House of Lords
Election of Lord Speaker
Message from the Queen
The Lord Chamberlain (Earl Peel)
My Lords, I have the honour to notify your Lordships that Her Majesty the Queen, having been informed that your Lordships have elected the Baroness D’Souza to be Lord Speaker, has pleasure in confirming your Lordships’ choice of her as your Speaker.
Election of Lord Speaker
(13 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, I am sure the whole House will join me in congratulating the noble Baroness on becoming our next Speaker. I am sure that everybody will wish to join in supporting her and encouraging her not just in this transition period but throughout her term of office.
My purpose in rising now is to inform the House that there will be an opportunity to pay tribute to the noble Baroness, Lady Hayman, the Lord Speaker, for her distinguished work as Speaker of this House and for being the first holder of the office of Lord Speaker. That occasion will take place at the start of business on Monday 5 September.
Baroness Royall of Blaisdon
My Lords, I rise briefly as I realise that now is not the time for tributes. However, as Leader of Her Majesty’s Opposition in this House, I just want to convey the very warm congratulations of our Benches to the noble Baroness, Lady D’Souza. This is another step in the evolution of our House. We have had another successful election for a Lord Speaker. It is extraordinary that we have had two women. I know that the noble Baroness will have the confidence of the whole House and that she will do a splendid job for the Lords, inside and outside Parliament, and for Parliament as a whole.
The Lord Speaker (Baroness Hayman)
My Lords, I intend to follow the example of others and not be present for first business on 5 September. Therefore, I trespass on the patience of the House for a single moment to add my congratulations to the noble Baroness, Lady D’Souza. She has been an effective and distinguished Convenor of the Cross-Bench Peers and I am certain that she will be an effective and distinguished Lord Speaker. I wish her well in those responsibilities. I express my deepest gratitude to the House for the honour that it gave to me in entrusting me with the responsibility of being first Lord Speaker for the past five years. It has been an extraordinary experience and I owe a debt of gratitude to many people in the House for their support during that time.
Thames Tunnel
(13 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Berkeley
To ask Her Majesty’s Government what are the environmental benefits of the proposed Thames Tunnel.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Henley)
My Lords, the Thames Tunnel proposed by Thames Water would reduce the frequency of spills of untreated waste water into the Thames from the current average of once a week during rainfall to three or four times a year, and reduce spill volumes from 39 million cubic metres annually to around 2.3 million cubic metres. This would meet the dissolved oxygen standards identified by the Thames Tideway Strategic Study and protect local ecology.
Lord Berkeley
I am grateful to the Minister for that Answer. I agree with him that the tunnel will help to clean up the Thames but in the process it could make a serious mess of London. One of Thames Water’s proposals is to concrete over most of Barn Elms Playing Fields and other greenfield sites and to remove spoil by road, involving some 500 trucks passing through London every day. Will the Government insist that Thames Water takes the majority of the spoil out by water down the river, because the line goes under the river? Secondly, will the Government safeguard the necessary brownfield sites, such as the Battersea power station site, to avoid the need to use greenfield sites in the construction?
Lord Henley
My Lords, I am grateful to the noble Lord for stressing the importance of the fact that it will clean up the Thames. That is very important, both in itself and in order to avoid infraction proceedings under the urban waste water directive. I note the noble Lord’s other points, which are really matters relating to planning issues. Thames Water will be consulting later this year on the route and where to put the various access points for the tunnels. After that, these are matters that should be left to the planning process rather than to Government.
Baroness Gardner of Parkes
My Lords, is the Minister aware that the London Group had the benefit of a presentation on this project? It said that one of the important features was to allow drainage in London, as the water level is now rising so high that it is becoming a problem, particularly with the development of more basements and sub-basements.
Lord Henley
My Lords, my noble friend is absolutely correct in talking about problems of drainage. We have seen, since Bazalgette built the original sewers some 150 years ago, a vast expansion of London, a vast increase in the number of people here, and a vast increase in the number of impermeable surfaces which allow water to drain off far quicker than it did in the past, creating serious environmental problems. As part of this process we need to look at all of those factors and all appropriate solutions.
Lord Aberdare
My Lords, in view of the fact that major projects such as the Thames Tideway Tunnel often fall short in delivering the environmental and community benefits expected, will the Minister consider encouraging Thames Water to establish an independent trust to provide a vehicle for ensuring that those benefits are achieved and maximised and that the tunnel project leaves a lasting legacy for London along the lines that Sir Joseph Bazalgette achieved with the original sewer project?
Lord Henley
My Lords, that is exactly what Thames Water is proposing in the plans. That is why it wants to consult on them and why it will have to go through the planning process in due course. At the end of that planning process we hope that it will be able to produce the right tunnel, in the right place, that will produce the right benefits.
Viscount Hanworth
In the 1960s when we were digging the Victoria line tunnel I remember that we caused minimal disruption around London and that the spoil was carried away directly. Can the Minister tell us why this cannot happen in the case of the Thames Tunnel when there is an easy way of carrying the spoil away—by the river?
Lord Henley
Again, it is a matter for the planning process and planning authorities to propose what conditions they think appropriate to impose on Thames Water. Since it is proposed at the moment that the tunnel should follow the river down, I would have thought it might be possible to have a lot of the access points close to the river. It should therefore be possible. However, it is not a matter for Government but for the planning process to consider using the river, rather than roads, for disposal of that spoil.
Baroness Kramer
I must declare an interest in that I live by the river and am a member of the Skiff Club in Teddington and therefore a supporter of the Thames Tunnel. Does the Minister agree that the reason why greenfield sites such as Barn Elms are at risk is that they are cheaper than the brownfield alternatives and that therefore it is a Defra issue? Will the Minister consider talking to Thames Water to make sure that environmental vandalism to sites such as Barn Elms does not take place?
Lord Henley
Obviously, we would want to encourage the use of brownfield sites, where possible, rather than greenfield sites. However, I do think that this should be a matter for the planning authorities and the planning process rather than for a diktat from Defra itself.
Lord Knight of Weymouth
My Lords, Defra is currently consulting on these sorts of projects becoming national infrastructure projects and at that point the Minister would have the leverage that he currently tells us he does not have. I understand the point that he is making. However, should he not take a lead, for example, from the Mayor of London, who is very happy to interfere and to pass comment wherever he sees fit? Should he not use his influence in this case and listen to what noble Lords have said about the importance of using the river to transport spoil in order to protect our greenfield sites and to preserve the brownfield sites? A meeting would be fairly straightforward and I am sure that Thames Water would want to listen to what the noble Lord has to say.
Lord Henley
My Lords, I would have thought that what I have said has given some idea of where Ministers in Defra stand on these matters. Again, I think that the planning process should decide the appropriate route, how it is done, where to dig the access tunnels and so on. In the end, we want the right solution for London and for the customers of Thames Water to ensure that we can get rid of that waste water and that we do not have, again and again, the kind of environmental disasters that we have seen, on a number of occasions, further up the Thames, with vast quantities of dead fish and other such things.
Lord West of Spithead
My Lords, I declare an interest as a waterman and lighterman. It seems to me that the Government have to take an overview of this. Leaving the matter to separate planning authorities can lead to things like the green aspects of using the river, which are dramatically less harmful to the environment, being forgotten. The Government ought to take an overview, if not pass legislation on it to make it happen. I notice that as regards the Olympics we have failed abysmally to use the river as much as was promised. That is a great failure and a loss to the nation.
Lord Henley
My Lords, I had a sneaking suspicion that a number of noble Lords in this House, who live further west up the Thames, would want to declare an interest in how these building works are to take place. Fourteen planning authorities are affected by this and it is one of the problems that has to be dealt with overall at government level. That does not mean that Defra should make the decision; the appropriate planning process should take place. Obviously, we will feed in our views and I have given some indication of a desire to use brownfield sites where possible rather than greenfield sites. In the end, we must leave this matter to the planning process.
Democratic Republic of Congo
(13 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Chidgey
To ask Her Majesty’s Government what assessment they have made of the preparations for the forthcoming elections in the Democratic Republic of Congo.
The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford)
My Lords, we are closely following the DRC elections. Despite delays, there has been considerable progress. The election calendar has been published, the electoral law passed, and over 30 million Congolese have registered to vote. There have been reports of harassment of political activists and demonstrations in Kinshasa earlier this month led to violence. However, so far we have seen no sign of systematic attempts to undermine the process. The Department for International Development is providing significant support.
Lord Chidgey
I thank my noble friend for that response. Is he aware that, during a recent visit to the DRC, we found that CENI’s electoral calendar was unrealistic and unworkable? For example, in spite of a completion date for voter registration at the end of June, by July only four out of 11 provinces had been signed off. Is he also aware that, perhaps more worryingly, the most serious threat to forthcoming elections is the increase in LRA activities, with numbers back at 2008 levels; and that MONUSCO, with just 5 per cent of its peacekeepers active in the LRA-controlled areas, is deeply frustrated by the lack of resources to utilise the intelligence gathered for DDRRR purposes?
Lord Howell of Guildford
I was aware of my noble friend’s recent visit to the DRC and I appreciate his concerns about the timing of the election. We reckon that the independent national electoral commission, to which he referred, CENI, is going reasonably well with its operations. Of course the timetable is tight, but we think that it is just realistic and that it is managing to get wider participation and better registration than some feared earlier. The Lord’s Resistance Army is a plague, as it were, a trouble which affects both the DRC and other countries in the region. Our aim is to get the African Union to support and work with MONUSCO, the UN force, in meeting this continuing threat. I fully recognise that it is a problem but if we can get the African Union fully engaged, as we are trying to, we believe that we can create the conditions in which the problem can be addressed effectively.
Lord Alton of Liverpool
The noble Lord, Lord Chidgey, was right to direct the Minister towards the depredations of the Lord’s Resistance Army, in a country where, after all, between 5 million and 6 million people have died in the last 25 years, mainly as a result of marauding militias. Has the Minister seen the report in today’s Telegraph online about Makombo, where 321 civilians died and 250 were abducted at the end of last year, and where 26 died and 53 were abducted in another raid on 6 July? Given that in 2005 the International Criminal Court issued indictments against Joseph Kony, the leader of the LRA, and two of his lieutenants, why has MONUSCO been so inadequate in gathering the necessary intelligence to bring these people to justice?
Lord Howell of Guildford
The noble Lord is quite right to deplore the endless slaughter and activities which are associated with the Lord’s Resistance Army. It seems to be a negative force both in this country and in many others. As I said earlier to my noble friend, it is our aim to get the African Union to work very closely with MONUSCO, the second largest UN mission in existence, in meeting this problem. The noble Lord, Lord Alton, asked me why it has not been so effective so far; I cannot answer that precisely, but I can only say that we are working extremely hard with other countries, with the EU and with our colleagues and allies, to reinforce the determination of MONUSCO and the African Union to meet the problem. This is the way forward that we think will be most effective.
Baroness Kinnock of Holyhead
My Lords, does the Minister share concerns about what is clearly the international community’s Congo fatigue, and the consequent much lower level of engagement in the November 2011 election process compared to what occurred in 2006? Is the Minister aware that, contrary to what we heard from him, there are predictions that as things stand we risk a situation in Congo such as we saw in Côte d'Ivoire, which also had a deeply flawed election?
Lord Howell of Guildford
I hope that on this matter the pessimism of the noble Baroness, who follows these things very closely, is unfounded. Our information is that 31 million people have been registered and that the organisation of the whole election is going reasonably well. Obviously there are bad examples: there were disturbances in Kinshasa earlier this month, as I mentioned. No doubt there have been some instances of irregularity, but overall we believe it is going reasonably well. As for the level of participation compared with 2006, she is right that the donor support for the election this time, as a percentage of the total costs of the election, is down somewhat from the 2006 levels. However, it is still a substantial amount at $176 million, of which we have contributed £31 million. I hope that she is wrong, if she does not mind me putting it bluntly, but her warning that this needs watching very closely is very apposite and well taken.
Lord Avebury
My Lords, if the electoral timetable is not achieved, what plan B is in place to avoid a constitutional vacuum? Considering the large sums of money that we and others have invested in these elections, have representations been made to the Government of the DRC to rescind the ban on Radio Lisanga Télévision and to refrain from taking any other extra-legal measures against freedom of speech and freedom of assembly in the run-up to the elections?
Lord Howell of Guildford
We have certainly played our part, again with international colleagues, allies and the European Union, to urge that there should be proper freedom of expression and freedom of access, as well as opportunity for the media and the printed press to have full say in the election; that is a very important aspect. We have pressed on that, as well as on other aspects such as observing human rights, maintaining regularities, getting full registration and wider participation of women, and all the other necessary requirements to ensure that this is a free and fair election.
Finance: Off-exchange Trading Venues
(13 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Kramer
To ask Her Majesty’s Government what assessment they have made of the risk to financial markets of off-exchange trading venues commonly known as “dark pools”.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Government strongly support ongoing initiatives at the European and international levels to improve transparency in financial markets. The International Organisation of Securities Commissions, IOSCO, has recently agreed a set of principles for regulating dark pools that will help inform the European Commission’s ongoing review of the markets in financial instruments directive, MiFID.
Baroness Kramer
I thank the Minister for that Answer. He will be aware that Andrew Haldane of the Bank of England, in a speech a week ago, pointed out the dominance of dark pools and their high-frequency trading in many financial markets. Does the Minister agree that the lack of transparency, the price differential suffered by small investors, the implications for corporate governance of nanosecond share ownership and, above all, Andrew Haldane’s concern that liquidity could disappear rapidly in times of stress all point to a serious risk to financial stability? Will he continue to follow the issue and look at more action by the British Government, not just at the European level?
Lord Sassoon
My Lords, we should distinguish—as I am sure my noble friend Lady Kramer does—between the two issues of dark pools and high-frequency trading, both of which I am sure noble Lords are very familiar with. Dark pools are akin to what used to be called “upstairs trading”—off the floor of the Stock Exchange. We need to make sure that the benefits of being able to trade in such an environment, such as competition and choice for investors, do not impinge in any way on the transparency and the price-discovery ability of markets. The FSA has done work on that and is content that the price-discovery mechanism is not being damaged.
High-frequency trading is a very new and slightly separate area, although I agree that it is related, and it is one on which the Government are doing considerable work. A research project led by the Government Office for Science is looking at the possible evolution of computer-generated trading and its implications, and will produce up to 20 papers on the subject during 2011.
Lord Peston
Are dark pools the same as dark matter, which the astrophysicists tell us permeates the universe but which no one can observe? Is not the problem that for a considerable period banks and other financial institutions marketed paper assets that had no real assets behind them, and that that is what led to the financial crisis? Is it not more worrying that the banks cannot wait to get up to the same tricks again, and will do so if something is not done to regulate them properly?
Lord Sassoon
My Lords, I am no great expert on dark matter and black holes, but I think the distinguishing point about dark pools is that they are a venue for trading that enables confidential orders to be submitted and matched using a reference point that comes from a transparent market. As soon as the trade is done, the details are reported publicly. Therefore, there is confidential trading and then full reporting, which is the critical feature of the market. Various platforms are available for the market, which accounts for something of the order of 7 per cent of UK and European equity trading. It is not a dominant part of the market by any means, but it is one that we are watching.
Lord Bilimoria
My Lords, one of the best moves in the mid-1990s was the creation of the alternative investment market, AIM, which has been a great success. I was a director of an AIM company that is now a FTSE 250 company. However, the biggest problem with AIM was always liquidity. Liquidity is an also issue outside the FTSE 250 on the main market. Can the Government do something to improve liquidity? Should more be done or are they happy with the situation?
Lord Sassoon
My Lords, I certainly agree that mechanisms that help liquidity such as dark pools, which are run by investment banks, multilateral trading facilities or independent operators, are indeed aids to liquidity if they form a proper part of the market. The proponents of high-frequency trading, too, cite them as an aid to liquidity. I completely agree with the noble Lord, Lord Bilimoria, that the last thing we want for example the European Commission to do is to restrict sensible increases in liquidity in our markets without looking at the evidence base that needs to be assembled.
Lord Pearson of Rannoch
Does the noble Lord agree that we can all relax on this question, because we surrendered supervision of our financial services—
Lord Pearson of Rannoch
Yes, my Lords, and to the biggest black hole of them all in the shape of the European Commission. Do the Government agree that we can surely rely on this body to come up with an honest solution to any problem, if only because it has not been able to get its own accounts signed off by its internal auditors for the last 16 years?
Lord Sassoon
My Lords, I certainly do not think we should relax on the issue of high frequency trading. We only have to think back to the events of 6 May 2010. I do not need to remind your Lordships that there were two crashes on that day: one was the crash of the outgoing Government; the other was the so-called flash crash in which the Dow Jones index plummeted in a number of minutes by 9 per cent but fortunately, unlike the Labour Government, recovered by 9 per cent a few minutes later. We certainly take this issue very seriously but we need to continue to do the work and see where this leads us.
Lord Davies of Oldham
My Lords, I think the country should be on its guard when euphemisms such as “black pools” are used. I agree with the noble Lord that they are an aid to liquidity but he will know—and I am grateful to him for identifying that the Government are expressing some anxiety in this respect—that they restrict transparency in the marketplace. We all know the price that we have paid for a lack of understanding of what has gone on in the world of finance and the importance, therefore, of the Government being concerned to get as much openness and transparency as they can.
Lord Sassoon
My Lords, if they were black holes as the noble Lord suggests, we would be worried, but for dark pools, IOSCO, the international regulatory organisation, has recently laid down six principles to guide the operation of the regulatory framework of dark pools, and the FSA’s assessment is that the UK and the EU are fully compliant.
Dyslexia
Lord Addington
To ask Her Majesty’s Government what progress has been made in making apprenticeships fully accessible to those with dyslexia.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, we have been taking forward the commitment to develop an alternative way for disabled people to demonstrate their suitability for an apprenticeship. We have developed an initial recommendation. The next steps are to confirm wider endorsement of the proposed model and focus on implementation. External experts continue to advise officials on this and other disability access issues in apprenticeships. We are currently reviewing these advisory arrangements and would welcome specialist input on dyslexia.
Lord Addington
I thank my noble friend for that reply. Will she confirm that it is an absurdity that people can get special arrangements to help them through the A-level system whereas dyslexics are failing a communication test which they have to take in the apprenticeships process and are thus not being allowed to qualify, when direct access to this qualification would allow them to earn a living? Is this situation not an absurdity, and will the Government assure us that they will report back to the House when they have corrected it? If not, we are going to go back to it again and again.
Baroness Wilcox
The noble Lord is an expert in this area and has spoken to me about this question so I am able to give him my hope for the reassurance that he is asking for. He is talking about the option of key skills as opposed to functional skills in apprenticeships. We have looked at this and extended the options of key skill apprenticeships only on a temporary basis until autumn 2012, because not enough providers were geared up to offer the functional skills which we—and which I know that he and employers—actually prefer. We are well on the way to providing this. We wanted to ensure that there was continuation during this time. However, it does seem very odd that you can get into university or take your GCSE with a functional skill that is not being provided at apprenticeship level. I give the noble Lord my personal assurance that I shall make sure that we continue to address this.
Baroness Wall of New Barnet
I support the noble Lord, Lord Addington, in the plea that he has just made. As somebody who is involved in apprenticeships at many levels, this has been an issue for me as well. The sector skills councils have been looking at how they will overcome this and I think that some of them have been giving advice to government on it. The parallel which the noble Lord, Lord Addington, mentioned is awful. People can get all that support for an A-level, and the Government are trying very hard to make sure that apprenticeships are as widely available as possible, but they cannot get the support that will enable them to learn a skill and get a job.
Baroness Wilcox
The noble Baroness is absolutely right; it is one of those things that happened. As she will know, one or two very poor cases have highlighted the problem, and we are all working very hard to see how we can overcome it. Any input that we can receive, particularly from people with dyslexia, will be an enormous help. We are consulting very widely on it.
Lord Bilimoria
My Lords, my younger son has dyslexia. It was lucky that a kindergarten teacher spotted it early so that from that time onwards we have been able to give him help which we hope will allow him to go on and do anything later on in life. Are the Government doing enough to train teachers to spot dyslexia at as early an age as possible and to provide the learning support? The Minister’s response to the noble Lord, Lord Addington, was very encouraging, but are they doing the same to help pupils at school?
Baroness Wilcox
As the noble Lord will know, the education Bill is currently going through the other House and will introduce many things. When it completes its passage a duty will, I hope, be placed on schools to make sure that there is good independent advice, particularly on careers. However, we are carefully monitoring the position at the earlier ages to make sure that all our children have equal opportunities. We really aspire to equal opportunities in this matter as well.
Lord Young of Norwood Green
My Lords, I recognise what the Government are doing in relation to this particular problem. However, there is a huge demand for apprenticeships generally and for apprenticeships for people with disabilities specifically. Does the Minister agree that it might help if the Government stipulate the need for apprenticeships when they let procurement contracts, placing a special emphasis on those with disabilities? Should they not act similarly in relation to government departments?
Baroness Wilcox
I was very interested to hear the noble Lord’s suggestion. I wonder why he did not do it when his people were in government.
Baroness Wilcox
You did, did you? Okay, then I have no doubt that we are carrying it forward, as we do with many of the things that you did. What support is available for disabled apprentices? Additional funding is available, and we are taking forward the work that you were doing in the past. I am sorry, that was cheeky.
Baroness Brinton
Is the Minister aware that the Joint Council for Qualifications guidance is clear on support for students with special needs? Does she think that providers should be required, rather than just following guidance, to ensure that all elements of the courses are accessible for students with disabilities including dyslexia?
Baroness Wilcox
The answer to that has to be yes. It is just how we get there.
Lord Roberts of Llandudno
My Lords, does the Minister speak only for people in England who suffer from dyslexia, or is this also an opportunity for those in the other countries of the United Kingdom?
Baroness Wilcox
I am speaking for England today, so I am assuming that this is a devolved responsibility. If it is not, I shall come back to the noble Lord with more information. I think that it is definitely a devolved responsibility.
Privacy and Injunctions Committee
The Chairman of Committees
That the Commons message of 14 July be considered and that a Committee of thirteen Lords be appointed to join with the Committee appointed by the Commons to consider privacy and injunctions, including:
(1) how the statutory and common law on privacy and the use of anonymity injunctions and super-injunctions has operated in practice;
(2) how best to strike the balance between privacy and freedom of expression, in particular how best to determine whether there is a public interest in material concerning people’s private and family life;
(3) issues relating to the enforcement of anonymity injunctions and super-injunctions, including the internet, cross-border jurisdiction within the United Kingdom, parliamentary privilege and the rule of law; and
(4) issues relating to media regulation in this context, including the role of the Press Complaints Commission and the Office of Communications (OFCOM);
That the Committee should report by 29 February 2012;
That, as proposed by the Committee of Selection, the following members be appointed to the Committee:
L Black of Brentwood, B Bonham-Carter of Yarnbury, Bp of Chester, B Corston, L Dobbs, L Gold, L Grabiner, L Harries of Pentregarth, L Hollick, L Janvrin. L Mawhinney, L Myners, L Thomas of Gresford;
That the Committee have power to agree with the Committee appointed by the Commons in the appointment of a Chairman;
That the Committee have power to send for persons, papers and records;
That the Committee have power to appoint specialist advisers;
That the Committee have leave to report from time to time;
That the Committee have power to adjourn from place to place within the United Kingdom;
That the reports of the Committee from time to time shall be printed, regardless of any adjournment of the House; and
That the evidence taken by the Committee shall, if the Committee so wishes, be published.
Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2011
(13 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Strathclyde
That the draft orders and regulations be referred to a Grand Committee.
Fixed-term Parliaments Bill
(13 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
16:56 - Division on Motion A1 - Ayes: 251 / Noes: 219 - Motion A1 agreed.
The Advocate-General for Scotland (Lord Wallace of Tankerness)
My Lords, I beg to move that this House do not insist on its Amendments 1, 2 and 9. I am sorry—I beg to move that the Commons reasons be now considered.
Motion A
Lord Wallace of Tankerness
That this House do not insist on its Amendments 1, 2 and 9 to which the Commons have disagreed for their Reason 9A.
Lord Wallace of Tankerness
My Lords, what it is when one does not have the crib sheet Depending on which way we vote, if the opinion of the House is tested, we may—or may not—be approaching the home straight of this Bill. However, it is worth putting on record that it is exactly one year ago this week, on 22 July, that the Bill was introduced in the other place. By any reckoning, for a Bill of seven clauses and one schedule this is quite some time. We are now down to the fact that there is one remaining and outstanding issue. Your Lordships’ Amendments 1, 2 and 9 provide that the provisions of the Bill are subject to a sunset clause after the next general election, and each subsequent Parliament would have a choice whether to be a fixed-term Parliament or not. These amendments were passed by your Lordships’ House by a majority of six. The other place has considered these and has sent back a strong message in relation to this group of amendments, which they voted to disagree by 312 votes to 243. The reason on the Commons Disagreement and Reasons paper indicates that Commons disagreed because they,
“do not consider it appropriate that the continuing operation of the provisions of the Bill should be dependent upon periodic resolutions of each House of Parliament”.
I am, perhaps not surprisingly, in accord with this view.
It is worth remembering that the Government have been prepared to consider amendments which improve the Bill, and indeed we have taken on board a number of your Lordships’ suggested amendments. We were persuaded that the provision to allow the Prime Minister to move the date of the election earlier by order was unnecessary, and that if there was to be an order to delay by up to two months, it should be accompanied by a statement of reasons. We have tabled amendments to put back elections to the Scottish Parliament and Welsh Assembly from May 2015 to May 2016. This issue was of concern not only in the other place but also when the Bill came here for Second Reading. In particular, and thanks in many respects to the work done by and discussions between the former distinguished Speakers the noble Baroness, Lady Boothroyd, and the noble Lord, Lord Martin of Springburn, and the noble Lord, Lord Howarth, who took the initiative with an amendment, and others, we redrew the architecture of the circumstances in which a vote of no confidence or of dissolution could trigger or lead in turn to an election. This indicates that the Government have been willing to listen, and on these points the other place has recognised that this House has done its task as a revising Chamber and has agreed to these amendments.
However, we were not prepared to support amendments that we believe undermine the fundamental purpose of the Bill—a purpose which was welcomed by the Political and Constitutional Reform Committee in another place and has obviously been supported there. That purpose is that the fixed-term Parliament is not for this Parliament only but, subject of course to the fact that any legislation can be repealed by a future Parliament, it should nevertheless apply to future Parliaments. Further, the purpose is to make fixed terms for the United Kingdom Parliament the norm, just as they are for local government, the devolved legislatures set up by this Parliament, and the European Parliament. This will deny the Executive the ability to choose a date for a general election to suit its own political ends. It will create certainty as to how long a Parliament should last. I ask your Lordships to recall that at Second Reading the noble Lord, Lord Hennessy, noted that we should not forget that the Prime Minister is surrendering a significant power in this Bill.
I also remind your Lordships about what my noble friend Lady Stowell said in Committee. She noted that this Bill will,
“ensure that the Government and the Opposition had to face the electorate on a predetermined date, whatever the political conditions are at that time. That is the most compelling thing about fixed-term Parliaments”.—[Official Report, 15/3/11; col. 223.]
In addition to this, many of your Lordships noted that the certainty of a fixed-term Parliament would create better facility to plan across Government, within Parliament, and beyond. By contrast, if these amendments are accepted, the electorate turning out in May 2015 will not know what they were voting for. Will they be giving the next Parliament a fixed and predictable term within which to govern or will they be handing to the leader of the next Government a trump card; namely, the ability to call an election whenever he or she thinks it is most opportune?
During the debates on this on Report, I indicated that the assumption behind these amendments must be that in the event a subsequent Parliament is not a fixed-term Parliament, the current rules about calling elections should apply to that Parliament. I again highlight what a somewhat anomalous and strange position this will result in. In particular, we presume that the drafters of the sunset—they are sometimes referred to as sunset or sunrise—provisions would mean that the royal prerogative power to dissolve Parliament would be summoned back into existence for that subsequent Parliament. I assume that that must be the intention, for how else would Parliament be dissolved other than by the prerogative unless the drafters intend Parliament only to end by reaching the five-year limit set in the revised septennial Act?
I wish to make two points about this. First, is it right that the existence of a royal prerogative be dependent on resolutions of each House not being carried? It seems very undesirable to the Government that the prerogative power may sometimes not exist and sometimes be revived in this way. Secondly, if this is the intention of the drafters, it is not at all clear that it has been achieved in the drafting that they have provided. In particular, the presumption in Section 16 of the Interpretation Act is that where an enactment of a temporary duration, which the provisions abrogating the dissolution prerogative appear to be, expires, it does not ordinarily revive anything not in force at the time of the expiry. Admittedly, that may seem to be a technical point but I urge noble Lords to consider that what is being proposed here is far from straightforward and hidden complexities abound. We should be very careful before giving our approval to what, perhaps at the very least, can be described as a constitutional novelty.
As I have indicated, it is important to note that this Parliament did not include sunset clauses when legislating for the fixed terms for the Scottish Parliament, the Welsh Assembly and the Northern Ireland Assembly. Indeed, in this Bill we are extending the fixed term of this parliamentary term for the Scottish Parliament and the Welsh Assembly but doing so by primary legislation. I have heard no convincing arguments to explain why we should sunset the fixed terms of the United Kingdom Parliament.
Is a sunset clause necessary to ensure that the issue of fixed terms, and the merits of this piece of legislation, are properly reviewed? Arguably, it is not. This Bill has received thorough scrutiny by four Select Committees—your Lordships’ Constitution Committee, the PCR in the other place, the JCHR and the Delegated Powers Committee. It has had all of its stages on the Floors of the respective Houses and the Government have reflected during the progress of the Bill and, as I have indicated, have made amendments where they feel that these improve the overall package.
If a future Parliament decides that it wishes to move away from fixed terms, or if it wishes to amend what we have provided for, we cannot bind its hands. Perhaps it has not been said in this Chamber but it has been said in some of the commentary that somehow we are trying to bind the hands of future Parliaments. Perhaps I may make it clear that that is not the case, nor is it the intention. It is clear that we believe that, if there is to be a change, it should be done through primary legislation, and can be done by means of primary legislation.
A change to the fundamental structure of Parliament is not a small matter and we believe that it should be subject to the full scrutiny of Parliament. It should not be a default option if a resolution fails to be tabled or passed to sunrise provisions for fixed terms. Many noble Lords have expressed concern about what these amendments would mean for the relationship with the other place. Arguments have been made that by providing that the Bill could be revived only with a resolution of both Houses, we could be undermining the primacy of the other place. This House would be given a power to veto the will of the other place on this matter. I would ask your Lordships to recall comments made by the noble Lord, Lord Armstrong of Ilminster, who has contributed notably in our debates on this Bill, when he spoke in the debate on 22 June on the reform of your Lordships’ House. I think that what he said would be echoed by noble Lords across the Chamber.
“We are a revising Chamber and a debating Chamber, and valuable in both functions, but we cannot prevail against the House of Commons if it wishes to insist. The House of Commons is sovereign in the matter of law-making”.—[Official Report, 22/6/11; col. 1257.]
In the case of this Bill, the other place has clearly indicated that it wants to establish fixed terms as a rule that applies equally to each Parliament. Both your Lordships’ House and the other place finally decided that it would not be appropriate to include a sunset provision in the European Union Bill. In the final debate on that Bill, my noble friend Lord Lamont of Lerwick wisely noted that a sunset provision was not appropriate because it would provide for primary legislation to be reversed by a simple resolution. That is the same effect as the sunset amendment would have on this Bill, turning important amendments to the statute book on and off, perhaps somewhat akin to a light switch. It is also worth noting the report of the European Scrutiny Committee in the other place on the European Union Bill. Again, I quote:
“All Parliaments legislate for the future. Laws passed by one Parliament do not contain a sunset clause at the Dissolution. The real point is whether a government can, in law, make it difficult for a future Parliament to amend or repeal the legislation it has passed; in our view it cannot. Our conclusion therefore is straightforward—that an Act of Parliament applies until it is repealed”.
That should be said also of the Fixed-term Parliaments Bill. Should a future Parliament wish to amend or repeal the legislation, it can do so, but it should do so through the normal legislative process, not simply by passing a resolution.
I repeat that, in a number of respects, this House performed valuably the revising and reforming function to legislation which is at the core of your Lordships’ business and that the Government responded to these proposals, but the amendments run contrary to the spirit of the Bill and raise more questions than they answer. Your Lordships have raised a matter of concern and have asked the other place to reconsider its position. The other place has done so. Consistent with the role of your Lordships under our parliamentary system, a role which many noble Lords have been at pains to suggest does not amount to the making of law but only to its scrutiny, I urge your Lordships to accept the verdict of the other place and not to insist on the amendments. I beg to move.
Amendment to the Motion
Lord Butler of Brockwell
As an amendment to Motion A, leave out from “House” to end and insert “do insist on its Amendments 1, 2 and 9”.
Lord Butler of Brockwell
My Lords, in the absence of my noble friend Lord Pannick, but with his support, it falls to me to urge your Lordships to cause the Government to think again about these amendments which this House passed to the Bill. My noble friend asks me to express his regret that other unavoidable business prevented him being here today.
The amendment which your Lordships passed would give the next Parliament and subsequent Parliaments the opportunity to decide whether the provisions of this Bill, subjecting them to a fixed term, should apply to them. It does not nullify the Bill. It merely gives future Parliaments the right to disapply it without having to go to the lengths of repealing it.
In essence, the case for your Lordships’ amendment is that a permanent constitutional change to fixed-term Parliaments should not be made without more preparation and consultation than this Bill has had. In the substantial debate in the other place last week, thoughtful individuals in both the main political parties both spoke and voted for your Lordships’ amendment. A Conservative Member described the Bill as a “reckless” constitutional act,
“on the back of an envelope”.—[Official Report, Commons, 13/7/11; col. 375.]
A Labour Member, perhaps better versed in the vernacular, described it as tinkering with the constitution,
“on the back of a fag packet”.—[Official Report, Commons, 13/7/11; col. 373.]
As for those who argue, as the Minister did today, that it would be open to a future Government who disagreed with the provisions to repeal the Act, the Minister in the other place gave the game away. He asked, if the Bill became law and fixed-term Parliaments became the norm,
“would any Minister realistically be able to come to the Dispatch Box and suggest with a straight face that we should change the position and give the power back to the Prime Minister to hold an election at a time of his choosing to suit his political party? Would anyone take that proposition seriously? I suggest that they would not”.—[Official Report, Commons, 13/7/11; col. 361.]
So it is clear that the Government intend that this should be a permanent change to the constitution.
The main case advanced by the Government for the legislation—what the Minister called today the “fundamental justification”—is based on a fallacy. I do not doubt the sincerity of those who argue for it, but it is a fallacy none the less. It is that the power of a Prime Minister to seek a dissolution at a time of his or her choosing gives the governing party an unfair political advantage. The Minister went so far today as to describe it as a “trump card”. In the real world, the Prime Minister’s room for manoeuvre is heavily constrained. In normal times, and with a workable parliamentary majority, it is simply not practical politics for a Prime Minister to call an election in the first, second, third or even fourth year of a parliament. It is true that the fifth year becomes open season for elections and Prime Ministers often seek a dissolution before the last moment in order not to be at the mercy of events, but the practical advantage this gives is very limited—it is far short of a trump card. Even the proponents of the Bill accept that there should be some flexibility in the fifth year to allow for unforeseen events such as the BSE epidemic.
It follows that it will be only in exceptional circumstances that a Prime Minister will seek a dissolution in the first, second, third or fourth year of a parliament. As the noble Lord, Lord Grocott, pointed out in our earlier debates, history shows that these occasions are never dictated merely by political advantage. In 1966 and 1974, general elections were called in the second and first years of the parliaments respectively in the circumstances of a growing economic crisis when the Government did not have a sufficient majority to deal with it. In 1974, a general election was called in the midst of a miners’ strike when the incumbent Government had exhausted their means of resolving the strike. Can it be denied in these circumstances that it was in the national interest rather than in the Governments’ political interest that the Governments should seek a reinforced mandate to deal with these national crises?
In such circumstances, what would have been the effect of this Bill? The Government would have had to rely on the Opposition’s support to obtain a dissolution. Proponents of the Bill may say that, in practice, general elections would always be available in such circumstances because Oppositions would never deny themselves the opportunity to throw the Government out. In that case, the legislation is pointless. However, let us suppose that they have a point, that there would be circumstances in which a Government would want a reinforced mandate to deal with a national crisis and the Opposition, for whatever reason—shortage of party funds or whatever—denied them the 75 per cent majority necessary for a dissolution. Would that be in the national interest? Can it be right that in such circumstances the Government should be dependent upon their political opponents in seeking a fresh mandate from the people? The purpose of this constitutional change is misconceived.
A further argument used by the Minister in another place, over several columns of Hansard—although I noticed that the Minister made only a glancing reference to it today—was that because a decision to reapply the provisions of the Bill would require a resolution of both Houses, your Lordships could deny an elected House of Commons the right to apply the Bill and thus undermine the supremacy of the elected House. To my mind, it is appropriate that, if a law is to be reapplied, it is constitutionally right that it should be reapplied by both Houses of Parliament. I find it inconceivable that in a future Parliament, if the newly elected House of Commons voted for a fixed-term Parliament, your Lordships would overturn that decision. The fact that the Minister relied so much in this argument on another place illustrates, to my mind, the weakness of the Government’s arguments against the amendment.
Lord Howarth of Newport
My Lords, the noble Lord, Lord Butler of Brockwell, has set out fully and powerfully the case for your Lordships’ House to insist on these amendments. Nevertheless, I would like to say a few words in support of the excellent case that he has made. I do think that it would be right to ask the other place to think again. I do not think that it had the opportunity to consider this legislation properly when, in the new Parliament, it was sent sailing through—if I may put it this way—a very inexperienced new House of Commons.
The Bill was only hastily examined by the Political and Constitutional Reform Committee; I do not criticise the committee for that because it had all too little time between the publication of the Bill and the date of Second Reading that the Government had scheduled very early on indeed. It was then rather perfunctorily examined in the Chamber of the House of Commons before it came to this House. The other place should have looked at it much more carefully. After all, among our powerful objections to the legislation as the Government presented it was that the Government were playing fast and loose with the role of the Speaker and with parliamentary privilege, matters that surely one would have expected the House of Commons to ponder and take very seriously, but it did not and the legislation went through quickly.
This is not the moment to rehearse again all the flaws in this Bill, but, as we bottomed out the issues that the Bill gives rise to in our proceedings here, it became more and more evident that it was bound to be a bad Bill because it was seeking to give legislative force to a bad idea. It was addressing a non-problem. There is no evidence that there has been abuse by successive Prime Ministers of the right to choose the date of the next election or that the country has suffered because successive Prime Ministers have exercised that right. I do not think that the “will he, won’t he” issue that Mr Harper made so much of in the other place is a serious problem, and I do not think that the country considers that it is.
This legislation was dressed up as a project to reduce the power of the Prime Minister and increase the accountability of government to the people, but it did not do that. In fact, it did exactly the reverse. It secured for this Prime Minister the assurance of a five-year Parliament and bound the coalition, however unhappy the marriage, into a five-year Parliament. Far from increasing accountability, it reduced the frequency with which electors can be expected to have the opportunity either to throw the Government out or to renew their term at a general election.
The typical interval between general elections in most of the 20th century was, we are told, some four years. By extending the term of Parliament rigidly to five years, without allowing the sensible pragmatic flexibility that our unwritten constitution has hitherto permitted, the legislation would make Governments and Prime Ministers less accountable to Parliament, not more.
The measure would still have been bad in principle, but it might have been somewhat less objectionable had the Government accepted the amendment tabled by my noble and learned friend Lord Falconer of Thoroton to reduce the fixed term from five years to four years. However, the Government saw no merit in that, no doubt because they were very worried that the consequences of their fiscal nihilism and the misery and waste that their policies are causing will not have been forgiven, or anywhere near forgiven, in a mere four-year term.
The amendment that your Lordships passed and which built a sunset clause into the Bill was the best damage limitation that this House was able to offer, because we rightly have a convention that we do not reject government legislation at Second Reading. The noble and learned Lord, Lord Wallace of Tankerness, and his ministerial colleague in the other place, Mr Harper, have raised various objections to the amendment that we passed, but they seem to me to be quibbling amendments. None of them creates such difficulty that, had the Government been willing to accept the advice of this House, they would not have been able to refine the legislation to deal with those problems.
We could certainly have thought about whether your Lordships' House should approve an order under this legislation in a normal way. An argument could have been mounted that it would not be appropriate for your Lordships' House, unelected as it is, to decide itself whether the fixed-term provisions of this legislation should have been renewed, although I am attracted to the argument made by the noble Lord, Lord Butler of Brockwell, on that point. Issues such as the royal prerogative or the exact stage in the new Parliament in which the vote on the order might take place could have been sorted out consequentially had the Government been willing to accept the advice of your Lordships.
Nor am I impressed by the argument about consistency. Just because we have not proposed that we should undo the fixed terms for the Scottish Parliament or the Welsh Assembly, which are being extended under this legislation, it does not follow that we should not seek to amend the provisions relating to the Parliament at Westminster. A constitution benefits from sensible anomalies; a constitution that is pragmatically designed and evolves to take account of the political realities in different places at different times stands a much better chance of working successfully.
I appreciated the fact that the Government accepted some of the amendments that we passed in this House. They should, after all, surely accept this provision. It is simple and effective, and would give the House of Commons the opportunity, after the experience of this five-year Parliament, to confirm or not to confirm that a fixed-term Parliament would be a permanent arrangement. It would, in effect, be an exercise in post-legislative scrutiny. It seems to me that the Government would do well, in the light of experience, to have the modesty to allow reconsideration of a very contentious and experimental piece of legislation such as this, in the convenient way that the amendment provides for.
As the Minister has emphatically reminded us this afternoon, it would be open to the new Parliament—or, indeed, to this Parliament should the coalition fall apart within five years, which is not at all inconceivable—to repeal the legislation. It is, however, much more of a performance to repeal, whether in this Parliament or at the beginning of the next Parliament, because it involves all the long drawn-out processes of primary legislation to achieve in essence the same as your Lordships’ amendment would achieve. In all events, one way or another I hope that Parliament will get rid of this footling and misguided piece of constitutional tinkering.
Baroness Verma
My Lords, perhaps the noble Lord, Lord Rennard, could carry on and the noble Lord, Lord Cormack, could speak after him.
Lord Rennard
My Lords, the noble Lord, Lord Butler, will no doubt recall very well from the period in early 1992 that there was much speculation about the likely timing of the general election then due. Options of April, May and June were all under consideration by John Major, and his choice was based simply on when was most likely to favour his party in what was expected to be a very close contest. Indeed, it was a very close contest that was well described in the book I much enjoyed by the noble Lord, Lord Hill of Oareford, entitled Too Close To Call. It was clear from that account that the advantage of being able to choose polling day possibly made a decisive difference.
At the time I was involved in helping to prepare the campaign led by my noble friend Lord Ashdown. I was quite shocked to receive a call one day in the run-up to that election from someone who ran a printing firm.
Lord Lamont of Lerwick
The noble Lord says that John Major was much advantaged by being able to choose the date of the election, but he actually chose the last possible date. Is that an argument for a fixed-term Parliament?
Lord Rennard
My Lords, the last possible date was June of that year. A date that was widely considered was the May of that year, which coincided with the local elections. In fact, the date chosen was 9 April, which was rather earlier than the last possible date, and was chosen—as the book I have just described accounts—for his advantage. I asked the printer, who told me that the date would be 9 April, how he could know. He told me he was breaking commercial confidence by telling me, but he knew because he was in the process of printing the election address of a then Cabinet Minister who was able to tell him that the date would be 9 April, and that this date was on the front of his leaflet. It seemed to me that that Cabinet Minister had an advantage over other candidates in that election, and that the ability to print election literature at a time of one’s choosing is just one of the unfair advantages afforded to the governing party over all other parties in our present arrangements.
As I have said before in these debates, it is rather like allowing Sir Alex Ferguson to pick the dates for all the Manchester United games. In 1992, the advantage of choosing polling day was possibly crucial to the narrow and generally unexpected Conservative victory, although in that election the Sun newspaper famously said:
“It’s The Sun Wot Won It”.
I know that many noble Lords opposite were candidates for the Labour Party in that election, in which they were led by the noble Lord, Lord Kinnock. I ask them to remember the words of their manifesto in 1992, which said:
“This general election was called only after months of on-again, off-again dithering, which damaged our economy and weakened our democracy. No government with a majority should be allowed to put the interests of party above country as the Conservatives have done”.
It concluded:
“Although an early election will sometimes be necessary, we will introduce as a general rule a fixed parliamentary term”.
The principle of this Bill is to do exactly that. It upholds a principle that was also in last year's Labour manifesto, which guaranteed to ensure that legislation would be introduced to make sure that we have the principle of fixed-term Parliaments. That principle was also in last year's Liberal Democrat manifesto and was one that David Cameron agreed in opposition to consider seriously before committing his party to it in the coalition agreement.
Lord Forsyth of Drumlean
I hesitate to interrupt my noble friend, but I feel that he is making a bit of a Second Reading speech. I hope he will not mind if I ask him a question that has been puzzling me on the idea of the abuse of prime ministerial patronage. If we know the date of the election, is that patronage not going to be used to ensure that all kinds of goodies are announced before that date, and are Governments not going to plan their programmes accordingly? Is the problem not going to be much worse, not better?
Lord Rennard
My Lords, I think the problem would be rather less serious when we all knew when the election would be. The amendments strike very much at the principle of the Bill, which is why I am now addressing them. If anyone doubts how a Prime Minister can manipulate the present system for party advantage, they should think back to the events of September 2007, when a new Prime Minister was clearly planning an election for the autumn. Indeed, we now know that more than £1 million was spent on leaflets that sat with the Royal Mail waiting to be dispatched, when the Prime Minister suddenly realised that he might lose the election and called it off. Surely that is a great example of a Prime Minister abusing the system for party advantage.
Again, comparing this with football, would we consider it fair if Sir Alex Ferguson was allowed to call off a football match if he was worried about the form of his team and to rearrange the match for another day when it might perform better? Of course we would not. I see the noble Lord, Lord Triesman, who obviously regards football as a very serious matter, sitting opposite. I recall my own sporting hero Bill Shankly saying that football is not,
“a matter of life or death … it's more important than that”.
However, I would say that democracy is even more important. At the moment, in this period of great turbulence and concern about the rules of fair play, fair competition and fair enforcement of the law, we should take this small step towards making the rules of our democracy fairer. If a future Parliament wishes to take issue with the fixed-term principle or with any of the detail of how it operates, it should go through the same parliamentary processes that are currently necessary with this Bill.
On the principle of the Bill, let us consider finally that neither the Scottish Parliament nor the Welsh Assembly, the Northern Ireland Assembly or the European Parliament, the Greater London Assembly or a single one of the hundreds of local councils across the United Kingdom appear to have a problem with the fixed-term principle for elections. Neither should we in this unelected House.
Baroness Jay of Paddington
My Lords, I am delighted that the noble Lord, Lord Rennard, has returned to the principles of this Bill because it enables me briefly to return to the report of your Lordships’ Committee on the Constitution, which I have the honour to chair and which I note the Minister did not refer to. Well, he referred to it only in passing; he did not refer to the fact that the Committee was on the whole opposed to the idea of the principle of fixed-term Parliaments and was very much in support of the idea that if they were to be undertaken they should have four-year terms rather than five-year terms.
In supporting the amendment tabled by the noble Lord, Lord Butler of Brockwell, it is more appropriate to refer again to the Constitution Committee’s strictures on the processes that produced this Bill. Your Lordships will recall that one of the things that the Committee felt most strongly about was that the Bill had been brought forward with as many political concerns and ambitions in mind as constitutional principles. In fact, we were very concerned that this was seen as a short-term measure designed to extend and protect the five-year term of the present coalition Government, and not something that was designed properly to change the constitution.
We also referred to the fact—as the Minister said in his opening remarks—that there was some time in Parliament for the Bill to be considered, although I noted that my noble friend Lord Howarth referred to the lack of pre-legislative scrutiny that we felt was desirable in this case. None of the pre-legislative scrutiny or any of the processes that we as a committee felt should have been undertaken to ensure that the Bill had widespread support in making a major change to the constitution had been undertaken. There was no Green Paper and no White Paper, and although Ministers appearing before the committee said at the time that this was because it was early in the Parliament—as the Minister said—we felt that there was no time limit on this Bill in the way that there was on the referendum legislation that was brought forward with equal speed early in the Parliament, so there was nothing to prevent this Bill being considered in what we would have thought was the proper way for a constitutional Bill of this significance.
I add in conclusion that your Lordships’ committee has now undertaken, partly because of our concern about this Bill, a full-scale inquiry into the process of constitutional change that we have just completed and which I very much look forward to having the opportunity to debate with your Lordships following the Recess.
Lord Tyler
I agree very much with the noble Baroness and respect the views of her committee. In thinking about process, does she think that the novel constitutional process that the amendments introduce is a short-cut, without proper process, to look at major primary legislation by resolution of the two Houses, which could be in conflict, or does she think that that is a proper constitutional process?
Baroness Jay of Paddington
My Lords, the committee’s position, and certainly my personal position, is that given the inadequate processes that have produced this legislation, some form of post-legislative scrutiny was needed. I do not remember whether the noble Lord was present when the noble Lord, Lord Pannick, led the previous debate on a similar subject, but the discussion included the issue of whether there was some way not perhaps of preventing the present Government fulfilling their five-year term, which the Constitution Committee certainly thought was the primary aim of this Bill, but of giving Parliament an opportunity to think again about whether this was an appropriate way for the constitution to be changed.
Lord Cormack
My Lords, I wish to make a brief speech in support of the noble Lord, Lord Butler of Brockwell, and to focus the House’s attention on one or two points. First, whatever our views on fixed-term Parliaments, we have debated that. The House, in its wisdom, has made its decisions and has not stood in the way of another place. We are to have a fixed-term Parliament and the next general election will take place in May 2015. That is not the issue this afternoon. However, we have also decided that it is entirely proper to seek to improve and amend what many of us consider to be an ill thought-out, unnecessary and bad Bill. That is what the amendment of the noble Lord, Lord Butler of Brockwell, seeks to do. I hope very much that we will support him if he decides to press his amendment to a Division, and that we will do so because we recognise the circumstances in which this Bill was produced.
This Bill is the creature of coalition. It came into being because of the coalition agreement. None of us has sought to deny the right of the Government to decide when the next general election will be. As I said, it will occur in May 2015. Attempts to bring forward that date were defeated—in my view, understandably, and probably rightly—when we sought to amend the Bill. However, because this Bill is the creature of coalition, there should be an opportunity for the next Parliament to consider whether it truly wishes to continue with this experiment. The next Parliament may well be one with a Conservative majority—I sincerely hope that it will be—but whether it has a Conservative majority or a Labour majority it is unlikely that it will be another coalition. This amendment merely gives the opportunity for the new Parliament to make its decision. Indeed, this has already been recognised on the Floor of this House by my noble friend Lord Howell of Guildford when he was dealing with the sunset clause on the European Union Bill. He pointed out that the two things were different. He said:
“As was explained in the debate”—
that is, the debate we had just had—
“one can see perfectly well why”,
our amendment had been passed. He continued:
“The coalition exists, and I hope that it continues to exist in strong fine form during this fixed-term Parliament, but after that we have a new landscape. Who knows who will govern? Who knows what the pattern will be? It made perfectly good sense for that legislation to have a limited life before coming to be re-examined”.—[Official Report, 25/5/11; col. 1861.]
My noble friend Lord Howell made a similar point when he wound up the debate on the sunset clause at Report on the European Union Bill.
We have before us the opportunity to say to the other place, “Please reflect on what you have done. Please recognise that we have not wrecked the Bill that you sent to us and that we have made no attempt to change the date of the next general election, but also recognise that what we have done is to give an opportunity for the Parliament elected in May 2015 to re-examine this matter and to decide whether, in the light of experience, it wishes to continue with fixed-term Parliaments”. We are giving that Parliament the opportunity to make that decision without burdening it with the necessity of introducing full-scale constitutional legislation at the beginning of a new Parliament if it generally desires to move away from what we have decreed.
As we know all too well, constitutional legislation takes a long time to get through Parliament. We may learn that lesson yet again in the not too distant future, so we are being exceptionally kind to the next Parliament in giving it that opportunity to ratify or nullify without long, protracted debate. Because of that, I very much hope that the noble Lord, Lord Butler of Brockwell, will be listened to and heeded, and that if he decides to put this to the vote the majority will be more than six this time.
Lord Armstrong of Ilminster
As one who put his name to the amendment on Report, I rise briefly to add to the comments of my noble friend Lord Butler of Brockwell and others. I do not need to go through the defects of and objections to the Bill again. For all the reasons given in earlier stages, and again by my noble friend Lord Butler now, I share his view that the Bill is neither necessary, nor desirable, nor satisfactory.
There is something very rummy about a Bill in which one clause decrees that a Parliament should last for a full term of five years, and the next clause tries to provide for the circumstances in which, despite the first clause, it may be dissolved prematurely. It is all Lombard Street to a China orange that the time will come when a premature Dissolution would be to the manifest benefit of the country, in circumstances which have not been foreseen or provided for by the legislation. The Prime Minister will have to resort to some artificial device to enable him to request a Dissolution from the Queen—for instance, by calling for a vote of confidence in Her Majesty’s Government, and advising his supporters to abstain or even vote against it.
As the noble Baroness, Lady Jay, has pointed out, the Bill has been introduced as part of the glue to allow the coalition to stick together and stay in office as long as possible while it takes through the unpalatable measures required to restore a measure of stability in the finances of the Government, and a climate more conducive to growth in the economy.
It is said that the legislation is intended to deprive Prime Ministers of the opportunity to request a premature Dissolution for the sake of supposed party-political advantage. If Prime Ministers are so deprived then, as the noble Lord, Lord Forsyth, has pointed out, they will be forced to trim the timing and the quality of their policies to the electoral timetable. They will defer good news, such as tax benefits, until near enough the election to affect the result. That may not be in the best interests of the country. Either way, the Prime Minister is going to retain some form of discretion about how he or she responds in these circumstances. Therefore, in reducing—though not, I suspect, eliminating—one risk, there is reason to fear the risk of unforeseen and adverse consequences. One devil—if it really is a devil—may be stunned, if not slain outright, but seven other devils may be released.
After the next general election, a new Government and a new Parliament should be obliged to review the arrangements for and against legislation of this kind, decide whether to be bound by the provisions of this legislation in future, and consider the case for reverting to more flexible arrangements of the kind that have prevailed until now. Passing this amendment would ensure that that would happen, so I hope that your Lordships will vote accordingly, if they are asked to divide, and invite the other place to think again.
Lord Marks of Henley-on-Thames
My Lords, the other place has rightly rejected these amendments because they rest on a fundamental misconception that, merely by enacting legislation that is not time-limited, Parliament is seeking to bind its successors by passing permanent legislation. That proposition needs only to be stated to demonstrate its falsity. The Bill contains no entrenching provisions. It does not seek to restrict in any way the power of any subsequent Parliament to amend or repeal it. If the next or any future Parliament wishes to reconsider the provisions of this Bill when enacted it is free to do so, relying on the normal processes by which we consider and pass legislation. In 1885, Dicey defined the doctrine of parliamentary sovereignty on this point as the right,
“to make and unmake any law whatsoever”.
Nothing in this Bill as unamended infringes that principle.
These amendments, with their ungainly hybrid of a sunset provision and what might appropriately be called a Lazarus clause—rather than a sunrise clause—would kill off the effective provisions in the Act after the next general election automatically and without any parliamentary consideration whatever, contrary to the assertion of my noble friend Lord Cormack. They would then allow one or any number of future Parliaments, by simple resolution of both Houses, to reinstate the legislation for a single Parliament at any time and at any stage of the Parliament in question. That would not then be a fixed-term Parliaments Bill; it would be no more than an unedifying muddle with no clarity for the electorate—or for parliamentary candidates, for that matter—when they go to the polls.
The amendments offend against constitutional principle on three main grounds. It is notable that your Lordships’ Constitution Committee, led by the noble Baroness, Lady Jay, did not at any stage suggest a sunset and sunrise clause in the form proposed. The first offence against principle is that the amendment threatened to remove from Parliament the right to insist on full and detailed consideration of any proposal to repeal or re-enact the legislation by introducing a mechanism for re-enactment by resolution of both Houses. That re-enactment, as my noble and learned friend Lord Wallace of Tankerness pointed out in opening, would apply to the Schedule, which contains historic and important repeals, and would apparently be reversible by a resolution of both Houses.
Secondly, the amendments would increase the power of your Lordships' House beyond that generally permitted by the Parliament Acts because they would give this House the power to thwart the will of the other place, not merely to delay its implementation, if a resolution were passed by the House of Commons but denied passage by the House of Lords.
Thirdly, the amendments would offend against the Salisbury/Addison convention, if not in the letter certainly in the spirit. Both the Labour Party and the Liberal Democrats had commitments to fixed-term Parliaments in their manifestos, which were then agreed by the Conservatives in the coalition agreement. The settled view of the House of Commons, expressed on two occasions, is that this Bill should pass. Yet these amendments seek to time-limit it in a way that would remove its impact altogether. I say that because as the noble and learned Lord, Lord Falconer of Thoroton, and a number of other Lords pointed out at earlier stages of this Bill's passage, no legislation whatever is required for this Parliament to last until May 2015.
As always, the noble Lord, Lord Butler of Brockwell, put his argument seductively and persuasively, but the reality is that far from being asked to act in this House as guardian of the constitution by these amendments, we are in fact asked to challenge the primacy of the elected House and to usurp the revising and scrutinising role of this House by effectively emasculating this Bill.
Lord Forsyth of Drumlean
Perhaps the noble Lord could help me with a point. I may be wrong, but I believe that we still retain the power in this House to prevent the other place from extending the life of a Parliament. Is there not a parallel there?
Lord Marks of Henley-on-Thames
My Lords, I do not accept that there is a parallel. There is indeed the exception in the Parliament Act for a Bill to extend the life of Parliament, and that was the case with this Bill, with the power to extend by two months. That is not the case in respect of these amendments.
Lord Goldsmith
My Lords, I have listened to the noble Lord and the noble Lord, Lord Rennard, and I must say that it seems to me that they are making an enormously unnecessary mountain out of this. What has happened is perfectly straightforward. Many parts of this House do not like this Bill, and for good reason. Your Lordships’ Constitution Committee, on which I have the privilege to sit, did not like it either. But in the way that this House often finds compromise solutions, instead of saying, “We won’t have the Bill at all”, the House said, “You can have your Bill. You want a fixed term this time around, but don’t force this down the throats of every successive Parliament. We will make it easy for you. We will not even require you to go through the full process, though you can if you want to”—I think the noble Lord, Lord Cormack, was at one stage proposing that, and I will come back to it. The House said, “We will leave it on the basis that if each House resolves that in its turn it wants a fixed-term Parliament, it can have one”.
That seems to me to be an eminently suitable compromise. What the noble Lords say, inter alia, is that this somehow gives this House the ability to prevent the Commons from having its way. But no; if the Commons wants to pass a Bill—a full Act—against the wishes of this House, it can still do that in the next Parliament. There is no constitutional aberration about this at all. It is a sensible compromise, it is a good British compromise, and it is the sort of compromise that this House is good at finding. I too hope that the noble Lord, Lord Butler, will divide the House. If he does, I will gladly join him in the Lobbies.
Lord Marks of Henley-on-Thames
Does the noble and learned Lord accept that the will of the House of Commons is that this Bill should pass in a way that does not last just for one Parliament, and that this Parliament does not need any legislation to sit until 2015?
Lord Goldsmith
I have two answers for the noble Lord. First, that is one of the reasons why this Bill has never been necessary. It would have been perfectly possible for the Prime Minster to have made it very clear—on his honour, on his commitment, or whatever— that he was not going to go to the country until later. That was undoubtedly one of the options which was available, as we know from the evidence that has been given. The reasons why it was not taken I do not find at all convincing. Nevertheless, that is the route by which the Government have gone. Secondly—I say this with respect to the noble Lord, who has not been here as long as some other noble Lords—this House has the obligation and the responsibility of saying to the other place, “We think you are wrong. Think again”, and from time to time of saying, “We think you are wrong and we are not going to support what you are trying to do”.
Lord Phillips of Sudbury
Does the noble and learned Lord know of any precedent or parallel for the provision which he supports?
Lord Goldsmith
This House has put forward sunset clauses which have been agreed a number of times; the precise mechanism does not matter. The point is that this House has said from time to time—for example, in relation to control orders—“All right, Government, you can have them for the time being, but you are not going to keep them without some further legislative process”. That seems to me to be a very good idea.
Lord Tyler
Can I ask the noble and learned Lord whether in his consideration within the committee—to which I made reference earlier—he thought it appropriate for a constitutional Bill of this sort, over which a great deal of concern has been expressed on his side of the House, to be subject to this fast-track, quick process, which is an entire novelty? It is not given to any other legislation whatever. Will he address in particular what would happen if one resolution were “Yes” and the other resolution in the other House were “No”? Would that not then raise questions about the adequacy of the process?
Lord Goldsmith
The noble Lord is tempting me to tell him what I think about the legislative process that has taken place so far in relation to the Bill. It is deplorable—not the consideration in this House, but the whole way in which this has come forward. This House is making the best it can of that job by taking poor, inadequately consulted-on legislation and putting forward a compromise that I believe will work. In answer to the noble Lord’s second question, the amendment is very clear. Both Houses need to give their approval. However, if they do not, it is still open to the other place to bring forward legislation and to use the Parliament Act if it wants to do so.
Baroness Stowell of Beeston
My Lords, I will come at this from a slightly different angle. Before I do, I will say that it is to your Lordships’ great credit that the Bill before us is much improved, especially the completely revised Clause 2. I regret that I disagree with the noble Lord, Lord Butler of Brockwell, for whom I have great respect, on this Motion, which drives a coach and horses through what the Bill has the potential to help us as a Parliament begin to achieve.
On many occasions during the passage of the Bill, several noble Lords have argued that our political system is not broken. I agree with that. My argument has always been that the problem we need to address is the public's lack of confidence and trust in the system. To fix the problem, we need to look for opportunities to change—not change for the sake of it, but change that delivers the kind of result that shows people we mean it when we talk about putting the public interest before our own.
I support the Bill not because I believe in fixed-term Parliaments; I support it because it is a means to a positive end. The Government and Opposition will have to face the electorate on a predetermined date, whatever the political conditions at the time. In other words, the Bill provides certainty to the electorate that the politicians have less room to manipulate the system for their advantage. It is not a silver bullet but a small step in the right direction—and it is change with a purpose. That makes it very different from changing the voting system, with which some noble Lords have compared it.
I did not support AV, and I believe that voters rejected it because it was only a means; it delivered no end. It was obvious that AV would not mean, as the leaders of its campaign tried and failed to argue, more hard-working MPs and fewer MPs likely to fiddle their expenses. If I were minded to make a party political point, I might say how ironic it is that the person who keeps telling the rest of us that we “just don’t get it” was in favour of AV and is, based on his Front-Benchers’ response to the Bill, at best confused as to whether he supports fixed-term Parliaments.
Even though the case is different, some noble Lords have argued that the public should be consulted on this matter as well: that if a referendum was held for AV, why not for fixed-term Parliaments? I would not have held a referendum on AV, either: but the reason a referendum on fixed-term Parliaments is not necessary is that our job is to find a solution to the problems that people have identified, and to take responsibility for the changes that we make.
I will offer my own analogy, which is not based on football. It is bit like Marks & Spencer asking loyal shoppers who have abandoned it because it has stopped supplying the kind of fashion that 40-something women want, to design next season's women's range. It is not the job of shoppers to fix the problem; it is up to Marks & Spencer to listen, understand and come up with the right solution to meet its customers’ concerns. If it starts supplying what people want, they will return.
Over the past few weeks, many commentators have made the point that the recent phone hacking scandal is the latest in a series of similar scandals that have already affected bankers and politicians. I agree with that. One common thread running through all three is the public's reaction to the evidence in front of them. It can be summarised as: “Now we know for sure that you’re all in it for yourselves”. Although expressed at varying speeds and to varying degrees, another common thread is the way the institutions responded to that dreadful public indictment. We have seen shame, apology and promises to put the House in order. Sadly, when it comes to the last of these, we are all found wanting. No one seems to want to change anything in a way that will show the public that we are in it for them. There is always a compelling argument for the status quo. Whether it is ring-fencing bonuses in banking, stronger regulation of the press or a simple guarantee to voters that they will definitely get five years instead of, “possibly five, but maybe not if we think we can get more years in power by giving you less”, there is always someone saying, “That is not the bit of the system that is broken”. That is not good enough and it is not the point.
At his press conference a couple of weeks ago, when he announced the public inquiries now under way, David Cameron concluded his remarks by saying that after all the inquiries had finished, we need to have a political system that people feel is on their side. If we are to achieve that, we need to restore public confidence in the system which currently we think works okay. That means changing things which might not be broken, but by doing them differently, which could create a different result: one that people can see clearly is in their interest and that therefore gives them greater confidence that we are truly on their side. Committing ourselves to fixed-term Parliaments without the get-out-of-jail-free card that this amendment offers is something that we can and should do.
The problem with this amendment is that it looks as though we do not really mean what we say. In short—and I hesitate to say this, because I know that it is not what your Lordships intend—this amendment is symptomatic of the problem that we are trying to solve. At the moment, we are demanding leadership in banking, in policing and in the media; we are asking them to make changes that might not be in their interest in order to show people that they operate in theirs and, in doing so, will, we hope, help to restore public trust. We cannot and should not demand of others that which we are not willing to do ourselves.
Baroness Jay of Paddington
Before the noble Baroness sits down, let me say that I follow her argument. She sees this Bill as a way of increasing public trust and public involvement in the political process. Does she accept that had fixed-term Parliament legislation been in place since the Second World War on the five-year basis, there would have been four fewer general elections?
Baroness Stowell of Beeston
As I said in Committee, when we talked about the length of Parliaments being either four or five years, I really do not think that that is the issue. People are not looking for more general elections. They are looking for a system that gives them the confidence that we want to work in their interest.
Lord Elystan-Morgan
My Lords, I believe that the issues that we are concerned with turn upon three very simple matters. First, the argument against the amendment is seen to be founded on the idea that in some way or another it brings about a revolutionary change in our constitutional situation. It does not. The point has already been made—and due to a late train I am sorry that I was not here when the noble and learned Lord dealt with this matter—that the flexibility is still there, because no Parliament can bind its successor. If this Bill were passed and within three months Parliament, in its wisdom, sought by a majority of one in each House to repeal it, that would be the end of it. No constitutional impediment to that exists at all. So the flexibility is there. Well, you may ask, if that is so, why have the amendment? The argument for it, it seems to me, is not tenuous and indeed it has some merit. It concentrates the mind. It enables a new Parliament in a new situation to look at the circumstances prevailing at that particular time.
My second point—and I hope that I am not making a Second Reading argument now, because I think that is very much the backcloth to this very amendment—is what I would call the William Lovett point. Do you remember the last point in Lovett’s charter—annual general elections? God forbid. But the reason for it was that Lovett and other brave people of his day were convinced that the more you defended a Parliament and a Government from the will of the people, the greater the disservice to humanity and to democracy. If you gave them a certain five-year term rather than a much shorter term, that as far as Lovett was concerned would be a betrayal of democracy. Therefore, one should approach the idea of a five-year full term with very great reservation on that point alone.
My last point is the question where the onus of proof lies. This is a major constitutional change from any point of view—nobody would dispute that. Where is the evidence in support of it? It comes either from an idealistic direction or from a cynical direction. If it comes from an idealistic direction—and I can see that that may be so—it is based upon the theory that there is evidence within, say, the last half century of Prime Ministers beating the gun and going to the country when it was wholly unnecessary to do so. It certainly did not happen in 1935. It did not happen in 1945. There were elections in 1951, 1966 and 1974 that have already been referred to. In each case, the country was crying out for the chance to decide the matter there and then. If there is any criticism to be made about the abuse of the privilege of a Prime Minister to decide the exact date, it is against those Prime Ministers, of more than one party, who have stayed too long rather than against those who have gone to the country too soon. Where then is the case for this amending legislation? Therefore, one doubts whether there might not indeed be some faint cynical reasons for it.
Lord Hamilton of Epsom
My Lords, I shall not delay the House long. I supported the amendment moved by the noble Lord, Lord Pannick, for a sunset clause when it first came in front of us. I totally accept the rationale to which my noble friend Lord Cormack referred: this was part of the coalition agreement. Whether, in the words of the noble Lord, Lord Butler, this was written on the back of an envelope or a fag packet, I do not quite know, but it was certainly cobbled together to try to cement the coalition together. I always took the view that it was quite legitimate for the coalition Government to decide, if they wanted to, that they wanted to go the full five years. Indeed, the noble and learned Lord, Lord Goldsmith, made the point that that undertaking could be made by the Prime Minister because it did not need legislation. One rather suspects the reason why the coalition Government have decided that this should go into future Parliaments is to give that agreement a bit of respectability, but I cannot see why it should bind future Parliaments.
However, I will not be supporting the concept of a sunset clause this time round because the whole idea of a fixed-term Parliament is completely nonsensical and is not even worth the paper the Bill is written on. The reasons for that are those put forward by the noble Lord, Lord Armstrong. I think the Prime Minister of the day could organise things so that a vote of no confidence was achieved which would bring down his own Government even if his own Back-Benchers voted against the Government. Therefore, we could well end up with a four-year Parliament if the Liberals decide no longer to support the coalition. Indeed, four-year Parliaments could happen in the future with this Bill existing. That is the real flaw in the whole thing. There would obviously be an amazing row and accusations of bad will if the Prime Minister organised things that way but, on the other hand, knowing the way that elections kick in, that row would last 24 hours and then we would all be campaigning on the election and who we wanted as the next Government so we would all forget about how the election was brought about in the beginning.
Lord Dobbs
My Lords, I am rather torn over this issue—after all, I am much in favour of opportunistic Prime Ministers. I enjoy sunsets and I also enjoy flexibility and preparations for the unexpected, which is the point raised by the noble Lord. After all, I was an aide to Margaret Thatcher when, as leader of the Opposition, she advised us all to store tins in our larders for just such an event.
This is an important constitutional Bill, and sunset clauses are entirely inappropriate here. Noble Lords have questioned the manner in which this Bill has been conducted and introduced, and I share some of those reservations, but surely, even if they believe in their claim of constitutional purity, they cannot respond with a constitutional absurdity, which is what a sunset clause would be in this matter. The noble Lord, Lord Butler, suggested that no Minister in a future Parliament would ever dare argue—I quote him as far as my memory will allow—that this Bill should be overturned in order to give power back to Prime Ministers for narrow party-political reasons. Surely Prime Ministers acting for narrow party-political reasons is entirely the point. Where is the constitutional purity in that?
This Bill does not mean that elections can be held only every five years. I believe that almost all the early elections of the past 60 years could still have been held under this legislation.
I wish to be very brief because we must move on. As to the call for second and third thoughts on the part of the other place, we should be clear about the purpose of this amendment. We are not looking into a sunset here. What we are looking at are the lamps of wreckers, lined up on the cliff top, waiting to lure the ship of state on to the rocks and destroy it. No matter how much better dressed they may be than their forebears, and how much better their manners, that is still the purpose of this amendment.
This issue has effectively been decided in this House and in another place, whether we like it or agree with it or not. I would not say that to support a sunset clause on this occasion is unethical, but it is entirely inappropriate. We do not use it on any of the other constitutional Bills; it is not the time to start doing it now.
Lord Falconer of Thoroton
My Lords, this has been an extremely good debate. If I may respectfully say so, the opening speech from the noble Lord, Lord Butler of Brockwell, said almost everything that could be said and I support everything that he has said in relation to this.
We support this amendment because we think the Bill is a bad Bill. We respect the right of the coalition, because of the relationship between the Commons and the Lords, to have what they wish—which is a Parliament that ends on 15 May 2015—but if you analyse the detail, this Bill damages rather than improves the constitution. Mindful of our obligation to respect the primacy of the Commons, we suggest that we give the Commons what they wish but do not affect the constitution further than is necessary. Before I come to the detail of that argument, I will just get rid of some of the truly appalling points that have been taken against the amendment.
First, I turn to the point that the provision is badly drafted. It was drafted by the noble Lords, Lord Pannick, Lord Butler of Brockwell, and Lord Armstrong of Ilminster, and supported by the noble Baroness, Lady Boothroyd. I do not think you could have a more powerful team in relation to this. What the amendment says—and it says it incredibly clearly—is:
“The polling day for the next parliamentary general election after the passing of this Act is to be 7 May 2015”.
It then says,
“If, but only if, a resolution to this effect”,
is passed, then the next one will be five years after that, and if a resolution is not passed, the other provisions do not apply. It could not be clearer. Please ignore all false remarks made in the other place. With respect to the noble and learned Lord, there is nothing wrong with the drafting of this.
The second point that has been made is that it is suggested there is something unconstitutional about this provision. First, it is said a sunset clause is inappropriate. We know that there have been sunset clauses in what may be described as constitutional Bills, for example the EU Bill and the control order Bills. The idea that a sunset clause in a constitutional Bill is inappropriate has been rejected by this House on a number of occasions and accepted by the other place.
The third particularly bad argument is that the provision increases the power of this place by allowing it to defeat orders. Yes, we can defeat orders, and the Parliament Act does not apply, but we always behave responsibly, and I would expect us to behave responsibly should the Commons indicate after the next general election that they want to have a fixed-term Parliament. If, however, that was the objection to this provision, then speaking for myself I would readily agree to an amendment to deal with that.
The final particularly appalling technical argument that has been advanced is that this is contrary to the Salisbury/Addison convention. I have never heard this being said until this afternoon. The Salisbury/Addison convention effectively says if the electorate have indicated it supports something this House should not resist it. I do not know if Members remember the election in 2010, but the one thing I can tell you, and it pains me to say it, is the one party that unquestionably lost the election was the Labour Party. Yes, a fixed-term Parliament was in our manifesto, but the public appeared very unattracted to it, so I do not think the Salisbury/Addison convention can be relied on by anybody remotely sane.
We know why this has been put in because we have had the privilege and the pleasure of Mr David Laws’s book, which was read many times on the Floor of this House during debates. Noble Lords will recall that Mr David Laws, who happily for this House was present during negotiations, gave us an account of how we got the Fixed-term Parliaments Bill. It is lovely to hear the highly principled noble Lord, Lord Rennard, and the splendid noble and learned Lord, Lord Wallace of Tankerness—neither of whom were there and neither was I—but have I got news for you. It was not on the basis of a desire to change the constitution; it was because the Tories and the Liberal Democrats did not trust each other to hold on to the convention. As David Laws explained, that is why they said that there had to be a Bill.
I respect the decency of the noble Lord and the noble and learned Lord to whom I have referred but that was not the reason given by David Laws for why this has been done. It is because of the coalition agreement. I could not put it better than Mr Shepherd, the Member for “somewhere”. He is facing a House of Commons laughingly about to pass this Fixed-term Parliaments Bill without the sunset clause. He says:
“I hope that this cheerful Chamber will look askance at the Minister and his colleague, the Deputy Leader of the House, who are sitting on the Front Bench and trying to seduce us into thinking that there is some immaculate constitutional conception behind the Bill. There is not. It is the raw politics of ‘We want to be there for five years, in the hope that something turns up at the end of the fifth year’. That is what it is about, and we know it. I urge the House to vote for the Lords amendment, and damn them”.—[Official Report, Commons, 13/7/11; col. 378.]
I do not think he meant damn the Lords; I think he meant damn the coalition.
Lord Rennard
My Lords, does the noble and learned Lord, Lord Falconer, also recall that during the very same debate Richard Shepherd said that,
“the Lords make the absurd proposition that it should have a role, as an unelected House, in determining when an election should be”?
He also described these proposals as,
“ridiculous proposals from the House of Lords … the body of the House … feels that this is almost an impertinence”.—[Official Report, Commons, 13/7/11; col. 377-78.]
Those were the context of his remarks last week.
Lord Falconer of Thoroton
I recall that but he voted in favour of the amendment. So I think you can say where his heart lay in relation to this.
Moving away from the technical points to the point of this Bill, let us think about history for a moment. In 1924, the Labour Government were defeated in a vote because the Labour Prime Minister had interfered with the Attorney-General in the exercise of his discretion. The moment he was defeated on the Floor of the House of Commons, there was a general election and the Conservative Party was returned to power. Imagine if Mr Ramsay MacDonald had been faced with the Fixed-term Parliaments Bill in 1924: first, being defeated on the proposition that he had interfered with the Attorney-General would not have led to a general election. There would had to have been a vote of no confidence put down by the Opposition. Let us assume that that had passed but that would not have been the end of it. Mr Ramsay MacDonald would then have had 14 days to try to cobble together a bit of support. Let us remember that he had a small majority in relation to this. He could have tried to survive on that basis. Is it seriously being said that that sort of behaviour would have led to the public having more confidence in the Government?
Moving forward in time to 1974, Mr Edward Heath perfectly legitimately wanted to test who governed the country because the country was in a major crisis in relation to the miners’ strike. Despite the fact that he legitimately wanted to go to the country, he could not have gone because he would not have been allowed to under this Bill unless he had tabled a vote of no confidence in his own Government. I think it was the noble Lord, Lord Hamilton, who said that perhaps he could have done that. But what would people think of a Government who put down a Motion of no confidence in themselves?
Finally, the father of my noble friend Lady Jay in 1979 was defeated in a vote of confidence on the Floor of the House of Commons. The most quoted extract from political history in the course of this debate was what Mr James Callaghan said when he was defeated. He said, “I have been defeated in the House of Commons. I must now take my argument to the people”. After this Bill has been passed he would have to say, “Now that I have been defeated on a vote of no confidence, I must see if I can scrabble together a majority to stay in power because this beastly Act gives me 14 days in which to try to do it”.
Okay, I say to the coalition, have your miserable Act so that you can stick together until 5 May 2015, because we respect your right to force that upon us. However, there is nothing unconstitutional in saying that it is appropriate for this House to stick with the principle that says, after that, let the next Parliament decide whether it wants to continue with what I say is a terrible Act. We will support the noble Lord, Lord Butler of Brockwell, in his excellent sunset clause.
Lord Wallace of Tankerness
My Lords, once again on this subject, we have had a very full and interesting debate, and I thank all noble Lords who have made important contributions to it.
It is clear that a number of noble Lords who spoke in the debate approached the amendment on the basis of whether they supported fixed-term Parliaments. My noble friend Lady Stowell and my noble friend Lord Dobbs gave compelling reasons why they believe in fixed-term Parliaments, whereas the noble and learned Lord, Lord Falconer, departing from his party’s manifesto at the last election, indicated that he is now not quite so sure about them. When the House was debating whether the fixed term should be four or five years and the noble and learned Lord was asked whether, if five years was passed rather than four, a future Labour Government would try to bring it back to four, I remember his not being able to give an answer. If this Bill is passed and the amendment which we are currently debating is not included, I cannot see a future Government trying to repeal it either.
Back in 1992, as my noble friend Lord Rennard reminded us, fixed-term Parliaments was a policy of the Labour Party on which it fought the election; it is a policy which my party has espoused for many years; and it is a policy of the coalition. The argument that the legislation was meant to last only until 5 May 2015 is nonsense. The coalition agreement makes a clear commitment to legislate for fixed-term Parliaments in the future. The title of the Bill refers to fixed-term Parliaments in the plural, so it was never intended simply to be a fix for the current Parliament. Many of the arguments brought forward, particularly when we were debating four or five years, related to the ability to plan government business over a period of time. Whether one could test the feasibility of that in this first Parliament, when we do not have the Bill on the statute book, is doubtful.
I want to put to rest the idea that the Bill was meant to be for only one Parliament. It is very clear in the coalition agreement that it was intended for future Parliaments, subject crucially to the fact that no Parliament can bind its successor, as the noble Lord, Lord Elystan-Morgan, said. The important point here is that if a Parliament cannot bind its successor and future Parliaments do not want fixed-term Parliaments, they should bring forward legislation. That would be the proper way of scrutinising whether the fixed-term Parliament has worked. As things stand with this amendment, no resolution whatever would be required if one did not wish to continue with fixed-term Parliaments. There would be no post-legislative scrutiny, no opportunity to consider whether the idea had delivered what those of us who support it claim it would. If one had to bring forward a Bill repealing the legislation, it would provide ample opportunity to debate the pros and cons.
I say with all due respect to the noble and learned Lord, Lord Goldsmith, that the idea that, somehow, Acts of Parliament should be suspended or ended at Dissolution and that, if you wanted to continue them into a future Parliament, you should bring back a new Bill to do it, rather than what we have thought for years, which is that if you wish to repeal an Act of Parliament you do so by primary legislation, was a very novel constitutional proposal which I certainly would not like to argue before the Constitution Committee if it became an act of faith.
Lord Goldsmith
It is the answer to the point that is being made. The amendment as it stands enables future Parliaments to decide whether to go the same way without having to go through the full process. The objection that is raised is that that might lead to the Commons taking one view and the Lords another, to which I say, in those circumstances, one should pass an Act. The Parliament Act could be used and the Commons could have its primacy through that proper route.
Lord Wallace of Tankerness
My Lords, the more appropriate approach is in the ABC of constitutional law, whereby, if one does not like legislation passed by a previous Parliament, one brings forward primary legislation to repeal it and does not simply let it lapse, particularly on matters of such constitutional importance.
Lord Howarth of Newport
I said there was no evidence of this power having been abused. Indeed, would not the noble and learned Lord agree that Prime Ministers who have attempted to string things out, who have dithered, hesitated and dragged out the life of their Governments until the last possible moment, have usually been heavily punished by the electorate for doing so?
Lord Wallace of Tankerness
Prime Ministers have tried to divine the times to see when would be the best time to call an election. Indeed, in an earlier debate I quoted from the book of my noble friend Lord Lawson, The View from No. 11: Memoirs of a Tory Radical. He said about the then Prime Minister, now the noble Baroness, Lady Thatcher:
“Her view was that a Government should always wait until the final year of the quinquennium, but once there should go as soon as it is confident it will win”.
In other words, a partisan political judgment was clearly being made. As my noble friend reminded us, in September/October 2007, Mr Gordon Brown did a calculation in the third year of that Parliament as to whether or not it would be in his party’s best interests to go to the country. There is more to this. The power that the Prime Minister is giving up as a result of this Bill, as noted by the noble Lord, Lord Hennessey, at Second Reading, is important.
The noble Lord, Lord Butler, said that it was not much of a power, and then he said that no Prime Minister would have a straight face in trying to reverse the situation in the future. He is absolutely right. If a fixed-term Parliament became law, it would be very difficult for someone to come before the House and say that they wanted to revert to the position where the Prime Minister could choose the date of the election because of party advantage. They would get pretty short shrift—it would be difficult to do—but no one denies that, constitutionally, it is perfectly possible. It would be perfectly proper for them to seek to do it and to argue their case. However, my point is that they should do it by proper means through primary legislation and not in the way proposed by the amendment to the Motion.
Lord Forsyth of Drumlean
Why does my noble and learned friend use the phrase “because of party advantage”? What happens if a Prime Minister thinks it is the country’s advantage—as happened in 1974 when the Prime Minister felt that the issue of the power of the unions needed to be settled? Why take that away? Secondly, I struggled with the speech of my noble friend Lady Stowell when she said that having a fixed-term parliament would restore people’s trust in Parliament. How does giving people absolute job security for five years help to restore people’s trust? Can my noble and learned friend explain that to me?
Lord Wallace of Tankerness
My Lords, the answer is the same to both parts of my noble friend’s question. On the position in February 1974, which has been raised in the debate, if the Conservative Prime Minister of the day believed that it was necessary for an election, it is beggaring belief to suggest that the Labour Party would not also have agreed to an election and that the 75 per cent majority for a dissolution would not have been achieved. This does not mean absolute job security for five years because, if a Government lose confidence, the Bill contains within it mechanisms which can lead to an election. This can also happen if there is an agreement—as I believe would have been the case in March 1979. The then Prime Minister, Mr James Callaghan, could have said that he had lost a vote of confidence and that the following day he would table a Motion for dissolution, which I am sure would have been overwhelmingly carried by more than the majority required under the Bill. To suggest that he would have had to go scrabbling around trying to find a means of living on until October would not have been the case. There are mechanisms in the Bill to deal with that kind of situation.
I believe that the noble Lord, Lord Butler, sought to dismiss the suggestion that there could not be tensions between the two Chambers, although I do not think that he actually denied that that was a possibility. However, he did say that this House would not stand in the way of a newly elected Government who sought to establish a fixed-term Parliament. Part of the problem with the noble Lord’s answer, apart from suggesting that this House might simply rubber-stamp the Bill—heaven forbid—is that the amendment does not say that the resolution would be brought forward by a newly elected Government. It actually says that it would have to be brought forward at some time during the Parliament. Therefore it might be brought forward some years into the Parliament. At that point, who is to say that this House might not think that they were at it at the other end, bringing forward the resolution for partisan advantage? This House might take a different view about that in those circumstances. Therefore it does change the balance.
My noble friend Lord Forsyth asked whether this does not parallel the position in the Parliament Act when Parliament was extending the lifetime of a Parliament. The point is that the exception in Section 2 of the 1911 Act is to,
“a Bill containing any provision to extend the maximum duration of Parliament beyond five years”.
There is a crucial difference between a Bill that extends a Parliament beyond five years and a resolution as to whether there should be a fixed-term Parliament. In that respect, it is not proper that this House should be given a veto in these circumstances.
I have already indicated that this course can be revived in each succeeding Parliament. It is not just a case of seeing how the Parliament from 2010 to 2015 would go. It may not happen under the amendment here—there may not be a fixed-term from 2015 to whenever—but it could be revived in the following Parliament. It is another unsettling uncertainty about this Bill that it can switch on and off fundamentally important constitutional proceedings.
There has been considerable debate on this Bill. As I indicated, it was introduced a year ago this week. It had its Second Reading in another place in September last year, extra time was made available in Committee, and Report and Third Reading in the other place took place in January. In your Lordships’ House, the Bill was introduced in January, Second Reading took place in March, the Committee sat on three days in March, Report was heard on two days in May and Third Reading also took place in May. It has been very fully debated. I note that the noble Baroness, the chair of the Constitution Committee, referred to the committee’s report on the process of constitutional change, which I believe was published overnight. One of the conclusions was as follows:
“We stress the importance of proper parliamentary scrutiny of all bills”—
and this Bill has been subject to considerable parliamentary scrutiny for a Bill of only seven clauses and one schedule—
“but we do not recommend that any new parliamentary procedures such as super-majorities should apply to significant constitutional bills”.
I cannot think of any more noted significant new parliamentary procedure than the one that is promoted by this amendment. If the Constitution Committee is sceptical about using new parliamentary procedures with regard to even very sensitive and important constitutional Bills, this is one about which we certainly should be very sceptical. I do not believe the view of the noble Lord, Lord Butler, that we are doing a service to the constitution by saying that we do not have to go to the length of repealing. Repealing is what we do if we do not like legislation that was passed by previous Parliaments. If we depart from that principle on a matter of constitutional importance, I believe we should only do so with very great caution. I would urge your Lordships not to insist on the amendment because I do not believe that the case has been made for such a serious constitutional departure.
Lord Butler of Brockwell
My Lords, I agree that this has been a very good debate. I do not need to go over the arguments again except perhaps to assure the Minister and the noble Lord, Lord Rennard, that, like Mark Twain’s death, reports of the advantage to a Prime Minister of being able to decide when to call an election in the last year are greatly exaggerated. Certainly such reports did not prevent the noble Baroness, Lady Thatcher, from packing her bags on the morning of a general election in preparation for the election not going the way she expected.
I am very grateful to the noble Baroness, Lady Jay, and the noble and learned Lord, Lord Goldsmith, who spoke about the report from your Lordships’ Select Committee on the Constitution. The Minister quoted one of its conclusions in his last remarks, but I would like to quote the two main conclusions. The Minister said that the Select Committee on the constitution in another place endorsed the proposal, but I shall quote what your Lordships’ committee said. If I may say so, your Lordships’ committee contains distinguished constitutional lawyers from all parties, who trump those who are members of the constitution committee in another place. They said:
“We take the view that the origins and contents of this Bill owe more to short-term considerations than to a mature assessment of enduring constitutional principles or sustained public demand”.
The committee continued by saying that,
“the balance of the evidence we heard does not convince most of us that a strong enough case has yet been made for overturning an established constitutional practice and moving to fixed-term Parliaments”.
There could hardly be two more damaging sentences.
Our national constitution is too important to be tinkered with as a bargaining chip in the negotiations of a temporary coalition. The British people have decisively prevented that from happening to the voting system for the House of Commons. They are not to be given a chance to express a view on this constitutional change, so it falls to your Lordships to insist that the Government and the House of Commons refrain from making a permanent change and give future Parliaments and Governments the opportunity to make these decisions for themselves. I would like to seek the opinion of the House.
Metropolitan Police Service
(13 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Minister of State, Home Office (Baroness Browning)
My Lords, I beg leave to repeat a Statement made earlier today in another place by my right honourable friend the Secretary of State for the Home Department. The Statement is as follows.
“Mr Speaker, with permission, I would like to make a Statement on the resignations of Sir Paul Stephenson and John Yates, the Metropolitan Police investigation into phone hacking and allegations of police corruption.
As the House will know, last night Sir Paul Stephenson resigned as Commissioner of the Metropolitan Police. As I told him last night, I am sorry that he took that decision. He has led the Met through difficult times and, although current circumstances show there are still serious issues to be addressed, the Met is stronger operationally today than it was when he took over. I will turn to those difficult circumstances in a moment, but first I would like to update the House on today’s developments and the next steps for the Metropolitan Police.
I have already started work with the Mayor of London and the Metropolitan Police to arrange an orderly transition and the appointment of a new commissioner. I have agreed that Sir Paul Stephenson will leave his post as swiftly as possible. In the mean time he will remain commissioner in post at New Scotland Yard and in operational command. Sir Paul will be replaced by Tim Godwin, who will again become acting commissioner, a role he filled very effectively during Sir Paul’s illness between December and April this year. With Tim Godwin as acting commissioner, the mayor and I are clear that additional resilience is essential from outside the Metropolitan Police. I am therefore pleased to announce that Bernard Hogan-Howe has agreed to take on the responsibilities of deputy commissioner on a temporary basis. We are looking to expedite the process for selecting and appointing the next commissioner.
The House will also know that within the past couple of hours, Assistant Commissioner John Yates has also resigned. I want to put on the record my gratitude to John Yates for the work that he has done while I have been Home Secretary to develop and improve counterterrorism policing in London and, indeed, across the whole country. I can confirm to the House that Assistant Commissioner Cressida Dick will take over his role.
I want honourable Members, Londoners and the whole country to know that the important work of the Met—its national responsibilities, such as counterterrorism operations as well as policing our capital city—must and will continue. That important work includes the related investigations, Operation Weeting and Operation Elveden.
Operation Weeting, the investigation into phone hacking, led by Deputy Assistant Commissioner Sue Akers, is now going through the thousands of pieces of evidence relating to the allegations. Unlike the original investigation into phone hacking, Operation Weeting is proceeding apace, with officers interrogating evidence that was neglected first time round, pursuing new leads, and as we saw once again at the weekend, making arrests.
Operation Elveden, also led by Sue Akers, is investigating allegations that police officers have received payment from the press in return for information. This investigation has independent oversight by the Independent Police Complaints Commission. At this stage, this is a supervised investigation, meaning that the IPCC sets the terms of reference and receives the investigation report, and as soon as individual suspected officers have been identified, IPCC investigators, overseen by an IPCC commissioner, will take over and lead a fully independent investigation of those officers.
In the future, both of these matters will be considered by the Leveson inquiry established by the Prime Minister. In the mean time, I can tell the House that Elizabeth Filkin, the former Parliamentary Commissioner for Standards, has provisionally agreed to examine the ethical considerations that should in future underpin the relationships between the Metropolitan Police and the media, how to ensure maximum transparency and public confidence, and to provide advice. The management board of the Met has agreed a new set of guidelines relating to relationships with the media, including recording meetings and hospitality and publication of information on the internet.
These allegations are not, unfortunately, the only recent examples of alleged corruption and nepotism in the police, so I can tell the House that I have asked Her Majesty's Inspectorate of Constabulary to consider instances of undue influence, inappropriate contractual arrangements and other abuses of power in police relationships with the media and other parties. I have asked HMIC to make recommendations to me about what needs to be done to address it.
There is nothing more important than the public's trust in the police to do their work without fear or favour, so at moments like these it is natural that people should ask who polices the police. I have already asked Jane Furniss, the chief executive of the Independent Police Complaints Commission, whether she has the power and the resources to get done the immediate work at hand. She has assured me that it does, but additional resources will be made available to the IPCC if they are needed.
I can also tell the House that I have commissioned work to consider whether the IPCC needs further powers, including whether it should be given the power to question civilian witnesses during the course of its investigations. Given that the IPCC can at present investigate only specific allegations against individual officers, I have also asked whether the commission needs to have a greater role in investigating allegations about institutional failings of a force or forces.
Finally, I want to say one last word about the future of the Metropolitan Police. The Met is the largest police force in the country and has important national responsibilities beyond its role policing our capital. The next Metropolitan Police Commissioner will lead thousands of fine police officers, community support officers and staff, the great majority of whom have spent their careers dedicated to protecting the public, often at risk to their own safety. Just three nights ago, honourable Members will know that in Croydon an unarmed Metropolitan Police officer was shot as he tried to arrest a suspect. I know that the whole House will agree with me that it is for the sake of the many thousands of honourable police officers and staff, as well as for the public they serve, that we must get to the bottom of all these allegations. Only then will we be able to ensure the integrity of our police and public confidence in them to do their vital work. I commend this Statement to the House”.
My Lords, that concludes the Statement.
Lord Hunt of Kings Heath
My Lords, I thank the Minister for repeating the Statement. I echo her tribute to the thousands of police officers who perform their duties in the metropolis, often in dangerous circumstances.
The noble Baroness rightly paid tribute to Sir Paul Stephenson and his work. He has done excellent work in London, backing neighbourhood policing and action to cut crime in the capital as well as vital work on counterterrorism. His is an honourable decision to protect the crucial operational work of the Met from continuing speculation. However, his departure raises serious questions for the Home Secretary and the Prime Minister. It is clear that the Met commissioner and the head of counterterrorism have now gone because of questions about this crisis and the appointment of the former deputy editor of the News of the World. Yet the Prime Minister is still refusing to answer questions, or apologise for his appointment of the former editor of the News of the World. The judgment of the Metropolitan police force has been called into question by appointing Neil Wallis, but so too has the judgment of the Prime Minister by appointing Neil Wallis’s boss, Andy Coulson. People will look at this and think that it is one rule for the police and another for the Prime Minister. The Prime Minister agreed to that this morning. He said:
“The situation at the Metropolitan Police is really quite different to the situation in Government, not least because the issues that the Met are looking at, the issues around them, have a direct bearing on public confidence into the police enquiry into the News of the World”.
But the Prime Minister runs the country, and the issues that he is looking at, and the judgments that he makes, have a direct bearing on public confidence in the Government’s ability to sort this crisis out. Sir Paul has very honourably accepted his ultimate responsibility for the position the Metropolitan police force finds itself in. Why does the Prime Minister not similarly accept his responsibility?
The Home Secretary is right to have concerns about the appointment of Neil Wallis, and she is right that she should have been told about the conflict of interest. This does raise serious questions for the police force. But the Met commissioner says that he could not tell her, or her boss, because of the Prime Minister’s relationship with Andy Coulson. How did it come to this? The most senior police officer in the country did not feel able to tell the Home Secretary about a potential conflict of interest for the Met because of the Prime Minister’s compromised relationship with Andy Coulson—an ongoing relationship, as they met at Chequers in March, months after the new police investigation began.
This morning the Home Secretary refused to defend the appointment of Andy Coulson, and today the London mayor refused to defend it. The Home Secretary has been remarkably silent during the crisis despite the serious allegations that phone hacking may have interfered with criminal investigations, the serious questions for policing, and the growing cloud over the national and international reputation of British policing as a result of the crisis. She has said very little in the last two weeks. The judicial inquiry that we have called for is important, but confidence in policing is too important to wait for its results.
Why has it taken the Home Secretary so long to ask Her Majesty’s Inspectorate of Constabulary to consider instances of undue influence, inappropriate contractual arrangements and other abuses of power in police relationships with the media and other parties? What are the implications of the Home Secretary’s proposals to bring in American-style elected police and crime commissioners? The nearest Britain has to an elected police chief—the London mayor—did not stop these problems at the Met. If anything, he made them worse. Boris Johnson described the phone hacking allegations as “codswallop”. He went on to say:
“It looks like a politically motivated put-up job by the Labour party”.
What backing does the Minister think that Sir Paul Stephenson and John Yates could have expected from the mayor if they had decided to reopen an investigation that he described as politically motivated? The truth is that the elected mayor made it harder, not easier, for the Met to get to the heart of this issue. The Mayor of London is now looking forward to working with his third police commissioner in his current term. To lose one commissioner is a misfortune; to lose two looks like carelessness. Above all, it shows the risks of the closeness of the relationship between politicians and operational policing.
I come to the implications of all of this on the police Bill, which we are told is based on experience in London. In light of what has happened, I would ask the Minister for a pause in consideration of the Bill, currently due for Third Reading in your Lordships’ House on Wednesday. Whatever the ups and downs of the British police force over the decades, its political impartiality has shone out to international acclaim. However, this Bill threatens a disaster. Party political commissioners to be elected in nine months’ time risk undermining the very impartiality of which we are so proud. The Bill threatens the politicisation of operational policing; and it threatens a huge loss of public confidence in the untrammelled power given to party political commissioners to appoint or to dismiss chief constables at will.
The London situation is particularly worrying. As Sir Paul said in his statement today, the Met faces extraordinary challenges: the phone hacking investigation, the public inquiries, the inquiries that the Home Secretary announced today; its responsibility in counterterrorism and national security issues; and the Olympics. There is now huge disruption in the senior ranks of the force with the resignation of the commissioner and Mr Yates. What are the Government doing to stabilise the situation? They are introducing legislation to scrap the Metropolitan Police Authority, threatening yet more disruption. That is the last thing that the Metropolitan Police force needs now. I believe that Third Reading of the police Bill should be postponed so that the consequences of the proposed legislation can be seen in the context of this week’s very disturbing events. Will the Minister agree to that?
Baroness Browning
My Lords, I thank the noble Lord for his opening remarks, particularly in respect of the Metropolitan Police officers who have announced that they are standing down.
On his final point about the police and crime commissioners, the noble Lord will know only too well, as he and I have debated this in some detail over many weeks now in Committee and on Report, that there has always been a difference of opinion on this matter. The Government believe very firmly that chief officers should be held to account, on behalf of the public, by police and crime commissioners for the way in which they conduct business—not operational business—in their force. The public have been the losers in all this. They have lost confidence, and we believe that the police and crime commissioners, on behalf of the public of their police force area, are the answer to ensuring that the police are held to account both for the way in which they tackle crime and for the way in which they prioritise and carry out what the public want, which is a reduction in crime.
I suspect that there will always be a difference of opinion between this Bench and that Bench, as there was when the Bill came to the Floor of the House, so I am not in a position to say to the noble Lord, Lord Hunt, that we intend to defer Third Reading of the Bill, which has reached its final stages now, having gone through another place and had a great deal of scrutiny in this place.
I have a long list in my folder, as the House may expect, of the details of what has happened in this whole shocking affair that go back long before this year. It is not my intention to read that out, primarily because I believe that Governments of parties on both sides of the House have recognised that these problems have not just occurred in the past few months—recommendations have been made to previous Governments. Frankly, that might be the tone of another place, but I hope that we might rise above that in this House and tackle the underlying problem and the way to take the matter forward to bring back confidence in the police.
The noble Lord mentioned Neil Wallis and the fact that the commissioner has stated that he could not approach the Government with this because of a conflict of interest. That applied as much to his Government as it did to the current Government. The Prime Minister has set out very clearly the terms under which he employed Andy Coulson and has quite rightly made it very clear that if, following police investigations, Andy Coulson is found to be guilty of anything of a criminal nature, he would expect him to be charged and brought to justice. However, there was a clear difference between the Prime Minister’s employment of Andy Coulson and the fact that the Met was investigating these matters but failed to identify to the Home Secretary, who has made her views very clear, that Neil Wallis was involved with the Met. That was denied to the Home Secretary as late as last week.
Baroness Hamwee
The House will understand that the Minister cannot say anything other than what she just has about the Third Reading of the police Bill. However, in reflecting on it, as I am sure they will, will the Government reconsider the proposed timing of the introduction of their changes, particularly in London where we have these new unexpected factors in the run-up to the Olympics?
On a more detailed point, does the Minister agree that a mechanism for registering interests and hospitality that is available for inspection by everyone in public life, without investigation by the media, is of great importance? The House will understand the irony of relying on the media in this. What really matters is not what you register but what you do.
Baroness Browning
I quite agree with the principle that my noble friend Lady Hamwee has just espoused. Certainly, the investigations, and the recommendations that will come from them, will, I hope, show us the best way forward for things such as hospitality. Very often, these things come down to personal judgment. All of us in public life have to make a personal judgment about some of these issues, and sometimes we are bound by the spirit of the law as well as what is said in the law. I therefore hope that when we see the final results of the investigations, they will include codes and practices that encapsulate the spirit of the law as well as the law itself.
Lord Blair of Boughton
I declare a rather special interest. Until yesterday I was the last commissioner of the Metropolitan Police. I am now the one before that. That is rather a striking position. The last time commissioners resigned was in the 1880s; these were Sir Edmund Henderson and Sir Charles Warren. The circumstances were somewhat different; Sir Edmund resigned because the club of which he was a member in Pall Mall had its windows broken by rioters.
My question to the Minister is in two succeeding parts. First, does the resignation of two successive Commissioners of the Metropolitan Police in just over two and a half years indicate that something is gravely wrong with the political oversight and governance of that body? Secondly, does the Minister agree that there is a much wider question at hand than the grave matters now entrusted to Lord Justice Leveson? My concern is that we have a police Bill and the Winsor report, and we now have the Filkin and HMIC reports. Why does the Minister not agree that the Home Affairs Select Committee recommendation should now be put into place and a royal commission into the mission, structure and governance of the police be appointed? Every time this has been raised, the coalition Government have said, “We have not got time”. I think we should take time now.
Baroness Browning
While I hear what the noble Lord, Lord Blair, says about a royal commission, we have, since he last raised this, put into place a series of investigations, reviews and reports that I hope will throw light and transparency on to the problems that he has identified as underlying the number of commissioners who have left. We do not know at this stage how deep those investigations will go and what they will show in conclusion, but we want them to be thorough and we believe they are all-embracing.
It may interest the House to know that since the Home Secretary’s Statement in another place just an hour ago the Metropolitan Police Authority has referred four cases to the IPCC. The IPCC is now considering the referrals carefully to determine how they should be taken forward. That is perhaps an indication not just of the seriousness of the investigations before us but of the depth to which they need to go, so although I hear what the noble Lord says about a royal commission, people have now been appointed to carry out these investigations and they should be allowed to carry them through to their conclusion.
Lord Harris of Haringey
My Lords, I declare an interest as a current member of the Metropolitan Police Authority and associate myself with the very positive remarks that the Minister has made about Sir Paul Stephenson and John Yates. However, given what she has just said about the referrals to the IPCC, perhaps she could ponder for a moment what the circumstances of today would have been had the Bill currently before this House been passed.
The Metropolitan Police Authority sub-committee on professional standards met this morning to consider complaints against named officers. It considered those complaints and, as the Minister has just reported to the House, it made recommendations in one instance that an officer be suspended and in other instances that matters now be investigated by the IPCC. Under the Bill which she is steering through this House, that would not happen. Any allegations against individuals would be considered by the Commissioner of Police for the Metropolis or the Chief Officer of Police outside—of course the Commissioner of Police for the Metropolis has now resigned—who would then decide whether something should be investigated or another officer suspended. Surely the interests of openness and public support for the process demand that there be some independent structure to handle complaints and consideration of whether an inquiry should be opened. That will disappear under this Bill.
Baroness Browning
Well, my Lords, again, this is a matter that the noble Lord and I have debated at some length during the Committee and Report stages of the Bill. As he will know, we have disagreed over the internal handling of minor complaints within the police force. I have not changed my mind about that, but on more serious matters involving senior officers he will know that it is not simply the case that they will not be investigated independently. Ultimately, there is recourse to the IPCC.
Baroness Harris of Richmond
My Lords, will the Minister undertake to look at the present make-up of the IPCC and ensure that its staff are of the highest calibre and integrity and are entirely independent? A number of former police officers are employed by the IPCC at the moment, and I want reassurance that they do not carry any past grudges against a particular officer or force that polices the IPCC.
Baroness Browning
My Lords, I hear what the noble Baroness says. I think we all want transparency and clarity. If she is saying—I am not quite sure whether I have understood this correctly—that there are question marks about the independence of individual members of the IPCC, I will certainly be happy to take that away and to have further discussion with her about how it might be addressed.
Lord Condon
My Lords, as someone who had the honour to serve as commissioner for seven years, I can say with absolute confidence that this is one of the saddest and most disturbing days in the history of the Metropolitan Police Service. While clearly a number of inquiries are in place that will undoubtedly get to the bottom of the allegations and concerns that we are all so troubled by, does the Minister agree with me that perhaps today is an opportunity in your Lordships’ House to remember that the vast majority of the men and women who serve in the Metropolitan Police are honest, decent, brave people who deserve our and the public’s support as they live through what is a very confusing and disturbing time for them? I in no way prejudge the outcome of any of the allegations or inquiries, but I can say with absolute certainly, and I hope the Minister will agree, that the overwhelming majority of good men and women in the Metropolitan Police are doing an honourable, brave job.
Baroness Browning
I am very happy to support the words of the noble Lord, Lord Condon. Indeed, in her Statement in the other place, the Home Secretary made a point of concluding her remarks on that basis. We are all conscious of the impact that this will have on morale, not just in the Met but rippling out more widely. There are in this House in particular former senior police officers who have served their country with great distinction. I pay tribute to all of them and to the many people of all ranks who voluntarily police their own communities by consent. It is a great strength of British policing that it is by consent. I endorse entirely what the noble Lord, Lord Condon, said. I hope that leadership will be shown in police forces around the country to minimise the damage to morale from what has happened in the capital.
Baroness Smith of Basildon
My Lords, when it became clear that there was no widespread public or professional support for the health Bill, the Prime Minister wisely stepped back and paused the Bill for consideration. What I find incredible in the noble Baroness's answers is that she does not seem to think that the events of the past couple of weeks have had any impact on, or should be considered in any way in connection with, the police Bill. Will she take this away and think about it? People across the country who support the Metropolitan Police will find it incredible if these events do not impact on deliberations on the Bill. The best thing now would be for the Bill to be paused for consideration, and for the Government then to come back with more effective and thought-out proposals.
Baroness Browning
My Lords, I hear what the noble Baroness says, but I am well aware, as she is, that right from the start her party has opposed police and crime commissioners. Despite what has happened over the past two weeks, there are those who have now focused on the fact that police and crime commissioners will be there to represent the public, having been elected by them, and to hold chief constables to account. While I hear what she says, many take a view exactly opposite to hers.
Lord King of Bridgwater
Perhaps I may say to my noble friend how much I appreciate the approach that she has taken to responding to what is clearly a very difficult situation. As the noble Lord, Lord Condon, rightly said, there are deep concerns of vital importance at a very dangerous time in our country, for many reasons, and there should be maximum public confidence and trust in the police. I do not know whether I am the only person in your Lordships' House who does not quite understand what is going on at the moment. Various allegations have been made, including in the Sunday papers, against Sir Paul Stephenson among others, but at the moment I do not know whether any of them are true, and I do not understand why the resignations have happened when they have. Perhaps that will become clearer later on.
I understand that Sir Paul and Assistant Commissioner Yates will give evidence tomorrow to a Select Committee of the House of Commons. I look forward with great interest to what comes out of that. I hope that the wide-ranging investigation that has been announced, along with other commendable actions, will be undertaken with all due dispatch so that people can understand that these matters are now being gripped and we will get some clarity on the situation.
Baroness Browning
I thank my noble friend for that. The inquiry by Lord Justice Leveson will be in two parts, as noble Lords will know. We hope that some aspects of the inquiry will be moved along more quickly than others. We must let the inquiries have enough time to get the outcome of full transparency and disclosure. Therefore, I am tempted not to say that I want them to be hurried up, because we need to get this absolutely right. The Home Secretary announced an HMIC inquiry today, from which she has asked for immediate feedback later in the summer.
Lord Dear
My Lords, I, too, declare an interest. As some noble Lords know, I, too, served at a senior rank in the British police service. I make no apology for revisiting an issue that I raised in your Lordships' House as recently as Wednesday last week in the debate that followed the Statement on phone hacking. My contribution can be found in the Official Report of 13 July, in column 732.
I do not believe that it is unduly repetitious to remind ourselves that leadership is important in any organisation and that in the police service it is absolutely essential. Today, even more than last week, the issue is paramount. For years, successive Governments have failed to address adequately the problem of providing leaders in the police in sufficient numbers to provide a critical mass that can influence events and, in particular, ethics and attitudes in the service. Today we see the Metropolitan Police—a great force, as we all know—in what is colloquially known as “a very bad place”. We see that there is no clear succession plan in place for the commissioner and, worse, that there is a marked shortage of suitable candidates.
In the light of recent events, will the Minister go further today than the Leader of the House was able to go last week when he replied to me and give your Lordships' House a firm reassurance that, after the publication of the Winsor report at the end of the year, the Government will address the question of recruiting people of the highest quality into the police in sufficient numbers, and of their training and deployment into positions of intermediate and high rank on a structured basis. I venture to suggest that this can be implemented, notwithstanding the several reviews that have been mentioned. Can the Minister therefore indicate any appetite in Her Majesty's Government for such a review of leadership as a matter of urgency?
Baroness Browning
My Lords, I am grateful to the noble Lord, who, in the course of the Bill, has given advice and a very clear steer on the need for a pool of senior officers for whom leadership is a key component in their training and development. The Government take police leadership and issues affecting it very seriously. Police leadership is key to ensuring that officers across England and Wales are able to provide a high-quality service to the public. Peter Neyroud set out his views on the future of police leadership and training in his report of 5 April. The Government are currently considering the responses received during the consultation period on the report. We will set out our position in due course, and we will set out our response to the second part of Tom Winsor's report following its publication next year.
I hope the noble Lord is reassured that we are taking on board the need for leadership to be placed at the heart of policing. I have asked, during the passage of the Bill, for volunteers to come forward and advise on the development of a pool of senior officers so that, for example, when there are vacancies, there will be a good choice from as large a pool as possible of people of the right standard, qualifications and leadership skills.
Lord Clinton-Davis
My Lords, would it not be infinitely preferable for the Government, and particularly the Minister, to consider the events of the past few hours and days with some calm, and therefore to postpone reflection on the Bill until the Government have had a chance to come to a sensible reaction?
Baroness Browning
My Lords, I can only repeat to the noble Lord what I said to others who sought to identify this as a matter that should result in halting legislation on police reform and social responsibility—I believe that around the country police forces and communities are crying out for the sort of reform that the Government are bringing forward. I have not changed my mind since I made that point five minutes ago.
Lord Prescott
My Lords, the whole House recognises the importance of the Metropolitan Police’s contribution to safety and security in London and elsewhere. However, I must say that I welcome the resignation of Sir Paul Stephenson and John Yates. Both had a long and unhealthy relationship with the Murdoch press over a good period of time. Is the Minister aware of Sir Paul's statement that he did not know anything about phone hacking? Does she accept it, and is she also aware that Sir Paul visited the Guardian in December 2009 and February 2010 and asked the paper to desist in its investigations, because the explanation of one rogue reporter had been accepted by the police and presumably by him?
Does the Minister also accept, with Sir Paul complaining that officers had not supported him, that Mr Yates has admitted that there were sacks of evidence that he was not prepared to open to see whether there were other cases of phone hacking? Did he then tell the commissioner, “Don’t worry, this one story is all right.”? Did he tell the commissioner that the bags of evidence were available but that he had decided not to open them? Frankly, considering Mr Yates’s resignation, the fact that he misled the House, the actions that he has been involved in and the fact that Sir Paul thought this man should not have resigned, did the Minister think of sacking him, because that would have been sufficient evidence to have anyone moved out of that kind of position of trust?
Baroness Browning
My Lords, the noble Lord, I know, has been a victim of phone hacking and raises important issues. That is why the judicial inquiry and the two inquiries that are being overseen by Sue Akers in the Metropolitan Police have been set up. I have every confidence in the Sue Akers inquiries. It is not for me as a Home Office Minister to intervene in police operational matters, but I hope that the noble Lord’s points, which are very important, will be dealt with by the inquiries.
Defence Transformation
(13 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)
My Lords, I would like to repeat a Statement that was made earlier by my right honourable friend the Secretary of State for Defence.
“Mr Speaker, I wish to express my condolences to the family and friends of Lance-Corporal Paul Watkins of the 9th/12th Royal Lancers, who was killed in Afghanistan on Sunday. My thoughts and prayers are with them at this very difficult time.
I wish to make a Statement on the next steps in implementing the strategic defence and security review (SDSR). This Government inherited both a national economic disaster that represented a strategic threat and a defence programme undermined by a £38 billion black hole. Without a fundamental review for 12 years, our Armed Forces were still largely configured for the 20th century, despite a decade of sustained operations in Afghanistan and Iraq. This failure to set out a coherent, long-term strategy for defence and to match commitments to resources effectively is one of Labour’s worst legacies. However, it is not enough to deal with the mess we inherited. We need to build something better for the future.
So right from the start, this Government have been determined not to repeat the mistakes of the past and to make the difficult decisions that were ducked by the previous Government. We are determined to be bold and ambitious and build formidable, well managed Armed Forces, structured for the rigours of future conflict and supported by an affordable defence programme. The SDSR has mapped out our long-term goal for Future Force 2020. The report of the Defence Reform Unit announced to the House on 27 June was part of this process.
Today I want to set out the next phase of defence transformation: bringing the Army back from Germany, creating a better future for our Reserve Forces and delivering on our commitment to agree a 10-year defence equipment budget. I have written to Members of both Houses and the devolved Administrations whose constituencies and interests are affected by the decisions we have taken.
Commitments must match resources in order to achieve a balanced budget. As part of the preparation for this year’s planning round, we have identified a number of adjustments to the defence programme. This includes rationalising vehicle acquisition to make the best use of those we have procured to support operations in Afghanistan and continuing to bear down on non-front-line costs, where we will aim to deliver further substantial efficiencies in support, estate spending and IT provision.
Against this background and as part of this overall approach to balancing the programme, I have agreed with the Treasury that the MoD can now plan on the defence equipment and equipment support budget increasing by 1 per cent a year in real terms between 2015 and 2016, and 2020 and 2021. I am grateful to colleagues, particularly the Prime Minister, for their support in this process. These and other changes will enable us to proceed with a range of high-priority programmes set out in the SDSR.
I can now give the go-ahead for the procurement of 14 additional Chinook helicopters, the upgrade of the Army’s Warrior vehicles, spending on the Joint Strike Fighter, the procurement of the Rivet Joint intelligence and surveillance aircraft, the cat and traps for the Queen Elizabeth class carriers, and the development of the global combat ship. This equipment can now be bought with confidence, ending a decade of uncertainty for our Armed Forces and for industry. But similar discipline will be applied in future— we will only order what we can afford to buy.
Today I am placing in the Library the report of the review into the Reserve Forces, Future Reserves 2020. I would like to thank General Sir Nick Houghton, Lieutenant-General Graeme Lamb and the honourable Member for Canterbury and Whitstable for their excellent report. The report makes it clear that our Reserve Forces make an outstanding contribution to operations but have been shamefully neglected in recent years. For example, by some estimates the Territorial Army has a trained and active strength as low as 14,000. So I am pleased to announce that the Government will proceed with a £1.5 billion investment package over the next 10 years—£400 million in this Parliament—to enhance the capability of the reserves and consequently increase their trained strength.
The Government will work with employers and legislate if necessary to ensure that the reserves are more readily usable on operations. This significant investment will also build up the capacity of the reserves to contribute to homeland security, consistent with the adaptive posture set out in the SDSR. As the capability of the Territorial Army improves, this will allow a progressive adjustment of the regular/reserve balance of the Army while maintaining the land forces’ capability set out in the SDSR. This will include the delivery of the multi-role brigade (MRB) structure of Future Force 2020. By 2020, if the Territorial Army develops in the way that we hope, we envisage a total force of around 120,000 broadly in the ratio of 70:30, regular to reserve. This will be more in line with comparable countries such as the United States, Canada and Australia.
Let me turn to basing. The decisions we have taken in the SDSR to reduce aircraft types, bring the Army back from Germany and form the Army into five multi-role brigades enable us to rationalise the defence estate and dispose of high-value sites no longer needed. The security of the nation and the requirements of defence were paramount in our analysis but we have also considered the impact of changes on local communities, the impact on service personnel and their families, and the current pattern of the Armed Forces in Britain. Army brigades currently stationed around Catterick and Salisbury will make up three of the five MRBs. The other two MRBs will be based on the east coast of England, centred on Cottesmore, and in Scotland, centred on Kirknewton, south of Edinburgh.
The MRB centred in Scotland will require a new training area, and positive discussions are being taken forward with the Scottish Executive. Two major units and a formation headquarters will be based at Leuchars. Consequently, the Typhoon force due to be built up there will instead be built up at RAF Lossiemouth. Other MRB units will be moved into Glencorse, Caledonia, Albemarle Barracks and eventually Arbroath, since over time we intend to bring the bulk of the Royal Marines together in the south-west. We are also planning to place Army units in Kinloss in around 2014-15. Taken together, this represents a significant increase in the defence footprint in Scotland of well over 2,000 posts. This is in line with the Scottish tradition of supporting our Armed Forces and a recognition that these are United Kingdom forces under the Crown, protecting the citizens and interests of this United Kingdom.
With the move to five multi-role brigades, we have concluded that 19 Light Brigade in Northern Ireland will be disbanded. Other units returning from Germany will move into those bases vacated. We remain committed to maintaining a permanent military garrison in Northern Ireland, and 160 Wales Brigade will remain in Brecon. We will retain St Athan at its current size and intend to increase its usage. RAF Marham will remain as a base for Tornado GR4. More details of these and other estate-related decisions are in the Written Statement I have laid today.
The planning work, including the investment required to adapt sites, will now get under way based on this strategic direction. It will involve consultations as appropriate with local communities and other statutory obligations we will need to fulfil. I am very conscious of the uncertainties that these changes will cause for service personnel and their families. Let me reassure them that the majority of the moves I have announced today will take place after 2015. In both basing and reserves, we have sought wherever possible to strengthen the strong and natural links between local communities and the Armed Forces. I do not underestimate the importance of these ties in underpinning the military covenant.
The overall package I have announced today is good news for our Armed Forces and means that they can look forward to the future with renewed confidence because the defence programme I have announced is underpinned with real resources. This investment in people and equipment is not the wish list of the past but is certainty for the future. I commend these decisions to the House”.
My Lords, that concludes the Statement.
Lord Rosser
My Lords, on this side, we, too, wish to express our sincere condolences at this very difficult time for them to the family and friends of Lance Corporal Paul Watkins who was killed in Afghanistan the other day.
I thank the Minister for repeating the Statement made a few minutes ago in the other place by the Secretary of State for Defence. It covers a number of big policy areas: the RAF basing review, Reserve Forces, the financial settlement and cuts to the Regular Army. The Statement, as did the strategic defence and security review, repeats the Government's line about the financial position they inherited, which arose as a result of a global economic recession which was not sparked off in this country. The Statement refers to a £38 billion black hole, but that figure assumes a flat line in cash terms in the defence budget over the coming years; in other words, a decline in real terms, which is unlikely. It also assumes that every commitment, including equipment, will be adhered to.
The National Audit Office 2009 report into major projects at the Ministry of Defence stated:
“If the Defence budget remained constant in real terms, and using the Department's forecast for defence inflation of 2.7 per cent the gap would now be £6 billion over the next ten years. If … there was no increase in the defence budget in cash terms over the same ten year period, the gap would rise to £36 billion".
I appreciate that this Government have managed to reduce the rate of growth during their period in office, but presumably even this Government intend to ensure that growth in the economy, from which additional resource can be provided, returns at some stage in the not-too-distant future.
The recent strategic defence and security review, which seems, with every MoD Statement, to be becoming less related to reality and expected reality, stated:
“Further work is required to determine the numbers of personnel that will be required to man the 2020 Force Structure. The Defence Reform Review, the review of Reserve Forces, further efficiency measures and changes in the policy context will all need to be taken into account at the next Strategic Defence and Security Review, which will set out detailed plans for the five years beyond 2015 ... We will also, for now, assume that by 2020 we will require a Royal Navy of 29,000 personnel, an Army of 94,000 and an RAF of 31,500”.
Yet the Government have announced cuts to the Army of 17,000—a sixth of the entire force—in just 10 months. However, in opposition, the Government said:
“In the real world the only logical conclusion you can come to is that the army is already too small”.
The SDSR referred to members of the Reserve Forces performing outstandingly well in Afghanistan, and we share that view and pay tribute to the commitment and dedication of our Reserve Forces and to the real contribution they play in protecting our own citizens and the lives of others in operations abroad. The SDSR also referred to the six-month study being undertaken into the future role and structure of the Reserve Forces and the Statement today includes the Government's response to that review. We, too, would wish to place on record our thanks to General Sir Nicholas Houghton, the Vice-Chief of the Defence Staff, and his two colleagues who undertook the review. Will the Minister say whether the review suggested that the reductions in the Regular Forces should be made in the light of their recommendations on the Reserve Forces?
The Government have said that they will be undertaking a strategic defence and security review every five years. They now appear already to be making policy decisions on the structure and composition of our Armed Forces for the five years between 2015 and 2020, the period to be covered by the next defence review. What then are the strategic decisions and goals that have been made and determined for the five years from 2015 to 2020 which the decisions announced in the Statement today are presumably intended to deliver? Is it the Government's approach that our strategy for the five years from 2015 to 2020 will be determined by the Armed Forces that we have decided we will have rather than our required defence strategy for those years being determined first and then consideration being given to how to provide the Armed Forces needed to support and deliver that strategy?
If the Reserve Forces are to constitute some 30 per cent of our forces, rather than less than 20 per cent, to what extent will they become stand-alone units? There will be concerns if bespoke standing units of reservists were to become the norm since this could increase the commitment required from civilians and therefore potentially hinder recruitment. Will this approach not also undermine the one army concept? It appears as though the review highlighted the cost of Reserve Forces compared with the cost of Regular Forces. In view of the proposed increase in the percentage of our Armed Forces who will be reserves and the significant reduction in regulars, how do the Government evaluate the abilities, experience and expertise of our Reserve Forces against those of the Regular Army personnel? Do the Government consider them less effective, more effective or of equal worth and value person for person? How is such an assessment made and by whom? The boost to our Reserve Forces is, it would seem, intended to make up for the fact that our Regular Forces are being reduced.
The Statement, referring to the Army, indicated that two major units and a formation headquarters will be based at Leuchars. Does this mean that RAF Leuchars will close? Will the Minister for clarity say how many personnel and what personnel are currently based at Leuchars and how many personnel and what personnel will be based at Leuchars once these changes have been implemented? What will be the cost of that change, who will be paying for it, and how long will the time lag be between the moving out of present personnel from Leuchars and the moving in of the new personnel? What is the Government’s assessment of this change on the local economy?
The Statement referred to the savings that would be realised by the reduction in regular personnel. It stated that money would therefore become available for reinvestment in our Reserve Forces and also for the construction of additional Chinook helicopters, which was an undertaking the Prime Minister gave. We welcome any additional investment in our Armed Forces, and not least the £1.5 billion investment package over the next 10 years to enhance the capability of the reserves, and the increase in the defence equipment and equipment support budget by 1 per cent a year in real terms—though we note that that is not until 2015-16. Can the Minister confirm, though, that this means there will be no increase in real terms in the rest of the core defence budget from 2015-16 to 2020-21?
We are seeing additional resources having to be devoted to our operations over Libya, which is being paid for from the general reserve, and also the need to finance the additional Chinooks promised by the Prime Minister. To conclude, what meaningful assurances can the Minister give that today’s further announcements, which we will certainly wish to study in far more detail than we have been able to so far, have not been influenced by financial considerations, but purely by military considerations?
Lord Astor of Hever
My Lords, I am very grateful to the noble Lord. He asked me lots of questions which I was writing down as fast as I could. I will do my best to answer as many as I can, and if I do not answer them all, I undertake to write to him.
The noble Lord first asked about the SDSR. In announcing the SDSR, the Prime Minister was clear that in his view the Future Force 2020 structure would require real year-on-year growth in the defence budget beyond 2015. The announcement today that the MoD can plan on an increase in equipment and an equipment support programme in the years before the spending review settlement means that the department has a firm base for its longer term plans. This will enable the department to make better value-for-money decisions, and makes clear this Government’s commitment to deliver the forces necessary to meet our future commitments.
The noble Lord then asked if there are going to be reductions in the regular Armed Forces because of cuts in reserves. We are confident that with the additional investment, the reprioritisation and efficiency improvement and the planned withdrawal from combat operations in Afghanistan we can rebalance the Army in particular, so that we can have a whole force of around 120,000 with a ratio of about 70 per cent regulars to 30 per cent Territorial Army. This will allow us to maintain an enduring commitment at brigade level as described in the SDSR. As the Secretary of State has said, the role of the Territorial Army has been greatly undervalued too often in the past. It will continue to have an important role in the Army.
The noble Lord then asked about strategic decisions and the Future Force 2020. We are confident that with the additional investment, the reprioritisation and efficiency improvements and the planned withdrawal from combat operations in Afghanistan, together with a rebalancing of Regular and Reserve Forces, we can generate the forces required to achieve the objectives in the SDSR, including the ability to maintain an enduring commitment at brigade level as described in the SDSR.
The noble Lord asked about the expertise of reservists. I have some personal experience: I was for a number of years colonel of a Sapper TA regiment. They had expertise of a very high order, they were very highly trained, and whenever they went out to Afghanistan they were very much respected by the Regular Forces with which they trained. This is an issue that we will be working on. Clearly, recruiting, which the noble Lord mentioned, is vital. A recruiting and training surge will be needed to meet the demands of the revised reservist roles, and to provide for more viable unit strength. The establishment of an effective recruiting and training mechanism to handle the potential surge requirement will be an essential precondition of success if reserve manpower decline is to be arrested, initially, and then increased. This should include rapid changes to existing processes and regulations to make it more attractive for ex-regulars to join the reserves on leaving.
The noble Lord then asked whether RAF Leuchars is closing. Leuchars is not being closed. It will become a major Army base. Following the SDSR, the Royal Air Force needed three, not four, RAF fast-jet bases. It could not make military sense, and would be uneconomic, to close RAF Marham or RAF Coningsby. A decision had to be taken that was best for defence as a whole. With the Tornado force drawing down at Lossiemouth, we concluded that we could build up the Typhoon force there rather than continuing at RAF Leuchars, enabling Leuchars to be utilised for the MRB to be based in Scotland.
The noble Lord mentioned the Chinooks, and I can confirm that we will be ordering the 12 plus the two very early on in the autumn. He welcomed the 1 per cent increase and asked if would it affect the rest of the defence budget. Her Majesty’s Treasury has agreed that we may plan on the basis of an uplift of equipment expenditure, and equipment support year-on-year of 1 per cent above inflation in the years beyond the current spending period. Finally, all these decisions were taken solely on military considerations.
Lord Lee of Trafford
My Lords, first, I join these Benches in the earlier tribute. Very recently, the Leader of the Opposition offered talks with the coalition Government on the future of financing long-term care in this country. I suggest that, important as long-term care is, defence is of equal importance. Would it not make sense for the coalition Government to attempt to talk to the Opposition about getting a unified approach to defence spend? That is my main point.
I would like to put two smaller points to my noble friend. First, will he confirm that the proceeds of the sale of valuable defence sites and buildings will be retained within the defence budget? Secondly, can he indicate the total costs of withdrawal from Germany and the necessary rehousing of those units in this country?
Lord Astor of Hever
My Lords, I am grateful to my noble friend for his tribute. As for as his question about opening discussions with Her Majesty’s Opposition, he has raised this before; I am very happy to take it back to my department and come back, and I will let my noble friend know what the answer is. As far as proceeds of defence sales are concerned, the answer is yes: they will remain in the MoD budget. As far as the total cost of withdrawal from Germany is concerned, I do not have any figures on this at the moment. We are working on it, and as soon as I have some figures I will let my noble friend know.
Lord Stirrup
My Lords, having served as honorary colonel of a TA Royal Engineer regiment I confirm what the Minister has said about the TA’s expertise and utility. However, in repeating the Statement made in another place the Minister referred to models from other countries: Canada and the United States. Part of the reason for the success of the reservist element of their forces has very much to do with the culture of those countries and the background from which those people come. It has to do with the way that reservists are honoured and celebrated within society; the view that ordinary citizens and employers across the board take of their service.
I do not for one moment suggest that we could not have a similar culture in this country but it would be a change from that which we currently have. As we recognise, change in culture is a difficult thing to do. It takes time, commitment and a sustained effort across that period of time, and it has to be led from the top. What strategy does the Minister have? What strategy do the Government have for this transformation of culture, which will be essential if the very demanding recruitment targets he has outlined today for the TA have any hope of being met in the future?
Lord Astor of Hever
My Lords, the noble and gallant Lord makes an excellent point about the culture of the reserves in the United States, Canada and other countries. We are aware that this area will need a lot of work and we are determined to make this whole issue of the reserves successful. We will work on it. Part of this issue is mentioned in the booklet. I very much look forward to discussions with the noble and gallant Lord about any further ideas on how we can take this forward.
Lord Davies of Stamford
My Lords, given the shortage of time, let me focus on just the procurement issues. My noble friend has dealt with the £38 billion myth. I am very sorry that the Government are still descending to using it. It is of course a completely bogus figure based on, as he said, quite unreasonable assumptions. It is really a very silly, as well as a very disingenuous, piece of propaganda.
Apart from that, perhaps I may surprise the noble Lord—because I believe in giving credit where credit is due—by congratulating him. I do not think that 1 per cent in real terms is enough. I would rather have 1.5 per cent, which is what we had when we were in Government. Of course, the sustainable long-term growth rate of the economy is generally reckoned at being 2.25 per cent. Nevertheless, 1 per cent is considerably better than what we have now got. The noble Lord and his ministerial colleagues are to be congratulated on a reasonably successful outcome on what must have been a very difficult negotiation with the Treasury and, no doubt, with No. 10 Downing Street, but I do not think that they understand much about military matters these days.
I do not resile at all from the critiques I have made in the past, particularly about the disappearance of carrier strike capability, but the announcements that the Minister has made today on procurement are extremely important. I am delighted about the Warrior upgrade. That was the only project, which was a priority of mine, that I failed to get through in my time of office and would have been my first priority after the election if we had won it. The Rivet Joints are an enormously important intelligence asset and it is great news that that is going through.
Fourteen Chinooks is not as good as the 22 which we were going to order but, again, it is a good deal better than nothing, which has been happening up until now. Will the noble Lord say the projected in-service dates for these Chinooks? Obviously, there will be different dates. What are the in-service dates for the Rivet Joint aircraft? What are the expected in-service dates for the new upgraded Warriors with the 45 millimetre cannon and so forth? Will he say how many of the Rivet Joint aircraft and how many of the upgraded Warriors the Government intend to procure?
Lord Astor of Hever
My Lords, I am very grateful to the noble Lord for his support. Perhaps I may correct him on what he said about the Prime Minister. I have had a meeting on defence issues with him and I can assure the noble Lord that he takes the whole issue of the Armed Forces and equipment very seriously. Defence of the realm is the first duty of a Government, which he takes very seriously. I am sorry to disappoint the noble Lord there.
The noble Lord welcomed the Warrior upgrade and the Rivet Joint. I can confirm that we will order three Rivet Joints. I do not have the in-service date for the Chinooks. We are very near a point where we can go ahead with the ordering and as soon as I have the in-service date I will make a point of writing to the noble Lord to let him know the answer to that.
Lord Freeman
My Lords, my noble friend the Minister, I am sure, will realise that this Statement will be warmly welcomed by the Reserve Forces, in particular by the Territorial Army, which over the past decade has seen a dramatic reduction in their numbers and their utility in the field of conflict. Will my noble friend convey to the Ministry of Defence and General Houghton—I, together with my colleagues pay tribute to the diligence of his work over the past two years in this regard—to please look at the skills required by the Reserve Forces in conjunction with the demands not only of employers but also their willingness to identify the skills that could be available? I see the Reserve Forces as playing a crucial role not only in homeland security but abroad within specific skill sets.
Lord Astor of Hever
My Lords, I am very grateful to my noble friend for his question. I agree that we have seen major reductions in the TA recently. I will convey his congratulations to my department and to General Sir Nick Houghton and his co-members for their excellent work on Future Reserves 2020. I know that they spent hours and hours agonising about this review. I will also ask my department to look at the issue that he raised about the skills required and how we can work on that with employers.
Lord Maginnis of Drumglass
My Lords, while welcoming the general trend of this Statement—it is 30 years since I was involved actively in military matters—will the Minister clarify exactly what he is saying in terms of Northern Ireland? As regards recruitment in Scotland, I read that certain things will happen,
“in line with the Scottish tradition of supporting our Armed Forces”.
At the same time, I think I read that there will be a virtual disconnection between the military in Northern Ireland and pertaining to Northern Ireland in the future. That is totally unacceptable. There is a tradition—I am proud to say that I was part of that tradition for a number of years—in Northern Ireland, which was highlighted during the Troubles and during the invasion of Normandy. Most recently, when I visited troops in Afghanistan, the commander in charge of Camp Bastion said of the 2nd Battalion Royal Irish that they have achieved more in four months than would have been expected of them in a full tour. Is that going to be sacrificed? Are we going to have another instalment of what I would call “Heathism”; that is, detaching Northern Ireland from the rest of the United Kingdom? If that were to happen, the resentment in Northern Ireland among those who have served faithfully for so many years and at such a cost would be deeply felt.
Lord Astor of Hever
My Lords, I am well aware of the tradition in Northern Ireland of support for our Armed Forces. I served in Northern Ireland as a soldier and I am well aware of that. Indeed, my driver came from Northern Ireland. I can confirm that we have no wish whatever to detach Northern Ireland from the rest of Britain. The Statement makes clear that other Army units returning from Germany will move into those bases that were vacated, and we remain committed to maintaining a permanent military garrison in Northern Ireland.
Lord Burnett
My Lords, I apologise to the House for missing the very earliest part of the Statement, which I welcome. Our reservists do outstanding work. Will my noble friend confirm that the reserves will continue to welcome retired servicemen into the reserve service? Will the outcome of this Statement make the reserve service more attractive to former servicemen? I would remind the House that Corporal Croucher, George Cross, a Royal Marines reservist, was a regular Royal Marine, as was Corporal Seth Stephens, Conspicuous Gallantry Cross, a special boat service reservist who was killed in action in Afghanistan last year.
Lord Astor of Hever
My Lords, I am very grateful to my noble friend for his support. Service personnel, the Veterans Agency and the single services are working together to simplify their business processes and ensure that their advice and guidance help to improve transfer between commitments; that is, to make it easier for transfer between the regulars and the reserves. A service-terms and conditions-of-service subject-matter expert has been appointed for each service to advise and educate those involved. Work continues to look at ways of streamlining the processes. My noble friend makes a very important point: we want to get as many former regulars into the reserves as possible.
Lord Bilimoria
My Lords, the Minister has outlined some very welcome news about the reserves in particular and the increase in spending by 1 per cent in real terms. When I speak to senior people in government, the answer to my first question about defence is, “There’s no money”. When I speak to senior service officers, they talk about “mitigating” and “removing capability”. This Statement shows that the Government are willing to listen. With Libya, we have seen that we could have done with an aircraft carrier, that we could have done with Harriers and that we could have done with the Nimrod, yet the Nimrod was just dismantled. Was it really worth doing that? Was it not short-sighted? What if something happens in the Falklands? What about our nuclear submarines having AWACS cover? Have we not learnt? Have we been penny-wise and pound-foolish? Have we put means before ends?
Lord Astor of Hever
My Lords, I am very grateful to the noble Lord for his support. We inherited a very difficult situation; it was not perfect. We tried to do the very best we could under the circumstances. I did not feel comfortable with a lot of the cuts, but under the financial circumstances, we had no alternative.
Lord West of Spithead
My Lords, I thank the Minister for the Statement. It is highly complicated and will take a lot of study before one can give very sensible comments on it. In general terms, I have no doubt that we need a greater increase in defence spending and I would hope that both sides of the House felt that was appropriate in the future. I am very supportive of the withdrawal from Germany—it should have happened previously; it has cost us a huge amount of money having those forces there. I like the basing of the marines down in the south-west. My question is brief, just for clarity. The Statement said:
“I can now give the go ahead for … the cat and traps for the Queen Elizabeth class carriers”.
Cats and traps is shorthand for catapults and arrester wires. Do I assume, because the Statement seems to say it, that we are intending to put catapults and arrester wires on the “Queen Elizabeth” and the “Prince of Wales”?
Lord Astor of Hever
My Lords, I agree with the noble Lord that this is a very complicated issue which will take a lot of study. I am very happy to organise further briefings for noble Lords if they would like on any particular issue, be it on the reserves or basing or anything else. I am grateful that the noble Lord supports the increase in spending, albeit of 1 per cent, which will enable us to do quite a lot. I can confirm that the cats and traps will be for one carrier—at the moment, we do not know which one it is. Whether to equip the other carrier with them will be a decision for the 2015 SDSR.
Lord Grenfell
My Lords, perhaps I may put a question to the Minister on reserves. Any declaration of interest that I might make would probably be otiose in light of the statute of limitations, since it is 55 years since I joined the Territorial Army. I joined the very happily named Queen’s Westminsters and spent nine years feeling that we were doing something useful. Of course, in those days, we had already done two years’ service, which meant that, when we arrived in the territorial battalions, we knew a little bit about what we were expected to do having had some training and felt that we were ready for anything. That may partly answer the very good point made by the noble and gallant Lord that the culture has changed. In those days, the culture in the country was much more receptive to the idea of territorial service.
I welcome what was in the Statement that the Minister has repeated to us. It is true that, as the decades have passed, as the noble Lord, Lord Freeman, pointed out, the Territorial Army has suffered from the depredations of the Treasury. Therefore, I welcome what the Statement says about its strengthening. It is right that we should try to bring the regular-to-reserve ratio further into balance; I think 70:30 is right. I spent many years in the United States and was very impressed by the fact that there was a culture there which made that ratio possible. It is possible to recreate it. Are the Government fully aware of the enormous value of service in the reserves, not just for an increase in military capacity but also because of the social and community value that it represents? It provides young people of both sexes with experience that enhances their working-life prospects. Will the Minister assure us that, in the important recruitment that will have to take place if we are to achieve that balance, sufficient resources will be devoted to the recruitment programme? Our ability to reach 70:30 will depend on us being able to convince a sceptical public that service in the reserves is worth while. Her Majesty's Government would gain greatly from paying attention to the social and community value of the reserves and from making sure that the regular forces are fully engaged in helping in that recruitment drive.
Lord Astor of Hever
My Lords, I am grateful to the noble Lord for his contribution. I know what a distinguished officer he was, both in the regular Army and the reserves. Indeed, the noble Lord looked very military in his regimental tie laying a wreath at the Cenotaph yesterday.
I am grateful for the noble Lord’s welcome of the 70:30 ratio from his experience of living in the United States. Of course, we understand the value of service in the reserves and will do our very best to ensure that sufficient resources are given to the reserves to make this all possible.
Lord Mayhew of Twysden
My Lords, in the rebalancing of the Army into multi-role brigades, is any role to be retained for the main battle tank? If there is, where will the training for it be able to be done, one wonders, with the loss of the training grounds in Germany. If there is not to be any role for it, what consequential plans are there for those regiments at present equipped with or trained for the use of Challenger?
Lord Astor of Hever
My Lords, I can confirm that we will have fewer numbers of Challenger 2 tanks, but we very much value their use. There is of course the training area on Salisbury Plain—where I spent many happy hours. We are also in discussions with the Scottish Executive about the use of some land in Scotland for training.
Local Government Finance
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, with the permission of the House, I shall now repeat a Statement made by my right honourable friend the Secretary of State for Communities and Local Government. The Statement is as follows.
“I would like to update the House on the Government’s review of local government finance. The past year has seen the beginnings of a long-awaited and much-needed shift in power: from national to local; from Whitehall to the town hall. But if localism is to reach its potential, the new legal freedoms must be matched by freedom over finance. This is not a new idea. Reviews from Layfield in the 1970s onwards have emphasised that increasing local financial control is key to strengthening local democracy.
Strangely, the previous Government did nothing to reform the system, despite a local government finance Green Paper, a local government White Paper, the balance of funding report and the Lyons inquiry. They did not even bother to issue a formal response to Lyons’ 400-page report.
By contrast, the coalition Government are delivering radical change. During the past year, we have begun the phasing-out of ring-fencing, freed up £2.1 billion from restrictions and simplified more than 90 separate funding streams to fewer than 10. This is real progress. But today we are committed to going further still: to restoring our councils’ financial autonomy, while ensuring a fair deal for all communities whether in the north or the south.
In the first phase of our review of local government resources, we have focused on local retention of business rates. As the House will know, the Government have already taken action on business rates. We have introduced a more generous small business rate relief scheme; we are making it easier to get that relief without filling in paperwork; and we have scrapped the unfair and regressive ports tax. Now we are looking at what business rates mean for councils themselves.
Councils in England collect some £19 billion of business rates each year. No sooner has the cash come in than it is gathered up by the Treasury, and then redistributed to councils according to a complex formula. This approach has major shortcomings: it denies councils control over locally raised resources; it deprives them of the certainty they need to plan their finances for the longer term; and it creates a disconnection between the success of local businesses and the state of their own finances. Surely it is common sense for the system to encourage councils to boost local jobs and growth. Radical change is needed, and councils themselves agree.
In a major step for transparency, my department is publishing today every representation made to the recent local government finance settlement. There is a common theme. Councils believe the current system is complex and opaque. They have to talk down their successes, and talk up their difficulties, in order to secure the best possible deal from Whitehall. To address this, mere tinkering—adjusting the formula here, amending the area cost adjustment there—will not be enough.
This Government are determined to repatriate business rates. Today, I am publishing a consultation outlining our proposals. No more will proud cities or historic counties be forced to come to national government with a begging bowl. Councils will have greater control over cash, helping them plan for the longer term. Tax increment financing will let them borrow against anticipated increases in rates, giving them a new way to invest in infrastructure, from transport projects to regenerated town centres. Councils should see a direct link between the success of local businesses and their own cash flow. This will create the right incentives for them to work closely with local businesses.
I am determined that the transition to a new scheme must be both responsible and fair. The Government’s overriding priority continues to be deficit reduction. In the spending review, we have set out the level of resources available for local government for the next four years. In the interests of financial stability, for the first two years of the retention scheme we intend to stick to these spending plans, but we will allow authorities to benefit from any growth in business rates above forecast levels. Beyond this spending review period, we will look to align more closely local authority functions and total business rate income.
It is also of paramount importance to ensure our proposals on local government finance are balanced, fair and equitable, creating the right incentives for all areas to grow while protecting the most vulnerable. We propose a number a measures and safeguards to achieve this.
First, poorer places will share in the increase of growth with more prosperous areas. Those places with greatest dependency should, and will, continue to receive support while being allowed to keep the products of enterprise, and those places which raise the greatest sums through business rates should expect to make a contribution. A system of tariffs and top-ups will make sure that we start from a fair base. As the Deputy Prime Minister told the Local Government Association last month, we will ensure that no one will be worse off when the new system is introduced than they would have been under the old system.
Secondly, as the House will well know, some areas have strong natural economic advantages such as high-value industries or concentrations of skilled workers. There will be no cap on the amount of business growth councils can benefit from. A council will always be better off as a result of growth. But if an area benefits disproportionately from growth in business rates, we propose to introduce a special local levy to capture a share of that benefit. The money raised would be used, in the first instance, to fund a safety net, and this safety net would protect authorities experiencing exceptional shocks to their business rate take.
Thirdly, our proposals include the option of resetting the whole system. If councils no longer had enough resources to meet local needs, the Government would be able to recalculate the level of tariffs and top-ups across the whole system.
Fourthly, support for mandatory and discretionary rate relief will continue. Rate relief to the needy will be unaffected. National discounts and rate relief will continue to be supported, meaning no adverse change to such groups as charities, amateur sports clubs, voluntary groups, those in hardship and eligible rural or small firms.
Finally, we have reflected carefully on what our new system means for business. Businesses—the creators of local jobs and wealth—need stability in this process. They need certainty to plan for the long term. So let me spell out in no uncertain terms that local firms will see no difference in the way they pay tax or the way the tax is set as a result of these changes.
I am placing in the Library a plain English guide so that honourable Members’ constituents can understand what our proposals would mean for them. We intend that business rates should be repatriated in 2013. We will bring forward a Local Government Finance Bill to give our proposals legal effect.
The publication of this consultation begins a debate that I hope will be wide-ranging and constructive. I want to work with all local authorities, representative groups and political parties and build a consensus for lasting change. That consensus will be built on, putting power back in the hands of local councils and communities; supporting local jobs and local firms; and creating the conditions for renewed, sustainable economic growth”.
My Lords, that concludes the Statement.
Lord McKenzie of Luton
My Lords, I thank the noble Baroness, Lady Hanham, for repeating the Statement on local government finance and for the offer of a plain English guide to be placed in the Library. I also thank her for the prospect of another local government Bill which might keep us busy for a few days.
In a recent publication on local government finance, the Smith Institute observed that local government finance has been a backwater for most national politicians. Since the poll tax debacle, Ministers have been cautious about reforming local taxation, not least because the issue is seen as divisive and complex. The challenge is to seek a lasting consensus on how to change the system in a way which satisfies councils which are rich as well as those which are poor. Indeed, that is the test for these proposals.
That is why we will look closely at the Government’s announcement because the devil is, of course, in the detail. We should make it clear, as we did in another place, that we back a funding system for local authorities which supports jobs and growth and encourages enterprise. We support the taking forward of tax increment financing and the continuation of small business rate relief, and we welcome the publication of the responses to the consultation. Yes, we support localism—but true localism, which is why we have opposed the raft of centralising powers that the Secretary of State has taken to himself in the Localism Bill. We also support localism in matters of finance.
We hear today that the proposals on local government finance are balanced, fair and equitable, I think was the term, but the precedents are not good. Where, for example, is the fairness in the cuts we are seeing right across the country to home helps and care services, to street cleaning and bin collections? The Statement reiterates what the Deputy Prime Minister told the LGA last month: no one will be worse off when the new system is introduced. Even if that is the case at the point of introduction—and we are not all reassured by cast iron promises from the Deputy Prime Minister—what will the position be at the end of year one, year two or year three? Perhaps the Minister can tell us.
The Minister tells us that the spending review totals are to remain unchanged. Therefore, if there is a fixed pot of money for any council to gain, logically others must be losing out. Can the Minister say what assessment has been made of winners and losers, and how this squares with the assurances of the Deputy Prime Minister?
We recognise some of the weaknesses in the current system. However, a local government finance system that does not reflect needs and available resources could have disastrous consequences for some councils, while others would enjoy large surpluses compared to existing budgeted expenditure. It remains to be seen whether the proposed detailed system of tariffs and top-ups is a fair mechanism to ensure that all local authorities have resources that are adequate to deliver services that are needed and that will allow all communities a chance to prosper. Our fear is that the poorest areas, with the most deprived communities and the smallest business base, will again miss out. Those very communities that saw their area-based grant cut, putting services like children’s centres at risk, through a finance settlement that singled them out for the heaviest cuts, will now lose out on the localising of the business rates.
We know that currently the formula grant is financed significantly by local business rate income, and the latter is forecast to grow as the grant is forecast to fall. The Government are planning to hold back something like £2 billion in local business rate income to give effect to these cuts. Business rate localisation would clearly be one way of stopping this. However, what will happen to the surplus business rate, amounting to some £2.2 billion in 2014-15? Will it now be available to local authorities or will it be retained centrally? Can the Minister tell us the forecast baseline above which local authorities will be able to benefit from growth in business rates? The Statement refers to an area benefiting disproportionately from growth in business rates, which will be subject to a special local levy to capture a share of the benefit. How will it be determined that an area is benefiting disproportionately from growth in business rates?
Cutting funding to areas with the highest need does not free councils from central control or empower them. It stops them from doing the things that their communities need of them. If people do not believe that their council can make a difference, it does not encourage civic activism; it undermines it and fuels a sense of disengagement from the political process. We want a funding system that supports jobs and encourages enterprise. However, as the Minister recognised, not every area has the same ability to attract investment and new businesses. Not everywhere can be like Westminster or the City of London. Areas with the highest levels of deprivation and the weakest business base need the most support; they do not need funding cuts. We will support incentives to boost enterprise and put councils and communities in control, but fairness must be at the heart of the system.
Baroness Hanham
My Lords, I thank the noble Lord for his comments and contributions. From the outset, I remind noble Lords that this is a consultation. Therefore definitive answers may not be pouring out of my mouth, although I will do my best to answer as much as I can about the consultation. However, technical documents will be ready by August to back up the consultation, so some of the points will be considered there.
I am grateful to the noble Lord for his indication that he supports funding for jobs and enterprise. Naturally that is what we are trying to achieve. I am also glad that he supports the tax incentive finance, which will come about as a result of business growth and will be a useful area for borrowing.
The noble Lord referred to the fairness in cuts. The whole process will start in 2012. At the start of this spending review, for the first two years there will be no change at all. Only in year 3 will we begin to see the changes with the business rate being kept within the local community. We are proposing that in years 1 and 2 it will stay as it is, and in year 3, instead of the local authorities collecting the business rates and passing them on to the Treasury, they will collect the business rates and, under an arrangement, pass some of them on to the Treasury. The rest will be held by local government in year 3 and subsequent years.
With regard to the tariffs and top-ups, the control totals will not change within the four-year spending review. However, in areas where we believe the business rate is in excess of those totals, a tariff will be levied that will help poorer areas, about which the noble Lord spoke in terms of top-ups. There will be a swing of money between one and the others, so the poorest areas will be given the help that they need.
The £2.5 billion that will be held by local authorities will be directed to other local grants. It is suggested that the levy, which again is a matter for consultation, will be on top of the business rates, from which local authorities make what is called in the consultation paper a disproportionate amount. They will then share that through a top slice with other authorities.
Lord McKenzie of Luton
The Minister answered a number of the questions I raised. Could she tell us how the test of disproportionately benefiting from business rates is going to be set?
Baroness Hanham
My Lords, I think I am going to direct the noble Lord to the consultation, because this is one of the areas where we want to talk to local authorities to understand the nature and impact of that issue. At the moment, I do not think I can give a substantive answer, but it will be in an authority that has access to far more business rates than perhaps other local authorities comparably.
Lord Tope
My Lords, I thank the Minister for repeating the Statement in this House, and also for the plain English guide being put in the House of Lords Library, which I am sure will sell like hot cakes before the summer holidays. I also congratulate the Minister on resisting the temptation to start answering the questions posed in the consultation document before that document has actually been seen by those being consulted.
I warmly welcome the commitment of the coalition Government to start delivering on a promise that I think has been made by every opposition party since the Conservative Government first nationalised business rates over 20 years ago. It is understandable that local authorities will want to look at the detail and consider particularly the proposed equalisation scheme. Does the Minister agree that, when they have done so, this proposal is likely to receive a warm welcome throughout the country by councils under any political control? Does she agree that probably the repatriation of business rates is arguably the best boost to business regeneration that this Government—certainly her department—can provide? Finally, will she confirm that the setting of the tax rate will continue to be done centrally in line with the retail prices index; and can she say whether, at any stage in the future, the Government propose to introduce an element of localisation into the setting of the tax rate?
Baroness Hanham
My Lords, I thank my noble friend Lord Tope for his kindly and warm welcome for this consultation document. I agree with him that local government will be content with this proposal; whether it is content with all the details will come out in the consultation. As long as I have been involved in local government, and since the rate began to be set centrally, local government has looked to having the business rate repatriated—in that it does not go out and come back in again but is contained within local authorities. The repatriation of the business rate is a good thing. The setting of the rate for the grant will continue to be set centrally, for the time being at least. As far as I know at the moment, that will continue to be the situation.
Lord Beecham
My Lords, to follow the pointed last question of the noble Lord, Lord Tope, does it not make rather a nonsense of the fine phrase about “freedom over finance” when all that is being restored is the right to retain business rates at a level decreed by the Government, with no capacity to vary it one way or the other at the local level? Is it not also the case that the vaunted reduction in ring-fencing, which in principle is to be welcomed, really amounts at present simply to more freedom to spend less and to incur the odium of taking the decisions over cuts in services that the Government are imposing on authorities through the significant, massive and unprecedented reduction in the government grant?
There is a sentence in the Statement that says:
“Beyond this spending review period, we will look to align more closely local authority functions and total business rate income”.
What does that mean? What are the implications of that sentence?
As for the fairness between authorities, is it not striking that the City of London stands to gain £545 million a year in increased business rate income and the entire authorities in the north-east of England stand to lose £544 million a year? For how long and to what extent will losses in authorities such as those in the north-east be compensated? There are many others; Birmingham, for example, will lose £300 million. Will the losses be fully met and, if so, for how long? Is the Minister aware that in a debate in Westminster Hall, Andrew Stunell, who is a Minister in the department, seemed to indicate that it would be for a year? Is that the position?
Finally, how will this compensation adjustment be made? Is there any detail in the consultation paper about how these huge imbalances are to be addressed, or is it another case of politics in the style of the late lamented Tommy Cooper, whereby things will happen “just like that”?
Baroness Hanham
The noble Lord said it so nicely, he will almost be able to go on the stage and do Tommy Cooper, but I am sure he does not really want to do that.
At the outset I remind the noble Lord that local government finance is at the level that it is because of the disastrous deficit that had to be met. Local government has had to take its share of that. The noble Lord knows that if a Labour Government had come into power, they too would have had to make very substantial reductions. Local government would have been left facing very similar problems and decisions to reflect those reductions.
The compensation system will be the tariffs and the top-ups. The expectation is that the control totals that are in place at the moment for the four-year spending review will stay in place. However, with the retention of the business rate, as the noble Lord has rightly said, some areas will have a far higher business rate than others and will be able to generate more. At the start, the tariff will be set at the level of those that have higher rates; the expectation is that, above that, money will be taken off and passed to those in the poorest areas. There will be a sort of balancing between them.
The noble Lord asked how there would be growth. The rate will encourage local government to talk to businesses and encourage the development of businesses, because they will be able to retain some of the extra rate that comes from that. I hope that that answers the noble Lord’s questions.
Lord Jenkin of Roding
My Lords, I, too, like my noble friend Lord Tope, warmly welcome the main thrust of what is proposed in this consultation paper. Like him, I admire my noble friend’s refusal to try to answer the questions that are asked in the consultation paper. We are very grateful for the repetition of the Statement; indeed, it reads very well.
I have two points to make. I was the Secretary of State who introduced the nationalisation, as it has been called, of the business rate. One has to remember what lay behind that—namely, that 20 years ago we examined the question of the local authorities and who paid, who benefited and who voted. This was not a coterminous group, although there were some overlaps of course, but businesses, particularly small businesses, felt that they were being overcharged by local authorities fixing the rate to get the benefit of the revenue so that they could provide extra benefits for those who voted but who perhaps did not contribute any rates. That is what my noble friend has to avoid. What has been proposed in this consultation paper goes a long way towards that; it was very reassuring when she said that the business rate would still be set nationally and that it would not be open to local authorities to change that. While one would like to feel that setting the rate could make it more responsive to business requirements, the fact of the matter is that we had many years of experience of that and it did not work.
The one point on which I disagree with my noble friend Lord Tope is that I hope that the Government are not tempted to go down the road of letting local authorities fix the business rate themselves. They do not vote and yet they would be asked to pay what might be quite substantial sums. Indeed, when I had to deal with local authorities, they were asked to raise very substantial sums. I just issue that warning to my noble friend.
I end by saying that I think this is a valuable first step. I am not sure that I will take the Green Paper away with me during the Recess, as I have a number of other papers to read as well, but I look forward to studying the paper, particularly when some of the details, which my noble friend said would be published later, are available.
Baroness Hanham
My Lords, my noble friend was a much respected Secretary of State. I still remember the reasons why business rates were centralised. There is no intention of allowing local government to set the business rate; businesses will in effect see no change. The business rate itself will be set nationally, as it is; the discounts, the valuations and the rates that are paid will be the same, so in effect they will be unaffected. However, the area in which we hope and expect to see change is in encouraging local authorities to make sure that they are well in tune with their local businesses, that they try to see their businesses grow and that enterprise and employment follows from that. If business grows, local authorities will be able to benefit from that. I hope my noble friend will understand that the business rate will be as he put it—set nationally.
Baroness Quin
My Lords, given the responsibility of Governments to promote balanced economic growth across the country, will the Government give a commitment that the north-south divide, and indeed the gap between the less well-off and better-off areas, will not be allowed to widen as a result of these measures? Could I tempt the Minister to disagree with the Secretary of State in another place, who is reported as saying that at the moment there is no motivation for councils to support local firms or to create new jobs? Gateshead, the council that I have had the closest involvement with in recent years, has been a splendid public entrepreneur in working with private industry to do precisely that. There is therefore a great motivation simply to promote the economic well-being of the area that local councils represent.
Baroness Hanham
My Lords, with reference to the noble Baroness’s last question, of course there are local authorities that have been working assiduously to promote economic growth all over the country. Authorities both north and south have worked very hard. On the other hand, they are not really benefiting from that because they are getting nothing back from the business rate. The spending totals remain the same; the control totals stay the same. If they can encourage more enterprise, or more firms into their areas, they will get some of that growth back above the tariffs. That will be helpful because they will be able to reinvest that and to promote the economy better. There is an advantage, but I would certainly not underestimate the amount of work that local authorities have already done. I have seen quite a lot of it during my year as a Minister, so I am grateful for it.
Within the spending review, the control totals will remain the same, although, as I have explained, between the tariffs and the top-ups there will be a switch of resources from those that have more business rate to those that have less. I do not think anyone will be any worse or better off as a result for the time being.
Baroness Kramer
My Lords, the Minister will not be surprised that as well as welcoming the announcement of this Bill in general I am particularly delighted that tax increment financing is included in the Statement. I have two things to ask her. First, could she ensure that, during the consultation, there will be the widest possible definition of tax increment financing rather than the sometimes very narrow definition that gets touted around, since the purpose of this is to ensure economic growth and maximum advantage for developing business in local communities and regeneration?
Secondly, I ask her to look favourably at the amendment which the noble Baroness, Lady Valentine, will move on Wednesday that would allow tax increment financing to go ahead much more immediately in London, thereby providing a good pilot for this new approach in the UK to financing and encouraging economic growth at a time when it is so highly valued.
Baroness Hanham
My Lords, I know of the noble Baroness’s interest in this. A consultation is a consultation, and if people have ideas about how wide they want the tax increment financing to go they will be able to say so in the consultation. I do not think there is anything in the consultation questions that would prevent that from happening. I am not in a position at the moment to say what my response will be to the amendment tabled by the noble Baroness, Lady Valentine.
Lord Shipley
My Lords, while welcoming the Minister’s announcement, it is important not to misinterpret what is being proposed. While this is being billed as being about the repatriation of business rates from 2013, that is strictly speaking not the case because firms will see no difference in the way in which they pay tax, or in the way in which the tax is set, as a result of these changes. In this sense, therefore, this is not about repatriation. However, for all the reasons that my noble friend Lord Jenkin identified, it is very important that the repatriation of business rates is seen to be fair by the firms and businesses that are paying these rates. For this to be maintained at a national level is, at least for the foreseeable future, the right thing to do.
What matters in this proposal is that it encourages growth and enterprise. For this reason, it is important that the deal that has been announced is seen to be fair and does not simply redistribute from poorer areas to richer areas. Setting an insurance scheme against shocks enables poorer areas to do more for themselves and to generate income that will make them richer. In that sense, a virtuous circle can be created.
The consultation is very welcome. I have been a firm advocate of the repatriation of business rates now for many years, so I welcome the direction that the Government are setting.
Finally, I have one question about tax increment financing. There is no date in the Minister’s Statement for when tax increment financing will come into play. I assume that it will be in 2013, but it is very important that, as part of the whole package of repatriation of business rates from this date, tax increment financing is part of it.
Baroness Hanham
My Lords, the answer to the noble Lord’s final question is that the Government are committed to introducing tax increment financing as soon as possible and will move as quickly as possible to deliver it. It is being introduced through the local government finance Bill alongside the local retention of business rates. Once again, I thank the noble Lord for his support for this.
On the repatriation of tax revenue for business rates, while businesses will not see an immediate change to the way they pay the tax, they will see a greater interest from local authorities in the rates. They are important anyway, but I expect and hope that they will be even more important because there are lots of incentives for business not only in the Localism Bill but in the consultation that has been announced today. Yes, this is absolutely all about encouraging growth and enterprise, and the expectation and the ability to keep extra business rates in areas that need to do more to encourage business will do exactly what the noble Lord, Lord Shipley, has said: they will help the poorer areas perhaps to try to generate a little more business activity in the areas they represent.
Supply and Appropriation (Main Estimates) Bill
Finance (No. 3) Bill
(13 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord De Mauley
My Lords, 21 speakers have signed up for the debate on the Second Reading of the Finance (No. 3) Bill and the report on the Finance Bill 2011. If Back-Bench contributions to the Bill are kept to seven minutes, the House should be able to rise this evening at around the target rising time of 10 pm.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, as noble Lords are aware, this Government have taken difficult decisions in our two Budgets to tackle an unenviable inheritance—the largest peacetime deficit on record and an economy struggling to recover from the financial crisis. We have taken the necessary decisions to eliminate our structural current deficit over the coming four years and stimulate a private sector recovery. One is the vital precondition of the other, and our approach has been endorsed by the IMF, the OECD, the European Commission, credit-rating agencies and businesses across the UK. This Government have set the agenda on using the tax system to encourage growth.
The Plan for Growth, published in March, set out a range of supply-side reforms to improve the UK business environment. At the heart of that plan is an ambition to create the most competitive tax system in the G20 through our corporate tax reductions, reform of controlled foreign company rules and simplification of the tax system. We want to make the UK the best place in Europe to start, finance and grow a business by reducing the regulatory burden on business and ensuring that credit flows to businesses. We want to encourage investment and export as a route to a more balanced economy by investing £200 billion over the next five years in UK infrastructure, setting up 21 new enterprise zones and entrenching a green recovery. We also want to create a more educated workforce that is the most flexible in Europe by providing 50,000 additional apprenticeships, an additional 80,000 work experience placements and expanding the university technical colleges from 12 to at least 24 new colleges by 2014.
The Bill boosts our international competitiveness by reducing corporation tax by a further 1 per cent this year and to 25 per cent next year, towards a rate of 23 per cent by 2013—the lowest rate in the G7 and the 5th lowest in the G20. It encourages growth by doubling entrepreneurs’ relief to £10 million, increasing R&D tax credits for SMEs to 200 per cent and cutting the small profits rate to 20 per cent. The Bill also ensures fairness for all by increasing personal allowances by £1,000. Together with the increase to £8,105 announced at the Budget, this will remove 1.1 million people from income tax altogether. The Bill also introduces a supplementary charge on profits from oil and gas exploration in the North Sea, which allowed us to cut fuel duty by a penny on Budget day, and introduces a bank levy to discourage risky behaviour by banks, the proceeds of which will fund the £250 million investment in the Firstbuy scheme for new homes.
I turn now to the Economic Affairs Committee’s report into the 2011 Finance Bill. First, I thank the committee for its comments in recognising the substantive changes that we have made to the way that tax policy is developed, communicated and legislated. The committee considered the Government’s new approach to tax policy-making, which sets out the principles that the tax system will be more predictable, more stable and simpler to understand.
Last autumn, we published the majority of the Finance Bill legislation to provide the opportunity to develop and refine our proposals. We received over 200 responses to the consultation and many of the clauses were changed as a result. This is just the first year of this new approach, as the Committee noted. Many interested parties have expressed their pleasure with an approach that puts emphasis on consultation and this process has worked extremely well, as in the cases of corporate tax reform and pensions tax relief changes. Indeed, these specific examples were noted by members of the committee. Of course, we will continue to learn lessons and make improvements for the future and, in doing so, HMRC and the Treasury will take into account the recommendations of the committee.
We have also taken steps to address the web of tax reliefs and exemptions that complicate our tax system. The Office of Tax Simplification, set up last summer, has already provided its first series of recommendations and this Bill takes the first steps towards simplification by removing seven tax reliefs from the system. We will be bringing forward further abolitions next year after a period of consultation. The Government are committed to greater consultation on tax policy changes. However, it will not always be appropriate or proportionate to consult at all five stages for each tax policy change, as set out in the tax consultation framework. The Government will always need to retain some flexibility on tax policy. Generally speaking, the Government cannot and will not consult on rate changes or where consultation would otherwise present a risk to the Exchequer.
Your Lordships’ committee, as well as witnesses and other interested parties, has taken particular interest in the disguised remuneration legislation. I remind noble Lords that this legislation tackles the practice whereby well-paid individuals disguise their remuneration as loans which are never repaid, resulting in a loss to the Exchequer. This is a significant measure, raising over £700 million a year, and was the first substantial piece of anti-avoidance legislation introduced under the new approach to tax policy- making. There are valuable lessons to learn from the experience.
The committee has asked HMRC to look at alternatives to the disguised remuneration legislation. HMRC has already carried out a review of alternative approaches as part of the policy-making process, which concluded that the approach taken is the most effective in the long run. HMRC will, however, continue to review the effectiveness of this legislation as is normal procedure in maintaining tax policy. It should also be noted that HMRC’s new anti-avoidance strategy, which was published alongside the Budget, sets out how the department will prioritise and allocate resource to make the right decisions about how to respond to avoidance risk.
In its report, the committee has also highlighted tax evasion. HMRC recognises the significant risk to the Exchequer of tax lost through evasion and already has in place a business strategy allowing it to develop a thorough understanding of its customers. This approach helps HMRC ensure that compliance efforts and interventions are focused where they will have the greatest effect. The Government have underlined their commitment to tackling tax avoidance and evasion with a £900 million reinvestment in HMRC over the spending review period. This will transform HMRC compliance activities and bring in additional revenues of £7 billion a year by 2014-15, on top of the £13 billion additional revenues to which HMRC was already committed.
The third area that the committee considered was the approach to corporate tax reform. As I have already said, a competitive tax system is at the very core of our plan for growth. Last year we published our corporate tax road map, setting out our plans for reform over the next five years and the principles underlying them. This gives businesses the certainty they need and the confidence to invest. This Bill takes the first steps on this road by introducing changes to foreign branches and controlled foreign companies rules. Corporate tax reforms will reduce the cost of new investment and incentivise activity across the economy. I welcome the committee’s comments on the corporate tax road map, which noted:
“It should promote the stability, consistency and certainty which many of our witnesses saw as so important”.
The committee also expressed some concern around the timing of reviews of tax reforms. I assure the House that we recognise the value of monitoring and evaluating tax policy. HMRC and the Treasury are currently looking at ways in which evaluation can be better embedded in the policy-making cycle.
Regarding policy development within the Treasury and HMRC, we have noted the committee’s comments about the policy partnership. I can tell the House that the Treasury and HMRC continue to look at all aspects of their work. It is vital that both departments consider how they engage with taxpayers and how their partnership can be strengthened to achieve better engagement. There is a senior governance group in place between the departments to oversee and monitor allocation of resources to policy work in the partnership. This new governance group is also looking at how best to raise the level and effective use of skills and experience across the partnership, another area that was of particular interest to the committee. We fully recognise the importance of incentivising and retaining the best talents in the tax policy field. The establishment of a new tax academy in HMRC will improve the focus on raising skills standards. That academy will engage with stakeholders to identify shortcomings and put in place measures to address them. It will use and build on the existing range of tax training available to improve skills across the board.
This Bill sets out changes to improve our competitiveness, encourage investment and support our businesses through the recovery. Of course, we have always said that recovery would be choppy, but the last year has given us cause for cautious optimism. Output is growing and half a million new private sector jobs have been created, the second-highest rate of net job creation in the entire G7. However, there is no room for complacency, and our plans necessarily incorporate a degree of flexibility. On this point, I would like to confirm that this flexibility refers to the automatic stabilisers that allow government spending to move up and down with the economic cycle. I apologise to the noble Lord, Lord Barnett, for the confusion that arose on this point in response to his Question on 6 July. I can confirm that he correctly quoted my right honourable friend the Chancellor of the Exchequer on this issue.
To conclude, this Bill builds on the progress that the Government have made to date to help families, help business and support economic growth. I look forward to hearing this evening’s speeches, particularly the maiden speech of my noble friend Lord Magan of Castletown, and I commend this Bill to the House.
Lord Myners
My Lords, the Minister has treated us to a rich helping of palilalian piffle when it comes to the performance of the economy. His speech would be a comedy if the underlying story were not a tragedy. At least we know that the Minister is not guilty of being involved in disguised remuneration because, as we well know, he is not being remunerated at all.
Let us remind ourselves of the economic facts. In the period 1997 to 2007—for 10 years—the UK recorded the highest GDP per capita growth in the G7 countries. This was achieved against a background of low inflation and the period described by the governor of the Bank of England as the NICE decade—non-inflationary consistent expansion. Public sector net debt had fallen from 42.5 per cent of GDP in 1997 to 36.5 per cent in 2007—the second lowest level in the G7. The Conservative Opposition had committed to match Labour’s expenditure plans.
In 2007 the world was hit by a global financial crisis. The Labour party has expressed its regret that financial sector regulation was not as effective as it should have been and that that was a contributory factor to the crisis. Alistair Darling took the right decisions as a consequence of the crisis and he implemented them successfully. The financial system was stabilised under the Chancellor’s direction. Appropriate stimulus action was taken. Unemployment was lower than would otherwise have been the case, as were business failures and repossessions. The Chancellor introduced a strong framework for fiscal stabilisation going forward. I pay great tribute to Alistair Darling whom I think history will judge to be one of the great Chancellors, given the extraordinarily difficult global circumstances with which he had to deal. Last spring, after a very tough time for the economy we were turning the corner. The economy was growing. Over the second and third quarters of 2010, growth was 1.8 per cent—ahead of the USA and ahead of the EU average. Inflation remained low and unemployment was steadily coming down.
What has happened since the election? The economy has stopped growing. The Minister refers to growth but the facts are that since the Government came to power the UK’s growth record is 21st out of the 24 countries in the EU. The OBR has had to revise down its growth forecast on four separate occasions since it was established. We are the only major economy in the world that is not growing. On 26 July the Office for National Statistics will produce its initial estimates for second quarter GDP. I believe that these may well show that we are back into a recession. Inflation continues to be running at well over double the targeted level. The Minister last week completely failed to answer a question from my noble friend Lord Eatwell to explain why, if inflation was due to global circumstances, the UK was experiencing such a poor inflation record compared with other EU nations and the United States. The OBR is now forecasting that the combined effect of very low growth—if any growth at all—and inflation running well above target is that borrowing will be £46 billion above the level that the OBR expected at the time of last autumn’s spending review. I am confident that that figure will increase further when we see the second and third quarter GDP figures for 2011.
This is the context in which this House looks at the Finance Bill, described by the Chancellor of the Exchequer in his Budget speech as the “march of the makers”. The march of the myth makers, I would suggest. It is the myth around expansionary fiscal contraction, taking demand out of the economy when the economy is already suffering from underused capacity, particularly in the labour market. In the first quarter of 2011, UK GDP was much the same as it had been in the third quarter of 2010, but worse, it was still 4 per cent below the level before the global financial crisis and 11 per cent below the level that it would have been, had we extrapolated economic performance in 2007 through and beyond the financial crisis.
The Government’s response to that horrendous decline in achieved economic output is to announce a succession of policy initiatives that will have the effect of taking demand out of the economy. The Budget had nothing to offer. Growth has been hit and we are now teetering on the verge of recession. We already are in recession in terms of domestic demand. Household income is falling. Indeed, it is falling to the lowest levels in relative terms for 20 years. Real incomes fell last year for the first time since 1981. This is the background of economic achievement for which the Minister invites us to express our appreciation. Consumer confidence has slumped—I will revert to the critical issue of confidence in a moment. Business investment and confidence have also collapsed. Insolvencies are increasing. Banks are not lending. The Merlin agreement, which the Minister trumpeted, is a worthless piece of paper, as the noble Lord, Lord Oakeshott, described it. Merlin has no teeth. It does not even require the individual banks that have signed it to commit to individual lending figures. It is an aggregate figure—not an individual bank-by-bank figure. The ICB, so worthily established by this Government, has nothing to say about promoting greater competition in an oligopolistic domestic banking market.
Why is confidence so important? Notwithstanding the Government’s remonstrations about a debt-fuelled economy, the OBR assumes that household debt will increase further. At the moment, household debt is 165 per cent of GDP. The OBR assumes that it will rise to 175 per cent by 2015. That compares with 114 per cent 10 years ago. But that will not happen, and Ministers must know that that is the case. Households will not borrow more unless they are compelled by dire financial circumstances to do so involuntarily. We must remember that interest rates have yet to normalise. It is not surprising that the Bank of England warns of the consequences of rising interest rates and points to a very delicate situation for some banks if their customers are obliged to pay the sort of interest rates that would be more consistent with a rate of inflation of 4.2 per cent. Nor will the corporate sector financial surplus reduce, which is another key assumption of the Government and the OBR because why would companies run down their corporate financial surplus when the economy is experiencing such an abundance of unused capacity and declining demand?
Expansionary fiscal contraction assumes that a tight fiscal policy can lead to looser monetary policy and stimulate private investment and consumption. It is a form of the Ricardian equivalence in which almost no one believes. There can be no crowding out of private sector demand by the Government if demand is too low. The Government’s Budget strategy is simply not working. The economy is clearly not springing to life on a wave of confidence on the back of the picture painted by the Government. Monetary policy is already too loose and will have to be tightened fairly soon. The economy is stagnating but the Government propose a reduction in real government consumption, at constant market prices, of 10 per cent between now and 2015. This is a dangerous nonsense.
It was for many a forgettable Budget, an exercise in sleight of hand, but it was not forgettable if you are on a low income because you are going to be hit proportionately more than those on higher incomes. It was not a forgettable Budget if you are young and unemployed—a cohort of the economy and society that is increasing dramatically. It was not a forgettable Budget if you are female, experiencing the highest rates of female unemployment for 15 years. It was not a forgettable Budget if you are trying to buy a house or even keep your existing one. It was not a forgettable Budget if you are eking out an income from your savings when they are being reduced in real value by loose monetary policy. It was not a forgettable Budget if you are a small company seeking support from the banks. It was not a forgettable Budget if you care about the environment, because everything that was said about a green government policy was reversed in this Budget. It was not a forgettable Budget if you are a charity because of the reduced incentives to which you are now entitled as a result of tax adjustments.
The consequence of this is that we are facing the weakest economic recovery from a recession since the 1920s—the weakest economic recovery from a recession for 90 years. We are the only major economy in the world not experiencing economic growth. Regrettably, the Chancellor of the Exchequer has talked himself into a corner with irresponsible speeches about national bankruptcy and misleading references to “maxing out”—a horrible phrase which I am sure an Old Pauline should not use—the nation’s credit card. The Chancellor has talked us into this recession. As John Maynard Keynes wrote in the Times in May 1933, in words that are as apposite now as they were then:
“Unfortunately the more pessimistic the chancellor’s policy, the more likely it is that pessimistic anticipations will be realised”.
What should be done? First, Labour should acknowledge that its management of the economy during the middle part of the first decade of this millennium was not as good as it should have been. In particular, we ran a deficit while the economy was already running at full capacity and we failed to acknowledge the narrowing of the fiscal base. I have said this before and I will continue to say it because I believe it is important that we admit, with the benefit of hindsight, that mistakes were made. The economy is now in need of acute help. There should be a temporary cut in VAT. We should bring forward capital investment. Now is the right time, when there is excess capacity, to spend on government capital projects, including, in particular, social housing. We should take action to get credit flowing. I notice that the noble Baroness, Lady Noakes, has joined the board of Royal Bank of Scotland. When I sat where the Minister is sitting, I was regularly chastised by the noble Lord, Lord Noakes, who I see in his place, and the noble Baroness, Lady Noakes. I am sorry, I meant the noble Lord, Lord Newby. I made this mistake when I was a Minister and I have now done it again. I apologise to both the noble Lord and the noble Baroness. The noble Lord, Lord Newby, and the noble Baroness, Lady Noakes, both used to chide me about my inability to get the banks to lend. I ask the Minister the same question: what are you doing, Minister, because bank lending to SMEs is declining? Bank lending for housing and domestic mortgages is at a 10-year low. The Minister shakes his head, but I encourage him to become the master of his brief, be on top of the facts and realise that lending to UK SME companies is continuing to decline.
As I said, the Chancellor has left himself with no options. There would be no place to which he could turn in terms of a policy adjustment without damage to his reputation and the need to admit that Alistair Darling was correct in his fiscal judgment. The price the nation pays for the Chancellor’s and the Minister’s pride is that we are pushed back towards recession.
Lord Forsyth of Drumlean
Before the noble Lord sits down, there have been many glowing references to Alistair Darling and how wonderful he was as Chancellor, but no references at all to Gordon Brown. Was that a coincidence?
Lord Myners
We are time limited in this debate. In closing, I say how much I look forward to hearing the maiden speech of the noble Lord, Lord Magan of Castletown, who will no doubt enrich the House with his knowledge of banking both in the United Kingdom and in Ireland, where the noble Lord had a number of important banking roles. I also look forward to the contribution from the noble Lord, Lord MacGregor of Pulham Market. I congratulate his committee on its extremely good work. Finally, I express my appreciation to the Minister for his apology to my noble friend Lord Barnett.
Lord Newby
My Lords, it is always a great pleasure to follow the noble Lord, Lord Myners, particularly when he has just misled the House with regard to my surname. I am afraid that the noble Baroness, Lady Noakes, will not speak to me for a month. It is also a great pleasure to hear him speak again so eloquently from the Dispatch Box.
These are clearly extremely nervous times for the economy. Growth is very low at best, business confidence is poor and inflation is relatively high and squeezing real incomes, so it is not surprising that we hear many voices, including that of the noble Lord, Lord Myners, calling on the Government in effect to throw caution to the winds, abandon their deficit reduction plan and stimulate the economy by some combination of tax cuts and greater public expenditure. It is very tempting, but with a couple of relatively minor exceptions to which I shall come later, I think that such a policy would be misguided. There are a number of reasons why growth is disappointing, but the Government’s fiscal policy changes are at most only one of many reasons. Imported inflation via commodity and food prices clearly is one, so is a nervousness by the banks and businesses to lend and invest, brought about in considerable measure by international events, particularly in Europe. How can the noble Lord, Lord Myners, even in a time-limited speech of a mere 15 minutes, not mention Europe once? It is as if the Labour Party is unable to see across the channel at what is happening there; namely, the largest financial and fiscal crisis that Europe has seen since the Second World War. Banks here are concerned about what is happening in Europe, members of the eurozone or no, because their direct liabilities are some £20 billion to bonds issued by the weaker, and potentially defaulting, eurozone countries, and their broader liabilities, via interlinked banks, are much greater. Therefore, they are extraordinarily worried about what is happening there and that is affecting what they are doing.
Businesses for which Europe is the single biggest export market are also not surprisingly nervous about what they see across the channel. At the same time, consumers who are faced with higher than expected inflation and very tightly constrained income rises are seeing their real income falling, so it is not surprising that there is a tendency on all sides for people to sit on their hands and not make that investment, take on that additional staff member or buy that new car or television.
In this situation, what should the Government do? In an era when credit-rating agencies appear to hold the fate of economies and Governments in their hands, it would surely be foolish to throw away the credibility that the Government currently enjoy by tearing up the deficit reduction plan. It would also be foolish in the light of the recent Office for Budget Responsibility report, which shows that the longer-term prospects for our fiscal position, given an aging population, are extremely challenging. The idea that if we can only deal with the current crisis, we will somehow reach a sunlit upland where funds would flow into the Treasury and all would be well, is belied by last week’s report. The truth is that we face a long-term challenge in raising the taxes we require to fund the public services that people want. Spending more now, as the Government plan to do, would make the task of dealing with that longer-term situation even worse. Indeed, although the noble Lord, Lord Myners, does not seem to acknowledge this, in the other place the Opposition seem to recognise, at least in part, that they had better be careful what they do. They had three opportunities to vote against the VAT increase, and three times they sat on their hands. Could it be that despite the rhetoric and all appearances to the contrary, Mr Balls knows the true cost of fiscal recklessness?
If growth comes in lower than the Government have predicted, as seems likely, I do hope that, as the Chancellor has indicated, there will not be further tightening of fiscal policy. A hair-shirt approach, beyond what we already have, would be unnecessary. However, if I am not advocating a plan B, then what do I think might be done to promote confidence and growth? I would like to make three specific suggestions to the Minister.
First, we currently have a national insurance holiday for staff taken on in new businesses. This should be extended to all micro-businesses. The number of new businesses being established is much less than the projections in the Government’s plans, and so it would be possible to extend that scheme, and give confidence to small businesses, within the existing planned expenditure envelope. Secondly, the Government should investigate the costs and benefits of reducing VAT on refurbishments, from the current level to 5 per cent. This is a long-standing policy on these Benches, but now, when we have simultaneously a housing crisis and a crisis in the construction industry, it requires further investigation. Finally—a King Charles’ head of mine—the Government should bring forward the point at which the green investment bank can borrow. In an emergency situation, accounting rules should not stand in the way to prevent that happening.
In the short time available I would like to make two comments on the very impressive report from the Select Committee. First, I am extremely concerned about the ongoing problem between HMRC and HMT on tax policy. The report says:
“There appears to be a severe, and worrying, disconnect between the perceptions of HMT and HMRC and those of their customers about how well the policy partnership between the two departments is working”.
We have real cause for concern. I find the arguments made by the Treasury officials completely unconvincing.
Finally, the report talks about enhancing the role of the committee in the scrutiny of tax legislation. With the new approach to tax legislation, under which you have a draft Finance Bill, there is plenty of scope for this committee of your Lordships’ House to undertake a serious piece of work, at that point, so that the committee does not have to do all its valuable work in such a short period, as it currently does. It could get started a lot earlier on, and I think its role would be enhanced, which would benefit the administration of our tax system.
Lord MacGregor of Pulham Market
I am very tempted to range more widely, as the noble Lord, Lord Myners, and my noble friend Lord Newby, have done. However, I think it is my role to introduce and invite the House to take note of the report of the Finance Bill Sub-Committee of the Economic Affairs Committee, of which I am chairman. I think, for once, this is not a Back-Bench contribution. I am grateful to the Minister for already giving some comments on our report; I would like to put on record in Hansard some of our main points, and hope that I may tempt some other answers from him later.
The report of the Economic Affairs Committee on the Finance Bill 2011 is the eighth report in a series which has now become well established and confirms the role of this House in the parliamentary scrutiny of Finance Bills. The report contains 32 conclusions and 15 specific recommendations, so I must be selective. I believe that our sub-committee provides a forum for taxpayers, and many leading experts outside, to express their concerns to Parliament. This includes all the institutes of chartered accountants, the Hundred Group of finance directors, the Chartered Institute of Taxation, the Association of Taxation Technicians, the CBI, the Institute of Directors, the Engineering Employers Federation, and various small business organisations. We also had the valuable session with senior officials from the Treasury and HMRC, which enables them to respond before we draw up our report. I believe this is becoming an increasingly useful forum—more of that in a moment. It means we have to work at speed, as my noble friend Lord Newby recognised, because we cannot begin until the Finance Bill is published, and have to report before the Report stage in the other place.
I would like to thank my fellow members of the sub-committee for their knowledge and wisdom, and their speedy and intensive work. Some who have not been able to be here tonight send their apologies. I am also most grateful to our witnesses, professional and official, our specialist advisers, the clerk, and our secretary administrator.
Not least for reasons for reasons of speed, the sub-committee has to focus, and this year it examined three topics: the Government’s new approach to tax policy-making; anti-avoidance, with special reference to one of the measures in the Finance Bill—disguised remuneration—on which my noble friend has already commented; and the corporation tax reform package.
The first topic we chose to look at this year was the Government’s new approach to tax policy-making. The new approach commits the Government to full and open consultation at each stage in the tax policy development process, except in exceptional circumstances. It alters the policy-making cycle to allow for such consultation, by publishing most of the Finance Bill in draft form some three months before it is published formally. This reflects the recommendations in our earlier reports, for full and effective consultation in developing tax policy, so the sub-committee considered it particularly important to have an early look at this new approach, and how it had worked in its first cycle of operation leading to the present Finance Bill.
We concluded, as did nearly all of our witnesses, that the new approach was a very welcome development. Great credit is due to the Government. Inevitably it was not a perfect operation, and in one point I will refer to more specifically, it was far from perfect. However, a report concentrates on where there are still issues or where improvements can be made, and in so doing I take it as read that the Government have made significant and positive steps forward.
We thought that most of the measures in this Finance Bill had followed the new procedures. They had been consulted on from the outset, and draft legislation had been published in December. As a result, there was little controversy surrounding most measures. But there were exceptions. By far the most important was the consultation on the clauses to tackle disguised remuneration, which began far too late. There was no consultation of any kind before the increase in the supplementary charge on oil and gas profits was announced in the Budget.
As a former Treasury Minister and as Chief Secretary taking Finance Bills through the other place—and there is another former Chief Secretary about to speak in the debate—I recognise that there are exceptional circumstances where the Government cannot follow their new approach to the letter, as did our committee. We do not think either of these cases fit that Bill. Even where open consultation before the Budget was not possible, informal, confidential discussions would have helped reduce the risk of unintended consequences.
Before I come to specific measures, there was a general refrain from many of our witnesses, whom I would describe as old hands in the tax system. They were concerned about the quality of some of the teams working on tax policy in HM Treasury and HMRC, and my noble friend Lord Newby referred to this. They complained of frequent changes of personnel, a general lack of tax and business knowledge, especially in the Treasury, and the difficulties both departments had in attracting the best talents to tax policy work. We share these concerns. There appears to be a severe and worrying disconnect between the perceptions of HM Treasury and HMRC, and those of their customers, as to how well the policy partnership between the two departments is working.
Now, HMT and HMRC officials put up a spirited defence and I recognise the difficulties that they have. The culture in the Treasury of moving highflyers on from one department to another to give them much wider experience is very well understood and I am afraid that very often some of HMRC’s best tax experts are poached by the private sector. I noticed, when I raised this point with members of the Institute of Chartered Accountants who had raised the matter, that there was a wry smile on their faces. Nevertheless, for the new approach to work, it is vital to have tax policy teams that are knowledgeable, experienced and stable and that they operate effectively across departmental boundaries. That is why our report also recommends a comprehensive skills audit and the publication of the findings of a recent internal review.
There are two other points that are worth stressing. First, although we support the new approach to tax policy, we think it can be improved and strengthened. The track record of consultation with big business is commendable, but there is still a long way to go in building effective arrangements for consulting smaller businesses. As a former Minister for small businesses—or small business Minister, as I was sometimes described—I recognise the difficulties of communicating with small businesses. Many of them do not want to belong to big organisations. Their organisations are not as well manned, financed and established as, say, the CBI, but they are a very important part of the economy and much affected by tax legislation. I believe that more can be done to consult them. I welcome the fact that HMT and HMRC now recognise that.
We also think—here I have in mind a recent debate on the working practices report in this House when there was much emphasis on post-legislative scrutiny—that there should be more emphasis on reviewing and evaluating tax changes after they have been implemented to see how well they have achieved their objectives.
I now turn to a point which my noble friend Lord Newby raised, not for the Minister and not even for our sub-committee. Time and again we were struck by the fact that while all our witnesses welcomed the extra opportunities, time and information for scrutinising tax policy, most also thought that there was scope for more effective parliamentary scrutiny of tax legislation, in particular drawing on the experience and skills of Members of this House and the time that we can give to this onerous work. Indeed, I have noticed that others, like Kitty Ussher, a former Treasury Minister, recommended, in a recent pamphlet, exactly the same points and suggested that it was a role that the House of Lords could perform. One particular suggestion made to us was that the remit of our sub-committee should be adapted to allow it to examine tax proposals that were being consulted on during the autumn, as well as inquiring into the draft Finance Bill when published in December. A more modest suggestion would amend the remit to allow the sub-committee to examine the draft Bill only from December onwards. Of course, these are not matters for the Economic Affairs Committee, but for the whole House to consider. We refer to them in our report because the need for greater parliamentary scrutiny of tax legislation, particularly in advance, formed a consistent theme in the evidence that we received.
For our second topic, we looked at tackling avoidance of tax, both generally and in a specific Finance Bill provision which seeks to address avoidance by so-called disguised remuneration. We fully agree with the Government's strategic commitment to tackle avoidance early, which is particularly important when avoidance has the potential to mushroom and lead to a large tax loss. I was somewhat astonished when I saw the proposals in the Budget to discover that the loss of revenue from disguised remuneration was calculated at £750 million a year. Many of our witnesses thought that it was probably a good deal higher than that because disguised remuneration had become a very well marketed process which many were taking up. Clearly, that had been allowed to grow. We believe, in the light of that, that HMRC should review why action was not taken earlier and learn lessons for the future.
Even with subsequent amendments, including many during the Commons stages of the Bill, there remained a deep and widespread unhappiness with this legislation. I should have mentioned that when the disguised remuneration draft proposals were produced in December, I think there were something like 25 clauses but by the time it went through the process of consultation, the number grew to nearly 60 and then there were many subsequent amendments in the other place. Our firm view was that had there been consultation at an earlier stage, this complexity could have been addressed and the legislation would have been better targeted. The criticisms that we received of disguised remuneration were very striking indeed, including, for example, some who argued that this was the worst legislation that they had ever seen. So clearly, the new approach to tax policy-making fell down in this case. All our witnesses agreed that this avoidance had to be tackled, but their concerns were about the way in which the legislation to tackle it had been framed. It was not a good advertisement for improvement through consultation.
Our report recommends that HMRC should carry out an in-depth examination of the alternative approaches that the legislation could have taken which should enable lessons to be learnt and similar pitfalls to be avoided in future. I recognise that the new Government and the Treasury Ministers had been in place only for a short time, with many other crucial issues absorbing their attention. Therefore, I understand why this may have happened on this occasion. I am clear that in future it is going to be very important that a different approach is taken to some of this consultation.
One other point is that the disclosure rules have made a major difference. I am sure that the new disclosure rules led to much of the legislation in dealing with disguised remuneration and they should enable HMRC now to frame more precise legislation on other avoidance disclosures in the future.
The Minister mentioned evasion and the tax loss through evasion far exceeds that from avoidance. We recommend that the Government should publish an anti-evasion strategy to complement their anti-avoidance strategy. According to the HMRC figures, I understand that the tax loss from all forms of evasion is £22 billion compared with £7.5 billion for avoidance.
Finally, on CT reform, the last two Budgets and the CT road map, published last November, contained proposals for reform of the corporation tax regime. We welcome the CT road map which should help to promote the stability, consistency and certainty which many of our witnesses saw as so important. It is an excellent example of a strategy outline which we think would strengthen the new approach if adopted more widely. Indeed, the reforms should make the UK's corporate tax regime more competitive, as we concluded. However, some of our witnesses were concerned at the overall balance of the package and that it might disadvantage some sectors, particularly smaller businesses and manufacturing. We consider that post-implementation reviews of outcomes are particularly important so that early action could be taken if the reform package proves to disadvantage some businesses.
We thought that there was much to commend in the Finance Bill and the processes that led to it. Our report has concentrated on recommendations that are intended to be helpful in taking forward this new advance and we see the desire for greater parliamentary scrutiny as an important issue for this House. I commend our report to the House.
Lord Barnett
My Lords, I thank the noble Lord, Lord Sassoon, for his personal apology to me for saying that I was wrong when I quoted the Chancellor as saying that flexibility was built into his plan. I am bound to tell the noble Lord, for whom I have a lot of respect, that it was wrong not to make a personal statement at an early time, apologising to the House for misleading the House, quite clearly, in his reply to me. I know what happened. He took personal advice from a leading source—I think I know the source—who must have told him that this was a major political difference of opinion so he did not need to give a personal apology. I can only advise the noble Lord that in future he should not take any advice from that particular noble friend.
I readily admit that there was a political difference between us because clearly a major political difference was at the heart of my question and there needed to be some flexibility of a kind that was not enumerated by the noble Lord. Indeed, when I asked him whether the flexibility related to the Treasury’s special reserve, he said, “Definitely not”. On the other hand, could he tell us, as he did not tell me at the time, how much of the Treasury special reserve has already been used for the MoD, for unexpected expenditure in Libya, and for other departmental budgets that have been overstepped? Could he tell us what is left in that reserve to allow any flexibility to decide what should happen to the Chancellor’s plan? There cannot be any doubt that it was misleading. To say to the House, “What I was telling them was wrong”, is misleading the House. It was a major matter, and he refused to make a personal statement, and he was wrong in that. But I leave that alone.
My question had at its centre this political disagreement, a crucial disagreement between us. I do not for a moment regret having gone into that political difference, because political difference does not mean you cannot mislead the House. What it does mean is that the Government are ignoring this central problem of whether there should be some flexibility that could amount to a plan B. I have always said that no Chancellor could ever announce that he is introducing a plan B, because it immediately kills plan A. However, there may be other means of slowing down the cuts, which would help to introduce a sort of secret plan B. But the noble Lord, Lord Sassoon, denied all of that, and said that he was not misleading the House. Indeed, he nearly went as far as maligning that distinguished business editor of the BBC, Robert Peston, the son of my even more distinguished noble friend Lord Peston, by suggesting that it might have been in his mind or in that of the interviewer that there were some special flexibility built into the plan.
While I have had to read some difficult briefs in my time, listening to the noble Lord this evening and his degree of optimism about everything in the Finance Bill and the economic situation, I cannot believe that he could have believed what was in his brief. He should have deleted it. How can there be any degree of optimism about the economy and economic prospects at the moment? I would not propose to quote many of the numerous comments from truly independent forecasters about what is likely to happen to the economy in the next few months, let alone years. However, I would not mind just quoting one, before the noble Lord encounters what my dear old friend Denis Healey—the noble Lords, Lord Healy always said: the advice that, “If you’re in a hole, stop digging”. The noble Lord—Lord Sassoon, is digging deeper and deeper. If he is not careful, he will have to apologise not only to me—which I do not mind—but also to Robert Peston and many others for pretending that one can have any degree of optimism at the present time.
The flexibility that should exist is not there. I will refer to one particular statement from an authority that may not be as independent as some, but it is certainly independent of the Labour Party. I refer to Deloitte, the well known, major accountancy firm, which audits many large companies. It stated that finance directors in Britain’s largest companies say that business optimism has fallen at a faster rate since the collapse of Lehman Brothers in 2008, and that one in three thinks there is a chance of a double-dip recession. I do not believe there is a chance of a double-dip recession; it seems unlikely, but certainly there are no grounds for optimism about what is happening in the economy. It is pretty clear that we can look forward, as my noble friend Lord Myners said, to many periods yet to come of low levels of economic growth, if not an actual downturn.
I do not doubt that there would have been some flexibility, but to compare it with the automatic stabilisers I find incredible. Surely the noble Lord, who is a very clever fellow, must have checked the Oxford English Dictionary and found that “stabilise” is somewhat different from “flexibility”, to put it mildly. I will not read the summary of the long points made about the two words in that dictionary that I received from the Library, but to say that there is no difference and that he was therefore answering my question is ludicrous.
Answering my question is not important. What is important is that the economy should truly move forward, and that we should be a little more optimistic about the likely outcome for the economy in the coming year, let alone in the coming years. If this means that the Chancellor has in mind in his plan to slow down the cuts, I am very glad to hear it. If he does not want to call it a plan B, I do not mind that either. He can call it anything he likes, as long as he has it in mind to do it, because that is the one way that he can truly make us all a little more optimistic.
Lord Bilimoria
My Lords, the philosopher Kierkegaard said:
“Life can only be understood backwards; but it must be lived forwards”.
Right now the Opposition blame our current economic difficulties on the global economic crisis which started with the subprime crisis five years ago, and the current Government blame the previous Government’s mismanagement of the economy, resulting in the huge deficit and the high levels of borrowing which have, in turn, led the Government to embark on a programme of cuts across the board, and a tax policy to try and address the deficit as well. Unfortunately, the current Government are also going to have to blame the woes on the European sovereign debt crisis and the eurozone crisis, neither of which are of this country’s making.
There is no question that public expenditure under the previous Government reached levels that were far too high—50 per cent of our GDP when it should have been 40 per cent. Reducing this to 40 per cent would sort out our budget deficit in one swoop: but it cannot be done overnight. The imbalance between the public and private sectors has finally come to a head. The Government are finally starting to address this, but again it will take time.
As to monetary levers, the Bank of England is forced to keep interest rates at 0.5 per cent in spite of ballooning inflation because of the fragile state of the economy. Of course, the final lever that the Government have is the Finance Bill and taxation. Before I go into detail, I will highlight the 10 tenets of a better tax system, as laid out by the Institute of Chartered Accountants in England and Wales, of which I am proud to be a fellow. They are: statutory, certain, simple, easy to collect and to calculate, properly targeted, constant, subject to proper consultation, regularly reviewed, fair and reasonable, and competitive. Does the Finance Bill tick all these boxes?
I was proud to serve on the Finance Bill Sub-committee of the Select Committee on Economic Affairs, and I thank our chairman, the noble Lord, Lord MacGregor, his staff and advisers and the rest of the committee for the excellent work that they performed. There was a clear consensus among our witnesses that, if implemented consistently, the Government's new approach to tax policy-making would represent a major step forward on the road to better tax legislation for this country. I do not wish to blow our own trumpet, but most witnesses proposed that better use should be made of the expertise and experience of the House of Lords in matters of tax policy and legislation.
We have far too few Joint Committees of our two Houses. We all know about the new Joint Committee that has been set up to deal with reform of the House of Lords. However, given that as things stand the House of Lords does not have the power to vote on Finance Bills, would it not be wonderful if we had a Finance Bill Joint Committee of the two Houses, on which, sitting around the table, the expertise of this House could be brought to bear side by side with those who are going to legislate on the matter? There should be more Joint Committees of our two Houses. This would lead to both Houses working more closely together and to better mutual understanding—an understanding that at the moment is greatly lacking in the other place. This has been openly admitted by many Members who came from the other side of the building and who concede how little they knew and understood of the workings of this House. Will the Government consider this suggestion?
A serious matter that was spoken about in our sub-committee was the worrying disconnect between the workings of Her Majesty's Treasury and Her Majesty's Revenue and Customs, and the lack of specialisation in either. The sub-committee also looked at tax evasion and tax avoidance. More and more, the lines between evasion and avoidance are being blurred. As the noble Lord, Lord MacGregor, said, on the basis of HMRC's figure, the Exchequer loses £22 billion from evasion compared with £7.5 billion from avoidance. We have therefore recommended that the Government should publish an anti-evasion strategy as well as an anti-avoidance strategy.
Lowering the corporation tax rate was seen as a very good move, as headline rates matter, especially in attracting global inward investment: but, sadly, the impact of these reductions is lessened because capital allowances are being changed, meaning that the effective rate of corporation tax for many businesses will not be reduced. That is particularly the case for small businesses and manufacturers.
We still have the 50p rate of tax that the Finance Bill did not address. This desperately needs to be removed, especially if we want to attract inward investment and the best talent from around the world. Many of our taxes are far too high. For example, and declaring my interest as the founder of Cobra Beer and chairman of the Cobra Beer Partnership, a joint venture with the global brewer Molson Coors, we in Britain have one of the highest rates of beer duty in Europe. Points have been made about how the Treasury says it is tackling problem drinking by increasing the tax on higher-strength beers and trying to stimulate the market for lower-strength beers. However, this is toying at the edges as it represents a very small portion of the beer market.
Meanwhile, the Government's ban on low-cost selling, covering VAT and duty only, means that, given tax anomalies, £20 could allow retailers to sell up to 40 cans of beer at 4 per cent ABV—70 units—10 bottles of wine at 14 per cent ABV—98 units—seven bottles of fortified wine and up to 103 cans of cider, making a total of up to 340 units. What will the Government do to assess alcohol taxation in the light of maximizing revenue and minimizing harm?
In conclusion, we know that high taxes stifle not only consumer spending but businesses and growth. What the economy desperately needs is confidence and growth, and the Finance Bill should do its best to encourage growth. In the other place, we were told that between 2008 and 2009, nominal GDP fell by 1.8 per cent, which cost £20.6 billion, and tax receipts dropped by 3.7 per cent, costing £19.9 billion. That shows that growth more than anything else—more than the cuts—will bring down our deficit and our borrowings. However, with high taxes across the board, we are stifling growth. As long as we do that, with the best will in the world, consumption will continue to falter, inward investment will continue to be deterred and the economy will continue to bump along the bottom.
I welcome much of the work that the Government have done in reforming taxation policy: but going back to Kierkegaard's words, the future has to be lived, and the future should be about a simple, competitive tax policy that generates growth for our economy.
Lord Higgins
My Lords, we are really having two separate but related debates: on the one hand, on the report of the Finance Bill Sub-committee on the Budget of 2011—I congratulate my noble friend Lord MacGregor and his committee on what they have produced—and, on the other hand, more generalised debate about the state of the economy.
I begin by commenting on what is said in the report of my noble friend Lord MacGregor. It refers to a new approach to tax policy-making involving the tax consultation framework. The idea that this is new is rather surprising. It is a very long time since I was involved in producing a draft set of clauses on VAT legislation. The more we can have consultation in advance of the tax proposals, the better. The other aspect of this side of things is the question of how the proposals, when they arrive, are considered. I was tempted to go back into the archives and look at the first report from the Select Committee on Procedure (Finance) for the Session of 1982 to 1983, which it so happened I chaired. It had a distinguished membership, including Mr Enoch Powell. The proposals that it brought forward are still relevant and particularly in the context of my noble friend’s Bill. Perhaps his committee might like to look at this report, which I think is very valuable and still relevant to our situation.
We said that there should be a division in the Finance Bill and that there should be a taxes management Bill, which would be introduced at the beginning of the Session. This would involve the mass of technical—I am inclined to say—junk, which appears in this massive document that we have in front of us this evening. The actual Finance Bill would be as far as possible only concerned with tax rates and the management side of them. There is a strong case for this division and, as we went to suggest, for a separate Bill if a new tax were being introduced. But, the present arrangement that we have with Finance Bills so far as scrutiny is concerned is not satisfactory. Perhaps my noble friend could tell us how many of the clauses in the Finance Bill were debated in detail in the Commons; it would be interesting to know. With this legislation, the Commons does not have the longstop that your Lordships have of being able to look at it, which they have for other legislation.
I turn now to the other aspect of the matter. I am becoming increasingly heretical over the idea that the case for absolute minimum rates of interest has been made. We ought to consider the considerable disadvantages of a hyper-low interest situation. My former constituents in Worthing living on fixed incomes, having been prudent all their lives and having saved, are being devastated by the low interest rates which they can now get. It is a major disincentive to saving, which is very important in the present context, not least in relation to the extent to which there are bank deposits which might enable the banks to lend more.
On the other side of the argument, this does mean that we have a lower exchange rate than we would otherwise have. This may be important as far economic growth is concerned but people are also being misled into believing that this hyper-low interest rate policy will go on indefinitely. A large number of people are taking out mortgages and borrowing on the expectation that interest rates will not go up further. This policy is being sustained only because the Bank of England has effectively given up any prospect of using interest rates to control inflation. That cannot go on indefinitely. There is bound to be a significant increase in interest rates, which could have devastating consequences. I am very concerned about that.
More particularly—this will not be news to the usual suspects in this debate—I am concerned about the way in which the Bank of England is preoccupied with the price of money—that is to say interest rates, and not the quantity of money. Fascinatingly, having thought at the weekend of what I might say today, I suddenly found on my desk this morning a report by the Institute of Directors on the big picture and on whether we are we making a big mistake. It stresses the importance of the money supply. It also—and this is interesting politically—says:
“There is a real risk of economic weakness as a result of the money supply”—
it means the lack of money supply—
“is mistakenly attributed to the Spending Review and tight fiscal policy”.
I recommend this report to your Lordships. It even goes on to refer to the monetary equation MV=PT which the noble Lord and I had exchanges about when he was a Minister. That shows its credentials are good.
In any event, it points out about the level of increase in the money supply that:
“Broad money growth is now the lowest it has been on a sustained basis since modern statistics were first compiled in their present form in 1963”.
Since 1963, we have not had such a low level of monetary growth. Whether you are a Keynesian, a Friedmanite or whatever, it cannot be the case that if money supply is falling over a sustained period, we find ourselves getting economic growth. We must consider very strongly indeed the case for further increases in the money supply—for quantitative easing, which was rightly introduced at that time by the noble Lord opposite—against the background of such low interest rates that are failing to stimulate the economy. I fear that there is a lack of overall comprehension of policy because of the way that things have been divided between the OBR, the Bank of England and the Treasury and because of the Chancellor not taking an overall view of the picture.
Lord McFall of Alcluith
My Lords, I was privileged to be a member of the Finance Bill Sub-committee under the excellent chairmanship of the noble Lord, Lord MacGregor of Pulham Market. It is good to have the opportunity this evening to debate a number of those issues and put them in to a wider context.
I want to look first of all at corporation tax. One aspect examined by the committee was the road map for corporation tax. There has been a focus on whether this would make the UK economy more or less competitive. The context for this is that the Chancellor in his Budget in March announced that he would cut corporation tax by an additional 1 per cent over and above the cuts previously announced. This was a flagship measure, but to fund it, this year's Finance Bill will bring in a reduction in allowances available to firms which make significant investments.
The Government's The Plan for Growth states:
“Growth was concentrated in a few sectors of the economy and in a few regions of the country”.
I welcome that sentiment. A specific aim of the plan is,
“to encourage investment and exports as a route to a more balanced economy”.
This change to corporation tax would appear to run contrary to that aim. As the Institute for Fiscal Studies said earlier this year:
“The largest beneficiaries from the package of measures will be high-profit, low-investment firms”,
which would include, for example, financial services. Meanwhile the IFS says that cuts to capital allowance will,
“have the largest impact on those firms with capital-intensive operations”,
which include manufacturers. Major investors who are considering the UK as a site for investment are not so easily swayed by a cut in the headline rate when allowances are also being cut. This change could drive investment away from the UK and help the economy to become more focused on the financial sector by raising the effective tax rate for manufacturers.
There are also issues regarding the carbon-floor price system for energy-intensive industries. It has been suggested that this has been implemented in such a way that, according to a report by Thomson Reuters earlier this year, it will place additional costs on businesses amounting to £9.3 billion. Given that these businesses are major employers and, in many cases, major exporters, it goes against the Government’s proposals in The Plan for Growth. There has to be further scrutiny of the impact of these changes. It is important that the whole context of taxation on businesses is taken into account, not just the headline rate of corporate tax.
Oil taxation has been mentioned. This was nothing other than a hasty, politically motivated initiative with no consultation, and we have seen this before: we have seen it with Labour Governments. What happens is that when these proposals are implemented they do have long-term adverse consequences for these industries. As the Chartered Institute of Taxation has said,
“the last minute and precipitate change in Oil tax rates for an industry that is particularly dependent on long-term planning seems wrong”,
and it goes against the Government’s proposals for stable tax planning. The Government should take that issue into consideration. The sub-committee did note that the Government need to retain the flexibility to deal with immediate issues, but informal consultation should still have been possible and witnesses to the sub-committee said that this would have enabled better policy-making, so I hope the Government take that issue on board.
An issue has been mentioned regarding HMRC, which the sub-committee discussed, particularly the skills and resources available and whether it was able to carry out the Government’s new approach to tax legislation. Perhaps more importantly, the committee also heard concerns over whether HMRC was fully able to implement the legislation once it was made, given its staffing problems. By some estimates, tax evasion costs up to £1 out of every £8 that should be collected in taxation, and therefore we need a good staff. This is particularly important given the sheer complexity of legislation being proposed in this Bill—and particularly the proposals on anti-avoidance, which the sub-committee scrutinised at some length.
I welcomed the £900 million the Government have pledged to invest in HMRC to tackle tax evasion. The principle behind this is right: investing more in HMRC staff will save the taxpayer money by helping to close the tax gap. But I am concerned it is insufficient, particularly at a time when cuts have been made to HMRC’s budget; when HMRC is still attempting to absorb the loss of over 20,000 staff since 2004; and when tax legislation is becoming more complex. In the evidence sessions of the Finance Bill sub-committee one tax specialist said of HMRC that:
“a lot of very skilled people have left, that morale is very low, that people are given work that they are not being trained properly to do”.
There is both a short-term and a long-term problem here for the Government. I have raised this issue before in another place when I was Chairman of the Treasury Committee. We said then, even six years after the merger of the Inland Revenue and HM Customs and Excise took place, that the merger,
“had a knock-on effect on performance”,
and we were,
“deeply concerned about employee engagement at HMRC”.
There still exists today the danger that the Government may focus too much on creating complex anti-avoidance legislation, rather than addressing the more fundamental issue of ensuring HMRC is fully resourced to implement that.
Lastly, I turn to something that the committee did not look at: the impact on ordinary people. The flagship policy for ordinary people in this Finance Bill is the significant increase in the tax-free personal allowance for income tax and national insurance—a welcome move, as it will benefit lower income households. However, this is also an area where we need to see the changes made in a wider context, rather than focusing on a single change. For example, the rise in VAT at the beginning of this year is reported to cost the average family with two children £450 a year. That is more than 10 times the benefit that is gained by low-income families from the rise in the personal allowance. That rise in VAT also added nearly 3p to the cost of a litre of fuel—or nearly three times the amount of the reduction in fuel duty that the Government bring in with this Bill. There is a need here to ensure that we take the full context of tax changes into account, and I hope the Government will realise that.
Looking to the future, there are inauspicious signals. Next winter the Chancellor cannot blame the snow. The cuts are coming, and the pressure on wages will not abate until 2015—and that is the Governor of the Bank of England talking when he appeared before the Treasury Committee in another place. I suggest to the Government that they need to be cautious, and I leave them with this important message, given these cuts. Economic prosperity is built on a platform of social stability. If the Government forget that rule they are going to get themselves into more problems. Let us hope they heed it.
Lord Magan of Castletown
My Lords, it is an honour to rise to speak in your Lordships’ House for the first time. My journey here has, I suspect, been a slightly less conventional one than most. I left school, aged 17, with only one rather poor A-level, and then, at the age of 18, I started work as a clerk in the City of London. Since that time I have had a career of nearly 50 years in the financial services industry. Therefore, I believe that I have a contribution to make in this evening’s debate on the Finance Bill. At the outset, I should like to express my gratitude to my two noble friends, the noble Lords, Lord Northbrook and Lord Howard of Rising, who acted as my supporters when I was introduced into this House. I should like in addition to thank all those who work here in your Lordships’ House for their highly professional and courteous assistance.
I was born in New Delhi in November 1945 when the sun was beginning to set on the British Raj. My father, Brigadier WMT Magan, was born in 1908 in County Westmeath in the south of Ireland, and sprang from an ancient Irish landed family. He was an officer in Hodson’s Horse, a famous cavalry regiment in the Indian Army. Rather unusually for a cavalry officer, he ended up as a director of MI5 and was regarded as one of the leading figures in post-war intelligence. My father died last year at the distinguished old age of 101 and a half. My mother, who is now aged nearly 95, was born in Rawalpindi. Her father, Sir Kenneth Grant Mitchell, was a distinguished servant of the Indian Government. Her uncle was a distinguished Governor of Kenya and her great-uncle was a famous admiral who founded the Royal Australian Navy.
While the empire is thus very much in my blood, Ireland, where we have a family home, continues to be of absorbing interest. The noble Lord, Lord Myners, has already referred to this. The Ireland of today is completely transformed from the Ireland I knew as a boy. The large subvention payments Ireland received from the original EEC, extremely well strategically invested under the aegis of the Irish Development Agency, coupled with significant taxation advantages, have resulted in the complete modernisation of the economy. The European headquarters for so many cutting-edge multinationals now located there have established Ireland’s very strong export base. This radical modernisation, coupled with the transformed relationships between the Governments in Dublin and Westminster, is wonderful progress. The recent courageous and hugely successful visit to Ireland by Her Majesty the Queen indeed marks a watershed moment in the relationships between our countries.
However, following what was clearly an uncontrolled nationwide overindulgence in real estate activity, and its consequent devastation of large parts of the Irish banking sector, we can now see what the current constraints are for Ireland in its membership of the euro. Look at this straitjacket: Ireland cannot manage her own currency; she cannot set her own interest rates; she cannot through fiscal stimulus give a much needed boost to her domestic economy; she cannot through credit stimulus, which is particularly necessary after the deflationary effects of the credit crunch, increase money in circulation; and she is largely beholden to a single creditor, the European Central Bank. Ireland is very significantly driven back into the most uninviting prospect of all—that of slashing, and then slashing again, the national budget in an environment where growth has very significantly deteriorated.
Our decision in this country not to join the euro was a most judicious one. We may have been overdosing on Keynesianism but we have at least remained unfettered in the management of our own financial affairs—and while we are riding through a great storm, which could get worse, we are still at the helm of our own ship. However, we cannot hope to re-achieve real national greatness until we put the nation’s house in order. That means, in particular, putting the nation’s long-term finances in order.
Let me now make certain comments on the Finance Bill which I hope—as I know is customary on these occasions—to lift above tendentious hyperbole and rhetoric. It is clearly necessary to fully recognise also that the current Administration have been in office for just over one year. When we look at this year’s Budget, we see that the combined spend on welfare, health and education is just under £450 billion—getting on for two-thirds of the total budget of £710 billion. One might also note that the payment of debt interest will be £50 billion, which will comfortably exceed the defence budget of £40 billion. Incidentally, this year’s defence budget for the United States is set at the equivalent of some £500 billion, which is more than 12 times our commitment, and yet its population is only five times the size of ours.
Further, we can also see that UK government receipts for this year are budgeted at only £589 billion, compared to a total spend of £710 billion. Therefore, the deficit for this current year will still be a whopping £121 billion, even though it is substantially reduced from £146 billion and £156 billion in the two previous years.
The spend on welfare of £232 billion is the largest single element of the Budget, and of this, getting on for £100 billion will be disbursed on dependency payments. There are some 40 million people of working age in this country. Some 2.5 million people who are looking for employment are categorised as unemployed, and there are a further 3.4 million people who are receiving out-of-work benefit payments; these people are primarily long-term unemployed and have no intention—or, through incapacity, are unable—to seek work. A total, therefore, of some 5.9 million people will claim some sort of support from the state; in other words, 15 per cent of the working age population. Yet, as we are constantly being made aware, several million new jobs in this country have been created in recent years, the vast majority of which, however, have been taken by immigrant workers.
Looking further, you have to search the Budget Red Book in considerable detail before you eventually find, in the small print on page 95, the figures for the public sector debt. Only then can one see its remorseless and alarming historic and continuing increase. We have to be brutally frank: the nation’s long-term financial condition needs radical overhaul.
Twenty years ago, our national debt was £150 billion; today, it is closer to £900 billion. Even if the Budget is brought into near-balance by 2015-16 in line with the objectives of the current Administration, the national debt will by then have risen to more than £1,350 billion, getting on for a tenfold increase in our national debt over a 20-year period. Even allowing for inflation and for the considerable growth in the economy, this remains a staggering increase in the nation’s indebtedness. Twenty years ago our indebtedness was around 25 per cent of national income; this now looks set to increase to some 70 per cent of national income. Even by this more conservative measure, the level of our nation’s indebtedness will have nearly tripled.
We also have to recognise that the state has additional massive contingent financial obligations, particularly in connection with unfunded public sector pensions and PFI obligations. It is estimated that these additional contingent liabilities will amount to a further £1,100 billion. As Shakespeare, the immortal bard, reminds us,
“borrowing dulls the edge of husbandry”.
I will tell your Lordships something else that dulls the edge of husbandry: the liberal spending of other people's money.
Let us be absolutely clear: our total national debt, including contingent liabilities, is heading towards £2,500 billion, a number so large that the figures are almost impossible to comprehend. What is more comprehensible is that this total level of national debt will be roughly the equivalent of some £100,000 of additional indebtedness for every household in this country.
The Office for Budget Responsibility must be only too well aware of this developing financial horror story. There is a suggestion that the unacceptable widening of what in economics-speak is referred to as the “fiscal gap” could be brought back into line by, say, an increase of 13p in the basic rate of income tax, from 20p to 33p, or by an increase of 13 percentage points on VAT—that is, a VAT rate of 33 per cent. This is the scale of the financial challenge that we as a nation are facing, but surely such grotesque rises in either direct or indirect taxation would be completely unacceptable to the British people. I suggest that there is an alternative, and much more palatable, remedy to get the country back into financial good health. But it is time to wake up, and wake up fast.
What is clearly beyond any doubt is that the world has moved on with tremendous panache in what is now the post-communist age. We have witnessed on a global basis the collapse of faith in communism—the dismantling of the Berlin Wall just 20 years ago was one clear manifestation of this. Yes, the Long March is well and truly over. We have as a consequence seen extraordinary vigour and growth from so many emerging countries. There has truly been a Great Leap Forward.
Let us look specifically at China. Sixty years ago, China was in a chaotic condition. It was only some 30 years ago that it started to reform and modernise its economy, embracing the markets and encouraging private enterprise, albeit within a totalitarian framework. It is really only within the past 20 years that we have witnessed the truly dynamic surge in growth from China, as well as, of course, more recently, from India and Brazil. China's economy is now 90 times larger than it was 30 years ago. Growth has lifted 300 million people out of poverty. Only five years ago, China’s economy was half the size of Japan’s; but because of its continuing phenomenal growth since then, China has recently passed Japan and has been propelled to the world’s second largest economy, with $5.5 trillion GDP, second only to the USA’s $14 trillion GDP. If present trends continue, China will pass the USA as the world’s largest economy by 2030.
There are some real lessons here for us. The keys to our recovery are very clear to see. We must as a nation unequivocally take every conceivable initiative to unleash the forces of enterprise. We must remember that wealth is not finite; there is infinite opportunity to create additional wealth. We must continue with real vigour the fundamental overhaul of our bureaucratic and regulatory constraints on enterprise. We must undertake a fundamental overhaul of our taxation regime, which clearly in so many ways at present stifles enterprise and growth. We must be clearly aware, particularly at HM Treasury, that lower rates of tax do not inevitably translate into lower revenue flows for the Exchequer—in fact, the empirical evidence is frequently quite to the contrary. We must understand that government of itself does not create wealth. The Government cannot do it all. The Government’s job is to distribute fairly the wealth they receive and to manage the nation’s finances prudently.
We must appreciate that while we are physically a small island, this of itself should not be a bar to achieving and sustaining high rates of growth and prosperity. Singapore is even smaller, and look what has been achieved there. Look at our regions that are crying out for development and growth. We must not forget that we as a nation have a long and hugely successful history as traders in global markets. Over and above that, many of the world’s major financial and other markets are made here in London. There is tremendous opportunity from our own existing strengths and skills sets to give a huge boost to the country’s trade in goods and services, as well as to commerce and industry.
We are one of the most talented and creative peoples of the world. Over the centuries we have absorbed millions of additional diverse, highly-talented, enterprising people, many of whom have sought refuge here. We have to face up to reality. We, too, in this country could, if we really had the collective mindset to do so, completely transform our economy and the prosperity of our people in a relatively short timescale. China has achieved a stunning economic revolution in 20 years. We in this country have to ask whether we can move from being a major debtor nation with relatively low rates of growth and whose relative competitiveness continues to deteriorate—in reality, this has been our condition for far too much of the post-war period—or whether we can transform our economy, sustain very high rates of growth, create opportunity and prosperity for all and become, once again, a major creditor nation.
This is the big issue. This is where we should be having the big debate, and we in this House should be at the forefront of stimulating and leading this big debate.
Lord Anderson of Swansea
My Lords, I shall not add to the justified praise of the report prepared by the noble Lord, Lord MacGregor, and his committee, nor shall I contribute to the macroeconomic other debate which is taking place. First, it is with sincerity that I congratulate the noble Lord, Lord Magan, on his felicitous maiden speech. He clearly comes from a good stable, as he has said, from Ireland and from India. He has had over 50 years’ experience in the financial services industry and it clearly shows. I hope that that experience will be seen again in this House. It was a well-delivered, felicitous speech and I am sure that he will make a number of excellent contributions in that vein.
I shall not speak on the macroeconomic level but I shall deal with one corner of the canvas and ask the Government a number of questions on a matter which was raised in the course of the Bill’s progress through the other place. The Government responded with some positive noises but gave no firm conclusions on the timetable. I recall that in the other place much of the Finance Bill was consigned to Committee, where often it appeared to be accountants talking to accountants. However, beneath those dry as dust phrases, often there were real values. One such is the recognition of marriage in the tax system. Many commitments have been made by the Government—by the Prime Minister himself over a number of years in opposition and indeed in government—but there has been no actual result as yet. I hope that when the Minister replies—he is already sharpening his pencil—he will give a firm and clear commitment on how the Government will implement the many promises that have been made. I need not take him down the road in great detail, but I can quote seriatim a number of commitments made by the Prime Minister over the years. He said, for example,
“we will give a tax break for marriage and end the couple penalty”.
He said on another occasion:
“A Conservative Government will support marriage, through the tax and benefit system and remove the 'couple penalty' from the benefits system which will lift 300 000 children in two parent families out of poverty”.
Similar sentiments were expressed by Mr David Willetts and a number of other Members. Before the 2010 general election, there was great support for the measure. It was even made official Conservative Party policy and was put into the 2010 Conservative general election manifesto. A number of statements have been made by the Prime Minister since the general election, but action there has been none.
I think that it is generally accepted that marriage is of fundamental importance to a stable society; but, equally, marriage rates are at an all-time low in this country. Family breakdown is a major social and financial problem. One knows from surgery experience in the other place that most single parents do a great job in very difficult circumstances, but stability—or lack of it—does matter. On average, children brought up in married families do better than those in single-parent families by every significant measure—of educational achievement, health and propensity to commit crime. Even after discounting certain socioeconomic factors such as age, income, education and race, the fact remains that the poorest 20 per cent of married couples are more stable than all but the richest 20 per cent of cohabiting couples. It is therefore surely in the interests of society that, by the tax system and other mechanisms, any Government should do their best to encourage the institution of marriage and should in no way discourage marriage. It is then hardly surprising that, apart from Britain, only 18 per cent of people living in OECD countries are subject to a tax jurisdiction that does not recognise marriage in the taxation system; and the great majority of those thus excluded live in Turkey and Mexico.
Furthermore, the latest international tax comparisons show that the tax burden on one-earner married couples with children in the UK is nearly 40 per cent greater than the OECD average. What is worse is that, if all the tax and benefit changes in the Finance (No. 3) Bill and those proposed for 2012-13 are introduced, the burden is projected to increase to over 50 per cent of the OECD average. Therefore the indices are moving against the pledges made by the Government and are hardly consistent with the Government’s manifesto commitment. By contrast, the tax burden on single persons on the same wage is actually falling and is now below the OECD average. Clearly the UK is mightily out of step with the OECD majority.
I fully recognise that there are a number of mechanisms for encouraging marriage by tax incentives, including some relating to property. However, a transferable allowance is the main device debated, as in the UK the unused tax allowances cannot be currently transferred from a non-earning spouse to an earning spouse. Thus, depending on how it was introduced, it would be the whole allowance or part of it; whether it was limited to couples with children under a certain age or limited to tax at the basic rate, it is clearly important that this be considered seriously by the Government. Therefore, with one moving in the wrong direction from the OECD average, surely it means that the issue is both important and urgent. Unless action is taken, the easy slogans of the Government about making the UK the most family-friendly country in Europe will appear ridiculous.
I noted in the Centre for Social Justice report card published in May that the Government were given two out of 10 for their efforts to tackle family breakdown. Clearly, on the current projections, that will get even worse. So I am bound to ask, in conclusion, when in the circumstances the Government are planning to introduce the necessary budget resolution. Even if the Government, understandably perhaps, are reluctant to give a firm date for implementation, can the Minister in replying give your Lordships' House at the very least the assurance that preparatory work is already under way in the Treasury and HMRC? How long is this work likely to take? One hopes it is under way.
Surely, if there are no positive replies to these questions, in spite of the repeated assurances and grave commitments made by government spokesmen, both in opposition and in government, one is likely to conclude that they were empty words—and, as is often said by wags about US politics, electoral platforms are platforms to run on and not to stand on. Certainly the Government ran on this particular platform; it remains to be seen whether, over the next year or two, they will in fact stand on it.
Lord Browne of Belmont
My Lords, following on from the noble Lord, Lord Anderson, I, too, would like to express my concern that the Government are taking so long to honour their very important commitment to recognise marriage in the tax system. It was not that long ago that the Conservative Party, when in opposition, talked regularly about the problem of broken Britain, and they were absolutely right to do so. Of course, we do not hear that phrase on their lips very much now that they are in office. The truth is that no Government could sort out broken Britain in just over a year, and the problems of social breakdown remain as real today as ever.
One of the principal sources of that social breakdown is family breakdown, which has such devastating implications for child development. As a Minister said in a speech in February:
“The Centre for Social Justice has found that those not growing up in a two-parent family are 75 per cent more likely to fail at school, 70 per cent more likely to become addicted to drugs and 50 per cent more likely to have an alcohol problem. The Joseph Rowntree Foundation has found that children from separated families have a higher probability of living in poor housing and developing behavioural problems”.—[Official Report, 10/2/11; col. 389.]
They also suffer from a host of other damaging outcomes whose effects spill over to the rest of society.
What promotes couple stability? In engaging with this question, we must look at many factors, one of the most important of which, unsurprisingly, is the nature of the relationship between partners. In this regard, the research findings are very striking. If children are born to cohabiting parents, they have a nearly one in two chance of finding themselves in a one-parent family by the time they reach their fifth birthday, whereas those born to married parents have only a one in 12 chance of finding themselves in this situation.
I know that some will respond to this by saying that those who marry also tend to be wealthier, and that this is the real reason for their greater stability. Given that material need generates added pressure on relationships, it would be very strange if wealth were not a relevant consideration. The notion that it is the only relevant consideration, however, is rather odd. Mindful of this, it is no surprise to me that research demonstrates that the poorest 20 per cent who make a public “till death do us part” commitment in front of their families and friends are more stable than all but the 20 per cent richest cohabiting couples.
The truth is that marriage sealed by a public “till death do us part” pledge, rather than a “let’s move in together and see how it goes” commitment, is, unsurprisingly, an independent promoter of stability. In this context it is clear that, at the very least, the Government should do everything they can to develop public policy that does not make it more difficult for couples to marry in this country than in comparable countries. This is where our failure to recognise marriage in the tax system is so important.
In introducing the subject of marriage and tax, let me be clear from the outset that I do not believe that people fall in love, and then decide they want to be together for fiscal reasons. When they fall in love and decide that they want to be together, however, they face a choice: will they marry or will they cohabit? This is a very important decision, for the reasons we have considered, and it will inevitably be informed by all relevant considerations, including financial ones.
Britain used to recognise marriage in its tax system, but it has not done so since 1999-2000—unless those concerned were born before 1935, or one or both are blind. As CARE's latest international tax comparison—The Taxation of Families 2009/10—reveals, apart from Britain, just 18 per cent of citizens of OECD states live in countries that do not recognise marriage in their tax systems. The majority of these people live in just two states: Turkey and Mexico. We are completely out of line with the developed countries with which we are usually compared—for example, France, Germany, Japan, and the USA—in not recognising marriage. This inevitably makes it more difficult financially for couples in this country to choose to marry than in other developed countries. Indeed, if we look at the tax burden that they bear, it is a staggering 39 per cent greater than the OECD average. What really is concerning, however, is the fact that the latest projections suggest that the tax burden on such families will be more than 50 per cent greater than the OECD average by 2012-13—unless, of course, there is an offsetting measure such as recognition of marriage in the tax system.
One of the statistics that fascinates me is that, in the midst of all this, 90 per cent of young people say that they aspire to marry; and yet our marriage rates tell a very different story. Given that we make choosing to marry fiscally more difficult than in other OECD countries on average, the disconnection between the aspiration to marry and marriage is of no great surprise. Happily, the coalition agreement commitment provides us with the opportunity to change this and to ensure that it is no more difficult to marry in this country than in other developed countries such as France, Germany and America.
I am of course aware that recognising marriage in the tax system has cost implications, but these were considered at the time the commitment was made last year. Moreover, the very real costs associated with not recognising marriage are of great importance. The £550 million cost of the very modest partially transferable allowance proposed at the general election represents just 1.3 per cent of the direct costs of family breakdown, as calculated by the Relationships Foundation, and just 2.3 per cent of the costs of family breakdown, as calculated by the Centre for Social Justice. Moreover, it would cost just 4.4 per cent of what we are in the midst of paying to raise individual allowances to £10,000—the overall cost is estimated at approximately £12.5 billion. This is a policy that greatly benefits single people, and certainly does not benefit one-earner married families.
The Government were absolutely right to make provision for the commitment to recognise marriage in the tax system in the coalition agreement. We owe both the next generation, which would benefit from an increased chance of a two-parent home experience, and our young people who aspire to marry the opportunity to live in a country that does not make it more difficult than in comparable developed countries. In May, the Government were given a score of just two out of 10 in the Centre for Social Justice’s report card for their efforts to combat family breakdown—an extraordinarily poor result given the great emphasis the Conservatives placed on fixing the broken society before the election. I very much hope that the Minister will be able to assure us that things will be very different in the coming year, and that recognising marriage in the tax system will be a high priority.
Lord Mackay of Clashfern
My Lords, I congratulate my noble friend’s committee on its excellent report. I am also extremely glad to notice the development of a consultation system on detailed tax provisions. When I was at the Bar, I spent quite a lot of my time trying to understand the tax provisions that were then extant in order to try to advise people as to how they might conduct their affairs. It was not easy then but, looking at the tax legislation that has come along in the quite long time since, the problems are no easier now than when I was looking at them. I hope that this system will indeed make it easier for advisers reliably to tell people what their tax liabilities will be if they pursue a particular course of action.
My principal point is not on what is in the Finance Bill but, rather, on what I would have liked to see in it in relation to marriage being recognised. The noble Lords who preceded me have shown that this Government agreed in their coalition, as I understand it, to recognise marriage in the tax system. I am in the happy position of having been born before 1935, so I may have the benefit of the provision to which the noble Lord who immediately preceded me spoke. I am therefore not talking about anything affecting me personally. However, I believe that this is a very important and fundamental part of dealing with the situation in our society. Those of your Lordships who were in the House then will remember that, towards the end of the previous Conservative Government, I spent quite a lot of time trying to put through a Bill to ameliorate the situation when marriages broke up. I am glad to say that the Bill was passed and is still on the statute book but, so far, it has not been implemented. I hope that may some day be rectified.
What is apparent is that if nothing is done soon on this matter, the projections are that the tax burden on one-earner married couples with two children on average wages will rise so that it is more than 50 per cent above the OECD average by 2012-13. If your Lordships look at that as against the burden in the OECD on a single person, it will increase to an incredible 80 per cent while the comparable burden in the OECD is just 52 per cent. It is obvious that this is going to get considerably worse. The primary reason for that is that when tax goes up on the individual, unless the marriage is recognised it becomes worse from the point of view of comparing a married couple with two children and a single person with no dependents.
It would perhaps take some development of the Inland Revenue computer system to recognise marriage easily in the tax system. I believe that it is important to make the necessary preparations. Apparently they are able to do it for older people without too much difficulty, as far as I can judge. I hope that they may be able to do it for the younger people as well, but I believe that that may require some preparation.
The commitment given by the coalition could wait until towards the end of the coalition period which, as we know, in the first instance will be in May, at the end of the five-year Parliament that has been provided for. That five-year period is the timetable within which this ought to be done if it is to be implemented. From my point of view, the system is so damaging to the institution of marriage that the sooner it is done, the better. Therefore, rather than leave it to the very end of their commitment, it would be extremely wise and beneficial for the Government to do it soon. I hope that my noble friend can give us some encouragement that the Government intend to do just that.
Lord Desai
My Lords, I welcome the debate. I have nothing particular to add to what other noble Lords have said about the interesting report of the noble Lord, Lord MacGregor, which I welcome. I especially welcome the transparency and the consultation that the Government have introduced in deciding their tax legislation.
I want to concentrate on why the recovery is so slow and faltering. That is an important question that we all ought to take up. The general proposition in many quarters is that somehow the Government have gone wrong and they need a plan B—or C or D, I do not know. I think that we face a very different kind of crisis from those we are normally used to. Recessions normally happen because of a lack of effective demand, and we know the standard games and policies that we have to follow. We got into this crisis not because of a lack of effective demand but because of overspending and overborrowing. When you have to carry an economy through a crisis in which the major consideration is deleveraging by both households and Governments, you need a very different kind of strategy from the one you normally encounter in a standard recession.
That said, we do not have a road map for such crises. Normally all economic theory is about the other kind of crisis. There is a paradoxical conclusion that we might follow. If the task is to deleverage, we ought to hurry that up. That leads to the idea that we should not have low interest rates at all; we should have proper high interest rates so that households that falsely think they can afford their mortgages should be told that they have negative equity and cannot afford them. That is a cruel thing to say, but right now we are postponing deleveraging rather than assisting it. That is a choice that the Government can make.
We have, of course, decided to deleverage public debt at a rate that is now known, and the task of eliminating the deficit within five years has been adopted. The problem of deleveraging is not just a problem of the recession. We are observing from the crises of both pensions and elderly care that we, not just in the UK but in western economies, are suffering from a serious undersaving problem. We have been undersaving for far too long and we will completely have to change our habits of thinking, living, taxes, and so on. The task of the tax system should be as far as possible to tax consumption and not income, to tax pollution but not work. I do not know at what stage we will get into those kinds of discussion. I welcome the proposal to merge income tax and national insurance contributions. I have never understood national insurance contributions because they are a tax on earned income, while unearned income gets taxed less, which is a very peculiar thing that successive Governments have tolerated.
If we are to face up to the challenge of saving seriously, we will have to adopt something like what Lord Kaldor talked about in his expenditure tax proposal. We may have to move to an expenditure tax proposal as that would reward savings much more than we have done so far. We have been led to think that expenditure leads to income. I am sorry that the noble Lord, Lord Skidelsky, is not in his place as we have had long arguments about this. If you think that expenditure leads to income and income then leads to output that leads to inward gain, we have a certain trajectory. Our problem is that we cannot go through the politics of income growth if there is consumption expenditure.
The gap is in investment. The Government face the challenge that despite the quantitative easing that they have been practising for a couple of years, the money is there but no one is investing. That is very much the reason why the money supply is not expanding, as the noble Lord, Lord Higgins, said. People are not borrowing the money that is available. Therefore, there is a lack of investment by the private sector despite the fact that interest rates are low and people should be encouraged to invest. This is a difficult thing to do. I do not believe that it is necessarily within the Government’s control to encourage investment if they can no longer pick winners or horses that will start a race. However, the Government ought to concentrate on how they can give a certain boost to new investment proposals, perhaps in green technology. Unless they get an investment programme going, they will find that even if people decide to save they will be frustrated.
Whichever way the Government go—I welcome some of the taxation proposals—they should be aware that in the short term and in the long run the crisis arises from undersaving. We have to try to correct our overborrowing and then provide for a proper level of saving to finance the problems created by longer life expectancy and people needing elderly care. If these two challenges are properly thought through and met, we may yet have a prosperous future.
Lord Watson of Invergowrie
My Lords, when introducing the Budget, the Chancellor told us that it was about reforming the nation's economy so that we have enduring growth and jobs for the future and about doing what the Government could to help families with the cost of living and the high price of oil. Four months later and after 14 months of the coalition Government, that is not how it feels for many people. As the cuts begin to bite, the popular perception is that it is hurting but it is not working. Inflation remains high, the recent small drop in unemployment is not expected to be repeated when the next figures appear, and the economy is clearly not “in recovery”, as the Chancellor claimed.
That is also the view of the independent National Institute of Economic and Social Research, which has as its president the noble Lord, Lord Burns. That organisation dismissed the Chancellor’s claim that cutting the deficit more slowly would cause a collapse in market confidence as “fundamentally flawed”, adding,
“The real hit to credibility comes from sticking to unsustainable policies. If Mr Osborne really wants a budget for growth he should amend his plans”.
It is basic economics that deficit reduction will slow growth. I echo the national institute’s calls for a major house-building programme, and measures to boost youth employment, to restore the education maintenance allowance that keeps poor students in school, and to reverse the cutting of student visas, because universities are a dynamic export industry.
None the less, I concede that the Budget contained measures that are to be welcomed. Next year the personal tax allowance will be increased to more than £8,000. Temporary tax relief for small businesses is to be extended to October next year. The Chancellor deferred for a year the proposed rise in fuel duty, until April 2012, and cancelled the fuel duty escalator for the remainder of Parliament. He increased the supplementary charge levied at North Sea oil and gas companies to 32 per cent, generating a possible £2 billion, although he has since handed back around a quarter of that in exploration allowances.
Public spending measures that included an extra 40,000 apprenticeships for young people out of work, and 100,000 new work experience placements, are also to be welcomed, although I fear they will be less worth while than the genuine jobs of the future jobs fund that the coalition has axed, which paid the minimum wage. There are also doubts as to whether employers will offer the extra apprenticeships and work placements unless they are forced to do so. There is to be a consultation on long-term plans to merge income tax and national insurance, and I echo the comments of my noble friend Lord Desai that this is long overdue. This is planned with a view to simplifying the tax system, although I am disappointed that the review will not go as far as a full merger with income tax.
I will now focus on a narrow but crucial casualty of the Government’s restructuring of the economy, and one that the Chancellor failed to address properly in his Budget speech in March. In fact, it relates to an issue highlighted by the Chancellor in last year’s Budget of a commitment that the Government made then and have since failed to honour. I hope the Minister will be able to offer an explanation as to why the Government have let down low-paid workers in the public sector across the United Kingdom, to whom they made promises before the general election and in the Budget of June 2010. At that time the Chancellor of the Exchequer announced to Parliament that:
“the Government are asking the public sector to accept a two-year pay freeze, but we will protect the lowest paid … They will each receive a flat pay rise worth £250”.—[Official Report, Commons, 22/6/10; col. 171.]
He said that the earnings level at which people would qualify would be £21,000 a year, and he estimated that 1.7 million people would benefit from that pay increase. In the Budget Statement this year, the Chancellor had a different message for low-paid public sector workers, when he said:
“I can confirm today that in the coming year all workers in the armed forces, the prison service and the NHS, and teachers and civil servants, earning £21,000 a year or less will receive a pay uplift of £250”.—[Official Report, Commons, 23/3/11; col. 963.]
That is considerably less than the promise delivered nine months earlier, and it means that only about one-third of those originally earmarked will be guaranteed to receive the £250 payment. What the Chancellor meant in effect was that only those working under ministerial control, and those whose pay and conditions are subject to pay review bodies, would be guaranteed to receive the payment. Between one Budget and the next, goalposts have been shifted with a vengeance. Research commissioned by Frank Field MP from the House of Commons Library shows that the Chancellor, in his 2010 Budget Statement, could not have been referring only to workers under ministerial control and those with pay review bodies. The Chancellor’s figure of 1.7 million workers was precisely the total number of public sector workers earning less than £21,000 in 2009, which at the time of the Chancellor’s Statement were the most recent available figures.
The Commons Library further calculated that the most reliable current estimate for the number of public sector workers under ministerial control or covered by pay review bodies is 715,000. That equates to just one-third of the 1.7 million figure, and when the most recent official statistic for 2010—that is, 2.2 million—is introduced, it leaves up to 1.5 million public sector workers denied the promised pay rise, and the victims of a deception.
Two weeks ago in another place, Frank Field introduced an amendment to the Finance (No. 3) Bill with the aim of securing justice for these low-paid public sector workers. Mr Field’s amendment, which he did not press to a vote, sought to reduce the tax liability of all public sector workers whose earned income does not exceed £21,000 in this tax year, by £250. That would have had the effect of ensuring that around 1.5 million public sector workers who are currently being denied that promised pay rise of £250 would have received it, as the Government had led them to believe. The total cost to the Treasury has been costed at around £500 million. To government Ministers, or indeed to your Lordships, £250 does not mean a great deal—indeed, it is less than our daily allowance—but for many people, £250 means a great deal.
In that debate on the Bill in another place, the Government's reasoning for abandoning their commitment was based on the unconvincing grounds that this protection will now be extended only to those workforces directly under ministerial control or whose pay and conditions are decided by pay review bodies. Not only was this not made clear at the time of the Statement, the figures the Chancellor quoted in his 2010 Budget speech made it clear that this was not what he intended.
David Gauke, the Exchequer Secretary to the Treasury, said in another place that civil servants, nurses, prison officers and the Armed Forces had already received the £250 increase and were to receive it again next year, but whether other public sector work forces, mainly in local government, received that payment was not a matter for the Minister. In most cases they will not receive that because, as Mr Gauke told the other place on 4 July:
“Decisions on the pay of local government work forces are for local government employers, rather than central Government, to negotiate. Provision was made in the local government settlement for local authorities to pay the £250 increase”.
So the Government have handed them that money. He continued:
“We gave them the opportunity to pursue the policy that we are pursuing at national level, but it is ultimately for them to decide how to pay their employees”.—[Official Report, Commons, 4/7/11; col. 1335.]
However, it has emerged that many local authorities have allocated the money to other budgets and have not given it to their low-paid workers. Despite that, the Government have said that they have no plans either to compel local authorities to spend the money in the way that was intended or to recall the money. Is that not a shocking example of the Government promising with one hand but taking away with the other?
I urge the Minister to take this matter on board for further discussion within the relevant departments and to reconsider this approach. The Government need to act to ensure that those promised the additional £250, those expecting it and those desperately needing it receive the payment that the Chancellor, less than a year ago, told them they would receive.
Lord Ryder of Wensum
My Lords, I applaud the general direction of the Chancellor’s attack on public spending, yet I nurse concerns about the Government’s economic coherence. The Government’s growth strategy is deficient. Growth requires stronger supply-side measures, starting with deregulation. I tabled a Written Question when the Government had been in office for almost a year, inviting Ministers to set out the number of regulations revoked since the general election. The answer was none. It appears that despite languishing in Opposition for 13 years, the Conservatives were unprepared for Government, otherwise action would have been taken by now.
Is not the Chancellor at least willing to remove reams of onerous employment laws, bearing in mind that expensive regulations to meet environmental targets lurk in the pipeline? The ligature of red tape stays tight around our businesses and their growth is further hampered by high tax rates. The Institute of Directors has just gauged that taking all taxes into account, the overall tax burden for a medium-sized firm is no less than 43 per cent.
The Chancellor has asked HMRC to examine likely tax revenues from different rates of personal taxation. I had half hoped that Mr Osborne’s apparent belief in the enterprise culture would have informed his opinions without this digression. The noble Lord, Lord Myners, quoted John Maynard Keynes in 1933. I am sure that he knows even better than I do that this was the year in which Keynes advised the then Government to cut taxes. Now, even the IMF has urged our Government to slice tax rates. So there is no deregulation, no lower taxes, except corporation tax, and to compound these defects the Government also harm our economic recovery and competitiveness and fuel inflation at the same time with so-called green measures. Last year, the Government raised £40 billion from green taxes with householders paying an extra £200 in hidden charges on gas and electricity bills. The Global Warming Policy Foundation has shown that one-fifth of our soaring energy bills are accounted for by the hidden subsidies and other costs to decarbonise our electricity industry. This injures our recovery. The cost of the low-carbon economy will be £13 billion a year, soon rising to £18 billion. China, India, and to a lesser extent the USA, have rejected constraints on carbon-based energy. Investment and jobs will be forced overseas by the Government’s actions. The director-general of the CBI has wryly observed that green taxes on cement, steel and lubricants will mean that even windmills will soon be too expensive to manufacture in this country.
We cannot afford such follies. Last year our trade deficit was £50 billion, despite the 25 per cent devaluation. The benefits of devaluation in terms of exports have been so marginal that I query whether they are worth the manifest inflationary costs condoned by the Monetary Policy Committee.
Lord Spicer
My noble friend is making a very important speech, and I am particularly struck by what he is saying about inflation. Will he accept that the problem with inflation is that it can get out of control so that it becomes cumulative? I wonder whether he had in mind any figure of inflation at which that might occur. My own view is that it is between 5 and 7 per cent, but I wonder what his view is.
Lord Ryder of Wensum
My noble friend has consistently warned about the dangers of inflation over the past 30 to 40 years. As I recall, in his maiden speech last year he highlighted this threat. I agreed with him then, and I agree with him now, because inflation, as he knows, has been above target for more than four of the past five years. We can feel very thankful that the MPC members are not paid performance bonuses. The Business Secretary gently chided me for complaining about inflation in a debate a year ago, implying that it had little to do with the Treasury. Up to a point, Lord Copper, only up to a point. I confess to acting as a foot soldier, like my noble friend Lord Spicer, in the battles against inflation during the 1970s and 1980, sharing Milton Friedman’s belief that,
“inflation is one form of taxation that can be imposed without legislation”.
I wager that inflation is built into every economic calculation made by the Treasury. The suppression of inflation may not be the Treasury’s responsibility but it is, I say to the Minister, its lasting burden.
A week after the general election, the Prime Minister, eager to encourage economic growth, implored the Foreign Office to play a livelier role in helping our export drive, though it later took him seven months to put a trade Minister in post. How can the Prime Minister’s wishes be achieved when the Foreign Office budget has been slashed with severity? DfID’s budget will soon exceed that of the Foreign Office by a factor of five. We donate in this country twice as much as Japan and nearly twice as much as Germany. Our Government raise the equivalent of £300 per household for overseas aid. Surely a segment of that figure would be better deployed in the Foreign Office to promote British exports?
The late Lord Bauer, who I know worked closely over many years with the noble Lord, Lord Desai, at the London School of Economics, argued about overseas aid transfers cash from poor people in rich countries to rich people in poor countries. Indeed, the DfID Permanent Secretary admitted earlier this month that the department had no idea how much British aid is being lost to fraud and corruption, thus underlining a recent World Bank investigation unearthing massive corruption in the aid field. Rumours still persist about the Karzai clan’s links with new blocks of flats in Dubai, partly through the collapsed Kabul Bank. Yet we continue to pour aid into Afghanistan. Parents of dead soldiers must rue the extravagance of the aid budget when compared with the lack of military equipment given to their sons and daughters. I would prefer my donations to be voluntary. In other words, I opt, even if the Prime Minister does not, for the free-will offerings of the big society over the compulsion of big government.
I am pleased that the Prime Minister went to Africa to preach the gospel of free trade. I hope that on his journey he found time to read Dambisa Moyo’s book, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, in which the leading Zambian economist argues that aid fosters poor government, dependency, corruption and poverty. To paraphrase Bill Clinton, economic success is not a matter of chance but of choice. Let chance be the road not taken and choice of the economic road taken, with belief and without fear.
Lord Sheldon
My Lords, in a debate on the Finance (No. 3) Bill in the House of Commons on 26 April this year, the Labour Party set out how the fundamental policy of the Government was putting jobs and growth at risk. There was a risk there. One important result of the Government’s actions was that bank lending to small businesses fell in the first quarter of the year. The problem was that lending to small businesses was important to the economy and was not succeeding at all.
A major problem facing the Government was that one in five young people was not employed. The Budget produced by the Government forecast higher levels of unemployment. This was serious, and it was the consequence of the Government’s decision. In the Finance (No. 3) Bill debate, Malcolm Wicks, the member for Croydon North, speaking on the Department for Work and Pensions, said that 11 million people alive today can expect to live to 100. Democracy is becoming much advanced.
When Members of Parliament retire, they leave the labour market and draw the state and occupational pension at a later stage. The problem here is class variations, and variations in life expectancy depending on geography, constituency, north or south residence or work undertaken. There is considerable inequality. One-fifth of men have routine occupations. There is a class of workers in these routine occupations such as cleaners, packers, van drivers and unskilled labourers, many of whom started work at the age of 15 or 16. Many of them are dead before the age of 65 and so do not draw the state pension. Women undertake similar work but there are not similar problems.
The problem with increasing the state pension age is that one category does not cover everyone. If the pension age is raised to 67 or 68, this will be considered by many to be a serious change. However, there will be a considerable difference for poorer men and women, who will receive a further pension penalty. Many of the poorest men and women have shorter lives. What we see now is what should be the basis of the increase in the state pension age, which may be raised to 70.
Those who are in major businesses and other highly paid undertakings can undertake working extensive practices by consulting, writing articles, considering other matters and other aspects of their work. However, others undertake basic works, as Malcolm Wicks set out. He stated:
“These people might be able to continue their work, but what about the van driver, the bus driver, the woman who cleans offices, the steel workers, the people with creaking backs and aching limbs who come their 60s need to retire in a very old-fashioned sense?”.—[Official Report, Commons, 26/4/11; col. 103.]
That refers not to the higher social classes—they commence work in their mid-20s—but to those hard workers who frequently start at the age of 15 and 16 and who need to retire much earlier and have a reasonable rest.
Malcolm Wicks pointed out that those who start basic work at an earlier age should draw their state pension four years earlier than most; that is, those who undertake routine employment just might be considered by their employers as candidates for taking a state pension at an earlier stage. The major issue is that given the age of the state pension, many people start work at the age of 25 and have 40 years of work, and then have 30 more years in retirement with considerable pay.
As people live longer, longer retirement has to be paid for. There is the possibility that a state-pension age of 66 to 70 may not be an acceptable arrangement. Such an arrangement may need to be changed as factors in medical work and in people’s backgrounds increase life expectancy; and life expectancy will increase over many years to come. Those who are in work must be aware of such a charge.
Lord Tugendhat
My Lords, this debate has ranged very widely but I shall confine my remarks to the sub-committee’s report. As I am a member of the Select Committee but not of the sub-committee, I can say with a clear conscience how very good the report is.
We are debating the report against the background of a number of far-reaching constitutional changes, some actual and some prospective. Often, the most far-reaching changes are those which are least noticed when they are introduced and appear to be the least spectacular. That may very well prove to be the case on this occasion with the Government’s new approach to tax policy. It represents an interesting new direction and will, I think, have a considerable impact on the formation of policy in the future. I congratulate the Government as did the noble Lord, Lord MacGregor, on its implementation.
I should like to make a few I hope helpful suggestions. My first hope is that that the Treasury and future Chancellors will not be afraid of being boring. The temptation inherent in producing an annual draft Finance Bill will be to cut a dash and to make an impact. There will be some years when that will be the right thing to do, when it will be appropriate to serve up a delectable menu of substantial changes. That will not be the case every year and quite likely it will not be the case in most years. I hope that the new approach will lead not only to a more consultative approach to tax policy, but also to one that is more measured and selective, and that Chancellors will not be judged by how far-reaching or how dramatic the changes are from one year to another.
My second hope is that the Treasury and future Chancellors will not be afraid of disregarding occasionally the constraints imposed by the new approach. I noted what the Minister had to say on that point when he opened this debate. I agree with the sub-committee’s strictures on the disguised remuneration measure and the supplementary charge on oil and gas profits. However, there will be occasions when it will be right for the Government of the day to act quickly in response to a difficult or crisis situation. The banking crisis of 2008 and its aftermath provide a case in point. There is a good general rule that should normally be observed, but there will be occasions when Chancellors will be right to take more immediate action.
My third hope is that the draft Finance Bill will spark off what might be termed an iterative process with a set of proposals for action in one area sparking suggestions for action in another. We see an example of this already in the way that taking evidence on tax avoidance has prompted the committee’s request for the Government to follow up their anti-avoidance strategy with one for tackling evasion. Given that HMRC calculates that the loss from all forms of evasion and default is £22.6 billion versus £7.5 billion for avoidance, this seems highly desirable.
Finally, I turn to the role of the Economic Affairs Committee, or rather its sub-committee. I strongly agree that the new system provides an admirable opportunity to make better use of the experience and expertise of Members of the House of Lords. This is exactly the sort of role that the present House of Lords is well qualified to perform. The report puts forward two possible options in paragraph 122. I suggest that consideration should also be given—as the noble Lord, Lord MacGregor, pointed out, this is a matter for the whole House—to establishing the sub-committee on a permanent or semi-permanent basis. I am not committed to that formula, but I want to ensure that a variety of possible options is explored in order to ensure that the experience and expertise in the House of Lords is harnessed in the most effective way, whatever that may be.
To conclude, I congratulate the Government above all on the introduction of the new approach to tax policy and on the way in which they have started the implementation of that policy. While one should, generally speaking, adhere to the rules, there will be occasions when it will be appropriate to go outside them.
Lord Haskel
My Lords, I did not serve on your Lordships’ Economic Affairs Committee, but I congratulate the noble Lord, Lord MacGregor, and his committee on the report. It was very sensible.
By tradition, the Second Reading debate on a Finance Bill in your Lordships’ House is an occasion to consider the country's economic situation. As my noble friend Lord Myners explained, it is not going as well as we would like—that is an understatement. The accusation by the shadow Chancellor that the Government have recklessly been cutting too far and too fast is beginning to stick. The noble Lord, Lord Owen, put it rather well in last week’s House Magazine. He said:
“There is a scratching air of general incompetence beginning to infiltrate this coalition Government”.
Why? I think it is partly because this Government have fallen into the age-old trap which has pervaded economic life in this country over many years. It is the trap of separating the financial sector from the rest of the economy. Many business people complain of this. It is the kind of thing that JK Galbraith was referring to when he spoke of the belief that monetary policy is the highly professional preserve of the financial community and has to be protected from interference by the rest of us.
What has been the effect of the Government’s handling of the debt crisis? What it seems to be doing is transferring the debt from the Government to the citizen. The Joseph Rowntree Foundation recently reported that if you have suffered the average cut in pay and require childcare, your standard of living will have gone down by 10 per cent. As the noble Lord, Lord Myners, said, we are told by the OBR that it expects families to go deeper into debt between now and 2015. The result of the Government’s policy will be Government debt perhaps down, family debt certainly up—a typical financial solution which ignores the rest of society and incidentally discourages investment, as many other noble Lords have pointed out.
The Government speak of balance in the economy, but balance in their sense is a compromise. You achieve real balance by working on the whole economy. The noble Lord, Lords Higgins, spoke of this, and he is right, because the line between financial and other services and manufacturing has now become so blurred that it is frequently difficult to tell on which side of the balance an activity lies and what impact it has on jobs. The Government’s growth paper ignores this, and the “march of the makers” also ignores this. Selling IT services and software that challenge established businesses is an example of this. Earlier this year, President Sarkozy commissioned from McKinsey a report about this for the G8 summit in Paris. That report calculated that for each of the 500,000 jobs lost in France due to internet innovation over the past 15 years, 2.4 new jobs had been created. These services create manufacturing growth.
Another area where the real world and the financial world seem to be out of kilter is in the matter of enterprise zones. The Government want to encourage them through tax incentives, rate relief and other financial tricks. In the real world, business believes in clusters. The old ways of the supply chain, consisting of standard services or standard components, is giving way to much more complex systems. Advance manufacturing needs particular products and services, and this is why they all need to be together. They need each other’s skills and services to stimulate and find new products. This is where the incentives are needed, but the Government have dismantled the mechanism to do this.
Another area where the balance has got out of kilter is in the taxing of overseas profits. It may have satisfied the financial sector, but some see the low tax on overseas profits as an incentive to export jobs overseas and bring back the profits at a low rate of tax.
The Government talk about being green. The noble Lord, Lord Ryder, does not like green taxes because they encourage carbon leakage. However, the green taxes which the Treasury has imposed are not what the Office for National Statistics calls green. The recent House of Commons report quite rightly says that they should be justified by finding a way of showing that taxing pollution goes towards green expenditure, such as less polluting vehicles or better public transport. This is just another example of financial considerations ignoring the rest of us.
Another area where the Government know that there is potential for growth, and about which they should be making many more encouraging noises, is the single market, particularly in services and the digital single market—and this in spite of what the noble Lord, Lord Newby, said about the euro crisis. The single points of contact are well established. Indeed, they are all in English, and if the Minister and other noble Lords would care to look at them, they would be quite impressed. So why have the Government not been giving their wholehearted enthusiasm and support for British business to grow through greater participation in the single market? Because they are afraid of ridicule in the press and criticism in the City. I hope that the new relationship between politics and the press, which seems to be emerging during these past few days, will extend to something as important as our membership of the European Union and that we will see enthusiastic encouragement for the business opportunities in the single market.
It has always seemed to me that there is a distinctively British way of doing business; that is, providing services and goods based on honesty and integrity. Encouraging the proper kind of balance has an important role to play in this, which is an important part of our economic success. In today’s commercial world, people have to know what you stand for. Winston Churchill famously said that America will always do the right thing but only after having tried everything else. I have a terrible feeling that that is what is happening here.
Lord Northbrook
My Lords, it is interesting how the noble Lord, Lord Myners, praised Alistair Darling in his opening speech but not the previous Chancellor’s budget deficit expansion. I should like to remind the House that in an interview in August last year, he reflected that the Labour Government had abandoned fiscal responsibility; that Gordon Brown “grew to forget” the golden rule; that Labour ran large deficits in the middle part of the previous decade when the economy was clearly running at full capacity; that the party needed to come clean on what cuts it would make; and that it needed to prove once again that it is a credible party of economic management. The noble Lord criticised the current shadow Chancellor. He said:
“I don't agree with Ed Balls. I do think the Labour party has to wrestle with the fact that it tends to leave office with large deficits. And I think its licence to govern is … weakened in the future—if it could not produce credible arguments … that it is capable of sound economic management through the cycle”.
The country is still recovering from the debt binge.
Once again, we are assembled here to debate the Finance (No. 3) Bill, the majority of which I support. We are also grateful to the noble Lord, Lord MacGregor of Pulham Market, and his committee for their excellent report, which again generally speaks favourably of the Finance (No. 3) Bill. His report applauds the introduction of a new approach to tax policy-making by the coalition Government with the aim of bringing about a clearer, more stable and more predictable tax system. This approach seeks to produce better tax legislation and more effective scrutiny of tax changes. I agree with the report’s conclusion that this has produced a Bill, the content of which has generally reflected early and fuller consideration than in the past. The report quotes two good examples of this with which I fully concur—first, corporation tax reform and, secondly, the area of changes to pensions tax relief.
However, the report rightly is critical of two other areas where this new approach has not been adopted. There is disguised remuneration. The new provisions against tax avoidance in this area take up no fewer than 60 pages of new legislation. Surely this would not have been necessary had there been more consultation beforehand. Likewise came the change to the oil and gas tax regime by way of the supplementary charge. No consultation had been made with either industry. It was not until there was a great deal of criticism that exploration in these areas would be seriously affected that at the last minute the announcement was made of an extension to the ring-fence expenditure supplement, which has persuaded companies like Statoil to resume its drilling projects.
Before moving to considering the Finance (No. 3) Bill as a whole, I wish to congratulate the Chancellor on his vigorous approach in tackling the appalling legacy of the Budget deficit left to us by the Labour Government. This had to be the first economic priority after the election. His deficit reduction policies have been approved by a whole range of organisations, including the IMF, the European Commission, the OECD, the Fitch rating agency and Timothy Geithner, the US Treasury Secretary.
Looking at the Finance (No. 3) Bill in more detail, first, I shall focus on help for businesses. I welcome the reduction in corporation tax for large companies from April this year, the reforms to the foreign profits legislation, the announcement of new enterprise zones and the proposed low rate of corporation tax for offshore finance companies. That will all be good news for larger companies. Moreover, the Chancellor has dealt a very generous hand to VCTs and EIS investors, increasing the tax relief and the amount of investment while rightly warning against abuse of the rules. The slight improvement in the capital allowance regime for short-term assets is good news. Those positive aspects of the Budget far outweigh the negative ones for a few sectors of the economy. Terry Scuoler chief executive of the EEF, the manufacturers’ association, while praising the Budget in the main, said that,
“the significant rise in energy bills threatened by the Carbon Price Floor is unwelcome”.
For smaller unincorporated businesses, the news on the tax front is more mixed. They should benefit from easier planning laws. They should also be helped by the decision to support innovation and manufacturing, with an additional £100 million this year for new science facilities and an increase in the SME rate of research and development tax credit over the next few years. However, two areas are definitely not to their advantage. The 50p income tax rate needs to be reduced as soon as possible, and the Equalities Act could well cause problems in taking on staff.
Regulation is also a major area of difficulty which I shall examine in more detail. For those not familiar with it, a new Cabinet sub-committee called the Reducing Regulation Committee was established after the coalition came to power. The committee has to review the quality and robustness of regulatory proposals. Astonishingly, its second report, which covers the period between September and December 2010, concludes that more than 40 per cent of the regulatory proposals that it considered were not fit for purpose. The main failing was a failure to produce cost-benefit analyses of proposals. This all might sound rather esoteric but is very important. If regulations are being spewed out that do not make sense, it is a big hindrance, especially to smaller businesses which do not have the back-office ability to cope with them all.
Let me give another example of difficulties for a smaller business. A friend of mine who is involved in a growing smaller company has been given the opportunity to pay his tax in instalments. However, something has recently gone wrong with the Revenue’s computer system which means that he has been asked to pay all his tax at once. He rang up the local Revenue office, which is a nightmare process, and took more than an hour to get through to anyone sensible. He was then told that this was an administrative mistake and that he need not worry. I fear that this may have happened to a lot of small businesses. Has the Minister come across any other cases in this area?
Overall, I welcome the Finance (No. 3) Bill 2011. The Chancellor has a difficult hand to play and progress may appear to be uneven at times. But his message is clear: Britain is open for business and it has produced major incentives to companies and individuals to create wealth, which I believe is the right approach for the economy.
Lord Myners
The noble Lord listed a number of organisations which endorsed the Chancellor’s strategy. Can he remind the House whether any of those organisations were successful in forecasting the crisis that hit us in 2007, including the credit rating agencies to which he referred?
Lord Northbrook
I would have to refer back to the noble Lord on those matters.
Viscount Hanworth
My Lords, the report of the Select Committee on Economic Affairs conveys one startling fact. We are told in paragraph 125 of the latest available estimate of the tax gap, which for the year 2008-09 was £42 billion. The gap is defined as the difference between tax collected and the tax that should have been collected.
This gap represents an enormous sum of money and one must look for ways of putting it in perspective. The comparison that comes to mind immediately is with the size of the budget deficit. Of course, this is a highly variable amount, but for the past two years it has been at roughly the same level. These deficits have been roughly four times as large as the tax gap and they were preceded by deficits that were virtually negligible.
The immediate cause of the rising deficit and the rising debt was the financial crisis. It was not, as some have suggested, the result of the profligacy of the then Government. The Government were constrained to buy a large proportion of the equity of the failing banks and to supply them with funds in other ways as well. To do so, they had to raise the money by selling bonds.
Following the crisis, there has been a savage fiscal retrenchment by the current Government, and one might have expected the debt and the deficit to have been reduced as a result. This has been a false expectation. In explaining the fallacy, one needs to make a firm distinction between the gross budgetary effect of a marginal reduction in the Government’s expenditure and its net effect. The net effect of a reduction of £1 of expenditure is the value of £1 less the reductions in the tax receipts occasioned by the additional unemployment and the reduction in economic activity, and less the consequent expenditure on unemployment benefit. In the present circumstances, a reduction in the expenditure has barely any effect on the net level of the deficit.
Given that this is the case, one is bound to wonder why the coalition Government have placed such emphasis on their strategy for reducing the budgetary deficit by reducing the expenditure. The answer may be twofold. First, there may be a mistaken belief in the effectiveness of such fiscal stringency in reducing the deficit and the debt. Secondly, it fits well with the Government’s political and economic philosophy to take steps to reduce the level of government economic activity.
The Government’s economic strategy may have been influenced by the desire to obtain the approval of the risible credit rating agencies. These agencies have been passing judgments on the viability of various European economies and on the likelihood that they will default on their sovereign debts. Perhaps, therefore, we should compare our economy with the economies that have suffered from the adverse effects of the assessments of the credit rating agencies and wonder whether it might reasonably be subject to the same aspersions.
It should be remarked at the outset that whereas those economies that are currently subject to debt crises have a substantial proportion of their borrowings in short-term loans from the money markets, UK debt is, by contrast, preponderantly of the medium and long-term varieties that have a limited exposure to the whims of the markets. The UK’s public debt as a proportion of GDP stands at 80 per cent. By comparison, Greece’s debts are 142 per cent of GDP, Ireland’s debts are 96 per cent, Portugal’s 93 per cent and even Germany has greater public borrowings than the UK at 83 per cent of GDP.
One should also compare the size of the annual deficits of the various countries. Here, at present, Britain does not fare so well. As a proportion of GDP, its current deficit is the third largest in Europe. It must be conceded that the UK could and should do better in reducing the level of its budgetary deficit. Given that this cannot be achieved effectively by reducing government expenditures, one must ask by what other means it might be reduced. The means must be by securing the growth of the economy and by increasing the levels of personal taxation.
There is ample scope for obtaining significant revenues by increasing the top rate of taxation. The current British rates are below those of other northern European countries and they have been at low levels ever since their radical reduction in the early years of the Thatcher Administration. The basic UK rate is at 20 per cent; the higher rate, which becomes effective for incomes above £35,000, is 40 per cent; and an additional rate of 50 per cent—which is a recent provision—is operative only for incomes in excess of £150,000. At the level of income where the additional rate is chargeable, it becomes common for remunerations to take various forms that are aimed at the avoidance of tax. Disguised remunerations are widespread throughout the financial sector and at the higher reaches of corporate enterprise. These sidestep income tax through awards or incentive payments mediated by trusts, third parties or offshore pensions. Non-repayable tax-free loans are also common. If the additional rate were raised and tax avoidance tackled, we should go a long way towards eliminating the budget deficit.
The Government are well aware of the problems of tax avoidance and they have widespread backing for their aim of stamping it out. There is much to be done before tax avoidance in the upper echelons is successfully quashed. To defeat the cunning of the tax avoidance industry requires an ongoing and sustained commitment to the task. The problems will not be overcome until the level of capital gains tax is further increased. It should be graded according to income so as to become commensurate with the levels of income tax. This is because much of the higher remuneration is gathered in the guise of capital gains.
The importance of the task and the reward for undertaking it are increasing as the distribution of income in this country becomes more unequal and as the ranks of the middle-income earners are decimated. It should be noted that the UK records the highest value in northern Europe of the Gini coefficient, which measures the inequality of income distribution. It remains to say how the economy should be stimulated. It should be stimulated not from the demand side but from the supply side by the provision of capital to businesses and enterprises, both large and small. The banks should be called upon to provide this capital, and they should be subject to severe penalties if they fail to do so.
The Government have recently declared bold plans for investing in renewable energy and in nuclear power generation, but these will come to nothing if the necessary capital is not available. At present, the encouragement to banks to lend more is akin to pushing on a string. The Government need to be far more commanding in their approach to this problem.
Lord Davies of Oldham
My Lords, I am conscious that the hour is moving on. Tempted though I am to summarise the contributions of all noble Lords to this debate, which has been absolutely fascinating, I will leave that particular joy to the Minister.
I will begin by emphasising those parts of the debate that I am sure will obtain the enthusiastic acceptance of the whole House. The debate was graced by the outstanding maiden speech of the noble Lord, Lord Magan of Castletown. We very much appreciated the forthrightness of his speech in the areas that he covered. It was a tour de force, and at times it was also somewhat of a tour d’horizon. The problem of a tour d’horizon in this House is that we do from time to time have to abide by certain time constraints. However, on his maiden speech he was able to deploy fully the arguments and we all very much appreciated what he had to say. We are also grateful to the Minister for introducing the Bill and for covering it in a very limited time, conscious of the fact that many dimensions of the Finance (No. 3) Bill would be covered in the debate, to which he would be expected to respond at the end.
There has been a great deal of approval on the speech and on the work of the noble Lord, Lord MacGregor of Pulham Market. We all appreciate the sterling work that he does for the committee. From the contributions to a debate of this kind we see the very constructive work that the committee does in discrete areas. I do not doubt that we all recognise the very serious recommendations about the degree of consultation that can go on with regard to taxation, encouraging the Government to go further than they have gone so far, although we recognise their good intentions. We also recognise the necessary work on anti-avoidance and in due course increased work on anti-evasion as far as taxation is concerned. In particular, I want to comment on his points about the Revenue staff. I understand fully why the committee reached its conclusions on anxieties regarding the competence of Revenue staff. We have only to compare the rates paid in the public sector against those paid to the adversaries in the private sector who seek to limit the taxation paid by companies to realise what an enormously difficult job the public sector has in those terms. That is to say nothing of the fact that it cannot help that part of the Government’s deficit reduction plan is to reduce HMRC staff. Of course that produces strains in the department in the crucial areas where extra revenues can be obtained.
All sides in the debate appreciate that this Budget has been produced at a time of great economic difficulty. We all recognise that there has been a global financial crisis which has led every country that does not have the strongest of economies into very real difficulties. We all recognise that we need to get deficits down. That is why we do not doubt that the Government had to take tough decisions on spending cuts. Nevertheless, the best way of getting the deficit down is to employ the assets of the country as fully as possible. That means retaining people in constructive work as best we can. However, a great deal of the Government’s strategy, particularly with regard to the public sector, is to reduce our productive units and the ability of people to work and to earn. People who do not earn do not, of course, pay taxes—nor do they consume or sustain demand. Therefore, it is of no great surprise, or it ought not to be, that this economy has staggered into a position of negative growth over recent quarters. It looks by all accounts, and all forecasts, as if it will be a very considerable time indeed before we see anything like significant positive growth, despite the fact that we can look at other countries—and Germany is the outstanding example—that have come through this crisis and have positive rates of growth as they tackle deficits. Of course, it is not the case, as it has been portrayed, that the United Kingdom alone ran into deficit. All these countries have had to wrestle with their budgetary plans. The problem is the extent to which they have savagely reduced demand, as this Government have—and the answer, on the whole, is that they have eschewed that.
I put it to this House that if the debate that is going on in the United States of America at present should be won by the kind of voices that we have heard from certain parts of the House on the government Benches today, by the right-wing Republicans and the Tea Party advocates, we will see a decline in the American economy that will render our capacity to recover extremely difficult indeed, if not impossible, by 2015. Therefore, we should recognise that when we are discussing this issue of global demand, we have our part to play in this, too. We have the greatest doubts about the particular strategy being followed by the Government. As the noble Lord, Lord Desai, said, it was a pity that the noble Lord, Lord Skidelsky, was not here in this debate, as he above all on these occasions has identified the strategy that a coalition Government pursued 90 years ago in the face of public crisis over finances. It took us almost to wartime and government expenditure in wartime to recover. We worry, and are critical of the fact, that the rate of deficit reduction that the Government are pursuing is one that may lead to similarly bleak prospects for this country over this period of time.
Of course, in the debate, there have been so many comments about the Bill itself, and it scarcely behoves me to seek to reply to all of them. But I hope that the Minister will pay some attention to those who have argued about particular aspects of the social impact of the Budget. I hope that he will respond to the arguments that my noble friend Lord Anderson and the noble Lord, Lord Browne, produced on the question of the extent to which the Government intend to pursue family-friendly policies, of which we have seen little at the present time. I hope that also he will appreciate those contributions of my noble friends Lord McFall and Lord Watson of Invergowrie, and several other noble friends. They emphasised the fact that the great danger is that we look once again as if we were concentrating overwhelmingly on the financial dimensions of the economy—a point that my noble friend Lord Haskell also brought late into the debate. The Government have said that it is their intention to rebalance the economy, but it is quite clear that the manufacturing industry is not getting the support, resources or opportunities from the banks to borrow in order to invest that would help to put our economy on a sounder footing.
This debate has been extremely valuable, and we recognise the very constructive comments on all sides. We hope, however, that the Minister will also appreciate that, as far as Her Majesty’s Opposition are concerned, there is a real difference between our perspective on the strategy which ought to be pursued at this present time, and at the moment we are holding the Government to account where their case is remarkably thin.
Lord Sassoon
My Lords, we have had an interesting debate this evening, and I thank all the noble Lords for their contributions. In particular, I congratulate my noble friend Lord Magan of Castletown on what was—to echo the words of the noble Lord, Lord Davies of Oldham—a masterly tour d’horizon of the economic scene. I have to say that it was about the one thing on which I agreed with the noble Lord, Lord Davies, but let me come back to that.
As I said in my opening remarks, the Government welcome the constructive comments of the Economic Affairs Committee, and we will take these into account as we entrench a more predictable, stable and simple tax system. This year’s Finance Bill, the third of the current Session, has come through an unprecedented degree of consultation and engagement, and implements many of the changes announced at the Budget.
As we said at the Budget, and as we said last year, we are committed to growth through investment, through private sector recovery, and not through unsustainable deficits. This Bill moves us forward on that path to stability and recovery. It promotes our international competitiveness by cutting corporation tax by a further 1 per cent and by reforming our controlled foreign company rules. These are key steps to creating the most competitive tax system in the G20.
The Bill encourages growth by supporting our entrepreneurs and SMEs, by doubling entrepreneurs’ relief, increasing R&D tax credits and cutting the small profits tax rate. It embodies fairness by lifting hundreds of thousands of people out of income tax, and by ensuring that other sectors of society make a fair contribution to cutting the deficit and restoring sustainable growth. It provides for a better environment by incentivising investment in cleaner sources of energy. I am pleased to say that these points were picked up in different ways by a number of noble Lords in this debate.
Let me first take what I might call the pessimist tendency. The debate did not get off to a cracking start given the tone set by the noble Lord, Lord Myners, and followed up by the noble Lord, Lord Barnett, so let me talk to the pessimists for a moment. This is an economy in which the private sector has generated over 500,000 new jobs in the last year. Manufacturers are talking to me about shortages of skills; about the need for more engineers; about welcoming the Government’s apprenticeship schemes; and all the noble Lord, Lord Myners, does is talk down the prospects for the economy. To be fair to him, he recognises that the economy is in the difficulty it is in because his Government did not deal with the structural deficit when they could have done. I certainly applaud his frankness, but it is a frightening challenge; and a legacy which the previous Government left.
I am, however, encouraged. On Friday, I was in Manchester, the old stamping ground of the noble Lord, Lord Barnett, an area where the rebalancing from the public to the private sector is as challenging as anywhere. The latest quarterly survey from the Greater Manchester chamber of commerce points out encouraging signs. I think that some noble Lords need to get out and about around the country more.
On the specific point which the noble Lord, Lord Barnett, raised about reserves, it is a little late at night to go into details about this. However, I know that it is a point that bothers the noble Lord considerably so I will write to him.
Lord Sassoon
The noble Lord says “Don’t bother” so I will not. I do not know whether other noble Lords heard; as he tells me not to write, I will not, but I have made the offer.
As to the extraordinary speech from the noble Lord, Lord Myners, which continually came back to praise the former Chancellor, Mr Darling, I can only think that he read in the Sunday newspapers, as I did, that Mr Darling is coming close to finalising his memoirs. I assume that this was a late play to make sure that Mr Darling looks favourably on the noble Lord, Lord Myners, and his part in the previous Government, but we shall see. We then got away from the pessimists but came back to one or two a bit towards the end. I am sorry that the noble Lord, Lord Haskel, joined in by talking about the Government transferring debt to the citizens. The trouble is that the government debt is the debt of the citizens and that attitude, I fear, underlay so much of what the previous Government did. They completely failed to recognise that it is the citizens who, at the end of the day, have to pick up the debt.
In terms of unrealistic ways to go about getting us out of the challenge we are in, I have to say to the noble Viscount, Lord Hanworth, that one way in which we will absolutely kill growth is if we raise further the top rate of income tax from a level which is not one that this Government wish to see in the medium term. We desperately need to encourage entrepreneurship and growth and the one thing we should not think of doing is further raising the top rate of tax. I am pleased to see the noble Lord, Lord Myners, nodding in approval.
I do not recognise the picture which the pessimists paint. However, I recognise that there are a lot of serious challenges out there, which noble Lords pointed to throughout the debate. I cannot deal with them in detail but my noble friend Lord Newby was the first—and virtually the last—speaker to refer to the European dimension, which is very difficult, while my noble friend Lord Higgins again pointed out the real challenges that there are in analysing the monetary situation and taking lessons from it.
The noble Lord, Lord Desai, raised the question of the savings rate and I completely agree with the challenge that that poses. I am delighted that the noble Lord appears to have lost none of his vigour even though it appears that Delilah may have got at Samson. It was a great reassurance that he is still on fine form. My noble friend Lord Ryder of Wensum was also on fine form. He raised a lot of points but, yes, regulation and employment are very challenging. I would point out to my noble friend that we are in the process of putting 21,000 regulations on the Red Tape Challenge website. We will indeed eliminate significant quantities of regulation while on employment law, another key area, we have already made moves on unfair dismissal to right the balance between employers and employees. My right honourable friend the Chancellor has identified five other areas where we are looking at employment regulation at the moment.
The noble Lord, Lord Watson of Invergowrie, talked about the protection that is important to lower-paid public sector workers. The Government have indeed made the £250 payment for all those within central government and are encouraging all other public sector bodies to abide by that.
Lord Watson of Invergowrie
On that point, the Minister mentions all other public bodies but I mentioned that local authorities have been allocated resources for this specific purpose, yet the Government appear to be allowing them to spend the money on whatever they see fit. Surely, that defeats the Government's purpose in regard to the £250 that the Minister mentioned.
Lord Sassoon
My Lords, as I have said, and as the noble Lord recognises, the money is available and the Government are encouraging not just local authorities but all public sector bodies to stick to the rule that has been applied to central government employees.
The noble Lord, Lord Sheldon, drew attention to another important area; that of an ageing population and its complexities that cut both ways, as he explained. My noble friend Lord Northbrook brought us back to one of the key points, for which I am grateful to him, on the Budget that has pro-business tax changes as central to it.
In the middle of the debate, we had an interesting sub-debate around the importance of marriage and the family. Points were raised by the noble Lords, Lord Anderson of Swansea and Lord Browne of Belmont, and my noble and learned friend Lord Mackay of Clashfern. We are keen to send a clear message that family and marriage matter and that strong and healthy families help to create a strong and healthy society. In a little over a year, this Government have proved their determination to tackle the wider issues that can affect family stability. We have made great strides in improving outcomes for families, particularly those on low and middle incomes, through our work on welfare reform. Furthermore, the universal credit will ensure that people will generally keep more of their earnings for themselves and their families than is currently the case. However, we need to be realistic. It is not fiscally practical to introduce a transferable personal allowance for married couples at this stage. Having said that, our commitment remains clear.
We then had some interesting discussion referring specifically to the Economic Affairs Committee report, and I am grateful to my noble friend Lord, MacGregor of Pulham Market, not only for chairing the committee but for drawing out some of the critical points from the report. I am grateful to him and to my noble friend Lord Tugendhat for their general welcoming of the Government’s new approach to policy-making. I shall respond to a couple of areas that were specifically raised, such as disguised remuneration. HMRC had indicated through its Spotlights publication, in particular, that these schemes were generally not effective. The Government decided to publish draft concert legislation for consultation at the same time as introducing proportionate anti-forestalling rules, with effect from 9 December 2010, because we saw that as the best way of combining the necessary tackling of an exceptional situation, to take the phrase of my noble friend Lord Tugendhat, with an ability to consult on the rules.
I am grateful to the various noble Lords who talked about the road map on corporation tax. The noble Lord, Lord McFall of Alcluith, drew attention to it, and I agree with him that corporation tax reform is not just about cutting the headline rate, which is why in the broader package we are looking at such critical things as the patent box, the treatment of intragroup dividends, and so on. Also in the report, the question of evasion came up a number of times from my noble friend Lord MacGregor of Pulham Market. The noble Lords, Lord Bilimoria and Lord McFall, welcomed the £900 million of additional resources. HMRC is taking this very seriously. The noble Lord, Lord Davies of Oldham, is incorrect in his understanding. HMRC is increasing staff to tackle avoidance, evasion and fraud by around 2,500 full-time equivalent staff by 2014-15. It will consider the benefits of publishing a more detailed document, setting out its approach to evasion later in the year. It is getting late and I should and will conclude.
As noble Lords are aware, this Government came to power inheriting the largest peacetime deficit in the nation’s history and an economy on its knees. We have taken difficult decisions in our two Budgets to date to tackle this dire inheritance, eliminate our structural current deficit over the coming four years and stimulate a private sector recovery. This strategy has been endorsed by the IMF, the OECD, the European Commission and UK business organisations. Of course, we have always said that recovery would be choppy. Our plans necessarily incorporate a degree of flexibility through the automatic stabilisers to allow government spending to move up and down with the economic cycle.
This Bill further delivers our commitment to improve our competitiveness, encourage investment and support our businesses. At the same time it removes hundreds of thousands of individuals from income tax and helps reduce the cost of living for families across the country, and it makes these changes in a way that is fairer and more consultative than any previous Finance Bill. I commend the Bill to the House.
Finance Bill 2011: EAC Report
Lord MacGregor of Pulham Market
That this House takes note of the Report of the Economic Affairs Committee on The Finance Bill 2011. (6th Report, HL Paper 158)