Government Spending Review 2013

Baroness Kramer Excerpts

Wednesday 3rd July 2013 Grand Committee

[Baroness Kramer]

My Lords, I want to thank my noble friend Lord Deighton, who has done the heavy lifting in this debate by providing us with the details of the spending review and summarising them for us, so I will not try to repeat that. However, I want to confirm that I find myself very much in support of the general thrust of the two Statements, first on the spending round and then on infrastructure, because what lies beneath them is essentially a strategy of reducing revenue spending in order to allow a shift into infrastructure investment. That surely is what we need to achieve the growth that we require for this country.

I know that the Labour Party now buys into austerity, so I will be very interested to hear its comments, but I am still not clear whether Labour understands why austerity has been so necessary. We have seen the build-up of debt over more than a generation, but during those years Labour spent and borrowed as if we were at the bottom of an economic cycle when we were in fact at the top of one. When the inevitable bust came—it is always caused by one event or another, but cycles happen—the economy found itself so heavily overborrowed that many of the tools that would have been available in more rational circumstances were not available, leaving the Government with no choice but to cut sharply into structural revenue spending.

However, the coalition is also having to rebuild an economy that, in the view of many now, had been neglected for more than generation. It is hard to believe that manufacturing fell from 26% of GDP in 1979 to a low of 10.5% in 2009. The service industry grew but manufacturing did not grow alongside it as it should have done. However, that is only part of the imbalance that was allowed to develop. We became a largely public sector-driven economy, and it has to be excellent news that for every job that has been lost in the public sector, three have been gained in the private sector. Those are now sustainable jobs, which is what we need in order to build. How did we lose so many apprenticeships in the Labour years? How did we take so many young people through education but find that when they finished they lacked the skills needed to get a job? This spending round, again, has supported apprenticeships and protected, in real terms, spending on schools and the pupil premium, which surely is an investment in the future of our most disadvantaged youngsters.

How did we end up with a Government, although this concerns more than one Government, with a procurement process that simply is not fit for purpose? I congratulate the noble Lord, Lord Deighton, for bringing sense, skill and proper planning into government purchasing. I now understand that the infrastructure programme that he has laid out represents a steady rollout, year by year, which is exactly what we need in order to deliver infrastructure. Perhaps he could tell me whether I am correct in my understanding that the order of play of this rollout of infrastructure is to have an early focus on opportunities for fairly quick wins, such as broadband, school places and affordable housing, with the longer-term projects that need much more planning and preparatory work, particularly in transport, coming out over the longer term. We now have a path for that.

We are holding this debate just as increasingly positive news is creeping out; we are moving, as the Chancellor said, from rescue to recovery. Both the manufacturing and service sectors are growing, according to the PMI and the Bank of England. Very encouragingly, the headline small business index rose to 15.9 in the second quarter, up from 6.3 in the first quarter. Mortgage approvals are up and confidence is improving. The position with the silver pound, which is rarely talked about, is interesting. Projections show that spending by the over-50s—a group of people who have been far less hit than others in the population, especially younger people—is increasing steadily. We know that it is a group of people with the capacity to spend. Their spending was up from £250 billion in 2007 to £317 billion in 2012. The forecast according to Age UK is for a bigger number to be delivered this year. That seems to be an affordable place to go to see that kind of consumer stimulus.

I am particularly encouraged that exports are rising markedly. The BCC—the British Chambers of Commerce—reports that the growth in exports is at its fastest since 1989. The Government have taken on a really tough target of doubling exports to £1 trillion by 2020. Much of that will have to come from SMEs, which provide over half our exports today. I give credit to the noble Lord, Lord Green, but also very much to Vince Cable, for turning UKTI into an effective tool after a generation of neglect. This spending round provides more money for our embassies to work with UKTI and for increased export finance, especially to small businesses, which is surely vital. This is an area where scaling up has to continue. It must surely be one of the primary focuses now of economic policy.

The welfare changes in this spending review are, frankly, modest. That must be right, as we have to manage austerity in a fair way. I want us to monitor the impact of the delay in paying jobseeker’s allowance to see whether that has an untoward impact, albeit one that is unintended. As I say, the changes on the welfare side have been very modest. However, I have a point of clarification for the noble Lord, Lord Deighton, on the so-called welfare cap, which strikes me as less a cap and more a sensible management tool to capture key parts of annually managed expenditure: programmes such as incapacity benefit, which spiralled completely out of control under Labour even though there seemed to be no particular increase in either disabled or injured people. Will the Minister confirm my understanding that the cap is the OBR forecast of the cash cost of the included programmes? Does breaking the cap trigger a report to Parliament but not necessarily an automatic curtailment, unless there turns out to be an important need for underlying change?

I will talk briefly about infrastructure because the noble Lord, Lord Shipley, will focus his remarks on that issue, especially on housing. However, I take this opportunity to repeat a plea to the noble Lord, Lord Deighton, for increased flexibility for tax increment financing to allow local authorities to pick up the pace of investment in small-scale infrastructure. The very case that he makes for large infrastructure, involving the orderly rollout of schemes, certainty of funding and tapping into external financing applies just as much to the small and local. We have accepted that small is crucial in business and commerce; we now need to accept that small as well as big is vital in infrastructure.

All this has consequences for our financing system. The business bank is an important beginning, but long-term patient capital is still hard to find in the UK. I hope we will try to develop the capital markets to provide that capital. The noble Lord, Lord Davies, the noble Baroness, Lady Noakes, and I all attended a talk given by Robert Peston not long ago in which he pointed out that in the US, 80% of small business funding comes from the capital markets rather than the banks. The opposite is the case here. Therefore, when a bank is compromised, we are in a very difficult position. The major banks are going to be seriously challenged to meet lending demand, despite Funding for Lending, as growth picks up and firms chew through their cash reserves.

It is good news that RBS has asked Sir Andrew Large, former Bank of England deputy governor, to look at its lending practices, because when it says that it has £20 billion that it would love to push out of the door tomorrow morning but cannot, we all find that a fairly extraordinary statement. However, something is holding our banks back. I suspect that it is not the usual argument about capital but is much more about capability, and it would be interesting to find out more. The Government have done much to enable recovery, and this spending round is an illustration of that. However, we cannot let a weakened banking system derail these early beginnings for which the public have waited and worked.

--- Later in debate ---

[Lord Davies of Oldham]

My Lords, I was making a point that the noble Lord ought surely to take into account. Far from there being an environment in which foreign investors will necessarily find a place to invest in the future, as long as we are extremely uncertain about our relationship with the biggest market that we service, Europe, it is bound to cause anxieties among investors.

I also noted what the noble Lord, Lord Higgins, said—he is also my noble friend when we are on the golf course. He was very concerned to address some real points to the Minister with regard to the future of interest rates and the assumption made about future public expenditure. The Minister must address that point in his reply.

I appreciated the point that the noble Lord, Lord Shipley, made about local authority finance and being able to identify local resources. One product of the debate on Scottish independence and the referendum will be to identify those issues as far as Scotland is concerned. That is bound to give a stimulus to the broad argument that the noble Lord is putting forward about the resources available to the various localities of the United Kingdom and the needs that may be identified. I would have thought that that is bound to take a significant step forward as a result of the debate on next year’s Scottish referendum.

The noble Lord, Lord Flight, entertained us all with the Hayek versus Keynes debate. Although the noble Lord said that growth before the Second World War was considerable, he may have noticed that full employment in this country did not return until we went into wartime defence production. It is quite clear that under the Hayek principles you can certainly run an economy with a considerable level of unemployment. However, that word has not been manifest in this debate at all because the fact that we have significant levels of unemployment is a limited consideration for all those on the Conservative Benches concerned with how to manage the economy. We have people coming out of our colleges and universities who are highly qualified by any standards and who, in the past, would have expected to find a choice of jobs. They are facing a situation where the market is such that there are no jobs available. That is why I was grateful that the noble Lord, Lord Flight, identified the thinking behind the Conservative position and, to a more limited extent, the Liberal Democrat position with regard to what the Government are doing at present.

It took the right reverend Prelate to introduce morality into this debate. Why is it that the only person who is prepared to talk about those people who suffer the real costs of what is being carried out in the name of austerity is the right reverend Prelate? He identified the shock we all felt in the Chamber yesterday when it was suggested by a Conservative Minister that food banks are supply-driven and nothing to do with people’s needs. People’s needs have occasioned the development of food banks, which are necessary, but our great shame. Nor is there any understanding on the Conservative side about what it is to lose one’s job at present. It is quite okay to say, “We will cut public expenditure by making sure that there is a week in which one cannot claim jobseeker’s allowance”, but what do noble Lords think the morale of a family will be when someone loses his job against a background where the chances of getting a fresh job are very limited indeed? Why is it that, within that framework, it is thought that a really effective cut is to make sure that an application for support cannot be made until a week has elapsed?

[Baroness Kramer]

Can the noble Lord, Lord Davies, confirm that, during the years of the Labour Government, job centres were prohibited from referring any client to a food bank?

[Lord Davies of Oldham]

I am not well enough equipped to answer that question, nor am I quite sure of the point of the question.

[Baroness Kramer]

I shall try to be helpful. Like many people, I take the view that we live in a country where food banks should not be necessary, but unfortunately they have been necessary for a long time because the same issues of delays over benefits and various kinds of crises have affected those at the bottom. As I understand it, during the Labour years, job centres were not permitted to refer clients to food banks. As noble Lords know, you can go to a food bank only with a reference from an appropriate person: a job centre, a doctor or a limited number of other people. You cannot just turn up and make a claim. Today, job centres offer vouchers where they think there is need, but that need is not very different from the need that existed before. Food banks were just not announced.

[Lord Davies of Oldham]

Food banks are developing in almost every constituency in Britain because the so-called supply-driven factor has been occasioned by the demand of real necessity at present. It is a vastly different situation from that which obtained a decade or even five years ago.

I would ask the Minister to take on board the very important points that have been made by his noble friends today in supporting the coalition. Will he also, at some point in his remarks, address the question of morality? Why is it, for example, that his supporters are concerned to promote a bedroom tax that ensures that there is a desperate issue for impoverished people as to whether they will be forced to move but that when a mansion tax is proposed by the Liberal Party, there are all sorts of anxieties that people who are reasonably well off might be obliged to move and about what an affront to fairness that would represent? The mansion tax would be aimed at properties of very considerable value and at people who know they well might come under attack rather than the very large numbers of people who, under the bedroom tax, are being forced to move from their homes, the schools which their children attend and even the localities in which they have lived for very many years. I hope the Minister will address some of those points.