Queen’s Speech

Earl of Caithness Excerpts

Thursday 4th June 2015 Lords Chamber

[The Earl of Caithness (Con)]

My Lords, I can hear a collective sigh around the Chamber as we come to the last Back-Bench speaker after five days of debating Her Majesty’s gracious Speech.

It is always a pleasure to follow my noble kinswoman and, although nearly 30 years ago prisoners occupied my working day and working night, I will not follow her down her road. It is a pleasure to see in his place my noble friend Lord Finkelstein, who so ably seconded the gracious Speech. I hope that at some stage during the previous five days he has been able to leave it and go and do some other things. However, we very much enjoyed his speech.

I also enjoyed the maiden speech of my noble friend Lord O’Neill of Gatley. I make a plea to him and to the other new Ministers, who are highly talented: please, in the future, will they follow the example set by the noble Lord, Lord West of Spithead, who was also parachuted into this Chamber as a Front-Bench Minister, and not the example of others, of whom we see so little nowadays?

I agree with so much of what has been said over the past five days. The aspirations for health, defence, education, research and the environment are to be welcomed. However, in reality, those aspirations can only be delivered on the back of a strong economy and living within our means. Some politicians can be very prudent with their own home budgets but very good at spending other people’s money.

We have heard much about the UK’s productivity. We are not alone in the problems that we face. We are part of Europe, and Europe is increasingly the aged aunt of the world—and I fear it is getting more geriatric. Europe’s share of global GDP has fallen from 30% in 2007 to 23% in 2013. Over the same period, member states’ average ranking on the World Economic Forum’s global competitiveness index has fallen from 34 to 38 out of 144. Europe’s competitiveness on financial market development has particularly suffered, with average rankings falling from 36 to 55. International investment has also declined by €9.5 billion over the same period. The EU has much to do. Perhaps the capital markets union is an opportunity to start to turn round the decline. We hope that it will, and we will discuss that, along with the report that Sub-Committee A did on capital markets, in the near future. If, however, the EU starts to follow the track of the financial transaction tax, the downhill slide will only be hastened.

We look forward to hearing much more from the noble Lord, Lord King of Lothbury, after his excellent maiden speech. He reminded us of the problems that the recent depreciation of sterling had already caused us. I am sure he will agree with me that there will be considerably more problems for sterling unless we rebalance our economy and reduce our budget deficit. The coalition halved it as a percentage of GDP, and that needs to be at least halved again. However, I agree with the noble Lord, Lord Turnbull, that there is no need to reach a break-even for the overall deficit in this Parliament.

The noble Lord, Lord King, also reminded us that improving productivity is easier said than done. Since 2009, productivity has been negative in the public sector, agriculture, energy and water, and the financial services, which together account for about one-third of UK output and employment. The output per worker in the UK economy has barely risen since 2006. It is self-evident that we need better education, skills and infrastructure. My noble friend Lord O’Neill and my right honourable friend the Chancellor of the Exchequer will only move from “good” to “great” status if they stop the talking and take action.

I remind my noble friend Lord O’Neill that the great infrastructure projects for upgrading the A1 and the A14, a new TransPennine railway and airport expansion in the south-east, all high on the agenda today, were high on the agenda when I was a Minister, and that is some long time ago. Today we celebrate the completion of 26 miles of tunnelling under London for Crossrail 1. Would my noble friend agree that it would be a very good idea to get Crossrail 2 started before the end of this Parliament?

I want to focus on one area that is vibrant and fast growing yet where productivity has declined, and that is financial services. There has been a non-stop raft of legislation in the EU since the financial crisis. The effect of much of it is contradictory, with detrimental results. The Government want less regulation and bureaucracy and more competition. I agree with them. Let me give an example of somebody I know. He is an investment manager who runs a fund that has 15 different share classes. Now, for each one, he has to produce a separate key investor information document—a KIID. That often has to be done in the local language. Last year, his firm produced just under 3,000 KIIDs—an increase of over 10% on the year before—in 17 different jurisdictions and in several different languages. The legal and compliance team has increased fourfold in the past four years, and the annual spend on insurance and regulation was up 40% on 2013. The noble Earl, Lord Kinnoull, reminded us that the regulators are competing now just to see who can be the nastiest and grab the biggest headlines. That is compounding the problem.

One needs to bear in mind that all those involved in the financial services industry, big or small, are suffering in exactly the same way as the company that I have described. That company could not be created today, and what is the result? The result is that we will have fewer small firms, less choice, more cost and less opportunity for the investor, and it means that the poorest in society will not be able to afford the advice that they are going to need, which is a very worrying trend.

Never before has so much money been spent on compliance and risk management as today, but things still keep going wrong. There are two views as to why this has happened. One is that the firms are so vast and so complex that proper management is impossible, and the other is that the money being spent is wrongly targeted and a rethink is necessary. Before the noble Lord, Lord Pearson, gets too excited and blames Brussels, I should point out that there is every evidence that what has been implemented in Europe would have been implemented in the UK whether we were in Europe or not. A recent survey by the Centre for the Study of Financial Innovation revealed that 65% of its respondents believe that the UK gold-plates regulations. My noble friend might not agree with that, but he has to keep his own new house in order.

Let us consider the irony and stupidity of the fact that, while we keep heaping qualifications, regulations and costs on the financial sector, any one of us can walk out of this Chamber tonight, set up an estate agency and sell off tomorrow what perhaps for most people is their largest and most precious asset, their home. That is a nonsense.