House of Lords
Retirement of a Member: Lord Bramall
The Lord Speaker (Baroness D'Souza)
My Lords, I have to notify the House that the noble and gallant Lord, Lord Bramall, has indicated his wish to retire permanently from the service of the House. His retirement will take effect today. I am sure that the House will wish to join me in recognising the 26 years of service that the noble and gallant Lord has given to this House. Furthermore, the House will want to congratulate the noble and gallant Lord on taking this difficult but entirely praiseworthy step. On behalf of all noble Lords, I wish the noble and gallant Lord a very happy retirement.
Tourism: Visa Restrictions
(11 years, 7 months ago)
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Lord Clement-Jones
To ask Her Majesty’s Government whether they have assessed the economic impact on the United Kingdom tourism industry of new visa restrictions for visitors from Brazil.
The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach)
My Lords, Brazil is an important partner for the UK and we are investing greatly in our diplomatic and economic ties. We have no plans to impose a visitor visa regime in Brazil. In the non-visitor categories, visa applications from Brazil in 2012 were up by 8% when compared with 2011, while in the same year almost 90% of those applications were successful and visas were issued.
Lord Clement-Jones
My Lords, that is instant clarification and I thank the Minister for that. However, does not this kind of media misunderstanding and reporting demonstrate the fact that the tourism sector, despite its importance and huge potential for job creation, still believes that it is the Cinderella of British business sectors? Does this not argue for a much more joined-up, strategic approach between the Home Office and other government departments in partnership with the industry to ensure that Britain’s visa policy is not a disincentive to visitors and actually builds on the Olympic legacy?
Lord Taylor of Holbeach
I think I can reassure the noble Lord that the Government do have a joined-up approach to visa policy and, indeed, to the tourism industry. Seeing visitors enjoying aspects of our life here and understanding more about this country is a key part of our strategy, and we want to encourage it. There is no difference of approach between government departments, and the Home Office is working hard to make sure that we have an efficient visa service.
Lord Wigley
My Lords, in the context of visas from Brazil, will the Minister pay some attention to the question of those coming over to Cardiff to the WOMEX world music festival, which is due to be held in October? One of the largest contingents is due to come over from Brazil. Can we have an assurance that there will be no difficulties whatever in getting visas for that purpose?
Lord Taylor of Holbeach
I have to thank the noble Lord for advising me of the date of this event, which I shall put in my diary. I was not aware of it. All I know is that the Home Office does try to assist events of this nature. I have certainly noted the context of the noble Lord’s question and I will make sure that the Home Office is aware of it. It is our intention that visitors to this country should be encouraged.
Baroness Hooper
My Lords, is my noble friend the Minister aware that not only Brazil, with its great potential, has difficulties over visas? Only yesterday, eight distinguished parliamentarians from Peru visited our Parliament. Not only did they have to send their valued diplomatic passports to Brazil for the issue of the visas, but they had to pay up to $800 each in order to obtain them. Is it not time that we returned to the tried and trusted system of the issuance of visas by our embassies abroad, where local knowledge and discretion can be applied?
Lord Taylor of Holbeach
In the vast majority of cases, that is exactly what happens. If the delegation from Peru had some difficulty and had to pay the premium price for speedy and accelerated service, that lies in its own hands. It is important that people recognise that all processes, particularly ones that are designed to protect our security, have to be thorough. I reinforce the point that there is no problem with visas from Brazil. There are no visitor visas from Brazil.
Lord Soley
Are the Government taking seriously the triple whammy that has hit the tourism industry of the visas, the air passenger tax and the lack of runway space in the south of England? It means that British Airways goes to Madrid from South America, so of course many of the visitors from South America now stay in Spain and continental Europe. It is a triple whammy for the tourist industry, which would tell the Government that if they would only listen to them.
Lord Taylor of Holbeach
I accept what the noble Lord says, although he broadens the question way beyond the immediate and perhaps beyond my competence to answer it. All I can say to him is that we welcome visitors to this country, and that we as a department want to play our part in making sure that people who want to come here can do so as easily as possible.
Baroness Chalker of Wallasey
I am sure my noble friend is aware that it is not only tourist visas that occasionally give us major problems. In recent months, I have had instances not only from Brazil but from many other countries, particularly where people live outside a capital and where the visas are being issued only in a neighbouring country. I earnestly ask him to get the Home Office and the Foreign Office to look at this situation again, because it is denying us return visits that are well tied up with British investment.
Lord Taylor of Holbeach
My noble friend has a distinguished record as a promoter of British interests around the world, and I take very careful note of what she says. However, I reiterate that where we are dealing with countries where we require biometric co-ordinates, it has to be done properly, which sometimes necessitates it being an out of country application. I apologise that I cannot give particular details in response to my noble friend’s question, but I hope that assists her.
Baroness Smith of Basildon
My Lords, is the Minister aware of recent reports from the Independent Chief Inspector of Borders and Immigration, who has highlighted some very serious issues that cause delays in decisions on visa applications? Previously, the chief inspector has complained about his recommendations being accepted but not acted upon. This, as I know the noble Lord understands, causes huge problems for our economy and for our reputation abroad. Can the Minister give the House an update on the action that is now being taken to give effect to the inspector’s recommendations to address this problem?
Lord Taylor of Holbeach
I think the noble Baroness is well aware that the Home Office has taken a decision about the UKBA, which will mean that the processing of visas is separate from enforcement from now on. This will make a considerable difference. I know John Vine and have a great deal of respect for him. His reports are always very high value and I believe that the UKBA is learning an enormous amount from the advice that he is giving them. The Home Office takes his report seriously.
Baroness Afshar
My Lords, following the advice given to me by the Minister, I have been encouraging Iranian women applying for visas to this country to continue to do so. Unfortunately, however, I understand that while they are in an Arab country that can give them visas, they are required to stay for a long period before they can actually get them. The expense therefore remains prohibitive, which means that many students who wish to study here, whom the Government assure us they wish to come, cannot do so simply because of the delay and the huge expense of living outside their countries, where they cannot get their money out anyway.
Lord Taylor of Holbeach
The noble Baroness makes a point that is based, I think, on her experience, and I take note of it. All I can say is that the visa service has to be deliberative because we have to maintain our security in this country. I am sure that the noble Baroness will understand that. However, it is our intention to make sure that it is as efficient as possible and encourages the maximum number of visitors, and indeed students, to this country.
Climate Change
(11 years, 7 months ago)
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Baroness Worthington
To ask Her Majesty’s Government what efforts they are making to ensure that the European Union adopts more ambitious climate change targets.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, the Government are committed to taking decisive action on climate change. Our electricity market reform is the biggest change to the UK electricity market since privatisation and is needed to ensure that we have a diverse range of energy supplies and achieve our emissions reduction targets. At EU level, the Government support current proposals to strengthen the EU emissions trading system and support the 2050 low-carbon road map, which sets out the cost-effective pathway to the EU’s objective of cutting emissions by 80% to 95% from 1990 levels by 2050.
Baroness Worthington
My Lords, Her Majesty’s Opposition strongly support the Government in seeking to increase the European Union’s ambition in tackling climate change. It is at that level that we need to make progress. We therefore note with regret that on 16 April, 20 UK Conservative MEPs rebelled against the government line and voted against a crucial proposal to lift the EU carbon price off the floor. Can the Minister comment on what measures are being taken to ensure that all of the Government act in support of a unified, EU-wide approach to tackling climate change and to prevent such rebellions taking place in the future?
Baroness Verma
My Lords, I join the noble Baroness in her great disappointment that this occurred. However, we are a democracy and are allowed to think for ourselves.
Baroness Verma
I might just sit down at this point. However, we also recognise that we need to make progress and we will support and engage very strongly with the EU to try to ensure that we get measures to reform the EU ETS. We are calling for a clear timetable for legislative proposals on structural reform to be put forward.
Lord Lawson of Blaby
My Lords, the Conservative MEPs are to be warmly commended. The Government have got this completely wrong and it is fortunate for them that the ETS has been killed. Will the Minister reconsider her Answer to the noble Baroness, Lady Worthington? Is she not aware that what the Opposition are calling for in this Question is a futile gesture, the only possible result of which would be higher energy costs, the loss of British business to countries such as the United States where energy costs are much lower, fewer jobs and an increase in fuel poverty? That is what they are advocating.
Baroness Verma
I know that my noble friend has some views on this but I cannot agree with many of them. The market for low-carbon goods and services is a growing one for the UK, so I do not buy into the argument that this is costing British business. We are increasingly able to offer renewable energies as part of a good mix of our energy supply, so that we become less dependent on international global price hikes. I urge my noble friend to look at the benefits of having a good energy mix. Part of that must be a good carbon floor price.
Lord Campbell-Savours
My Lords, where are we in the discussions on overall climate change targets for 2030, and to what extent will these include clear targets on renewables?
Baroness Verma
My Lords, the noble Lord of course knows that renewables will play a vital role in both the UK and the EU’s low-carbon energy mix. We will continue to ensure that that is the case after 2020. Our own electricity market reform proposals will provide strong support for renewable electricity generation, and at EU level we need to consider, within the proposed broader 2030 climate and energy framework, how best to support renewables and other low-carbon forms of energy.
Lord Deben
My Lords, did my noble friend notice that our noble friend who has just asked a question was not present at the launch of the Committee on Climate Change’s report on competitiveness, which showed clearly that electricity market reform and working towards a carbonless energy system do not diminish Britain’s competitiveness but indeed increase it? Would it not be helpful if my noble friend listened to the science and to what the Committee on Climate Change put forward?
The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford)
My Lords, I am sorry, it should be the noble Lord, Lord Pearson. If we have some quick questions and answers, I hope that we will come back.
Lord Pearson of Rannoch
In that case, my Lords, when will the Government listen to the large and growing number of scientists who say that manmade climate change is so small as to be irrelevant? When will they be guided by measurement of what has happened instead of misguided modelling?
Baroness Verma
My Lords, we know that there is science out there that tells us climate change is taking place and we really need to take that science very seriously.
Baroness Parminter
Given the recent defeat of the backloading of the emissions trading scheme, will the Government now support a renewables target post-2020 as a proven way to secure investment and achieve climate change objectives?
Baroness Verma
My Lords, the Government are doing a lot towards ensuring that we achieve our renewables targets. Through the processes that we have engaged in, we are making a lot of progress.
Human Trafficking
(11 years, 7 months ago)
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Lord McColl of Dulwich
To ask Her Majesty’s Government, further to the letter from Lord Henley to Lord McColl of Dulwich (DEP 2012-0194) of 1 February 2012, which has been placed in the Library of the House, what further steps they have taken to ensure compliance with European Union Directive 2011/36/EU on preventing and combating trafficking in human beings and protecting its victims, given the passing of the compliance deadline on 6 April.
The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach)
My Lords, I pay tribute to my noble friend’s efforts to bring human trafficking to wider attention. The Government are confident that the UK fully complies with the requirements of the EU directive. We have extended extraterritorial jurisdiction so that we can prosecute UK nationals for trafficking regardless of where the offence occurs; expanded one labour trafficking offence; and amended legislation to protect trafficking victims in court proceedings. The victim care contract for England and Wales also reflects the directive.
Lord McColl of Dulwich
I thank the Minister for that reply, and for introducing the trafficking people for exploitation regulations, which have been very useful. However, because the Government have failed to notify the European Commission of the transposition of the directive, when I spoke to agents of the European Commission yesterday, they felt that we were still in breach. What plans does the Minister have to complete the process?
Lord Taylor of Holbeach
I can say that the UK has notified the Commission of the measures taken to transpose the directive. Compliance with the EU directive is of course only one of the ways in which we can fight that terrible crime. The Government’s human trafficking strategy is clear as to how the UK will identify and support victims, work with source countries, take action at the border and better co-ordinate UK law enforcement efforts under the direction of the interdepartmental ministerial group.
Baroness Howarth of Breckland
My Lords, I hear what the noble Lord says, but is it not true that having escaped rape and misuse, these people then find themselves without jobs or finance? What is the Minister doing to encourage local authorities to support those individuals, who are often alone, without any language skills or advocacy, and who cannot get back to their homeland but cannot survive in this country?
Lord Taylor of Holbeach
I thank the noble Baroness for that question. If noble Lords have the time today, they should go to the Upper Waiting Hall on the Grand Stairway to the Committee Room Corridor and visit the exhibition there, because it demonstrates how vulnerable those people are. Local authorities have a big responsibility in this regard. We have recently commissioned a review by the Children’s Society and the Refugee Council which will consider the experience of trafficked children in local authority care and try to establish good practice for local authorities. The review will report later this year.
Baroness Smith of Basildon
My Lords, the Minister will be aware of this week’s Lords EU Committee report, which stated that to opt out of EU policing and justice measures would,
“weaken the ability of the United Kingdom’s police and law enforcement authorities to cooperate with … other Member States regarding cross-border crime”.
Last year, 420 requests were made to the UK for immigration and human trafficking offences under the European arrest warrant. I am genuinely puzzled. I hope that the Minister can help me, because I know that he cares about the issue. How do the Government believe that opting out would fulfil the Prime Minister’s pledge to make Britain a world leader in the fight against human trafficking?
Lord Taylor of Holbeach
I do not see any conflict between our policy objective of re-evaluating our relationship on a number of European matters with our strategy for human trafficking which, by definition, involves co-operation with other countries, responding to other countries’ requests and making sure that other countries work with us to tackle this problem at source. We have representatives in vulnerable countries making sure that we are well aware of the scale of these operations overseas and are doing our best to stop at source the crime of young people being picked up to be brought to this country, as we know too well they are.
Baroness Brinton
My Lords, the 54 pages of advice that the UK Border Agency provides to its staff on identifying and working with suspected victims of trafficking are admirable, but how many front-line staff have been trained face to face in the identification of potential victims?
Lord Taylor of Holbeach
The Government have already recognised through the 2012 interdepartmental ministerial group the need to strengthen awareness training for front-line professionals. Police, immigration personnel and prosecutors across the UK have access to e-learning packages on human trafficking. In addition, the Government recently provided funding to three organisations to develop and deliver training to professionals working in a range of environments, including social care, youth offending teams and local authority housing.
Lord Alton of Liverpool
My Lords, in welcoming what the Minister said about tackling the long-term reasons for trafficking, has he read the excellent article by the right honourable Gordon Brown about the coalition that has been created to try to place more emphasis on the need for education as the way to break the cycle of disadvantage? We have only 1,000 days to go before the millennium development goals expire. Does not the Minister agree that children on the periphery, particularly trafficked children, those taken as child brides and those taken into child slavery, are incredibly vulnerable and that the way to break that cycle is by ensuring that children in many countries where they do not enjoy education do so?
Lord Taylor of Holbeach
I read an awful lot but I have not read that particular article. It sounds as if it is worth my attention, and I can understand the noble Lord drawing it to my attention. Yes, a lot of the battle on this issue lies in the originating countries, but it also lies here in ensuring that we detect and pick up these vulnerable individuals when they arrive, so it is a dual policy. I agree with the noble Lord that education is probably one of the most important factors.
Lord Spicer
My Lords, the letter to my noble friend Lord McColl states clearly that primary legislation is required. Will this be in the Queen’s Speech?
Lord Taylor of Holbeach
I think that noble Lords know the convention, and there are only a few more days to wait.
Police: Racism
(11 years, 7 months ago)
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Lord Clinton-Davis
To ask Her Majesty’s Government what is their response to the allegation made by the Metropolitan Black Police Association that the Metropolitan Police Service is institutionally racist.
The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach)
My Lords, the Government do not believe that the Metropolitan Police Service is still institutionally racist. It has worked hard to improve relations with communities and the representativeness of its workforce since the Stephen Lawrence inquiry. The commissioner has been clear that he will not tolerate racists in the force, and has publicly stated his determination to ensure that the force looks more like the community that it serves.
Lord Clinton-Davis
I thank the Minister for that reply. The Metropolitan Black Police Association has made very serious allegations to the effect that the Metropolitan Police is still institutionally racist, 20 years after the infamous Lawrence case. It has referred to the wholly disproportionate number of stop-and-search cases involving the black and Asian communities compared with the white. What is being done to address this alleged—I repeat “alleged”—situation?
Lord Taylor of Holbeach
My right honourable friend Damian Green, the Minister for Policing, recently met the National Black Police Association to discuss its concerns about race in policing and offered to work in partnership with the College of Policing because, as noble Lords will know, that new institution will be important in strategies such as this. There have been suggestions that elements in policing, as with other institutions, still sustain racist attitudes, but it is clear from the comments of the commissioner of the MPS, Sir Bernard Hogan-Howe, that he is determined, and he is supported by the Government in this regard, to stamp it out.
Lord Waddington
My Lords, does this not come close to the pot calling the kettle black? What could be more institutionally racist than insisting on having a black police association?
Lord Taylor of Holbeach
For my part, I am reassured that any drivers that ensure that the police more fully reflect the communities that they serve must be a good thing, so I cannot join with my noble friend in this regard. A lot of progress has been made in increasing the number of police officers from BME backgrounds but there are still too few, and there are still too few in the higher ranks of the police force. I hope that one of the considerations of the direct entry scheme will be to ensure that some of the higher levels of the policing profession are from British minority ethnic backgrounds.
Lord Harris of Haringey
My Lords, can the Minister tell us how many senior officers of ACPO rank there are from black and minority ethnic communities as a proportion of the total? Can he also say what steps will be taken to ensure that individuals who come in by direct entry from those communities are not set up to fail because they will not have been through the normal ranks structure?
Lord Taylor of Holbeach
Of course, that hazard would apply to any candidate. However, I am confident about that policy and I believe it will enhance the policing profession. I have some figures here. There are 6,604 BME officers in the 43 forces in England and Wales, representing 5% of total police officer strength. The proportion of those of chief inspector rank or above is only 3.7%. I think that bears out the point that the noble Lord is making, one with which I do not disagree. There are too few at that level.
Lord Dholakia
My Lords, I thank the Minister for a very helpful Answer. Does he not agree that, 20 years after Stephen Lawrence was stabbed to death and after the Macpherson report on institutional racism, it is time to look at this issue again? In particular, does he not agree that it would be right to ask HM Inspectorate of Constabulary to undertake a thematic review of race relations policies to see what progress has been made since then?
Lord Taylor of Holbeach
Since the Macpherson report, which was the initial report, as noble Lords will know, there have been a number of allegations. Indeed, currently there is a review investigating allegations of a conspiracy to cover up this case. We will take that review seriously. It does not alter the fundamental strategy, which is to try to make sure that police numbers and the ethnic make-up of policing reflect the communities that they serve.
Baroness Berridge
My Lords, I recently had the pleasure of spending six days out with team A of Southwark Metropolitan Police Service. During that time, we conducted a stop and search of a black man outside the Damilola Taylor Centre. Including myself, there were three representatives of the Metropolitan Police Service handling the coercive power of the state, and every single person who walked past us was from the black community in the area. When will my noble friend the Minister insist that all police services raise their levels so that they reflect the populations that they serve, give a time limit for that to take place and perhaps even make it a performance indicator?
Lord Taylor of Holbeach
My noble friend reinforces much of what I have been saying. In January 2012, the Commissioner of the Metropolitan Police initiated the “stop it” campaign as a way of trying to ensure a better balance. The police must use stop and search in a proportionate fashion, and we will consider the outcomes of that strategy. I commend my noble friend on joining in that particular exercise. I attended a dinner here with the Commissioner of the Metropolitan Police the other evening for the parliamentary police programme, which is widely supported by parliamentarians—indeed, Members of this House were present. I commend that programme. Anything that makes us, in politics, more aware of the decision-making and the thoroughness with which the police do their work is worth while.
Arrangement of Business
Baroness Anelay of St Johns
My Lords, yesterday evening I announced that Parliament will be prorogued some time this afternoon. I hope it might help the House if I now give a small indication of our progress today.
We will shortly turn to our annual Maastricht Motion debate. This debate does not have a list of speakers. Therefore it is rather difficult to estimate the length of time the debate may take. If it concludes before 1 pm, we will adjourn during pleasure until 1 pm to await a message from the Commons. At that point, I hope to be able to announce the time of the Royal Commission. In other words, although I cannot give specifics about the time of the Royal Commission now, I certainly hope to do so around 1 pm.
London Local Authorities and Transport for London (No. 2) Bill [HL]
Banking: Professional Standards
(11 years, 7 months ago)
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Lord Hill of Oareford
That the Commons message of 24 April be considered and that the orders of appointment of the committee appointed to join with the committee of the Commons as the Parliamentary Commission on Banking Standards shall remain in force and effect in the next Session notwithstanding the Resolution of this House of 17 July 2012 and the Prorogation of Parliament, until the day on which the Commission makes its report on standards and culture of the UK banking sector.
Children’s Hearings (Scotland) Act 2011 (Consequential and Transitional Provisions and Savings) Order 2013
(11 years, 7 months ago)
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Earl Attlee
That the draft order laid before the House on 11 March be approved.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 23 April.
EU: Budget Report
(11 years, 7 months ago)
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Lord Newby
That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in the Budget Report, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook, which forms the basis of the United Kingdom’s Convergence Programme.
Lord Newby
My Lords, I welcome this opportunity to debate the information that will be provided to the Commission this year under Section 5 of the European Communities (Amendment) Act 1993. As in previous years, the Government report to the Commission on the UK’s economic and budgetary position in line with our commitments under the EU’s stability and growth pact. The Government plan to submit their convergence programme by 30 April, with the approval of both Houses.
The convergence programme explains the Government’s medium-term fiscal policies as set out in the 2012 Autumn Statement, Budget 2013 and OBR forecasts and is drawn entirely from previously published documents that have been presented to Parliament. It makes clear that this year’s Budget reinforces the Government’s determination to return the UK to prosperity and it reiterates the Government’s number one priority: tackling the deficit.
This debate also provides the opportunity to debate aspects of the European semester, specifically the annual growth survey and the alert mechanism report, the first stage of the macroeconomic imbalances procedure. The European semester as a whole provides a broad framework for the monitoring and surveillance of member states’ fiscal and economic policy at EU level. It attempts to exploit the synergies between these policy areas by bringing together their reporting cycles. The Government fully support the European semester as it is vital that the EU as a whole grips the urgent growth challenge it is facing and the semester provides a framework for co-ordinating the structural reforms necessary across the EU.
Progress is being made to tackle the crisis in the euro area, but the challenges facing growth in Europe continue to be serious. We have seen a welcome fall in borrowing rates, particularly for Spain and Italy, from the very high levels they reached last summer. This reflects the gradual progress that the euro area authorities have made in tackling the crisis and, in particular, the commitment by the ECB to stand behind the euro, but recent events in Cyprus remind us that the euro area continues to be a fragile environment. Only a sustained period of successful reforms and improvements in financial markets can lay the foundations for growth.
Economic activity in the European Union remains very subdued. EU GDP contracted by 0.5% in the last quarter of 2012 and recent economic indicators suggest that the slow end to 2012 has carried over into 2013. In the euro area, most periphery economies are in serious recessions, with weak labour markets, adverse credit conditions and an ongoing process of deleveraging all weighing on growth. Without sustainable economic growth, the EU will be unable to repay its debts, create jobs or maintain its standard of living. In order to return the EU’s economy to a sustainable footing, ambitious and far-reaching structural reforms will be required. These are the reasons why the EU semester is as relevant as ever.
The annual growth survey and alert mechanism report, the two semester documents we are debating today, were published on 28 November 2012 and officially launched the European semester for 2013. The annual growth survey presents the Commission’s view of EU policy priorities for the forthcoming year. It highlighted five broad priority areas for reform in EU member states for 2013: pursuing differentiated growth-friendly fiscal consolidation, restoring lending to the economy, promoting growth and competitiveness, tackling unemployment, and modernising public administration. These priorities closely reflect the Government’s approach to growth through low-cost, supply-side structural reforms while maintaining the importance placed on fiscal consolidation as set out by the Chancellor at Autumn Statement 2012 and Budget 2013. Budget 2013 set out the Government’s assessment of the UK’s medium-term economic and budgetary position. As confirmed by the OBR, the UK economy is still recovering from the biggest financial crisis in generations, one of the deepest recessions of any major economy, and a decade of growth built on unsustainable debt levels.
Lord Eatwell
My Lords, as the noble Lord, Lord Newby, made clear, the Government are required by the European Communities (Amendment) Act 1993 to submit an assessment of the UK’s convergence programme towards the economic structure of the eurozone. This requirement is perhaps more apt this year than in past years. On the broadest economic assessment, the Government’s convergence programme has been a great success: the eurozone is stagnant and so is the UK. Despite the welcome announcement of some growth in the past quarter, overall performance for the past six months has been growth of nil, and output is still 2.6% below the 1998 peak. Things have come to a pretty pass when growth of 0.6% per year is a cause for celebration. The Chancellor’s statement that this demonstrates that the UK is healing is surely delusional.
Moreover, the second Motion before us commends the Government’s economic stance to the European Union member states, declaring that they should,
“continue on the path of growth-friendly fiscal consolidation”—
I repeat: growth-friendly fiscal consolidation—in the week in which, as a result of UK-style austerity policies being implemented in the eurozone, even German industrial growth has shuddered to a halt. We know that the eurozone is stagnant and that the outcome of the Government’s policies has been to condemn Britain to the same fate. We have, indeed, converged. Therefore, the fundamental question raised by the Budget report and the OBR’s economic and fiscal outlook is whether growth-friendly fiscal consolidation is an economic oxymoron. Will the austerity policies advocated so consistently by this Government result in persistent stagnation, or will they restore the sustained economic growth of over 2% a year that this country desperately needs?
A casual reading of the OBR outlook would suggest that growth will be restored. After all, on page 8, it is argued:
“We expect the economy to grow by 2.3 per cent in 2015, 2.7 per cent in 2016 and 2.8 per cent in 2017”.
That all sounds pretty good, but a more careful reading of the report reveals a disturbing aspect of these predictions. On page 39, the OBR states:
“Our forecasts for medium-term growth are shaped by our estimate of the amount of spare capacity in the economy, and the speed with which it seems likely to be absorbed”.
It then lets the cat out of the bag by stating that,
“the output gap is assumed to narrow at a relatively gradual rate over the medium term”—
I repeat: assumed. In other words, the OBR has no causal explanation of the determination of the growth rates predicted in the medium term. It is merely assumed that by some unspecified mechanism the economy will return to a medium-term growth path when things get back to normal.
Once we realise that this future growth is assumed to happen, the OBR’s forecast for the future path of government borrowing is cast in an entirely new light. The fall in the deficit that is predicted from 2014 onwards is, the OBR makes clear, a function of the assumed increase in revenues consequent upon the assumed reappearance of economic growth. It is revenues that do all the heavy lifting, but those revenues are predicated on the assumption that the economy will return to medium-term growth. It is just an assumption; there is no evidence, no theory or causal explanation.
Once these characteristics of the OBR’s methodology are taken on board, a fundamental question mark is raised over the foundations of the Government’s economic policy, which is set out with admirable clarity on page 1 of the Budget report. They are:
“fiscal responsibility to deal with our debts with a credible deficit reduction plan … monetary activism to support demand … and … supply-side reform to help businesses create jobs”.
Those are the three components of what might be called the austerity strategy. Fundamental questions that are raised from this outline are: does fiscal consolidation cut the deficit, or does it simply cut growth, with little or no impact on the deficit? Is monetary activism an effective means of supporting demand? Are the Government implementing the supply-side reforms that will deliver lasting prosperity? I will deal with these questions in turn.
Lord Harrison
My Lords, I welcome the good news this morning that our Chancellor has avoided the epithet of “the triple dipper”—of taking Britain into that sorry state and in that, as a good man of the north-west, rivalling Blackpool’s big dipper in effecting the number of dips in the UK economy. As has already been identified, within those more positive figures, it is sad to see that housing construction decline fails to be addressed and that manufacturing has been identified as another weakness.
First, I want to draw attention to some of the points made by the noble Lord, Lord Newby, which are more positive. I encourage the noble Lord that if he—as his colleagues often do—tries to make the excuse that the eurozone’s trials and tribulations affect the UK economy, please do not accuse the previous Government which won their spurs in the way in which they reacted to the 2008 crisis. When this Government refer to the wider and broader financial crisis, I ask that they do not use the excuse that the United Kingdom is affected by the eurozone. The noble Lord, Lord Newby, did not do that, but I encourage some of his colleagues to turn their attention to that.
Secondly, the noble Lord, Lord Newby, mentioned two vital areas where we could revive the economy if we were to put our minds to it. He evoked the single market—I am a single market fanatic, and am happy to say so—and he identified the single market and digital services. Why are we not in there ensuring that it happens? The message that we are giving out is our potential withdrawal from the European Union, from the world of the single market and from all that it offers. We need to hear from Ministers how they are redoubling their efforts to ensure that we are being effective with the single market, which offers the true route to improving economies and finding jobs. I was very pleased to hear a government Minister talking about the importance of trade, which is the unbidden subject in political circles. He outlined the advantages if we were to complete the Doha round to bring wonderful opportunities for British businesses, European business and industry, and worldwide trade and industry if we made the effort. I declare an interest as the parliamentary representative of the Ministerial Conference in Bali in December. Again, can we hear some more positive notes, not just from the noble Lord, Lord Newby, in this area?
The negativity about the euro really does not help. There is no need to worry colleagues because the Government say that they will not take us into the euro and we are forbidden by the very criteria that we will examine this morning. Let us consider the debt criterion which is 60% of GDP. We stand at 90%, which has gone up from the 79% when Labour left office. The deficit stands at 6.3%, which is more than double the criterion of 3%. Let us make an effort. Incidentally, while I have the Floor, I will say that Latvia will join the euro next year because it satisfies those convergence criteria; Lithuania is making its bid later. Britain, which just tells the rest of the world that we are not interested in these things, cannot do so because we do not satisfy the criteria by which any measure would be a sensible thing to accomplish in terms of running a proper and safe economy.
Baroness Noakes
My Lords, it is a pleasure to follow the noble Lord, Lord Harrison, whose enthusiasm for Europe usually knows no bounds. As he knows, it is an enthusiasm which I do not quite share. However, I would like to associate myself with his remarks on the FTT, which is a very serious issue. Like him, I am concerned that our Government may have acted a little late in the process, although we have always made clear our disapproval of the FTT.
If I may start with a bit of procedure, I was disappointed to find that this debate did not have a speakers list. When we have debated the Maastricht Motion in the past, we have normally had a speakers list; indeed, the Companion says that most debates have speakers lists. I have always thought it one of the civilised differentiators between this House and the other place. I urge my noble friend the Minister, and indeed the whole of the Front Bench, to ensure that when we have debates we have speakers lists, wherever possible, and do not get deflected by bits of procedural distinction from doing that.
When I first encountered the Maastricht Motion procedure of giving parliamentary approval for sending information which Brussels could quite easily download on the internet, I thought that the world had gone mad. Even now, the Government have to put only the Budget Statement and the OBR into an envelope and put that in the post to Brussels, but we have to approve this. I fail to see what parliamentary approval adds to that process. I understand that the process first came about because the Benches opposite insisted on the insertion of what is now Section 5 of the European Communities (Amendment) Act 1993. If this procedure ever had any meaning, perhaps the Benches opposite might like to explain it, but if it did have any meaning it does not any more. I hope that the Government will consider repealing Section 5 the next time that an EU Bill comes along.
Lord Eatwell
My Lords, I can maybe help the noble Baroness by confessing, “It was me that done it”. The objective at the time was to urge the then Government of John Major—Sir John Major as he is now—to make a report on the convergence procedure. The first time the debate took place, they elected not to do that but simply to send in the Budget report instead. I complained mightily, but of course to no avail. All Governments since then have taken this cop-out of simply sending off the Budget report instead of issuing a proper report on convergence.
Baroness Noakes
I am very pleased to learn that. I think that backs up my case for the repeal of Section 5 as having no meaning whatever. In addition to repealing Section 5, I hope that the Government will, as part of their current review of EU competences, also look carefully at whether the economic policy articles of the EU treaty, which are basically the source of the documents that we are reviewing today, have any real meaning for the UK. I believe that we should be seeking to disapply those articles as part of our membership renegotiation. Some of those articles talk about the co-ordination of economic policies, but it is clear that the context for them is economic and monetary union, which has no relevance to us. For example, the convergence reporting included in the first Motion would be fine if we were preparing to join the euro, but we are not and I sincerely hope that we will not.
The noble Lord, Lord Harrison, taunted us a little by saying that we would not qualify anyway. I would point out to him that most of the current members of the eurozone do not qualify at the moment, so I do not think that is a particularly good argument. In any event, we are not going to join the euro, so why are we bothering to submit information that we call a convergence programme? Under Article 126, member states have to avoid excessive deficits and submit to monitoring by the Commission, but under the existing UK protocol we are not subject to any sanctions whatever for non-compliance. There is no point in submitting information that simply allows Brussels pen-pushers to find things to do during the day.
Frankly, our economic policy is none of the EU’s business. We should stop this charade of pretending that the eurozone architecture has some meaning for us. The economic challenges for the UK have nothing to do with our convergence with the rest of the EU or whether our economy complies with eurozone rules. To that end, I find it difficult to support the sentiments behind the second of the Minister’s Motions, which are predicated on the relevance of the reporting and surveillance regimes set up under the European semester. These may well be relevant to the eurozone—I have no real view on that—but I am clear that they are not relevant to us. Of course the UK has an interest in the economic health of countries within the EU and we have an interest in the stability of the eurozone, or at least in the avoidance of a disorderly break-up of the eurozone. However, our interest derives from the fact that European countries are our trading partners and not from our membership of the EU. We are always interested in the economic status of countries with which we trade, whether they are in the EU or not.
I agree with the noble Lord, Lord Eatwell, on the importance of the UK being competitive in export markets on a global basis. However, we should remember that European countries account for a minority and a diminishing proportion of our external trade. If we knock out the Rotterdam-Antwerp effect, we probably export less than 40% of our exports to EU countries at the moment, and that 40% really only represents five countries that are important to us. Furthermore, we have a substantial trade deficit with EU countries— £46 billion in the latest statistics—and the growth prospects for the EU are at best weak.
The rest of the world is much more important to the UK both in terms of the proportion of our exports and the fact that we have a trade surplus. Since growth prospects for rest of the world are distinctly more promising than for the EU, our focus should be on looking not at what the EU is doing but at what is happening in the rest of the world. The IMF forecasts for 2014 show the emerging economies powering ahead at a little short of 6%, the US—a major trading partner for us—at 3%, but the poor old EU struggling along at around 1%. I think that that puts today’s Motions in context.
The second Motion before us invites the House to support the five priorities which are set out in the EU’s 2013 Annual Growth Survey, which the Government say are in line with their own growth agenda. In line with my earlier comments, I do not much care whether our economic policies are in line with the EU’s priorities but I do care whether our policies will deliver growth and success in the UK economy. Today’s GDP statistics, which have already been referred to, are encouraging but clearly we still have a long way to go.
Your Lordships’ House had an opportunity to debate the Budget Statement last month. I regret that I was unable to take part in that debate. I have no intention of wearying the House with the speech that I would have made had I been able to attend but, in concluding, I will just reflect on one aspect of the Chancellor’s policies to support the economic growth which we so desperately need. That concerns taxation, an area in which the EU’s policies are simply not relevant to us. In introducing the debate last month, my noble friend Lord Deighton said:
“I believe that this Government have got the tax mood music just right. Lower tax rates for companies and individuals are essential for a successful enterprise economy”.—[Official Report, 21/3/13; col. 689.]
The thought that I want to leave with the Minister today is that the tax mood music is certainly making a better sound than we have heard for many years but it is not yet playing the tunes that make us dance for joy. We still have high rates of tax on individuals, including some very nasty marginal rates in the £110,000 to £120,000 range. The corporation tax destination rate of 20% is great by G20 standards, and was a really encouraging move in the Budget, but it is not a low rate when compared with the rest of the world. We do not compete only with the G20 when investment decisions are made. We need to be competitive in a much broader context and cannot be complacent on that. Low tax rates—both personal and corporate—are strongly correlated with economic growth and wealth creation, which increases tax revenues. High rates do the reverse. Our economy needs much bolder action and much more courage from the Government on tax.
Lord Layard
My Lords, I welcome this debate, which I think is more timely than on previous occasions when we have had this type of debate. Now even the IMF is beginning to question the Government’s strategy. Why is that? Because of the facts: we can see that the strategy is not working. However, as far as this side of the House is concerned, we have never believed that the strategy would work. We did not need to see the evidence that it was not working. We never thought it could because it was based on three major fallacies: a wrong diagnosis of the problem, which led to a faulty remedy and was linked to an absurd myth about the problems for future generations. These are three basic errors in thinking that have led to practical untold misery for millions of our people. I do not think we will get out of our present problems until we have a fundamental rethink on these three basic issues.
I will quickly go through them. First, what is the problem that caused the crisis? It was not, as is put about, the profligacy of the Government. I have been looking at the lovely Green Book that the Treasury produces and have found a really remarkable fact, which is that public sector net borrowing, cyclically adjusted, was lower at the beginning of the financial crisis than in the last year of John Major’s Government. That is a very important point. So we rule out government profligacy as the cause of the problem. The cause was the profligacy of the private sector banks. These banks imploded and that led to a collapse of private sector spending and a rise in private sector saving. That is what caused the recession but it is also what caused the government deficit.
I should like to be sure that we are all clear on the fundamental identity that every A-level student knows, which is that the budget deficit is automatically, at every moment in time, equal to the private sector saving plus the balance of payments deficit. The budget deficit can be reduced only if either private sector saving falls or the balance of payments improves. Nobody is expecting a big improvement in the balance of payments so the budget deficit can be improved only if there is a significant fall in private sector saving. That is the condition. Of course, that is also the condition for a reduction in unemployment. Both the things that we are worried about require a fall in private sector saving. That will simply not happen if the Government go on depressing the economy.
The only way forward now is less austerity, in order to get private spending going. In the conditions of a liquidity trap, this has to involve fiscal policy; it cannot be done by monetary policy alone. Of course, we have the proposal from Milton Friedman for dealing with the recession by an increase in government spending, financed by the central bank. This is the way we should be thinking today. The noble Lord, Lord Turner, has proposed it; various people have proposed it. This must be the way forward.
It should be explained to the public that the extra debt is not a debt owed by the Government to anybody; it is simply a debt of one bit of the Government to another bit, which they own. So there is no change in the debt held by the public. We really must consider going down this route. The only objection of any validity is that there would then be an increase in the base money, which, at some future point when people were less willing to hold base money, could lead to an inflation. Then, of course, either the Bank of England can sell some of the debt or, which has a lot to be said for it, the commercial banks can be required to hold more base money as their reserves, which would improve their liquidity and stability.
That brings me to the third error that is bedevilling this whole debate, which is that we cannot have this debt because it impoverishes future generations. You hear this every day on Radio 4. It is a complete misunderstanding because even the debt that is owed by the Government to the public is owed to the British public. If there is less austerity, this higher debt will have been bought out of higher income, so it will have added to the wealth of future generations. Of course, at the same time, it will have impoverished them because they will have to service the debt, but they will be paying themselves and there will be no net change in the wealth of future generations. This is a fundamental fallacy and we have to scotch it because it is intolerable that we should be depressing our economy, depressing business and causing mass employment because of simple fallacies that are being put about.
Existing policy is based on these three fallacies. Of course, it is also based on bad values. It is extraordinary to me that a Government would say that their overriding objective was to reduce the budget deficit. Surely that must be the means to some useful end. The useful end must be a better life for the people, in particular a higher level of employment. Is there any limit to employment caused by a higher level of debt? This has been a matter of controversy. The main research that claimed that there was a limit has now been discredited and it is quite clear that there is no simple limit to the debt that a country can sustain if it has its own independent central bank. It is absolute nonsense to point at any of the euro countries, which are not supported by an independent central bank, and say that we might have got into the same situation.
Lord Barnett
My Lords, I congratulate my noble friend on powerfully reinforcing what my noble friend Lord Eatwell said from the Front Bench about why this government policy is so inadequate.
I must say to the noble Baroness, Lady Noakes, that I thought she was telling us that she was not too happy about even bothering with these Motions and why did we have do it. We did sign the Maastricht treaty and now this Government are following the previous Government in believing that we have to continue with these Motions. I share her certainty that we are not going to join the euro. That is not because we are as inadequate to join as, for example, Greece and Cyprus, but because Gordon Brown laid it down very clearly in five economic tests, none of which could conceivably be met by any Government. At that time I was not terribly happy with them but that made it certain that we were never going to join.
We have these two Motions before us. I have to tell the noble Lord, Lord Newby, that I could not conceivably support them. I do not know how anybody could. Indeed, if he was sitting on the Back Benches now, I am sure that he would oppose the signing of these Motions. On the first Motion, we are asked to approve what the Office for Budget Responsibility has said about the fiscal outlook and the Budget Report. I certainly do not agree with that and I could not support it. The second Motion is even worse. We are told that we should support,
“the five key priorities of the 2013 Annual Growth Survey which are in line with the Government’s domestic growth agenda”,
and,
“the Government’s view that it is important to focus on implementation of existing reform commitments”.
We are told that we have “growth-friendly fiscal consolidation”. I do not know how anyone could describe the Government’s policy as growth-friendly. I bet that the Chancellor of the Exchequer would not really be able to support that proposition.
As I said, it is impossible to support the two Motions. They are based on forecasts made by the Office for Budget Responsibility. Any forecast beyond today is difficult for anyone to support. What we have now from the Office for Budget Responsibility is regular adjustments of its forecasts. The forecasts are meaningless. I do not blame the Government for the forecasts, all of which are inadequate, but I do blame them for believing them. How anyone can believe a forecast for five years ahead I find difficult to imagine. Today’s forecast happily does not show that we are in recession, but that will be revised in a few weeks’ time by 0.1% or 0.2 %—who knows? That is only for this quarter. The noble Lord, Lord Newby, like everyone else in the Government, keeps telling us that they have cut the deficit by a quarter, a third, or whatever. The fact is that in 2010, the Government forecast that they would eliminate the budget deficit by 2015. It is now called a rolling forecast. Every year, it is rolled forward.
There is now a forecast that it will be in balance by 2018. How can anyone believe that it is possible to make a forecast five years ahead? We do not know. It could be 2019 or 2020 before we get balance; we cannot be certain that it will be in 2018. The reason is that we have not got growth. Without growth, it will get worse, inevitably. Given our constant lower growth, we cannot rely on that forecast for 2018, not 2015. All that we can rely on is what is happening now, and even that is uncertain.
In the second Motion, we are asked to support that view. How can anyone ask us to support forecasts of that kind? Even the OBR does not believe them. It states in paragraph 143 of its latest report:
“There is considerable uncertainty around our central forecast”.
I am not surprised. It is inevitable that there is uncertainty about a forecast for five years ahead. We are then told that all central forecasts are unreliable and uncertain, so why on earth are the Government accepting them and relying on them to carry on with their whole policy?
I find this whole debate, and the fact that someone like the noble Lord, Lord Newby, is blithely reading out what the Treasury have given him, surprising. Unfortunately, I have agreed to give a seminar tomorrow in the Treasury on the 1976 crisis. I took the trouble to look at what I did at the time, what I said in my book and what my dear friend Lord Healey said in his autobiography. He said that there had been a £2,000 billion error in the forecast at the time. I assume that he did not mean £2 trillion, but no one has corrected it since. Even a £2 billion error in the forecast would have been enough. He said that, without it, there would not have been a 1976 crisis. That may or may not be true, but the fact is that we had a 1976 crisis, all because we were relying on those hopeless and inadequate forecasts that Governments have believed.
Personally, because I do not believe any forecasts beyond today, I find it impossible to go along with the two Motions. I am sorry that there will not be a vote; if there were, I would be happy to vote against them.
Lord Hollick
My Lords, I want to discuss the political and policy judgments that have been made since the financial crisis. The previous Chancellor, my right honourable friend Alistair Darling, like everyone else, did not see the 2007-08 banking crisis coming, nor the damage that it would do to our public finances, but in the eye of the financial storm, he did an excellent job of judging what needed to be done. He organised the huge recapitalisation of the banks. He sought to find the most effective balance between policies to repair the public finances and reduce public debt and also to promote growth. He recognised that the UK’s ability to finance its ballooning deficit would require the support of the bond markets, which would need to be convinced that the Government were prepared to take the tough and correct measures to achieve those joint objectives. He rightly anticipated that external events might call for additional rebalancing of the policy mix, over and above the deployment of automatic stabilisers. His was a pragmatic and thoughtful response to an unprecedented crisis, and it commanded broad support at home and abroad.
What happened next? One of the present Chancellor’s first and very important decisions on coming into office was to ratchet up the austerity targets and to shun the flexible, carefully nuanced approach of his predecessor and instead opt to wear a very tight financial straitjacket. That approach, which we now know as plan A, was given intellectual credibility by a report from US economists Rogoff and Reinhard, which Osborne cited in a speech as,
“Perhaps the most significant contribution to our understanding of the origins of the financial crisis”.
Buoyed by that report and the plaudits from the hedge funds and bond investors in the City and, crucially, strong backing from the IMF, the Chancellor believed that he had struck exactly the right policy balance between austerity and growth which would lead to the elimination of the structural deficit by 2014-15. Crucial to that judgment was the forecast of strengthening economic growth over that period.
As we have heard from all sides of the House today, that has not come to pass. Indeed, recent employment, bank lending, government borrowing and GDP numbers all confirm that the economy is flatlining. The UK is now the worst performing major economy. As the UK’s performance has weakened, as each forecast is missed and as austerity measures are tightened and extended, confidence—an ingredient vital to economic growth— has evaporated. Domestic consumer spending is depressed, export performance has fallen well short of forecast and companies continue to defer investment projects. Rating agencies downgrade the UK, citing a weaker economic and fiscal outlook and, specifically, the lack of growth.
The high priest of the international bond market, a group that I am sure is high on the Chancellor’s Christmas card list, Bill Gross of PIMCO, the world’s largest bond investor, declared last week that,
“the UK … have erred in terms of believing that … fiscal austerity … is the way to produce real growth. It is not. You’ve got to spend money. Bond investors want growth”.
The intellectual prop of Rogoff and Reinhard turns out to be a shoddy piece of research from the “garbage in, garbage out” school of analysis, with the corrected model—
Lord Vinson
Before the noble Lord sits down, he is leading up to a rather important figure. Earlier in his most interesting speech he recognised that Darling had the problem of a ballooning deficit of borrowing. Everything that he is saying now would increase the deficit of borrowing. Would he like to give us the sort of figure that he would like to see that borrowing figure go up to?
Lord Hollick
I am coming to that.
The intellectual prop of Rogoff and Reinhard turns out to be a shoddy piece of research because the corrected model shows that highly indebted economies can grow at 2% or more. Perhaps the unkindest cut of all, though, is the IMF’s verdict that plan A is not working. In the light of the weakening economy, it is urging the Chancellor to show greater flexibility and adopt measures that will help the economy to grow. The Chancellor has sought to rubbish this assessment by asserting that the IMF is itself not united in that view. However, my own inquiries suggest that this is not the case and that the damning criticism of the Chancellor’s stewardship is a widely held view within the IMF.
The forthcoming Article IV assessment of the UK economy by the IMF will provide a detailed analysis of the economy and recommendations for policy changes. It will be interesting to see whether the Chancellor chooses to fight the IMF every inch of the way, which may be his instinct, or whether he will see it as an opportunity to recognise that his experiment has failed and that new measures are needed.
As it happens, the IMF assessment coincides with the arrival of Mark Carney, the new Governor of the Bank of England, who last week described the UK as a crisis economy. Billed as an advocate of a more activist monetary policy whose monetary bazooka, according to one recent Treasury briefing, will leave us knee-deep in newly printed money, Mr Carney in recent weeks has begun to row back hard from the far reaches of monetary adventurism. He has made it crystal clear that Governments should not be looking to central banks to return countries to prosperity. Mark Carney will also have noted that his predecessor, who has one vote on the committee, has failed to persuade the MPC in recent months to increase quantitative easing.
I have suggested before that we should not be surprised if, as part of the extended negotiations to secure Mr Carney’s services for the next five years, the Chancellor privately acknowledged the need for more supply-side reforms and fiscal measures to stimulate demand to help to promote growth. The coincidence of the IMF assessment and the new governor’s arrival could just provide the opportunity for the Chancellor to alter course. To do that, though, the Chancellor and the Prime Minister would have to move off their favourite mantra that you cannot borrow your way out of debt. In one sense, that particular fox has already been shot, as the automatic stabilisers have allowed increased borrowing to fill in the financing hole left by no growth. The Chancellor now needs to take that lesson one step further and introduce fiscal measures such as lower NIC and measures to promote investment in infrastructure and new housing stock. Borrowing to invest to promote growth will pay back in increased economic activity, greater confidence and rising tax receipts.
The Government need to stop the endless tinkering with banking rules on capital, funding and liquidity. Alistair Darling bequeathed the coalition a well funded banking sector, with bank shares trading above the levels where the Government had invested. On assuming office, the coalition began reworking the banking rules, a project that continues to this day. Since the start of this Government, bank lending to non-financial businesses has fallen by an unprecedented 19%. This collapse in bank lending will not be reversed until and unless the Government allow them to get on about their real business, which is to provide credit to finance growth.
Will the Chancellor heed the advice of the IMF, the bond markets and business and acknowledge that the public finances can be repaired only if meaningful growth can be achieved and sustained? Waiting for something to turn up is the wrong policy choice. Business, hard-pressed citizens and many on his own Benches will be hoping that he has the political courage to do so. Rather than wasting his time on ludicrous Enron-like efforts to massage the deficit numbers and issuing endless press releases on growth projects that never see the light of day, the Chancellor should deploy his intellect, his energy and his ingenuity in devising and implementing growth policies that will get Britain moving forward again.
Lord Vinson
Perhaps the noble Lord could attempt to answer my question. He would give his whole contribution much more cogency if he could come up with a figure for the sort of level that he would like to see the Chancellor increase his borrowing to.
Lord Hollick
I am not talking about figures; I am talking about the importance of using the public finances to invest in growth. That is what we need. Without growth, we simply will not be able to repair the public finances.
Lord Marlesford
My Lords, I strongly support the fundamental economic strategy of my right honourable friend the Chancellor. On the other hand, I am not wholly happy with the way in which he has been attempting to carry it out. The objectives are right but the methods are rather questionable.
First, he has sought to reduce the deficit, and particularly government spending in many areas, which I support. There is no doubt at all that the expenditure on the whole welfare area has been wildly out of control, and it absolutely has to be gripped. Equally, there is no doubt that growth will come from actual economic activity on the ground.
Much of the problem is caused by the behaviour of the banks. I give credit to Alistair Darling for the way in which he handled the crisis. The mistake was then to use, or to expect to be able to use, the banks as a means of generating growth in the economy through quantitative easing. Far from lending the money that they had been supplied, they used it to reinforce their extremely fragile balance sheets, so QE did not achieve the objectives that the then Chancellor hoped for. The Chancellor should probably have abandoned at a much earlier stage what was effectively his support of the banks and their balance sheets. Their behaviour in the past few years since the crisis has been lamentable. It has been as unethical, selfish and greedy as ever, and it has been incompetent.
With regard to the stimulation of the economy, the time has come for more direct government expenditure on our infrastructure. There are masses of things that can be done. I am of course not talking about nonsenses such as £30 billion on HS2, which is wildly outside any parameter of time and is most unlikely to produce any useful return for the taxpayer or the nation. I am talking about things such as housing, road construction and the maintenance of our national infrastructure, because that is true investment. Giving banks more money through quantitative easing to restore their balance sheets is not true investment.
The Chancellor’s tax policies in one important area have been unwise. I am talking about the petrol tax. The Chancellor has already forgone some £1.5 billion of revenue by not increasing the petrol tax as planned. The extraordinary thing to me is that the petrol tax figure that we are talking about is always about 3p per litre, and that alone costs £500 billion a year, yet the price of petrol at the pump varies by more than that. The price at the pump basically goes up and down according to the price of oil. The Chancellor has made a huge mistake in effectively wasting the opportunity cost of the petrol tax. I hope that as soon as the time is appropriate he will go back and change that particular policy.
I agree with the noble Lord, Lord Harrison—I sit under his distinguished chairmanship on Sub-Committee A of the European Union Select Committee—that the single market in Europe is very important and should be enhanced and nurtured. However, I do not believe that, for strategic planning, Britain can rely on Europe for the future. Europe is in a frightful mess. People say that 40% of our exports go to Europe; that may be. What we should be doing is switching our effort into markets where we can compete and which are expanding, such as Asia, the United States and Latin America, and not pinning our hopes on Europe, because in Europe there is very little hope. My worry is that the European Commission has proved itself to be incompetent in offering advice to member states on how to run their economies. During the euro crisis, it came to the realisation—very late, but in a big way—that it had been a great mistake to confuse the toxic debt of banks with the toxicity of sovereign debt, and decided that they should not be confused.
Let us consider what happened with Cyprus. The European Commission, having made the mistake with the wretched Irish, the Spaniards and the Greeks of making them take the bank debt on to the government books, the very next thing was what happened in Cyprus. That is an example of unparalleled incompetence. What happened was that the Cyprus Government came forward with a plan to rescue their banking sector. Of course, they would come forward with whatever they thought suited themselves and their friends, perhaps including the Russian oligarchs. The plan that they came forward with involved raiding the balances of deposits in banks. It had been for some while a crucial component of confidence in the banking system throughout the EU that deposits in individual regulated lending institutions—banks, primarily—were underwritten up to €100,000. My criticism is that the attempt to sweep that aside so that the small depositors in Cyprus would pay their share—although I could quite see the Cypriots putting that forward—was signed off by the troika of the European Commission, the European Central Bank and, just to remind the noble Lord, Lord Layard, who is so keen on it,the IMF. Those three signed off on a policy that will for many decades, I suspect, put a deep suspicion in people’s minds about lending to banks. The United States has a much prouder record of protecting depositors in banks. I believe that one of the roles of the state is always to protect small depositors in a financial system.
That was a very depressing example, and one reason why I am rather gloomy about Europe being able to work out under the semester what its progress is to be. It is still wrestling with the crucial question, which applies primarily to the euro area, of whether there can or should be mutualisation of debt. Is it possible to have a Eurobond, a bond issued by the European Central Bank, to fund individual countries’ Governments and is underwritten centrally? For how much can this be done? We are not even clear what the total sovereign debt of the euro area is at the moment. It is very doubtful whether this Eurobond will work. There is a thought about having two sorts of bonds: a blue bond, an ECB-guaranteed bond for national Governments, and a red bond, which national Governments would issue. This strikes me as a very questionable approach. What is it trying to achieve?
Lord McFall of Alcluith
My Lords, in his manifesto defining the Mais lecture of February 2010, the Chancellor, just before he assumed office, announced a new macroeconomic and financial policy. He asserted that economic theory and, indeed, evidence suggested that tight fiscal policy would lead to recovery. He embraced the notion of austerity politics, and the imprimatur of both the Chancellor and the Prime Minister was very firmly on that phrase, “austerity politics”.
Three years later, what do we find? We find unemployment increasing, with youth unemployment of 1 million, which is unacceptably high, child poverty levels ballooning, and almost zero growth. Notwithstanding today’s announcement, even if we include that and accept that in the past 18 months we have seen growth of 0.4%, that works out at a miserable 0.066% growth per quarter—in other words, a percentage of growth equivalent to 66 out of 10,000, or virtually none at all.
When the Chancellor came into office, as others have said, he inherited an economy that was growing by 2.6%, from the third quarter of 2009 to the third quarter of 2010. Since that date, total growth has been 0.8%, solely down to the effect of the Olympics. As my noble friend has said, the markets have now turned against the Chancellor. The comments of Bill Gross of PIMCO, which has the biggest bond fund of $300 trillion, made it very clear that the austerity policy does not lead to growth in the short term. As he asserted, the Government need to spend money. He also said that it was a mistake to assume that the bond markets want severe fiscal belt-tightening.
Given that the Chancellor and the Prime Minister have sacrificed growth on the altar of despair for the past three years, we now need an urgent injection of confidence. Austerity was never going to work because when you are in politics, if you assert austerity and are devoid of hope, the people rightly assert that you are not on their side. Today, there needs to be a case for optimism.
Along with other Peers, the other evening I saw Ken Loach’s film, “The Spirit of ’45” about the period after the Second World War. At that time there were appalling economic and human circumstances. Debt as a percentage of GDP was 250%, compared to the 70% it is today as a result of the financial crisis, yet with that debt dreams were turned into reality for many millions of impoverished individuals. Can the Government today not embrace a modicum of the hope and spirit of 1945 and ensure that we offer people something in the future?
On the eve of the financial crisis in 2007, national public debt was 36%, the lowest ratio to GDP in the past 300 years, as was asserted by Martin Wolf in the Financial Times this week. When we look at the public spending figures under the Labour Government from 1997 to 2010, we find that it was 39.7% of GDP. Let us go back to 1979 to 1997 under the Conservative Government, when public spending was on average 43.3% of GDP. So it was 39.7% for the Labour Government and 43.3% for the Conservative Government. Those are powerful statistics that destroy the myth that spending by the Labour Government was out of control.
Now, when interest rates and the cost of government borrowing is at rock bottom, is the time to invest in infrastructure so that we get a 21st century that is fit for purpose. For the past four or so years, along with others, I have been advocating the establishment of a business investment bank. It would fill the current equity gap with longer repayment periods for viable businesses and help SMEs, which are starved of lending because of the private sector money famine. Wherever we go, SMEs tell us that they have this huge problem.
We have to look to the future. We should be looking at replicating the fantastic initiative of the Labour Government in 1969 when they set up the Open University, of which I am a proud graduate. We should be looking at a successor to that with a 21st-century UK digital university underpinned by superfast broadband and smart grids. It would cost one-third of the money that will be spent on HS2. Wiring everyone up would in the long term help social inclusion and income equality. We have to think big on that. Why do we not have an objective of ensuring that all university learning is put on the net? What would that mean? It would mean that every individual could walk through the digital gates of the finest universities from the privacy of their own home and hearth.
The future never has a big enough constituency. Those fighting for present gain almost always win out. At a time when the social contract in society is broken and when millions of people will have no gain for the foreseeable future and have considerable pain, there is a need to restart and rebuild that confidence by ensuring that we do not miss out in the future. As Heraclitus said, change is the only reality, and we know that in politics change is the law of life. The late US President John F Kennedy said that those who look only to the past or present are certain to miss the future. I suggest that by ditching the cruel hoax of austerity politics—austerity is a hoax because it has been proved that it does not work, and cruel because it hurts those who are already hurt most— we can make a start to ensure that we as a country and as individuals do not miss out in the future.
Lord Davies of Oldham
My Lords, this has been a most interesting debate and the Minister has a major task in replying to it. He has to address himself to the minutiae of parliamentary procedure and to the most philosophical aspects of the current policies of the Government.
On the question of procedure, I cannot understand why we did not have a speakers list for this debate. I agree with the noble Baroness, Lady Noakes, on this matter. I also understand why she does not see why these Motions are necessary anyway as far as Europe is concerned. My noble friend Lord Barnett did not doubt that the Motions might be necessary but on the whole found them so offensive that he would not vote for them if there was any question of a Division, which there is not going to be. This indicates that there are anxieties on all sides about the framework for this debate.
What is fundamental is the concern about where the economy is at the present time and what we are reporting to Europe about the state of the British economy. It is quite clear that every target that the Chancellor set himself in 2010 has been missed and that the timetable for recovery has already been elongated by several years. As my noble friend Lord Barnett indicated, it is now expected that it will be at least 2018 before the deficit will have been reduced.
At the very beginning, the Minister stated that one of his items would bring confidence. As in all economic debates about the position of the economy and the balance of payments, confidence is of great importance. The Chancellor chose one measurement of it, Britain’s AAA credit rating. We saw Moody’s going first and now Fitch has stripped away the AAA credit rating. What is reflected in that is a degree—if the Chancellor was right to put so much importance on them—of erosion of confidence. My noble friend Lord Barnett said that the reason for that is pessimism about growth. That issue was reflected, particularly on this side of the House, in every aspect of the debate.
My noble friend Lord Hollick identified another area in which confidence is being eroded. The intellectual support for the Chancellor’s policy put forward by Reinhart and Rogoff has been destroyed by the indications of the research and the propositions are inherently faulty. That intellectual prop having gone, what is in its place? My noble friend Lord Layard identified these issues with the greatest clarity. What there is is a commitment to a right-wing ideology that does not need too much in the way of intellectual support. After all, we have been through these issues before under Conservative Governments. It is about the creation of the virtues of the smaller state. In the Government’s drive towards creating the smaller state, which my noble friend Lord Layard identified has little to do with whether economic growth can be produced or whether we can tackle the fundamental issues of the economy, the price is being paid not by millionaires who are being cushioned by taxation relief but in increasing unemployment and low wages for those who are in employment. It is already recognised that wages will have dropped by 2.4% this last year. That is the cost to the people in work. Meanwhile, the Government have some figure of the number of jobs being created by the private sector. We know what a lot of these jobs are: they are concealed unemployment. They are part-time jobs that give no opportunity for people to work longer hours; part-time jobs on low pay in which people are still struggling—although in work—to make ends meet. Those people are paying the price for this Government’s policies.
Lord Newby
My Lords, I thank all noble Lords who have taken part in today’s debate. As the noble Lord, Lord Davies, said, we have covered everything, from macroeconomic theory to House of Lords procedure, and I will do my best to respond to as many of the issues raised as I can.
I will start with the noble Lords, Lord Eatwell and Lord Barnett, who both discussed growth, and in particular the growth forecast. The noble Lord, Lord Eatwell, suggested that the growth forecasts were wrong for theoretical reasons and because the assumptions that were made might be unsustainable. The noble Lord, Lord, Barnett, had a more fundamental problem, which was that he does not believe any growth forecasts, almost by definition. We see in today’s figures, with the 0.3% increase in GDP in the first quarter, that, as they say, if present trends continue the OBR will have got it wrong again. This time, however, it will have got it wrong on the downside instead of the upside. I hope we will not be too unhappy in those circumstances if they perhaps do not get it right. I agree with the noble Lord, Lord Barnett, that growth figures, or indeed any forecasts for five years ahead, have to be treated with a very large pinch of salt. However, there are only two alternatives. Either you do your best and work on the best that you can do, or you throw your hands up in horror. On balance, the Government prefer to do the former.
I will deal with a core assertion of the noble Lord, Lord Eatwell, that everything was fine in 2010, the economy was growing by 2%, and that if only the policies that were in operation then had been carried on, growth would have continued and possibly increased. In 2009-10 the borrowing was £158.9 billion, some 11.2% of GDP. At the time, my colleagues and I supported that borrowing on the basis that the Government were dealing with what Vince Cable called “a massive heart attack” to the economy, and so this had to be dealt with by very significant public expenditure to prevent a total collapse, and in particular, to shore up the banks. What I cannot accept is that that level of borrowing was sustainable in the medium term, and neither could Alistair Darling. A number of noble Lords have spoken in support of Alistair Darling’s economic policies, but remember that they were in two parts. There was a high level of immediate expenditure, but we passed a Bill that would have required by law the Labour Government, had they been re-elected, to halve the deficit by the current financial year. Does anybody believe that if Mr Darling had been in power, he could have continued putting money into the economy at anything like the rate he did in 2009-10 if he wanted to meet that outcome? It is inherently implausible. The question that was being debated as we reached the election in 2010 was not whether there would have to be reductions in public expenditure, but purely about their scale and size. Therefore, the suggestion that all was well in 2010 and that we could have continued with high levels of growth by pushing public sector borrowing along at an unsustainable level does not hold up.
Lord Eatwell
My Lords, the noble Lord has rather ably misrepresented what I said. I said that the economy was growing at 2%, which it was, and that the 2% growth would lead to a fall in the deficit, which it did. I did not say that at the time there was a need to increase the deficit. What happened was the destruction of business confidence by the foolish remarks of the new Chancellor of the Exchequer—the comparisons with Greece and so on—that led to a collapse in private sector investment and growth.
Lord Newby
My Lords, businessmen take some notice of politicians, but they do not make investment decisions purely—or even largely—on what politicians say. They look around the market and see what is happening elsewhere in the world. The speech of the noble Lord, Lord Eatwell, was notable in a number of respects. One was that although he used the word “Europe” in his first and last sentences, he did not refer at all to the crisis in the eurozone and to the fact, supported by the OBR, that one of the greatest problems and brakes on growth in the UK has been what happened to the eurozone. It is a crisis in which we had no part and that we were obviously unable to deal with. The eurozone countries are dealing with it themselves.
I will move to an area where I have a greater degree of agreement with the noble Lord, Lord Eatwell. It is the importance now of infrastructure expenditure as a source of growth going forward. There are two elements that are linked but separate. One is non-housing infrastructure and the other is housing infrastructure. On non-housing infrastructure, as the noble Lord will be aware, the Government have made available up to £40 billion of guarantees to enable private sector investment in key infrastructure. He will have seen that the policy bore fruit yesterday with the announcement that the Drax power station is using the facility to enable it to invest £75 million in upgrading the station. We hope and expect that this will be the first of many such deals.
Housing is a major problem. It was a major problem during the previous Parliament and remains so, to the extent that the demand for new housing is increasing by about 250,000 units a year. Nothing like that amount of housing has been built for many years. The Government are attempting to deal with this with a three-pronged approach. First, we will make it easier to get planning permission for new housing development. Secondly, we will increase demand. This is why we are supporting first-time buyers and others who want to take out mortgages in circumstances where the banks are requiring prohibitively large deposits from most people. Thirdly, we will improve the supply of housing. That is why, in addition to the £40 billion guarantee for other infrastructure, we have in place a £10 billion guarantee programme for housing.
There remains a major problem with getting the banks involved in funding developers, particularly small developers, and I am engaged in discussions with the BBA to see whether we can help. However, in terms of government support for new investment, both for housing and general infrastructure, which the noble Lord, Lord McFall, suggested we should be doing, I remind him that we have established the Green Investment Bank. We are also establishing a small business bank. This is a degree of banking activism that was absent during the time of the previous Government.
Lord Harrison
I must say that we spotted these inherent flaws in our 2011 report and repeated them. The problem was that the Government were supine in their approach. It was only by our goading, and at the very last moment, that they began to act. The point that I make in so many of these areas is that the UK has to intervene early.
Lord Newby
My Lords, I am all in favour of increased early intervention in all matters European, but it is fanciful to believe that anything that the UK could have done or said at a significantly earlier stage would have stopped a very significant move in many European countries that was led by the trade union movement, which is desperately keen to get an FTT going. We have been extremely critical of it, but it is for other countries to decide. We will see how discussions go in the coming months.
The noble Lord asked about a debate to approve the basis of the national reform programme. We do not think that there is a legal obligation to debate the basis for the national reform programme, and we are not aware of any occasion on which it has been submitted for parliamentary clearance, including under the previous Government. Of course, the national reform programme does not include any material that has not previously been published and debated.
I now move to the other end of the spectrum of considerations from high economics to the question from the noble Baroness, Lady Noakes, about why there was no speakers list. I absolutely share her view, and I raised the question myself, because I would have welcomed having some sense of how many people were going to speak. I was told that, because these are Motions, it is not the normal practice of the House to do it. However, I would be very happy to take to the Procedure Committee a suggestion that we have a speakers list for this kind of debate, because I think that it would be helpful to the House.
The noble Baroness also asked why we bothered to have this debate at all, and said that we should repeal Section 5. As any Minister would say, I am sure, I can see some advantage in doing that, but it is highly unlikely that we will. The main thrust of her comments was that it was all a waste of time and why bother, not just with this debate but with getting involved in all this EU stuff. We support the European semester as a means of ensuring that what we consider to be necessary structural reforms take place across Europe, because, simply, we believe that it is in our national interests to see strong economic recovery in Europe.
The noble Baroness and a number of other noble Lords said that we placed too much emphasis on trade with Europe and not enough on trade with the rest of the world. In my view, it is not an either/or. We have about 40% of our trade going to the EU, and we cannot afford to see trade with the EU suffer. What we need to do is to see trade with the rest of the world growing strongly, as we have been doing, while, one hopes, seeing trade with Europe growing strongly as well.
The noble Lord, Lord Layard, queried whether this Government have as their overriding objective a better life for the people. I assure him that this Government do have that as their overriding objective, which is hardly surprising. I cannot agree either with his view that we should be borrowing a lot more or, indeed, with the comment of the noble Lord, Lord McFall, that the markets have turned against the Government. Last Friday, borrowing costs for the UK were 1.69%; for the US, they were 1.71%; for Italy, they were 4.22%; and for Spain they were 4.62%. For Italy and Spain, the proportion of borrowing to national income is very significantly less than it is in the UK. So I do not think that the markets have turned against the UK at all. It is only because we have a very clear deficit reduction policy that that remains the case.
The noble Lord, Lord Hollick, prayed in aid the last Chancellor, and he and other noble Lords referred to the IMF. For me there is a slight irony in this, because for most of my political career Labour politicians have been explaining why the IMF was the worst possible organisation in the world. They said that it had all the wrong priorities and had never once got it right. So it is interesting that they have changed their view. I would say only that their description of the view of the IMF is somewhat less nuanced than the view of the IMF itself. As Christine Lagarde reiterated last week, the IMF supports the UK’s policy of deficit reduction and said that the pace of consolidation was in line with the IMF’s recommendations for advanced economies.
The noble Lord, Lord Marlesford, urged us to put up the tax on petrol. We think that the arguments for freezing petrol tax in terms of its impact on small businesses, rural areas and elsewhere, are very strong, and that is why we have done it. He was also very keen that we switch our efforts to other economies than the eurozone. Of course, the significantly increased funding for UKTI will allow us to put a lot more effort into developing our exports to those new markets.
The noble Lord, Lord McFall, suggested that we should investigate the possibility of a UK digital university. That sounds an extremely sensible idea. The way in which universities are making material available free is a huge potential benefit, and the quicker that that happens the better.
The noble Lord, Lord Davies of Oldham, basically said about job creation, “Well, there may be jobs, but they are not proper jobs”. In my view, the debate about what constitutes a proper job, or a job, is a false one, because for the person who is doing it, it is a job, and they would rather have it than not. Incidentally, it is not true to say that in recent months the bulk of jobs that have been created are part time. Certainly, the latest figures that I saw suggested that there had been a reduction in part-time jobs and a significant increase in full-time jobs. I completely agree with him about skills, and the need to upskill the labour force. I point out that under this Government there has been a massive increase in the number of apprenticeships, which by common consent is the area where for many decades this country has lagged behind the rest of the developing world.
Ultimately, the return to sustainable growth is the only way for EU member states to pay down their debts and improve the way in which the single market works. The UK Government are leading the EU growth agenda and making the case for ambitious EU reform. On that basis, I am pleased to commend the Motions to the House.
EU: Domestic Growth
(11 years, 7 months ago)
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Lord Newby
That this House takes note of European Union Documents No. 16669/12 relating to the Annual Growth Survey 2013, and No. 16671/12 relating to the Alert Mechanism Report 2013; supports the five key priorities of the 2013 Annual Growth Survey which are in line with the Government’s domestic growth agenda; supports the Government’s view that it is important to focus on implementation of existing reform commitments; agrees that European Union Member States should continue on the path of growth-friendly fiscal consolidation and increasing competitiveness to support growth and jobs; supports the Alert Mechanism Report and the Macroeconomic Imbalances Procedure as a means of strengthening European economic governance, particularly in the euro area; and supports the Government’s view that is it is right for euro area countries to be subject to more binding surveillance of macro-economic imbalances, with the prospect of sanctions for failing to take corrective action.
Baroness Anelay of St Johns
My Lords, I beg to move that the House do now adjourn during pleasure until 3.15 pm, when the Royal Commissioners shall attend the House and prorogue Parliament.
Growth and Infrastructure Bill
Royal Commission
(11 years, 7 months ago)
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The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford)
My Lords, it not being convenient for Her Majesty personally to be present here this day, she has been pleased to cause a Commission under the Great Seal to be prepared for proroguing this present Parliament.
Royal Assent
Prorogation: Her Majesty’s Speech
The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford)
My Lords and Members of the House of Commons, by virtue of Her Majesty’s Commission which has been now read, we do, in Her Majesty’s name, and in obedience to Her Majesty’s Commands, prorogue this Parliament to the 8th day of May, to be then here holden, and this Parliament is accordingly prorogued to Wednesday, the 8th day of May.