Economy: Overseas Trade Deficit

Baroness Kramer Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord O'Neill of Gatley]

I am very grateful for the accurate suggestion by my noble friend Lord Leigh as to what is really going on below the data. I emphasise—as, rather generously, Ernst & Young did yesterday in a very important report—that the recent deterioration is due to the growing attractiveness of the United Kingdom, especially areas outside London, in the minds of investors all over the world. Narrowing this deficit requires us to invest more in other places in the world that give a higher return.

[Baroness Kramer (LD)]

I wonder whether the Minister has seen today’s FT interview with the director-general of the WTO, in which he explains that, if we were to leave the EU, the UK would be required to put tariffs on imports from all 58 countries with which the EU has trade arrangements, and they in turn would be required to put a surcharge on UK exports. This is not an area where we will have a choice. We cannot say, “We’re not charging duties here”. That would be impossible and illegal. Hence, would the Minister recommend that Brexiters take note of the damage they could cause?

[Lord O'Neill of Gatley]

My Lords, I thought that I had read the Financial Times thoroughly this morning but I missed that particular piece. If we want to reduce our current account deficit by reducing our attractiveness to foreign investment, we need to be very careful on 23 June.

Queen’s Speech

Baroness Kramer Excerpts

Wednesday 25th May 2016 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I join in the warm welcome to the right reverend Prelate the Bishop of Newcastle. I suspect that her ears must have been burning, even when she took a break from the Floor. It is rare to see a new Member so warmly welcomed and so appreciated, and she earned it with her outstanding speech, which not only gave us a feel for her but was, I suspect, a small warning to the Government that they had better live up to their commitments to the north-east, because she will be looking over their shoulder from the Benches just behind them.

The Queen’s Speech started with the claim:

“My Government will use the opportunity of a strengthening economy to deliver security for working people”.

But the economy is not strengthening; it is getting weaker. The noble Baroness, Lady Jones of Whitchurch, and the noble Lord, Lord McKenzie, outlined some of the reasons, but I shall add a few more. George Osborne has borrowed £4 billion more this year than was estimated in the March Budget, and we are only in May. Economic growth slowed in the first quarter of a year, growing by only 0.4%. Construction output fell for a second quarter by 0.4%.

Numerous kinds of measures tell the same story, but I want to pick up the example given by the noble Lord, Lord Northbrook, when he talked about signs of a drop in confidence among small and medium-sized enterprises. We know from recent reports that lending to small businesses via overdrafts was down by 13% at the end of March from September 2014. As the noble Lord, Lord McFall, says, that may be something about bad bank behaviour, but it also reflects a drop in confidence by small businesses on an extraordinarily steep scale. That is an issue that the Government must take to heart, and take to heart immediately.

The weakening in the economy is a problem of the Government’s own making. This year they passed a Budget with a £7.5 billion black hole. Their fiscal plans required continued austerity to cut all public borrowing, which because of their definitions means a huge constraint on infrastructure spending for the future. As I have said before, spending on infrastructure is investment and should not be included as day-to-day spending when considering eliminating the deficit, especially at a time when we can borrow at virtually zero interest rates. If the Government doubt the need to accelerate getting infrastructure projects into the ground, I hope that they listened to the noble Earl, Lord Arran, my noble friends Lord Shutt and Lord Shipley, the noble Baroness, Lady Ford, the noble Lords, Lord Berkeley and Lord Patten, and, on broadband issues, the noble Lord, Lord Inglewood—and, indeed, others, who all gave examples of essential projects, all designed and all very close to being ready to go, which cannot be funded under the current regime.

The Government have been tearing themselves apart over the EU referendum and causing instability in the process. In this debate there was a dog that did not bark. I have so often been in debates on Brexit and found that those advocating exit have absolutely no plan for what the economy would look like, and frankly I have been shocked. I would have thought that by this stage we would have had some detailed scenarios and economic forecasts with analysis behind them, as well as pinpointing of industries that would be impacted and regions where jobs would be affected, but nothing, and again, today, nothing. That seems to me to make the argument all of itself.

Quite a number of Bills in the Queen’s Speech are covered by the theme of today’s debate. We want to see the detail and scrutinise and improve them, but I hope that we can support many of them. I shall reference just one or two.

My noble friend Lady Bowles referred to the criminal finance Bill. Many of us were very concerned because most of the content was announced in 2015 by Danny Alexander. We have been looking for this Bill for months, and if it took the Panama papers to draw it on, so be it. As my noble friend said, it will be crucial to make sure that it contains adequate transparency. Noble Lords will not be surprised that I am enthusiastic about the HS2 Bill now coming to the Lords. I am grateful that I do not have to be on the hybrid Bill committee and, boy, do I admire those who are putting their names forward to take on that very big task.

On the modern transport Bill, the work on driverless cars should be meshed with the work on electric vehicles. They go together. One of the risks is that we have siloed that because there is potential for the UK to be a real leader in this area. The noble Earl, Lord Attlee, and my noble friend Lady Randerson warned us that the Bus Services Bill has great potential for providing local control for bus networks, but it must be accompanied by the necessary resources to make it work and a check must be kept on unintended consequences on areas outside those that are covered by the new local ability to regulate.

My noble friend Lord Shipley, the noble Baroness, Lady Donaghy, and quite a few other noble Lords warned us that the local growth and jobs Bill, which devolves business rates to local authorities, is a fundamentally good idea, but we must be careful with our most deprived communities, many of which will never be able to take advantage of a business base. They must not be left out and lost as a consequence of this change in structure. As several noble Lords, including the noble Lord, Lord McKenzie of Luton, and my noble friend Lady Thornhill, have said, the neighbourhood planning and infrastructure Bill does not deal with the broken housing market—it just assumes that the only problem is planning—or with the lack of affordable social rental, which are critical housing problems.

In the last moments of my speech, I want to refer to the discussion initiated by so many on this side of the House, with no co-ordination whatever, questioning many of the fundamentals of the economy. Intergenerational unfairness is a major issue in our country, with more than 50% of young people, or people generally, assuming that young people will never have the lifestyle that their parents have had. They have been hit by the cuts in public spending, the lack of affordable rental cuts right to the heart of their life opportunities and they need to be engaged. Along with these issues, we have growing inequality, which was starkly described in this House.

I am one of those who really welcome the huge disruption that is coming with new technology—much of it was described by the noble Lord, Lord Giddens—but it means enormous job losses. Antony Jenkins, a former CEO of Barclays, has warned of 30% job losses in the banking industry within the next five years, and the British Retail Consortium has talked of more than 900,000 jobs going by 2025 as a result of automation. There is huge potential, but only if we prepare and make sure that new opportunities are provided to our young people.

We need to look at the whole structure of the way in which our economy functions. Public benefit companies in the US are an exciting new approach to understanding that for the future structures that allow growing inequality are not sustainable in the long term. We have to answer the needs of our broad population. We never want to be in the situation of having a Donald Trump sweeping away votes in this country in the way he currently is in the United States. That means keeping cohesion, coherence and a genuinely fair society underpinned by fairness in our economy.

The Economy

Baroness Kramer Excerpts

Thursday 28th April 2016 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I join the tributes to Lord Peston. It is probably a hallmark of the man that so many of us from different Benches felt that we had a personal relationship with him. He was so welcoming when I came into the House. I can hardly bear the thought of going through financial services legislation without him and Lord Barnett and their constant commentary, great wisdom and endless humour, which carried on in the corridors after debates. We have suffered a great loss.

I gave my response to the Budget in Grand Committee. Therefore, I will use this opportunity to speak somewhat differently. However, I raised one point in that debate which I will not allow the Minister to escape hearing again. They say that if you hear the same point 20 times, eventually some attention is paid to it. Therefore, I ask the Government one more time to look again at the definition of a budget surplus that includes capital spend, because it is entirely inappropriate to do so. We face a situation where the markets are such that we can borrow at virtually zero coupon to begin to raise that funding for critical infrastructure in which we have underinvested for at least two generations. I am not talking just about transport, in which I have a direct interest. The pace of that investment must increase.

As regards the internet and broadband, the ambition that this country has for a speed of 20 megabytes for this vital piece of infrastructure is, frankly, tepid, given that the rest of the developed world is starting to look at 1 gigabyte speeds. Surely we have to invest in that, as we do in housing. We have a housing crisis. The noble Lord, Lord Hain, talked about that extensively. We should also recognise the need for housing to rent, at rents that ordinary people can afford. Every conversation we have with the Government is about housing to buy. However, housing to rent is critical and a necessary mechanism to maintaining our wonderfully socioeconomically mixed, complex cities, particularly London, which have been the wellspring of so much of our growth and productivity.

When I address productivity, the issue that is raised by company after company, large and small, is that of skills. Others have talked about this extensively. The noble Lords, Lord Mair and Lord Bhattacharyya, talked extensively about innovation and skills. I draw the Minister’s attention to a report to this House by the Select Committee on Social Mobility, which was published roughly a week ago, because it focused on the virtual complete collapse of support for our youngsters who do not take the academic route. That is the nearly 50% of young people whose goal is not A-levels and who are not heading for university. Apprenticeships do not meet their needs because most apprenticeships are aimed at much older people. This calls for a real look at that 14 to 19 age group to understand the need for a genuine and viable vocational structure to support our youngsters. Given proper education and support, many of those youngsters could match the skills that are in demand. That group is not stupid. We must get away from this grammar school versus secondary modern mentality which implies that if you are not academic, you are not brilliant, capable, creative and able. Among that group are future entrepreneurs, engineers, designers and many people who could be the backbone of our economy. Germany has recognised that and we need to do so. It goes far beyond apprenticeships. The Treasury needs to look at this issue and not pack it away in the education sector.

An issue that has hardly been addressed today, but which is absolutely critical, is that of access to finance. We have become quite good at starting new enterprises, as I think the noble Lord, Lord Bilimoria, said. If you look around the UK, you will see that new businesses are starting and many new entrepreneurs have come forward. There is a real energy in start-ups within this country, and they can now find initial financial support. However, it begins to fall apart as soon as they try to scale up. As noble Lords know, this is widely known as the valley of death of financing. As I talk with venture capital groups up and down the country, and the new innovative financing groups, it is clear that they cannot provide that missing element unless there is significant change. Venture capitalists are too concerned about turning over their investment in a three to five-year period. We are desperate for patient money, which in many countries such as America comes from angel finance, or other kinds of institutional sources across the continent. I see no way to begin to get that kind of long-term investment. The noble Lord, Lord Bilimoria, talked about the Judge Business School in Cambridge. Believe it or not—talk about burying old battles—that has produced a joint report, sponsored by Barclays, with the Saïd Business School in Oxford which looks again at this whole scale-up issue.

This must now become a major government focus. We need to look at using things like the British Business Bank and other kinds of mechanisms that may require government investment, government partnership and support, or changes in tax incentives to begin to deliver the financing for scale-up. I pick up on the point by the noble Viscount, Lord Hanworth, about how many of our companies end up in foreign hands. I am not anti-foreign; it happens—companies grow and sometimes they sell out. But in the UK, they have almost no option to sell to a British-owned entity because we have lost nearly all our tier 1 players. If they are going to remain based in this country, driving exports from the UK, keeping their research here, they are going to have to grow organically and that is why scale-up becomes absolutely critical. I hope that the Government will focus on it.

As the Minister will know, a lot of start-ups, and indeed other businesses in the country, are now turning to new FinTech, to innovative finance, rather than the conventional banks to fund their growth. The noble Lord, Lord McFall, raised the issue of the banks returning to past abusive practices. Both the Treasury and the regulator need to be on the alert because, in talking with the FinTech sector, it is clear that it is becoming very concerned about the behaviour of many of the conventional banks. Initially, our conventional banks ignored the new FinTechs—after all, many of them did not start until 2010 and were fringe players. The banks basically dismissed them. Now they are real players. Our third largest creator of new small loans to small businesses is, I think, Funding Circle; it is becoming a significant player and is taking away market that our banks would like to control. The banks, however, have the ability to come in and compete with that sector using subsidised taxpayer support. Their funding comes from deposits, on which they pay nothing, or next to nothing, because the taxpayer is providing guarantees against any risk. They have extraordinarily cheap sources of finance that they can direct against those new targets. I think that they have enough sense not to try to drive these new groupings out of business, but they will constrain their growth, which is unhealthy for the economy. We have to make sure that anti-competitive behaviours do not develop and that there is not cross-subsidisation undermining our new innovative finance industries.

In looking at those industries, I want to pick up on a key issue as we look at the economy, which is whether we remain in the European Union. Some will not have had the opportunity today to see that Tech City UK has done a poll of its membership. These are technology start-ups; they are one of our real high-growth sectors, and they are the industries of the future that many who have called for innovation have identified. Among both founders and investors, seven in 10 want Britain to remain in the EU. This industry is so exciting because it is the next generation. It is not run by people of my ancient age—you would be lucky to find somebody aged 40 within these groups. They are the future. I find it fascinating that, in talking about the EU with them, they cannot understand the debate that is taking place. Many are not Brits but have come to live here because this is such a good place to create these industries. But they are entirely comfortable and happy to identify as and be proud of being British and see no conflict at all with being in the EU. These businesses, almost from day one, are pan-European. They start with activity here in the UK, in Poland, Germany and Spain—they are pan-European and see the future as such. When people talk about the financial services industry potentially leaving London, they talk about Frankfurt and Paris. I think most people know that that is not terribly serious but, for this new industry, Berlin is. We should not ignore what is now becoming a great cosmopolitan city with a very large English-speaking population. It has become a magnet across Europe for new enterprise, which is a real risk for us. For these new driving industries, the potential to move to Berlin is always there as a possibility. I never hear that in the general discussions that come from the leavers about Brexit.

There are so many things that we could talk about under the heading of the economy today. Many have been addressed so well by others that I will limit my remarks to what I have already said. I thank the Minister for bringing forward an opportunity which, in a sense, required us not just to focus on the Budget but to include a much broader discussion of the economy.

Budget Statement

Baroness Kramer Excerpts

Wednesday 23rd March 2016 Grand Committee

[Baroness Kramer (LD)]

My Lords, in his Budget speech the Chancellor said that he would eliminate the Liberal Democrats—by midnight. Instead, he managed a direct hit on the Conservative Party. I think he has confirmed his reputation as a man who always misses his targets. The story of this Budget is of missed targets and the utterly unacceptable cuts in public spending on the working poor and disabled people that the Chancellor chose to cover up his failures.

Can we now have an absolute assurance that the Chancellor’s agreement to throw out the £4.3 billion of cuts to PIP will not lead to cuts in other parts of welfare? I notice the phrase “no further welfare cuts”. That needs some confirmation and definition. Will the blow fall on the pensions part of DWP? The new Secretary of State did not address that. Will it mean that public services as a whole have to find the £4.3 billion in cuts? Are we all meant just to forget the £4.3 billion in cuts? In which case the Budget is shot. I wonder if the Minister could offer some clarity.

In the coalition years, the Government worked successfully with the support of a broad majority of the British people to gradually eliminate the structural deficit, better known as the cyclically adjusted current budget—intentionally excluding both cyclical support and capital spending. This is the target that the financial markets require to assure fiscal discipline and fiscal stability. Even with the OBR’s March downgrades in the economic forecast, this measure goes into surplus in 2018. I have no idea how the changes—the mystery £4.3 billion—have impacted that outcome, but I hope the Minister will be able to tell us. Cuts or tax increases beyond balancing the CACB are an ideological choice; they are not required for fiscal discipline or fiscal stability.

Will the Minister finally accept that the Government’s decision to change the whole character of the fiscal target and to require a fiscal surplus in 2020 based on the new, far more austere definition including capital spending was a mistake and should be rapidly abandoned? The contortions in the Budget to hit the self-inflicted target—shifting taxes and capital expenditure quite blatantly between years to manipulate the numbers for 2019-20—are extraordinary. Did the Government think we would not see them? Does the Minister agree that it was utter arrogance for the Chancellor to bind his own hands in a time of global uncertainty by putting his fiscal rule into law?

It was also fundamental in the coalition years that we should be “all in it together”. That is why cuts for the wealthiest, such as cuts to capital gains tax and further cuts in corporation tax, were off the table during the coalition and, while there were cuts to benefits to the working poor, my Liberal Democrat colleagues in government constantly restrained the Chancellor, as is now evident. The Chancellor carries on using the language of “all in it together” but he does not seem to understand the meaning.

Numerous noble Lords will have read the letter of the right honourable Member for Chingford and Woodford Green. I share his outrage about the cuts to disability benefits but, more importantly, the British people share it, too. Those who voted Conservative in the last election thought they were getting a continuation of coalition policies; they did not understand they were getting a hard swing to the right.

We cannot keep slashing the budget for public services and still deliver a civilised society. The UK’s demographic profile now includes so many older people, living longer and in need of healthcare and social care, despite working more years. Ordinary people are still feeling the pressure. The Institute for Fiscal Studies confirms that,

“we should expect much of the recent fall in inequality to be undone over the next five years”,

and this is especially true for those of working age, whose incomes are still below pre-crisis levels, and the young, who have suffered the most.

Some of the worst sufferers have been our public servants—teachers, nurses, doctors, police. Surely as we reach a CACB surplus, we should increase pay for them. They will leave their professions if they know that, every day, they can be paid more and treated better in the private sector. The junior doctors are not alone; it is a straw in the wind and a warning that should be recognised.

Yet as this Budget stands now, we have a £4.3 billion hole which must be filled from somewhere. The Budget includes £3.5 billion in mystery cuts to un-ring-fenced government departments. There is a further £2 billion cut to departmental budgets to fund pension contributions —that, by the way, is a huge blow to the NHS. It is in effect a cut of £650 million from what is supposed to have been protected funding to a department which needs every penny of its promised additional £8 billion if it is to survive. The schools budget does not even rise with inflation, and none of that litany that I have just given includes the plight of local government.

I fully support the cut in business rates for small businesses. My Liberal Democrat colleagues in government fought for the review of business rates and I welcome its conclusions and implementation. But the Budget seems to anticipate that the whole cut, which we estimate will be £2 billion—perhaps the Government will tell us that it is higher—will fall on local government services: the street cleaning, rubbish collection, transport and especially the social care that people rely on for a decent community. Is that true? Is this yet another £2 billion cut to local authority budgets, already slashed in previous years?

I have so many questions. Does the sugar tax come with a proper anti-obesity strategy? Otherwise, it will deliver little. Why are the Government not taking advantage of minimal interest rates to raise their ambition and speed the timing of investment in broadband, housing, renewable energy and lifelong learning—all those foundations of economic growth? Why are the Government being so timid in taxing multinationals, closing loopholes rather than restructuring corporation tax? And who is the lifetime ISA meant to help? It works properly for people who can save £4,000 a year, but there are precious few younger people who have that kind of money.

But, frankly, all that is overshadowed. We need to see a revised Budget. The coalition worked so hard to restore confidence in the British Government’s ability to manage the economy and that is being thrown out of the window. The Government may be mollified by winning the vote in the Commons yesterday, largely—by the way—thanks to so many missing Labour votes, but the public and the markets are tougher and wiser. Especially at a time when we face questions around Brexit, it is crucial that the competence of the British Government in managing the economy is unquestioned.

Pushing through a Budget with a £4 billion black hole, £3.5 billion in mystery cuts, and £2 billion in unexpected pension provisions, including a £650 million blow to the NHS and goodness knows what damage to local authorities, is not the behaviour of a responsible and capable Government. I repeat: we need a new Budget. When will we see it?

Income Inequality

Baroness Kramer Excerpts

Thursday 21st January 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, as I suggested in my opening formal comments—and I am happy to provide plenty of data to back up the substance because it is so wide—true measures of income inequality, whether in terms of disposable income or of what is called original income, have for many years shown a decline in income inequality. How chief executives are remunerated by their companies, particularly in the quoted sector, depends on the decisions of their boards and shareholders.

[Baroness Kramer (LD)]

My Lords, do this Government expect that the planned changes to universal credit will increase or decrease the number of children living in households with below-average incomes? Given the public interest, will the Minister report back to this House on that measure?

[Lord O'Neill of Gatley]

My Lords, I am sure that we will have further debates on this topic in the weeks and months ahead, but, as has been clearly articulated by me and others on a number of occasions in this place and the other place, our prime policy is to ensure that as many people as possible throughout our society achieve employment, supported by an increase in the national living wage. I should add that I make these comments after remarkably strong employment data published yesterday.

Autumn Statement

Baroness Kramer Excerpts

Thursday 3rd December 2015 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of the winding-up speeches, I should say how much I appreciate the extraordinary quality and range of this debate. I, too, will be fascinated to hear the Minister’s response. As I know that we are under time pressure, I will try to speak a little faster than I otherwise would and I hope that noble Lords will forgive me if I do not cover all the points that have been raised.

There were some underlying themes in everything that we heard. One, sadly, was uncertainty and another was unanswered questions. If the Minister cannot answer those questions today, I hope very much that he will provide further information to the House later. As the noble Lord, Lord Carrington, said in his opening speech—this point was picked up by many other speakers—the Chancellor was able to take advantage of better forecasts from the OBR to step back from his planned tax credits cuts and give rather more money to infrastructure. I am glad that he did so. However, at best, that is a 50:50 forecast. The Chancellor has now pinioned himself and put impossible hurdles in place with his fiscal charter, which inhibits him raising the traditional kinds of taxes that could be levied if a forecast were to go wrong, and has tied himself to a commitment to a surplus. Again, that would normally give a Chancellor flexibility. So how will he cope with shocks to the system? We have the Syrian situation at the moment, and none of us is bold enough to say that we can guarantee that there will be no shocks over the next five years. The Budget seemed to me to take away virtually all flexibility.

However, the Chancellor gave himself additional flexibility with some very significant tax raising. I focus on one aspect which has not been mentioned today—namely, that we are in effect looking at a 4% increase in council tax, which has been frozen for a number of years. Uncertainty surrounds that strategy because it requires councils to agree to raise their taxes in a general sense by 2%. All these figures are fully absorbed in the forecasts that we have seen. That assumes a 2% increase on the part of every single council. Many councils will not do that because they are ideologically opposed to it. Others will look to their local populations and say that people cannot afford an increase in council tax. Yet others are afraid of the election consequences of increasing council tax, so we have a serious set of issues there. An additional 2% hypothecated to social care is supposedly the answer to the very serious shortfall that we face in adult social care. Once again, will councils be willing to do that? How many of them will be willing to do it? The councils with the most vulnerable elderly have the most limited council tax base, so in cash terms their 2% surely cannot meet the requirements of their adult social care services.

Councils have been given additional flexibility over the business rate. I totally approve of passing on that flexibility but, again, councils which already have a very strong business base and are able to benefit from increasing the business rate probably least need that additional income. However, highly deprived councils tend not to have much opportunity to raise additional funds through increasing the business rate. Therefore, it is completely unclear how equalisation between councils will now work. Without that clarity, it is very difficult to understand what publicly provided local services will be available, and how we can achieve the standards that we all want.

I was very glad to see additional money in the Budget being awarded to infrastructure. We have said that the time to borrow to feed infrastructure is when interest rates are low, and we have seen the Chancellor act on this. We need to make up for a generation of underinvestment in a wide range of key infrastructure areas. However, the Government are cutting the very departments which manage that infrastructure. Having been in the Department for Transport and observed that Network Rail, for example, has no shortage of capital but great difficulty managing its projects, I question whether cuts in operating budgets will enable critically needed infrastructure to be delivered.

A number of noble Lords have said that people need skills for us to achieve growth. Not increasing the cash settlement for FE has to be a serious problem. Apprenticeships and further education go hand in hand. To increase the funding of one without doing so for the other will surely lead to underlying problems. Every business person that I talk to repeats the constant mantra, “Skills, skills, skills”, when explaining the difficulties they face in expanding their businesses. I am sure that the Minister has the same experience.

We have also talked about the importance of business investment, but look what is happening in the renewables sector. The green economy has gone from being an also-ran in this country in pre-coalition days to becoming a major industry in which British companies were becoming leaders. This country was becoming a leader in producing construction materials to deliver zero-carbon homes. That policy has been scuppered by the abandonment of the zero-carbon regulations. This country was also becoming an absolute leader in carbon capture and storage, a technology required by the entire world, including China. There was huge appetite for that product, which was built up following investment in that sector. However, it has been completely scuppered. I have had calls—as other noble Lords may have done—from people financing renewable energy projects with not a penny of subsidy, where the investment has all been pulled in the last two and a half weeks because there is now so much political risk and uncertainty in this sector. I have talked with a wide variety of investors and banks who are saying that it is now impossible to get that money for renewable infrastructure because the Government are seen as being gratuitously anti-green and the political risk is now becoming a serious premium in an industry which was underpinning growth in this country.

We have heard many good speeches on a wide variety of issues. I hope that the Minister will pick up the reference to the importance of rental housing. Obviously, we want people to be able to purchase their homes and I support a lot of the Government’s strategies in that field, but social rental housing is absolutely critical for the 9 million people who rent and the 1.6 million who are on the waiting list for social housing. It is particularly important for young people. If we cannot house our young people at the beginning of their careers, surely the ability to expand growth and for them to make an effective commitment is exceedingly limited. I ask the Government to look at those intergenerational issues to better understand the issues of young people who have to build their lives.

Spending Review and Autumn Statement

Baroness Kramer Excerpts

Wednesday 25th November 2015 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I am delighted to see the Minister in his place making one of his more constructive speeches in the House. I will give him a chance to answer a few questions, but before I get on to that I shall put the Statement into some kind of context.

The Chancellor was obviously buoyed by, as he saw it, some successes in recent months. However, I shall ask the first obvious question: whatever happened to the long-term plan? For years we heard nothing but Conservative Members of Parliament talking about the long-term economic plan. We all know what the conclusion of that plan was meant to be: the elimination of the deficit during this year. The deficit has not been eliminated this year; in fact we are £69 billion in debt. It is quite clear that the Government have jettisoned the long-term economic plan in favour of a second version, which is that we will have a surplus of £10 billion in 2020. Even the Institute for Fiscal Studies gives the Government only a 50:50 chance of hitting that target, so we wonder what credence we should give the Chancellor following his speech in the Commons today.

There were two significant climbdowns: one was no further cuts to the police force—here, some credit is due to the Opposition, who made it clear to the Government that further cuts were quite unthinkable in the present context—and the other was a credit to this House and a direct reflection of its holding the Government to account and asking them to think again. Having thought again, they jettisoned that original totally unfair and improper policy. We very much welcome both climbdowns in the Chancellor’s Statement.

We still need to consider a range of fundamental economic failures, though, and I shall be addressing those in specific questions to the Minister. Is not the productivity gap between the UK’s performance and the rest of the G7 countries’ at its widest since 1991? That shows this country in a very poor light, and of course the Government must take responsibility for a great deal of that against a background of what is recognised as an absolutely chronic balance of payments position under this Government. That can be remedied only if we invest in the development of skills and begin to export more successfully.

Every hour worked in Germany, France or the United States is worth one-third more in terms of achievement than an hour worked in Britain. This must be because the Government have been so content over the past five years to see wages fall—we all know how dramatic and persistent that fall has been over this period—and have neglected skills development and run, essentially, a low-wage, low-skill economy, which cannot be the future of the United Kingdom.

The Government are always negative about public sector investment. In the railways, for example, even a successful public sector-run franchise, the east coast main line, was jettisoned in favour of a free and open competition—as long as no British public institution could compete. However, state railways from France and Germany were welcome to take over part of our railway system. Of course, the same is happening with our nuclear power stations—we are making ourselves dependent upon investment from the People’s Republic of China. It is interesting to see that the Conservative Party now finds itself in cahoots with a very significant state-run society.

Public sector net investment in 2009-10 was at 3.2% but is now down to 1.5%. It is therefore not surprising that certain aspects of public work and investment are at a very low level. That is shown, for instance, in the quality of our roads. Are the Government comfortable with the fact that our roads are rated below the standards of Spain, Portugal and—wait for it—little Croatia? The only areas in which the Government have shown a commitment to investment are projects they inherited: Crossrail and HS2. It will be noted that although they sustain these projects, the Department for Transport is to take its 30% cut, which will be effected by cuts in “administration”. If one believes that, one can believe most things.

Overall, investment in skills has been woeful. It is clear that the business department is being cut to the bone. The number of jobs lost there is very significant, and it is clear that training and development is to be vested solely in the enterprise of private industry, to which the state has very little to contribute. Yet industry is crying out for the skills of young people. That is particularly true in the construction industry, which of course enjoys the reputation of translating investment into jobs quickly, and can meet a need in circumstances where our housebuilding programme is at its worst peacetime level since 1920. What a record the Government have on housing our people!

Then of course there is the whole question of the National Health Service. We are delighted that the Government have indicated that they know they need to increase investment in the National Health Service. We are also pleased that they recognise that alleviating pressure on hospitals can be achieved through increasing social care places. However, 3,000 beds have been lost in recent years and there is no indication that they will be replaced quickly. Of course, the promise that local authorities can increase council tax provided that they spend the money on care homes is to be welcomed.

As for the police, I can find no reference to what the Government will in fact do about the police, except that that there are 17,000 fewer officers since they came to power. They have indicated that they will not put any further pressure on police by cuts, but there is no indication of what money will be devoted to the police force and where it will come from.

I therefore want the Minister to answer three questions. First, if the Government wish to promote infrastructure, does he accept that public sector net investment has halved as a percentage of the GDP under the Government? Can he accept such a deplorable state of affairs? Secondly, we know that we need to boost productivity. Is the Minister concerned that the gap between productivity per hour worked in this country and in the rest of the G7 is so very wide? Thirdly, the Chancellor said that he has balanced the books, yet the deficit is set to be very substantial this year.

Finally, the Government are ending their onslaught on tax credits, for which we are duly grateful, and this House takes a great deal of credit for that achievement. The House acted constitutionally and properly and caused the Government to think again. However, this spending review and Autumn Statement indicates that only a £3.385 billion saving will be rendered in respect of tax credits. In fact the Government have always maintained that £4.4 billion would be saved. Are the public to find that other billion in this next year?

[Baroness Kramer (LD)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Davies of Oldham, but I confess that he disappointed me today. He did not throw anything, so we have missed out on the drama of the other place. I was also somewhat disappointed in the Budget. It is less generous than it appears on first viewing: we still have a £12 billion cut in welfare. If I understand it correctly, that will now happen as people transfer into universal credit. I am sure that the Minister will advise noble Lords about that—it would be good to understand how it will work. Of course, I am absolutely delighted that the Chancellor reversed his plans to cut tax credits for poor working people. I think, with some interest, that had the Chancellor been a Member of this House a couple of weeks ago, when the relevant statutory instrument was debated, he would have supported neither the Conservative nor the Labour Motion, but the Liberal Democrat fatal Motion.

We are also pleased with the upfronting of money for the NHS in this Budget, especially the investment in mental health. That is welcome, but can the Minister confirm whether that £600 million is new money for mental health and does not contain any former promise within it? We are supportive of stamp duty on buy to let and very supportive of the increased spending on infrastructure. We note that the Chancellor partially explained that that was because borrowing is now cheap. That is what we have been saying for weeks, so we are very glad that he has listened to that argument.

However, if I lived in a deprived community, I would be exceedingly concerned today. Perhaps the Minister can help us. Although the Government have said there will be no cuts in the policing bill, I am somewhat confused. Does that mean that the grant levels for policing will continue to be the same from central government, or is part of the money to be replaced by a precept raised locally, by police and crime commissioners? I did not follow that and therefore do not understand what might be happening. If I am in a deprived community and find that I have an additional bill on my council tax for policing, I am almost certainly going to have an additional bill on my council tax for social care, because, as Members of this House will know, the most vulnerable elderly tend to live in the most deprived communities, with the narrowest council tax base. Therefore, paying for social care through an additional precept on council tax will be very tough for those communities. I would indeed be worried.

I would also be worried in another sense. The Chancellor significantly slashed the revenue side—that is, the operations budget—of the Department for Transport. Immediately in my head went up the warning sign that much of that is spent on bus grant. Again, with local authorities under great financial pressure, are we looking at either losing a lot of our bus services outside the big urban centres, where the systems can wash their face themselves, or are we looking at additional council tax being raised to pick up bus services?

The repatriation of business rates is something that we have always supported in principle, but I did not quite follow that; again, perhaps the Minister can help us. If I understood the Chancellor correctly, the equalisation will disappear. As this House will know, business rates have been centrally collected and then redistributed on the basis of need. As that is eliminated, will we again find that our most deprived communities, with the least capacity to generate new business and new business rates, will be the ones that suffer, while somewhere such as Kensington and Chelsea or Westminster will be in heaven? I hope very much that the Minister can support us, because one knows that, with Budgets, the devil is very much in the detail.

Perhaps the Minister can help us also on further education. What I heard was a real-terms cut in the further education budget, which will be protected only in cash terms. In this House, we have all discussed—indeed, the Minister himself has discussed—the significant problem of the lack of skills that is holding back economic growth. Especially now, as we are constraining migration, it is really important that British people have lifelong learning. Apprenticeships and universities have a huge role to play, but the underpinning in our ever-changing world, where people constantly need to update their skills, means that further education is absolutely critical. Have we just heard a cut in that sector?

Perhaps the Minister can help us with this policy of equalising per pupil spending in schools. It sounds on the surface not to be an issue, but does this mean that schools, for example, in London, in some of our most difficult communities and which have delivered outstanding success, are about to have a cut in their per pupil spend based on this equalisation? We really need to know and understand the detail of that.

I will make just two more comments. Although there were many measures to support new ownership, the private rental sector was ignored. We have 1.6 million people on the waiting list for social housing who will obviously not be helped, and so many in generation rent, who spend half their income on rent, have not been helped either.

My last point is that this Budget relies on a £27 billion find by the OBR in increased tax receipts and low interest rates. I point out that both could change or disappear. Given the constraints of the fiscal charter, what are the consequences for this Budget if that should happen?

[Lord O’Neill of Gatley]

My Lords, I thank the noble Lord, Lord Davies, and the noble Baroness, Lady Kramer, for their interesting and detailed responses to the Autumn Statement and the spending review. One of the unfortunate consequences of their detailed response is that I have only three minutes or so to respond.

Let me start by trying to make some overall comments. An important backdrop to today’s Autumn Statement and spending review is that the independent Office for Budget Responsibility has become more optimistic about our economic growth than it was previously, consistent with other respected domestic institutions. Importantly, in line with that, it has become more optimistic about our modelling of the path and profile of tax receipts.

As highlighted by the Chancellor, the OBR now calculates that this means a £27 billion improvement in our overall public finances over the forecast period. This allows the Government to borrow £8 billion less than forecast and, importantly, and in contrast to what the noble Lord, Lord Davies, suggested, spend £12 billion more on capital investment and cut less in the early years, while still achieving a budget surplus consistent with what was previously projected. In fact, that surplus will be slightly higher, by £100 million, by 2019-20.

In practical terms, this means: a £10 billion real-terms increase in the NHS budget; investment in our national security; real-terms protection of the police budget—I will have to write to the noble Baroness, Lady Kramer, on the technicalities of her question; doubling the housing budget; the largest ever investment in free childcare; a 50% increase in transport capital spending; extra support in science and innovation, in contrast to what was widely expected by the media; the biggest real-term increase to the basic state pension in 15 years; and, of course, avoiding the need to lower the tax credit thresholds.

Through the spending review, the Autumn Statement also sets out the details of the Government’s commitment to deliver £12 billion of savings to the cost of governance. It delivers the economic security on which our future growth is based and protects national security, which it is, of course, the first duty of any Government to provide.

I shall quickly try to respond to some of the key specifics. The noble Lord, Lord Davies, as he has done in previous debates in this House, referred to a number of aspects of the economy. I have probably had more access and time to look at some of the things presented in the Autumn Statement and, crucially in this regard, by the independent OBR. With respect to, for example, the never-ending references to our balance of payments deficit, as significant as that has been, one of the sources of the upward revision by the OBR is the improvement in the balance of payments position that has recently occurred. As I pointed out in the Chamber a week or so ago, the trade part of the current account balance of payments has been improving for some time.

With respect to other specific asks, I am particularly pleased with some aspects of this in the context of what the noble Lord, Lord Davies, said, both from the northern powerhouse perspective and in terms of our broader energy dependency. In that regard, I should like to highlight the announcement of £250 million towards research for small nuclear reactors, which will benefit a considerable number of parts of the north of England. In addition, there is £250 million for a devoted potholes fund.

With respect to the ongoing and crucial issue of skills, the Autumn Statement spells out specifically how the apprenticeship levy will be funded. While some are making reference to that being some form of tax, as we have discussed here before—and as I have been among those most prominently pointing out—it is important that our corporate sector, which is at the forefront of pointing out our skills shortage, takes ownership in providing the necessary skills. It will apply only to the largest employers, and anyone who achieves their target will get their funds returned in any case.

I have already touched on answers to some of the interesting comments made by the noble Baroness, Lady Kramer, but I want to start by bringing us back to universal credit. I will refer to what the Chancellor himself said this morning and then make additional comments. He said with respect to tax credits:

“Because I have been able to announce today an improvement in the public finances, the simplest thing to do is not to phase these changes in, but to avoid them altogether. Tax credits are being phased out anyway as we introduce universal credit”.

He concludes the section of his wonderful presentation by saying that the House—that is, the other place,

“should know that helping with the transition obviously means that we will not be within that lower welfare cap in the first years, but the House should also know that, thanks to our welfare reforms, we will meet the cap in the later part of this Parliament”.

With respect to the observations about the role played by this House, it is important to remember that the Chancellor said the day before our debate that he was prepared to listen and there was on offer an alternative Motion that could have been respected.

Finance Bill

Baroness Kramer Excerpts

Tuesday 10th November 2015 Lords Chamber

[Baroness Kramer (LD)]

My Lords, in 2010 the coalition Government came into being in the face of a financial crisis and succeeded over the next five years in stabilising the economy and the country’s finances—significantly reducing the structural deficit—but they did so on the basis that we were all in it together and that the greatest burden should fall on the broadest shoulders. In his opening speech a few moments ago, the noble Lord, Lord O’Neill, gave the impression that that continues but that is the wrong word to use in this case, because the policy that we are all in it together and that the broadest shoulders should continue to carry the greatest burden is one that the Conservatives in their Budget and in this Finance Bill and various other related Bills have made a point of moving away from in an extremely distinctive manner.

It is absolutely true that we need to continue to eliminate the structural deficit. That is a responsible action to take so that we do not pass those burdens on to the next generation. But this Government are seeking to cut in the region of £50 billion more than necessary from public spending over the next five years in their goal to move from eliminating a structural deficit to building a significant surplus—a surplus that is not required by the financial conditions that we live in today. They have departed from the principle that we are all in it together.

I looked at the distributional analysis, which finally came out rather late—in June, I believe. It is a document that should have come with the Budget. It is interesting because the principles under which it is put together have changed. Indeed, I hope that the Treasury might engage with us at some point to explain further those changes and their implications. But what is absolutely fascinating about the distributional analysis is that it focuses almost exclusively on the benefits delivered by the coalition and gives virtually no sense to the change that was introduced, marked and signalled by the first Budget and embedded, in part, in this Finance Bill.

It is clear from looking at the distributional analysis that by 2017-18 those in the wealthiest quintiles will have had no proportionate loss in the welfare benefits that they receive. Presumably that is because harsh reductions in welfare are being introduced for the lowest quintiles in the Budget and the related legislation that has been presented to us, but it is difficult to tease that out because of the way in which the distributional analysis glosses over the difference created in this past year. I have noticed that in his various responses to Questions in this House, the noble Lord, Lord O’Neill, also talks as if the coalition period was the marked umbrella, and barely pays attention to the change of direction which his Government have so proudly heralded in shifting away from placing the burden on those broadest shoulders and beginning the process of pushing it back on to the weakest shoulders.

To be honest, when we were in coalition, Conservatives did argue that we should not be putting so much on the wealthy, and that the burden ought to be falling on those at the bottom of the scale because they were benefit recipients. I would very much appreciate at some point hearing from the Treasury how it has made those changes from its perspective. Until then, we are dependent on the Institute for Fiscal Studies, which, as the noble Lord, Lord Lennie, reported, has identified so clearly the huge burden of tax credit cuts that fall on the working poor and are not offset by the changes in the living wage or childcare. So we have moved away from “We are all in it together” and it is particularly the working poor, young people and those with disabilities who suffer the most.

Of course, I welcome some of the key pillars of this Finance Bill. The increase in the personal allowance—a long-standing Liberal Democrat policy—is captured in the Bill and obviously we are very pleased to see that there. We are supporters of the new living wage, although it is inappropriate to call it a living wage because it is not a wage on which anyone could live; it is a new minimum wage. An increase in the minimum wage is welcome, although I hope at some point we will hear from the Government how they intend to cope with the consequences for, for example, local authorities or the care home sector or others which will struggle to pay that minimum wage; that is not an argument for discarding it but we need to understand how on earth those costs are going to be properly absorbed in the current climate. We are also pleased, obviously, with the restrictions on pension tax relief, which is an important measure in the Bill. It is beyond us, however—and I echo the noble Lord, Lord Lennie, in this—why the inheritance tax cut is being introduced at this time, when such a burden is being placed on the working poor. Surely that timing almost adds insult to injury.

We do not accept that reductions in the bank levy have been necessary: the banks are brilliant lobbyists, and this is good evidence that they have been successful. I am spending two other days this week working on the Bank of England and Financial Services Bill, which has further roll-backs of the various measures that were imposed on the banks in response to their behaviour that generated the financial crisis—not just the original crisis, but consequential crises such as LIBOR, various money-laundering and PPI. The bank levy, therefore, has to be looked on in the light of effective lobbying by the banking industry and not as a necessary measure to sustain the financial services industry in this country. Moreover, I do not understand why it is the right time to raise the higher-rate tax threshold, when we are placing so many burdens on those at the bottom of the scale, the young, and the disabled.



The Minister talked about productivity, which is obviously his area of special interest. Productivity is going to be absolutely key to our future, so I fully recognise the importance of the comments that he made. However, this Finance Bill, and the other actions of the Treasury, once again fail to recognise the difference between capital and revenue: they are rolled together again. I know that it is a conviction of the Chancellor that one should not make distinctions between capital and revenue, but I completely fail to understand the arguments that are meant to support it. There is such an infrastructure deficit after generations of neglect in this country—I think everyone in this House would agree that that was true, in area after area, whether rail, road, broadband, energy generation or, in particular, housing—that we are generations behind where we should be on both infrastructure renewal and infrastructure building. Under such a circumstance, when the British Government can borrow at the lowest rates they have seen for generations, this should be the opportunity to accelerate investment into that sector. It should be distinguished from revenue in the management of the fiscal framework, and this Bill does not succeed in doing that. I hope that the Minister will be able to give us some argument as to why that has not happened, because I fail to see one. It is a lost opportunity and passes on to the next generation the burden of making that infrastructure catch up.

I have a small question on the road fund. It is unusual for the British Government to hypothecate taxes to a particular spending commitment. In this case, VED is being hypothecated to road infrastructure. Will the Minister tell us which areas are now going to lose investment as a consequence of that hypothecation? The cake is not expanding: it is just being given to one particular party, so it would be helpful to understand how all that is put together. That being said, I am glad to hear of his ongoing commitment to ultra-low-emission vehicles. It is an area in which the UK can be an absolute leader. We need it not just because of our own environment, but because it offers great potential for jobs in the future. We are becoming leaders in the R&D in this area, and there is a very significant opportunity to be snatched and taken—if the Government continue their commitment to it, which began under the coalition.

The Government referred to the training levy. It is absolutely apparent that we must increase skills within the UK. It is the major reason that any business would give for our failure to achieve productivity on a par with our competitors, whether in the European Union or looking further afield. I see the advantages of the training levy, but how are we going to tackle the need for training within SMEs? I can understand the reluctance not to put a levy on small and medium-sized businesses that may not be able to bear it, but they have to become significant providers of apprenticeships and training. The Government need to tell us why they have not used this Bill to enhance that potential. There is an increase in the national insurance employment allowance, but I do not think anybody believes that that alone is sufficient to generate the levels of training that we need in the SME sector.

I disagree with the Minister that removing the climate change levy exemption for renewable energy is a minor factor. This is about the green economy, which again is fundamental to our future. We moved, over a five-year period, from being laggards in the green economy to creating the basis for some of the leading green industries across the globe, generating significant numbers of jobs. The decision to remove that exemption seems to me to be part of a much broader anti-green strategy, as is the decision not to implement zero-carbon homes. We have had example after example where green measures have been watered down, apparently for ideological reasons, because the numbers we are talking about in terms of the overall government budget are absolutely minimal. The green industries are taking that to heart and understand very clearly that they are getting the message from this Government that, instead of this being a place where a green future is being encouraged and underpinned, it is going to be, at the very best, treated with indifference.

SMEs are absolutely crucial to our future. Many in this House can testify to the fact that small and medium-sized businesses provide something like 90% of the jobs in this country, are a leading provider of exports and are absolutely critical as the backbone of the UK. So why have the Government chosen to reduce corporation tax, which is paid by very few SMEs? To the extent that it is paid, it is a very small part of their expenditure. It is the large corporations that benefit from the cuts in corporation tax, and surely that is exactly the wrong decision. This would have been an opportunity to provide support to small businesses, particularly around training but also to enable them to achieve the kind of growth and scale-up which we need for our future. Frankly, when we are already one of the countries with the lowest corporation tax in the OECD, using this opportunity to bring it down so that we will be the country with the absolute lowest rate of corporation tax seems simply wrong as a priority. It does not bring a whole lot of benefit and is targeted on exactly the wrong part of business. Having that money flowing into small businesses and providing them with support would be far more beneficial. However, I recognise that the Government are helping small businesses by keeping the annual investment allowance at £200,000, which surely is good news.

The Minister talked about tackling tax evasion. Who could complain about that? However, I suspect there is much more work to be done as we try and get a grip on the new digital economy, and the Bill goes only a very small way in trying to grasp that nettle. I recognise that this is a complex issue and a great deal of work needs to be done in this area, but this new focus on tax evasion and enforcement of tax payment comes when we have just heard that HMRC has agreed to something like a 30% reduction in its spending over the remainder of this Parliament. We are already in a situation where again and again HMRC does not seem to have the manpower necessary to enforce tax law. It certainly does not have the manpower necessary to respond to the endless queries from the many individual and small business payers that need to speak with it to get their affairs in order. A further cut at this point just seems, again, entirely inappropriate. Is the Minister able to give us some assurance that the resources will be available for the extensive programme to deal with tax evasion that he has talked about today?

I finish by referring to the Charter for Fiscal Responsibility—the tax lock, as the Minister described it. As I said in discussion on the then National Insurance Contributions Bill, it seems extraordinary that a Government make a pledge that they will carry out a policy but then so distrust themselves that they decide that they have to capture it in legislation. That is a very dangerous precedent.

I have raised this issue before. One reason that we ended up with a financial crisis to which it was so difficult for the Government to respond was because of real arrogance in the Treasury. We had a Labour Government, a Gordon Brown Government, who had decided that boom and bust were over. I have always said that I do not think that Alistair Darling would for five minutes have agreed to the public spending that Labour committed to had he ever thought that an economic cycle could impact the country, never mind an external shock.

That same arrogance seems to be back here. The Government are once again deliberately tying their hands. I know that they say that if growth drops to 1%, they can step away from the constraints that they have put themselves in, but that is too late. The Minister will tell me if it is different, but I am certain, looking back, that nobody forecast the financial crisis. When a crisis comes, the need to be able to respond is immediate; it cannot be embedded in a forecast for a five-year period. Governments have to have that freedom and flexibility to act, and act quickly.

We must never get ourselves into a situation where we are in a car, we can see the crash coming but we cannot veer out of the way. That is exactly where this Government are putting themselves. It comes from that utter conviction that things will never go wrong. Well, they do go wrong. It is essential that Governments recognise that. Not to be able to use VAT, which is a tax that can be used very rapidly if necessary to remedy a problem, strikes me as significant.

There is a lot that is unsatisfactory in the Bill. There is nothing much that this House will be able to do about the exact clauses, as we take no votes on money Bills, but I am glad to say that many aspects are not part of a money Bill, and I hope that we will be able to tackle those when they come before this House.

Budget: Household Impact

Baroness Kramer Excerpts

Wednesday 16th September 2015 Lords Chamber

[Lord O’Neill of Gatley]

My Lords, contrary to that question, as a result of some discussions involving the Chancellor, the specific distributional analysis that was requested was posted on the government website on 21 July. There followed a number of conversations outlining the Treasury’s belief that the new analysis was intellectually superior to those in the preceding Parliaments. I should add, however, that the requested distributional analysis has indeed been published, despite the apparent lack of awareness of it displayed in the previous question.

[Baroness Kramer (LD)]

My Lords, it is certainly a disgrace that the distributional analysis was not published with the Budget, a practice followed by the coalition every year so that questions could be asked during Budget-related debates. Can the Minister confirm the analysis of the IFS around the distribution that the only gainers from the tax and benefit changes are the richest eighth and ninth deciles, and that the big losses are all concentrated in the poorest first to seventh deciles, with the very poorest among the biggest losers?

[Lord O’Neill of Gatley]

My Lords, the distributional analysis subsequently published on the government website, as I just outlined, actually shows that if one needed to specifically pick where the impact was felt most severely across the different quintiles of income distribution, it was in the highest 20%.

Economy

Baroness Kramer Excerpts

Thursday 10th September 2015 Lords Chamber

[Baroness Kramer (LD)]

My Lords, as the first of those making a winding-up speech, I thank and congratulate not just the noble Lord, Lord Haskel, but everyone who has contributed today. I do not think that I have ever sat through a debate in the House where every single speech has opened my mind in a different way and provided me with such extraordinary food for thought. Really, a very exceptional conversation has gone on with all sides of the House.

We have had, in effect, almost two different debates today: one, if I could turn it around, on austerity—I am going to make a few comments on that—and the other on the challenge that the noble Lord, Lord Haskel, has put before us of the extraordinarily disruptive new technologies that are changing the world in which we live. Such technologies will be the basis of the economy going forward and offer us extraordinary opportunities, as well as present us with real risks. I think the beginning of that debate is absolutely crucial.

Let me go back very briefly to austerity. I say again to the Labour Party and the Conservative Party that I completely agree that the crash was caused by the finance industry. There is no question about that. But the problem was that the ability to respond to that required cutting the deficit because public spending by the Labour Government was predicated on the assumption that we had done away with bust and were into a permanent era of boom. When that disappeared, it was simply unsustainable to continue public spending at those levels. But I also say to the noble Lord, Lord Howell of Guildford, that I believe we are no longer following the coalition’s trajectory, which, by the way, when it realised it was moving too harshly, had the common sense to tack its sails and reduce the deficit more slowly. There has been an ideological decision to try to rapidly move to a surplus situation and abandon the underlying principle of the coalition, which was that the burden should always be shared. In the Budget, we saw people who were prosperous and propertied getting very significant advantages and the cuts falling on the poorest of the working poor, children, young people and those with mental illnesses. That is the key change that I would fundamentally dispute, and it worries me going into the spending review.

[Lord Howell of Guildford]

My Lords, the noble Baroness mentioned my name, but I think she is slightly attributing to me views that I do not hold. All I was saying was that the concept of “beyond austerity” seems to imply a sort of nirvana where public expenditure can be completely relaxed. That is a delusion. If that line is pursued, it will hurt many working people very seriously. That is all that I am saying.

[Baroness Kramer]

My Lords, I like the word “prudence”; it is a sensible one to use. As my noble friend Lord Taverne said, in a civilised society taxation plays a key role and there is always a balance between the investment provided by the public sector, support for the vulnerable and the potential that can be brought about by constraining the amount of the economy that the public sector captures.

Let me move on to the more exciting part of this discussion, which will, I hope, be the first of many. During the coalition years, we had a very interventionist Government and an industrial strategy, to which the noble Baroness, Lady Wheatcroft, referred. It was not a free market solution of bringing back R&D investment and rebuilding the technological skills base in this country. It was a working partnership between the Government and business, often through the catapult centres, with a big focus on and support for research, especially the development end of research, and with that a development of the skills base.

Several people have made a key point: apprenticeships are wonderful and every one of us here would support high-quality apprenticeships. I hope the Government will look at how they work, not just in large companies but in small companies, which have been rather neglected. However, the work of the further education colleges in developing skilled people who have the flexibility not just to fill the immediate jobs but the potential to develop new industries and fill the opportunities of the future is absolutely key. I hope the Government keep that very much in mind.

These disruptive technologies are incredibly exciting; to me, that is, in part, because they are so consumer and user-driven. Amazon has become a powerhouse, not because it has been imposed from the top but because people want to change the way they buy. I hate the fact that it does not pay taxes, but we have to solve that problem because it will be a characteristic of so many of the firms of the future. Look at Uber. No matter how we feel about the black cab company, it seems that younger people have found Uber to be effective. However, as people in this House have said, it is a company that does not own a single taxi. I suspect that rather than going to a conventional hotel, many in this House are now looking at Airbnb as a way of booking their summer holiday. In the finance sector, which is rarely discussed in this context, the disintermediation of the big players is phenomenal. Peer-to-peer lending, crowdfunding and small, specialised banks are filling the gap that the financial institutions have allowed to develop, partly because they have hung on to ancient legacy technology—nearly all of them are dinosaurs. One sadness about the return of RBS was that it could have been reshaped into something that matched the new world of alternate finance. Instead, frankly, it has been left as a dinosaur of the old world.

I am concerned about access to financing for SMEs, because the traditional banks are not doing it any better than they were during recession—that is absolutely key; it is being picked up by the alternate world. That world will carry them through the very early days of development with relatively small amounts of finance, but we still have in this country the famous valley of death for companies that are beginning to grow and then cannot get access either to the risk capital or to the lending that they need to make that transition. We live with two consequences that worry me enormously. So many of our brilliant entrepreneurs who start companies have no ambition to grow them to global entities. In the US, their counterparts would do it without question, but they look to sell out. It is partly a cultural attitude, but it is also because that financing to go to a global structure is not available in this country, and it is something that has to be tackled rapidly.

A number of people—my noble friend Lady Miller in particular—talked about the importance of the green economy. It is one of the key economic sectors of the future. I am extraordinarily worried because any conversation now with investors in the green energy sector will tell you that they are holding back because they have been so discouraged by the actions that the Government have taken. Zero-carbon homes were mentioned, as was the withdrawal of support for onshore wind—there is now complete mistrust and suspicion across that sector. Those green jobs are critical to our future.

No one discussed the transport industry, where I have spent the past two years of my life. Ultra-low-emission vehicles together with driverless cars and huge manufacturing change—for example, 3D printing of car parts—revolutionised that industry. The old-legacy companies are scrambling and cannot see a path to the future. We have an extraordinary opportunity to become a leader if we build the market for ultra-low-emission vehicles and driverless vehicles in this country, and allow in the R&D and the jobs that can come with the related manufacturing. I hope that the Government will continue their commitment to that sector which was almost solely driven by Danny Alexander. I know that Oliver Letwin is also a big proponent of it. It is crucial that it continues to thrive because of the opportunities that it presents.

I see that my time is virtually up. I just want to say what an exciting time this, but let me add one very small caveat. It is the European Union. It is critical to us that we remain part of that single market if we are to have this exciting future that potentially sits in front of us. We are seriously at risk of talking this country out of the EU. I direct my comments particularly at the Conservative Benches and ask them, please, to stop the indulgence of the right wing, which is inward-looking and does not understand the dynamics of the market and the new opportunities, and to make sure that Britain is properly positioned as a world and European player with skills and investment and able to welcome and take advantage of those new disruptive technologies.