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 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.