Finance Bill

Lord Davies of Stamford Excerpts

Tuesday 13th September 2016 Lords Chamber

[Lord Davies of Stamford (Lab)]

My Lords, I thoroughly agree with the extremely sensible advice which my noble friend has just given to the Government and his very perceptive view of the state of the City’s status and reputation—sadly, because it is after all our leading industry in this country—among the public at large.

I want to make four points. First, I agree with the Minister that it is too early to assess the economic results of the Brexit referendum outcome. There has been some evidence that, as one would expect, the international trading sector has been stimulated by devaluation, particularly parts of the sector which do not require lead time, such as tourism. I have bought quite a lot of wine, knowing that the next time I see a sterling price list, the prices will be 18% to 20% higher. I imagine anybody who is thinking of buying a BMW or Mercedes has brought that forward, for the same reason. I have no idea at all whether anticipatory purchases of that kind are statistically significant in aggregate, but I expect the Minister knows the answer. However, it is far too early, of course, to have any perception at all of the impact on what is really significant, which, as we have always known, is investment. You can never calculate exactly what is happening when you are talking about opportunity costs, but in my view it will not be for five or 10 years that we will be able to look back and see what impact this will have had on our rate of growth over the relevant period compared with the preceding period. It is then that we will begin to realise some of the damage that has been done.

Secondly, of course, the great economic fact since the Brexit referendum has been that devaluation. Nothing surprises me any longer about the British capacity for self-delusion in these matters and for Panglossian optimism. I do not know whether just to be amused or to be amused and deeply concerned when I hear people say or I read in the Eurosceptic press, “Oh, it’s wonderful, the markets have recovered now from Brexit; the FTSE 250 is back to where it was before the referendum vote”. However, it is not, of course: it is back to where it was in sterling terms, but it is 18% to 20% below where it was in terms of real purchasing power. Being old enough, I have often had occasion in the last few months to remember the words of Harold Wilson about the “pound in your pocket” not being devalued. The same spirit has prevailed over the last few months. I am sorry to have to say that the same final recognition of reality will hit the British people at some point.

My third point is that the Government’s response to all this has been rather confused and regrettable, because for all its evils, devaluation could be a basis for attacking what I think is—after productivity, to which it is related—our major national weakness. That is our balance of payments deficit; it has for some time been at very alarming levels of 5% to 6%, which makes us particularly vulnerable to international investor sentiment and should be a great worry to the Government. Devaluation might, in theory, provide the basis for a greater volume of exports and for greater domestic market share for import substitution industries and services in this country. But we are operating quite close to capacity—the unemployment figures which the Minister quoted show that to be the case—and we are clearly not going to have a revolution overnight in productivity. It is a mathematical impossibility for that to happen unless there is some reduction in domestic consumption or investment—and one hopes it will be consumption.

However, the Government are going in completely the opposite direction by stimulating the economy. The Bank of England is relaxing monetary policy and the Government are relaxing fiscal policy at the same time. The Government have abandoned their programme to restore fiscal balance and go into fiscal surplus before the end of the decade. The statement of policy seems extremely perverse for two reasons: first, it will prevent us achieving the full effect of devaluation on that current account payments deficit, and, secondly, the monetary expansion in particular will mean that the raising of import prices following devaluation will be accommodated, and therefore we will have inflation. When inflation picks up, the Bank of England will have to intervene again—probably in the second half of next year—and put up interest rates to prevent inflation going up beyond the 2% level and higher, which would be contrary to the guidelines by which the Bank is working. We then find ourselves with the prospect of rather volatile monetary policy over the coming period, and that is not a good thing. Above all, it is not good for confidence.

That brings me to my final point. The Minister said that the important thing was investment and I totally agree with him. I do not think he knows what I am saying because he is paying attention to something completely different, so I shall not be able to refer to this in subsequent debates. I am saying to the Minister that I actually agree with him in the emphasis that he is putting on investment, but investment depends upon confidence. Confidence is undermined by volatility of policy and will be particularly undermined by the tremendous instability that the Government are presiding over at the moment in relation to our post-Brexit prospects. It looks as though it will take not just months but perhaps years of negotiation before we know what our relationship will be with the rest of the EU and the European single market. In my view, that is an unforgivable state in which a Government should never leave a nation for whose fortunes they are temporarily responsible. It would be so easy to completely remove that instability and source of uncertainty. I hardly need to remind the Minister that uncertainty is risk, and risk is a cost—it increases the cost of capital, which increases the threshold rate for investment, so it is an automatic response to uncertainty that there will be less investment.

After that enormous uncertainty has been created, the Government are doing nothing at all about reducing it. The Government could do something now—literally this afternoon—to make an enormous contribution to reducing that uncertainty and risk and boosting investment, by saying that whatever happens as a result of these negotiations with the rest of the EU we will remain in the single market. It would be perfectly possible and responsible to say that, because one avenue that will always be open to us is the European Economic Area option that, for example, Norway and Iceland have. Maybe the Government will be able to negotiate something better than that—better in their view, anyway. Personally I am not sure about that at all.

If I were one of our continental partners, I would not want to get involved at all in the negotiating of a bespoke special deal with the UK, for a whole host of reasons. One is that as soon as you start talking about bespoke deals, other members of the existing EU may want a bit of a bespoke arrangement. Secondly, other people with whom the single market already has a structural relationship—EEA members, Switzerland or whoever—may want to renegotiate that to make their own position more equal or more fair in light of what has been agreed with the British. Thirdly, and very importantly for them as for us, the whole thing would go on for years and years. It would be one of those negotiations where nothing was agreed until everything was agreed. That would take the sort of time it normally takes to negotiate an accession agreement to the EU or an international trade or financial agreement—typically, between five and seven years. That would be a complete nightmare for all concerned.

Personally, I doubt whether the continentals would want to get involved in that sort of bespoke negotiation anyway. But even if they did, it would be perfectly possible to go into that sort of negotiation having said at the outset that whatever happens, we will end up still in the single market. That would be the best possible day’s work that the Minister could do for this country, for British industry, for investment in this country and for the future of our prospects for growth, employment and prosperity. I see him smiling. I hope he agrees with me and that he will do it.

Economy: Productivity

Lord Davies of Stamford Excerpts

Monday 5th September 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, the noble Lord has raised an important and interesting question. It is something that I spend quite a lot of time trying to explore. It is a feature throughout the western world that levels of cash held by corporations, including in economies that might be perceived as being more successful than ours, are very high, but despite low interest rates and favourable tax rates, the reported amount of investment being undertaken by corporations in many parts of the developed world remains disappointing. We need to understand this further and when we know why, we must try to do more about it.

[Lord Davies of Stamford (Lab)]

My Lords, is it not the case that devaluation is the enemy of productivity because, for a time at least, it keeps in being inefficient firms whose factors of production would be better deployed elsewhere? Is it not also the case that one of the great drivers of productivity is competition, and therefore if we are serious about improving productivity in this country it would be crazy to leave the single market, whether or not we have to leave the European Union?

[Lord O'Neill of Gatley]

My Lords, most of the independent measures of competitiveness would actually rank the UK among the highest in the world. On the first part of the noble Lord’s question, there has not been any official devaluation of our currency. It was a consequence of what happened, and in the context of what I said earlier, it is interesting to note that in recent days the pound has recovered somewhat.

Surplus Target: Corporation Tax

Lord Davies of Stamford Excerpts

Monday 4th July 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, in response to my noble friend’s question, let me repeat that the fiscal charter, including all its rules, allowed specifically that if an external shock—in this case one that we essentially brought upon ourselves—would result in a four-quarter basis GDP forecast of less than 1% the framework could be adjusted. That is the environment in which the Chancellor made his comments in the other place, and that is what I am repeating here. With respect to the comments on corporation tax that are receiving so much attention, the Treasury will—as it always does—indicate what any cost or benefits revenue-wise or otherwise might be as and when a specific policy proposal is brought to Parliament.

[Lord Davies of Stamford (Lab)]

May I correct the noble Lord? Brexit was not an external shock. It was an internal shock. It was a policy shock. Does the noble Lord think it is serious that we have lost our AAA credit rating? What is his estimate of the increase in borrowing costs we will face as a result of that?

[Lord O'Neill of Gatley]

My Lords, I notice to my right some noble Lords with strong views on and experience of these kinds of events. Let me just reflect on my own judgments, including some from my past life. Let me also quickly state that in the last week our long-term borrowing costs have gone down. It is the job in terms of policy to focus on doing what is right in the circumstances. I do not believe that we should react to or be excessively focused on what a rating agency may say one way or another. It is important that we do the right thing.

The Economy

Lord Davies of Stamford Excerpts

Thursday 28th April 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, as I said, I will make some further specific comments in answer to this question after I have heard the collective input of the whole of the House.

[Lord Davies of Stamford (Lab)]

My Lords, is it not the case that the Treasury document referred to by the noble Lord, Lord Forsyth, makes it absolutely clear that the growth in our income as a result of our remaining part of the EU will be much greater than would occur if we left the EU under any circumstances and that the amount of additional gross domestic product that would be generated as a result would be more than sufficient to cope with any additional costs involved in social security, health or educational provision?

[Lord O'Neill of Gatley]

My Lords, for now I shall try to answer that question in the context of the remaining part of what I had planned to say—otherwise I will be eating into everyone else’s valuable time.

As somebody who has spent considerable time exploring the rise of the so-called emerging world and the changing patterns of world trade, I believe that I can articulate the case for the UK to benefit from a rise in the role of China, India and others while continuing to benefit from being a member of the EU. Indeed, as was clearly shown in this document, despite the challenges that being a member includes, the growth in our trade has been quite considerable since we became a member.

It is important to recognise that the presumed changes in trade patterns that I have been at the centre of articulating may never happen anyhow: that is a possibility. Even if they do, though, it remains the case for the foreseeable future that the EU is set to remain our dominant trade partner, currently accounting for around 44% of our exports. As I said, there is no doubt that our membership has made it easier to trade with not only the EU but the wider world. Trade as a share of national income has risen to over 60% in the last decade, compared with under 30% before we joined the EU. Membership has also made the UK an attractive place for foreign investors, with the equivalent of £148 million invested here every day for the last decade. Almost three-quarters of foreign investors cited our access to EU markets as an important factor in their choice of the UK.

In conclusion, there have been indications recently that our economy is continuing to grow—but, as I have highlighted, there are clear risks to that being sustained. We must continue to work hard to address the systematic issues that are a barrier to strong growth, in particular those of weak productivity and our current account deficits, where the issues are genuine and not, as perhaps some aspects are, statistical quirks and issues of economic interpretation.

The financial markets will of course continue to watch closely what happens in the debate over the UK’s membership of the EU. This has clearly had an effect already in the recent past. Some measures of so-called sterling volatility have increased dramatically since January, and in the week following the February European Council the pound fell quite sharply. The Monetary Policy Committee commented a couple of weeks ago that,

“much of the fall in sterling reflects uncertainty surrounding the forthcoming referendum on the United Kingdom’s membership of the European Union”.

In the past week the pound has made a notable recovery as the markets have readjusted their probabilities concerning the EU vote outcome. No doubt this volatility will remain and possibly intensify.

The longer-term ramifications of us leaving could be far more wide-reaching than just volatility for the pound. In my judgment, a vote to leave would constitute a considerable risk to both our economic security and our global influence that we would be bringing on ourselves with no certainties about the alternatives. In that regard, it is not a risk worth taking. There are no silver bullets for our challenges. That is why the Government must continue to follow a long-term plan to take action over not just the next few months but the next few years and decades.

--- Later in debate ---

[Lord Davies of Stamford]

My Lords, like so many other people on both sides of the House today, I have been thinking intermittently throughout this debate of Maurice Peston. Maurice was not only a most original mind but a lovely human being, who was always warm, generous and kind to people in his personal life. He was devoted to those principles of social justice and internationalism that lie at the root of the Labour Party. He is a great loss to us all and we will all be thinking of his family and his children today, and wishing them well.

The Minister was quite right to identify in his remarks and put his finger on the two major hazards facing the British economy at present. The major clouds on the horizon are the current account deficit and productivity, and I agree with him about both. I agree with him about the current account deficit for the reason that he and the Governor of the Bank of England have already expressed: the level of more than 5% of GDP and the quite horrific number of claims on the British economy that are being accumulated every day by foreign investors through different means, including portfolio investment, direct investment, purchases of real estate and lending to the British Government by buying gilts. The effect of all that is that in investors’ portfolios the British weighting is increasing the whole time. Investors review their portfolios —their balances and limits—from time to time, particularly under the impact of a shock.

We face the dangerous prospect of a major shock on 23 June and that should rightly worry us all. That shock might well mean that those investors think that, on the terms currently available, they should not add to their portfolios in that way. That would mean that the terms available had to change. It would mean that the asset prices in all those asset markets had to be revised downwards, including sterling, of course. It would mean that yields and interest rates had to rise. It would mean that neither consumption nor investment was able to grow and might have to fall in this country, which would be a very bad day for the British economy. The Minister did not spend very long on potential remedies or actions he might take to deal with this hazard, which he clearly agrees should be taken seriously. I thought the suggestion that we might just wait for the rest of the world to increase its rate of growth was a somewhat complacent reaction.

I also agree with the Minister about productivity. He has had a kind of damascene revelation on productivity since he took over his responsibilities. I remember, as I expect he will, his first day out in this Chamber, I think at Questions, when he made the most appalling howler, suggesting that our productivity was higher than that of Germany. Unfortunately, because of how Question Time works, I was not able to get in—I tried—to correct the error at the time. Perhaps he was relieved that I was unable to do so. He certainly did not make that mistake today. As he knows, our productivity rate is something like 27% or 28% below that of France and Germany and, I think, 30% or 31% below that of the United States. That is deeply worrying.

Again, there was a lack of urgency in the Minister’s response to this. I am particularly concerned that he might be persuading himself that our low level of productivity is a reflection of high employment in this country. I am not familiar with the academic work that he cited but Germany and the United States also have high levels of employment and low levels of unemployment, so it is difficult to accept that hypothesis. Certainly, anything that leads to complacency from the Government on that point is very undesirable. The Minister does not have to listen to anything I say in this debate, but he would do well to take careful note of what the noble Lord, Lord Mair, said and adopt some of those suggestions. The noble Lord, Lord Mair, was very close to the heart of some of the long-term problems we face in this country and need to address with great seriousness.

Productivity is of course the basis for almost anything we want to do; it is the only way to increase exports or reduce imports without cutting consumption or investment. It is the only way to increase real wages, except in the short term at the expense of profits, which is not a very clever thing to do because that is at the expense of future investment and growth. So productivity is the key, but what you do about it? I think we all agree on what needs to be done about it: you need to invest, as the Minister said, in human capital, which is very important. You also need to invest, classically, in physical capital—in hardware and software. To invest, you need investor confidence. This is fundamental but simply lacking here at present, unfortunately. If you want investor confidence, you must have buoyant markets, open markets and investors who have confidence in the macroeconomic and microeconomic circumstances in which they exist.

The one thing you do not want to do if you want to increase investment is to reduce access to markets or in any way to damage investor confidence. The Brexit campaign does precisely those things—it is really quite extraordinary. It is difficult to think of a more negative programme for the British economy than the one being put forward by the advocates of Brexit.

Let us look at the foreign trade position. One can conveniently divide the world into three. Some 45% of our exports go to the EU, slightly less than a quarter go the United States and roughly 30%, for the purpose of this argument, go to the rest of the world. The majority of the roughly 30% is now covered by individual or collective foreign trade agreements signed between the European Union and those countries or groups of countries. There are about 35 such agreements, affecting about 55 countries, including with Canada and Japan, which I do not think have been ratified but have been negotiated. The Brexit proposal would involve our leaving the European Union and, that very day—that very night—we would leave those foreign trade agreements. We would no longer be able to benefit from them. Under WTO rules, we would not be allowed to go on benefiting informally from them for an interim period. The counterparties would have to extend to us their standard duties and other provisions—tariff barriers, non-tariff barriers and so forth. To negotiate agreements with those countries would take years—at least five and probably seven or eight, typically, for a foreign trade agreement. There is also no certainty that those countries will necessarily want to come to such arrangements with us and they certainly would not feel the urgency that we might. We would be the demandeur—the party demanding and requiring a deal and therefore having to make concessions. That would hardly be a clever day’s work in the national economic interest.

Then there is the United States. The United States and the EU are well advanced in negotiating TTIP, though far from having completed it, of course. We now know from the words of the President of the United States himself that there is no question of interrupting that process, which will proceed and we will not be part of it, so we will have a tremendous handicap in the US market compared to our erstwhile single-market partners. That would continue—we know, again, from the horse’s mouth, the President of the United States—for years. We would then have to start a negotiation that would take many, many years—what an appalling prospect.

It would be difficult to think of a greater blow to investor confidence than that, but there is one—our access to the 45% area, the European Union. No one on the Brexit side has a clear, coherent or remotely convincing proposal for what the relationship might consist of. We have heard of Switzerland and Norway and that Mr Johnson wants a Canada-type agreement. He said that before he realised that the Canada/EU trade agreement includes hardly any services. If I recall, it includes maritime and mining services, but they are a fairly small part of GDP. Certainly there are no financial or digital services, media and so on, the things that are important. That was an extraordinary howler on his part. Mr Gove wants us to have an Albanian-type arrangement.

No one is clear. They have not given five moments of thought to the serious economic issues involved. It is all rhetoric to them—a matter of metaphor and saying to the British people, “Oh, there are sunlit uplands. It is all wonderful. Believe me, we are going into a brave new world”. It is a snake-oil salesman’s approach to dealing with naive people. It is extremely frightening, but there it is. I do not exaggerate a bit because here are these major issues against which there are zero serious proposals as to how the damage to this country might be mitigated.

The Minister said that there are no certainties in this matter. I disagree. There are one or two real certainties, one of which is that there is no benefit to the country potentially in any of these alternative arrangements. No one can or has claimed that the route of trying to negotiate, laboriously and over many years, new foreign and trade agreements separately with all the countries which currently have foreign and trade agreements with the EU would lead to a better outcome for us than we currently have within the context of those FTAs. No one has or could plausibly argue that. It is quite certain that the results could not be better. Almost certainly they would be a great deal worse, but they could not be better. No one has suggested or could plausibly suggest that we could do a better deal with the United States than TTIP. It could be much worse. It will not happen for a long time but it could be much worse. Certainly it cannot be better—no one is suggesting that it could be—and the United States has said that it would not give better terms to us than to the European Union as a whole. There is no question of being able to negotiate better terms than we currently have with the single market and the European Union that remains. No one has suggested or claimed that.

We are in a position in the equation where we know that the sign on the critical factor is negative. There is no positive compensating sign. It is not a matter of uncertainty but of clarity. Certainly we do not know how bad the results will be but we know they can be only bad in relation to the status quo. What kind of responsible politician would make that kind of suggestion to the British people?

Not one job would be created—nor has it been alleged would be created—by the mere fact of our leaving the European Union. We can argue all night about whether hundreds of thousands or millions of jobs might be lost—and over the long term, given the opportunity costs and the forgone investment, the consequences could be very grave—but no one from the Brexit camp has even suggested that a single job would be created. That is an extraordinary state of affairs which I hope the British public will wake up to, otherwise we might well do something which will be one of the greatest manmade, deliberate, self-imposed disasters in economic history.

Greece

Lord Davies of Stamford Excerpts

Monday 6th July 2015 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, as far as I understand the considerable things written on this topic, it is somewhat unclear. It will be a very interesting test case in the event of such an outcome from these important discussions in the next couple of days, and I can imagine a number of legal types will have some fun pursuing these discussions in the event of such an outcome.

[Lord Davies of Stamford (Lab)]

My Lords, I do not think I can readily recall another instance in history in which a Government have succeeded in such a short time in running their economy into the ground, going in six months from an economy which was expanding again and with falling unemployment, to the brink of catastrophe, where Greece stands at present. The Greek Government have now been supported in their policies by the Greek electorate in yesterday’s referendum, apparently on the basis that the more self-destructive their behaviour, the more likely they are to get a large amount of money out of the rest of the world—either out of the rest of the eurozone, or out of the rest of the European Union or the IMF, both of which we are of course members. Does the noble Lord agree that it would be extremely regrettable if such a precedent were created? It would be a major moral hazard if one could get away with such blackmailing policies, and it is very important that this country in particular, as a member of the IMF and the European Union, has nothing to do with any such proposal.

[Lord O'Neill of Gatley]

My Lords, I am afraid that I will answer in a similar spirit to my answer to my noble friend Lord Lawson’s question a couple of minutes ago. I have spent many years talking about these kind of things, but we are at such a delicate stage of discussions following the outcome of the weekend’s referendum, which, I think I am right in saying, was considerably larger than was anticipated by virtually anybody. Now, through this evening and tomorrow, very delicate discussions will take place, and it would not be advantageous for anybody if I offered my opinion on anything that the noble Lord asked about such important, critical details.

Medical Innovation Bill [HL]

Lord Davies of Stamford Excerpts

Friday 12th December 2014 Lords Chamber

[Baroness Jolly]

Perhaps I can help my noble friend. The Bill is about the doctor making a decision about treatments for patients that are innovative and untested. If a doctor has a conversation with a patient about something that is complementary or alternative, that is a slightly different situation, and not the sort of situation that the Bill addresses.

[Lord Davies of Stamford (Lab)]

Before the noble Baroness sits down, the word “responsible” has played a key part in the debates on the Bill, and she has used that term herself about a dozen times this morning. Do the Government consider that Clause 1(3) adequately defines that word; or, otherwise, that the word “responsible” in a medical context is adequately defined in the existing jurisprudence—which it may be; I am not a lawyer and am not familiar with that jurisprudence? Or do the Government think that the Bill might gain from a specific definition of “responsible” at some point in the Bill?

[Baroness Jolly]

My Lords, to put a definition of an abstract term such as “responsible” in the Bill would be quite a considerable challenge. I think that the Government have covered the issue through the first clause.

Assisted Dying Bill [HL]

Lord Davies of Stamford Excerpts

Friday 7th November 2014 Lords Chamber

[Lord Davies of Stamford (Lab)]

I am grateful to the noble Lord for giving way. How long does he think that the whole of this process would take? What is the minimum amount of time that realistically would be involved if an independent report were required in writing? Does he not recognise that we are going to be dealing here largely with people who are suffering extreme pain or other discomfort and who would really wish to reduce the time to an absolute minimum when they have to continue to suffer that kind of condition?

[Lord Carlile of Berriew]

I do not know whether the noble Lord was here during the last debate—I apologise if he was—but I thought that that question was answered clearly. These things can be done very quickly indeed. Some of the answers could possibly be given in less time than it took the noble Lord to ask the question that he just asked.

Also in Amendment 67, a simple system is provided which involves the intervention of another independent person about how the act of assisted suicide would take place. That seems to be a straightforward safeguard.

--- Later in debate ---

[Baroness Grey-Thompson (CB)]

My Lords, I will briefly pick up on a few points that my noble friend Lady Finlay of Llandaff raised, and on the point made by the noble Lord, Lord Deben, on stereotyping. Quite rightly, we are spending a lot of time thinking about the process of the Bill. It is absolutely important that we get this right. However, we also have to think about what someone’s end of life may be.

I have never met anyone who wants to talk about their own death or think about the process of dying. The purpose of the noble and learned Lord’s Bill is for people to die without pain. However, we also have to remember that death, in some cases, is not a stereotype. It is not always a Hollywood death, whereby people just slip away. We have to be very careful of that.

A German documentary was shown in August 2004 about the scandal of Auhagen’s death, in which the man in question wanted to use a machine to end his life, not wanting any assistance from another person. He was hooked up to the machine, and 24 hours later, he had not died. The nurse who was with him said:

“The machine … couldn’t pump all the poison into his system. The man was partially poisoned, in agony and thrashing around in a coma, frothing at the mouth and sweating”.

That cannot be allowed.

In Oregon, some of the data have shown that in the last few days of life patients who have requested assisted suicide go through more pain than they did before the legislation was introduced because the palliative care is not there. If the Bill progresses, we cannot allow it to happen that, if someone wants to end their life, goes down the path of requesting suicide and then goes through the cooling-off period, the proper and appropriate palliative care is not there to support them all the way through.

[Lord Davies of Stamford]

My Lords, I will make three points, which are important at this stage of the debate.

First, I very much deprecate the frivolity with which the noble Lord, Lord Carlile, answered my question about the time involved in producing an independent expert’s report. It is quite wrong to be frivolous about such a very important subject. Clearly, there has been a tendency to put forward a number of amendments in this group, all of which would increase both the time and the cost required to enable someone to benefit from the new regime brought in under the Bill. It is quite wrong of us in this Committee to underestimate the fact that if we passed these amendments we would add a considerable degree of cost and time. There would be the need to go to a coroner, the need for an independent medical expert, and for another independent expert who would be supposed to collect the drugs and oversee the process, and so forth. All that would mean more people, that arrangements would have to be made—in practice they cannot be made in a second or two—and that reports would have to be produced. We all know that people take some time to produce written reports, and on a matter of this kind one would take particular care to get every word in the report right. Therefore, I was not wrong to raise the issue of time and cost.

On costs, we heard with great relief some of the remarks made by the noble Lord, Lord Faulks, about the possibility of using legal aid, but we know that, however generous the Government will be, not all the costs involved in this process will be defrayed from public funds. Therefore we do not want to produce a certain situation but, as a matter of fact, we already have a situation whereby if you have enough money you can go to Zurich and solve the problem that way. There is a significant gulf at present between those who have greater financial means and those who do not as regards the choice they have as they reach the end of their lives and how they want to go. We do not want to exacerbate that, and by increasing the cost we are doing so. We simply have to take that into account and it should not be frivolously dismissed, as it was this morning.

Secondly, I want to pick up the point made by the noble Baroness, Lady Grey-Thompson, a moment ago. I see no reason why palliative care should not be continued until the moment when the patient decides to exercise his or her option to terminate his or her life under the procedures laid out in the Bill, if it becomes law. I see no reason why there should be any need to withdraw palliative care some days or weeks beforehand. That seems to me a problem that should not arise at all.

Finally, I want to address the point made by the noble and gallant Lord, Lord Stirrup, whose main objection to the Bill seemed to be that the medical profession should not be involved in decisions about the deaths of patients. That is a very serious point; I made a point along those lines at Second Reading. At present, what most of us face if we have a slow death is palliative care, which generally ends up with palliative sedation. That means that the patient is put into a medically induced coma and all means of life support, including food and liquids—not invariably so but certainly in many cases liquids as well, so that the patient is dehydrated—are withdrawn, along with any life support in the form of oxygen and antibiotics. If the patient has had kidney failure and been on dialysis, that is withdrawn, so the patient dies from blood poisoning. The patient dies in a coma, which takes a great deal more than the 25 minutes that is the average in Oregon, when people use that regime for the right to die. It takes many days, in many cases; I have known at least one case when dehydration took two weeks to kill the patient, who of course did not awaken from the coma during the whole of that period. That is the reality: every day of the week and every hour of the day, doctors and nurses take decisions determining the timing and cause of their patients’ death. They are taking the decision to withdraw antibiotics and life support, putting the patient into a palliative coma.

It is the alternative to that regime that my noble and learned friend Lord Falconer is proposing this afternoon, so that people have a choice. The whole object of the Bill is to give the patient a vote. At present, in many cases, the patient does not even know about the decision being taken by doctors and nurses, which will determine the precise means and timing of their demise. Under the Bill, undoubtedly the patient would be in the front line and the driving seat, taking the key decision, and the doctors and nurses would respond to a decision made explicitly by the patient. That seems to me an enormous improvement. I hope that even those of us who do not want this particular regime and would not want to use it ourselves will not want to deny others the opportunity to have a choice between death in a palliative coma and death as it could be chosen under this Bill.

[Lord Cavendish of Furness (Con)]

My Lords, there seems to be developing some suggestion that people opposed to the Bill are introducing amendments simply to add time and cost and to make it unworkable. Would the noble Lord, Lord Davies, understand that those of us who were in principle opposed to the Bill from the very outset realise that it is intended to be compassionate—as we all feel compassionate—but just find it impossible to reconcile compassion and the objectives of the Bill with the necessary safeguards? That is at the heart of the whole matter.

[Lord Davies of Stamford]

I am grateful to the noble Lord for giving way, but I must intervene on him. I said nothing designed to impugn the good faith and sincerity of anyone in this House, let alone people who have gone to the trouble of producing these amendments. What I said was that, whether it is intended or not, many of these amendments would have consequences in terms of time and cost, and it would be wrong of us to underestimate those consequences—and certainly very wrong frivolously to dismiss that whole issue, as happened this morning.

[Baroness Finlay of Llandaff]

Would the noble Lord accept the premise that we are trying to provide the evidence based on what we know happens elsewhere? My noble friend Lady Grey-Thompson outlined a reality—that we know reports come from those countries that have changed the law about patients whose symptoms are not being addressed in the days between the time that it has been agreed and when they have their lethal overdose. That is a reality that we abhor.

I would like to correct the perception about palliative sedation to which the noble Lord referred, as it is important that people out there do not have the misconception that patients are either not consulted about treatment decisions or that they are put into some kind of coma by those who are looking after them.

The evidence from Holland was presented at the international conference on clinical ethics in Paris in April this year. In Holland, about 2.7% of all deaths are from euthanasia or physician-assisted suicide. Their regime of palliative sedation is used in between 12% and 16% of cases. That is completely different from what we do here. In this country we may use sedation, titrating the drugs up temporarily to get on top of symptoms but then lowering the dose again and adjusting it to meet the patient’s needs. That is quite different from deliberately using a dose of drugs to induce coma and using uncontrolled escalations of opioids and benzodiazepine cocktails to produce absolute loss of awareness as a therapeutic goal. There is concern among those of us who are operating in palliative care in this country about that way of managing patients at the end of life. That is not standard practice here.

If the noble Lord would like to look at the recommendations on the use of sedative drugs at the end of life, I would be happy to take him through them. They are on various therapeutic websites. However, I hope he will accept that what may be said casually by people and propaganda is not necessarily what should happen, and that nobody condones the withdrawal of fluids and dehydrating people until they die. That was exactly why the noble Baroness, Lady Neuberger, undertook an inquiry into the Liverpool care pathway. It was misused because that was not what the relevant document said should happen. That was abuse, not treatment.

Euro Area Crisis Update (EUC Report)

Lord Davies of Stamford Excerpts

Wednesday 23rd July 2014 Lords Chamber

[Lord Davies of Stamford (Lab)]

My Lords, it was a pleasure once again to combine with colleagues in producing this report. It is fair to say that all possible perspectives on the issues were represented round the table in our committee and our debates were extremely stimulating and very instructive.

I want to use my time to address three illusions—or delusions, I should perhaps call them—that are extremely widespread, making it very difficult for people to appreciate the problems dealt with in this report. They are serious delusions and very erroneous, and I hope that in the very short time that I have to speak, I can go some way towards destroying them. The first delusion is the idea that the euro crisis is what it sounds like; that is to say that it is a crisis resulting from the existence of the euro and is the fault of the euro project. It is nothing of the kind. The so-called euro crisis is a debt crisis. There is no way in which the existence of the euro, or the existence of any particular currency, would necessarily have produced the outcomes in terms of excessive debt which we have been coping with in the last few years in the euro zone and indeed, elsewhere in the western world.

The reasons for the unbelievably irresponsible and often incompetent excessive lending practices go beyond the subject of this debate, but we are familiar with the general picture. Suffice it to say that we had banks in the European Union—in Ireland and Spain particularly— which lent on real estate projects with less than 10% equity. They were allowing more than 50% of their total assets to be exposed to the real estate sector.

Of course, as a result of the weakness of banks’ balance sheets, the government funds standing behind them produced a move from a banking crisis to a state funding crisis in countries such as Ireland and Spain. The position was made much worse in Greece by the falsification of the national accounts but elsewhere it was almost entirely a result of lender irresponsibility, or even worse than irresponsibility.

I have no doubt that incentives have an important effect on human behaviour, and some of the incentives in terms of short-term bonuses and so on were undoubtedly extremely perverse. They led to people lending to bad risks, taking a bonus on the basis of capitalising the profits to be generated from the loan and then walking off and getting a job somewhere else. We have had to deal with those matters decisively and thank heaven we have.

This was a debt crisis not a euro crisis. Irrespective of the currency these countries had, they would have faced the same magnitude of problems given the levels of debt that had been incurred, the bad debts that had been incurred and the central mispricing of risk that was going on. There was a quite disgraceful mispricing of risk. Again, serious professional incompetence was directed at the management of the enormous resources of the banking system in the European Union. It was a very serious matter indeed.

Some people say that one reason why it was the fault of the euro was because lenders thought that somehow a hidden or covert guarantee was being given by Germany or the other more solid economies to any other economy in the EU that got into trouble. Of course, such people were not only incompetent but they presumably could not read because the treaty precluded such a bail out or guarantee.

I am not suggesting that we had in place all the necessary measures to cope with the crisis and the shock which ensued from this bad lending—we did not. In three areas there was a deficiency of measures and institutions available to cope with this kind of scenario, one of which was that there was insufficient co-ordination of fiscal policy. We had under the euro until recently—until the stability and growth pact in fact—one monetary policy but 17 or 18 fiscal policies. That is not a good situation, but it has now been remedied. There was insufficient co-ordination and no centralisation of banking supervision which, in some areas, was plainly inadequate. The single supervisory mechanism, with the ECB taking charge, is taking place this year and will come into force next year. It is an encouraging measure.

There were, and still are, inadequate mechanisms of automatic stabilisation in the European Union. There is some measure of automatic stabilisation in the working of the cohesion and structural funds, but there should be much more. I am drawn to the idea—I have defended it in many contexts, including in this House—that we should have in the eurozone a single, integrated unemployment insurance system, which would certainly have a major automatic stabilisation effect in a crisis or an asymmetric shock affecting different members of the Union or different parts of the Union in different ways.

There are lessons to be drawn from the crisis. However, under no circumstances can it be called a euro crisis to the detriment of the reputation of the euro because that would not be consistent with the facts. It was a debt crisis.

I move now to the second great delusion, which is even more commonly held. In many places it is an assumption that people take for granted and, therefore, it is never challenged and never thought about. I hope that my mentioning it today might begin to remedy that. It is the assumption that we were quite right to stay out of the euro, that we are much better off out of it, and that it would have been a crazy, inconceivable thought that we would want to join the euro because the euro is in such a crisis. First, that is a misreading of the crisis, as I have already explained. Secondly, it is mathematically incorrect as a description of where the country would be if we had joined the euro. I remind the House of the figures, which I have noted down to make sure that I get them right. In the 15 years from 2000 to 2014—from the beginning of the euro project, if you like—sterling parity has fallen against the euro from 65p to 82p. That is a fall of 27%. So, all other things being equal, we would have been 27% richer—we would have had 27% higher net assets and net revenues—if we were in the system than if we were out of it.

One could say that we would not have had the same growth rate over the same period if we had been in the euro system. I have no idea whether that is the case. Our growth rate over that period has been an average 1.8% per annum. If you take the original EU 12 which were members of the eurozone—and the figures are more or less exactly the same if you take the larger number of countries that joined the EU subsequently—you will see that their growth rate over that period has been 1.2%. That is a difference of 0.6%, which, on the basis of compound interest over 15 years, works out at about 12%. If you make the assumption that our growth rate had been that of the average eurozone member over the period since the beginning of the euro, which is less than we have actually had—it may not be a realistic assumption; it certainly seems odd to make an assumption that our growth rate would have been less than the average eurozone growth rate because we pride ourselves on having a more efficient and more flexible supply side than most of the eurozone— the result would have been that we would have been some 15% better off today, so that is a significant difference.

I refer to a final delusion: the idea that we still face dire consequences from the crisis. The general indicators seem to be rather favourable. Unemployment is falling in the majority of EU countries, including all the four problematic ones—Ireland, Spain, Portugal and Greece. Growth has resumed in the eurozone. The best predictor of the future which I know is the stock market, which tells one really quite an encouraging story about both the future of the eurozone as a whole and about that of the problematic countries within it.

[Lord Flight (Con)]

My Lords, I pay tribute to the noble Lord, Lord Harrison, for chairing our committee and for the production of this report, which, given the spread of views on the committee, is very fair and accurate. I think that the noble Lord, Lord Kerr, began to get slightly worried that he found himself agreeing with me on too many issues.

The report is, as the noble Lord, Lord Harrison, has suggested, slightly optimistic in that recovery in southern Europe is pretty weak, the public finances are still worsening, the threat of deflation remains and the unemployment position is terrible. The real problem is that the euro locked Europe into a gold standard. Italy, Portugal, Spain and so forth had happily devalued 2% or 3% every two or three years, but when they could no longer do that and Germany put great effort into becoming super-competitive by holding wage rates down, it ended up with about 30% uncompetitiveness among the countries of southern Europe as against Germanic Europe, and they are stuck with it. They have taken measures to address that. The only scope is internal devaluation, but that is extremely painful and, candidly, I am quite surprised that predominantly socialist politicians, in the cause of sustaining the euro, have been apparently happy to see the lives of a whole generation of young people in southern Europe wrecked with a massively high level of unemployment, so there is a slight problem there.

[Lord Davies of Stamford]

My Lords—

[Lord Flight]

No, I shall not give way because I do not have long to speak.

The prospect of real political and economic union is for the time being not particularly promising. The big issue is that if you are going to share a currency, you have to have transfer payments. Britain has £70 billion or £80 billion of transfer payments from the prosperous south-east to other parts; in America, some 30% of federal spending goes on transfer payments. When we went to visit every element of Germany and asked them about transfer payments, the answer we got was “Not a pfennig”. Nobody in Germany was willing to face up to the fact that, if they wanted a united Europe and if they wanted to sustain the euro, they would have to be willing to make transfer payments to the less prosperous parts of Europe.

As the noble Lord, Lord Harrison, mentioned, we have yet to see how robust the banking system is with the stress test coming in October. I hope that the test will be genuine and robust, but if it reveals serious undercapitalisation of the banking system, that presents its own problem, because, in essence, it will have to be the relevant Governments who bail out the banking system. Thus the link between government debt and banking problems is not removed but, if anything, worsens.

I cannot help but comment that we have been here before in that in the 1860s, the French established a common European currency, the silver franc. We spent most of the 1870s debating whether to join it, and indeed in the British Museum there are notes and coins which were produced showing what they would be like if we did join. Walter Bagehot, the great economist, was wholly in favour of doing so. It lasted for 30 years until eventually the author, France, became so uncompetitive with something like 35% unemployment that it ditched the silver franc and ended the first attempt at a common European currency. I should add that everyone participated, including Switzerland, other than the German states because Germany had not yet united.

As the noble Lord, Lord Harrison, and others have pointed out, the report makes the point that the crisis has created the eurozone versus the peripherals. Although it is slow, I think that from now onwards there will be a gradual process towards political, economic and financial integration. Noble Lords will know the story of when Kohl and Mitterrand were discussing the euro. Kohl said, “We can’t start the euro because there isn’t much political integration”, and Mitterrand responded by saying, “We’ll never get political integration unless we put the euro into effect, which will force it”. I think that may be true. However, the UK is obviously not part of the eurozone and, as the report states, it is already a semi-detached member of the European project. In particular the loss of sovereignty over financial regulations has damaged the City of London. I describe it by saying that the City enjoyed a boom for around 40 years. It then plateaued and now it is on the way down in terms of earnings, activity and the number of people employed. The AIFMD has been particularly damaging and has moved a lot of business to New York and Singapore, and the biggest threat is the financial transaction tax. If noble Lords have not read it, I particularly recommend the report of EU Sub-Committee A on that.

The point is that although the report exhorts everyone to be friendly and co-operative—indeed the representative and lobbying bits of the City in Brussels never cease to grow, with around seven different institutions that are all there to be friendly and lush up their colleagues—there is a difference of interest. I am afraid that London is at the mercy of what suits Europe, along with its particular jealousies of London’s dominant position. The City has put up with that and got on with it, but beneath the surface there is mounting resentment. If the financial transaction tax were to go ahead, I think that it would be the straw that breaks the camel’s back.

I end by making the point that there is the irony of the British Government being the first to recommend that Europe should get its act together and get a move on with financial, political and economic unification, and yet that is the very thing which has led to Britain being a semi-detached member. The view is becoming clearer and more widely held that the right relationship for the UK is as a member of the EU customs union and the single market, but not of the EU political union. I detect that, one way or another, this is now the direction in which we are heading.

Genuine Economic and Monetary Union (EUC Report)

Lord Davies of Stamford Excerpts

Wednesday 2nd July 2014 Grand Committee

[Lord Kerr of Kinlochard]

I cannot say that I think of that every morning as I arrive, but I will bear the noble Lord’s words in mind.

I want to make five minor topical, practical points arising from the report. First, in strict logic, the position that the Government take up—that banking union is nothing to do with us but is a matter for eurozone countries—could mean that the Government do not object to the proposal, much discussed in Brussels at the moment, that the heavily overloaded Commission’s single market directorate-general should be split, with banking and financial legislation moving to the financial directorate-general, the primary concern of which is of course for the health of the euro, leaving the single market directorate-general handling the classic single market agenda. That would be disastrous, from a number of points of view, not least from the point of view of UK interests. The British Bankers’ Association states:

“It is of utmost importance to maintain the structure of the relevant Commission services dealing with financial services so that their work is permeated with the priority of preserving the single market focus. We suggest that the UK Government should proactively defend the unity of DG MARKT and oppose any plan to move financial services out of it. It would be a mistake to move the work e.g. to DG ECFIN which has quite different priorities”.

I strongly agree and I hope that the Minister will be able to reassure us that we shall—to the extent that our current influence allows—work to ensure that that does not happen.

In my view, it is highly desirable and important that the current head of the single market directorate-general, the most senior of that very small and dwindling band of British personnel in the Commission, should stay where he is. I strongly agree with what has been said already today about the need to reinforce that. Retaining the unicity of the director-general is much more important than who is the single market commissioner—the issue that dominates the headlines. What matters is that it is the director-general and that he covers all the work that is of interest to the City of London.

My second point is also quite topical. I hope that the Government will, to the extent that their current influence allows, seek to discourage a second suggestion much debated in Brussels now, which is that the next finance commissioner should also be the next president of the Eurogroup, replacing Mr Dijsselbloem, the Dutch Finance Minister, when his term ends next summer. Combining the two jobs would be a prescription for serious schizophrenia, with a real risk that eurozone concerns might override single market integrity. This is not a moot point in the US sense. In our report we use “moot point” in the British sense, which means it is a key issue. In America, a moot point is a point so boring and irrelevant that it is worth discussing only in a moot court—a fine example of the difference between the two languages, as is “tabled”. If we said that our report had been tabled, people in Congress would say, “Oh, bad luck”, because it means shelved in America.

The moot point is that we have seen two recent examples of just what I am worried about—eurozone concerns overriding single market integrity. In the Cyprus crisis, when the eurozone imposed capital controls, that was a fundamental strike—which may have been necessary in the crisis—against a fundamental principle of the single market. It affected non-eurozone citizens. A British citizen with money in Cyprus could not move his money because of capital controls introduced by the eurozone. The result was that the case was quite rightly taken by the British Government to the Court of Justice against the ECB for its attempt to argue that clearing systems trading euro-denominated paper must be within the eurozone. That, too, is a clear breach of the single market and I applaud the Government for contesting it. It would be dangerous to see the two jobs of presidency of the Eurogroup and finance commissioner in the Commission combined. That may be difficult to prevent, given diminished influence, but I urge the Government to have a go.

[Lord Davies of Stamford (Lab)]

Does the noble Lord agree that in a crisis—this is true whether supervision and regulation are done on a national basis or on the basis of the Union as a whole—the need to prevent the crisis and deal with it must override market rules? That has always been the case in this country and in the United States. It has always been the case in any country run by good governance rules.

[Lord Kerr of Kinlochard]

I hasten to add that I do not know the detail of what happened over that weekend when the capital controls were introduced. The noble Lord may be quite right. I merely say that there is a risk here: we see it in the case we are bringing in the court and saw it over the Cyprus capital controls.

The third point, about the European Parliament, is very topical. The committee was lucky enough to take evidence from Sharon Bowles, who chaired the relevant committee in the European Parliament. She did so extremely well and has now retired from the Parliament. There were two other senior British Members of the European Parliament on the committee. I do not know who will be on the reformed committee, but it is crucial in relation to financial legislation. The new chairman of the committee is a highly effective, intelligent Italian, but I do not know whether there will be British members. Presumably, we cannot look to UKIP to do any work and, given the sad fact that the Conservatives are not in the EPP family, I do not know whether there will be a Conservative on this committee. There were two Labour members on the outgoing committee—they were both extremely good but have retired. I hope that the parties will get together and, in the national interest and the interest of the City, will ensure that there are some people on that key committee who are aware of the importance of the City and the importance for the City’s health of good European legislation.

The fourth point is not quite so topical. I urge the Government to think very carefully about the implications of the change in Council voting weights which happens in four months’ time. The UK’s voting weight goes up from about 8% to about 12% but comparable increases for other large member states, such as Germany, France and Italy, mean that the eurozone will, for the first time, have a clear qualified majority. That is in the Council but also in the ESMA—the European Securities and Markets Authority—although not in the EBA because of the dual-majority system. That is rather fragile but, for as long as it lasts, this will not apply there.

The voting weight change in the Council reduces the viability of a purely defensive strategy of the kind that the United Kingdom has adopted on the banking union dossier. We have argued, as the Minister has, that our aim is to protect the interests of non-eurozone single market members, in particular the interests of the UK financial community. We have been doing that by objecting to various things and looking for support. We have often been able to obtain that support, but it will be more difficult in future. We will need to change our tone and our posture: we will need to be a little more proactive and a little more constructive. In particular, we should be trying to field City experts to advise our partners, in a non-polemical way, on how they can best, in their interests, keep their transactions capital—London—healthy and ensure that the EU remains in the big league, playing host to one of the big three global markets. The saga of our handling of the ludicrous financial transactions tax proposal shows that we are not very good at that. Recent events show us deliberately distancing ourselves and not being very good at adding up votes. That will prove even more unwise when the eurozone caucus has a qualified majority, as it will have from 1 November.

My last point is a more difficult one to put in the hard-edged way that I have tried to put the previous one. Networks of regulators and supervisors matter: informal contacts and knowing the guy at the other end of the telephone. In some ways, that matters a lot more than the formal. Informal contacts used to develop organically and naturally, but that is harder to do now. The Governor of the Bank of England naturally cannot be on a close terms with his fellow central bankers on the continent as were Gordon Richardson, Robin Leigh-Pemberton or Eddie George, who met them in meetings all the time, with so much of the central bank’s work being done on a eurozone basis. For example, the meeting this coming weekend sounds a very important one—but there will be no Brit in the room.

I agree with what the noble Lord, Lord Flight, said about the relationship between the Bank of England and the ECB being very good. I believe that it is, and that it is very important to go on ensuring that it is very good. As we staff new supervisory and regulatory structures in this country and they work out their modus operandi, we and they really should be aware, too, of the cardinal importance of informal co-operation and advice from and to concerned colleagues. Intelligent and well informed advice, privately conveyed but not in a hectoring tone or as if we knew better, will be well received. London’s expertise is still well recognised among the experts and such practical links will become even more important, the more we slide into self-isolation at the political level.

--- Later in debate ---

[Lord Davies of Stamford]

My Lords, I shall start with three introductory comments. First, like other noble Lords, I pay tribute to our excellent chairman who managed to guide us all, although we came from very different vantage points, to clear and decisive conclusions. There is not much point in having a parliamentary report that does not come to clear and decisive conclusions, but it is a very good thing to achieve. Secondly, I thank Stuart Stoner, our excellent clerk who has already rightly been paid tribute to by many noble Lords. Thirdly, I thank my colleagues on the committee, including the Eurosceptic Tories, with whom I always disagreed. We have had a very stimulating time and have all learnt a lot. It has certainly been great fun working with colleagues from all parties and perspectives in producing this report.

We have had some very interesting speeches from many noble Lords this afternoon. I thought my noble friend Lord Desai’s speech was particularly interesting. He raised a number of issues which I do not have time to go into now, but which need to be engaged with. I shall make one or two points on his comments on the need for stabilisation in the eurozone. I think he may be slightly overpessimistic because although I totally agree with him that it would very desirable if the European budget were increased to 2% of EU GDP—I will come on to that in a second—the European Union has found a way of getting much more stabilisation leverage out of the existing structural funds and cohesion budgets by the practice of front-end loading, which it has just adopted for the first time in this new seven-year framework period. It means that money allocated for seven years overall can be spent very largely and substantially in the next two or three years, when it is quite clear that there is going to be a lack of demand from other sources in the eurozone economy, so that is a very positive thing.

My noble friend Lord Desai might be slightly pessimistic in his comparison with the United States. The position is not entirely unfavourable to the EU. First, there is less scope in the United States for fiscal stabilisation at the level of individual states. All American states—possibly with the exception of one and therefore 49 American states—have a balanced budget law. Although the constraints in the Maastricht treaty for fiscal deficits by member states are considerable, you cannot go to more than 3% even in exceptional circumstances. That at least provides some scope.

Secondly, I think that I am right in saying that federal grants in aid in the United States, if you measure them in terms of the proportion of the percentage of per capita income of the beneficiary state, come out less. If I recall correctly, the greatest beneficiary in the United States of federal grants is Arkansas. The receipts are less on that basis than the receipts of structural funds and cohesion funds in the poorer member states in the EU. An element of automatic stability is already there. There should be more. I totally agree with my noble friend that it would be excellent to go to 2% of GDP.

I was very attracted by a suggestion that the committee came across—not just me—when we went to Berlin. A German economist suggested that an excellent way to increase the budget of the EU would be to transfer to the EU responsibility of unemployment funds. There would be an obvious element of automatic stabilisation which would be quite powerful. That suggestion, which is referred to in our report, needs to be taken further. I look forward to speaking to my noble friend about a number of those issues and I very much encourage him to continue to talk about them because he has set out an agenda which should be pursued very seriously.

I cannot resist responding to my old friends and sparring partners, the noble Lords, Lord Lamont and Lord Hamilton, who are particularly distinguished Eurosceptics. There are several blatant contradictions in what they are saying. They say that there is not enough democracy in the European Union and that the member states are not taking the recent European elections seriously enough. At the same time, almost in the same sentence, they say that it is quite wrong to take the European Parliament so seriously or to take democracy so seriously and that the European Parliament should not have anything to do with the choice of President of the Commission. You really cannot have it both ways. Either you think that the European Parliament is a legitimate, democratic voice, in which case it should be listened to and the changes in membership of that Parliament may be something that everyone should take on board. Alternatively, often you hear in other Eurosceptic rhetoric that it is not a democratic organisation at all and that its proceedings and membership should therefore be discarded from attention. You certainly cannot plead that it should be taken into account when you wish to do so.

I have exactly the same problem with the point made by the noble Lord, Lord Lamont, about fiscal integration. He complained that fiscal integration was not included with monetary integration at the time of the Maastricht treaty. I remember distinctly that at the time he opposed any suggestion that there should be any degree of fiscal integration. You cannot have it both ways. Either it is necessary or it is not necessary. You cannot logically complain at the absence of something and then complain a few moments later at its presence when it is delivered.

[Lord Lamont of Lerwick]

Of course you can. You can be against transferring fiscal authority out of the UK but say that the only way in which you can make a monetary union work is for you to transfer it out of your country to a central organisation. There is no contradiction in that whatever.

[Lord Davies of Stamford]

I am sorry, I take a different view. It seems very contradictory to me. Either you should not have fiscal integration or you should. It is very important that politicians are coherent about these things and I do not think that the Eurosceptics are coherent, not least on the matter of democracy in the EU.

Incidentally, my noble friend Lord Desai made the excellent suggestion that we should have an election for the President of the European Union. I have always been in favour of that, and I quite agree that the EU lacks democratic accountability. You hear all the time from Eurosceptics that the EU lacks democratic accountability, but the moment you suggest any measure at all, whatever it might be—changes at parliamentary level, say, or the direct election of the President—that would supply much greater accountability, they are always against it. Again, there is a blatant contradiction running through their views on the subject. I have to say that if you pursue politics on a contradictory basis like that, you do not do great credit either to your reputation for intellectual clarity or to the good faith of your arguments.

[Lord Marlesford (Con)]

Surely the noble Lord, Lord Davies, is wrong. The point that my noble friend Lord Lamont is making is that the eurozone requires integration. We did not join it because we were not prepared to take part in that integration. The European countries joined because they were prepared to integrate but then they did not actually do it. That is what all the problems were about.

[Lord Davies of Stamford]

I repeat that you cannot at the same time complain about something when it is absent and then complain when it is present; that does not make any sense to me at all. Equally, I do not think that I have heard any response to my points about democratic accountability. If there is a desire for more democratic accountability in the EU, which there is, and if it should be addressed, which in my view it should be, then you cannot turn down every possible proposal that is made in order to achieve that, which is what the Eurosceptics tend to do.

I think that our report makes three conclusions. The first is that the general direction of genuine monetary and economic union is probably right. We support it and think that it is a sensible thing for the eurozone to be engaged in. We feel that it should go further and be completed. We think that it is troubling that one or two elements of the agenda have not been implemented and will not be in the immediate future, notably the retail bank deposit insurance system that we have just referred to and which has been referred to several times today; we are broadly in favour of that and think that it is a very good scheme.

The second general conclusion is that this process is not without risks and costs for our country. That point is made very clearly in paragraphs 185 and 186 of our report, to which I draw the Committee’s attention. It is also made in another document, the British Bankers’ Association report, which we have obviously all been sent. I have been sent a copy, and it has already been referred to and quoted from. I shall quote from it in case some people here have not received it:

“EU, government and industry studies have shown that deepening the Single European Market offers a growth potential that is achievable without further increasing public debt … However, the understandable moves towards stronger Eurozone governance may make it more difficult for the UK financial sector to play a full role. For example, development of Eurozone caucusing, outside the EU-28 format, on matters that impact directly the Single Financial Market could, even unwittingly, damage its integrity”.

The document goes on to raise other risks, not just caucusing but the risk of the eurozone having a permanent president, the risk of the new configuration of the European Parliament being less likely to defend British interests—largely because the Conservative Party withdrew from the EPP, so that is entirely its fault—and other risks.

The fact is that the British public have been bamboozled, and this report goes some way towards redressing that and illuminating them, which is very necessary. They had been persuaded to believe that somehow we can have a half-in and half-out approach, with one foot on one side of the fence and one on the other in our relations with the EU at no cost, or that we can gain all the benefits from the EU without actually subscribing to all its programmes and disciplines. The sheer fact is that you can never do that in life, and you cannot do it in this case. Personally, I would prefer any measure of relationship with and access to the European single market and the EU than none. I am the sort of person who would always prefer half a loaf or even a quarter to no bread at all. However, I am very conscious that we are losing some portion of the loaf by the course that we are adopting. That comes out very clearly in the conclusions to the report, and we have fulfilled a useful function in writing it.

[Lord Hamilton of Epsom]

As the noble Lord, Lord Kerr, said, we are not part of the eurozone group, so are we not inevitably half in and half out, whether we want that or not?

[Lord Davies of Stamford]

As the noble Lord, Lord Kerr, said, as I shall say myself and, indeed, as the report states, we are not just out of EMU. We could not join EMU if we wanted to because we do not qualify under the fiscal provisions. Our fiscal deficit is excessively high—more than twice the level required the last time I looked at the figures. We cannot join anyway; we just have to face that.

Quite apart from that fact, it is true that the public in this country have been poisoned against the whole notion of EMU by a very effective press campaign, and it would be quite difficult to join EMU in the short term even if we qualified, which we do not. As we do not, it is a theoretical issue. Quite apart from that, we could, if we wished, join a banking union. We appear, for reasons which are unconvincing to me, to have decided not to join a banking union. As a result, we will find that we are not really, truly in the single market.

I put that the other day—this is a matter of public record because it was an open committee session—to the chairman of the Financial Reporting Council, Sir Win Bischoff. He agreed with me unequivocally that, as a result of what is happening, we will have a fragmented single market. We will have our own banking regulation based on our own bank regulation Bill. We have secured a derogation from the bank regulation directive, which I think is very undesirable. That means that, although there will be no fundamental differences in the way that banks are regulated in the eurozone and here, there will be small differences from time to time. There will be different responses because different people will be doing the regulating. There will be greater compliance costs. British banks such as HSBC and Barclays with major operations on the European continent will have to go through parallel procedures in different countries, whereas they could have just reported in one coherent way on a consolidated basis to one regulator, which would have been much more desirable.

More serious than that, there will be regulatory arbitrage, with distortions: people being tempted—no, being driven—to practise certain operations and activities in some markets merely because regulation there is slightly lighter than in other areas within the single market. That is not a single market at all. There will of course be a great lack of clarity and, therefore, investor and depositor confidence as a result of the confusion and complexity, which is, again, quite unnecessary.

It is a perfect example of how you can impose costs on yourself for no useful purpose. We all say that we want a single market. We are all in principle against regulatory arbitrage—all British Governments always have been—but we have deliberately created a fragmented structure which has higher costs and prevents a single market taking place. That really cannot make sense. It is about time that we realised that our policies—I say our policies; I mean the policies of the Government of the day, the coalition Government—contradict the national interest. Because we are not in the eurozone, we face the danger that problems may be created for us by the eurozone itself through its members caucusing for meetings of ECOFIN or other bodies due to the greater weight given to the eurozone organisations—a point made by the British Bankers’ Association. Not only may we be the victims of other people doing things that we do not like very much but we are creating problems for ourselves, which seems particularly irrational.

The report is a very useful piece of work and it deserves wide consideration. I hope that it may be the beginning of a reconsideration of the rationality of our policies in this area, because it is a great shame that for reasons of, I think, essentially party politics or emotion, we are often dysfunctional in our pursuit of the national interest.

--- Later in debate ---

[Lord Newby (LD)]

My Lords, I begin by thanking the committee for its work on this report and all noble Lords who have spoken in today’s debate. It has been like a high-level seminar on the subject rather than a usual parliamentary debate. Although I would love to think that students around the UK and Europe will read our debate today, I fear that it will not get the attention that it deserves. It is also quite a novelty when replying to a committee report to find that quite a lot of the speakers were not on the committee. Very often, one is faced with just the members of a committee, who have tendency to repeat what is in the report and basically say how clever they were in producing it in the first place, whereas in this case not only were they clever—naturally—but they managed to draw in star outside participants to the debate, which I for one have greatly enjoyed.

The Government have consistently said that they support closer integration in the euro area to make the single currency work. The Government agree that a stable euro area is in the interests of all EU members, not just those in the euro area but those outside it, including, of course, the UK.

The work towards creating a genuine economic and monetary union, which the European Council tasked Herman Van Rompuy to take forward in June 2012 at the height of the euro area crisis, is an important part of this process. As we have seen on banking union, the UK will fully engage in any and all discussions, as and when they are taken forward.

At the same time, the Government have been clear that we will not join the single currency and, as such, we will not be part of this closer integration. Our priority is therefore to ensure that the single market is fully protected and that measures remain voluntary for those outside the euro area. We agree with the report that this will require “continued vigilance” and we have been closely involved in the negotiations, particularly over banking union, to protect UK interests.

We also want to ensure that, as the euro area continues to integrate—

[Lord Davies of Stamford]

The Minister has said that the Government are opposed to our joining EMU or GEMU—we know about that—but will he explain why the Government appear to be against our joining the banking union alone?

[Lord Newby]

Yes, my Lords, I will come to that.

We also want to ensure that as the euro area continues to integrate, the EU continues to operate fairly for those who remain outside the euro area, whether by choice, like the UK, or because they have yet to meet the criteria to join, like some other euro-outs, although I take the point that we do not meet those criteria either at this point.

As the Chancellor and Germany’s Finance Minister Schäuble set out in their joint Financial Times op-ed piece in March, non-euro area countries must not be,

“at a systemic disadvantage in the EU”.

We must ensure that EU institutions continue to work in the interests of all member states and last week’s Council conclusions, agreed by heads of state and government, contain important text about the need to address UK concerns.

[Lord Davies of Stamford]

I apologise for interrupting the noble Lord a second time. He said that the Government feel it is important that non-euro area member states not be at any disadvantage in the single market as a result of not being part of the eurozone. Does he not accept that the burden of our report, and indeed of the BBA document which has been quoted extensively this afternoon, is that willy-nilly, whether we like it or not, we will be at some disadvantage—probably increasing disadvantage—by virtue of being outside the EMU or banking union entirely, and we cannot do anything about that if we are determined not to join those systems?

[Lord Newby]

I think that the noble Lord, Lord Lamont, explained at the start of his speech the trade-off between influence and being a member of the EMU. I will come to this later but, obviously, in certain respects, we are going to be outside the room by not being members of either the eurozone or the banking union. We have to work very hard to ensure that we maximise our influence in those areas, of which the single market is the most central, in which we have a common view with many, if not most, of our EU partners about the need to reform and the direction that reform should take.

I will attempt to deal with many of the questions that I was asked by individual noble Lords during the debate. The noble Lord, Lord Harrison, asked whether the single resolution mechanism was too complex and therefore would not be effective. By definition, all resolution processes are complicated but the role of the single resolution board is very strong. This may be a vain hope but, from our own experience, we hope that the plethora of legislation and new structures will reduce the likelihood of major crises of which we have been previously largely unaware emerging at great speed.

One of the problems in the UK when RBS had to be effectively nationalised over the weekend was that the storm arose with great speed. If you contrast that with the position of the Co-op Bank last autumn, when it faced major, potentially life-threatening problems, a resolution was undertaken, not formally using the legislative framework but largely using the mechanisms that were envisaged there, and with the Treasury and the Bank playing a major role over a number of months in getting the Co-operative Bank into a position where it was able to resolve its own problems.

The involvement of political bodies other than the single resolution board is inevitable because of the significance of the decisions that are taken and the fact that if major banks are in real difficulty—a weakness we have seen in the UK—there is a political component and you have to take that into account as you are taking decisions. We would hope that the scope of the decisions that have been left to the Council is very circumscribed and that most interventions, even involving the single resolution board, would not require going up to that level.

The second question that the noble Lord, Lord Harrison, raised was whether the resolution fund is too small. On its own, it demonstrably is, if there were a major simultaneous problem with a number of the largest eurozone banks. The key thing here is that it does not have to bear the whole brunt of the resolution process on its own. Arguably, it does not have to bear the main brunt of it. That is the whole point of the resolution recovery directive and the bail-in procedure. The fund is not capable on its own of solving a major crisis, but it is one of a number of tools and not necessarily the largest or most important.

The final question, I think, that the noble Lord, Lord Harrison, asked related to the replacement of senior positions in the EU. As he knows, over the coming weeks, the European Council President will be taking soundings on this and I am no more able to suggest whom we might put forward, than my noble friend was at Question Time today. The UK is fully engrossed in those negotiations with the aim of making sure that we have candidates who will be able to deliver on the priorities agreed by the heads of the European Council last week.

Among other things, the noble Lord, Lord Lamont, has introduced a definition of nirvana that means that I will never think of the concept in the same way again. He ended his speech by saying, I think, that his feet tended to have to accommodate themselves to the shape of the shoe. My experience and expectation is that my shoes will amend themselves slightly to take account of the shape of my foot. I think that that is a rather important distinction in the way that we view our involvement.

This brings me to one of the central points of discussion, which was the importance of political will in terms of the future of the euro. In certain respects, the euro has defied logic because of the strength of the political will supporting it. I strongly agreed with the noble Lords, Lord Liddle and Lord Jay, about that. Once the political elites of the major eurozone countries have made up their minds that this thing was going to continue, it was going to continue barring the most unforeseen disaster. Those who predicted its demise simply did not grasp a very straightforward political fact.

The noble Lords, Lord Liddle and Lord Maclennan, asked linked questions about how we could play as full a part as we can in both the banking union and the mechanics of the eurozone. Obviously, we have ruled out membership, so the question is the extent to which we can play a role. I thought that the point of the noble Lord, Lord Kerr, about the role of informed co-operation and advice was very important here. We have very good relations with the ECB at all technical levels and UK officials are playing, and will continue to play, a big role.

The noble Lord, Lord Kerr, developed the concept of playing a bigger role in the banking union by saying that there was no logical reason why we should not be in it while remaining out of the eurozone. I am sure that that is logically the case. Why has it not happened? There are a number of reasons. First, the banking union has flowed from the eurozone crisis. I think it is inconceivable that we would have had such a banking union if all had been well with the eurozone, so the two are inextricably linked. I would also be interested, as a newcomer to the theoretical concept, to know whether there has ever been a banking union with banks that had two different basic currencies, or several currencies, because presumably the Swedes and others might also join.

The noble Lord, Lord Jay, made an important point about having more British people involved—

--- Later in debate ---

[Lord Davies of Stamford]

I am sorry to say I am not convinced by the Minister. We do, of course, have a derogation from the directive, as the Minister presumably knows.

[Lord Newby]

I remain of the view that the directive approach applies in financial services in the same way, broadly speaking, as it does in many other areas.

I am just about out of time but, briefly, the noble and learned Lord, Lord Davidson, made a point about whether the ECB had the ability to supervise. It has a big job on its hands and is taking on new responsibilities. As we have seen, getting the Bank of England fit for purpose has taken a lot of time and effort. Indeed, the only thing that will demonstrate whether it has succeeded is how it performs in a crisis. We hope it does not have to do that for some time but it is clearly taking on the job of supervising a very large number of banks, whether it is 250 or 6,000, or whatever it is. It is very big new job, and I wish it well in it.

I conclude by saying again how much I appreciate the work of the noble Lord, Lord Harrison, this committee and all speakers in today’s debate. It is clear that Europe will be at the centre of our political debate in the period ahead. That debate is often conducted in extremely depressing, ill informed and—to borrow a word from the noble Lord, Lord Hamilton—poisonous terms. During all this, I am sure that your Lordships’ European Union Committee will continue to be a voice of reason and common sense and that Governments of whatever persuasion will continue to value its reports. For my part, I look forward to participating in further debates upon them.

Medical Innovation Bill [HL]

Lord Davies of Stamford Excerpts

Friday 27th June 2014 Lords Chamber

[Lord Davies of Stamford (Lab)]

My Lords, in my days in the City, there were a number, and I hope that they are no longer there at all, of fund managers and their client trustees who invested the funds of rather unsophisticated beneficiaries—I am thinking particularly of beneficiaries of small family trusts set up by some bequest or, very often, the funds of small charities, of which there are an amazing number in this country—entirely in the gilt market. Anyone who knows the first thing about finance knows that throughout the second half of the 20th century, if you invested in gilts over the long term then that was a sure-fire way of ensuring that the value of the fund would be eroded over time; indeed, after a decade or so, the erosion would be substantial. Why did they do it? Were they stupid? No. They did it because if they had invested that money in equities, there would have been a risk that they would get the timing wrong. If they had got the timing wrong when they went into equities, they could have been sued for having taken that decision. They therefore stayed in gilts because there was always a protection there; you could say that it was the practice of the market to invest, say, widows’ and orphans’ funds in the gilt market.

So I have been familiar for quite a long time with the context in which the law of tort and the system of civil justice and civil damages that we have in this country, which is designed to protect individuals, particularly vulnerable and unsophisticated ones, and indeed does so, can sometimes turn against the interests of precisely those whom it is trying to protect. It seems to me that in the area of medical negligence and malpractice the law has had exactly that perverse effect on innovation described by the noble Lord, Lord Saatchi, this morning. Therefore, in principle I am very much in favour of this essential and permissive legislation.

I shall deal briefly with the three main objections that have been made this morning. The first was made by my noble friend Lord Turnberg, whom I always listen to with great attention and respect on these matters, as I did today. Essentially, his point was that the changes, if they are required, can be achieved by guidance rather than by changes in the law. I think that in principle that is always wrong. If there is something inadequate about the law, if the law is unclear or perverse, or if there is a mismatch between the apparent meaning of statute as ordinarily interpreted and the practice of jurisprudence over the decades after it has been passed, that can be remedied only by a change in the law, and it is the responsibility of Parliament to see whether such perversities or anomalies are emerging and to deal with them. No guidance by any professional organisation is a substitute for that.

The second line of objection that we have heard this morning is that in many cases many doctors and medical units around the country feel that the present regime does not in any way inhibit the degree of innovation they think appropriate in their field. I do not think that is a logical objection to this Bill because such people can carry on. Indeed, their way of proceeding is not in any way threatened by the provisions in the Bill. That matter should be set aside.

The third objection was very powerfully made by the noble Lord, Lord Winston. Essentially, it amounted to saying that innovation can be very risky and in the case of medical innovation can lead to people’s deaths. We have to be adult and accept that, in the whole of human existence, there is always a positive relationship between risk and reward. If you take no risk, there is no reward, there is no return. If there are no risks, there will be no innovation. There must be innovation, and there must therefore be risks. If I found myself with a terminal condition, I should be very inclined indeed to say to my doctors that I would like them to take some risk because I am about to die anyway under the normal prognosis based on the standard treatments and if there is a chance of trying something else, if it does not work, at least my last act in this world would have been to have made a small contribution to the progress of medical science, which would be some consolation.

However, I would do that only if I felt the protections were adequate. This is where I want to make a suggestion for looking again at one aspect of the Bill. It is about patients’ rights. Clause 1(3)(c) requires that the process include:

“consideration of any opinions or requests expressed by or on behalf of the patient”.

The word “consideration” seems extremely weak. We have heard a very authoritative account this morning from the noble and learned Lord, Lord Mackay, who seems to be satisfied with the protections. I take his views very seriously on this, as on every occasion. I can well imagine that, taken together with paragraph (d) of that clause,

“obtaining any consents required by law”,

the consideration of any opinions expressed by the patient plus the statutory need to obtain the patient’s consent, which, of course, can be obtained only where there has been disclosure, may be considered to be an adequate protection in law. However, I can see no disadvantage and can see great advantage, if only presentationally, in reassuring patients—who, as in the example I just gave, might include me one day—that they have the clear, absolute authority to decide what will happen to them and the right to have absolute, exhaustive disclosure of the potential risks and rewards and the potential advantages and difficulties of any therapy or treatment that is being proposed. That word “consideration” could be changed so that it is absolutely clear that the patient is sovereign. There must be a legal obligation exhaustively to explain completely and in detail the reason for the proposed new treatment, its possible merits and risks and that the decision of the patient is final and sovereign. If that could be expressed by an amendment that might take place in another place—I certainly do not propose to hold up the Bill by proposing an amendment on my own—it might be very reassuring to many people who still have doubts on the merits of this extremely valuable Bill.