House of Lords
Elections: Fraud
(14 years ago)
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Baroness Royall of Blaisdon
To ask Her Majesty’s Government which are the “specific complaints” about electoral fraud referred to by the Deputy Leader of the House on 5 October (HL Deb, col. 10).
The Minister of State, Ministry of Justice (Lord McNally)
My Lords, my reference to “specific complaints” referred to paragraph 2.58 of the Electoral Commission’s report on the administration of the 2010 UK general election, which says:
“Because many of the cases of alleged malpractice are still under active investigation by police forces, it is not possible at this time to give any definitive figures for the number of cases which relate to the 2010 UK general election”.
Baroness Royall of Blaisdon
My Lords, I thank the Minister for that reply. In essence, the noble Lord has confirmed that these cases have now been referred to the police, which is absolutely the correct procedure. However, in October, it was stated in the BBC “Newsnight” programme that two of the constituencies concerned were in Halifax and Oldham. I understand that the police are now quite properly involved, but can the noble Lord confirm the BBC’s claim? Many people are in a state of perplexity and extremely worried because they do not know what the situation is.
Lord McNally
I would not want to verify or otherwise many of the claims that are made by “Newsnight”. I can say that the police are investigating and that, as the noble Baroness rightly says, the Electoral Commission will report in January. We have to be patient. It may be difficult for the individuals concerned in the constituencies where complaints have been made, but the due process has to be gone through and we just have to be patient.
Lord Rennard
My Lords, does the Minister agree that as only around one in 20 of the crimes committed in this country is thought to be reported to the police, there is probably far greater prevalence of electoral fraud than we are generally aware of? Does he further agree that if many more people were aware of how easy it is to commit fraud under the present system, it would be even more prevalent? Could he indicate what steps the Government may be taking with the parties and the Electoral Commission to reduce the possibility of such fraud?
Lord McNally
I am not sure that I agree entirely with my noble friend. Most of the inquiries about the conduct of our elections show a good performance in complying with the law. Many colleagues in this House must feel, as I do, that we went through most of the 20th century with the integrity of our voting system unquestioned. We were very confident about it. It is only in the past 10, or perhaps 20, years that we have become concerned about it. We are bringing in various measures to make it more difficult to perpetrate fraud in our elections, as did the previous Government. We have made it clear that, whatever the party, anybody who commits fraud will be prosecuted and may well face jail for that fraud.
Lord Touhig
In answer to my noble friend Lady Royall on 5 October, the Minister said:
“The Government do not have information and neither is this the Government’s direct responsibility in these matters”.
Then, in answer to my noble friend Lord Hughes, he said:
“As far as I understand it, specific complaints have been made in a range of constituencies and are being investigated”.—[Official Report, 5/10/10; col. 10.]
At that time, did the Government have information—yes or no? I refer the noble Lord to the Ministerial Code. Part 1.2(d) says:
“Ministers should be as open as possible with Parliament and the public, refusing to provide information only when disclosure would not be in the public interest”.
Why is it not in the public interest to tell Parliament if there is an investigation into fraud?
Lord McNally
I think that is straining things a little. What I said was that I am not directly involved: the police and the Electoral Commission are involved. There would be a lot more questions from that side of the House, and probably from this side too, if Ministers were directly involved in investigating electoral fraud.
Noble Lords: Oh!
Lord McNally
It is a matter for the Electoral Commission; it is going to produce a report in January, and my recommendation, as an elector and a citizen—never mind being a Minister—is that all three political parties study that report very carefully and then see if we can come together to try to tighten it up still further. Nothing I said either the last time or today suggests any impropriety as far as I am concerned. I am leaving it to the Electoral Commission, the police and the returning officers in the constituencies concerned, which is exactly as it should be.
Lord Naseby
Is my noble friend aware that he is absolutely right in the position he takes—not least as someone who has sat through a fair number of recounts? However, is he not also correct in saying that, when the police have investigated, they do report? We have the case of Bristol East, where the newly elected Labour Member has been cautioned by the police for the use she made of—it is reported— the postal votes on her Twitter, and, rightly, that is fraud under Section 63 of the Elections Act 1983.
Lord McNally
I am not going to make comments on individual constituencies at the Dispatch box. I note what my noble friend says.
Baroness Taylor of Bolton
Would the Minister agree that probably everybody in this House would acknowledge that Ministers should not investigate electoral fraud? However, is there not a responsibility on the part of Ministers and, indeed, all of us, to acknowledge that we should not be fanning the flames and making wild accusations as has happened in the past?
Lord McNally
I agree with that, but after a general election, when there are close fights—we have all been through this—comments are made. What is important is that all parties co-operate in ensuring that the machinery we put in place works. Let us see what the Electoral Commission recommends, and then, if further action is needed, further action will be taken.
Lord Wright of Richmond
I note that the Minister referred to himself as an elector. Does the coalition have plans to allow Members of the House of Lords to vote?
Lord McNally
I regularly vote in local elections and I am particularly looking forward to voting in the AV election in May next year.
Lord Teverson
Is not the real electoral fraud that a party that gets 23 per cent of the vote gets only 8 per cent of the Members of Parliament?
Lord McNally
I think that is undeniable, and I noticed that there were nods from all around the House in response to my noble friend.
Banking: Bonuses
(14 years ago)
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Lord Myners
To ask Her Majesty’s Government what action they intend to take to discourage the payment of excessive bonuses to senior executives in United Kingdom banks.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Government have taken action to tackle unacceptable bonuses in the banking sector. The Financial Services Authority is updating the remuneration code, which will ensure that bonuses are deferred and aligned with the underlying risks, and significant portions of any bonus will be paid in shares or other securities. Employees in this industry will no longer receive all their bonuses in cash while leaving their shareholders, and potentially the taxpayer, exposed to the long-term consequences of the risks they take.
Lord Myners
My Lords, the Minister said that the Government have taken action to deal with unacceptable bonuses. Can we therefore conclude that, as far as this Government are concerned, all future bonuses declared are deemed to be acceptable?
Lord Sassoon
My Lords, what I said was that we have indeed taken action, including, among other things, requesting the Financial Services Authority to take certain factors into account in its consultation on the remuneration code. We have said that we will look at—and we are looking at—the costs and benefits of a financial activities tax, consistent with, among other things, not driving banks abroad. The banking sector remains an extremely important part of this country’s economy.
Baroness Williams of Crosby
Does the Minister agree that, while undoubtedly a commendable degree of restraint has been shown by small businesses in the past year, the position of FTSE 100 company executives is very different, with, we now learn, a 55 per cent increase in bonuses last year? Will he consider, first, adopting the proposals in the Walker report on the buying out of bonuses, which is an increasing and troubling practice? Secondly, does he agree that we should consider taxing share-based bonuses, even if they are delayed for a couple of years, to be paid at the same rates that the rest of us are obliged to do?
Lord Sassoon
My Lords, the Walker report, which was commissioned by the previous Government and reported in November 2009, made a number of important recommendations, some of which have already been incorporated by the Financial Reporting Council in its governance code. Sir David Walker made other recommendations on disclosure which remain to be considered. As for taxation, I have already said that we are considering the costs and benefits of a financial activities tax in relation to banks and remuneration. We are doing that by working with our international partners to make sure that, if we produce proposals along those lines, they are consistent with international practice and with keeping the banks operating in this country.
Lord Sassoon
My Lords, lots of people threaten to do all sorts of things when they are in the middle of a negotiation. Whatever we continue to do to tackle unacceptable bonus structures in banks, we want to ensure that, among other things, they are incentivised to align their remuneration structures with the reduction of risks that bankers entail, and that we continue to have an important banking sector in this country.
Lord Hamilton of Epsom
My Lords, does my noble friend accept that one reason why there is so little finance for people to buy houses, and for small businesses, is that during the financial crisis many of the foreign banks took their money back to where they came from? They are not returning to London because they regard it as highly taxed, they regard certain members of the Government as extremely hostile to bankers, and they are worried about the degree of regulation. We must get these people back—contrary to what the noble Lord, Lord Dubs, said—because otherwise we will not have enough finance in this country to get the economy moving again.
Lord Sassoon
I certainly agree with my noble friend that we need a vibrant banking market to underpin the economy’s recovery. The action that the Government have taken to make sure that interest rates remain low is absolutely critical. We welcome the first steps taken recently by the British Bankers’ Association task force, which made a range of proposals that go to the heart of tackling the need for a continued flow of credit to British business.
Lord Barnett
My Lords, would not the straight answer to the Question on the Order Paper have been to say that the Government do not have any plans whatever to deal with future bonuses?
Lord Sassoon
My Lords, I have said that we have already taken action and are continuing to consider other possible actions in this area.
Lord Eatwell
My Lords, I was intrigued by the Minister’s identification of remuneration with risk taking. Are not bonuses usually paid to bankers for taking risks with other people’s money?
Lord Sassoon
My Lords, that is precisely why we want to make sure that there is a better alignment between the way that remuneration is paid and the mitigation of risk that should be there. It is precisely to get a better alignment with the risks that are incurred that we are supporting the measures that are being taken globally—limiting the amount of bonus taken up front in cash and deferring a significant proportion of bonuses in line with the proposals of the G20.
Lord Brooke of Sutton Mandeville
My Lords, can my noble friend remind me which Administration were in power when this problem developed?
Lord Sassoon
My noble friend is completely right that this problem arose under the watch of the last Administration, who implemented a one-off bonus tax that is now widely regarded to have been a failure—so we have to take the time to find a better way of dealing with this in the medium term.
Lord Brooke of Alverthorpe
In considering other possible action, as he mentioned, will the Minister have a look at the Private Member’s Bill which was promoted by my colleague the noble Lord, Lord Gavron, last year to try to get all companies, including banks, to put on the front page of their annual accounts the proportion of the highest paid compared with the lowest paid? A good deal of cross-party support was given to that and, while the Minister was not in the House at the time, would he go back and have a look at it again?
Lord Sassoon
My Lords, I am always up for looking at good ideas; this sounds a bit extreme, but disclosure of remuneration for bankers is indeed unfinished business.
Food: Labelling
(14 years ago)
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Baroness Seccombe
To ask Her Majesty’s Government what proposals they have to improve the labelling of British foods in retail stores.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Henley)
My Lords, the Government have made a commitment to clear and honest food labelling. Through negotiations on the proposed EU food information regulations and national initiatives, the Government are working to improve the accuracy of origin labelling. We are also discussing with the food industry ways that food businesses can provide clearer information on the origin of food and food ingredients, particularly for meat and dairy products.
Baroness Seccombe
I thank my noble friend the Minister for his reply, but what irritates me is that when one goes into a supermarket, one sees our luscious British fruits packed in containers identical to others, and similarly priced, so that shoppers very often do not realise that they have bought foreign goods until they get home. This year, British raspberries have been excellent; our plums are in a different league from their foreign cousins; and there is nothing that can be said about British apples except that they are superb. Therefore, can encouragement and guidance to stores be given so that they promote our wonderful British home-grown fruit?
Lord Henley
I echo the “Hear, hears!” from around the House and congratulate my noble friend on paying tribute to the UK food industry, in particular to United Kingdom fruit. We are, as I said, trying to facilitate a number of voluntary industry agreements to try to encourage more labelling of food. On this front, we want to pursue—dare I say it?—a stick-and-carrot approach in terms of encouraging greater development. The stick, as it were, is being provided by the EU food information regulations; the carrot will be by food industry voluntary agreements.
Lord Borrie
Does the Minister agree that one of the major problems with food labelling, especially in supermarkets on tins and packages, is that there is a superfluity of it in very tiny print, which is impossible to read—and that it is impossible there and then, in the supermarket, to distinguish what is important, what is significant, and what is not?
Lord Henley
I agree that very often there can be too much information. That, too, is why it is far better to try to pursue a lot of these matters through voluntary agreements, whereby a simpler process can be developed that is of greater use—to, for example, the noble Lord—than something more complicated and more bureaucratic that ends up producing too much information which the noble Lord, and many others, find rather difficult to read.
Baroness Finlay of Llandaff
Are the Government considering using clearer labelling on food that contains nuts, as was recommended by the committee on allergy which I chaired, given the number of cases of anaphylaxis that occur when people are unaware that there is a nut content in food?
Lord Henley
My Lords, I understand that work is being undertaken in this area. I also understand that all packets of nuts have a serious health warning on them saying, “Warning—this packet might contain nuts”, which should be of help to noble Lords as well as to others. More seriously, the noble Baroness makes a very important point, as nut allergies are increasingly common and that needs to be addressed. We need to make sure that any food that contains nuts has the appropriate warning on it.
Baroness Trumpington
My Lords, I agree with the noble Lord on the opposition Benches, but I ask the Minister not for an increase in the number of words on packages but simply for words, such as “Boil for five minutes”, to be in big print.
Lord Henley
My noble friend always has the best suggestions. I did not say that we should increase the number of words on packages but, rather, that we should make sure that the wording on any package is user-friendly and can be accessed by as many people as possible. That is why we believe that voluntary, rather than compulsory, agreements are often the better way of addressing this issue.
Baroness Quin
My Lords, given that labelling is the subject of European as well as national decision-making, and given that the Government, like the Opposition, have said that they are in favour of clear labelling and a colour-coded traffic-light system, can the Minister tell me why Conservative MEPs voted not only against such a traffic-light system for Europe but against continuing such a system here in the UK? Should not the Government be consistent in pursuing policies in the interests of Britain and our consumers?
Lord Henley
The noble Baroness will be aware that, although I was formerly a Chief Whip in this House, I have no responsibility for Conservative MEPs on the other side of the channel. However, we are continuing to negotiate on the EU food information regulations and will ensure that they are as user-friendly as possible. We will also try to ensure, for example, that it is made quite clear where meat comes from. Therefore, even if, for example, the labelling says that bacon is British when the meat itself comes from Denmark, it will also say that the primary product, the pork, comes from another country—that is, Denmark.
Baroness Parminter
My Lords, can the Minister inform the House how, without compulsory labelling on egg products, consumers do not unwittingly purchase eggs from Spain’s illegal battery cages and undermine British producers, who will comply, unlike those in Spain, with the deadline for phasing out battery cages?
Lord Henley
My Lords, my noble friend is right to draw attention to the very serious problems relating to animal welfare. They are concerns that have always been at the forefront of our mind in negotiations on the EU food information regulations, and we will certainly take them on board in those continuing negotiations.
Lord Tomlinson
Will the noble Lord reflect on his earlier answer that the conduct of MEPs has nothing to do with him, particularly when he reflects that the leader of his party forced Conservative MEPs to leave the Christian Democrat group where they were and join every odd-bod racist, right-wing group, losing all influence that they had in Europe?
Lord Henley
My Lords, the noble Lord makes a point but it is a pretty silly point. He knows perfectly well that I—and, for that matter, the Prime Minister—have no influence over what they do. In the end, they will decide what they do, and the noble Lord knows that perfectly well.
Foreign and Commonwealth Office: Educational Allowances
(14 years ago)
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Lord Campbell-Savours
To ask Her Majesty’s Government what was the total cost of educational allowances paid to Foreign and Commonwealth Office and associated departmental officials in the last 12 months for which figures are available; and whether they intend to amend the cap on those allowances.
The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford)
My Lords, we contribute only towards the education costs of children of staff who are required to work in posts overseas. These officials pay UK tax wherever they work and are entitled to have their children educated at public expense. In 2009-10, we spent £13.3 million on children educated in the UK and £11.5 million on children at schools overseas. The ceiling on the amount that parents can claim towards boarding schools is reviewed annually and was reduced in September this year.
Lord Campbell-Savours
Is it not true that excellent quality, state boarding-school education is available in the United Kingdom at an average price of around £9,000 per annum, plus a £3,500 contribution towards tuition by the state as against public school fees of between £22,000 and £30,000 a year? Why cannot the Foreign Office save tens of millions of pounds by capping the amount of money that a Foreign Office official can claim to the level of state boarding-school fees?
Lord Howell of Guildford
I am grateful to the noble Lord. It is true that state boarding-school places are excellent, but unfortunately it is not true that they are available. Diplomats with children who need to be educated when they go abroad to places where they cannot take their children—I have a list of 48 countries to which children are not allowed to be taken—need to find places quickly. However, they find that they are not at the top of the queue for the 5,000 boarding places available in state schools in this country. I appreciate very much the point that the noble Lord makes but it does not add up if you are trying to find a place for your child.
Lord Deben
Does my noble friend agree that it is a very important part of keeping the best people in the Foreign Service that we provide this service for their young children, as without it we would not have the quality people whom we expect? It is about time that people stopped sniping at the Foreign Service on this issue.
Lord Howell of Guildford
I am grateful to my noble friend for that support. He is absolutely right but I shall correct him on one thing, if I may. It involves not only senior staff as 75 per cent of the children helped are of parents with quite junior salaries. The Foreign Office sends junior people to very difficult posts and they may have young children who need to be educated.
Lord Wright of Richmond
My Lords, I declare two interests. First, I was a beneficiary of these allowances for a large part of my career. Secondly, 19 years ago I gave evidence to the noble Lord, Lord Sheldon, and the Public Accounts Committee in support of these allowances, so I am somewhat biased. Does the Minister agree that the continuation of these allowances is essential as members of the Diplomatic Service are often posted abroad with very little notice and such allowances are necessary for the uninterrupted education of their children? Does he also agree that they are very much in line with those given by practically all international companies, and so are essential if recruitment and retention in the Diplomatic Service is to be preserved?
Lord Howell of Guildford
I agree with the noble Lord, who obviously speaks with enormous authority on this subject. I would just add, referring back to my Answer to the noble Lord, Lord Campbell-Savours, that we are looking at ways of bringing the cost of this operation down. However, the basic requirement is that these children are educated; we do not want only childless diplomats. Therefore, we have had to make the provision that the noble Lord has just described. I believe that it should continue and that it is essential for an effective diplomatic effort by this country.
Lord Harrison
Further to his first Answer, will the Minister say in simple pounds, shillings and pence what is the annual maximum tax-free contribution that can be made to the education at a secondary school of a child of a Foreign Office official? Secondly, will he rebut in their entirety articles in the Daily Mail and the Telegraph suggesting that this Government will abolish the continuity of education allowances which are so important to our Armed Forces and, indeed, the Foreign Office?
Lord Howell of Guildford
There is no suggestion, as I made clear, that these allowances will be discontinued for the Diplomatic Service. I cannot comment on other branches of the Crown service or other public services because that is another question for which a rather different set of arrangements apply. The figures for which the noble Lord asks are that the ceiling for junior boarders in the current year is £7,239 per term and £8,236 for senior boarders, which is a reduction of £100 since last September. The figures are considerably lower for those attending as day pupils.
Baroness Falkner of Margravine
Will my noble friend comment on whether, given the large sums involved and these rather austere financial times, there are any efforts to have negotiations with DfID and the Ministry of Defence for a collective purchase agreement at a limited number of schools so that the costs might be constrained in that way?
Lord Howell of Guildford
That is a very valuable thought. As far as Foreign and Commonwealth Office is concerned, the numbers are rather small. We are talking about a maximum of 2,000 children, of which only 500 are being educated in the United Kingdom. Given the circumstances of where these children go—whether to be near their grandparents or to where an available space is found—it is very difficult to concentrate on a single discount operation. This is slightly outside the question, but I believe that the Armed Forces are large enough to have a kind of discount arrangement, but we do not have the numbers or the weight to engineer that kind of system for the Foreign Office.
Lord Campbell-Savours
My Lords, if the cap were to be reduced from over £25,000 per annum to the £13,000 to £14,000 that I am suggesting, surely that would create the demand in the state boarding school sector that the Minister said in his first reply is missing?
Lord Howell of Guildford
My Lords, the difficulty that the noble Lord must appreciate is that although there are state boarding-school places, and perhaps there ought to more, they tend to be filled up very rapidly with children with real boarding needs from domestic households and families. Diplomats inevitably come along at the last minute, because postings sometimes have to be on an emergency basis, and they find that those places are filled. If the sums were reduced to the levels that the noble Lord is talking about, parents who are already on fairly modest salaries and are paying a contribution to meet the total requirements of the school where their children are being educated would simply not be able to afford it and the children would not be educated. We have to face it: if we want good diplomacy, we have to allow the children to be educated.
Deputy Chairmen of Committees
The Chairman of Committees
That Lord Paul be discharged from the panel of Members appointed to act as Deputy Chairmen of Committees for this Session.
Arrangement of Business
Baroness Anelay of St Johns
My Lords, at a convenient point after 4.30 pm, my noble friend Lady Neville-Jones will repeat a Statement entitled “Statement on Aviation Security Incident”. Grand Committee will be adjourned for the Statement because it is involved in Home Office matters and it will resume five minutes after the end of the Statement.
Terrorist Asset-Freezing etc. Bill [HL]
(14 years ago)
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Lord Lloyd of Berwick
“( ) For the avoidance of doubt, “person” in subsection (1)(a)(i) means–
(a) United Kingdom nationals as defined in section 33(2);(b) A body incorporated or constituted under the law of any part of the United Kingdom;(c) Persons or entities within the territorial jurisdiction of the United Kingdom.”
Lord Lloyd of Berwick
My Lords, the purpose of Amendment 1 is to clear up an ambiguity that emerged only during Report on the Bill. The amendment thus falls within the type of amendment that is normally allowed on Third Reading.
The question is whether Clause 2, which gives Treasury Ministers the power to designate a person and freeze his assets, has extra-territorial effect. On Report, the noble Lord, Lord Sassoon, argued that Clause 2 has such effect; indeed, that was a crucial step in his argument generally, as it was in the argument of the noble Lord, Lord Bach. The noble and learned Lord, Lord Wallace of Tankerness, made the same point in Committee when he told us that the Treasury had designated many individuals outside the jurisdiction in the past. I do not know whether they were British subjects, but the fact that something has happened does not necessarily mean that it was lawful. My argument was that Clause 2 does not have extra-territorial effect, so “person” in Clause 2 means a British subject or foreigners within the territorial jurisdiction. Whether I am right or wrong about that, I had hoped that we could have cleared up the point before the Bill went to the Commons. I had hoped the Treasury might table an amendment to say what its understanding of Clause 2 is. After a longish discussion on Friday morning, the Treasury failed to do that so I felt obliged to table this amendment late on Friday afternoon.
What does “person” in Clause 2 mean? The noble Lord argues that it includes foreigners outside the jurisdiction. Of course, Parliament can legislate to cover foreigners outside the jurisdiction; there is no question about that. However, the presumption is that Parliament does not intend to do so unless very clear words are used. That presumption has been around for a very long time, as I hope to show. It is stated in section 130 of Bennion’s Statutory Interpretation. The presumption has also been applied in so many cases that it is difficult to know which to pick, so let me choose one case—about the meaning of the word “debtor” in the Bankruptcy Act of 1869—that I think illustrates the point.
The case concerns two Chilean subjects who carried on business in Liverpool. They had assets here within the jurisdiction and they incurred debts within the jurisdiction but they were not resident here. An English creditor wished to start bankruptcy proceedings against the Chileans. It was argued that the general word “debtor” in the 1869 Act should be given a wide meaning so that it included debtors all over the world, just as it has been argued that “person” in Clause 2 covers persons everywhere. That argument was, however, decisively rejected by the Court of Appeal. It was held that “debtor” covered only British nationals or foreigners within the jurisdiction, which of course the Chileans were not. That case—I refer to ex parte Blain, decided in 1879, volume 12, Chancery Division, at page 522—has been followed on innumerable occasions ever since. There is no doubt that the presumption to which I refer exists and is applied as a matter of course.
What is the reason for the presumption? The answer was given by Lord Justice James in the same case when he said that it rests on the broad general principle of comity, the comity which should exist between independent states. Applying that to the facts here, I ask whether, if the French authorities were to designate a British subject resident in England and freeze his assets because they believed him to be a terrorist, we would regard that as a friendly act. Clearly, we would not. The same must also apply the other way round. If the noble Lord, Lord Sassoon, is right and Clause 2 has the extra-territorial effect that he suggests, the Treasury could designate a French subject, freeze his assets here in London and require him to come to London in order to appeal against the designation under Clause 26. If a Treasury Minister did that, how would it play in France? It may be argued that in the real world we would never dream of designating a French subject. That might be right—I hope it is—but it is the power to designate contained in Clause 2, if the noble Lord’s construction is right, that is repugnant to comity. There is no doubt that the presumption exists and it is based on a sound principle of international law.
Lord Pannick
My Lords, to achieve its purpose this Bill needs to confer powers in relation both to persons and to assets within the jurisdiction. I understood the Minister to assure the House on Report that the Bill, as currently drafted, covers both categories of case. I do not understand that to involve extra-territorial effect, although the descriptive term may be less significant than the substance. My concern is where we find in the Bill a clear statement to the effect that a person may be the subject of a designation order because he has assets in this country even though he otherwise has no connection with this country. I hope the Government will give further thought to that matter as the Bill proceeds through the other place.
Baroness Hamwee
My Lords, I cannot bring the same academic knowledge to this debate as the noble and learned Lord and the noble Lord, Lord Pannick, but I start with the question of what this Bill aims to achieve and what it is directed at. As I understand it, it deals with assets that are in the UK. For me, other questions flow from that. I agree with the noble Lord, Lord Pannick, that if there is a query over the scope of the Bill, it should be clarified. One would hope not to have an argument such as this repeated either in the other place or, indeed, in court. However, having been involved with this Bill and its predecessor, I do not have the anxieties that have been expressed this afternoon.
Lord Davies of Oldham
My Lords, on behalf of the Opposition, I too would not dream of seeking to put myself in the same category of argument as the noble and learned Lord and the noble Lord who have spoken on these issues. The Minister has an argument here that he will need to respond to effectively. We in the Opposition thought that most of these issues were covered effectively on Report by the Minister. Like the noble Baroness, Lady Hamwee, who has expressed her reservations about other aspects of this Bill in the past, we see no argument for this amendment at present. Therefore, if we were to move to a Division, the Opposition would support the Government if, as I anticipate, they present an accurate and effective case for the rebuttal of this amendment.
Lord Wallace of Tankerness
My Lords, I am grateful to the noble and learned Lord, Lord Lloyd of Berwick, for introducing this debate. I am also grateful to other noble Lords for their contributions. I am particularly grateful to the noble Lord, Lord Davies, and my noble friend Lady Hamwee for indicating that, subject to what I may say, they are generally satisfied with the position which the Government have adopted.
This amendment goes back to the debate we had on Report about the scope of Clause 2 and whether it should allow the Treasury to designate non-UK persons who are outside the United Kingdom. We are grateful to the noble and learned Lord for having written to my noble friend Lord Sassoon, following our debate on Report, to explain his concerns with the clause as drafted, and for having taken the opportunity to discuss the matter in some detail with officials before he tabled his amendment. I readily recognise that this amendment stems from the noble and learned Lord’s very strong belief, which he clearly expressed in moving his amendment, that it is the right and responsibility of each country to make laws that affect their nationals and those within their jurisdiction. Generally, we would not dissent from this principle but, if the House will permit me, I will explain why we cannot accept the noble and learned Lord’s amendment.
The noble and learned Lord referred to United Nations Security Council Resolution 1373, which requires that states shall,
“Prohibit their nationals or any persons … within their territories from making any funds, financial assets or economic resources or financial or other related services available, directly or indirectly, for the benefit of persons who commit or attempt to commit or facilitate or participate in the commission of terrorist acts”.
I think it is clear that a key aim of Resolution 1373 is to prevent acts of terrorism anywhere in the world. To that end, the definition of terrorism in this Bill is borrowed from the Terrorism Act 2000 and is used in other legislation. The definition makes it clear that terrorist activity anywhere in the world against persons or Governments falls within the scope of the legislation.
It is also clear that Resolution 1373 puts an obligation to prevent terrorist finance not only on the state where particular terrorists and terrorist groups reside but on the states from which the funding of those terrorists may originate. If, for example, a foreign terrorist holds assets within the United Kingdom or relies on funding coming from the United Kingdom, it is not only right but essential that the United Kingdom should be able to freeze those assets and prevent funds being transferred for terrorist purposes. That is what the language of United Nations Security Council Resolution 1373, which I have just quoted, clearly requires.
Relying purely on the country where the terrorist resides to take action has two fundamental drawbacks. First, that country cannot control funds or other assets that may be available for use overseas by the terrorist. This is why the Security Council resolution is worded as it is. Secondly, we know, as was acknowledged in our short debate, that terrorists are often based in countries where the authorities cannot or will not take action: for example, in failed states or in states where the authorities turn a blind eye to terrorism.
Clause 2 therefore provides the Treasury with a power to identify those whom we consider to be terrorists, based on activities that could take place anywhere in the world. The effect of the designation is twofold. First, any funds and economic resources within the United Kingdom of such persons are required to be frozen. It will be a criminal offence for anyone in the United Kingdom to deal with such assets without licence from the Treasury.
Secondly, persons in the United Kingdom will be prevented from providing any funds or economic resources to designated persons. I shall try to make it clear; the fact that some persons designated by the Treasury are ordinarily not in the United Kingdom does not give extra-territorial effect to the provisions. The effect of listing such a person is to freeze only their United Kingdom assets and prevent persons within the United Kingdom or United Kingdom citizens abroad assisting them. It has no further effect.
The noble and learned Lord, Lord Lloyd, asked what would happen if we were to designate a terrorist who was in France. He suggested that it might lead to a breakdown of international comity. That we are taking these measures in pursuance of a United Nations Security Council resolution indicates where the balance of international comity may lie; it is in United Nations member states taking the resolution and implementing it. We have not so far designated a French national. However, if we were to do so, I would certainly expect close co-operation between United Kingdom and French authorities in such a matter. The French might indicate to the United Kingdom that a French national was a terrorist of concern to them, whose assets they wanted to freeze. Working with French counterparts, the United Kingdom’s law enforcement agencies would identify whether that suspected terrorist held assets in the United Kingdom that the French Government then wished to be frozen. The French would provide United Kingdom authorities with the relevant evidence to support a UK designation, showing that there was at least a reasonable suspicion that person X was involved in terrorism and that a UK asset freeze was necessary for protecting the public from the risk of terrorism.
Finally, a Treasury Minister will consider the case and, if the legal test that is set out in this Bill is met, will designate person X, with the Treasury taking the necessary steps to inform the financial sector and to freeze person X’s assets within the United Kingdom. We accept that other countries may use domestic asset-freezing powers to designate United Kingdom nationals, but again we would expect this to be done in co-operation with United Kingdom authorities.
The power in Clause 2 relates to designated persons, including non-UK nationals; it is not a radical departure. Sanctions legislation is by its very nature often targeted at persons outwith the United Kingdom, but the prohibitions bite only on those in the United Kingdom or when United Kingdom nationals are elsewhere. An example is the prescription regime under the Terrorism Act 2000 and this legislation. There is a list of prescribed groups, almost all of which operate outside the United Kingdom, but the effect of proscription is to prohibit persons in the United Kingdom from membership of such groups or from providing material support to such groups. As with our Bill and sanctions legislation generally, the target is outwith the United Kingdom but the prohibitions apply solely in relation to persons in the United Kingdom or UK citizens operating abroad. That accords with the fundamental jurisdictional principle that the country should normally legislate to criminalise only acts committed within its territory or by its citizens abroad. Here the acts that are being criminalised are the provision of finance for the purposes of terrorism.
I understand the noble and learned Lord to be concerned about interfering with the sovereignty of other states. I hope that he can see from an indication of how we might act in the event of getting intelligence or representations from France that this measure would not offend another state but would promote co-operation. At the risk of repeating myself, the effect of a designation is to freeze only those assets of a designated foreign national that are within the United Kingdom, and we believe that that is the sensible way in which to proceed.
Clause 1(b) refers to persons listed in Council Regulation 2580/2001. This regulation is the means by which the European Union implements Resolution 1373; it does so by requiring member states to identify persons against whom the state has taken action, for example by way of a domestic asset freeze. Persons put forward and included on the list are then subject to financial sanctions throughout the EU. The reference to “persons” here cannot be confined to those within the UK and the same term cannot have different meanings in the same clause. The EU regime emphasises, I think, the essential territoriality of an individual member state’s actions, and the need for each member state to take action against assets in their country and to prevent those in the country from providing material support to terrorists.
The noble and learned Lord referred to Clause 33, which provides for cases in which UK nationals and UK incorporated bodies commit an offence outside the UK. This is not an unusual extension of the application of a statute, and I do not think—nor did he suggest—that it is in any way controversial. The purpose is straightforward—to prohibit UK nationals and companies from committing acts abroad that would be offences under the Bill if committed here.
The noble Lord, Lord Pannick, asked whether we should be able to designate overseas persons only if they hold assets in the United Kingdom. I have answered that. The asset-freezing regime not only freezes assets but prevents persons in the United Kingdom making payments to a designated person. That is why we need to be able to designate overseas persons, even if they do not hold funds in the UK, so that we can prevent people in the United Kingdom or UK persons overseas providing designated persons with funds.
In summary, we believe that Clause 2 does not limit the Treasury to designating only persons who are in the UK, and nor should it. While we have listened carefully to the noble Lord’s arguments today, on Report and in the exchanges that he has had with my noble friend, we are satisfied that the wording of Clause 2 as it stands is sufficiently clear in this regard. It does not make the provision extra-territorial. Clause 2 merely identifies those persons involved in terrorism whose assets persons in the UK cannot deal with and whom persons in the UK cannot assist by providing funds or economic resources.
For this reason, the Government cannot support the amendment, and I urge the noble and learned Lord to withdraw it.
Lord Lloyd of Berwick
My Lords, I am extremely grateful for that full response. The problem remains, I fear, the meaning of the word “person” in Clause 2. Somehow underlying the Minister’s reply is the idea that a Treasury Minister has a power to designate assets, but of course the power can designate only persons. The Minister dealt with that clearly in relation to the example of us suspecting a French terrorist; indeed, he gave the same answer as I did. The way that it is meant to work is as follows: if we suspect someone in France of being a terrorist, we approach the French authorities and ask them in the spirit of co-operation—as the Minister rightly says, that underlies all this—to look at this, and the French will agree. If they come back and say, “Yes, we think you’re right”, they will designate the terrorist in France. There is nothing wrong with that. That is what Regulation 1373 envisages. What it does not envisage is us, without consulting the French, simply designating a Frenchman resident in France. All the cases show that a general word such as “person” in this clause, whatever may have been the Government’s intention, does not mean—I respectfully suggest—what they think that it means.
I will look closely at what the Minister has said and, more important, I hope that others will look closely at what the Minister has said and what I have said. I hope that in due course they will reach what I believe to be the correct result, which would require only a small amendment to Clause 2. That having been said, I beg leave to withdraw the amendment.
Lord Sassoon
Lord Sassoon
My Lords, I hope that this will be a little briefer. In Committee, I tabled, and this House accepted, a minor amendment to remove any doubt that disclosure of information obtained under Part 1 of the Bill to the law officers of Jersey or Guernsey is permitted. I said at the time that the ability to share this information is essential to the maintenance of an effective asset-freezing regime. The Government have tabled a further amendment to Clause 23 to make it clear that the disclosure of information obtained under Part 1 of the Bill can also be to the law officer of the Isle of Man. This is a minor amendment, which is intended to ensure that Clause 23 achieves its original intention. I hope that your Lordships will support me in making this technical amendment to the Bill.
Amendment 2 agreed.
A privilege amendment was made.
Bill passed and sent to the Commons.
Comprehensive Spending Review
(14 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, in another place, my right honourable friend the Chancellor of the Exchequer set out the conclusions of the Government’s spending review. This represents a clear plan to tackle the nation’s deficit and demonstrates the Government’s commitment to investment in growth, in jobs and in the future of the British economy. It is a plan that has at all times been guided by three core principles: growth, fairness and reform. These are the right priorities for making some of the most difficult decisions that any modern Government have had to make. We should never forget the financial position that we inherited when we came to office. Our country was borrowing £1 for every £4 that we spent. We had the largest budget deficit in our peacetime history and interest payments on our debts will total £43 billion for this year, or £120 million a day.
We need to take control of our country’s finances and put them back on a sustainable path because, if we lose that control, our priorities will be determined no longer by the needs of our people but by the demands of our debtors. This loss of control would threaten higher interest rates, rising inflation and more cuts in the future. Indeed, failing to restore credibility to our finances is the most fundamental threat to the recovery, to our jobs and to the growth of our economy. Therefore, I dispute the claim, which some have made, that there is a choice between fiscal discipline and supporting growth. That could not be further from the truth. The choice is between a sound platform to support growth and a lack of control that would undermine it.
In June’s emergency Budget, the Government therefore set out the road map to recovery. The independent Office for Budget Responsibility looked at these plans and forecast the economy growing and unemployment falling in every year. It has also assessed that we are on course to eliminate the structural current deficit and see debt falling by the end of this Parliament, one year ahead of our mandate. The emergency Budget set out the Government’s credible plan to balance the books, while the spending review has shown how we will deliver on it and find £81 billion of savings by 2014-15.
The Chancellor’s Statement set out the levels of departmental budgets for the next four years. I will not repeat every decision here. Instead, I want to focus on our priorities: growth, fairness and reform. They have guided our every choice. We are a pro-growth Government who have focused our capital resources on key infrastructure projects in transport and green energy. We are a Government with fairness at our heart and we are a reforming Government who leave no stone unturned in the search for waste, while devolving power and funding away from Whitehall. I shall address each of these principles in turn, starting with growth.
Before I do, among all the contributions to today’s debate I will be particularly keen to hear what principles the party opposite would apply to spending reductions and what specific measures it would propose. I will also be listening with particular attention to the maiden speeches of the noble Baronesses, Lady Nye and Lady Healy of Primrose Hill, and to that of my noble friend Lord Allan of Hallam.
On growth, I have already said how our plan as a whole will deliver macroeconomic stability, which is crucial to restoring growth and giving businesses the confidence to invest. However, we are not standing on the wayside waiting for growth to happen. We have prioritised spending on the areas that will deliver the best returns to growth. Over the spending review, capital spending will be higher than that planned by the previous Government. With investment in transport capital across the country, more cash will be spent over the next four years than the past four. We will maintain, in cash terms, resource spending on science. A new green investment bank will lead the way to the economy of the future. Last week, we also published our Local Growth White Paper, which included a £1.4 billion regional growth fund, focusing our resources on the areas that need them most. These actions, and many others, form a major part of our strategy to secure and support sustainable economic growth.
Our second priority is fairness. Fairness means that, across the entire deficit reduction plan, those with the broadest shoulders will bear the greatest burden. It means that, even in tough times, we focus our resources on extending the ladder of opportunity. It means that we look carefully at whether we are doing right by those who receive welfare, as well as by those working families whose taxes pay for it. These are our aims and we have met them in full. We have published distributional analysis that clearly demonstrates that those on the highest incomes will contribute more towards the consolidation. This is not just in cash terms but also as a proportion of their income and consumption of public services combined.
Our progressive approach also places responsibility on the banks to make their fair contribution. We will continue pressing banks to do more and bring forward reforms that improve our financial system. That is why we have introduced the bank levy. Because banks need to follow the spirit, not just the letter, of the law, we have engaged in a concerted effort to get our banks to sign up to the code of practice on taxation by the end of November.
We must ensure that everyone pays their fair share. That has been the motive behind agreeing a new £900 million package for HMRC. This investment will fund a clampdown on criminal behaviour, bringing in £7 billion each year by the end of the Parliament. There is no place for tax cheats in our society and there is no place for people who cheat the benefit system.
That brings me to welfare, with a budget that accounts for nearly £1 in every £3 that we spend. It is certainly right that the Government should help those who need it most. However, in many cases, the current approach has trapped people in a system where it simply does not pay to work. These are people who have been dumped on benefits by the previous Administration and then left there, indefinitely, with no prospects for improving their position. That is not fair on them and it is certainly not fair on the taxpayer. The case for reform is clear; the real question is how we can strike the balance.
Our approach has been this: we are moving to a universal credit system over the course of two Parliaments to do away with the complexity of the current system, ensuring that work always pays. We will introduce a new work programme to provide personalised support to those who need the greatest help back into employment, with private and third sector providers paid on the basis of the additional benefit savings that they secure. We will fund significant increases to the child tax credit to ensure that this spending review has no measurable impact on child poverty over the next two years.
Through the welfare reforms in the spending review, we will find £7 billion net savings on top of those identified at the Budget. Some £2.5 billion comes from removing child benefit from households with a higher-rate taxpayer. This is the most progressive welfare measure in the spending review, but we are making other reforms, too. For instance, we will cap household welfare payments at the average earnings for working households. This has to be right. The welfare system should provide an effective safety net, but it should not pay some workless families far more than the amount that most working families earn. Our reforms mark a historic shift from state dependency to independence.
Throughout this review, we have been clear on one thing: our decisions need to be fair and, in being so, to improve the chances of the poorest and most disadvantaged in our society. Fairness is about opportunity—a chance for a better life, especially for the next generation. Therefore, we have chosen to invest in our children. We have introduced a new pledge for 15 hours’ childcare for disadvantaged two year-olds. Cash spending on Sure Start services will be maintained, with a renewed focus on life chances. Although it has meant a greater challenge for other departments, the schools budget will not just match but outstrip inflation in each of the next four years. When you factor in reduced pressures from pay restraint and back-office savings, that amounts to a very significant boost for the classroom. A new £2.5 billion pupil premium will target additional resources on those with the most to gain, because fairness runs through the very heart of this spending review.
I now move on to our third principle: reform. It manifests itself in three separate ways. The first is by bearing down on back-office costs. Each main government department has found at least 33 per cent in administrative savings. We have announced our plans to share services, cut down on waste and abolish unnecessary quangos.
Secondly, we will oversee a massive devolution of power from the centre. Apart from in schools and public health, we will end the ring-fencing of all government grants to local authorities from April next year. We will reduce the number of separate core revenue grants to councils from 90 to fewer than 10. Our new tax increment financing borrowing powers will allow councils to fund key projects and, last week, we announced that we are considering options to enable local authorities to retain locally raised business rates. This puts more power into the hands of local government—the people who know best what is needed in their own towns, villages and cities.
Finally, reform means recognising where the old ways of doing things were not working, so we will overhaul the failed system of social housing. The terms for existing tenants, and their rent levels, will remain unchanged, but some new tenants will be offered intermediate rents nearer to market levels. Together with capital investment, that will enable a more flexible and responsive model, enabling the Government to deliver up to 150,000 new and affordable homes over the next four years.
There will be reform, too, in the justice system. We have a prison population that has been steadily rising out of control. This is not right, let alone affordable. The guilty must be punished, but rehabilitation should not be ignored. In fact, it should be the priority.
I conclude by saying that the coalition Government faced the worst economic inheritance in modern history. The debts that we were bestowed threatened every job and every public service in the country. Our response has seen us make some tough choices on spending, but we have protected health, schools and investment in growth. We have cut welfare and waste, pulled the country back from the brink of bankruptcy and put it on a more stable footing. Ours is the right plan and it is a plan that will help to build the more dynamic, prosperous and sustainable economy that this country deserves.
Lord Myners
My Lords, I congratulate the Minister on mastering something which it took me a long time to understand as a Minister: when you have to convey unpalatable messages or to spin messages, it is best to keep your eyes firmly fixed on the notes in front of you and avoid any eye contact with those opposite through fear of not being able to maintain a straight face. I congratulate the Minister on maintaining a straight face throughout that speech.
I appreciate that we have more than 50 contributions today, so I shall endeavour to make my remarks as brief as possible. Like the Minister, I look forward to the maiden speeches from the noble Baronesses, Lady Nye and Lady Healy of Primrose Hill, and the noble Lord, Lord Allan of Hallam, who are all significant and important additions to your Lordships' House.
The structure of my response is very similar to the structure of the Minister’s speech, which is perhaps not altogether surprising as his speech was almost certainly written by the same people who were writing speeches with completely opposite views for me when I was a Minister, barely a few months ago. I recognise the structure.
We need to ask ourselves the following questions. Are the cuts necessary in scale and in terms of pace and are there alternatives which are worthy of consideration? Are the proposed cuts fair? Are they progressive? Do they fall on the broadest shoulders? I will not speak specifically to that issue, as I am sure that a number of my noble friends on these Benches will wish to do so. It is quite clear from the Institute for Fiscal Studies that the broadest shoulders are not bearing the greatest burden in terms of these cuts. To the extent that this programme can in any way be described as progressive—that is, limited to the top 2 per cent of all income earners—that is specifically as a consequence of the tax changes which the previous Government introduced in their Budget. This is not a fair programme; it is not a progressive programme; and I am sure that others will speak to that effect later in the debate.
Next, I ask myself whether the proposal is, to use parliamentary language, well put. Finally, are the issues of growth sufficiently addressed? The Chancellor presented cutting the fiscal deficit and the share of public spending as a proportion of gross domestic product as unavoidable. It is simply not true. There is a choice in terms of the target and the pace—whether the focus should be on expenditure or taxation and whether the expenditure cuts should fall most heavily on welfare. It is the Government’s decision to make cuts on this scale, at this speed and with the greatest burden bearing on the poorest, the most deprived and the most vulnerable in the community. The Minister nodded his head for most of my statement until he saw the consequences of what he was nodding in agreement with.
There was no risk of national bankruptcy. I can say that with confidence, having been a Treasury Minister in May. There was no talk in the Bank of England or the Treasury about national bankruptcy. It is a complete figment of the imagination—a convenient truth that is now peddled by the Government. Let us remind ourselves that the average maturity of funding for government debt is 14 years. Let us remind ourselves that the Government are borrowing at the lowest interest rates for 40 years. That was true before the general election, as it is now. Interestingly—I am sure the Minister would point to this as being a sign of confidence in government—the spread of gilt yields over US dollar yields has expanded. I am afraid the Minister is wrong. His hand movements went in the wrong direction. He will no doubt wish to check the facts and find that I am correct. The spread has widened, so this is not a positive response to the Government. It is a very clear statement from the markets that there is now a real risk of recession. That is the consequence of the policy that the Government are pursuing.
We went into the global financial crisis with the second lowest debt as a percentage of GDP in the G7 countries. It was 36.5 per cent of GDP in 2007-08, which was lower than 42.5 per cent when the party opposite was last in government in 1996. Borrowing as a percentage of GDP in 2007-08 was only 2.4 per cent. That was largely being used for capital investment—for schools, hospitals and infrastructure. Let us remember that the Opposition were committed to the public expenditure programme as late as 2008. Indeed, David Cameron endorsed it as a tough approach. However, we then had a global crisis. It was absolutely right in those circumstances, when we saw a significant reduction in demand in the economy, for the Government to step in to create that demand in a typical Keynesian response.
However, the deficit needs to be addressed. We not only made a clear commitment to address the deficit—to halve it as a percentage of GDP within four years—but had already made a significant start on it. Remember that the deficit was lower at the end of our period in government than was forecast 12 months earlier and economic growth was stronger than had been forecast 12 months previously. Again, the Government’s argument now that the crisis they confronted was far greater than they had imagined or envisaged simply is not borne out by the truth. The deficit as a percentage of GDP was lower than we were forecasting, as confirmed by the OBR. Economic growth was faster than had been forecast 12 months earlier. Of course the deficit needed to be addressed but we had a programme to do that. We had a programme to reduce the deficit from 11.1 per cent of GDP in 2009-10 to 5 per cent in 2013-14. The Government’s own Office for Budget Responsibility has endorsed the fact that the programme we outlined would have achieved that degree of reduction.
One of the fallacies of the Government’s thinking is that, somehow, borrowing is wrong. The family budget analogy—a good family always lives within its means—is used here. The Government miss the point entirely. Borrowing is sensible from a government perspective in a situation where there is endemic, pervasive overcapacity, as there clearly is at the moment; or when there is underutilisation of capacity and higher unemployment of people and capital than would otherwise be available. It is equally sensible to borrow for investment. The Government miss this point because their analysis of the economy is based solely on liabilities, not on assets.
It is absolutely sensible to pass on to future generations the benefits of capital investment—in education, hospitals, roads and infrastructure—and the costs of that investment in a fair and proportionate way. This Government, in fact, are slashing capital investment at precisely the time when we should be increasing capital investment because of the existence of surplus capacity. Now is the time to commission new building work because there is excess capacity in the building and construction industry. I should like the Minister, in his closing speech, to confirm that, under the Government’s own economic forecasts, the economy will still be producing at 10 per cent below theoretical productive capacity at the end of the CSR period. If that is, as I believe, correct, then I think it underlines the fact that the Government’s policies are pushing us back into a recession and not ensuring that the economy recovers in the way it should.
On the issue of fairness, the Minister has spoken about children. He says that the Government have chosen to invest in children and that investment in children will outstrip inflation. However, we know from public statements that there will actually be a significant reduction in investment and expenditure per pupil in the education system. We know the pupil premium is a sleight of hand—a deception played by one of the coalition partners on the other. We have seen a fairness programme that is going to put the greatest burden on young families, on women, on the disadvantaged, and on local authorities. The Minister talked in a straight-faced way about devolving responsibility from central government to local authorities, but the only thing they have devolved is the axe for cutting, because they have not had the guts to make the cuts themselves; they have passed most of these cuts on to local authorities. I fail, for the life of me, to see how that squares with the big society.
Thirdly, I ask whether the CSR was well put. There were presentational tricks. I will be the first to admit that the current Chancellor is not the first to use presentational tricks: the mixture of numbers and percentages, the combination in single statements, paragraphs and sentences of cash amounts and inflation-adjusted amounts. We had more on the widening of the A11 in Norwich than we had on the loss of half a million jobs in the public sector. I hope that the Office for Budget Responsibility will be asked to look at ministerial statements on the economy to ensure that, in the future, they meet certain minimum tests for veracity, balance, and completeness.
What was most striking about the Chancellor’s Statement—this is my fourth and final point—was that there was no compelling supply-side narrative and no macroeconomic analysis at all. There was no evidence to support the contention that crowding out was working, or that there was some form of Ricardian Equivalence. There was no acknowledgment at all of what was necessary for the private sector to grow. The absence of a growth narrative was the most significant deficiency from an economic perspective of the Chancellor’s Statement. What we do know is that the proposed cuts will reduce economic activity by something in the region of 0.5 per cent per annum through the CSR period. I believe it will be more when one takes into account the multiplier effect. I am confident that the OBR will shortly reduce growth assumptions significantly. That is because we are seeing more unemployment; consumption will be affected by the increase in VAT; demand for credit remains low; the export outlook does not look at all encouraging; and investment by business in the private sector is clearly going to be curtailed until a more certain economic future can be seen.
We need a supply-side agenda, which is simply not being produced by this Government. The Government are fixated on cutting, cutting, cutting and reducing the size of the state. They have no alternative other than keeping fingers crossed and assuming that if the state consumes less, the private sector will somehow more than make up for that—something that is clearly at odds with the fact that we currently have considerable excess capacity in the economy. Cutting back on investment at a time such as this is a tragedy.
The Government have created further uncertainty for the banking industry. They have slashed spending on business support programmes and have abolished the RDAs, replacing them with mere shadows. They are cutting investment programmes in innovation and applied research. Some of the consolations offered in terms of a green investment bank or a carbon-capture demonstration model are, frankly, trifling by comparison. Instead, the Government are increasingly relying on monetary policy. I strongly advise them to avoid compromising the independence of the Bank of England in this respect. I also urge the Bank of England to be very careful about introducing further quantitative easing until it can produce clear evidence that existing quantitative easing has worked. Certainly, the scale of existing quantitative easing exceeds anything which we envisaged was likely when it was first introduced by the Monetary Policy Committee as a possible response to low interest rates.
I have already said that Labour would have taken decisive action to reduce the deficit. What else would we have done? We should have introduced a much more activist programme to support industry and new investment by facilitating investment in innovation and, importantly, putting in place better infrastructure and making sure that private capital was increasingly available to support public needs in terms of infrastructure. I am pleased to read in the Sunday newspapers that the Minister has been travelling the world making the case to sovereign wealth funds for investment in infrastructure. If those reports are correct, that is sensible, although it is slightly at odds with the Chancellor feeling that paying interest on borrowings to non-domestic lenders is somehow unpatriotic, while giving ownership of infrastructure to non-nationals is acceptable. I should like to believe that the Government would invest in and create a new national investment bank. There are important opportunities here to use private capital from interested pension and insurance funds that would give fixed and predictable returns to support investment in infrastructure. However, to date, we have seen very little original thinking from the Government on that.
Finally, what I found shocking about the Chancellor’s presentation was the waving of Order Papers and the cheering at the end of his speech. This was deeply insulting to those who will have to bear the burden of this cutting programme. To see the Chief Secretary demoted to a position of being glass filler in chief—filling the Chancellor’s glass of water from time to time until he received a note telling him that it would perhaps be sensible if he shuffled up the Bench a little, so he was not as visible to the television cameras, and sat immediately behind the Chancellor—speaks volumes about the discomfort that those on the Liberal Benches must now be feeling. The Chief Secretary said he did not come into politics to cut government expenditure and public funding of needy services. That is what he has done; that is what the Government have done; and in doing that, they have completely failed to put forward a clear growth strategy that is fair and reasonable and which would ensure that the country delivers to its full potential.
Lord Newby
My Lords, no doubt the CSR makes me, like many other noble Lords, angry and frustrated—angry that the US and British banking systems landed us in a major financial and economic crisis; angry that the previous Government had been spending like there was no tomorrow, with big government deficits in every year since 2002; and angry and frustrated that in attempting to clear up the mess we have often been portrayed, as the noble Lord has just done, as latter-day scrooges who take a perverse delight in reducing public expenditure, when nothing could be further from the truth.
There is no doubt that the deficit had to be tackled decisively. We can argue whether the aim should be to eliminate it over the lifetime of this Parliament or over a slightly longer timescale. Labour argues that the timescale that we have adopted is a gamble. Perhaps it is, but Labour’s policy—to the extent that we can discern it—is simply a gamble of a different sort. The noble Lord today failed yet again to spell out how Labour would save even £1 of the tens of billions of pounds which it is committed to cut from public expenditure. Frankly, until it does, it has no credibility with me.
These arguments are, however, in my mind now secondary to the main challenges facing the British economy and the operations of the state when it comes to taxation and expenditure. There are two principal challenges which I believe we face and against which this CSR should be judged. First, almost every aspect of our taxation and expenditure systems is no longer fit for purpose. Secondly, we have not responded effectively to the fundamental change in the world economy that is now in full swing.
Take the way we do things. Almost wherever one looks, our public expenditure and regulatory systems have become so complex that they cannot deliver effectively the outcomes that they seek. We have a benefits system that makes the Schleswig-Holstein question look like child's play; we have a pensions system that is confusing and obscure; we have a tax system that is now the most complex in the world and which almost certainly no one—literally no one—fully understands; and we have a regulatory system that stifles initiative in almost every area of public life.
Because we have to cut public expenditure, we are being forced to look afresh at the way we do all these things. This is long overdue and can lead to positive outcomes. I shall give examples. The Building Schools for the Future programme is being cut, but not before another 600 new schools are built. It has been announced that these schools will have to be built at 40 per cent less cost than has been the case until now. This sounds an impossible aim, until you read the document produced by Balfour Beatty that explains how it thinks it can save 30 per cent on new-build schools, and a massive 60 per cent on non-structural refurbishment, simply by being more efficient in the process.
In social care, Sandwell healthcare, a social enterprise, was able literally to halve the costs of delivering services previously run directly by the local council, with no loss of pay or other conditions for the staff, by among other things being able to reduce the number of sick days per employee from 32 to one. The challenge now is to ensure that this kind of saving is identified and delivered across the whole range of public spending.
On benefits, the Government have embarked on fundamental reforms. I welcome the plans to introduce a universal benefit and the plans for a citizens' pension, as they are major simplifications of the system and will mean that many people who currently lose out—in the case of the citizens' pension, principally women who stayed at home to have children—will for the first time get the benefits they deserve.
The second challenge we face is how to rebuild the economy in circumstances where the main drivers for growth are the emerging economies and not simply, or even primarily, the US and Europe.
Analogies are often drawn between the current crisis and the 1930s. They are largely misconceived because they ignore the fact that large parts of the world economy are booming and are likely to continue to grow strongly, whatever happens in Europe and the US. Emerging markets now account for a third of the world economy and two-thirds of its growth, which helps to explain why the world economy is now larger than before the financial crisis. All the evidence shows that companies are planning for further cross-border growth. A recent study by BDO showed that 95 per cent of ambitious mid-cap companies are confident about international growth for the year ahead. This is a far cry from the 1930s.
The high levels of growth in the BRICs and the appetite for international expansion by companies offer the UK huge opportunities, but ones that under the previous Administration were simply not adequately exploited. This is not simply or even primarily a matter for government, but government has a crucial part to play. The new Government appear to recognise this potential and have taken some positive steps towards realising it. The early visit of the Prime Minister to India was a good start. However, there is much more to be done. For a start, we must stop making things more difficult for those wanting to trade with or invest in the UK.
Over recent weeks, we have exhaustively discussed the immigration cap, but the current policy, which among other things denies multinational companies with large-scale operations here the opportunity to bring in the highly skilled staff they need to expand their activities, is highly damaging and must change soon.
We must also create the conditions that help companies to grow. We need, for example, a 21st-century infrastructure. In this area, the transport infrastructure announcements are highly welcome, but they deal with only part of the need. The establishment of the green investment bank is also a welcome development, but it needs to attract significantly more capital if it is really to bring our infrastructure up to speed. This should be possible as pension funds, other fund managers and sovereign wealth funds are all looking for long-term, secure vehicles in which to invest. Like the noble Lord, Lord Myners, I was pleased to read of my noble friend’s success in discussions with sovereign wealth funds in this area.
We also need a more highly skilled workforce. Here the Government’s announcements on the science budget, on funding part-time higher education students on the same basis as their full-time equivalents and on expanding funding for apprenticeships are welcome developments. However, the new system for the bulk of university students needs to include incentives for those of modest backgrounds to attend all our universities if we are to make the best use of the talent which we as a country possess. We also need to do more to reduce the level of functional illiteracy among school leavers and the adult population as a whole.
Regional development is clearly going to be crucial if we are to get a more balanced overall economy. The Government have introduced the regional growth fund but, with less than half the funding of the RDAs and an apparently weak bias towards spending outside London and the south-east, it will struggle to make much of an impact. Indeed, it was rather depressing to see that the initial local enterprise partnerships announced last week covered nearly all the south-east, including some counties already doing extremely well economically, but not large parts of the north. It is hoped that those gaps will be filled, but it is crucial that the limited money available goes to the parts of the economy with the largest amount of spare capacity.
In the CSR, the Government have set out a clear programme for this Parliament. If they meet their stated aims of making the delivery of our public services more effective and efficient and of creating the conditions for businesses to grow, they will deserve to succeed.
Lord Bilimoria
My Lords, I have always believed that a wise person learns from other people’s mistakes, a sensible person learns from his previous mistakes, and a fool makes the same mistake over again. The question before us is: is the Government’s spending review wise, sensible or foolish?
As regards past mistakes, it is widely held that it was Franklin D Roosevelt’s failure to provide prolonged stimulus during the great depression, combined with fiscal tightening, that prolonged the slump and was responsible for the double dip during that period. On the other hand, the Canadian and Swedish examples of making severe cuts in the 1990s that led to their economic recovery are cited as examples of why a country in our position should take similar measures by having our own “bloodbath budget”. Well, we have had our “Axe Wednesday”.
However, the world was very different in the 1990s. Canada was able to make those cuts, first, because the rest of the world was emerging into a prolonged boom time—a sharp contrast to today—and, secondly, because Canada is a country with enormous natural resources whose exports have accounted for 45 per cent of GDP. Sweden had, 50 years ago, the same level of public sector expenditure as a percentage of GDP as the United States—at 30 per cent of GDP—but, by the 1990s, the figure was well over 60 per cent. However, when those countries began wielding their axe to public expenditure, they were surrounded by a benign and increasingly booming global economy. Furthermore, both countries had the flexibility to use fiscal and monetary measures to compensate for huge public spending cuts.
Just look at the world situation over the past four years. In 2006, the sub-prime crisis started to unfold. In 2007, there was the credit crunch. In 2008-09, there was the great recession. By 2010, we had the sovereign debt crisis. In the same year, we now have the potential global currency crisis, increasing economic protectionism and beggar-thy-neighbour policies around the world. That is a classic domino effect, with one thing leading to another. What is next?
Here in Britain, there is no question that the previous Government squandered away an economy in excellent shape that was handed to them on a silver platter in 1997. They used that period of prolonged growth and low interest rates to take public expenditure to well over 50 per cent of GDP, from the 40 per cent level that it had historically been. I am delighted to see that the comprehensive spending review plans to bring public expenditure as a percentage of GDP back to 40 per cent by 2014. I would appreciate hearing the Minister confirm that that is the Government’s target.
Today, we have the non-dom levy and the 50p high rate of tax, both of which are driving people away and deterring the best talent from coming into this country. On top of that, the current Government have introduced a madcap immigration cap. In addition, the forthcoming VAT increase will hit every man, woman and child in this country. Those things combined with interest rates of 0.5 per cent—how low can we go?—mean that as a country we have boxed ourselves into a corner, with no room for manoeuvre. We have high levels of unemployment, especially youth unemployment; our housing market has come to a standstill; the spectre of inflation looms; our people have low levels of confidence and high levels of uncertainty; and our banks are not lending. We have to prevent not just the danger that we bump along the bottom for the next few years but the risk that we become another Japan—in the doldrums for two decades.
Our only hope is to play to our strengths and to address our weaknesses. Our weaknesses include nearly £200 billion of welfare and pensions expenditure. I am delighted to see the measures in the CSR to deal with this head on. As much as we all appreciate and love the NHS, there are still tens of billions of pounds of efficiency savings to be made.
With 500,000 public sector jobs predicted to be lost over the coming years, are the Government doing enough to encourage the private sector to provide those jobs? Are they doing enough to promote growth in the economy today? I welcome the £1.5 billion fund and the £200 million enterprise fund to help businesses in this country, but by comparison with the United States, which has created a $30 billion loan fund along with $12 billion in tax breaks specifically for small business, we seem to be falling very far short of the mark. The proposed measures are even more piffling when compared to the hundreds of billions of pounds spent on bailing out the banks, given that it is the small and medium-sized enterprises that will lead the charge to recovery in this country.
Our strengths include our higher education sector, but we are cutting that by 40 per cent over the next four years to try to save £3 billion. Our higher education is the cornerstone of our competitiveness and is one of our biggest export earners through the foreign students that we attract. Surely such a cut is foolishness.
We have had a hastily rushed-through defence review when our brave troops are making the ultimate sacrifice in Afghanistan—a war that is almost 10 years old—and despite the uncertainties that the world throws our way all the time. We did not predict the Falklands war, but it happened. We did not predict 9/11, but it happened. We do not know what is going to happen next, so to skimp on our defence at this time is foolishness.
Our creative industries, our design capabilities and our tourism are strengths, yet we are planning cuts in those. That is foolishness indeed.
I am president of the UK India Business Council, which is funded by UK Trade & Investment, which in turn is funded by the Foreign and Commonwealth Office and the Department for Business, Innovation and Skills. Surely to cut funding that helps UK firms to go global is folly. The Indian economy is booming even in these times. The Goldman Sachs BRICs report predicts that China and India will become the world’s two largest economies by 2050, yet Gerard Lyons, who is the chief economist of Standard Chartered Bank, told us yesterday that Britain exported more to Ireland in 2009 than it did to Brazil, India, Russia, China and South Africa combined—countries that have a population of 3 billion. Instead of encouraging the spirit of global enterprise, we make cuts. “Penny wise and pound foolish” seems to be the mantra of the comprehensive spending review.
The amounts involved in those cuts to our areas of strength are tiny compared to the big-ticket items in our areas of weakness, but the effect of destroying our abilities and competitiveness is potentially catastrophic. We are shooting ourselves in the foot. Our Nobel Prize-winning economist Christopher Pissarides has said:
“Unemployment is high and job vacancies few. By taking the action that the chancellor outlined in his statement, this situation might well become worse”.
No one denies that cuts need to be made, but the timing, severity, pace and priorities of the cuts and their indiscriminate nature are a cause for worry not just here but in the United States and all over the world.
We are still in the eye of the storm and the global uncertainties continue to whirl around us. Our only chance of getting through depends on our strengths. I implore the Government not to hamper this country’s great and special strengths. Help us unleash our strengths and play to them. Then, and only then, will we get through this nightmare and come out stronger than ever.
The Lord Bishop of Leicester
My Lords, I must crave the indulgence of the House for speaking to your Lordships with laryngitis, but my presence is an earnest of the Church of England’s profound concern about the issues before us today.
There are aspects of the comprehensive spending review that we on these Benches would be happy to acknowledge and applaud, not least the commitment to protect overseas aid spending, the re-emphasis on the rehabilitation of prisoners and the proper commitment to prevent structural and personal debt running out of control. However, noble Lords will not be surprised to hear that, like most bishops, I am hearing a great deal of genuine anxiety and concern in my diocese among serious people—vice-chancellors, local authority chief executives, health managers and businesspeople—since the Chancellor sat down after delivering his spending review Statement. Local government chief executives express profound concern about the termination of the so-called specific grants and are deeply concerned about the £2 billion black hole in local authority support that was reported in last week’s MJ.
I cannot help coming to the conclusion that there is a gap between a London-centred debate about debt reduction and a different debate in the regions about the extremely painful consequences that are having to be managed by those not privy to the initial decisions. There is genuine fear among some of the most vulnerable people that their already difficult lives are to be made effectively impossible by the assault on benefits. As we all know, there is a growing sense of indignation, which I do not necessarily condone but which I certainly understand, that in the City of London and in the boardrooms of too many companies, it is business as usual with inflated salaries, enormous bonuses and apparent disregard for the Government's rhetoric that we are all in this together.
I am not an economist, but I am well aware that professional economists by no means agree that the Government's approach to the deficit is necessarily the right one. Where the discipline of economics is divided, we expect the Chancellor to be light on his feet and ready to change direction if the impact of his policies turns out to be dramatically different from what is predicted. The Treasury does not know, any more than I do, which group of economists is correct, but the well-being of millions of our fellow citizens depends on the Chancellor getting this right and having the courage to change direction if necessary.
I want to make one key point that is not dependent on economic expertise but is about the kind of society that we think that we are building. How on earth is the so-called big society vision of stable, mutually supportive communities to be enhanced by changes to housing benefit that will drive poorer people into what amount to townships in the undesirable areas of our towns and cities? That is the inexorable logic of capping housing benefit. More than that, how will limited tenure of social housing help us to build the big society? It is precisely the long-standing residents whose family commitments have begun to recede who are the linchpins that bind a neighbourhood together. The very people who will be the foundation of a bigger, more mutual and caring society are being told that they cannot take security of tenure for granted. The importance of stable populations in neighbourhoods and communities appears to count for nothing. I am led to suspect that any money saved by moving people out of their homes will have to be spent many times over on supporting and managing the problems that follow when formerly stable communities become home to transient populations of insecure tenants who have no incentive to act as though they belong to their neighbourhood. Why should they try to belong when successive governments’ housing policies have created, not a big society, but a very thin, rootless society among those who rely on social housing?
The reason why people rely on social housing is, basically, not fecklessness or inadequacy but simply because our mismanaged housing market has fallen out of step with our deeply unequal labour market. When hard work does not pay enough to pay for decent housing, we had better act to raise wages or create more houses to bring their price down. On both counts, successive governments have been too shy of acting. The present belief that cutting housing benefit will depress the market and reduce private sector rents might just work if there were more houses to meet the demand. As it is, all the risk is being borne by the vulnerable, not the comfortable.
Lord St John of Fawsley
My Lords, what the country now needs is not blame for the deficit—we all know who is responsible for that. What we want is hope for the future, which is the second of the theological virtues faith, hope and charity. Anybody listening to the Minister’s speech will note a very subtle but clear change in what he was saying. It was shot through with hope for the future, and also flexibility. Congratulations to him for doing so.
The Lord Bishop of Leicester
My Lords, it seems to me that hope for the future depends on ensuring that those who are most vulnerable, those who are most excluded and those who most depend on the state for any kind of security are made secure by these changes. Hope for the future depends on recognising the widespread damages to society and to social justice from ever-widening inequalities, which have been widely researched and established by many authorities. We do not create a fair society—let alone a big society—by placing some of our fellow citizens beyond the reach of social solidarity. I hope that such is not the intention of the Chancellor but I fear that it may be the effect of some aspects of the review. I hope that the indignation of many people in my diocese turns out to be uncalled for, but I fear that this may be just the beginning, for the cuts have not yet begun to bite deeply.
I trust that the Chancellor will prove quick to turn again if the harm caused by his policies becomes a price not worth paying for merely economic rather than fully social recovery. The Church of England remains committed to work with government and with others to respond to the vision of the big society, but I fear that the comprehensive spending review has made that vision much harder to realise and even more necessary.
Lord Lamont of Lerwick
My Lords, I welcome the comprehensive spending review. The noble Lord, Lord Myners, made a point of saying that there were choices open to the Government. Indeed there were. I particularly welcome the choice that they made to stick more or less to the ratio of 75 to 25 per cent in the balance between expenditure cuts and tax increases. I believe that the emphasis had to be on public expenditure cuts in order to correct at least part of the overspending of recent years.
Undoubtedly this was a bold set of announcements, for which praise is therefore due. Bold it may have been, but the idea that this was the biggest fiscal consolidation since the dissolution of the monasteries seems somewhat overdone. We are cutting spending by 7.4 points of GDP, which, as the noble Lord, Lord Bilimoria, said, compares with what Canada did in the early 1990s. Sweden, after its banking crisis in the early 1990s, reduced expenditure by nearly 15 per cent, as did Finland. Spain and the Netherlands at the same time reduced spending by much the same amount as the Government are reducing it today. The early 1990s were not at that time a benign environment internationally. Indeed, there had been other fiscal consolidations, such as that of my noble and learned friend Lord Howe in the early 1980s, of a similar magnitude. In this country, from 1993 onwards, we moved from a deficit of 7 per cent of GDP in five years to a surplus. All these fiscal consolidations were achieved without Armageddon arriving.
Of course there are risks, but there are risks also in not acting. The Government were for several reasons right to move more quickly than the previous Government to reduce the deficit. First, the sovereign debt crisis in Europe has altered the balance between the merits of delay and the merits of action. Secondly, as the Minister said, Britain has one of the largest structural deficits in the world. It is true, as the noble Lord, Lord Myners, said, that we compare quite well with other countries in terms of the stock of debt, but the size of our annual deficit means that we are adding considerably to the stock of debt each year. Indeed, the predictions have been that this would top off somewhere at 80 or 90 per cent of GDP. However, if we go on adding at a rate of 10 per cent—or, if it is modified, at a rate of 7 or 5 per cent—we shall increase it considerably, at great risk.
As the Minister said, debt interest is taking an increasing proportion of total public expenditure. After the CSR, there will be savings in debt interest payments, but debt interest is to go on rising during the whole of the expenditure period. With an uncorrected deficit, we would see more and more public expenditure silted up with interest payments. Ken Rogoff, the former chief economist at the IMF, has argued that the relationship between interest rates and debt is not a linear one. Interest rates can rise quite suddenly when a country hits its debt ceiling and he has demonstrated in his work time and again that, when a stock of debt reaches a certain point, it is a dampener on the growth of that economy. We have been running a deficit that is something like one and a half times the level of deficit run by Franklin D Roosevelt in the 1930s, which his own Treasury Secretary at the time confided to his diaries had not done much good or made much difference.
These cuts will not come into effect until next year and they will take four years in total to implement. How long do noble Lords opposite think we can take? What are their criteria for when we should act? One answer that is often given is that we should act when the economy is showing signs of recovery and that recovery is firmly established. It is not easy to say what “firmly established” means, but so far the economy has recovered remarkably quickly. Growth in the past three quarters has been 0.4 per cent, 1.2 per cent and 0.8 per cent, which surprised the markets in general. The ONS has said that the difference between the first and second quarters in underlying growth was much the same, implying that the economy is growing at an annualised rate of 3.2 per cent, which is above its long-term trend rate of growth of 2.35 per cent as found by the previous Government. I am the first to say that there are risks to this growth rate—it may well slow down—but the recovery is faster than that following the recessions of either the 1980s or the 1990s. We have recovered 40 per cent of the loss between the first quarter of 2008 and the third quarter of 2009.
An answer that we sometimes get to the question how we should judge when it is appropriate to tighten policy is that we should wait until the output gap is closed—that is, the difference between output as it is now and where it would have been had there been no recession and the economy had grown during that period at the long-term rate of growth. But how does anybody know what the output gap is? It is a concept that is extremely difficult to measure precisely. Also, it might take years to close the output gap, in which case we would go on adding to the structural deficit by 10 per cent or 5 per cent, or whatever the chosen rate was each year.
There is much concern, understandably—the noble Lord, Lord Myners, referred to this—about the loss of 490,000 jobs in the public sector. That is to be spread over four years but it also has to be seen in the context of a labour market of nearly 30 million people. That labour force increased by over 315,000 in the period between December/February and June/August. If the economy continues to grow—and of course there are risks and huge uncertainties in this—there is every prospect that this sort of redundancy in the public sector can be absorbed.
The noble Lord, Lord Myners, seemed to see the cuts ideologically as part of the desire for a smaller state. Indeed, there have been a lot of headlines about rolling back the state. However, they seem somewhat wide of the mark when one realises that public expenditure in money terms is going to go on rising every year to the end of the survey period and that, at the end of that period, spending in real terms will be where it was two years ago. Spending as a proportion of GDP is going to fall from 47 per cent back to 41 per cent, where it was for much of the 1980s and 1990s. With all due respect, that does not seem to be a radical restructuring of the state but rather a common-sense reversal of part of the overspending that we have seen in recent years.
The right reverend Prelate talked about fairness. There never will be consensus on fairness; fairness is in the eye of the beholder. Some noble Lords opposite think that the entire burden should be shouldered by the better-off, but any objective person will see that the Government have laboured long and hard to try to spread the misery and the pain around. Any cuts proposed in welfare would lead the Opposition to say that this was unfair. Perhaps they should remember what James Purnell said when he was Secretary of State for Work and Pensions, specifically about housing benefit, which was that he wanted to consult in order to see that
“people on benefits do not end up getting subsidies for rents that those who work could never afford.”
This has been a difficult package to assemble. I believe that it will gain acceptance by having been assembled by a coalition Government of two parties and that the exercise of doing it has strengthened the coalition. I welcome the CSR. After a decade of recklessness, the Chancellor of the Exchequer and the coalition have laid the foundations for a decade in which we could earn our prosperity in the future rather than borrowing it.
Lord Peston
My Lords, my contribution is based on three premises: this is the most reactionary economic statement of modern times; the proposals will do serious damage to our economy; and, to echo the remarks of my noble friend Lord Myners, there is no immediate crisis and the Government should have adopted a much more deliberative approach.
The first sentence of the spending review Statement by the Chancellor said:
“Today is the day when Britain steps back from the brink”.—[Official Report, Commons, 20/10/10; col. 949.]
There was no brink; there is no brink. Britain is not, and never was, on the verge of bankruptcy. There was no financial catastrophe. The Chancellor’s reference to financial catastrophe merely indicates something that I deeply fear—namely, that he has entered into fantasy land. As one sees from reading the whole Statement, he never leaves it. As a devoted watcher of the “The Wizard of Oz”, I deeply appreciate his frame of mind, but I thought that this was a serious matter of economics confronting the country and that fantasy is not what the Chancellor really does. I regard his document, despite the damage that it does, as intellectually frivolous.
My noble friend Lord Myners referred to the alleged burden on future generations. Are the Government suggesting that we should have fought the Second World War on a no-borrowing principle? We have all gained from the defeat of the Nazis. The period did not strike me as being terribly bad, although I was only a child. We paid taxes then to finance the national debt that resulted. If we are now to defeat terrorism, are the Government asking us to believe that, if necessary, we should not borrow to finance the resources that we need to do so? The Government are in fantasy land. As my noble friend pointed out, we donate so many good things to future generations that there is, as far as I know from my limited knowledge of economics, no reason not to place a bit of the burden on our children. They will thank us for what we gave them.
The noble Lord, Lord Lamont, referred to recent GDP figures. There have been three good quarters. However, it has been overwhelmingly established by all the economic research that I know that what happened in that period was determined during the previous two years. Not a single bit of the recovery that we observe is remotely attributable to this Government. I looked in vain for the Chancellor in his Statement to thank his predecessor for the legacy that had been left him. He did not even have the courtesy to admit that that was the foundation that was given to him.
The Chancellor devoted a whole hour to a speech that, apart from being reactionary, was one of the most uninteresting of all time. He referred to the IMF. The IMF and the European Central Bank are the two last repositories of completely outdated and erroneous monetarism. They, too, believe in the doctrine, “Private expenditure good, public expenditure bad”. The noble Lord, Lord Lamont, et al tell us that this is not ideological; I tell them that it is entirely ideological. It is all about the kind of society in which we would like to live. We cannot avoid that.
The Chancellor said in his Statement:
“The creation of an independent Office for Budget Responsibility has brought honesty back to official forecasts”.
Since the official forecasting was done by the economists in the Treasury, who I assure your Lordships are of the highest quality, his remark is totally defamatory. If he had made it outside the Commons Chamber, I wonder what would have been said. The idea that those economists did not give a Chancellor of our time or the Chancellor of this time their best and honest views is preposterous. The Chancellor continued:
“I can confirm to the House that the OBR and its new chair”—
I always use the word “chairman”—
“have audited all the annually managed expenditure savings in today’s statement”.—[Official Report, Commons, 20/10/10; col. 949.]
Is there any published documentation corresponding to that statement and, if so, where can I find it so that I can read it?
Lord Peston
No, it is not in there. That is not a document from the OBR; it is a document from the Government.
To what extent is the Chancellor talking to the head and other members of the OBR, who are meant to be independent? If they are meeting, were minutes taken? If so, could we have copies of them so that, for the sake of transparency, we know the nature of the argument that we are dealing with?
The Chancellor tells us that we are all in this together. I refer to the great economist Michal Kalecki, who in 1943—note the date—wrote a brilliant article in Political Quarterly. He said, apropos of exactly what the Chancellor has said:
“For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that ‘you shall earn your bread in sweat’—unless you happen to have private means”.
I wonder whom Kalecki, if he were alive today, might have in mind. Of course, they are not laughing, because they know what this is really all about.
Lord Marlesford
I was brought up on the great Kalecki and my recollection of one of his fundamental theses was that the only rescue and hope for capitalism was armament and war. That has not been proved true.
Lord Peston
That is not true—that was not his view. What is interesting, if I may give a lecture on the history of economics, is that we can distinguish Kalecki from Keynes, although Kalecki made the great mistake of publishing in Polish and therefore was never fully appreciated. Keynes was attacked, particularly by the American right, for being left wing, but he really believed that capitalism could be saved and advocated his policy so that we could go back to capitalist free enterprise. Kalecki believed that the ideology of capitalists was such that they would prefer to destroy the system rather than to allow Governments to intervene to save it. I am glad that the noble Lord is aware of Kalecki; the sadness is that his name still rarely appears in any of the economic textbooks.
I refer again to the problem of what we should be doing. The noble Lord, Lord Sassoon, said that none of us was telling him what he ought to do. I shall not send him a bill when I do tell him. I am a Back-Bencher so I speak only for myself. The first thing that I would do to save money, after what one of our major newspapers called the fiasco of the defence review, is to redo that review and realise that our whole future on the defence side depends on conventional weapons. We should announce immediately that we have no intention of wasting any money on the renewal of Trident; our nuclear deterrent is not a deterrent, because no one can tell us whom it deters and, in any case, it is not independent. What this country needs is a much improved set of conventional armed forces. The Government should go back and think about that.
My second recommendation to the Government is to abolish immediately the raising of VAT at the beginning of next year. It is the last thing that the economy needs. I speak only for myself; I have no idea whether others are deeply committed to raising VAT. My view is that abolishing the increase is the stimulus that the economy needs.
Thirdly, the Prime Minister, instead of looking for headlines in his attack on the European Community by telling us that he is a Eurosceptic, should realise that the biggest waste of money in the whole of Europe is the common agricultural policy. If he had any backbone, he would seek a row with the Europeans to abolish that policy. That would save us enormously more money than the trivial sums that we are talking about.
Lord Oakeshott of Seagrove Bay
Well, my Lords, that was the noble Lord, Lord Peston, at his peppery professorial best. I welcome what he said about Trident. I hope he will be paying tribute to the Liberal Democrats in Government. We are not meant to brag about this too much but I am still going to mention it. By a feat of negotiation we have managed to get the renewal of Trident put off until after the next election, which, we hope, will at least give time for Labour to change its policy as well. So there is a really serious chance that we will not be committed to a replacement of Trident which the other two main parties were putting forward at the general election.
It is always interesting to hear from the noble Lord, Lord Lamont, with his experience. He certainly does know all about markets losing confidence in governments. I was particularly impressed by the wise words of the right reverend Prelate the Bishop of Leicester about the importance of maintaining stable communities in social housing. I am afraid the real problem about the housing benefit situation is the way the social housing stock was run down disgracefully under Thatcher, Blair and Brown. That is the real reason we are in this mess on housing today.
The Chancellor announced £81 billion of cuts in the CSR and the official estimate of the tax gap—the total of tax avoidance, evasion and fraud—is £42 billion. We must close the deficit, but to do that in a fair and sustainable way, we must repair Britain’s broken tax collection machine. Volunteering is all very well, but not when it comes to paying tax. Just like any business in the real world, we must get our revenues up as well as our costs down. I declare my interest as a pension fund investment manager for the past 34 years. It is one of life’s rather strange twists that I went from advising a Labour Minister, Roy Jenkins, to working for Warburgs in the City, and the noble Lord, Lord Sassoon, went from working for Warburgs to advising a Labour Minister, Gordon Brown, at the Treasury. Today he is a Conservative Minister and I am a Liberal Democrat Treasury spokesman. With all his top-level experience at the Treasury in the Brown years, the Minister will know where all the bodies are buried and be ideally placed to answer our questions and respond to our concerns in this House.
My right honourable friend Danny Alexander told Parliament last week and the Minister repeated today that there is no place for tax cheats in our society. How we deal with tax cheats will be a crucial test of fairness for us. We will never persuade the great majority of hard-working British taxpayers who pay their dues and cannot afford expensive accountants and solicitors that we are all in this together unless we make fair tax our watchwords. This is not just some airy-fairy academic issue. At the Arsenal on Saturday we were having a moan at half-time about our failure to score against West Ham, when the man behind me suddenly said:
“I liked your piece in the paper, you know. These non-doms get away with murder”.
We know a fair bit about dealing with non-doms in this House. I pay tribute again to the fantastic support I have had from noble Lords sitting on all sides of this House for our long and successful battle against delaying tactics and outright opposition from the Front Benches to make all of us here pay full British tax. The House showed itself at its independent and robust best last June when we passed our amendment to the Political Parties and Elections Bill to ban non-dom and non-resident donations. That is now law and just needs a touch on the statutory instrument button. What are we waiting for?
Did your Lordships know that you inherit non-dom status from your father? Just like an hereditary peerage, it passes down the male line, and like an hereditary peerage, you are born a non-dom and you stay one unless you disclaim it. Leading accountants advise me that between three and four million people living in this country, most of whom have lived here all their lives, are non-doms and could claim non-dom tax status for tax purposes if they wanted. Does the Minister agree with that figure, or what is the Government’s best estimate if he does not? Can he give us the latest figures for the numbers paying the £30,000 flat charge? What is the Treasury’s best estimate, in its detailed review of Liberal Democrat proposals on tax avoidance, of the amount of extra tax which will be raised by limiting non-dom tax status to seven years—the Treasury always initially works these things out— in the absence of behavioural change? The really big benefit of paying no British tax at all—on your income, capital gains or inheritance tax—on all the assets and earnings that you have offshore goes, of course, to the really rich. That is because a £30,000 a year poll tax payment—a non-dom poll tax, if you can call it that—is really just a fleabite for the fat cats.
Our coalition agreement says:
“We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals”.
The Chief Secretary has made a good start in announcing a beef-up of the tax avoidance operation in HMRC. Yet if we can really close the tax gap, as it is suggested, by £7 billion a year in four years by investing £225 million a year in HMRC over the spending review period, why are we not investing far more? Anything like those rates—a 3,000 per cent annual return—would make Bernie Madoff blush, and if it is anything near that, we should be doing far more. If it is that easy to boost the tax take, what a condemnation that is, I am afraid to say, of Gordon Brown’s long years at the Treasury, when he tried to run every department but his own.
Very rich people are also past masters at cheating the rest of us on stamp duty. Anyone who knows their way around the property market will tell you that precious few luxury houses or flats worth more than, say, £5 million today ever feature on Land Registry records with stamp duty having been paid. There is an especially abusive scheme using a loophole in the law on Islamic finance to dodge stamp duty, which is sold to Jews, Christians and atheists with no questions asked. Rich tax cheats and their advisers know no shame. More resources for HMRC will help, but the way really to boost the tax take is to simplify the system and close the loopholes. Non-dom status is an open invitation to tax avoidance on a massive scale. That is why our policy on these Benches is to make non-doms come fully onshore after seven years. That gives plenty of time for visitors and people on short-term contracts, but then we say, “If you’re in our club, you pay the sub—full British tax, like all the rest of us”.
The Treasury is reviewing non-dom status as our coalition promised. I asked the Minister a question 10 days ago on the non-dom review which he did not answer, so he has kindly written to me as follows:
“This is a complicated policy area involving considerations of fairness as well as competitiveness. The Government is aware of the need for interested parties to be engaged on this issue and will make a more detailed announcement about the form and timing of the review, including any formal public consultation, at the appropriate time. I am sorry that I am not able to provide you with a more specific answer at this time”.
So am I. Who are the interested parties? Not just the non-dom bankers, we hope, who choose to be British when it suits them and foreigners when it does not. Those words are Vince Cable’s, by the way, not mine; he has not changed his mind. Let us act now to limit non-doms to a seven-year free ride and make Britain a country where the rich pay their fair share of tax.
Terrorism: Aviation Security
(14 years ago)
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The Minister of State, Home Office (Baroness Neville-Jones)
My Lords, with the leave of the House, I shall repeat a Statement made earlier in another place by my right honourable friend the Secretary of State for the Home department. The Statement is as follows.
“With permission, Mr Speaker, I would like to make a Statement on the recent airline bomb plot. The House will know that in the early hours of Friday morning, following information from intelligence sources, the police identified a suspect package on board a UPS courier aircraft which had landed at East Midlands Airport en route from Cologne to Chicago. Later during the morning, police explosives experts identified that the device contained explosive material. A similar device was located and identified in Dubai; it was being transported by FedEx to Chicago.
Since then, an intensive investigation has been taking place in this country and overseas. COBRA met on Friday to assess progress. I chaired a COBRA meeting on Saturday. The Prime Minister chaired a further COBRA meeting this morning. The House will appreciate that much of this investigation is sensitive and that the information I can give is necessarily limited. Disclosure of some details could prejudice the investigation, the prospects of bringing the perpetrators to justice, our national security and the security of our allies. But I want to give the House as full a picture as possible.
We know that both explosive devices originated in Yemen. We believe that they were made and dispatched by the organisation known as al-Qaeda in the Arabian Peninsula. This group, which is based in Yemen, was responsible for the attempted downing of an aircraft bound for Detroit on 25 December last year.
The devices were probably intended to detonate mid-air and to destroy the cargo aircraft on which they were being transported. Our own analysis of the device here—analysis which has to proceed with great care to preserve the evidential value of the recovered material—established by Saturday morning that it was viable; this means not only that it contained explosive material but that it could have detonated. Had the device detonated, we assess that it could have succeeded in bringing down the aircraft. Our forensic examination of the device continues. We are receiving valuable assistance from a wide range of partners. The analysis has some way to go.
At this stage, we have no information to suggest that another attack of a similar type by al-Qaeda in the Arabian Peninsula is imminent, but this organisation is very active. During this year, it has repeatedly attacked targets in Yemen. On 26 April and 6 October, it attacked and attempted to kill British diplomats based in San’a’. It continues to plan other attacks in the region, notably against Saudi Arabia.
We therefore work on the assumption that this organisation will wish to continue to find ways of also attacking targets further afield. We will continue to work with international partners to deal with this threat. We have for some years provided assistance to the Yemeni Government and will continue to do so. The Prime Minister has spoken to President Saleh to make clear our desire for a closer security relationship.
Following the Detroit incident, Ministers in the last Government took the decision to stop all direct passenger and cargo aircraft flying from Yemen to and through the UK. Over the weekend, we took the further step of stopping all unaccompanied air freight to this country from Yemen. This will include air freight from Yemen carried on both courier flights and hold-loaded in passenger aircraft. The small number of items in transit prior to this direction have been subject to rigorous investigation on arrival in the UK, and no further suspicious items have been discovered.
We are now taking further steps to maintain our security. I can confirm to the House that we will review all aspects of air freight security and work with international partners to make sure that our defences are as robust as possible. We will update the guidance given to airport security personnel, based on what we have learnt, to enable them to identify similar packages in future. From midnight tonight, we will extend the suspension of unaccompanied air freight to this country, not just from Yemen but also from Somalia. This decision has been made as a precautionary measure and it will be reviewed in the coming weeks. It is based on possible contact between al-Qaeda in Yemen and terrorist groups in Somalia, as well as concern about airport security in Mogadishu. From midnight tonight, we will suspend the carriage of toner cartridges larger than 500g in passengers’ hand baggage on flights departing from UK airports. Also from midnight tonight, we will prohibit the carriage of these items by air cargo into, via or from the UK unless they originate from a known consignor: a regular shipper with security arrangements approved by the Department for Transport.
We intend that these final two measures will be in place initially for one month. During that time, we will work closely with the aviation industry, screening equipment manufacturers and others, to devise a sustainable, proportionate, long-term security regime to address the threat. Department for Transport officials are already in technical discussions with the industry and my right honourable friend the Secretary of State for Transport will chair a high-level industry meeting later this week to discuss next steps.
These initiatives are in addition to those which we have set out in the Strategic Defence and Security Review. We are already committed to widening checks on visa applicants to this country. Following the Detroit incident, we are also committed to making changes to pre-departure checks to identify better the people who pose a terrorist threat and to prevent them flying to the UK. We are also committed to enhancing our e-borders programme which provides data on who is travelling to this country and is, therefore, an essential foundation for our counterterrorist and wider security work.
We have an increasingly active and important border co-operation programme with counterparts in the United States. The Detroit incident led to the introduction of further passenger scanning devices at key airports in the UK. COBRA will continue to meet throughout this week. The National Security Council will also consider this issue. We will continue to work closely with our partners overseas.
Finally, the House will wish to join me in expressing gratitude to the police and the security and intelligence agencies in this country for the work they are doing to understand the threat that we face and to deal with it so effectively”
My Lords, that concludes the Statement.
Lord Hunt of Kings Heath
My Lords, I thank the Minister for repeating the Statement made by her right honourable friend the Home Secretary in the other place and for the detailed information contained in it. The whole country has been shocked by the events of the past four days and by the discovery of two concealed and hard-to-detect explosive devices, one at East Midlands Airport and the other in Dubai, and by the very serious and challenging threat that such terrorist activity constitutes to public safety and our country’s security. There can be no complacency when it comes to preventing and dealing with terrorism.
The noble Baroness has said that the devices were probably intended to detonate in mid-air and that had they done so, they could have succeeded in bringing the aircraft down. Today, my right honourable friend the shadow Home Secretary, Mr Ed Balls, has commended the Home Secretary for the calm way in which she has led the response to these threats. I join him and the Minister in commending our police, intelligence and security services for the vital work that they have undertaken in the past few days, in close co-operation with our allies around the world, to save lives.
It is the job of the Opposition to ask questions, to probe statements and to hold the Government to account. We will do that but we shall also be mindful, at all times, of our wider responsibility to support necessary actions, to keep our citizens safe and to protect our national interests. In that spirit, I pose a number of questions to the Minister in three areas: first, the detailed events of the past few days; secondly, the implication of the events for airline security; and, thirdly, the implications for wider security policy.
On the first point, we all appreciate that where intelligence and international co-operation are involved, events move fast and things are always clearer in hindsight. At what point were the police, the Home Secretary and the Prime Minister first told about the potential threat? Were there delays in getting precise information to our security and police officers on the ground? Can the noble Baroness say why the device was not discovered by police officers during the first search? Would early information have made a material difference? What operational lessons will be learnt from dealing with such events in the future?
The second area concerns the fact that these two live explosive devices were intercepted only by an intelligence tip-off after they had already been carried on a number of different planes, including passenger planes, giving rise to serious questions about the security of our airspace. Some security experts have referred to cargo security as a potential blind spot. The noble Baroness will be aware of comments made by BALPA to that effect over the weekend. I understand that the noble Lord, Lord Carlile, drew attention to the potential risks of cargo transit in his annual reports in 2007 and 2008. As a result, significant actions were taken to improve intelligence and international security co-operation, and a tougher search method—explosives trace detection—was introduced for passenger flights following the Detroit attempted attack.
I appreciate that this is a complex problem to solve, that a review has already been established and that the Home Secretary has already acted to ban unaccompanied cargo packages from Yemen. The Minister has also set out, in the Statement, a series of measures that the Government have already taken. What conclusions does the Minister draw about the reliability of current checks from the fact that the device was not spotted on first check by police experts at East Midlands Airport? Will the review consider extending explosives trace detection to cargo flights? Will the scope of the review cover cargo being carried in passenger aircraft? Are there other immediate actions that we should take now to improve the security of cargo coming into, out of or transiting through the UK while the review is being undertaken?
The events of the past few days raise wider issues for our national security and counterterrorism strategy. It is clear that terrorists operating from Yemen constitute an increasing threat. Can the Minister assure the House that the Government are in urgent discussions with the Yemeni Government and our allies around the world with a view to interrupting terrorist activities at source? Given the wider evidence of a mounting threat, the judgments that underpin the Government’s current review of counterterrorism powers will be especially important. While we will reserve judgment until we see the outcome of the review, we have said that we will support the Home Secretary where we can and that consensus should be our shared goal.
I raise the issue of resources. Given that these explosive devices were intercepted through vital intelligence work, is the Minister confident that a 6 per cent real-terms cut in the single intelligence account over the next four years can be managed without compromising this vital work? Given that the device was discovered by specially trained police working closely with our security and border services, is she confident that a 10 per cent real-terms cut in counterterrorism police over the next four years, and a 50 per cent cut in capital available to the UK Border Agency, will not undermine our operational capability?
The Olympics, when the eyes of the world will be on this country, are now just two years away. With a planned 20 per cent real-terms cut, front-end loaded, in police budgets—a 6 per cent cut in the year before the Olympics and an 8 per cent cut in the year of the Olympics—can the Minister assure the House that, given the extra strain that police resources will face, this does not pose an unacceptable risk to fighting crime and to our national security? Finally, does the Minister agree that, in the light of the events of the past few days, the issue of resources should now be looked at again alongside the counterterrorism review?
Baroness Neville-Jones
My Lords, I am grateful to the noble Lord opposite for his willingness to support the Government in the next measures that will have to be taken in what the House will agree is a challenging task concerning the transport of freight around the world. I am sure the police and the security services are grateful for his joint commendation of them.
The noble Lord asked a number of detailed questions, and I will do my best to answer them. First, he asked when people were informed. I can say that the device was removed from the plane at 3.30 in the morning and work continued through the night. In the early morning, the information was fed to London, and Ministers began to be informed shortly after 8 o’clock. The Home Secretary was personally informed nearer lunchtime. The Prime Minister was also informed then, and at that stage they were given a significant analysis of the investigations that had taken place and the information and assessment that was then available.
The noble Lord asked about the police investigation at the airport. There are two aspects to this: the intelligence tip-off and the process of investigation of the device. He rightly remarked that these packages were looked at following an intelligence tip-off. I might say that any implication—I am not suggesting that the noble Lord was implying this—that this was somehow accidental and that we were very fortunate, as we undoubtedly were, is slightly beside the point. I think the House will agree that we pursue a multilayered approach in this, and that it is the combination of the physical measures that we take, the protective procedures that we put in place and the intelligence context that we maintain around the world that enables us to give the people of this country the security that they are entitled to receive. It is very fortunate that our security relationships worked on this occasion and that the tip-off proved extremely accurate.
The police investigation proceeded in stages. Of course, the police are extremely careful about the way in which they dismantle a device not only because it may be dangerous but because they need to retain the evidential information. It is fair to say that they did not discover the device immediately, but they were still proceeding with their investigation when information came from Dubai that it had found evidence of a device. Subsequent work done at East Midlands Airport unravelled the precise nature of the device, which was then explored in detail.
The noble Lord also asked about the precautions that may be taken for cargo security while the wider review, which I mentioned, is under way. Those regulations are pretty stringent; they require any cargo that does not come from a trusted, listed consigner known to the airport authorities and approved by the Department for Transport to undergo stringent security tests. Therefore, only those items whose origin is known have a relatively easy passage, but I can assure the House that these regulations will be enforced with the utmost stringency in the foreseeable period. Very clearly, we will need to look in great detail not only at the procedures that we ourselves enforce in this country, but at what happens to cargo coming towards the United Kingdom—obviously something on which we will need to consult widely. There obviously has to be international co-operation and, in co-operation with other countries, we might wish to lay down new standards.
The noble Lord also asked about the relationship between what this episode tells us and our wider counterterrorism policy. Clearly, this episode tells us that we face a threat not just to passengers but to cargo and freight, unaccompanied and accompanied. It is perfectly possible, after all, for these people to do what they were doing on the basis of accompanied freight. Therefore, the Government are not relaxed and will not confine their investigation or the measures that they take to unaccompanied freight. We will look at a number of measures that may be necessary, and the Transport Secretary’s consultation and investigation will be quite wide-ranging, because we clearly need a higher level of assurance about cargo transit and transport.
On the relationship between our wider counterterrorism policies and on the Security Service, which the noble Lord asked about, I can assure the House that, based on an assessment by the head of the Security Service, we will be able to maintain, on proposed funding, the same assurance about our coverage and knowledge of terrorist activity in this country and elsewhere that we have had previously. That also applies to the role of our police in counterterrorism where we are protecting the Olympics budget and where we have confirmation from the head of counterterrorism command that he is able to carry out his duties on the basis of the funding that he will get. There is no reason to suppose that the measures that the Government are taking will in any way detract from, inhibit or prevent this country taking care of the security of the population of the United Kingdom.
Lord Harris of Haringey
My Lords, I declare an interest as the Home Office appointee on the Metropolitan Police Authority, with responsibility for overseeing counterterrorism and security. I, too, am grateful to the Minister for the full account that she has given. With what degree of certainty does she feel that these devices would have been detected had they been in checked-in passenger baggage on a flight embarking in the United Kingdom? Given the variations in standards of airline security in different parts of the world, what degree of certainty does she have regarding incoming flights that such baggage would have been detected at airports elsewhere in the world? What will her answers mean in terms of current levels of aircraft security for passenger airlines in this country?
Baroness Neville-Jones
The noble Lord asks some pertinent and, I have to say, extremely difficult questions. My honest answer to his first question must be that we do not know the answer. This explosive is extremely difficult to detect. Technologies are known for detecting PETN and one consideration that we will have to take advice on is whether we should extend PETN testing to cargo going on board aircraft—most particularly passenger aircraft, but also other aircraft. We have to do this in a way that is consistent with assuring the public that they can travel safely, while not crippling the country’s economy and international commerce. Therefore, an international effort will be needed and we shall talk not only to other operators but to those who may be able to help us technologically. Part of the Transport Secretary’s review will consist of talking to the companies. Many of them are well advanced in increasing—and we will be increasing—the screening processes, including capabilities that are not necessarily at the moment distributed as a matter of course.
Baroness Hamwee
My Lords, in the wider context to which both Front Benches referred, can the Minister confirm that control orders are simply not relevant to this situation and that, had they been in place, they would not have prevented it? Would she also like to comment on the remarks made by Michael O’Leary of Ryanair, who talked today about “ludicrous” airport security? He said that,
“we have another … lurch by the securicrats into making travel even more uncomfortable and an even more tedious ordeal for the public”.
I say this not as a cheap shot—although one might say that, if anyone knows about that, he would—but because I think that these are serious points, which should be responded to.
Baroness Neville-Jones
My Lords, I do not think that we are discussing the control orders today. As for what Mr O’Leary of Ryanair said, he does perhaps have extraordinary timing. The view that the Government take is that airport security is extraordinarily important and we cannot let our guard down. That does not mean, of course, that there is never any room for improvement, for review or for looking at those things that could constitute an assurance of greater security. My right honourable friend the Transport Secretary said the other day that he intended to look at whether procedures could be improved and, in particular, whether we could proceed to some extent by way of audit rather than by laying the emphasis on the input side and insisting on lots of layers of security. However, we will wish to proceed extremely cautiously, in the light of events, in lowering or in any way interfering with the current security precautions, which I think give the travelling public a measure of assurance about the seriousness with which these issues are taken by the Government.
Lord Clinton-Davis
My Lords, I speak as the president of BALPA. The Minister spoke about widespread consultations. Has BALPA been included in this? If not, why not? Should not BALPA be included in the review? Is it not absurd that pilots, with all their expertise, should be subjected to stringent inspection before they board the aircraft? Finally, will pilots be consulted further on the relevant rules concerning cargo?
Baroness Neville-Jones
My Lords, I am absolutely certain that the Transport Secretary will consult everyone who has a contribution to make and BALPA would certainly not be excluded from that. The noble Lord mentions the degree of stringent control over the pilots when they board the aircraft. The House will agree that it is important that those controls are exerted. What we clearly need, however, is to raise controls in other areas.
Lord Elystan-Morgan
My Lords, the Minister will recollect that the Statement said that the device seized at East Midlands airport “could have detonated”. Am I placing too slavishly literal an interpretation on that to assume that that refers to a timing device of some nature or, indeed, that the device could have been detonated by remote control? If it could have been detonated by remote control, within what range could that have been achieved?
Baroness Neville-Jones
My Lords, we are not entirely at the stage when we can answer all those very detailed questions—and we may never be. The “could” rather than the “would” relates to a number of factors, including the precise power of the explosive material and the power of the detonator. Also relevant would be where these devices were located in the aircraft—had they been in the middle of the fuselage, they would have been less likely to cause an accident than if, say, they were near the outer skin of the aircraft. There are a number of imponderables. It is fair to say that those who put the devices on board—these were cargo routes, which can vary at the last minute—could not have known in practice where, if they were able to cause a detonation, it would have taken place. It would be hard for them to know exactly how accurate their ability to detonate was.
Lord Marlesford
My Lords, given that terrorists travel both in and out of countries, does my noble friend share my deep concern that at present only people travelling into the United Kingdom have their passports properly examined electronically? Is she aware—I assume that she must be, because any of us who travels must be—that immigration officers make very little attempt to look at the passports of those who are leaving the United Kingdom? Indeed, in April I travelled out of terminal 3 at Heathrow where there was no one at all at the immigration desk to look at one’s passport. When I asked why, I was told that there was nobody available. When is the electronics border system—the e-Borders system—which is meant to record both the departure and the arrival of passengers, going to be in full effect? As a result of what is now happening, will the Minister ensure that scrutiny of people departing from the United Kingdom is properly and electronically achieved?
Baroness Neville-Jones
My Lords, it certainly is the intention that in due course we will be able to record not only incoming travel but outgoing travel as well. The noble Lord is right to say that that is not happening at the moment. It is certainly not happening electronically. I cannot give him, I am afraid, a precise date, but I can say that we are doing our very best to speed up the introduction of e-Borders to enable us to have this information. That would not have necessarily borne directly on this episode, but of course everything helps in giving us greater information about those who are travelling. As I said at the beginning, it is relevant to know not only about cargo but about those who are potentially travelling in the same aircraft.
Lord Malloch-Brown
My Lords, is there not a tremendous disproportionality between the attention with which an individual passenger’s luggage is microscopically examined and what she described as the trusted consigner, whose large packages cannot be examined in anything like the same detail? A second contradiction relates to the long-term interest that we share in the foreign policy of this. We have had many tragic examples now and many budgerigars in the mineshaft, so to speak, of Yemen’s role—growing role, sadly—in international terrorist incidents and of the links between Yemen and Somalia, which she mentioned. I ask her to take to her colleagues the concern of all of us that we look at this not just as a border security issue but as a development issue, an intelligence-gathering issue and a diplomatic issue, which we must not shy away from just because of its difficulty.
Baroness Neville-Jones
My Lords, on the noble Lord’s first point, the House would agree that we clearly have to increase the capacity to understand and guarantee that cargo travelling around the world is not a danger to the aircraft that it is in or, indeed, to any people who happen to be on that aircraft. As regards what he said about Yemen, the Government are in full agreement. As your Lordships know, the UK is a leading member of the Friends of Yemen, a group that seeks to underpin and help the Government of Yemen to increase the welfare and economic situation of the people of Yemen. A number of countries are contributing to that and a programme is being formulated that should help to put the Yemeni Government on a much more coherent policy of economic development. Other things are happening, including bilateral actions by the UK. Obviously, one policy object is to increase the local Government’s capacity to combat terrorism and engage in effective counterterrorism. As I said, the Prime Minister assured the President of Yemen of our continued support. However, underpinning that is quite a lot of technical assistance to that Government to enable them to, in a sense, take charge of their own affairs, because ultimately the Yemenis have to create conditions in which terrorists do not flourish on their soil.
Lord Craig of Radley
My Lords, it has been suggested that it is likely that these bombs would have been exploded in the air. However, earlier it was suggested that they were intended for the recipient of the parcels in Chicago. Can the noble Baroness say any more about why there has been this change of view?
Baroness Neville-Jones
Given the destinations of the packages—one was destined for a synagogue in Chicago and the other for a shared Christian/Jewish centre—there was certainly speculation that these presents were intended for the recipients. I cannot give a precise answer and I would not want to suggest that there is total certainty about what we now assess to be the case—that these devices were intended to explode in mid-air—but the technical analysis tends to suggest that that was more likely to be the intention of the perpetrators.
Lord Brooke of Sutton Mandeville
My Lords, I have a question on a related issue but it is one that comes into the category of “It’s an ill wind”. Can my noble friend say what proportion of the companies engaged in making the security equipment, to which reference has been made, falls into the SME category? These companies have a significantly greater reputation for building employment in growing markets than do much larger companies.
Baroness Neville-Jones
I thank my noble friend for that question. I cannot give him a precise percentage figure, although the implication of his question is that it is considerable, and in that he is absolutely right. In this country we have some big companies that tend to be both defence and security contractors. Underneath and alongside them are myriad small companies, or SMEs, that are indeed the source of much of the innovation and inventive technology and some of the science. In this respect, I should also mention our universities, which, as I think is widely acknowledged, are going to contribute to and underpin the strength of this country in the defence and security technologies. This Government’s policy is greatly to encourage them to grow and to be real contributors to future security, as well as earning a good living for themselves and this country.
Lord Campbell-Savours
My Lords, are we not deeply indebted to foreign national intelligence officials who risk their lives in gathering intelligence to send to us in the democracies? Is a message going out from the British Parliament to thank the people and officials involved in those countries?
Baroness Neville-Jones
The noble Lord has put it extremely well and I endorse what he has just said. Certainly our intelligence effort cannot be just one-sided—it cannot just be a case of what our own people do, although that should also be the object of our commendation. However, the intelligence that we received on this occasion was undoubtedly extraordinarily valuable and was illustrative of the extraordinary importance of developing these relationships and keeping them in good repair. I entirely endorse what the noble Lord said.
Lord Stoddart of Swindon
My Lords, it was reported on the “World at One” that the Saudi authorities had not informed the Yemeni authorities that there was a suspect package that originated in the Yemen. Was that perhaps a mistake that should be remedied in the future?
Baroness Neville-Jones
My Lords, I am afraid that I do not have any knowledge of that and cannot confirm it. However, it is clear that international co-operation between the parties is extremely important and we are very grateful to those who have helped us on this occasion.
Comprehensive Spending Review
(14 years ago)
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Baroness Kennedy of The Shaws
My Lords, I became aware during the Thatcher years that, if something that was untrue was repeated often enough, it acquired a life of its own and took on the clothes of truth. That political tactic meant, for example, the monstering of all trade unions rather than just of trade union excess, the demonising of single mothers and the trashing of the 1960s. That period of civil rights and of great progress for women, homosexuals and ethnic minorities was depicted as though it were the root of subsequent ills. Then there was the invention of hoards of feckless welfare scroungers, when in fact those who have fallen into the abyss of permanent unemployment have always been a minority. Very few people live well on benefits.
What politicians learned then was that, in the new world of soundbites and short concentration spans, the replaying of the same loop could create a sound track that stayed in people’s heads. Now the coalition’s mantra is, “We have to take terrible measures because of the horrifying financial mess we inherited from Labour”. Not a speech is made in this House without those on the government Benches claiming that they are faced with the “Labour mess”. We are back to the old saw that the only people who can run the economy are what Orwell called the “striped-trousered ones”.
The myth about the inherited state of the economy has to be nailed. We did not hear a peep out of David Cameron or George Osborne about Labour profligacy before the global crisis. Why were they not howling in protest if Labour was throwing money around with such recklessness, as they now suggest? Why did they promise to match Labour’s spending plans pound for pound right up to November 2008?
My sadness is, and was, that Labour was, in my view, far too Thatcherite in its economic policies. While it was absolutely vital that Labour worked well with business and the banks and encouraged entrepreneurship and wealth creation, Labour was far too sycophantic towards the City and the financial sector and too desirous of pleasing new friends. That was neither necessary nor, I think, in the national interest. New Labour was so anxious not to seem “old” that it even vacillated before taking Northern Rock into public ownership because it was fearful of excoriation by the Murdoch press and the Daily Mail.
If I may take us back, let us remember that the Conservatives did not want to take the dramatic action that the Prime Minister, Gordon Brown, took to save the banking sector and global capital. He led the world in that stance. Had that not been done, we would have seen interest rates rising through the roof, massive job losses, reclamation of houses on a grand scale and the economy going bust. For the coalition, in its new-found togetherness, to pretend that the vast majority of the deficit is due to Labour’s mishandling of the economy is a shameless spin on the truth—I say that as someone who has never been afraid to speak of new Labour’s flaws. For the Conservatives to pretend that their party would have been more regulatory or that they would have constrained banking excesses is absolutely risible. Enough former Conservative Ministers and friends of the Conservative Party who sat on the boards of banks failed to ask the questions that should have been asked to give us an idea of what the Conservative position was, and remains, on regulation.
Under Labour, the country entered the recession with low inflation, low interest rates, low unemployment and, as has already been said, the lowest net debt of any large G7 country. Our structural deficit in 2007 before the banking crisis was 3 per cent of gross domestic product. Two-thirds of that was borrowing for investment, as the House has heard. Therefore, our black hole was only 1 per cent of GDP. The reason that the structural deficit increased to 8 per cent is that we bailed out the banks and dealt with the subsequent downturn. Therefore, a lie is being told and repeated about the mess that was apparently left, when in fact that was where it came from. The larcenous greed of the bankers is now never mentioned. A vast part of the deficit is the consequence of the colossal borrowing that Labour had to undertake to prevent a crash.
Those on the Benches opposite insist that theirs is not an ideologically driven agenda, but I am afraid that the picture of Conservative Members of Parliament waving their Order Papers and cheering for the largest spending cuts in a generation made me feel sick and it defied that claim. The cuts will put 500,000 public sector workers out of jobs as well as thousands more in the private sector whose employment derives from public sector contracts. How will that help growth or regenerate the economy? The gamble that the private sector will create replacement jobs is a monumental one, and many businessmen who are Conservative supporters admit that it is a step into the unknown. This is voodoo economics. To reform welfare at the very time that the Government are taking a scythe to jobs and throwing people on the dole is a double whammy. Services upon which millions have come to rely will be scaled back or shut completely. Think what that will mean to disabled people and the elderly. The aim is a fundamental reconfiguration of the British state with the ultimate destination being a society that is less equal and less humane.
I ask noble Lords whether they have ever seen the hurt and despair in the eyes of those suddenly told that they are redundant or the fear that floods their soul at the prospect of being forced to be “idle”—a word that haunted my childhood—and possibly unable to find other work. Has proper thought been given to the destruction and demoralisation that joblessness wreaks? There are currently people up and down this country waiting in fear for news on whether the axe will fall on them. The impact of such experience on families is huge. The sheer audacity of the programme is such that it is peppered with claims that we will all feel the pain equally, but that is a sleight of hand. The poorest in our society will be hit hardest. They are being used as guinea pigs for this experiment, as the Institute for Fiscal Studies has made clear.
I accept, like everyone, that cuts are necessary, given the banking crisis and the consequent debt that it has placed on our shoulders. The Government talk of creating a country that is fair. If austerity is the need of the day, it must mean more than money. There has to be a corresponding set of ethics. However, I have heard insufficient about tackling tax havens used by the rich. Large companies continue to minimise their tax bills by basing their operations abroad. In the spirit of fairness, surely non-dom status should be abolished altogether. That might not mean a lot in money terms, but it would mean a lot in terms of fairness. America does not tolerate it, so why should we? Sir Philip Green, the Government adviser on waste, holds almost all his assets in the name of his wife, who is resident in Monaco and pays no UK tax. Why do we not renegotiate the tax treaty with Monaco? What about Mr Murdoch and News International? What is his and his company’s tax status? As for the contribution made by the banks, the coalition levy of £2.5 billion is not nearly enough. It should have been much closer to £5 billion or £6 billion. Then we might have been talking about fairness.
Memories are short, so let me remind people of the state of public services when Labour took office. Our schools and hospitals were in a disgraceful state of neglect, but Labour radically renovated our public services. Like many others, I am not content with all the ways in which that was done. The introduction of phoney markets has not been a productive way forward and has, indeed, been disastrous in some areas. Increased layers of management within public services have become a serious handicap to effective service delivery. Bureaucracy and red tape blight our health and social services. I also think that aspects of our welfare system are in need of reform, but any reform at this time must be carried out with very great care.
Communities where there is intergenerational unemployment need to have those cycles broken, so we should look with care at projects such as the Harlem Children’s Zone project, which is innovative in tackling the horrifying consequences of urban poverty. I remind noble Lords about the other economists, not just those who have been mentioned in this debate, who have reminded people of the folly of our Government’s policy. The Nobel Prize-winning economist Paul Krugman says that our Government’s boldness is going in completely the wrong direction. That view is reiterated by Robert Engle, Eric Maskin, Daniel Little McFadden and, indeed, Christopher Pissarides, all of whom say that the Government’s policy did not work for Herbert Hoover and will not work for us. Welfare benefits have more social value in a recession when jobs are scarce, and it is capital spending that creates jobs. That has not been accepted in the policies that are now being promulgated. Having worked in the law all my life and seen up close the effects of deprivation, job loss and poverty, I dread the consequences of such divisive and unjust policies. The social as well as the personal cost will undoubtedly be great.
I understand very well why the Liberal Democrats entered into the coalition after the election. It is perfectly right to want to be in power. We on these Benches want to be in power, too. What I cannot accept is that these are policies that decent Liberal Democrats can condone. I hope that, with noble Lords on these Benches, they will make their voices heard in opposing much of what is being advanced. I remind noble Lords about power. Martin Luther King said:
“Power without love is reckless and abusive”.
There is not enough love being shown just now.
Baroness Campbell of Surbiton
My Lords, I welcome this debate on the impact of the comprehensive spending review. For the benefit of new Members of the House, I should say that my noble friend Lady Wilkins will assist me when I run out of breath, as agreed by the usual channels.
There is so much to debate, so I have decided to speak to one area only: where disabled people are being asked to pay a price that far outstrips the potential saving to the Exchequer. I know that my noble friend Lord Low will later cover other new financial policies that will affect for good or bad the lives of disabled people. Let me be clear from the outset that I do not deny the need to address the deficit in part through cuts in public spending. It is in everyone’s interests, including society’s poorest and most disabled, that the books balance. However, to face reality, we must understand reality. Doing so requires us to recognise the full implications of cuts to people in their everyday lives. Only then can we make sensible choices, not just for the individuals who are directly affected but in the public interest.
That is why I have decided to concentrate today on what some may think is a small and insignificant cut to independent living services for disabled people but which has the most disproportionately devastating consequences for their lives. First, before I say what it is, I declare an interest as someone who receives public care and support services targeted by the CSR. I am also a trustee of the National Centre for Independent Living and chair of the Government’s Right to Control advisory group. In fact, I often give expert advice to the Minister on disability matters.
A Government proposal under the heading “Welfare Reform” is to,
“remove the mobility component of Disability Living Allowance for people in residential care, where such costs are”—
supposedly—
“already met from public funds, saving £135 million by 2014-15”.
To claim DLA, you must be under 65 at the time of the claim. The Government estimate that this cut will affect 58,000 disabled young people and working-age adults.
This proposal is seriously flawed for four reasons. First, it will have negative and costly effects on disabled people's health and well-being, their ability to develop social and community networks and their capacity to move on from residential care to be, as the Government want, independent, participating citizens, not dependants. Secondly, it conflicts with the Government's policies for personalisation, independent living and encouraging disabled people to gain or retain employment. Thirdly, it is based on a misunderstanding of the purpose of modern residential care and the potential of disabled people living there. Fourthly, it is incompatible with the UN Convention on the Rights of Persons with Disabilities.
I am sure we all agree that people living in care homes today are full citizens. We should therefore expect and want them to exercise their human and civil rights and to contribute to civil society like everyone else. Residential care homes are no longer, or should not be, places to hide people away in or to deny them opportunities the rest of us take for granted: independence, choice, access to public life and maybe, for those who can, eventually the possibility of work and independence. Residential care homes are not intended to be prisons. We all enjoy activities outside our homes. It should be no different for those living in residential care homes.
At this point, Baroness Wilkins continued the speech for Baroness Campbell of Surbiton.
Since the CSR announcement on this DLA saving, disability organisations have been receiving alarmed calls from people desperate at the prospect of losing this entitlement to hard-won independence. Last week RADAR heard from Patricia King. Her son and daughter-in-law are both disabled and live in residential care. Without the mobility component, they will no longer be able to visit the doctor, dentist, bank, church, library or shops, let alone relatives and friends. The proposed changes will remove over 45 per cent of her son's total allowances and over 69 per cent of his wife's. Neither the local authority nor the care home is in a financial position to offer free transport as part of its service to the residents. Patricia King, rightly in my view, calls this a cruel cut. She says:
“Some politicians are accepting a 5% cut, but would they accept a 45% or 69% cut to the money that buys them their personal freedoms?”.
The DWP argues that the measure would bring care-home residents into line with hospital in-patients, who lose access to the benefit on the same basis. However, the comparison is false. People of working age living in care homes are not in the same position as patients in hospital. In hospital, you are sick and therefore do not need an allowance to go out. Residential care is disabled people’s home and the base from which they go out to engage in education, training, work, leisure, travel, family and social contact. For many, it is a stepping stone to living independently in the community. Noble Lords may know that care-home residents must surrender almost all their income to support the cost of their care. They are allowed to retain only about £22 a week for personal expenses, so a basic mobility scooter—a mobility aid often bought with DLA finance—costing about £1,500 is out of reach without the DLA mobility component of £49.85 a week. Removing that component takes away over two-thirds of the care-home resident's income. It makes Britain's most severely disabled people the group who lose most from the CSR; it literally removes their mobility.
At this point, Baroness Campbell of Surbiton resumed.
Could this House consider, even for a moment, denying me my electric wheelchair or the noble Lord, Lord Ashley, his scooter? I am sure noble Lords would be outraged and would defend our right to contribute to the work of the House. I do not accept that the national finances are such that we should now deny people living in care homes the same rights. To be clear, the DLA mobility component helps residents to maintain contact with families and friends, access the big society as a volunteer, participate in leisure and fitness activities and be active members of their local community. Such activities promote physical and mental well-being. They help to sustain one's sense of identity and prevent the loss of confidence and the low morale often associated with depression. The proposed modest savings in DLA are likely to be outweighed by increased demands on the NHS and the costs linked to preventing severely disabled people joining society. It makes neither moral nor financial sense.
I am deeply concerned that this cut in spending was not subject to a disability, equality and human rights impact assessment, that it was not discussed with those of us who have had years of experience of advising Governments on disability matters, and that the Treasury failed to run it by its own expert department, the Office for Disability Issues, which found out about the policy on the morning of the CSR announcement. I hope the Minister will explain that to me.
The big fair society can be achieved only if support structures are there to enable disabled people to play their part. Otherwise, we will go back to a time when most disabled people were caught in a culture of dependency with no alternative but to beg for charity or to be jolly grateful for what they got. This fills me with dread. I am sorry that if this debate continues beyond 10 o’clock, I will not be here or, if I am, I will be bedding down on the Back Bench. I have to be home as my CSR-dependent support service dictates my moves. Please think again on this very small cut that illustrates where we are heading.
Lord Knight of Weymouth
My Lords, it is a great privilege to follow that speech by the noble Baroness, Lady Campbell, and I look forward to the Minister’s response. I, too, am looking forward to the maiden speeches from the noble Lord, Lord Allan, and my noble friends Lady Healy and Lady Nye.
I served on the National Economic Council for the last year of the previous Government, and I noted what the Chancellor said, which was repeated by the Minister in his opening remarks, that the Government,
“faced the worst economic inheritance in modern history”,
and that the country was on,
“the brink of bankruptcy”.—[Official Report, Commons, 20/10/10; col. 965.]
This was an inheritance of a growing economy, very low interest rates, low inflation and falling unemployment, but with a growing deficit. It is important to distinguish deficit from debt. Clearly, a rising year-on-year deficit adds to debt, but it is in the context of the overall debt-to-income ratio of the nation. As we heard from my noble friend Lord Myners, in 1997 that was 42.5 per cent. By fixing the roof while the sun shone, we got that down to 36.5 per cent in 2007-08 when the global financial crisis hit. At that point, we had the second lowest debt-to-income ratio in the G7 after Canada. That meant that when the crisis hit—when, as we heard from the noble Baroness, Lady Kennedy, the Conservative Opposition were pledging to match our spending and wanted more, not less, banking deregulation—we had the room to borrow to make up for the collapse in tax revenues that is at the root of the deficit.
With London as the global centre for finance we were especially hard hit and the deficit is very high as a result, but it is important to remember that tackling the deficit is as much or more about increasing revenue through growth than it is about cutting public spending. We borrowed to buy bank shares, assets that can be sold in time; we borrowed to invest in housing to keep people in construction employment and in their homes; we borrowed to invest in jobs and defeated all expectations of a year ago that youth unemployment would exceed 1 million and general unemployment would exceed 3 million. The fiscal stimulus worked and still left room to continue to borrow if further investment in growth were needed, alongside necessary reductions in spending.
There is also room for less haste, with fewer mistakes and fewer contradictions along the way. We do not have to have the fiasco of the implementation of the child benefit cuts that have been described by experts as “unworkable”. We could buy time to iron out contradictions. For example, today we hear that the noble Lord, Lord Young, is to address the Prime Minister’s concerns about,
“the shocking way in which small and medium sized firms are locked out of procurement opportunities by central and local government”.
How does this square with the work programme procurement, mentioned by the Minister in his opening remarks, which is an essential plank in the Government’s economic strategy and is effectively closed to any but the very largest contractors?
We also have time to get the phasing right. I support the principles behind the work programme. We were developing the pilots to test the risks behind this idea as we left office. How do the Government think that a programme that pays by results of sustained job outcomes will work if there are no jobs in the labour market? Should we not wait until private sector jobs growth is secure? PricewaterhouseCoopers estimates that the CSR job losses will be half a million each from the public sector and private sector. I make that a total of about 1 million. In government, we estimated that 1 million job losses cost £4 billion in benefit and lost tax revenues. Is that being properly accounted for?
Will those jobs come back? Vacancies are falling, claimant numbers are rising, and last month saw the first rise in youth unemployment for many months. Current employment growth is largely in part-time work and is not showing through in falling claimant figures. Many employers—very responsibly during recession—put staff on short time and will now grow output through increasing hours and productivity rather than through rushing to take on more staff.
Jobs growth comes through four possible sources. Will it be through consumer growth? Looking at the current retail figures, and with VAT going up in January, I suspect not. Will it be through housing-led growth? The housing market looks pretty flat, and government spending on housing is being cut by 60 per cent. Could it be through trade-led growth? Admittedly the IMF predicts that virtually every other major economy will grow faster than that of the United Kingdom, but the signs remain poor. Could it be through investment-led growth?
I welcome the Prime Minister’s late conversion in his speech last Monday to the Confederation of British Industry, but I have to say to him, “too little too late”. If he was serious he would not have cancelled the regional development funds, Sheffield Forgemasters, Building Schools for the Future, or support for the creative industries. He needs his version of last year’s excellent New Industry, New Jobs strategy which my noble friend Lord Mandelson introduced. Nor would he be cutting the entitlement to free training for first level 2 qualifications for adults over 25 or charging fees to those over 25 wanting A-level equivalents. He would not be slashing the educational maintenance allowance, which has done so much to persuade those from poorer backgrounds to carry on learning. Skills and long-term growth do go together.
These training cuts are also the tip of the iceberg of unfairness in this spending review. As we have heard, the Institute for Fiscal Studies has been clear that families are the biggest losers, and the poorest are hit hardest. For example, the VAT increase means that compared with the richest 10 per cent, the poorest 10 per cent lose double the proportion of their income.
It has been said by the Minister and the noble Lord, Lord Lamont, that we are in effect opposing for our own sake and not offering anything in return, but alongside our focus on jobs and growth we agree with continuing the migration off incapacity benefit that we started, we support aspects of the reform of the disability living allowance—although I have listened carefully to the noble Baroness, Lady Campbell, and I hope the Ministers have too—and the principles of the work programme build on what we did in government. There is room to make reforms of the welfare system, but we oppose the changes that will make it harder to get back into work, that are unfair and that undermine the basis of our welfare state. The real-terms cut to working tax credits, especially the childcare element, will reduce the incentives to work and make those in low-paid employment significantly worse off.
And what of those who now lose their jobs? As the labour market continues to be difficult, they will get a cut of 10 per cent in housing benefit after 12 months on jobseeker’s allowance, regardless of how hard they are working to get back into employment. They might also have a large family in an inner city and find themselves having to move because of the housing benefit cap. They might be unable to work because of sickness and have paid national insurance through their working lives, find themselves still sick 12 months later, on the tougher work capability assessment, and then lose entitlement to contributory employment support allowance and get no money until the family falls within the means test. Under no version of fairness could the Minister pretend any longer that this CSR is fair.
That takes me to my final point. In their haste, the Government have pulled the rug from under the basics of the welfare state—the universal principle and the contributory principle. No more the idea that everyone pays in and everyone gets out: that we are taxed as individuals and assessed for benefits as households. The changes to child benefit and employment support allowance need careful debate and consideration, not the unseemly haste, the high risk or the shambolic delivery plans that are unfolding as this spending review unravels.
Lord Haskel
My Lords, I am not going to speak about the economics of the CSR. My noble friend Lord Myners did that with devastating logic. My concern is about the process. Can the Government and the local authorities carry it through? It is easy to put numbers on a spreadsheet; it is a lot more difficult actually to deliver the proposed savings, as the Government, with the housing benefit and child benefit problems beginning to become apparent, are beginning to find out. Is this project a sound platform, as the Minister put it, or is it fantasy land, as my noble friend Lord Peston put it?
I start with Sir Philip Green’s report. I feel qualified to do this because for 30 years I was in the textile business and on the receiving end of exactly the sort of thing that Sir Philip proposes. Unfortunately, he told the Government only half the story. After you get the hard talk, most firms will then carefully send someone round to ensure that the goods or the services that have been ordered will be delivered on time and satisfactory in quality and that there will be no problems. They know that the problems of the suppliers become the customers’ problems, only magnified. Is Whitehall set up to be the kind of enlightened customer who is needed to do that? Is it more Toyota and less Topshop?
Writing in the Financial Times on 20 October, my noble friend Lord Adonis has his doubts. He says that, based on his experience as a Minister over many years, the intensive Whitehall support, as he calls it, is just not there. Last week, when debating government contracts with consultants, we were reminded that the National Audit Office said that the Government lack the information, skills and strategies to manage them.
What are the Government going to do to make sure that the budgeted savings are actually delivered? With this lack of time and skills, the Government are right on one thing; cut a service entirely rather than trim it and do it badly—do it properly or not at all. However, they are seeking to economise by encouraging the outsourcing of some of the services on the principle that the private sector does it better and cheaper than the public sector. This is sheer dogma, as my noble friend Lord Peston explained. What has produced the improvement is not privatisation but competition, and where the public sector has had to compete with the private sector, the public sector has done pretty well. We need look no further than the National Health Service. Where some NHS operations have been contracted out to the private sector, the private sector has had to be paid between 30 and 50 per cent above the tariff of the NHS hospitals. The chief economist of the King’s Fund also pointed out that the private sector takes the less complicated cases.
On Welfare to Work, independent reports state that there is no hard evidence that the independent sector does better than Jobcentre Plus. Indeed, when Pathways to Work was rolled out for people on incapacity benefit in 2008-09, the private sector providers performed worse than Jobcentre Plus, and private sector prisons are certainly not consistently at the top of the performance tables.
Instead of sacking civil servants and contracting out services or closing them, why have not the Government allowed them to compete with the private sector? If we are all in it together, surely they deserve a chance too; or is it again too much rush, too little thought, all in the name of no alternative?
The experience of the London Borough of Barnet proves my point. It had its own mini-CSR some time ago, and last week the council leader said that the savings for this year will be less than half those projected in its budget precisely because of the problems that I have outlined. Surely there is a red light flashing there. However, a decision has been made; people will be sacked and it is up to the private sector to employ them. Let us consider how realistic that hope is. I know that the Government have the support of many business leaders in this policy, but you will notice that they are careful to give their support in their private capacity. This is because when it comes to business, things are different. Again you get only half the story. My noble friend Lord Knight pointed out that, yes, they may be creating new jobs, but old jobs are being destroyed at a faster rate because of the continuous search for innovation and increased productivity. This applies to every sector. A typical British manufacturing worker today produces four and a half times as much as their equivalent did in 1980. That is why there are far fewer jobs in manufacturing even thought manufacturing output is about 70 per cent higher than it was then. This applies throughout business and industry.
The Government tell us that 176,000 vacancies are known to jobcentres, implying that these are jobs for people on the unemployment register. Last week, the noble Lord, Lord Sassoon, told us that 300,000 jobs were created in the second quarter, and the noble Lord, Lord Lamont, repeated it. Again we get only half the story. What we are not told is how many jobs ceased to exist and how many jobs were taken up by the 40,000 or 50,000 people a week who are in employment but change jobs. It is easy to cherry pick the labour market figures, but it is very difficult to give a true figure.
Like other noble Lords I ask where these extra jobs are going to come from. I welcome the plans to invest more in our infrastructure; I welcome the plans to develop Britain’s offshore wind power industry. Certainly these should create new jobs but, like the noble Lord, Lord Bilimoria, I ask whether this is enough. I welcome the new innovation centres—a Labour innovation, I might add—but do not expect quick results; it will take three or four years before they show results. The Technology Strategy Board and the knowledge transfer networks have been doing this kind of work for some years and, yes, there are several projects in the pipeline. I declare an interest as the honorary chairman of perhaps the largest knowledge transfer network. However, this is a pretty thin supply-side narrative, as my noble friend Lord Myners put it. Growth in the economy does not necessarily mean more jobs; it may mean more output, but the two do not necessarily go together.
Where is the money for these new jobs going to come from? Big business has money but is looking to cut its costs by destroying jobs while most new jobs are created by small and medium-sized enterprises—the very sector that is being starved of investment capital. Like the right reverend Prelate the Bishop of Leicester, I, too, think that there is something wrong when banks are making a fortune trading the very debt for which the rest of us are making sacrifices. Is it because quantitative easing does not get beyond the banks? Banks do not create jobs—innovation and demand do. Perhaps the quantitative easing should go straight to business and industry.
I am concerned about the Government’s ability to manage their strategy and budget. Will the promised savings be delivered? Will the private sector be able to absorb the jobless from the public sector and still remain competitive? I am concerned about where all this is leading: about the direction of travel. The Minister portrays the CSR in economic, fairness and reorganisational terms; others see it differently. I am a bit of an old leftie and I see it in terms of the Government failing in their duty to protect the public good from private interests, an issue to which several noble Lords have referred. Whatever our perspective, it is testing the limits of our tolerance. The CSR should be given more time and approached with a lot more caution and humility.
Lord Tugendhat
My Lords, like other noble Lords, I look forward to hearing the maiden speakers who are yet to come in the debate. I hope that they will not be put off by the length of the list and that they will contribute not only on this occasion but on many others when it is to be hoped that the speakers list will not be so long. It is also a great pleasure for me to follow my noble kinsman, the noble Lord, Lord Haskel. It is the first time I have had the opportunity to say that in this House and I am pleased to have been placed at this position in the pecking order. However, we will not be approaching the problems in hand from quite the same vantage point.
There can rarely have been an occasion when an incoming Government have moved so quickly and decisively to grapple with the country’s economic problems. They were right to do so: not because we were in the position of Greece or Ireland—we were not—but because the situation was running out of control and, after the denials and prevarications of the previous Government, any dawdling or delay could have provoked a crisis. In saying that, I am not referring to the noble Lord, Lord Myners, or even to the previous Chancellor of the Exchequer, Alistair Darling. I am of course referring to the previous Prime Minister. It was he who set the tone of his Government, and his denial of the nature of the problems facing the country meant that the incoming Government had to move quickly and decisively.
My noble friend Lord Lamont was right to draw attention to the deepening of the sovereign debt crisis in the eurozone. At the moment it is dormant, but it has certainly not gone away and no doubt we will have to deal with it again during the coming months. So this was a time for boldness and the Government have shown that. As a result, they have got themselves ahead of the markets. They do not have to worry about international confidence, their credit rating, or funding the deficit. This is a much better position to be in than not having done enough and being subject to speculation that they were going to have to come back and do more. There are, of course, as any army that advances very rapidly knows, dangers in getting ahead of the game. The question now is whether, in their determination to eliminate the structural deficit so quickly, they are putting growth and jobs at risk. By placing so much emphasis on this particular economic measure and fiscal consolidation as the means to achieve it, there is the question of whether it will stifle economic growth. In my opinion, there is such a danger. Faced with the protracted pain set out in the Chancellor’s programme, will companies now cut back on investment and hiring?
Banks, as we well know, are under attack for the low level of their corporate lending. But banks have not gone on strike. They are not lending because they do not want to lend. The reason they are not lending is that the value and volume of viable applications reaching them are not as high as we would like them to be. That is the problem. Consumers are also being affected. We are told that half a million public sector jobs will go. Many times that number of people will be fearing for their futures and cutting back on their household spending. That will be true not just in the public sector but also in those sections of the private sector that will be hit by the cutback in the public sector. The Governor of the Bank of England called recently in his speech in the Black Country for half a million jobs to be created in our export industries. How good that would be. I hope they are, but it is a big ask when times are so hard in so many of our principal export markets.
So, having got ahead of the game, established their credentials, ensured that their credit rating is secure and that the funding will be possible, I hope that the Government, by acting quickly and decisively, will take advantage of the room for manoeuvre that they have created. Room for manoeuvre is a precious commodity in economic policy-making and the Government now possess it. I believe that they should not now regard an arbitrary target of deficit reduction by means of fiscal consolidation as the be-all and end-all of their economic policy. Rather, they should be willing to calibrate that programme in accordance with the needs of the real economy, by which I mean growth and employment. When the record of this Government comes to be judged, it will be on the basis of those criteria. The debt reduction programme should contribute to that and not dominate their overall economic policy. It is through economic growth and high employment that tax revenue is generated and that benefits are held in check, and that can make a considerable contribution to the reduction of the deficit. This aspect of policy now needs to be given more emphasis. The speeches which the Prime Minister gave last week and the initiatives which he took show that he appreciates that. I believe that the Government have put themselves in a strong position and they deserve credit for that. They have room for manoeuvre and I hope they will show the pragmatism and flexibility that the economic situation will require.
Baroness Hollis of Heigham
My Lords, the Minister has insisted today that the CSR cuts are fair and that they support the DWP’s 21st Century Welfare paper for a universal credit to bring people back into the labour market, mainly through making work pay. Really?
On fairness, the Budget cuts and the CSR, as the IFS and some of my noble friends have said, have hit the poor more than all but the wealthiest 2 per cent. But there are other forms of redistribution—horizontal, if you like. This hurts women more than men. The analysis of Yvette Cooper shows that three-quarters of the Budget cuts and two-thirds of the CSR cuts fall on women, as well as the fact that 40 per cent of women work in the public sector. So they are hit through their wage, their job, their tax, their benefits, and public services. It also takes from children rather than the childless. The Government say they want to end child poverty by 2020. The JR Foundation believes that there will be 3 million more children below the poverty line by 2020. Instead of redistributing from the healthy to those who are not, as the noble Baroness, Lady Campbell, said, disability benefits will be threatened, frozen or cut. As for geographical distribution, the cities in the north which depend on public sector jobs and social housing are savaged while prosperous suburbs remain unaffected. Yet generations of Government have deliberately relocated Civil Service agencies and bodies out of high-rent and high-employment London and the south-east to the more depressed north. The CSA went to Dudley, the Patent Office to Newport, the Inland Revenue office to Nottingham, and the NHS executive and the DSS to Leeds. It is profoundly unfair for a Prime Minister representing wealthy Witney to talk about the north’s unhealthy dependence on public sector jobs when that relocation was supported by all parties as part of sensible regional economic policy. So the CSR hurts women, children, disabled people, the inner cities, and the north disproportionately. In all of these dimensions it is unfair.
The one redistribution I have not mentioned is between those who are in work and those who are not. The Minister made much of this, as though the CSR would encourage people into the labour market, given the jobs economy. Like many noble Lords on both the opposition Benches and the government Benches, I welcome the 21st Century Welfare paper of Mr Duncan Smith and the noble Lord, Lord Freud, for a universal credit underpinned by ensuring that work always pays and that mini and part-time jobs are supported to keep a toehold in an increasingly difficult labour market until those jobs can gradually become full time. What is bizarre—I hope that the noble Lord, Lord Freud, is aware of this—is that the CSR actively discourages entry into work, and if you are in work, it caps any aspirations you may have to seek better prospects. In my view, it is goodbye to this Green Paper, which we all know, given that the Treasury is extending its implementation time to two Parliaments, is loathed by the Treasury.
Increase your pay by £1,000 into the higher rate tax category and you lose twice as much in child benefit as you gain in pay. If you create cliff edges, do not be surprised if people are not too keen on walking over them. The father on £42,000 will not take that pay rise. Supporting work incentives by punishing improved work prospects—brilliant social policy. It is perverse. Similarly in social housing, increase your pay and risk losing your home as an insecure tenancy. Social housing is for the down and out; if you climb the work ladder you will be up and out. Of course you will not work those extra hours or take that pay rise if it costs you your home. It is perverse—brilliant social policy again. Staying with housing and non-dependent adult deductions, the adult son, we will assume, is living at home and in low-paid work. The parents will now lose almost their whole housing benefit as his notional contribution to their rent increases by a third or more. What will happen? Either, he will leave, the parents will get full housing benefit again, and he will get housing benefit on his new place, in which case the housing benefit bills will rise and more housing will be needed. But the parents will now be under-occupying and therefore they may be evicted, even though there are no small properties available around them. So the result will be higher housing benefit, more housing used up and insecurity all round. Or he can stay at home, save his parents’ housing benefit, and stop work—the intelligent, rational strategy. It is brilliant social policy again. It is perverse. I will say more on housing on Thursday because carnage awaits us there.
The employment and support allowance has been mentioned already. After one year, it is to be means-tested. Who will it means-test? It will not just be him and any savings, but his wife. If she holds down a part-time job as well as caring for him, she may find that his ESA is withdrawn. What would you do in her situation? Either you reduce your hours right down to the minimum or you probably stop work altogether. Well done: the CSR has ensured that they enter retirement much poorer than they are now. She as a part-time carer has lost her place in the world of work. If in a few years she is unfortunately on her own, she will not be able to regain it. She will remain poor, workless and isolated into retirement. We have all spent the past decade trying to help parents stay in work as far as they can. The CSR may now destroy that. It is brilliant social policy again.
The same goes for the move from 16 to 24 hours’ work for a couple with children, of which one job has to be at least 16 hours, before they can get tax credits. That is not just cruel, it is perverse. It will affect more than 200,000 families. Many men are now accepting substantially reduced hours at work, but, without working tax credit, which is worth up to £70 a week on top, that work may not pay. Yet if they stop working, it will be very hard to regain a full-time job. If he loses his full-time job, she will give up her part-time job because the tax credits are not there to make that work pay. Neither of them will have a foothold in the labour market to keep them in the knowledge economy of work and, as the economy, we hope, strengthens, to work full time. Brilliant social policy, pulling them both out of the labour market. It is perverse.
The child care element of working tax credit will go down from covering 80 per cent of costs to 70 per cent and affect half a million poor families, who will lose up to £30 a week. At the very same time as the Government are seeking to propel lone parents of five year-old children back into work, they are ensuring that, for many, with the increased cost of child care and transport, work will not pay. Brilliant social policy.
The Minister and the noble Lord, Lord Freud, want a single universal benefit, incorporating housing benefit and council tax benefit, to make work pay. I support that. But the Government intend to localise—balkanise—council tax to 500 local authorities, which will make that universal credit impossible to deliver. It is brilliant and unbelievably stupid. I could cite another dozen examples from the CSR, each one of which undermines 21st Century Welfare, which I am sure all your Lordships welcome. I respect the efforts of Iain Duncan Smith, the noble Lord, Lord Freud, and Steve Webb, and I want to support them, but what on earth are they doing allowing the CSR to destroy those proposals detail by detail, forensic cut by forensic cut, before the DWP has even published the results of its consultation paper? The best way of getting fairness between poor families out of work and other hard working families is to help the workless into work, provided we can create the growth economy. That is what the consultation paper seeks to do; that is what the CSR will destroy.
I did not expect the CSR to be fair, not from this Government—and the IFS has shown how unfair it is—but I expected the policies of the DWP, the DCLG and the Treasury to be coherent and consistent. Not on your life. The CSR has made a shambles of future welfare reform and, as always, it will be the poor who pay the bill.
Lord Foulkes of Cumnock
My Lords, it is a great pleasure to follow my noble friend Lady Hollis, who is probably the greatest expert on welfare in this House. I hope that the Government will take some account of her very carefully argued contribution today—they would be well advised to do so. When we eventually get to the end of this debate, I shall go outside and look at the colour of the moon because today is an interesting day, for I agreed with almost everything that the noble Baroness, Lady Kennedy of The Shaws, said. That is most unusual. Given such a coalition, we must be arguing in the right direction.
Speaking very much as a layman and not as an economist—we have heard contributions from some very eminent economists on our side—I want to make only three points. The first is a detailed but vital matter relating to the budget of the Department for International Development, in which I used to work. That budget is rightly protected in the CSR, but it is protected because of the pressure that we put on the Government when they were in opposition. We got assurances that they would protect that budget. However, it is vital that DfID’s budget is not raided for funds by other departments, especially the FCO, which has its beady eyes on some aspects of DfID’s budget, and the Ministry of Defence. The latter’s expenditure in Afghanistan needs to come under the defence budget and the work being done by DfID needs to be clearly humanitarian. Great pressure will be exerted by the FCO and the Ministry of Defence, but it must be resisted.
My second point relates to the manifestly false claim of fairness in the CSR, which all my colleagues have commented on. The cuts to welfare have been swift and severe—as we heard from my noble friend Lady Hollis and from the noble Baroness, Lady Campbell of Surbiton, in a powerful and moving contribution—but there has been almost nothing at all relating to tax dodgers, who could contribute a huge amount more to our revenues. There has been some indication that HMRC will get some more money to deal with illegal tax evasion, but there has been nothing at all about tax avoidance, which has been described by the Deputy Prime Minister, who I remind some Members opposite is still a Liberal Democrat, as immoral. It is immoral at the best of times, but particularly at present. Nothing has been done to start closing the loopholes offered by the tax havens of our own overseas territories. There is no international co-operation with other countries to deal with tax avoidance. The noble Lord, Lord Oakeshott, made a powerful argument in that direction, but the power of his argument is perhaps detracted from by the fact that he is in the strange limbo of being a Liberal Democrat spokesperson rather than a Minister. If he was a Minister who was incorporated into the Government, we might have greater confidence that some work would be done on tax havens and tax dodgers.
Reference has also been made to the bankers. I find it appalling that some of those who caused this crisis in the first place are still in charge of the banks and stuffing their pockets with huge amounts of money.
One lighter moment came in a delightful spat over the cap on housing benefit, when our well beloved Mayor of London described the effect as being like that of ethnic cleansing in Kosovo. He was then forced to withdraw the remark, no doubt due to some public school loyalty. However, what was missing from that argument was the reality. Housing benefit payments are so high in the centre of London because rents are so high, and they are pushed up by people who are rich. Ordinary workers can no longer afford to stay and live in London, whether in rented or in any other kind of accommodation, without some support.
My third and main point is that, although I agree with everyone who has said that we must cut down waste and increase efficiency in the public sector—indeed, that is what the Labour Government wanted to do—I cannot accept, having thought about the matter again and again, that the pressure on government to cut the deficit is as strong, compelling and powerful as Ministers pretend. I just do not believe it. To whom do we owe this money? Who are the debtors? We have not had any mention of them so far. Do we owe the money to some celestial pawnbroker or some global loan sharks, who will come and do us in if we do not repay?
If the Chancellor and the Government’s spokesman today in the Lords are to be believed, the money is owed to foreign Governments and to foreigners, who are prospering at our expense. I wondered whether that was right, so I tabled a parliamentary Question, which the noble Lord answered. In fact, the debts to all the foreign countries and foreign private bodies taken together represent less than 30 per cent of our total indebtedness. Of the rest, which is more than 70 per cent, 30 per cent is owed to UK insurance corporations and to pension funds—no doubt some of our pension funds here—and 27 per cent is owed to the Bank of England, 10 per cent to other financial institutions, 7 per cent to banks and the rest to households, local government and public corporations.
In his introduction, the Minister claimed that the coalition Government’s actions are responding to the demands of our debtors. Perhaps in his reply he could say where those demands are coming from. Which of our debtors are demanding that we take this action? I certainly do not see it. Perhaps the credit rating agencies were demanding it, but I sometimes wonder whether too much attention is paid to them, given that they are private organisations based in the United States, Canada and Japan. Surely we as a country can join together with other countries and take some responsibility, and some control and authority, over what the credit rating agencies say.
I believe that the CSR is not only unfair but unnecessary. The Tories are using it as a totally false pretence to justify what they have wanted to do for a long time for ideological reasons. The Liberal Democrats are their hapless human shields. They deserve the greatest blame for these cruel and unfair cuts, because of what they said before the election and what they are now doing, which is entirely the opposite.
Lord Low of Dalston
My Lords, I hope that the Minister will have got the message that we are beginning to get rather tired of the partisan rhetoric about train crashes and the like, to which we are habitually treated as a characterisation of the situation that the coalition faced on coming into office. Such rhetoric is, for one thing, exaggerated and, for another, quite wrong. I would expect a greater degree of clear-sighted objectivity from this House in considering the origins of our present difficulties, which clearly lie with the excesses of finance capitalism rather than with the Labour Government. It was Gordon Brown, not George Osborne, who brought us back from the brink. Gordon Brown may not have been a very good fox, but he was a pretty good hedgehog—noble Lords will remember that the fox knows many things but the hedgehog knows one big thing.
I have taken some trouble, with the help of the Library, to try to get an objective handle on our financial position, amid all the claims and counterclaims that are made. As always, it is not difficult to use the statistics selectively so people will refer to structural deficit or debt and use OECD and G7 countries as the comparator as best suits their argument. The most dispassionate assessment that I can make is that our structural deficit was larger than that of most OECD and G7 countries as we entered the recession and our level of public sector net debt was higher than that of most OECD but not most G7 countries—not the big ones. However, our total public sector borrowing requirement was a manageable 2.6 per cent of GDP, similar to that inherited from the previous Government, and the level of public sector net debt was actually lower. The level of indebtedness has since gone up sharply for what I would argue were unavoidable reasons—much more unavoidable than the measures contained in the comprehensive spending review.
Those measures are intended to reduce the debt, but the results of attempts to do the same thing by similar means in the 1920s and 1930s are not encouraging. Between 1919 and 1923, national debt rose from 135 per cent of GDP to 180 per cent; between 1929 and 1933, it rose from 160 per cent to 180 per cent. The OECD says that about half of fiscal contractions in the EU in the past 30 years have led to growth in the economy, and it cites Canada, Denmark and Ireland as examples—though Ireland might not provide such a good model at present. There was recovery following the fiscal contractions of 1931 and the early 1980s, but in a very good article in this week’s New Statesman, the noble Lord, Lord Skidelsky, argues persuasively that that had much more to do with the abandonment of the gold standard and the loosening in monetary policy than with fiscal consolidation.
Whatever view you take, it seems that the macroeconomic judgment of the CSR is just that—a judgment—and some would say it is a gamble. Whatever it is, the proposed measures are certainly not unavoidable. As the noble Lord, Lord Haskel, said, they put the interests of bankers, markets and the institutions of finance capital—what used to be referred to as the ruling class, although that perhaps makes me even more of a lefty than the noble Lord, Lord Haskel—before the interests of the ordinary citizens of this country. To be honest, it does not seem to me that Labour’s ideas are a whole lot better; I would describe them as “coalition-lite”. At all events, in circumstances when the harm done to the fabric of our society by the CSR is palpable and certain but its benefits are at best speculative, I agree with the noble Lord, Lord Haskel, that it is incumbent on the Government to search for an alternative strategy that subordinates the interests of the financial system to those of ordinary people.
The financial system is only a means, not an end. Instead of terrorising us with spectres of debt so that we forget our own interests, the Government should be demystifying the debt, a good part of which is owed only to ourselves in the form of pension funds and the like—as the noble Lord, Lord Foulkes, clearly demonstrated—and is not nearly as astronomical as we are asked to believe. At the end of the Second World War, according to the UK Debt Management Office, the national debt stood at 252 per cent of GDP, as opposed to a mere 50 per cent or so at present. That debt was paid off over a much longer period than is currently proposed and, during that period, we managed to implement the Beveridge reforms and found the National Health Service. That is the sort of framework in which we ought to seek the solution to our present difficulties.
Moving on from the strategy to the specifics of implementation, although a great deal could be said—I associate myself with the remarks of the noble Baroness, Lady Campbell, about the withdrawal of the mobility component of DLA from those in residential accommodation—I shall concentrate in the short time that I have left on the Government’s decision to limit contributory employment and support allowance to 12 months. I believe that that will cause great hardship. The Government’s decision fails to recognise three key points. First, those who have paid into the system through tax and national insurance have a right to expect that, if they become sick or disabled, the benefits system will support them as they come to terms with their impairment, gain access to rehabilitation services, retrain, learn new life skills and then move towards work. They paid in in the belief that they could rely on such support. The proposed change has not been consulted on and is a radical redrawing of the contract between the citizen and the state.
Secondly, it is completely arbitrary to say that everyone must find work within 12 months or lose a benefit for which they have contributed. Every individual is different in their journey towards work. Most important of all, there are simply not the jobs to enable everyone on ESA to get a job within 12 months. Since 2008, long-term unemployment has almost doubled to 797,000 while vacancies have fallen to 467,000. That leaves a deficit of 330,000 jobs. The impact is therefore clear. The Government will be means-testing large numbers of people on the work programme and ending their contributory ESA before they find work. Not only is that sadistically harsh, but it comes at completely the wrong time, as the noble Baroness, Lady Kennedy of The Shaws, has said. It is also self-defeating, and will completely undermine the welcome objectives set out in 21st Century Welfare, which, as the noble Baroness, Lady Hollis, has said, we all support. I will not be surprised if the time limiting of ESA, together with the changes to DLA and housing benefit contained in the CSR, come to be totemic symbols of coalition heartlessness such as the ending of free school milk in an earlier age.
Finally, the majority of the 1.5 million incapacity benefit claimants who are due to be migrated on to ESA over the next three years will face the same 12 month limit and means test. That is because the majority of those are expected to pass the new work capability assessment and be allocated to the work-related activity group. The vast majority of IB claimants have been on the benefit for five years or more, which means that they have complex needs in terms of making the journey back to work. Complex needs require time to address them; the time-limiting policy completely disregards that. Have the Government made any assessment of the proportion of claimants who will qualify for income-based support as they come off ESA? I should be grateful if the Minister could enlighten me.
The damaging and unjust consequences of time limiting ESA are just one of many reasons—the noble Baroness, Lady Hollis, has instanced a string of further examples of perversity—why the Government should seriously rethink the CSR. If they refuse to do so, I would not mind betting that they will be forced to do so in due course.
Lord Davies of Stamford
My Lords, that was a very eloquent and well-informed speech and I hope that the Government have taken careful note of it. I am delighted to follow such a substantial and distinguished contribution.
I think all of us were delighted and greatly relieved at the good performance of the economy in the third quarter and the fact that the growth rate was at 0.8 per cent. But it is quite ludicrous—actually embarrassingly ludicrous—for the Chancellor to go around almost in an orgy of self-congratulation about that. Anyone who knows anything about how an economy works and the time lags in an economy knows perfectly well that there is nothing that could have happened in fiscal or monetary policy since the middle of May which would have affected the output of the economy three or four months later. There was no change in fiscal policy over that period. Quite clearly, if tributes are to be given, they are to be given to the former Prime Minister and to the former Chancellor for the course that they had correctly set during the difficult international conjuncture of the past two or three years.
Undoubtedly the Government are now embarked on economic policies which are very risky. It is not just I who says that—there have been eloquent supporters of the Government today in this Chamber, the noble Lords, Lord Lamont and Lord Tugendhat, who have acknowledged the same thing. You cannot take £133 billion out of the economy over five years—taking the combination of expenditure reductions and increases in taxation—with impunity. That is roughly on average 2 per cent of GDP per annum. That is an enormous reduction in aggregate demand and begs a tremendous question as to where that aggregate demand is going to come from, particularly in present international circumstances. There are obviously great risks. No sensible person denies that and sensible Tories today have acknowledged that.
I am worried about two aspects. I may be right or I may be wrong but my inclination is that Government are cutting expenditure too far too fast. I may be completely wrong, but there are two slightly more objective factors here, which concern me deeply. The Government do not seem to be helping themselves very much. I have several examples in mind. It seems to me extraordinarily ill-chosen, in the situation in which we find ourselves now, to increase the VAT rate from the beginning of January. Every fool knows that January and February are the low point seasonally in the economy when consumption is at its lowest. Increasing a consumption tax like VAT at that point is likely to exacerbate the volatility of the economy rather than stabilise it. Why 1 January or perhaps 4 January? Why then? Any sensible person would have done it perhaps in April, or in two stages. It is extraordinary.
I put another example to the noble Lord, Lord Sassoon, at Questions the other day. Why allow the publication of a forecast that there are going to be 490,000 job losses in the public sector over five years—a calculation that must be based on knowledge of which particular departments and functions are going to be affected—without saying what those departments and functions are. As a result it is not just 490,000 people and their families who are going to be desperately worried and cutting back on their consumption expenditure and increasing their savings ratio, but it is going to be millions on millions of people in the public sector—other than those who have been explicitly protected— any of whom could feel that they are going to be targeted. It is not a sensible thing to do when you are trying to replace with enhanced consumption spending your explicit and deliberate reduction in public spending. I am worried about that.
I am also worried that the Government do not seem to have much of a fallback position. If you ask them, the reply is “monetary policy”. There are two problems there. One is because of the time lags. If the Government find that they have cut expenditure too far and too fast and killed the recovery, it will be too late to use monetary policy then because monetary policy does not feed through into output for a year or two. Again they will have exacerbated the volatility of the economy and have got the thing badly wrong.
The next thing that concerns me in this context is that monetary policy at present levels of interest rates means of course quantitative easing. I am concerned that the Government are getting rather addicted to quantitative easing—rather like an adolescent discovering drink or drugs. It tastes pleasant, it makes you feel good—let us have some more. There is a big question about quantitative easing which the Government need to answer. The Government have never answered it as far as I know—in fairness I am not sure the question has ever been asked—so I shall do so now explicitly and ask for an answer. It is very easy for the Bank of England to buy in this paper, creating automatically bank deposits and generating an increase in the monetary aggregates. That is an easy and apparently painless thing to do. But when is the Bank going to sell back that paper? Is the Bank ever going to sell back that paper? Is this part of the Government’s debt that is being bought in by the Bank of England going to be permanently monetised? If so, how much do the Government plan permanently to monetise in this fashion? Is there a ceiling? May I have an answer please from the Minister? If there is no intention to monetise, when and in what circumstances is it planned to sell back this paper, bearing in mind of course that selling it back will be in direct competition with government new issues in the gilt market at the relevant time. That is a problem that does not exist when you increase and use interest rates to manage demand. It is an important question to which the country needs a clear and explicit answer. When and in what circumstances is that paper to be sold back?
I was going to speak at slightly greater length about some of the perversities in the measures on benefits in the comprehensive spending review. However, my noble friend Lady Hollis made an absolutely brilliant analysis and she was followed by an extraordinarily distinguished analysis from the noble Lord, Lord Low. They have done so well that I am going to do something quite different. I ask the noble Lord, Lord Sassoon, whether he would be good enough to commission from the DWP and the Treasury a reasoned response to all the perversities that were set out by my noble friend Lady Hollis and the noble Lord, Lord Low. He should not only send that to them but put a copy in the Library for the benefit and elucidation of us all.
I am of the view that welfare reform is a very good thing and that Iain Duncan Smith’s single benefit idea is much to be commended. As I see it, it forms a coherent progression with the measures taken by the previous Administration to make sure that people had a greater incentive to work and that there were fewer perversities in the system. That was created by the introduction of the minimum wage and by the tax credit scheme which were, again, very important measures of welfare reform. Similarly, I would welcome other measures in the same direction. There were egregious abuses with regard to housing benefit. I am perfectly happy to acknowledge that and it is good that we are addressing them. Indeed, I have always felt that housing benefit was inherently problematic because it tends to drive up rents. Too often, landlords assume that the maximum that the benefit office or local authority will pay is the minimum that they will demand. It becomes an engine for driving up rents and therefore contributes to the problem that it is designed to alleviate: homelessness. Yet that does not mean to say that the Government are very clever to have produced a situation in which literally tens of thousands of people—so we are told by no less a figure than the Mayor of London—will be forced out of their homes.
My noble friend Lady Kennedy spoke movingly about people who are confronted with redundancy. I think that would have moved noble Lords on all sides of the House. Yet if you go home and tell your children that you are to be evicted, it is only scarcely less horrible than having to go home and say, “I’ve got the sack”. We should think carefully about the tens of thousands of our citizens being forced to leave their homes in that way. I put it to the Minister that there was a solution which was, at once, more practically sensible, more economically judicious and more humane in all these matters—this goes for child benefit as well. It was to introduce the new, more stringent rules for new applicants, to phase in the new rules for existing claimants, to use transitional relief; and to withdraw benefits at a certain level—whatever effective rate of taxation that might be. That could have been done in a less economically disruptive and less dramatic way in terms of the human impact on families.
It is never too late, I say to the noble Lord. What is the point of having these debates if the Government come here with a closed mind before they start? I hope that some of the thoughts that have come out of this debate will indeed be taken back by the noble Lord, Lord Sassoon, to his colleagues and that we might get a slightly better result than the one we have before us at present.
Baroness Turner of Camden
My Lords, I want to concentrate on what I believe to be the general direction of government policy, as revealed by the review, and its possible effect on all of us as individuals. To put it simply, the Government’s approach seems to be based on the perception “public bad, private good”. Hence the emphasis on privatisation, which was also a feature of the previous Government of which some of us were critical. Yet the present coalition is taking this much, much further. Hence the so-called reform of the welfare state, although, as the shadow Work and Pensions Secretary has pointed out in the other place, welfare reform and welfare cuts are quite different. It looks as though we are mostly going to get cuts.
First, there will be public sector unemployment, which the Government’s own figures indicate will be almost half a million lost jobs. Secondly, there will be a decline in welfare benefits, on which many of our fellow citizens depend. I believe that, in both instances, the impact on women will be disproportionate and certainly not fair. The unemployment resulting from the public sector cuts is likely to be mostly of women, as a large number of women are employed in the public sector. I have already had letters from women working in the public sector who are scared that they will lose employment in areas where alternative employment is virtually non-existent. We heard some explanations today from my noble friend Lady Hollis of exactly why that is.
We sometimes forget just how women’s rights were improved in the last century. At the beginning, women really were second-class citizens with no right to vote, limited access to jobs and limited access to higher education. There was widespread discrimination. If women had jobs, they were expected to leave when they got married. In many large companies, women were employed only in non-career jobs and were not included in pension schemes until they were over 30 and presumed to be “on the shelf”—that is, unmarried. There was widespread discrimination in unequal pay and, of course, a lack of promotion opportunities in employment. The widespread discrimination that existed has now disappeared, although some complaints can still justifiably be voiced nowadays. Those improvements were achieved as a result of a continuous campaign by previous generations of women. It is sometimes not appreciated just how much was due to women’s access to the job market and to equality legislation, for which Labour Governments were largely responsible. That meant that women achieved independence. They did not have to stay in relationships that were impossible for them.
The spending review, with its impact on women’s employment, could put at risk the achievements of past generations. The Government believe that the private sector will create alternative jobs. In fact, the loss of jobs in the public sector could result in further job losses in the private sector. A number of speakers have explained that today. Many experts do not think it credible that the private sector will be able to create jobs on the scale that will be needed.
As to the review’s proposal on public services, local government has been threatened with cuts and some councils are already responding by cutting staff. Services likely to be at risk involve the provision of social care for elderly people. This is already a problem in many areas and, again, an area where the impact is most likely to be felt by women. Many of the elderly will be older women, whose carers, if they have them, are also likely to be women. I remember when, during a previous employment crisis, those seeking work were famously told by the noble Lord, Lord Tebbit, to get on their bikes and look for work. Well, many did, with the result that family members often do not live close to one another any more; they no longer live round the corner and some even live abroad, hence Age UK’s current campaign on behalf of older people living alone.
Perhaps the Government think that all necessary social services will in future be provided by volunteers in the so-called big society. We should greatly respect those who volunteer to help others, but caring for elderly and disabled people is a service that should be provided regularly in any civilised and developed society. I shall perhaps be told that the review provides for social care some £2 billion from 2014-2015. I welcome that, but it is some years ahead and the need exists now. Moreover, local government will, presumably, be responsible for administering it along with other services and is already suffering from cuts in income. Will this new money be ring-fenced? Other services under threat, including the provision of social houses, have already received much attention and will, no doubt, be further debated in this House.
I believe that the spending review is ideologically motivated. It is presented to the public as if there is no alternative and as if it is all the fault of the previous Government. Yet alternatives have been suggested by many experts, including a number who have spoken from this side of the House in this debate. What is being proposed could disrupt many lives, mostly of poorer people.
I find it ironically amusing that the talk of the big society often refers to a variety of voluntary organisations, when one of the largest voluntary organisations in this country—with a leadership elected by its membership—is the trade union movement. But unions do not get a mention—oh no. They are apparently not part of the big society as far as the Government are concerned. It is the job of unions to represent their members—many thousands of ordinary workers—and we can expect that they will endeavour to do so. As a former union official, I hope that they will succeed.
The welfare state was created after the Second World War because no one wanted to return to the poverty of the 1930s. The policy direction outlined in the spending review is neither fair nor just and puts at risk some of the achievements of previous generations.
Baroness Anelay of St Johns
My Lords, following inquiries from many of those taking part in this important debate and discussions with the opposition Chief Whip, it may be helpful if I advise the House that, at the current rate of progress, with speeches of around eight to 10 minutes, the House is likely to rise after midnight.
Lord Higgins
My Lords, by a quite extraordinary coincidence I was about to raise that very matter in my opening remarks. Indeed, I was going to say how glad I was that my noble friend the Chief Whip did not say at the beginning of business that we should try to rise by 10 o’clock or that speeches should be curtailed accordingly. Particularly with the ever increasing size of the House, we will find more and more pressure to reduce speeches to a length at which, in a debate of this sort—of great importance and considerable complexity—it would not be possible for the House to fulfil its job of holding the Government to account as effectively as it should. It is very much a question of balance. I understand my noble friend’s point, but we should beware of excessive curtailment of the length of our speeches, as that may frustrate our very purpose. We are in fact barely half way through the list of speakers and are therefore likely to go rather late. However, I do not think that anyone has gone over about 10 minutes and many speeches have been of an extremely high quality. They have raised a number of questions, such as fairness and so on. I intend to concentrate on a rather different aspect.
As I said at the time of the Statement on the spending review, it is quite extraordinary that the Treasury officials and Ministers should have managed to carry out such a comprehensive review in the time that they took. It was desirable that they should do so and, overall, they have done a remarkably good job. There are some obvious omissions—for example, I simply do not understand why winter heating payments should not be means-tested—but, by and large, they got the balance pretty right.
The basic controversy raised before, through and after the election was summed up rather cleverly, as always, by the noble Lord, Lord Myners, who said that this was a question of scale and pace. He took the view that the scale was too large and the pace was too quick. I take the contrary view. Experience shows that it is extremely difficult to cut public expenditure quickly. It almost always takes much longer than people expect. The pace proposed by the Government is probably the minimum at which we ought to aim, because we will almost certainly undershoot it. That was a matter of great debate among all parties but, on the whole, the Government got the pace about right.
With scale, we are faced with a rather strange situation. Individual cuts are clearly a matter of great controversy and depend on many of the arguments that we have heard deployed this afternoon. However, the reality is that, even after all these cuts, public expenditure will go on rising, from £702 billion to £713 billion next year and to £724 billion and £740 billion in the years after that. With cuts, that is strange and therefore important, particularly given the interest that we have to pay, which has been shown to be going up from £43 billion now to £63 billion in 2014-15—a massive increase. I assume that the Treasury’s calculation has been done on the assumption that the rate of interest at which it is able to borrow remains the same. Perhaps my noble friend will confirm that.
My noble friend Lord Tugendhat raised big issues about the situation with the international financial markets. We are fortunate in having most of our borrowing spread over a lengthy period of time, but it would not take a large increase in the average rate at which we could borrow—particularly at the margin—for that £63 billion by 2014 to look much bigger. We are making the most optimistic assumptions that we can. Worldwide record low rates of interest are being used. That may be very dangerous for the future.
The other problem is aggregate demand. I raised this at the time of the relevant Statement and my noble friend referred to the forecast of the Office for Budget Responsibility, which said that, on aggregate, demand in the economy would go up. Again, that is strange against the background of a programme of what the Opposition would call “savage cuts”. What will happen to aggregate demand? Is it my noble friend’s view that the situation will get worse or better? There was much joy in the City over the past few days at the fact that the quarterly rate of growth was 0.8 per cent. However, if I understand it correctly, that was before the cuts. They have not yet had any perceptible effect. I would have thought that the level of aggregate demand would go down. These are extremely difficult calculations. For example, what is the effect on aggregate demand of large numbers of civil servants becoming unemployed and their spending power being correspondingly reduced? It would be helpful to know the views of the Treasury and the Office for Budget Responsibility on what will happen to aggregate demand.
If aggregate demand is going to decrease, the question whether there should be further stimulus arises. My final point, which I have raised previously, is on quantitative easing. The noble Lord, Lord Myners, seemed to be recanting somewhat in his opening speech. The £200 billion of quantitative easing that he introduced was widely publicised as an increase in the money supply. In reality, following that quantitative easing, the money supply went down. That fact has not registered. We will therefore need to assess carefully what the effect of further quantitative easing would be on the level of demand. Against that background, we have the problem of not knowing what has happened to the country’s productive potential as a result of the recession and crisis and whether it is much less than it was at the beginning of that period.
These are complex issues. However, so far, the spending review has not been placed in the overall context of the management of the economy, which is now significantly divided between the Treasury and the Bank of England. We need a much more detailed analysis presented to us, by either the Government or the Office for Budget Responsibility, if we are to assess the true economic impact of this spending review over the next four years.
Baroness Sherlock
My Lords, I wish to focus on the impact of the spending review on families with children. Having looked through the measures, I have three broad concerns. First, it seems quite clear that the measures taken together have a disproportionate effect on families with children. There are £7 billion cuts in welfare spending in the spending review, on top of the previous £11 billion in the Budget. The charity Family Action, which works with some of the poorest families in this country, has calculated that there are 21 separate welfare cuts affecting working families. The IFS has pointed out that one key effect of the CSR is to refocus benefit spending away from families with children. That cannot be reasonable. Even the proposal to withdraw child benefit from a fairly random selection of higher-rate taxpayers is, in effect, not a redistribution from rich to poor but a movement of resources away from some families with children to society as a whole. Once again, a group of families with children is bearing the cost.
Secondly, the measures appear to add complexity and to get in the way of helping working families, as my noble friend Lady Hollis has so ably pointed out. Some of the cuts affect only families with one or more parents in work, such as the changes to working tax credit. I am particularly concerned about the decision to reduce the amount of childcare help that working families receive. That could cost up to £1,500 a year for a family. I spent some years running a charity that works with single parents. We ran schemes that helped single parents into work and I learnt two things: first, that most single parents want to work if they can find a job that they can combine with looking after children; and, secondly, that many of them live right on the edge financially. Every single penny is counted. A rise of 50p an hour in the cost of childcare can prove disastrous. Parents, who may find themselves £1,500 a year worse off in relation to childcare, could find that they simply cannot afford to pay the nursery or pay the childminder. If the childcare falls apart, so does the job. If we want lone parents to work, we have to make that possible for them.
This comes on top of the measures in the Budget that include something that sounds very technical, as my noble friend Lady Hollis has pointed out: a disregard of £2,500 in working tax credit for in-year falls in income. As the Minister will realise, this may sound technical but the results can be quite significant. Let us suppose that a mother loses a cleaning job or her husband's hours in his factory are cut and the family loses £2,400 a year in wages. This change will mean that their tax credits cannot be recalculated to take account of that fall in income. They could lose £975 a year from that one measure alone compared with the tax credits that they should be getting. That is not supporting work.
On complexity, there is also the proposal to localise and cut the funding for council tax benefit. The assumption seems to be that council tax benefit will be replaced in April 2013 by grants to local authorities, which can choose the best way of using the money to try to provide rebates for council tax bills. The budget will be £500 million a year less, so clearly poorer families will lose out, but it also means that we will end up with 100-plus local authorities deciding the best way in their authority to rebate council tax. As the IFS has pointed out, that goes directly against the principles behind the Government’s universal credit; it goes directly against a single national policy, against clarity and against simplicity. As the IFS points out, it also creates a postcode lottery in which some local authorities may choose to use the money to persuade low-income families to live somewhere else. Therefore, it fails both the fairness test and the complexity test.
Finally, I am concerned about the measures that could hit the very poorest families. Poor families with children will be disproportionately hit by many of the housing measures that the Government have proposed. The measures to cap benefits must surely affect mostly large families who live in high-rent areas, often because that is where the jobs are. Even the flat-rate measures will strike terror into the heart of families more than others. My noble friend Lord Knight of Weymouth referred to the proposal to cut 10 per cent from the housing benefit of people who have been on JSA for more than a year. I truly cannot understand what that measure is designed to achieve. It obviously cannot assume that your rent goes down if you are on the dole for a year; and it cannot presumably be to motivate you to look for a job because the JSA already does that. If you do not look for a job, your benefits can be sanctioned. If you are offered a suitable job and you do not take it, your benefits can be stopped altogether. It cannot be to motivate you to do that. What, then, can it be for? I simply do not understand it. Is it simply a punishment for having failed to find a job? Do the Government believe that it is impossible not to find a job? If the Minister thinks that, I would be very happy to take him to parts of County Durham where I could demonstrate only too readily that that is not the case.
What would be the effect of that? If you have been out of work for a year, you have probably already exhausted all your savings; you have probably already been round all your friends and family and anyone else in your network who has money, many of whom will be in a similar position in some areas. So what do you do? If, at that point, your housing benefit is cut by 10 per cent, even if that were only £15 a week, that could be an enormous amount of your disposable income. Frankly, it might as well be £1,500 a week for all the difficulty you will have in finding it. What would that do to a family with children? You are out of work, your housing benefit has been cut and your landlord will not randomly reduce the rent for those who happen to have been on JSA for more than 12 months, so you cannot make the rent and at some point your arrears build up and you are likely to be evicted. Then we have a homeless family. How is public policy advanced in any way? Even if we simply wanted to make it likely for them to get back into work, how would they do that? What are the consequences for the children? I simply cannot understand what this policy is designed to achieve.
We all accept that there must be some pain as we try to lift our country out of this global recession, but we all agree that it must be done fairly. I suggest that fairness requires two things, and I hope that the Minister will take careful note of these. First, fairness requires—a phrase I think he likes—that those with the broadest shoulders should bear most of the burden. Sadly, the IFS has already proved that the CSR is clearly regressive and that that is not happening. Fairness also requires that the most vulnerable, those with the least ability to cope, should be protected from the worst effects of the cuts that we must all bear. How could poor families with children be anything other than in that category?
Lord Allan of Hallam
My Lords, I thank all those officials and Members who have helped our class of 2010 to have such a smooth and warm introduction to the House. I wish the officials in particular well with the class of 2010B, which I understand may soon follow.
In choosing this debate for my maiden speech, I am conscious that I have to work to two constraints: first, to be concise, a quality which I am sure is always appreciated in debates in this place but especially when so many noble Lords wish to speak; and, secondly, to avoid being too contentious on a subject that naturally arouses strong opinions when it is so important to so many citizens of this country, as has been demonstrated by the many interesting and powerful speeches already made today.
Mindful of those constraints, I want to make a few short remarks on the way in which the Government have been opening up their vast store of data about the workings of the public services and how that is having an impact on the spending decisions that we are considering today. First, I declare an interest when speaking on information technology, as my employment outside this place is with the company Facebook. Although Facebook is not generally directly involved in public sector IT projects, some parts of the company have had commercial relationships with the Government. I hope that that position will equip me with up-to-date knowledge of trends in the information technology sector that will prove valuable to this House, as it informs my contributions to your Lordships’ work.
I turn to the agenda of opening up government data in the context of the spending review, which has very much been a cross-party agenda. In the last Government, it had several champions, most notably Tom Watson when he was a Minister in the Cabinet Office, and the noble Lord, Lord Knight of Weymouth, when he was in another place and very much engaged in that agenda. It has been enthusiastically taken forward by this new coalition Government, and has also engaged many experts outside the party political realm, notably Sir Tim Berners-Lee, Professor Nigel Shadbolt, Tom Steinberg and Rufus Pollock. A common objective shared by all those contributors may not necessarily be to support directly the Government’s policies; it may be to ensure that this is not an esoteric exercise for those in the technical community but an exercise that realises the potential of information to transform public services more generally.
I believe that that process is impacting the spending review in several important ways. First, the Government decided to release a database from the Treasury called the combined online information system, or COINS, proving that some in the Treasury clearly have a sense of humour, contrary to public perception. The COINS database provides a wealth of data to anyone interested in modelling the country's finances. It means that more people than ever before will have the key data that they need to analyse the Government’s spending decisions and performance.
Secondly, decisions have been taken in both local and central government to publish information about individual items of public expenditure. This will dramatically increase the level of scrutiny of purchasing decisions and allow many minds to take a view on whether value for money has been achieved.
Thirdly, there is a significant opportunity for growth in the UK economy—again, something we have heard about in the debate tonight—by building services based on the data provided by government. Rufus Pollock, in a study commissioned by the Treasury during the time of the previous Government, calculated this value at £6 billion per annum.
Fourthly, public services can be enhanced through innovation around these data. For example, anyone who has used a Boris bike to get around London will know that apps for the iPhone and Android phones, which let you see how many bikes are free in any location, are a real and often necessary complement to the bike service itself. This is a small example of how data around public services can both contribute to significantly enhancing economic efficiency and, in the case of transport services, to minimising environmental cost.
Finally, new online channels provide ever greater scope for people to engage in debates on such policy issues as the spending review. This is not a substitute for the process of policy deliberation in Parliament but, handled correctly, can be a valuable complement to it as a broader range of well informed citizens can bring their perspective directly to our policy debates.
In closing, I refer back to the fact that outside this place I work with many people in their 20s and 30s who are building great technology businesses and creating significant new economic and social value. To me, this is a reminder that while technology projects can and do sometimes go badly wrong and end up costing the taxpayer more than they are supposed to save, we should certainly not turn our backs on the transformative power of technology-led innovation. The question for the public sector should not be whether technology can make its services both more cost effective and better for citizens—it certainly can do this, just as it has transformed many other parts of our lives—but how to realise this potential most effectively. This is a much bigger subject than I can cover today, but it is one to which I have no doubt that I will return during my service in this House.
Lord Bates
My Lords, it is a privilege to follow my noble friend Lord Allan after his excellent maiden speech, which observed all the conventions that he rightly outlined at the beginning of his speech. As someone who is relatively new to this House and made a similar journey from the other end of the Corridor, I think that the speed with which he has adjusted to the climate of this House bodes well for the future. One of the great joys of following the maiden speech of someone who is so intertwined with the world of information technology is that there is an embarrassment of material that one can refer to. I shall not mention much of it, other than to say that it is highly impressive and worth viewing, especially the noble Lord’s weblog. He began his undergraduate studies at Cambridge in anthropology and archaeology. I am not quite sure which of those areas will be of most value in understanding the workings of your Lordships’ House, but I am sure that they will both come in very handy. He also had remarkable prescience in giving way in the 2005 general election in his Sheffield Hallam constituency to an unknown politician from across the pond called Nick Clegg, who went on to achieve some rather impressive things, as I am sure the noble Lord will do in his contributions in this House. His contribution this evening has been very much welcomed.
Given the time constraints, I want to add something new to the debate, which I am thoroughly enjoying and have found provocative and interesting, as always. That newness will come from speaking about the region that I come from—the north-east of England, where I am involved in two small and medium-sized enterprises. I have a passion for the region, which is often cited as being one of those that will be most severely hit by the forthcoming public spending constraints. There is a great deal of fear in the region about the consequences of those decisions that are coming down the track. It is not easy. However, I have to preface my remarks by saying that we would not be in this position had the foot been applied gently to the brake two years ago in public expenditure rather than heavily to the accelerator. This accelerated the level of debt and, therefore, the initiatives that are necessary for this Government to take to correct the national macroeconomy. It is important that that is said, but it has been said many times already this evening and I think that it is generally accepted. I want to focus on what can be done and what the consequences might be.
The north-east of England has a higher dependency on the public sector than any other region in the United Kingdom. The public sector accounts for 56.4 per cent of the north-east economy. A study by PricewaterhouseCoopers—I retrieved it from the UNISON website, so I hope that it is accepted on both sides of the House as a reliable source—estimates that the impact of the public sector cuts on the public and private sectors over the next five years will be around 43,000 jobs or 4.1 per cent of the workforce in the north-east, which currently numbers around 1 million. Every single one of these job losses will be a personal tragedy for those affected, but if handled correctly these changes in our economy can put the north-east economy on a more sustainable and upward path for the future.
As evidence for this, I cite a collection of data that has been produced by the north-east public relations firm Recognition PR, which has tracked the new private sector job announcements in the regional press from September to the end of October. The total number of new jobs announced in the private sector was 4,451 in two months, which is very encouraging. Moreover, the same regional newspapers identified some £271 million of new investment by the private sector in its businesses in the north-east. That is more than the entire annual budget of the regional development agency, so it is a significant sum. It comes not from bureaucrats picking winners but from business owners investing in their own businesses, so the likelihood of its succeeding and leading to further growth is also there.
One of the great strengths of the north-east is that it is one of the few regions that exports more than it imports. Exports from the north-east in the second quarter of 2010 were at their highest level ever, at £2.29 billion. Again, that is a cause for some encouragement to believe that the private sector can, if freed up, fill the gap that will necessarily be created by adjusting the national public finances.
We are not an island in the north-east of England. Therefore, when you talk to businesses about what is necessary, they will tell you first that what we need is macro-stability. Unless there is macro-stability, investors will not invest in the region and customers will shy away. Therefore, it is essential that these actions are taken so that we retain low interest rates.
I am also keen that we create an enterprise economy—one that is very much focused on growth. In that effort, the decisions to reduce corporation tax rates, to do away with the previous Government’s proposed increase of 1 per cent in national insurance contributions, which would have ripped another £250 million from the north-east economy, and to freeze business rates will all help, as will freezing interest rates. The sooner we get back to growth, the faster the new jobs will come. If the economy of the north-east grows by 2 or 3 per cent, that is another £1.2 billion of investment in the regional economy. It is like adding a new Sage or companies the size of Greggs and Northumbrian Water to the regional economy every year. That will create jobs and wealth.
In the two minutes remaining, I will focus on the lessons that we can learn from the past. I was involved in public life in the 1980s when changes were made to the heavy, nationalised industries. I know the heartfelt pain that was caused in many communities, including to many members of my family who were involved in those industries at that time. One thing that I thought was a great mistake that we made as a Government, even though we did what was necessary at that time, was not to reskill and retrain people, allowing them to drift into the benefit culture, from which many of those communities still have not emerged. I think that there are some real opportunities. When people are leaving the public sector, we should provide them with the skills and retraining necessary to contribute to the private sector. As an example of this, the Northern Recruitment Group has set up a course called “Leadership Enterprise Opportunity”—a great title for a course. It takes senior executives who are leaving the public sector and retrains them to apply their skills to the private sector. That is having a hugely beneficial effect. Not only are those individuals securing jobs, but they are realising that a lot of the skills that they have—particularly in the areas of finance and IT—are easily transferable into the commercial sector and can contribute to the growth of that sector.
Finally, I love the imagination that was shown in introducing a cut or a break in national insurance contributions for new businesses that are setting up outside London and the south-east. This is an imaginative approach to providing incentives for businesses and for people to set up enterprises. However, I think that we could go further. I wonder whether the Minister would consider starting a discussion about whether we could recreate some of the attributes of the old enterprise zones, which did so much to bring about the physical regeneration of parts of the north-east of England. We could say that in certain black spots—for example, Middlesbrough, Hartlepool, Easington and Blyth—if you set up a new business, not only will you not pay national insurance contributions on the first 10 employees, but you could also get breaks in corporation tax, business rates or capital allowances. This would use the difficult choices that have to be made at this time in order to build a more sustainable footing for the regional economy going forward.
Lord Berkeley
My Lords, I congratulate the noble Lord, Lord Allan of Hallam, on his speech. He managed to be non-contentious, as is required, but I can see that his independence of ideas on matters technological will enable him occasionally to challenge the coalition’s thinking. I look forward to hearing him often in this House. I was also interested in the comments of the noble Lord, Lord Bates, about what a great job the regional development agency for the north-east has done. He will be aware that, in Schedule 1 to the Public Bodies Bill, it is down for abolition. I am assuming that he will oppose its inclusion in the Bill and I look forward to joining him in doing so, as I think that the agency has done a fabulous job in the past.
I am going to speak about transport, which features strongly in the CSR documentation. The coalition policy document sets the scene by stating:
“We will support sustainable growth and enterprise balanced across all regions and industries … giving new incentives for green growth”.
In the same document, in the transport section, there is an interesting mix of projects large and small, capital and revenue-related, long and short term, including a new system of HGV road user charging, no more funding for fixed speed cameras, a new dual carriageway in Norfolk, support for sustainable travel initiatives and the establishment of a high speed rail network,
“as part of our ambitions for creating a low carbon economy”.
Finally, there is an emphasis on the “green economy”. That seems to be a sustainable green policy across government. It needs to be, as the Stockholm Environment Institute, which is associated with the University of York, published a report in August saying:
“Transport is a major source of greenhouse gasses, and it is increasing emissions faster than any other sector of the economy. Growing levels of car use, road freight and flying have created difficulties in reducing transport’s greenhouse gas emissions”.
Perhaps we should examine what the Government are going to do about it.
What is good in the CSR is that the funding for many capital projects has largely been retained. We can read about rail projects: the Midland main line and the east coast main line are going to improve, but there is still no news about the Great Western main line electrification or the Thameslink upgrade and new rolling stock. It is interesting that the Chancellor, in his Statement, announced electrification between Manchester, Liverpool, Preston and Blackpool, but the Department for Transport is still failing to confirm that. Perhaps Mr Osborne is going to be the new Secretary of State for Transport as well.
Elsewhere it is cuts, cuts and increasing fares on public transport, while, frankly, the road sector is getting off pretty scot free. The bus subsidy has been drastically reduced, by something like £200 million. Therefore, there will be fewer services, costing more, particularly in country areas, which I would have thought Conservative and Liberal Democrat MPs would oppose. The consequence will be that more people will use their cars. Train fares are due to rocket, with regulated fares to increase by 25 per cent over the next four years and, I think, about 33 per cent over five years. What I find interesting is that, less than two years ago, the current Minister for Railways, Theresa Villiers, who was then shadow Transport Secretary, stated that a fare increase of 3 per cent above inflation would price people off the railways. Norman Baker, who was then the Liberal Democrat transport spokesman, said the same thing:
“We will cut rail fares, changing the rules in contracts with Train Operating Companies so that regulated fares fall behind inflation by 1 per cent each year”.
They both agreed, even before the coalition was formed, that fares were going to be too high, but they have now done a massive joint U-turn. It means that fewer people will travel by rail because they cannot afford it; they will use their cars more. As my noble friend Lord Foulkes said, the housing benefit changes will force people out of London and other major cities, which will mean that they have to pay even higher rail fares to get into the cities. There is not much alternative to getting into London. Perhaps I can offer the Mayor of London, Boris Johnson, another phrase: transport is getting like Kosovo, too.
Roads are going to become a free-for-all in places where there are no traffic jams; there is no more funding for speed cameras, so more motorists will be speeding. There will be £37 million of cuts in the road safety grants and operating expenditure this year. More people will get killed or injured. There is always the option of increasing charges for road use to match the increases for using bus and rail. There may be road user charges for foreign lorries, if the Department for Transport can find a way of doing that legally, but we have heard of no constraints or charges for cars. The Mayor of London is even scrapping the Kensington congestion charge scheme because motorists do not like it. Well, they wouldn’t, would they? However, it would bring up the charges to balance the increase in rail and bus fares. This is the policy of a potential Prime Minister and it epitomises the coalition, which, to me, appears to be allowing motorists to do what they like, with less and less fear of being fined, pricing people off public transport and on to roads and, after less than six months, dumping any policy associated with green initiatives and lower-carbon transport.
Clearly, the coalition accepted in its programme for government that a sustainable growth policy was necessary across all government departments, and transport is one of the worst offenders. However, on the basis of numerous independent reports, as well as evidence in the UK and parts of Europe, we will actually have higher carbon emissions. It is rather depressing that the Liberal Democrats in coalition are not diluting the worst excesses of the Tories in their love of motor cars and belief in the divine right of drivers to do exactly what they like, where and when they like. The Government could have raised revenue from the highest polluters—cars and lorries—which would have reduced emissions, because road transport’s emissions are about five times more polluting than rail’s per passenger mile or freight mile. It is possible to change behaviour and reduce carbon emissions at the same time, but that needs a consistency of policy that has so far and so quickly eluded the Government.
One project that the Government are praying in aid as important is High Speed 2—the new line that Ministers have been announcing for some time—but the problem is that many in the industry feel that the Government are not really serious about it. Members of Parliament along the whole route are campaigning against it and making the most outrageous statements about high-speed lines. All that they need to do is to go and look at HS1 in Kent to realise that it is a good scheme. The Government need to do a lot more to promote HS2, otherwise they will be just saying that they are doing it and it is not going to happen.
Returning to the coalition document, I believe that on present evidence the Government are not supporting sustainable growth across all regions and industries and are not giving incentives for green growth. They are doing exactly the opposite, taking us back to some of the Tory policies of yesteryear.
Lord Judd
My Lords, we certainly faced a very severe global financial challenge. Corrective action at national and international levels was essential. There can be no argument about that, but, as this debate is well illustrating, the issue is about what action and what timetable.
Adam Smith was a highly ethical man. His first writing was about ethics. He approached economics with ethical commitment as a given. The roots of this crisis lie in an ethical vacuum into which greed relentlessly moved. The heaviest burden of the measures proposed for recovery compounds the lack of principle. It falls on the less affluent and particularly harshly on the poor, on people who struggle to live at a lower or lowest level of society. Those are the innocents who had absolutely nothing to do with generating the crisis, save that they were too often wickedly seduced into grotesque personal debt.
The bankers and self-indulgent rich who live at the top of the pile appear to be escaping with very little real hurt. We live in an age in which wealth and profits are privatised, but in which risk is socialised. This makes a total nonsense of market theory. The self-correcting disciplines are absent. The innocent are crushed and punished to pay for the transgressions of the gamblers.
The Prime Minister likes to talk of broken society and of family, but it is the Government’s response to the crisis which is smashing society and crushing families. The greatly respected Institute for Fiscal Studies has underlined that the poorest are to be hardest hit, with families as the biggest losers. All this is compounded by insensitivity and remoteness from the harsh realities of struggle, of the pressures and acute stress that affect life for millions of ordinary people. Listen to Grant Shapps, the Housing Minister, as reported in yesterday’s Observer. This is what he said:
“I don’t deny some people may well need to move. Not tens of thousands. The impact assessment says that there are about 17,000 people in London whom the cap would affect”.
Seventeen thousand people would be stressed beyond endurance on what matters most for their security and any chance of a constructive life—a home. That is something that all of us, not least those in the Cabinet, take for granted.
The Government have also launched an attack on universalism in benefits. Universalism is about inclusiveness and social cohesion in a healthy community, where people are not stigmatised and institutionally patronised. It is about all belonging with the same rights as citizens. Of course this must mean a convincing system of progressive direct taxation, with all of us paying according to our ability to ensure a society worth living in. For too long, the concept and values of service have been, in effect, denigrated. Service is not seen as being for clever people. Money is their game. But the quality of mutual service is essential for an integrated society. Do any of us really want to be reliant on health provision driven by markets, as distinct from vocational commitment and a culture of service and care? Do any of us really want our children to be at schools and universities driven by markets, not by dedicated teachers and professors in a culture of unyielding commitment to learning and the generation of enlightened self-confident citizens? Are we really happy at the thought of older years dominated by anxiety and the ruthlessness of market forces, as distinct from a national culture of concern and national care?
The Prime Minister talks of big society, but that was exactly the vision of the so-called welfare state—the dignity of secure citizenship as against the insecurity of a rat race for survival, with volunteers scurrying about to put patches on the wounds. Why have we allowed the word “welfare” to become associated with failure? Welfare is about well-being for us all. No; Galbraith was right when he described the stark grimness of private affluence and public squalor. For social justice, progressive taxation, not cuts, is the route which clearly should be taken.
Save the Children, with all its experience and integrity, is convinced that the eradication of child poverty can be achieved only if the income of the poorest households is increased. Save the Children argues that boosting family incomes is the most effective way to improve children’s health, educational attainment and life chances. Its impressive analysis indicates that the comprehensive spending review measures will hurt families experiencing in-work and out-of-work poverty and are likely to reduce the incomes of families with children living on incomes below the 60 per cent median. I fervently hope that the Minister has had time to study the detailed policy brief prepared by Save the Children. Has he? Have the Government? If not, can the Minister give a firm undertaking to do so and put the considered response to that brief in the Library?
It is very welcome that the Government are standing by their pledge of 0.7 per cent of gross national product for overseas development assistance. This is for the most disadvantaged people of the world, although, as a former director of Oxfam, I would be happier if the pledge were to be fulfilled in the context of a demonstrably greater commitment to a fairer society within the UK itself. Within that pledge there are points still to be clarified. Will all the DfID staff cuts to be imposed affect the effectiveness of front-line staff? How will that effectiveness be guaranteed? How will the Government ensure that there are adequate essential human resources to support front-line workers with the policy analysis, research and international advocacy which are indispensible to the quality of aid spending and the best possible use of taxpayers’ money? If the increase to 0.7 per cent by 2013 is to be back-loaded, as seems to be the intention, there will be a steep increase—perhaps as much as 33 per cent—in spending in 2013, rather than straight-line increases from 2010. This will surely require careful scrutiny. How will this scrutiny be provided?
Andrew Mitchell has indicated that the spike in spending in 2013 will be facilitated in part by delaying the UK’s contribution to the 16th replenishment of the World Bank’s International Development Association. As the United Kingdom is the largest donor to IDA this could mean that the World Bank is unable to maintain current levels of disbursement to low-income countries for the first two years of the next IDA round. What reassurances can the Minister give us on the implications of this and how they are being met? The Government have committed themselves to spend 30 per cent of aid, both bilateral and multilateral, on fragile states by 2014. Some of that reprioritisation will presumably take place in the next two years. This coupled with the IDA payment delay could mean that more stable, but nevertheless poor, nations could lose out as the aid budget does not increase and spending priorities are put elsewhere. Again, can the Minister reassure us on this point?
On the Government’s highly welcome commitment to conflict resolution and security sector reform—here I should declare an interest as a trustee of Saferworld—does the Minister agree that addressing root causes of conflict and security in fragile states is about more than spending money on security interventions, that promoting lasting and sustainable security necessitates a holistic approach to security and development and not siloing them off as separate issues; in other words, that development needs security and security needs development? Is it not vital that any security interventions HMG do support must have practical concern and support for poor marginalised and vulnerable populations at their heart?
Climate change is having a devastating impact in poor countries, keeping vast numbers of people trapped in poverty. It is imperative to move towards a global low-carbon economy. At more than 552 million tonnes, the UK’s CO2 emissions are the seventh largest globally—more than those of the 112 lowest-emitting countries put together. We have an inescapable responsibility. In doing what we should be doing to fulfil that responsibility, can the Minister assure us that raiding the aid budget will not be the easy option, depriving as this would the poorest? Will the Government press for raising climate finance by alternative measures such as aviation and shipping fuel taxes or a tax on international financial facilities?
As the Government squeeze, if not in part throttle, the BBC, how will they make certain that where the BBC is most needed—in its overseas reach, keeping hope and values alive among tyranny and oppression—it will remain fully committed and effective? And where, in places such as Russia, the BBC can help to keep the struggle for accountable democratic government alive, will the Government make certain that there will be no further cuts? Do the Government agree that it is not just a matter of size of audience—a market matter—but a matter of qualitative significance, where this is crucially required? How will the Government use their influence to ensure that the expertise, analysis and in-depth knowledge, which have won the overseas service its outstanding reputation, are not dumbed-down and diluted as overseas news services are combined with mainstream BBC news services?
There has been a severe global financial crisis—of course there has been—from which we have not been immune. This has been aggravated by the greed and irresponsibility of the banks and others. The tragedy is that we do not seem to have learnt—we are drifting back already to the old ways. The gamblers and opportunists are there again. Just as the Government have rejected an imaginative Keynesian approach, so they have failed so far to call the financial system to account. As they increasingly put the burden of the inevitable consequences on the less rich and the poor, they rub salt in the wounds by talk of our all being in it together—of volunteers being mobilised to tend the casualties and victims. One day, the sooner the better, we shall have to rediscover national solidarity and start building a real sense of just community.
Lord Skidelsky
My Lords, it is a sign of the jittery state we are in that a slower-than-expected slowdown in the rate of growth is hailed as strong evidence of recovery. Of course it is nothing of the sort. It marks the end of a period in which the economy has been supported by fiscal policy, with some help from the depreciation of sterling. The direction of fiscal policy has now been reversed. In their recent comprehensive spending review, the coalition Government confirmed that they will embark on cuts that will withdraw between 1.5 per cent and 2.5 per cent of nominal demand from the economy every year for the next four years.
The Government’s own independent watchdog, the Office for Budget Responsibility, has estimated that every 1 per cent decline in current government spending knocks 0.6 per cent off economic growth. I have never been able to understand how cutting the budget deficit in present circumstances is supposed to help employment and growth. The noble Lord, Lord Higgins, asked a very pertinent question: what do the Government consider to be the effect of the cuts on aggregate demand? Well, he did not get an answer. We are never told what the answer is. Instead, we are assured that private spending will miraculously spring to life on a wave of confidence induced by the Government’s very announcement of the deficit plan. Well, the most recent data show that in September bank lending posted its largest drop by more than £4 billion since January. If that is an indicator of the private sector’s new appetite for spending, I must remain sceptical about the newly fashionable doctrine of contractionary fiscal expansion, as it is known; the idea that if you contract the budget deficit, the economy will expand.
The present policy bears the strong personal imprint of the Chancellor. His rhetoric prepared the ground for it; he implemented it; and his political future depends on its success. Mr Osborne is not a reluctant cutter; he is an enthusiastic cutter; he is a conviction cutter. Normally I applaud conviction politics. It is rare enough for a politician to have convictions. But it is a great shame that the Chancellor’s convictions are so little-rooted in theory or in experience.
“Even a modest dose of Keynesian spending—say, increasing it by an additional 1 per cent of GDP—is a cruise missile aimed at the heart of a recovery”,
the Chancellor said in October 2008, barely a month after the collapse of Lehman Brothers, with the global economy going into a tailspin. No wonder Vince Cable said at the time:
“George Osborne is clearly way out of his depth”.
I wonder what Vince Cable thinks now. Mr Osborne is clearly a man of ability and determination, but I have to say in all seriousness that in his present position he is a menace to the future of the economy.
The Chancellor believes that any stimulus that needs doing should be done by monetary policy. In present circumstances, that means quantitative easing, or printing money. I do not accept the argument that the last quarter’s figures make this less likely. What matters for monetary policy is the state of the economy in six months’ time, not six months ago. So I expect that in due course the Bank of England will follow the Federal Reserve Board and probably Japan’s central bank down this path. The question is: will it work?
We have the experience of last year to go by. Between March 2009 and February 2010, the Bank of England injected £200 billion of liquidity into the economy. Over the year of quantitative easing, reserve balances at the banks quadrupled but the quantity of bank lending hardly budged. The same story is told by the money supply figures. In the years leading up to the crisis, M4—the Government’s preferred measure of broad money, including bank and building society deposits—grew consistently between 6 and 9 per cent year on year. However, in the past 12 months, M4 has grown at only 1 per cent and M4 lending has fallen by 0.7 per cent, the weakest number since records began in 1998. What has happened is that the “money multiplier”—the ratio of money supply to monetary base—has continued to fall as banks absorb the influx of money into their reserves without increasing their lending.
The same story can be told in other areas. Quantitative easing failed to bring down long-term interest rates—the spread between the bank rate and the long rate hardly fell. Nor was there any evidence of the so-called wealth effect—the argument that firms use quantitative easing to buy assets and the rising asset prices enable them to raise money by issuing new shares and bonds. There was indeed a rally in the stock market in 2009 but this was accompanied by a sharp decline in company flotations. Paper wealth went up but there was no effect on corporate issues, investment and activity as in the quantitative easing storyline.
The failure of quantitative easing should come as no surprise to a Keynesian. As Keynes said, if money is the drink which stimulates the system to activity,
“there’s many a slip twixt cup and lip”.
Quantitative easing is simply the expression of the monetarist view that, if you increase liquidity, money GDP will rise proportionately after a short lag. However, it is not the printing of money that causes GDP to rise but the spending of money, and the spending of money depends not on the quantity of bank reserves but on the willingness of the private sector to borrow and the willingness of banks to lend at rates of interest at which they can borrow. However many trillions of dollars or pounds Governments pump into the economy, this will not stimulate borrowing or lending if consumer demand is not there.
Ministers are constantly exhorting banks to lend. Banks say that there are no borrowers, by which they mean borrowers at the going interest rate. However, here is a suggestion for overcoming this blockage which is consistent with the deficit reduction programme. The Government should set up a national investment bank, which they would capitalise and mandate to spend £X billion a year on investment projects at interest rates low enough to fulfil the investment mandate. We are already promised a tiny prototype of this in the proposed green investment bank. Candidates for such investment would be infrastructure projects such as the high-speed rail link mentioned by the noble Lord, road building and repairs, house construction by local authorities, or projects to do with carbon emissions—insulating houses, solar panels and so forth. Lending by the investment bank would not affect the deficit and so would not spoil Mr Osborne’s austerity story. True enough, subsidised interest rates imply a lower expected return on equity than from current lending, but a lower return is still better than no return, which is what idle capital now earns.
There may be better ways but the goal is clear: to unblock the channel of spending when orthodox fiscal and monetary policy is, for one reason or another, disabled. Unless we succeed in doing that, we will be doomed to years of interminable recession.
Baroness Billingham
My Lords, let us not beat about the bush but focus our attention on one specific area by considering the impact of the Government’s actions. In the spending review, the Government claim that they have been forced into making a series of choices, which they allege are based on seeking “fairness” and “reducing … wasteful spending”. My question for the Minister is how wiping out all the advances made in school sport in the past decade can be seen as either fair or a reduction in wasteful spending.
Yes, it has been hard making those advances. I can recall many Members from all sides in this Chamber taking part in those debates. There have been passionate debates, but we have always had a consensual and positive view about sport. How we fought and railed against the couch potatoes. How furious we were at the selling off of school playing fields. How we moaned about the loss of grass-roots sport and, equally important, the demise of competitive sport in all our schools.
I can name all of you—from the alliance to the Cross Benches and my own side—who challenged the Labour Government to put sport back into the curriculum and into extracurricular activities as well. How we all rejoiced when a minimum of two hours of sport in the curriculum was announced, and how we cheered even louder when we heard of the “Kelly hours”, which gave us the prospect—at long last—of an additional five hours of sport in state schools. That was a triumph, of which we could all be justly proud.
How could the Secretary of State, Jeremy Hunt, be so docile when Michael Gove announced that £162 million that was previously earmarked for annual sports funding was to be redirected to general schools funding? The outcome of those changes is inevitable. School heads, desperate to do well in Ofsted inspections and in league tables, will inevitably be led to transfer money from PE into their more academic programmes. Michael Gove will thus be able to hide behind the human shield of heads’ self-determination—a cowardly and sneaky way to behave. At the same time, the specialist school system, under which some 400 schools became sport focused and 3,200 sports co-ordinators were introduced—one in every secondary school in the country—was wiped out.
As for the timing of these disastrous cuts, are the Government aware, or do they even care, that the 2012 Games were supposed to set our young people alight and encourage others to take up new sports? Their legacy was to include thousands of others making a new life for themselves in the sporting framework. In fact, the successful bid stressed the value of sporting heroes time and again. The 25 per cent cuts in total spending will decimate school and grass-roots sport and make a mockery of Seb Coe’s promises that the legacy is as important as the Games themselves. That will adversely affect not hundreds or thousands but millions of children. It is carnage and it is grossly unfair.
We will reap the rewards with more obese and disaffected youngsters and the loss of the skills and international sporting success that we are all so proud of and eager to attain. I guarantee that more than 80 per cent of any medals that we win in the London Olympics will be won by competitors from private school backgrounds. The future will be more unfair and divisive. When I hear the head of Eton College announcing the sale of its famous playing fields, I will know that the alliance is indeed playing fair and that school sport will be taken from all youngsters, irrespective of their background and schooling. I await the response to that possibility from the Prime Minister and, indeed, from many of his Cabinet colleagues. At that time, I might be convinced that we are all in it together, but I doubt it.
This weekend we put the clock back an hour for totally misguided reasons and not based on the greater good. The coalition Government have just turned the sporting clock back to the 1980s, to the previous time that the Conservative Government wrecked school sport. They should be ashamed of themselves. They have a chance to think again and reverse this appalling strategy. If not, a whole generation will be lost to sport. That surely is too high a price for any nation to pay.
Lord Plumb
My Lords, we have had the privilege of listening to some interesting, varied and sometimes provocative speeches today, but I have not yet heard anyone speak of British agriculture, which is the one group that can really help our country’s economy. I am proud to be involved in British agriculture—I declare my interest as a farmer—so I will speak on the spending review’s implications for agriculture and horticulture as well as for the future role of the Department for Environment, Food and Rural Affairs, which faces substantial cuts. We have to examine where those cuts will come and what effect they may have.
Defra has not always been the flavour of the month with many farmers because the unnecessary complications in the single farm payment and the rural development schemes cause burdensome expense. Every tree, building, rock, hedge, ditch, pole or pond that impinges on grazing or cropping areas has to be identified as a result of the gold-plating of European policies. I hope that, following the spending review and the reduction in bureaucracy and red tape, farmers can get on with their farming and show much more effectively and clearly the economic value of food and energy production to the nation, through growth, efficiency and innovation.
However, it is necessary to look way beyond the farm gate to the food chain as a whole. Collectively, the agrifood sector accounts for 6.7 per cent of the total economy of this country and generates some £85 billion in GVA to the United Kingdom economy. Many people are surprised to learn that 3.6 million people are employed in agriculture, which equates to 14 per cent of total employment in this country. The United Kingdom food and drink industry accounts for 5 per cent of total exports, with over £14 billion generated through overseas sales last year.
The credit crunch has awakened food patriotism among consumers and has increased dedicated supply chains, which are a feature of the agrifood sector. We know that farmers are more aware than most of the challenges of limited resources and climate change. Farmers recognise that they can contribute to developing renewable energy markets and emerging technologies. The biofuel market is a classic example. That market is developing very quickly—we should catch up with some other European countries before too long—and is often delayed only by planning consent.
We recognise that Defra has undergone substantial restructuring in recent years, so it is important to determine its future structure as soon as possible. There is obvious uncertainty and speculation among the bodies under review, including the Agriculture and Horticulture Development Board, the Environment Agency and Natural England. Natural England plays an important part in teaching through school visits to farms. I speak from experience, as 34 schools have adopted my son’s farm so that children can see what is going on in the countryside. At the same time, it is appropriate for Government to restructure antiquated regimes, such as the Agricultural Wages Board, and to refocus spending priorities and delivery.
I have many questions for the Minister about the details of the spending cuts that I know are under consideration. With a 33 per cent cut in expenditure, am I correct in assuming that £174 million will come from a reduction in running costs? What are the savings in administration? Money is overdue for payment from Brussels for the higher level scheme. Will that be delayed? Farmers are telling me that the scheme has already been delayed for some considerable time. Will the savings on the rural development programme of £66 million apply just to the environment scheme? If the sterling-euro exchange rate is a factor, is there any provision for unexpected movement? What exactly are the department’s spending commitments on animal health? One could go on with these questions, which have to be put.
Minister, I do not expect an answer tonight, but please take note of those questions, because they are real and they are being asked. I hope that in doing so, you will know that farming is at the heart of the financial recovery and is willing to play its part in doing everything possible to reduce the deficit. I am confident that it will.
Lord Clark of Windermere
My Lords, the noble Lord, Lord Plumb, has spent a lifetime in politics very successfully defending and advocating the interests of the farming community. He tempts me to mention another side of the rural community—that of the forestry industry. As a former chairman of the Forestry Commission, I am going to yield to that temptation. Like every other government department, the Forestry Commission has taken a hit with the comprehensive spending review—a 25 per cent cut. I think about what it has done in recent years in timber production, biodiversity, conservation, access, climate change, health promotion; the list goes on and on. When I consider that the net cost last year to the Exchequer of the Forestry Commission in England—and it is only the Forestry Commission in England that the Treasury can actually touch—was a mere £10 million to deliver all those public benefits, I just wonder what the Treasury is up to.
Having yielded to temptation, I now take up the invitation of the Minister to take note of the spending review. The House will be pleased to hear that I am not going to deliver what I had originally planned because, quite frankly, there have been some brilliant contributions in this House this afternoon. Not all have come from this side, although they mainly have. They have also come from the Cross Benches; the noble Lords, Lord Skidelsky, Lord Low of Dalston and Lord Bilimoria, all made real, pertinent and thoughtful points. If the Minister believes that he can leave this debate with his case accepted he is, I am afraid, going to be disappointed.
We tend to think of the spending review as an economic issue, but it is as much, or perhaps more, to do with politics as it is with economics. I must credit the Government for the way they have managed to swamp the media and persuade them that there was no alternative to these cuts; that they had to be done, and done immediately; and that the Labour Government had left an unwholesome mess. That case has been refuted time and time again, but it needs repeating time and time again that this is an ideological battle. In this respect it divides both sides of the House. It is to do with the power and the size of the state. I know where we on this side stand, and I know where the majority of Members on the Conservative side stand. I am a bit unsure where the Liberals stand or whether they stand anywhere. They seem to be sitting on the fence yet again, and I am sure this causes a great deal of anguish to a number of Members.
Most honest and neutral people were horrified by the Chancellor’s announcement in the other House and the reaction of Conservative MPs. The bigger the cuts, the louder the cheers—and yet every one of those cuts will mean that tens of thousands of ordinary, decent citizens are going to lose their jobs. This will apply not only in the public sector but in the private sector because, as we have been reminded constantly today, roughly for every job lost in the public sector the multiplier effect means that a similar job will be lost in the private sector. That has never actually reached the airways or the pages of the newspapers; it has never been spelled out that we are talking about cuts not only in the public sector but in the private sector as well.
I have also noted the letters in the press—obviously co-ordinated—from business leaders saying that they will make up the losses. I should like to write to every one of these business leaders and say, “Tell us how many jobs you are going to create in addition over the next four years”. That is the only way in which can we judge them. We can judge the Government because it is a matter of public record, but they have called in their supporters from industry and they must be challenged.
I take the point greatly that we are risking the economy of this country. There has been talk that the Labour Government did not invest for dark days when it was sunny. What is investment in education and higher education? If this country is to survive and prosper—and I want it to do so—we shall have to get out and win markets. Although we are talking about a recession, the reality is that the economies of the world are bigger now than before the recession. There are opportunities for our exporters in the growth economies—China, Brazil, India and so on—and the pound is at a level at which we should be taking advantage of them. However, we will do that only if we use the skill, the ingenuity and the brains of our young people. I believe that one of the best capital investments that the previous Labour Government made was in the field of education. I could also refer to other fields.
I challenge the point about the level of indebtedness. The key yardstick is the size of the national debt against the size of the GDP; that is the way to judge it. If you read the British press, listen to the British radio or watch the British TV you would think that we were at the top of the league: that we were in the most difficult position. That is not the case. The top country—I think that a Member on the other side of the House referred to this—was Japan, with indebtedness of 225 per cent of GDP. Running down the list you find the United States at 93 per cent and France at 84 per cent. You have to go down to 12th position before you come to the United Kingdom at 77 per cent. That is far too high—I concede that straightaway—but it is only 2 per cent higher than the model that is always held up in Europe: that of Germany.
Of course the problem is difficult and real and the deficit needs to be decreased, but I would argue that to try to decrease the deficit through cutting public spending and reducing demand is not a very propitious way to move forward.
Lord Stewartby
My Lords, I nearly forgot to get up, I was so interested in what the noble Lord, Lord Clark, had to say. It has been a very vigorous but extremely interesting debate. I have not prepared a speech of any length, which is a good thing, because much of it has already been said by my noble friends Lord Lamont, Lord Tugendhat and Lord Newby, so I just want to pick out some of the main themes of my rather attenuated speech.
There can be no doubt that the figures of deficit and interest charges have been at a dreadfully dangerous level. Interest is now at over £40 billion a year, which is much larger than the whole of the schools budget and the whole of the Ministry of Defence’s expenditure. One cannot run the economics of a country on the basis that it can hold those levels of debt. The same is true of the scale of the structural deficit, which is over £100 billion, according to the Budget and CSR papers, so clearly tough measures were going to be necessary. There is no doubt that in a situation like this, making changes early is always going to be the right course, because if you leave problems to fester, they normally get worse in the process. I think the Chancellor has done right to see that immediate action was taken, and the CSR now sets out a way ahead after a very bruising period. I am afraid I cannot follow the noble Lords, Lord Myners and Lord Peston, in their defence of the state of the British economy that they bequeathed to their successors, but I thought it was a very bold attempt.
I cast my mind back to nearly 30 years ago and the 1981 Budget, because I think it contains some interesting matters that are relevant in any period of tight budgetary squeeze. I used to carry the then Chancellor’s bags at that time, so I had to field a lot of representations from individual Back-Benchers who were not happy about the composition of the 1981 Budget, to put it mildly. Because the Chancellor was always so busy, I got fielded to talk to these people and it has made an indelible impression on me because that was a classic case of tax increases in a recession. It is a lesson which we would do well to remember today. One of the great moments in that period was a letter written to the Times by 364 academic economists, who said:
“Present policies will deepen the depression, erode the industrial base of our economy, and threaten its social and political stability”.
Well, what happened? From the very moment they signed the letter, the economy turned and began a course of recovery. It made me feel that, although sometimes latent, there was a sort of energy in the British economy if it was left to get on with its work and not hindered by too many regulations or unattractive fiscal situations.
I have been concerned in recent weeks about the supposed “double-dip” recession that may be around the corner. I would be the first to say that there are many uncertainties in the economic world at the moment, not only in this country but abroad. The situation in many countries, particularly in Asia and the Far East, is much more serious, but you do not see much comment about it in this country. When I ask people what the case for the supposed double dip is, I do not get an answer. There has been much talk, but no explanation. People just toss in the double dip as if it was some shadowy possible event hanging over us.
This brings me back to my original point; there is a tendency to be pessimistic about our economic performance and potential. Just as the 364 economists gave an extremely pessimistic assessment of what the 1981 Budget would do to people, so there has been a pessimistic slant in the response to the CSR and the public reaction to it. Of course, two or three quarters of better GDP do not guarantee a strong recovery, but they are more likely to point to an improvement than a deterioration, so I was not surprised that the figures were a bit better than people had expected.
When we are asked where growth is coming from, I would give greater emphasis to something that has hardly been mentioned: investment by the corporate sector. The banks may not be lending very much because they cannot find decent borrowers. One of the reasons for that is that many of the people who were borrowers have strength in their own balance sheets to the point where the corporate sector has far more resources than are needed for the level of activity that is taking place. It could afford to do a lot more.
It is important in a recovery that companies should have confidence that there is stability and that there are further improvements to look forward to. There has been a reduction in corporate taxes and other measures to help businesses. The latest output figures are encouraging. There are other straws in the wind. Those in business whom I talk to or meet say that there are far more examples of companies looking for opportunities to do things, having sat on their hands for quite a long time. The noble Lord, Lord Knight, spoke about investment. That could be one of the stronger elements of recovery.
However, there is still a long way to go. The Government must hold their nerve in implementing the plans set out in the CSR in the face of the criticism and challenges that will certainly follow. I believe that they have the commitment and determination to do so and that the double-dippers may be disappointed. I have moved in the past few months from being moderately pessimistic to being moderately optimistic. I just hope that it will work out that way.
Baroness Nye
My Lords, I should like begin by thanking your Lordships for the generous and warm-hearted welcome which I have received from all sides of the House. The staff have done their utmost to help me settle in, and I am very grateful indeed for the kindness that was shown to my family on the day that I was introduced. I should particularly like to thank my sponsors, my noble friends Lady Kinnock and Lady Royall. When I say friends, this is not simply the normal courtesy given to a colleague from my own Benches. I can genuinely say that they have been among my closest friends and mentors for—I am almost afraid to say this—nearly 30 years.
Having spent those three decades working in the precincts of the Palace of Westminster, I was labouring under the misapprehension that I knew my way round. I soon discovered that my knowledge ended as soon as the green carpet gave way to the red. I recognise that I have a very great deal to learn.
In a working life dedicated to the Labour movement, I have had the good fortune to have worked for three leaders of the Opposition, two Prime Ministers and one Chancellor of the Exchequer. I have endured 18 long years of opposition—and, yes, 12 very long years of government. Yet I have only one claim that is, I believe, virtually unique in the world of politics: in all that time, I have never before delivered a public speech. So this really is a maiden speech. Be kind!
The background to this debate on the spending review is the events of 2008 and the financial storm that began in America but then spread to all parts of the world. Prior to the global financial collapse, the UK had by far the lowest ratio of public debt to GDP of any of the G7 economies; in fact, it was about half the G7 average. Our budget deficit, the subject of some subsequent criticism, was actually very close to the average for the advanced economies. When the storm hit, there were serious choices to be made. The UK played a leading role in ensuring that the choice of the international community was to intervene in the markets on an unprecedented scale. We can now see that this extraordinary action prevented a very major recession from developing into a slump. We can perhaps too easily forget how close the world came to an economic calamity which could have rivalled the 1930s in its severity and social consequences.
The nationalisation of Northern Rock was not a choice that the Government wanted to make, nor was the injection of capital into other UK banks. But this action meant that no British saver lost money, and virtually all other advanced countries followed the UK's lead. It was not action to bail out the bankers; it was action to protect people's savings and, ultimately, to protect their livelihoods as well. There was also direct government action to restore the wider economy to growth; help for small businesses that were in need of credit; targeted tax cuts to help families at the lower end of the income scale; and investment in infrastructure projects to maintain employment. A housing collapse was avoided by special government support to people who were threatened by the repossession of their family home.
In February 2009, the UK had a historic opportunity to lead the way out of recession when the G20 meeting came to London. The co-ordinated global action agreed at that meeting will stand as a landmark when the history of the recession comes to be written. The global financial crisis caused tax receipts to fall and public spending to rise. It is common ground across the political spectrum that action now has to be taken to reduce the government deficit, and everyone recognises that the incoming Government have a difficult task in choosing the right path for deficit reduction. One thing is certain: the deficit will not be reduced without a plan for growth and a focus on maintaining employment.
I am especially worried about the future for our 16 to 19 year-olds. I was born not far from here geographically into a family where the sole provider, through no fault of her own, was my mother. Although she had left school at 14, her father had made her train as a shorthand typist so that she had a skill that would be her means to support herself and her family. I also left school early, at 17, but I was one of the lucky ones. Opportunities came along which I was able to grasp. For many of today's 17 year-olds, that will not be the case. They need our help.
I know that all sides of the House share the aim of raising the educational achievement of all young people, especially for children from low-income households and disadvantaged backgrounds. This is not only critical for social justice; it is also vital for the competitiveness of the British economy. Young people have always borne the brunt of increased unemployment, and it is the same again this time. The IFS recently reported that,
“low skilled, low-educated and young workers are seeing a bigger deterioration in their job prospects than skilled and educated ones”.
That is why the education maintenance allowance was designed to encourage young people from less well-off households to participate in educational training after the school leaving age. I wish it had been around when I was 17. This allowance is no free lunch. Young people have to turn up, on time and participate fully in their learning agreements. If they do not, then they are penalised by losing their weekly payment. If they do, then a bonus is paid, linked to performance.
The Chancellor has said that the education maintenance allowance is to be replaced by “more targeted support”. I should be grateful if the Minister could provide some detail in his response today. For young people contemplating their future, it is important to know as soon as possible what that more targeted support is likely to mean. This is especially important for students who will find themselves studying in the period between the abolition of EMA in 2011 and the introduction of the raising of the participation age to 18 in 2015. For them, the future starts now, and a great number of them will need our help to achieve their full potential. In an era where some cuts are necessary, this sort of support would be one cut too far.
I should like to end by thanking the noble Lords on both sides of the House who have played formative roles in my political life. One thing I do know about the red carpet is that this is a place where old political foes can become the best of friends. And in that spirit I should like to thank the Minister for his work in the Treasury on financial regulation, when he gave invaluable advice to the then Chancellor of the Exchequer and the Labour Government. I wish him well on his return to the Treasury in his new role.
Baroness Liddell of Coatdyke
My Lords, it is a real privilege for me to respond to the maiden speech of the noble Baroness, Lady Nye. I do not think that either of us believed that this day would come when we met in the old North British Hotel in Edinburgh in about 1978. The noble Baroness was at that time a civil servant working for the then Prime Minister, Jim Callaghan, and I was the general secretary of the Labour Party in Scotland. We were moving towards one of the most difficult general elections that we have ever experienced. Shortly after that, with a certain Gavyn Davies, I wrote a report for Jim Callaghan on the truck dispute that was then causing chaos. For some reason, that report was never given to the Prime Minister and he made the famous “Crisis? What crisis?” speech. However, Gavyn Davies was to go on to do better things and to become the husband of the noble Baroness, Lady Nye.
I can think of no one from this side of the House who would have anything other than the utmost respect and affection for the noble Baroness. She is held in high regard by members of the Labour Party the length and breadth of the country. Always silent, always calm and always good-humoured, in her working life from the 1970s onwards she has worked for four Labour leaders and two Prime Ministers. They were always much better when they took her advice. The noble Baroness has today made what she says is her first public speech. We have heard eloquence and, for the first time in this lengthy debate, we have heard the global financial crisis put into context. Many of us had forgotten the circumstances around it in its detail and it was for the noble Baroness to put it into context. This House is much enriched by having her among us and those of us who are her friends are delighted to see her here.
Going on to the context that the noble Baroness set out, I watched the global financial crisis develop from the other end of the world. We have perhaps forgotten the extent to which the rest of the world looked to Britain to provide leadership. That initiative, taken with the Prime Minister of Australia at that time, Kevin Rudd, to make the focus not the G7 or the G8 but the G20, was of real significance. It was a moment when the financial architecture of the world changed, because it involved the emerging markets, many of them critical to our long-term well-being in this country.
Like many noble Lords, I am concerned about the lack of attention to growth in the economy, because growth will be much needed to get us out of the situation that we find ourselves in. The noble Lord, Lord Skidelsky, put it in very blunt terms, but I notice that the Chancellor was celebrating the fact that the recovery has proved to be stronger than we had anticipated. Quite frankly, that was as a result of the Labour Government’s policies. I draw to the Minister’s attention the fact that a key part of those growth figures are construction figures. Many of those construction figures came as a consequence of actions taken by the previous Government. While I am not in the league of the noble Lord, Lord Skidelsky, I know that in economics there is a very important law: the law of unintended consequences. When the Minister reflects on Sir Philip Green’s prescription for the Government to get themselves into a new kind of shape, would he reflect that he advocates getting rid of government property? Now, all of us might think, “Yes, get rid of some of the buildings and sell off some of the stuff that we do not need”, but that means £25 billion of commercial property coming to a city centre near you. That is a troubling and disturbing aspect for future economic growth.
I shall move on to an area that is close to my heart: SMEs. I shall talk just a little about tourism. With all respect to the noble Lords, Lord Plumb and Lord Clark, both of whom made very convincing cases for economic regeneration in rural and remote areas through agriculture and forestry, I argue that one thing that can bring rapid economic growth to remote areas is tourism. In this country, tourism is one of our major industries; I should say at this point that I am a member of the board of VisitBritain, the international marketing arm of our tourism industry. Tourism supports 2.6 million jobs. One in 12 jobs in the UK is in tourism and, with over 200,000 small and medium-sized businesses, it already contributes £115 billion, or 8.2 per cent, of the UK’s GDP. It is set to be one of the best-performing sectors over the coming decade, better even than some of our technology-led industries.
One reason why I am concerned about tourism in the future—I am not going to whinge about more than a third of the budget being cut from VisitBritain—is that if we do not give rapid support to our tourism industry we run the risk of losing the opportunity of a lifetime. The depreciation of sterling has meant that Britain is a much more affordable marketplace. Allied to that is the run-up to the Olympics in 2012, the Commonwealth Games in 2014 and the Decade of Sport. Tourism can get to those parts of the British economy that other economic instruments cannot reach and I urge the Minister to look carefully at the opportunities that can exist for tourism.
VisitBritain has already taken substantial cuts; its aim is to do better with less. Over the past two days, it has been named as the only public sector organisation to come in the top 30 Twitter sites in the UK, as modern marketing tools are used to market British tourism abroad. While the B&B in Truro, the chocolate factory in Oban and the inn in Glenelg cannot market internationally, VisitBritain can. We need to allow our tourism industry to fill the market gaps that are created. Through no fault of anyone, there is market failure in the international marketing of tourism, because it is an agglomeration of small businesses.
I have one final point, although I do not want to take up too much of the House’s time. The noble Lord, Lord Haskel, pointed to the supply-side issues that have not been properly addressed in the comprehensive spending review and spoke about innovation centres. Innovation centres are a great idea. They were a great idea in the 1970s, 1980s, 1990s and 2000s. They are a critical way of taking the genius of our universities and turning it into businesses. However, that is not an easy job for the simple reason that, contrary to what many people believe, the banks are an inhibitor to the development of SMEs. Public sector involvement through innovation centres brings in the public sector and its aversion to risk. Raising money for SMEs and business start-ups in high-tech areas is a nightmare. I know; I have done it. There is the dilemma of risk in the public sector. There is an understandable venture capital gap in this country. It takes more to promote an investment of £1 million than an investment of £100 million. Many people set up high-tech businesses based on personal guarantees to banks and the banks are not lending. In conclusion, I ask the Minister to look closely at how the financing of innovative businesses can be secured when we have this dearth of lending from the banks and at how a framework can be created to allow a more adventurous attitude to risk. Without risk, we will not get innovative companies developing.
Baroness Browning
My Lords, it is a great pleasure to follow the noble Baroness. I apologise to my noble friend the Minister; I very much regret that I arrived just after he had sat down. However, I was here for the opening speech from the Labour Benches and am pleased to say that I heard it in full.
It was a great pleasure to listen to the maiden speeches today from my noble friend Lord Allan of Hallam and the noble Baroness, Lady Nye. I am looking forward to hearing the speech of the noble Baroness, Lady Healy of Primrose Hill, in due course. This is the first speech that I have made since my introduction and maiden speech to your Lordships’ House.
The CSR is extremely radical and wide-reaching. We all appreciate that. I expected there to be challenges and criticism of it on all sides of the House; indeed, I alert my noble friend the Minister to the fact that I have one or two criticisms myself, on disability, which I will come to in a moment. None the less, I have been surprised by the collective amnesia on the Labour Benches. It is almost as though, after 6 May, the mists of Brigadoon descended over the Labour Party, not just in this House but in another place. I have observed some of its debates on the inheritance—the state of the economy and the state of the country generally as it was left by the outgoing Labour Government. I was in another place for many years. I understand what a bitter pill it is to swallow when you lose office. It takes a little adjustment. Sometimes I think that a period of quiet reflection is not too harmful. However, I have been surprised tonight by the total collective denial that there is a problem of the scale that has required the sort of actions that the coalition Government have needed to make in this CSR.
The thrust of the CSR is absolutely right and the scale of the problem is as outlined. It is not political shenanigans. We have a serious problem. In his opening speech, the noble Lord, Lord Myners, said that the problem with the national economy was sometimes likened to a domestic situation, which he did not feel was appropriate. That may well be the case, but every household in this country understands that, if you borrow and borrow on your credit cards to the extent that you have to take out new credit cards to service the debt on the existing ones, there is a problem that must be addressed. We now need to borrow to service debt that we have already incurred.
The questions—your Lordships have addressed them in this debate—are of the scale, the timing, the measures and the choices. All of them are quite legitimately subject to a debate on how the coalition Government have brought forward their proposals. The main thrust is right, but I will draw to the House’s attention some issues about how they are put into practice.
The Government have certain options. They can look at taxation and at cutting expenditure, which, of course, they have done. It is much easier to cancel projects that are already in the pipeline, many of which did not carry a purse of money to fund them, but nationally it is not popular to cut something that has already been announced or of which people have an expectation. However, these are perhaps some of the easier ways to bring down expenditure.
I wish to draw to your Lordships’ attention and that of my noble friend the fact that in another place I spent several years on the Public Accounts Committee, where, twice a week, we received well researched and well presented reports from the National Audit Office on matters right across government. The reputation of the National Audit Office, across the parties, was that it was reliable. You paid attention to its findings. I want to talk about the reports on procurement that we received. There is a systemic problem with procurement on larger projects across government departments. It is not just a matter of cutting expenditure, because the Government will still be spending money, as we know; it is a matter of addressing these problems. They go right down to basics. They involve how procurement works, how contracts are issued, how the specifications are drawn up prior to contract, how the project is managed—sometimes the project management goes on for many years—and how a project is delivered on time and on budget.
In some departments—I have to name the Ministry of Defence as being the worst—there has been the most outrageous waste of public money. We are not just talking about a few beans; we are talking about big sums of money. If we can address this problem, I believe that it will make a huge contribution to the need for the Government to bear down on waste, on the way in which public money is spent and getting value for money. The House will be relieved to hear that I shall not go into all the issues, but that is something that needs to be addressed.
People who come into politics from a business background, whether to your Lordships’ House or another place, often find the legislative process frustrating. There is no doubt that what happens in the two Houses is very different from what happens in the business world. I came from a manufacturing background, having worked for a market leader, after which I ran my own business for 10 years. I found it very frustrating. Often people make comparisons with business, saying, “Business does things this way and we need to be more businesslike”. We have not even scratched the surface as regards the way in which the Government do business and procurement. Businesses out there would have gone bust years ago if they had followed the procedures that government departments follow in procurement. Everyone has heard of the classics, such as the big IT project. I am glad to have my noble friend here, who I am sure will point us in the right direction. However, it is not just about expenditure, although we are concentrating on that in this take-note debate; it is about the consequences for those who are the end users of those policies and procurements. I urge my noble friend to take some specialised advice to ensure that, in the future, the Government address these problems and get them right.
Taxation is another arrow in the quiver. As someone who believes that tax should be used as much as an incentive as a penalty, I hope that in the next few years the Minister will bear in mind, in the interests of fairness, the need to ensure that taxation and bureaucracy do not overburden particularly the small business sector, on which I believe he will rely quite considerably for the growth that is being talked about in today’s debate. This is where the jobs and growth will come from. One of the big problems that we face in this country is with the growth of small businesses into medium-sized enterprises. Other countries have been much better than us in the past at making that leap from small business to medium-sized business. Again, I ask my noble friend to take a look at the microbusinesses that employ fewer than five people. I particularly draw attention to the requirements on them in providing pensions for staff, but there will be other areas as well. If we really want those businesses to grow, we need to ensure that we recognise that point.
My final point is about disability. I thought that the speech of the noble Baroness, Lady Campbell of Surbiton, was very well made. It is a fact that there is no like-for-like comparison between people who are in residential care and people who are hospitalised. When we talk of residential care, all too often we think of very elderly, infirm people who cannot move and whom it would be difficult to take out. However, there are many people who are able get out to lead lives at some level of independence and maintain family contacts.
In that spirit, on disability, I say to my noble friend that one group of 250,000 people are still on severe disablement allowance, a benefit that was stopped in 2001. They were allocated that benefit at the time because they were deemed to have lifelong disabilities. Many of them—most of them, I would suggest—have never been in work. I declare an interest as a carer for one such adult. When we talk about getting people back into work, it is very worrying to me, as a carer. I am not saying that all of them could not be helped into some sort of work, but the nature of their lifelong disabilities—I am speaking particularly about conditions such as autism and people on the autistic spectrum—means that these are not people to whom we will be doing any service if we suddenly turn up one day and say, “It’s time for you to go to work after 38 years”. I hope that my noble friend will take that into account.
Baroness Healy of Primrose Hill
My Lords, it is with great pleasure and equal trepidation that I rise to speak for the first time in this House. I thank the Government for giving time for this debate on such an important issue. The CSR will have a great impact on the future of this country and the kind of society we will become.
First, however, I wish to thank the Labour Party for a long and interesting career in politics, dating back to the 1970s. In opposition I worked for great Labour parliamentarians, some sadly no longer with us, notably John Smith, Robin Cook and Donald Dewar. I have also been fortunate to work in government as an adviser to many extraordinary politicians. I wish to acknowledge two women in particular. First, there is the late Mo Mowlam, Northern Ireland Secretary during the Good Friday agreement; and secondly, Harriet Harman, Leader of the House of Commons in the previous Government and a formidable campaigner on behalf of women.
I will always be indebted to my sponsors: my noble friend Lady Ramsay of Cartvale, whose wisdom and knowledge of international affairs are hard to match; and my noble friend Lord Macdonald of Tradeston, to whom I acted as adviser when he was Minister of Transport and again when he was in the Cabinet Office. He is a man of immense talent and wide-ranging experience. To both I am profoundly grateful for their support and guidance on the mysteries and magnificence of this House. I am also delighted to be reunited with many other friends who I have worked for in the past, most notably my noble friend Lord Cunningham of Felling. I am thankful to have been warmly welcomed by the staff and officers of this House. Their reputation for kindness, patience and general helpfulness goes before them. It is well deserved. My family still talk of the day of my introduction. Not about me, I hasten to add, but about the amusing stories our Doorkeepers regaled them with.
My family came from the west of Ireland—from the villages of Barnatra in Mayo and Mountbellew in Galway. They arrived here in London in the 1950s. They settled in Primrose Hill in the borough of Camden, where I was born. The welfare state was already making an impact on people’s lives and Britain was the beacon of hope for many migrants, just as the USA had been for earlier generations. My grandparents had left Galway to make a new life in America, arriving at Ellis Island, New York, in 1910. They returned to Ireland before the great depression.
I grew up in London. I benefited from the welfare state, free education and the National Health Service. I believe in the importance of maintaining these for future generations. Today we debate what kind of future Britain can look forward to following the global economic crisis. I believe that the previous Labour Government had to incur the deficit to help keep as many people in their jobs and homes as possible. All parties acknowledge the need to tackle that deficit and it is in the debate on how best to do that where opinion varies. Noble Lords have so ably demonstrated that today. There are different views as to how far, how fast and how deep these cuts must go. We on these Benches suggest a different balance between cuts and tax rises to bring down the deficit, boost growth and protect the recovery.
Today, however, I wish to raise some concerns about the possible unintended consequences of the CSR. When I worked for the MP John Cruddas—and here I should declare an interest: he is my husband—I was continuously struck by the absolute determination of many struggling families to do what was best for their children. But the harsh realities of life, like ill-health or loss of work, could trigger a series of events that could lead to family break-up and loss of a home. This is what concerns me with the CSR. For example, housing benefit changes might mean that families have to leave their homes, removing children from schools and away from support networks of extended families, friends and churches. The CSR also announced that the percentage of child care costs covered by tax credits will be reduced from 80 per cent to 70 per cent. This could cost a low-paid worker with two children up to £30 a week, and, after one year, some people will lose their entitlement to employment and support allowance. A family where one adult is in paid work and the other receives ESA could lose up to £91.40 a week. Even if they then claim jobseeker’s allowance, they will still lose more than £30 a week.
I am also concerned about the effects of the CSR on carers. A report just published by the charity Grandparents Plus states that welfare reform and spending cuts could penalise the forgotten army of grandparent carers. According to this report, there are 200,000 family and friend carers—mostly grandparents—raising some 300,000 children. They save the Government some £12 billion a year. Over half these carers had to give up work or reduce their paid hours because of their caring duties. A third are dependent on benefits for their income and one in three is on discretionary local authority allowances. Many families could really struggle over the next few years.
I want the welfare state to remain the beacon of social progress and the foundation of a good society—the society that was so admired from the west coast of Ireland. One generation on, I am proud to stand in this place on behalf of the party I love. In this House, I will seek to speak up on behalf of those who have most to lose if society’s safety net is weakened.
Baroness Gould of Potternewton
My Lords, it gives me enormous pleasure to congratulate the noble Baroness, Lady Healy of Primrose Hill, on her very thoughtful and excellent maiden speech. I should also like to add my congratulations to the noble Baroness, Lady Nye, for it must be a unique occasion to be able to welcome two such good friends—both of whom I have known for more than 30 years.
I first met the noble Baroness, Lady Healy, when she joined the staff of the Labour Party in the press department in 1978. I think her boss at that time must have been the noble Lord, Lord Mandelson. I worked with her as a colleague for the following 10 years, until she moved over to work here in Westminster—first for the Parliamentary Labour Party, and then as a special adviser to shadow Ministers and Ministers. The noble Baroness has many friends on these Benches because of the long service she has given to the Labour movement, service that we have all appreciated over the years. Very often, though, she has been behind the scenes, but we have known that Anna has always been there giving good advice and support and we all appreciate that enormously. Your Lordships will, without doubt, benefit from the knowledge that she has gained over those years. Although she has a calm and dignified demeanour, do not be fooled. She is very determined and positive of views, which I know will come across in the significant contribution that she will make to your Lordships' House. I congratulate her again and welcome her enormously to our Benches.
Fairness, we were told earlier today, runs through the heart of the Government’s decision-making. I make no apology for repeating that there is certainly no fairness to poor families, pensioners, women or the disabled in either the emergency Budget in June or in the comprehensive spending review. It is difficult to comprehend how, using the Treasury’s own figures, it can admit that the poorest 10 per cent of the population will bear the brunt of the cuts, and then have the audacity to say that that is fair.
There is another element to the package—the increase in VAT. I need to refer to the Prime Minister. He said—I paraphrase—that an increase in VAT is very regressive; it hits the poorest the hardest. It is a great pity that he has forgotten those words. Nor is it fair that direct support for children is being cut by £66 billion—three times more than the banks. Is it fair that almost half a million low-income families are to be affected by cuts in childcare support and lose up to £30 a week? That may seem to be a small amount to some, but, as my noble friend Lady Sherlock said, for families on low incomes it is an enormous amount of money, which they certainly cannot afford to lose. It is the difference perhaps between being able or not to put something decent on the table to eat. The loss will also make it harder for parents to be better off in work. We have been told about the ladder of opportunity, but where is the ladder of opportunity for those parents? Perhaps the Minister can tell us.
We have been told that the spending review provides compensating measures and that child poverty will not increase for the next two years. That was an extraordinary statement; we do not want child poverty to increase at all. I do not understand what will happen when the two years is up. Many of the cuts in welfare spending will come into effect after 2012 and reduce the income of families in poverty unless compensatory measures are announced in the interim. Will they be announced?
The analysis by the End Child Poverty campaign makes it clear that,
“these compensating measures don’t go nearly far enough to stop this being a dark day for any family struggling to stay out of poverty”.
A consequence of the lowering of standards of living will be that such families will need greater support from health and social services. We also find that for the health service, which we are told is to be protected, the baseline has been changed, and money switched from health into social care, and the personal social services budget moved from the Department of Health to councils, which are to be strapped for cash. What guarantees will there be that the social services budget will survive?
We are told that work pays—and that is right—but it pays only if you have a job to go to. Not only will there be job losses in the private sector, as we have heard, but the Government forecast half a million job losses in the public sector. We have heard that the job losses, on any analysis, will impact more heavily on women, who make up 65 per cent of public sector workers, 77 per cent of the NHS workforce—many thousands of whom will be affected by the cuts in public health front-line services and the abolition of primary care trusts and SHAs—and 75 per cent of local government employees. The Local Government Association predicts that the cuts will mean the loss of many dedicated women workers in local government. These measures are already taking effect. In September, 79 per cent of those newly signed on for unemployment benefit were women. We need to ask why. However, it does not stop there. That loss of income will go on to affect future pensions. Will these women be joining the older women who are currently facing cuts in pension credit, public sector pensions, attendance allowances and carers’ allowances?
Many other noble Lords have referred to the effect of cuts in public services. But it is the poorer households and women who need public services the most—because of pregnancy, longer life-expectancy, lower earnings and assets, and assistance in managing caring responsibilities. There are already signs of crucial services under threat, including children’s services, support for teenage parents and midwifery support. Similarly, because of women’s relative inequality and poverty, women are the main recipients of benefits and tax credits—they receive 70 per cent of tax credits, 60 per cent of housing benefit, and 94 per cent of child benefit. In spite of the importance to women of receiving those benefits, it is proposed that there be a universal benefit to be paid to the main earner in the family, which is almost certainly, in the vast majority of cases, going to be a man. This move will put women’s access to an independent income under threat and reverses at a stroke all the redistribution from wallet to purse—mostly in recent years, but it was a redistribution that was started with the introduction of child benefit in 1977. That date is fixed in my mind, because myself and other colleagues on these Benches fought very hard with the then Labour Government to ensure that child benefit—which had previously been the family allowance—went from the father to the mother. How important that has been over the years. That independent income has been crucial to so many women and has on many occasions enabled a mother and her children to escape an abusive relationship. That is going to be impossible for her in the future—a very backward step.
The Government insist that it is impossible to say that women will be disproportionately affected by the cuts, because they have conducted an equality assessment of the measures in the comprehensive spending review. The impact assessment on gender that was carried out covered only two of the nine departments. The Government have avoided looking at the gender impact on tax and benefits because they said they could not determine how income is shared within a household. It sounds more like an excuse than an actual fact. Clearly there has been no in-depth analysis, in spite of the law requiring that all public authorities, including the Government, have to assess the impact of their current and proposed policies and practices on gender equality to ensure that neither sex is disadvantaged. The proposals fail to take into account the different barriers to employment faced by women, their particular reliance on benefits and tax credits as social protection, and the value to society of women’s employment. If they had done a proper analysis, perhaps they might have been convinced to distribute the burden a little more fairly, to focus a little more on tax cuts as opposed to spending cuts, but somehow I doubt it because, as my noble friend Lady Turner said, it is all about ideology—it is certainly not about fairness.
Lord Greaves
My Lords, this very great debate has concentrated on four aspects of the spending reductions: the timing, the speed, the size and the distribution. Along with other noble Lords, I want to concentrate particularly on the last of those—the distribution. In doing so, I follow some excellent contributions from the right reverend Prelate, the Bishop of Leicester, and the noble Baronesses, Lady Campbell and Lady Hollis, among others. I want specifically to talk about the situation in local government, and in doing so I declare an interest as a member of Pendle Borough Council in Lancashire.
If there are to be cuts, no one in local government believes that local government should not carry its fair share; the question is what the fair share is. There is an increasing concern and realisation within local government that the sector is perhaps being hit rather worse than others. The figure of 28 per cent over four years has been given as the reduction in the government grants. The problem with local government finance is that it so is complicated that, as the Government have not yet made any crucial announcements about the distribution of the cuts, it is difficult to be certain what will happen. However, there seem to be at least three major problems.
The first is that the cut to the main grant to local authorities—the formula grant—is to be front-loaded. That will put local authorities in an immediate difficulty because, of the four years of cuts that are to come, the highest cuts are to be in the first year. The treasurer of my council suggests that the cuts will be 10.7 per cent in the first year, then 6.4 per cent in the second year, 0.9 per cent in the third year—which is a curiosity that I do not understand—and 5.6 per cent in the fourth year. My view is that, as the fourth year will be a general election year, that 5.6 per cent cut will probably not happen, but the first two certainly will and they will cause real difficulties.
The second general problem is that, for the very best of reasons, specific grants are being abolished and “rolled up” into the formula grant. The way in which that will impact on individual authorities is problematical, to put it mildly. Many of the specific grants—area-based grants and others, such as the working neighbourhoods fund—have been specifically allocated to authorities on the basis of indices of disadvantage. There is a real danger that, if those grants are wrapped up in the general grant, the authorities that have been defined as being in the most need will miss out the most.
The third problem is that the proportion of council budgets that is accounted for in formula grant and revenue grants varies enormously from council to council. The figures that I was given in a Written Answer just before the summer suggest that the proportion varies from 10 per cent to two-thirds of a council’s budget. Most of the councils that you would think of as being in disadvantaged areas—if I may use that phrase—are clearly those that receive a higher proportion of grant. That is for very good reasons: namely, their needs are greater and their local resource base is smaller. However, there is a real risk that, in rolling everything up into the formula grant, the councils that will be hit hardest will be those most in need of support. In other words, the changes in local authority grant will result in a redistribution from poor areas to rich areas, to put it in fairly basic but accurate terms.
For my council and neighbouring councils such as Burnley and Blackburn, which are in the top 50 in the country under the indices of disadvantage, it is suggested that the revenue grant reduction, taken as a whole, may well be over 20 per cent. Similar-sized councils in leafier areas—not all but many of them in the south of England—may get by with significantly lower reductions. This is, I believe, a major test for the coalition Government. If the fears turn out to be true, the coalition will be wide open to accusations of favouring rich Tory areas against perhaps less rich Labour and Liberal Democrat areas. That is not what I am saying, but that is the accusation that will be made and it will be very difficult for people like me to defend it. In fact, I shall be standing up and saying it myself if that happens.
I want to give the House one example of the difficulties caused by the move from specific grants to rolled-up general grants. The example relates to the position of the Lancashire Police Authority—which covers the area in which I live—on police community support officers, or PCSOs. There are 427 full-time equivalent PCSO posts, of which 409 PCSOs are in post at the moment. The police authority has started a formal 90-day consultation process with a view to disestablishing all 427 PCSO posts from 31 March 2011. In other words, there is the potential for all the PCSOs to lose their jobs and for the work that they do in the county to be closed down.
The basic problem is that the PCSOs are all funded by specific grants to the police authority rather than from the police authority’s general budget. If that grant was taken away and the police authority general budget was secure and not being reduced, the authority might be able to cope, but at a time when the grant towards its core budget is being reduced, the police authority will find it impossible to fund the £10.5 million a year that the PCSOs cost. Some £8.2 million comes from direct PCSO grant from the Government and the rest—£2.3 million—comes from other contributions, many from district councils and unitary authorities within the police authority area that will obviously be under very severe pressure in respect of their own services. Therefore, the relationship between the specific grant and core funding—and whether the new system in which all the grants are rolled up takes account of the existing provision provided by those specific grants—is crucial. We will wait to see what happens.
Why do PCSOs matter? They are the basis of an extraordinarily successful community policing system in Lancashire, which was a pioneer of modern community policing about seven years ago. That system has been rolled out throughout the county and is a fantastic success. Every ward in the county has a small community policing team consisting of a constable called a community beat manager and a community support officer—a PCSO. They act as friends and support for residents. They do an enormous amount of useful work in the community among traders, schools and wherever there are problems. They act as the eyes and ears of the police in the community. There are residents meetings called PACTs—police and communities together—as well as a community safety partnership involving councillors, residents, traders and voluntary groups. It is incredibly successful. It works. I have received two pages written by a local PCSO that have been provided to me by the county’s UNISON branch.
What PCSOs do is fantastic. They are involved in everything from keeping a friendly eye on well-known local criminals, and making sure that they know what those people are up to, through to road safety for kids. It works. The levels of local crime—burglaries, drug offences, vehicle crime, criminal damage, less serious assaults and, in particular, anti-social behaviour—in my part of the county and throughout the county have plummeted. PCSOs are there on the ground doing what everybody wants them to do when we talk about bobbies on the beat. They are a modern form of bobbies on the beat. They do not just walk up and down every street in a regulated way; they are part of and work with the community. As somebody who attends the PACT meetings in my ward and works with the local community police, I can say that it really works. The detection rate in Colne at least, which is the highest in the county, is about 40 per cent. That is incredibly high. In the case of serious and organised crime, the PCSOs are the people on the ground who have the basic information when something important happens, so we do not have to start from scratch.
Community policing has been a Liberal Democrat talisman policy for many years; the Conservatives have always stood as the party of law and order. These are front-line services—the front line of the thin blue line, if you like—and they are the big society, because the whole community is involved in what goes on. I do not believe that a Government consisting of Liberal Democrats and a majority of Conservatives can possibly tolerate a situation in which the incredibly successful scheme that has been created throughout Lancashire in the past few years is done away with. Building things up takes time; doing away with them can be achieved overnight. I do not expect the Minister to give me detailed answers on this, but I hope that he will bring my remarks to the attention of his colleagues in DCLG and the Home Office.
Lord Watson of Invergowrie
My Lords, this view has been expressed on numerous occasions in the six or so hours over which we have debated the spending review, but I believe that it bears repeating. Contrary to what we have heard from coalition Ministers—including the noble Lord, Lord Sassoon, in his opening remarks—the measures announced in the spending review on 20 October were not inevitable. In point of fact, the economic crisis is the opportunity that many Conservatives—although I can see just three Conservatives opposite, apart from those on the Front Bench—have been waiting for. That was demonstrated by the crass and vulgar waving of Order Papers at the end of the Chancellor’s speech almost two weeks ago.
The coalition has seized the chance to reshape the economy by announcing an £83 billion shrinkage of the state. In the Financial Times on the day after the Chancellor’s Statement, Martin Wolf, who is widely considered to be one of the world’s most influential writers on economics, dismissed the Chancellor’s claim that cutting the fiscal deficit and reducing the share of public spending in GDP was unavoidable. Martin Wolf said:
“This is not so. It was a choice to concentrate so much of the fiscal adjustment on spending. Similarly, the UK government was never Greece or Ireland … The chancellor presents the hypothesis of looming national ‘bankruptcy’. If so, the UK must have been bankrupt for much of the past two centuries”.
I am not suggesting that reducing the fiscal deficit could be avoided, but the choice of how and how quickly it should be done is a matter of political judgment—or, perhaps, of ideology. The coalition has adopted the maxim that a good crisis should not be allowed to go to waste. That view is propounded by the Chicago school’s spiritual leader, Milton Friedman, who is on record as saying,
“Only a crisis … produces real change”.
He also wrote that, after a crisis has struck,
“a new Administration has some six to nine months in which to achieve major changes; if it does not act decisively during that period, it will not have another such opportunity”.
That helps to explain why the coalition is forcing through a raft of cuts for which it has no mandate. The coalition is doing so not because the economy is on the verge of collapse—it is not—but, as the Nobel Prize-winning economist Paul Krugman has said, because,
“the Tories are using the deficit as an excuse to downsize the welfare state”.
That point has been made by many noble friends on these Benches today.
Not only does the spending review herald the harshest public spending cuts since the 1920s, but the coalition is using the economic crisis to reign in the state and to reorganise society. I can understand the Conservatives doing that, but my main point is that, to their shame, the Liberal Democrats are allowing themselves to be used in this iniquitous process, which is nothing less than social engineering. Neither party has a mandate to embark on this course or for the string of decisions that have been announced in blatant violation of pre-election pledges, from the abolition of universal child benefit to the privatising transformation of the NHS. That is what most people voted against in May.
Following the months of leaks about cuts that were used to soften up the public with the fatuous theme of “We are all in this together”, I would like the Minister to say how exactly the Cabinet and their families—with their trust funds and prep schools for their children—will suffer. We should be told just what sacrifices they feel they will have to make. I will not be holding my breath.
When the Labour Government proposed any policy perceived as affecting the well-off disproportionately, the usual media suspects would characterise it as a class war, but the silence from those same mouthpieces over the past two weeks has been deafening. Just what is different about the coalition attacking the poor? Millions of people really will suffer as a result of these cuts. Over the next four years, Government departments face average cuts of 19 per cent in real terms, of which the heaviest—of at least some £18 billion—will be to welfare, which is targeted at the most vulnerable.
Much has been said and written since the spending review was announced about the distributional impact, but the bottom line is that the Institute for Fiscal Studies—which, incidentally, is described even by the Daily Telegraph as the country’s most respected economic forecaster—states:
“Our analysis … shows that … with the notable exception of the richest 2% … the tax and benefit components of the fiscal consolidation are, overall, being implemented in a regressive way”.
The IFS is an independent body, whose former director, we should not allow it to be forgotten, is now the head of the coalition’s Office for Budget Responsibility.
There are to be deep cuts to public services that are disproportionately used by the poorest households, such as social housing and social care. The Chancellor’s insistence that those with the broadest shoulders would bear the greatest burden and that his cuts would hit the richest hardest would be laughable if it were not so serious. His own figures show that the poorest 10 per cent will bear the largest share of the spending review announcements. Even when all tax and spending measures are taken into account, the poorest 10 per cent end up second worst off of all income groups—and that is only because the Government’s calculation boosts the impact on the top 10 per cent by including the 50 per cent tax rate announced by the previous Government.
The coalition appears to be relying on the private sector to ride to its rescue by hoping for public acceptance of the endlessly repeated falsehood that Labour profligacy created the deficit that the coalition now faces. The facts tell a rather different tale. Britain’s budget deficit has mirrored the average deficit rise across the 33 most developed countries. The deficit increased from 1 per cent of GDP in 2007 to 9 per cent in 2009 as tax receipts plunged and benefit payments increased due to the crisis of 2008.
There are many other areas that could be highlighted, were there the time. For instance, why should universities be expected to face deep cuts when we need to maintain the expansion of higher education to help grow the economy? Why should the Government continue to pay to schools and academies a greater amount of money to educate each 16 to 19 year-old than they do to FE and sixth form colleges, despite evidence that colleges recruit a more disadvantaged group of students?
One area that I must highlight—as many have already done, not least my noble friends Lady Turner of Camden and Lady Gould of Potternewton—is the effect of the spending review on women and, by extension, on families. The coalition’s cuts will fall disproportionately on women, who are more likely to work in the public sector. According to research by the House of Commons Library, measures announced in the spending review will hit women twice as hard as men. That seems hard to believe, but it is because benefits typically make up one-fifth of women’s income as opposed to only one-tenth of men’s. For instance, 1 million more women than men claim housing benefit and many of those will be lone parents who now face poverty as a result of the cuts and restrictions about to be imposed. Of the £8.5 billion that will be raised by cutting direct payments to individuals, two-thirds will come from women—again that is revealed by the House of Commons Library. In June’s emergency Budget, £5.8 billion was raised from women and £2.2 billion from men. Of the £16 billion in total that is being clawed back through direct tax benefit changes, £11 billion will come from women. Yet we are told the spending review is fair.
Tories and Lib Dems do not seem to understand the way that many poorer families live. Clearly, they believe that supporting families makes them dependent, whereas the reality is that such support helps working parents to become more independent. Everyone knows that women in general live on lower incomes, yet the coalition has chosen to force them to bear a greater share of the burden.
In finishing, I will say a brief word on the effects of the cuts in housing benefit, which has also been referred to by many noble Lords. I just wish that Ministers would admit that housing benefit is not just for the unemployed. Some 300,000 people in employment receive housing benefit. The issue is about much more than a few well-off areas of London—although you would be hard-pushed to know that given the media coverage of the past two weeks—and more than 750,000 claimants could be affected by the changes to the way local housing allowance levels are calculated. That will involve families in many communities across the UK. Indeed, Department for Works and Pensions figures show that Scotland will be hard hit. Around 40,000 people in Scotland will have their housing benefit cut from next year and will lose £7 a week—over £350 a year on average—because of the changes, even before the 10 per cent reduction for the long-term unemployed is taken into consideration.
On that issue, the coalition has been forced to think again, and rightly so if it genuinely intends that the effect of the spending review should be fair. I have to say that that claim has already been revealed to be a hollow one, as millions of people will, I fear, discover to their cost in the years ahead.
Baroness Hughes of Stretford
My Lords, it is with great pleasure that I have listened to the maiden speeches tonight. They were all excellent, particularly those of my noble friends Lady Nye and Lady Healy. There were also a number of other very notable speeches on this subject. In the short time that I have, I wish to address the four spurious claims that the Government are making to justify the plans that they have produced in their comprehensive spending review.
The first is that the current crisis is the legacy of the Labour Government’s handling of the economy. When the credit crunch started in 2008, as we have heard in great detail from the noble Baroness, Lady Nye, and the noble Lord, Lord Low, Great Britain had one of the lowest debt-to-expenditure ratios among comparable countries. It also had lower debt as a proportion of GDP than the debt which the Conservative Government left us in 1997. It was a time of low interest rates, low inflation and low unemployment. It is quite clear that public spending did not cause the scale of the credit deficit. That was caused by a global financial crisis in relation to which the Labour Government took decisive action, not to shore up the banks as an objective in itself but to protect people’s savings, people’s jobs, people’s homes and livelihoods and to protect businesses. As a result, unemployment rose by only half as much as in previous recessions, and there was a more rapid return to growth, the momentum of which is still with us, just about, in the quarter 3 figures published this week, although it is clearly dwindling because of the lack of a growth strategy from the Government and their slashing of capital projects. Construction is still the main contributor to the growth that we have seen so far.
My noble friend has just touched eloquently on the second claim: that the scale and pace of these cuts are avoidable. In his opening remarks the Minister said that it was about striking the right balance. He is right, but implicit in that acknowledgement is that choices are being made. I have been in government for 12 years and I know that in meeting and solving a problem you always have choices. Generally speaking, you try to make the choices that most fit with your value set, ideological position and political objectives. As several of my noble friends and others have commented today, the Government have chosen to make the cuts deeper and faster than necessary. This is a political agenda, not an economic objective, which will have serious long-term consequences for this country and our citizens.
The third claim is that in the midst of these proposals the Government are protecting key public services. This is, frankly, incredible. We need only look back at what happened under the previous Tory Government—this is, of course, a Tory Government despite the fact that it is called a coalition—when Margaret Thatcher’s cuts, which pale into insignificance when compared with what is being proposed in this spending review, led to long-term damage for our country. The noble Baroness, Lady Browning, who is not in her place, referred to amnesia. There is amnesia on that side of the Chamber, too, because Members there seem to have forgotten the dilapidated state of schools and hospitals, the leaking roofs, school standards that had flatlined, people waiting 18 months to two years for elective surgery and outpatient appointments, unemployment rising dramatically, youth unemployment hitting record highs, pension poverty doubling during the 1980s and 1990s and child poverty more than doubling. It is inconceivable that the impact of the cuts now proposed will not be even worse than the ones that we saw in the 1980s and 1990s.
The damage the country sustained then was long term and, despite all the improvements and investment that the Labour Government made to redress that damage, we are still left with that legacy in part. Key public services will not be protected; they will be decimated by these cuts. People do not yet understand the depth of the damage that will be done.
The fourth and final claim that the Government are making—again already referred to by many Members—is that the cuts are fair and will fall on the broadest shoulders. I wish to draw attention to their impact on those least able to speak for and protect themselves against the Government—that is, children and young people. Cuts from a variety of different sources will impact negatively on children and young people, and on the most vulnerable children and young people the worst. First, there will be an impact on schools. We have heard about the pupil premium for schools with disadvantaged children. We were told by the Prime Minister and the Deputy Prime Minister that this would be paid for by money outside of and additional to the Department for Education’s budget. We now know that the Secretary of State has had to admit that that is not true. He also admitted that the settlement for schools will mean real-terms cuts because there is no element in the settlement for schools to cover the rise in pupil numbers over this period. The IFS has estimated that 60 per cent of primary school children and 87 per cent of secondary school children will experience cuts in their school’s budgets.
Secondly, there is the non-school budget, because in order to sustain the settlement for schools, such as it is, the Department for Education will experience a 12 per cent cut in its non-school budgeting, achieved by, and I quote from the Government’s document here,
“rationalising and ending centrally directed programmes for children and young people and families”.
This means that some of the things that we have not yet heard about, because we have not seen the Department for Education’s budget plan, have gone. Support for the strategy to reduce the rates of teenage pregnancy across the country has gone; support for the strategy to reduce the number of young people not in education, training or employment has gone; the Youth Taskforce, working to help some of the most vulnerable young people to reduce antisocial behaviour, has gone; and the City Challenge in Greater Manchester, the Black Country and London to raise aspirations and standards among some of the most disadvantaged children has just been scrapped. Young people’s services, support for parents, and support for disabled children and their families have simply all been stopped, and I think we will see a severe impact from the cessation of those programmes.
Thirdly, there is the reduction in local government spending of 7.1 per cent in each of the four years covered by the spending review. I have been talking to a number of chief executives and directors of children’s services over the past few weeks who tell me that such is the level of cuts they are facing that their councils cannot protect children’s services, that they will be able to preserve only the minimum level of statutory provision, and that a lot of the progress we have seen in local children’s services over recent years, with a focus on early intervention and prevention to stop some of those problems escalating, will simply go.
Last but not least, it is families with children, as my noble friend Lady Sherlock mentioned earlier, who will be the biggest losers from the array of tax and benefit changes that are proposed. Page 98 of the document published by the Government says that the negative impact of freezing child benefit and withdrawing it from those who pay higher-rate tax will be offset by the indexation of child tax credit and ensure,
“no measurable impact on child poverty”.
That is simply risible.
What we do not have in the documents produced by the Government is any comprehensive assessment of the cumulative impact of all these cuts from different sources on children and young people. It is not simply about child benefit; it is about the cumulative impact of the four housing benefit changes and the changes to working tax credit, to childcare tax credits and to parents losing their jobs and going on to time-limited benefits, as well as the service issues that I have outlined. It is inconceivable, frankly, that child poverty will not rise as the Joseph Rowntree Foundation predicts. I know that there are Members on the Benches opposite who are also concerned about children, and I hope when the time comes that they will scrutinise all these proposals for their cumulative impact on children and young people.
I also ask the Minister if he will commit in his summing-up to producing a comprehensive impact assessment of all these changes together on children and young people. These cuts will not fall equally across the income distribution but will be concentrated on some families rather than others, so some children and young people will be very severely damaged.
The Earl of Listowel
My Lords, I shall endeavour to be brief, as the hour is late. I thank the Minister for his opening remarks and particularly for the emphasis that he put on protecting the vulnerable in society, especially children, in this very difficult time. It is an honour to follow the noble Baroness, Lady Hughes, who championed children, particularly children in care, during her term in government. I acknowledge the support that she gave to support workers and the introduction of newly qualified social worker status, which is so important. I share her concerns.
I understand and applaud the Government’s general emphasis on devolving decision-making to those who are nearest the front line, whether they be doctors, social workers or local authorities. I applaud the principle of that. But every principle needs a balance; there is an exception to every rule. I recall particularly the role of Louise Casey, employed by the previous Government to tackle the problem of rough sleeping. During her three years as the homelessness tsar—I followed her progress from the very beginning—she managed to reduce the level of rough sleepers on our streets by a third. She could do this because she was able to knock heads together; she could act strategically. Although charities had been doing a good job for many years, they were not succeeding in getting adults and young people off the streets. They were pushed to work together and achieve their goal. Some issues require a strong central focus if they are to be addressed.
I also share the noble Baroness’s concerns about councils not being able to protect the most vulnerable children. Each year, inspections show the difficulty surrounding thresholds for access to services. Those thresholds will inevitably be pushed up if those services are not funded adequately.
I ask the Minister to consider the impact of budget cuts particularly on child and family social work. I know that it goes against the grain of all current policy, but will he consider ring-fenced funding to support such work? I ask him to monitor closely the impact of cuts on child and family social work numbers and on child and family social work caseloads. Will he examine the early intervention guidance—I welcome the early intervention fund that the Government have introduced—to examine how that might benefit child and family social workers?
History tells us what happens when child and family social workers are neglected. It is arguable that the whole profession has been demoralised after decades of neglect. In evidence to the inquiry led by my noble friend Lord Laming into the death of Victoria Climbié, Haringey Council was described as being overwhelmed by the demands on its child protection service. The principal social worker involved was young and inexperienced, and had above the recommended caseload.
The right honourable Ed Balls, the Secretary of State for Children and Families in the previous Government, said shortly before the last election that if he had one regret, it was that he had not done more for social work earlier. Tim Loughton MP, when shadow Minister for Children, published a report for the Conservatives, assisted by the noble Baroness, Lady Morris of Bolton, entitled No More Blame Game, considering how the profession of child and family social work could be given the status it deserves. Many have welcomed the measures that the previous Government and the new coalition have taken to raise the status of child and family social work, to address its variable quality and to recruit and retain sufficient good social workers.
In the past week, the chief executive of the Children and Family Court Advisory and Support Service, Anthony Douglas, has told me that, every month so far this year apart from June, there has been a rise in the number of children being taken into public care. Paul Ennals, chief executive of the National Children’s Bureau, has told me that the number of children classed as at risk, the number of children for whom care orders are being sought and the number of children for whom a court order is secured are all rising. In a time of recession, and following the Baby Peter case, the burden on child and family social work increases. At the same time, local authorities will see a cut of 28 per cent in their budgets—7.1 per cent per annum.
I welcome what the Minister said about the £2 billion additional funds for social care. However, that is somewhat of a small amount compared with the amount being cut. I am sure that local authorities will not wish to touch child protection and wish to support children in care. However, many may feel obliged to, as the noble Baroness, Lady Hughes, said. One risk will be the decline once again in the quality of child and family social work.
Indicative of the success of past investment is the rise in the number of children leaving care to enter university. About 10 years ago, Professor Sonia Jackson put this at 1 per cent of care leavers—a shocking figure. Recent research from the Institute of Education has pointed to a rise to 9 per cent of care leavers now attending university. That is well below the 40 per cent national average, but still a 900 per cent improvement on 10 years ago. I hope noble Lords will agree that that is very significant and good progress.
One of the many highlights of my short career in the Lords was becoming acquainted with a young woman who was in her final year at Oxford University. She had left care with no qualifications, but she had been befriended by the head teacher of an independent sixth-form college, who supported and encouraged her. She kindly corresponded with me and wrote to me when she successfully graduated. It is so marvellous to think that there are possibilities for more young people to have that sort of achievement. A significant section of those young people might have done so much better in their education and careers. I am afraid that we have let them down; we have not met the challenge of supporting them to achieve their goals. Many of them are very intelligent but they have not had the support to have a go at it.
If the quality of child and family social work is compromised, fewer young people in care are likely to make it to university. We are also likely to have more cases similar to that of Baby Peter. The reputations of local authorities will once again be besmirched. Some of the stain may also stretch to the Government, undoing the work that the right honourable Iain Duncan Smith and others have done to show that this Government serve all and have a particular interest in vulnerable children.
What can the Minister do? First, I ask him to consider ring-fencing some funds and offering them to local authorities for investment in their child and family social workers. Every rule should have an exception; child and family social workers provide a service almost exclusively to the vulnerable. There are no confident, eloquent, well educated middle-class parents to take up their cause. Savings in social work could be made in several ways; the noble Lord, Lord Newby, alluded to some in adult social care. He may wish to know of the work of Paul Fallon when he was director of services at Barnet, where he reduced the vacancy rate of social workers from 30 per cent to 3 per cent in three years. By taking money in advance, he could take so many social workers employed on a temporary basis and turn it into a permanent basis, thereby saving a great deal of money for the buyer. There is also the model at Hackney, which has been employed for the past two or three years and has produced a saving of 5 per cent and turned around cases much more quickly, so saving money in that fashion. So there are means to save money, but even with these, a service starting from such a low base must be at grave risk in the face of such severe cuts. I urge the Minister to consider a ring-fenced fund for child and family social work for the next three years to help social work to survive the transition to the new funding climate.
The Options for Excellence ring-fenced funding for children in care provided 10 years ago for a three-year period has contributed to the dividends that I have described, and was very much welcomed at the time.
I ask the Minister to consider the guidance on the early intervention fund. I welcome Her Majesty’s Government’s introduction of such a fund to protect early intervention with families. I ask them to consider whether guidance on this fund might encourage local authorities to apply it to child and family social work, to child protection and to supporting children in care.
If child and family social workers are not replaced as they move on, if vacancies and caseloads rise, we will have more Victoria Climbiés and Baby Peters. I ask the Minister to consider how he will work with local authorities to prevent this happening. Also at stake are the reputations of local authorities and this Government.
Lord Graham of Edmonton
My Lords, at the end of such a long debate, one tends to hear phrases such as, “Everything that can be said, has been said”. However, if you listen carefully, you hear a small voice, which is mine, saying, “Yes, but not by everybody”. I intend to make a contribution not relying remotely on the forensic way in which my colleagues have dealt with the case put forward by the Minister. They were brilliant. When I heard the noble Lords, Lord Myners, Lord Peston, Lord Haskel and Lord Watson, and the noble Baronesses, Lady Hollis and Lady Hughes, among others, quite frankly I thought that they had done my job for me. They have all collectively made this old man very happy. We have on the Labour Benches now—we have had this before, but it has been renewed since the election—a bevy of politicians who I can sense are going to make a great impression here.
The main point that I want to deal with is that the case that the Minister and other colleagues on his side of the House have made is based on an untruth. That untruth is that the situation economically rests wholly at the door of the Labour Government. In my view, that cannot be sustained. The case that was made devastatingly in a wonderful maiden speech by the noble Baroness, Lady Nye, and supported by the noble Baroness, Lady Hughes, indicated quite clearly the genesis of the matter. Having been in both Houses for more than 30 years, I can read very well the tactics of the Government. A noble Baroness said to us that there has been a bout of amnesia on this side of the Chamber. Well, I think that I know where we got it from; it came wafting from the Benches over there. It does not do the House any good when we are seen to be so one-sided and so tardy in recognising the past that it is completely ignored. What has been said is not true.
When we look at the economic situation that was inherited by this Government, or left by the last Government, we are led to believe that the stewardship of this economy was unique. What about Ireland, Greece, Spain, Portugal, Germany, France and Italy—all European countries and all victims of the global collapse in financial support? If one is going to point to anyone in this country who had a share in the demolition of financial support in this country due to the subprime mortgage fiasco, one should not point at the people whom I represented, or my family, or the community that I work in. It was the financial sector, especially the banks. They were greedy, all right? Lax regulations might have allowed them to act as they did and no doubt we will hear ever more that it is the intention of this Government to tackle the greed of the banks. I will believe that when I see it. I will believe it when the banks squeal—not the pips—that they are being unfairly treated. If any one sector in our community carries responsibility for landing us in this trouble, it was the banks. Completely forgotten by the other side are the activities of Gordon Brown and Alistair Darling in persuading the rest of Europe to get behind economic policies to such an extent, as the noble Baroness, Lady Hughes, said, that they rescued not just the banks but the people whose money was in them. They were saved then, so the Government have a difficult job in trying to persuade us that they are on the right lines.
The Labour Party admits, as I certainly do, that we did not win the election. The Conservatives did not win the election and the Liberal Democrats did not win it. We are where we are with this situation. Quite frankly, it is not my job to thrash about and try to pick points in that way. When a professor was asked what he thought the effects of the French Revolution would be, he said, “Well, it’s too soon to say”. That is my comment on the coalition. I wish it well, sincerely, in solving the economic problems of the country because I have as big a stake in it under this Government as I did under the last, but it will have to go some in order to get out of this. The phrase was used earlier, “We have to keep our fingers crossed”. That is right. I believe that the Government, with the best of intentions, are going about this in the wrong way.
I do not have the time to deal with or duplicate the arguments that have been made, but I make the point that people are looking forward—not with relish—to the economic situation of the country. Because of my age, I can remember back to the 1920s and 1930s. For nine years—most of the 1930s—my dad was on the dole and in 1937 my mum and dad had 37 shillings a week to feed seven of us. Children at that time were worth two shillings a week; there were five of us, so 10 shillings came into the house. When I left school at the age of 14, I was the head boy and had passed my secondary exams but could not go on because, like many children, although I had the ability and had earned it, my circumstances were such that the cost of having to buy boots, shoes, PT kit and other things was beyond us. I had to wait until 50 later for the Open University. I am not looking at him now but I know that the noble Lord, Lord Shipley, will be pleased at the reference: I got my degree from the Open University and an honorary degree thereafter. When Harold Wilson was asked, “What would you like to be remembered by?” he said, “The Open University”—that was the one thing. If I was looking at the one thing out of many from the Labour Government that I would be proud to be associated with, it could be equality, the minimum wage or a number of things. It is a canard to say that all we are concerned about now is the economic situation that we inherited.
Yesterday was a red letter day for me, because Newcastle beat Sunderland 5-1. I sang, as I always do. My boys think that it is not on, but whenever Newcastle is on I join in with the crowd and sing the “Blaydon Races”:
“Gannin’ alang the Scotswood Road”.
I was born on Scotswood Road. The Geordies will be as resilient as other communities throughout the country. They will be able to survive, come what may. All I say to the Minister and his colleagues is: I give you a fair offer. If you stop telling lies about us, we will stop telling the truth about you.
Viscount Eccles
My Lords, it is complicated to follow the noble Lord, Lord Graham of Edmonton. I will not even compete on the subjects of the Scotswood Road and the Geordies, although I have a daughter who lives in Newcastle.
Listening to this debate, what can one conclude? Certainly that the Government have made a big call, sometimes described as a gamble. They have made a call to reduce and reform public expenditure, most notably welfare expenditure, to end the structural deficit within the Parliament and to set a date for peak national debt. In doing so, they have predicted that economic growth will continue and will provide the necessary returns. Of course, nothing is certain. Unfortunately, Governments of any complexion do not command economic growth; they only set the scene. To expect supply-side policies, however elegant, to do the trick, as the noble Lord, Lord Myners told us, is to deny all our post-war experience.
Is there an alternative big call on offer? Yes, possibly. It seems to be unreconstructed Keynesianism—basically, a call to leave well alone. “The deficit is not too big, the debt is sustainable. Protect aggregate demand and all will work itself out. There is no need for reform or change”.
This is not the time for a detailed analysis, but I have three points. No two recessions have ever been the same. Therefore, we cannot rely on past experience alone. Our economic circumstances are so different from those of the 1930s that we must be cautious before reading too much into a Keynesian solution. Then, the world was not global. Then, manufacturing was a much larger proportion of our economy. Who will march from Jarrow today? Then, the real incomes were a quarter of those of today. Then, we believed in high interest rates and a strong pound, no matter what.
The timing of the coalition coming into power demanded decision. People expected firm action and they were right to do so. The Government have made their call. They are right to have done so and need our full support. If they get that support, the economy can continue to grow. Science and technology have seen to that. There are plenty of opportunities. Confidence will ensure that they are seized.
Baroness Farrington of Ribbleton
My Lords, as other noble Lords have said, this stage of the debate is quite difficult. However, I refute what the noble Viscount, Lord Eccles, said, when he said that others say that nothing should be done. I cite the noble Lord, Lord Bilimoria, who said that it is a question of timing, severity and pace, and the current Government have got it wrong.
The noble Lord, Lord Stewartby, who is currently not in his place, spoke about people talking about gloom and doom in 1981 which did not happen. When I was on the Lancashire County Council with the noble Lord, Lord Greaves—now a member of a government party—Lancashire was knocked for six by government policies in 1981. Some of the Conservatives down in London never noticed it happen. Lancashire County Council's response concerned the discretionary element of local government—educational maintenance awards—particularly for young people in areas such as Skelmersdale. It is pretty horrific to see that progress being withdrawn.
The reduction referred to in local authority budgets is approximately 27 per cent over four years. The noble Lord, Lord Greaves, referred to the community and officers in Lancashire. All around the House, noble Lords know about the various local initiatives that have come from the flexibility of that part of local authority budgets where they can choose what to do. We are about to see the decimation of that across the country.
I have news for the noble Viscount—he may have missed it yesterday—but the Minister for children in another place suggested that local authorities could save money by recruiting volunteers to complement the work of social workers. I listened very carefully to the right reverend Prelate the Bishop of Leicester and others in the Chamber. I am a passionate supporter of and I declare a non-pecuniary interest in the Scouts and the youth service in Lancashire and I have local government experience. If we look to the big society to replace social workers, to replace all the services currently undertaken at local authority level, things will go wrong.
The day the Prime Minister was expanding on the big society, I happened to be in the garden at Dolphin Square speaking to a Republican Presbyterian minister from a small town in Texas. He said to me, “It’s very funny in this country. Ronald Reagan had that idea. He came to visit our community in Texas and we worked it out that, to replace the publicly funded services, a church with the population of 200 regular communicants would have to raise $600,000”. That is the issue.
The issue is not that those of us who argue with the concept of the big society are opposed to voluntarism. Like people across this Chamber, we have all been involved in the voluntary sector, worked with it and supported it. The right reverend Prelate the Bishop of Leicester was quite right to say that there is a lot going on out of there, but there is a great deal that can be damaged out there. The history of the charitable sector and true localism—by “true localism” I mean not cutting the discretionary budgets of local authorities—is innovation, initiative and meeting demand, which has then been taken over as a general universal right. My heavens, this Government’s budget, with its crippling timing, pace and severity, is about to destroy what centuries of people have put right. My heart goes out to the right reverend Prelate the Bishop of Leicester on the issue of family and community stability. I represented part of Preston called Ribbleton for years. Terrible actions cause damage to the whole community and a whole generation of workers was wiped out because Courtauld moved in to get a grant and then moved out when the grant stopped and it was cheaper to go somewhere else. In that community we have some severe problems. The majority of people are stable, local people. They go to local churches. They will work with voluntary organisations. They help each other out. They visit the elderly down the street. However, if you start smashing their right to live in their social housing, all that will happen is that you will take the guts out of what is good in that community. That will be replicated up and down the country.
I did not think I would ever criticise the noble Lord, Lord Newby, for this in this Chamber but today the noble Lords, Lord Plumb and Lord Newby, raised the issue of public sector funding. The noble Lord, Lord Plumb, was probably the most honest; he got very close to saying, “What about more money for agriculture?”. The noble Lord, Lord Newby, said that the previous Government were spending too much money. My heavens, I look around this Chamber, where people have said, “Why can we not have more money for cleaning up the sea? Why can we not spend more on footpaths? Why can we not spend more on roads? Why can we not spend more on trains? Schools want more”. This has come from all around the Chamber. When we were in government the Conservatives and Liberal Democrats never once stood up and said, “When will this Government stop spending money on the things we think are important?”.
I accept that growth is critical. I accept that reform is necessary—not reform imposed by Whitehall but reform through innovation at local level. Yes, there should be fairness. But, please, as we go through what will be a very grim experience—not for me or, I suspect, for many people in this Chamber—can we add the qualities of honesty and transparency?
Lord James of Blackheath
My Lords, I do not know what you have done to deserve me this late in the evening but I am afraid that is where it is. It has been a fascinating day. I particularly enjoyed the comments of the noble Baroness, Lady Browning, on the subject of “Brigadoon”, which was the first play I ever saw in the West End. I do not think she delivered the punchline. The whole point about “Brigadoon” was that it came out of the mist for only one day in every 100 years. That is a lovely idea for the Opposition.
We have heard today a great many tales of woe and dismay about the future, and some of optimism from this side. I am concerned about where the common ground is in that. One of the lessons of what is now quite a long life is that nothing is ever quite as bad or quite as good as you expect. It is probable that there will be a little more common ground between us than we might foresee at the moment. We might assist that process because growth will be what brings the two sides together. The more growth we can achieve, the more scope there will be to deal with some of the greater calamities that might occur unforeseen—since everything is unforeseen in politics.
I will talk a little about some of the growth opportunities that we might be able to harness and what we can do. As I have mentioned before, one of my great messages is a lesson from Sir Kenneth Cork, who taught me most of what I know about corporate rescue. It is that you cannot rescue a business that does not have a successful past. Anything that does not have a successful past is a failed start-up. Get rid of it and concentrate on the businesses that have a successful past. Where, today, are the businesses with a successful past? They are languishing in the intensive care units of the banks. They cannot get out because most of them have been the victims of expanding their capacity beyond the demands of the marketplace. That is a very expensive situation to get out of once you are in it. It was done with some dexterity and considerable success in the early 1970s through the initiatives that were forthcoming from three Is: investment in industry. One of the great tragedies of our economy at present is that we do not have three Is functioning in that form today. Boy, do we need them.
I am very much a believer in the principle of the collective collapse of generic groups of businesses as entities. Let me give some examples. At the present moment this year, we have probably lost half a million cars in our British export market. They would have been a very big additional factor to the economy, both in production—the wages that would have gone to the people who built them—and in the export value they would have had. Why? It is because the banks played their usual dirty trick a year or two ago: they saw that there were big markets outside—big back-orders—so they let the businesses have the money that they needed to fund the delivery of the order books that they had. The orders came in; they took the cash, reduced the facilities and the automotive component industry did not have the working capital to gear up for the massive turn to the diesel engines, which were demanded, and the British export market could not maintain the export requirement necessary to maintain its position on the international scene.
That has largely been corrected now but a similar problem may well happen. The next big crisis is going to come in the second week of February next year when the huge crisis that comes cyclically every year afflicts the retail sector worse than ever. It is already bereft on the high street—with shuttered shops and redundant staff, and a very dismal sight it is. What happens in the banking industry is that it knows that in the first two weeks of February every year, all the credit cards that have been used to buy goods going into Christmas pay, and the retail industry has the lowest borrowings of the year. The banks lie in wait and they grab them. Remember Woolworths? Who is coming next?
So we need someone who can take a grip on a general strategy to save the retail industry from another calamity. One of the great regrets I have at the moment is that the person who would best be able to do that is Sir Philip Green, and he is doing something else. I hope that the Government will hold on to him, and once he has actually finished his present task, he will be told to go and cherry pick the entire retail industry languishing in the hands of the banks, and put together the next version of British Home Stores as a government subsidiary which needs funding and which can be imposed on the banking industry by grabbing each bit, despite the fact that there will be minority bank interests that will not want to sell out for the benefit of the major bank interest, which will get the cream of the equity conversion. That is what three Is should exist to do, and what it did so brilliantly before, and that is why we need it back now.
Another element of the world out there at the moment which is potentially waiting for the pratfall of a massive collective bankruptcy is the food processing industry. The more the accent is moved from the small corner shop to the big grocers, the more production has been stepped up by the food producers to satisfy the ever-increasing demands for cheap food coming through the grocery chains. Of course, they have fallen into the trap again of funding themselves to too high a capacity for the market demand with the result that the grocers can rub their hands with glee and say, “We can screw the margins down so tight you won’t be able to breathe” and the suppliers are going to go collectively “pop” at some point in the next few months, because they will not be able to keep up and there is a big social factor coming. We will have the present dependence on cheap food to keep some sort of society structure fed, but we will actually end up being forced up on prices as the industry goes out of business in terms of its ability to keep supply going and prices are forced up in the grocery chains. This is going to be another calamity coming, and we need to have a top-down view as to what to do with it.
I have given your Lordships three examples of why I think we need something, but the creation of the three Is along the lines that I have been talking about would be of the order of a £5 billion cheque required to do it. However, we do not have £5 billion; we do not have half of £5 billion to put in to the creation of this at the moment, so what do we do about it? At this point, I am going to have to make a very big apology to my noble friend Lord Sassoon, because I am about to raise a subject that I should not raise and which is going to be one which I think is now time to put on a higher awareness, and to explain to the House as a whole, as I do not think your Lordships have any knowledge of it. I am sorry my noble friend Lord Strathclyde is not with us at the moment, because this deeply concerns him also.
For the past 20 weeks I have been engaged in a very strange dialogue with the two noble Lords, in the course of which I have been trying to bring to their attention the willing availability of a strange organisation which wishes to make a great deal of money available to assist the recovery of the economy in this country. For want of a better name, I shall call it foundation X. That is not its real name, but it will do for the moment. Foundation X was introduced to me 20 weeks ago last week by an eminent City firm, which is FSA controlled. Its chairman came to me and said, “We have this extraordinary request to assist in a major financial reconstruction. It is megabucks, but we need your help to assist us in understanding whether this business is legitimate”. I had the biggest put down of my life from my noble friend Lord Strathclyde when I told him this story. He said, “Why you? You’re not important enough to have the answer to a question like that”. He is quite right, I am not important enough, but the answer to the next question was, “You haven’t got the experience for it”. Yes I do. I have had one of the biggest experiences in the laundering of terrorist money and funny money that anyone has had in the City. I have handled billions of pounds of terrorist money.
Lord James of Blackheath
Not into my pocket. My biggest terrorist client was the IRA and I am pleased to say that I managed to write off more than £1 billion of its money. I have also had extensive connections with north African terrorists, but that was of a far nastier nature, and I do not want to talk about that because it is still a security issue. I hasten to add that it is no good getting the police in, because I shall immediately call the Bank of England as my defence witness, given that it put me in to deal with these problems.
The point is that when I was in the course of doing this strange activity, I had an interesting set of phone numbers and references that I could go to for help when I needed it. So people in the City have known that if they want to check out anything that looks at all odd, they can come to me and I can press a few phone numbers to obtain a reference. The City firm came to me and asked whether I could get a reference and a clearance on foundation X. For 20 weeks, I have been endeavouring to do that. I have come to the absolute conclusion that foundation X is completely genuine and sincere and that it directly wishes to make the United Kingdom one of the principal points that it will use to disseminate its extraordinarily great wealth into the world at this present moment, as part of an attempt to seek the recovery of the global economy.
I made the phone call to my noble friend Lord Strathclyde on a Sunday afternoon—I think he was sitting on his lawn, poor man—and he did the quickest ball pass that I have ever witnessed. If England can do anything like it at Twickenham on Saturday, we will have a chance against the All Blacks. The next think I knew, I had my noble friend Lord Sassoon on the phone. From the outset, he took the proper defensive attitude of total scepticism, and said, “This cannot possibly be right”. During the following weeks, my noble friend said, “Go and talk to the Bank of England”. So I phoned the governor and asked whether he could check this out for me. After about three days, he came back and said, “You can get lost. I’m not touching this with a bargepole; it is far too difficult. Take it back to the Treasury”. So I did. Within another day, my noble friend Lord Sassoon had come back and said, “This is rubbish. It can’t possibly be right”. I said, “I am going to work more on it”. Then I brought one of the senior executives from foundation X to meet my noble friend Lord Strathclyde. I have to say that, as first dates go, it was not a great success. Neither of them ended up by inviting the other out for a coffee or drink at the end of the evening, and they did not exchange telephone numbers in order to follow up the meeting.
I found myself between a rock and a hard place that were totally paranoid about each other, because the foundation X people have an amazing obsession with their own security. They expect to be contacted only by someone equal to head of state status or someone with an international security rating equal to the top six people in the world. This is a strange situation. My noble friends Lord Sassoon and Lord Strathclyde both came up with what should have been an absolute killer argument as to why this could not be true and that we should forget it. My noble friend Lord Sassoon’s argument was that these people claimed to have evidence that last year they had lodged £5 billion with British banks. They gave transfer dates and the details of these transfers. As my noble friend Lord Sassoon, said, if that were true it would stick out like a sore thumb. You could not have £5 billion popping out of a bank account without it disrupting the balance sheet completely. But I remember that at about the same time as those transfers were being made the noble Lord, Lord Myners, was indulging in his game of rearranging the deckchairs on the Titanic of the British banking community. If he had three banks at that time, which had had, say, a deficiency of £1.5 billion each, then you would pretty well have absorbed the entire £5 billion, and you would not have had the sore thumb stick out at that time; you would have taken £1.5 billion into each of three banks and you would have absorbed the lot. That would be a logical explanation—I do not know.
My noble friend Lord Strathclyde came up with a very different argument. He said that this cannot be right because these people said at the meeting with him that they were still effectively on the gold standard from back in the 1920s and that their entire currency holdings throughout the world, which were very large, were backed by bullion. My noble friend Lord Strathclyde came back and said to me that he had an analyst working on it and that this had to be stuff and nonsense. He said that they had come up with a figure for the amount of bullion that would be needed to cover their currency reserves, as claimed, which would be more than the entire value of bullion that had ever been mined in the history of the world. I am sorry but my noble friend Lord Strathclyde is wrong; his analysts are wrong. He had tapped into the sources that are available and there is only one definitive source for the amount of bullion that has ever been taken from the earth’s crust. That was a National Geographic magazine article 12 years ago. Whatever figure it was that was quoted was then quoted again on six other sites on the internet—on Google. Everyone is quoting one original source; there is no other confirming authority. But if you tap into the Vatican accounts—of the Vatican bank—you come up with a claim of total bullion—
Lord De Mauley
The noble Lord is into his fifteenth minute. I wonder whether he can draw his remarks to a conclusion.
Lord James of Blackheath
The total value of the Vatican bank reserves would claim to be more than the entire value of gold ever mined in the history of the world. My point on all of this is that we have not proven any of this. Foundation X is saying at this moment that it is prepared to put up the entire £5 billion for the funding of the three Is recreation; the British Government can have the entire independent management and control of it—foundation X does not want anything to do with it; there will be no interest charged; and, by the way, if the British Government would like it as well, if it will help, it will be prepared to put up money for funding hospitals, schools, the building of Crossrail immediately with £17 billion transfer by Christmas, if requested, and all these other things. These things can be done, if wished, but a senior member of the Government has to accept the invitation to a phone call to the chairman of foundation X—and then we can get into business. This is too big an issue. I am just an ageing, obsessive old Peer and I am easily dispensable, but getting to the truth is not. We need to know what really is happening here. We must find out the truth of this situation.
Lord Shipley
My Lords, back to the spending review, which is understandably a tough settlement for the public sector. The reasons for cutting the overall deficit are clear in the face of the largest budget deficit in peacetime history. Cuts, however, need to be fair and deliverable.
I declare my interest as a member of Newcastle City Council and a vice-president of the Local Government Association. This is because I wish to concentrate on the impact of the spending review on local government: the overall cut, its front-loading to the first year, 2011-12, the distribution of the cuts through the spending formula and, finally, place-based budgeting, which I believe must now be speeded up.
Councils in England will have an average loss of grant of 7.25 per cent in real terms for each of the next four years. This will be accompanied by new financial freedoms and flexibilities as part of a decentralisation and localism agenda. Those new powers will be welcome. However, the level of savings required for local government is higher than had been anticipated and the front-loading of the savings into 2011-12 makes the settlement extremely challenging. There is a real cut of 28 per cent over the four-year period, despite growth in funding for a council tax freeze and £1 billion extra for social care. The formula funding in the CSR also includes further grants which have been rolled up into the baseline. Put simply, comparing the existing formula grant with that in 2014-15 without those transfers or the new adult social care and council tax support funding shows a real cut of 36 per cent in the formula grant.
Of particular concern is what appears to be a very large reduction in the existing formula grant in 2011-12—the first year of the settlement. It is reduced by £3.5 billion, or 14 per cent in cash terms and approximately 16 per cent in real terms. This is approximately double the average cut of 7.25 per cent quoted as part of the spending review by the Secretary of State.
My concern is compounded by the abolition of the working neighbourhoods fund. The ending of this grant was not, so far as I can see, included in the Chancellor’s Statement on the spending review, in the Treasury’s executive summary, in the Secretary of State for CLG’s letter on the spending review or in any of the regional analyses of the spending review. I am unclear whether it has been included in the impact assessment included in the spending review document. The only certain reference appears to be on page 48, paragraph 2.35, of the main spending review document:
“As a result of this settlement, programmes including the Working Neighbourhoods Fund, Growth Area Funding and the Thames Gateway programme will end, in order to rationalise funding streams, make savings and take a more disciplined approach to Government spending”.
It is unclear which of these three reasons relates to the working neighbourhoods fund grant.
The fund has been used across the country to tackle worklessness by investing in voluntary sector partnerships, thus securing additional leverage and ERDF matched funding. It has helped to address community health and community safety issues. It has tackled economic deprivation and has targeted resources to those young people not in education, employment or training. The fund, worth £0.5 billion, has vanished. With substantial funds now flowing through to the voluntary and community sectors, the loss of the grant could have a serious impact on the viability of some of these organisations, which appears contrary to the desire to support and promote the big society and the third sector. As examples of the scale of this loss, Birmingham will lose £37.1 million, Manchester £27.7 million, Bradford £12.5 million and Leicester £8.3 million. There are also significant losses for London councils—Hackney at £12.2 million and Newham at £11.9 million. The north-east of England will lose £73 million, including £9.2 million from my own council. In total, 65 councils in England stand to lose. In the absence of the working neighbourhoods fund, we need to be much clearer about how the needs of areas of high deprivation will be addressed.
We have heard quite a bit recently about the need to do more with less. There is no doubt that we can, so long as we define carefully what we mean. For example, I doubt that we would do more adult social care if we had less money to spend on it. That we could do more with the same or the same with less is certainly true, but more with less in adult social care? I doubt it. As more money has been found for it—£2 billion by 2014-15—because of pressures on the service, it seems that these doubts are more generally shared.
Nevertheless, doing more for less would most certainly apply across the public sector as a whole in terms of place-based budgeting. The Local Government Association has concluded that £100 billion could be saved over five years if councils, and thus local people, were put in charge of spending on all front-line local services, overseeing economic regeneration, planning, housing and regeneration, home energy efficiency, managing flood and climate risks, adult skills, local transport, primary healthcare, policing and probation and support into employment for the long-term unemployed and workless, most of which currently lie outside local government’s immediate responsibilities.
England has become too centralised and I welcome plans for the localism Bill later this month and for the first-phase pilots in 16 areas of England from April next year in community budgeting in some service areas. However, in my view, these pilots in localism are insufficient in scope and will prove too slow at meeting the challenge of budget reductions. We should never confuse localism with the atomisation of England, where central government continues to control local decisions by controlling the budgets directly through spending departments rather than handing the power and responsibility to local government. Silo central management with silo central cuts is not localism, but it is what will happen unless councils get additional powers more quickly.
There are three issues that I hope my noble friend will consider. First, there is a need to protect areas and people more deprived than others through the revenue support allocation, but how will that be done? Secondly, there is a need for real devolution to local councils to empower them to deliver more for less. How soon might this be addressed? Thirdly, why has the cut in formula grant been front-loaded in year one, well above the average of 7.25 per cent each year for four years? Is that front-loading wise?
Overall, councils will continue to have some of their income from council tax, fees and charges, which are not being cut. However, the rising costs for local councils, not least because of pension costs, general inflation and future workforce remodelling, require understanding and support to ensure that they do not compound the problems of cutting the grant and front-loading that cut into 2011-12.
Baroness O’Loan
My Lords, we have heard much about the seriousness of the position in which the United Kingdom finds itself and the hard decisions that have to be made. Equally, there is no doubt that savings can be made, although often with some pain. It is important that the pain be managed.
First, I associate myself with the compelling and robust remarks of the noble Baroness, Lady Campbell, on the proposed removal of the disability allowance for those in care. She is right.
There are three further issues to which I want to refer. The first is the situation in Northern Ireland. At this juncture I refer to the effect of the Troubles on the people of Northern Ireland. In 2009, living standards were around 80 per cent of the UK average, while 22 per cent of those of working age have no qualifications, compared with 12 per cent in the rest of the UK. The Troubles had the greatest effect in disadvantaged areas. According to the latest figures, the largest inequality gaps between disadvantaged areas and the Northern Ireland average were evident in alcohol and drug-related deaths, which were 121 per cent higher, in admissions for self-harm, which were 94 per cent higher, in teenage births, which were 80 per cent higher, and in suicide, which was 73 per cent higher. This comes as no surprise, for the suffering of these areas was and continues to be extreme. It is in that context and in the context of the employment situation, as in so many other contexts, such as the ongoing and increasing dissident republican violence, that Northern Ireland will face the proposed cuts.
The current situation is that some 28.5 per cent of our population is economically inactive for a variety of reasons, as opposed to the UK average of 23.2 per cent. Some 32.3 per cent of all employees are in public sector employment—a figure that is significantly higher than the 21.1 per cent in public sector employment in the rest of the United Kingdom. That situation, as noble Lords know, has arisen in part from the Troubles and the understandable reluctance of private sector investors to invest in territory in which there was a risk of Troubles-related violence, such as bombings, shootings, kidnapping and extortion. The consequence is that we have a significantly larger reliance on public sector employment than the rest of the United Kingdom. PwC, in research commissioned for the Northern Ireland Assembly, predicts a reduction in public sector employment of 41,200. The local private sector has continued to be slow to grow. Growth, such as we have had, has been largely in low-value jobs, such as in call centres. PwC estimates that Northern Ireland, with its existing high unemployment levels, could be facing potential job losses in the private sector of 5 per cent. There has been discussion of the possibility of a reduction in corporation tax, which would significantly improve the situation.
However, the consequence of the current situation associated with the 40 per cent reduction in capital spend over the next four years is that Northern Ireland will be particularly vulnerable by comparison with the rest of the United Kingdom. Given the vulnerability of so many people and given that the decisions as to how the cuts will be applied will rest with the devolved Government, it will none the less be profoundly important that the Government adhere to their commitment to fairness in relation to the reduction in spending on welfare. The impact of some of the proposed cuts on those who suffer from higher levels of physical and mental illness and disability and who are so much more likely to commit suicide will be very hard. It seems that across the United Kingdom there is an element that from those who have so little, much is to be taken.
Over the years of the Troubles, during direct rule, there was a consistent underspend on infrastructure in Northern Ireland. Our water and sewerage system was neglected for years and now requires massive investment to maintain levels of health and safety consistent with the first world. Our roads and transport system are significantly underdeveloped. Parts of our schools and hospital estate are in very poor condition. The cuts in capital spending will impact massively on the ability to sustain the infrastructure that is critical to society. I ask the Government to review the effects and extent of the proposed massive cuts in capital spending, with a view to alleviating some of the hardship imposed, consequential on the combined effects of the revenue and capital cuts on a part of the United Kingdom that has suffered so much.
There is one final issue to which I wish to refer and I crave noble Lords’ indulgence. It involves relatively little cost, but it is profoundly important. Today, digging is beginning on a beach in Waterfoot in County Antrim as the Independent Commission for the Location of Victims’ Remains seeks the body of 21 year-old Peter Wilson, who disappeared from his home in Belfast in 1973. The commission was established by Acts of Parliament here and in Ireland and is highly respected by the community and the families of the disappeared. It has achieved some remarkable results in profoundly difficult circumstances. On Friday night, in pouring rain and high winds, Peter Wilson’s family and friends and a group of local people gathered to pray for the return of his body for Christian burial.
Of the 16 missing people, seven have been recovered and buried. One more body was found two weeks ago and is thought to be that of 24 year-old Gerard Evans, who disappeared while hitchhiking in 1979. Eight bodies are still missing. Two bodies have been found this year, but there are concerns that funding will cease this year as a consequence of the cuts. This is historic business relating to the time when Northern Ireland was governed in its entirety from Westminster. I ask the Government to ensure that, despite all the current fiscal difficulties, if further information is received about the location of the remains of any more of the disappeared, funding will be made available to enable the necessary searches. In UK terms, it will not involve huge spending, but the expenditure will further enhance confidence in the commitment of the United Kingdom to the often forgotten victims of the Troubles.
Lord Eatwell
My Lords, this has been a remarkable debate. There have been some very fine speeches, mostly from these Benches, but also from the Benches opposite. We heard three remarkable maiden speeches from the noble Lord, Lord Allan of Hallam, my noble friend Lady Healy of Primrose Hill and my dear and noble friend Lady Nye.
Two questions have been central to the whole debate. The first is whether this policy is necessary and the second is whether it will work. Is it necessary? That depends on an assessment of the economic state of the nation and, in particular, the Government’s inheritance from the previous Labour Government. Let us reflect on that inheritance for a moment. In 2007, before the recession struck, the economy was growing steadily at a little under 2.5 per cent a year and maintaining the continuing steady growth that characterised Labour’s decade in office. Interest rates were lower than in the US and the cyclically adjusted fiscal deficit—as chart C6 of the Government’s Budget Report shows—was less than a quarter of 1 per cent of GDP. Crucially, the ratio of public debt to GDP was, at 36 per cent, the lowest in the G7 and well below the 42 per cent that Labour had inherited from the previous Conservative Government. This was a time, as many noble Lords have reminded the Minister, when the main plank of the Conservative Party’s economic policy was a commitment to match Labour’s spending plans.
In response to the recession, the Labour Government acted decisively, devising the much copied model for rescuing the banks, cutting taxes and accelerating expenditure, particularly on construction. There were two main results. First, in the very depths of the recession, which, given the size of our financial services industry, hit Britain particularly badly, unemployment was the lowest in the G7 countries other than Japan. Secondly, as a result of the anti-recession policies, the deficit grew rapidly, faster than in any other country, although, because we started from such a strong point, even today it is still the lowest of the large G7 economies.
The strength of the British economy going into the recession meant that even in the face of a severe fall in tax revenues the Labour Government could afford to stabilise the financial sector to save jobs and to save businesses. When the Minister sums up, perhaps he will say what he would have done differently. Would he have spent less and taxed more? How much deeper would he have wanted the recession to be?
In his Budget of March this year, my right honourable friend Alistair Darling put in place a plan for growth and deficit reduction. The OBR Pre-Budget Report states that,
“cyclically adjusted borrowing falls from 8.8 per cent of GDP in 2009-10 to 2.8 per cent in 2014-15”,
and in that fiscal year public sector debt reaches 74.4 per cent of GDP—still lower than any other major G7 country today.
The noble Lord, Lord Sassoon—he was echoed by the noble Lord, Lord Newby—is fond of telling your Lordships’ House that Labour has no recovery plan, yet in the CSR Statement Mr Osborne cited the impact of Labour’s plans and even costed them. He said:
“I have examined this proposal carefully and I have consulted the published documents of my predecessor”.—[Official Report, Commons, 26/10/10; col. 965.]
Was the Chancellor making it up? No, he was not. It is the noble Lord who has been making up this fairy tale.
What has happened as a result of my right honourable friend’s March Budget? Everything has turned out better than expected. Debt is lower than predicted and growth is higher. This Government’s inheritance was an economy on the path to recovery. This year to date, as a result of Labour policies, the economy is growing at an annual rate of 3.25 per cent and is set to beat the target of halving the deficit in four years.
What was the new Government’s balanced assessment of their inheritance? The new Ministers declared Britain “bankrupt” and “shattered”—that was a Liberal Democrat, by the way—and even, as a Tory Treasury Minister said, a “basket case”. This hysterical nonsense became the considered foundation of economic policy. The party opposite seems to have entered the most dangerous realm of all—they believe their own propaganda. The hysteria has produced the policy before us today. At its core is the attempt to eliminate the deficit in four years, even at the immediate cost of lower growth and higher unemployment—hence 25 per cent cuts in total expenditure, heavily weighted towards cuts in welfare. Yet by 2014, the Budget Report states that there is a 50 per cent chance that growth will be at the level that Labour’s plans would have achieved. How is that possible with the size of these cuts?
The predicted performance, the very core of the Government’s policy, depends crucially on a fast and sustained recovery by the private sector to fill the gap left by the fall in public sector spending, and not of course on growth in private consumption; that is cut by higher taxes and unemployment. Instead, private sector investment and house building are forecast to contribute more to the growth of the economy than they did even in the good times before the recession.
Will it work? A little history may help us. As we all know, Tories love cutting the public sector. That is what they came into politics to do and that is what the noble and learned Lord, Lord Howe, did in his Budget of 1981, as the noble Lord, Lord Stewartby, reminded us. As he also reminded us, in response, 364 economists issued a statement that,
“present policies will deepen the depression”—
and—
“erode the industrial base of our economy”.
That statement has been much derided because, as we all know, the economy grew after 1981. However, what is not noticed is that “present policies” were not continued; they were radically altered. The next five years witnessed the most dramatic change in monetary policy since the war, resulting in an extraordinary explosion of consumer borrowing. Consumer demand filled the gap left by government cuts.
Can history repeat itself? It cannot in the liberalisation of credit—that has been done; nor in lower interest rates—they cannot go any lower; nor, of course, in growing consumer demand. As my noble friend Lord Myners pointed out, there is only one monetary policy weapon left: quantitative easing. I have severe reservations about the strategy of maintaining demand by quantitative easing. It may keep interest rates down at the short end, but the lack of long-term bonds is seriously increasing the riskiness of insurance companies and pension funds. It may mean that there is more cash in corporate hands, but will they spend it on investment when expectations of growing demand are so depressed? Is quantitative easing simply pushing on a string? In truth, no one knows.
The other leg of the Government’s policy is their claim to have increased confidence. Confidence in the commitment to cuts, yes; confidence in the loss of jobs, yes. I know that the noble Lord is fond of fairytales but will the confidence fairy really wave her magic wand over a growing Britain? In truth, no one knows. That is why this policy is a huge gamble. For the sake of Britain we pray that it works, but there must be a high probability that it will not; as Mr Osborne says, there is no plan B.
We have the answers to our questions. Is the misery and destruction of this policy necessary? No, it is not; Labour had set Britain on a growth path to recovery. Will it work? No one knows, least of all the party opposite. What we do know is that vital political and economic debate in this country is debased by the Government’s hysterical fantasies of bankruptcy and financial collapse and by their failure to recognise the strength of the policies put in place by Alistair Darling. Labour dealt with the recession and laid the foundations for recovery. It is the responsibility of this Government not to squander that inheritance.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, today we have had an important debate on the Government’s spending review and I thank everyone for their contributions. I add my congratulations on the three notable maiden speeches. The hour is late and I will pick up on only a few of the points raised today. I have listened carefully and I will write in response to many of the detailed points.
Two weeks ago my right honourable friend the Chancellor of the Exchequer stood in another place and set out a clear plan to deal with our debts and to put the nation’s finances back on a sustainable path. When we came to power we inherited an economy that was in turmoil, with no clear strategy for recovery, no ideas for reform and not a single penny of savings having been identified. That was at a time when we were borrowing £1 for every £4 we were spending. I do not know who runs the household budget for the party opposite, but it is not sustainable. We were, and are still, running the highest deficit in our peacetime history, the highest in Europe and the highest in the G20. We can wrap this up in all sorts of statistics and economic theory, but the simple fact is that Britain was not living within her means and the world knew it. That is why last year the IMF warned that we needed to accelerate the deficit reduction, and the World Bank, the OECD, and the Governor of the Bank of England all agreed. So in May we announced immediate reductions to in-year spending, avoiding the sovereign debt crisis that was engulfing the eurozone; in June we set out our emergency Budget, returning credibility to the nation’s finances; and this October we have had the spending review, bringing years of irresponsible borrowing to an end. We have had to tackle the deficit and it has been unavoidable, but the decisions behind the reduction in the deficit have not been unavoidable.
We have made choices and we have chosen to spend our money on the areas that matter most to Britain: the education of our children, the healthcare of our people, and the infrastructure that sustains a prosperous economy. As I mentioned at the start of today’s debate, underpinning all our decisions have been three guiding principles. The first of those principles is the need to support growth, and I am struck by the contrast today between the optimism—
Lord Foulkes of Cumnock
We have sat through nearly eight hours of debate to which a large number of Members have contributed. Would it not be courteous to this House if the Minister actually replied to the debate instead of repeating the speech he gave earlier?
Lord Sassoon
I am struck by the contrast of the optimism that we have heard today from businessmen in this House and those who are not businessmen but have clearly been talking to business people on the one hand, and the pessimism on the other hand of the academic economists and others who, even though we have had three quarters of strong growth, want to see disaster coming round every corner. I do not make any judgment about who is responsible for the growth, but I think we can agree that we have had three quarters of strong growth. Yes, the recovery will be choppy, but we have heard from my noble friend Lord Bates just how business in the north-east of England is looking forward and generating jobs for the future. We have heard similarly from my noble friend Lord Plumb about how agriculture will play its part. My noble friend Lord Allan of Hallam has explained how the use of data and technology will assist the recovery. These are the pointers that show us how the economy is going to generate sustained growth. The noble Lord, Lord Eatwell, keeps saying that nobody knows. It is the businessmen of this country who write letters to the papers, urging us on with the deficit reduction we are set on, who know how the recovery is going to be sustained for the future.
While I do not agree with the doubts of noble Lords opposite about the overall judgments made by the Government, I do agree with some of the noble Lords opposite in a lot of what they said—the noble Lords, Lord Myners and Lord Haskel, for example, on the need for better infrastructure. That is precisely why we added nearly £9 billion of expenditure on infrastructure in this spending review. I agree with them on the need for investment in innovation, which is why we are investing £220 million in innovation centres and why we are investing £1 billion in the critical new technology of carbon capture and storage. Similarly, my noble friend Lord Newby identified science and apprenticeships as critical to growth. That is why we are protecting science spending in cash terms and why we are significantly gearing up on the number of apprenticeships compared with the plans of the previous Government.
Overall on growth, I was particularly struck by the contributions of my noble friends Lord Lamont of Lerwick and Lord Stewartby. They remind us that Conservative Governments have been here before, that Conservative Governments have taken us out of recession and rebalanced the economy, and we will do it again. For example, in the early 1990s, the public sector was reduced not by 490,000 but by 690,000 employees. At the same time, in the 1992 to 1996-7 period, the private sector generated 1.7 million jobs. I have every expectation—Members opposite may not—that the private sector again will rise to the challenge.
The second principle that I set out at the beginning is that our choices should be fair. We have heard some powerful speeches today, particularly from the noble Baronesses, Lady Hollis of Heigham and Lady Campbell of Surbiton, reminding us just how difficult it is to reshape the welfare system in the radical way that we intend at a time of considerable retrenchment in the public finances. I shall take away the points that they and others have made. In particular, I note carefully the concerns of the noble Baroness, Lady Campbell, about the mobility component of disability living allowance.
The spending review focuses support on those who need it most. It shifts the focus from welfare payments to services that improve social mobility in the longer term and to work incentives. The Government have sought to protect the most vulnerable. Working-age women, for example, tend to benefit disproportionately from health spending, which we have protected, and older women also benefit from additional resources for social care.
The universal credit will clarify and increase work incentives. Work will pay and will be seen to pay, but we must not rush the universal credit. As the noble Baroness said, it will take us two Parliaments to do that, because it is a difficult project and we must get it right.
We have also heard a lot on how young people will progress from care to university—points were made in different ways by the noble Earl, Lord Listowel, and the noble Baroness, Lady Nye. The Government are concerned to make sure that young people from the most disadvantaged homes get every opportunity. We are encouraging social mobility through maintaining Sure Start and extending early-years care. From 2012-13, we will introduce for all disadvantaged two year-olds substantial school premiums. The Government are also protecting the ability of those on lower incomes to go into higher education, including through a scholarship fund of £150 million by 2014-15.
Baroness Farrington of Ribbleton
My Lords, will the Minister care to fill in a little gap concerning the 16 to 19 year-olds?
Lord Sassoon
As I have said, we are coming forward with a £150 million fund that, by 2014, will enable those on lower incomes in that 16-to-19 age group to transfer into higher education.
Lord Knight of Weymouth
I have no wish to delay the House, but the Minister cannot be allowed to get away with that. The noble Baroness’s question was about 16-to-19 year-olds in schools, but he gave an answer about access to higher education, which is the next phase. The concerns expressed during this debate by the noble Baroness, Lady Nye, were about the abolition of the education maintenance allowance. What is his response?
Lord Sassoon
My Lords, one of the responses is that if we give children who would not otherwise have the opportunity to go to the best universities the ability to look forward to a fund that will enable them to do so, that is one way in which we will help disadvantaged children, right through the chain, from the start, through higher education and beyond. In that context, the £2.5 billion pupil premium will be another critical component.
Baroness Farrington of Ribbleton
Will the pupil premium be taken from funding for those young people aged 16 to 19 in schools?
Lord Sassoon
The pupil premium will be used to ensure that those schools that have a particular proportion of disadvantaged children will get a premium to ensure that there is an appropriate rebalancing.
Baroness Anelay of St Johns
My Lords, I remind the House that it is a courtesy for a Minister to give way during the debate to answer questions. It is not a courtesy then to interrupt repeatedly. The House has had a long and testing debate and I am sure that we will return to these issues in detail in departmental debates.
Baroness Anelay of St Johns
I do not need to protect my Minister. My Minister is here to protect the economy of this country.
Lord Sassoon
My Lords, I have got all night. I am very grateful to my noble friend. It is late, and we will have an opportunity to come back to these matters again. Specific funding for 16 to 19 year-old learning will be announced in the statement of priorities for the Department for Education later this year, so we will have opportunities to come back to that.
I move on briefly to one or two further points on reforms to our public services. We will leave no stone unturned in our search for waste, while we devolve power and funding away from Whitehall. I was very struck by the contributions by my noble friends Lady Browning and Lord Newby, who reminded us just how much more we can get from Government by better procurement and cutting waste. It is in those ways that we will be able to target expenditure going forward on those who need it—whether that is for 16 to 19 year-old education or those with disabilities. We have to remember at all times that the attack on waste continues to be a high priority.
Rightly, concerns have been expressed about the transitional effects of the job losses from the public sector. The Government are also very concerned about easing the transition, which is why we have announced the initiative such as the £1.4 billion regional growth fund.
I conclude today’s debate by saying that the decisions that we have taken have restored credibility to our public finances and stability to our economy. When we came to power, this coalition Government did face the worse economic inheritance in modern history. We have had to make tough choices—
Baroness Royall of Blaisdon
My Lords, the House will forgive me for delaying the Minister once more, but I thought that the noble Lord, Lord Shipley, and others raised incredibly important issues to do with local government funding in the forthcoming year. Would the Minister care to reflect or answer those questions?
Lord Sassoon
A lot of points were raised today, and I said at the outset that I cannot address them properly today. On local government, one critical issue is that we have removed almost 5,000 targets. Of course local government will live within lower spending settlements, as the great majority of central government departments have to do, but we are balancing that by lifting a huge burden of ring-fencing of their decision making, which will enable them, within what is of course a lower settlement, to have much more power to decide where the money goes, without the heavy hand of Whitehall bureaucracy on them.
We are investing in growth, in schools and in the health of our people. We have cut welfare, we are cutting waste, we have made sure that everyone pays their fair share—
Lord Myners
My Lords, the Minister is getting close to the point where he will not answer any further questions. He quite correctly said that there are some issues that he will have to go away and reflect on and reply to in writing. However, there was one contribution from the government Benches that was targeted specifically at the Minister, which alleged incompetence and lassitude on the part of the Minister, and those were the comments from the noble Lord, Lord James. They were very specific and I think the House deserves a response on the issue that the noble Lord raised. Clearly, the noble Lord has access to the solution that, with one leap, will take all the Government’s problems of financing to a better place. The Minister has clearly been remarkably bad at responding to the noble Lord and we look forward to the Minister’s explanation now.
Lord Sassoon
I am very grateful to the noble Lord, Lord Myners. He had great trouble keeping a straight face. I have to say that I took extremely seriously my noble friend Lord James of Blackheath’s suggestions that there were people who could help us out with our financial difficulty. The noble Lord, Lord Myners, thinks it is all a joke. I have been in detailed discussions over the past number of weeks with the noble Lord, Lord James of Blackheath, and of course we take seriously anyone who wants to invest in our economy. I know many people believe that there will be great opportunities in our infrastructure programme to invest in rebuilding our networks to underpin growth.
Baroness Farrington of Ribbleton
On a minor point of information, were any of the Minister’s Liberal Democrat noble friends present at any of these meetings?
Lord Sassoon
My Lords, if we start getting into who was present at which meetings at this hour of the night, we will never get home. I do not start counting off who is a member of which party in coalition Government meetings. That seems to be an obsession of the opposition party.
I will conclude briefly. It has been a very difficult and challenging spending round but we have made sure, as far as we possibly can, that everyone pays their fair share. We have taken the country back from what was—I am happy to say it—the brink of bankruptcy.
Lord Sassoon
My Lords, our plan will help drive growth in this country. Our plan will create the jobs of the future and it will build the more dynamic, more prosperous and more sustainable economy that Britain deserves. I beg to move.
Motion agreed.