Infrastructure Bill [HL]

Debate between Lord Davies of Oldham and Lord Deighton

Monday 10th November 2014 Lords Chamber

[Lord Davies of Oldham]

My Lords, I am delighted that the noble Lord, Lord Deighton, has joined us for this debate. I had anticipated that perhaps he would have a slightly more comfortable ride than he did earlier this afternoon in trying to justify the Government’s position on the European issue. But the noble Lord, Lord Forsyth, has made this debate pretty challenging as well and I hope therefore that the noble Lord, Lord Deighton, will enjoy sailing between the shoals of difficulty in this proposal.

We all enjoyed the contribution that the noble Lord, Lord Hodgson, made in Committee. I very much enjoyed reading his piece in the Telegraph this morning—not a journal I go to for enlightenment very often—which was an excellent explanation of the sovereign wealth fund and its benefits. But someone had to point out its problems and the noble Lord, Lord Forsyth, has certainly done that.

I would like to add a dimension to this question. Of course, it looks attractive because it looks as if we are acting like benevolent grandparents—after all, we are the right age—trying to ensure that the future for our grandchildren is reasonably rosy. I am in favour of that. I am sure we all are. But the problem is, of which decade in the 20th century, or in the 19th century, would you have said, “The resources that that society commanded in that decade ought to have had an element of hypothecation not to be spent at that time but to be looked after for the succeeding generations”? The problem with that is if you were able to anticipate the periodic crises in the capitalist society in the 19th century and also get the 20th century right, then you could make appropriate judgments. Otherwise, what we are facing is a situation where, one decade after the next, the society gets considerably richer.

We have been used to 2.3% growth. Of course I recognise the crisis that we all face at present. In fact, I have from time to time upbraided the Government’s Front Bench for seeming to portray it as a British crisis, quite unable to recognise that the whole of Europe and the advanced world, particularly the United States, are under the same strains. But we are having a period of very significant constraint upon growth at present; in fact, of course, we have had a negative position for a number of years. That is why it is right, surely, that all the resources we have available are directed towards improving the balance of this society, as the noble Lord, Lord Forsyth, has indicated. But in previous generations, such as the one after the Second World War, when it was quite usual to have 2.3% growth a year, within a quarter of a century this country had doubled its wealth. That generation would have looked pretty silly to have hypothecated money for those 30 years down the line when the growth in society ensured that the later society was so much wealthier than it was. We have to rehabilitate—and I am glad I am not the first person to actually try to do this—the word “hypothecation”. After the noble Lord, Lord Hodgson, had spoken in Committee I went and had a little chat. I probably indicated in Committee that I took issue with my colleagues at the other end who have got some responsibility for the Opposition’s position on the economy.

Hypothecation is a real problem. Once any area is hypothecated, in effect the flexibility that attends a Government is inevitably reduced and we are all operating—at this time of all times—on the tightest of margins. I think it was said by the outgoing Government at the last election that there was no money left. The incoming Government after the next election are not exactly going to be rolling in vast resources which they can allocate as they wish, hence the reason everybody is reining in the ambitions of potential Governments for the next few years.

I hope that the noble Lord, Lord Deighton, will address himself to what I think is a complex debate. He starts off, of course, from a very strong base because he is the Minister responsible for infrastructure and, after all, will always need to look a decade or more ahead rather than the immediate five years in order to get infrastructure that is effective and accurate at a location. I am not sure the noble Lord, Lord Deighton, can spend too many warm words on the enthusiasm that the Chancellor has shown over the weekend towards this idea. It is an idea worthy of exploration because the noble Lord, Lord Hodgson, has got a concept that could well capture the public mood and would encourage people to say that in fact we need to look to the longer term future in our investment plans. However, I hope that is what Governments intend to do in any case.

Therefore I have no doubt that when the Minister responds he will have warm words to say towards the noble Lord, Lord Hodgson, for the work that he has done and the speech that he has made this evening. However, I hope that he will explain why it is so very difficult for a Government to accept what is—in fact—a majestic argument for hypothecation.

[The Commercial Secretary to the Treasury (Lord Deighton) (Con)]

My Lords, as the noble Lord, Lord Davies, has pointed out, superb cases have been made for each side of this argument by my noble friends Lord Hodgson and Lord Forsyth.

Shale gas represents a huge economic opportunity for the UK. It could create thousands of jobs, generate business investment and in future provide substantial revenue for the Exchequer. A sovereign wealth fund would create a legacy for the long term and ensure the benefits are shared with future generations, and we have heard a lot about intergenerational fairness and the issues around that. It is a complicated issue to get right.

As a Government we support the idea and want to explore—I think those were precisely the words used by the noble Lord, Lord Davies—creating a sovereign wealth fund with the money that comes from shale gas. It would be a way of making sure that this money is invested in the long-term economic health of the north of England, because of course that is where most of the reserves are located, and in other areas hosting development to create jobs and investment there. My right honourable friend the Chancellor found this an appealing concept because for him it is all part of building a northern powerhouse, which is at the heart of the Treasury’s current economic strategy. As my noble friend Lord Hodgson pointed out—

--- Later in debate ---

[Lord Davies of Oldham]

My Lords, this gives me the chance to congratulate the noble Lord, Lord Jenkin, on the assiduous way in which he has pursued this topic and the way in which he has clarified many of the issues. He did so to our great advantage in Committee and has been a great strength today, so the noble Lord, Lord Deighton, knows the nature of the opposition to which he needs to respond.

We regard the noble Lord, Lord Jenkin, as entirely right to raise the key question of the costs to consumers; he is certainly right to repeat the call of the Public Accounts Committee, which argued that departments should consider very carefully the costs to consumers of the policies that they pursue on infrastructure. He is also right, of course, to raise the fundamental issue of ensuring that costs are not unfairly passed on to consumers. If we had more time, we would dwell on the number of occasions where we consider that to have been the case. It is clear that in many sectors costs to consumers have risen very significantly: one in eight households says that their water bills are unaffordable, while around one-quarter of households and 64% of the poorest households spend more than 3% of their disposable income on water bills. Those bills are 40% higher in real terms than they were in 1989. Obviously the licence agreements set a maximum price, but whether Ofwat has quite the powers that it needs to alter those agreements is still unclear. Likewise, the rise in energy bills has been very well documented. The House will of course recognise the extent to which we have been concerned about electricity bills, to the point of indicating that under the next Labour Government there will be a period of time when bills are frozen.

There is an apparent lack of connection between wholesale prices and the retail prices that hit the consumer. It seems pretty obvious to us that the consumer is often getting a bad deal. None of us underestimates the extent to which infrastructure needs to be improved. I am sure that the noble Lord, Lord Deighton, will dwell on that point. However, we need to ensure that increased infrastructure investment does not fall on the consumer, mainly because currently we are very badly in need of better infrastructure delivery. It is absolutely clear that, given that output has fallen by over 19% since May 2010, less than a third of the projects in the Government’s infrastructure pipeline are classed as in construction. Therefore there is a great deal to be done. The Government are rather better at indicating promise and intent than at acting in reality. The imperative is clear. We need to ensure that our infrastructure output increases; likewise, we need to ensure that the costs are not unfairly passed on to consumers, as they have been in some areas in the recent past. I hope that, just as the noble Lord, Lord Jenkin, indicated, the presence of the noble Lord, Lord Deighton, will guarantee that we are pointing in the right direction towards achieving the right balance and a better one than has obtained in recent years.

[Lord Deighton]

My Lords, I shall begin by thanking my noble friend Lord Jenkin for raising this matter in the House. As we know, infrastructure investment is a key element of the Government’s economic plan. I agree with the noble Lord, Lord Davies, that it is key to improving our long-term productivity and that delivering it effectively is a part of the Government’s responsibility in working with the industries involved. Of course, we must ensure that it is delivered in a way that is affordable for consumers and taxpayers. That is a crucial and quite complicated issue. The way that we finance and deliver infrastructure in each sector differs. The road sector, which the noble Lord, Lord Berkeley, referred to, is of course financed exclusively through taxpayer funding, so the question of passing the price on does not exist, whereas the energy and water sectors, for example, are predominantly financed in the private sector.

I am pleased to have this opportunity to set out personally the Government’s position on this important issue. If we look at the future pipeline of infrastructure expenditure, it works out that about 60% of it is expected to be privately funded—water, energy and telecommunications are the sectors where that is the case. To ensure that such privately funded investment is affordable for consumers now and in the future has to be central to the Government’s approach, and independent economic regulation is at the heart of that. At the core of the argument I am going to make is that it is actually in our long-term interest to have the regulators primarily focused on this. That is where the expertise is. The fact that they operate independently of the short-term changes that may come from government policy is a very healthy thing in terms of both protecting the consumer and creating an environment that encourages investors to put their money into our infrastructure for the longer term.

In that respect, protecting the consumer is central to the work of our regulators—particularly in the case of Ofwat and Ofgem—and is enshrined in their statutory duties. They are able to take a long-term view free from political involvement, as I said. This is a tried and tested system. Indeed, the ability of regulators to undertake their work independently of government interference is a cornerstone of our regulatory system’s success. Our regulatory system, which has its challenges, is the envy of the world. We need to keep on improving it, but it is a strong competitive advantage for this country.

EU Budget Surcharge

Debate between Lord Davies of Oldham and Lord Deighton

Monday 10th November 2014 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I genuinely feel sorry for the noble Lord opposite. In 10 years or so of speaking from that Dispatch Box, I now and again had awkward cases to argue but I never had a completely bankrupt one, such as the case that the noble Lord is trying to put forward. If the Chancellor had got such a good deal, why did he not go to the other place and make a Statement today instead of being dragged there by my right honourable friend the shadow Chancellor in order to answer some questions that have arisen around this issue?

Is it not clear that the Chancellor failed to reduce the UK’s net contribution by a single penny? The analogy that has been used widely is “smoke and mirrors”. I cannot see much through smoke and at the age of 75 I do not much like what I see in the mirror. I certainly do not like the Government’s smoke and mirrors on such a significant issue as this sum. What it all revolved around is the fact which the Government seek continually to deny—that they had omitted to identify the rebate to which we were entitled, a rebate that the Commission has made abundantly clear was never in the slightest doubt. On all sides, it has been made absolutely clear that Britain was going to get the rebate, and the saving that the Chancellor has made was achieved by subtracting from the bill he was presented with the rebate to which we were entitled. What a story.

[Lord Deighton]

I should just like to point out that what we have seen in the past few days is complete clarification of a situation. The reality is that the net payment is £850 million. Noble Lords may understand the situation better than me but until that point everyone assumed that the payment was £1.7 billion. The rebate was not at all clear. What officials spent the past two weeks doing was clarifying that the rebate would be available in a size that has effectively halved our payments. There are also no smoke and mirrors about the fact that the payment has now been delayed—it is in two stages. We have brought the rebate forward so that it offsets the notional second half of the payment. What we have introduced in the past few days is complete and utter clarity on the arrangement in hand.

Money Laundering: UK Parliamentarians

Debate between Lord Davies of Oldham and Lord Deighton

Tuesday 14th October 2014 Lords Chamber

[Lord Deighton]

The thing to remember is that although the intention behind this approach is to catch potentially corrupt public officials around the world, defining someone as a PEP is not an end in itself—it is merely a trigger point at which an assessment should be made of the individual’s business and whether it is high risk. It is that assessment of whether it is high risk that is not working well enough at the moment.

[Lord Davies of Oldham (Lab)]

My Lords, is it not clear that the House is struggling with two concepts: on the one side, that the Minister might be right; and on the other, that something good might come out of Europe? On this occasion, both things obtain.

[Lord Deighton]

I am not sure that there is a particular answer to that. I think that I have been extremely clear about what we are trying to accomplish. I accept where the challenges are and I accept that we need to do a lot of work with the banks on the implementation of the rules to make sure that they are proportionate.

Thames Garden Bridge

Debate between Lord Davies of Oldham and Lord Deighton

Thursday 9th January 2014 Lords Chamber

[Lord Deighton]

The issue with a garden bridge is that it is more about gardening than it is about painting, which is the case with the Forth Bridge. The initial plan for maintenance is that it will be assumed by Transport for London along with its ongoing maintenance responsibilities around London. Of course, if, as part of the capital fundraising campaign, the Garden Bridge Trust can also persuade somebody to take on the ongoing maintenance responsibilities, that would be particularly welcome.

[Lord Davies of Oldham (Lab)]

My Lords, the House will have noticed that the Treasury is answering this Question because the bridge can scarcely be defined as a means of transport. It is a very expensive piece of public art, a vanity project of the mayor—and we know where his vanity projects have gone and what they have cost the country. The cycle hire scheme is in trouble, his Emirates gondola crossing down at Greenwich carries so few passengers that it is risible, and, of course, the taxpayer will have to pick up the bill. It is true that the Chancellor has committed only £30 million at present. The question is: with a deficit, still, of £60 million, is the Treasury still in the game?

[Lord Deighton]

I am not sure what the deficit of £60 million refers to. I will run through, very quickly, the benefits of the project and how its value for money will be assessed. First, there is the pedestrian connectivity that it will give. It will switch people out of cars and on to their feet and make a very important connection. Secondly, it will increase London visitor numbers, which is very important. It will be a great visitor attraction. Thirdly, it will have significant development value, connecting the South Bank and its creative centre to the Aldwych and Covent Garden. The development it will bring on each side will have significant value. Finally, it will be a great showcase for UK expertise. Our brilliant designer, Thomas Heatherwick, is designing it, Arup is engineering it and Dan Pearson is landscaping the garden, so it will generate other future business for London through that showcase.

Government Spending Review 2013

Debate between Lord Davies of Oldham and Lord Deighton

Wednesday 3rd July 2013 Grand Committee

[Lord Davies of Oldham]

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.

[Lord Deighton]

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.

Taxation: Avoidance

Debate between Lord Davies of Oldham and Lord Deighton

Wednesday 6th February 2013 Lords Chamber

[Lord Deighton]

My Lords, I cannot comment on the tax affairs of individual taxpayers but what I can do is speak generally. Schemes that abuse the gift aid rules with a view to enabling individuals to avoid tax do fall within the disclosure of tax avoidance schemes rules. That means that anyone who uses such a scheme must disclose it on their tax return. HMRC can then identify those individuals and challenge the reliefs claimed where appropriate.

[Lord Davies of Oldham]

My Lords, are not the charities that most significantly avoid tax on dubious grounds the public schools? Many of them were granted charitable status when they educated the poor or those of middling incomes. They now clearly educate, overwhelmingly, the children of the wealthy and the privileged, as evidenced by the Conservative Front Bench in the Commons.

[Lord Deighton]

As I said in my original Answer, the issue of whether an organisation qualifies as a charity is for the Charities Commission. The review of the noble Lord, Lord Hodgson, which reported in the middle of 2012, was given an initial response by the Government just before Christmas. The Public Administration Select Committee is also looking at this and will report, I think, in March. At that point the Government will give their further recommendations on the regulation of the charities sector. That will deal with the issue of which organisations qualify as charities, including public schools.