Comprehensive Spending Review

Baroness Hollis of Heigham Excerpts

Monday 1st November 2010 Lords Chamber

[Baroness Hollis of Heigham]

My Lords, the Minister has insisted today that the CSR cuts are fair and that they support the DWP’s 21st Century Welfare paper for a universal credit to bring people back into the labour market, mainly through making work pay. Really?

On fairness, the Budget cuts and the CSR, as the IFS and some of my noble friends have said, have hit the poor more than all but the wealthiest 2 per cent. But there are other forms of redistribution—horizontal, if you like. This hurts women more than men. The analysis of Yvette Cooper shows that three-quarters of the Budget cuts and two-thirds of the CSR cuts fall on women, as well as the fact that 40 per cent of women work in the public sector. So they are hit through their wage, their job, their tax, their benefits, and public services. It also takes from children rather than the childless. The Government say they want to end child poverty by 2020. The JR Foundation believes that there will be 3 million more children below the poverty line by 2020. Instead of redistributing from the healthy to those who are not, as the noble Baroness, Lady Campbell, said, disability benefits will be threatened, frozen or cut. As for geographical distribution, the cities in the north which depend on public sector jobs and social housing are savaged while prosperous suburbs remain unaffected. Yet generations of Government have deliberately relocated Civil Service agencies and bodies out of high-rent and high-employment London and the south-east to the more depressed north. The CSA went to Dudley, the Patent Office to Newport, the Inland Revenue office to Nottingham, and the NHS executive and the DSS to Leeds. It is profoundly unfair for a Prime Minister representing wealthy Witney to talk about the north’s unhealthy dependence on public sector jobs when that relocation was supported by all parties as part of sensible regional economic policy. So the CSR hurts women, children, disabled people, the inner cities, and the north disproportionately. In all of these dimensions it is unfair.

The one redistribution I have not mentioned is between those who are in work and those who are not. The Minister made much of this, as though the CSR would encourage people into the labour market, given the jobs economy. Like many noble Lords on both the opposition Benches and the government Benches, I welcome the 21st Century Welfare paper of Mr Duncan Smith and the noble Lord, Lord Freud, for a universal credit underpinned by ensuring that work always pays and that mini and part-time jobs are supported to keep a toehold in an increasingly difficult labour market until those jobs can gradually become full time. What is bizarre—I hope that the noble Lord, Lord Freud, is aware of this—is that the CSR actively discourages entry into work, and if you are in work, it caps any aspirations you may have to seek better prospects. In my view, it is goodbye to this Green Paper, which we all know, given that the Treasury is extending its implementation time to two Parliaments, is loathed by the Treasury.

Increase your pay by £1,000 into the higher rate tax category and you lose twice as much in child benefit as you gain in pay. If you create cliff edges, do not be surprised if people are not too keen on walking over them. The father on £42,000 will not take that pay rise. Supporting work incentives by punishing improved work prospects—brilliant social policy. It is perverse. Similarly in social housing, increase your pay and risk losing your home as an insecure tenancy. Social housing is for the down and out; if you climb the work ladder you will be up and out. Of course you will not work those extra hours or take that pay rise if it costs you your home. It is perverse—brilliant social policy again. Staying with housing and non-dependent adult deductions, the adult son, we will assume, is living at home and in low-paid work. The parents will now lose almost their whole housing benefit as his notional contribution to their rent increases by a third or more. What will happen? Either, he will leave, the parents will get full housing benefit again, and he will get housing benefit on his new place, in which case the housing benefit bills will rise and more housing will be needed. But the parents will now be under-occupying and therefore they may be evicted, even though there are no small properties available around them. So the result will be higher housing benefit, more housing used up and insecurity all round. Or he can stay at home, save his parents’ housing benefit, and stop work—the intelligent, rational strategy. It is brilliant social policy again. It is perverse. I will say more on housing on Thursday because carnage awaits us there.

The employment and support allowance has been mentioned already. After one year, it is to be means-tested. Who will it means-test? It will not just be him and any savings, but his wife. If she holds down a part-time job as well as caring for him, she may find that his ESA is withdrawn. What would you do in her situation? Either you reduce your hours right down to the minimum or you probably stop work altogether. Well done: the CSR has ensured that they enter retirement much poorer than they are now. She as a part-time carer has lost her place in the world of work. If in a few years she is unfortunately on her own, she will not be able to regain it. She will remain poor, workless and isolated into retirement. We have all spent the past decade trying to help parents stay in work as far as they can. The CSR may now destroy that. It is brilliant social policy again.

The same goes for the move from 16 to 24 hours’ work for a couple with children, of which one job has to be at least 16 hours, before they can get tax credits. That is not just cruel, it is perverse. It will affect more than 200,000 families. Many men are now accepting substantially reduced hours at work, but, without working tax credit, which is worth up to £70 a week on top, that work may not pay. Yet if they stop working, it will be very hard to regain a full-time job. If he loses his full-time job, she will give up her part-time job because the tax credits are not there to make that work pay. Neither of them will have a foothold in the labour market to keep them in the knowledge economy of work and, as the economy, we hope, strengthens, to work full time. Brilliant social policy, pulling them both out of the labour market. It is perverse.

The child care element of working tax credit will go down from covering 80 per cent of costs to 70 per cent and affect half a million poor families, who will lose up to £30 a week. At the very same time as the Government are seeking to propel lone parents of five year-old children back into work, they are ensuring that, for many, with the increased cost of child care and transport, work will not pay. Brilliant social policy.

The Minister and the noble Lord, Lord Freud, want a single universal benefit, incorporating housing benefit and council tax benefit, to make work pay. I support that. But the Government intend to localise—balkanise—council tax to 500 local authorities, which will make that universal credit impossible to deliver. It is brilliant and unbelievably stupid. I could cite another dozen examples from the CSR, each one of which undermines 21st Century Welfare, which I am sure all your Lordships welcome. I respect the efforts of Iain Duncan Smith, the noble Lord, Lord Freud, and Steve Webb, and I want to support them, but what on earth are they doing allowing the CSR to destroy those proposals detail by detail, forensic cut by forensic cut, before the DWP has even published the results of its consultation paper? The best way of getting fairness between poor families out of work and other hard working families is to help the workless into work, provided we can create the growth economy. That is what the consultation paper seeks to do; that is what the CSR will destroy.

I did not expect the CSR to be fair, not from this Government—and the IFS has shown how unfair it is—but I expected the policies of the DWP, the DCLG and the Treasury to be coherent and consistent. Not on your life. The CSR has made a shambles of future welfare reform and, as always, it will be the poor who pay the bill.

--- Later in debate ---

[Lord James of Blackheath]

My Lords, I do not know what you have done to deserve me this late in the evening but I am afraid that is where it is. It has been a fascinating day. I particularly enjoyed the comments of the noble Baroness, Lady Browning, on the subject of “Brigadoon”, which was the first play I ever saw in the West End. I do not think she delivered the punchline. The whole point about “Brigadoon” was that it came out of the mist for only one day in every 100 years. That is a lovely idea for the Opposition.

We have heard today a great many tales of woe and dismay about the future, and some of optimism from this side. I am concerned about where the common ground is in that. One of the lessons of what is now quite a long life is that nothing is ever quite as bad or quite as good as you expect. It is probable that there will be a little more common ground between us than we might foresee at the moment. We might assist that process because growth will be what brings the two sides together. The more growth we can achieve, the more scope there will be to deal with some of the greater calamities that might occur unforeseen—since everything is unforeseen in politics.

I will talk a little about some of the growth opportunities that we might be able to harness and what we can do. As I have mentioned before, one of my great messages is a lesson from Sir Kenneth Cork, who taught me most of what I know about corporate rescue. It is that you cannot rescue a business that does not have a successful past. Anything that does not have a successful past is a failed start-up. Get rid of it and concentrate on the businesses that have a successful past. Where, today, are the businesses with a successful past? They are languishing in the intensive care units of the banks. They cannot get out because most of them have been the victims of expanding their capacity beyond the demands of the marketplace. That is a very expensive situation to get out of once you are in it. It was done with some dexterity and considerable success in the early 1970s through the initiatives that were forthcoming from three Is: investment in industry. One of the great tragedies of our economy at present is that we do not have three Is functioning in that form today. Boy, do we need them.

I am very much a believer in the principle of the collective collapse of generic groups of businesses as entities. Let me give some examples. At the present moment this year, we have probably lost half a million cars in our British export market. They would have been a very big additional factor to the economy, both in production—the wages that would have gone to the people who built them—and in the export value they would have had. Why? It is because the banks played their usual dirty trick a year or two ago: they saw that there were big markets outside—big back-orders—so they let the businesses have the money that they needed to fund the delivery of the order books that they had. The orders came in; they took the cash, reduced the facilities and the automotive component industry did not have the working capital to gear up for the massive turn to the diesel engines, which were demanded, and the British export market could not maintain the export requirement necessary to maintain its position on the international scene.

That has largely been corrected now but a similar problem may well happen. The next big crisis is going to come in the second week of February next year when the huge crisis that comes cyclically every year afflicts the retail sector worse than ever. It is already bereft on the high street—with shuttered shops and redundant staff, and a very dismal sight it is. What happens in the banking industry is that it knows that in the first two weeks of February every year, all the credit cards that have been used to buy goods going into Christmas pay, and the retail industry has the lowest borrowings of the year. The banks lie in wait and they grab them. Remember Woolworths? Who is coming next?

So we need someone who can take a grip on a general strategy to save the retail industry from another calamity. One of the great regrets I have at the moment is that the person who would best be able to do that is Sir Philip Green, and he is doing something else. I hope that the Government will hold on to him, and once he has actually finished his present task, he will be told to go and cherry pick the entire retail industry languishing in the hands of the banks, and put together the next version of British Home Stores as a government subsidiary which needs funding and which can be imposed on the banking industry by grabbing each bit, despite the fact that there will be minority bank interests that will not want to sell out for the benefit of the major bank interest, which will get the cream of the equity conversion. That is what three Is should exist to do, and what it did so brilliantly before, and that is why we need it back now.

Another element of the world out there at the moment which is potentially waiting for the pratfall of a massive collective bankruptcy is the food processing industry. The more the accent is moved from the small corner shop to the big grocers, the more production has been stepped up by the food producers to satisfy the ever-increasing demands for cheap food coming through the grocery chains. Of course, they have fallen into the trap again of funding themselves to too high a capacity for the market demand with the result that the grocers can rub their hands with glee and say, “We can screw the margins down so tight you won’t be able to breathe” and the suppliers are going to go collectively “pop” at some point in the next few months, because they will not be able to keep up and there is a big social factor coming. We will have the present dependence on cheap food to keep some sort of society structure fed, but we will actually end up being forced up on prices as the industry goes out of business in terms of its ability to keep supply going and prices are forced up in the grocery chains. This is going to be another calamity coming, and we need to have a top-down view as to what to do with it.

I have given your Lordships three examples of why I think we need something, but the creation of the three Is along the lines that I have been talking about would be of the order of a £5 billion cheque required to do it. However, we do not have £5 billion; we do not have half of £5 billion to put in to the creation of this at the moment, so what do we do about it? At this point, I am going to have to make a very big apology to my noble friend Lord Sassoon, because I am about to raise a subject that I should not raise and which is going to be one which I think is now time to put on a higher awareness, and to explain to the House as a whole, as I do not think your Lordships have any knowledge of it. I am sorry my noble friend Lord Strathclyde is not with us at the moment, because this deeply concerns him also.

For the past 20 weeks I have been engaged in a very strange dialogue with the two noble Lords, in the course of which I have been trying to bring to their attention the willing availability of a strange organisation which wishes to make a great deal of money available to assist the recovery of the economy in this country. For want of a better name, I shall call it foundation X. That is not its real name, but it will do for the moment. Foundation X was introduced to me 20 weeks ago last week by an eminent City firm, which is FSA controlled. Its chairman came to me and said, “We have this extraordinary request to assist in a major financial reconstruction. It is megabucks, but we need your help to assist us in understanding whether this business is legitimate”. I had the biggest put down of my life from my noble friend Lord Strathclyde when I told him this story. He said, “Why you? You’re not important enough to have the answer to a question like that”. He is quite right, I am not important enough, but the answer to the next question was, “You haven’t got the experience for it”. Yes I do. I have had one of the biggest experiences in the laundering of terrorist money and funny money that anyone has had in the City. I have handled billions of pounds of terrorist money.

[Baroness Hollis of Heigham]

Where did it go to?

[Lord James of Blackheath]

Not into my pocket. My biggest terrorist client was the IRA and I am pleased to say that I managed to write off more than £1 billion of its money. I have also had extensive connections with north African terrorists, but that was of a far nastier nature, and I do not want to talk about that because it is still a security issue. I hasten to add that it is no good getting the police in, because I shall immediately call the Bank of England as my defence witness, given that it put me in to deal with these problems.

The point is that when I was in the course of doing this strange activity, I had an interesting set of phone numbers and references that I could go to for help when I needed it. So people in the City have known that if they want to check out anything that looks at all odd, they can come to me and I can press a few phone numbers to obtain a reference. The City firm came to me and asked whether I could get a reference and a clearance on foundation X. For 20 weeks, I have been endeavouring to do that. I have come to the absolute conclusion that foundation X is completely genuine and sincere and that it directly wishes to make the United Kingdom one of the principal points that it will use to disseminate its extraordinarily great wealth into the world at this present moment, as part of an attempt to seek the recovery of the global economy.

I made the phone call to my noble friend Lord Strathclyde on a Sunday afternoon—I think he was sitting on his lawn, poor man—and he did the quickest ball pass that I have ever witnessed. If England can do anything like it at Twickenham on Saturday, we will have a chance against the All Blacks. The next think I knew, I had my noble friend Lord Sassoon on the phone. From the outset, he took the proper defensive attitude of total scepticism, and said, “This cannot possibly be right”. During the following weeks, my noble friend said, “Go and talk to the Bank of England”. So I phoned the governor and asked whether he could check this out for me. After about three days, he came back and said, “You can get lost. I’m not touching this with a bargepole; it is far too difficult. Take it back to the Treasury”. So I did. Within another day, my noble friend Lord Sassoon had come back and said, “This is rubbish. It can’t possibly be right”. I said, “I am going to work more on it”. Then I brought one of the senior executives from foundation X to meet my noble friend Lord Strathclyde. I have to say that, as first dates go, it was not a great success. Neither of them ended up by inviting the other out for a coffee or drink at the end of the evening, and they did not exchange telephone numbers in order to follow up the meeting.

I found myself between a rock and a hard place that were totally paranoid about each other, because the foundation X people have an amazing obsession with their own security. They expect to be contacted only by someone equal to head of state status or someone with an international security rating equal to the top six people in the world. This is a strange situation. My noble friends Lord Sassoon and Lord Strathclyde both came up with what should have been an absolute killer argument as to why this could not be true and that we should forget it. My noble friend Lord Sassoon’s argument was that these people claimed to have evidence that last year they had lodged £5 billion with British banks. They gave transfer dates and the details of these transfers. As my noble friend Lord Sassoon, said, if that were true it would stick out like a sore thumb. You could not have £5 billion popping out of a bank account without it disrupting the balance sheet completely. But I remember that at about the same time as those transfers were being made the noble Lord, Lord Myners, was indulging in his game of rearranging the deckchairs on the Titanic of the British banking community. If he had three banks at that time, which had had, say, a deficiency of £1.5 billion each, then you would pretty well have absorbed the entire £5 billion, and you would not have had the sore thumb stick out at that time; you would have taken £1.5 billion into each of three banks and you would have absorbed the lot. That would be a logical explanation—I do not know.

My noble friend Lord Strathclyde came up with a very different argument. He said that this cannot be right because these people said at the meeting with him that they were still effectively on the gold standard from back in the 1920s and that their entire currency holdings throughout the world, which were very large, were backed by bullion. My noble friend Lord Strathclyde came back and said to me that he had an analyst working on it and that this had to be stuff and nonsense. He said that they had come up with a figure for the amount of bullion that would be needed to cover their currency reserves, as claimed, which would be more than the entire value of bullion that had ever been mined in the history of the world. I am sorry but my noble friend Lord Strathclyde is wrong; his analysts are wrong. He had tapped into the sources that are available and there is only one definitive source for the amount of bullion that has ever been taken from the earth’s crust. That was a National Geographic magazine article 12 years ago. Whatever figure it was that was quoted was then quoted again on six other sites on the internet—on Google. Everyone is quoting one original source; there is no other confirming authority. But if you tap into the Vatican accounts—of the Vatican bank—you come up with a claim of total bullion—