Economy: Growth

Debate between Lord Davies of Stamford and Lord Deighton

Tuesday 29th January 2013 Lords Chamber

[Lord Deighton]

I thank my noble friend for reminding me about unwinding quantitative easing. In summary, the central scenario predicted by the OBR is that it is expected to make a profit over its lifetime as the scheme is wound down but, as always with these things, that depends on a number of assumptions about the future yield curve, the exit, the pace of that exit, bank rate policy at the time and, of course, any changes to the size. However, those are the variables that go into that decision.

I think that all those who spoke about banking reform agreed that it was important to develop financing, particularly for smaller businesses, and that the Funding for Lending scheme, although in its early days, was showing every sign of being a successful scheme, so we are delighted with that introduction.

On the broader question of structural and regulatory reform, I could not agree more with the comments of a number of my noble friends that although it is absolutely critical to ensure that we have more resilience in the banking system so that the same mistakes are not made again, we have to be extraordinarily careful—I think the timing of the introduction of some of the measures reflects that—that we do not overshoot and significantly damage the banking system which exists to provide finance to the real economy. In my own mind, the real issue with many of these institutions has less to do with capital or liquidity rules and much more to do with the culture of leadership and management in those firms. We are beginning to see some promising signs of improvement there.

As regards the supply side, we have had many interesting contributions on small and medium-sized enterprises. I apologise to the noble Lord, Lord Mitchell, for the SME labelling, and note the comments of the noble Lord, Lord Birt. The United Kingdom is an extraordinarily successful incubator for small businesses. I absolutely take on board what my noble friend Lady Kramer said about thinking small. Two days ago I attended a small business forum. Everybody there was very supportive of all the initiatives that are going on. The discussion was all about implementation and taking advantage of things that are happening.

We have had a number of contributions on planning. No one ever puts forward the case that there should be more red tape, so we are all heroes in terms of our desire to cut it out and to enable faster planning permissions. As I think I mentioned in my opening speech, we have already cut 1,500 pages of planning policy and have speeded up the rate of approval of planning applications. My personal approach to this will be to follow through some of our projects to see where there are barriers and to use those as pilots for seeing where there are thematic problems that are holding up our delivery in the broader economy.

My noble friend Lord Lang referred to the defined benefit pensions issue. Rather than going through the details in my response, I will write to him separately on that. On the question of industrial strategy, I have sat in a number of meetings with my colleagues in BIS and they are absolutely focused on picking out where this country has competitive advantage and reinforcing that advantage in every way the Government can.

There has been a lot of debate on the subject of infrastructure. I want to focus on the fact that our investment in infrastructure is not about pump-priming the short-term economy. It is about modernising and improving our economy so that, over the longer term, its productive capacity is significantly enhanced. If, in the short and medium terms, that has the extremely attractive by-product of generating a significant number of jobs and short-term growth, then that is a dream package. However, that is the way around we should refer to it. There was quite a lot of discussion about roads: the ones that we have announced and have not built yet. There are a very large number of roads that we are currently building that were announced the time before: those are the lag periods. I am very interested in looking at schemes which allow us to take a longer-term perspective on creating the right investment package to support them.

The noble Lord, Lord Mitchell, was rightly concerned about broadband rollout. I have been focused on that as part of our rural broadband rollout and the urban strategy. Last month, the Chancellor announced a further £50 million to help 12 more cities deliver their ambitions for superfast broadband and I am working closely with my colleagues in DCMS and Broadband Delivery UK as well as the Economic Affairs Committee to drive delivery of that important rollout.

I see the value of smaller infrastructure projects, particularly those in local areas. This is highly consistent with implementing the reforms contained in the report by my noble friend Lord Heseltine, No Stone Unturned. For example, we have already launched 27 schemes with local authorities to help deliver that.

[Lord Davies of Stamford]

Before the Minister sits down, may I thank him for his answer to me that the interest rate paid by the Bank of England on bank deposits is 50 basis points, not the 75 basis points that I thought? Does he agree that any interest rate paid by the Bank of England to banks in those circumstances is undesirable, because it runs counter to the whole object of the exercise, which was to maximise the incentive on the banks to lend as much as possible?

[Lord Deighton]

I thank the noble Lord for the follow-up question. The scheme which we have employed to encourage banks to lend—the Funding for Lending scheme—is a very effective mechanism to improve lending to businesses and households.

[Lord Davies of Stamford]

That is not an answer.