(10 years, 9 months ago)
Lords ChamberMy Lords, I have read the report and congratulate the committee on the excellent work it has done and the judicious way in which it has presented its arguments. The chairman of the committee who introduced the report today—the noble Lord, Lord MacGregor—continued that pattern in identifying the committee’s arguments. He indicated that the Government had not responded constructively to an issue which the committee clearly recognises is one that exercises the public and is of considerable immediate importance. The chairman’s judicious and careful presentation was somewhat submerged in the subsequent debate in which noble Lords forcefully expressed the view that the Government’s response was utterly inadequate. I think that the noble Lord, Lord Lawson, called the response lamentable. Other noble Lords have indicated that the response goes beyond complacency and is not worthy of a government response to a Select Committee report.
I will comment on several of the speeches made in the debate but it also falls to me to congratulate the noble Lord, Lord Leigh, on his maiden speech, in which he expressed himself with great precision. However, he also did something which is quite exceptional in this House in that he apologised for speaking briefly. He will not encounter brevity too often and he will never find it accompanied by an apology except on this occasion. However, we are grateful to the noble Lord for the points he made.
My noble friend Lord McFall wasted no time in identifying the context in which the report was presented. The committee feels very hard done by in terms of the Government’s response given the serious level of public discontent about corporation tax that has manifested itself over the past 18 months. The public outcry was sufficient for Starbucks to decide that it merited a gesture on its part in the form of making a contribution to the Revenue. My noble friend said that the public felt there was a breakdown of the national contract. That may not be putting it too high. After all, everyone knows that in this time of great austerity and difficulty, when wages have not increased over the past 10 years, people are paying their taxes, as they are obliged to do, and they find it scandalous that some large organisations can treat corporation tax almost as a voluntary levy to which they pay mere lip service. That is why the Government’s response ought to be much more positive.
We have encountered many difficulties with regard to these issues. My noble friend Lord Browne referred to the scale of the tax gap and asked whether that gap was increasing or decreasing. There are clear reports that in the last recorded year the gap was £34 billion, and that it has gone up £1 billion since then. However, as my noble friend indicated, it is very difficult to put the basis on which these figures are presented into clear perspective. That is why it has been constantly argued throughout the debate that the first thing we need is transparency on the part of companies and the second is accountability on the part of HMRC. We all know what the Government’s response was to the question of accountability. The committee stated:
“The threat of naming and shaming represents a reputational risk to companies; and may therefore have the effect of encouraging boards to make sure that the companies they run are not using inappropriately aggressive tax avoidance strategies”.
The Government’s response is that the Government are subject to taxpayer confidentiality rules that protect the tax affairs of all taxpayers. In other words, there is to be no advance in that area, or on the committee’s constructive recommendation that there should be parliamentary scrutiny not dissimilar to that which obtains with regard to the security services: that is, a parliamentary committee should be established to look at these issues on a confidential basis. However, the Government are, of course, utterly and totally dismissive of that proposal. This will not do. It certainly will not do against a background of a determination to make progress in this area at an international level, as my noble friend Lord Brennan indicated. Where is the UK to figure in this? The committee obviously hoped that we would be in the van of progress. The Government’s response makes them look as if they want to be as distant from such progress as they can possibly be.
The Minister has a significant task ahead of him in winding up the debate. I have not even reinforced the points which my noble friend Lord Hollick made about the successful use of eurobonds on the part of multinationals, and indeed on the part of some British companies which are not multinationals. Thames Water, which has approached the Government on the issue of a subsidy with regard to a big investment it wishes to make, is also reducing the tax it pays through the use of the eurobond device which my noble friend Lord Hollick identified. However, there seems to be no response whatever to that point.
Has corporation tax had its day, to use the colourful phrase of the noble Lord, Lord Lawson, who should know about these things? I do not know whether that is the case but it is certainly in need of considerable reform, as the committee identified. The Government’s response makes them look as though they regard those arguments as having being drafted on another planet and therefore are ones to which they have no need to make a coherent, consistent or constructive response. I hope that the Minister does rather better this evening.
(10 years, 10 months ago)
Lords ChamberMy Lords, one of the commission’s recommendations was that intergenerational equity could be improved if pensioners paid a higher share. That has not been the view that the Government have taken. Particularly given the very high levels of pensioner poverty, against which many noble Lords have campaigned over many years, we have taken the view that the real value of pensions should be protected during this period of fiscal consolidation. However, we accept that there may be more to be done. Indeed, for people who receive payments such as the winter fuel allowance, there are now a number of voluntary schemes under which they can make that payment available via charities so that it can be used for people on low incomes.
My Lords, why did the Minister not respond to his Liberal Democrat colleague who asked the initial Question with total honesty by saying that he is a junior member of the junior party in a coalition, of which the majority party has in its DNA the promotion and preservation of inequality?
My Lords, the biggest task in reducing inequality, as the commission points out, is to get more people into work, and this Government are doing that. For example, the number of NEETs has fallen consecutively over many quarters, the number of people in work increased by 155,000 in the last quarter and the proportion of the population in work is at a record level. We on this side of the House will take no lessons from him about getting people into work and earning good money.
(10 years, 10 months ago)
Lords ChamberI am sure that that is the case, but we want to try to ensure that contracts do not have those unsatisfactory features in the first place and that, if they are unsatisfactory, either they are banned, which the FCA will be able to do, or the rules will be set in such a way that they do not become widespread in the first place.
My Lords, the Opposition are of course pleased to endorse changes to the law that are being effected by the Government at present, although we still doubt whether they are going far enough. However, is there any evidence that changes in the law are effecting the necessary change in culture in the City and elsewhere to ensure that higher standards prevail and that the grievous abuses of the past will not continue?
My Lords, two things have to happen. First, we have to make sure that the regulatory and legal framework is fit for purpose so that people do not adopt unacceptable methods of behaviour in the first place, and if they do, they can be caught and dealt with properly. Secondly, there is a big issue around the culture in the City, which the Parliamentary Commission on Banking Standards discussed at great length and which your Lordships’ House has discussed. The two have to go hand in hand. The pressure that this House and Parliament can put on the banking sector regarding culture should not be underestimated. Debates here are taken seriously by the banks. We need to keep pressure on them whenever we have dealings with them. This must be underpinned by law and by better regulation, but we need both.
(11 years, 1 month ago)
Lords ChamberMy Lords, the House owes a debt of gratitude to my noble friend Lord Haskel for introducing a debate that has produced so many varied but constructive speeches about the circumstances in which we find ourselves. My noble friend emphasised the advantages to be derived from business and Government working together, and identified the way in which this co-operation was essential if we are to get out of our present difficulties.
Two speakers also put the present position into a more general perspective. My noble friend Lord Giddens stressed the fact that the crisis is very far from being over. No country has successfully re-established itself from the crisis which obtained in 2007 and 2008. In any case, Britain is well down the list. That helps to explain why there are so many difficulties right across our economy and puts into perspective the anxieties of noble Lords such as noble Lord, Lord Cope, and the noble Baroness, Lady Kramer, about SMEs. The reason why the banks have been reluctant to lend is because they have been at the centre of this devastating crisis. That has presented them with problems so great that the state had to step in for two of the major ones, and huge sums of money are at stake.
The noble Lord, Lord Skidelsky, also indicated that if the Government took no responsibility for restoring demand in our economy then it was likely that we would continue in the present difficulties, which are not to be underestimated. Real wages are lower under this Government and, when they go out of office in 2015, will have fallen by 2.4%. We all know about cuts in benefits, so that section of the community is paying the price. So wage-earners and those on benefits are suffering, and we all recognise that unemployment goes right across the economy and affects a very large number of people.
In its economic survey of the UK economy, the OECD made the nature of the problem quite clear: productivity underperforming in relation to the rest of the OECD countries. We had fallen, at the onset of the recession, by more than other countries in the OECD. The noble Lord, Lord Bates, indicated successes with regard to exports, but we have an increasing balance of payments deficit. Despite a 20% sterling depreciation, Britain is still nowhere near earning its way. That is the depth of the crisis into which we must put the context of what we need to do about policy, particularly in relation to industry.
It has been argued that we are making clear success in some areas, and indeed we are. The noble Lord, Lord Bhattacharyya, speaks with great authority about the relationship between science and research, and the fact that we have high-class universities that help our industry. However, the noble Lord emphasised that we need to identify the results of such investment. That surely must be critical because we can live in a fool’s paradise if we think we are doing the right things but have no measurement of the outcome of policy.
This is crucial in one area that emerged in this debate and was raised by many speakers on both sides of the House; I refer to the skills gap and the skills dimension. Successive Governments have addressed themselves to this and gone in with great intentions to invest. Certainly, the previous Labour Government invested greatly in colleges and the Learning and Skills Council, and addressed the skills deficit. We have not solved the problem; indeed, far from solving it, as many noble Lords have identified, we are well behind other European comparators. It is not easy for the British economy and society to adopt German perspectives on how to run industry and develop skills. The German apprenticeship system is very different from the situation that confronts British industry. However, we certainly need to address our minds to the level of skills, which is palpably too low to serve the needs of the nation.
The other question is what can be done to invest in infrastructure to promote jobs and demand, as the noble Lord, Lord Skidelsky, mentioned. One can only say that the Government are acting late on this. They have so far done nothing of any merit with their programme, and it will still be the case that capital investment will be lower in 2015 than it was in 2010. That is not a recipe for success or for the development of our economy. That applies to schools policy and particularly to housing. After all, there should be investment in the construction industry to give some stimulus to the economy but, of course, the Government have done little about it. It is therefore not surprising that the noble Lord, Lord Cope, and the noble Baroness, Lady Kramer, can identify the difficulties faced by small and medium-sized enterprises in obtaining resources.
On our side, although we have faint hopes on this, we think that the Government ought to do what my noble friend Lord Mitchell first referred to, as did my noble friend Lord Hoyle, and establish a business investment bank. We need a bank with a network of regional banks because if there is one clear casualty of this crisis it is the complete collapse of our regional infrastructure. We all know that the Government dispensed with the RDAs and then discovered that the noble Lord, Lord Heseltine, had some pretty sharp advice for them on the problems and how the RDAs actually produced investment in the regions. At present, precious little is being done.
My noble friend Lord Haskel and other noble Lords—generally those on my side, including my noble friend Lord Monks, who was emphatic—raised the issue of how we tackle short-termism in British business. “Quick results reflected in share value” is the nostrum of how our businesses work, and it is not therefore surprising that if one is faced with potential takeover bids, to which the only defence is to enhance share value, that becomes the issue rather than investment in research, skills and development of a longer-term perspective for industry.
My noble friend Lord Haskel referred to the noble Lord, Lord Sainsbury, whose absence from this debate we greatly regret. He is concerned to see how we can build a business model in which shareholders have greater strength to hold boards to account. If anyone wants an illustration of why boards need to be held to account, just consider the salaries of chief executives, board members and directors over the past 20 to 30 years. The enormous disparity between them and the people who actually do the work in industry and companies is a reflection of the power of the boards, which we do not challenge effectively.
We may have to go some way before we follow what my noble friend Lord Stone suggested in relation to Marks and Spencer or the illustration given by the noble Lord, Lord Hunt, in terms of John Lewis Partnership. It may be a considerable time before we are able to engender a framework within which businesses can be organised on those bases. However, at the very least, surely the other side, having preached for so long that the Government must lay off business and let it pursue its own objective, must recognise that the cost of the short-termism of British business—particularly the absurdity of the short-termism of British banks—is that it has contributed to the crisis that we are all facing, which we desperately need to remedy.
I conclude with some questions. I wish to come off the macro and step down a notch. My noble friends Lord Mitchell and Lord Hoyle mentioned the Department for Business, Innovation and Skills. It is a Treasury Minister who is responding to this debate but if we are to make a change to business structure, the Department for Business has to be reformed also. The department is being reduced in size; its staff are recruited increasingly from the south-east, where it concentrates its resources; and it has very little representation in the regions. It is small wonder, therefore, that we have real anxieties about the capacities of that department.
(11 years, 1 month ago)
Lords ChamberMy Lords, I shall leave that last contribution for the Minister to answer because it would be ill thought of me to intrude on coalition difficulties over an issue of that kind. I am sure the Minister will delight in replying to the noble Lord, Lord Bates, in a moment. I want to express, first, the gratitude of this side of the House to the Economic Affairs Committee and its chair the noble Lord, Lord MacGregor, for the work that they have done in this very important area. As the noble Lord indicated, there have been some advantages this year in being able to address these issues somewhat earlier than the actual arrival of legislation.
It has given them time also to concentrate in particular on the general anti-abuse rule. As the noble Baroness, Lady Wheatcroft, indicated, the proposals are sketchy enough at present that it is right that we return to evaluation of them fairly rapidly. I understand the Government’s resistance to the opposition amendment in the Commons on this matter for two years. However I take some succour from the point made by the noble Baroness, Lady Wheatcroft, that we will need to look at this carefully, not least because the problem with the GAAR is that it is a British concern but an international problem. It will work effectively only if we are able to broaden the similarities of other countries with regard to the operation of corporation tax and so on in their countries in order to make it effective.
The noble Lord, Lord MacGregor, indicated that although the committee had probed the Government, it had not got full clarity from them about how the GAAR would work. None of us is surprised by that—these are early days. However, none of us ought to underestimate either the enormous pressure from outside this House on the Government to do something about the scandals that were revealed of the avoidance of taxation—legitimate avoidance—by the multinational companies that have been identified, or the country’s obvious belief that fairness requires them to meet their dues in countries where they are making their profits and where they have vast numbers of customers.
We all recognise that this is a big challenge of the multinational age, which presents all Governments with very specific issues with regard to taxation. I am very grateful for the progress that the committee made on this matter but this is an enduring problem for us all and it will be recognised that the work done so far has merely proved a trailer for the major work that needs to be done. After all, Mr Aaronson, who commented on the general anti-avoidance rule, said that the scheme set out only to tackle egregious, unaggressive tax avoidance schemes. That indicates how narrowly focused it appears to him, as an expert. We need some breadth to it if it is to prove effective.
I welcome the contribution of the noble Lord, Lord Wakeham, although I did wince at the concept of two Finance Bills a year, as I am sure many Members of this House will and even more will at the other end. He made a very real and proper call for companies to be true and fair in their reports and in their responsiveness to the need for taxation. However, the problem there again is that we are not talking about the perspective of a decade or so ago but about a situation now where a great deal of British expenditure is on multinational companies in which these particular concepts may look a little too Anglo-Saxon, or even too British, to strike home with them. We clearly need a strategy that is embraced in our legislation but which fits with what other major powers, particularly of course the Americans, are able to do with regard to multinational challenges.
The Minister presented a short synthesis of the Finance Bill and I think we are all grateful for that—not many Ministers have been able to describe a Finance Bill in seven minutes. I am not going to criticise it for much more than seven minutes—indeed, I hope to criticise it in much less time—but criticise it I will. This Finance Bill does nothing to boost growth or improve living standards. Growth, as the Minister will recognise, is at an abysmal level and has been since this Government came to power. We are making the slowest recovery from a recession in the past 100 years and it will not do for the Minister to suggest that the Bill is apposite to our present circumstances. It is not.
The noble Baroness, Lady Kramer, commented on the fact that one element of the Bill gives some tax relief to the lowest paid in our society, but real wages have fallen by 2.4% in the past four years. That is a reflection of the fact that people are getting poorer at work—not the people who have to pay the bedroom tax and who the Government are able to challenge in those terms, nor those people who will be hit by the withdrawal of benefits, but people at work. They are poorer under this Government and it will not do for the Minister to ignore that fact; nor will it do—after all, he takes considerable responsibility for infrastructure—that the Government’s record on that at the present time is appalling. Of course, he was not directly in his post when the Government managed to produce only one school out of the 216 that the Secretary of State promised would begin under his programme of expansion.
The IMF made clear to the Government what could be done with investment. It said that £10 billion in social housing could produce circumstances in which 400,000 houses could be built and 600,000 jobs could be created. What have the Government done on that front? Nothing that any of us could notice. Meanwhile, this Finance Bill also causes affront to our people. This is not only over the question of how strongly it will address the issue of corporate taxation for the multinationals and those who do not pay their proper tax. How can one talk about fairness in our society when millionaires are singled out for the top-rate tax cut, and when hedge funds get a cut on their investment position as a result of the Bill?
The Government are giving away with one hand to the very well-off in our society, while the rest of the nation quakes under the strains of the Government’s failure to emerge from recession. That is why the Finance Bill, which we can merely comment on and not amend, has such weaknesses that the Minister surely ought to spend the next few minutes producing a rather more articulate defence of it than he did in his opening remarks.
(11 years, 1 month ago)
Grand CommitteeMy Lords, I am delighted to have the Floor. I cannot think of anything more exciting than to discuss this SI with the Minister. It looks as though only the two of us will participate in this absolutely fascinating debate.
Of course, we agree with the broad terms of the SI. After all, the origins of the directive were derived several years ago from a position that we largely endorsed in government. The Minister will appreciate that we very much agree that supervision and control should be robust and effective, and we expect the Financial Conduct Authority to fulfil that function. The SI indicates the need of this important part of our investment and service economy to have the opportunity to seek custom right across the European Community.
The Minister may nod his head enthusiastically, because I know his views on the European position, but I notice a dearth of Conservative support in the Committee on this issue. On issues such as this, in the absence of some of those noble Lords who, like their colleagues on the Conservative Benches in the Commons, always smell a rat in anything to do with the European Community, one always worries whether any such indication exists as far as this SI is concerned. Certainly, our side supports it.
The Minister identified the issue of costs, which, it is clear from the documentation, are not negligible. However, I ask the Minister to come clean on something that I do not think occurred in the other place. When this SI was being considered and the consultation had taken place with the industry, how is it that the Government, with extraordinarily adroit timing, also included in the Finance Bill £150 million of tax cuts to the industry? In this a case once again of the Government, with their well-known friends in the City and conscious that some costs are involved—I am not underestimating the costs—thinking that some softening of the impact must be made by other aspects of government policy?
All I can say is that I do not agree with that. I am not at all convinced about the necessity for that. After all, as the Minister was at pains to point out, and as was also made clear in the other place, there are considerable benefits from what the noble Lord referred to quite clearly as a passport for effective operation in Europe. That is not a negligible thing. Ordinary citizens pay for a passport when they have the right to go abroad, so I am not clear why the costs appear to have been partially defrayed by the Government acting in another legislative capacity to moderate costs for the industry with the tax concessions that they have made. After all, it is not as if the industry has not for some time been quite adroit at lobbying on this issue—with considerable effect, I might add.
I apologise if I am a little slow in understanding the position but perhaps the Minister can spell it out. I understand entirely the €500 million threshold on activity and the €100 million base, but I take it that those who fall below that threshold yet are in this category of activity are subject to some regulation from the Financial Conduct Authority. I was not quite sure whether the Minister had spelt that point out. I apologise to him in advance if he did and I merely missed it.
We endorse this SI and hope that it will bring to the industry the opportunities of using the passport for effective operation in Europe. I have one last question. The Minister referred to the date by which we were obliged to comply. What are the prospects of the other 27 states complying with that timetable? He says, “Well, we haven’t gold-plated this particular SI”. No, but fair is fair and a level playing field must exist across Europe. We therefore want some assurance that other actors on the European scene will meet the same obligations with the same degree of scrutiny and control as is to be applied in the United Kingdom.
My Lords, I am most grateful to the noble Lord for his intervention. Since he referred to the timing of this debate, I must apologise that we have chosen to have it on a particularly exciting afternoon in the first test. Australia were 19 for two when I last heard.
That is almost the best news that the Minister has ever presented to me in any Committee, or in the House.
I do not want to dampen the mood but the noble Lord will know the score at which England were all out, so I am pleased to have been able to assist him marginally.
Regarding the noble Lord’s questions, he raised the point about whether the decision in the Budget to abolish Schedule 19 stamp duty reserve tax was a sop to the industry that was being hit by this directive, to which the answer is no. It is not, if for no other reason than that the firms covered by this directive were not bearing the stamp duty. This directive covers hedge funds and private equity, which were not paying the stamp duty reserve tax in the first place, so that is not the case. The reason for abolishing that relatively modest bit of stamp duty was that we were undertaking a package of reforms designed to enhance the competitiveness of the funds industry, and to help secure our status as the global asset management centre. The scope within the EU to expand that kind of activity of fund management is considerable, in our view, and we do not want to constrain it by unnecessary burdens of any sort.
The noble Lord asked about the state of play in terms of the implementation of the directive elsewhere. We are aware that Austria, Bulgaria, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Romania, Slovakia and Sweden have stated that they will implement the directive by the deadline. The majority of those member states now have relevant legislation being considered by their parliaments. I am afraid that I cannot give the noble Lord any information on the state of implementation in Belgium, Estonia, Greece, Hungary, Lithuania, Poland, Portugal, Slovenia or Spain. However, as far as we are aware, there is no reason to believe that any of those jurisdictions will miss the deadline.
The noble Lord asked whether sub-threshold managers are authorised by the FCA. Yes, they are. All sub-threshold managers will be subject to at least the same regulatory standards and oversight by the FCA as they are now, so they are not unregulated. I hope that I have answered the questions posed by noble Lords and, on that basis, commend the regulations to the Committee.
(11 years, 1 month ago)
Lords ChamberMy Lords, the Government are looking at a number of ways of increasing investment in all those areas of infrastructure. We set out in the spending review our plans for doing that in 2015-16 and subsequently. Plans or programmes already in place, such as the finance for lending scheme, are already having a significant impact on new housing construction.
My Lords, would not a word of caution be apposite at this time? Is not the American experience—where it has been difficult for the Federal Reserve to press on the monetary brake without destabilising the markets, as we have seen—a lesson that we need to learn for the British economy, particularly if there is any pick-up at all and the possibility of rising inflation?
My Lords, the American experience demonstrates how tricky it is for central banks to give forward-looking guidance without it having an effect on the market. However, as the MPC said at its meeting just last week, it viewed the implied rise in the expected future bank rate as not warranted by recent developments in the domestic economy. It is trying to be cautious and reduce any potential volatility.
(11 years, 1 month ago)
Grand CommitteeMy Lords, this has been a fascinating and somewhat lopsided debate. It is my task to at least try to achieve some balance in the arguments before the country at present. I have only just got my breath back from the Minister’s very first statement, in which he said that this economy has been well managed by the Chancellor from the beginning. So why is the Chancellor back with a second comprehensive spending review Statement? Why is he back with a second round of cuts? I accept that, as the noble Baroness, Lady Noakes, indicated, the economy may not be in a double-dip recession, but why is he here in circumstances where it is absolutely clear that there has been no growth in this economy for the past three years?
There is nothing in the Chancellor’s proposals, which the Minister has been defending with his usual elan today, that suggests growth for the future. The noble Lord of course has particular expertise on infrastructure. We all appreciate that and welcome his appointment to give the Government a boost in that respect. However, let us recognise that there has been no expenditure on infrastructure since 2010. In fact, all those issues which were planned at that time, which I think the Minister referred to as the 2010 pipeline, have been effectively blocked. There is virtually no progress on any of the 2010 schemes. Now, of course, infrastructure spending is being suggested—in the distant future. The things being boasted about are HS2 and north-south Crossrail. Both projects are 10 to 15 years away from significant expenditure; perhaps it is a little earlier with HS2, but certainly not prior to the next general election. If it is being suggested that there will be a boost to the economy through infrastructure spending over the next couple of years, everyone needs to be disabused of this idea. That is not going to happen.
I accept a number of points that were made in the debate. I appreciated the point of the noble Baroness, Lady Kramer, about the decline of manufacturing industry. On whose watch was that? Which Chancellor said that we were going to rely on the service-industry economy? That was the noble Lord, Lord Lawson, in the 1980s. Who turned their backs on the manufacturing industry in the 1980s, when we saw a massive collapse in manufacturing jobs? It was the party of Margaret Thatcher. I will give way to the noble Baroness, of course.
Can the noble Lord remind the Committee what happened to manufacturing industry on Labour’s watch?
The very tragedy, in my view, of Labour’s watch was that it actually continued too many of the positions adopted by the Conservative Party in the 1980s. As regards manufacturing—the noble Lord, Lord Haskins, also made an important point on that—we should have put much greater emphasis upon the development of skills in our society. We have not equipped any of the next generation for the kind of economy that we seek to sustain.
I understand what the noble Lord, Lord Risby, indicated in terms of the enormous value of foreign investment. Of course we would all welcome that but does he think that foreign investors are enthusiastic about the great uncertainty over Britain’s relationship with Europe? That is the product of discord in the governing coalition. How welcome is that for potential investors? The noble Baroness, Lady Noakes, indicated the areas in which she welcomed what was happening but even she will recognise that the IMF has said that some £10 billion ought to be invested in infrastructure in “shovel-ready” industries, particularly construction. It ought to be put into housebuilding because that is the fastest way in which you could inculcate some element of demand into the economy. However, are the Government pursuing that strategy? If the noble Lord, Lord Deighton, were able to identify schemes that could fulfil that aim, I would be surprised. I give way to the noble Lord.
I am most grateful but a little confused by what the noble Lord is saying. We have just had a record increase, the highest ever, in foreign direct investment in this country, way ahead of anywhere else and the highest in Europe. The point that I was making is that that trend is increasing, so I am afraid that his argument is not sustained by the reality.
My Lords, I was making a point that the noble Lord ought surely to take into account. Far from there being an environment in which foreign investors will necessarily find a place to invest in the future, as long as we are extremely uncertain about our relationship with the biggest market that we service, Europe, it is bound to cause anxieties among investors.
I also noted what the noble Lord, Lord Higgins, said—he is also my noble friend when we are on the golf course. He was very concerned to address some real points to the Minister with regard to the future of interest rates and the assumption made about future public expenditure. The Minister must address that point in his reply.
I appreciated the point that the noble Lord, Lord Shipley, made about local authority finance and being able to identify local resources. One product of the debate on Scottish independence and the referendum will be to identify those issues as far as Scotland is concerned. That is bound to give a stimulus to the broad argument that the noble Lord is putting forward about the resources available to the various localities of the United Kingdom and the needs that may be identified. I would have thought that that is bound to take a significant step forward as a result of the debate on next year’s Scottish referendum.
The noble Lord, Lord Flight, entertained us all with the Hayek versus Keynes debate. Although the noble Lord said that growth before the Second World War was considerable, he may have noticed that full employment in this country did not return until we went into wartime defence production. It is quite clear that under the Hayek principles you can certainly run an economy with a considerable level of unemployment. However, that word has not been manifest in this debate at all because the fact that we have significant levels of unemployment is a limited consideration for all those on the Conservative Benches concerned with how to manage the economy. We have people coming out of our colleges and universities who are highly qualified by any standards and who, in the past, would have expected to find a choice of jobs. They are facing a situation where the market is such that there are no jobs available. That is why I was grateful that the noble Lord, Lord Flight, identified the thinking behind the Conservative position and, to a more limited extent, the Liberal Democrat position with regard to what the Government are doing at present.
It took the right reverend Prelate to introduce morality into this debate. Why is it that the only person who is prepared to talk about those people who suffer the real costs of what is being carried out in the name of austerity is the right reverend Prelate? He identified the shock we all felt in the Chamber yesterday when it was suggested by a Conservative Minister that food banks are supply-driven and nothing to do with people’s needs. People’s needs have occasioned the development of food banks, which are necessary, but our great shame. Nor is there any understanding on the Conservative side about what it is to lose one’s job at present. It is quite okay to say, “We will cut public expenditure by making sure that there is a week in which one cannot claim jobseeker’s allowance”, but what do noble Lords think the morale of a family will be when someone loses his job against a background where the chances of getting a fresh job are very limited indeed? Why is it that, within that framework, it is thought that a really effective cut is to make sure that an application for support cannot be made until a week has elapsed?
Can the noble Lord, Lord Davies, confirm that, during the years of the Labour Government, job centres were prohibited from referring any client to a food bank?
I am not well enough equipped to answer that question, nor am I quite sure of the point of the question.
I shall try to be helpful. Like many people, I take the view that we live in a country where food banks should not be necessary, but unfortunately they have been necessary for a long time because the same issues of delays over benefits and various kinds of crises have affected those at the bottom. As I understand it, during the Labour years, job centres were not permitted to refer clients to food banks. As noble Lords know, you can go to a food bank only with a reference from an appropriate person: a job centre, a doctor or a limited number of other people. You cannot just turn up and make a claim. Today, job centres offer vouchers where they think there is need, but that need is not very different from the need that existed before. Food banks were just not announced.
Food banks are developing in almost every constituency in Britain because the so-called supply-driven factor has been occasioned by the demand of real necessity at present. It is a vastly different situation from that which obtained a decade or even five years ago.
I would ask the Minister to take on board the very important points that have been made by his noble friends today in supporting the coalition. Will he also, at some point in his remarks, address the question of morality? Why is it, for example, that his supporters are concerned to promote a bedroom tax that ensures that there is a desperate issue for impoverished people as to whether they will be forced to move but that when a mansion tax is proposed by the Liberal Party, there are all sorts of anxieties that people who are reasonably well off might be obliged to move and about what an affront to fairness that would represent? The mansion tax would be aimed at properties of very considerable value and at people who know they well might come under attack rather than the very large numbers of people who, under the bedroom tax, are being forced to move from their homes, the schools which their children attend and even the localities in which they have lived for very many years. I hope the Minister will address some of those points.
My Lords, first, I thank all noble Lords for their insights, ideas and challenge. It has been a most fascinating exchange and I congratulate the noble Lord, Lord Davies, on holding up the Opposition’s end there. I will address his question about morality straightaway. To me, this is a very simple issue: unless we are able to create a state that can actually afford to sustain itself, those who are most vulnerable will be the most exposed victims of the fall-out from that kind of financial crash. We have to get our ability to afford a welfare state in the right state so that we can sustain it. That is the way that we protect the vulnerable in the long run.
The Chancellor was back with another spending round because we had not defined the spending plans for 2015-16. We took the opportunity to lay out the investment programme through to 2021 because, as I explained in my earlier remarks, we think that it is the right way to provide an environment in which people can plan investment correctly. On the general question of whether anything is really being done about growth for the future, the point is precisely to begin to deliver a programme from which future Governments will benefit. They can quibble over who was responsible for the earlier decisions. These kinds of investments have very long lead times and our planning is trying to break the link between the political and economic cycles. There was some misunderstanding there, in that I do not think anybody was trying to claim more; we were just trying to claim that there is a long-term plan. Public sector gross investment in this decade, 2010 through to 2020, is slightly higher on average than in the previous decade, if you smooth out the peaks and the troughs and take the average.
In terms of delivery today, the noble Lord, Lord Davies, is correct that projects from 2021 and onwards, or in five years’ time, have an impact later. However, the projects we are undertaking now are having an impact. Crossrail is being delivered now—the money in the spending round is for the feasibility study for Crossrail 2. Crossrail will be open in 2018-19 and we are spending something like £15 billion on it. It is the biggest urban infrastructure project in Europe and is going on now, right under our feet. That a very good example of delivery. Similarly, we have upgraded 150 stations, completed more than 30 road projects, opened more than 80 new free schools, delivered more than 84,000 affordable homes and done an enormous amount in rolling out 4G mobile services. There is a significant amount of delivery going on now and we are trying to plan for future delivery. We are trying to accelerate it and make it better value all the way through. I accept the point of my noble friend Lady Noakes that it is not necessarily a good thing just because it is an infrastructure project. We have to evaluate them all, which is what we did in the plan through to 2020. We re-evaluated them all on a zero-budget basis and approved the ones that we thought were most powerful.
My noble friends Lady Kramer and Lord Northbrook both asked about the welfare cap. It will apply to welfare, of course, but does not apply to state pensions. As my noble friend Lady Kramer implied, it will work off the OBR forecast. If the spending is forecast to breach the cap, the Government will have to explain what action has been taken. We will put a buffer in place to ensure that any policy actions are not triggered by small changes. That is how that one works. For the information of the noble Lord, Lord Northbrook, the areas being capped are all in social security: housing benefit, disability benefits, pensioner benefits and tax credits.
The noble Baroness, Lady Kramer, also asked whether we would be focusing on the quick wins in infrastructure and leaving the longer-term strategic projects because they have a longer lead time. It is the portfolio that works; I addressed this earlier. Lots of delivery is going on at the moment and we are trying to put a consistent long-term plan in place. We will, of course, look at local funding of infrastructure projects, of which TIF is one example. Another example is the single local growth fund. The European funds we are allocated will be put into the single pot and be part of that as we devolve responsibility.
I was delighted that the discussion got around to our international competitiveness—I thank the noble Lord, Lord Risby, for giving us the detailed example of what is going on with Algeria. I have spent a lot of my own time dealing with inward investment. This country has a tremendous advantage. Overseas investors really want to invest here. They trust us. They believe in our rule of law. There are many things they like about the opportunities we create here. We are working very hard to exploit this to the country’s fullest advantage. On export promotion we are continuing to fund UKTI. It is in the process of transforming our approach to trade and its support to a very focused business approach.
We had a very powerful discussion about our fiscal position and whether we are moving quickly enough to address what I accept are still very high levels of borrowing. It is absolutely critical that people understand that the deficit each year is extra borrowing—it is adding to the stock of borrowing. I do not think that that is generally perceived or understood more widely. The implications of understanding that properly should focus attention on addressing the deficit as fast as possible.
In defence of the pace at which the Government are addressing the deficit, we are still focused on reaching a balance by 2017-18. We are on that path. There is a plan in place. I am very open to challenges about the paradigm shift, as my noble friend Lady Noakes suggested, that we could be more radical in some of the ways we deliver public services and in some of the ways we have structured the Civil Service. That is a challenge we should set for the next tranche of cost improvement. Without that it becomes very difficult to continue—again, in my noble friend’s words—to “salami-slice”.
My noble friend Lord Shipley asked about whole-place budgets. Community budget pilots have demonstrated that it is possible to do much more by joining up local authorities; I do not think there is any question about that. That is why we talked about the £3.8 billion social care budget that we have set aside. We have also set up a £200 million pot to accelerate joint working among local authorities. Whether we can release the borrowing cap on HRAs is another matter. If we were to do that it would add another £7 billion to public sector borrowing every year. Most of the schemes which creatively try to allow more borrowing at the local level are captured and increase public sector borrowing. That is always the constraint that we are trying to manage.
My noble friend Lord Northbrook asked for a response on public pension cuts. My noble friend Lord Newby and I will certainly get back to him on that.
The noble Lord, Lord Empey, asked why UK pension funds are not investing in UK infrastructure. He is correct to say that that industry is highly fragmented compared to its counterparts overseas. That is why we have worked with the industry to consolidate funds into a pension infrastructure platform of £1 billion. Ten funds have come together so that they can gain economies of scale, develop the expertise to assess those credits and provide us with the scale to begin to get them into that business in the same way that, for example, the Canadians have so effectively prosecuted over the past few years.
I could not agree more with the noble Lord, Lord Haskins, that we need to rationalise the number of funding streams going into skills training. That is why we have set up the single local growth fund so that we can begin to provide that kind of rationalisation.
The noble Lord, Lord Empey, asked about VAT and how it is applied to building. I will get back to him in writing on that.
I thank noble Lords for a very stimulating debate.
(11 years, 1 month ago)
Lords ChamberMy Lords, the key thing now is to drive unemployment down by continuing growth. That is the way in which consumption will rise. A key element of that is making sure that interest rates stay at a low level, which is the centrepiece of what the Government have been seeking to achieve. I absolutely agree with the noble Lord, Lord Peston, that one should not count chickens, but I think that he is almost wilfully failing to count those very small chickens that may be poking their beaks out into the sunshine.
My Lords, at the summit, did the Prime Minister take the opportunity to discuss with the President of the United States the strategy that it has pursued over recent years? The United States has had a 6% growth rate over that period. That is the growth rate that the Chancellor predicted for us in 2010 and, of course, we have achieved negligible growth over that period. Is it not quite clear that the Government have to change the strategy that they have been following and failing on over the past three years?
My Lords, the Prime Minister has had very constructive conversations with the President of the United States around the key pillars that will provide the basis for growth: an active monetary policy, addressing global imbalances, restoring medium-term fiscal sustainability, and structural reforms.
(11 years, 2 months ago)
Lords ChamberMy Lords, as the Minister indicated, we are considering a spending review that the Chancellor of the Exchequer said represents reform, growth and fairness, but there is little in the Statement to back up any of those assertions. In fact, the real reason we are here today is because of this Government’s economic failure. They have been forced back, begging for more: more cuts to the police, more cuts in the defence budget and more cuts to local services. This Government have failed on living standards, growth and the deficit, and families and businesses are paying the price. We have been told—in fact, it has even been boasted by the Government—that there was no intention for it to turn out like this. The Chancellor told the other place in his first Budget in the halcyon days of 2010 that the economy would grow by 6%, but in fact the economy has grown by 1%.
The Government pledged to get the banks lending, but at this stage lending is still down, month by month. There has been no reform of the banking industry, and competition and lending to individuals and small and medium-sized enterprises has gone backwards. The Government made keeping the AAA credit rating the No. 1 test of their economic credibility. However, on its watch Britain has been downgraded not once but twice. The Government promised that living standards would rise, but they have fallen year on year. They said that they would balance the books, but the end to austerity is being pushed further and further into the future, way beyond the next general election, which of course was their original target date. This is all because of failure. What a legacy to leave. What a straitened inheritance for the next Labour Government to sort out—and we will sort it out, in a fairer way.
Plan A has failed. The need for this Statement today could not demonstrate that more clearly. However, where is the change of course? Where is the plan for growth and jobs that we—and, of course, the International Monetary Fund—called for? It does not have to be this way. Instead of planning cuts in 2015, two years ahead, surely the Government should be taking bold action now to boost growth this year and the next—investment that would get our economy going and bring in the tax revenue to get the deficit down. More revenue would mean that our police, Armed Forces and public services would not face cuts. Housebuilding is at the lowest level since the 1920s, so where do the Government plan to build 400,000 affordable homes this year and the next? There is no point in the Government boasting about infrastructure investment in five or seven years’ time when we need action now.
What a boast that is. The Green Book reveals that capital expenditure by departments will actually be cut. So much for the Prime Minister’s assurances at this morning’s Question Time that a great deal of progress is being made in this area. Year on year, real departmental capital budgets have been cut. Where do we see these figures? The book shows, in black and white, a 1.7% cut. If I am not believed, PricewaterhouseCoopers surely will be, because it said the same thing. There is a pattern here. Investment has fallen in real terms under this Government. It fell an astonishing 50% in the first three months of this year. Projects such as Labour’s successful Building Schools for the Future programme have been cancelled, and developments promised by the Government have never materialised. Just seven projects have been completed and 80% of projects have not even been started.
We need action now, not more empty promises for the years ahead. The Chancellor in his Statement insisted that we must plan for the long term, look to the future and secure a recovery for future generations. However, there is no substance to these statements. Where is the proper British investment bank that business clearly needs and wants? Where is the 2030 decarbonisation target to give energy companies the certainty they need to make their long-term investment for the future? Where is the backstop power to break up the banks, which the parliamentary commission called for? What happened to the plan of the noble Lord, Lord Heseltine, and its much-heralded £49 billion single-pot growth fund for the regions? A measly £2 billion is all that has been announced today.
Instead of action to boost growth and long-term investment, all we have today is more of the same failing plan and more of the same on social security and welfare spending. We have had plenty of tough talk and divisive rhetoric, but on the Chancellor’s watch the benefits bill is still rising. Social security spending is £21 billion higher than he planned. This is because the Government have failed to get growth going and to get people back into work—work that pays decent wages and does not discriminate, work that holds a compulsory job guarantee, paid for by a tax on bank bonuses. We hear the call for a cap on social security spending. Will the Minister enlighten the House with a few more details on this and how it will be administered? Why not get our housing benefit bill down by tackling high rents and the shortage of affordable homes? Why not stop the winter fuel allowance for the richest 5% of pensioners, while keeping the triple lock for basic state pensions? Why not make work pay with a 10% tax rate paid for by a mansion tax, instead of huge tax cuts for millionaires?
This Government are making the wrong choices on growth and social security spending—decisions that are unfair and do not reflect the sort of society we want to live in. The Government are also making the wrong choices on departmental spending. When thousands of front-line police officers are being cut, why are they spending more on police commissioners than on the old police authorities? Why have the Government wasted £3 billion on a reckless reorganisation of the NHS, when there is a crisis in our social care system that needs to be addressed, and which they are now somehow going to spatchcock by transferring resources? Why are they funding new free schools in areas with enough school places, while parents in other areas cannot get their children into a local school? Will this spending review mean fewer police officers in 2015-16, on top of the 15,000 we have lost in this Parliament? Will it mean fewer nurses on top of the 4,000 we have lost from the NHS? Will it mean fewer Sure Start children’s centres on top of the 500 that have already closed?
It is clear that the Government will continue to impose deeper cuts on local authorities in areas with the greatest need. It is the areas with the greatest need that continue to suffer the deepest cuts. People up and down the country need to know about this Government’s real intentions. The Government have comprehensively failed on living standards, on growth and on the deficit. That is why the Chancellor was before the House of Commons earlier today. We see prices rising faster than wages, families worse off, long-term unemployment up, welfare spending soaring, the economy flatlining and the slowest recovery for a century. The result of this failure is not balancing the books as promised, but in 2015 a deficit of £96 billion. That is why there is a need for more borrowing to pay for the coalition’s economic failure. That is why the Government have been forced to make this Statement and impose these cuts on our public services.
Two years ago, when the intake of breath was so severe at the cuts at that time, the Chancellor said that,
“we have already asked the British people for what is needed, and … we do not need to ask for more”.—[Official Report, Commons, 23/3/11; col. 951.]
—another broken promise.