Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Lord Brougham and Vaux)
Good afternoon, my Lords. Welcome to the 10th day of the Committee on the Welfare Reform Bill. I have been asked to remind noble Lords to speak up a bit because the microphones are not what they are in the Moses Room. Please do not touch them.
Welfare Reform Bill
(13 years ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
“( ) In the case of joint claimants, regulations under this paragraph must specify that a particular amount of the earned income of a second earner should be disregarded.”
Baroness Lister of Burtersett
My Lords, the purpose of the amendment is write into the Bill a requirement to provide an earnings disregard for second earners, the majority of whom are women. The Minister will no doubt say that this is not necessary because, as the Minister of State confirmed in the other place and the Minister here confirmed at our previous sitting, the Bill’s regulation-making powers enable this or a future Government to introduce a disregard for second earners at a future date, if they so wish. I welcome that flexibility.
Nevertheless, there are important issues of principle here that need to be debated—not all of which were covered in our initial skirmish in the previous sitting. I once again apologise for the length of my remarks but there are important points to be made. However, the Minister can relax because I will not this time quote any e-mails from Conservative supporters.
The treatment of second earners is an important question that has caused concern among anti-poverty organisations such as Save the Children and women’s organisations such as the Women’s Budget Group that thinks that this is one of the most important issues in the Bill that affect women. I am grateful to members of the group, of which I am a member, for helping me to think through some of these issues. The treatment of second earners also threatens to undermine the Government’s claims to be substantially improving work incentives. The Government have sent out rather mixed messages on incentives for second earners and we would welcome a clear statement of the position. I hope that having listened to the arguments the Minister might go a little further than what he said in our previous sitting.
It is true that second earners are now the only group whose earnings will be subject to the taper from the first pound when the disregard for the couple has been exhausted by the first earner. In a means-tested system based on the joint resources of a couple, some disincentive for second earners is inevitable, and I accept that this is a long-standing problem and is one reason why some of us would like there to be less reliance on means-testing. However, the problem is being made worse under universal credit, and the judicious use of disregards could mitigate it.
A second earner’s disregard would enhance the architecture of universal credit by addressing the increased disincentive that most—not all, I acknowledge—second earners within the universal credit system will face. This is primarily because of the higher taper rate for those whose household income disqualifies them from housing benefit and council tax benefit under the present system. On top of that, those with childcare costs who are working more than 16 hours a week or more will, as a result of the reduction in the limit from 80 per cent to 70 per cent, have to pay more towards their childcare costs than previously. The reduction is already in force, although I welcome the fact that those working fewer than 16 hours a week will benefit from the extension of help with childcare costs. Because even small changes can tilt the balance of advantage of working for second earners, the introduction of a separate disregard for them could prove to be a cost-effective innovation.
Policy briefing note 5 analyses participation tax rates—or PTRs, which measure the incentive to enter paid work—and marginal deduction rates, or MDRs, which calculate how much of a small increase in earnings is lost through a combination of benefit withdrawal and taxation, and therefore measure the incentive to increase earnings once in paid work. In both cases, the lower the rate the higher the incentive. The briefing note shows that around 900,000 or three-quarters of potential second earners whose householders qualify for means-tested support under universal credit will face a lower incentive to take employment than under the current system, with an increase in their average PTR from 35 per cent to 65 per cent.
It appears that all the nearly 1.5 million existing second earners will see an increase in their PTR from 30 per cent to 45 per cent on average. The note concedes that this may reduce some existing second earners’ incentive to work. Where this leads to a withdrawal from the labour market will presumably increase the amount paid out under universal credit. With regard to incentives to earn more when in work, approximately 300,000, or three-quarters, will face an increase in their MDR and, therefore, reduced incentives. According to a Written Answer in the other place, five out of six of these have children.
These calculations, and the worked example we have been given, take no account of childcare costs, although we are promised that these will be factored in at some future point—I trust before Report. Will the new calculations take account of the reduction from 80 per cent to 70 per cent on the debit side, as well as the extension to parents doing mini-jobs on the credit side? I suspect not, because this is one of the cuts already implemented, which can conveniently be ignored in impact statements.
Fortunately my colleague Donald Hirsch, of the Centre for Research in Social Policy, has done some calculations for the Resolution Foundation and Gingerbread which take account of the cut already made in support for childcare, as well as the policy announced recently. He has kindly allowed me to use them, even though I do not believe that they are yet in the public domain. One example illustrates well the nature of the disincentives faced by some second earners. He calls it the “hours trap”. He gives the example of a parent with a low-paid partner. She takes a job at the minimum wage of £6.08 an hour for 16 hours a week to supplement the family income. In 2010, of the £97.28 she earned, she retained £46.19 after taking account of deductions and net childcare costs of £11.20. This represented a withdrawal rate of 53 per cent. Under universal credit, the much faster withdrawal of support for second earners, together with the recent cut in childcare support, means that much more of the extra income will be lost—she will retain only £17.25 of the £97.28, i.e. an 82 per cent withdrawal rate.
Admittedly, for those working fewer than 16 hours a week, an 82 per cent withdrawal rate is an improvement on the current situation, because of the extension of help with childcare—but, as Donald Hirsch observes, it is not an improvement that is likely to get many second earners out to work.
There are three main reasons why I believe we should do what we can to maximise work incentives for second earners. The first concerns the Government’s own anti-child-poverty strategy. It is clear from the statistics that two-earner families with children are much less likely to be in poverty than single-earner families. Without a separate disregard, it will be very difficult for second earnings to fulfil their potential as a route out of poverty. The latest analysis of the official statistics by the Institute for Fiscal Studies shows that the child poverty rate after housing costs drops from 18.9 per cent in couples with one full-time worker to only 5.1 per cent in couples where there is also a part-time earner, and 2.1 per cent where there is a second full-time earner. Moreover, if we take a dynamic perspective, as Ministers encourage us to do, it underlines the potentially protective function that second earners can play in two main ways. If the first earner—usually, still, a man—loses his job, a partner’s earnings can help the household cope while he looks for another job. When the mother is in paid work when living with a partner, she is better equipped to remain in the labour market should that relationship break down and should she then form a lone-parent family household—that family is then less likely to be in poverty. She is also better equipped to respond positively to the extension of conditionality to lone parents with young children. A second earner disregard could thus help achieve the Government’s aim of reducing so-called welfare dependency among both two-parent and lone-parent families, because ultimately it offers a potential route out of universal credit as well as out of poverty.
Secondly, there is the question of implications for shared parenting, a Government goal articulated in their consultation on modern workplaces, which I very much welcome, even if its recommendations on parental leave look to be under threat according to recent newspaper reports. The equality impact assessment acknowledges that,
“it is possible that in some families, second earners may choose to reduce or rebalance their hours or leave work”.
However, it reassures us:
“In these cases, the improved ability of the main earner to support his or her family will increase the options available for families to strike their preferred work/life balance”.
This, it suggests, could be a “dynamic result” that improves family life.
It appears that what exponents of nudge like to call the architecture of choice is being tilted towards a more traditional male-breadwinner model, which may not necessarily reflect the preferred work-life balance of both members of a couple and could weaken women’s labour market positions. According to the equality impact assessment, this traditional male-breadwinner model apparently improves family life. Indeed, at a Social Security Advisory Committee stakeholder event, held at around this time last year, I questioned the Secretary of State about this. He answered in terms that suggested he regarded a return to such a model as a good thing, although I accept that this may not be the Minister’s view.
Moreover, I question the impact assessment’s assertion, made in this context, that universal credit policy is gender-neutral. It states:
“Where men and women are in the same circumstances they are treated equally under Universal Credit”.
We should hope so but in a gender-unequal world men and women are often not in the same circumstances in either the family or the labour market, so the effects of denying second earners a disregard are not gender-neutral. Therefore, I am not convinced that the Government are fulfilling their legal duty to promote gender equality here. Perhaps the Minister will tell us what advice the department has taken on this.
Thirdly, the Government nevertheless seem quite sanguine about the position of second earners as they consider any such risk of decreased work incentives to be justified. The Government are concerned only with incentives at the level of the household, rather than the individual. Indeed, they tend to conflate the two. In an Oral Answer in the other place, the Secretary of State stated that,
“universal credit will provide much better incentives for the first earner, giving a greater choice to the household about how it wishes to spread its income”.—[Official Report, Commons, 28/3/11; col. 2.]
This, together with the quotation that I read from the equality impact assessment is an example of what some economists called a unitary household perspective. It ignores the fact that couples are made up of two people and that the autonomy of each is important. Improving incentives for a first earner, even if on behalf of the couple, does not compensate for worsening them for a second. The choice of one partner is being enhanced at the expense of the other. In an earlier sitting, the Minister observed astutely:
“Effective choice exists only when the balance of power is equal between tenants and landlords”.—[Official Report, 20/10/11; col. GC 169.]
The same is true within those households where an imbalance of power exists, often reflecting the economic power of each partner.
A study of BME maternal poverty conducted for Oxfam found that the women interviewed were keen to take paid work as it is the best way to improve their household finances. However, in addition to the usual barriers, such as childcare, some of them faced their husbands’ attitudes. For the women who were in work, their jobs were an important source of self-esteem and independence, and they often had greater access to household resources than those without paid work. Although more traditional attitudes to gender roles might be more common in some BME households, they are not confined to them.
Consider the situation of a couple where the man is in low-paid work and receiving universal credit. He prefers his partner to be at home, looking after the house, the children and him. She would like a part-time job, perhaps to achieve a modicum of financial autonomy, to enjoy the sociality of paid work or to improve the household finances. Her bargaining position is not strong if taking paid work will reduce his universal credit and he can point out that her earnings will not bring much extra money into the household. If she could say that she and the household can keep a chunk of her earnings before they are affected by the taper, it would increase her bargaining power and make her choice to take paid work more effective, following the logic of the Minister’s own argument about choice and power imbalances.
Finally, there appears to be something of a tension between the Government’s apparent lack of concern about the reduced incentives faced by second earners and the treatment of this group in the new conditionality rules, which we have discussed. In particular, the in-work conditionality rules will require a couple to earn twice as much between them as a single person in order to escape sanctions. Yet if the first earner is unable to earn enough to do so alone, a second earner’s wages could be the most viable means of complying.
In short, whether looking at it from the point of view of the universal credit architecture, the Government’s child poverty strategy and its ambitions for shared parenting, or of financial autonomy for women and effective exercise of choice for them with regard to paid work, a second earner disregard represents a cost-effective enhancement to universal credit which, arguably, could eventually pay for itself. In a previous sitting, the Minister gave some costings for a second earner disregard. Are these gross or net costings? In other words, do they take account of the increased tax and national insurance and reduced universal credit payments that could flow from more second earners moving into paid work?
The Minister also said that this is a matter not of principle, but affordability. I hope that I have convinced him and the Committee that there are important principles at stake and that he will therefore go further than before in accepting the case that has been made in principle and assure the Committee that he would look favourably on such a disregard as and when the resources are available, taking into account the point about net and gross costs. I beg to move.
Baroness Howe of Idlicote
My Lords, I congratulate the noble Baroness on the detailed and effective way in which she has presented the case for her amendment. I spoke firmly on the equality issue at Second Reading. I am most concerned about the extent to which the majority of second earners are women. Their very delicate position may be fine if they have a fully understanding husband, but we know that some families face situations that are far removed from this. I understand the point about mutual parenting, but if the Government put more emphasis on companies providing enough flexible working for both sexes, this situation would be much easier for families. My main concern is the vulnerability of the woman at home who, as we have heard, does not have a very good argument if she is not going to earn, as a result of her extra hours, enough to make any difference at all to the joint income. I therefore support what has been said.
Baroness Hayter of Kentish Town
My Lords, this amendment seeks to tackle the introduction, under UC, of a poor work incentive for second earners who, as the noble Baroness, Lady Howe, has said, are mostly women. As my noble friend Lady Lister said, 300,000 second earners will see increased marginal deduction rates as opposed to only one-third of those who will see reduced MDRs. The policy to make work pay does not appear to extend, therefore, to a third of these affected second earners. According to the impact assessment:
“It is possible that in some families, second earners may choose to reduce or rebalance their hours or to leave work. In these cases, the improved ability of the main earner to support his or her family will increase options available for families to strike their preferred work/life balance”.
As my noble friend Lady Lister has said, it is not clear how this will improve options for families who prefer to have a more equal working relationship, where both partners combine work and child rearing. It also seems to be in conflict with other bits of coalition policy, such as the BIS modern workplace consultation, which sets out options for families to share parental leave more evenly between men and women. Perhaps, in responding, the Minister can let us know what discussions he has had with BIS about whether the incentives within universal credit support the BIS policy.
The reduced incentives for second earners to work come on the heels of the April cuts in childcare and therefore, as has been said, further reduce the incentive for anyone with a child to take a job, not to mention other little things such as cuts to the baby element of the child tax credit, the health in pregnancy grant, the Sure Start maternity grant and the freeze in child benefit.
As my noble friend Lady Lister said, the pay of second earners is crucial in keeping families out of poverty. If I may be forgiven for repeating her figures, which I hope I have right, child poverty is at 19 per cent where there is one full-time earner but it drops to 5 per cent with two earners and down to 2 per cent with two full-time earners. Therefore, second earnings are absolutely key to the Government’s objective of reducing joblessness, child poverty, dependence on universal credit and increasing the tax take. I look forward to the Minister’s answer to whether it was the gross cost after taking account of tax take which led to the projected cost of this.
Childcare has already been mentioned and is clearly particularly important in two sorts of families. One is obviously lone-parent families, and the other is where there is a second earner, with both parents tending to be out of the house at certain times. The disincentive to work increases where there are child costs to be met. As has already been said, childcare will cover only 70 per cent of costs, and that leaves 30 per cent to be found from earnings, which is already a high enough take from the second earner’s pay. Therefore, without an earning disregard of their own, the second earner has a very high deduction rate where there are child costs to be met, effectively making the taking of a job financially unviable. Yet, as I have said, second earnings are crucial in keeping households out of poverty. They will be even more important if, as we read today in the Financial Times, there is any truth in the rumour that when times get tough it is the poor whom this Government will seek to make pay. According to these press reports, the Chancellor is looking at cutting further billions from benefits by scrapping inflation-linked uprates, even—this beggars belief—freezing some payments. We read in the same article:
“The Liberal Democrats will oppose anything that suggests the coalition is unfairly passing the burden of deficit reduction on to struggling families”.
We look forward to hearing whether the Minister can say whether the Financial Times is accurate. Perhaps he can also ask those sitting alongside him—maybe they could pass him a note—whether they would like to place on record their opposition to any attempt to pass on any cutbacks to struggling families. They must know that the rich can pay far easier than the poor. Are they going to use their bargaining power, such as it is, in the coalition to protect the very weakest in society?
These amendments are about reducing poverty and increasing the take-up of work, and it would be useful to know on which side the Lib Dem/Tory coalition sits on this. Later today, we shall reach Amendment 75A to Clause 51 standing in the names of the noble Lords, Lord German, Lord Stoneham and Lord Kirkwood, and the noble Baroness, Lady Thomas, which effectively asks for an earnings disregard from the second earner where the first earner is now too ill to work. We very much welcome that amendment, but it would useful to know whether the same principle could be more widely adopted, as this amendment seeks to do.
The Minister may well be forgiven for wanting to reduce the number of working women on this side of the Committee but perhaps he would make it clear that that is not the intention with universal credit by ensuring that second earners really will be better off in work.
Lord Freud
My Lords, I have enjoyed what we are calling the bevy of ladies on the other side. Their intellectual prowess has left me stunned on my heels. Let me go into this amendment, which proposes that we create a disregard for the second earner in a joint claim. This proposal was raised in Amendment 52DB, which we have already debated, so I am going to be reasonably brief.
First, this is not a matter of principle. We acknowledge that it would be desirable to incentivise both members of a couple to work. However, we have limited funding and we have chosen to focus that on creating a strong incentive for at least one member of each couple to work, in order to limit the number of workless households. This is clearly a difficult choice. We have discussed these choices, in response to the noble Baroness, Lady Lister, with other departments on a regular basis, and we are very aware of links to other programmes.
Clearly, this is something that, if we had some money, we could revisit at a future point, but let me give noble Lords the figures. If couples who were both in work were entitled to an additional disregard of £700 a year, for example, the cost would be £240 million.
Baroness Hollis of Heigham
Could the Minister be very detailed in his costings? When he says an additional £750—
Lord Freud
There was a question around that, so I will endeavour to supply all the information I possibly can. A sum of £700 a year in addition would cost £240 million; if the disregard were £1,000 a year, the cost would be £350 million. We simply do not have the money in our present envelope. There is no real difference between gross and net in those figures because they are below the personal tax threshold, so there is no tax effect to set off. We are doing all sums on a non-dynamic basis anyway, so there is not a dynamic effect. From the point of view of the architects of the universal credit, we would have liked to incorporate more dynamic effects, but there are certain other interests in the Government that take a very straightforward view of money.
Let me deal with the other issue—that making the lack of a disregard for second earners makes the universal credit bad for women. That is the underlying argument here and clearly one that would concern us very greatly. But it is clearly not the case. Universal credit has many features that will improve the position of women, most obviously in support for mini-jobs and childcare. We have a duty, as the noble Baroness, Lady Lister, asked, to look at the impacts of policy changes on a range of particular groups, including the impact on men and women, and we are satisfied that our policy here is the right approach and that we can justify the impact. That is why I was able to sign the ECHR statement for this Bill.
Our impact assessments and equality impact assessments show that women in general are more likely to gain than to lose from universal credit, that this is also true for lone parents and couples with children and that lone parents benefit the most in both absolute and relative terms from the likely increase in take-up.
Baroness Hollis of Heigham
My Lords, I deliberately did not follow my noble friend after such a full, strong and powerful speech; however, my name is also on the amendment. I appreciate the dilemma that the Minister is in: there is a cash constraint and he is making policy choices. The last thing I would wish to see is a diminution in the earnings disregard for the first earner in order to vire it across to a second earner because you are trying to see which poor people would be most hurt in that situation. It is a dilemma and I would not wish to go down that road.
The Minister is right to say that under universal credit the position of women improves for the most part. However, the position of partnered women does not. The distinction my noble friend was drawing was about the situation of partnered women, not women overall. All the moves between in-work and out-of-work benefits, the 16 hours and the extra disregards for lone parents are welcomed, but we are now talking about partnered women and much of the noble Lord’s response dealt with questions that we did not raise.
Let me refer the Minister to page 6 of his own document. This is what happens if Bhavna also starts work for 10 hours a week at the national minimum wage of £6 an hour: she brings in an income of just over £60 a week, and the household has a net gain of just over £20 a week. So she earns £60 and the two specific examples given by the Minister show that she has a gain of £20. As my noble friend emphasised repeatedly, this excludes any childcare costs. I have been doing some sums. If her children are not of school age and she is using a child minder at £2.40 an hour per child—which she may well do—and allowing an hour for travel at each end of the 10 hours that she is working part time over the course of two days, I reckon that, out of that £20 gain—her 30 per cent—her childcare costs would take up £19. So she is left with £1, out of which she has to pay her travel costs, let alone extras such as lunches, food at work, different clothes and so on. Some £19 of that £20 could go on the existing childcare costs, leaving £1 for travel—in other words, she would be out of pocket if she worked. That is based on the Minister’s own figures, and that is what concerns us.
My noble friend was surely spot on when she said that to have a second earner in the family is protective of all family forms. This is what matters; it protects the existing family. We know a larger family will still remain below the poverty line on minimum wage unless you have a second earner in play—and it is the second earner who takes a working family out of poverty. It protects the family and it also protects the woman, should anything happen to her in future.
While I accept the fact that the Minister is up against cost ceilings—I certainly do not wish him to stop viring earnings disregards between the two members of the family—it would help the Committee if he was able to give an undertaking that this will be a priority and that any additional resource would be aimed towards readdressing the issue of the earnings disregard for the second earner. Believe me, all the gains that he is offering, in terms of mini-jobs and so on, are going to be wiped out because of the tougher treatment of childcare costs and the fact that, as a result, it will not be worth your working, even though the Government claim it is.
Baroness Sherlock
My Lords, I want to save the Minister getting up twice, as I want to ask him a question on a similar point. I have been trying to wrestle with some of the briefing that has come in on this issue. Can he answer two simple questions? Is it possible for somebody to face MDRs of higher than 100 per cent if they are, for example, a second earner with childcare costs? Secondly, if somebody would actually be worse off in work, would they still be sanctioned for failing to do it?
Lord Beecham
My Lords, may I ask what I hope is a final question? The Minister rightly referred to the fact that there would be no income tax income to the Treasury to offset the cost. However, has the Minister considered the likelihood of much of the income of a second earner being spent in a way which would incur VAT? Is that not a material consideration in terms of what would be offset against the cost?
Baroness Hayter of Kentish Town
Before the Minister stands up, as I think he might like to get everything together, there were two questions posed that he did not respond to. One was whether he had had discussions with BIS. I had also given him the opportunity to refute the story in the Financial Times. I hope he might use this moment to do that.
Lord Freud
My Lords, let me try to pick up some of those points. Picking up the point of the noble Baroness, Lady Hollis, I hope that she is hearing that I am sympathetic to this point. I hope that noble Lords have heard that this is about money. We do not have this money. We have a very sharp choice to make, about whether to reduce workless households or to look after second earners with a disregard. We have taken this decision, and we have also taken a decision, when we do find some more money, to do something about childcare, which is another issue that I know greatly concerns noble Lords.
There are two clear issues when we look to improve this system, as we see dynamic effects coming through which are provable. We had a debate the other day on why we need to test things. Two of the obvious things to test will be second earner disregards and taper. Those are the first two things that everyone in this Room, I think, would like to know about as we get the system under way. Therefore, to the extent to which I am being asked “Will we look at it?”, yes, we will be looking at this. I am not going to make any assurances, because we should find the answers, but that is exactly the kind of question we want to have answered.
I shall take up the points of the noble Baroness, Lady Sherlock, on MDRs. You can freight all kinds of things on to MDRs if you want to, with different costs, and I am sure that you can create a position where the overall costs come up to high MDRs. The simple point that I would like to make is that with the universal credit itself, the MDRs come down.
On whether we will force people to take a job which leaves the household poorer, we made the point when we discussed this that we take these things into account when we set up the obligations of claimants.
Baroness Sherlock
My Lords, I am grateful to the Minister. I hear very clearly his sympathy for this issue. If it is simply a question of money and therefore timing, one of the things he could do, to put everyone’s minds at ease, is to say, “Until we can afford it, we will not force a household to be worse off by forcing them into work or sanctioning them”. He could then review the situation when he found the money down the back of the sofa next time.
Lord Freud
I will not give that kind of assurance to noble Lords. This is clearly—
Lord Freud
Stop teasing me. The noble Lord, Lord Beecham, made the point about VAT; there is clearly a missing element there, and I acknowledge that there is a difference between the gross and the net.
I thought I had answered the point made by the noble Baroness, Lady Hayter, on talking to other departments. Yes, we are talking to BIS. As to the FT story: as you would expect me to say—it is something between, “Pick the normal stuff”, “I do not comment on press articles” and, “It is a matter for the uprating Statement”. Pick any one of those you want. I am not answering the question. [Laughter.]
Baroness Hollis of Heigham
I congratulate the Minister on his nimble footwork; it was very impressive. However, what happens to Bhavna in this situation, where her childcare completely mops up £19 out of her £20 addition to the family earnings?
Lord Freud
In this example, there is a 65 per cent taper. Thereby, extra earnings produce an increased income of about £20. The effect of childcare costs would depend on the amount of the childcare costs. Under our current proposals, the parent is clearly expected to meet 70 per cent of allowable costs, and the state will cover the rest.
Baroness Hollis of Heigham
I understand that. I thought that that was exactly the point I made. The question was regarding the result of that calculation. She earns £60 and adds £20 net after universal credit, and £19 of that will, on any reasonable estimate, go on her share of childcare costs. That is before you take travel costs into account. Why work?
Lord Freud
We are going round in circles. We all know the point that is being made. We all know the reality of the iron triangle. We are wrestling with it. This is what we can afford to do right now. Some people may be caught in such a position and we make the point that some people will have higher MDRs—a lot will not. As we improve the position when we have funding, and have proof of the dynamic benefits that may free up main funding, we will be able to apply them. However, this is the best we can do right now. I would love to do more, but I cannot find any more money.
Baroness Lister of Burtersett
My Lords, I thank noble Lords who have supported the amendment with some helpful additions to the argument. I do not know whether any other noble Lords spotted it, but the Minister asked the “noble Lord” to withdraw the amendment. I do not know if he was making a Freudian slip and trying to reduce the bevy of Baronesses opposite him.
I should like to make a couple of more critical points before I come to a more positive one. I can understand the Minister’s frustrations that there are other parts of government that will not allow the department to do its calculations on a dynamic basis, but I was a bit disappointed that the department’s thinking was not dynamic in relation to this matter and it was not prepared to acknowledge that there could actually be positive dynamic effects through a second-earner disregard—whether they be anti-poverty or paid work effects, and all the things that the department is in favour of. I do not know whether these are just the noble Lord’s own arguments or those that are simply in the brief that comes from the various documents we have been given, but it seemed to me that there was still the unitary-household approach and an inability to understand that while couples are couples, they are also individuals within couples. I ask the noble Lord to go away and think about that a bit more and about the importance of individual autonomy within the context of coupledom. I would have been even happier if he had been able to go one step further and commit himself on the second-earner disregard in the longer term.
We have, however, made progress today. What the Minister has said takes us beyond some of the other things which have been said. I now take it as the official departmental view that it will, in the fullness of time, consider improving incentives for second earners, either through a second disregard or through the taper, as and when resources permit. I therefore beg leave to withdraw the amendment.
Baroness Drake
“( ) Regulations may specify that the pension contributions of single or either of joint claimants are to be disregarded in calculating their income.”
Baroness Drake
My Lords, the purpose of this amendment is to allow regulations to specify that pension contributions made by single or either of joint claimants are disregarded in full in calculating their income for the purposes of calculating entitlement to universal credit: in effect, that 100 per cent of contributions made to an Inland Revenue approved pension are deducted from earnings that are brought to account in the calculation. The current tax credit rules disregard the whole of any pension contribution, and housing benefit takes half of that contribution into account.
Briefing note 3, which I read again this morning, states that only 50 per cent of pension contributions will be deducted from income under universal credit. I find this decision to allow only 50 per cent of pension contribution to be deducted—as against the current 100 per cent—quite disturbing when we are on the eve of beginning to auto-enrol millions of people into a workplace pension, many of whom will be modest-income earners and many of whom will be in receipt of universal credit. I find it disturbing for three reasons. First, it will undermine the incentive to save—I will come back to this. Secondly, it will impact those on lower incomes. Thirdly—and this is an argument to which I will return on another occasion—it is another example of a government policy measure, of which there have been several over a short period, which results in little or no asset accumulation strategy for low to moderate income earners.
The arguments for auto-enrolment and the 8 per cent base load of contribution included an analysis of financial incentives to save. It included the fact that this 100 per cent of contributions was allowed in the deduction under working tax credit. That analysis was carried out in three instances: once by the Pensions Commission—we were aware of it and it influenced our thinking—and twice by the DWP in its research report 403 Financial Incentives to Save for Retirement, and its report on the savings incentive work programme. The latter report was a very high-profile event; it was carried out in a rather heated environment around incentives to save and means-tested traps. The DWP was full and transparent in its engagement with all relevant stakeholders, sharing data and analysis. The report was widely accepted at the time. In all of these reports it was clear that the way in which pension contributions were treated under the tax credit system was part of the incentive to save and the payback analysis on every pound saved for low to moderate-income earners.
I cannot do justice to the reports in moving an amendment, but I refer to one or two selected examples. Looking at £1 of saving by a low earner under current benefit and tax credit rules, paragraph 4.5 of the DWP Research Report 403 advises;
“the expected payback for a low earner per £1 contribution net of any offsetting benefit effect is £2.81, compared to £2.52 with no such offset”.
The same paragraph, in brief, goes on to illustrate, admittedly for a very stylised individual, how receipt of working tax credit throughout working life by someone on a lower level of income can increase the return on their savings to 4.1 per cent from 3.2 per cent after all the effects of these offsets. Even if tax credits are received only at certain points and not throughout the whole working life, they still boost the net return on savings. If one were to take the difference between 3.2 per cent and 4.1 per cent and express it in terms of a percentage difference in a rate of return over 30 to 40 years, what would that mean? It would mean a pension pot of the order of 20 per cent or perhaps 25 per cent less than it would otherwise be.
Then we come to those on the lowest incomes who are hit hardest. I come back to a point that I made in a previous amendment about the purpose of the tax credit, which was to make work pay. It made it easier for people to get a real return from being in work and accept responsibility. This is very important to those on lower incomes. Clearly, a very strong incentive to save will be lost by changing the rules on pension credit and, inevitably, it is going to trail through to a gender dimension. I always get very stressed when I look at these things in terms of the gender impact.
Referring back to Appendix D of the DWP report on the savings incentive work programme, again this shows that those on modest incomes in receipt of tax credits and housing benefit effectively pay 52p for an individual contribution of £1, which, with the employer match, means that £2 is contributed to their pension. That clearly enhances the payback from saving for these individuals. I know that there will be instances where some people whose incomes are below the earnings limit at which withdrawal begins will not get that benefit. None the less, for significant numbers of people— and that number will increase in an auto-enrolled world—under the current arrangements the payback would be much higher by allowing the 100 per cent.
I come on to the broader point. It is very easy to look at a piece of policy incrementally and say, “We have to make difficult choices. We can do this and save that”, but I am always really concerned when I see a series of incremental policy decisions. When you look at their cumulative effect, they are quite exponential in their impact and much greater than the people who made the individual incremental decisions thought they would be. This is almost disassembling asset accumulation strategy. Policies focused on improving the benefits system and policies directed at asset-building by lower income groups are not alternatives. I get a feeling that there is a debate that says that they are. Certainly when I participated in the debate that led to the scrapping of the savings gateway, that was the debate that was running at that time.
It is not a matter of either/or; you address the low income policy and income redistribution or you address the asset accumulation strategy, but recognising that addressing inequality and enabling people to take responsibility, stay in control and be empowered, and everything that we aspire to for people to achieve, have and be, requires both sets of policies. Yet we see in this Bill and elsewhere other measures by the Government that have the effect of disassembling asset accumulation strategies. We have the one that I am talking about, where the amount of pension contribution deductions that can be made is now to be halved. We saw the removal of the savings gateway. We are seeing the application of quite aggressive capital rules to the savings of those in work under universal credit. We are seeing the application of aggressive capital rules where one partner has reached pension credit age and the other has not. We have seen the aggressive taking into account of ISAs and assumptions about income flow from ISAs, which were a product that was supposed to be targeted at lower to moderate-income earners. It was a high-advantage, simple, cash savings product.
Therefore, when one stands back, I have a general concern about the impact of a series of measures on the asset accumulation strategy for people on low-to-moderate incomes. I honestly do not know how one expects people to embrace responsibility and long-term saving, and think about preparing for retirement, when one of the significant things that contributed to the payback on your savings, apart from the employer contribution, was the way in which your pension contribution interfaced with the benefits system. It is unfair and it is certainly inefficient as a piece of policy, either as pension policy or in helping people to exercise more control and responsibility.
May I also ask about some operational issues that flow from this? It is not clear how personal pensions that are not paid through the employer will be handled when someone says, “I am not engaged in the auto-enrolment arrangements with the employer but I am paying into a personal pension, so how do I get account taken of that?”. Secondly, it strikes me that this will be quite a complicated procedure. If someone is on universal credit and paying a contribution, only 50 per cent of which is taken into account, you cannot take the gross earnings figure and you cannot take the net earnings figure because the Inland Revenue would have given a more generous allowance for that pension contribution. Therefore, you have to create another figure for the 50 per cent allowance that you are going to give on pension contributions. It just struck me as a rather complicated calculation or procedure, so I should like to understand how that will be done. I also dislike and disagree with the intention to reduce it from 100 per cent to 50 per cent. I beg to move.
Lord McKenzie of Luton
My Lords, I do not want to add anything to the very full argument around the policy that my noble friend has laid out. I just re-emphasise the issues about the practicalities and how they will work. I understand that employer contributions will not be treated as income for universal credit purposes but only 50 per cent of the employee contribution will be deductible. As my noble friend says, the data that come from the system would be net of tax, net of national insurance and net of occupational pension contributions, not the full contribution. Therefore, some adjustment would have to be made to that. How does that sit with the collection through real-time income and the related point that my noble friend made about when those contributions are made directly to personal pensions? Presumably there will need to be some additional reporting requirement. I guess this just emphasises that, in the world of universal credit, all is not as simple as we would wish and sometimes portray.
Lord Freud
My Lords, Amendment 52D would take a power to disregard the full amount of any pension contributions from the assessment of both single and joint claimants’ income. In the universal credit White Paper, we set out our intention to disregard 50 per cent of contributions to an occupational private pension from the income assessment. This balances our commitment to encourage pension saving with fairness to the taxpayer and it is the current treatment in the benefits system. It is true that in tax credits 100 per cent of pension contributions are ignored, but tax credits are based on gross income. This is not therefore directly comparable with the 50 per cent disregard in the benefits system.
In addition to the disregard, universal credit claimants will also have tax relief on their pension contributions. This means that for each pound that goes into the pension pot of an employee who is a basic rate taxpayer and in receipt of universal credit, the take-home income is reduced by only 34 pence after minimum employer contributions, tax relief and increased universal credit payments are taken into account. It would cost approximately an additional £200 million a year to move from 50 per cent to a full disregard. While this would no doubt be welcomed by claimants on low incomes, not all taxpayers who do not claim benefits have the advantage of a private or occupational pension. We must therefore take a balanced approach to the disregard of pension contributions, and we believe that 50 per cent is the appropriate level.
Pension contributions are disregarded from the income assessment in tax credits. We have taken the view that this is one of several areas in which tax credits have been excessively generous to claimants when the position of the average taxpayer is taken into account.
On the operational point, we are already operating a 50 per cent disregard, including a payment towards personal pensions. The rules will operate in a similar way to the way that they do now, but clearly we will not be able to do all this through RTI, so there will need to be some direct reporting.
Picking up the point that the noble Baroness, Lady Drake, made about what we are doing for asset accumulation, I can point to a series of measures that the Government are taking in that area, not least the support being provided to lower-income houses to purchase a home. In universal credit, households are able to save up to £6,000 with no impact on the universal credit award. I should point out that an average household with a working-age adult has average savings of £300.
The convention is that “two Baronesses” makes “noble Lords”. If I made a mistake during debate on the previous amendment, I was possibly slurring my “s”. In this case, I can ask the noble Baroness to withdraw her amendment.
Baroness Hollis of Heigham
I was slightly taken aback by the Minister saying that he thought 100 per cent disregards in tax credits were regarded as overgenerous, when at the same time no mention is made of what we are paying in higher-rate tax relief. Currently, out of the £26 billion we spend on tax relief, some £8 billion to £10 billion is going to higher-rate tax relief. If we follow the Minister’s line, apparently we need only to incentivise the rich to save; the poor are being overincentivised and we are being overgenerous.
Lord Freud
My Lords, I think I am caught being slightly puzzled. I was strongly under the impression that pensions were removed from the higher rates of tax relief. I hope I am not wrong on that.
Lord Freud
On that basis, I am probably the wrong person to interrogate on this matter.
Baroness Hollis of Heigham
There is a limit on how much of your pot can attract higher-rate tax rates, which is the £50,000 figure. There have been some changes, but £50,000 of pension contributions is still tax free.
Lord Freud
I think we are now into the realms of minutiae. This has been subject to a substantial change. It was unlimited. Noble Lords can see that my personal interest in this is not as great as it might be. One can make comparisons and political points all over the place; let us stay with the business in hand.
Lord McKenzie of Luton
Can the Minister help us on one point? I am interested in the practicalities and operation. He said that we could not do all this through the RTI system. I am trying to understand how much of it can be done, given that the RTI system is going to produce either a gross income figure or a net of tax and national insurance figure.
Lord Freud
My Lords, we had a session earlier today trying to go through what the universal credit shows. Without being overprecise, a lot more information is available but effectively you need the net and the gross figures. Clearly, the personal pensions are not captured on that payslip, but the pension contributions through auto-enrolment, for example, would be captured.
Lord McKenzie of Luton
I accept that you might have the net and the gross figures, but do you not now need another figure, which is half the occupational pension payment? That is not readily thrown up in the pay-as-you-earn system or any other system.
Baroness Drake
I appreciate that the Minister has to give the Government’s reasoning behind this decision, but I am absolutely aghast at the argument that it will cost £200 million to restore 50 to 100 per cent of the pension contributions being deducted. There was a pension settlement, which said that the state pension age had to go up but the earnings-related element would be removed from the state system and go flat rate, and that individuals, supported by their employer, would have to take on greater responsibility for personal saving. They would be auto-enrolled, and that was part of them taking responsibility for a sustainable pension system over the long term. As part of that, the incentive to save had to be right; that was a huge debate. In the third leg, between the state pension age going up, flat-rating the state system and moving private savings up and earnings-related out of the state system, the incentive to save had to be right.
At the time, there was a huge debate and a huge argument that it would not work unless you got the incentives to save right. At the lower end, how the benefit system interfaced with the pensions savings system was a very important part of the payback. It was also a very important part of the explanation to people—including shadow Conservative Ministers at the time, who were very vocal on this issue—that this was what the payback would look like, with incentivisations to saving that came through the tax credit system. This is what I mean about incremental decisions. Now somebody says, “Well, we can just remove a chunk of the payback for a particular group of people and save £200 million by reducing the figure from 100 to 50 per cent”. I really struggle with that because it is saying, “Never mind what the strategic analysis was or where we are trying to go; this convenient incremental policy will save us £200 million”—and somehow it is a fairer deal for the taxpayer. Maybe in 30 years’ time it will not be a fairer deal for the taxpayer if more people present themselves for benefits. I struggle with that line of reasoning for doing this for that group of people. Okay, it is £200 million. I am not avoiding the need to make tough decisions, but again one stands back and looks at the contribution that the taxpayer makes to the incentive to save across the piece.
My noble friend Lady Hollis is right. You can get £50,000 per annum incentivised right up to 50 per cent tax relief. I know that the noble Lord is going to shout at me that this will allow more people to keep their income and that it is a different analysis, but I do not accept that, particularly in the context of a sustainable pension strategy. We have all sorts of tax advantage savings arrangements that the well-off can take advantage of. You can fund a tax advantage stakeholder account for your child. You can fund a tax advantage ISA for your child or your non-waged spouse. I have taken advantage of some of these for my children. However, I struggle against the decisions on the incentive to save for low-to-moderate-income groups, which was inextricably linked to the in-work benefit system, when somebody says, “It saves £200 million. Just undermine the incentive to save and the payback for this arrangement”. It just does not stack up intellectually. It does not stack up when there is a consensus which says that everyone should buy into a pension solution that holds over the very long term. We have just taken £10 billion from a group of women who should not be bearing that level of savings, and we are now going to take £200 million out of low-to-moderate-income earners. My argument is losing subtlety because the quality of what I am pushing back on is unsustainable. It is £200 million for an irrational reason. Extremely reluctantly, I beg leave to withdraw the amendment, although I am sure I shall be coming back to this.
“( ) For the purposes of introducing Regulations under this section —
(a) earnings shall not include any payment in respect of expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment.(b) notional income shall not apply in respect of any amount of income other than earnings, or earnings derived from employment as an employed earner, arising out of the claimant’s participation in a service user group;(c) “service user group” means a group of individuals that is consulted by or on behalf of—(i) a Health Board, Special Health Board or the Agency in consequence of a function under section 2B of the National Health Service (Scotland) Act 1978;(ii) a landlord authority in consequence of a function under section 105 of the Housing Act 1985;(iii) a public authority in consequence of a function under section 49A of the Disability Discrimination Act 1995;(iv) a best value authority in consequence of a function under section 3 of the Local Government Act 1999; (v) a local authority landlord or registered social landlord in consequence of a function under section 53 of the Housing (Scotland) Act 2001;(vi) a relevant English body or a relevant Welsh body in consequence of a function under section 242 of the National Health Service Act 2006;(vii) a Local Health Board in consequence of a function under section 183 of the National Health Service (Wales) Act 2006;(viii) the Commission or the Office of the Health Professions Adjudicator in consequence of a function under sections 4, 5 or 108 of the Health and Social Care Act 2008;(ix) the regulator or a registered provider in consequence of a function under sections 98, 193 or 196 of the Housing and Regeneration Act 2008;(x) the National Institute for Health Research and Department of Health commissioning programmes;(xi) the National Institute for Health infrastructure organisations including research networks, Research Design Services, Collaborations for Leadership and Applied Health Research and Care, University Research Institutes and groups and other higher education institutions, individual research studies, social care bodies, charities and other not for profit organisations; or(xii) a public or local authority in Great Britain in consequence of a function conferred under any other enactment for the purposes of monitoring and advising on a policy of that body or authority which affects or may affect persons in the group or monitoring or advising on services provided by that body or authority which are used (or may potentially be used) by those persons.”
Baroness Thomas of Winchester
My Lords, the wording of my amendment is taken straight from Statutory Instrument 2678, the Social Security Benefit (Computation of Earnings) Regulations 2009, with the additions of subsections 10 and 11. The reason I have copied the wording of this SI will become clear in a moment.
Old welfare reform hands may find my speech strangely familiar because I have been on this particular soap box since 2006. The amendment is about the way benefits are treated for service user involvement, specifically the unresolved problem of those disabled people on benefits who help with NHS research, public health research and social care research. The unresolved problem is the impact on their benefits of out-of-pocket expenses and, possibly, a small emolument paid by the organising body. Disabled people are asked to take part in research studies in these fields not just as subjects but as active partners in the research process. For many severely disabled people, this activity is the most important thing that they do, as they are uniquely placed to take part and they know that their participation may lead to better outcomes, both in the immediate future and for future generations.
Plans set out in the health Bill require clinical commissioning groups to base decision-making on evidence-based research. However, unless the universal credit rule on the treatment of certain reimbursed expenses as earnings is amended and the application of the notional earnings rule is removed, disabled people on benefits will continue to be prevented from offering their assistance. Research in health and social care will be used to commission our future healthcare but, as matters stand, two nonsensical bits of red tape in the benefits system will prevent the involvement of many patients. The two obstructive benefit rules were designed for employment and are entirely inappropriate for involvement. The first is the treatment of reimbursed expenses for involvement in research.
At this point, I should define what I mean by research. I am not talking about patients who are entered into clinical trials as part of their treatment. I am talking about those who, in the words of the relevant HMRC circular, are,
“invited to attend meetings to give their views on various matters to inform the research process and direction”.
Where people are paid a small fee for their help with this research and their expenses are reimbursed by the organising body, both amounts are totalled and treated as earnings. Where the total is above the benefit-earnings disregard, the excess is deducted from their benefits. This is because, as I said, the reimbursement of out-of-pocket expenses is treated as earnings. People may end up with less money the following week or with no money at all for living costs for several weeks. If this happens, they promptly and understandably withdraw their help.
Baroness Wilkins
My Lords, I support the amendment which has been so comprehensively introduced by the noble Baroness, Lady Thomas of Winchester. I wish to make one additional point, which is that one of the very dispiriting elements of having a long-term health condition or a disability is the fact that you are so often on the receiving end of help. It can almost get to the point where you are not expected to be able to do things for other people. For example, I very rarely get leafleted in the street by charity workers. If I go to the door to a charity worker, they apologise that they have bothered me. It is as if you are not expected to be able to contribute to society in any way. However, one very obvious way in which we can contribute is by sharing the experience of our condition, making some value out of it and aiding research in this way. That can surely only be beneficial for future generations, for medical professionals and for ourselves and our self-esteem. It seems nonsensical that red tape in the benefits system should stand in the way.
Lord McKenzie of Luton
My Lords, I support the thrust of the noble Baroness’s amendment. I do not think that there was much that I ever did as Minister which was the cause of great rejoicing, but I was grateful for at least one memory. I recall several meetings that we had together, trying to see that we ended up in a situation where amounts paid to service users did not inadvertently affect their benefits. I have been trying to recall all of the detail of that. I am not sure that I can, but I am sure that the Minister will be able to bring us up to date or remind us.
Part of what we were trying to do then was to see if a sensible application of the current rules, by way of clear guidance across Jobcentre Plus, would be a route to tackling it. It was in part, but it did not deal with the whole of the situation. There can be no doubt that engagement of those who actually use our services in shaping how they are organised and delivered can be of enormous public benefit. This particularly applies to the multiplicity of research projects which can underpin innovation and vital developments in services. Service user engagement is to be strongly encouraged. We are thoroughly supportive of this.
As the noble Baroness has said, it seems entirely reasonable, as we reflect on the introduction of universal credit, to see how far a legislative solution will cover the situation, rather than perhaps just relying upon practice and guidance, as happens in part at the moment. However, as we have heard, that does not cover all of the gaps, and there are a range of issues about whether payment just covers actual outgoings, about whether there is an excess or profit, about the frequency of activity and about whether any spreading or averaging rules would apply—we went down that avenue at one stage. There is also the issue of protecting those who decline a payment from the notional income rules. It may be that the disregard regime in universal credit could help or could be made to help. On the basis of the noble Baroness’s figure, that may not be the case.
Turning to the specifics of the amendment, I have an issue about terminology. It refers to expenses,
“wholly, exclusively and necessarily incurred in the performance of the duties of the employment”.
It is an interesting point to distinguish employment and involvement. It is certainly the case in tax legislation, and I think in benefits legislation also, that the phrase “wholly, exclusively and necessarily” precludes taking the costs of travel from home to work out of the arrangements. There has always been a distinction between the cost of undertaking travel as part of your work or involvement and putting yourself in a position to do that, which is travel from home to work. Therefore I am not sure that the formulation is necessarily the right one.
This has been going on for a number of years. Progress has been made, but it clearly has not solved the problem, as we have heard. It would not have a huge price tag, if any, to use this opportunity with universal credit to deal with it absolutely.
Lord Freud
My Lords, I am well aware of the work of my noble friend Lady Thomas on this, although perhaps not quite as well aware of it as the noble Lord, Lord McKenzie. Clearly, the amendment is intended to improve the position of disabled people on benefits who participate in service user groups. Changes in the regulations to do just that were made towards the end of the last Parliament, and universal credit will carry these forward. Nothing in universal credit will worsen the position of participants in service user groups.
Looking purely at the earnings element—the fee element, not the expenses element—the structure of universal credit will improve the general position for participants. The earnings taper will ensure that any fees which are beyond the claimant’s earnings disregard will still make the claimant better off overall. The removal of the 16-hour permitted work rule and the personalised conditionality regime will see to it that the claimant will not fall out of the benefit if they undertake a modest amount of voluntary or paid activity. That is as far as the earnings element is concerned.
The amendments to the social security regulations made in 2009 exempted individuals covered by the definition of service user from the notional income rules and ensured that any expenses they received would be disregarded in the benefit calculation. I think that all parties welcomed these improvements when they were introduced. Therefore, my noble friend’s amendment seeks simply to build on those 2009 changes.
This is a matter for regulations, and there will always be scope to make further changes where these are needed. However, we need to ensure that any definition is clear and can easily be applied by administrators. The current definition was drafted on that basis. Like the noble Lord, Lord McKenzie, I am not convinced that it will be feasible to broaden the current definition in the way proposed by the amendment, but I am very pleased to meet my noble friend on this, as she requested, and I think that we shall be able to get this right.
In the current regulations, the definition of service user is limited to consultation for specified purposes. In all cases, the consultation with service users is required by law. The intention here was to avoid extending the easements to the activities of commercial enterprises. We also need to ensure that benefit claimants are not able to deprive themselves of regular earnings and so remain on benefit while operating as consultants to research bodies. These protections remain valid from the Government’s point of view, so any new regulations need to protect the Government in some of these areas.
On the general question of expenses, we will apply the same disregards in universal credit as in the existing benefits. We would not want claimants in work to see their universal credit fall as a result of their receiving payments as reimbursement for expenses that they have incurred solely in carrying out their job. To do so would reduce the incentive to take a job, which would undermine the core purpose of universal credit. Briefing note number 9 was intended to clarify that work-related expenses could continue to be disregarded in the same circumstances as apply now.
We also intend, as now, to exempt reimbursement of expenses made to volunteers who give their time to charities and voluntary organisations from the calculation of claimants’ unearned income.
I hope that this account will reassure noble Lords about our intentions for the treatment of expenses in universal credit generally. I think that there can now be a process of refining and enabling service user groups to make their valuable contribution in the fullest possible way, and that is what I shall be aiming to do with my noble friend when we meet. However, these are not matters for primary legislation; they are matters to get right in regulations. That is what we will be aiming to do and I hope that, on that basis, my noble friend will be content to withdraw the amendment.
Baroness Hollis of Heigham
My Lords, perhaps I may ask the Minister a question. I chair a housing association, as I have declared previously, and we pay a very modest sum per year to our tenant board members. One of them was on disability benefits and preferred not to take the very modest emolument because of the interaction with his disability benefits and the problem that he would have of resuming them as and when the emoluments ended. However, because he could have drawn that emolument, it was assumed under benefit rules that he had done so and he could not make that move. I ask the Minister to look at this point. This was, after all, a sort of charitable housing association and he was stuck.
Lord Freud
My Lords, I will look at it, but I am not sure I need to study it very hard. As I understand it, the fear of that individual is that if they earn too much money they get taken off their benefit structure entirely. Because they are earning too much, they are outside the disability benefit structure and they must therefore get on another one and they then have a terrible problem. That does not apply under the universal credit. The worst that could happen is that the universal credit goes down in the period, reflecting the emolument, but they are better off overall. That acute fear of being left stranded goes. In that particular case, and many others like it, the desperate cliff-edge position which currently exists is not there under universal credit.
Baroness Thomas of Winchester
I thank the noble Lord, Lord McKenzie, for his support, as does my noble friend Lady Wilkins. I would like to take up my noble friend’s offer of a meeting before the Bill reaches the next stage, because we were told specifically by the officials of the noble Lord, Lord McKenzie, when he was Minister, that they could not extend this to bona fide NHS research—nothing to do with commercial interests—unless there was a peg in legislation on which to hang the regulations. I therefore do not accept my noble friend’s statement that everything can be done by regulations, because we found that this particular matter could not be done. We are not talking about people who can get a job; we are talking about severely disabled people, who are a million miles from the job market, but they have specific conditions which are needed for vital research. I hope this can be sorted out before the Bill goes any further. We need this peg, and it is not too late to put it in this Bill. I will take up the offer of a meeting, which I have done on many occasions when I have withdrawn this sort of amendment—and, of course, it finally bore fruit.
Lord Freud
We do not need a legislative peg in primary legislation to make changes here. That was a reference to NHS legislation. How we define and work through the different types of income is something which we are going to do in regulation. I can assure my noble friend that, although this is something which is slightly complicated to do, it does not have the desperate urgency that requires it to be done in the next couple of weeks.
Baroness Thomas of Winchester
I am caught between two pieces of advice: one is that we do need legislation and one is that we do not. I am somewhat conflicted, and I would like to get this sorted out before Third Reading. We have been told that for the rules that I read out from the statutory instrument, there was a peg on which to hang it, and that is why they were there. We were told that because there is nothing for NHS research we could not extend it. I shall withdraw the amendment now, but hope that we can resolve this before Third Reading, if not Report.
Lord McKenzie of Luton
Could the noble Lord arrange to send us copies of the earlier advice, because there is some confusion and I am not clear in my mind?
Lord Freud
My Lords, I will have an early meeting with my noble friend on this, and we will take it from there. Subject to that meeting, I will provide that particular advice, otherwise we may go round the houses on this very technical matter. I hope it is one we can resolve pretty fast, with a letter.
Lord McKenzie of Luton
Lord McKenzie of Luton
My Lords, this is a probing amendment to seek the best understanding we can about how support for housing will work for someone on pension credit. Because housing benefit is to be abolished, housing support for those on pension credit, and thereafter outside universal credit, will be by way of a housing credit. It is accepted that there will be a lot of detail to work through, but perhaps the Minister can give us an update on progress.
The system will also provide support for children via a similar route, where this is applicable for those on pension credit. This will often be in circumstances where grandparents have responsibility for their grandchildren. Assurance was given in the other place that the Bill does not need to make special provision for this, because existing powers are sufficient. We accept that position. Therefore, the prospect of there being three strands or components of payments in these circumstances will flow from the Bill.
The points that arise are as follows: will the basic housing allowance follow the local housing allowance regime as for universal credit claimants? Will the 30 per cent percentile, the local housing allowance caps and non-dependant deduction increases be applied to this regime? Will those on guaranteed credit be able to access support for mortgage interest? Is it envisaged that there will be a composite and interlocking calculation of the pension credit, housing and possible child credit components, or will these be calculated separately? What is envisaged in respect of tapers, and will these be aligned? What will this mean for direct payments to landlords? Do the Government envisage any arrangements for pensioners different from those for universal credit claimants? Can we hear what the proposals are for support for mortgage interest—both for those in receipt of pension credit and universal credit? We have an outstanding question on that. What does this mean for the treatment of capital? We previously discussed how these differ between housing benefit and pension credit systems. The former has the £16,000 cut-off and the latter has no maximum, but income is taken into account. Will these two regimes sit side by side, or will they be rationalised? If they are going to be rationalised, on what basis will that happen? What arrangements will operate for uprating purposes? Will CPI be applied to the housing component? What about the uprating of pension credit? I beg to move.
Lord Freud
My Lords, the intention is that the housing credit will broadly follow the current rules that apply in housing benefit. For someone to be entitled to the housing credit element of pension credit they will need to live in Great Britain, have reached the pension credit qualifying age and be liable for housing costs that relate to the accommodation they live in. The extent to which a person is liable for the housing costs, what constitutes the accommodation, how we treat temporary absences from home and how we calculate the amount of the housing credit will also be included in regulations.
A person may be entitled to the housing credit whether or not they receive the guarantee credit or saving credit element of pension credit. This schedule also enables us to specify that rates of support may differ by area. So, for example, different housing allowance rates can apply in different parts of the country.
In introducing the new housing credit we will, however, look for opportunities to streamline the benefit and align rules wherever possible. This includes extending pension credit provisions to the housing credit wherever possible. One such area includes assessed income periods. These are specified periods during which a customer is not required to report any changes in their requirement provision—namely, their occupational pensions and capital.
The schedule provides us with the flexibility to determine in what circumstances retirement provision will not be fixed in relation to the housing credit regulations, which will be subject to the appropriate level of scrutiny. The schedule also contains the consequential amendments to other legislation needed as a result of the abolition of housing benefit and the introduction of the housing credit.
This probing amendment would remove flexibility and would work to the detriment of those who, through no fault of their own, require assistance with their housing costs while at the same time making the system vulnerable to manipulation.
The noble Lord asked a large number of detailed questions on this matter. I can deal with some of them but I will answer most by way of a letter. On direct payments to landlords, it is not our intention that pensioners would be part of that regime, which is for working-age people. We are not planning to change the SMI arrangements for pensioners. Uprating will be done by CPI, as it will be with working age. We need capital limits in the system overall, clearly, and we need to determine what the right rates should be. They should be at a level where we do not see a substantial change in practice. As the noble Lord pointed out, this is now done by a tariff income process and, as we move towards an overall position in the housing credit, we need to get the equivalence.
I think that deals with the bulk of the questions. There are one or two more, which I will answer by letter, but, given the assurances about how we intend to use these powers, I urge the noble Lord to withdraw the amendment.
Baroness Lister of Burtersett
My Lords, will the Minister make sure that that letter includes the answer to a question which was asked a few sessions ago but to which the Committee never received an answer? It was not specifically about pensioners but was a more general question about whether mortgage interest will be paid as part of the universal credit or to the lender.
Lord Freud
We are looking very closely at the support for mortgage interest. I can let the Committee know that we are planning to consult on how we do that. Rather than include that point in the letter, I will make sure that noble Lords are informed when that consultation paper comes out.
Lord McKenzie of Luton
I am most grateful to the noble Lord for a number of detailed replies, with some follow-up, but can he just be a little more specific around the capital rules? From his answer, it was very unclear what is intended. We have two systems for housing benefit: we have the cut-off at £16,000, whereas for the pension credit we do not. I am not sure whether those two systems will sit side by side in the new arrangements, or whether there will be some common approach to capital, and whether that will adopt the pension credit approach or the current housing benefit approach.
Lord Freud
My Lords, it will go somewhere in between. It will be a capital limit as opposed to a tariff income approach, but it will be a higher capital limit than that for working-age claimants.
Lord McKenzie of Luton
As I understand it, that will operate for pension credit as well as the housing component.
Lord McKenzie of Luton
I am grateful for that—well, I am grateful for the answer, not necessarily the information. It is the lowest common denominator again. I beg leave to withdraw the amendment.
Baroness Howe of Idlicote
“(6A) Regulations under this section must provide that, for a claimant to be treated as not having limited capability for work, the claimant must be able to—
(a) reliably perform their work on a sustainable basis, for at least 26 weeks, without requiring excessive leave or absences; (b) work in open unsupported employment without requiring excessive support to perform their work.(6B) For the purposes of regulations made under this section—
“work” means work—
(a) that is for at least 16 hours per week on wages that are at or above the relevant minimum wage; and(b) that exists in the United Kingdom;“excessive support” means more than what is usually considered to be reasonable adjustments or normal supervision (or both).”
Baroness Howe of Idlicote
I present the sincere apologies of my noble friend Lady Mar. She had very much hoped that this amendment would come up on Tuesday, but alas, she has an engagement that she could not possibly break. So I will inadequately move it on her behalf.
Under the Bill, a person will be deemed to have limited capacity for work if the claimant’s capacity for work is limited by their physical or mental condition and if the limitation is such that it is not reasonable to require the claimant to work. The work capability assessment is designed to assess whether a claimant has limited capacity for work or limited capability for work-related activity, but there is no definition of work either on the face of the Bill or in regulations. A group of charities that includes the MS Society, Parkinson’s UK, Arthritis Care and Forward-ME have indicated that this is a significant omission, and it is one that I certainly agree with my noble friend Lady Mar should be rectified.
Individuals must not only be capable of some very limited work; they must be capable of obtaining realistic and sustainable employment. I am sure that the Minister will acknowledge that capability for work is not a clear-cut issue. Many disabled people fit neither the “completely fit for work” nor the “completely incapable of work” categories. As the Minister knows, the main interest is in those with a fluctuating condition—an area where my noble friend Lady Mar has both experience and, indeed, considerable knowledge. They can unpredictably veer between both categories and, however much they may want to work, this group finds it particularly difficult to obtain and retain sustainable employment.
My noble friend and I strongly support the principle that all those who are able to work should be supported through the work-related activity group in ESA, which is designed particularly to identify those who have a limited capacity for work. However, those who face significant barriers to returning to the workplace require extra time and support to move back into the work environment. The WRAG is a very important provision for those with fluctuating conditions, as it asks them to undertake work-related activities that are personalised and appropriate to their needs and abilities. However, the group believes that the current work capability assessment sets too high a bar for the test of limited capability for work—the test that admits people to the WRAG. The test fails to take into account the reality of the claimant’s abilities not just to take on work but to retain and manage unsupported sustainable employment.
The Australian Social Security Act 1991 and the Australian assessment of work-related impairment for disability support pension criteria supply a sensible definition of what could be meant by the ability to carry out meaningful work. Slightly amended for the UK, as is proposed in my amendment, this could provide an important aid in determining whether a claimant actually has limited capability for work. Broadly, the amendment would specify that, in order to be capable of work, the claimant should be able to: work for at least 15 or 16 hours each week in meaningful work that pays at least the national minimum wage; reliably perform their work on a sustainable basis without requiring excessive leave or absences—the Australian system takes this to be at least 26 weeks; and, lastly, work in unsupported employment without requiring excessive support to perform their work. I beg to move.
Lord Wigley
My Lords, I am very pleased to support this amendment. One is very aware of the tremendous work that the noble Countess, Lady Mar, has undertaken in this area and of her expertise. There is no doubt that the fluctuating condition of many people with disabilities can be a difficult factor from whichever end you look at it: from the point of view of the disabled person, who may want to work but is uncertain whether they can carry out the work, or from the point of view of the state and the way in which these regulations apply to such people.
The one element in this amendment that I am not entirely certain about is the question of “unsupported employment”. There are times when, if a disabled person is given adequate support, they can be in full-time meaningful work on a continuous basis. I would not want this amendment to undermine that dimension, which is very important.
Turning to new subsection (6B) proposed by the amendment, can the Minister comment on paragraph (b), which refers to work,
“which exists in the United Kingdom”?
This raises some interesting questions. Is it in the Government’s mind that there might be work outside the United Kingdom, the availability of which could, if it were not taken up, lead to people being debarred from their benefits? One thinks of people living in Dover: an hour’s journey puts them into the French catchment area. If one lives in Holyhead, if the fast boats are running one could quickly be in Dublin—presuming that there is any work in Dublin these days. The Government’s intention in this matter certainly needs to be probed. If paragraph (b) is necessary, I would be interested to know what the Government’s explanation is.
Baroness Wilkins
My Lords, I strongly support this amendment in the hope that it will go some way to meeting the fears of the thousands of disabled people facing their work capacity assessment, especially those who have a fluctuating condition such as multiple sclerosis or an ill understood condition such as ME. Members of the Committee will have been inundated with letters from people who have been given every reason to mistrust the assessment process as carried out by Atos, and I know that the Minister has been made very aware of the stress and anxiety this is causing.
Broadly, this amendment sets out that, in order to be deemed capable of work, the claimant should be able to work for at least 16 hours each week in meaningful work that pays the national minimum wage or above and, most importantly, that they can reliably perform their work on a sustainable basis of at least 26 weeks without requiring excessive leave or absences. This would do much to rectify the current situation. What happens now is that at the end of an Atos report on a claimant, which goes to DWP decision-makers following the completion of the work capability assessment, there is usually a prognosis which says, “This claimant should be able to return to work within x months”. However, the WCA is not currently designed to offer any concrete evidence of a person’s realistic capability to find employment. The content of the WCA is designed purely to assess a person’s physical and mental functionality, not their ability to find employment, how long this may take or what support an individual may need to do so in the light of the barriers to work that their condition presents.
The WCA test focuses largely on a claimant’s typical day. Yet there is no such thing as a typical day for someone with a fluctuating condition. For example, a woman with MS in her early 30s told the MS Society that on one day she may feel well enough to participate in voluntary work and have a busy and active lifestyle, yet during a recent lapse she was rendered completely blind for a period of weeks and found that on many days she was unable to get out of bed due to disabling fatigue.
The typical-day history taken in the WCA refers to a typical day out of work. However, a typical day out of work for someone with a long-term condition could be very different from a typical day if they had to travel and complete a full day’s work. One person with multiple sclerosis told the society, “Nothing done in the interview related to my ability or my lack of ability to work. I answered the questions as honestly as I was able, but was not able to stress the fluctuating nature of the symptoms, i.e. yes, I can read, but not for more than a few minutes and then I have to rest”. Another person said, “They have no idea what day with MS is like. They do not know how work would go if one day you can walk but the next you cannot, if one day you pee yourself continually and the next you are okay. Who would employ me? I am constantly fatigued, yet of course the WCA found me fit for work.”
I do not doubt the Minister’s sincerity when he says that his whole motivation is to support and enable people to take their place in the world of work, but how can he hope for this to succeed when the assessment for determining eligibility for universal credit is based on such a flawed, unjust and mistrusted system? As we have heard too many times, 40 per cent of those wrongly found fit for work win on appeal of the decision, and in some areas I am told that the figure increases to 90 per cent if people are represented at tribunal.
Baroness Grey-Thompson
My Lords, I, too, support this amendment and I, too, wish to speak about the assessment process. A number of people have contacted me just on this amendment alone—around 45 at the last count, and the figure is increasing daily. They want to express their concerns in this area and they are using very strong words. People are telling me every single day that they are terrified by the process they are being asked to go through. I accept that it is a difficult process. We demand that through the system we should grade impairment, which is a necessary part of the process, and we try to put people in boxes. However, disability and impairment affect people in such different ways. The process expects yes and no answers and that is almost impossible when we are considering a static condition, let alone fluctuating ones. Many people writing to me say that there is little room to give medical evidence or provide supplementary data and that every step of the process feels very confrontational. It is essential that the test is appropriate for disabled people.
I am also concerned about the number of people who tell me that the facilities used for the assessments are simply not accessible. One example is the Croydon assessment centre; it has a lift for wheelchair users but wheelchair users are not allowed to use the lift due to health and safety reasons. To enter the centre, you have to navigate 46 steps. If you cannot do that, the nearest centre is a 14-mile round trip away, which is very challenging for a number of people.
I have also received a number of e-mails saying that there is a yo-yo process going on. One ex-serviceman was assessed in 2003 as being 30 per cent disabled and yo-yoed eight times in the next five years or so between being 30 per cent and 70 per cent disabled. These various reassessments and appeals were carried out at significant expense to the public purse and distress to the individual. When he questioned the process, this man was told by the assessor that he was moved back and forth so many times because they did not really understand trauma.
As the noble Baroness, Lady Wilkins, has said, disabled people are constantly being labelled in the media as benefit scroungers. The rise in the amount of hate crime is a real concern. Could the Minister reassure disabled people who are feeling vulnerable and afraid, who see no light at the end of the tunnel and no improvement in the process? They want to work and be part of society but they feel themselves to be victims of what is happening.
Baroness Hayter of Kentish Town
My Lords, I support this amendment. As has been stated, the WCA is about deciding whether a claimant has limited capability, either for work or work-related activity. As the noble Baroness, Lady Howe, said, there is no definition in the Bill, nor indeed in regulation, about what is meant by “work”. This is particularly important for those with fluctuating conditions, who are, at different times, both fit for work and incapable of work within the same month. We already know that, apart from any assessment, people with unpredictable fluctuations find it difficult to obtain employment or to keep it. This is partly because of their previous work records, partly if any of these fluctuations occurred during a probation period, and partly if they are honest and open with a potential employer.
It goes without saying that we support the principle of helping all those who are able to work to do so, but I am concerned about the apparent drop-off in the number of new customers helped by the Access to Work scheme, which has gone down to 13,240 compared with 16,520 in the previous year—a fall of nearly a quarter. It would be interesting to know what is thought to be the reason behind that, because it is an important way of helping people into work.
The really important word in this amendment is “sustainable”. Sustainable employment is defined as 15 or 16 hours a week and on a basis probably of 26 weeks. This amendment is particularly important, as the Government are proposing that regulations about defining capability for work or work-related activity are to be subject only to negative resolution procedure and thus with no opportunity for debate.
We have had a note which states that the Government’s intention is that regulations made under subsection (3) will set out the detailed circumstances and descriptors used to determine limited capability for work and limited capability for work-related activity. These regulations will be based on the Employment and Support Allowance Regulations 2008 and the subsequent amendments contained in the Employment and Support Allowance (Limited Capability for Work and Limited Capability for Work-related Activity) (Amendment) Regulations 2011 and any other changes to the ESA provisions before the introduction of UC in 2013.
We understand that the Government are undertaking further work to develop a supplement to the assessment to accurately identify individuals with enduring health conditions that limit their long-term ability to fully provide for themselves through work. However, regulations under Clause 41, which are also subject to the negative resolution procedure, will define the meaning of “work”. Given that this is another area where we remain unclear of the Government’s plan, it will be particularly important to have assurances about how people with fluctuating conditions are to be protected.
Lord McAvoy
My Lords, as a former Member of the other House with experience of constituency cases and organisations, I could not sit silent during this debate. I fully support the point outlined by the noble Baronesses, Lady Howe, Lady Wilkins and Lady Grey-Thompson.
Not referring to a GP when there is a fluctuating illness results in Atos taking a hard line. As I have said before, I am not one of life’s social liberals, but the line taken by Atos on too many occasions has been unfair and there has often been a bit of bother in trying to sort it out. This causes fear and apprehension, not only among the less able bodied but also among the able bodied who are not particularly articulate when they face Atos and its people. I hope notice is taken of the circumstances illustrated by my colleagues today because it is wrong that there should be that fear.
I know that the media, as is their wont, take some cases, pile into them and get stuck into government and organisations such as Atos to highlight obvious unfairness, but there is enough experience in the department and among Ministers to counteract that. However, there is something in the amendment. The Minister can take it away, look at it, amend it or alter it, but I sincerely hope that he takes notice of it and does not dismiss it.
Lord McKenzie of Luton
My Lords, this is an interesting and challenging amendment and the debate has been deeply concerning. We have heard from the noble Baroness, Lady Grey-Thompson, that people are terrified and scared about facilities not being available; we have heard from my noble friend Lady Wilkins about the mistrust of the WCA and the profound mistrust of Atos and some challenging questions about how they are regulated; and we have heard from my noble friend Lord McAvoy and the noble Baroness, Lady Howe, about fluctuating conditions.
I understand that the system works at present by seeking to establish if someone has limited capability for work, and that this is determined by a range of descriptors which seek to establish how someone’s physical and mental health affects their functioning. Someone not reaching a sufficient points total would not be classified as having limited capability for work and would therefore—in essence by default—be deemed fit for work. The point was pressed that the assessment does not look at whether someone having not been deemed to have limited capability for work is therefore fit for work in any practical or coherent way. Actually, that gives food for thought. Somebody who has been deemed fit for work would seem to claim JSA and be subject to relevant conditionality and in the world of universal credit be subject to all work-related requirements. There have been ongoing debates about how appropriate the descriptors are and, perhaps more fundamentally, how they are applied in practice. We have certainly heard some of that today. This is of particular interest to us, because we were in government when the system was introduced; I remember all the policy staff and all the work that was done to introduce the ESA and the WCA. Given the fact that it is not working as it should, maybe the judgment was that it is not capable of working in any event, and that is of some concern.
The Harrington review has published its first considerations and the recommendations have been accepted. It is understood that the second review was completed in July and is still under consideration. Perhaps the Minister can give us an update.
A key question that the amendment poses is whether the WCA, properly applied, would mean that the outcome sought by Amendment 55C would inevitably follow, assuming that it was the outcome that was wanted. I think probably not. On making a judgment about somebody having limited capability for work, there is a prognosis also about how long they would remain so assessed—that is to say, a determination about when they would be fit for work. The noble Baroness, Lady Wilkins, again made this point. When making that determination, to what extent would those judgments reflect the criteria that this amendment seeks to set out? Again, I suspect not—but perhaps the Minister can help us by telling us the criteria applied when someone is making a judgment after a while whether somebody is fit to go back to work and fit for the JSA regime or the full work conditionality. Is it just the absence of failure of work-related activities requirements, or is it something more positive in trying to see what they are actually capable of and what the definition is of work? I am not being very clear on this issue, but my concern when I think about it—and I had not thought about it in this way before—is that the WCA assessment puts somebody in a category. If they fail, although fail is perhaps not the right term, they go by default into a category that assumes they are fit for work. Should that judgment inevitably follow from that process?
There is a sense of cliff edge about the system. On one side of it, there are full conditionalities and harsher sanctions, and the full work-related requirements; on the other side, there is lesser conditionality and requirements only in respect of work-related activity, no prospect of higher level sanctions and higher benefit levels. Of course, all of this rests on the judgment under the WCA, subject to reconsideration and appeals and so on. So much hinges not only on the descriptors and how they are set out and whether they are appropriate but on how they are applied. Universal credit does not particularly smooth that particular cliff edge, although it deals with other cliff edges about going in and out of work. But with regard to the analysis and judgment of where people sit in the categories, it does not particularly help. A lot of this is to do with the support that people should have.
Lord Wigley
I invite the noble Lord to comment on the relevance of assistance in work. If people are available to help someone who is disabled to undertake their work, it is possible for them to fulfil some of these requirements. If that person is not available, it is the failure of the state to make that person available that is creating the handicap for the person who is disabled. In applying the social definition, there could not be a clearer example than that.
Lord McKenzie of Luton
I very much agree with the noble Lord, Lord Wigley. He is absolutely right about that. I imagine that the Minister will reply that this is too narrow a definition of work but I do not want to anticipate what he wants to say. The more I think about it—this is not a formal Front-Bench view—the more I believe that we ought to be thinking about smoothing the path so that we do not have that cliff-edge, as we are doing away with cliff-edges for in-work and out-of-work benefits. Is there not something that we could do to create more of a continuum, so that these very difficult judgments would not have to be made?
Lord McKenzie of Luton
Indeed. Perhaps I may finish off with a question. I think that earlier in our deliberations we touched on what would happen if someone sought to challenge the WCA determination, as well as concerns about the fact that their benefit would be withheld during that process. I do not know whether the Minister has anything further to say on that. I think that there was an exchange in the Commons on which I had a note on a piece of paper, which I have lost, but it seemed to give some credence to press reports that people were being actively discouraged from going to appeal. If that were the case, it would be an absolute disgrace.
I think that there is great merit in the amendment. Like the noble Lord, Lord Wigley, and perhaps some other noble Lords, I would not accept it quite as it says. However, when someone says that a person should be in the WRAG group but they should be capable of coming out of it in three months or six months, there ought to be a test of what they would be capable of at that point and whether that would amount to work under this sort of description. I should be interested in the noble Lord’s comments on that.
Lord Freud
My Lords, I should start by making a point about the overall attitude of the Government to people who are disabled or who have difficult medical conditions. We are committed to unequivocal support for those people, and that is what the support group is about. There is extra funding for the group and we are absolutely determined to provide that support. In the midst of the concerns about particular things, and as we try to make sure that the gateway works and that we can find the people who really need our support, that fact can be lost. However, I want noble Lords in this Committee Room to be under no illusion that we want to support the people who need our support. I have already expressed my concern about the fear factor, which I find very disturbing. I also acknowledge that the press in this country sometimes writes articles that none of us in this room find appropriate. I certainly do not find them appropriate and my colleagues in the department find them deeply disturbing. We do not control the press, regrettably, and things are written that we do not like to see. However, I am pleased to put on the record where we stand.
We debate the WCA a lot. We have debated it in this Committee and elsewhere, but, if noble Lords will forgive me, on this occasion I want to try to keep the debate in the context of the Bill.
The work capability assessment uses a number of specific, measurable criteria, covering all types of disability and health conditions, to provide an assessment of whether an individual has limited capability for work. The assessment was designed to take account of chronic and fluctuating conditions. It is not intended to be a snapshot but looks at what someone can do reliably, repeatedly and safely. It takes account of the effects of pain and fatigue. The healthcare professionals conducting the assessment are fully trained in understanding fluctuating conditions. Claimants get a full opportunity to explain how their condition varies over time.
The criteria were developed in conjunction with disability experts, medical professionals and a significant number of disability representative groups. They focus on physical and mental function. Examples of criteria include whether someone can stand or sit for periods of time, their ability to lift and reach, how they learn new tasks and whether they have problems engaging socially. The criteria fully take account of the fluctuating nature of many conditions. The training and guidance for the assessment is clear that where an individual is unable to complete an activity repeatedly or reliably, they will score points against the relevant criteria.
Baroness Wilkins
Does the Minister accept that he has not yet received the report of Professor Harrington’s working party on fluctuating conditions? There may well be recommendations that he has to make in that regard.
Lord Freud
Yes, Professor Harrington is currently looking at two areas: mental health conditions and fluctuating conditions. We have received one but not the other. We will clearly take those into account and look at them closely when they come in. To that extent, the debate today is slightly premature. It may not be later in the process of the Bill.
To pick up on the point of the noble Baroness, Lady Wilkins, on the medical evidence used, all available evidence, including that from GPs or specialists, is fully considered by the department’s decision-makers. The final decision is with the department. It gets a recommendation from Atos and takes that into account with all this other information. Following recommendations by Professor Harrington, decision-makers are now phoning claimants to ensure that they understand the process and can submit any additional medical evidence that they feel is relevant. However, GPs and specialists are not experts in disability assessment. Often, as advocates for their patients, they are not best placed to make a decision that affects benefit entitlement. We would not want to undermine the role of GPs as advocates for their patients.
As a result, the criteria provide a reliable, nuanced and measurable way of assessing limited capability for work. This ensures that a full understanding is gained of an individual’s disability or health condition, the effects of that disability or health condition, how these effects may vary over time and whether it would be reasonable for that person to work or not.
The amendment suggests that an additional test with additional criteria is added to the assessment of limited capability for work. However, the criteria suggested are not readily measurable or nuanced. It would, for instance, be impossible to measure the potential excessiveness of any workplace adjustments because they will vary depending on the size and capacity of the employer concerned.
An additional test would also not provide an objective or more accurate assessment of an individual’s limitations—and in some instances could hinder it. For instance, it would be difficult to provide strong evidence of whether someone currently out of work could work for 26 weeks without significant time off without knowing the type of job they would be in and their health circumstances at the time. Such judgements are difficult to make and, as a result, the criteria would risk being inconsistently applied.
Lord Wigley
May I press the Minister a little further on the position of people who might be capable of work if they have assistance? To the extent that the assistance is not available, would that be a definitive reason why they should not lose their benefits?
Lord Freud
It is clear that a lot of changes are going on and I am not surprised that people do not understand them all. One of the things that we have done means that claimants in the support group can volunteer to go straight on to the work programme, where there is substantial help for them to get back into work. That is one way in which we are helping people who may find themselves in the worst possible position to get into work. We have made a very straightforward mechanism.
I pick up the point of the noble Lord, Lord McKenzie. We are instigating a process whereby people, if they are in the WRAG with a prognosis, are asked by work providers whether they would like to come in at any point—I think at six months. They are then encouraged to volunteer for the process early. They do not move from the WRAG to JSA until there is another WCA. We are talking about a process here; it is a dial for these people, as the noble Lord said, but it has to be understood in the context of how the work programme operates as well as how the WCA operates.
Baroness Hollis of Heigham
My Lords, may I ask the Minister a couple of questions? The first is about Atos. I was slightly taken aback by his statement that he did not want GPs’ and consultants’ evidence going to Atos because they were the patients’ advocates and this was the proper role of the decision-maker. Behind this and other remarks that the noble Lord has made when talking about DLA, for example, is the belief that somehow there is an objective assessment that is to be much preferred to a “subjective” assessment—for example, the sort of diaries that disabled people are encouraged to keep when trying to determine what level of award they would get on DLA. Does the Minister accept the point that two people can have identical physical conditions but very different capacities for work by virtue of their education, mental health, family support networks and, frankly, the savings and income that they have behind them? That dowry of resource would allow someone in an identical physical situation to someone else to go into work when the other person could not.
The Minister seems to believe that there is something objective about this and that it must therefore be left with Atos because there is a sort of box-ticking going on here that is reliable. He believes that the GP, who has extended knowledge of the patient or applicant concerned, is somehow on the patient’s side and is a subjective advocate whose view should not be taken into account. I find that approach wrong. Why, given that Atos is medically qualified, should it not receive advice from other medically qualified practitioners who know the patient’s ability in certain situations of stress?
My second question has nothing to do with that and is about Croydon. From the sound of it, the Government’s Croydon centre is breaking the law of the DDA. Could the Minister follow that up?
Lord Freud
My Lords, I will follow up the Croydon situation. I was not aware of it, even though I was brought up in south Croydon.
Let me try to make this absolutely clear. The whole point of the assessment is to judge whether someone is functionally able to do the job, which is exactly what the noble Baroness was asking for. The point is that it can be done coherently and consistently by people who are experts in that function, whereas GPs and specialists are trained in diagnosis and treatments which are entirely different; it is not their job to see people and make those judgments day in, day out on a consistent basis. But that is what we are looking for. Atos Healthcare professionals are trained in disability assessment, which is assessing the functional effects of a person’s condition or disability. That is exactly what the noble Baroness is asking for.
Baroness Howe of Idlicote
My Lords, this has certainly been a very wide-ranging and passionate debate on these issues, with good reason. I am certain that my noble friend Lady Mar will read it with considerable interest and will no doubt have plenty of issues to raise at a later stage of the Bill, when I hope she will be available. We obviously have to wait for Professor Harrington’s final report, which will be extremely helpful. The various questions that were raised makes one realise how complicated the way through these things will be. Above all, we will need to reassure people with these fluctuating conditions that they will be treated fairly. On my noble friend’s behalf, I thank all noble Lords who have taken part in the debate and beg leave to withdraw the amendment.
Lord Wigley
“Effect on devolved administrations
Where the implementation of any sections in Part 1 of this Act may have an implication for other services which are the responsibilities of devolved administrations in Wales and Scotland, there shall not be a commencement of such sections until the impact of such provisions has been discussed with the relevant ministers of the devolved administrations.”
Lord Wigley
My Lords, the Minister will not be entirely surprised that I raise the question of the possible knock-on effects of the Bill on the services provided by the devolved Administrations. It could no doubt be argued that there is an equivalent or parallel question arising with regard to the consequences for local government in England, which I shall touch on a little later.
I tabled the amendment at this stage, towards the end of Part 1, because several of its provisions relating to disability, housing benefit and children have an impact on matters that are partly or wholly devolved. I could well have raised this question in different parts of the Bill but I shall content myself with just raising the issues at this stage if that is acceptable.
I remind the Committee that for both Wales and Scotland housing, social services, education, children’s policy and local government are totally devolved. It is the responsibility of the Government of Wales to provide the finance needed for those responsibilities within Wales. On numerous occasions during the past four weeks we have heard the Minister repeatedly resort to the discretionary payments and provisions that may be made by local authorities in some circumstances to make up for any cash or support losses suffered by vulnerable individuals who may lose out under the changes in this legislation. Someone has to pay for that at the end of the day, whether it is for emergency housing, social workers’ time or effort, or for the care bill needed for children or whoever.
The amendment is a modest one. It calls merely for the impact of legislation on devolved services to be discussed with relevant Ministers in Cardiff and Edinburgh before the provisions of Part 1 are implemented, which presumes that an impact assessment would have been made to enable that discussion to take place. The Minister may say that we are already having a dialogue with the devolved Administrations on these matters—I see him nodding, surprise, surprise—but I can assure him that Ministers in Wales have not so far received responses to their concerns that have put their minds at rest on a number of these points. For example, Welsh Ministers have expressed concern that changes to DLA rules will have a seriously greater effect in Wales than in England. There are 126,000 DLA claimants of working age in Wales, compared to less than 1.5 million in England. Wales has 5 per cent of the relevant population but 8 per cent of the claimants.
Welsh Ministers have expressed in writing, and made representations to Her Majesty’s Government about, their fear that these legislative changes will make disproportionate additional demands on social services departments in Wales and on the budgets of those service providers, and have disproportionate consequences for devolved budgets.
Lord German
My Lords, I am not able to support the amendment in the format in which the noble Lord has presented it. The wording states that matters should be discussed with relevant Ministers. The problem is that there are relevant Ministers—the noble Lord will know some of the people I refer to—who would probably say, “I am not going to discuss this with you”, and that would be the end of the game. The amendment, of course, is about consultation.
I should like to make two additional points. Much of what is in this Bill requires action by local authorities which, as I have said before, cannot be undertaken by this Government and this Parliament. This means that the actions necessary to enact many parts of the Bill will be requirements on others.
There is also a two-way dialogue in this. Let us take, for example, the housing issue, which was debated in earlier clauses, and the need for appropriate housing stock and its reshaping to match the changes that are about to take place in housing benefit, and the underoccupancy rules in particular. This will mean that the Government will not have any control over the level of investment in housing stock, the shaping of it or even, in a sense, the policy that will drive it forward.
It is crucial that, in the one direction, if this policy is to be implemented, there is a successful negotiation, not only with Northern Ireland—about which we heard earlier—but with the other parts of the United Kingdom. However, if you look at it the other way round, you may find issues where the legislative competence may not exist at the moment to undertake all the tasks being given to the devolved Administrations. Has any consideration been given to the legislative consequences? It may mean consent Motions being passed in other Parliaments to give action to some of the work that is going on.
We have now a very complex arrangement in the United Kingdom. I have already declared my hand— I think that social security is one of the pieces of glue that holds the United Kingdom together—but to make it work we must work together, closely align ourselves and understand the competencies which are not with this Parliament. We need an update on where we are with the current level of negotiation with both Scotland and Wales, which I suspect is different at present.
Lord McKenzie of Luton
My Lords, we should thank the noble Lord, Lord Wigley, for reminding us of the scope there is in the Bill and the profound consequences that it may have, not only for the universal credit but for all the other parts that are before us today and will be before us in subsequent Committees. I thought the noble Lord, Lord German, was on the point of distinguishing between relevant Ministers and irrelevant Ministers, but he did not quite go there.
We saw today—I am afraid I did not see it all—some of the detailed work that has gone on in preparation for, certainly, a big part of what is in the Bill. However, the point has been made by both previous speakers that it is not only about DWP and England; there is lots of work for others to do, particularly local authorities, who are about to reel under the impact of the Localism Bill and all that Mr Pickles has sought to visit on them.
Questions were raised about new burdens and how they work. It is important that that is factored in and that there is fairness and equity in how these matters are rolled out.
I acknowledge receipt of the Low review. Unlike the noble Lord, Lord Wigley, I have not had a chance to read it yet or to quote from it, but it looks to be a particularly valuable document. I hope I have a chance to read it before we get to DLA later in the Bill.
Lord Freud
My Lords, I am also looking forward to reading the Low review but I have been listening with great intensity to everything said in this Committee today. Social security is a reserved matter, although it will clearly have a limited, tangential impact on areas of policy where the Welsh Assembly and Scottish Parliament have competence, the obvious examples being childcare and housing. It does not, however, include DLA, which was one of the issues raised by the noble Lord, Lord Wigley.
I can reassure noble Lords that we have held, and will continue to hold, regular discussions with Ministers in the devolved Administrations and their officials. We are committed to the smooth and successful implementation of universal credit. To achieve that we are working closely with devolved Administrations and relevant local authorities to help them identify and address the impact that the introduction of universal credit will have on any services that they deliver. We are doing so in line with devolution guidance. My department is continuing to work through the detailed design aspects of universal credit which will be covered in regulations. Throughout this process they will continue to have discussions with the devolved Administrations, as appropriate, on these provisions and on others in the Bill. I can assure the noble Lord, Lord Wigley, that whatever I am saying here is relevant to the whole of the Bill.
I am concerned that this amendment would introduce a new and unnecessary level of bureaucracy. My noble friend Lord German hinted at some of the problems that it would result in. In practice, that would hamper progress and potentially delay the introduction of universal credit, let alone other aspects of the Bill.
Lord Freud
The issue is that if there is an additional, formal process, requiring a formal level of discussion at a formal time before you can clear particular things, that is another element of delay to negotiate when we already have a huge number. We are on a very precise plan of implementation here. Those noble Lords who were able to see the presentation of how we are introducing and implementing universal credit will be aware of the importance of a smooth process. I am concerned to avoid delays due to artificial elements of bureaucracy. Our ongoing discussions with devolved Administrations are the best way to address any impact on devolved services and achieve the successful implementation of these reforms. With that reassurance, I beg the noble Lord to withdraw his amendment.
Lord Wigley
I am grateful to the Minister for his response. I am intrigued by the way in which this bureaucracy is going to be such an imposition. If there are meaningful, ongoing discussions with the Administrations in Cardiff and Edinburgh involving a two-way flow of discussion, after which there is either a meeting of minds or not, that is not an extra level of bureaucracy. If that is not happening and it would be an extra imposition, I would be very concerned because the reassurances we are getting would be insufficient.
Lord Freud
My Lords, let me make myself utterly clear. If we had a statutory duty to discuss and if a devolved Minister were, for any particular reason, unavailable—my noble friend Lord German made my point here—our progress could be slowed. That unavailability could, potentially, be deliberate. We do not want another problem to negotiate when we already have a formal set of agreements on how we relate to devolved Administrations. We are sticking to those and we are talking regularly and informally on how best to get this through.
Lord Wigley
I note what the Minister says. He suggests that there could be some deliberate refusal to engage in such discussions. Does he seriously have examples of that happening that he could cite to the Committee, or is it something that he is imagining?
Lord Freud
My Lords, I could not reveal any confidences about the discussions that I have had with Ministers in devolved Administrations. Therefore, regrettably, I cannot answer that question.
Lord Wigley
I understand where the Minister is coming from. However, the point is that there may well be a difference of opinion between what is perceived as good public policy in Cardiff and Edinburgh and what is perceived as good public policy in his department under his Government. After all, they are different Governments of different political complexion, which will have different priorities. That is true of the current Government in Cardiff and the coalition Government who were there before them. The whole point is that we need some understanding on this.
Lord McAvoy
Is the noble Lord, Lord Wigley, perhaps interested in asking the Minister whether these confidential discussions are subject to freedom of information requests?
Lord Wigley
That would indeed be interesting. No doubt we will hear if that is the case. However, on this amendment I was also pressing for assurances—it may well be that the Minister was giving them in the words that he used—with regard to the application of the concordat. I assume from his words that the concordat—I quoted from paragraph 17—is fully applicable and will be in the context of these negotiations; and, likewise, that the assurances of “no surprises” that have been given to local government will also be applied. If there are any direct relationships between his department and local government in Wales, which there could be in the context of housing benefit because there is a direct relationship, will those assurances apply equally? I am sure that the Minister is about to nod that that is his understanding, but I should be grateful if that could be put in writing.
Lord Freud
I repeat my point: we are absolutely moving in line with devolution guidance. We have no intention of doing anything other than that.
Lord Wigley
I have probably got as far as I will get by rattling around this set of bones but this is clearly a matter of some concern. We will not know for certain until the Bill becomes an Act and how this works is turned into reality. However, I very much hope that if, in that reality, it transpires that significant additional costs are landing on local government in England or the devolved Administrations in Wales and Scotland, the Government will pick up the bill in the spirit of the concordat and the other devices that they have if it is their actions that are causing those additional costs. On that basis, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
Lord McKenzie of Luton
My Lords, I shall speak also to our other amendments in this group, Amendments 55G, 56B and 69ZA. These amendments relate to the desirability of making a greater number of regulations under the Bill subject to the affirmative resolution procedure to facilitate better scrutiny of any changes that affect claimants and future claimants of the benefits system. In particular, future attempts by regulation to define the meaning of the terms “disabled”, “severely disabled” and “work” should be submitted to both Houses of Parliament for approval. There are several other amendments in this group, which I might speak or respond to after others have spoken to them. I beg to move.
Lord German
My Lords, I shall speak to the amendments in my name, Amendments 59, 61, 63, 64, 65, 66, 67, 68, 69, 70, 77, 96, 99, 101 and 106, and to whether Clause 47 should stand part of the Bill. It will not take a wizard to note that these recommendations are based on the report to this House of the Delegated Powers and Regulatory Reform Committee. Before I give a general perspective on why I have tabled these amendments and my response to individual amendments, I shall simply look at the rationale that runs through the Delegated Powers and Regulatory Reform Committee’s reasoning for these recommendations.
The first thing it says—and I think we all agree with this—is that this is a detailed and complex piece of legislation and that it needs to make provision for as wide a range of personal circumstances as is practicable, but it has a perceived need for adaptability. That is fundamental. It comments that this is a significant revision of social security means-tested benefits since at least 1986. It also comments on the way in which there has to be an opportunity for subsequent amendment and for views on the way in which this is being implemented. Clearly, as we all know, this is a skeleton Bill, and the regulations put the flesh on the bones. That is why it is very important that we get the arrangements right, particularly bearing in mind those key principles that I have just outlined.
The Government have accepted some of the amendments, so I will not dwell on them. They have accepted Amendment 59. Amendment 63 proposes the removal of claimants subject to no work-related requirements. This was an issue that came up earlier this afternoon. This amendment removes the requirement from the affirmative procedure only for the first set of regulations and later puts it back into affirmative every time it occurs. I notice that the Government have not yet responded to this amendment, and I hope that they will deal later with the question of whether it should be affirmative throughout. It falls into the category where we may wish subsequent amendments to be dealt with by the affirmative process because they have such a substantial impact on the clients who fall under these no work-related requirements.
Similarly, there is the issue of hardship, and I have done the same thing there. I have taken that from being affirmative for the first occasion only, and in a later amendment I suggest that it should be wholly affirmative. Amendment 65 proposes that the basic conditions be subject to the affirmative procedure throughout. These basic conditions set out by Section 4 and the regulations beyond it specify certain circumstances in which a person has been treated as having accepted the claimant commitment. The basic conditions are laid out in Section 4(1). These are the bare bones of universal credit and should be subject to the affirmative procedure because they are part of the fundamental structure of the Bill. These basic conditions may well change. There will be a requirement for some flexibility, knowing how the system will pan out over time. As the people who are going to be affected by this will be the more vulnerable, it seems to me that we should have an affirmative resolution for those regulations throughout.
On Amendment 66, the Delegated Powers Committee—whose report I read very carefully—said that if the Government could convince it that the negative procedure would satisfy it, that would be sufficient. In their response, the Government said that they would seek to reassure the committee that the negative procedure would be sufficient. I wait to be convinced, as I suppose do many other noble Lords. I am grateful that the Government have changed from a negative to a first-time affirmative procedure, but the amendment questions whether that is significant. I believe that the powers are significant, and the Delegated Powers Committee worried about the restrictions put on claimants and about whether they would be suitable for differing personal circumstances. The Bill and the documents that we already have seem to allude to using these measures in a positive way—something that I support—suggesting that restrictions on types of work will allow claimants to look for work in sectors in which they are interested or for hours that are appropriate for them. Quite clearly, it is an area with significant and changeable circumstances. If it is the view that the negative procedure should be used for routine matters, then, when these policies proceed, there should be an affirmative process.
Amendment 68 relates to the claimants who are subject to no work-related requirements. The Government said that they would make that subject to the affirmative procedure for the first regulations. Once again, the Regulatory Reform Committee asked whether the Government would confirm that there would be only minor adjustments after that first set, and I think that we might be content with that.
With Amendment 69, it is exactly the same process. The Government have put in the affirmative procedure for the first time. If they can assure us that the regulations set out in the first instance are unlikely to change a great deal thereafter, I think that that will be satisfactory as well.
Amendments 70 and 99 would remove the words “Scottish Ministers”. That would not only create equality between the rest of the country and Scotland but ensure that, because Scotland would be doing these regulations by affirmative procedure, the rest of the country would be doing them that way as well. I did not understand why it was not.
Clause 47 provides that regulations under Sections 6 and 7 of the Jobseekers Act 1995 should require only the negative procedure. As of now, they have the affirmative procedure, and the regulations concern claimant conditionality and the requirements for claimants to be available for and actively seeking work on which their jobseeker’s allowance is dependent. The predecessor committee that looked at the matter in 1995 for the Jobseekers Bill considered the provisions concerning availability for work and actively seeking work to be of fundamental importance to the Bill and recommended that regulations about them should require the affirmative procedure whenever made. The DWP memorandum on this topic says:
“Regulations such as this are generally advantageous to JSA claimants. The Department has increasingly found that having to use the affirmative procedure makes implementing the changes more onerous than it needs to be”.
Can the Minister say what “more onerous” means? Does it mean that you have to have open consultation, which seems to me important? The Government rejected the recommendation from the Delegated Powers Committee, saying that moving to the negative procedure was absolutely necessary. I think we would like to know a bit more about what was absolutely necessary.
With the introduction of universal credit, there are bound to be uncertainties that really should not be left to the negative procedure in this matter. Some changes are envisaged in the regulations using the negative procedure, meaning that the Secretary of State can restrict the conditions on a claimant so that they are searching for a job that they want or may not want or one that is near them or is paying well. The precedent set by the previous legislation in this area—in fact, all legislative matters in this area in the past—has required the affirmative procedure to be used for issues of this kind. I wonder whether the Minister can convince us that we need to move in a different direction.
The Government have accepted Amendments 77 and 96, while they have put down an amendment to the part of the Bill covered by Amendment 101, and they have also agreed to Amendment 106.
With a Bill of this magnitude, which has such importance for a great number of people, over the years to come we should be absolutely clear that we are going to have a fully transparent process to allow the debate to occur, not just this year or next year but for the length of time that this Bill survives before changes are made and whenever these matters become important to the public. We need to have that public debate, and I think that Parliament deserves the affirmative resolution in the areas that I have outlined.
Lord Kirkwood of Kirkhope
My Lords, I find to my surprise that I have an amendment in the middle of this group, Amendment 71, which I am sure I conceived of in a reflective moment in my bath a long time ago. The amendment proposes a new clause entitled “Universal credit: requirement for simplicity”. It says:
“Nothing in the regulations giving effect to this Part shall introduce avoidable complexity to the claiming, calculation or payment of universal credit.”
I do not think that anyone in the Room is in favour of avoidable complexity. However, the point that I wanted to make, as we come to the end of the universal credit part of the Bill, was that, with a bit of determination, for the first time you can achieve simplicity. Even if unavoidable complexity were engrained in the legacy systems and the rest of it, perhaps it would be positive to have a statutory duty. There might be another Government in due course—you never know what might happen—and you could foresee circumstances in which there might be some back-sliding in terms of some of the gains that we have made with universal credit. If it is possible to do it—and I think that there have been signal successes in this direction, and they are demonstrated in the legislation that we have in front of us—maybe it would help to put in perpetuity for future Ministers a duty to avoid unnecessary complexity. It is something that could always be argued if future Governments came up with other unnecessarily complex systems. Perhaps I am talking to myself here, but the point is at least worth considering.
This is, rather obviously, a probing amendment, but I would like to hear the Minister’s thoughts: is it a completely daft idea, or might there be some merit in trying to get Ministers—the noble Lord’s heirs and successors—always to think carefully about unavoidable complexity in future iterations and reforms, particularly of the universal credit? It would be so easy to lose a lot of the advantages if we started making it—as we always have done, for the past 30 years—piecemeal and patchwork, with special pleading for special cases. We end up with incoherence, which is avoidable.
Lord McKenzie of Luton
How does the noble Lord envisage definitions of avoidable complexity being built in to the legislation—by regulation, perhaps, or a bit of guidance here and there, or perhaps even something in primary legislation?
Lord Kirkwood of Kirkhope
I have no idea—it was a thought in my bath. I confessed that at the beginning. However, it is worth reflecting on. Of course the noble Lord is absolutely right—as soon you start thinking about it, you start putting in layers of complexity. I think a challenge to Ministers is not a bad idea, even if it was just on the wall or behind the desk—I would settle for that. I beg to move.
Lord Freud
My Lords, in some areas I broadly agree with the Delegated Powers and Regulatory Reform Committee’s suggestions, and the Government have brought forward amendments to make these changes. Where key principles are established the first time the powers are used, these amendments will make the regulations subject to the affirmative procedure in the first instance. As to Amendment 66, Clause 6(1)(a) allows for regulations to set out circumstances in which a claimant will not be entitled to universal credit even though they meet the conditions of entitlement. I am grateful for the opportunity to reassure the Committee that the negative procedure will afford Parliament adequate control over the use of this power.
As I set out during our debate on Clause 6, there will be a number of specific groups who will not be able to access universal credit. These may include certain prisoners and children leaving full-time care who remain the responsibility of the local authority where payment of universal credit would lead to duplication of provision. This will broadly reflect similar rules in current benefits.
Similarly, I would like to reassure noble Lords that it is appropriate for the regulations on hardship and claimants falling into the no work-related requirements group to be subject to the affirmative procedure only in the first instance. In both cases, our intention is that the initial set of regulations will clearly establish the key principles of the new system. We have already provided noble Lords with a draft of the regulations to be made under Clause 19(2)(d). We have also published a briefing note on the conditionality threshold. We have debated these matters at some length earlier in Committee. Once the system that we have set out is in place, it is unlikely that the regulations will change significantly, and I hope that is the assurance that my noble friend Lord German was looking for.
There are three areas where I am unable to accept the committee’s recommendations or the noble Lord’s amendments. First, the committee and the noble Lord have suggested that Clause 47 should be removed from the Bill. Clause 47 relates to the parliamentary procedure for regulations relating to the requirements on jobseeker’s allowance claimants to be actively seeking, and available for, work. These powers are currently subject to the affirmative procedure. The clause makes them subject to the negative procedure.
These powers were groundbreaking when first introduced in 1995, as the noble Lord pointed out. However, the House now has had more than 15 years experience of how these powers are used. There is a wide understanding of what the phrases “actively seeking” and “available for work” mean; in fact, it fundamentally underpins our active labour market approach. We believe that this experience means that it is now far more appropriate that this power is subject to the negative procedure. Their use is now well established and we have no intention of departing from that precedent.
Secondly, Clauses 33 and 89 allow for supplementary, incidental, transitional and consequential amendments to other legislation to be made through regulations. To pick up on the point that my noble friend made about the Scottish Government, who have powers under Clause 33 to make consequential amendments in their area of remit, they specifically requested that these regulations be made by affirmative procedure in the Scottish Parliament. This was the result of one of our helpful non-statutory discussions, which I am sure an FOI request will show in all its glory. Amendments 70 and 99 would make any regulations that amend primary legislation subject to the affirmative procedure.
It is likely that a large number of minor amendments to other legislation will be necessary as a result of the importance and scale of the changes that the Bill introduces. It is not unusual for some of these changes to be made through secondary legislation, and such consequential powers are usually subject to the negative procedure. Moving away from this precedent would take up a very significant amount of parliamentary time and could pose a risk to the timetables for both universal credit and personal independence payment. We therefore feel that the negative procedure remains appropriate.
Amendments 55E to 55G and 69ZA seek to make regulations that contain definitions of “disabled”, “severely disabled” or “work” subject to the affirmative resolution procedure. It inserts a new subsection into Clause 43 and consequential amendments to the terms where they arise in Clause 41. I can reassure the noble Lord that these amendments are not necessary. Clause 43(3) already provides that a wide range of regulations will be subject to the affirmative procedure the first time that the power is exercised. This includes the regulations to be made under Clause 12 providing for additional amounts that will include the definitions of the terms mentioned in the amendment. Noble Lords may recall that the illustrative draft regulations on elements provided to your Lordships already contain a draft definition of “disabled” and “severely disabled”.
Under Amendment 69ZA, the noble Lord seeks to significantly widen the scope of regulations subject to debate in both Houses, covering consequential amendments and changes to working age benefits and pension credit. It would be completely impractical for this House to debate the numerous consequential amendments being made to both primary and secondary legislation, and a poor use of parliamentary time. I have already explained why it is more appropriate that Clause 33 should remain subject to negative procedures, but none of the other provisions identified by this amendment was covered by the report of the Delegated Powers and Regulatory Reform Committee. We are therefore satisfied that the negative procedure is appropriate.
With regard to universal credit, I should also point out that all the regulations on entitlement, awards and claimant responsibilities will be in a single set of regulations. They will necessarily be affirmative in the first instance because if any regulations within a set are affirmative they all are. So, even if the Bill does not require the affirmative procedure for specific points, it will apply in practice.
Amendment 71 would introduce a different form of scrutiny for universal credit regulations requiring the Secretary of State to avoid creating any unnecessary complexity into the system. I strongly support the spirit of the amendment in the name of the noble Lord, Lord Kirkwood. A key aim of universal credit is to simplify the benefit system. Simplification is a publicly stated, fundamental principle that has guided the design of the new system. Any requirement for simplicity would have to be finely balanced against other considerations, such as affordability or easing the transition to work. I acknowledge that this is a probing amendment, but perhaps a duty to consider the simplicity of any changes, as suggested by the noble Lord, would be a better approach than that in the amendment. However, any Government would clearly have to be concerned about the detailed interpretation of simplicity, which, as the noble Lord, Lord McKenzie, took delight in pointing out, is a subjective term.
Nevertheless, I will look at this idea very closely. I can assure the noble Lord that we will put in place a number of non-legislative safeguards to protect universal credit from unnecessary complexity. These include governance processes to ensure simplification and consistency in policy design, and working with claimants to ensure that universal credit is simple to understand and administer.
Given these explanations, I urge noble Lords to withdraw or not move their amendments.
Lord McKenzie of Luton
My Lords, I am happy to do so. However, I should like to comment on the issue of avoidable complexity. The Minister said that he had to balance that against issues of affordability and ease in transition. I accept that, but you also have to strike a balance around issues of fairness. One of the problems of simplicity and standard systems is that they do not necessarily take account of some of the individual circumstances that have to be addressed. You see it perhaps more acutely in the tax system, but it applies equally to the benefits system. Although I clearly support getting things as simple and straightforward as they can be, fairness should also be one of the balancing factors. I beg leave to withdraw the amendment.
Lord Kirkwood of Kirkhope
“Benefit regulator
Nothing in this Part shall be introduced until a claimant regulatory authority is established to oversee the professional standards being observed by those government departments and other agencies delivering universal credit and other benefits.”
Lord Kirkwood of Kirkhope
My Lords, I hope that in the remaining few minutes before the Committee considers wrapping up for the day we can deal with my two amendments in this group, which are quintessentially simple ideas. Amendment 56 suggests having a benefit regulator, and Amendment 113 proposes an office for social protection. I freely confess that these ideas can be criticised for increasing quangocracy, but before the noble Lord, Lord McKenzie, attacks me for creating new quangos, it is certainly not my intention to do that. These are very simple quangos.
I have tabled Amendment 56 because we are coming to the end of an important piece of Committee work that will transform the way that people think about benefit delivery in the future. I see in other aspects of my work that there has been a general increase in public discontent with the services that they are getting across the public waterfront. Complaints against doctors and public servants are increasing. That may be for the beneficial reason that people are more active in demanding a proper service. If you look at the changes that we are making—and the Government argue rightly that this is a culture change if it is to be successful—perhaps we should be looking at the provision of public services delivered by professionals within the Civil Service, in government departments and in the plethora of government agencies. It applies not merely to the DWP or the Child Support Agency, but to prime providers in the Work Programme. There is a very complicated set of hierarchies, which I am sure are doing their best, but they all need to be invested with a culture that underpins the ethic of good service to the public. A regulator may not be the right word and an office or new organisation may not be necessary, but I feel strongly that we should be looking to the Government and the department to set clearly some new paradigms about how they will deliver universal credit as we go forward.
If I thought that previously, I was reinforced in that view by looking at the recent White Paper, Open Public Services, which contains some of the principles of good complaint handling in terms of the need for public services to be accountable to users and taxpayers, and to be responsive to the people whom they serve. That White Paper sets out the principles clearly for all to see and sets the high standard that we should all aim for. I also carefully considered the work of Ann Abraham—the Parliamentary and Health Service Ombudsman—of whom I am a fan. Last month, she produced a very interesting report, Responsible and Accountable? It repays careful study for some departmental Ministers in the DWP because Work and Pensions and the subsequent agencies are at the high end of most of the complaints.
Baroness Lister of Burtersett
My Lords, I shall speak briefly in support of Amendment 113. I do not know whether this was another amendment cooked up in the noble Lord’s bath—I forgive him for “going forward”—but I like the idea of an office for social protection. The notion of social protection is one that we do not use enough in this country; it is very much a continental, European concept, and a very important one. I am not arguing for a new quango either but the spirit of noble Lord’s amendment is very important. I have lived through more fundamental reforms of social security than I care to remember, and not one of them has addressed the points made in this amendment about the adequacy and the sustainability of the different parts of the system. If nothing else, there should be a requirement on the Government that when they bring forward reforms of social security they should consider these fundamental questions.
We have touched on these points in Committee already. One noble Lord asked questions about the principles underlying social security. I intend to come back to them under an amendment to Clause 51, when I will to talk about a contributory principle. I am slightly reluctant to think about this as being part of the responsibility of the Social Mobility and Child Poverty Commission because social security is not just about poverty. The whole point about social protection is that it broadens it out beyond poverty—a group “over there”. One possibility to think about is whether to broaden the remit of the Social Security Advisory Committee so that periodically it reports on the adequacy and sustainability of the different parts of the system.
Baroness Hayter of Kentish Town
My Lords, I declare an interest in regulatory and professional services, having chaired the Legal Services Consumer Panel, sat on the Board for Actuarial Standards, overseen insolvency practices and sat on the Bar Standards Board, the Pension Regulator and the Property Standards Board. So I have a long involvement with non-economic regulators who oversee the professional delivery of services. These kinds of regulators have a large role to play as they are very much about what we called raising standards—although the words used by the noble Lord, Lord Kirkwood, when he talked about “driving up” standards may be even better. This goes beyond public services. That may be what is in front of us now but consumers are demanding this from a whole range of service providers. It has shaken some of the barristers who do not really like the fact that they have to conform to new consumer-set standards. But that is what the users of all services now want and that is what this kind of regulator provides.
I am less afraid of the idea of quangos—although I am sure that that is not a general view—but what these kinds of regulators do is to adopt codes of conduct; set good practice guidelines and minimum service standards; and then ensure that quality assurance by way of setting minimum training or entry qualifications, CPD requirements and the monitoring of services. That monitoring is not just about compliance, important though that is, but also provides a feedback loop so that lessons are learned, either for standards and the way they are defined and set, or for the way staff are trained, or, as was discussed this morning, to allow systems to continue to be developed in the light of the way the service is delivered.
This kind of standard-setting is particularly important in view of the ending of legal aid to assist complainants and users because the only other monitoring will be via this kind of organisation. This kind of regulator—for want of a better word—can identify whether particular groups are underrepresented in any category and whether all groups are being properly serviced and properly served. As the Minister has stated on a number of occasions, some decisions must be taken on a case-by-case basis—in-work conditionality is a particular example. This will involve tremendous discretion in the hands of thousands of decision-makers across the country, so clear guidance, good and consistent training and ongoing monitoring of decisions by some kind of regulator with authority will be crucial to ensure that the service is fit for purpose.
Unfortunately, the Government refused to accept our earlier amendment that the Jobcentre Plus side of the claimant commitment should be laid down. It is therefore even more important that this standard-setting will be open, transparent, raise standards and, most importantly, create confidence in the new system. This proposal has some merit. I am not sure whether or not the formula will achieve it, but we look forward to hearing the Minister’s response.
Lord Freud
My Lords, I share the noble Lord’s concern that the benefits system must be fair, efficient and affordable, which is indeed why this Bill is before the Committee today—to ensure that benefits are well targeted and fair and the system is simple to understand and simple to administer.
The first of these amendments would introduce a claimant regulatory body for universal credit. We are committed to involving claimants throughout the development of universal credit. This involvement will ensure that issues are known, understood and mitigated as universal credit is being built. As part of this, we are already conducting a programme of research among a broad range of future claimants and are testing the design of the claimant commitment with claimants, front-line staff and stakeholders. This process will continue over the coming months to ensure that claimants have real and sustained input into the creation of the new benefit.
The other amendment in this group would create a wider office for social protection, looking at the benefits system as a whole. There are already a number of other bodies with oversight of the benefits system and any changes made, not least the Social Security Advisory Committee. As well as scrutinising regulations, the committee comments on a range of operational matters, especially in relation to claimants’ interests. While I am grateful for the contributions of the noble Baroness, Lady Lister, and my noble friend Lord Kirkwood, I am not convinced that another body is needed. The coalition Government are committed to reducing the number and cost of quangos, and increasing accountability by transferring the responsibility for key decisions on public policy back to Ministers. Ministers are held to account in Parliament, including by powerful committees such as the Public Accounts Committee and the Work and Pensions Select Committee, not to say the Chamber of the House itself.
I do not intend to reverse this direction of travel, and I would urge the noble Lord to withdraw his amendments.
Baroness Lister of Burtersett
My Lords, before the Minister sits down I would like to make clear that I was not arguing for a separate body. I was arguing that Social Security Advisory Committee could perhaps be asked specifically to consider, on a regular basis, the issues contained in the noble Lord’s amendment—possibly in its annual report—namely the adequacy of the different elements of the system, the sustainability and the way the different elements of the system fit together. It would be very helpful to have that kind of annual overview. Perhaps the Minister can take that away and consider it.
Lord Freud
My Lords, I know it is not our House, but I point out that the Work and Pensions Select Committee has that remit—a very direct remit to look at the system overall. If you are looking at how individual claimants are treated, we have a process of tribunal and independent review. There are a whole number of different processes.
Baroness Morgan of Drefelin
Can the noble Lord tell us who would be responsible for promoting and funding research into these questions? If there is not a body which is taking an interest in evaluating the impact of changes in social security, who will be funding, gathering and evaluating independent evidence looking at the impact of these changes or changes like this?
Lord Freud
My Lords, how we research changing universal credit is something that I am taking an active interest in getting on top of now, as I discussed on a previous day. Clearly there is a lot of research. The department puts out an enormous amount of research every year. Huge tomes come out monthly, and I know noble Lords enjoy reading them all. There is no lack of adequacy of independent research on DWP matters.
Lord Kirkwood of Kirkhope
My Lords, my main priority is to get back to my bath as soon as possible. If I do not get my 7 pm train I will not do that, so I thank the Minister for his reply, and I am happy to withdraw the amendment.
Lord Freud
“Pilot schemes
(1) Any power to make—
(a) regulations under this Part,(b) regulations under the Social Security Administration Act 1992 relating to universal credit, or(c) regulations under the Social Security Act 1998 relating to universal credit,may be exercised so as to make provision for piloting purposes. (2) In subsection (1), “piloting purposes”, in relation to any provision, means the purposes of testing—
(a) the extent to which the provision is likely to make universal credit simpler to understand or to administer,(b) the extent to which the provision is likely to promote—(i) people remaining in work, or(ii) people obtaining or being able to obtain work (or more work or better-paid work), or(c) the extent to which, and how, the provision is likely to affect the conduct of claimants or other people in any other way.(3) Regulations made by virtue of this section are in the remainder of this section referred to as a “pilot scheme”.
(4) A pilot scheme may be limited in its application to—
(a) one or more areas;(b) one or more classes of person;(c) persons selected—(i) by reference to prescribed criteria, or(ii) on a sampling basis.(5) A pilot scheme may not have effect for a period exceeding three years, but—
(a) the Secretary of State may by order made by statutory instrument provide that the pilot scheme is to continue to have effect after the time when it would otherwise expire for a period not exceeding twelve months (and may make more than one such order);(b) a pilot scheme may be replaced by a further pilot scheme making the same or similar provision. (6) A pilot scheme may include consequential or transitional provision in relation to its expiry.”
Lord Freud
“( ) section 4(7) (acceptance of claimant commitment);”
Lord Freud
Lord Freud
“( ) section 18(3) and (5) (work availability requirement);”
Lord Freud
Lord De Mauley
My Lords, this may be a convenient moment for the Committee to adjourn until Tuesday at 3.30 pm.
House of Lords
Royal Assent
UK: Union
(13 years ago)
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Lord Soley
To ask Her Majesty’s Government whether they have any proposals to inform the public about the advantages of maintaining the union of the United Kingdom.
The Advocate-General for Scotland (Lord Wallace of Tankerness)
My Lords, the noble Lord, Lord Soley, said at Second Reading of the Scotland Bill that the United Kingdom,
“is one of the most effective political and economic unions that the world has ever seen”.—[Official Report, 6/9/11; col. 234.]
The Government wholeheartedly agree, and my ministerial colleagues and I will do all that we can to make the case for the United Kingdom. I also urge those who support this unique partnership to join the debate and promote its benefits.
Lord Soley
I am very grateful for that Answer. Does the noble and learned Lord agree that this message needs to go out not just in Scotland but in England too? There is a very real danger to our nationalism and we need to get out the message that many states around the world envy our stable system, which has brought peace and prosperity to the United Kingdom and is a model for other countries. Does he also agree that this issue is not for any one party or any one part of the United Kingdom?
Lord Wallace of Tankerness
My Lords, I certainly agree that this is not for any one party or any one part of the United Kingdom. Judging by the response to my Answer and to the noble Lord’s Question, we all share a common interest in spelling out the merits for the union, which is of 304 years’ duration. I think the question the separatists have to answer is: why separate?
Lord Lang of Monkton
My Lords, if the Greeks can organise a referendum in four weeks, why should it take four years to organise one in Scotland? Is not the idea of the Scottish national Administration in Edinburgh organising a referendum on independence a bit like a plaintiff presiding over their own case in court when seeking a divorce? Would it not be more appropriate for the British Government and the British Parliament to take hold of this issue and to hold the referendum soon with one simple question: do you want Scotland to leave the United Kingdom?
Lord Wallace of Tankerness
My Lords, I certainly think that one simple question that focuses on whether Scotland should or should not be a part of the United Kingdom is key. We should avoid any attempt to muddy the waters—as I think one rather influential academic put it last week—in suggesting a second question. That is spot on. I do not think that that would bring the clarity that we need on an issue such as this. I assure my noble friend that United Kingdom government Ministers have been pressing the Scottish Government to come clean as to their timings and, more specifically, what they mean by independence. My right honourable friend the Secretary of State for Scotland has posed a number of questions and we are still waiting for answers.
Lord Empey
My Lords, does the noble and learned Lord accept that a point will come shortly where the uncertainty created by the Scottish situation will impact negatively on investment opportunities in Scotland? When will a proper pro-union argument be put firmly not only to people in Scotland but to people throughout the rest of the United Kingdom?
Lord Wallace of Tankerness
It is interesting that the noble Lord should mention the economic impact of the uncertainty. He may have seen a report published earlier this week by Citigroup on the very important issue of renewable energy, which made the point about the dangers of investing in Scotland while there is uncertainty about the future of the constitutional position of Scotland. The other side of that coin is that there are considerable benefits of a united kingdom in taking forward that agenda to ensure that we meet our climate change targets. It is not often that I have the opportunity to quote with approval a Daily Record editorial, but today it says:
“In the meantime, it's hard to disagree with pro-UK politicians who claim green energy is a great example of Scotland and the rest of the Britain working together”.
Lord McConnell of Glenscorrodale
Does the Minister accept that one of the great strengths of the union of the United Kingdom is the way in which the Scots, the English, the Welsh and the Northern Irish have moved throughout that kingdom over the last three centuries? Do the Government take a position on Scots who do not currently live inside the boundaries of Scotland but may have an interest in a referendum that will determine their country’s future?
Lord Wallace of Tankerness
My Lords, the noble Lord is absolutely right to indicate that the flow of people throughout the United Kingdom is important. Many families in England have relations in Scotland and vice versa. That only underlines the important cultural and social ties as well as the economic and social benefits that flow from our United Kingdom. However, we have made it clear in the past that a referendum would be on the basis of the people living in Scotland at the time of that referendum.
Lord Stephen
Does my noble and learned friend agree that rather than being for the UK Government it should be for Alex Salmond and the SNP to spend some of their own time and money explaining what full independence really means? For example, is it not time that Alex Salmond told us how many military bases would remain in Scotland? How would he split the Scottish pension system from the UK system? Would he create an entirely new tax and benefits system for Scotland; and if, as he says, he wishes to retain sterling as Scotland’s currency, would EU membership allow this? If it would, what powers would he intend to have to instruct Mervyn King and the Bank of England on monetary issues, or would he just leave that to George Osborne?
Lord Wallace of Tankerness
By asking that question, my noble friend makes it very clear that the First Minister of Scotland and his party have a host of questions to answer, not least on the currency because there are even those who think that if Scotland wished to join the European Union it would be obliged to adopt the euro. Andrew Hughes Hallett, who is on the First Minister’s Council of Economic Advisers, indicated that, as was reported earlier this week. It would be rather odd. Some countries, but not many, adopt the currency of a foreign country but have no powers. It just underlines what a weak position Scotland would be in.
Lord Forsyth of Drumlean
Could my noble and learned friend consider the idea of establishing an independent commission to look at the benefits of the union to the United Kingdom as a whole and the consequences of separation, given that the nationalists are determined to hold a referendum on independence, so that everyone can see what the consequences could be and what the facts are?
Lord Wallace of Tankerness
My noble friend makes a very interesting and very constructive suggestion. He will understand that I am not in a position to accede to it from this Dispatch Box, although I will consider it. In the mean time we will not wait for the setting up of any commission that might come along. We will continue to make the case for the United Kingdom.
Lord Wigley
My Lords, I can see that I am in a minority in this House. I want to press the Minister on the reply he gave a little earlier that he was fully in support of a single-question referendum in Scotland. If that was the case and there were a single-question referendum in Scotland and the people of Scotland voted yes, would his Government accept that as the outcome?
Lord Wallace of Tankerness
Well, my Lords, it would depend on what the question was. It is important that we have clarity on this. There is an idea that you could have two questions. For example, the First Minister has indicated that if what he describes as “devo max”—perhaps even less defined than independence—was to get 98 per cent of the vote and “independence” got 51 per cent, independence would trump devo max. I do not think that that is the sort of basis on which we should go into any referendum campaign.
Loan Companies: Interest Rates
(13 years ago)
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Lord Kennedy of Southwark
To ask Her Majesty’s Government what measures they propose to deal with high street lenders who charge excessive rates of interest, particularly to those on the lowest incomes.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, the Government recognise that it is often the most vulnerable who have to pay the highest costs when accessing credit. We are commissioning research into the impact of introducing a cap on the total cost of credit that these lenders can charge. We are also looking at the high cost credit market as part of our consumer credit review and we will publish our final response before the end of this year.
Lord Kennedy of Southwark
I thank the noble Baroness, Lady Wilcox, for her response. Does she agree that companies which charge 2,000, 3,000 or even 4,000 per cent are legalised loan sharks? Will the Government look at requiring these companies to put a health warning on their advertisements in highly visible, large type explaining clearly the costs of their services and advising people that their local credit union would offer better value for money?
Baroness Wilcox
The noble Lord, Lord Kennedy, has covered three big items. I know what an expert he is on the last one, so I will leave that for the moment. This Government and the previous Government have looked again and again at capping interest rates, but our worry has always been that that would push people towards illegal money lending. We then do not know when they are in trouble and they can be treated very violently. Even looking to see whether we should be changing this in any way is a new venture for us. The noble Lord is absolutely right in his second point. People should have the right information on which to base their choices.
Lord Alton of Liverpool
Has the Minister seen the latest figures for personal debt, showing that a staggering £1,450 billion is owed in personal debt by the nation at the present time? If it is right—and it is—to reduce national debt, should we not be doing far more to help families who are massively in debt in Britain today, especially through the promotion of credit unions?
Baroness Wilcox
We have tried and continue to try to see how we can get people to set up credit unions. They are so popular in America, Australia, Canada and Ireland, but we just do not seem to like them in this country. However, we are continuing to struggle to do that. The noble Lord is right about total household debt: £1.45 trillion is an enormous figure, but of that £1.24 trillion is owed on mortgages. We are a real country for buying our own houses and taking out mortgages. The amount left over is the money owed on personal loans, credit cards and high-cost credit. For this, we must make absolutely sure that people have the right information before they get themselves into difficult situations.
Lord Razzall
My Lords, taking the last point made by the noble Baroness in response to the previous question, is she satisfied that the review the Government are carrying out will ensure absolutely that the result does not force the very poor into the hands of loan sharks, whose method of collection involves violence?
Baroness Wilcox
When the consumer credit review report comes out, we will know its findings, so I cannot comment on them for the moment. However, it is always the most vulnerable who we must worry about because they are the least likely to ask for help until it is too late. We will continue, as we would always continue, to make sure that the disadvantaged really are a priority for us.
Lord Young of Norwood Green
My Lords, can the Minister advise the House on whether the Government have any plans for regulating commercial providers of debt management plans, which have never been regulated and under which consumers pay upfront fees and take longer to pay off their debts? Does the Minister agree that there is a real need for free and impartial debt advice such as that provided by the Consumer Credit Counselling Service?
Baroness Wilcox
We certainly agree that there should be free debt advice and we will continue to provide it. I think the noble Lord also asked about debt management companies. We are concerned about these. The Office of Fair Trading has recently taken action in this area and we are working with the industry itself on how we can resolve these issues. Good people in the industry do not want the bad people in it because they give them all a bad name.
Lord Marlesford
My Lords, are the Government at all concerned about the fact that there is some £60 billion of outstanding credit card debt on which interest rates of 17 per cent or more are being charged? Much of this is non-performing. Does that not cast something of a shadow over the balance sheets of the banks?
Baroness Wilcox
We are working hard to bring under control unsustainable borrowing and irresponsible lending—between which lots of bad things happen. There is no doubt that good information is terribly important for people to be able to make decisions. However, the Government are not risk averse to the freedom for our people to make decisions and take risks—and fail. We want our people to be free to succeed and that means that some of them will fail.
Lord Elystan-Morgan
My Lords, would the Minister accept that in many credit contracts, judges in a civil capacity have a considerable jurisdiction to strike out and amend their unconscionable terms? Will she see to it that the greatest publicity is given to this power which has long been vested in civil judges?
Lord McNally
I think that the House should hear from my noble friend Lady Gardner.
Baroness Gardner of Parkes
My Lords, is the Minister aware that many of us now get six or more phone calls every week? It is not just a high street issue but has become an absolute telephone menace. People are phoning all the time, stating that this is an official announcement and under the new law they can clear all your debts in no time at all. This is absolutely wrong. I have asked this question previously and the Minister told me that there was nothing the Government could do. I understand now that there is a blocking system. Will the Government publicise how to block these calls so that these poor people are not imposed upon again?
Baroness Wilcox
People are most vulnerable to receiving these calls in their homes. We have all received them. I will take that question away, see whether there is anything further that we are doing and write to my noble friend.
Lord Dykes
Will the Minister also look into another serious abuse: the amount of money that currency exchange bureaux charge to customers travelling overseas for very small transactions in value, often with margins of 15 per cent either side? This is a serious abuse because they quote zero commission but charge a huge margin on those exchanges.
Baroness Wilcox
If they collect money that way, I suppose the Post Office would be their first stop. I will look into this but do not think that there is any intervention that we can make at the moment.
Shipping: Towing Vessels
(13 years ago)
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Viscount Younger of Leckie
To ask Her Majesty’s Government why they have decided to withdraw funding from emergency towing vessels; why funding has been arranged for an interim replacement project only in Scottish waters; and what provision they have made to protect the English coastline from oil spills.
Earl Attlee
My Lords, the Government believe that ship salvage should be a commercial matter and that there are sufficient tugs around the majority of the UK coast to respond to ships in difficulty. There are fewer commercial tugs available in the waters off north and western Scotland so the Government have funded two tugs for an interim period to allow locally interested parties time to develop plans for sustainable provision without recourse to taxpayers’ money.
Viscount Younger of Leckie
I thank the Minister for that reply. He will recall the “Sea Empress” disaster in 1996 when 73,000 tonnes of crude oil spilt along the south Wales coast, and also the foundering of HMS “Astute” last year. Is he aware that the withdrawal of these tugs means that there are simply no replacement tugs with the bollard-pulling power to effect a rescue? How comfortable is he with the responsibility being passed to ship owners, given that ownership is usually as clear as mud?
Earl Attlee
My Lords, the world has moved on since the report of Lord Donaldson. We have port state control and inspection of ships, the integrated safety management code of ships, much more reliable ships and much better situational awareness for the coastguard, coupled with the SOSREP system. Finally, most tankers are double-hulled. Single-hulled tankers are not allowed in UK waters except in exceptional circumstances.
Lord West of Spithead
My Lords, is the Minister aware that there is a growing perception that the coalition Government are suffering from collective sea blindness? We have just discovered that over the last few weeks we have no ship at immediate readiness for counterterrorism or disasters around the UK—no Royal Navy ship at all. We have got rid of our broad area surveillance in the SDSR. We have just heard about the tug towing, and I have to say there are still a lot of single-hull tankers around, not least in the Royal Fleet Auxiliary because there has been no money to replace them. The National Maritime Intelligence Centre, which he referred to, is not up and running at full speed, which it should be. I can go on and on.
I am sure these perceptions are not right, but could the Minister confirm that the Government are looking at this in a co-ordinated way because there is very real worry? Perceptions often seem more real than reality, and there is a very real perception that this is not being pulled together.
Earl Attlee
The noble Lord is right, he has gone on—he has gone on about defence matters. This is a commercial matter. One of the impacts of the Government funding an emergency towing vessel, say at Falmouth, is that it prevents commercial operators from stationing an ETV at Falmouth because there is no work for them.
The Earl of Mar and Kellie
My Lords, can I ask my noble friend what he believes to be the maximum acceptable steaming time to effect a rescue after the contracting process has been completed?
Lord Kinnock
My Lords, that was about the most articulate ministerial answer I have heard in this House. While the Minister is right to draw attention to great advances such as port state control, the ISM code and double hulling, even cumulatively they are not enough when a ship has foundered. Is the Minister aware, when he puts an emphasis on commercial tug companies, that they can be expected to act commercially? This is why it is necessary for government support to ensure that in any and all conditions—however unprofitable they may initially seem commercially—those tugs are available right round the British coast.
Earl Attlee
The noble Lord makes some quite sensible points. However, it is important to understand that one of the recommendations of the Donaldson report was the SOSREP, the Secretary of State’s representative, and he has extensive powers to direct that ships will assist other ships in difficulties. It is also worth pointing out that the emergency towing vessels have not yet been decisive in rescuing any super-tanker because none has come to grief.
Lord Greenway
My Lords, would the Minister agree that the greatest risk occurs in the Dover Strait, which is one of the most heavily trafficked maritime areas in the world? The French have somewhat reluctantly moved one of their two large ETVs up from La Rochelle to cover the gap left by the withdrawal of our “Anglian Monarch”. Would he also agree that the Dover Strait is special because many of the ships transiting are deep draft vessels operating in comparatively shallow water? This leads to the danger that, if there were an accident, there would be a motorway pile-up situation—as last happened with the Norwegian car carrier “Tricolor”, which was run into by two other ships after she had sunk, and over 100 other ships passed within the clearly marked exclusion zone.
Earl Attlee
The noble Lord makes an extremely important point and his analysis is correct. However, although the Dover Strait is an area of higher likelihood because of the concentration of ships in the area, experience indicates that the consequences of a grounding are likely to be lower because the seabed is flat and sandy rather than rocky. Regarding his point about the motorway pile-up, the coastguard, with automatic monitoring of ship movements, will be aware immediately a ship stops moving and can warn other ships of the difficulties.
Lord Davies of Oldham
My Lords, is it not the case that the Government are not prepared to pay the relatively modest insurance policy to guarantee that we have adequate towing tug capacity in British waters? If a major disaster occurs, we will be dependent upon Rotterdam or other foreign ports to produce the necessary towing and tug equipment. Is that not a dereliction of duty on the part of the Government?
Earl Attlee
My Lords, the noble Lord makes an important point about Rotterdam. Rotterdam and the Dutch have great experience in salvage operations. There are lots of tugs operating out of there. If we withdrew the funding, which we have, from the Falmouth tug, someone will probably station a tug in Falmouth in order to pick up the market. Currently, however, we are distorting the market by paying out large sums of taxpayers’ money to no good effect.
Protests: Tent Pitching
Lord Cormack
To ask Her Majesty’s Government whether they will introduce emergency legislation to make pitching a tent in a non-designated public space, or on a public thoroughfare, a criminal offence.
Baroness Stowell of Beeston
My Lords, the Government brought forward provisions in the Police Reform and Social Responsibility Act 2011 which allow local authorities to attach the power of seizure to their by-laws for encampments on local authority land. These provisions will be commenced shortly. It is therefore not necessary to introduce emergency legislation. Protests on private land are the landowner’s responsibility but the Government are looking at existing laws to consider whether any additional measures are needed to deal with such encampments.
Lord Cormack
My Lords, in thanking my noble friend for replying, I welcome her to the Dispatch Box and wish her many happy and successful years there. But perhaps I may also ask her if she will rethink part of that Answer. Will she impress upon the Government that we are facing a potentially disastrous situation? Next year, extra millions of people will come to this country for the Olympics and the Cultural Olympiad. They will come to admire our great public buildings and open spaces, not to see squalid encampments. It is essential that the Government take effective action to prevent what happened at St Paul’s three weeks ago happening in other places, thereby defacing the very image of this country next year.
Baroness Stowell of Beeston
My Lords, I am grateful to my noble friend for his remarks; he has for many years been a leading figure in debates on matters such as this, both in the other place and in this House. The point that has to be made—my noble friend the Minister made it last week when answering a similar Question—is that protests on private land are the responsibility of the landowner. However, as my noble friend the Minister also said last week, and as I said in my original Answer to the noble Lord, the Government are looking at existing laws and considering whether any additional measures are needed.
Lord Campbell-Savours
My Lords, is it not somewhat perverse that Parliament spends its time criticising people for putting up tents in protest when those who are responsible for the crisis in the City and in the banking institutions are walking away into the sunset with their millions? Should we not get our priorities right?
Baroness Stowell of Beeston
My Lords, I am responding to a Question about whether there should be emergency legislation to prevent people pitching tents in non-designated public spaces, but I understand the noble Lord’s point. The Government are very clear that people in all parts of the country are having to deal with wage freezes and wage cuts and that some are having to look for a new job. Those people are dealing with these difficulties and shouldering their share of responsibility and they are right to expect big banks and the big bosses in companies to take their fair share of responsibility as well.
Lord Tyler
My Lords, in congratulating my noble friend perhaps I may ask her to reiterate the Government’s decision to avoid a knee-jerk, piecemeal and authoritarian response on this issue. Given that the wisdom of our mutual friend Lord Cormack clearly trumps that of the Archbishop, the Bishop of London and the clergy of St Paul’s, perhaps I may also ask her to look particularly at the issue of Parliament Square. She will see some very sensible proposals which have come forward this very month from the Hansard Society—in a report entitled A Place for People: Proposals for Enhancing Visitor Engagement with Parliament’s Environs—that would enable us to take a sensible, long-range view and to deal comprehensively with the problems referred to.
Baroness Stowell of Beeston
Of course we will look carefully at the report to which my noble friend refers. However, I stress that we passed an Act in July of this year that introduced new measures that will put an end to the encampments in Parliament Square. These measures will be commenced shortly and at that time we will, thankfully, bring an end to the disruption that so many people have criticised and rightly complained about over many years.
The Lord Bishop of Bath and Wells
My Lords, from these Benches I congratulate the Minister on her appointment. The Church of England maintains a presence in every community in the land. It is a broad church—it is perhaps the original big tent. Is the Minister aware that St Paul was a tent-maker and that St John records that Jesus pitched his tent among us, in a non-designated public space, to rescue us?
Baroness Stowell of Beeston
I am very grateful to the right reverend Prelate for his question. Thank you.
Lord Hunt of Kings Heath
My Lords, I, too, welcome the Minister to her position at the Dispatch Box today. Could the Minister comment on the original suggestion made by the noble Lord, Lord Cormack? I would ask that the review is undertaken very carefully indeed and that there is the widest possible consultation. In terms of what overseas visitors will see next year, would it not be better that they saw an example of a vibrant democracy in action?
Baroness Stowell of Beeston
I agree with the noble Lord. We are expecting many people here next year and want to present a thriving London to everybody who visits. I will certainly take on board the points that he made, but I can only repeat that the department is considering this matter at this time and taking it very seriously.
Legal Aid, Sentencing and Punishment of Offenders Bill
Business of the House
(13 years ago)
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Lord Strathclyde
That the debate on the motion in the name of Baroness Bonham-Carter of Yarnbury set down for today shall be limited to three hours and that in the name of Lord Newby to two hours.
The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, I beg to move the Motion standing in my name on the Order Paper.
Lord Higgins
My Lords, parliamentary-related business will prevent me being present for the second debate this afternoon, which in any case is very limited in both scope and time. Would my noble friend consider very carefully the need for us to have a major debate on the crisis in the eurozone?
Lord Strathclyde
My Lords, I was present in the House when my noble friend raised this point yesterday. I am very sorry, as I suspect many noble Lords are, that they will not be able to hear my noble friend speak, with all his experience and knowledge on this subject. This is of course a matter for the usual channels and we shall give it the most urgent consideration.
Creative Industries
Baroness Bonham-Carter of Yarnbury
To call attention to the importance of the creative industries in the United Kingdom; and to move for papers.
Baroness Bonham-Carter of Yarnbury
My Lords, I am privileged and pleased to introduce this debate on the importance of the creative industries. The gratifyingly large number of people who are taking part in the debate demonstrates that there is consensus in this House, at least on the title. I also express my pleasure that my old friend and colleague from BBC “Newsnight”, the noble Viscount, Lord Colville, has chosen this debate to make his maiden speech. I believe this brings the tally of “Newsnight” alumni in this House to four. Perhaps we should start our own party. I declare an interest as I sit on the boards of the National Campaign for the Arts and the Lowry.
As a country we have always been blessed with a wealth of creative talents, which have shaped and illuminated our history and national identity. Creativity is part of what makes our society vibrant, unique and modern. It helps us to understand the world around us and forms our individual and collective identities. The journalist Matthew Parris recently referred to the culture of a country as its heartbeat—a fitting image as from cultural activities flow into the body politic considerable economic benefits. The UK creative industries are the fastest growing sector of our economy and as such are a critical driver for our recovery. In particular, I argue that, properly encouraged and harnessed, they can be part of the solution to the problems our young people are facing in finding employment.
As Eric Schmidt, chairman of Google, pointed out in his MacTaggart lecture, the UK is the home of so many creative inventions: photography, television, computers—apparently in both concept and practice. According to him, the world’s first office computer was built by the Lyons chain of corner shops. I thought that its only creative contribution was tea, cakes and a few Muriel Spark characters. However, Mr Schmidt went on to point out that today none of the world’s leading exponents in these fields is from the UK. The message from UK business is clear: we are struggling to maintain our position as world leaders in creativity.
A report entitled Next Gen., commissioned by my honourable friend Ed Vaizey—Minister for the Creative Industries, among other things—to look into the needs of the video games and special effects industries, discovered that in the past two years the video games industry has fallen from third to sixth place in the global development ratings, UK companies are having to go abroad to find talent because of the skills shortage at home and are,
“turning away millions of pounds of work every year for one reason: they can’t find the skilled people they need. This means job opportunities and potential tax revenues are being lost”.
The findings are backed by Aardman Animations, which makes the Wallace and Gromit series, among other things. An executive told the Communications Committee, on which I used to sit last year,
“We probably take more graduates from … France”
and from Germany,
“than we do from the UWE, which I could walk to from my office”.
Moreover, this is happening at a time when employment prospects at home are so bad.
The essential need is for a skills base, and that starts with education. The creative industries need creative people, but creativity needs to be taught and nurtured. The new EBacc is to be welcomed in that it broadens the exam base. However, what it does not do is include those subjects that develop creative skills. It consists of maths, science, English, a humanity subject and a language. There is no art or design and no computer science. Because it will be possible to rank schools on their attainment in the EBacc subjects, schools are already starting to emphasise them at the expense of creative subjects. Does my noble friend the Minister not share my concern over a recent survey by the National Society for Education in Art and Design, in which 60 per cent of the schools that responded said that they will stop teaching art and design at GCSE level as a result of the introduction of the English baccalaureate as they feel that they have to concentrate on the subjects that it encompasses?
We should listen to such successful and highly respected individuals as Sir James Dyson and Sir John Sorrell, who argue that we should invest more in creative education and design. We should listen to Ian Livingstone and Alex Hope, authors of the Next Gen. report and leaders in their world of video games and visual effects, who recommend that art and computer science should be included in the EBacc. And we should look to the international baccalaureate, which does include art and has computer science as an elective part of its maths qualification, and follow its example.
Finally on this point, schools need to be encouraged to promote an arts-science crossover. The success of those in the creative industries lies in the fusion of technology and creative skills. Look at Steve Jobs. His genius lay in being able to bring together exactly such a fusion, connecting aesthetics with function. Jobs was obsessed with design, calling it,
“the fundamental soul of a man-made creation”.
And guess what? The senior vice-president of industrial design at Apple, the leading designer behind the iMac, the iPhone and the iPad, is a Brit called Jonathan Ive.
Then there are the connections between educational institutions and business. The University of Abertay in Dundee is providing grants of up to £25,000 for small companies which develop video games and other forms of interactive digital content. It also provides digital space and equipment. This has resulted in a cluster of creative businesses in Dundee, providing employment and prosperity. The relationship between university and entrepreneur is clearly mutually beneficial. The former ensures it is equipping its students with the skills they will actually need when they enter the job market; the latter gets access to cutting-edge research and the brightest talent pool. We need more of this and we support the work being done by Skillset in this area.
A different snapshot of how creative industries foster productivity can be seen in the phenomenon of Harry Potter. It crosses my mind that the books were written in a tea shop so maybe what we need are more tea shops. The films were made at Leavesden aerodrome where Rolls-Royce used to manufacture helicopter engines. It now employs vast numbers of people from across the creative spectrum, from writers, actors and those adept at highly technical special effects to practitioners of crafts such as carpenters, model makers and painters. Happily, this is set to continue because, despite the end of the Harry Potter franchise, Warner Bros has bought the studios, although it seems sad that the profits will be going to the US rather than here.
The contribution our creative sector makes is not simply economic. Our cultural exports are a key source of soft power, strengthening Britain’s influence and prestige around the world. At home the cultural and creative industries are central to the well-being of the country. As I mentioned at the start of this speech, I sit on the board of the Lowry in Salford. The idea behind it was to build a major arts complex as a trigger for the regeneration of the area. The result is a building of global architectural significance in which you can experience a wide-ranging programme of the performing and visual arts. Central to its ethos is interaction with the local population through a community and education programme. An example is its Walkabout project in which a member of the Lowry team and a range of artists spend 14 months with a specified community. A report commissioned following a recent Walkabout showed that, of the 2,340 people who took part, 34 per cent said it improved their quality of life, 71 per cent said it helped them develop skills which would be useful in future jobs, 76 per cent said they were more interested as a result in doing creative activities, 81 per cent said participation made them feel part of their local community and 93 per cent said it created better understanding between young and old. What more ringing endorsement could there be of the power of cultural activity?
Within our Department for Culture, Media and Sport I believe there is recognition of the importance of the creative industries. My honourable friend Ed Vaizey has commissioned two reviews from Darren Henley, managing director of Classic FM. The first is a review into music education, out of which I believe will emerge the first ever national plan for music education. The second is a cultural education review, which is due to be published before the end of 2011, and I hope that the Minister can confirm that out of this there will emerge a national plan for cultural education. This plan should cover formal but also informal education, and I hope my noble friend shares the enthusiasm felt on these Benches and by Mr Henley for the Sorrell Foundation’s National Art&Design Saturday Club, which runs free Saturday morning art and design classes for school children at local colleges and universities. At present there are 14, but a further 100 FE colleges and universities have indicated that they would get involved if funding were available.
Another example is the Roundhouse. Last night I attended a fifth birthday celebration of its reopening. Every year it works with 3,000 11 to 25 year-olds offering them the opportunity to get involved in creative projects, from the performing arts through to new media. Part of its funding comes from Arts Council England and I am delighted that one of ACE’s priorities over the period 2011-15 is that every child and young person will have the opportunity to experience the richness of the arts. Ten bridge organisations have been established that liberates young people’s strategy but ACE must now ensure that these organisations receive a clear brief as to their function.
One threat to the growth of this sector, to which there has been a response, is the knotty problem of protecting intellectual property rights in our digital age, and the ease with which property rights can and are flouted by online piracy and peer-to-peer file-sharing. The coalition Government have accepted and are implementing the Hargreaves recommendation, which it is estimated could add £750 million a year to the UK economy.
Finally, and in my view most importantly, a Creative Industries Council has been established, chaired jointly by the Business Secretary, Vince Cable, and the Minister for Communication and Creative Industries, Ed Vaizey. Its remit is to engage with the industry in—this is crucial, and here I steal a new Labour term—a joined-up way. I am sure that my noble friend the Minister agrees that we must ensure that its recommendations are implemented. The creative industries make a significant contribution to the UK’s economic growth. NESTA argues that this contribution could grow to £85 billion by 2013 creating 150,000 jobs. Let us prove it right. The creativity is here. Let us provide the skill and the will.
Lord Fowler
My Lords, first I congratulate my noble friend on her speech and on securing this debate. In the glory days of the Communications Select Committee—that was when I was chairman and she was a member of it—we worked very closely together. Of course, we did carry out an inquiry into the creative industries as one of our last works. I also look forward very much to the maiden speech of the noble Viscount, Lord Colville. We all remember his father with enormous affection. His own career has been with the BBC, and he will find in this House that most of us regard that as being a very high recommendation indeed. In particular, in these years of phone hacking, the BBC has managed generally to preserve standards that are the envy of the world. Not all my later remarks will necessarily be as obliging to the BBC, but we very much look forward to his speech.
As my noble friend said, there is an enormous opportunity here. We already have a position where, in terms of jobs, the television, film and games industries are of vast importance. Of course, added to that is the revenue that is being earned, the taxes paid and the national reputation which has increased in areas such as theatre and music. We have truly important industries by any measure. The aim should now be to see where government policy can aid in future development. My noble friend highlighted education and training—and rightly so. She is absolutely right to stress the point that there are good careers for men and women with skills in these industries.
I should like to add one or two other essentials. On financial support from the Government, the great issue is consistency. The film production tax credit introduced in 2006 has been a great success and is absolutely essential. For those who argue that no government support is necessary, I would say that we need to recognise one central point about the film industry. There is intense competition in seeking to bring film-makers to individual countries from around the world: an array of financial incentives is offered. Germany offers them; Canada offers them; and even some individual states in the United States offer them. We all recognise the dominating importance of American studios and distributors and therefore compete for their investment. If Britain was not to do that, we would be removing ourselves from the market altogether.
There are a range of areas that the Government should examine to see what further practical help can be given: encouragement for independent British film-makers and animation companies, where we already do very well and could potentially do even better; an examination of the video games industry, which competes internationally with countries that give tax incentives; and in television I strongly support those who argue for exploring ways to help British children’s programmes.
There is a temptation in these debates simply to set out a shopping list for government aid, which is not currently a hopeful area in any event. Not everything needs to be government money, and television is an example of how progress can be made by taking off restrictions, promoting change and creating more jobs and revenue. We are fortunate in this country in having a range of excellent television companies: BBC, ITV, Channel 4 and, to be fair, BSkyB, which now makes some excellent programmes. The choice was illustrated a couple of weeks ago when, on Sunday night, you had to choose between “Spooks” and “Downton Abbey”. Programmes like these are sold around the world—that is the point.
BBC Worldwide is far and away the largest British distributor. It has built up sales of more than £1 billion a year, and a profit of more than £150 million a year. It has been an enormous success—there is no doubt about that—and the question is whether that success can be further improved. It is a company that is capable of being a truly global brand. It can expand further, increase revenue and create more jobs but it is held back because, basically, it is in the public sector. It has to fund its expansion from its own internal resources; it cannot borrow on the market. The BBC Trust is in the background, saying that it should not expand too much in any event. It is a typically British position. A company capable of being a world leader held back by a lack of ambition, not from within the organisation, but by the corporation that owns it. There is an overwhelming case for a public/private partnership. For those who think this is the view of some way out, right-wing think tank, the final report from Digital Britain, signed by two Secretaries of State from the last Government, said:
“BBC Worldwide has the potential to be a very significant global rights business for Britain and the Government believes it would be a missed opportunity to limit BBC Worldwide to a narrow supporting role to the BBC”.
That is entirely my case.
However, what has happened is, like in the worst of nationalised industries, that the corporation has replied that BBC Worldwide is not for sale and has made other remarks of that kind. We should remember that the BBC is not a corporation owned by a set of directors or executives; it is owned by the licence fee payers, who have provided the finance whereby it has developed. The question is not whether it is just in the interest of the BBC; it is what is in the national interest, the British interest and the interest of the creative industries. The decision here is an acid test of our intention and policy and whether we are truly serious about improving our creative industries.
Baroness Garden of Frognal
My Lords, I remind your Lordships that this is a timed debate and when the clock reaches six you have completed your six minutes.
Baroness McIntosh of Hudnall
My Lords, I shall endeavour to take that to heart. I start by thanking the noble Baroness, Lady Bonham-Carter, for securing the debate. She is extremely assiduous in keeping the importance of the creative industries before the House. I, too, look forward to the maiden speech of the noble Viscount, Lord Colville. I have no doubt that his experience will be of enormous value to the House as time goes on.
I should also like to mention the excellent note generated by the House of Lords Library for the debate. It is full of useful information and statistics that remind us of the economic and social importance of creative enterprise. It is a really good read. However, it tells us only what most of us already knew and have shared with each other and with successive Governments many times, contributing—I hope that the noble Baroness will forgive me for putting it this way—to a slight groundhog day feeling to the debate. But some things bear repeating—and I am sure that they will be repeated as the morning goes on.
I have knocked around the creative industries—mostly the performing arts—for a very long time, initially in executive roles but now exclusively in non-executive ones. I am currently a board member at the Royal Shakespeare Company, the Roundhouse, the National Opera Studio and the Southbank Sinfonia. I am also a director of Artis Education. I will explain what these organisations have in common; that is what I want to talk about. They are all committed, wholly or in part, to education through developing the most talented young performers and/or by helping to develop in children and young people, often using trained, professional performing artists, the confidence and skills—for example, communication and teamwork skills—that all employers, not just those in the creative industries, say that they need.
In my nearly 40 years in the performing arts there have been some tough times—but none as tough as now. First, I want to say how proud I am of the arts sector as a whole, and in particular the organisations that I work with—for which I take absolutely no credit—for the mature, imaginative and, I have to say, creative way in which they are facing up to the combined challenge of shrinking funding from all sources and audiences with significantly less money in their pockets. Although this week Arts Council England announced a new strand of strategic funding, which is of course very welcome, it had to take some very difficult decisions earlier this year. It did not shirk them, but their impact on the sector will be felt in earnest next year and beyond. ACE itself is being forced to make a 50 per cent cut in its own costs, which cannot fail to reduce its capacity to provide the leadership and support that, as the noble Baroness, Lady Bonham-Carter, pointed out, it exists to provide.
All in all, it is easy to be gloomy, but I have faith in the resilience of the arts. They will find a way to survive and thrive. I am not shroud-waving or special pleading. People in the cultural sector understand that in dire economic times everyone has to take a hit. I will talk not about what we spend on our creative industries but about how we value them. How often do we pat ourselves on the back about the worldwide reputation of our artists and arts organisations? We all feel entitled to glow when the peerless Mark Rylance in “Jerusalem” or the National Theatre’s “War Horse” triumph on Broadway, or when Colin Firth or Helen Mirren wins an Oscar. However, we should remember that truly great artists, be they actors, puppeteers, musicians or fashion designers, do not spring fully formed from television competitions. They are rare and wonderful creatures whose skills take years to hone, and more often than not their talent and enthusiasm have been nurtured first in school and then through universities and specialist training institutions such as arts colleges, drama schools and music conservatoires.
That is why it is so profoundly depressing that the higher education teaching grant has been removed from arts, humanities and social science subjects; that the much vaunted EBacc, which the noble Baroness, Lady Bonham Carter, mentioned, and which many schools will feel they have to prioritise, does not include any mention of music, design or drama; and that an artificial divide has thereby been created between the so-called STEM subjects and everything else. The message from the Government appears to be: creative education, and by extension the industries that flow from it, is not important but is a luxury and an add-on that is not central to our lives.
As I know from reading the right honourable David Willetts’s speech to the British Academy earlier this year, the Government will protest that such an inference should not be drawn from what they have done to higher education funding and to the school curriculum. I think it is hard to sustain that position. Mr Willetts is an honourable man and I have no doubt that he meant to give comfort when he suggested that taking away the teaching grant from those in the arts and humanities was going to improve the position of higher education courses in those subjects. However, that is not how it feels to all those who have worked so hard and for so long to build our creative industries into the vibrant, economic and social force that they are today. It feels like a slap in the face or, worse, indifference.
The world faces a huge array of challenges at the moment. Some we hope are short term, but most are long term, centring on issues such as climate change, population growth, migration and scarcity of natural resources. We will have to apply every ounce of creative energy that we can summon up to meet them. Solutions will not come, nor have they historically come, just from scientists, engineers and mathematicians, much as we need them and creative as they are. They will come from the boldness of those whose imaginations have been shaped and stimulated by a richly creative education.
I hope that the Government understand this, but it is not clear to me from their policies that they do.
Lord Clement-Jones
My Lords, I warmly congratulate my noble friend, not only on initiating this debate, but on her tremendous opening speech. We need to recognise that our creativity, ideas and intellectual capital are what will increasingly drive our future prosperity. Increasingly, technologies are converging, and technology and content are aligning, so it is possible to draw the description of creative industry extremely widely, even to include industrial design in areas such as aerospace, automotive and advanced engineering.
We are pre-eminent in so many areas: in computer games and new media, architecture, design, fashion, animation, music, film, radio, television and advertising. Just take music: in per capita terms, we are one of the top three recorded music markets in the world. UK artists’ share of global sales is estimated to have been nearly 12 per cent in 2010, with one in 10 sales in the US being a UK act. However, the fact is that other countries are making substantial investment in their creative industries. So today I hope that we can celebrate some of the considerable achievements taking place to develop our creative industries, while at the same time combining this with further suggestions for action.
Like my noble friend, I welcome the formation of the Creative Industries Council, co-chaired by the Secretaries of State for Business, Innovation and Skills and for DCMS, which, I think, has met once so far. Last year the Liberal Democrat policy document The Power of Creativity emphasised the need for assistance with start-ups for many young creative industry companies by setting up a creative enterprise fund. Earlier this year, Dr Stuart Fraser, in his report Access to Finance for Creative Industry Businesses, commissioned by the DCMS, identified that finance was much slower coming forward for creative industry business than in other sectors. The Treasury Plan for Growth in March this year accepted this and the recent Demos report Risky Business confirmed it.
With this evidence, I hope that the Creative Industries Council will press for more assistance and will spur the Government to improve the enterprise finance guarantee scheme so that it can support new businesses in the creative industries and take other steps proposed by the CBI to ensure that other schemes, such as the R&D tax credit and the enterprise investment scheme, can be accessed. What plans are there to solve some of these financing issues for the creative industries?
Moving on to education and skills, we have some great higher and further education institutions. Indeed, overseas students beat a path to our door. As the UUK report Creating Prosperity at the end of last year makes clear, our higher and further education sector makes a major contribution to the development of skill and talent for the creative economy. It represents hubs for innovation and centres for research. Some 16 per cent of our students are engaged in courses relevant to the creative economy. However, as Fintan Donohue, the principal of North Hertfordshire College was recently describing, it needs to make sure that, as well as the formal academic aspect, it develops the enterprise and entrepreneurial skills of students in the creative arts sector.
I commend the work of Skillset, the sector skills council for some of the creative industries, such as advertising, animation, computer games, fashion, film and TV, and Creative & Cultural Skills, which represents design, literature, music and performing and visual arts. Both have identified that there is a significant shortage of skills in their sector, and both are tasked with ensuring that skills issues across the sector are properly tackled in a strategic way. However, there are still major issues, as the recent NESTA report on video games and visual effects, which was referred to by my noble friend, shows. We need to make sure that we have the right computer skills in particular. We have a positive story in some respects, but I am baffled why we have two skills councils for the creative industries. Should they not be doing more than simply working together? Should they not be a single body rolling out programmes right across the sector?
Then, of course, there is the vital question of intellectual property protection through copyright, a subject of increasing importance in the digital age. Combating piracy should not simply be a crime and punishment approach. We need to combat through education the idea that copyright infringement is socially acceptable, and we need to make sure that there are legal ways of accessing copyright works. I was nominated for an Internet Villain award last year for my efforts on the Digital Economy Act, but I am unrepentant about the need to protect intellectual property over the internet and to ensure that creative artists and the creative industries can enforce their copyright. It is all very well to talk about developing new models for exploitation of new work, but without the underpinning of copyright, creative artists cannot receive the proper reward for their efforts. There are some 50 different services giving legitimate access to recorded music, so there is no excuse for piracy.
The Hargreaves report, commissioned by this Government, has some good aspects, but it seems to think that some creators’ rights should be weakened. However, as pointed out by UK Music, its economic impact assessment of the growth impact of its recommendations is laughable and certainly a great deal more speculative than the cost of piracy estimates that Hargreaves criticised. For instance, how can format shifting add up to £2 billion to the economy? In reality, format shifting has been rife for years. MP3 players have already been invented, and very few of them are made in the UK.
In that light, the Government's commitment to strengthen the IPO's economics team and the fact that it has begun an ambitious programme of economic research are very welcome. In the limited time available to me, I welcome the Technology Strategy Board and its research on metadata development, which may prove an extremely important development. I also mention the impressive story of how some of our major cities are becoming hubs. We have the East London Tech City, and Liverpool’s city of culture year resulted in an addition of £800 million to the economy of that city.
Finally, I cannot forbear to mention live music. I very much hope that the Government will give a fair wind to my Private Member's Bill in the House of Commons.
Lord Bilimoria
My Lords, if I were to list the areas in which we are the best of the best in the world, it is actually quite a long list for this tiny country of 60 million people compared with, say, the United States with 300 million. I could go for higher education, advanced engineering and the creative industries, where we are right up there among the best of the best in the world. I thank and congratulate the noble Baroness, Lady Bonham-Carter, on initiating this debate. It is crucial. Whichever area of the creative industries you look at, we are world class—whether it is film, theatre, art, design or advertising. The list goes on.
It struck me when I was taken on a private tour of the Reichstag in Berlin that it was redesigned by none other than our very own British architect, the noble Lord, Lord Foster. In 2004, the Royal Society of Arts’ 250th anniversary year, I was privileged to receive its Albert medal, which was presented by His Royal Highness the Duke of Edinburgh. The other medal winner was Jonathan Ive, the Apple designer, who won the Benjamin Franklin medal. The noble Baroness, Lady Bonham-Carter, spoke about him. He was Steve Jobs’s right-hand person.
Why are we so brilliant in creative arenas and how can we continue to remain the best? The question I ask the Minister is: are the creative industries really a top priority for this Government? The creative industries make up 5.6 per cent of the gross value added to our economy; they contribute £17 billion of exports and services and almost 9 per cent of companies in this country in some way or another fall under the creative industries umbrella. They make such a substantial contribution. Are the Government doing enough to support them? On the other hand, the huge Department for Work and Pensions has £200 billion of spending. Surely the Government should prioritise creative industries to help them to grow and to receive even a fraction of that £200 billion of funding.
We all agree that the cuts the Government are making need to be made, but I just do not understand slashing higher education funding by 80 per cent when there is a shortage of skilled and trained people in the creative industries. Will the Government wake up to this? This is our core competence. We need the brightest and the best academics and students from around the world to come to our universities. Ten per cent of academics in our universities are foreign; at Oxford and Cambridge it is 30 per cent. Foreign students bring in £8 billion to the UK and yet we have this crude immigration cap dissuading the brightest and the best from coming to our country. I know that from India applications have plummeted. As we rely on brain power in the creative industries, we are being affected by these nonsensical policies. Will the Minister tell us whether the Government are going to wake up to this?
The creative industries are open; they are flexible. They are tiny microbusinesses on the one hand and giants like WPP on the other hand. With today’s technology and communications, this industry is full of companies that are really mobile. Britain is one of the least competitive countries in the world when it comes to taxation, with our top rate of 50 per cent. In 1997, we were the fifth most competitive country in the world in terms of taxation; now we are 94th. Not only is this a disincentive for our home-grown creative talent, it is also a disincentive to the brightest from around the world to come and work in our creative industries.
I was taught at a very young age that I was not creative because I was useless at art and drawing. I still am, but I have realised that in building a business, being an entrepreneur, one of the greatest strengths you need is creativity. What are the Government doing to encourage creativity in our schools to give children the confidence that we all have the latent, untapped potential to be creative? Britain is so good in this area is because we are an open economy, we have open minds and we are always willing to question, to challenge, to push the boundaries. I was proud to write the foreword for Big Ideas for the Future, a report published by Universities UK and Research Councils UK, which has 200 world-changing ideas coming out of our universities. Many of those are in the creative industries. The noble Baroness, Lady Bonham-Carter, spoke about the link between universities and business.
In building a business you need the four Ps of marketing: promotion, price, place and product. I have three more Ps: people, passion and “phinance”. Without the money you cannot do anything. What are the Government doing to help supply finance for the creative industries? Unlike manufacturing, where you can provide bricks and mortar as collateral, creative industries can only provide brain power as collateral. What are the Government doing to help finance things like the small firms loan guarantee scheme, which helped my company, Cobra Beer, in its early days? Two of those loans helped us get off the ground. Why are the Government not doing more to greatly enhance this scheme, which would be particularly useful for the creative industries?
I conclude by saying that today we are among the best in the world in the creative industries, but unless we address these issues of uncompetitive taxation, short-sighted cutting of funding for higher education, the introduction of a crude, self-destructing and self-defeating immigration cap and not doing enough to provide access to finance, how will our creative industries be able to add value and stay ahead, with the emerging giants of China and India galloping ahead? We need to be partners with these giants in the decades ahead with our creative brilliance but we can do this only if we have the support. For centuries we have provided many of the world’s greatest, most innovative and most creative minds, and I am very proud of that.
Lord Razzall
My Lords, I think it is common ground among all of us that the creative industries now represent a significant part of our industrial effort. If you add together software development, film, music, theatre, broadcasting, architecture, industrial design, the creative arts and video games, it is quite likely that, in some statistics, the creative industries have passed manufacturing in their contribution to Britain’s GDP and are fast pushing the declining financial services sector. This is an extremely important debate.
First, my noble friend Lady Bonham-Carter indicated some of the problems faced by some of these industries, but we ought to take a moment to reflect on some of the triumphs. Let us look, for example, at the acquisition of Autonomy by Hewlett Packard, one of the major worldwide computer companies. The sale was significant but, more significantly, Hewlett Packard will base the whole of its software development programme in Cambridge, based around the Autonomy structure. That is a huge triumph for Britain’s software industry. Look also at what has happened at Pinewood. No doubt my noble friend Lord Grade of Yarmouth will share with us the secrets of how he did it. As the noble Baroness, Lady Bonham-Carter, indicated, Warner Bros’ investment is a huge triumph for the British film industry. My noble friend Lord Clement-Jones spoke about the record industry, which now represents 12 per cent of global sales, notwithstanding the problems about copyright infringement, to which other people have referred. As my noble friend Lord Fowler indicated, we have a hugely successful television production industry, ranging from the BBC through to the independent sector, to Channel 4 and ITV, and even BSkyB is now making independent programmes. As this morning’s Times editorial indicated, the television industry in the UK, contrary to fears, has,
“dumbed us up, not down”.
The noble Lord, Lord Fowler indicated that, no doubt, a number of your Lordships would have a shopping list, which should be avoided. I have a shopping list of three things that I think the Government ought to be doing. First, on subsidies, I take the point put forward by the noble Lord, Lord Bilimoria, that the Government already provide significant subsidies for the creative industries. There is the grant, which no one has yet mentioned, for people involved in research and development through which companies can recover, from HMRC, the PAYE paid on such people’s salaries That is a very significant contribution towards the development of small software companies and that must be retained. I was very pleased that the coalition Government, notwithstanding one or two blandishments from my side of the political parties, have retained that R&D grant.
Secondly, there is the film grant, the EADY money which was replaced by the current film grant: as long as a film contains sufficient UK content, there is a cash grant which comes back to the makers of the film from HMRC. That must be retained.
Thirdly, there is the Arts Council. As we know, the Arts Council suffered a cutback in the amount of money that it could make available to the arts this year. Presumably, next year, once the Olympics are over, there will be more money available from the National Lottery Fund and it is important that, when that happens, the Government do not use the opportunity to take back the contribution that has been made from the Treasury, so that the Arts Council funding can be maintained at least at the same level as it is today. There must be no change in that.
Another area where I think the Government need to take some action is on immigration. There is internecine warfare, as noble Lords will appreciate, between the Home Office and DBIS with regard to how we get clever, talented people, who are necessary for the creative industries, into this country, often on a temporary basis. A company like BlackBerry, for example, is thinking of moving its European headquarters away from the UK into continental Europe because the Home Office will not allow it to bring in the sufficiently talented people that it needs to maintain that important centre for British industry. In my view, DBIS must carry on that battle with the Home Office, which I hope it wins, so that that can continue.
The third area, as my noble friend indicated, is, of course, education. As Eric Schmidt said in his famous speech in Edinburgh earlier this year, it is slightly ludicrous that we are teaching our 15 year-olds to plug things into computers but not how to program them. As the noble Baroness, Lady Bonham-Carter, indicated, we really need to change the educational structure in this country to ensure that computer science is in every student’s DNA.
In conclusion, as I indicated at the beginning, this is now a very serious industry. When the DCMS was started, it was termed “the Ministry for fun” and that was not only because David Mellor was the first Minister but because it was thought that that was all that it dealt with. That is not so. The DCMS is now responsible for a significant element of our industry.
Viscount Colville of Culross
My Lords, I thank noble Lords for their kind words and I look forward to the establishment of the “Newsnight” party. It sounds like fun. I of course declare an interest: I work for the BBC as a producer in the science and history departments. I am very grateful for the honour bestowed on me by the noble Lords who elected me to these Benches. My father loved this place and talked frequently of his many friends here, which included both staff and noble Lords. Since I arrived, I have been very touched by the many people who have spoken so warmly about him. I hope that I will be able to make my own small contribution to the life of this place. I should like to take this opportunity to thank everyone for making me feel so very welcome; in particular, as every noble Lord knows, we in this House are very well served by the tremendous team of staff who look after us so assiduously. I thank them for helping and advising me in their wonderful, courteous way.
In 1989, I went to the Soviet Union to work on the first live television programme to be broadcast from Moscow by the BBC. My translator and fixer was an amazing woman called Masha Slonim. She had been a dissident in Moscow in the 1960s and was taken to the West by Dr Henry Kissinger. From there, she broadcast on the English and Russian language services of the BBC World Service and, for two decades, she talked into the ether. The Cold War meant that that she never heard any reply from her audience and did not even know whether there was an audience.
Finally, in 1989, she returned to her home country for the first time with us. As part of the programme we filmed in the small city of Yaroslavl, a few hundred kilometres north of Moscow. We met a priest and Masha introduced herself. When he heard her name, he fell to his knees, kissed her hand and wept. When he had composed himself, he said, “Your broadcasts have kept my mind and heart alive for these many dark years. I can’t imagine what my life would have been without the sound of your voice and the information you gave me. Thank you, Masha. Thank you Britain”.
The noble Baroness, Lady Bonham-Carter, and the noble Lord, Lord Fowler, have spoken of the huge contribution that the British creative industries make to our economy, and they are right. But I know that the creative industries are so much more than just a business opportunity. They also have the power to shine a light into the darkness—not just for audiences and authoritarian regimes but into the darker places of our own minds. However, I am concerned that this extraordinary part of our economy is under threat. The creativity of these industries depends entirely on the talents of those they recruit, but I fear that these industries are increasingly restricting the range of new entrants.
So many of these companies depend on unpaid internships for their pool of new talent. For a week or even a month, they are a wonderful way to introduce new recruits to the incredible opportunities promised by a career in the creative industries. But in recent years there has been an explosion of long-term unpaid internships. I fear that these are not only replacing paid jobs but are driving many would-be recruits, who are not just from poorer backgrounds but from the middle classes, away from the industry. As Tanya de Grunwald, who runs Graduate Fog, one of the many websites campaigning on this issue, told me, people can manage for three months, six months is quite difficult, but nine months is not an option. They run out of money and many give up their dream.
In preparing for this speech, I spoke to many interns. One particularly struck me; she was a young graduate from Cambridge with a good 2:1 in English who wanted to work in journalism. She completed more than 18 months of unpaid internships at three companies in the creative industries. She was doing proper work, such as writing press releases and proof reading. Eventually, she decided that she could not go on working for nothing. She has given up her hope of being a journalist and has gone elsewhere. She told me that many of her friends who had also thought of going into the creative industries had decided that they could not work for so long without pay. They, too, have gone to other professions.
The concerns are not just among graduates themselves; at the very top of the industry, people are worried. Jo Taylor, who runs 4Talent, which sets up paid internships through Channel 4, told me that not paying people for work devalues the opportunities being offered and limits new recruits to a small homogenous pool.
In September, the Department for Business, Innovation and Skills brought out guidelines called Common Best Practice Code for High-Quality Internships. These specify that high-quality internships should last no longer than 12 months, although they say the internships last typically for three months. There are no recommendations about whether the interns should be paid or not.
The present economic climate is putting greater pressure on small creative companies. The temptation to take young people on as unpaid interns as part of the companies’ business model has never been greater. However, the industry must take note. It is endangering its future vitality and the creativity of one our greatest exports by not recruiting as widely as possible from the very best talent from across our country and across society.
Will the Minister say what the Government propose to do to collect data on the number of internships, both paid and unpaid, and whether she is happy that the best practice guidelines seem to give little guidance on long-term unpaid internships?
Lord Black of Brentwood
My Lords, it is a privilege to be able to follow the noble Viscount, Lord Colville of Culross, and to congratulate him on such an elegant, graceful and moving maiden speech. We have seen in his contribution today a glimpse of the wisdom, expertise and passion that he will bring to our proceedings. It is a particular delight to me that in the noble Viscount we have another colleague, along with many speaking today, with great expertise in the media.
As I am going to speak in a few moments about local newspapers, it was splendid to discover that the noble Viscount was once a reporter in the local press on those great publications the Ludlow Advertiser and the Worcester Evening News. From there he joined the BBC on “Newsnight”—a programme that has no doubt caused many a vexed moment for Members of this House, as he said—at the time of the fall of the Soviet Union. He stayed on that flagship programme for many years before branching out to make his own science and history documentaries for the BBC. One of them was called “The Incredible Journey”, a title that might reverberate with many noble Lords privileged enough to be here. The noble Viscount has an exceptional bank of learning and understanding on which we can draw, particularly in this vital area of the creative industries. We all look forward greatly to his part in our deliberations.
I want to speak about one of the jewels in the crown of the UK’s creative industries—the local and regional press. I declare an interest as director of the Telegraph Media Group, accordingly. The local press, comprising some 1,200 newspapers, employs more than 30,000 people, including 10,000 local journalists—more reporters on the ground than any other medium. It delivers reliable local news to 33 million newspaper readers a week, and 42 million online readers each month who consume local news from 1,600 websites.
Despite the difficult commercial background, local newspapers are doing their utmost to invest in new platforms and converged multimedia newsrooms and to utilise digital technology to find new ways to open up public bodies to the scrutiny that is vital to local democracy. That remains the most vital role of the local press: holding local politicians and public services to account and ensuring that the justice system is transparent. They provide in a fiercely independent fashion a watchdog role no other medium matches.
However, the local press is under serious commercial pressure. New revenue streams are not growing as fast as old ones decline. A punishing, prolonged structural downturn in advertising, with once lucrative classified ads migrating to the web, and significant rises in newsprint prices have produced a perfect storm of commercial challenges that is threatening the viability of many local titles. To survive this storm the local press needs to make significant investments in services and content, product quality, training and digital. For an industry in real difficulty that is a tall order, especially because the local press has such remarkably diverse ownership structures.
There are in fact 87 separate publishing group owners, many of them family businesses that may never be able to make the significant investment in new media that is essential for their future. On their own they are unable to capture economies of scale in management, distribution, printing and sales that would allow them radically to overhaul their businesses. Local publishing businesses must therefore consolidate to survive. If we value the local press, we are going to have to ensure that such consolidation can happen.
However, it is now clear, following what can only be described a dinosaur decision from the Office of Fair Trading last month that torpedoed the sale of Northcliffe Media’s Kent newspapers to the family-run KM Group, that local publishers are not being given such essential commercial freedom. KM Group is the sort of family business that needs to acquire other newspapers to ensure that it can invest in the future. To help it do so, it proposed to acquire just seven titles from Northcliffe. Ignoring the expert advice of Ofcom, which had rightly said that,
“a merger may provide … a sounder commercial base from which to address long-term structural change”,
the OFT decided, in a manner which the Independent rightly said made it,
“hard not to laugh out loud”,
that the deal must go to the Competition Commission. It said that such consolidation risked,
“costlier advertising for businesses and higher cover prices for readers”.
The OFT, which appears to be living in the last century, had failed to appreciate that digital media had fundamentally changed the way local business and advertising works and the way local people consume news. The result of this decision was that the proposal was withdrawn because the costs of a Competition Commission inquiry were too high to bear.
The same thing happened a few years ago when Trinity Mirror proposed to sell eight free weekly newspapers in Northampton and Peterborough to Johnson Press. A ruling from the competition authorities meant the sale had to be abandoned. The shocking fact is that seven of those eight titles have now closed. I very much fear that the same will happen to those seven Northcliffe titles in east Kent. The OFT is preventing the changes in the local newspaper industry that will allow it to survive, undermining local democracy in the process. Enough is enough.
I believe that the Government understand the issues here and are sympathetic. The relaxation of local cross-media controls has been an important step, but it means nothing without a more realistic approach to local media mergers and to the assessment of competition in local markets by the competition authorities. Swift reforms to the merger regime are needed if further deeply damaging decisions are to be avoided. They must ensure the OFT takes account of three factors: first, the changes that have taken place in the highly competitive local advertising markets as the result of the growth of digital media; secondly, the changes that have happened in the way people consume news, which means that it is now impossible to exercise a local news monopoly; and, thirdly, that the creation of publishing organisations with scale and the ability to invest is the only effective way to protect the viability of local titles and maintain plurality of voice.
We all want local papers to survive and flourish, for they are at the very heart of our creative industries at local level, but in order for that to happen it is no good just talking about it; we have to will the means, not just the ends. Change to the merger regime is essential. Let history not damn us with those dread words, “Too late”. Let us act instead to show that we understand the importance of our local press in the creative economy and in local democracy and set publishers free to renew their businesses for a new age.
Lord Hollick
I congratulate the noble Viscount, Lord Colville, on his impressive maiden speech. He reminded us of the important democratic role that the media can play. He also shone important light on what is happening with internships.
I declare an interest as an investor in and director of companies involved in broadcasting, television and film production, music publishing and digital media, all of which are listed in the Register of Members’ Interests. All these companies, whether they operate here, in Europe or the United States, benefit hugely from the great pool of creative and entrepreneurial talent that we have in the UK. This pool is not part of a natural order of things. It must be replenished and nourished by extensive provision of education and training, and there are several areas, some of which have already been referenced, where that essential nourishment is under pressure.
To succeed in the digital economy, particularly in digital media and digital games, where I also have some interests, we need a strong supply of people who are skilled at writing computer code. As Eric Schmidt pointed out, that is not a part of the curriculum in this country any more. That is an absolutely essential change that must be made, because we desperately need to regain our position in the computer games industry.
Our art colleges, which are now universities, have a long track record of nurturing home-grown talent, be they James Dyson, Ridley Scott, Paul Smith or Keith Richards. Today’s students, many of whom come from disadvantaged backgrounds, have to take on very significant debts to fund their fees and may be reluctant to do so because of the high level of risk in the creative industries. In the past, the BBC, independent television, the regional and national newspapers and news organisations have provided training schemes for aspiring journalists and programme makers. Today, unfortunately, only the BBC continues to provide training of any significant nature, and the director-general made it clear yesterday that the training budget was not immune to cuts. He added that he was hopeful that the reduced level of funding could be stretched further. We shall see. Against this background, it is vital that the media industry, academia and the Government work together to ensure that there is adequate and affordable provision of training at universities, specialist institutions and in the workplace in order to maintain the flow of talent.
The development of great content and the ability to own and exploit its value over time is the cornerstone of many creative businesses, and that requires a steady supply of risk capital and investment. The TV programming business is coping with an uncertain advertising market and a declining spend by the BBC. Sky’s welcome decision to increase its spend on original UK content and the growing importance of BBC Worldwide as a funder, which was referenced by the noble Lord, Lord Fowler, has helped to sustain programming investment. BBC Worldwide is one of the few genuine international players that we have in the UK. It has unrivalled power in global distribution and a growing and impressive track record in investing in successful and original programmes. It has invested over £1 billion over the past five years, working with both the BBC itself and over 200 independent production companies. It needs to increase its investment firepower if it is to provide the required level of funding to support broadcasters and independent programming investment.
An increase in the flow of risk capital to the TV and film production industries, and to digital media development, is of critical importance to the health of our creative sector. Our tax system generally prioritises the use of debt financing, and we are living with the consequences of that today. The interest on debt financing is fully offsettable against taxable profits, and of course that makes it more attractive than equity. But it is risk capital that is required, and that needs to be equally encouraged by the tax system. The Government’s welcome increase in the level of enterprise investment scheme investment that can be offset against personal tax is a step in the right direction, but a much more significant and bolder increase is required if the creative industries are to raise the level of risk capital they need and can successfully deploy.
Baroness Benjamin
My Lords, I cannot congratulate my noble friend Lady Bonham-Carter enough on securing this important debate. I also congratulate the noble Viscount on his excellent maiden speech, and I look forward to working with him as he has already volunteered to be a part of the All-Party Parliamentary Group for Children’s Media and the Arts. I welcome him.
Creativity is one of the key attributes that defines humanity. Since Stone Age people painted visions of their world on the walls of their caves, sang laments to the moon and the stars to express wonder and fear, or danced joyfully in the flickering orange glow of their campfires, there has been creativity. Through the ages such acts have provided nourishment and hope for the souls of humans. Art, music, dance, literature as well as theatre have defined civilisation and human progress. Today, of course, we have television, which is probably the primary creative portal through which the vast majority of people see the world around them. So it is vital that television reflects Britain’s culturally diverse society and communicates accurately the views and perceptions of all communities. This can only be achieved if the workforce that makes the products is drawn from all communities and not limited to just one sector of the population.
For example, there is a huge diversity problem in employment in the film and television industry, both in front of and behind the camera, and the ones who are lucky enough to get the opportunity of employment often get pigeonholed and have little job advancement prospects. The BBC and Channel 4 have made outstanding efforts to correct this and should be applauded, but the rest of broadcasting industry is lagging far behind. Often the adverts on commercial channels contain more diversity than the programmes themselves. In the past, the UK Film Council actively promoted equality and diversity within the film industry through its training and employment schemes, but I am still waiting to hear what plans the BFI has to make sure that people from culturally diverse backgrounds get a fair and equal chance to actively participate in all aspects of the film creative industries.
Transparency and accountability are essential, especially when companies are in receipt of public funding—and that includes art galleries, museums and theatres. So I would like to ask my noble friend the Minister this. What are the Government proposing to do to ensure that we have transparency and accountability when it comes to equality and diversity in employment in the creative industries, so that the public can see for themselves how well we are being served and how organisations are implementing diversity and inclusion?
As noble Lords know, I am passionate about the well-being of children and young people and I cannot help but draw attention to the need for children, especially those from poor backgrounds, to be included in all aspects of the creative landscape. We must provide them with every opportunity to take part in, be exposed to and develop a love for all things creative, so that they can achieve to their full potential. But the cuts in the arts are threatening this. Many of our young people feel disconnected from society, from the world of politics and finance. They are surrounded by war and conflict and overwhelming doom and gloom. No wonder they lash out at society. It is the role and duty of the creative industries to reflect the changes and moods of society and include everyone in that process. This is so important.
However, young people themselves are redefining creativity as modern technology changes the way they create. Graffiti and rap music have become art forms in their own right. Online sites such as YouTube allow them to participate in creative projects independently and reach millions across the globe. Computer games are now also part of the modern creative landscape, spawning an entirely new creative industry that young people are exploring and taking advantage of. However, more needs to be done.
Before I finish I must refer to the decline in children’s UK television production. I believe that childhood lasts a lifetime and that exposure to television programmes, which stimulate creativity in young children, especially as early as possible, is critical. But, sadly, the percentage of home-produced children’s programmes is shamefully low, at around 1 per cent according to Ofcom figures. This is simply not good enough. The BBC is virtually the sole provider of PSB children’s programmes but there are only so many writers, performers and directors that the BBC can employ. If we do not sustain a vibrant children’s television sector producing dramas and factual programming rather than importing cartoons, we will be squandering the talents of our creative people and denying our children high-quality, relevant programmes reflecting their world.
The whole of our creative landscape is linked together like a shimmering spider’s web of interaction, each thread supporting and enhancing the other, giving us relief from tedium, acting as food for the soul and often bringing joy and happiness into our lives. So, in these days of austerity and economic fear, the creative industries and those who work in them are vital to the well-being and spiritual health of our nation. Can the Minister assure the House that the Government will be creative in their thinking in finding ways to ensure that we sustain and celebrate our creative industries?
Lord Rowe-Beddoe
My Lords, I declare my non-pecuniary interests as president of the Royal Welsh College of Music & Drama, which has some 600 students, 15 per cent of them from overseas, and as president of the Wales Millennium Centre—a workplace of 1,000 people.
It is apparent from the interest displayed this afternoon that many of your Lordships fully appreciate the significance of the cultural industries in the UK, measured in terms of economics, employment, education, cultural impact and social well-being. It is also pleasing to note some of the supportive activities that have taken place since our last debate on the topic in your Lordships’ House over two years ago. One example has already been mentioned—the Government’s establishment of the Creative Industries Council in September. The economic impact of the creative industries has been clearly recognised in that council through the joint chairmanship of the Secretary of State for Business, Innovation and Skills and a Minister from the Department for Culture, Media and Sport.
DCMS figures relating to the third quarter of 2010 state that some 1.3 million jobs are to be found directly within the creative industries. We also know that the export of services in 2008 totalled £17.3 billion—some 4.1 per cent of all goods and services exported from the UK that year. In a 2009 UK Trade & Investment survey, business leaders cited the provision of arts and culture as a critical determinant in investment location decisions—even more important than a favourable tax regime.
I am pleased to refer to some recently published NESTA work which is the outcome of a two-year collaboration between the Universities of Birmingham and Cardiff. This work seeks to identify and understand the dynamic of regional hotspots in creative excellence and activity. NESTA reinforces the contribution that the creative industries make of more than £50 billion to the economy each year. NESTA identified a special case for media production in Cardiff and states:
“Cardiff should … be seen as the locus of a Media Production cluster where production for broadcasting is tightly integrated with digital media services”.
Such recommendations dovetail in a most helpful way with the review of the creative industries, The Heart of Digital Wales, led by Professor Ian Hargreaves for the Welsh Assembly Government in March last year.
HSBC’s report, The Future of Business 2011, has independently identified Cardiff as a possible hub for Britain’s creative industries. This report also claimed that the UK’s creative industries now represent 6.2 per cent of the total economy, a sector which, it states, is proportionally the largest of any in the world, with 2 million people employed across a broad range of activities from video games to the performing arts. Britain’s leading position is reflected in the fact that over two-thirds of international advertising and branding agencies have their European headquarters in London.
I am happy to join the commendations made earlier about the BBC. The BBC has taken an important step in Cardiff by completing construction in September of 175,000 square feet of HD-ready film studios, which will provide a permanent, purpose-built home for four of its flagship dramas—“Casualty”, “Doctor Who”, “Upstairs, Downstairs” and “Pobol y Cwm”. Some 500 or more people will be working on site, of which some 20 per cent are new jobs.
Equally exciting in these times of very high youth unemployment is the BBC’s commitment to start an apprenticeship scheme in the next month, in partnership with the independent sector and Skillset Cymru. The BBC will select 24 apprentices and provide on-the-job practical training and experience as well as classroom-based college learning leading to a level 3 certificate in creative and digital media. Twelve-month work placements will also be available with BBC Cymru Wales and with independent film companies.
Finally, perhaps I may say a brief word on Conservatoires UK, another vital factor for employment within the creative industries. The eight members across the United Kingdom provide world-class training in music, and two or three of them in drama and dance as well. I mention it because a key objective of these conservatoires is to produce performers and other professionals across the sector, which is vital to the continuing global recognition of the quality and reputation of the UK’s creative skills. Their work is not only to be applauded but measured by their importance in terms of employability. Graduates from these special institutions are among the most successful in terms of their professional engagement. The continued level of funding by both central and devolved governments is vital to the ongoing extraordinary contribution made by this small sector.
Lord Grade of Yarmouth
My Lords, the noble Lord, Lord Rowe-Beddoe, is to be congratulated on cramming so much into two-and-a-half minutes. Because time is so limited and my interests both past and present so numerous and duly disclosed, I hope that noble Lords will allow me to proceed by taking them all as read. Thank you.
In a period of seemingly relentless bad news, my noble friend Lady Bonham-Carter is to be congratulated on securing time for the House to discuss, or celebrate, one precious good news story for our time: Britain’s creative industries. If the Chancellor of the Exchequer is looking for the elusive G-word—growth—he need look no further. As we have heard this afternoon, Britain is enjoying a golden period of creativity and commerce both at home and abroad and in every single one of the creative disciplines.
British television is enjoying the most sustained success. Our programmes, programme makers and ideas and formats are in demand throughout the world as never before in my lifetime. This success is the direct result of the investment made by both the public and private sector public service broadcasters: BBC, ITV and Channel 4 and Five. The licence fee and the advertising revenues collected or earned by these channels are invested into British content to the tune of some £3.5 billion annually. I will restrict my remarks today to some areas of nonsense regulation that threaten and erode this investment.
First, a few facts: British television employs more than 130,000 people and has grown consistently by 4 to 5 per cent in each year of the past decade. A recent report concluded that Britain spends more per capita on original programming than any other country in the world. According to Ofcom, public service, free-to-air channels contribute 90 per cent of the whole industry’s £4 billion total annual investment in UK production. This investment is declining, and that must in part be due to the depressed advertising market and BBC licence fee pressures. These factors are unlikely to reverse, so we must do whatever we can, short of further public intervention, to maximise this annual investment and maintain our world lead. This certainly calls for ever greater efficiency, particularly at the BBC, but also means plugging those leaks in the revenue stream caused directly by damaging regulation.
There are leaks in the investment bucket that are easily within government’s power to plug. As we heard from my noble friend Lord Black, the first is the competition regime that regulates, in particular, my former employer ITV. When ITV recently sought to be released from the stranglehold of the airtime sales remedy imposed by the Competition Commission as the price for its consolidation in 2003, the CC found against it. In the course of the inquiry, I found it profoundly depressing that the commission felt unable to engage with the argument that there is any public interest in ITV being free to charge even a fair market price for its airtime in order to sustain and increase its investment in original British production. The commission refused to acknowledge that there is any public interest in programme investment.
So long as advertisers can continue to enjoy the cheapest airtime in Europe, through the artificial deflationary remedy imposed 10 years ago, all is well in the rarefied world of economic market theory inhabited by the people at the Competition Commission. By the way, they also chose to ignore the fact that the Google-dominated internet is now a fully grown, head-to-head competitor for advertiser-supported television. Nor did it occur to them that sustained investment in British content is also in the advertisers’ long-term interests. Could the CC have got it more wrong? The Government must look at the CC’s terms of reference in this market and require that they take account of the public interest in programming investment, and the new wider online market. Recalibrating the competition authority’s outdated remit will pay handsome dividends in jobs and exports. Please spare us one of those ludicrously long three-year market review solutions beloved of economic regulators.
The other leak in the investment bucket comes with a health warning: it is not for those of a nervous disposition and may come as a shock to some listeners. All of the free-to-air public service broadcasters currently have to pay Sky to transmit their billions of pounds worth of British hit programmes each year. There is not time today to explain how this comes about, suffice it to say that a lethal cocktail of statute, competition law and regulation, both UK and European, and political and regulatory apathy is ensuring that an estimated £15 million a year currently flows out of UK production jobs and exports and into the coffers of Sky. In no remotely comparable television market anywhere in the world is this allowed to happen.
Since these arrangements were put in place, I estimate hundreds—yes, hundreds—of millions of pounds have been drained out of UK public service programming investment and across to Sky. Clearly there is an importance to Sky viewers in being able to watch “Coronation Street” and “EastEnders”, and clearly there is an interest for the PSBs in reaching the Sky audience. So, the simple question for the Minister is: why does any money need to pass between two mutually dependent media sectors? I suspect the economists’ answer would be that it is all very well in practice, but it does not work in theory.
Fairness demands that this arrangement should be neutralised as a matter of urgency so more jobs can be created, more exports earned, more economic activity generated and more wonderful home-grown programmes enjoyed by everyone—everyone except, that is, the competition commissioners. Both of the issues to which I have drawn your Lordships' attention today, belong to that file of free market economic theory that I have labelled “Ongar” which, as your Lordships well know, is the station on the Central line just beyond Barking.
Baroness Jones of Whitchurch
My Lords, I thank the noble Baroness, Lady Bonham-Carter, for initiating this debate. She has been a tireless and vocal agitator for greater prominence for the arts and has once again made a compelling case today. I would also like to add my welcome and congratulations to the noble Viscount, Lord Colville, who has demonstrated today that he is going to be a talented and effective new recruit to the growing band of us who care about the arts.
As I reflected on what I might say today, it occurred to me that I had not read or heard much from Jeremy Hunt on this issue for a while, so I thought that I ought to check. I looked on the DCMS website under the creative industry section and there was nothing. There were no speeches or press releases from the Secretary of State celebrating the arts, no messages of congratulation to our film-makers, our actors, our playwrights, our authors or our artists for their recent successes. There was nothing to welcome the blockbuster achievements of exhibitions at our great museums and galleries, no words of encouragement and nothing to thank the sector for the continuing contribution being made to the economy at this difficult time.
To be honest, I was not surprised because that is what it feels like on the ground to those of us that take an interest in, and support, the arts. The sector feels unappreciated and unloved. Regrettably, the Secretary of State has pursued a single-minded agenda of cuts at the expense of any other considerations. He was, of course, one of the first Cabinet Ministers to seek the favour of the Chancellor by offering up cuts in his own department of 20 per cent. This has been followed up by a rushed financial squeeze on the BBC, the axing of the much respected UK Film Council and the closure of hundreds of libraries around the country. As we know, he wants the sector to stand on its own feet, backed up by private giving where necessary, without fully understanding how central the arts are to the future growth of the economy.
The noble Baroness, in her opening speech, quoted some figures on the creative industries’ economic contribution. There are a number of ways of calculating this, but even the DCMS website acknowledges that they contributed 5.6 per cent of the UK's gross value added in 2008 and exported over 4 per cent of the total goods and services. Under the previous Government these figures continued to rise. In addition, undoubtedly the main motivation for many overseas visitors coming to Britain is the theatres, concert halls, museums, country houses, festivals and historic buildings. These visitors bolster our economy and create jobs, not only for those employed directly in the sector, but for the hundreds of thousands working in hotels, restaurants, transport and retail outlets.
However, this is not just a debate about visitor numbers and export successes; it also raises issues about the sort of country we want to inhabit. We are all rightly proud of our cultural history, but a vibrant culture is more than just history—it is about the way we live now. Our lives are enriched by the artists, designers, writers and composers who are working today. As my noble friend Lady McIntosh highlighted, these are not born successes but need opportunities to build and develop from small-scale local theatres, galleries, studios and publishers. They often need grants or loans or funds to help them break into the sector, and they need encouragement from a young age to develop their imagination and creativity.
A number of noble Lords have referred to education in the debate. There is nothing I have read in the Government's education plans that leads me to believe they understand the need for creativity in education. Michael Gove prefers formal teaching and a concentration on learning facts and dates. As several noble Lords have said, the English baccalaureate does not include one creative subject: art, design and music studies are sidelined. It was reported in the press at the weekend that applications to do creative art and design courses are down 27 per cent, and universities report that many of their humanities courses are under threat of closure. We are in danger of squeezing out the creative forces that make Britain unique.
It is time that we took a cold hard look at what the UK economy will look like in 10 or 20 years’ time. What will be our unique selling point? What will be our fields of excellence in the global economy? Many of our industries and services can no longer compete with the continuing expansion of the Asian economies. What will we have left to sell? We cannot assume that the UK will always maintain its reputation for creative excellence in the world. Other countries are waking up to the need to invest in the creative industries, particularly around design and innovation. It would be all too easy to lose our edge in the global market, and we will not be able to retrieve it.
Meanwhile, for example, we know that the Chinese look upon our culture with respect and admire our heritage and our artistic tradition. Over 100 million students are learning English in Chinese schools. A colleague who is a second-hand book dealer says there is now a vast demand for English textbooks in China. Meanwhile, India has the second-highest number of English speakers of any country in the world. We need to capitalise on these trends so that we have something of value to exchange in the global marketplace of the future. I hope the Government wake up to these needs and demands.
A number of noble Lords talked about needing to avoid shopping lists in the debate, so I have a simple request—a simple expectation—which is that I hope the Minister will agree to have a word with her boss about how he might signal to the arts in this country that, belatedly, they are loved and valued again.
The Earl of Glasgow
My Lords, I too congratulate my noble friend Lady Bonham-Carter on not only setting up the debate but also her important speech, which I hope will be followed up or taken very seriously by the Government. I also congratulate the noble Viscount, Lord Colville, who is not in his seat at the moment, on his maiden speech. It looks as if he is going to be a great credit to we rather sad number of beleaguered hereditary peers—there are not many of us.
I want to say a few words about the British film industry, particularly because I bring tidings of good news at a time when there seems to be a diet of bad news. The British film industry is bucking the trend. In fact, 2011 could be the British film industry’s most successful year of all time. Already this year, $3.3 million of foreign sales have been achieved, and £311 million in domestic sales. This has been caused by a certain number of films that have come out this year. Practically everybody has seen “The King’s Speech”, which was very successful: it won 65 awards, including four Oscars and seven BAFTAs. It was only beaten by another British film three years ago, “Slumdog Millionaire”, which got eight Oscars and 104 awards. Rather surprisingly to some of us, “Tinker Tailor Solider Spy” is becoming a very successful film. It is surprising to me because I thought that people under 40 would not understand or be interested in the Cold War, but apparently it is appealing to them.
The most successful British film in Britain this year is something that I doubt any of us here will have seen, called “The Inbetweeners Movie”. It is about a whole lot of young people behaving very badly. It is what is sometimes called—oh dear, I have forgotten the name now, but there is a certain type of word for that particular type of film. It tends to be all about people behaving badly. What is the word for it? I cannot remember now.
The Earl of Glasgow
No. There is a word for it. Damn it; I should have written it down on my bit of paper but I did not.
Anyway, “The Inbetweeners Movie” has made £45 million at the British box office, which is an extraordinary achievement. Another film, which got very bad reviews and has been running for two weeks—I doubt whether any of your Lordships have seen it—is called “Johnny English Reborn” and, of course, stars Rowan Atkinson, who is incredibly popular. That may be one of the reasons it has already got £17.5 million in two weeks. These are quite extraordinary amounts. It is rare that the British film industry does as well as this.
There is also what they call an art film, which is very depressing and gloomy but very good, called “We Need to Talk About Kevin”, which came out two weeks ago. That has already taken £1.5 million in Britain. It is strange and surprising for an art film to achieve that.
The most extraordinary film this year is the documentary “Senna”. I am told that it has made more money than any other feature documentary in British history. It has already made $3 million, which is amazing for a documentary.
Noble Lords have already heard, so I am not going to talk much about it, that British film studios have never been busier; they are doing very well indeed. Also, of course, a lot of foreign companies are coming over to Britain to make films in this country. An interesting one with Brad Pitt was happening up in Glasgow, which for one weekend suddenly was made into Detroit, which was very strange. Glasgow was completely closed down. In 2012, £935 million will be spent in Britain.
Film can be judged in three different ways. It can be judged as an art form, it can be judged as entertainment, and it can be judged as an industry. As an art form is how I judge it most, as the French have always done. As an entertainment is probably how most noble Lords will think of film. As an industry, of course, it is very important to our economy, which is one reason that we are talking about these things at the moment. It employs many people. British technicians are widely regarded as the best in the word. However, can this present success really be maintained? That is the important thing. There have been many false dawns. There was a time when Colin Welland announced that, “The British are coming!” after the success of “Gandhi” and one or two other very good films. But then it all went pear-shaped with Goldcrest Films, which was once thought of as the flagship of British cinema.
This time, the BFI believes that a successful British film industry is sustainable. After the Olympics, more lottery money will be invested in British films. Traditionally and historically, the film industry always does better in a time of recession. It is currently a success story. When there are so few other silver linings on the horizon, the Government should get behind the film industry, as the French Government have always done with theirs.
Lord Bichard
My Lords, I, too, thank the noble Baroness, Lady Bonham-Carter, for allowing and enabling this debate, and congratulate the noble Viscount, Lord Colville, on his excellent maiden speech.
My early encounters with creativity were no more successful than those of the noble Lord, Lord Bilimoria. My art teacher said that I was the most boring pupil he had ever had; I thought that that was a bit excessive at the time. He went on to describe some of my work as “derivative”; I now realise that that is the biggest insult you can pay to any artist. So it took some recovery from that, but I went on to spend several wonderful years as vice-chancellor of the University of the Arts London, and as chairman of the Design Council. I learnt a lot from that experience. I learnt, of course, about the economic importance of our creative industries, not least in London, which is now vying with financial services as they most important economic sector.
I also came to understand the sheer excellence of our creative industries, which are quite simply world leaders. Since we rarely mention fashion in this House, let me mention it as an example. Fashion designers like Hussein Chalayan, Paul Smith, Vivienne Westwood, the late, lamented, Lee McQueen, Stella McCartney and Phoebe Philo dominate the world of fashion.
I also began to appreciate the way in which our creative industries define the UK in the eyes of the world. For many overseas, it is what we stand for. I came to understand the huge impact which our creative industries can have on individuals. I often say that the film which changes my professional life was Ken Loach’s fantastic “Kes”. I vowed, having watched “Kes” and the way in which Billy Casper was dealt with by public services, that I would never want to lead a public service that dealt with anyone like that. Of course, we all understand, and I learnt, the huge impact that the creative industries can have on the quality of people’s lives, transporting them from the mundane to the magnificent. In every possible way, the UK would be poorer if it failed to sustain the success and the quality of its creative industries. Our competitors and those who admire our country and culture would be astonished if we allowed that to happen.
Yet that is exactly what is now in danger of happening. Art and design education, on which the success of our creative industries is in many respects built, faces a perfect storm of initiatives and policies which threaten its future and, therefore, the future of our creative industries. It is there that I want to focus my attention. I make no apologies for doing that; it has been mentioned by several other noble Lords today, but is so important that it bears repeating. If we are honest, in our schools, the development of creative skills and the appreciation of the creative arts have had a chequered history. Currently, the renewed emphasis on the traditional academic subjects and knowledge sometimes seems to be at the expense of the creative subjects. As others have mentioned, the introduction of the EBacc has caused many schools to rethink their curriculum, and they no longer see the creative arts as having a pre-eminent place. Why is it that, in the recently introduced Scottish Curriculum for Excellence, the expressive arts are seen as one of its eight curriculum areas? In contrast, in England I have heard few Ministers for Education since the election even advocate the importance of creative art education. The review of the curriculum may well see design and technology lose its status as a compulsory subject.
The position is even more grievous in higher education, in which hitherto Britain has undoubtedly led the world. A series of policy initiatives, which individually might be justified, together pose very serious threats for the future of art and design in higher education. Higher fees for students may be unavoidable, but they hit art and design students particularly hard. Many who come from state schools and working-class backgrounds, in addition to the fees, have to bear the cost of making artefacts for assessment or funding their final shows. The loss of teaching grants means that all costs have to be met from tuition fees, which barely meet the cost of course delivery let alone provide investment for the expensive kit that is now needed, such as body scanners for fashion schools and foundries, and rapid prototyping equipment.
Finally, the fact that international postgraduate students are no longer able to work for two years after completing their master’s course means that Britain is now a much less attractive destination. Art and design colleges need those students not just for the money but because they bring the rich cultural mix that is so important to successful art and design education. Is it not ironic that all this is happening just at the time when our global competition has realised the critical importance of art and design education and is investing so heavily in those subjects?
The problem with success is that you can begin to think that it is inevitable; but it is not. Our creative industries matter, they depend on the quality of our creative education, and we are in danger of seriously damaging that.
Lord Shipley
My Lords, I, too, thank my noble friend Lady Bonham-Carter for initiating this debate, in part because it gives me an opportunity to speak about the impact of creative industries on north-east England; and here I declare my board membership of One North East, which pump-primed quite a bit of it.
Last Friday, Radio 4’s “Any Questions?” was broadcast from Hoults Yard in the Ouseburn Valley, on a tributary of the River Tyne in the centre of Newcastle. It used to be the home of Maling pottery, it then housed the Hoults family removal business, and now it is the heart of a major renaissance in the creative industries, with 50 businesses generating some 400 jobs. The Ouseburn Valley and Hoults Yard are living testament to the potential of creative industries to regenerate old industrial areas. Hoults Yard, of course, is part of a more buoyant general growth in the north-east’s creative industries which recorded a 37 per cent increase in gross value-added in the five years from 2005 to 2010 and now contribute £90 million to the north-east’s economy. The core creative sector’s growing importance is reflected in the fact that there are 25 per cent more companies and 15 per cent more people employed in the sector than there were in 2005. Overall, there are some 6,000 companies in the creative sector in the region, with 1,000 now in the core creative sector.
How can this be built on? A good example is based in the Ouseburn Valley: Northern Film & Media, a creative industry development agency with the vision to create a strong commercial creative economy in the north-east by commercialising talent and ideas. To date, it has generated £4 for every £1 of public money invested, and aims to provide the link between talent, experts and the market using seed investment, leverage, industry expertise and partnership working to make an impact in film, television, games, web, mobile and music. I hope that experience and expertise, and that of similar organisations elsewhere in the country, can be built on, given the establishment of the Creative Industries Council and the Creative Industries Network and their aim to boost growth.
The creative sector in the north-east is part of a much wider cultural renaissance. I pay tribute to the vision of Gateshead, the Sage Gateshead and the Baltic art gallery, where recently many thousands of people queued on the first five days to see the Turner Prize exhibition. On the Newcastle side of the river, there has been major capital investment in theatres, dance, film, the centre for children’s books, and museums, all of which have contributed enormously to changing the image of Tyneside and its industrial heritage and generate wealth both directly and indirectly.
What do we need to do now to increase the potential of our creative industries? First, to grow, some firms need more help and advice to overcome barriers to growth—how to win contracts, how to secure skilled workers and how to access finance, particularly bank loans and venture capital.
Secondly, there is the role of the BBC from Manchester as it moves increasingly north. There is clear research evidence that the growth of creative and cultural industries in Bristol and Manchester has been supported by the extent of commissioning by the BBC. I hope we can ensure that the move to Salford Quays is genuinely accompanied by an increase in commissioning across the whole of the north of England, because it could make a very significant difference indeed.
Finally, I turn to the importance of the universities because they create a strong pool of potential talent. Joining the needs of companies, particularly those requiring high-level skills, with the courses that are being followed at those universities is extremely important, because working together they help to drive commercialisation and expansion. Of course, many northern cities have large numbers of incoming students. Indeed, one of the causes of successful regeneration of cities across the north of England has been the large number of students who come to undertake courses and then stay on. Getting them to stay in those cities on graduation, to set up businesses or to join other businesses makes an enormous difference to the speed and extent of growth in those cities.
Creative industries account for some 5 per cent of the UK’s economy. The figure is broadly similar in parts of the north. It is a bit lower than 5 per cent across the north-east as a whole, but it is rising. However, it is clear to me that, with proper nurturing, our creative industries sector, both across the UK and in my region, can grow so much further.
Lord Colwyn
My Lords, I, too, thank my noble friend Lady Bonham-Carter for initiating this debate. I take this opportunity to remind your Lordships of the significant contribution of jazz to economic, educational and cultural life at all levels. I declare an interest as co-chairman of the All-Party Jazz Appreciation Group. We are hosting the start of the London Jazz Festival with some live music on the Terrace next Wednesday. I am also a very occasional player, a patron of the National Youth Jazz Orchestra and a member of the Musicians Union.
There is an active jazz scene in all major UK cities. Musicians with established reputations and young musicians, many with great flair and originality, seek a serious audience that can understand and enjoy their music. They perform in a variety of settings, from pubs, clubs, arts centres, hotels, ballrooms, village halls, restaurants and local arts festivals to high-profile events at the nation's most prestigious concert venues. Many UK jazz musicians have developed international reputations for live performance and have recordings that are seen and bought by a worldwide audience. Every year there are jazz festivals all over the country, many featuring some of the finest jazz musicians in the world. More than 3 million people patronise these events, with five times that number expressing a definable interest in jazz.
While jazz continues to attract these audiences, 80 per cent of jazz musicians earn less than £25,000 a year. This is not helped now by the current economic climate, when there seems to be an increasing public reluctance to pay for music. Yet falling CD sales in a download culture are having a smaller impact on jazz income than might have been expected, and ticket sales and public and private subsidy have all showed modest but significant increases.
There is a thriving small-scale recording scene among British jazz musicians with widespread and growing use of the internet to sell recorded music. A different kind of jazz venue has emerged, located in a church, library, museum or community centre in response to the red tape challenge to pub gigs imposed by the new licensing laws. Jazz festivals have also expanded and brought new money.
My noble friend Lord Clement-Jones has been successful with his Live Music Bill, which has completed its passage in this House, but the current situation over the licensing of live music, which has such a detrimental effect on young musicians, is utterly confusing. Licensing Minister, John Penrose, has described live music restrictions as “mostly bonkers red tape” and suggested that plans to cut red tape for live music are essential but out of his hands and dependent on consent from the Department for Work and Pensions and the Home Office.
The only arguable justification for a licensing regime pre-emptively criminalising the provision of live music, subject to prior consent from the public or the local authority, or both, is where there is the potential for a significant negative impact on the local community that cannot be adequately regulated by existing legislation. This is clearly not the case for the vast majority of small gigs taking place within reasonable hours. It is gradually becoming clear that the red tape is being retained for small gigs in bars and restaurants under the Government’s sweeping “deregulation” proposals published in September.
It would be helpful to have a definitive statement on licensing and small venue exemption. Even if the entertainment licensing requirement is abolished, it seems to me that live music licence conditions will in fact remain in pubs, bars, restaurants and any other premises with an alcohol licence, however small. Such conditions often include restrictions on performer numbers, genres, times or days of performance, with the onus on the licensee to pay to apply to have these removed. It can cost £89 for a minor variation or several hundred pounds for a full variation, with the final decision remaining with the council. The promise is to get rid of the red tape. The Live Music Bill of my noble friend Lord Clement-Jones represents the only genuine deregulatory measure in the legislative pipeline for small-scale performances of live music. Earlier this year, I asked my noble friend the Minister whether she could clarify this situation. May I repeat my request for clarification?
The annual turnover of the jazz sector of the British music industry is in excess of £88 million. The report by Jazz Services, as part of its Arts Council development project, found that sales of CDs through shops, websites and at gigs reached almost £40 million, while ticket sales for jazz concerts and festivals were worth £22.5 million. That makes it an important creative industry and one that would benefit from an understandable licensing policy.
Lord Macdonald of Tradeston
My Lords, as I recall, the term “creative industries” was first coined by the new Labour Government back in 1997 to define activities that deserved strong support. The subsequent growth over the years until 2010 was, I believe, among the finest achievements of Labour in power. No doubt this debate—I congratulate the noble Baroness, Lady Bonham-Carter, on initiating it—will help make the measure of Labour’s success more familiar to your Lordships.
The creative industries now provide more than 2 million jobs and their growth rate over the past decade has been nearly twice that of the economy as a whole. Indeed, Labour’s legacy is that the UK now has the largest creative sector in Europe, and perhaps the largest of any country in the world relative to GDP. Yet what we see now is that success being threatened by cuts across our creative industries: witness the 20 per cent cuts imposed on the budget of the world’s most respected broadcaster, the BBC; the abolition of the UK Film Council; the failure to incentivise the video games sector; the cuts suffered by the Arts Council and the lack of progress on the protection of intellectual property in our creative industries.
Like the noble Baroness, Lady Jones, and other noble Lords, I fear that the foundations of creativity are being undermined in our schools. In schools the Conservative focus on so-called traditional subjects will be at the expense of more socially useful, creative and cultural subjects. Does the Minister recognise the transforming role of creative activities in encouraging the assimilation of many young people from disadvantaged communities into the mainstream of British life and culture? This educational process has brought great vitality, breadth and diversity to our hugely successful cultural sector, yet in higher education government reforms will hit the arts and humanities hardest. Design and media courses will suffer, especially in those universities in deprived areas which recruit from lower-income families. These are not policies that encourage our creative industries.
However, the Government deserve credit for investing in success in one sector of great significance—the digital economy. We know the astonishing success of the digital cluster in California’s Silicon Valley. Now Britain’s digital businesses are being encouraged to cluster just next door to London’s most famous existing cluster—that of financial services in the City of London, which is beleaguered at present but still of great importance to the UK economy and world markets. As befits a truly global city, London also has other creative clusters of international renown in television, journalism, publishing, advertising, marketing, performing arts, fashion, video, software and digital companies—a cluster of creative clusters.
The Government’s commitment to the capital’s digital economy is through its East London Tech City initiative, whose hub is Old Street “Silicon Roundabout” in Shoreditch. The initial signs are positive for Tech City, with 170 start-up companies attracted last year, 340 start-ups forecast for this year and a new Google headquarters planned at its heart. Oddly enough, as Chancellor of Glasgow Caledonian University, I take a particular interest in Tech City and its adjacent creative clusters. Indeed, we have our own start-up in Tech City. Yesterday, Her Royal Highness the Princess Royal launched our new London campus in Spitalfields. Glasgow Caledonian University is the first Scottish university to open a campus in London. Our postgraduate applicants told us that they liked the creative courses that we offer in fashion, marketing and finance but that they were also irresistibly attracted by the lure of London, with its unique cluster of creative opportunities. Already our overseas applications surpass all expectations. That is a small, benign example of the convergence of universities and creative companies in the digital economy promoted by my noble friend Lord Hollick.
I hope the Government come to appreciate all the complex factors that have helped make the UK’s creative industries so successful. I urge the Minister to ask the Government’s Creative Industries Council to move to repair the damage being done across so many areas of cultural activity. My concern is not just for growth and jobs but for the enrichment that has made life for ordinary people so much more stimulating and enjoyable than it once was in that rather dreary Britain in which so many of us grew up.
Baroness Randerson
My Lords, we should do this more often; that is, spend three hours talking about the creative industries. Indeed, we could spend three hours speaking about each of those creative industries given their importance to our economy. Many noble Lords have talked about the economic importance of the sector. It is worth pointing out that the CBI predicts that by 2013 the sector will employ more people than the financial services industries, although I imagine that the average rate of pay might be slightly lower.
The term “creative industries” came to prominence at the time of the Tony Blair premiership. I am pleased that the noble Lord, Lord Smith of Finsbury, will speak in the debate given the contribution that he made to this sector at that time. Creative industries are a very broad church. It is the strength of the creative industries that they are such. From advertising to fashion and design, and from publishing to the arts and music, the contrasts within the sector are unlike any other sector of industry and that is its strength. It means that when one sector is not doing so well, another industry will still be motoring on very well indeed.
One of the advantages of the creative industries is that they are often not capital intensive and it is therefore relatively easy to establish a new business. Indeed, the sector is dominated by SMEs, although some sub-sectors are the exception to that. Publishing, for example, involves very large businesses. Creative companies of similar types tend to cluster together to feed from each other and to establish concentrations of specialised skills. When I was Minister for Culture in Wales for three years, I recognised the immense potential of the creative industries in a country which continues to suffer from the decline of its manufacturing. As a result I produced the first strategy for Welsh culture and the creative industries called Creative Future. That was as much about economic development as national cultural identity. I wish to pay tribute to the tremendous contribution of the noble Lord, Lord Rowe-Beddoe, to the achievements that we had following that strategy. The noble Lord, Lord Rowe-Beddoe, has spoken about the importance of the creative industries to Cardiff but it is important to emphasise that Cardiff has the largest concentration of media employment outside London with the big broadcasters, BBC, ITV and S4C, of which your Lordships have heard a great deal recently. We also have a cluster of content-driven providers, including in animation, design, gaming, TV production, film and music. The Drama Village has been mentioned. It is one of the interesting pastimes of citizens of Cardiff to watch “Doctor Who” in order to spot the streets they know masquerading as being from another world. The important thing is that there are 7,000 workers in Cardiff engaged in the media sector. That is 3.5 per cent of the workforce and it is growing rapidly.
With so many of the creative industries heavily dependent on IT, it is a major problem in Wales that broadband speeds are still so poor across much of the country, as indeed they are in Scotland. I draw noble Lords’ attention to the report out this week from Ofcom on the broadband network which has highlighted this problem of very low 3G speeds in Wales and Scotland. I urge the UK Government to work closely with the devolved Administrations to overcome these problems.
Throughout the world the ebb and flow of economic prosperity depends in large part on the speed with which each country can seize the technological initiative. The economic prize goes to the area which picks up the newest technology and runs with it, so it is vital that we stay ahead and lead the field. Our video games industry, which has been mentioned by several noble Lords, is the largest in Europe, with a projected growth of 7.5 per cent over the three-year period ending in 2012. It has many thousands of highly skilled jobs, and 80 per cent of employees in that industry are graduates. But there are still problems with the skills that our young people are being provided with not being relevant to that industry. I repeat what many noble Lords have said about the importance of computer science courses—not standard office-based IT courses but courses involving programming and software skills—up to and including university level if we are to stay ahead.
Finally, I wish briefly to mention the importance of providing good finance for these industries. They are not, as Demos has pointed out, risky businesses any more than those in any other sector of the economy.
The Earl of Clancarty
My Lords, I, too, thank the noble Baroness, Lady Bonham-Carter, for initiating this important debate. I very much enjoyed the excellent and passionate maiden speech of the noble Viscount, Lord Colville. The noble Lord, Lord Clement-Jones, and the noble Baroness, Lady Randerson, mentioned the Demos report, Risky Business, on the creative industries, which has just been published. The title is slightly ironic since the report, compiled by researchers close to government and with an introduction by Ed Vaizey, seeks to puncture the idea that creative people are primarily preoccupied by their art to the exclusion of a concern for business. Consequently, Demos gives a stronger definition of the creative industries than DCMS in 2001:
“We define the creative industries as businesses that ultimately seek to make a profit through the sale of something that is based on an original creative idea, and the surrounding businesses that enable this”.
The Demos report tries to draw a distinction between what it terms “creative businesses”, such as Studio Lambert, which makes television shows to sell at a profit, and “creative organisations”, such as the National Theatre. It quotes the owner and designer of a fashion business as saying:
“You build a company because you have a vision but you also want to make money out of it … If you don’t—there is no point in doing it”.
That is a long way from the belief of many artists, including fashion designers, that their work is the prime consideration irrespective of financial gain.
It is useful at this moment in time when there appears to be a crisis in the way the political sphere treats the arts to take a look at the terminology that is being used by both the Government and the Opposition in respect of the arts and the creative industries. I have long held the belief that the worth of art is not through exchange into money or art for art’s sake, which is an insular argument, but that the artist’s work is itself the contribution to society. What, then, is the relationship between art and the creative industries? Do this Government see the two terms as interchangeable or is “creative industries” a blanket term that contains, or has perhaps even subsumed, the arts? Does the new shadow Culture Minister Dan Jarvis’s repeated use yesterday on his blog of the term “arts and cultural sector” signal a differently nuanced approach from that of the Opposition? After all, “creative industries” was a term which emerged partly in response to the need to democratise the arts, and the battle between high and low art is now largely over. These are legitimate questions. David Cameron has pledged to help the creative industries which Demos defines as “strongly market-orientated”. This is happening through Creative England. But he has not pledged to help the arts unless they are prepared to become businesses and creatives. I say this with great respect for the significance of the commercial sector. It is impossible to seal off the creative industries from the significant background story of continuing cuts to the arts. As ever, it is outside London where the cuts are felt most. The noble Lord, Lord Shipley, has pointed out that the Baltic in Gateshead has had huge crowds to see the Turner Prize exhibition. Entrance to the exhibition is free and that is an investment in the future. That prompts me to ask the Government: are they still committed to free admission for the national museums, considering that the National Maritime Museum continues to charge for some of its sites?
The distinction should be kept and preserved between those art forms which are inherently commercial and those which are not commercial—either because they are not yet commercial or because they never should be commercialised—whether we are talking about the BBC or small performing companies. The non-commercial, subsidised arts, when properly funded, provide a public space or arena, both geographical and mental, in which the public meet and where artists are able to experiment and have the right to fail, as Julie Walters pointed out in the Guardian this week. But if we remove this non-commercial component of the landscape we greatly narrow our horizons and impoverish the culture as a whole.
It is true that the success of the commercial creative industries depends, and has depended in the past, on the subsidised arts and other areas, as countless rock stars and fashion designers have confirmed. A good example of this creative symbiosis is the hugely commercially successful Frieze Art Fair started in 2003, which was made possible only by the opening of Tate Modern. Tate Modern has also benefited from this relationship, not least through purchases from the fair. By the same token, recent cuts to the subsidised sector, such as S4C, have resulted directly in 10 per cent cuts to the staff of Boomerang, one of the largest independent production companies in Wales.
I want to make it clear that my defence of a subsidised sector for the arts is not a rearguard defence of old technology opposed to new. The great majority of artists, as the Design and Artists Copyright Society backs up, strongly supports the proper teaching of ICT in schools, as the noble Lords, Lord Puttnam and Lord Willis, passionately spoke to during proceedings on the Education Bill last week. The Government also need properly to reassess their commitment to the teaching of the arts and creativity at both school and higher education level, a topic that is worthy of a debate on its own. Whatever money the Government allow for the newer industries will in the end mean much less if those industries are not supplied with a workforce that is untrained and unknowledgeable.
Many of the most interesting artists of today are able to arm themselves with a panoply of techniques. It is true, too, that the art, music and fashion scenes have been hugely invigorated by students from abroad. Wolfgang Tillmans, Tomma Abts, both of whom are Turner Prize winners, and more recently Thomas Zipp, are just some of the remarkable artists who spring to mind. The current Government’s insular attitude towards foreign students may well, unfortunately, change this.
Lord Sharkey
I, too, thank my noble friend Lady Bonham-Carter for providing the opportunity to debate such an important issue, and I congratulate her on her forceful and insightful analysis of the creative industries and their contribution to the life of the United Kingdom.
I will focus my remarks on one particular sector of our creative industries: advertising. In April this year Alexandra Albert and Dr Benjamin Reid produced a report under the auspices of the Work Foundation, entitled The Contribution of Advertising to the UK Economy, a creative industries report. The executive summary of this report says, in part:
“The advertising industry has been a UK success story for much of the 20th century, developing as a base for globe-spanning organisations, and taking a central role in the broader creative industries sector. The 21st century advertising industry makes a major contribution, both directly and indirectly, to the UK economy”.
The figures, as we have heard this morning, bear that out. The creative industries as a whole represent 8.7 per cent of all UK businesses and employ 1.3 million people. As the noble Lord, Lord Macdonald, pointed out, the creative economy represents a larger percentage of GDP in the UK than anywhere else in the world. It is twice as big as its nearest competitor in Europe. Paradoxical as it may seem, the advertising sector is in many ways an unsung hero of the UK creative economy. Its products are highly visible but the industry itself is often not. This is in part perhaps because the industry has a strong tradition of self-reliance and self-regulation and does not attract or seek public subsidy.
In fact, the Secretary of State for Culture, Media and Sport addressed a gathering of senior advertising people recently and spoke eloquently and forcefully about the importance of the creative industries without once mentioning advertising itself. Advertising is a driver of growth in the creative economy. Its gross value added—at around £7.8 billion in 2008—was bigger than the film, TV, radio and designer fashion sectors combined, and does not include the multiplier effects of indirect and induced economic impacts.
Other than the public purse and the BBC, if those can be said to be two different things, the advertising industry is the single biggest funding stream for the core arts, the film production and post-production industries and the cultural industries such as commercial TV and radio. According to the Institute of Practitioners in Advertising’s Bellwether report last month, every year around £30 billion of marketing and media money circulates around the UK economy. For every £1 spent, company turnover increases on average by £3 to £5, and profitability by £1.50 to £3. These are truly remarkable figures and show clearly the key economic significance and contribution of the UK advertising industry.
Advertising in the UK has another less direct effect. It provides access to corporate brand budgets, which can be and frequently are directed towards the funding of music venues, film and book festivals and independent programming. Without advertising, ITV and Channel 4 would not be in business, and nor, perhaps slightly more equivocally, would the Millennium Dome. Of course, the diversity, range and freedom of our press would be directly threatened. All this is to speak about the quantitative aspects of our advertising industry.
The qualitative aspects of the industry are just as important, perhaps even more important. I am not entirely impartial here and should perhaps declare a by now somewhat historic interest. I have spent 30 years of my commercial life working in and around the advertising industry. I am proud to have been managing director of Saatchi & Saatchi here when it was the largest advertising agency in the world and producer of the highest quality creative work. But even allowing for a slight partiality, I believe it is true that we have here in the UK one the two best advertising industries in the world. External rankings consistently put the US or the UK in the No. 1 or No. 2 positions. Given our relative sizes, this is a truly astonishing achievement. In the UK, the advertising industry is a truly world-class industry.
The advertising industry has undoubtedly been very successful in the UK, but, as with other leading creative industries, it faces new and very fierce challenges. The Work Foundation report notes that:
“It is likely that the global centre of advertising creative and production gravity will continue to shift away from the western countries and towards the BRIC and SE Asian markets”.
The industry is alive to this challenge and so I believe, very largely, are the Government.
The industry is proactive in positioning itself as a creative and innovation hub to the largest and fastest growing companies in emerging markets, with a view to encouraging them to take their brands global. For example, the Institute of Practitioners in Advertising has just launched a new consumer R&D service in China. Speaking of China, the number of IPA member agencies with offices in China has risen from 23 to 62 in the past three years. With the active support of the DCMS and UKTI, the industry runs trade missions to promote our skills, our expertise and our companies. There was a mission to China at the end of September, and there will even be a mission to Silicon Valley and Hollywood, which is due to leave next week.
The UK is a collection of world-beating industries. Our future prosperity will depend more and more on our ability to sustain and develop our creative leadership in advertising as in all creative industries. As someone who has dealt professionally with creative people for 30 years or so, perhaps I may close by saying to my noble friend the Minister that I have always found it useful when dealing with creative people to bear in mind two key principles: first, be very supportive, especially at an earlier stage; and, secondly, keep well out of the way.
Lord Smith of Finsbury
My Lords, I warmly congratulate the noble Baroness, Lady Bonham-Carter, on securing this important debate, which has led us into a fascinating and illuminating discussion from all parts of the House. I have a especial word of congratulation for the noble Viscount, Lord Colville, on a very moving and interesting maiden speech. I should, of course, note a number of interests: I am chairman of the advertising standards authority, a non-executive board member of Phonographic Performance Ltd, and the person who has been asked by the Government to lead the review of policy on the film industry that is currently under way.
When I became Secretary of State at DCMS in 1997, and looked at the creative sector of the economy—those activities that depend for their economic value on the product of individual creative skill and talent, ranging from music, film and the high arts at one end through to advertising, architecture, design and many other enterprises at the other—I sensed that this was a body of activity that was not just of great aesthetic importance but of huge economic importance to the country. I discovered, however, that no one knew the exact extent of those industries. No one knew what the trends or challenges were or what was happening to them, and more importantly, the rest of Government did not acknowledge that they were important.
The picture has of course changed since then. A lot of work from a succession of Ministers and departments in both Governments has been put into establishing the importance of the creative industries, but perhaps that importance is still not recognised sharply enough. If the Chancellor of the Exchequer is looking for where the growth in the economy is going to come from in the next few years, this is above all the area that he should be looking at. Over the last 20 years, the creative sector has consistently grown at a faster rate of growth than the economy as a whole, and that is still the case. The first and most important thing that a Government can do is recognise that fact and its importance.
Two other things are also vital and both have been touched on in the course of our discussions. The first is the importance of education for the success of the creative sector. That starts with the nurturing of creative spirit in our schools. That does not just mean the chance to absorb, enjoy and develop a passion about dance, drama, the visual arts and the richness of our museums, film and music; it is also about giving every pupil in our schools the chance to play music, to direct a play, to make a movie, to be part of the creative process and not just the enjoyment of the creative process.
We need to ensure the development of skill and talent is taken forward not just in our schools but post-school at higher education and further education level. If we are not training the new generations to become the directors, the designers, the lighting specialists, the wizards at special effects, we are not going to have these industries to cherish at all in the future. Education also needs to consider how to encourage and assist the people who are developing their creative talents and skills to learn business skills as well, because they have to be able to become entrepreneurs as well as hone their creativity.
The second hugely important area in relation to the creative sector is the protection of intellectual property value. This is, after all, where the economic value, the creation of wealth, in these creative sectors comes from. The creator has to be properly remunerated for their talent and skill. I cannot emphasise too strongly how important this is. It is especially important in the digital world where online communication is simultaneously the creator’s best friend and potential foe. We need to ensure that value can be properly and legitimately realised and returned to the creator. That is why I urge the Government to press ahead urgently with the implementation of the Digital Economy Act. The Hargreaves report was all very well—Hargreaves got some things right and some things wrong—but we must not forget the Digital Economy Act in the process.
The creative industries add enormously to the wealth of the economy and to the richness of our lives. That needs to be recognised not only in the heart and soul of DCMS—and I know the noble Baroness absolutely understands this—but in the heart and soul of the Secretary of State for Business, the Secretary of State for Education, the Chancellor of the Exchequer, and the Prime Minister as well.
Lord Stevenson of Balmacara
My Lords, I thank the noble Baroness, Lady Bonham-Carter, for securing this debate. As the noble Lord, Lord Grade, quipped, at a time of bad economic news it is a chance to celebrate a success story, and not just in TV. As the noble Baroness, Lady Randerson, said, the time has passed far too quickly and we could have gone on for much longer to discuss this. I also add my congratulations to the noble Viscount, Lord Colville, on his excellent maiden speech. I think it is one of the best of the year. It was gracious and wove personal experiences with wider perspectives, elegantly moving from a wide shot to a tight close-up when he pressed the case for looking again at internships and the whole question of cherishing our talent in this sector.
It is about two years since your Lordships’ House last discussed this topic, when my noble friend Lord Bragg introduced a similar debate. As then, we have had a very high-quality discussion, much enhanced by the contributions from noble Lords with direct experience in these industries, as well as from those with a passionate engagement with the sector. The main themes that seem to have emerged this morning are: a continuing concern to improve skills and training; worries about the way creativity is being squeezed out of the core curriculum, with particular reference to the EBacc; a decline in the arts and creative courses being taught in higher education because of the cut in the teaching grant; the need for an appropriate solution to stimulating finance for these high risk businesses, not that they are any more risky than others, but the risk is of a different quality—it is a “hit” industry that needs specific attention; how deregulation of the BBC and ITV might help; the need to preserve diversity on and off screen; the need to preserve live music and the performing arts more generally as the seed-bed of all these creative industries; and, as we have just heard, concern about preserving and ensuring that the IP that is created is well used and able to provide a return that is appropriate for its investment.
My noble friend Lord Macdonald of Tradeston raised the question of when the term “creative industries” was actually coined. It was certainly not around when I was working at the British Film Institute in the 1980s and 1990s. It seemed to arrive fully formed in 1997, so perhaps the then incoming Secretary of State, the noble Lord, Lord Smith of Finsbury, had more to do with it than his natural modesty permitted him to say.
Success has many parents so we will probably never know, but by any measure the UK creative industries grew considerably as an industrial sector between 1997 and 2010, sometimes growing at twice the rate of the national average. In London and in several other major cities such as Cardiff, Manchester and Salford, as we have heard, it has become a significant economic sector in its own right and is at the forefront of the UK’s international competitiveness. Data show that exports of services for radio and TV, advertising, architecture, film, video and photography doubled between 1997 and 2007, and almost quadrupled in the case of publishing and software, computer games and electronic publishing. Other figures are just as impressive. The sector as a whole saw an average GVA growth of 5 per cent per annum over that period, with computer games and electronic publishing rising annually at an average of 9 per cent, representing an increase in GVA of nearly 200 per cent over the 10 year period.
Mention has also been made of the fact that the UK has a strategic international lead in the production and export of creative goods and services. Although comparisons are complicated, Eurostat data appear to confirm that the UK is now the European leader on most indicators, while UNCTAD data show that this lead extends to the rest of the world, with the UK currently the second world exporter in cultural goods and services after the USA, which is an impressive achievement. However, as has been said in this debate, the UK’s position is under threat, with emerging economies in particular showing fast growth in all global sectors as a result of the major priority they gave to becoming new centres of growth for these sectors. In addition, the UK is vulnerable in globally mobile sectors, such as film, and in areas where world leadership rests elsewhere: for example software, which remains dominated by the US, and specialist sectors such as fashion.
Some noble Lords spoke about the wider economic and social challenges facing our country, and one of the main themes that emerged this morning was the need for an economy in the UK that looks and feels very different than what we see today, with more opportunities for more people to get better jobs in good companies. There is every reason to believe our cultural industries can play a major part in this recalibration. If that is to happen, we need an active intelligent Government who support an industrial strategy to foster good, high growth, high productivity companies that create great jobs. The challenge, and the opportunity, is significant. We need to equip ourselves with an understanding and commitment to those things that will drive creative, competitive success in a global context.
The last Government can be proud of their record on the creative industries. They recognised that the creative industries would quickly become an increasingly vital source of skilled jobs and economic growth. The coalition Government have said repeatedly that they view the creative industries as key drivers of jobs and growth, but on a number of critical issues they have been accused of failing to respond to the challenges threatening the future strength of the sector.
I will give three or four examples. The announcement of a creative industries council in the last Budget was welcomed, but it remains to be seen whether it is just a talking shop or a focal point for action in areas other than training and skills. This seems to be the one area that is making good progress, although it is hampered—as the noble Lord, Lord Clement-Jones, said—by the fact that there are two sector skills councils operating in a limited space when perhaps Skillset should be in the lead.
Why has there been such a delay in the rollout of universal broadband and a lack of progress in implementing the Digital Economy Act? As many noble Lords argued, intellectual property is at the heart of all that the sector has to offer and do. It must be supported. The Government's higher education plans are resulting in significant cuts in art and design education, and the changes to the EMA are denying many young people the chance to develop education and training opportunities linked to the creative industries. Britain's immigration rules are making it difficult to bring in artists and performers to study, perform and teach. Something must be done about this.
There must be some doubt about whether current government policies will nurture talent, foster growth and widen opportunity in the cultural industries. Clearly, DCMS cannot do this on its own. It is a cross-departmental challenge that requires bold leadership from DCMS. As the Minister is about to respond, perhaps I may suggest that these are the key questions that she and the department should address.
The skills required for the creative economy are changing. We must assess the suitability and impact of current schools policy for the creative industries. Can DCMS re-engineer the relationship between our education system and our support mechanisms for arts and culture so that we grow and nurture talent for the creative economy? The UK has a strong talent base but lacks some of the technical and business abilities required for a digital era, particularly if we want to see more microbusinesses grow. Can the DCMS bring forward an apprenticeship scheme, building on the work of the BBC in Wales that was described by the noble Lord, Lord Rowe-Beddoe? It might be tailored more appropriately for companies operating in the creative economy.
A major challenge for public policy is a shortage of risk capital for creative companies in the content sectors. There will be inevitable consequences for UK competitiveness if we fail to address those issues successfully. My noble friend Lord Hollick drew attention to the predisposition towards debt finance. This structural weakness prevents us from acquiring or owning the economic benefit of creative output, and confines us often to service company status. Will the DCMS work with the Treasury to ensure that appropriate new schemes to bring in risk capital are introduced, and to ensure that the current support through the tax system is not curtailed by the threatened introduction of new eligibility rules? Thirdly and finally, what can DCMS do to widen the UK creative talent pool? Without that, there may be significant detrimental impact in the longer term on a sector that prides itself on the generation of diverse creative content.
The Government need a coherent strategy for the creative industries. They are a key sector for jobs and growth, and the UK needs a framework that underpins confidence, investment and innovation. British young people in the creative sector have extraordinary talent. We must make it as easy as possible for them to flourish, if only to aid growth. I look forward to the Minister's response.
Baroness Rawlings
My Lords, I start by adding to the sentiments of all noble Lords who spoke in appreciation of my noble friend Lady Bonham-Carter having given us the opportunity to discuss the role of the creative industries in the United Kingdom. As we heard, not since the debate on the same subject in June 2009, secured by the noble Lord, Lord Bragg, have we been able to debate at length the importance of their impact. In 2009, it was clear that there was a vast knowledge and commitment in your Lordships' House; today, it is evident once again that your Lordships are as passionate and committed as ever to the creative industries and their contribution to the UK economy.
Perhaps I may especially commend the maiden speech of the noble Viscount, Lord Colville. It was delivered with great modesty. He highlighted the issue of unpaid internships, which is certainly a pressing challenge for these industries. The key will be to find a balance between making these valuable opportunities available to young people and making certain that they are not exploited and that these are genuine learning experiences. It is already clear that your Lordships' House will benefit from the noble Viscount's wide experience in areas ranging from his work as a BBC producer on “Newsnight” in Moscow during the collapse of the Soviet Union to his current projects, one of which is a programme about the physics of the climate. We wish him luck and look forward to hearing him very frequently in this House.
My noble friend Lord Grade, in his eloquent and naturally well informed speech, raised an important point about television advertising and the continuing competition remedy known as contract rights renewal. CRR has formed a major part of the recent Communications Select Committee’s inquiry and subsequent report on the regulation of TV advertising, which we will debate later today. I hope that my noble friend might be able to speak in that debate as he knows so much about the subject. My noble friend also raised the issue of “must carry”. I relished the reference to Ongar, which was part of my old Essex South West constituency, being “one station beyond Barking”. A number of responses to the Secretary of State’s open letter on the communications review raised the issue of transmission charges paid by the BBC and other PSBs to satellite operators. No doubt we will consider the issue in the communications review Green Paper.
I listened with great interest to my noble friend Lord Black's concern about the local press. The question we must consider is whether one reference decision by the Office of Fair Trading is enough to undermine the whole merger regime. Obviously this appears not to work for local newspapers, and I believe that the answer should be no.
The noble Lord, Lord Smith, answered many noble Lords' questions regarding the film industry's role within the creative industries. We are grateful to him for chairing a body with an eight-strong independent panel of industry experts. I will come back to further points made by the noble Lord later.
In answer to the question of my noble friend Lord Clement-Jones about economic contribution, the UK's creative industries are part of the digital economy to which we can look with confidence for growth in future. In these challenging economic times, that makes them particularly important. I will mention later what the Government are doing on this. However, the figures speak for themselves: the creative industries contribute 5.6 per cent to the UK economy as a whole—around £59 billion a year; 1.3 million people are employed in creative jobs; and UK creative exports were worth £17 billion in 2008, which represented around 4.1 per cent of all goods and services exported. Over the past decade, the creative industries have grown faster than the rest of the economy. Recent forecasts by PricewaterhouseCoopers suggest that the UK entertainment and media market will grow by an average of 3.7 per cent per year for the four years to 2014, compared with 2.6 per cent over the same period for the economy as a whole.
My noble friend Lord Fowler asked whether BBC Worldwide should be considered in the forthcoming communications Green Paper. We are discussing this and I hope that the Green Paper will be produced soon. It will look at whether any change is needed to the law. The Communications Act 2003 has held up well, but we need to give it a proper check-up, which will take into account works such as Hargreaves and the Leveson inquiry.
I would like to outline just a few areas where the UK has demonstrated its particular strengths. The status of English as a global language has made the UK a world leader in creative content, giving UK producers a huge advantage in global markets. This is illustrated by the strength of our publishing and music industries, and the value of TV programming, both at home and especially in export sales. In 2010, the UK strengthened its position as one of the only two net exporters of music, growing its trade balance three times faster than the US. British talent is behind many iconic, globally successful games titles too. I am told that these include “Grand Theft Auto” and the UK online video game “Moshi Monsters”, now with 50 million users and one of the fastest growing children's entertainment brands in the world.
Among other topics, my noble friend Lady Randerson, the noble Earl, Lord Clancarty, and the noble Lord, Lord Bichard, mentioned the importance of fashion. I agree with them. The UK is at the cutting edge of international fashion and this year industry forecasters named London Fashion Week the number one fashion week in the world, overtaking Paris, New York and Milan. The noble Lord, Lord Bichard, referred to Vivienne Westwood. She even designed the graduation robes for King’s College, London.
Britain is one of the few countries in the world to have not one but five dedicated PSB broadcasters: BBC, ITV, Channel 4, channel Five and not forgetting S4C. British television produces programmes that are popular around the world, such as “Doctor Who” and “Downton Abbey”.
My noble friend Lord Razzall talked of our success in Cambridge. He is right about our many creative industries there. As we heard on the “Today” programme this week, ARM Holdings, a global company with its headquarters in Cambridge, is the world's leading semi-conductor intellectual property supplier and as such is at the heart of the development of digital electronic products. We need consistently to work to maintain these successes, and continue to retain our share of the growing global market, estimated by UNCTAD to be worth nearly $600 billion, for creative goods and services in an increasingly competitive world.
I can reassure the noble Baroness, Lady Jones, that the Government and especially the Secretary of State fully understand the importance of the arts, both culturally and economically. I suggest that the Arts Council’s settlement was not bad in the current circumstances. I am sorry that the noble Baroness, Lady Jones, felt a need to criticise the Secretary of State. Perhaps she needs to improve her computer skills as both the Secretary of State and the Minister Ed Vaizey are constantly producing new ideas and are on the wavelengths. As our Secretary of State Jeremy Hunt set out in his superb speech at the Royal Television Society conference this year, which is on the web, our first priority must be to capitalise on the extraordinary opportunity presented by our digital and creative industries to drive economic growth.
The noble Lord, Lord Bilimoria, wanted to know whether the Government had given this area top priority. I can say to him yes. In March this year The Plan for Growth included a package of support for the digital and creative industries. These measures are designed to achieve strong, long-term, balanced growth that is more evenly shared across the country and between industries. The Government have established the Creative Industries Council to be a voice for this most important area, and to be a place where Government and council members, who are leading figures drawn from across the creative and digital industries, can work together to tackle barriers to growth facing the sector.
My noble friend Lady Benjamin stressed the challenges identified by the council, including lack of access to finance, skills shortages, the need for better access to export markets and the need to improve the intellectual property regime. I know of the noble Baroness’s preoccupation with children’s programmes and I note her concerns. We have discussed this frequently and no doubt we will come back to it. The council has established working groups on skills and access to finance as a first priority and it will report in 2012, so I agree with the noble Lord, Lord Bilimoria, and the noble Lord, Lord Hollick.
My noble friend Lord Clement-Jones rightly lays emphasis on skills. In tandem with the skills working group of the council, a number of actions have been taken forward to improve skills in the digital and creative industries. These include identifying 360 science, technology, engineering and maths—STEM—ambassadors from the creative and digital industries, and encouraging graduates from the sciences, technology and maths to seek out careers in these sectors.
I have great sympathy with the worries of my noble friend Lady Bonham-Carter and of several others about not including the arts, such as music, and computer sciences in the EBacc. This is a matter for the Education Secretary, but it does not stop these subjects being taught in schools.
My noble friend Lady Randerson and several noble Lords were concerned about superfast broadband. Superfast broadband is a key business growth enabler, and £530 million is being invested over the next four years in order to create the best superfast broadband network in Europe by 2015. We heard the other day that one of Italy’s problems is that it has fallen behind with broadband compared with what we are doing here. The Government have taken further action towards the goal of making certain that all businesses in enterprise zones have access to superfast broadband by 2015, with Broadband Delivery UK considering and addressing where there are gaps in local broadband plans. I know this is an area in which the Secretary of State is particularly interested.
The noble Lord, Lord Rowe-Beddoe, mentioned the importance of the Hargreaves review of intellectual property and growth, which set out recommendations for how the UK's intellectual property framework can further promote entrepreneurialism, economic growth and social and commercial innovation. The Government published on 3 August its response to the Hargreaves report. This included a commitment to establishing licensing and clearance procedures for orphan works. Government will shortly consult formally on proposals taking forward the Hargreaves recommendations. I am happy to address the noble Lord’s concerns on music and congratulate him on stressing the importance of the conservatoires.
The national plan for music education will be published shortly and will set out new arrangements for creating local music hubs expected to support all young people’s music making and offer routes for progression. These might include music industry-based provision and information. I am also fully aware of the importance of the jazz industry, mentioned by my noble friend Lord Colwyn, and I hope his suggestion of jazz will be included.
My noble friend Lord Colwyn also pointed out the need for clarification around the licensing of sites for live music. The Government remain committed to scrapping unnecessary red tape. We support the Bill introduced by my noble friend Lord Clement-Jones and are consulting on a broader approach. I will make sure that my noble friend’s concerns are made known, and I will take them back to my department. However, I must not pre-empt the consultation, and there are concerns on the other side.
This debate has highlighted the fact that the creative industries make a strong contribution to the UK economy. They are worth £59 billion to the economy, and a significant number of people are working to create a dynamic and innovative part of our economy. I wholly agree with the noble Lords, Lord Smith and Lord Stevenson, about the importance of the value of intellectual property in a digital world. We are committed to implementing the Digital Economy Act, and we hope that the initial obligations code will be abolished shortly.
The noble Lord, Lord Smith, also mentioned that it would be wrong to see the creative industries in purely economic terms. My noble friend Lord Shipley also explained this point very clearly. The creative industries make an enormous cultural contribution to this country and to the wider world, and what is being developed in Salford and the north-east is also important. Indeed, the creative industries enhance our reputation as a global creative and cultural leader. It is vital that we understand and continue to make the case for the importance of the close relationship between the arts and the creative industries.
I quite rightly pay tribute to our recent successes in the cultural sphere, which were mentioned by the noble Baroness, Lady McIntosh, whether they be the successes of UK-produced plays such “War Horse” or “Jerusalem” on Broadway, “Downton Abbey”, written by my noble friend Lord Fellowes, winning four Emmy awards, the Frieze Art Fair bringing the world’s collectors to London or the film “The King’s Speech” sweeping the board at the Oscars.
My noble friend Lord Glasgow and other noble Lords asked about the film industry. It is a cultural achievement of which we should be proud. It illustrates the strength of the UK’s creative industries.
The noble Lord, Lord Stevenson, asked about games tax relief. I will write to him with the details.
As we have heard in your Lordships' House today, the creative industries are a sector that we ought to celebrate as a nation. The Government will continue to play their full part in making certain that they remain a global success story. I thank all speakers in today’s extensive debate who have shown such an interest and offered such well informed views. I have certainly learnt a great deal, and in this short time I hope to have answered most noble Lords’ questions. I ask for forgiveness from the noble Earls, Lord Glasgow and Lord Clancarty, and the noble Lords, Lord Macdonald, Lord Sharkey and Lord Stevenson, if I have not answered all their questions. I will read Hansard, and I will, of course, write to any noble Lord who has not had their points addressed and put a copy of the letter in the Library.
In conclusion, I once again thank my noble friend Lady Bonham-Carter, who has brought this important topic to the House.
Lord Clement-Jones
My Lords, I apologise for interrupting the Minister but, specifically, I wonder whether she will write on the question of finance for start-ups in the creative industries. I did not hear anything specific on that, and that question was asked by a number of noble Lords and is crucial to the creative industries.
Baroness Rawlings
My noble friend raises the point at a very opportune moment, with my noble friend Lord Sassoon sitting next to me. No doubt it will be taken into account.
I applaud again the maiden speech by the noble Viscount, Lord Colville, on this important topic that my noble friend Lady Bonham-Carter raised, which has afforded your Lordships such a constructive and creative debate.
Baroness Bonham-Carter of Yarnbury
My Lords, I am grateful to the Minister for her response and to all noble Lords who have taken part in this debate. In particular, I am grateful to the noble Viscount, Lord Colville. Listening to his speech, I was reminded of the advice that he gave me when I was being sent off to the Soviet Union. He said, “You’ll know how important the person you’re interviewing is by the number of telephones on their desk. They won’t ring, but it is a status symbol”. Of course, the creative industries have got rid of that status symbol, and I would be interested to hear from him what he thinks the new one is.
As our time is running out, I will just say that I agree wholeheartedly with what the noble Lord, Lord Smith, said. This is something where all government ministries must get together in order to ensure that the creative industries can provide the economic growth that we need so much. This has been a good debate, and I beg leave to withdraw the Motion.
EU: Financial Stability and Economic Growth
(13 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
To call attention to the Government’s role in supporting financial stability and economic growth in the European Union; and to move for papers.
Lord Newby
My Lords, when I first suggested that we have a debate on Britain’s role within the EU, I knew that because of the crisis within the eurozone, it would be topical. What I did not realise was how this crisis was likely to develop, nor quite what demons it would unleash within the UK. It is now clear that we are at a more critical juncture in our dealings with the EU than at any point since 1975. I believe it is decisively in our national interest to play a positive European role.
Of the many illusions of those who believe that we could have a more successful future outside the EU, the one which is, in my view, the most misconceived is that without participating in the world’s largest single market, the UK would on its own have an influence which would satisfactorily protect our national economic interests. I can only assume that when the antis travelled to, say, India, they hear heard businessmen speak with passion about their future relations and trading prospects with Brazil, China and the rest of south and south-east Asia and mention Britain almost as an afterthought; or speak to American bankers who see London's strength as being largely dependent on being part of the single market; or to South Korean manufacturers, who put their European production plants in eastern Europe, but have a European head office in London only because we are part of the EU.
The EU brings many benefits in terms of helping the UK to promote its values and interests globally, but our relationship with the rest of Europe stands or falls on the economics. Here, despite the growing importance of the BRICs, the EU remains our predominant trade partner: over 40 per cent of our external trade is with the EU. Despite the importance which we are now rightly attaching to expanding our trade with the BRICs, it is the case that, at present, trade with China, India and Brazil combined is but a small fraction of our trade with Europe. So while those countries have tremendous potential, even if our performance improves dramatically, they will still be lagging behind trade with Europe for a very long time.
If we judge that our interests remain best served by staying in the EU, how well are we currently placed to promote those interests and what should we do to strengthen our position? Before the eurozone agreement last week, our position was far from ideal. The Labour Government's approach to Europe often sounded very positive, particularly when articulated by Tony Blair in his early years as Prime Minister, but his failure to match deeds with words, coupled with years of supercilious neglect by Gordon Brown, meant that Britain's traditional posture, more like a sulky teenager than a constructive adult, resulted in a disproportionately low degree of influence. This lack of influence at government level has been compounded by the decision of the Conservative group in the European Parliament to withdraw from the EPP and set up a small ragbag of a group. This has resulted in its influence in the Parliament being significantly weakened at a time when the Parliament itself is exercising greater influence, which is a trend that is set to continue.
The UK’s increasingly unsatisfactory position was exemplified by the recent announcement of a financial transactions tax by the European Commission President. This measure would bear predominantly on the UK: in some estimates, up to 80 per cent of transactions covered by the tax take place here. Both the previous Government and now the coalition have made it abundantly clear that they would oppose such a measure unless it were introduced globally, which is at present a very slim possibility. Nevertheless, President Barroso went ahead and unveiled the plan. It is inconceivable that the Commission would vigorously promote a proposal that would predominantly affect France or Germany if he knew that those countries opposed it. It would be a futile gesture and bad politics. However, no such inhibitions apply to a snub to the UK. This only happened because Barroso knew that we were relatively isolated and unpopular and that a populist proposal aimed at London would win him many more plaudits than brickbats.
This far-from-satisfactory situation was where we found ourselves before last week’s eurozone summit. That meeting not only agreed the package of measures to try to sort out the Greek debt problem, recapitalise eurozone banks and enhance the bailout fund, just as importantly it also agreed a step change in co-ordination of the eurozone. In addition to greater co-ordination of economic and fiscal policies, and in order to give greater political impetus to the process, it established a new eurozone governance structure. This will involve regular summits presided over by a new euro summit president and it also includes the possibility of the president of the eurozone being a full-time post based in Brussels. For non-eurozone members, there is only a commitment that the president of the euro summit will keep us informed of the preparation and outcome of the summits themselves. This is not very reassuring.
Arguably these measures by the eurozone countries should have been put in place when the euro was introduced in order to avoid some of the current mess. However, having belatedly begun to get a grip on the crisis, there is a strong chance now that the eurozone Governments will implement this new plan. What is their plan B? The truth is there is none. If this happens, the UK is in danger of moving from being a central if quarrelsome core EU member to being marginalised. Therefore, what should our response be? We are clearly not suddenly going to apply to join the eurozone.
Of course, we are one of 10 countries in the same position. However, we should not be fooled into thinking that the euro-outs are a credible long-term alternative power structure within the EU. It is worth listing the non-eurozone members: Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden. Leaving aside the fact that some of them are keen to join the euro—including the most important, Poland—there is clearly no particularly broad commonality of interest among the outs. If we were to list those member states with which we have the greatest economic and political ties and interests, few of these countries would be near the top. I hope that British Prime Ministers in coming years enjoy their dinners with the group of outs, but I cannot help feeling that, as they look across at the somewhat larger eurozone table, they will feel slightly queasy.
So far I have been pretty gloomy about our position within the EU and I am well aware that simply moping about our lot will not promote our position. Nor do I think adopting the attitude of vultures waiting for the opportunity to pick at the European treaties and take back the odd morsel of power here and there is a substitute for a credible strategy to help support stability and growth across Europe and therefore within the UK. What should we do, and what is it credible to do within the confines of current British politics?
First, we need to continue making it clear that we support the eurozone countries in the action they are taking, including their plans for greater fiscal co-ordination. Our ability to affect that process is in any event extremely limited, but in doing so we should try to avoid lecturing them on the need to sort themselves out and get on with it. I can understand why Ministers find that a very attractive line but even if it were appropriate before last week’s decisions, those decisions mean that it is doubly inappropriate now. I agree that it is very much for the eurozone to deal with the problem which, as it were, it has created, but I hope that the UK will play a positive role in supporting the IMF in this respect. When the statement was made last week, I felt that the Government went to inordinate lengths to try to put the brakes on the IMF supporting sensible measures to sort out the eurozone mess. Statements by the Prime Minister over the last 24 hours suggest that perhaps I misread what he had in mind, and I would be extremely grateful if the Minister could say this afternoon what now the British Government’s position is on providing additional support for the IMF, which, however generally it may be couched, could mean that we would be supporting greater IMF involvement within the eurozone.
If we adopt a sensible tone, we need to articulate a growth strategy for the whole of the EU that will resonate widely across it. Obviously this has to be built on strengthening the single market. The Prime Minister produced a pamphlet on this subject in March, which had four key pillars. The first was completing the single market, particularly by further liberalisation of services and the creation of a single digital market. It has been estimated that if it were possible to do this in full, it could be worth up to £3,500 for each household in the UK. That figure seems somewhat large but even if we were to achieve only a significant proportion of that it would be a prize worth having. Secondly, we must do more to promote the benefits of free trade by pushing for the conclusion of the Doha round, as well as trade agreements with some of our fastest growing trade partners. All these measures sound a bit like motherhood and apple pie but they are absolutely central to a positive agenda for growth. Thirdly, the Prime Minister suggested that we need to reduce the costs of doing business across the EU. Fourthly, we must do more to make the EU more attractive as a hub for innovation.
Those measures have been amplified and supported by the Deputy Prime Minister in recent days. It is a constructive agenda. The question is how to ensure that it is taken forward positively. This now needs detailed, consistent and concerted follow-through, which should be led by Ministers and involve building coalitions involving both the euro-ins and the euro-outs. I believe that the Government are now adopting this strategy with some success and are finding that there is a broader degree of support for some of the lines that we are taking than might originally have been thought to be the case. If we adopt a less hectoring tone and promote a growth strategy that wins widespread support, I hope that we will create an atmosphere in which our voice will carry a more proportionate weight.
However, I am realistic enough to believe that it is not quite as simple as that. For all member states, the importance of promoting their interests within the EU as well as promoting the EU as a whole is critical. A key way in which they all seek to do this is by making sure that their voice is heard as often and effectively as possible within all the EU structures. That requires them to have as many effective people in place across these institutions as possible. For years, some countries, particularly France and Ireland, have recognised this and gone to great lengths to ensure that as many of their compatriots as possible are in position in the Commission and other EU institutions. Not so the UK. The view too often has been that the best officials would do their careers harm, rather than good, by moving to Brussels either permanently or on secondment. That view has definitely been held in the Treasury and the Bank of England over many years.
It is now extremely important that we place as many top-quality officials as possible, not just in the Commission, but given the importance of the financial services sector to the UK, also in the three European supervisory bodies for banking, insurance and securities and markets. I believe that the Foreign Secretary recognises this and is taking steps to encourage more UK high flyers to spend time in Brussels on secondment or on a permanent basis, which is very much to be welcomed.
If we adopt the agenda that I have outlined, we will stand a better chance of playing the kind of constructive role which is vital for the development of the UK economy within the EU. The stakes are very high, but so is the prize. I beg to move.
Baroness Noakes
My Lords, I congratulate the noble Lord, Lord Newby, on securing this debate. I suspect he little thought how topical it would be when he did so. The noble Lord, Lord Newby, and I agree on many things but I do not think that we shall ever agree on Europe. I am proud to be on the Eurosceptic wing of my party and thus I find myself in agreement with the majority of my party and with a clear majority of the country at large, as many polls have shown.
Let me start with some basics. It is undoubtedly in the interests of Britain as a trading nation that there is both financial stability and economic growth within the community of trading nations. Exporters need growth in the global economy and growth, in turn, needs financial stability. That is also true at the level of the individual countries with which we trade. Countries in financial turmoil that show little or no growth are not good trading partners. So I can go along with the argument that says that to the extent that the UK needs or wants to trade with countries within Europe, it is certainly better for us if those countries are financially stable and growing. But how important is the EU, and therefore financial stability and growth in the EU, to the UK? A claim often made by the Government is that the EU is one of the most important trading zones to the UK, giving access to hundreds of millions of consumers. But that is at best only a partial truth. To start with, only around 10 per cent of the UK economy is actually involved in trading with businesses in other EU states. Most of our economy is focused on the UK or on trade outside the EU, and the USA is by far the largest single country, in value terms, with which we trade.
We are a deficit trading nation, with a significant deficit on goods offset by a surplus on services. Two of our five largest deficits are with Germany and France so, although we might have a need to trade with Germany and France and other EU countries, the fact is that our European neighbours need our markets more than we need theirs. On the other hand, we have a trade surplus with the USA.
Focusing on exports, the EU accounts for around 40 per cent of our exports of goods and services; put another way, the rest of the world is more important to us. Of course, 40 per cent is not unimportant but the EU, even without its current problems, is not a source of massive growth. The plain fact is that global growth forecasts are concentrated outside the EU. If our exporters waste all their energies on the economies of mainland Europe, that will be a real tragedy for our future share of global trade.
As I said earlier, it is important that those countries with which we trade are financially stable and offer prospects for growth. But that is a long way from the proposition that the UK Government have a particular role in supporting that stability and growth. That is subject to one overriding concern: namely, the impact of eurozone financial instability on the international banks, including our global banks. I declare here an interest as a director and shareholder of the Royal Bank of Scotland.
It is very much in our interests to ensure that the problems of the eurozone do not, through interconnectedness, spread through the financial system more widely. That is why it is encouraging news that the exit of Greece from the euro is now being openly discussed as that would be better for both. That would allow the eurozone to concentrate on the rest of its problems.
So what should be the UK’s role? I completely support our Government in refusing to put money into the European stability fund, whether directly or via the IMF. We have enough problems of our own without paying for those of other countries. I support our policy that the problems are for the eurozone countries themselves to solve; it is no business of ours to tell our trading partners how to run things. On the other hand, we must be ready to seize any opportunities to improve our position in Europe, which is not good. If the eurozone needs a treaty change to sort itself out, we must grasp that opportunity to gain greater freedoms for the UK. We must focus on our growth and prosperity. The health of our trading partners is an indirect interest derived from and limited to their impact on our economy.
Our agenda in Europe should be directed at the UK's interests. We must cut the budget; we must roll back the encroachment of the EU into our financial services industry; we must gain control over things like the working time directive; and we must reduce the impact of EU rules and regulations. It is our growth, and no one else’s, that should be the subject of our policies and, in forming their policies, the Government must always remember that our history and destiny are global and not European.
Lord McFall of Alcluith
My Lords, I congratulate the noble Lord, Lord Newby, on securing this hugely important debate. My contribution has two themes: honesty and clarity. Honesty refers to the fact that this is part of the global financial crisis, which started in August 2007 with BNP Paribas stating that it had suspended three funds related to subprime. At the time, I said that we had a banking crisis; that went on to become an economic crisis, which became a political crisis and a social crisis. The latter two now have equal resonance with the former. The political crisis that we see in Greece, where the Prime Minister has lost his nerve, is now a straight choice between in or out, and the sooner that choice is made the better, so that we can get on with business.
The big question is how to maintain the integrity of the eurozone and stop contagion. We must remember that Italy’s bond yields are almost 6.5 per cent compared with Germany’s at 0.3 per cent. That is unsustainable and cannot go on. If you remember, Portugal and Ireland went to the fund for help when their bond yields were around that price.
On the social side, the International Labour Organisation undertook a study and stated very clearly recently that the world economy is on the verge of a new jobs recession. In 45 out of the 118 countries that were examined, the risks of social unrest were there. When the leaders meet at the G20 today, that social dimension should be in the background.
On the issue of honesty, our own Government have to be honest. The Prime Minister has said that he is not going to contribute to a eurozone bailout, and the Chancellor has said that he is not going to contribute to an IMF bailout if it is to be used for Europe. Given that £130 billion of exports are made to Europe every year, that is a false choice and the sooner the Government are honest with the people and say, “We support the IMF because it is in the interests of the larger global community”, the better.
There is a growth crisis in Europe at the moment. In the last year, unemployment has increased in Germany, which has not happened for two years, and its manufacturing sector has contracted as a result. We must remember that Europe as a whole is heading for a recession. In a sovereign debt crisis, where private debt has been transferred to government debt, slow growth and deflation are the biggest risks for solving debt and it will exacerbate the situation if we do not have growth.
The issue facing us today is a lack of demand. My successor as chairman of the Treasury Committee, Andrew Tyrie, put it quite clearly and succinctly when he said that the Government lack a “coherent and credible” plan for growth. If that is the case, we need clarity on that.
Yesterday, along with the noble Lord, Lord Skidelsky, and others, we looked at the issue of a national investment bank, which would invest in large infrastructure projects here. By the way, such a bank would serve the interests of the country, because as far back as 1931 there was what was identified as the Macmillan gap. The Macmillan commission said that there were not adequate resources for British industry and small businesses. We have still to tackle that, and the present crisis is crying out for that. Adam Posen, a member of the Monetary Policy Committee, says that the UK lacks a “spare tyre” and that we have to get on with that issue.
Why do I say that manufacturing industry is in such a serious situation? In the past three or four years, we have seen devaluation of the currency by about 30 per cent. In a normal situation, that would lead to an export-led manufacturing boom. It has not done so, and therefore we need to ensure that we have organisations and facilities that mirror those of the German Mittelstand. A time of cheap capital, real negative interest rates and spare capacity in employment is when to invest in growth so that we come out of recession in the proper way.
When I talk about employment and capacity, that capacity is available not least among young people. There are 991,000 unemployed 16 to 24 year-olds. I know from when I was a school teacher in Glasgow what the decimation was like in society when jobs were not available for young people. It is very important that we take on that issue. Today, a very depressing report from Barnardo’s says that,
“49 per cent … agree that children … behave like animals”,
and that society views children in a negative way. That message is wrong in fact and in principle. If we give out the message that society has given up on young people, young people will certainly give up on us. It is an overwhelming economic need, as well as a humanitarian need, for society to treasure young people.
Let us show that today, with increased urgency, by factoring young people into our economic stability and growth agenda.
Lord Razzall
My Lords, in thanking my noble friend Lord Newby for introducing this important debate, it goes without saying that I agree with everything he said. It probably will not surprise noble Lords that I disagree with almost everything said by the noble Baroness, Lady Noakes.
When the eurozone was established, it was clear that its members could not have the benefits of the euro without the drawbacks of losing domestic control over their currency, which meant ceding fiscal powers to the centre. At that time, rules were established regarding fiscal policies to be followed by members of the eurozone both to qualify for admission and to maintain those rules when they became members. The first thing that happened of course was that for political reasons the numbers were fudged for Greece, Italy, Spain and probably Portugal in order to allow those countries into the eurozone. Even worse, when things got a bit rough in France and Germany, those fiscal rules were scrapped and France and Germany were allowed not to obey the long-established rules. That, inevitably, has led to the situation in which the eurozone finds itself today.
It would be easy to conclude that that is just Europe’s problem and, “Aren’t we lucky to be outside the eurozone?”. Unfortunately, as the noble Baroness, Lady Noakes, touched on, we have a problem as to what the crisis in the eurozone does for our UK banks and financial institutions. She disclosed the fact that she is a non-executive director of the Royal Bank of Scotland. I do not know the details of the RBS’s loan portfolio to eurozone countries but, clearly, were those countries to default, that must have a significant impact on the UK banks which have lent money to those Governments or institutions in those countries. That will have an ongoing effect on the ability of those banks to lend in the UK domestic market.
Perhaps I may introduce your Lordships to the arcane topic of credit default swaps, which is an even greater danger for UK financial institutions. Credit default swaps are a mechanism that has been invented by banks and financial institutions to make money, of course, which basically means that loans to eurozone countries or other countries throughout the world are insured by this mechanism. Credit default swaps involve parties that are not only UK banks but UK pension funds and UK hedge funds, all of which are involved in this market. If the eurozone countries start to default in relation to loans, not only it is UK banks which have to write down the loans that they have made but there are significant losses in the credit default swap market which affects those institutions. Not only the banks will be affected.
What is worse is that, under the new accounting rules that were brought in on the mark-to-market requirements for financial institutions, even if countries have not gone bust but it looks as though the rating of those credit default swaps is worth less than they would be when they were originally taken out, those banks or financial institutions also have to write down the effect of that mark-to-market valuation. That has a very significant effect on the balance sheets of our UK banks and financial institutions, which will have a serious impact on the ability of all those financial institutions to provide the engine for growth that the UK economy needs.
We have no alternative but to continue the engagement with our European friends. It does not mean that we have to rush into the eurozone, although, interestingly, I see that Poland and Lithuania as we speak are very anxious to join. I am not suggesting that, but we absolutely need to engage in Europe. I commend the initiative of the Department for Business, Innovation and Skills, which has put together an informal like-minded group for growth. It consists of 14 states in Europe, half of which are eurozone countries. That group is trying to work together to develop policies for the development of growth in Europe and the United Kingdom. It is now the time to engage in Europe and not to walk away in order to secure policies for growth.
Lord Hannay of Chiswick
My Lords, this debate could hardly be more timely and topical, and for that I thank the noble Lord, Lord Newby. The temptation to pronounce on the turmoil in Athens, and on the prospects for a Greek referendum and what might follow from its outcome, or indeed from a decision not to hold a referendum, is strong. But I believe that for those like us in this House who are not directly involved in the decisions being made, a period of silence on those issues would be the best contribution we can make.
It is a matter for regret and concern that so little of the debate on European issues in this country in recent weeks has been about the Government’s role in supporting financial stability and growth across Europe and that so much of it has been in denigration of the efforts of the 17 eurozone countries to put their house in order and in angry demands that we should have nothing whatever to do with those efforts. Yet, there surely have been few truer words spoken by a member of the coalition Government than those by the Chancellor of the Exchequer when he said:
“We are all in this together”.
I know that those words were spoken in a different context but they apply every bit as much to Britain’s strong national interest in the success of our European partners’ latest package of decisions. I welcome the fact that the Prime Minister and the Chancellor have made our national interest in that emphatically clear. I wish only that I thought that their Back-Benchers were listening to them but there is little sign of that, including, I notice, in this House.
I confess I was a little puzzled—indeed, baffled—by the elaborate detail which the Chancellor’s Statement of 27 October on the European Council went into in trying to block hypothetical ways in which the IMF might be involved in supporting the European package of decisions. It is surely rather unwise to express such firm views on ideas which have not yet even seen the light of day. Should we really be trying to tie the managing director’s hands? I thought we were enthusiastically in favour of her appointment. Do we have no confidence that she will act in all respects within the powers that she has? I fear that the suspicion crosses my mind that that cold shower of disapproval directed towards the IMF was merely offered to placate the critics on the Benches behind the Chancellor. I hope that I was wrong and that the Minister can say a little in a positive turn today about how the rest of the international community, including this country and the IMF, can help the eurozone countries achieve their objectives.
That thought brings me to the role in all this of the single market. Far too often the single market is portrayed as a kind of alternative to the policies being pursued by the eurozone countries. That is surely wrong. If you look at the prescriptions being given by the Commission, the European Central Bank and IMF to the countries being bailed out—Greece, Portugal and Ireland—and the advice being given ever more forcefully to Spain and Italy, those prescriptions and that advice are replete with issues which are at the heart of the single market programme, which is at yet incomplete, such as removing restrictive practices in the professions, breaking up state monopolies or quasi-monopolies and freeing up labour markets. All 27 member states together need, if they are to compete effectively with the great emerging countries—China, Brazil, India and others—to complete the single market measures in the fields of services and energy. Only thus will they achieve the sort of growth and competitiveness that will enable the whole of Europe to hold its own in the new multipolar world. It is often said that whenever the eurozone’s problems are discussed there is a need for “more Europe”. What should equally be being said is that there is a need for “more single market”.
That approach will not be everyone’s cup of tea. There are plenty of voices being raised calling for more protection and deglobalisation—an appalling phrase. Just look at the recent debates within the French Socialist Party. If we are to carry the EU with us, we must engage that discussion now and try to lead it. We must do so in a credibly positive spirit. It is no good proposing an à la carte single market with each country applying only the bits it likes. That will lead to 27 policies and no single market at all. That is why the whole repatriation debate is not only a futile displacement activity but actually inimical to the achievement of Britain’s and Europe’s objectives.
However, we will need more than just warm words if such a positive approach is to be seen by our partners as a credible contribution to supporting Europe’s financial stability. That is why I would like to hear from the noble Lord again some response about the euro-plus pact and the possibility, particularly if it could be renamed, of us being associated with it. I hope he will say something when he winds up.
In conclusion I have a point of tactics. We are in some cases going to have to say a firm “no” to ideas coming forward in Brussels. In my view the proposed financial transaction tax is one such. I cannot anyway for the life of me see how such a tax, at least if it is not applied worldwide, could possibly contribute to Europe’s financial stability and growth. However, if our “noes” are not to be seen as single wrecking manoeuvres, we are going to need to have a wider positive agenda to accompany them.
Earl Attlee
My Lords, we are doing quite well on time but noble Lords need to be very careful. Otherwise we will run out of time if we overshoot—even 30 seconds on each speech will make a difference.
The Lord Bishop of Bath and Wells
My Lords, I am grateful too to the noble Lord, Lord Newby, for initiating this timely debate and inviting this House to look more broadly at the pressing question of financial stability and economic growth in the European Union.
Constraining public spending and securing financial stability can be only part of the equation. Europe also needs to embrace structural reform of its economic model to encourage growth. This means tackling the imbalances that currently exist within Europe and, unless we do so, we are likely to see a damaging outbreak of protectionism across Europe.
European economies for the most part are shrinking while unemployment is rising, in some cases alarmingly so. Austerity measures introduced in response to the financial crisis are biting. The soaring rate of interest on the sovereign debt of some countries underlines the worry that much of the existing debt, even if partly written off, is unaffordable.
Our public and political debate is understandably fixed on the latest saga in the eurozone. However, are we conveniently overlooking the pressing question of where growth will come from? This is not just a eurozone problem but one for the whole of Europe. A stable euro requires more balanced trade and growth among its members. The prevailing economic orthodoxy holds that tough austerity and structural reform will ultimately lead to growth. The past two years may suggest that this orthodoxy is wanting.
Economists will of course point out examples of fiscal austerity preceding economic growth but they all include currency devaluation and/or big cuts in interest rates. Neither option is open to the eurozone economies. It is hardly surprising therefore that household and business confidence is rapidly crumbling across the currency union, depressing economic activity across Europe as a whole. On current trends a series of sovereign and banking defaults looks unavoidable.
A crisis that started on Europe’s periphery has been allowed to grow into a threat to the core of the eurozone and the future of the European project itself. Measures taken across Europe appear to invite economic stagnation and political dislocation, the effects of which can be seen on even the marbled steps of St Paul’s.
There are of course dissenting voices to this orthodoxy. Some talk of a Marshall Plan for Greece to stimulate investment in infrastructure and solar power. In Brussels, the European Commission is working on schemes to speed up the disbursement of the European Union regional aid funds to foster growth in the southern countries and, if last year’s report on the single market drawn up by the former Commissioner Mario Monti to liberalise services and the digital economy had been implemented, Europe’s growth might have increased. However, at the moment too little is being done to boost growth across Europe.
The question of Europe’s competitiveness predates the current crisis affecting the eurozone and is in many ways one of its underlying causes. For decades Europe has grown more slowly than other continents. However, there are remedies. These were set out and agreed in the Lisbon agenda of 2000 and the Commission’s recent European Union 2020 programme. What are we to make today of the statement that Europe should be,
“the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion and respect for the environment”?
European Governments have always found it easier to sell the promise of this agenda than its content. Populism, nationalism and Euro-scepticism are on the rise. Even if Europe’s politicians can agree the right policies to establish and to stabilise Europe’s finances and stimulate economic growth, there is no guarantee that public opinion will be sufficiently benevolent to allow them to carry them out.
One of the greatest achievements of the European Union has been to scrap non-tariff barriers. The biggest danger, however, is that the euro crisis will lead to a two-speed Europe that fractures the single market. We need to be wary that the new bailout mechanisms agreed at last week’s euro summit do not sideline either the European Commission or the European Parliament. A flawed single market that encourages protectionist measures cannot be either in Britain’s best interests or in those of Europe. A more protectionist Europe will result in slower growth, thus fuelling the electoral fortunes of populist parties. A more fractured single market will see Britain disengage yet further from Europe, a retrograde step in the hard fought fight towards peace and prosperity for our region.
Lord Marlesford
My Lords, I want to suggest a specific course of action in the debt crisis, but let me first put it in an abstract context. The result of increasing the size of a rescue fund is that it creates both a precedent and the expectation that it will be increased again—or, as the jargon has it, a moral hazard. And if that rescue fund is based on a central bank, which by definition cannot go bust in the way that other banks can because it can turn on the printing press, that can have only one of two consequences: either in an extreme case it will feed through to inflation, if you believe as I do that inflation is a monetary phenomenon; or you may be able to achieve such a rapid rate of growth that the inflation is absorbed and subsumed in a gradual but slow drift upwards of prices at a lower rate than the nominal rate of growth.
Last week the European Financial Stability Facility rescue fund was increased from its original level in May 2010 of €440 billion to a potential €1 trillion, and there is already talk of it being necessary to raise it to €2 trillion or even €3 trillion, larger than the GDP of Germany. Then remember that the world tends to be divided between those who save and those who borrow. The inclination of borrowers is, as the old advertising slogan has it, “take the waiting out of wanting”. There is normally, however, a fear of having to repay loans. If a debt is forgiven or partly forgiven by the lender, then there is sometimes the irresistible temptation—indeed, the clear message—to borrow more. This is made even more tempting if the lender apparently has an unlimited supply of funds.
Now we have Greece, which has been offered a bailout apparently with no enforceable strings attached. That way lies contagion and thus a further crisis. I believe that Greece should be required to leave the euro area but certainly be allowed to remain inside the EU. Greece will then have the opportunity of deciding whether to invent a Mickey Mouse currency, which it might choose to call the drachma, or to continue to use the euro. Greece outside the euro area will have no borrowing capacity underwritten by the European Central Bank. If it reinvents the drachma no one will take that currency seriously. Remember that the three classical functions of a currency are as a store of value, as a unit of account and as a medium of exchange. A reinvented drachma is unlikely to have any of those. If Greece continues to use the euro it will be in the same position as any of us. It will only get the number of euros that it can earn by selling its goods and services. Greece will have to devalue, which in this case would mean cutting pay and prices from previous euro levels. Without help, in the short run it will not be strong enough to survive the political pressures this would cause.
I am so glad that the noble Lord, Lord Hannay, drew attention to the important role of the International Monetary Fund in all this. I totally agree with him. In fact, I would propose that Greece should become a ward of the IMF. The IMF, which of course cannot print money, will dole out to Greece such sums as it has provided over the decades to other economic basket cases to prevent them becoming failed states. There are plenty of precedents for countries in crisis using a currency other than their own. Yugoslavia, after Tito died, used the deutschmark, and various South American countries have from time to time used the US dollar.
The other advantage of what I propose is that other countries will not wish to leave the euro area and will therefore have a real incentive to accept the necessary tough political decisions in order to avoid a default that would have that consequence. First in line would be Italy. Germany, with 27 per cent of the euro area GDP, is big enough to absorb all the debts of Greece, which has only 3 per cent of the euro area GDP. Italy, of course, represents 17 per cent of the euro area GDP and is therefore too big for Germany to swallow. That is why Greece should be treated in the way I am proposing, but I would say straightaway that Greece is historically and culturally central to Europe, and I would hope that in due course, if these disciplines were used, it would come fully back into the European family.
Lord Giddens
My Lords, I also congratulate the noble Lord, Lord Newby, on initiating this debate on such a momentous topic. The Government rightly recognise that it is in the UK’s interest to achieve stability in the eurozone and, moreover, that this presumes much greater fiscal integration than has been true in the past. Some speak blithely of the euro collapsing, but that would cause social and political as well as economic chaos. I fully agree with the remarks of Germany’s Chancellor Merkel about the dangers of such an event, which must be prevented.
However, I will talk primarily about economic growth and job creation, on the premise that it is no good just preaching austerity, even to beleaguered Greece. We have to provide some kind of message of hope. We have to think in the long term, not just the short term. This has to be coupled to practical plans for investment and renewal. Where will new net jobs come from?
In approaching this question it is important to recognise, as the right reverend Prelate hinted, that the travails of the eurozone and—to some extent—the rest of Europe do not come just from the problems of the euro but from a failure to implement the Lisbon agenda. To put it more precisely, the Lisbon agenda was implemented only partially and regionally within Europe. Some countries, such as the Scandinavian countries, the Netherlands, Germany and to some extent the UK, followed some of the prime suppositions of the Lisbon agenda and are in a superior economic situation to other countries largely situated in the south, such as Spain, Portugal, Italy and Greece, which did not reform. Instead they borrowed and these borrowings have conjoined with the debt in the banking system to generate the extent of the crisis that we see now.
What policy should the Government support to promote growth and job creation in Europe? As I said, to do this one has to think beyond the current crisis. I will mention four main elements. They are not exactly the same ones as the noble Lord, Lord Newby, mentioned.
First, it is possible to promote the return of manufacture to Europe. I ask the Government to pay attention to the really interesting debate on reshoring—the opposite of off-shoring—that is going on in the United States. It is quite a technical debate and the issues are complicated; there is not a simple map that comes from it, but it is important. Many companies suffer from disruptions to their supply chains. Wages in China and India in core manufacturing sectors are rising rapidly. It looks as if it might be possible to recreate manufacture in certain core sectors in some industrial countries, including European ones. It is important to recognise that Europe is strong in manufacture—and not just Germany. For example, even Spain has a higher ratio of manufacturing output per person than the United States. The reshoring debate suggests that if you want to promote manufacture it should be done not only in high-tech, cutting-edge areas. It may be possible to build on established strengths. This is a different orientation from the past.
Secondly, as noble Lords have said, we have to complete the service directive and increase competitiveness in service industries within the single market. I work in higher education, where we are well behind on the possibility of standardisation which would promote mobility of labour. Thirdly—we do have to do that. To have a flexible, competitive economy, you must have mobility of labour. How does that sit with the Government’s strictures on immigration? Of course, movement of European citizens is not technically the same as immigration but mobility of labour is crucial to competitiveness. It is one of the main areas where Europe finds it hard to compete with the United States.
Fourthly, and finally, we have to concentrate on quality of growth and not just on quantity. This means two things, the first of which is distributional. What is the use of growth that only goes to 1 per cent of the population? Not much. It also means an environmental thing. Europe could be in a highly competitive position vis-à-vis the United States or China, neither of which provide a sustainable, environmental model out of which job creation can come. I would welcome the Minister’s comments on any or all of those points.
Lord Teverson
My Lords, I welcome this debate as well. The crux of it is the Government’s and the United Kingdom’s ability to help financial stability and growth in Europe. That is a natural role for us because the United Kingdom is self-evidently part of Europe. We are part of it geographically and economically—as has already been described in the debate—and, absolutely, culturally. I was thinking about this area in particular. Contrast with this country the Obama healthcare reforms in the United States and how they have been received by the media culturally, and all the difficulties that that has caused in terms of ideas of socialism—and that is moving nowhere near to universal healthcare. Here, we have a health Bill going through where even what are seen as contentious propositions guarantee universal delivery, free at the point of need, and competition but not price competition. It shows that there is a big gulf culturally with the Atlantic, and that Britain is very much a European-style nation in the way that it looks at a number of things.
The only way that Britain can contribute towards that economic and financial stability is if it is able to have and promote that influence. My noble friend Lord Newby has already talked about some of that, but I want to emphasise it in the financial regulation area, which is part of the debate. I fully understand why the Financial Services Authority has to be abolished in that it was seen to fail very strongly in its strategic prudential regulation over the last few years. However, there is concern that, in its division into the financial conduct authority and the prudential authority, we could lose our single voice within the new economic and financial structures—in Brussels, the ESMA and the banking authority. I am sure the Minister is also concerned about that area as a high priority. I would be interested to hear the Government’s view.
The other area I mention is the one my noble friend Lord Newby raised, which is parliamentary influence. In the last European elections, I would say there were two major winners. One was the Conservative Party. Out of our 72 seats on an assembly of some 730 Members, 26 Conservatives were elected, 13 UKIP Members—a great result for UKIP—with Labour equal on 13, and the Liberal Democrats slightly below with 11. Yet in the European Parliament itself, which post-Lisbon has very literally equal powers with the Council of Ministers in terms of legislation and therefore British interests, the European People's Party dominates in terms of numbers with more than 200 Members—it is the largest party—with the Socialist Group below that at 184, and then the liberal group well below that at 84. Those are the three parties with real control. As in this Parliament and any other Parliament, in the European Parliament—unless one is in the point of balance—power depends on numbers. That is where influence is. I greatly regret that my coalition partners in Europe are in a group that is roughly equal with the Greens, and has absolutely no influence in the power structure of that Parliament at all. I would love to see it change. We have to keep that influence in Europe to ensure the stability that we are looking at there.
The IMF has been mentioned. I was not going to talk about the IMF loans particularly in this debate, but I will spend my last minute on a short excursion on that. I went to New England for the first time this summer, though I have been to the United States many times. I went to New Hampshire and, being a bit of an anorak and an economics student, I noticed that Bretton Woods, which is a minute settlement at the top of New Hampshire, was within striking range. I made my own pilgrimage to the Bretton Woods Washington hotel. Give it its credit: it still has the pictures there of John Maynard Keynes and the other people who came together to put together the post-war financial system. That system—the IMF side of it—has largely survived. It would be a great regret, as that change and that strategy was largely led by Britain, if we were not a participant in carrying forward those obligations.
We have a great role in Europe. Ironically, during the Delors/Thatcher time we pushed Europe forward more than has been done over the last few decades. We must, in this country, make sure that that momentum continues. We must not be marginalised.
Lord Bilimoria
My Lords, last week, the German Chancellor Angela Merkel warned us that if the euro falls there will be war in Europe. As the noble Lord, Lord Giddens, said, the repercussions would be catastrophic. There is no question that, after World War II, the European Union has been fundamental in preventing conflict among the EU states over the past six decades. In terms of economic stability and growth in the good times, the EU has been fantastic. But underlying the whole concept of the European Union is the question of where you draw the line. How far is too far? We have benefited from a zone of free people and goods, and that is fantastic. I am all for it, and I thank the noble Lord, Lord Newby, for initiating this debate. As he said, almost 50 per cent of our trade is with European Union countries. But one of the best decisions this country made was not to join the euro. In the good times, the euro has been very good. In the bad times, as we have seen, the failure is terrible.
It is illogical to expect that you have the same currency and interest rates for countries that are never—ever—going to be in sync at any one time. How can you have that? Look at Germany at the one extreme and Greece at the other, let alone governance of these countries. How can the Chancellor, George Osborne, possibly suggest increased fiscal integration among the eurozone countries? I cannot see how that can work. Increased fiscal integration is dependent on political and emotional integration, and a buy-in by all the citizens of each country. The last person to achieve integration in Europe was the Emperor Charlemagne in the eighth century. On the other hand, in a country like India where you have a truly federal state, you can have full integration—and the states in India are far more diverse than the countries in Europe. Then you can have a central government. However, in Europe, fiscal integration without political or emotional integration is a pipe dream. It has not happened in 60 years, and it is not going to happen.
Therefore, we have got to accept that the euro was a step too far. Our forays into political integration with the European Union have resulted in a system in which we have MEPs who have absolutely no connection with their constituents, who in turn have no idea who they are. There are constant complaints in our country about the bureaucracy and red tape that come out of Brussels, particular in the areas of business and employment law.
I have spoken before about the domino effect that has taken place in the past five years: of the sub-prime crisis leading to the credit crunch, leading to the financial crisis, leading to the great recession, leading to the sovereign debt crisis, and leading to the eurozone crisis. We are at a very precarious time in history. The people who say that Greece merely represents 0.5 per cent of the world's economy, or 3 per cent of the eurozone, miss the point: it only takes half a spark to start a whole fire.
What are the Government's plans to deal with the possible disintegration of the euro and the eurozone? The Government refuse to have a plan B where the economy is concerned, but I credit them for having sent out the right signals to the global financial markets by showing that we are willing to cut our GDP/public expenditure from 50 per cent to 40 per cent. That is good, but what are the plans for a euro-disaster scenario?
Does the Minister agree that Britain should take a leadership role to resolve this disaster that lies ahead of us? Bailing out Greece—and other countries; we have heard about Italy, with €1.9 trillion of debt—the measures have gone from a sticking plaster to a bandage last week, and now Greece has admitted itself into the operating theatre. We are only prolonging the inevitable. Can Britain play a leadership role with this doomsday scenario possibly taking place, rather than being told by President Sarkozy to stay out of it? Why does it take the noble Lord, Lord Wolfson, to offer a prize for a solution to a country disengaging from the euro? Does that mean that the Government do not know how this should happen? In my role as the president of the UK India Business Council, I always say that we are so perfectly positioned as a gateway to Europe.
What are the Government doing to deal with the negative impact of hedge funds and people taking advantage of credit default swaps, accentuating the downward spiral scenario? Everyone talks about the ECB saving Europe but look at the EFSF, which has not even been able to raise €3 billion out of the €1 trillion it is meant to. Gary Jenkins of Evolution Securities put it really well when he said:
“The vehicle that's supposed to borrow on behalf of the countries that can't borrow, can't borrow”.
With regards to a referendum, the question should be not about whether we are in or out of Europe, but about how countries are in Europe and on what terms. Under the worst of circumstances, where the eurozone could disintegrate, we now have an opportunity to redraw almost from scratch what the European Union should be: a union of countries with democratic principles, with a rule of law and with shared values. Then we will have a European Union with peace, stability and growth.
Lord Flight
My Lords, I congratulate the noble Lord, Lord Newby, on bringing forward this debate at such an appropriate time, and I compliment the noble Lord, Lord Bilimoria, on raising some of the really grave aspects of this crisis.
The first point I want to make is that it is no good tinkering around the edges. It is necessary to understand the cause of the eurozone financial and government debt crisis. It is blindingly obvious. If very disparate economies such as those of southern and northern Europe share a currency for political reasons but they are in no way homogenous, and the south has become 35 per cent uncompetitive against the highly efficient north, it is not surprising that the southern economies are in trouble. Their economies are dead in the water; their government debt and borrowing go up.
Secondly, it is not surprising that the markets in the rest of the world do not want to buy Spanish and Italian debts. The prospect is that these economies will not recover without significant devaluation one way or the other. So who is going to buy their bonds when there is the fear, if not the threat, that sooner or later there will be substantial losses as a result of devaluation? The fundamental problem has to be looked at and addressed.
There have been comments about the fiscal union route of dealing with this. Indeed, there is truth in the principle that, if you are going to share a currency, you need to have common economic and fiscal policies. However, I really do not think that is the solution. I will go through some of the ingredients. Euro bonds are okay, but Germany effectively underwrites whatever proportion of the debts of Italy and Spain it is responsible for. Not surprisingly, Germany is not very keen to do that.
The second, more traditional way is to make transfer payments from the more prosperous areas to the less prosperous areas. In America, transfer payments amount to 30 per cent of federal tax revenues. Even in the UK, in our little common currency area, they are £70 billion or £80 billion of public spending. The problem with the sort of transfer payments that would be required from Germany to southern Europe is that they could be of the order of a third of Germany’s GDP. Anyone who thinks that Germany is going to consider such amounts is mad. Just supporting the former East Germany depressed its economy for 15 years. The German answer is to say, “Right, effect an internal devaluation”. That is fine, but does anyone think it politically practical that Italy and Spain are going to effect internal devaluations of 35 per cent by slashing pay, employment and benefits? Even if they could do it, the result would be a winding-down of their economies, increasing their deficits even further. Candidly, I do not think that the standard route of transfer payments that America and Britain have used offers very much. Transfer payments have had the effect in America and Britain of locking in dependent and rather failed economic areas. The Deep South of America was a failed economic area for 100 years after the Civil War, when it was stuck with the currency of the north.
Finally, as others have said, the whole political objective of the EU was to get rid of nationalism, and what do we see? We see southern Europe starting to get very resentful about being bossed around by Germany, as it sees it, and Germany starting to get extremely uncomfortable about being able to pay for things. This is hardly good news for good relations.
I would like to throw on to the Floor the idea that the only workable solution is for the euro to divide into a hard currency for northern Europe and a soft currency for southern Europe. It would be easy to achieve, but I believe I know how it could be achieved. I think that it would be workable because there is a commonality of economic characteristics between the northern countries and the southern ones. I think that if the eurozone turns its back on this in the present climate, it will miss a huge opportunity to stop chaos.
Lord Harrison
My Lords, in thanking the noble Lord, Lord Newby, for so cogently introducing this debate, I don my hat as chair of the sub-committee of your Lordships EU Select Committee which concerns itself with economic and financial affairs and trade. We are dealing with a number of reports on financial stability. We look forward to the noble Lord, Lord Sassoon, responding to our report on sovereign credit rating agencies and a further report on the new EU financial supervisory framework under three new EU supervisory authorities. Our current inquiry is looking at how a single mortgage market might be established throughout the European Union. A future inquiry will look at the topical financial transactions tax. Among our regular scrutiny items are the EU prudential regime and the reaction to Basle III and CRD4.
However, the most important reports that we have produced recently, in March this year, was on the future of economic governance in the EU and the euro. We are now producing a follow-up report, which involved interviewing Sharon Bowles, the excellent chair of the European Parliament’s Economics Committee, and the German Ambassador Boomgaarden. On a cultural point, the ambassador spoke absolutely fluent English and showed a grasp of British history that I do not think any British spokesman or politician could match if they were to address a German crowd in such a way.
In considering the future of economic governance in the EU, we looked at the Commission’s proposals for the so-called “six pack” in achieving enhanced economic co-ordination. We think that it is going in the right direction. We believe it is essential that the political authorities of the EU take that seriously and abide by the rules. That is even more true of the situation now than it was when we first published our report in March. The UK has a strong interest in seeing the euro area stable and prosperous. The European Stability Mechanism, which in 2013 will take over the tasks carried out by the EFSM and the EFSF, will be compulsory only for members of the euro area. However, we recognise that it might be in the UK’s interest to contribute to rescue packages for member states in difficulties, as happened with Ireland. Our follow-up inquiry looks at what fiscal union might look like and includes a consideration of euro bonds, the implications for the European Union and the UK of the Greek default and the write-downs of Greek debt, the role of the EFSF, the case for recapitalisation of European banks and the position of United Kingdom banks.
I doff my chairman’s hat and return to the other side of this matter—the growth aspects. I rebut the notion of the noble Baroness, Lady Noakes, that our interest is different from that of the European Union. The two interests may well coincide. I encourage the Government to stop deluding others regarding some of the good work that they do. We should not disguise the fact that we had a self-interest in helping out Ireland. When we contribute to the IMF fund, we should not say—as the Chancellor did—that we are just one of 80 countries that have done so. We have a purpose in supporting the IMF and we may need to do the same with the ESM in the future.
The noble Lord, Lord Newby, spoke of the problem that will emerge for us if we find that more and more of the European Union 27 member states join the euro, as they are destined to do. Three countries in the western Balkans already attach themselves to the euro. We may be like the children at birthday parties in the Harrison household who always wanted a place at the bottom of the table, away from where all the adults sat. We may end up at that table, supping with a couple of others who are excluded from the adult conversation taking place higher up the table.
Finally, the secret to growth—I was interested to hear the comments of the noble Lord, Lord Giddens, in this respect—is the single market. In this we can find a political consensus. As the noble Lord, Lord Hannay, has illustrated, if we secure the single market it will bring the prosperity, growth and jobs which we can all enjoy.
Lord Shipley
My Lords, I join with others in thanking my noble friend Lord Newby for initiating this debate. My view is that a demand for a referendum on membership of the European Union was an unnecessary diversion. It was misguided and mistimed. Referendums are not flavour of the month and would simply have added to instability across Europe and the eurozone. However, Europe and the eurozone are often seen by the general public as the same thing, so I think that the reasons for our being in the European Union need much stronger explanation.
Being part of a single market is central to jobs. The UK has 500 million consumers in that single market. Ten per cent of our jobs in the UK—3.5 million jobs—rely on that single market. We export strongly to it. My own region, the north-east of England, is the only region in the UK to have a positive balance of payments, and we have it largely because of exports to the EU. We also have across the UK non-EU foreign direct investment which has come here because we are in a single market. The case for leaving the EU and imagining that growth would follow from being outside it is very badly put. It would be economic madness to withdraw from the EU, and it would cause a major rise in unemployment. Of course, collapse of the euro would devastate jobs, too, and so we have a responsibility outside the eurozone for helping to solve the eurozone crisis. It is central to what our Government should be doing because it is in our national interest so to do. But we have to be very careful.
I agree entirely with what the noble Lord, Lord McFall, said about institutions, particularly democratic institutions, needing to give hope to the people that they represent. We have to be seen to be capable of resolving the problems in the eurozone. I want to draw two things from what the noble Lord, Lord McFall, said, which, broadly speaking, was similar to something I wanted to say myself. The first relates to youth unemployment. It is untenable for youth unemployment across Europe to stand at 21 per cent. It is 21 per cent in the UK but in Spain it has hit 46 per cent. Our 21 per cent is almost a million young people and it is simply too high. Secondly, we have to learn more from Germany because its comparative stability and growth can set an example for other countries, not least ourselves. Germany’s organisation, partly through the Mittelstand but also generally through communications and systems involving employers, the education system, trade unions, and so on, has led to a highly integrated system based on long-term planning as opposed to short-term gain.
I find it quite astonishing that, despite the billions of pounds that have been spent in the UK on education and training, we still have a major skills gap. Unemployment in the north-east of England runs at 11 per cent at the moment, twice the level of the south-east of England. And yet a quarter of the north-east’s manufacturing, engineering and processing companies cannot find enough skilled workers. I welcome every initiative we can take to recreate a desire in young people to learn vocational skills around technology and engineering. For that reason I welcome university technical colleges, places where people learn skills to do real jobs. One has just been announced recently in Newcastle upon Tyne. I am very grateful for the work of my noble friend Lord Baker in supporting this initiative.
It is fundamentally important that to compete in the modern world our young people have to have the skills with which to do it. The skills gap that we have would not happen in Germany. A week ago the CBI issued a report urging the Government and the City to concentrate support on the forgotten army of middle-sized companies of up to £100 million turnover a year with up to 500 employees. I hope that we can learn from that.
My final point is a question to the Minister about the European Globalisation Adjustment Fund to which he may be able to reply. I understand that the UK has never applied to the fund but that it is likely to be extended to December 2013. Will the United Kingdom support that extension? It might be necessary.
Lord Pearson of Rannoch
My Lords, I welcome the debate, if only because it allows me to point out why no British Government can do anything useful to support either financial stability or economic growth in the European Union. At root this is because the big idea that gave birth to the whole project of European integration has failed. The longer the political class tries to prop it up the more painful the result will be to the peoples of Europe.
Let me remind your Lordships once again what that big idea was. It was that the national democracies of Europe had been responsible for two world wars. They therefore had to be emasculated and diluted into a new form of supranational government run by technocrats, with their national Governments and Parliaments largely powerless. The euro, about which we hear so much today but which is not the deeper point, was never an economic project. It was supposed to be the cement that would hold the emerging corporatist state together. Those who designed it in the 1980s knew perfectly well that a currency zone cannot survive for long without a federal budget and without the ability to tax and send money from richer and poorer parts of the zone. Anyone who doubts this should read that great book by Mr Bernard Connolly, The Rotten Heart of Europe.
So the euro was to complete the project of European integration by handing the essential power of taxation to Brussels. All the other powers would have been put in place by a sly and a steady succession of treaty changes ending with the grand, overriding constitution which has come to be known, thanks to the French and Dutch people who turned it down in referendums, as the Lisbon treaty. Now, all according to plan, a British Government have some 8 per cent of the votes in the secret law-making process in Brussels, which interferes in almost every aspect of our daily lives—a process in which your Lordships’ House and the House of Commons are entirely irrelevant. The more the people understand this, the less they like it.
That, very briefly, is why I say there is not much any British Government can do about financial stability or economic growth in the European Union. But there are deeper reasons, even further beyond the reach of any British Government. As to financial stability, in the time available it is perhaps best to let events caused by the euro speak for themselves. It remains to be seen whether the people of first Greece and then elsewhere will go along with the austerity required by the grand euro plan that has been imposed on them without their informed consent. In the mean time, I hope that I can be forgiven for saying: some cement, this euro.
As to economic growth, the position is equally hopeless. Here I draw your Lordships’ attention to a short new publication from Civitas called Time To Say No, written by my colleague at Global Britain, Mr Ian Milne, with a foreword by the noble Lord, Lord Vinson, of Roddam Dene. It draws heavily on a number of Mr Milne’s one-page briefing notes to be found at Global Britain.org, which are a very underused resource in our national debate about the facts of our EU membership—particularly the economic facts. I have time now to draw your Lordships’ attention to only a few. Briefing note number 69 is entitled, “The Coming EU Demographic Winter”. Between now and 2050 the USA will gain some 36 million in working-age population while the EU will lose 55 million or 16 per cent. The UK will go against that trend, increasing our working age population by 3 million or 7 per cent. This scleroticism, or whatever you want to call it, is guaranteed by the European Union’s incurable propensity to overregulate, thus dragging all its economies down in the face of rising competition elsewhere in the world. As the world’s fourth largest exporter, this hits us particularly hard.
The booklet also explains how customs unions have become redundant; how our trade, both ways, with the EU has been declining for some time while expanding with the rest of the world; and why you do not need to be part of the single market to export to it, underlined by the fact that Switzerland exports three times more per capita to the EU than we do and Norway five times.
In conclusion, if this debate does nothing else, I hope it will stop the Government and Europhiles constantly pretending that we need to stay in the EU in order to maintain our exports to clients in it and the jobs that depend on them. If the Minister does not want to take my word for this, Channel 4’s “Fact Check” section on 1 November reveals that the academics who originally found that 3 million of our jobs depend on the sale of goods and services to clients in the EU have never said that any of these would be lost if we left the EU. Of course they would not, and the sooner we do it, the better.
Lord Haskel
My Lords, during the referendum debate on 24 October in another place, at col. 60, one honourable Member—a Conservative colleague of the noble Baroness, Lady Noakes—asked why Members were worried about seeking a better deal with the EU. If we did, he said, the French would still sell us their wine, the Germans would still sell us their cars. Do noble Lords opposite really think that this is why we are in the EU, so that we can drive around in Mercedes cars and drink fine French wines?
My concern is that if we are not in the EU, the French will stop buying our avionics, the Germans our pharmaceuticals and both will stop buying our insurance. As other noble Lords have pointed out, half of our trade is with the EU. If we are not in the EU, will the French and Germans invest in the new power plants that we so desperately need, and will Asian investors restart our steel plants and invest in our car factories? Of course not, as the noble Lord, Lord Shipley, explained. It is outrageous to risk all of these actual jobs and investments with some kind of imaginary option which probably does not exist in reality.
The opposite is true: we should be taking even more advantage of our association, and the timing is right. With a weak pound, rising prices in Asia and supply chain problems, the word near-shoring is beginning to be heard, as my noble friend Lord Giddens told us, not for cheap goods but for better-quality good, branded products and advanced technology. As the noble Lord, Lord Newby, explained in his opening remarks, this is a time of turmoil in the eurozone, but as ever in business, that is the time to invest in the spadework, as my noble friend Lord McFall explained.
Is it that the Government see devaluation as the route to our future, and if so, for how long? The pound has devalued by 30 per cent against the euro in the last five years and surely this devaluation is one reason for the high inflation we have now. It is the less well-off who pick up the tab for this strategy. If we are to seek economic growth within the EU it must be more for the excellence of our business, and less through devaluation.
So, with devaluation less of an option, how do we encourage economic growth? The Government want to achieve it by returning powers from Brussels—repatriation, as the noble Lord, Lord Hannay, put it. So, what are these powers? It seems to me that they deal with the way in which we run our businesses: terms of employment, labour relations, regulation. The theory is that we can compete better with a more flexible labour market and less regulation. This argument has been around for years—long enough for us to judge whether or not it is true. I put to the Minister that in practice the argument no longer stands up. So-called flexibility does not create more value. That is why a lot of businesses have moved on. They are putting into practice the social values that help create the motivation and commitment that are acceptable to the markets and to people, and which make their businesses more trusted and create longer-term value for all. Withdrawal of powers will not make us more competitive.
I will say one more thing—this time to the noble Lord, Lord Pearson. The big idea has not failed. For my generation the EU is more than economics. It is peace instead of war, as the noble Lord, Lord Bilimoria, said; it is shared prosperity instead of social divisions; it is mutual support in an interdependent world. Europe is certainly far more than the pleasures of driving a Mercedes car or drinking fine Bordeaux wine.
Lord Liddle
My Lords, as many noble Lords have said, the noble Lord, Lord Newby, was very timely in choosing the topic for debate today. I agreed with virtually everything he said in his speech, although for the sake of the record I ought to say that I disagreed with his description of the previous Labour Government as an awkward partner in Europe. He should go to Brussels and ask what people today think of the coalition. We should remember the influence the previous Labour Government had over the Lisbon strategy, European defence and climate change policy. There were three new treaties. We greatly increased British influence in Europe. Our problem was that we did not make a strong enough case for Europe in Britain. This is what we now have to do.
The central issue in the debate is how Britain should keep its place among the adults, as my noble friend Lord Harrison said, at the European dining table. Some people think that Europe is irrelevant. The noble Baroness, Lady Noakes, is among those who think that the single market is relatively unimportant. For the noble Lord, Lord Pearson of Rannoch, it is a complete waste of time. I will give one example of something good that the Government did this week in my home town of Carlisle. They gave a grant to Pirelli tyres, which employs 1,500 people in Carlisle, to develop innovation in new tyres. Why is Pirelli in Carlisle? Because it gives access to the European single market. People such as the noble Lord, Lord Pearson of Rannoch, would destroy those jobs.
Lord Liddle
I am not giving way. The single market is a difficult bargain. The Government say that they want to promote it, but when a lot of people are worried about its social effects, how will they be effective in promoting it at the same time as they are trying to withdraw the United Kingdom from our social and employment obligations? This is a fundamental issue for the coalition and a fundamental contradiction in its policy.
I agree with right reverend Prelate the Bishop of Bath and Wells and with other noble Lords who said that the single market in itself is not enough. We need a European plan for growth. It is not difficult to put that together. Hundreds of millions of pounds lie unused in structural funds, many in the United Kingdom. What will the Minister do about that? The European Investment Bank already does far more to support small businesses in Britain than anything the British Government do. We could expand that role very considerably.
Several noble Lords have said they think devaluation is needed as part of growth. May I draw their attention to an article in this morning’s Financial Times? Its respected economics editor, Mr Chris Giles, points to some striking figures, comparing the net trade contribution to GDP since 2008 for the UK and Spain, both hit badly by the banking crisis. For the UK, with 30 per cent devaluation, trade has improved our GDP by 2.5 per cent; for Spain, stuck in the eurozone single currency, its trade contribution to GDP has improved by 6.3 per cent. Devaluation is not the cure.
I said that this debate was timely and serious. It really is serious, because as the eurozone hovers on the brink of an existential crisis, we should recall the words of the German Chancellor Angela Merkel, that if the euro fails, Europe fails. For Germany, that would be unthinkable. Such an outcome should be unthinkable for the United Kingdom, too.
Let us recall that the euro was not conceived as a foolish political venture that took priority over the single market, as some noble Lords appear to think. Instead, it was the only practical means to sustain the single market once capital movements were liberalised under the 1992 programme that was so strongly advocated by the Government of the noble Baroness, Lady Thatcher. Free capital movement made it impossible to continue with the system of managed exchange rates under the ERM. At the end of the 1980s, Europe faced a simple choice between reverting to free-floating exchange rates, which risked competitive devaluations and a return to protectionism—destroying the single market in its wake—or going for a single currency. Europe chose the single currency.
The noble Lord, Lord Teverson, mentioned Bretton Woods, where Keynes’s essential argument was that free trade and open markets are far more important to economic dynamism than flexible exchange rates; and it is very difficult to have both at the same time. That is why the present situation is such a threat to Britain’s vital interests. Let us not kid ourselves: if the euro fails, we will not see a return to the status quo ante. I do not agree on this point with the argument of the noble Lord, Lord Bilimoria, for whom I have the most wonderful respect and admiration. The likelihood is that if the euro broke up, the single market would break up as well, in a new Europe of competing currencies. Member states would take protectionist measures against each other to prevent what they see as unfair competition.
For Britain, which conducts so much of its trade and which has so much investment dependant on the single market, this would truly be an economic catastrophe. It would not be just an economic catastrophe. The collapse of the euro would, as Mrs Merkel said, put the European Union itself at risk. I believe that the single market is the foundation stone of the European Union and, as I have argued, the euro is its essential cement. Pull that away and in place of the remarkable unity that we have seen in Europe since the Second World War, we retreat to a Europe of fractious nation states.
This is what it would be: we in Europe decide to become Westphalian pygmies at the moment that Brazil, India and China become globalisation giants. What hope would there be for our ability to promote the values that we share, with Europe and not with the United States, to back international development, reduce world poverty, tackle climate change, advance democracy and human rights and help to solve the problem of failing states? What would happen then in that disastrous situation to the ideals of the founding fathers of the European Union who fought for a Europe whole and free, at peace in a co-operative partnership of nations where elements of sovereignty were pooled in the cause of democracy, freedom, prosperity and social justice?
Britain will be an enormous loser if the European project founders. It must not happen. We must strain every sinew as a Government and as a Parliament to avoid that terrible catastrophe. In doing so, I say to the noble Lord, Lord Pearson of Rannoch, that we are not traitors to our national interests but are giving a practical expression to modern patriotism.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, I am grateful to my noble friend Lord Newby for initiating this debate. It has been a valuable and insightful debate on stability and growth in the European Union and comes at a particularly good time. As your Lordships are all aware, it has been an incredibly turbulent few months, few days, and few hours for the global economy. The euro area is at the epicentre of this instability. A decisive resolution to the crisis is in our vital national interests, a point that was vigorously underlined by my noble friend Lady Noakes. Such a resolution would provide the single biggest boost to the British economy this autumn.
Last week, good progress was made towards reaching a comprehensive solution for the euro-area crisis. It is one that echoes the approach we have been advocating. First, there is the recapitalisation of European banks. As agreed last week, all major European banks will be required to hold at least a 9 per cent core tier 1 capital ratio by the end of June next year. Importantly, the assessment by the European Banking Authority is that no British banks require additional capital.
Secondly, there is the resolution of Greek debt. There is a headline agreement to reduce the Greek debt-to-GDP ratio to 120 per cent by 2020, with private holders of Greek sovereign debt being asked to accept a nominal write-down of 50 per cent. I should remind my noble friend Lord Marlesford that Greece is subject to an adjustment programme to which the IMF is a party, so there are indeed very considerable and appropriate strings attached.
Finally, in the package is reinforcing the firewall between Greece and other vulnerable euro-area countries, either by using the bailout fund to provide insurance on new debt issued by euro-area countries, or by creating special purpose vehicles to attract private and public resources. As my right honourable friend the Chancellor said, the immediate priority must be to implement the agreement that was entered into on 27 October.
That is the particular and immediate. At the other end of the spectrum we have had considerations of existentialism and very broad future scenarios painted by the noble Lords, Lord Liddle, Lord Pearson of Rannoch and Lord Bilimoria, and my noble friend Lord Flight. I should say at this point that I regret that I will probably disappoint them by not entering today into speculation about what will go on in the future. I will concentrate on the immediate practicalities of the eurozone as we face them today.
The first thing I will address is the question about the IMF, UK resources and where we should put them. The noble Lords, Lord McFall of Alcluith and Lord Hannay of Chiswick, do not paint a fair reflection of the UK’s position towards the IMF and bailout funds. My right honourable friend the Chancellor of the Exchequer has been clear that building up IMF resources and building up euro-area bailout funds are separate issues. The UK has always been a strong supporter of the IMF as a global backstop to the world economy, and this support has been from Governments of all political standpoints since the IMF’s foundation. The Chancellor of the Exchequer has said that the UK,
“stands ready to consider the case … for further increasing the resources of the IMF to keep pace with the size of the global economy”.
That point was reinforced by my right honourable friend the Prime Minister earlier today.
In recent years some of the biggest use of IMF funds has been for countries such as Mexico and Poland, both non-euro-area countries. In uncertain times, lots of areas around the world may need IMF support and it is important to ensure that this key global institution is properly resourced to do its job. That is in the UK’s interest. That is what we will do, but that is very different from entertaining suggestions that the IMF should put its own resources into a potential euro area special purpose vehicle. I say to the noble Lord, Lord Hannay of Chiswick, that there has indeed been talk about that. That is not within the remit of the IMF, which supports individual countries. The Government’s position is that we will support the IMF in its mandate; that is not a mandate that does or should extend to euro area or any other special area bailout funds, which are a completely separate matter. Lastly, I remind noble Lords that our support for the IMF does not add to our debt or our deficit and that no one who has provided money to the IMF has ever lost money.
Of course, the package that I have summarised is not the answer to the longer-term reforms that are needed to make the euro area work more effectively. All euro area members need to implement credible plans to reduce budget deficits. That commitment was made in the very first section of last week’s agreement. We will continue to ensure that our voice will be heard and our national interests protected. In response to a question asked by the noble Lord, Lord Bilimoria, this will of course include planning to cover the widest range of scenarios that may develop.
It is essential that matters that affect all 27 member states continue to be discussed by all 27 member states. This is the approach that we will take to protecting and promoting the single market. We have agreement and confirmation of that as a result of my right honourable friend the Prime Minister’s intervention on 23 October. The noble Lord, Lord Hannay, asked about the euro-plus pact. The Government took a clear decision not to join the current pact as they viewed the pact as a response to the specific needs of the euro area and there has been no change in that position. The vast majority of decisions on economic and financial policy are made by the EU 27, not by the euro area. That will not change. We still have our 29 votes, the same number as France and Germany, and we play an active and positive role in all Council debates. Of course, as noble Lords know full well, it is not a question just of the UK being outside the euro-plus pact; the Czech Republic, Hungary and Sweden did not join either.
As noble Lords have recognised, because the single market is one of the most powerful tools we have to promote sustainable, mutual and renewed growth in the UK and across the EU, we must continue to work hard to progress it. We have made substantial progress to complete the single market over recent years and the UK has worked hard to prioritise measures that bring the greatest benefit to growth. That is why we have strongly supported the liberalisation of EU cross-border trade in services, prioritising the passing and proper implementation of the services directive. Even conservative estimates place the benefits of this at a very substantial 0.8 per cent of EU GDP.
There are huge gains to be had for growth and job creation, a point that my noble friend Lord Shipley drew particular attention to, and those come from even the smallest changes to protect and promote truly free and open markets within the European Union, a point underlined by the right reverend Prelate the Bishop of Bath and Wells. I refer, for example, to that genuine single market in services, addressed by the noble Lord, Lord Giddens. A digital single market could add €800 billion to EU GDP. The Government have led the way in that. My right honourable friend the Prime Minister’s pamphlet, Let’s Choose Growth, published in March this year, provides the blueprint to realise that gain. I draw the attention of the noble Lord, Lord Haskel, to that pamphlet because that is the way in which the Government see growth in the eurozone being driven forward. It has nothing to do with repatriation of powers, as he seeks to paint it.
The Prime Minister also secured language, in the 23 October European Council conclusions, which calls for an EU growth test to filter out EU legislation which is harmful to growth and jobs. That is positive and important. I am, of course, grateful for the ongoing work of the noble Lord, Lord Harrison, in your Lordships’ European Union Committee in discussing and helping to promote these ideas.
In support of that, my noble friend Lord Newby asked about our positioning of UK officials in Brussels. I recognise that we have to work harder in this area, but I believe that the push on this, which the Foreign Office made last year and continues to make, has led to success in the EU campaign. On the number of candidates put forward for EU positions, we have seen the UK rise from a lamentable 19th place to a barely respectable, but much better, 12th position last year. That is one indication that we are making some progress, but we have to work harder.
In respect of this positive agenda, I am grateful to my noble friend Lord Razzall who talked about the wider group of pro-growth member states, which regularly meets with my honourable friend the Minister for Employment Relations, Consumer and Postal Affairs and with counterparts from 13 other EU member states. There are lots of very practical things on the agenda that officials and my ministerial colleagues are working on, just as your Lordships’ committee is doing.
That takes me on to the outward-facing aspect of this, to which a number of noble Lords have drawn attention. We must remember that the gains to be made from freer trade are not just a matter of completing the single market but are a matter of completing the outward-facing trade arrangements under the Doha trade round and out-of-trade bilateral agreements. That is a critically important area to which my noble friend Lord Newby drew attention. The Government continue to support the Doha round. It is important to complete Doha as a matter of urgency but we also should point to the importance of the EU’s bilateral trade deals with markets such as India, Canada and Singapore. On the point made by the noble Lord, Lord Giddens, about labour mobility within the EU and outside it, of course those bilateral deals pick up important issues related to labour mobility as far as they link directly to trade. My noble friend Lord Shipley raised a detailed point. There have indeed been very recent Commission proposals to extend the European globalisation fund. I can certainly assure my noble friend that we are currently considering the Government’s response to those recent proposals.
I turn next to financial services, an area to which a number of noble Lords drew attention. In the past year the Government have demonstrated the same resolve to promote an open and single market in financial services. I say to my noble friend Lord Teverson that I do not recognise that there has been any loss of voice in this area. Yes, we have to recognise that there is a change of architecture and make sure that within that architecture we maximise our voice, but I would suggest that the evidence is that we are being heard. For example, on the alternative investment fund managers directive, we completely reversed the Council’s position to ensure that the directive is internationally consistent and non-discriminatory.
On the Basel III reforms, we are working with the Commission to ensure that the capital requirements directive reinforces rather than weakens the single market by having high, common and consistently applied standards for capital, just as we are doing at the G20 to ensure that we do not distort international competition and markets. Likewise, we cannot undermine European competitiveness by unilaterally implementing a financial transaction tax. At a time when we have to do everything we can to promote growth, a tax to undermine Europe’s competitiveness is in no one’s interest.
These continue to be turbulent, dangerous times for both the European economy and the global economy. Within Europe, the decisions reached last week are a big step to resolving the crisis that has undermined economies around the world since the summer. We still have a long way to go to finalise the details of that agreement and it is important that all parties to the agreement deliver on their commitments. Beyond that, the UK will continue to be at the heart of that process and the process of coming up proactively with pro-growth policies for the UK and for Europe. At the same time, we will continue to protect and promote our interests across the EU.
In conclusion, I am very grateful to my noble friend Lord Newby for stimulating this debate and for the constructive proposals and suggestions from all sides of the House.
Lord Newby
My Lords, I thank all noble Lords who have taken part in this fascinating debate. I am sure that the one thing uniting all participants is that the issues we have been debating are of central importance to the future growth and stability of the UK economy. We will no doubt return to them frequently in coming months but, for today, I beg leave to withdraw the Motion.
Television Advertising: Communications Committee Report
Lord Clement-Jones
That this House takes note of the report of the Communications Committee on Regulation of Television Advertising (First Report, HL Paper 99).
Lord Clement-Jones
My Lords, I declare an interest as a sometime employee of London Weekend Television in the 1980s. First, I thank my fellow members of the committee, those who gave evidence to us, Ralph Publicover and Audrey Nelson who were successively the clerks to the committee, and our expert advisers, Professor Patrick Barwise, emeritus professor of management and marketing at the London Business School, and Professor Steven Barnett, professor of communications at the University of Westminster.
I also want to pay tribute to Michael, the late Earl of Onslow, who, if his health had permitted, would have taken over the chairmanship of the Communications Committee for this its first inquiry after the general election. I took over the acting chairmanship as a result. Despite ill health, as the House may imagine, he contributed intermittently but vigorously—sometimes even on the telephone. He was a considerable individual and we all miss him greatly.
Let me set out the background to the inquiry. The UK television advertising industry has changed over recent years as a result of the growth in the number of commercial channels, competition for marketing budgets from internet advertising and the economic downturn. This has led to calls for changes in the regulation of television advertising.
Although there has been some deregulation within the industry, there remain constraints on the quantity, scheduling and content of television advertisements and additional constraints on the price of commercial airtime—on ITV1 specifically. During 2008-09 there was a sharp fall in the revenues earned by commercial television companies from the sale of advertising—some 16 per cent. This was, in part, a reflection of the general economic downturn but it was also due to other developments including the migration of advertising from television to the internet. When we started the inquiry there had been some recovery of ITV advertising revenues in 2010, which seems to have continued into 2011, but the movement of advertising towards the internet seemed—and still seems—likely to continue.
If the advertising-funded model is in irreversible decline this would have serious implications for the future of commercial public service broadcasting. The committee therefore decided to conduct an inquiry into the current regulation of the television advertising market and how changes might assist the commercial television companies to maintain revenues and output to the benefit of the viewer. At the time, the Secretary of State for Culture, Media and Sport was also reported to have asked his officials to examine the case for ending regulation of the rates ITV could charge for advertising. It therefore seemed a good time to look at the whole question of advertising regulation but focusing on the regulations that do not involve advertising content.
Television advertising in the United Kingdom is subject to regulation in its scheduling and its sales arrangements. There is in particular a set of rules—the contract rights renewal undertakings, or CRR—which regulate what ITV can charge for advertising. These undertakings were required by the Competition Commission in 2003 as part of the arrangements for the Carlton/Granada merger to proceed to protect advertisers and other broadcasters from what was then perceived as potential and unhealthy market dominance from a unified ITV. The other major form of regulation of advertising on ITV is COSTA—the code on scheduling of TV advertising—which specifies an average of nine minutes advertising an hour on satellite channels and seven minutes on commercial public service broadcast channels.
The committee inquiry considered a number of questions: whether the current level of regulation of television advertising is appropriate; what the financial impact might be on television companies if changes are made to the regulation of scheduling and sales of television advertising; and the extent to which current arrangements reflect the public interest. It was not always easy—as committee members will testify—to come up with a clear answer, and sometimes fine judgments had to be made but if in doubt, when looking at particular proposals, we tried to give priority to television viewers’ interests.
The committee came to the following conclusions. First, the COSTA regulations should be harmonised to level the playing field between public service and commercial broadcasters when digital switchover happens in 2012. Research suggests that viewers would not support an increase in the amount of advertising on television, especially on ITV1, Channel 4 and Channel 5. It was our view that a reduction in the quantity of advertising airtime that broadcasters are allowed to sell may well improve the viewer experience and would certainly be fairer to those channels, which are limited more than all other commercial channels at the moment. As I said, under the COSTA rules public service broadcasters such as ITV1, Channel 4 and Channel 5 are permitted an average of seven minutes of advertising an hour and a maximum of eight minutes at peak times. On balance, our recommendation was that all channels should be allowed an average of seven minutes an hour, with an appropriate peak-time maximum which would be determined after research from Ofcom.
We also concluded that the CRR undertakings are no longer the most appropriate mechanism for regulating how advertising airtime is sold on ITV1. Your Lordships may have caught the speech today of the noble Lord, Lord Grade, in which he was exceedingly vigorous in his condemnation of the CRR rules and the remit of the Competition Commission. We took the view that the context in which CRR had been imposed had changed sufficiently to justify this view and that the Competition Commission when recently examining CRR had not been able to take more than a narrow, competition-based view, which did not take account of the wider public interest and in particular the clearly understood preference of television viewers for UK-originated content, as well as the contribution that increased original production makes to the nation’s creative economy.
ITV still dominates the market for fast-build advertising in mass-market popular television shows, but even so the competition has changed considerably, with heavy consolidation of the main media buyers into four organisations. On CRR, the committee therefore recommended that these undertakings should be removed on the important condition that they are replaced with binding undertakings devised and given by ITV plc to invest an appropriate proportion of any additional revenues from advertising in increasing its investment in quality, wide-ranging original UK programming on ITV1, and in training. If the television advertising regime is to be changed, we were insistent, however, that the binding undertakings we recommended would be rigorously upheld. All in all, the committee felt strongly that changes are needed to the regulation of television advertising and that our recommendations would encourage our commercial public service broadcasters to provide their viewers with quality original UK television programmes. After all, even in multichannel homes, over half of all TV viewing still goes to the five core channels.
As we said, it is extremely difficult to predict how much ITV plc would stand to gain in additional advertising revenue from the removal of CRR. However, the available evidence suggested figures of around £30 million to £55 million per annum. This equates to roughly 5 per cent to 10 per cent of ITV1’s current investment in original UK content. The public service broadcasters, I must emphasise, are vitally important for original UK production. Despite the advance of multichannel television and commitments from other broadcasters such as BSkyB to spend more, the PSBs still account for over 90 per cent of first-run original UK production, excluding sports rights. On the basis that they can be held to their promises, this rebalancing of television’s advertising money would therefore be seen on our television screens, to the manifest benefit of viewers and the creative economy, and would partially compensate for the £500 million which has been lost from original UK production in the last six years.
We noted that the changes to CRR may require primary legislation, but that it would be preferable to deal with these as soon as possible under the aegis of the Secretary of State for Culture, Olympics, Media and Sport. We recommended that the proposed changes are implemented at the very latest as part of the next communications Act.
A third extremely important element of our recommendations arose out of our view, in common with the Competition Commission and Ofcom, that the trading system used for selling television advertising is complex and arcane. This traditionally is based on an annual “deal round”, often on a so-called umbrella basis between advertisers, media buyers and broadcast sales houses involving a negotiation over the price of “commercial impacts”, essentially the eyeballs of particular types of target audience and unrelated to buying advertising slots in particular identified programmes, based on the discounts off station average price available for particular share of advertisers’ budgets. We took the view that the lack of transparency within the trading system favoured neither fair competition nor the viewer. We noted that for certain programmes called “specials”, such as the “X Factor” final or a Champions League match, different arrangements were put in place which could relate to the ratings of the programme itself. We therefore recommended that there should be a short, focused review of the trading system for television advertising airtime in order to find a more transparent system which includes a robust appeals process to address any outstanding industry concerns.
How have our recommendations fared at the hands of the Government and the competition authorities? Well, needless to say, we have not seen an instant relaxation of the rules yet, but a victory took place almost before the ink was dry. In March, just weeks after the committee’s report was published, Ofcom announced a review of the advertising trading model, as we recommended. This will be a significant step in assessing whether the CRR rules should be changed. The consultation document was launched in June this year and covers many of the areas which the committee was concerned with: transparency of pricing, signals, bundling of airtime and lack of innovation in the system. Above all, it is looking not only at the impact on advertisers, but also on TV viewers—an aspect that the Competition Commission was unable to consider in relation to CRR in its review. I trust that the review will be short and sharp. Ofcom also believes that more work is needed before changes to advertising minutage are made—that is, under COSTA. It is examining the potential economic impact and public interest arguments of different options.
The Government believe, and gave evidence to the effect, that they currently lack the power to lift CRR without the competition authorities’ recommendation, unless changes are made in the forthcoming communications Bill. However, I shall be interested to hear what the Minister has to say because they seem to have accepted that the Competition Commission was only able to take a narrow view when reviewing CRR in 2009-10 and have welcomed Ofcom’s inquiry into the advertising trading system. They are somewhat doubtful about the desirability of how to formulate and enforce any undertakings of the kind suggested by the committee.
In summary, the Government seem to be attracted to a more deregulated environment but uncertain about how to achieve it. This is understandable given the very different views that we heard about the impact of CRR, but with Ofcom’s advice they should be able to come up with a practicable solution. There is clearly a great deal of water to flow under the bridge. We did not expect a quick response in terms of action. We are pleased that the committee’s report has had an important response from Ofcom and the Government. We look forward to further progress which will explicitly feed into the forthcoming communications Green Paper and the subsequent Bill. I beg to move.
Lord Patten
My Lords, I hope that your Lordships take close note of this report—it is a good one—and in particular of the pressing need to clean up the system of contract rights renewal, or CRR, to which my noble friend Lord Clement-Jones has just referred. By their own words in this report, Ministers do not fully understand the CRR system. I hope that once they do, they will take speedy action in the public interest to change it. That need is urgent.
I have no interests of any sort to declare. I have no business or professional interests in TV or advertising. Rather insultingly, no person, company or body has lobbied me to make my voice heard in the debate. I try not to take that amiss. I decided to take part as a Back-Bench and serious non-expert. I read the report—sometimes a dangerous thing for anyone to do. Not only do I declare no interest of a professional or commercial sort, in the interests of transparency—to which I shall return in a moment—I also declare that at one stage in our lives down the road here in Westminster, we had a deliberate and considered total lack of interest: we brought up our daughter in a home without a television set. I hope that my coming out in this way does not overly shock those of your Lordships of a delicate nature. Indeed, the fact that we brought her up in this way led to one notable occasion when she was asked in her primary school class to name her favourite mid-week programme. She was forced to explain that she did not have one because she did not have a television set at home. I was told that that led to some debate later in the staff-room of the possible need for social services to check up on the manifestly cruel and unnatural lifestyle imposed on her. Having left one of England’s ancient universities, she has more than made up for lost viewing time subsequently.
If one refers to the excellent glossary at the end of this well produced report, one sees that contract rights renewal is defined simply as:
“A set of undertakings which determine the way in which ITV plc is able to sell advertising airtime on ITV1”.
That seems crystal clear and simple, but in practice it is not. CRR seems to lack much transparency of any sort and is exceptionally hard to understand, at least according to the Ministers who have the responsibility of understanding it. The Ministers giving evidence fell over themselves throughout to stress their own lack of understanding of the CRR system. As I ploughed through the report, I carefully noted their various descriptions of it. First, they described CRR as “arcane”; then, slightly revving up, it became “complex”. Getting a bit racier, it was termed reminiscent of the Schleswig-Holstein question. Warming to their theme, it was “Byzantine”, then “highly complicated and Byzantine”, before peaking with the truly wonderful “Byzantine and incestuous”, to be found on page 195 in all its glory. I look forward to being reassured that HMG are not in favour of incest whether in business or elsewhere. If your Lordships and Ministers apply that valuable old test, “If one cannot explain it, it should not exist”, the CRR system, which we have allowed to carry on, fails absolutely.
This is not some arcane administrative sideshow, for the public interest cannot be served nor the market be perfectly informed about a cloudy system that determines how the approximate 80 per cent of annual deals and the 20 per cent of short-term burst deals are agreed. It is right that the public—and best of all even junior Ministers—should be able to understand it. The CRR system should be reformed completely so I very much echo what my noble friend Lord Clement-Jones said earlier. Alas, I was not in the Chamber to hear my noble friend Lord Grade of Yarmouth in an earlier debate, but it sounds as though we agree pretty strongly. We have never discussed the issue; again, I say this in the spirit of transparency.
I think the CRR system should be reformed completely. It should be subject to enhanced public interest undertakings, and subject to an equally enhanced adjudication process to help complaints about the way advertising airtime is sold. This is because of my belief that—as ITV strongly and to a lesser extent Channel 5 have argued—if CRR was removed then advertising revenues would increase. If advertising revenues increase, this will enable broadcasters, by charging more for advertising, to invest more in programming and invest more in the training of broadcasters. Better programming? That is highly desirable. Better training? More training? Both are highly desirable. Both to be guaranteed by a new public service broadcasting undertakings arrangement of a binding sort is a proper trade-off for the transparency and deregulation that I really thought our coalition Government favoured.
This reform of the contract rights renewal system is urgently needed. It is in the public interest. In the light of the migration of advertising to the internet pointed out by my noble friend Lord Clement-Jones, it is much needed as well to sustain good programming and good training for good broadcasters. I congratulate him and his colleagues on this excellent report, and for pinpointing the pressing need for CRR to be reformed as quickly as possible, something that I hope that Ministers will listen to. I ask my noble friend on the Front Bench not to respond in any detailed way to what I have said, but to draw my views to the attention of the Ministers responsible.
Lord Lipsey
My Lords, I too very much welcome the report, which, besides its recommendations, contains a wealth of information on the system. If I might, not having been a member of the committee, I join the noble Lord, Lord Clement-Jones, in saying that the special advisers to the committee, Professor Barwise and Professor Barnett, really deserve an accolade for the work they have done, whether or not one agrees with them.
This debate has been long delayed. The report came out in February and only now in November are we debating it. However, that is quite desirable in one way because Ofcom is now within a few weeks of making its decisions on these matters. Therefore, I hope that the words uttered in this Chamber may have more effect on it than they would if it had had longer to forget them.
I only want to make two points, in one of which I disagree with the report. Its authors will not worry too much about that, but I also disagree with practically everybody else in the world, a not-unfamiliar position in which to find myself. In the other point, I powerfully agree with the report, and hope that it will bear fruit.
The thing that I think that I disagree with the report about is minutage—COSTA. As an economist, I find the concept that we should limit the number of minutes of advertising extraordinarily curious and hard to justify. It is a strange regulation to have introduced. When it was introduced, there was a powerful case for it, because ITV then had a monopoly; it was, famously, a licence to print money, and you had to do something to restrict the amount of money it was allowed to print. Of course, the situation is completely different today. Barely a minute goes by without my television seizing up with me being asked whether I wish to add additional channels; we are up to something like 1,200 or 1,300. There are more porn channels today than there were channels in total 10 years ago. A monopoly has turned into a properly competitive industry. It is very curious that the Government should seek to limit the output of competitive industries, in this case one output being advertising.
Why do people cling to this? I think, in most people’s heads, the reason is due to America. If you watch American television—like other noble Lords present I have recently spent some time in America—you will know that it really is completely ghastly. Actually, in some senses, the ads are a relief from the bloody programmes, but one ghastliness about it is the amount of advertising. Therefore, there is a respectable fear that our television would become like that. However, this fear is greatly overdone for two principal reasons. The first is the BBC. If we do not like the amount of advertising on the commercial channels, we can turn to the BBC; sometimes the BBC itself is an offender because it contains so many trails for upcoming programmes as to seem almost like a commercial channel itself, but that is beside the point. The BBC’s market share is roughly a third of the market: 33.1 per cent, according to its latest annual report. Compare that with America. There are no exactly comparable figures because PBS—public broadcasting in America—does not publish figures for its share but, thanks to the wonderful work of the Library, I have established that it is roughly 1.3 per cent: a 30th of the BBC’s share. The alternative of turning to public broadcasting if you do not like the amount of advertising is not there; you have to put up with what you get. It is a completely different situation.
The second reason is of course that we have quite a lot of good television. Most of us now have DVRs. On good days I can even work the DVR, thanks to Sky+, which has transformed so many lives. Thanks to a DVR you can, if you want, watch a programme later and accelerate through the adverts, so any channel that puts too many ads in is simply inviting people to postpone their viewing and rush through the ads. There is therefore a powerful competitive force which says, “Do not put too much advertising on, otherwise you will lose your viewers”.
There is a complication, a European directive which limits advertising to 12 minutes per hour. Pro-Europeans will say, “Well, it’s great that we’ve got a limitation”, and anti-Europeans will be surprised that the limit is so much higher than those which we ourselves impose: nine minutes for all channels and seven minutes for the public service broadcasters. The European limitation is so far above our limitation that for practical purposes it does not preclude a sensible liberalisation of our rules.
Why should we keep COSTA? The noble Lord, Lord Clement-Jones, gave the only argument there is: viewers do not want more advertising. It is true that polling evidence contained in this report shows that viewers do not want more advertising. However, I do not think that is a very sensible question to ask in a poll because it does not give the trade-off. If you ask people, “Would you like more taxes?”, they are inclined to say no. If you ask them, “Do you want more taxes to pay for better health services?”, they might be inclined to say yes. Similarly, with television advertising, if you ask the viewers, “Would you be prepared to put up with more advertising if you got more ‘Downton Abbey’?”, they might well say yes. I do not know. Certainly they would if you said more “Strictly” or more of Simon Cowell or whatever they much like to see.
It really is not a valid argument to rely on what the opinion polls show. We have to make our own judgments. In my judgment this is an indefensible piece of overregulation, which leads to all the things that overregulation usually gets. Now we get competitive briefings from various organisations, all talking for their vested interests as to whether they want this to change or to be put down to the same level for every broadcaster. As usual, what should be decided by the market is being decided by competitive political lobbying. That does not seem to me, as an economist, to be very desirable.
That is where I disagree with the report. Where I agree with it very much is that there has to be a relaxation. I quite agree with it on CRR, but I believe that the benefit of the relaxation should go to viewers in the form of more spending on programmes and not to anyone else. To use a fashionable phrase, there is no case for giving the broadcasters “something for nothing”. Having been a director of an ITV company, London Weekend Television, I know how attractive it is to say that you want certain relaxations in order to provide a better service to broadcasters and then hand the money to the shareholders. The shareholders invested in these companies knowing full well the limitations on them. Some of them were no doubt hoping that the authorities would hand them a bonanza by lifting the advertising restrictions, but we should not be falling over backwards to grant them a windfall gain from the removal of restrictions.
I wholly agree with paragraph 47 of the report that any relaxation should be matched for viewers by an enforceable commitment to spend more on programmes. Of course, the detail of that is complicated. It is not an easy thing to do. However, I can think of a symbolic way in which this could be done: ITV could agree to restore “The South Bank Show”—so wonderfully compèred by my noble friend Lord Bragg—which it cruelly and remorselessly butchered in December 2009 to the immense disbenefit of its more sophisticated viewers and indeed of its reputation with the public.
Lord Razzall
My Lords, following the remarks of the noble Lord, Lord Lipsey, I ought to report that, as a member of the committee, his noble friend Lord Bragg showed remarkable restraint in not making the point that the noble Lord, Lord Lipsey, has just made.
I think I speak for every member of the committee who had not previously been involved in the television industry when I say that when we started on this inquiry we were to some extent extremely surprised and in some cases shocked to discover the way in which TV advertising was sold. That very much coloured our deliberations. As a relatively sophisticated business person, I would have assumed, until I got to the first meeting of the committee, that advertisers were by and large able to choose which programmes they would like their products to be advertised around. I was somewhat surprised to discover that that applies only to about 20 per cent of advertising, during big events such as a cup final or “The X Factor”. I do not know whether that yet applies to the next episode of “Downton Abbey”, but no doubt the noble Lord, Lord Fellowes, who is not speaking in the debate, will tell us afterwards. That represents only 20 per cent of the way in which advertising is sold.
For the benefit of the people who read Hansard, it is worth expanding a little on my discovery of the way in which advertising is sold. People who do not appreciate the way in which it is sold might be interested to know about that. Each year there is an annual deal round, usually in the autumn, when media agencies negotiate an “umbrella deal” which will form the basis for booking specific advertising campaigns for the year ahead. That surprised me. It was even more of a surprise to learn that those negotiations do not start with a blank sheet of paper each year. The starting point each year is likely to be what was agreed in the previous year, which means that there is likely to be considerable consistency over time in the deals which are made.
In broad terms, media agencies agree to commit a proportion of their television advertising spend to a particular broadcaster. In return the broadcast sales house gives them a discount off the station average price. This is the price which the broadcaster charges for a particular target audience or demographic group; for example, men aged 16 to 34. During the course of the year, within the terms of the annual contracts which have been negotiated, advertisers then negotiate terms to reach certain target audiences for particular advertising campaigns. The standard station average price is calculated after the advertisements have been aired and varies month by month depending on the viewing ratings delivered by a broadcaster for a particular demographic group. The audience viewing figures for each advertisement are measured using an independent industry metric and the overall revenues which it has received.
What I have just said eminently proves what my noble friends Lord Clement-Jones and Lord Patten have indicated—that this is a completely non-transparent, peculiar system. The most fundamental element of our report was that it should be reviewed. All members of the committee were absolutely unanimous on that. We were also unanimous that the CRR undertakings should be removed. They were implemented in 2003 and the broadcasting world has fundamentally changed since then. I was not in my place when the noble Lord, Lord Grade of Yarmouth, spoke in the previous debate but I understand that he expressed the view that I have put rather more strongly than I have just done.
Picking up a point that has been made, if these concessions are going to be made to ITV, it is important that binding undertakings are obtained from it on its commitment to invest in further quality UK original content and training. Although ITV might not like to be quoted on the exact detail, the representations that the committee received from representatives of ITV showed that it was very open to do this. Obviously, there will be a question of definition and what is meant by improved programming; it cannot just be ITV making programmes that it would have made anyway. However, it is perfectly possible to measure that. Those undertakings are very important.
Lord Patten
Would my noble friend also add to his list of desiderata in the matter of undertakings which ITV says it is glad to give that a certain amount of resources should be devoted to more and better training for more up and coming young broadcasters and producers?
Lord Razzall
The committee made that point. I am not sure that in its representations to us ITV talked about training but it certainly indicated its receptiveness to giving undertakings on UK programming. I entirely agree that that is a very important point.
As regards the remarks made by the noble Lord, Lord Lipsey, I do not think that the committee ever contemplated removing all the restrictions on advertising minutage. The debate, which was lengthy—we had representations from a number of different channels on this—concerned whether we should bring in line the minutage that ITV, Channel 5 and Channel 4 were allowed to have with that which the other commercial channels were allowed to have. There was a long debate about whether everyone should go up to nine minutes or the nine-minute people should come down to seven, but we never discussed whether the COSTA rules should be abolished entirely. Even the noble Lord, Lord Lipsey, indicated that there was a general feeling that the public really would not want to have more advertisements. We had no detailed evidence to that effect; there was a general assumption that that was the public’s view. Therefore, we felt that everyone should be brought in line and come down to seven minutes. I will be interested in the response that the noble Baroness, Lady Rawlings, makes to this but no doubt there will be a recommendation by Ofcom in due course as to which of the two it should be. I will be very surprised if the noble Lord, Lord Lipsey, carries the day on a complete abolition of the COSTA rules. To go back to my first point, it is fundamental that we have a comprehensive review as to the way television advertising is sold.
Baroness Fookes
My Lords, before turning to the substance of the debate I want to add my own tribute to that paid by my noble friend Lord Clement-Jones to our late chairman, the Earl of Onslow. He behaved most honourably in relinquishing the chairmanship when he did not feel he could give it his full attention but remained an assiduous member of the committee as far as he could and despite increasingly debilitating illness. I admired greatly his resilience and his honourable approach to the matter, and my respect for him increased by leaps and bounds.
This was the first inquiry that I had held as a new member of the Communications Committee. Unlike some of my colleagues I did not have that tremendous experience of running a TV company or being a long-standing broadcaster, so I came to it very fresh and new. I have to confess that for the first few weeks I was utterly confused. I felt like some explorer, stumbling upon some ancient civilisation remote from the modern world, where the language was strange and the customs even weirder. It took me some time before any sort of light dawned. Television in the history of the world is a very modern device and television advertising is even more modern. How could it be quite so obscure? I remind my noble friend Lord Patten that I was the first to murmur the word “Byzantine” in relation to this arrangement, which has been described by others. Whether your Lordships who are not members of the committee are much the wiser for the descriptions given, I am not sure, because they are pretty impenetrable. There is a case for making the system for purchasing television advertising utterly transparent and clear. Who knows what goes on with all these strange, convoluted arrangements that have been described this afternoon?
I certainly hope that Ofcom, which I believe is going to report soon, will come up with some really good recommendations to cut through this obscure arrangement. Even if it does, it may involve the Competition Commission and the relevant government department. I fear that between these three and possibly other bodies nothing at all will happen or what does happen will not be as clear and decisive as it should be. I hope that my noble friend, if he is unable this afternoon to give detailed responses to what we have recommended, will give an indication that firm and decisive action will be taken, particularly so that if it does require any form of legislation we can latch it on to the next communications Bill, which I believe will be brought forward within the next two years or maybe less.
Looking at one aspect raised by the noble Lord, Lord Lipsey, I have to confess that he is on his own as far as I am concerned. I look at it as an ordinary television viewer and for me there is too much advertising already. I certainly do not want any more. I dislike especially when advertising comes in the middle of a particularly poignant part of a TV programme—I will not mention the one by my noble friend Lord Fellowes, but I have it in mind. It is irritating and demoralising to have some adverts slotted in just when you are in a real state of emotion. For me, the amount of advertising on television that we have at the moment is quite enough and there is merit at least in making the arrangements the same, either seven or nine minutes—for me, definitely seven.
I cannot believe that restricting it will ensure that the whole arrangement for making TV programmes will go down the drain, as I think the noble Lord, Lord Lipsey, was implying. I understand that about £4 billion a year is spent on advertising. If I am incorrect on that I hope somebody will put me right. Anyway, it is a huge sum of money. I believe that for the final contribution of “The X Factor”, £250,000 was being charged for a 30-second slot. I will not shed tears if there is some sort of reduction in the number of minutes that can be broadcast per hour.
Lord Fellowes of West Stafford
I shall interrupt to say one thing, if I may. ITV is a marvellous company to work for. A drama is paid for by advertising. Although I do not disagree with anything that people have said about making things more transparent and so on, I do not think that anyone should ever see advertising revenue as a completely negative factor. We would have been unable to make the show, which I cannot bring myself to name yet again, in that way at the BBC. We were left entirely free to make the show that we wanted to make because we had the funding of advertising to do it. It is wrong to present advertising as a sort of hideous evil that wrecks the programmes it appears in. It also enables and makes them.
Baroness Fookes
I take the point that my noble friend has made. I was against the apparent wishes of the noble Lord, Lord Lipsey—to increase the amount of advertising, to make it without limit and that there should be no rules. That was what I was concerned about. I entirely take the point of my noble friend Lord Fellowes that it is the advertising revenue that produces good-quality drama and other types of programme.
Lord Lipsey
I should correct the misapprehension, which is no doubt my fault. I did not say that we should increase the amount but that we should get rid of the restrictions. It might go up; it might go down. Who can tell? I am not in favour of restrictions on competition in this field.
Baroness Fookes
That is exactly what I thought the noble Lord had said, and what worried me was the thought that there might then be an increase in advertising. However, that is an academic point at the moment. All in all, as I persisted in remaining on the committee despite my initial reservations, I thought that we came out with a good, robust report. It is one that I hope the Government will take on board very seriously.
Lord Macdonald of Tradeston
My Lords, I speak as a member of your Lordships’ Select Committee on Communications and as a veteran of 30 years in the advertising-funded side of public service broadcasting in ITV, Granada and Scottish Television, alongside six years moonlighting on-screen for Channel 4 in the 1980s. I, therefore, vigorously applaud the sentiments expressed by the noble Lord, Lord Fellowes.
I moved on from ITV in 1998, and since then the network has changed a lot. The old network structure of 15 independent regional companies has consolidated into ITV plc, based in London, and only Scottish and Ulster television are still independent.
The issue of contract rights renewal being debated today is a product of the most significant merger to create today’s ITV plc—the merger of Granada and Carlton Television in 2003. The CRR regime in all its complexity was introduced to stop the merged ITV from abusing its powerful position in the advertising market. We did not find any evidence of attempts to abuse that position in the years since. Over the past eight years, many new channels have offered advertisers niche options if they have problems buying airtime on ITV. For advertisers, targeting specific groups of potential customers has become much more economical. Over the same period, a significant proportion of UK advertising has been switched on to the internet. The internet advertising market has just overtaken television advertising spend for the first time, as advertisers spent £2.3 billion on internet advertising in the first half of this year alone, up 14 per cent year on year. By contrast, the forecast for ITV earnings is not too encouraging, falling along with confidence in the economy.
The Select Committee examined the relationship between ITV, media buyers and advertisers, and airtime trading mechanisms are complex and opaque, as has been said. We recommended a short inquiry by an impartial group of industry experts into the system. Our concerns about this operation prompted Ofcom to launch its own review of the way television advertising is traded, as our chairman said. I would be grateful if the Minister could update us on Ofcom’s progress, when it is expected to report, and whether it will report in time to influence trading before the next communications Bill comes to your Lordships’ House; or will all the committee’s concerns be rolled into that legislative process that presumably starts with a Green Paper next year?
Given all the debates and reviews about the contract rights renewal mechanism over the years, it is something of a surprise that the value put on CRR is only between £30 million and £55 million a year, which is a small percentage of a total UK advertising spend of between £8 billion and £9 billion—much less than 1 per cent by my count. If that was spread across corporate advertising budgets, the queues at supermarket checkouts would remain calm. When customers got home and turned into viewers, they might welcome seeing the improved ITV programme that CRR money might put on their screens. As the noble Lord, Lord Clement-Jones, said, it might be a 5 per cent boost to ITV’s programme spend of around £1 billion. I say “might” because ITV could use the extra revenue to enhance dividends for shareholders but, to thwart that, our committee linked the removal of CRR to undertakings that would be required of ITV to put the money on the screen.
Given the nine months since we published our report, it now seems more likely that the spending of any post-CRR gains would be left to the discretion of the management. ITV’s chairman, Archie Norman, complained that the CRR mechanism helped drive a “ratings rat-race”. ITV does seem to be committed to improving its schedule with quality, popular programming. In the first half of this year, ITV launched eight of the 10 most popular new dramas on television, and the second series of “Downton Abbey” has held its huge audience—despite complaints of the advertising breaks being too long.
I support the removal of CRR primarily to encourage more investment in ITV programme production. If ITV gets CRR removed and any unprincipled diversion of that gain can be identified, the danger will be of reputational damage. That would be a real risk. It is probably the most feasible incentive that we will eventually come to rely on—but I hope that I am wrong.
I do not wish to seem pessimistic, but after reading the Government's response to our report, I think that the long grass beckons for our recommendation that the amount of advertising permitted per hour should be harmonised across all channels. I cannot conceal some sympathy for the arguments put forward by my noble friend Lord Lipsey. The government response batted the recommendations on to Ofcom—but we should not hold our breath for that report. My political judgment, for what it is worth, is that if the hundreds of satellite and cable channels lose revenue to a more competitive post-CRR ITV, I doubt that the Government would want to see the sector hit again by a reduction in its advertising minutage. As I said, I have sympathy for the arguments of my noble friend, but in the world to come it will be for viewers to zip through fast and for companies to decide their own minutage.
Another smaller but for me more important interest must be the independent licensees. Scottish Television and Ulster TV must still be protected. Both exist on channel 3 alongside ITV plc. Together, the two of them make up just a small percentage of ITV's advertising revenue. Their airtime is sold largely by ITV's sales house under another arrangement that was put in place in 2003. The undertakings inhibit ITV plc from flexing the rates on its digital channels—ITV2, ITV3 and ITV4—to the detriment of the sales income of channel 3 proper, better known as ITV1, on which Scottish and Ulster depend. These undertakings are covered by airtime sales rules. Removing CRR would give an incentive to ITV to bundle together channels and break those sales rules—an incentive that does not exist at present. It will be for Ofcom to ensure that the two unconsolidated companies are dealt with transparently and fairly if CRR is eventually removed. I am sure that the Minister, too, will want to protect the interests of Scotland and Ulster in this regard.
I greatly enjoyed the description by the noble Lord, Lord Patten, of ministerial mystification. Like him, I will make a confession. During my 30 years in ITV I never quite understood the dark art of airtime sales. For that reason, I look forward with great curiosity to Ofcom’s review of the television advertising market. I hope that it will come sooner rather than later. I, too, conclude by paying tribute to our late chairman, the Earl of Onslow, and by thanking our chairman, the noble Lord, Lord Clement-Jones, for his comprehensive and clear introduction to the key concerns of our report.
Lord Stevenson of Balmacara
My Lords, I was briefly a member of the Communications Committee. By a curious coincidence, my time encompassed almost all of this inquiry, although I was not a member when it started or when the final draft was approved.
The noble Lord, Lord Patten, in his entertaining speech, was right to focus on the CRR and the advertising selling system. Like the noble Baroness, Lady Fookes, I found some of the issues we were probing, in particular the trading system for selling TV advertising, to be extremely complex and arcane. The comparison to the Schleswig-Holstein question was not far-fetched. I also have fond memories of our session with the CRR adjudicator. Rereading the minutes brought back the committee's sense of incredulity at the burdens he said he was carrying, given the relative lack of activity on his patch. In the five years to 2008, he had only 15 disputes to deal with, and he had none between 2008 and 2010.
Your Lordships' House owes the noble Lord, Lord Clement-Jones, a considerable debt of gratitude for chairing the committee and delivering this report. In an earlier debate, the noble Lord, Lord Fowler, said that the committee went through a golden period while he was chairman and the noble Baroness, Lady Bonham-Carter, was a member. I felt that was slightly churlish, but they are his memories and he may wish to differ on that. It seemed to be a golden time when I was on the committee.
Although the late Lord Onslow was present only for a few meetings, he made a great impact and, like other noble Lords, I want to pay tribute to his contribution to the committee and to his memory. In his absence, and sometimes when he was present, the noble Lord, Lord Clement-Jones, was a tower of strength as our chair. Often he probed reluctant witnesses, including Ministers, with supplementary questions that we could never have imagined, let alone deliver, particularly with the Ministers, Messrs Davey and Vaizey. We were brilliantly served by our advisers, Professor Steven Barnett and emeritus Professor Patrick Barwise, and I record my thanks to the clerks for their help and support to a new member and during the inquiry.
Several of the committee’s recommendations affect Ofcom and the Competition Committee as well as DCMS, and the situation is made more complicated by the fact that a lot of time has passed and action has been taken already in some areas and is continuing. As the Government’s response to the committee made clear, this is a fast-moving policy area. On the other hand, as we have heard, we are promised a communications Green Paper and presumably legislation will follow, so in some senses this debate will feed in very well.
The key points are that, by and large, British television benefits, as it always has done, from the main channel groups having separate funding streams. Satellite, licence fee and advertising supported channels are freed up to compete on quality. This has been for the public benefit ever since ITV was introduced to break the BBC monopoly. However, in today’s broadcasting ecology, TV advertising supports hundreds of channels and underpins investment in high-quality, UK-originated content, in particular from the commercial PSBs, ITV, Channel 4 and channel Five. As a matter of public policy, we want this to continue, albeit technology may in the end subvert this desire.
As my noble friend Lord Macdonald says, the growth in internet advertising needs to be taken into account and may upset the entire way in which we approach this. Our report argues that the current advertising minutage rules create an uneven playing field between the commercial PSB channels and the satellite and cable channels. This may have been appropriate 20 or 25 years ago to help the satellite and cable channels when they were starting out, but the situation is very different today. My noble friend Lord Lipsey argues that we should not keep COSTA and he may be right, but Sky+ makes this sort of regulation otiose. I suggest that more work is required and Ofcom should carry out a review urgently.
The current TV advertising market delivers many benefits to advertisers and viewers. It is alleged that advertisers benefit from lower prices, and the price of TV advertising has certainly fallen steeply over the last 10 years. Apparently it has not been cheaper since 1993. Having said that, I feel, like other noble Lords, that the system is almost impossible to follow. It is counterintuitive and arcane. On the other hand, it seems to work. Again, I suggest that an urgent review is required.
The noble Lord, Lord Grade, has fired off a broadside against the CRR regime. Again, the arguments seem to be finely balanced. ITV’s continuing market power, with 40 per cent of TV advertising revenue in 2010, suggests that whatever it says—and it said a lot in evidence—a competition remedy ought to remain in place. However, if the CRR undertakings were removed and the strict conditions imposed by the committee actually took place, there would be a great deal of extra money to invest in UK content across the industry and in matters such as training. As that is definitely a public good, we have to consider it as important. I agree with noble Lords that ITV’s commitments to quality, original UK TV production, training and other PSB obligations would need to be held closely in front of it and there might have to be additional regulation.
For me, this has been a trip down memory lane and I have enjoyed it. This has been a very good debate. The committee system in this House is impressive and it commands wide respect. This report does the committee and your Lordships’ House great credit. I invite the Minister to respond.
Baroness Rawlings
My Lords, I am most grateful to my noble friend Lord Clement-Jones for elevating the last part of this afternoon, which has given us the opportunity to discuss the importance of the regulation of television advertising through the report he chaired following the untimely death of my noble friend Lord Onslow. As my noble friend Lady Fookes, the noble Lord, Lord Stevenson, and my noble friend Lord Clement-Jones all said, we miss him and his contributions.
This debate has confirmed something that is obvious and known to us already, but I repeat it. There is a staggering accumulation and store of informed expertise and experience available in this House that can be marshalled and focused upon in this area. I am grateful to the chairman and members of the House of Lords Communications Select Committee—six noble Lords—for contributing today and for undertaking this inquiry into the regulation of television advertising. I thank all noble Lords who have contributed to a most interesting debate. I read the report with interest and rather wished I had been on the committee.
As the report points out, many of the recommendations are matters for the competition authorities, but there are also recommendations for ways that the competition regime could be changed, which would require legislation. It therefore falls to the Government to consider these points. As my noble friend Lord Patten expressed so clearly, despite not being involved in the television world, the operation of the television advertising market is highly complex. I agree that it is so complex a subject as to compete, as several people have said, with the complexity of the dreaded Schleswig-Holstein question. We have, of course, carefully considered the recommendations and, even where we do not always agree with the solutions, we strongly support the aim of trying to encourage investment in high-quality UK programming.
There is no doubt about the importance of television in most people’s lives. We must therefore make certain that the regulation is correct. That will allow for innovation and growth but will still provide a degree of protection where necessary. The continued success of television broadcasting in the United Kingdom and abroad suggests that the existing regulations are, broadly speaking, fit for purpose.
Let us briefly consider the state of the market, since it is against this backdrop that calls for change must be considered. Time prohibits me from reeling out a series of statistics, but 2010 was a good year for television. Viewing figures were up, revenue was up and investment in content and first-run originated programming for the five main PSB channels also increased. Despite the growth of multi-channel TV, the highest percentage of this viewing remains with the PSBs and their extra channels.
I commend the Communications Committee for its diligence in examining the complexities and regulation of this market with a view to simplifying and improving it. The committee quite rightly concentrated on identifying ways of maintaining the commercial PSBs’ revenue potential so as to encourage more investment in programmes which have high standards.
I now turn to the CRR. Many of the recommendations in the committee’s report concern the removal of contract rights renewal and replacing it with the imposition of undertakings to make certain that ITV invests an appropriate proportion of any additional advertising revenue in high-quality programming. While we would welcome any increase in ITV investment in more diverse and new high-quality programming, we are not persuaded that this is the right way of achieving that.
First, there are a number of potential practical problems with introducing such undertakings which need to be looked at. For example: how is high-quality programming defined and by whom? How can it be determined whether the programmes would have been made anyway? In other words, how do you avoid deadweight? Is a decision taken in advance of broadcasting, so programmes have to be vetted in advance to see that they fit the criteria, or is the decision taken retrospectively? Aside from the practical issues, some of which could possibly be resolved, there are bigger problems around the operation of the competition regime.
ITV remains by a long way the most popular commercial channel in terms of audience. As the committee’s report noted, it is the only commercial broadcaster able consistently to draw in large peak-time audiences with programmes such as “Coronation Street”, my noble friend Lord Fellowes’s Emmy award-winning “Downton Abbey”, and “The X Factor”.
Lord Patten
My noble friend and other noble Lords might wish to be aware that at the close of the London Stock Exchange at 4.30 pm, the biggest riser on the stock market was indeed ITV, up by 5.94 per cent. I am not a shareholder but it may well prove that the mentions of ITV in your Lordships’ debate this afternoon have indeed moved markets.
Baroness Rawlings
I thank my noble friend Lord Patten for keeping us up to date. Unfortunately I have been in the Chamber for most of the day and have not seen that, but I thank my noble Friend very much.
It is precisely these kinds of successes that were a key consideration in the Competition Commission’s review of the CRR, which led it to conclude that it should be retained, notwithstanding the changes in the market since the original review. It cannot be the right time to be making the TV advertising market less competitive, which would be the inevitable effect of removing the CRR undertakings. I am most grateful for the intervention of my noble friend Lord Fellowes, which came from his highly successful professional viewpoint.
I remind noble Lords that Ministers themselves have no power to lift the CRR, which is a competition remedy that only the Competition Commission has the power to lift. Although we have some sympathy with ITV’s position, we should not forget that the CRR undertakings were offered by ITV at the time of the merger of Carlton and Granada when the Competition Commission had concerns that the new company, ITV, would have a dominant market position. We are aware of the important contribution that ITV makes to public service broadcasting. It produces high-quality programmes which also act as a spur to the BBC to produce equally good television. This competition is good for all of us.
We do not believe that it is in anyone’s interests to allow ITV to abuse its dominant position in the television advertising market. This would be bad not just for consumers and advertisers but would also have a detrimental effect on other broadcasters’ ability to produce high-quality content. Even if we could construct a watertight system for making certain that the additional revenue that ITV could raise as a result of the removal of the CRR was spent on additional high-quality content, it surely cannot justify making the TV advertising market less, rather than more, competitive.
The Competition Commission believes that its review of the CRR was constrained by not being able to consider the wider advertising market. This was something it felt Ofcom could do. Many noble Lords, including my noble friends Lord Razzall and Lady Fookes, and the noble Lord, Lord Lipsey, have pressed for the removal of CRR. The Government hear their case, and we welcomed Ofcom’s announcement in March that it would review the way TV advertising is traded. This review is currently going on and we await its outcome with interest. I wish I could answer the question asked by the noble Lord, Lord Macdonald, about the timing of this review. Alas, we have no date as yet but we hope it will be soon. If Ofcom concludes that there are reasons for concern, it can refer the matter to the Competition Commission. The results of Ofcom’s review, or recommendations coming from any further review by the Competition Commission, will feed into our communications review and be carefully considered in that context.
Perhaps I could answer the question put by my noble friend Lord Clement-Jones on harmonising advertising minutage for commercial PSBs and non-PSB commercial channels. I recognise that there is a debate about commercial PSB channels having different rules to non-PSB channels. However, that is an issue for which the independent regulator, Ofcom, is responsible, taking into account representations and the requirements of the AVMS directive. Ofcom is currently reviewing this.
On the question from the noble Lord, Lord Macdonald, on revenue arising from internet advertising, Ofcom has concluded that that is a different market. Of course, I shall pass the clear views of my noble friend Lord Patten to the department.
I close by thanking all noble Lords who have contributed to the debate. If I have not answered all the questions, I shall of course write, placing a copy of my letter in the Library. I am grateful again to my noble friend Lord Clement-Jones for undertaking this inquiry, for his chairmanship of this difficult subject area and for bringing this debate to the House. It may be that as the market develops and circumstances change, the Competition Commission concludes that the CRR is no longer necessary, as felt by so many of your Lordships today. I shall take noble Lords’ views back to the department.
I should like to end on a more positive note. As I touched on earlier, with revenues, investments and viewing all up, television is one of the UK’s strengths and its quality remains the envy of the world.
Lord Clement-Jones
My Lords, I thank all noble Lords who have taken part in the debate, including members of the committee and the two non-members, the noble Lords, Lord Lipsey and Lord Patten, who have plunged into the debate so effectively. As a result of his Front Bench duties, we miss the noble Lord, Lord Stevenson, just when he was making a major contribution to the debate.
The debate has not been at all Byzantine or incestuous. We appreciate the noble Lord, Lord Fellowes, keeping a watchful eye over the future finances of ITV. That has been very helpful. None of us expected a Damascene conversion from the Government in the light of their original response. I am sure that ITV’s share price will go down tomorrow morning as a result of today’s debate, even if it went up earlier.
We have heard significant differences about whether CRR is fit for purpose. We have a common interest in believing that it is the viewers’ desire to have original UK programming. That is paramount. How you judge that and what kind of regulation over ITV advertising is adopted is crucial. I hope that the debate will continue with the Green Paper, when that is produced, and that the Government are persuaded by the outcome of the Ofcom review that the trading system needs to change.