The Commercial Secretary to the Treasury (Lord Deighton)
My Lords, it is a privilege to open this debate. We will be considering the Government’s priorities for business, the economy, local government and transport for the year ahead. I am particularly looking forward to the maiden speech of the noble Baroness, Lady Lane-Fox of Soho. She brings valuable business expertise, inspiration to our entrepreneurs and a deep knowledge of how to make the most of technology to revolutionise business and our daily lives. She is a most welcome addition to this House.
The measures in Her Majesty’s gracious Speech advance the Government’s strategy to position this country for success in the global economy. This strategy and its component parts are clear and have been consistently articulated and pursued. Our priority now must be the effective implementation of the policies which have been introduced, delivering meaningful improvements to our economic performance. The foundation of this strategy remains the steady restoration of our public finances from their precarious state in 2010. Although slower than anticipated growth, caused principally by problems in the eurozone, has necessarily extended the period of fiscal consolidation, the deficit has already been cut by a third. This has established credibility in the financial markets and keeps our borrowing costs at record low levels. This commitment to fiscal responsibility, reinforced by an activist monetary policy and the reform of the banking system, is the base on which we are building the supply side measures, such as establishing the lowest corporation tax rate in the G20, aimed at making the UK a great place to do business.
Last Thursday, we hosted a conference in London which attracted senior business people and investors from around the world. The positive attitude to the UK’s business environment was overwhelming and represents a significant advantage to us in the global race, which we can exploit but cannot take for granted. Our economy faces many challenges, but progress is promising in a number of areas: more than a million and a quarter private sector jobs have been created since 2010, with the OBR projecting employment to rise in every year of its forecast. We have also seen our exports to some of the large emerging markets increasing strongly, a trend that we must accelerate to reduce our relative exposure to a slower growing Europe.
I turn to some of the specific initiatives driving this agenda forward. Following the Financial Services Act, the Banking Reform Bill, which was introduced in the previous Session, will enter this House for consideration before the Summer Recess. This Bill is fundamental to the Government’s commitment to pass the necessary legislation before the end of this Parliament to restore the financial system to stability. Only then can it effectively support growth in the economy. The Bill implements the recommendations of the Independent Commission on Banking, ring-fencing retail banking services on which households depend from more volatile wholesale activities.
In addition to strengthening our financial infrastructure, first-class economic infrastructure is a necessary condition for UK business to achieve global competitiveness. Our intention is to improve our approach to planning for, financing and delivering this critical infrastructure as we go through a significant period of renewal. This is very well illustrated by our ambitious programme to deliver transport infrastructure. We all know that good transport is essential to drive sustainable economic growth and prosperity. Efficient transport systems help UK businesses to be more productive by making journeys quicker and more reliable, supporting UK exports, enabling a flexible workforce, attracting inward investment and rebalancing our economy by generating development opportunities throughout the country.
In many cases, crucial transport investments are needed now to unlock growth and support the supply chain. That is why we are pioneering new ways to deliver infrastructure projects faster in all parts of the country, from essential highway maintenance that keeps traffic moving, to targeted improvements to our networks, to transformational investments for future generations. We will reduce the time it takes to plan and deliver new roads by up to a half and we are piloting a new delivery model for upgrades to the M1, M3 and M6. We have also focused our short-term investment plans on projects that will deliver benefits quickly, such as addressing pinch points and extending managed motorways.
Her Majesty’s gracious Speech announced the paving Bill and High Speed 2 hybrid Bill. High-speed rail is an engine for growth that will help drive regional regeneration, secure economic prosperity across Britain and support tens of thousands of jobs. We should not underestimate the scale of transformation that rail infrastructure is providing. Crossrail is the largest infrastructure project of its kind in Europe—it is going on at the moment—and is one of the largest single infrastructure investments undertaken in the UK. The high-speed rail link will be the first new line that we have built north of London for over 120 years —that is why we need it—and will boost our rail capacity, benefiting many throughout the country. Network Rail’s current investment in our railway infrastructure is the biggest since Victorian times. Introducing a paving Bill will allow Parliament to make a clear commitment to high speed rail. Crucially, the Bill will also give us the spending powers to progress the detailed design work for the scheme. We want to get this project moving and delivered at the earliest opportunity and this Bill will help us do just that.
It is not only railway lines that are being transformed but a concerted regeneration of major stations is currently under way. Two examples of this are, the £550 million part-privately funded redevelopment of Birmingham New Street that will stimulate the physical regeneration of the surrounding area, and the £850 million reconstruction of Reading station, due for completion in 2015, which will add five new platforms.
As to local government, we believe there is a significant opportunity to deliver our growth agenda more effectively by supporting the initiatives, capabilities and energy that exist in our regions and cities. Local government has a key role to play in local economic development. By implementing many of the recommendations in the review by my noble friend Lord Heseltine, the Government are handing power to the regions. We are committed to creating a single local growth fund for the key areas of skills, housing and transport. The final size of the fund will be set out at the spending round next month.
We have brought in local enterprise partnerships, with public and private participation, to co-ordinate regional development and enabled cities to take control of their own local economies through City Deals. Thus far, City Deals have been implemented in eight major cities, with 20 more to be agreed this year. Now we are going further by continuing the process of devolving resources away from Whitehall towards local leaders who know what is best for their areas. We are introducing a localism Bill and the general power of competence. The Bill will increase local accountability by empowering local people to hold councils and local bodies to account for local spending decisions and ensure that they deliver effective value for money. This is the final step in a programme of reforms to local audit arrangements that will close the Audit Commission and deliver an estimated £1.2 billion of savings over 10 years.
We are also committed to reforming the planning system to help achieve sustainable development. We have simplified planning and provided incentives for communities to support development through neighbourhood plans and the community infrastructure levy. The primary legislation required to enact this programme is in place, and we are now streamlining the planning application process, including by broadening permitted development rights by exploring opportunities to create new housing from shops and agricultural buildings.
Housing is central to our plans for economic growth but, more importantly, it is essential to the hopes and dreams of people across the country. Our aim is to help people achieve their aspiration to live in a home that gives them security. The Government are committed to addressing housing shortages through a major increase in the supply of new homes where they are needed and wanted. This is why the Government have committed to invest over £11 billion in housing programmes during this spending review period. It is why, to date, the Government have sold enough surplus public sector land to deliver 45,000 new homes. With our new guarantees programme, we now aim to deliver 200,000 new affordable homes by 2016-17 with over £20 billion investment. It is also why we are providing a package of support for councils and developers to help accelerate and unblock locally led large housing sites. In addition, we are of course making it easier to obtain a mortgage through our Help to Buy scheme.
Direct support for business is a key part of our plan to improve the UK’s competitive performance: this takes the form of tax incentives, progressive legislation, access to finance and other forms of intervention with a particular focus on nurturing smaller businesses. The National Insurance Contributions Bill will entitle businesses and charities to a £2,000 employment allowance each year. By reducing the costs of employment, this will support small businesses aspiring to grow. More than 90% of this benefit will go to small businesses with fewer than 50 employees. This Bill also builds on the robust stance that this Government are taking in tackling all forms of tax and NICs avoidance. Our approach is very simple: in return for offering a highly competitive tax system, we expect everyone to pay their taxes. The general anti-abuse rule reinforces this principle and will deter those who market and participate in artificial schemes. In addition, we continue to lead international efforts to develop a more effective cross-border tax framework.
The Government are also working hard to help UK businesses to increase their exports. We have supported 32,000 UK exporters in 2012-13, up from 25,000 the previous year. This has helped UK exporters to win billions of pounds of high-value export contracts, such as £150 million for an oil industry project in Brazil and over £78 million of new business for UK rail companies in Singapore. However, we want to do more, which is why we have committed to increase total annual UK exports from £488 billion in 2011 to a £1 trillion target by 2020. We plan to deliver this partly through increasing the number of UK SMEs that export from one in five to one in four.
If those SMEs are to grow, they need better access to finance. That is why we have set up the business bank with £1 billion of funding. Of the £1 billion, the Government will invest £300 million alongside private investors over the next two years in new channels, such as non-bank lenders.
We have also set up the Green Investment Bank to stimulate the additional investment required to finance the UK’s transition to a greener economy. In its first six months of operation, the bank has committed more than £635 million, including investments in each of its four priority sectors: waste, offshore wind, non-domestic energy efficiency and the Green Deal.
Beyond these schemes, we have implemented a package of credit-easing measures to improve the supply of affordable credit to SMEs across the country. For example, the Funding for Lending scheme was recently extended with incentives heavily skewed towards SME lending support. The £1.2 billion Business Finance Partnership was established to stimulate the development of alternatives to bank finance.
The Government are also supporting SMEs which lack a sufficient track record or collateral to access bank finance by providing government loan guarantees. Since May 2010, more than 10,500 SMEs have been offered enterprise finance guarantee loans with a total value in excess of £1 billion.
Her Majesty’s gracious Speech announced legislation that will further support SMEs in the design sector to drive growth through innovation by facilitating the protection of their intellectual property. The Intellectual Property Bill will implement the recommendations of the Hargreaves review. One of its key elements is the unified patent court agreement, which will make it possible for British businesses to protect their inventions across 25 countries in a single application. That could bring direct savings to UK businesses of up to £40 million per annum in translation costs alone.
The Department for Business, Innovation and Skills also plans to modernise and simplify our consumer rights framework through introducing a consumer rights Bill during this Session. In particular, this Bill will include important new protections for consumers buying digital content such as music downloads or software where legal protection is currently unclear. Clarity in this area should also reduce the regulatory burdens for business, with the aim of improving market performance.
In summary, I believe that our future prosperity depends on our ability to be competitive in a fast-changing world. That means competitive in terms of hosting businesses that can take on the world and win, and competitive in terms of attracting highly mobile capital and investment. This Government are determined to create the best possible financial and economic conditions for the UK to succeed in this race. First, we have to demonstrate that we can deal with the deficit—it is impossible to produce sustained growth if the public finances are not under control. Secondly, we need to complete our work in fixing the financial system so that it is able to sustain growth in the economy. Thirdly, we must implement the reforms necessary to improve our competitiveness. These range from the support we are providing for SMEs to investments in infrastructure and housing and to the devolution of important local spending responsibilities. I believe that this is the right recipe to convert from our current phase of economic healing to one of sustained recovery and the right recipe to unlock the aspirations of our nation by backing people who want to work and get on.
Lord Lea of Crondall
There is an advisory limit of eight minutes. I inquired and that was stated. I do not know whether anyone would like to confirm that that is the case.
Lord Wallace of Saltaire
My Lords, as the question has been raised, the Chief Whip gave the advice that if Members were to keep their remarks to eight minutes we would finish at 10 o’clock. I am advised that it is traditional in debates on the Queen’s Speech not to enforce the advisory rule, so it is entirely open to noble Lords still to be here at one o’clock in the morning if they so wish. However, if anyone were to go on for a very long period, I dare say that noble Lords would have ways of making their feelings on this known.
Lord Lea of Crondall
My Lords, I have no wish to produce the result whereby people are here at one o’clock in the morning. I simply say that I hope no one thinks that there is any discourtesy if, in the light of what has been said, one does not stick to eight minutes.
As my noble friend Lord Eatwell pointed out in his magisterial analysis of the short term, austerity will not improve our tax revenues, nor will it reduce our tax expenditures. There are perhaps three timescales over which one can analyse economic prospects: short, medium and long, by which I mean for the short term possibly three to four years, for the medium term 10 to 15 years, and for the longer term perhaps 20 to 30 years. The post-war architecture of the world economy—Bretton Woods and so on—goes back no less than 70 years. The IMF and the World Bank were the main institutions created at that time. Surprisingly—it is hard to think that it is true—the European Union in all its manifestations now goes back for the best part of 50 years. It is partly in view of the extraordinarily peremptory and dismissive speeches made by the noble Lords, Lord Forsyth and Lord Lawson, in recent days that I will concentrate on the second and third of those timescales.
Their recipe for leaving the European Union and indeed for the future of the nation as a whole is, in my view, catastrophic. It is going down an ideological road and is far from an objective analysis of our economy and our place in the world. It is also as far removed from pragmatism and empiricism as something that went on in the Labour Party in the 1980s, and that is where the Conservative Party will wind up if they follow that line. In the short term, it will be, as I said, catastrophic. Figures published today by the TUC, which has done some analysis of the statistics of the International Monetary Fund, suggest that by 2017 our per capita income in Britain will have increased by precisely 0.0%. I know it sounds extraordinary that a figure should be as precise as that but it works out that our living standards, our per capita income, in Britain will have risen by precisely 0.0% since 2008. Given the vast increase in the quantum of the top 1% and, indeed, 10%, that explains the deep cut in living standards for the median and the vast majority of the British people who, not surprisingly, are angry and disorientated as a result, and are prepared more readily to listen to sophists such as Mr Farage and others nearer to home.
I acknowledge that the EU as a whole has not had a very much better record, although perhaps I may draw attention to the fact that per capita incomes in the same series in Germany and Sweden—two examples of northern Europe—will both be projected to have risen by 10% in this period, a point to which I will return. In passing, I will also mention that on a couple of occasions I have asked my noble friend Lord Eatwell a rhetorical question about how we will pay for this, that and the other without increasing the deficit. The noble Lord, Lord Forsyth, says that we have to get on urgently with filling up the potholes. Perhaps he will pay for it himself but I assume that it will come out of public expenditure.
What is the bigger economic picture that we face in this country? Just to put the numbers another way, the loss of output in these 10 years below our earlier potential of roughly 2% growth per annum comes out at some extraordinary numbers. If you look at the cumulative loss against that trend, by the year 2017 it will work out at some £3 trillion—£3,000 billion. It will not be £30 billion or £300 billion but £3,000 billion. People can work it out for themselves. The noble Lord, Lord Forsyth, is looking puzzled but if he does a bit of mental arithmetic he will find that that is in the right ball park. I know he does not have time to work all that out in the time of my speech but perhaps later he will realise that my figures are accurate. We are talking about figures that are worse than the slump in the 1930s after the parallel banking crisis of 1929, from which we only recovered the full scale of our potential during the late 1930s and the Second World War, as, of course, did Germany and the United States.
As to my own prescription or views regarding these matters, I do not begin by wanting to be orthodox in terms of Labour Party policy. I do not think that that is the role that one is necessarily here to play. I am generally orthodox but I just should like to draw attention to one or two features of the trade deficit. It is not that we cannot grow our economy in the European Union. If the EU per se is the reason for some incompatibility because of so-called red tape, how is it that Germany, despite absorbing a very weak East German economy over the past 20 years, has a GDP per head of 121—if we put EU equals 100—while ours is 109?
Germany, of course, which relies much more than we do on something as old fashioned as manufacturing, is rarely mentioned by the new ideologues. They seem to think that there is something magic about the City of London. For every £2-worth of goods or services—in the statistics they come to the same thing—we now export, we import £5-worth. This is, in part, to do with our exchange rate. Of course we cannot go on devaluing the pound without our living standards falling. However, if we want to regain our competitiveness, I could argue at the same level of abstraction as the noble Lords, Lord Forsyth and Lord Lawson, who think they are brilliant economists—I do not think that I am a brilliant economist but at least I can see the fallacies in what they are saying—but what is wrong with saying that although we are now stable at 85p to a euro we would be more competitive at parity with the euro? That is a devaluation of 15%. With the growth of our educational system and our whole industrial policy, perhaps that would ensure that we stay, for once, at parity with the euro.
I do not anticipate great enthusiasm for what I have just said but is it not a fact that our trade deficit is a fundamental issue both within the European Union and outside it? Simply asserting that we have got to trade with the rest of the world in no way addresses that fundamental question. As for the European side of growth, that, too, goes back to Lehman Brothers five years ago. It is not as if the whole of the European slow growth was created within the European Union.
The other point which needs to be put to these new iconoclasts is whether they would stay in the European Economic Area along with Switzerland, Norway and Iceland. There is plenty of red tape in the European Economic Area. We signed the EFTA treaty in Stockholm leading up to its creation in 1960 and there have been rules on state aid and so on. The noble Lord who referred to the acquis, the noble Lord, Lord Spicer, who is not in his place, is correct in that if we were a member only of EFTA we would be following all of the acquis without having a seat or a vote at the decision-making table. Would he be happy to be in that position? He has given no clue as to the scenario we would be expected to vote for if he had his way.
The third and final fallacy—I am still three minutes off my 16 minutes—concerns relying on the City of London. The noble Lord seems to want to have it both ways. Either it is the centre of Europe’s financial system and dependent on our being part of the EU for its strength, or it will somehow have a comparative advantage in its own right without our being part of the European Union. The noble Lord must have missed the speeches by leading officials in China, the United States and elsewhere, who have said that of course our share of world investment would be considerably at risk if we were to leave the European Union.
In conclusion, “Stop the world, I want to get off” is a policy which I am sure the British people, when they are told the truth—we are told that we have to get them to understand the truth, but that is a bit difficult when the Murdochs, the Daily Telegraph, Daily Mail and so on do not allow them to know it because for the most part they censor it—will reject. On the state of British public opinion, I shall read out three or four statistics taken from a new survey produced by YouGov/The Fabian Society looking at the attitudes of the younger generation, those aged between 18 and 34. They were asked:
“How convincing or unconvincing do you find the following statements in favour of the European Union? … It has given people the freedom to travel, work and live in other EU countries”.
Some 60% found it “fairly convincing”. Perhaps I should send an e-mail to the noble Lord, Lord Lawson, in France saying that I hope he is happy that that has enabled him to live there.
“The EU has agreed common standards of workers’ rights, consumer protection and played an important role in guaranteeing the social rights of individual citizens”.
The response showed that 48% found that statement “fairly” or “very” convincing against 15% who did not.
“Co-operation between EU countries is the best way to tackle the big issues of our time, like climate change, the global financial crisis and international terrorism”.
Some 49% said yes, while 18% said no.
“The EU has helped keep peace in western Europe since the second world war”.
Some 47% agreed and 17% did not.
Perhaps I may say in my final sentence that, so far as peace in the world is concerned, it is essential that Germany, France and ourselves are in the same Europe with a common defence approach vis-à-vis the rest of the world. That point will become clearer and clearer as this debate continues.