Financial Services Bill
Lord Bilimoria Excerpts(12 years, 5 months ago)
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Lord Bilimoria
My Lords, it is a privilege to follow noble Lord, Lord O’Donnell, and I am sure that I speak for all your Lordships in congratulating him on the most superb maiden speech. I have known Gus O’Donnell from the time he was Permanent Secretary to the Treasury, going back 10 years. I can honestly say that not only did I always like him as an individual but I never ceased to be impressed by him. After the Treasury, he was at No. 10 Downing Street, Cabinet Secretary, Head of the Home Civil Service, and Secretary to the Cabinet Office. In fact, he followed exactly in the same footsteps as our noble friend, the noble Lord, Lord Turnbull, who also went from being Permanent Secretary to the Treasury to holding those three positions at Downing Street. Now the jobs of the noble Lord, Lord O’Donnell, are being performed by three individuals. Let me emphasise that I am not saying that any of his successors are one-third the man that the noble Lord, Lord O’Donnell, is. He also had the distinction of serving three Prime Ministers—Tony Blair, Gordon Brown and David Cameron—in his six years at No. 10. Talk about high-flyers—you do not fly any higher than the noble Lord, Lord O’Donnell. No wonder people call him “GOD”—not just because of his initials but because of the huge respect that we all have for him. He has achieved all this as a youngster—he is still in his fifties; he has not even hit middle age yet. That will start when he turns 60 in October.
The noble Lord was an Oxford Blue in football, and I think that by now he must be realising—football being a game of two halves—that our Chamber, unlike the other place, is not just about the Government and the Opposition; we have the added dimension of the Lords spiritual and the Cross-Benchers. We, the Cross-Benchers, are so proud and happy to have the noble Lord in our fold. He has already said that he could be in the running for the position of the next Governor of the Bank of England. Watch this space. We look forward to many more fabulous expert contributions from the noble Lord in the years to come.
I have always said that one of the best things that Gordon Brown ever did was create the independent Monetary Policy Committee when he took over as Chancellor in 1997. It was able every month to set interest rates on an independent basis, proactively and reactively—and transparently. However, one of the worst things he did was create the tripartite arrangement of the Treasury, the Bank of England and the FSA. In the good times—the boom times—until 2007, this tripartite system was a happy merry-go-round. When we hit the crisis, this happy merry-go-round became a hopeless blame-go-round, and we realised that the tripartite system was not fit for purpose, as the Minister said. It was disastrous, and I am so happy to see that with this Bill, the buck will now stop firmly and squarely with the Governor of the Bank of England.
We know that the Governor of the Bank of England, Eddie George, was extremely concerned when the tripartite system was set up, and he voiced his concern that the Bank of England was having its powers taken away and transferred to the FSA. We now know that this was the most foolish thing to have done. The FSA has the joint remit of financial services in the consumer market, protecting consumers and promoting competition, and was so focused on that consumer-facing aspect that its role of supervising and regulating the banks was ignored and neglected. Frankly, the FSA was out of its depth and ignored the most crucial aspect of its job. I could say that the FSA stood for “fairly sleepy agency”. I remember taking part in debates in the House in the run-up to the Northern Rock nationalisation in 2008, four and a half years ago. I remember finding out at that point that the FSA had researched Northern Rock and in 2006 had marked it as “high impact” and as requiring close supervision. It also marked it for a review in three years’ time. That was an organisation that was on top of things and wanted to act quickly, but of course it was all too late. By September 2007, Northern Rock was bust and £26 billion was required to bail it out—the largest amount required for any company in the world at that time. Of course, following the sub-prime crisis that led to the credit crunch, which led to the financial crisis, which led to the great recession, which led to the sovereign debt crisis, which has now led to the eurozone crisis, we now know that £26 billion is pocket money.
I welcome many of the Bill’s provisions but I am concerned that there is too much focus on the new bodies being created and on the theme of stability. No one would dispute the need for these bodies—and I congratulate the Government on introducing them—but I worry about the implication of leaving the Monetary Policy Committee pretty much as it is. No one could dispute the requirement for stability and prudence but, as many noble Lords have said, these must go hand in hand with growth in the economy.
In the spring of 2008, when Northern Rock and Bear Stearns had already gone to the wall, seeing the writing on the wall the MPC sat idle. It was so obsessed with its inflation targeting and so afraid of having to write to the Chancellor that it kept interest rates at 5% for six months after the collapse of Bear Stearns. Instead of bringing them down straight away, it waited too long and then had to bring them down sharply from October 2008 onwards. We must change the myopic, blinkered approach that the MPC has been forced to take, focusing solely on inflation and not, as in America, and as the noble Lord, Lord Lamont, suggested, on maximising employment and, as my noble friend Lord O’Donnell said, looking at the overall state of the economy. Through this Bill, the Government must consider revising the MPC’s mandate to ensure that it plays its part in securing recovery for the long term.
Talking about new bodies, the FPC’s mandate is seemingly pulled from the Hippocratic oath. Its mandate is to do no harm to the economy. It seems to have left out the rest of the oath, as there is no real mandate to cure the economy of the ills from which it may be suffering. I ask the Minister whether the mandate of the FPC—as well as the general system of financial and monetary regulation, including the MPC, which does not really seem to fall under the Bill at the moment—can be expanded to target growth and full employment and not just stability.
The acid test of the Bill is: if this new structure had been in place five years ago, would it have prevented the scale and effect of the crisis that we had? Would it have been able to anticipate things—to hear the warning bells and react to them in time? Would it have been able proactively to see things coming? That is the test, and I should be interested to hear whether the Government have assessed that, even in a simulation exercise.
When I chaired the UK India Business Council, of which I am president, I would boast to our counterparts in India about the wonderful light-touch regulation that we had in Britain. Of course, we now know that it was flawed. It is not about light touch; it is about the right touch. Do the Government really think that this new system strikes the right balance of regulation that this country so desperately needs?
What about the structure of the Bank of England? Much power has been given to the Bank but, as has been said, cannot the court be restructured to have a more supervisory role, reporting directly to Parliament? Not enough non-executive directors are proposed. Can the Government say that they have the balance right on all the boards—the FPC, the PRA and the Court of the Bank of England—with enough non-executive directors? Are they going to be properly resourced in terms of access to information in order to perform their roles properly? Also, the MPC publishes information every single month and is very transparent. Will the FPC, the FCA and the PRA also publish regular reports in a transparent manner?
I go back to the point that the MPC is neglected in the Bill. The only crossover seems to be the governor himself. I do not have too much of a problem with the buck stopping with the governor and with the governor having all these roles. However, I am worried about whether there is a mechanism for co-ordinating all these, which the noble Lord, Lord Myners, who is not in his place, spoke about. There could be conflict between boards. There are dual roles and there could be duplication. If there is a problem, things will fall between the cracks and we will go back to the old blame-go-round. This clarity of co-ordination where the cultures are concerned is not clear and we need to work on that in Committee.
What about the powers of the PRA? It is important to get this figured out. It is focused too much on large institutions; but the Australian Prudential Regulation Authority implemented the whole of Basel II through guidance alone and shows how general guidance can sometimes be given. This whole area of guidance is completely missing in the Bill.
To conclude, this Bill is wonderful news. We are actually putting power back into the hands of the Bank of England and I welcome that very much. However, I think that we are missing a key aspect—the role of the MPC and the co-ordination between the MPC and the FPC in making sure that the new structure is focused on achieving stability, preventing crises, generating maximum employment, generating low inflation and moderate interest rates, and, most importantly, on generating and sustaining growth in the economy.
Financial Services Bill
Lord Bilimoria Excerpts(12 years, 5 months ago)
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Lord Myners
My Lords, I rise briefly to add my support to the views expressed by the previous speakers. There are significant issues in this Bill which require attention. They are not issues that divide on party political lines, and it is clear from today’s debate that there is a wealth of information and understanding in the House. Having previously taken legislation through Committee both in the House when I was a Minister and in Grand Committee, I have no doubt that this Bill should be appropriately considered by the whole House in order to be able fully to draw upon the knowledge and expertise of your Lordships. I would enjoin the Minister to withdraw the Motion that the Bill be taken in Grand Committee in order to allow further time for discussions through the usual channels—taking into account the views which have been expressed this evening from all sides of the House.
Lord Bilimoria
My Lords, perhaps I may add that this came to a head with the Welfare Reform Bill, which was committed to a Grand Committee. I remember what a stand-off there was between the Opposition and the Government. That was a sad day for this House. In the end a compromise was reached so that much of the Bill was debated on the Floor of the House. We must be careful about the signal we send out to the country about the priority of something as major as this crisis, which has brought the country to its knees. We must be careful of the message we send out before we make this decision.
Lord Lucas
My Lords, we have to face the fact that we do not do as good a job in Grand Committee as we do in a Committee of the Whole House. There is no opportunity for Peers widely to participate in Grand Committee in the way that there is in the Chamber. Given the importance of the Bill and the depth of interest in it, I hope very much that the Government will listen to what has been said.
Debt
Lord Bilimoria Excerpts(12 years, 6 months ago)
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Lord Sassoon
My noble friend is right to point out quickly the confusion that many of us occasionally suffer on the difference between debt and deficit. Of course, the two things are different.
Lord Bilimoria
My Lords, does the Minister agree that one of the main reasons for the financial crisis and the great recession was the record level of low interest rates—we were talking of 5%? Now, for three years, interest rates have been 10 times lower than that. Do the Government want to help money to flow through? Lending needs to increase to small businesses and it is not happening at the moment. Secondly, could the Minister summarise the Government’s strategy and prognosis for the interaction between debt, deficit, interest rates and inflation?
Lord Sassoon
My Lords, I think we shall need a little longer on the latter part of the question. The noble Lord, Lord Bilimoria, raises an important point in that the first thing we have to do is to ensure that interest rates are kept low. I need hardly remind the House that 10-year interest rates, as of last night, were at almost record lows at 1.75%. We want to see the benefit of those low interest rates flow through to businesses, which is why, among other things, we have the national loan guarantee scheme. In the time of the noble Lord, Lord Barnett, there was not 3% inflation but it peaked at 26.9% and interest rates were more than 10%. That is why I know he is sympathetic to the challenge we have and why my right honourable friend the Chancellor is doing such a fantastic job in these difficult headwinds.
Queen’s Speech
Lord Bilimoria Excerpts(12 years, 6 months ago)
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Lord Bilimoria
My Lords, six months ago I read out this quote:
“The era of procrastination, of half measures, of soothing and baffling expedients, of delays, is coming to its close. In its place, we are entering a period of consequences”.—[Official Report, Commons, 12/11/36; col. 1117.]
Those were the words of Winston Churchill in 1936, and we all know what happened three years later.
We have finally had a Queen’s Speech, after what I believe was an unacceptably long gap of two years. Could the Government assure us that this will not happen again, and that we will have year-long sessions in future, as is customary?
One message that the Government have very clearly got across in their two years is talking tough about austerity, and the two big benefits of this have been that Britain has retained its AAA credit rating and continued to enjoy phenomenally low bond yields, as the noble Lord, Lord Razzall, said. But how long can tough talk last? I am glad that the Government have stopped blaming all the problems on the previous Government—although they have just done so. Now they are blaming Europe, and we have the eurozone crisis building up and about to explode, as many of us predicted. France and Germany, formerly the best of friends, are now at loggerheads, and there is growing certainty that Greece will have to leave the euro—it is almost definite—with all the possible contagion that this will bring. We have entered a double-dip recession. The Nobel laureate, Paul Krugman, wrote recently:
“Britain … has achieved the remarkable feat of doing worse this time around than it did in the 1930s”.
And what is in the gracious Speech? We hear that:
“A bill will be brought forward to reform the composition of the House of Lords”.
Is that the most important thing in the public’s mind? We know that it is not. It is the lowest priority to this country, and if we go down that route we will be accused by our people of being like Nero, fiddling while Rome burns.
On top of this, we have had a Budget with some great measures in it, such as cutting the 50p rate of tax. I believe that it should go down to 40p. It also reduced corporation tax, which was fantastic. On the other hand, it was a PR disaster, upsetting so many people: charities, pensioners, heritage lovers, the Church of England and even pasty consumers. Now, as we have heard from the noble Baroness, Lady Royall, the Institute of Chartered Accountants in England and Wales has said that the child benefit plans announced in the Budget are seriously flawed.
On top of that, we have business leaders criticising the Queen’s Speech for not having enough of a plan for growth for business. As we have heard, the response from the Government is that these leaders of business should stop whinging and work harder. I know from running my business how tough it is to grow a business in this economic environment—and the Government are saying to me that I am not working hard enough? How dare they?
We have had blunder after blunder. The NHS reform has been badly handled to the extent that we face the dreadful thought of doctors going on strike. The defence review was rushed through, and now we face the blunder of having no carriers and no Harriers for almost a decade, with the Government executing a U-turn on the carrier aircraft which will cost us billions from the defence budget. Will the Government accept that they have made a blunder with regard to the loss of capability and of money on that score?
The Government have cut higher education funding, one of the jewels in Britain’s crown. Just last week a report was released that found that in government expenditure as a percentage of GDP for higher education, we in Britain came 41st out of 48 countries in the world. I have been saying for many years that we need to increase spending on higher education funding. One reason the United States is always ahead of the game is because it invests far more, in absolute terms and as a proportion of GDP, in both public and private expenditure on higher education. That is why its productivity and its innovation are always streets ahead. Why do not we learn from that? Could the Government explain?
Then we have had the big society—big talk and big platitudes, with the best of intentions. People could genuinely question whether the Government are in tune and in touch with people. Only one city out of 10 wanted an elected mayor. Now we have elected police commissioners, and we know that the public are not that keen on that. The turnout in elections is bad, with that for the London mayor elections at only 38%. In India, in the state of Uttar Pradesh, turnout was at 60% in the recent legislative elections. Do not the Government understand that people do not want more elections, politicians and partisan bickering? People’s worries are about their jobs, job security and economic prosperity; that is the priority.
On top of this we have had the immigration cap, which wrong-headedly encompasses foreign students. Would the Government admit that, by including foreign students in the overall immigration numbers, they are forgoing an enormous opportunity, which brings up to £8 billion into this economy? Nick Pearce, a fellow member of the UK-India Round Table and director of the IPPR, recently asked:
“Will the next generation of world leaders, like Manmohan Singh, Benazir Bhutto or Bill Clinton, be educated in the UK if the UK Government restrict the flow of students to the UK’s world-class universities?”.
As someone who came to study in this country from India, I know how much foreign students bring to this country and the bridges that we build for generations to come.
On the other hand, where schools are concerned, I pay tribute to my old sparring partner, Michael Gove. For two years running he led the Oxford Union while I led the Cambridge Union—although we will not ask what the result was. Last week we both spoke at the Brighton College education conference. I believe that he is doing absolutely the right thing in freeing schools from the shackles of local councils, encouraging free schools and academies, and appreciating the independent schools in this country, which are the best in the world.
The gracious Speech states:
“My Government will build strategic partnerships with the emerging powers”.
As president of the UK India Business Council, which is backed by UKTI, I see the phenomenal opportunities offered by companies such as Tata, which owns Jaguar Land Rover, creates jobs over here and now exports Jaguar Land Rover cars back to India. That makes me feel very proud. However, as a proud manufacturer, I note that there was nothing in the gracious Speech about encouraging manufacturing or providing tax incentives for manufacturing. Will the Minister tell us why the Government cannot do this?
We have a bloated public sector that the Government are rightly trying to cut. Public spending should be 40% of GDP. We have taxes that are too high in terms of VAT, fuel duty and income tax, and we have a welfare state and a benefits trap that need to be addressed. I am glad to see that the Government addressed welfare spending in the gracious Speech although I understand that this is a sensitive issue.
Lord King of Bridgwater
The noble Lord says that no encouragement is being given to manufacturing. However, is he aware of the very encouraging recent news about major new investment in this country on the part of two major car companies? That is significant news for manufacturing and builds on today’s very welcome announcement that this year, for the first time since 1976, we have exported more cars than we have imported.
Lord Bilimoria
I could not agree more with the noble Lord. All I am saying is that, if we had more incentives for manufacturing, we would have even more such success stories. In fact, Britain has so much going for it. We have the finest universities, the best in design and creative industries, tourism, sport, advanced engineering, the City and our financial markets, the accounting profession, the law profession, and we have our wonderful monarchy and Her Majesty celebrating the Diamond Jubilee this year. We need to harness these amazing assets and use them to generate growth. We need infrastructure spending to create the environment for business to succeed. However, businesses are not getting the money. Will the Minister tell us what is happening with the £20 billion credit-easing scheme? I do not think that it is flowing through.
I conclude: more than anything else, the Government need to show real leadership, not to create fear through austerity or accuse business leaders of whinging and not working hard enough. They need to create hope and optimism—hope, not hopelessness. We have so many strengths in this country; they just need to be unleashed. We need to unleash the great British spirit—the spirit of Great Britain—and unleash hope, optimism, opportunity and aspiration.
Economy: Budget Statement
Lord Bilimoria Excerpts(12 years, 8 months ago)
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Lord Bilimoria
My Lords, when I found out yesterday that the noble Lord, Lord Heseltine, was going to be making his maiden speech today, luckily I was sitting down. I remember very clearly bumping into the noble Lord soon after I joined your Lordships’ House. I asked him whether it was true that he had not made his maiden speech, having already been in the House at that time for five years. He said it was absolutely true, and I asked why. He replied, in a very humble manner, “Who wants to hear from me?”
He was in the other place for 35 years; a Cabinet Minister for over 20 years; what a shame it is that we, as a House, were losing out on all that wonderful experience. Yesterday was the Chancellor’s day, as all Budget days are, but it was also the birthday of the noble Lord, Lord Heseltine. Yesterday was also a special day for me as a Zoroastrian Parsi, as it was our new year, the first day of spring. So it is an excellent new year’s resolution for the noble Lord finally to make his maiden speech, more than a decade after joining your Lordships’ House.
Look at what we have missed out on. I am sure that some of your Lordships would have wished for a decade’s silence from certain of our fellow Peers, but certainly not from the noble Lord, Lord Heseltine. We know the wonderful apocryphal story about Michael Heseltine, as a young undergraduate, jotting down his future on the back of an envelope: “Millionaire at 25, Cabinet Minister at 35, party leader at 45, Prime Minister at 55”. Of course, the noble Lord denies this, but the reality is that he has achieved so much, and he could have—and many would say should have—become Prime Minister.
The noble Lord might not have reached this final milestone, but there was never a dull moment in his career. He was in the unique position of being a truly successful entrepreneur in his own right, while also serving as a very successful politician. He was an impactful president of the Board of Trade in the early 1990s. There is no better person to have been selected by the Government to chair a review into the potential for links between the state and private sectors. How the Chancellor would have benefited from having that review before yesterday’s Budget. Thanks to this, we in this House have now had the benefit of hearing the fantastic contribution of the noble Lord, Lord Heseltine, today, and we hope that his famine of speaking will turn into a veritable feast for us in the years ahead.
Lord Bilimoria
My Lords, our economy has been in recession, and thereafter bumping along the bottom, for coming up to four years now. There is no question that the Government’s tough stance and posturing with regard to austerity have sent out the message internationally that has enabled our borrowing rates to remain extremely low. It has also sent out a message to the country that we need to tighten our belts and make sacrifices. To that extent, the Chancellor has had to try his best to balance his books. Of course, a balanced budget is a very prudent thing indeed. However, we have to ask ourselves, what is the point of a zero-sum game? As Martin Wolf said in the Financial Times today, this is:
“A Budget without economic significance”.
On the one hand, as an entrepreneur I have been thrilled with so much of what the Chancellor announced yesterday. The reduction in corporation tax rates, which will give us one of the lowest rates in the G20, is an excellent decision. The removal of the 50p rate of tax, albeit not back to 40p where it should have gone, is at least a move in the right direction and makes a huge impression in attracting investment and the brightest talent to this country from abroad. Psychologically, the 50p rate was over the tipping point, and I am happy to see it removed.
On the other hand, this Budget has hurt a great many people. Our fuel taxes are the highest in Europe by far. Consumers have been squeezed with high inflation, and in many cases falling earnings, and higher taxes such as VAT. In my own industry, as chairman of the Cobra Beer Partnership, a joint venture with Molson Coors, I have seen the damage excessive taxes have done. While we are fortunate that our brand is growing, the beer industry in Britain has shrunk by nearly 30 per cent in 30 years.
As Mark Hunter, chief executive of Molson Coors UK, said in today’s Times:
“There are no winners from the beer duty escalator. Ordinary British drinkers are paying more tax to drink less beer, reducing overall government tax revenues and forcing British brewing into a deeper, duty-fuelled decline”.
Mark Hunter also happens to be the chairman of the British Beer & Pub Association. He said further:
“Beer drinkers in Britain already pay a whopping 40 per cent of all European beer tax and yet drink only 13 per cent of the beer—and we are disappointed that the Government has chosen not to end this crippling policy”.
Sadly, we are still seeing 15 pubs close each week—pubs that are at the hearts of our communities. When you hit beer, you do not just hit pubs and the brewing and manufacturing industries, you also hit our farmers. Our beer is brewed in Burton upon Trent and 100 per cent of our barley is British, and we are proud of it.
What we have lost in this country over the past decades is a balanced economy. As president of the UK India Business Council, the origins of which are the Indo British Partnership, which was launched by the noble Lord, Lord Heseltine, when he was President of the Board of Trade in 1993, I know that India aims to have manufacturing making up 25 per cent of its GDP. In our case, manufacturing is heading towards 10 per cent of GDP. Increasing manufacturing increases jobs, and manufacturing jobs lead to services jobs, both directly and indirectly, and to jobs in the supply chain. My big concern about this Budget is that I do not believe it is doing enough to generate growth and jobs. In fact, the growth forecast is 0.7 per cent to 0.8 per cent, and then to more than double to 2 per cent next year. When can we believe any of these forecasts? Will the Minister give us some reassurance on that?
The Minister talked about the £20 billion of credit easing for SMEs, which is fantastic news. But I was disappointed that, sadly, the media hardly covered this. Will the Government talk more about the scheme? Will it be like the Government’s small firms loans guarantee scheme? Will this money flow to the banks? Already I have heard that HSBC will not sign up to it. How will the Government ensure that banks lend this money to the entrepreneurs who need it? The Government urgently need to flesh out their plans and communicate this to business and to the country because it has the potential to have an enormous impact on SMEs, which are, after all, the engine of the growth of this country.
As the noble Lord, Lord Heseltine, has said, we need to invest far more in research and education if we are to make this country competitive and improve our productivity. This is, unfortunately, where the United States, time and again, is way ahead of us. While we are bumping along the bottom, the United States economy has been growing. One of the main reasons for that is that it invests far more in higher education and in research and development than we do. I do not think that this Budget has done enough to close this gap. Will the Minister respond to that please?
As regards our Armed Forces, we have been in Afghanistan longer than World War I and World War II put together. We have lost precious lives and have so many badly wounded soldiers, which has caused huge loss, pain and grief to friends and families, and to our whole nation. But the monetary cost has also been huge. I am happy to hear that the Government will be reinvesting the money saved from an early pull-out from Afghanistan by putting some of it into the accommodation which is desperately needed for our troops and their families. However, I am greatly concerned that the Government have chosen to freeze the raise of our soldiers’ salaries to only 1 per cent. The soldier’s basic salary is £7,000 lower than the national average. Is this the way for us to uphold the military covenant? Is this the way we show our gratitude to our brave Armed Forces?
The Government rushed through the SDSR, destroying Nimrod, getting rid of Harriers and getting rid of our carriers. We could have used those carriers, those Harriers and those Nimrods in Libya. Now we learn that the change to catapult-based aircraft carriers will have to be scrapped, which will result in billions of pounds wasted and in cutting our capability. We did not predict the Arab spring. We need to be prepared for what will happen in the future.
As has been said so often, this Budget has also hit our pensioners. They are currently being squeezed by low interest rates, which are necessary but are affecting their savings. They have also been hit by high inflation. As I have said, I support the reduction of the 50p rate of tax but the so-called “granny tax” that the Chancellor announced makes this look like a Budget that is helping the rich at the expense of poor pensioners. Is that the message that the Government want to send out? As we have heard, it has been a PR disaster.
I have heard that the Budget Committee of the House of Lords, of which I was a member last year, will no longer be convened this year. Hence, we will miss out on the wonderful expertise that we have in this House. Will the Minister confirm that that will be the case?
In conclusion, I am grateful to the Government for the many business-friendly measures in this Budget. It is reassuring to see further cuts in areas where cuts are required, such as in welfare, which is the largest area of spend—£10 billion. The infrastructure spend, broadband and looking at a third runway at Heathrow are all essential. But I am afraid that this Budget has not addressed enough the fundamentals of economic growth, job creation, research and education. A balanced Budget is not enough—it cannot be a zero-sum game. A good Budget balances the books, gives a more balanced economy for industry and innovation, and encourages a growing and competitive economy.
Economy: Quantitative Easing
Lord Bilimoria Excerpts(12 years, 8 months ago)
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Lord Sassoon
My Lords, I reiterate that the MPC has operational control and freedom here. The Government, on behalf of the taxpayer, indemnifies the Bank against losses, so of course any increase in the limit of the asset purchase facility has to be authorised by the Treasury. As to what people’s quotes might be, I know that I get into trouble if I start questioning whether the noble Lord, Lord Barnett, has correctly quoted my right honourable friend. I am sure that he did, but in completely different circumstances. The situation now is that we have tight fiscal policy. Against that discipline, the monetary policy of the Bank of England can be conducted with confidence. Tight fiscal discipline and loose money is the policy prescription. I suspect that that was not the policy prescription when my right honourable friend made that quote.
Lord Bilimoria
My Lords, can the Minister tell us of the effect of QE in helping lending flow through to SMEs? We hear about feast and famine with regard to lending to SMEs. Has QE really helped in banks lending to SMEs?
European Union Membership (Economic Implications) Bill [HL]
Lord Bilimoria Excerpts(12 years, 12 months ago)
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Lord Bilimoria
My Lords, we are caught between Utopian ideology and harsh reality which, throughout the eurozone crisis, has yielded to illogical, irrational arguments and behaviour. Just this week we have had President Barroso imploring Europe to unite. In a way, he is saying, “United we stand, divided we fall”. We have a constant clamour for whether we should have an “in or out” referendum. We have the noble Lord, Lord Heseltine, saying that we will ultimately join the euro. One of the best decisions this country made was not to join the euro.
We have people calling for and predicting a two-track euro, with the inner core consisting of France, Germany and a few other countries, with an outer core of the PIGS et al, and then you have others saying that there will be a shrunken eurozone with the PIGS et al going back to their own currencies. Then you have those saying that the euro will disintegrate altogether, which would have a catastrophic domino effect around the world. Then you have everyone putting pressure on Germany to save the euro, including our own Prime Minister and Chancellor, while just this week the Bundesbank had to pick up 39 per cent of the German bond sale after commercial banks bought just €3.6 billion of it. What a lot of confidence we have in Germany. We have German Chancellor Angela Merkel saying that Germany would be prepared to give up a piece of national sovereignty in order to survive. Then she said:
“No one should take it for granted that there will be peace and affluence in Europe in the next half century … If the euro fails, Europe fails”.
We are just refusing to accept the elephant in the room. The European project, which has been so brilliant, and instrumental in keeping the peace and promoting free trade and the free movement of people between the countries of the European Union, has pushed the envelope too far with the creation of the euro. We talk about countries being run by technocrats, but to satisfy the Utopian dream of our Eurocrats—of creating a United States of Europe—we stand where we do today.
We may have a European Parliament but we do not have a federal Europe and we need to wake up to this. I have said from day one that the only way that the euro can work is for us to have complete political, fiscal and emotional union. That means being an India or a United States of America, which have true federal systems and where the centre is in control of currency, interest rates and national taxes. That is a fiscal union. Most importantly, the centre is responsible for the defence of the united federal country. A true fiscal union needs to have a central bank as a lender of last resort. The European Central Bank has shown itself to be completely powerless. It is the IMF that we must rely on, although the IMF showed itself to be useless in the financial crisis three years ago and needs to be reformed.
Being a federal system means a complete surrender of any sovereignty by the states that make up these countries. Can we realistically see that ever happening in Europe? If we are relying on political will to make this happen, we are fooling ourselves. With the euro, a one-size-fits-all approach cannot and does not work. You cannot have countries and economies as extreme as Germany and Greece under one exchange rate and one interest rate: they will never be in sync at any one time.
Now is not the time to get out of Europe. I am a supporter of Europe. Now is the perfect time for Britain to lead in restoring the European Union to what it should be: a trading bloc of goods and services, and of people with shared principles and values. However, even with those shared values, the European Union has lost the plot. Day after day we are being hampered by European regulations that are stifling our businesses and removing the flexibility of our labour force.
The noble Lord, Lord Pearson, suggests that a committee should be formed to perform a cost-benefit analysis of being in or out of Europe. Surely such a committee is unnecessary. Surely the Government carry out this cost-benefit analysis every single day. I am confident that the Minister, in his response, will give us this cost-benefit analysis in detail in this House today.
We have huge strengths in Britain. We are by far the most international country in Europe. We are looked upon as the gateway to Europe. That could be because we have London, the most global world city and the greatest of the great cities, because of our financial markets or because of the English language. We are not to be led by Germany and France. Kipling’s words were:
“If you can keep your head when all about you are losing theirs”.
In spite of our awful financial predicament, we have the confidence of the global financial community with our interest rate yields, which are better than Germany’s, and our AAA rating.
Trying to keep the euro together in a shrunken eurozone, or trying to keep the whole project together, is just postponing the inevitable. Logically, the euro cannot work without full fiscal union and I cannot see that happening in Europe. Historically, it has never happened. We need to work towards an orderly, staged shrinking—and perhaps even eventual dismantling—of the euro and, most importantly, redrawing the European Union and going back to basics to make it what it is meant to be. We have to wake up; these are dangerous times. Even the Governor of the Bank of England is saying, “I don’t know what’s going to happen tomorrow”. Will we go back to when Her Majesty the Queen, on a visit to the London School of Economics during the financial crisis, asked, “Why did nobody notice this?”?
To conclude, as a country, we are best when we are bold. That is the spirit of this country. Now is the time for Britain to take leadership. It was not many years ago that Britain was referred to as the sick man of Europe. Today we should be seen as the sensible man of Europe. The euro is not only underwater but dead in the water. I quote:
“The era of procrastination, of half-measures, or soothing and baffling expedients, of delays, is coming to its close. In its place we are entering a period of consequences”.—[Official Report, Commons, 12/11/36; col. 1117.]
Those were the words of Winston Churchill in the House of Commons in 1936. We have to wake up and face the consequences.
Economy: Capital Expenditure
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Lord Sassoon
My Lords, as the noble Lord, Lord Barnett, knows very well, we have set up the Office of Budget Responsibility to keep track of all the forecast numbers and we will get its update later in the autumn. The critical point is, as my right honourable friend the Prime Minister said at the weekend, we are spending over £3 trillion of public money in four years and we are not going to wreck what we now have in a very low interest-rate environment for the sake of spending a few more billion. We will stick to our spending plans.
Lord Bilimoria
My Lords, does the Minister agree that although we need to cut public expenditure there is a very strong case for increasing capital expenditure in these austere times to create jobs and, as the noble Lord, Lord Barnett said, to create growth? Furthermore, will the Government explain what they are doing to incentivise and facilitate the private sector to invest in infrastructure once again to create jobs and desperately needed growth?
Lord Sassoon
I very much agree with the noble Lord. That is why in the spending review last autumn we increased the amount of capital spend every year, up to £2.3 billion extra in the final year of the period. That is why we are spending £30 billion on transport—one of the most economically enhancing areas of spend and more than was spent in the previous four years. In the private sector, we are ruthlessly attacking the planning system that is so costly and so time-consuming when people want to put infrastructure in. That is why we are making sure that all the market structures, such as in energy, are conducive to the new infrastructure spend we need. That is why we are looking at the whole area of regulation around infrastructure, because I completely agree with him—70 per cent of the economic infrastructure is going to come from the private sector and we are working to make sure that that money flows.
EU: Credit Rating Agencies
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Lord Sassoon
My Lords, there are quite a number of points wrapped up in that question. The first point to recognise is that the credit rating agencies plainly got it wrong when it came to the structured products which were at the heart of the financial crisis. On the other hand, their record in other respects during the financial crisis, and particularly the sovereign debt crisis, has been reasonably good, and all the evidence shows that. Having said that, I completely agree with the noble Lord that competition is very much what the Government would like to see, but the way to introduce competition is absolutely not to have any publicly funded or publicly sponsored credit rating agency. Indeed, Mr Barroso himself recognised this recently by opposing any suggestion of a European publicly funded agency. I agree with the noble Lord that we want to see competition, but not through setting up a government sponsored agency.
Lord Bilimoria
My Lords, to follow on from the noble Lord, Lord Foulkes, surely the Minister agrees that these credit rating agencies were instrumental in causing the credit crunch and financial crisis by rating what ended up being worse than junk bond instruments as triple-A? They were allowed to get away with being funded by the people they were reporting on. Is there moral hazard with the banks? This is moral hypocrisy. Is enough being done to address it?
Lord Sassoon
My Lords, I have already said that the credit rating agencies got it completely wrong when it came to the rating of structured products. As a result of that, there have already been two regulations, so-called CRA1 and CRA2, out of Europe since the crisis and a third set of proposals is expected in November this year. The first two sets of proposals address the matters which the noble Lord raises. There is now a system of registration. There are new regulations around conflicts and how to handle them, as well as around transparency and disclosure. I agree that the issues he raises are serious, but they are very much the ones which the European regulations have addressed.
Public Expenditure: Deficit Reduction
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The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, there is time for both noble Lords. Perhaps we can hear from the noble Lord on the Cross Benches and then from my noble friend Lord Newby.
Lord Bilimoria
My Lords, the Minister talks about growth; we hear about the Chancellor sticking to his plans; but we also hear a clamour for Plan B. What is going on around the world is unprecedented; with the EU and the American debt crises there is so much uncertainty. By raising taxes the consumer is absolutely squeezed. As for perception and reality, there is a perception of cutting even though the cutting is not taking place as much as we all think. We all know that public debt was far too high under the previous Government. What are the Government going to do to generate growth?