Autumn Budget Forecast
Lord Davies of Stamford Excerpts(12 years, 12 months ago)
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Lord Sassoon
I am grateful to my noble friend Lord Higgins. I wondered whether we would get through this debate without mention of the money supply, but he has not disappointed me. We have had it as well. I agree absolutely with his analysis of the situation. As the OECD said yesterday, the UK’s consolidation programme strikes the right balance between addressing fiscal sustainability and preserving growth. I can also confirm what my noble friend says. The OBR analysis shows that we are on track to meet the fiscal mandate set out by the Chancellor last year. In respect of monetary easing, I can only draw my noble friend’s attention to the stance taken by the Bank of England with an additional £75 billion of asset purchases, which it believes is necessary in order to ensure that there is no undershoot of inflation, and the package of credit easing measures. The noble Lord, Lord Myners, did not seem to want to see it this way, but that package has been designed to complement the monetary easing with which the Bank of England is driving ahead.
Lord Davies of Stamford
My Lords, the economy has already suffered two major negative demand shocks, one from the Government’s excessively rapid fiscal retrenchment and the other from the crisis in the eurozone. Will the Government try to avoid creating a third substantial negative demand shock by allowing banks which have under Basel II to increase their capital in relation to risk assets to do so by the simple expedient of reducing their lending and their banking book? Will the Government take powers to ensure that this increase in capital is done exclusively as a result of rights issues, other capital issues or issues of synthetic capital such as contingent convertible bonds, or by increasing retention of earnings at the expense of dividends and bonuses? Does the Minister agree that, if that is not done, the Government will cause a devastating blow to the economy, which is already on the ropes from these other causes?
Lord Sassoon
My Lords, the first thing to remind the House of is that it was my right honourable friend the Chancellor who took the lead in ensuring that the Basel III reforms on capital were phased in over a period to 2019, which was accepted by the G20 precisely for the reasons that the noble Lord gives; that is, that we did not want to place more burdens on the credit situation in the short term. Similarly, the Vickers commission has recommended that certain of its reforms be on a similarly extended timetable for the same reason. As for today’s measures, the £20 billion of underpinning of the national loan guarantee scheme is directed at ensuring that the flow of credit to small and medium-sized businesses continues, as it must do as we go into the recovery phase of the economy.
European Union Membership (Economic Implications) Bill [HL]
Lord Davies of Stamford Excerpts(12 years, 12 months ago)
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Lord Davies of Stamford
My Lords, I congratulate the noble Lord, Lord Pearson, on bringing his Bill forward and on getting his Second Reading today. I disagree with him on European matters almost the whole time—I think that many of his arguments are very unconvincing and his plans for the future of this country would be disastrous—but nevertheless I genuinely admire his persistence and ingenuity in pushing his, to my mind, very misconceived views. That is what democracy is all about, and I hope that he will at least take that tribute. He will not get any more tributes from me in the course of my remarks; I thought that we had a series of unconvincing and indeed sometimes specious remarks from him, so I decided to throw away my originally conceived speech and spend my few minutes trying to set out where I think he has gone very badly wrong.
It was quite fatuous to suggest that the City of London was at threat from our membership of the European Union when the City’s enormous international prosperity has coincided with our EU membership.
On fish, I have to say to the noble Lord that fish have an unfortunate habit of not recognising national frontiers. Therefore, if you share a continental shelf with other coastal states, you have to have agreements about fish, because if one of those states overfishes then everyone else’s fishery is equally destroyed. If we left the European Union’s common fisheries policy, the very next day we should have to set up some international agreement under which we established quotas, and in order to do that we would have to set up the scientific machinery to advise on what the quotas ought to be. In order to ensure that the quotas were effective we would have to set up some enforcement procedure and some penalties—in other words, we would have to recreate the Commission and the European Court of Justice and the whole structure relating to fish. It does not seem to be very intelligent to leave a union one day and the very next day to have to set the thing up again in a new fashion.
The noble Lord seemed to think that we could save a lot of money by leaving the common agricultural policy. He falls into two errors there. The first is the assumption that we ourselves would not wish to support our own agriculture, which is unlikely. If we did support it, we would have to deduct the costs of doing that from his proposed savings.
The second error is something I would like him to reflect on for even longer: if we had left the European Union but remained in the single market in some way, as Switzerland has done—I think that that is what he wants to do—we could not avoid accepting agricultural imports from other EU states. They would never agree, and never have done, to a single market involving purely manufactures and services and not agricultural products. Up to now they have set up commercial agreements with countries such as Switzerland and Norway that have a higher level of agricultural protection, so the problem has not arisen, but with us they insist on a free market in agricultural products. If we did not support our farmers and the continentals and the Irish went on with the CAP, we should find that our farmers were at an enormous competitive disadvantage. They would be completely undercut by competitive products from the EU where a large part of the fixed costs of farmers is being met by various forms of subsidy and payment. The noble Lord’s formula there would lead the devastation of the British countryside.
The noble Lord mentioned a net cash figure of £10 billion. That is less that 1 per cent of GDP, which has always seemed to be to be a pretty small subscription for the enormous benefits of the single market, which I will come on to in a moment, and of our being at the decision-making centre of it. I have to tell the noble Lord that a lot of that money has to go to regions that are net beneficiaries. The country as a whole may pay out cash of £10 billion, but I am not sure that the part of Scotland that he lives in is not a net beneficiary—I suspect it is. Many other parts of the country would have to be compensated for the money that they were losing, so that would be a burden on, for example, the people of the south-east, who may think that at present they get the benefit of the £10 billion that he is talking about but they certainly would not. That, again, is very misconceived.
Even more importantly, some of that £10 billion goes to causes that surely we continue to want to support. Is the noble Lord suggesting that we should not be spending money on the neighbourhood policy and the stability of countries in north Africa and the former Soviet empire—Georgia and so forth? Does he want to cut that? If not, we have to pay that anyway. What about the EU’s overseas aid policy? Presumably, if we pulled out of that budget, we would still want to spend that money on those poor countries, or is he suggesting that we should pull out from supporting starving countries like Ethiopia? It is a thoroughly flawed argument, if I may respectfully say so.
Finally, but very importantly, he misunderstands entirely the important distinction between current business flows, which we might be able to preserve through some trading agreement with the EU, and investment in new capacity and new job creation. For example, if you speak to the three Japanese automotive companies that set up in this country, they should not have dreamt of setting up here if we had not been part of the EU and indeed part of its decision-making structure. We were going to be involved in any discussions about the future of the car industry, health and safety, consumer protection measures, international trade measures, environmental measures or whatever it might be. He would find exactly the same if he were to speak to Tata, which now owns Jaguar Land Rover; it would not have dreamt of moving into this country if that had not been the case. Similarly, no one would dream of setting up in the pharmaceutical industry in this region of the world without being able to benefit from the one-stop registration policy that you get if you are part of the European Union. An enormous number of jobs depend on decisions that would not have been made if we had not been part of the European Union.
On the other side of the coin, it would be at zero. I challenge the noble Lord to cite a single case of someone who would have invested here if we had not been in the European Union but did not invest because we were. If only one job was created, that would be infinitely greater than zero—
Lord Davies of Stamford
I will give way to the noble Lord when I have finished my sentence, if I may. Even one job would be infinitely greater than zero, so if you have a balance on which there is a positive number on one side and zero on the other, the result that the noble Lord gets from his commission inquiry will be quite clear.
Lord Pearson of Rannoch
My Lords, I will come back to at least four of the noble Lord’s points in my summing up. As he has challenged me on the question of investment in this country, is he aware that our UK Trade and Investment agency does not list our membership of the European Union among the eight top reasons for investing in this country? It is not mentioned at all.
Lord Davies of Stamford
If that is the best that the noble Lord can do by way of argument, to find a bureaucracy that does not mention the European Union in some handout, then I am even more confident of my position.
I do not want to take more than my fair share of the time. I have dealt with a number of the noble Lord’s points. As he can see, I disagree with him profoundly on the arguments but he will be pleased that I do not disagree with him about the Bill. I think that it is an excellent idea, and am quite confident that any such inquiry would come to the conclusion that the facts would indicate.
Euro
Lord Davies of Stamford Excerpts(13 years ago)
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Greece: Default Contingency
Lord Davies of Stamford Excerpts(13 years, 5 months ago)
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Lord Sassoon
My Lords, I have not been on the streets of Greece or seen what is going on in Athens, but clearly it is regrettable if anti-German sentiments are being expressed on the streets there. However, I have not been following the detail of the riots. The main thing is that we need to support the Greek Government and encourage them, as the eurozone Ministers have done in their statement today, to progress their package and enable the IMF to complete the upcoming assessment. As for the second-order effects of who needs capital where in order for loans to flow, my noble friend reinforces the point that this is a very interconnected system and the ongoing work on the short-term and medium-term stability of the eurozone has to be mindful—as we have been reminded already this evening—of the interconnectedness of the systems at every level.
Lord Davies of Stamford
My Lords, is it not the case that this is not a euro crisis, as many commentators have been trying to pretend, but a Greek funding and fiscal crisis caused by excessive borrowing by the Greeks, irresponsible lending and mispricing of risk by lenders? It is not the first time that we have seen that in the past year or two. Does the Minister agree that this would have arisen irrespective of the currency that Greece happened to have? It would have happened whether Greece had been in the dollar zone or the pound sterling zone or still had the drachma. Secondly, to avoid the risk of a considerable panic, is not a renegotiated package for Greece necessary, providing for an orderly restructuring of its debts, a credible series of repayments and a set of definite figures for offsets and provisions by Greece’s creditors? Is it not time that we began to think in those terms? Thirdly, is it not the case that Greece leaving the euro or a Greek devaluation is the opposite of what is required? If Greece went back to the drachma, it would of course greatly enhance the value of its euro debts—and its debts are primarily in euros—but that would increase the burden on Greece and increase the portion of Greek assets that overseas lenders and investors would have to write off. Such a move would be counterproductive and damaging from our point of view as well. Moreover, devaluation never works as a stimulus to growth unless wage bargainers are under monetary illusion and cannot tell the difference between nominal and real wages and do not ask to be compensated for the reduction in real purchasing power. That is a most unlikely situation for Greece at the present time.
Lord Sassoon
I agree with the noble Lord, Lord Davies of Stamford, that if the UK continued with the excessive deficit policies of the previous Government, we would be in a terrible mess in this country. Whether you are in or out of the euro makes no difference, and the UK would be experiencing considerable problems if we had not gripped the deficit. I agree with the implication of his analysis on that point. On the second question about sustainable financing, that is precisely where the IMF starts its assessment of debt sustainability. The critical first plank of sustainability for Greek debt hinges on Greece sticking to its agreed fiscal consolidation path. All else flows from that. As for the Greeks or anyone else leaving the euro, that is a hypothetical question and not one that we should spend any time on.
Economy: Growth
Lord Davies of Stamford Excerpts(13 years, 7 months ago)
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, we have had a tremendously interesting and wide-ranging debate today. I thank all noble Lords who have contributed, particularly the noble Lord, Lord Hollick, for securing what is in effect, I suppose, part two of our growth/Budget debate. I recognise what the noble Lord, Lord Haskel, kindly said about the endurance of the Minister who has to sit here, but I note that many other noble Lords have sat here throughout. I am only grateful to at least have a week between the two debates rather than have it on two consecutive days.
I completely agree with the noble Lord, Lord Davies of Oldham. It has been an overwhelmingly constructive debate, in which many positive ideas have come from all round the House, and this presents me with an additional challenge today. Last week I attempted, maybe foolhardily, to make some mention of all noble Lords’ contributions to that debate. But I know my limitations. Today, with even more speakers and an even shorter time to respond, I apologise in advance but I am not going to be able to make mention of everyone who spoke. There were lots of good ideas, not all of them workable, but it is right that you should push the envelope in imaginative ways, whether in the use of faith buildings or encouraging science in schools. There are all sorts of great ideas coming from around the House, and I will make sure that those are considered by the Treasury or the other departments responsible.
In general, the message I take away is very welcome, because I know that the temptation is for us all, or for a lot of us, to be making political points. The message that I take away is that there are many good things in the Budget and in the growth document that went with it, but that we have to work harder—I understand that—and consider lots more of the ideas that are coming up. In the phrase of the noble Lord, Lord Hollick, it is a worthy and promising start. I appreciate that. I take to heart the big challenges for us—that we must be bold and not timid as a Government. I agree, and I will come back to that. We must always remember the big picture. I agree with that. We have to live up to the challenge of the Government’s part of the bargain of delivering and not just making promises. I will come back to each of those themes in a minute.
I start by acknowledging the five excellent maiden speeches that we have heard today—from the noble Lords, Lord Kestenbaum, Lord Wood of Anfield and Lord Collins of Highbury, my noble friend Lord Popat, and of course the noble Baroness, Lady Worthington, who has confused me by moving seat. I am glad to see that she is back in the Chamber. There was a common and very important theme in those speeches, some of it put very movingly, about what this country and this House have done to foster diversity, whether of ethnicity, faith, gender or sexual orientation. Of course, we must not forget that diversity in hair colour is also a feature of life. The maiden speakers also, by their diverse backgrounds in business, academia, the unions and the environment, and by the quality of the individual speeches, could make no better case for this making a genuinely value-adding House that we are all part of. That was a great addition to what was, in any case, a very important debate.
I remind noble Lords of the context of this year’s Budget and growth plan. The Budget is about reforming the nation’s economy so that we have sustainable growth and jobs in the future. “Sustainable” is a word that has been used by a number of noble Lords. It is worth very briefly reminding ourselves, as a number of speakers have done, that this will not be possible without sticking to our deficit reduction plan. My noble friend Lord Higgins was the first to point out the constraints within which we live. It is that plan that has secured the economic stability, the international credit rating and the low interest rates that are the platform from which we must go forward with sustainable growth.
Last week’s Budget was built on clear economic principles of sound public finances—and no wavering on that—but support for private sector growth, reward for work, help with the pressure of high fuel prices in the short term and a new vision for growth. That vision for growth has four key ambitions at its heart: that Britain should have the most competitive tax system in the G20; that Britain should be the best place in Europe to start, finance and grow a business; that Britain should be a more balanced economy by encouraging exports and investment; and that Britain should have a more educated workforce that is the most flexible in Europe. Those noble Lords who had the stamina to be here during last week’s debate as well will know that I went through each of these four areas thematically. But let me today take a slightly different cut through the issues, prompted very much by the challenge of the noble Lord, Lord Hollick, that we must be bold and that timidity is not enough. That is linked to the challenge from a number of noble Lords that we must attend to the big picture.
Let me suggest to your Lordships a number of areas in which I believe we are being bold and addressing the big-picture issues. Take corporation tax: the fact that we are heading, in three years from now, down to a corporation tax headline rate of 23 per cent, which will take us to the lowest rate in the G7 and one of the lowest in the G20. I suggest that that sends the clearest signal possible around the world that this country is again open and welcoming to all businesses to come and base significant global operations here.
Deregulation is a difficult, challenging topic which the previous Government worked hard on but we have to find new ways of tackling it credibly. Again, we will be bold so we are starting right now with a new initiative to put tens of thousands of individual regulations on to a public website. Two weeks at a time, chunks of regulation related to a specific part of the economy will be open to challenge. At the end of the period of public challenge, it will be up to the departments concerned to argue why any regulations which have been challenged by the public must stay in place. The presumption of the committee led by my right honourable friend the Business Secretary will be that if people identify a regulation that has to go, it has to go unless there is an overriding reason for it to stay. I suggest that is bold.
Planning is a critical issue for growth in this country, and we will bring out some draft new planning guidelines within the next few months. They will have in them a fundamental new approach which has, at its heart, a presumption in favour of sustainable development. In addition, the new planning rules must have a process in place where the entirety of planning, including appeals, has to be finished in no more than 12 months. For those of your Lordships who have businesses stuck in planning processes that go on for three or four years, I suggest that is a bold approach.
A number of speakers brought up the field of energy and the question of setting a carbon floor price was raised. I suggest that setting a carbon floor price is a bold, difficult but necessary part of underpinning the huge amount of new energy investment which this country needs, so we will not shy away from taking the difficult decisions.
We have heard a lot about education—
Lord Davies of Stamford
Will the Minister not acknowledge that although setting a carbon price might be very desirable if it was based on international agreement, if it is based on a purely unilateral or national move we shall be handicapping our industry and our growth, and contributing nothing at all to the reduction of global warming?
Lord Sassoon
My Lords, I do not wish to be discourteous to the noble Lord, Lord Davies of Stamford, but if I am to do justice to at least some of the points that have been raised in the debate so far, he will perhaps forgive me if I do not answer his question in intervention. I would rather do justice to some of the points made in the debate.
On education and bringing people into the workforce, I could mention a number of initiatives but let me just draw attention to the apprenticeships. Those are one key plank of what has to be a bold transformation of young people’s appreciation of the different and valuable routes into work. The total number of apprenticeships that will be available over the next four years is 1.1 million, so the Government are playing their part in making the apprenticeships available. I hope that, as my noble friend Lord Newby has said, business will rise to the challenge of taking up those places. Again, these are big-picture issues and this is, I suggest, a bold approach.
Lastly, there has been mention from a number of angles of the challenge to get finance into our corporate sector, whether SMEs or the whole of industry. We have set the banks the challenge now, through the deal that we have done with them, whereby they have agreed to make up to £190 billion of credit available for new loans, and more if it is necessary. That very significant amount of money should meet the reasonable demands of growing businesses in this country. When the banks are under considerable pressure to manage their balance sheets more prudently under new capital and liquidity rules, I suggest again that getting financing through to businesses is one of the big-picture challenges and that we as a Government are rising to that challenge in a suitably bold way.
Another big-picture theme that has come up a number of times and which deserves particular recognition is that of infrastructure because, again, the size of the challenge is enormous. A number of speakers raised this, the noble Lord, Lord Hollick, first, with the noble Lord, Lord Bilimoria, and others following after. We have identified £200 billion of infrastructure investment as being required over the next five years in economic infrastructure alone: in energy, water, broadband, transport and so on. The reason that this is so important is clear. We have an ageing infrastructure which needs considerable refreshment and rebuilding and because of that, at the very start of the Government’s work on our growth plans last autumn, we put out the first ever National Infrastructure Plan. That is starting to identify, sector by sector, the vision that we have for the infrastructure that is necessary for this country over the next 25 years and more.
We committed in the growth programme and the Budget to coming up with a rolling forward programme of infrastructure projects, so that we can start to give much greater certainty than there has been to the construction and financing industry in this country. If we expect businesses and financiers to take the strain, which they will do on 60 to 70 per cent of that £200 billion of infrastructure, we need to give them some clarity about where these programmes will be directed, so that is what we will do.
In answer to the specific challenge from the noble Lord, Lord Soley—although he knows this well—it is worth restating that, yes, aviation policy is very important. That is why my right honourable friend the Transport Secretary took time to work up a consultation paper that was published yesterday. I acknowledge that it may not meet the aspirations of all interests in the aviation sector but it is the start of a critical debate. I acknowledge that that debate must be had: that is why the consultation paper has gone out on aviation policy, which is one critical component. Alongside that, I acknowledge the references that were made to our commitment as a Government to high-speed rail. We must look at transport within a holistic and complete picture.
In this general area, there were also a number of references to the desirability of a green investment bank, a national investment bank or an infrastructure bank; your Lordships expressed it in a number of ways. I entirely understand the ambitions of the noble Lord, Lord Skidelsky—the noble Lord, Lord McFall of Alcluith, made this point as well—but without going into the technical details of PSBRs and how government accounting works, the first thing to say is that having a very large national investment or infrastructure bank is simply not possible given the constraints that we have on the Government’s balance sheet. However one looks at it, this would score against the national borrowing. Even if the case were made, and there are strong proponents on both sides of the argument about how big a green or a national investment bank is required, we have to be realistic about the constraints of the public balance sheet.
Within that, we announced last week in the Budget that we have brought forward by one year the starting date for the operation of the green investment bank to 2012-13. I do not want to make political points, but this Government for the first time have committed the money—£3 billion. That is a good start. We have committed money to this project in a way that there was previously a lot of talk about over the past few years. The bank will be able to leverage in private sector money so, even though in the first couple of years of its operation it will not be able to have its own borrowing, the leveraging effect of the green investment bank, by working with private sector investors, will be materially important to the more challenging investment schemes that must be introduced in the areas of new energy and new technology.
That is to address a few of the specific points made. I end by drawing attention to one or two of the reasons to be positive, which are very welcome. Yes, there are huge challenges, but the noble Lord, Lord Rees of Ludlow, reminded us about the latest Nobel prize-winning team, working with graphene, that has been based in this country and the need to exploit that; the noble Lord, Lord Mitchell, talked about Silicon Roundabout with great passion and the way that that will translate through the Olympic legacy and Tech City into something that is really lasting; my noble friend Lord Flight talked about the 428,000 jobs that were created in the private sector last year; the noble Lord, Lord Bhattacharyya, talked about our great strengths growing again in manufacturing and exports; and my noble friend Lady Wheatcroft gave us a specific example in the design and textile world of what we can do.
This has been a wide-ranging debate. I take from it a great challenge to Government, which I assure noble Lords the Government are committed to driving through. I also take away some great strengths that we have to work on. The Government are putting our economy back on the right path. We are supporting and will support enterprise, and we are driving innovation. We are doing our part as a Government to invest in skills, jobs and infrastructure. The Budget stands firm on our plan for the recovery; it is a plan that is good for business and good for growth and will help to create the prosperous economy that the people of Britain deserve.
Monetary Policy Committee
Lord Davies of Stamford Excerpts(13 years, 9 months ago)
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Lord Davies of Stamford
Does the Minister agree that, although the Monetary Policy Committee has a single target imposed on it—the 2 per cent inflation target—in practice it has been behaving as though, like the Federal Reserve, it has a multiple target, with responsibility not merely for price stability but for stabilisation or employment? It may be a very good thing that the Bank of England has not been increasing interest rates, as it might have done if it had been following a single price stability target over the past couple of years, but are the Government not concerned at the discrepancy between the formal position and the actual practice on which our monetary policy is currently based?
Lord Sassoon
My Lords, I refute that suggestion completely. The Bank of England Monetary Policy Committee is following to the letter not only the direction of the Chancellor in terms of the target but also what it is obliged to do under Section 11 of the Act, and that is what it continues to do.
Loans to Ireland Bill
Lord Davies of Stamford Excerpts(13 years, 11 months ago)
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Lord Davies of Stamford
My Lords, I begin by asking the Minister a question. I would have intervened on him earlier, but since I was hoping to speak in the debate I did not want to interrupt him unnecessarily. I think I heard him say that this potential transaction by which we lend three point something billion pounds to the state of Ireland will not increase our borrowing, because the Irish have an obligation to repay. I see the Minister shaking his head, so perhaps I misheard him. If I misheard him, I apologise. Clearly it may not increase net borrowing, because we have a corresponding asset—the Irish obligation to repay—but government borrowing figures are always stated on a gross basis, otherwise they would not be positive at all, because we always have substantial net assets. I thought that there was some confusion about that one phrase that the Minister used, but perhaps he will deal with that in his response. I am grateful to him.
I am very much in favour of the Bill. It seems to me to be absolutely the right measure for two reasons. One reason, which the Government seem rather to dismiss, is that Ireland is a neighbour, a great friend for all the reasons that the noble Lord, Lord Bew, set out, and a member of the European Union. I believe in the notion and the value of solidarity among nations, as in other branches of human affairs. I believe in soft power as well as hard power, in friendship and in good will. I believe in the value of these things, in the value of creating and maintaining them and that it is a mistake if you throw them away. That is an important consideration and I shall come, in a moment, to what I think of the Government’s attitude on that subject.
Secondly, I approve for the reasons that the Government appear to approve of it, which is that we have a very specific, practical and concrete interest in avoiding the kind of systemic crisis which could well be generated by a default by the Irish Government on their bond and other financial obligations, or, indeed, a default by the Irish banks, which are currently being guaranteed by the Irish Government. One default could well trigger another. Clearly, that would create a very difficult situation for us.
My regret about the Bill, how it has been brought before the two Houses of Parliament and the way in which the whole issue has been conducted by the Government is that the Government have given away a lot of the good will that might have been achieved by this gesture by an extremely grudging approach to this transaction. As my noble friend Lord Liddle pointed out, we deliberately decided that we do not want to be part of a collective solution; we want to do these things individually and bilaterally. The Government’s is a rather strange gesture to make, a rather strange signal to send. The Chancellor has been at pains to make clear that he was not responsible for Alistair Darling's agreement that we should join the stability mechanism back in May. Indeed, the Chancellor said in another place:
“I am doing everything I can to ensure that the UK is extricated from the commitment that was entered into, and we are making good progress”.—[Official Report, Commons, 15/12/10; col. 944.]
He said elsewhere in that debate that we will certainly not be part of the permanent mechanism when that is established.
I regret all those things for two reasons. The first is the practical and concrete reason of hard financial national interest; the other relates to my point about good will. In the first instance, there may well be other crises in future. It would be idiotic to exclude the possibility of our need to take part in such support operations in future to avoid some systemic crisis. It is always foolish in life to give up any flexibility. You want to maintain flexibility to respond in different ways. Excluding the idea of being part of a collective mechanism in the EU makes no sense. The other reason, as I said, is that it sends quite the wrong signal, and to my mind reduces the good will created by our decision to support Ireland in this way.
All that reflects an uneasy compromise in the coalition Government. I suspect that the Lib Dems in the Government very much take the view that I take and would have been in favour of this whole operation instinctively on principle in the first place, would then have wanted to negotiate details with our EU partners jointly, and would have had no inhibitions about doing that because they are European partners or members of the eurozone.
I suspect that the advice that the Government received from officials in the Foreign Office was that it would be disastrous, particularly after the centuries of Anglo-Irish history to which my colleague, the noble Lord, Lord Bew, referred—many incidents that are very much to the shame of this country. If we were the only major EU country that declined to take part in the support operation, it would have the most appalling effects on our relationship with Ireland. I imagine that the Foreign Office took that line—at the official level, at least. I imagine that the Treasury and the Bank of England were concerned with the potential systemic crisis and therefore urged the Government to take part.
I suspect that, against that, there were the Tories who, for Eurosceptic and chauvinistic ideological reasons, were reluctant to become party to this transaction and were certainly very keen to ensure that it had nothing to do with our European Union membership or the existence of the eurozone.
That uneasy compromise is reflected in the very grudging way in which the money has been advanced and the very grudging statement that I have just cited from the Chancellor, which I very much regret. I am sorry that I cannot come up with entirely effusive, uncompromising congratulations for the Government on this move, but I am glad that they have taken the right decision, however grudgingly, and I shall be delighted to support them if there is a vote on the subject, which I doubt that there will be.
I have a couple of remarks to make about the general context. So much complete nonsense, and dangerous nonsense, has been talked about the relationship between the euro, the banking crisis and the sovereign debt crisis that we have faced over the past year or two that I feel inspired to comment on it in this debate. It has been said openly and frequently in the Eurosceptic press in this country and by a number of Conservatives in the House of Commons that it shows the weakness of the euro system. It has also been suggested that the solution would be the break-up of the euro and that the countries with substantial debt should leave the eurozone. I regard both those comments as either completely incompetent, if people really do not understand what the logical consequences would be of the actions that they are urging, or frankly irresponsible and unpatriotic, because they do not take into account the interests of this country or are willing to sacrifice the interests of the people of this country for purely ideological, emotional or symbolic reasons.
Of course, the euro had nothing whatever to do with the banking crisis or the sovereign debt crisis. In fact, the sovereign debt crisis would almost certainly have been worse if the euro had not existed. I should be the first to admit that the fiscal rules in the Maastricht treaty—the maximum 3 per cent fiscal deficit unless there was the consent of the Union, and so forth—have not been enforced sufficiently strictly. We all know that now, and we need a tougher and tighter regime with proper monitoring and sanctions in future. Nevertheless, if that regime had not existed at all, people would have had even greater deficits. There is no doubt about that.
There was possibly some accounting fraud in the case of Greece, but if there had been no rules, constraints or restrictions at all, the situation would have been a great deal worse. The euro, far from contributing to the crisis, might—albeit too modestly to have greatly affected the outcome—have had a benign influence. As for the idea that the solution lies in breaking up the euro, my noble friend Lord Liddle has already commented on that. I thoroughly agree with him that that would be an astonishingly self-destructive, and therefore I say advisedly irresponsible and unpatriotic, view.
Undoubtedly, if the countries that are affected by the sovereign debt crisis—Spain, Ireland, Portugal or Greece— were to leave the euro, their currencies, whatever they might be, the successor drachma or punt No. 2, would suffer the most tremendous devaluation. As their liabilities are largely denominated in euros, they would find it completely impossible even to begin to meet the burden of that indebtedness. The result would be defaults or a massive restructuring that was far greater than any restructuring that might take place in an orderly fashion in the context of agreement within the EU or the eurozone. That would mean that our banks would have to write off substantial assets, reduce the size of their balance sheets and reduce their credit creation in this country; that the economy would suffer; that jobs would be lost; and so forth. That would be a deeply regrettable state of affairs and it is thoroughly irresponsible to wish that to happen.
I trust that people will be guided by a rational assessment of the national interest rather than by an emotional desire to see the eurozone collapse irrespective of the consequence for either our partners in the eurozone or us. There is no doubt that the euro is not a part of this crisis. It is not a part of the problem and it is not a contributor to the problem. It has been at least a minor reducer of the scale of the problem. It must be an essential part of the solution.
Lord Lamont of Lerwick
I do not disagree with much of what the noble Lord has said, but I think he is slightly overstating his case. It reminds me of when I went to Brussels and the European Commission told me that absolute disaster was going to follow when the rouble broke up into individual countries. The Commission sounded just like the noble Lord. However, let us leave that aside.
The noble Lord slightly overstated his case. Does he not think that the convergence of bond yields within the eurozone was a contributor to what happened, because the bond markets ceased to look at countries individually and the convergence of yields encouraged countries to spend too much and to borrow too much? The failure of the markets to distinguish between countries and that convergence of bond yields, which came from the view that Germany would ultimately bail out the other countries, was a contributing factor.
Lord Davies of Stamford
I agree entirely with the noble Lord’s indictment of the financial markets and a lot of lenders. I should say that I was a banker myself and sat on the board of a bank, Morgan Grenfell, which had a considerable lending book as well as being an investment bank at the time, and frequently sat on the credit committee meetings we had. I am appalled by the mistakes made by professional bankers in not wanting to look at the nature and unravel the packages of a class of asset—securitised debt packages, essentially, which were becoming very important as a class of their assets. I equally quite agree with the noble Lord that the bond markets were failing to price risk correctly in exactly the way that he describes. The rating agencies bear a tremendous part of the failings, the fault and the guilt for creating this crisis. Many bankers’ excuse is, “We thought we were buying paper with an AAA credit rating and in fact the credit agencies weren’t doing their job properly in unravelling these packages and seeing that what was in them was absolutely rubbish”.
I agree totally with—I think of calling him “my right honourable friend”—the noble Lord in what he said in indictment of the financial markets. I think that is the problem. It is not an indictment of the currency in existence at the time any more than you can say that the enormous failings of the American banking markets, the American bond markets or the American rating agencies were the fault of the fact that they have a currency called the dollar.
Lord Lamont of Lerwick
I hesitate to remind the noble Lord, but I remember him making speeches telling us that if only we were in the euro, we, too, could enjoy these very low bond rates.
Lord Davies of Stamford
Undoubtedly had we been in the euro—and I totally agree with the noble Lord that I was, and remain, a partisan of our joining the euro—as a result we would have had to adopt tighter fiscal policies. The noble Lord may feel that the result of that might not have been entirely unfortunate for the future history of the country. Nevertheless, we would have done, and the counterpart to that would have been that we would have had lower nominal and real interest rates throughout that period. I happen to think that that would have been a good thing as well.
Lord Pearson of Rannoch
My Lords, I am sorry to press the noble Lord, but is he really saying that the predicaments in which economies such as Ireland or Greece, which would have kept their own currency, which would have over a period of years—in Greece’s case, 10 years—floated down on the international markets and which would have their own interest rates and exchange rates, find themselves now have nothing to do with their participation in the euro?
Lord Davies of Stamford
I am very happy to give, I hope, a very unambiguous answer to that as well. I do not believe that there is any virtue in the fluctuation of exchange rates. I believe that exchange rate markets, like other asset markets, fluctuate quite irrationally. They swing far too far, an enormous amount of damage is created, they are never at the theoretical point of equilibrium which some people read about in their textbooks 50 years ago and enormous economic costs are caused by these fluctuations. If you can replace them with a stable currency system, as we did before 1914 with gold, as the eurozone has done, as the United States has done with the dollar and so forth, that is a very good idea, all other things being equal. We can get into the “all other things being equal” on another occasion perhaps. I think that if you take the long 20-year view, Greece, Ireland and Spain have all benefited enormously from their membership of the European Union and the eurozone, and that will continue to be the case. We now have a momentary crisis, which looks very grim at present, but we should not throw the baby out with the bath-water.
Lord Tugendhat
My Lords, like other noble Lords who have spoken, I applaud the Government’s decision to offer Ireland a loan, and I also applaud the manner in which it was done. I do not agree with the noble Lord, Lord Davies of Stamford, that it was grudging or anything of that nature. I rather agree with the noble Lord, Lord Bew, that the Irish reaction has shown that they recognise that this was done in a full-hearted and generous fashion, and I am very pleased about that. It was done without strings, it was done quickly and the Chancellor of the Exchequer was quite right to emphasise that it was done in the British interest. Britain and Ireland are two neighbouring countries, their economies are very much bound up with each other, what is good for Ireland in terms of prosperity is good for Britain, and it is right that this should be recognised. Others have spoken of the extent to which Ireland is a major export market, of the way that the economies of Northern Ireland and the Republic are very much bound together, of the number of British companies that operate in the Republic and, of course, of the exposure of British banks, especially the Royal Bank of Scotland, to the Irish financial sector. In helping Ireland, the Government are not diverting money from worthy causes in the United Kingdom, but are acting to safeguard British jobs, British interests and British taxpayers’ money. The sooner Ireland can return to prosperity, the better for us that will be.
I got the impression, but perhaps I am wrong, that the Minister felt that the measures that have been taken would secure that. I hope he is right, but I have to say that I am not so sure. I feel that further pain may be on the way and that some of the pain may be felt by private lenders. That remains to be seen, and I certainly hope that the measures taken by us and by the other participants in the rescue operation have the desired effect. Like the noble Lord, Lord Bew, I see this very much in the context of the Anglo-Irish relationship, both present day and historical.
There are some who suggest—it may even be that the noble Lord, Lord Pearson of Rannoch, will express this view—that because Ireland is a member of the eurozone, and we are not, we should somehow stand aloof from it. I think that is absurd. The Prime Minister and the Chancellor of the Exchequer, as well as the Minister this evening, have repeatedly said that it is in Britain’s interest that the eurozone should be a success. Of course, that does not mean that we have the same responsibilities towards each other as the members of the eurozone, but it does mean that we should recognise the nature of our links with it and the existence of our exposure to it. We are not an offshore island in that sense with a financial system separate and distinct from that of our European neighbours. The whole apparatus of British financial services and the City of London as a great international centre are intimately bound up in the wider European financial system. They are, of course, intimately bound up in the global financial system, but most intimately and most directly they are bound up within the European, and through the European, in the global financial system. The two are not mutually inconsistent. This has been a great source of profit to the United Kingdom. It continues to be so, and Mayor Boris Johnson never ceases to point out the benefits that accrue to London as well as to the United Kingdom.
It is very much in our interest that we should participate, but I part company from the noble Lord, Lord Liddle, so far as the permanent mechanism is concerned, and I find myself much closer to the position of the Minister. As I said, we do not have the same obligations and responsibilities to the members of the eurozone as they have to each other, so I feel it is right for us not to sign up to something that would involve us in a permanent obligation. I do not mean by that that we would necessarily wish to stand apart on some future occasion. We might, or we might not. I felt that the noble Lord, Lord Liddle, drew too much on the Irish example. Our relationship with Ireland is quite different from our relationship with any other European country. However, I can well imagine that circumstances might arise—
Lord Davies of Stamford
It is not surprising that as a man of the world and a former European commissioner, the noble Lord is not someone who is so foolish as to want to exclude any possibility in the future and lose flexibility, but does he not agree that if we are not part of the permanent mechanism, we will not be part of the conversations, we will not be part of the analysis and we will not be part of the decision-making mechanism? We might have the opportunity to come in later on to a deal that has already been put together by others or to try to find some bilateral solution in the face of a much bigger multinational arrangement, but surely that is not a very sensible way of conducting our country’s affairs.
Lord Tugendhat
No, I do not agree with the noble Lord. He draws too clear a distinction between membership and non-membership. I do not want to get diverted, as others have, from the main theme of my speech, but I think that Britain is a substantial member of the European Union. Therefore, conversations do not take place in one room with Britain being excluded entirely. People need to know what Britain is thinking and there has to be a certain interchange.
There are people who thought that if we did not join the euro, we would somehow be excluded from a lot of discussions. There are certainly discussions in which we do not take part and it may be that Ministers are rather relieved sometimes that they do not have to. But Britain is too big an entity to be entirely excluded and only brought in at the end of the discussion when everything has been decided. If Britain is to play a role in a future crisis, people will want to know beforehand what our attitude is likely to be, how far we might be able to go and under what terms we might be able to participate.
That brings me back to my line of march. When perhaps future problems arise, we should look at each of them and take a decision on their merits—certainly recognising our considerable interests in the eurozone; certainly recognising the importance of our membership of the European Union; and certainly recognising our interests in the political stability of different countries. But we should look at these things on their merits, decide our position on each one as it comes along and ensure that the decisions we take are subject to parliamentary approval. We are much more likely to carry confidence in the country and have support from the electorate if we are seen to do it on the merits, rather than if we are seen to have signed up to a certain automaticity.
Lord Sassoon
These are all factors that mean that we need, with the EU 27, to make sure that the structural reforms are driven through and that we get the benefits of completing the single market project and so on. However, my noble friend Lord Tugendhat again got it exactly right—I would not agree with every nuance of his analysis, but he got the essential point right—in saying that just because we are very positively engaged at the centre of all those other issues does not mean that there are not critical differences, because we are not part of the eurozone and this Government will not take us into it. It is therefore for the eurozone to sort out its own permanent mechanism for dealing with any other issues that arise out of membership of the euro. That is the fundamental difference between the UK’s position and that of other of our partners in Europe. I genuinely fail to see why the noble Lord, Lord Liddle, seeks to paint the position in such stark colours. The fact is that we are in a different position from that of a number of the largest trading partners in Europe, which needs to be reflected in the permanent arrangements that will be put in place. My noble friend Lord Tugendhat explained that in much more masterly terms than I will ever be able to do.
Some questions were asked about the economic and market analysis of the situation, not only of how we got here but how we go forward. I listened with interest to the exchange between the noble Lord, Lord Davies of Stamford, and my noble friend Lord Lamont of Lerwick. The rather succinct and pithy remarks of my noble friend better encapsulated the situation in which Europe finds itself and in which it is clear that the fact of the euro cannot be ignored. That takes us back to why the eurozone needs to think about the consequences and the lessons of this crisis for a permanent mechanism.
In answer to the specific question of the noble Lord, Lord Davies of Stamford, I restate that the loan to Ireland does not add to our deficit. It increases the borrowing on one side of the UK’s balance sheet, but we have an asset in terms of the money that will be owed to us by Ireland. There will be an increment to the fiscal position by the net interest margin, estimated at current interest rates to be some £440 million. That is the only element that should go through the current balance.
One or two comments were made on the process of the Bill. I am grateful to my noble friends Lord Cope of Berkeley and Lord Tugendhat for their endorsement and recognition of the fast-track approach that we have taken. It is necessary that we give confidence to our European partners and the IMF in putting this package together that the UK is ready at the earliest time to deliver on our commitments. I accept my noble friend Lord Cope’s analysis of the constitutional position in another place.
Lord Davies of Stamford
Perhaps may I press the Minister a little more on what he said about this Irish loan not adding to the fiscal deficit. I understand that he is saying that it does not add to the fiscal deficit because he is setting off one financial asset against a financial liability. Will he confirm, however, that it will add to the public sector borrowing requirement? Some £2.5 billion will have to be borrowed on the financial markets and be accounted for as part of the public sector borrowing requirement which otherwise would not.
Lord Sassoon
Indeed, my Lords, the money advanced to Ireland needs to be funded, but it is precisely because we have stabilised the fiscal position and secured the UK’s AAA credit rating that this matter is not a cause for particular concern.
I have already said why the Government believe that it is right that we should not be part of a permanent bailout mechanism—indeed, this is recognised in the recent Council conclusions. My noble friend Lord Newby asked about the process for adopting the treaty amendment that will be necessary. Parliament must of course give its approval to any treaty change that is agreed by member states, and ratification in the UK will be subject to the terms of the EU Bill that we are bringing forward. A treaty change will be subject to primary legislation. Since there is no question of transfer of competences in this case, the question of a referendum does not arise.
Comprehensive Spending Review
Lord Davies of Stamford Excerpts(14 years ago)
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Lord Davies of Stamford
My Lords, that was a very eloquent and well-informed speech and I hope that the Government have taken careful note of it. I am delighted to follow such a substantial and distinguished contribution.
I think all of us were delighted and greatly relieved at the good performance of the economy in the third quarter and the fact that the growth rate was at 0.8 per cent. But it is quite ludicrous—actually embarrassingly ludicrous—for the Chancellor to go around almost in an orgy of self-congratulation about that. Anyone who knows anything about how an economy works and the time lags in an economy knows perfectly well that there is nothing that could have happened in fiscal or monetary policy since the middle of May which would have affected the output of the economy three or four months later. There was no change in fiscal policy over that period. Quite clearly, if tributes are to be given, they are to be given to the former Prime Minister and to the former Chancellor for the course that they had correctly set during the difficult international conjuncture of the past two or three years.
Undoubtedly the Government are now embarked on economic policies which are very risky. It is not just I who says that—there have been eloquent supporters of the Government today in this Chamber, the noble Lords, Lord Lamont and Lord Tugendhat, who have acknowledged the same thing. You cannot take £133 billion out of the economy over five years—taking the combination of expenditure reductions and increases in taxation—with impunity. That is roughly on average 2 per cent of GDP per annum. That is an enormous reduction in aggregate demand and begs a tremendous question as to where that aggregate demand is going to come from, particularly in present international circumstances. There are obviously great risks. No sensible person denies that and sensible Tories today have acknowledged that.
I am worried about two aspects. I may be right or I may be wrong but my inclination is that Government are cutting expenditure too far too fast. I may be completely wrong, but there are two slightly more objective factors here, which concern me deeply. The Government do not seem to be helping themselves very much. I have several examples in mind. It seems to me extraordinarily ill-chosen, in the situation in which we find ourselves now, to increase the VAT rate from the beginning of January. Every fool knows that January and February are the low point seasonally in the economy when consumption is at its lowest. Increasing a consumption tax like VAT at that point is likely to exacerbate the volatility of the economy rather than stabilise it. Why 1 January or perhaps 4 January? Why then? Any sensible person would have done it perhaps in April, or in two stages. It is extraordinary.
I put another example to the noble Lord, Lord Sassoon, at Questions the other day. Why allow the publication of a forecast that there are going to be 490,000 job losses in the public sector over five years—a calculation that must be based on knowledge of which particular departments and functions are going to be affected—without saying what those departments and functions are. As a result it is not just 490,000 people and their families who are going to be desperately worried and cutting back on their consumption expenditure and increasing their savings ratio, but it is going to be millions on millions of people in the public sector—other than those who have been explicitly protected— any of whom could feel that they are going to be targeted. It is not a sensible thing to do when you are trying to replace with enhanced consumption spending your explicit and deliberate reduction in public spending. I am worried about that.
I am also worried that the Government do not seem to have much of a fallback position. If you ask them, the reply is “monetary policy”. There are two problems there. One is because of the time lags. If the Government find that they have cut expenditure too far and too fast and killed the recovery, it will be too late to use monetary policy then because monetary policy does not feed through into output for a year or two. Again they will have exacerbated the volatility of the economy and have got the thing badly wrong.
The next thing that concerns me in this context is that monetary policy at present levels of interest rates means of course quantitative easing. I am concerned that the Government are getting rather addicted to quantitative easing—rather like an adolescent discovering drink or drugs. It tastes pleasant, it makes you feel good—let us have some more. There is a big question about quantitative easing which the Government need to answer. The Government have never answered it as far as I know—in fairness I am not sure the question has ever been asked—so I shall do so now explicitly and ask for an answer. It is very easy for the Bank of England to buy in this paper, creating automatically bank deposits and generating an increase in the monetary aggregates. That is an easy and apparently painless thing to do. But when is the Bank going to sell back that paper? Is the Bank ever going to sell back that paper? Is this part of the Government’s debt that is being bought in by the Bank of England going to be permanently monetised? If so, how much do the Government plan permanently to monetise in this fashion? Is there a ceiling? May I have an answer please from the Minister? If there is no intention to monetise, when and in what circumstances is it planned to sell back this paper, bearing in mind of course that selling it back will be in direct competition with government new issues in the gilt market at the relevant time. That is a problem that does not exist when you increase and use interest rates to manage demand. It is an important question to which the country needs a clear and explicit answer. When and in what circumstances is that paper to be sold back?
I was going to speak at slightly greater length about some of the perversities in the measures on benefits in the comprehensive spending review. However, my noble friend Lady Hollis made an absolutely brilliant analysis and she was followed by an extraordinarily distinguished analysis from the noble Lord, Lord Low. They have done so well that I am going to do something quite different. I ask the noble Lord, Lord Sassoon, whether he would be good enough to commission from the DWP and the Treasury a reasoned response to all the perversities that were set out by my noble friend Lady Hollis and the noble Lord, Lord Low. He should not only send that to them but put a copy in the Library for the benefit and elucidation of us all.
I am of the view that welfare reform is a very good thing and that Iain Duncan Smith’s single benefit idea is much to be commended. As I see it, it forms a coherent progression with the measures taken by the previous Administration to make sure that people had a greater incentive to work and that there were fewer perversities in the system. That was created by the introduction of the minimum wage and by the tax credit scheme which were, again, very important measures of welfare reform. Similarly, I would welcome other measures in the same direction. There were egregious abuses with regard to housing benefit. I am perfectly happy to acknowledge that and it is good that we are addressing them. Indeed, I have always felt that housing benefit was inherently problematic because it tends to drive up rents. Too often, landlords assume that the maximum that the benefit office or local authority will pay is the minimum that they will demand. It becomes an engine for driving up rents and therefore contributes to the problem that it is designed to alleviate: homelessness. Yet that does not mean to say that the Government are very clever to have produced a situation in which literally tens of thousands of people—so we are told by no less a figure than the Mayor of London—will be forced out of their homes.
My noble friend Lady Kennedy spoke movingly about people who are confronted with redundancy. I think that would have moved noble Lords on all sides of the House. Yet if you go home and tell your children that you are to be evicted, it is only scarcely less horrible than having to go home and say, “I’ve got the sack”. We should think carefully about the tens of thousands of our citizens being forced to leave their homes in that way. I put it to the Minister that there was a solution which was, at once, more practically sensible, more economically judicious and more humane in all these matters—this goes for child benefit as well. It was to introduce the new, more stringent rules for new applicants, to phase in the new rules for existing claimants, to use transitional relief; and to withdraw benefits at a certain level—whatever effective rate of taxation that might be. That could have been done in a less economically disruptive and less dramatic way in terms of the human impact on families.
It is never too late, I say to the noble Lord. What is the point of having these debates if the Government come here with a closed mind before they start? I hope that some of the thoughts that have come out of this debate will indeed be taken back by the noble Lord, Lord Sassoon, to his colleagues and that we might get a slightly better result than the one we have before us at present.
Terrorist Asset-Freezing etc. Bill [HL]
Lord Davies of Stamford Excerpts(14 years, 1 month ago)
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Lord Davies of Stamford
I thank the noble Lord for giving way. He may not be a lawyer, but he is a Minister. He has come before this House to present a Government Bill and therefore must be deemed to understand what the purposes of the Government were when they drafted and brought forward this legislation. I have listened with great interest to the debate with no intention of taking part, but it is clear to me that the Minister is not willing to tell the House whether Clause 1 has extra-territorial effect. The question should be capable of a simple yes or no answer. The Government must know where they are on that whole idea before they come before the House with a Bill.
Lord Sassoon
My Lords, I am trying to get to the substance of what we are seeking to achieve here, which is that if the people are abroad—that is, extra-territorial—but their assets are here, those assets can be made subject to an asset-freezing order. Indeed, if the people or the entities are UK persons, the asset freeze can also bite on them. I hope that that clarifies what we are trying to achieve.
Lord Davies of Stamford
We all know what “territorial” means. It means persons who are in this country or visiting this country, or corporate persons such as banks that are resident in this country but have assets abroad. That is territorial jurisdiction. What we want to know is whether Clause 1 has extra-territorial jurisdiction attached to it. In other words, is the power capable of being exercised in relation to persons and assets that are not connected with the United Kingdom?
Lord Sassoon
My Lords, let me try to say it again. Clause 1 bites on assets that are here—that is, territorial assets—but also enables the Government to freeze the assets of people who are not here, which would be extra-territorial.
Lord Davies of Stamford
So, to be clear, the clause can bite on persons or assets that are not connected with the United Kingdom.
Lord Sassoon
No, my Lords, that is not strictly what I said. Clause 1 can bite on assets that are here that might be under the control of people who are not in the UK. Equally, it may bite on people who are within the jurisdiction of the UK on assets that they might hold elsewhere. I am sorry if that is not clear.
Lord Davies of Stamford
Does Clause 1 have extra-territorial jurisdiction encapsulated within it, or does it not have extra-territorial jurisdiction encapsulated within it?
Lord Sassoon
I am trying to reduce this to what Clause 1 actually does. I do not believe that saying whether it is extra-territorial will clarify the point at all. What I am trying to do is get to the substance of what the clause is intended to achieve. I do not know whether it is being suggested that we should not, for example, be able to freeze the assets of the likes of Osama bin Laden, if he had assets in this country, just because he does not happen to be here. Is that what is being suggested we should be prevented from doing?
Comprehensive Spending Review
Lord Davies of Stamford Excerpts(14 years, 1 month ago)
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Lord Sassoon
I thank my noble friend Lord Newby for drawing attention to the fact that departments will be encouraged to take the maximum opportunity of flexibility in pay and other conditions in the way that he described to mitigate the effects of the inevitable job reductions in the public sector. We will also be introducing a number of other measures to mitigate those job losses, which of course we very much regret. For example, we are introducing the regional growth fund and there is the protection that comes with the wider pension reforms. With assistance from Jobcentre Plus, there will be a further range of measures to mitigate the effects of the job losses in the public sector.
The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, we have agreed to extra time for this Statement, but perhaps we should, as a matter of courtesy, give priority to those noble Lords who sat through the reading of the Statement, rather than those wandering in five minutes before the end.
Lord Davies of Stamford
I take it that the Government themselves acknowledge that the recovery is fragile and that, by reducing planned public expenditure and increasing taxes so drastically—the Statement rather skated over the taxes aspect—thereby taking demand out of the economy, they are taking some risk, at the very least, with that fragile recovery. In that context, was it sensible to announce the reduction of public sector jobs by 490,000 before publishing the detailed departmental plans from which, presumably, that figure was derived? As a result, not merely the holders of the 490,000 jobs but the whole public sector—millions of people and their families—will be deeply anxious about their future and will be reducing, perhaps drastically, household expenditure. That will take more demand out of the economy quite unnecessarily in a context where we require the reverse of that.
Lord Sassoon
My Lords, I think that what the country has really been worried about is how the Government would deal with this horrendous deficit problem. What underpins the prospects for renewed, sustained growth is that we have reduced the deficit as a necessary precondition and that we have done so in such a way that the markets are convinced that we are serious about it. The latest official data show that GDP grew strongly, by 1.2 per cent, in the second quarter. It is the substantial accumulation and growth of government debt that risks that ongoing recovery and that is what we have dealt with.