(13 years, 9 months ago)
Lords ChamberMy 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.
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?
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.
(13 years, 9 months ago)
Lords ChamberMy 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.
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?
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.
(13 years, 10 months ago)
Lords ChamberMy 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.
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?
(13 years, 11 months ago)
Lords ChamberMy Lords, the philosopher Kierkegaard said:
“Life can only be understood backwards; but it must be lived forwards”.
Right now the Opposition blame our current economic difficulties on the global economic crisis which started with the subprime crisis five years ago, and the current Government blame the previous Government’s mismanagement of the economy, resulting in the huge deficit and the high levels of borrowing which have, in turn, led the Government to embark on a programme of cuts across the board, and a tax policy to try and address the deficit as well. Unfortunately, the current Government are also going to have to blame the woes on the European sovereign debt crisis and the eurozone crisis, neither of which are of this country’s making.
There is no question that public expenditure under the previous Government reached levels that were far too high—50 per cent of our GDP when it should have been 40 per cent. Reducing this to 40 per cent would sort out our budget deficit in one swoop: but it cannot be done overnight. The imbalance between the public and private sectors has finally come to a head. The Government are finally starting to address this, but again it will take time.
As to monetary levers, the Bank of England is forced to keep interest rates at 0.5 per cent in spite of ballooning inflation because of the fragile state of the economy. Of course, the final lever that the Government have is the Finance Bill and taxation. Before I go into detail, I will highlight the 10 tenets of a better tax system, as laid out by the Institute of Chartered Accountants in England and Wales, of which I am proud to be a fellow. They are: statutory, certain, simple, easy to collect and to calculate, properly targeted, constant, subject to proper consultation, regularly reviewed, fair and reasonable, and competitive. Does the Finance Bill tick all these boxes?
I was proud to serve on the Finance Bill Sub-committee of the Select Committee on Economic Affairs, and I thank our chairman, the noble Lord, Lord MacGregor, his staff and advisers and the rest of the committee for the excellent work that they performed. There was a clear consensus among our witnesses that, if implemented consistently, the Government's new approach to tax policy-making would represent a major step forward on the road to better tax legislation for this country. I do not wish to blow our own trumpet, but most witnesses proposed that better use should be made of the expertise and experience of the House of Lords in matters of tax policy and legislation.
We have far too few Joint Committees of our two Houses. We all know about the new Joint Committee that has been set up to deal with reform of the House of Lords. However, given that as things stand the House of Lords does not have the power to vote on Finance Bills, would it not be wonderful if we had a Finance Bill Joint Committee of the two Houses, on which, sitting around the table, the expertise of this House could be brought to bear side by side with those who are going to legislate on the matter? There should be more Joint Committees of our two Houses. This would lead to both Houses working more closely together and to better mutual understanding—an understanding that at the moment is greatly lacking in the other place. This has been openly admitted by many Members who came from the other side of the building and who concede how little they knew and understood of the workings of this House. Will the Government consider this suggestion?
A serious matter that was spoken about in our sub-committee was the worrying disconnect between the workings of Her Majesty's Treasury and Her Majesty's Revenue and Customs, and the lack of specialisation in either. The sub-committee also looked at tax evasion and tax avoidance. More and more, the lines between evasion and avoidance are being blurred. As the noble Lord, Lord MacGregor, said, on the basis of HMRC's figure, the Exchequer loses £22 billion from evasion compared with £7.5 billion from avoidance. We have therefore recommended that the Government should publish an anti-evasion strategy as well as an anti-avoidance strategy.
Lowering the corporation tax rate was seen as a very good move, as headline rates matter, especially in attracting global inward investment: but, sadly, the impact of these reductions is lessened because capital allowances are being changed, meaning that the effective rate of corporation tax for many businesses will not be reduced. That is particularly the case for small businesses and manufacturers.
We still have the 50p rate of tax that the Finance Bill did not address. This desperately needs to be removed, especially if we want to attract inward investment and the best talent from around the world. Many of our taxes are far too high. For example, and declaring my interest as the founder of Cobra Beer and chairman of the Cobra Beer Partnership, a joint venture with the global brewer Molson Coors, we in Britain have one of the highest rates of beer duty in Europe. Points have been made about how the Treasury says it is tackling problem drinking by increasing the tax on higher-strength beers and trying to stimulate the market for lower-strength beers. However, this is toying at the edges as it represents a very small portion of the beer market.
Meanwhile, the Government's ban on low-cost selling, covering VAT and duty only, means that, given tax anomalies, £20 could allow retailers to sell up to 40 cans of beer at 4 per cent ABV—70 units—10 bottles of wine at 14 per cent ABV—98 units—seven bottles of fortified wine and up to 103 cans of cider, making a total of up to 340 units. What will the Government do to assess alcohol taxation in the light of maximizing revenue and minimizing harm?
In conclusion, we know that high taxes stifle not only consumer spending but businesses and growth. What the economy desperately needs is confidence and growth, and the Finance Bill should do its best to encourage growth. In the other place, we were told that between 2008 and 2009, nominal GDP fell by 1.8 per cent, which cost £20.6 billion, and tax receipts dropped by 3.7 per cent, costing £19.9 billion. That shows that growth more than anything else—more than the cuts—will bring down our deficit and our borrowings. However, with high taxes across the board, we are stifling growth. As long as we do that, with the best will in the world, consumption will continue to falter, inward investment will continue to be deterred and the economy will continue to bump along the bottom.
I welcome much of the work that the Government have done in reforming taxation policy: but going back to Kierkegaard's words, the future has to be lived, and the future should be about a simple, competitive tax policy that generates growth for our economy.
(13 years, 11 months ago)
Lords ChamberMy Lords, I am no great expert on dark matter and black holes, but I think the distinguishing point about dark pools is that they are a venue for trading that enables confidential orders to be submitted and matched using a reference point that comes from a transparent market. As soon as the trade is done, the details are reported publicly. Therefore, there is confidential trading and then full reporting, which is the critical feature of the market. Various platforms are available for the market, which accounts for something of the order of 7 per cent of UK and European equity trading. It is not a dominant part of the market by any means, but it is one that we are watching.
My Lords, one of the best moves in the mid-1990s was the creation of the alternative investment market, AIM, which has been a great success. I was a director of an AIM company that is now a FTSE 250 company. However, the biggest problem with AIM was always liquidity. Liquidity is an also issue outside the FTSE 250 on the main market. Can the Government do something to improve liquidity? Should more be done or are they happy with the situation?
My Lords, I certainly agree that mechanisms that help liquidity such as dark pools, which are run by investment banks, multilateral trading facilities or independent operators, are indeed aids to liquidity if they form a proper part of the market. The proponents of high-frequency trading, too, cite them as an aid to liquidity. I completely agree with the noble Lord, Lord Bilimoria, that the last thing we want for example the European Commission to do is to restrict sensible increases in liquidity in our markets without looking at the evidence base that needs to be assembled.
(14 years, 1 month ago)
Lords ChamberMy Lords, I am very happy to confirm that this Government are entirely comfortable with the structure around the MPC and have complete confidence in the governor. I could go on. I have quotes from 40 years ago. I was going to use quotes from 30 years ago but if the noble Lord would prefer me not to use them on this occasion I will not do so. However, his words of wisdom are always my guide.
My Lords, I agree with the Bank of England in keeping interest rates low to support the economy but on the other hand we have rampant inflation: food inflation is 5 per cent; wheat has gone to 70 per cent; corn is 100 per cent. The consumer is being squeezed because we have wage deflation. Does the Minister agree that the Government are between a rock and a hard place? In that situation, should not the Government consider reducing taxes to help the consumer and encourage growth?
My Lords, I completely agree with the figures given by the noble Lord for the very considerable increases in commodity prices over the past year. Those are, of course, driven by global factors, but they impact very severely on consumers and businesses in this country. That much I agree with. He referred to low interest rates. This is absolutely critical. We have almost record low interest rates on our 10-year gilts at the moment—3.33 per cent, I think, last night. That is a recognition of the confidence that the Government have in the underlying fiscal policy but it also reinforces that the Government’s contribution is to make sure that we continue to have a prudent view on public finances and do not deviate from the course that we set for reducing the fiscal deficit that we inherited.
(14 years, 3 months ago)
Lords ChamberMy Lords, what a privilege it is to follow the absolutely superb maiden speech of the noble Lord, Lord Kestenbaum. This is a debate tailor-made for his Lordship. He has hit the ground running, showing the invaluable input that he will bring to this House, particularly in the field of innovation and enterprise where he has had huge experience. He made his mark in this country as the former CEO of NESTA, the National Endowment for Science, Technology and the Arts, the largest endowment in the UK, fostering innovation, and the country's biggest source of seed finance for technology start-ups.
Our House is renowned for its wisdom, and, of course, it follows that there is a certain maturity of age among our distinguished Members. With Jonathan, we have someone so young and yet with so much varied global experience which he will bring to bear here, having worked as a venture capitalist, having been the chief executive of my noble friend Lord Sachs’ Office of the Chief Rabbi and with his involvement in the arts and in higher education. He may very well have walked into one of our broom cupboards, but he has certainly made a grand entrance today and we look forward to many future contributions.
I thank the noble Lord, Lord Hollick, for securing this crucial debate. Last week's Budget had so much that was music to the ears of the entrepreneurial community: encouraging start-ups; increasing the entrepreneurs’ relief limit; and the setting-up of enterprise zones—and, let us not forget, had it not been for enterprise zones, we would not have Canary Wharf today. The support for apprenticeships is tremendous, although I am yet to be convinced about the university technical colleges concept. StartUp Britain is terrific; however, we must remember that, as the noble Lord, Lord Kestenbaum, referred to, and as Professor Colin Mason has pointed out, 6 per cent of UK businesses with the highest growth rates generated half the new jobs created by existing businesses. Professor Mason tells us:
“The UK’s problem is the lack of high-growth firms”—
the gazelles—
“which go on to be ‘companies of scale’, rather than not enough start-ups. We need quality, not quantity”.
The reduction in corporation taxes is great news, but as the Chancellor said:
“high tax rates can do real damage … They crush enterprise, undermine aspiration and often undermine tax revenues”.—[Official Report, 23/3/11; Commons, col. 957.]
Those were the Chancellor’s words. The sooner the 50p tax rate is abolished, the more attractive Britain will be and, in fact, the tax take will go up. As for a property tax, this will take us back to the dark ages. I hope that this idea will be quashed before it can even get off the ground.
I am president of the UK India Business Council, supported by UKTI. At our annual summit in Manchester this month, the Indian High Commissioner, His Excellency Nalin Surie, said of India: “Our growth is your opportunity”. Yet British business is scratching the surface. We need to do much more to encourage British business to go global, particularly to countries such as India.
I have voiced my concern about the drastic cuts that the Government are making. Of course, we need to make savings, but it is what you cut that matters, and you do not have to cut everything. For example, cutting so severely investment in higher education will really harm this country. This, combined with a crude immigration cap, is seriously hampering higher education and business. We need to encourage growth and to keep investing in our infrastructure.
I have just returned from a business delegation hosted by the Emirate of Dubai, and in spite of all the problems that that country has experienced recently in terms of debt and a huge property crash, it is continuing to benefit from the phenomenal investment in world-class infrastructure and becoming a world-class hub in the region as a result of that investment, attracting 10 million tourists a year as well as trillions of dollars investment into Dubai.
This year I graduated from my nine-year president's leadership programme at Harvard Business School— I suppose that I am a slow learner. My study group presented me with a wonderful book, The Rational Optimist. Of course, I hope that they were referring to me. With all Britain's problems today—high inflation, low growth, high unemployment, a giant deficit, huge debt and far too high public spending—we are still one of the most open economies in the world. We still have so much of the best of the best in the world, be it advanced engineering, higher education or science. Only this week it was announced that Britain is in the top three in the world in the publishing of science papers—ahead of France and Germany. I bet that by 2050, the giants of India and China will be the two largest economies in the world, but I also bet that this tiny country will still be in the top 10.
(14 years, 5 months ago)
Lords ChamberMy Lords, not only is 2011 the centenary of the Parliament Act, it is also the centenary of national insurance being introduced by the great Liberal leader Lloyd George. Is it not ironic that we now have a coalition Government taking us back 100 years? With all the problems we face in this country today—the war in Afghanistan, a gargantuan deficit, and a fall in GDP in the last quarter to name just three—we have a Deputy Prime Minister wanting to push through House of Lords reform and a Government wanting to celebrate the introduction of national insurance 100 years ago by putting it up.
In his acceptance speech as the Republican presidential candidate in 1988, we all remember George Bush Senior's infamous words:
“Read my lips: no new taxes”.
We all know how that turned out. In the lead-up to the 1997 general election, Labour pledged to raise neither the base rate of tax nor the top rate in the lifetime of the Parliament, a pledge repeated by the then Chancellor Gordon Brown before the 2001 and 2005 elections. That pledge, however, omitted the glaring point that almost £8 billion was raised through national insurance hikes in 2003. And that is the point about national insurance—rising rates are generally not met by the public with the same alarm as increases in income tax, for which the noble Lord, Lord Newby, wishes. I quote from a note on national insurance contributions from the Commons Library:
“Many commentators have argued that NICs are poorly understood by the general public, despite the very large amount of money that they raise:
John Whiting is a tax partner at PricewaterhouseCoopers … He has a question that he tries out on people … when they talk to him about the tax system. ‘I ask them what the second biggest tax is, after income tax,’ he says. ‘People flounder. They suggest value-added tax and you shake your head. They suggest corporation tax. Wrong again. Then they start the wilder guesses and suggest petrol duties. They rarely come up with the correct answer, which is national insurance contributions.’
NICs are, in the words of Peter Bickley, technical manager of the Tax Faculty of the Institute of Chartered Accountants in England and Wales”—
of which I am proud to be a fellow—
“‘the Cinderella of taxes’. They are the unseen tax. They are a dream come true for chancellors of the exchequer. They are a tax that ordinary people, by and large, have not noticed”.
It is estimated that in 2009-10, income tax, as the noble Lord, Lord Newby, said, brought in £134 billion to the Exchequer—nearly one-quarter of all government takings. National insurance contributions brought in almost £100 billion—almost as much as VAT and corporation tax combined.
People have the impression that national insurance is a contributory system, going only into social security, benefits, pensions and even the NHS. However, Andrew Dilnot, former director of the Institute for Fiscal Studies, said in 1995 that,
“it would be hard to find much evidence of any persisting actuarial link between contributions paid and benefits received”.
In a study of perceptions of the national insurance system published by the then Department of Social Security, it was found that respondents saw no real distinction between paying national insurance and tax. Whether it be income tax or national insurance, the money is in effect going into the same pot, and the game is up. As Abraham Lincoln famously said, you can fool some of the people all the time, and all of the people some of the time, but you cannot fool all of the people all of the time.
This Government’s and the previous Government’s plans to increase primary and secondary national insurance contributions by one per cent to 12 per cent and 13.8 per cent respectively is made even more astonishing in the context of the rest of our cut-throat tax system. We have a top rate of tax of 50 per cent, which dwarfs America's reasonable top rate of 35 per cent. Research conducted by KPMG and released in October 2010 revealed that only three countries in Europe are above the UK in terms of personal income tax rates—the Netherlands, Sweden and Denmark—and that we lag behind our two big competitors, Germany and France.
How are we to compete in the international market if we do not have internationally competitive tax rates? How do we expect to attract foreign investment to our country, and attract top talent to the City, if it makes more financial sense for talented people to go elsewhere with their businesses? The Chancellor must know this. That is why he reduced corporation tax from 28 to 24 per cent—a move of which I am wholeheartedly in favour. He said:
“Corporation tax rates are compared around the world, and low rates act as adverts for the countries that introduce them. Our current rate of 28p is looking less and less competitive”.—[Official Report, Commons, 22/6/10; col. 174.]
This is the right attitude applied by the Chancellor to a much smaller area of tax. Corporation tax makes up 10 per cent of the Exchequer's tax receipts: much less than national insurance contributions.
On top of this, we have the madcap immigration cap, turning away international talent. With this national insurance hike, we are merely adding to the ever-growing list of problems that the country faces. Savage and unnecessary cuts—for example, the privatisation of forests—are raising relatively small amounts of money while hurting and upsetting so many people so much. We have a defence review during a period of wartime and turmoil and uncertainty in the Middle East; an SDSR that was rushed through in three months and has made us the subject of international mockery, with aircraft carriers without aircraft, nuclear submarines without AWAC cover and army numbers continually being cut; and the brutish and ham-handed threefold increase in tuition fees that will hurt the higher education sector—both universities and students. VAT has been put up to 20 per cent. There is uncertainty in Europe, with the PIGS countries nowhere near out of the woods and the future of the euro nowhere near certain. There is also global uncertainty and the ominous fact that the economy shrank by 5 per cent in the last quarter—weather or no weather, and whether you like it or not. We have an onslaught of more and more EU regulations and red tape; our housing market has been in the doldrums for years; we have had a prolonged period of dangerously high levels of inflation, with the Monetary Policy Committee of the Bank of England and the Governor of the Bank of England writing letter after letter, month after month, to the Chancellor, after breaching the 2 per cent target. On top of this, the Governor of the Bank of England tells us that real wages have fallen over the past six years—something that has not occurred since the 1920s. All this shows us how badly the British consumer is being squeezed. In an economy where 60 per cent of GDP is accounted for by consumer spending, the confidence of the consumer is paramount, as the noble Lord, Lord McKenzie, said.
Another concern lies in the Government’s tax plans in the lower-income and middle-income thresholds. The Minister spoke of this. However, the IFS tells us that 750,000 people are to be moved into the 40 per cent rate of income tax this year, and a further 850,000 people in 2014-15. This is due to the fact that while the Government are raising the threshold at which people are liable to pay tax, rightly by £1,000 to £7,475, they are reducing the threshold for higher-rate tax from £43,000 to £42,000.
We can all agree that the massive deficit that weighs over us needs to be reduced. No one argues with the Government about this. We, like the United States, have rightly used massive quantitative easing and reduced interest rates for a prolonged period. All this needed to be done and needs to be done. This is where the similarities with the United States end. Whereas we are increasing taxes, including national insurance contributions, the United States has been cutting taxes.
I remember that in the 1980s, after Ronald Reagan’s tax reductions, total tax revenues actually climbed by 100 per cent. After last December’s extension and expansion of tax cuts in the United States—a package of £542 billion—the IMF revised its growth predictions for the US economy this year from 2.3 per cent to 3 per cent, and for the global economy from 4.2 per cent to 4.4 per cent. In the face of all this, we in Britain raise our taxes and national insurance rates and stand by as our growth rate falters. We need to do everything we can to help the economy grow. If we made tax cuts in the UK proportionate to those in the United States, the impact would be huge, by enabling businesses, especially SMEs, to surge forward. The noble Lord, Lord Newby, spoke of SMEs. Consumers would start spending and, most importantly, consumers and businesses would have confidence, as the noble Lord, Lord McKenzie, said. The momentum would build, the economy would grow, tax takes would go up and the deficit would go down. This is the magic bullet, not the tax and NIC increases that are stifling business, stifling the consumer and stifling confidence all round.
There are elements of this Bill that I welcome; for example, the increase in the threshold. I also welcome the NIC holiday for new business start-ups to encourage the creation of private sector jobs in regions reliant on public sector employment. This is a fantastic idea. To see the Government support small and medium-sized enterprise in this way is hugely encouraging. Such businesses are the engine of our economy and deserve support. They are vital if we are to get out of these dark times. However, why not take this good idea and run with it? Why exclude Greater London and the south-east? Let us make this a national, as opposed to a regional, holiday. This gesture in the grand scheme is welcome. I hope that what the Minister said is right and that it will save about £1 billion for SMEs in times to come. If we are serious about growth, we need to decrease taxes. What happened to Chancellor George Osborne’s opinion of a national insurance increase which he said in opposition was an unwelcome tax on jobs?
In conclusion, it is appropriate now, more than ever, to quote Churchill’s opinion of taxation. He said that,
“for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”.
I urge the Government to re-examine their approach to deficit reduction. The economy should be encouraged to grow, not be stifled by taxation. There are huge areas of public expenditure and inefficiency which can be addressed before we put our businesses and consumers at risk. Public expenditure as a percentage of GDP needs to return to the 40 per cent level. Inefficiencies in the health and welfare sectors need to be addressed. We have an overgenerous welfare system which is being abused and taken advantage of. Cuts must be made there. Instead we are cutting where it hurts the most, forcing our economy back into its shell and hurting our competitiveness.
The Government have had their chance to do the right thing. Instead, at the risk of sounding gruesome, I believe that what the Government are doing to the economy and to the British consumer could be equated to medieval torture—the ruination of this country’s economy through death by a thousand cuts and strangulation by taxation.
(14 years, 7 months ago)
Lords ChamberMy Lords, I pay tribute to the noble Lord for the distinguished part that he played as chief economist at the World Bank and I therefore listen very carefully to what he has to say. I can confirm that this longstanding, informal agreement whereby the managing director of the IMF was always a European and the World Bank was always to be headed by a US citizen is well past its sell-by date. As I said, we support open and transparent appointments based on merit and in that context, while it is right and appropriate that good candidates from wherever should come forward, the UK’s position is emphatically that appointments should be made regardless of nationality or, indeed, of gender.
My Lords, does the Minister agree that waiting for the appointment of the head of the World Bank is like waiting for white smoke to emerge from the building? We know that the Americans fund the World Bank more than anyone else, but, in spite of that, is it right that the President of the United States, behind closed doors, should have the right to appoint the head of the World Bank in today’s world? With the IMF, why should it be a European? Why can it not be, as the noble Lord, Lord Stern, said, someone such as our mutual friend, Montek Singh Ahluwalia, the deputy head of the Planning Commission in India?
My Lords, I will not repeat my previous answers but I draw attention to part of my first Answer. Processes for search, selection and appointment are being worked up by the IMF and the World Bank. I suggest that any candidates that noble Lords think are appropriate for the appointment should apply in due course.
(14 years, 8 months ago)
Lords ChamberMy Lords, I have always believed that a wise person learns from other people’s mistakes, a sensible person learns from his previous mistakes, and a fool makes the same mistake over again. The question before us is: is the Government’s spending review wise, sensible or foolish?
As regards past mistakes, it is widely held that it was Franklin D Roosevelt’s failure to provide prolonged stimulus during the great depression, combined with fiscal tightening, that prolonged the slump and was responsible for the double dip during that period. On the other hand, the Canadian and Swedish examples of making severe cuts in the 1990s that led to their economic recovery are cited as examples of why a country in our position should take similar measures by having our own “bloodbath budget”. Well, we have had our “Axe Wednesday”.
However, the world was very different in the 1990s. Canada was able to make those cuts, first, because the rest of the world was emerging into a prolonged boom time—a sharp contrast to today—and, secondly, because Canada is a country with enormous natural resources whose exports have accounted for 45 per cent of GDP. Sweden had, 50 years ago, the same level of public sector expenditure as a percentage of GDP as the United States—at 30 per cent of GDP—but, by the 1990s, the figure was well over 60 per cent. However, when those countries began wielding their axe to public expenditure, they were surrounded by a benign and increasingly booming global economy. Furthermore, both countries had the flexibility to use fiscal and monetary measures to compensate for huge public spending cuts.
Just look at the world situation over the past four years. In 2006, the sub-prime crisis started to unfold. In 2007, there was the credit crunch. In 2008-09, there was the great recession. By 2010, we had the sovereign debt crisis. In the same year, we now have the potential global currency crisis, increasing economic protectionism and beggar-thy-neighbour policies around the world. That is a classic domino effect, with one thing leading to another. What is next?
Here in Britain, there is no question that the previous Government squandered away an economy in excellent shape that was handed to them on a silver platter in 1997. They used that period of prolonged growth and low interest rates to take public expenditure to well over 50 per cent of GDP, from the 40 per cent level that it had historically been. I am delighted to see that the comprehensive spending review plans to bring public expenditure as a percentage of GDP back to 40 per cent by 2014. I would appreciate hearing the Minister confirm that that is the Government’s target.
Today, we have the non-dom levy and the 50p high rate of tax, both of which are driving people away and deterring the best talent from coming into this country. On top of that, the current Government have introduced a madcap immigration cap. In addition, the forthcoming VAT increase will hit every man, woman and child in this country. Those things combined with interest rates of 0.5 per cent—how low can we go?—mean that as a country we have boxed ourselves into a corner, with no room for manoeuvre. We have high levels of unemployment, especially youth unemployment; our housing market has come to a standstill; the spectre of inflation looms; our people have low levels of confidence and high levels of uncertainty; and our banks are not lending. We have to prevent not just the danger that we bump along the bottom for the next few years but the risk that we become another Japan—in the doldrums for two decades.
Our only hope is to play to our strengths and to address our weaknesses. Our weaknesses include nearly £200 billion of welfare and pensions expenditure. I am delighted to see the measures in the CSR to deal with this head on. As much as we all appreciate and love the NHS, there are still tens of billions of pounds of efficiency savings to be made.
With 500,000 public sector jobs predicted to be lost over the coming years, are the Government doing enough to encourage the private sector to provide those jobs? Are they doing enough to promote growth in the economy today? I welcome the £1.5 billion fund and the £200 million enterprise fund to help businesses in this country, but by comparison with the United States, which has created a $30 billion loan fund along with $12 billion in tax breaks specifically for small business, we seem to be falling very far short of the mark. The proposed measures are even more piffling when compared to the hundreds of billions of pounds spent on bailing out the banks, given that it is the small and medium-sized enterprises that will lead the charge to recovery in this country.
Our strengths include our higher education sector, but we are cutting that by 40 per cent over the next four years to try to save £3 billion. Our higher education is the cornerstone of our competitiveness and is one of our biggest export earners through the foreign students that we attract. Surely such a cut is foolishness.
We have had a hastily rushed-through defence review when our brave troops are making the ultimate sacrifice in Afghanistan—a war that is almost 10 years old—and despite the uncertainties that the world throws our way all the time. We did not predict the Falklands war, but it happened. We did not predict 9/11, but it happened. We do not know what is going to happen next, so to skimp on our defence at this time is foolishness.
Our creative industries, our design capabilities and our tourism are strengths, yet we are planning cuts in those. That is foolishness indeed.
I am president of the UK India Business Council, which is funded by UK Trade & Investment, which in turn is funded by the Foreign and Commonwealth Office and the Department for Business, Innovation and Skills. Surely to cut funding that helps UK firms to go global is folly. The Indian economy is booming even in these times. The Goldman Sachs BRICs report predicts that China and India will become the world’s two largest economies by 2050, yet Gerard Lyons, who is the chief economist of Standard Chartered Bank, told us yesterday that Britain exported more to Ireland in 2009 than it did to Brazil, India, Russia, China and South Africa combined—countries that have a population of 3 billion. Instead of encouraging the spirit of global enterprise, we make cuts. “Penny wise and pound foolish” seems to be the mantra of the comprehensive spending review.
The amounts involved in those cuts to our areas of strength are tiny compared to the big-ticket items in our areas of weakness, but the effect of destroying our abilities and competitiveness is potentially catastrophic. We are shooting ourselves in the foot. Our Nobel Prize-winning economist Christopher Pissarides has said:
“Unemployment is high and job vacancies few. By taking the action that the chancellor outlined in his statement, this situation might well become worse”.
No one denies that cuts need to be made, but the timing, severity, pace and priorities of the cuts and their indiscriminate nature are a cause for worry not just here but in the United States and all over the world.
We are still in the eye of the storm and the global uncertainties continue to whirl around us. Our only chance of getting through depends on our strengths. I implore the Government not to hamper this country’s great and special strengths. Help us unleash our strengths and play to them. Then, and only then, will we get through this nightmare and come out stronger than ever.