business. As we look around the Chamber today, very few women are represented here as spokespeople for business. We need to address that. The issue of equal pay was mentioned in the Queen's Speech. I am very pleased that it was, because it is disgraceful that, about 40 years after the introduction of the Equal Pay Act, we still face a huge pay gap. I caution the Government. When they are thinking about public sector pay cuts, they must remember that there are a large number of women working in the public sector. They are the people who will suffer most from cuts in public sector expenditure and public sector pay. I hope that those points will be taken on board by those sitting opposite.
Lord Newby
My Lords, like all other noble Lords, I begin by congratulating the noble Baroness, Lady Wilcox, and the noble Lord, Lord Henley, on their new appointments and wish them every success. I have to say that I am extremely sorry that the noble Lord, Lord Myners, has decided to go to the Back Benches—a new experience for him. It has been a great pleasure taking part in debates with him over the past 18 months. Whether I have agreed or disagreed with him, his tremendous knowledge of the subject and willingness to engage genuinely in the issues will be sorely missed.
The noble Lord, Lord Myners, will recall that we supported the previous Government in their fiscal stimulus over the past 18 months, and he helpfully pointed out to the House that I argued against precipitate cuts in public expenditure now. I still believe that deep cuts in public expenditure this year would be a mistake, but the cuts that were announced last week could hardly be described as deep or severe. In some cases, such as abolishing child trust funds, the useless Connexions service and some of the RDAs—though not the northern ones, to reassure the right reverend Prelate—they were desirable in any event. Switching some expenditure into additional apprenticeships surely makes sense at this stage.
Given the crisis in Greece and elsewhere in Europe caused by excessive government borrowing, it would have been completely incredible for a new Government in the UK to come in without making any proposals about reductions in public expenditure. However, the £6 billion of cuts this year is a small fraction of the cuts that will be necessary over the course of this Parliament and a small fraction of the cuts that the previous Government foreshadowed in the Fiscal Responsibility Act. Nothing that we heard today from the noble Lord, Lord Myners, told us how the Labour Party would approach making those cuts to which they are legally committed. There was not a scintilla of a suggestion about how the first pound might be saved. The key questions for all of us is how the cuts, which we all agree will have to be made, can be made to protect the poor and the vulnerable and how we create the strong economy and fair society to which the noble Lord, Lord Haskel, referred.
This is difficult because the poor and the vulnerable are necessarily the principal consumers of many public expenditure programmes. The challenges and opportunities in this area were eloquently set out by the noble Lord, Lord Bichard, in his notable maiden speech last week. With his knowledge of government, he argued that many vulnerable people, households and communities received services that did not meet their needs, and that it was not simply a question of resources because often the services were more expensive than they needed to be. He suggested three ways of reducing costs, improving the efficiency of government services and, therefore, getting more for less: reducing silo thinking in Whitehall; improving the co-ordination between public local bodies; and better co-ordination of purchasing across the public sector. He argued that we should be shaping services around clients, not providers. Surely these must be the benchmarks against which we judge public expenditure cuts over the lifetime of this Parliament.
There are many measures in the Queen’s Speech that we welcome: the proposal on capital gains tax, the green investment bank and the Equitable Life Bill, which is a shameful legacy of the previous Government who steadfastly refused to deal with people who were suffering as a result of the Equitable Life scandal. We welcome the Hutton review of public sector pay and the proposals on mutuals and co-operatives. The economic challenge facing the country remains the greatest in our lifetime. This election result has given us the chance to play a major part in meeting this challenge. We intend to seize it with both hands.
Lord Young of Norwood Green
My Lords, I, too, rise, after some time, to congratulate the noble Baroness, Lady Wilcox, on her appointment and the noble Lord, Lord Henley, on his reappointment. I also congratulate the noble Baroness on her opening speech. I pay tribute to my noble friend Lord Myners for his valedictory speech from the Front Bench. I, like other noble Lords, lament his passing to the Back Benches.
There is no doubt that the country faces the serious challenge of reducing our deficit, and the country needs to know how the Government will do that. Will it be cut fairly without damaging front-line services or hurting the poorest families and—this vital point has been made again and again in a variety of ways—without putting the recovery or future growth at risk? These are the criteria that we will apply when judging the coalition Government’s plans.
On this basis, the recent announcement fails on four counts. On efficiency savings and cuts, cutting now before the recovery is secured risks having higher not lower borrowing. The removal of growth-supporting measures such as university places and RDA business support this year, when they are needed most, cuts away at the investment that will deliver the rebalanced growth that we will need in the years to come. Scrapping the child trust fund even for the poorest families and families with disabled children is a breach of the Conservative manifesto commitment and will make it harder for families to help their children to get a good financial start in life. The Conservatives have broken their promise that the entire £6 billion will be made up of efficiency savings rather than cuts to services and benefits.
The new Government inherit an economy in which the worst of the recession has ended and the recovery is under way, but that recovery cannot be taken for granted, as many contributors have said. The challenge now is to embed and to secure the recovery, not to put it at risk. Where the Government take steps to do that, we will support them, but taking money out of the economy now while the recovery is still fragile is a risk that we should not be taking. As Vince Cable in another place used to argue, damaging the economy now while the private sector was still weak would lead to higher not lower borrowing, to people out of work and to firms not paying tax, and would cost us all more. Does this coalition believe that unemployment is a price worth paying?
Before the election, the Conservatives explicitly stated that they would protect front-line services, but that promise is not being honoured in the light of recent announcements. In fact, the Government’s savings are not just in bureaucracy and back-office staff; they are real cuts to real services and will affect people. Children, even the poorest and the disabled, whom the Conservatives originally promised to protect from cuts, as I have said, will stop receiving child trust fund payments. Business support through regional development agencies is being cut. The rollout of the future jobs fund, which offers work experience or training to 18 to 24 year-olds who have been unemployed for more than six months, is being cancelled. The number of new university places, which the Labour Government announced for this year, is being cut by 10,000. That, again, goes against the Conservative manifesto promise of an extra 10,000 places.
Energy has been the subject of a lot of debate all through today. We welcome measures that we believe will help to lower emissions, increase energy efficiency and encourage growth in low-carbon energy, and which would have appeared in our own legislative programme. These include help for home energy efficiency that would be paid for by energy savings, additional funding for carbon capture and storage, a smart grid, feed-in tariffs and an expanded offshore grid. However, it is clear that the Government cannot offer a coherent and long-term agenda for creating a secure low-carbon energy mix and reducing our domestic emissions. Nor can they provide leadership on tackling climate change in the international arena. The Prime Minister has failed to demonstrate leadership on the low-carbon agenda, having tried and failed to turn the Conservative Party green. Many senior Conservative politicians and a majority of general election candidates, many of whom are now MPs, refused to back action on climate change and low-carbon energy, while across the country Conservative councils block the majority of wind-farm proposals.
The new Government still need to answer many questions about their energy and climate change agenda. How can they claim the credibility to deliver a new generation of nuclear power stations as long as the Secretary of State is an avowed opponent of nuclear power? How will they deliver on renewables and on action to reduce emissions while many Conservative MPs and councillors remain sceptical about climate change and the need for low-carbon energy? How will the targeting of industrial subsidies for cuts help our transition to a secure low-carbon economy? Surely scrapping the Infrastructure Planning Commission is likely to prove a charter for delay on vital infrastructure projects and for nimbyism.
As regards transport, the decision to scrap the third runway at Heathrow and an additional runway at Stansted will not reduce the number of flights or make a contribution to a greener environment. All it will do is hand the business advantage to Schiphol Airport in Amsterdam, Charles de Gaulle Airport in Paris and Madrid Airport. There will not be fewer flights. The business will be handed to our competitors.
I welcome some assurance on the future of Crossrail, which many people agree is a vital contribution to transport. We welcome the commitment to high-speed rail, but I return to my previous point on the scrapping of the Infrastructure Planning Commission. Will we be able to deliver Crossrail?
As to comments on Royal Mail and the injection of private sector capital, far be it from me to deny previous government policy on this. However, we still believe in a publicly owned Royal Mail. Before making a judgment, our view will be based on whether proposals will deliver reliable and high-quality postal services, which are underpinned by a strong universal service for households and businesses in Britain. Our vision is of a Royal Mail with a secure future and in good health, which provides customers with an excellent service and provides employers with rewarding employment. We want to protect the universal service. The British people rightly cherish the principle of letters collected and delivered anywhere in the UK, six days a week, for a single affordable price. Finally on this issue, as we know, the history of employment relations in Royal Mail has been fraught with difficulty. We have arrived at a situation where the modernisation programme has been agreed. Disturbing that situation needs careful thought.
Given the number of speakers, I will pick out only one or two points; nor would I want to deprive the noble Lord, Lord Henley, the sheer pleasure of answering the range of questions. The noble Baroness, Lady Wilcox, said that the cuts would improve efficiency and spoke about reckless borrowing. A number of comments were made about the extent of government investment. Perhaps we should remind ourselves that some of that investment will have a good return. The investment put into Lloyds and RBS would be capable of achieving a significant return for the Government should they wish to take that opportunity.
I welcome my noble friend Lord Bhattacharyya’s reference to the importance of the minimum wage and the extra money put into the science budget, as well as his analysis of the importance of manufacturing and the role of the RDA in the West Midlands. My noble friend Lord Haskel pointed out that Britain has become more prosperous and greener, and is a better place to live. He also pointed out the difficulty that the Government will have in their attempt to cut red tape and at the same time say that sometimes there is a need for more regulation. Surely we should go not for an approach which says that if we bring in one piece of regulation we will remove another, but for an approach which says that we are looking for better regulations.
I also welcome the appreciation expressed by the noble Baroness, Lady Garden, of the progress that was made on apprenticeships, and I welcome the Government’s initiative to increase them. However, I am concerned that that is going to remove money from Train to Gain. We should not forget that we need to address the skills deficit that exists in this country, and the fact that the Leitch report is still relevant. I utter a word of caution in that area.
The noble Lord, Lord Oakeshott, suggested that my noble friend Lord Myners supports the Government’s proposals on capital gains tax. I should also utter a word of caution on my noble friend’s behalf that that is not his position; I went to the horse’s mouth and he assures me that that is not what he said.
My noble friend Lord Whitty and I will have to disagree on one or two issues, such as on the question of Royal Mail and on a third runway at Heathrow. I take this opportunity to congratulate the noble Lord, Lord Low, on his balanced analysis of the way to deal with the deficit and the importance of the pace of any reduction. My noble friend Lady Kennedy made a strong plea for fairness when finding our way through the deficit problem, and that this should be dealt with through strong growth and high employment.
Given the number of economists we have in the Chamber, it is not surprising that there was some difference of opinion. I cannot help reflecting on the old cliché that if they were laid end to end, they still would not reach a conclusion. However, I must admit that I was captured by the analysis made by the noble Lord, Lord Skidelsky, of the way forward and the relevant point he made about cutting the deficit now: how will that actually promote the recovery? On that note, I shall leave it to the noble Lord, Lord Henley, to answer the questions.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Henley)
My Lords, it has been quite a long time since my noble friend Lady Wilcox opened the debate, since when we have heard from some 52 or 53 speakers. As the noble Baroness, Lady Kingsmill, said, we have seen the House of Lords possibly at its best and certainly at its widest in terms of the number of subjects we have covered. It is now my job to try to respond to the wide range of subjects before us, covering a whole array of different departments: the Treasury, transport, energy and climate change, business and my own department, Defra, which I shall get on to in due course.
I shall start by offering my commiserations to the noble Lord, Lord Myners, because he told us that this was his swansong on the Front Bench. As many other noble Lords have said, we will miss him and we look forward to seeing him on the Back Benches. I think it was his noble friend Lady McIntosh who suggested that possibly it was the first of many swansongs and that he was going to become the veritable Frank Sinatra of the Opposition Front Bench by making repeated final speeches. I look forward to those. I also offer my thanks to the noble Lord, Lord Whitty, who offered me some very useful advice from Defra, the department in which he has held office, as has the Lord Speaker and the noble Lord, Lord Rooker. The noble Lord made the simple point that nothing is quite as complicated as people tell him.
I shall start by saying a word or two about my own department. As my noble friend Lady Wilcox emphasised in her opening speech, it is the Prime Minister’s ambition that this Government should be the greenest Government ever. Reducing greenhouse gas emissions, care for the environment and understanding the value of our natural resources should inform all that we do, and it is the responsibility of Defra to ensure that this imperative is understood by government and all others. We are there to explain and promote the economic value of natural resources so that they are managed better and so that those who come after us do not face hardship and disaster through their growing scarcity. We work to ensure a thriving biodiversity and wildlife by preventing habitat loss and degradation; we act to prevent deforestation and to protect the marine environment; we help businesses and communities to adapt to the effects of a changing climate; and we help those sectors for which we are responsible to reduce their greenhouse gas emissions and to contribute to the fight against climate change.
However, Defra is not only concerned with the environment; it is also an economic department. In fact, our departmental remit shows that you cannot separate the two. Therefore perhaps our most important job is to show just how the economics and the environment are intertwined.
During the course of the debate I heard repeatedly from this or that noble Lord that they hoped the Minister would in due course comment on their own particular issue. However, that will simply not be possible. I jotted down a range of different subjects, some of which were raised repeatedly, and I hope I will be able to comment on some of the bigger issues. I think noble Lords will understand that I shall not be able to answer every question that was put to me but, as the noble Lord, Lord Myners, put it, I shall do my best to write to all noble Lords—as I did in my previous incarnation as a Minister and as I am sure all Ministers do—in due course when I have collated all the responses from the different departments. However, as I said, I shall try to deal with one or two of the concerns that have been raised today.
I shall start with the Office for Budget Responsibility because that is where the noble Lord, Lord Myners, started. He asked a number of detailed questions which he would not expect me to answer at this stage and which I shall deal with by correspondence. However, I can give him the assurance that it will be independent—that is important—and that independence will derive from it having complete control over the forecasts it will produce. I was grateful that the noble Lord, Lord Bilimoria, saw that that was a positive step. On the detailed questions, as I said, I shall write to the noble Lord.
Turning to the deficit, the subject most mentioned by noble Lords—indeed, so many noble Lords raised the subject that I cannot list all their names—there were varied views on what to do about it but everyone accepted that it had to be tackled. Even the noble Lord, Lord Myners, accepted that the deficit had to be tackled but felt, as did others—but by no means the majority—that it should not be tackled too quickly. I shall quote the views of the Governor of the Bank of England on this subject. He said:
“The bigger risk at present would be for a new Government not to put in place clear and credible measures to deal with the deficit”.
We are currently running one of the largest deficits in the world. That is simply not sustainable and the longer we delay action the greater the risk of a loss of market confidence, which would mean higher interest rates for all.
I will give way to the noble Lord, Lord Lea of Crondall, just this once, but it is his third intervention in the course of the debate.
Lord Lea of Crondall
It is an important question. Perhaps the Minister could write to me and put his reply in the Library. Is he talking about the complete deficit or about a recession-adjusted deficit? How has it suddenly become a recession-related deficit of 11.1 per cent when it was only 2.5 per cent 18 months ago?
Lord Henley
That is a question that the noble Lord will have to put to the previous Government, who saw it rise to that level. I shall of course write to him in due course and, as I always do, put a copy of the letter in the Library.
The longer that we delay action on the deficit, the greater is the risk of that loss of market confidence. As I said, that would mean higher interest rates for all, stifling recovery and making challenges ahead even harder.
Lord Myners
I am grateful to the Minister for allowing me to ask just one small question. It is clear that the size of the deficit will be a function of the expected rate of economic recovery and growth; the two interplay. I believe that the Minister said that the OBR would make independent forecasts. Will he confirm that it will make economic forecasts as opposed to auditing or commenting on Treasury forecasts?
Lord Henley
The forecasts of the OBR, as I made clear, will be independent. It is for it to make those independent forecasts. I was trying to stress its independence. I shall write to the noble Lord on that in greater detail, but its independence was his principal concern. He will have a chance to see the first of those forecasts quite soon, as I understand that the first of them will be out before the Budget. If I am wrong about that, I shall let him know in due course.
One should also refer to the OECD’s recent economic report, which argues that a more rapid fiscal consolidation would help the recovery by leaving room for interest rates to remain lower for longer. That will support spending by households and by business. The importance of taking action this year is underlined by recent events in the eurozone. Failure to take action would put that recovery at risk.
I turn to questions asked about tax. Noble Lords mentioned CGT, income tax and tax avoidance—that was the noble Lord, Lord Oakeshott. We heard confessions from the noble Lord, Lord Desai, about his having to resign from the pre-1997 opposition Front Bench for his views about that. As I remember it—the noble Lord will no doubt correct me—he had to resign from the opposition Front Bench more than once.
Lord Henley
I remind the House for its amusement that the second occasion on which the noble Lord was sacked, or it might have been the first, was the result of his having informed the House, or perhaps the world more generally, that his then leader—we shall not mention which leader it was—was no economist. That struck me as a statement of the obvious, but he was sacked nevertheless.
Many noble Lords have raised CGT, VAT, income tax and tax generally. The noble Lord, Lord Myners, pressed me to give an explanation of what was going on. I have to remind him, first, that I am not a Treasury Minister and, secondly, that I think he knows the date of the Budget. Neither the noble Lord nor any other noble Lord expects me to second-guess my right honourable friend. It is very tempting to do so, but it is one of those occasions where one has to say that it is beyond my pay grade. The noble Lord will have to wait three weeks until the Budget to hear answers on those matters.
I appreciate that time is moving on, so I shall say a little about policy on climate change, which was another subject that attracted a great many speakers. I was grateful for the support that came from many noble Lords, but I noticed the concern expressed by two sceptics—I think that that is the right word—on my own Benches, my noble friends Lord Lawson and Lord Reay. As the noble Lords, Lord Whitty and Lord Hunt of Chesterton, and my noble friend Lord Jenkin put it, there is a need to convince the public on this issue. It might be more than just the public that we have to convince; it might be some of my noble friends. Certainly, there are matters that we need to look at here, and a great number of matters on which I shall have to write to noble Lords in due course to deal with their concerns. For example, the noble Lord, Lord Whitty, raised the question of the Government’s commitment to the renewable heat initiative. That is something that we are committed to supporting, but we still need to consider the various options for promoting it most efficiently.
We will look at all the other renewables that noble Lords mentioned—and my noble friend Lord James referred to the possibility of tidal power on Dogger Bank. As my noble friend himself admitted, some pretty great technological challenges face us in an area such as that. I also give an assurance to my noble friend Lord Teverson that we will certainly push the EU to demonstrate leadership by tackling the levels of international climate change and supporting the increase in the EU emission reduction target to 30 per cent by 2020.
There were some fairly technical questions from my noble friend Lord Jenkin and the noble Lord, Lord Giddens, on the carbon floor price—questions that are slightly beyond my level at the moment. That is something for other departments, but I can give an assurance that we will introduce a carbon floor price because we recognise that the long-term certainty of the carbon price is one factor that affects investment decisions in low-carbon electricity generation. The exact timing of its introduction needs to be considered further but will need to fit the objective of increasing incentives for low-carbon generation. I note the concerns expressed by my noble friend Lord Jenkin on the speed of planning decisions.
I turn to the question of whether nuclear power needs subsidy, a point raised by the noble Lord, Lord Giddens. We believe that it does not need public subsidy and, on that basis, energy companies have already come forward with plans to build and stand up to 16 gigawatts of new nuclear energy. Certainly, we are keen on new nuclear energy, and I can give that assurance to the noble Lord, Lord O’Neill of Clackmannan. On his more detailed question about the funding for Sheffield Forgemasters, as he will be aware, the Treasury has asked all departments to look at all spending approvals since 1 January this year, which would include that project. Due diligence is required because of the budgetary position that this Government inherited from the Government of whom the noble Lord was such a supporter, to see whether those plans are affordable and consistent with government priorities. If they are consistent with that, they will go ahead—but that is all that I can assure him of at the moment.
I shall say a word or two about regional development agencies, which were raised by the noble Lord, Lord Bhattacharyya, and the right reverend Prelate the Bishop of Liverpool, who spoke about the regional development agency in my area and his area—the Northwest Regional Development Agency. My noble friend Lord Bates spoke of One North East, the RDA covering Newcastle. As my right honourable friend the Prime Minister stated last Friday, an early task of this Government will be to reform and refocus regional support and the RDAs. Therefore, we will be looking at all the RDAs. He stated that he will assign Ministers and senior MPs to some of our biggest cities with responsibility to work with local communities to help to drive forward economic development by ensuring that blockages in Whitehall are dealt with. We will certainly want to look at the RDAs—but I think that the RDAs in the north might be a special case.
With regard to electricity supply, the noble Lord, Lord Oxburgh, talked about a looming crisis. The noble Lord stressed that there had been, I believe, 17 Energy Ministers in the past 10 years. It seems, then, that while he rather politely put it as a looming crisis of our own making, it is possibly a crisis of the party opposite’s making if it was changing Ministers that often and not making the necessary decisions. We recognise that there is a need for a systemic approach to developing a framework that will both deliver energy security and meet our climate change objectives. We have proposed a set of interventions, including an emissions performance standard, that aim to deliver a secure, low-carbon, cost-effective and competitive energy sector. Our electricity market reform project will ensure that we deploy the right mechanisms in the right way at the right time.
A number of noble Lords talked about agriculture, principally in relation to problems that my noble friend Lady Byford raised about the Rural Payments Agency, which was also mentioned by the noble Lord, Lord Greaves, and others. I declare an interest as a recipient of funds from the RPA as a farmer. We are all aware of the problems within the agency, and the department will be seeing what it can do about dealing with them. We will also be looking at changes, as asked for by my noble friend the Duke of Montrose and others, in the common agricultural policy. I believe, and I think that everyone in this House would accept, that that means genuine reform of the policy. We will certainly push for that as and when we can.
Moving on to some of the issues raised about the Royal Mail and the postal services Bill by the noble Lord, Lord Whitty, we understand the concerns on all sides about the future of the Royal Mail and the real affection in which it is held. However, the Government are now looking at the detail of how to ensure that the Royal Mail can benefit from a degree of private sector capital and discipline and how it can modernise—possibly, as I think one of the right reverend Prelates suggested, in partnership with employees. We will announce details of our plans in due course, but I stress that we will seek to modernise the Royal Mail in conjunction with its employees.
I shall say a quick word about transport, the final department that was covered. We had a great many suggestions from the noble Lord, Lord Bradshaw, some more radical than others. I think that he suggested a purge of an entire division within the Department for Transport; I am not sure quite how brutal that purge would be, but no doubt he can let us know.
We also heard comments from my noble friend Lord Glasgow about high-speed rail being not purely a local English matter but a British matter. Like my noble friend, I have an interest in high-speed rail in that I live more than three and a half hours away from London under the current regime. I refer the noble Earl to the commitments that were made in the coalition document: this will be a truly British high-speed rail network. At this stage, one has to say that the timing is another matter. These things are very expensive but the commitment is there and it is a commitment to a high-speed railway that would be truly British, rather than taking us merely as far as Birmingham or Manchester.
I end by saying, again, that I will in due course write to all noble Lords. I hope that I can answer all the questions that have been put before me. As my noble friend Lady Wilcox said earlier today, any sensible family or business knows the dangers of too much debt. The debt is the first thing that we must concentrate on. We cannot recover without reducing it. That will be the Government’s first aim. I was grateful for the endorsement of the noble Lord, Lord Myners, for that. We must do that while adhering to the values, as my right honourable friend the Prime Minister said, of freedom, fairness and responsibility, and of knowing and respecting the value of our natural environment.