Health: Private Medical Insurance

Lord Eatwell Excerpts

Monday 15th November 2010 Lords Chamber

[Lord Sassoon]

I thank my noble friend for raising that point. Of course I am happy to convey to the FSA the points that have been raised this afternoon.

[Lord Eatwell]

My Lords, the noble Lord has taken a remarkably complacent view in his answers about the position of policyholders. Surely the FSA’s responsibility to ensure that financial institutions treat their customers fairly requires that this matter be investigated and that better information be given to policyholders about the limitations of their cover.

[Lord Sassoon]

My Lords, I think I have responded to the noble Lord’s points in the answers that I have given to a number of questions.

Budget Responsibility and National Audit Bill [HL]

Lord Eatwell Excerpts

Monday 8th November 2010 Lords Chamber

[Lord Eatwell]

My Lords, I am most grateful to the Minister for his introduction to the Bill. I shall begin by referring to the second part of the Bill, which deals with the revised arrangements for the re-establishment of the NAO and its relationship with the Comptroller and Auditor-General. I am assured by the Treasury Bill team that, apart from minor drafting changes, this is the same Bill as that introduced by the last Government and lost at the end of the last Parliament. I can therefore begin this afternoon by congratulating the Government on having recognised the wisdom of the Labour Government’s proposals. I may have some small amendments to propose later, when I have had the opportunity to examine the Bill in more detail, but for the moment, with that part of the Bill, I am content.

I turn to the real novelty before us: the proposed legislation to establish an independent OBR. We on these Benches regard the idea of an independent Office for Budget Responsibility as a very good idea—perhaps the only good idea that the Government have had so far. We are therefore totally committed to ensuring that the legislation establishing the office is robust and fit for the purpose of establishing an independent office that will become an enduring and credible part of this country’s policy-making apparatus. To that end we apply the following tests to the legislation: first, independence; secondly, credibility; and thirdly robustness—that is, are the structures in place sufficient to maintain independence and credibility among the political storms that will invariably assail the office from time to time?

First, on independence, the comparison of the legislation establishing the OBR with that re-establishing the National Audit Office, conveniently contained within the same Bill, reveals that the OBR’s independence is a pale shadow of the independence of the NAO; and, correspondingly, that the independence of the chair of the OBR is a pale shadow of the independence of the Comptroller and Auditor-General. For example, Clause 17(1) makes it clear that the Comptroller and Auditor-General,

“has complete discretion in the carrying out of the functions of that office”.

Clause 6(3), by contrast, requires that the OBR must,

“in the performance of its duty … act consistently with any guidance … in the Charter”,

as described in Clause 1 of the Bill—which, by the way, incorporates Clause 1(6), stating that that guidance may be modified at any time. Let us remember that this guidance is guidance by the employer, since all OBR funding comes from the Treasury. It is not casual suggestions by a disinterested party. So the guidance of the charter is fundamental to the status of the OBR. It qualifies virtually all the supposed freedom and independence of the organisation. So, when will the charter be available for scrutiny by your Lordships' House?

In the absence of the charter, let us examine Clause 1 more carefully. In Clause 1 we read that the charter will outline,

“the formulation and implementation of fiscal policy and policy for the management of the National Debt”.

Notable by its absence from the charter is any reference to the economic health of the nation—the level of unemployment, for example. It therefore fails to provide transparent guidance to the OBR concerning the performance of its duties, as set out in Clause 4, to provide fiscal and economic forecasts. Will the Minister tell the House whether the catch-all clause, Clause 1(3), which states:

“The Charter may contain … other material as the Treasury considers appropriate”,

will contain guidance as to the economic variables to be included, or, perhaps even more important, those variables to be excluded from the activities of the OBR?

More broadly, Clause 1 makes it clear that the guidance of the charter will ensure that all activities of the OBR will be those that “the Treasury considers appropriate”, save one. At only one point in this whole Bill are independent powers provided to the OBR—that is, in Clause 6(2), which states that,

“the Charter must not make any provision about the methods by which the Office is to make any such forecast, assessment or analysis”.

That is it; that is the only independent bit. I do not want to suggest that that method of forecasting is unimportant—of course it is important, and I shall return to it in a moment—but I am certain that the phrase “an independent Office for Budget Responsibility” might be expected, in the understanding of ordinary people, to mean much more than that. However, the OBR does not have freedom over what it is to study. It does not even have the freedom apparently suggested by Clause 5(2), which was quoted by the Minister and states:

“The Office must perform that duty objectively, transparently and impartially”.

You would think that that was clear. However, that clause is qualified by Clause 6(1)(b), which mandates the provision of guidance as to what subsections (2) and (3) of Clause 5 entail. So the Treasury has to provide guidance on what transparency entails, and even what impartiality means. That does not sound very independent to me. If I have misinterpreted these clauses, may I suggest that the Government amend them to place their interpretation beyond all reasonable doubt?

One element of the guidance that we on this side agree with is that in Clause 5(3), which seems to confine the activities of the OBR to consideration of the impact of government policies alone. I am sure it is right that the OBR should not become embroiled in political controversy. However, will the Minister confirm that I have interpreted the clause correctly, because the clause qualifies the scope of the office’s consideration by the words:

“Where any Government policies are relevant … the Office may not consider what the effect of any alternative policies would be”?

I quite see that this may allow work on methodological issues or research into econometric technique, but what about circumstances in which the Government have no policy and hence the qualification no longer applies? Suppose, for example, that the Opposition put forward proposals to reduce the level of unemployment by means of schemes to be funded by the European Union. Could the OBR test these against a base-case scenario, as is the approach of the Congressional Budget Office in the United States? Or would it be prevented from doing so by Clause 5(3)? It is not at all clear. If the role of the OBR is to test government policies alone, why not say so explicitly?

Finally, on independence, paragraph 1(c) of Schedule 1 allows for the appointment of no fewer than two members of the office, who are not required to have,

“knowledge or experience likely to be relevant to the performance of the Office’s duty under Section 4”.

I suppose we should refer to these as non-executives. Schedule 2, on the other hand, establishes a National Audit Office with a majority of non-executives and a non-executive chairman. The NAO’s non-execs are appointed by the Public Accounts Committee and the OBR’s non-execs are appointed by the Chancellor of the Exchequer, so independence is eroded again. Moreover, the NAO’s non-execs have a clear responsibility, as set out in paragraph 10(2) of Schedule 2, to sustain the complete discretion of the Comptroller and Auditor-General. But a peculiarity of the OBR legislation is that it fails to place any responsibility on these non-execs, other than participating in the preparation of the annual report and in the audit. Since paragraph 12(3) of Schedule 1 explicitly excludes them from any role in the preparation of forecasts, what are these non-execs supposed to do? Make the tea? They certainly do not have the power to protect the independence of the OBR such as it is. Surely that should be the non-executives’ main role. The conclusion must be that this Bill neither establishes the independence of the OBR nor embodies procedures to protect the independence, save in one respect—the forecasting methods used by the committee.

Let us now turn to our second criterion, that of credibility. If the OBR were to be truly independent, as we on this side would wish, then it is inevitable that it will become a powerful brand. The access of the office to detailed government information, as described by the Minister, would make its reports the defining landmarks for those interested in economic and fiscal affairs—a very worthwhile achievement. As noble Lords may be aware, economic forecasting is a controversial discipline—an art not a science. Even widely used techniques do not command universal agreement or even respect. Forecasting models inevitably embody contentious theoretical assumptions, and econometric techniques are matters of often heated debate. It is therefore enormously important for the credibility of the OBR that its methods are subject to rigorous peer review and challenge.

The first component of this will be transparency. As already noted, the requirement of transparency is qualified by the provision of guidance as to what transparency actually means. However, some of my fears would be allayed if the Minister would guarantee that the data, methods and costings used in the preparation of forecasts will all be published simultaneously with those forecasts in readily accessible electronic form. This is necessary if there is to be informed review and challenge of the OBR's methods.

There should also be provision in the Bill for a peer review committee such as that provided in the structure of the US Congressional Budget Office. The peer review committee should be appointed by an independent person—perhaps the president of the Royal Economic Society—subject to the approval of the Treasury Committee in another place.

I turn finally to our third criterion: robustness. If the Bill were to establish a truly independent and credible OBR, future Governments would meddle with it at their peril. This is not a matter of the people involved. I have full confidence in the personal integrity and independence of Mr Robert Chote. I declare an interest as he is an active member of the Cambridge college of which I am master. However, the robustness of the OBR should not rest on personalities. That is why the severe limitations placed by the Bill on the OBR's independence, and the lack of any support for the credibility of its methods, indicate that the drafting fails the robustness test. Therefore the Bill fails all three of our tests. The OBR is not meaningfully independent, save in the methods that it uses—and those methods are not buttressed by the credibility of peer review. Failing those two tests, it is not robust.

I am prepared to accept that this outcome was not the Government's intention, and that the problems that I have identified are errors of drafting. If that is the case, I assure the Minister that I will be more than willing to work with him to produce a Bill that will establish an independent, credible and robust OBR. Of course, much of that work will be facilitated by sight of the proposed framework agreement between the Treasury and the OBR. Will the Minister confirm that such an agreement is being drafted, and will he tell me when I may have sight of it?

This part of the Bill is a failure. It need not be. I have a proposal to put to the noble Lord on behalf of my right honourable friend Alan Johnson, the shadow Chancellor. I propose that, at the end of Second Reading, the noble Lord, on behalf of the Government, should formally withdraw Clauses 1 to 10 of the Bill, and Schedule 1—that is, all material relating to the OBR. The Bill will then become the National Audit Bill, and will, I believe, receive support from all sides of both Houses. An all-party pre-legislative committee of both Houses should then be formed—or such all-party structure as the Government wish—to thrash out an independent, credible and robust structure for the Office for Budget Responsibility. This would be a major step toward increasing democratic accountability and transparency in our country. I hope that the Government will accept my right honourable friend's proposal.

[Lord Newby]

My Lords, I, too, welcome the Bill. When the proposal first came forward for the Office for Budget Responsibility, I regarded it as a gimmick. However, a number of things since then have persuaded me that I was wrong. First, when we discussed the statistics Bill several years ago, we discovered that only 17 per cent of the population believe any government statistics. Whether that is a rational view is irrelevant; the way in which politicians down the years manipulated official statistics left them with no credibility whatever. Therefore, a number of things needed to be done. Fortunately, the new structure of the Office for National Statistics is improving that figure, but it was a salutary reminder that, whereas we may take statistics seriously, politicians and Ministers have fallen so low in public regard that we are atypical.

Secondly, it became clear, not least from reading the book of the noble Lord, Lord Mandelson, that the previous Prime Minister and Chancellor believed that growth figures were a matter for political manipulation. It is absolutely clear that that is what Gordon Brown sought to do. This gives me another reason to believe that we have to take that power and oversight away from the Treasury. During Gordon Brown’s chancellorship, we had the delightful business of the golden rule and the way in which it was stretched, expanded and diminished to fit the requirements of the Chancellor. It is fascinating to hear the huge support of the noble Lord, Lord Eatwell, for these principles of independence. He shows all the zealotry of a convert. Certainly, while his party was in government, nothing was done to promote the principles that lie behind those parts of the Bill. That does not necessarily mean that his criticisms—

[Lord Eatwell]

My Lords, would the noble Lord like to make it clear that the independent structure of the Office for National Statistics was implemented by the Labour Government?

[Lord Newby]

My Lords, the structure was implemented by the Labour Government but, if it had not been for this House, the body would have been emasculated. The current structure is miles away from the feeble structure that came before your Lordships’ House. It required a cross-party coalition of former senior civil servants and Members from other parties to change virtually every aspect of that Bill, so that when it left your Lordships’ House it was almost unrecognisable. That is why the noble Lord is right to want to subject this Bill to careful scrutiny about whether it will achieve the aims that have been set for it.

Three areas deserve the scrutiny that the noble Lord has set out. It is important that the structure, the people and the role are right. First, the structure is slightly odd in some respects. The role of the chair and the way in which that person is appointed by a transparent appointment procedure obviously make sense. The other two members of the office are being scrutinised by the Treasury Select Committee and clearly must have relevant experience. Their roles are relatively clear, although it is not clear to me whether the Government envisage that these will be full-time or part-time roles. I find the context of the other non-executive directors strange in relation to this body and I am not sure what their role will be. I was slightly surprised by the use of the phrase “at least two”. If the chair decided that he would like half a dozen, would that be acceptable? More important, what role will they play? They will not be technical people, but much of the work of the office will be intensely technical. Will their role be to protect the independence of the office in some way and to proselytise about the role of the office? It would be helpful to have further clarification from the Minister on that.

Secondly, three positive aspects of the way in which the top people will be appointed will be crucial to the success of the body. First, they will be in place for five years, which is a long time. Secondly, unlike for members of the MPC, for example, the recruitment process will be open. It will not be a matter of the Chancellor ringing up someone on a Sunday evening and saying, “I’d like you to take this job and, by the way, I need to know by Monday morning”. Thirdly, the role of the Treasury Select Committee is important as regards the quality of the people involved. The Government have made a good start by their appointment of Robert Chote as the first chair of this body.

The third area where the noble Lord, Lord Eatwell, has demonstrated that there is room for further discussion is the remit and how it will work. I do not think that the word “independent” appears in the Bill, which is slightly surprising. There is some ambiguity about where the independence of the body starts and stops. We know from many other areas of public life that, if you give the Treasury an inch, its inclination is to take a mile. I look forward to discussions in Committee, where, I hope, we can clarify that slightly.

I do not think that the Government would be sensible to take up the generous offer of the noble Lord, Lord Eatwell, of a hugely long period of scrutiny on this. This body is of great significance and there has been a lot of public debate on it already. We have the opportunity in your Lordships’ House to debate all these technical issues carefully, as we always do, and so will those in another place. We need to get the formal infrastructure on to the statute book now, without further considerable delay. With those caveats, I am looking forward to the Committee stage and I support the Bill.

--- Later in debate ---

[Lord Sassoon]

My Lords, I have made it completely clear that there is no question of my making any criticism of officials. I am making criticisms of the previous structure in which Ministers were able—whether from wishful thinking or, as I say, from more sinister motives—to decide on the forecasts. That is why we need an independent body. I am conscious of the game that is played here—that I have to sit down after about 18 or 20 minutes. I will do my best to answer as many of the points as I can but if noble Lords want to interject, of course I will listen to them but I may not get through as much as I otherwise would and will have to write to noble Lords afterwards.

In answer to the question from my noble friend Lord Higgins and others about the desirability of having a draft of the charter for the House to see—absolutely, that is what I intend should happen. We are working to that end. Related to that in terms of what happens next, the OBR will publish forecasts before the end of the month which will bring its forecasts up to date to reflect the decisions announced in the comprehensive spending review.

As we think that this is the challenge that has been set, the Bill absolutely takes away the responsibility for determining the forecast from Ministers and gives it to independent experts. It needs to be a new independent body, rather than a case of just asking one of the fine existing forecasting houses. At the critical times of the year when the forecasts need to be produced, particularly at the time of the Budget, it is essential—as has been explained in different ways by the noble Lords, Lord Turnbull and Lord Burns—to have a close relationship. We need to have an independent body of the sort that we have designed, rather than just taking consensus forecasts after the event. I think that the House would be rightly outraged if we did not at the time of the Budget immediately have forecasts available.

Ministers will retain the responsibility for making policy and for the OBR to shine a light on the state of the public finances resulting from those policy decisions. I can therefore confirm that it is the intention that the OBR should remain outside politics and should not, for example, be asked to cost alternative policies, wherever they come from, including from opposition parties.

We have heard a wide range of questions about the design of the OBR. On independence, without dwelling on it, I do not think that the comparisons in any way with the NAO are right. These bodies have very different objectives and come from very different starting points. In answer to other points, the fact that they are put in the Bill together is a result of the fact that the NAO provisions are sufficiently important that we should bring them forward at the earliest possible date. As noble Lords will understand, legislative time is hard to come by. So, in terms of the trade-off between two Bills and finding a slot to bring forward important provisions of the NAO, we have taken the decision to put the two sets of provisions in the same Bill. However, that does not mean to imply in any way that we believe that there is a comparison to be made between the provisions for the two very different bodies.

I take to heart the words of the noble Lord, Lord Burns, who said that complete separation would not be appropriate and pointed to the quality of the people as being particularly critical to the way in which independence works. The OBR’s independence will be judged on the quality of its analysis and on the ongoing scrutiny by the public and by Parliament. Our provisions have been informed by the NAO report published on 22 June which examined the forecast prepared by the interim Office for Budget Responsibility for the emergency Budget. It set out a number of indicators of independence which have informed the design of the Bill. These are set out in Clause 5(1), which talks about “complete discretion”; Clause 6(2), which talks about independence and the method of analysis; Clause 9, which talks about the “right of access” and assistance to “Government information”; and paragraph 8 of Schedule 1, which talks about staff being appointed by the OBR. The latter point was made a number of times. There are other matters not strictly in the Bill—“physical location”, for example, which has already been addressed by the OBR, and questions of funding, which can be raised directly with the Treasury Select Committee.

It was asked whether it could be argued that the OBR is independent when it is clearly working for the Government in its remit. I would describe the words “complete discretion” as the critical key here, and refer to the Bill preventing the Treasury from specifying the methods of the OBR’s analysis.

There was then a question about why the word “independence” did not appear in the Bill. Not only does the term “complete discretion” encapsulate what is intended by independence in this case but the same wording is used to empower the Comptroller and Auditor-General and the NAO, and nobody questions their independence.

[Lord Eatwell]

My Lords, before the noble Lord leaves the issue of independence, I wonder whether he can help me. Clause 5(2) states very clearly:

“The Office must perform that duty objectively, transparently and impartially”.

Everyone must applaud that wording. But then Clause 6(1) states clearly:

“The Charter for Budget Responsibility may include guidance to the Office about how it should perform its duty under section 4, including (in particular) guidance about … what subsections (2) and (3) of section 5 entail”.

So, is there to be guidance about what impartiality entails?

[Lord Sassoon]

My Lords, rather than discuss the primacy of the wording in Clause 5(2) in the abstract, it will be easier to return to these matters when we see the draft wording. I can, however, assure the noble Lord that the words in Clause 5(2), to which he rightly draws attention, are the keystone here.

--- Later in debate ---

[Lord Sassoon]

My Lords, I am conscious of the time and of the conventions of this House. I have explained at some length—but clearly not with sufficient clarity for the noble Lord, Lord Myners—that guidance will be given. That does not override in any way or compromise the three critical tests set out in Clause 5. I do not for one minute think that it should be necessary to get into questions of interpretation in the courts or anywhere else.

[Lord Eatwell]

At the end of my speech I made a formal offer of co-operation on behalf of the Official Opposition. I would be grateful if the Minister would respond to that offer.

[Lord Sassoon]

My Lords, in my next sentence I was about to say that I will of course respond to the challenge from the noble Lord, Lord Eatwell, which was repeated by the noble Lord, Lord Tunnicliffe. I am sorry to disappoint the noble Lord, Lord Eatwell, if he thought that I was building up to a grand conclusion where I would propose to withdraw the clauses in Part 1.

We have had an interesting debate. I will reflect on a number of points and I have endeavoured to answer as many as possible. Nevertheless, the tone of the debate from the majority of speakers this afternoon confirms to me that we are absolutely on the right track, generally, and that we should press ahead. There has already been considerable scrutiny of and discussion about the OBR over the past few months. I look forward to the continued scrutiny by noble Lords as the Bill wends its way through subsequent stages, and I ask the House to give the Bill a Second Reading.

Bill read a second time and committed to a Grand Committee.

Banking: Bonuses

Lord Eatwell Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Sassoon]

My Lords, I have said that we have already taken action and are continuing to consider other possible actions in this area.

[Lord Eatwell]

My Lords, I was intrigued by the Minister’s identification of remuneration with risk taking. Are not bonuses usually paid to bankers for taking risks with other people’s money?

[Lord Sassoon]

My Lords, that is precisely why we want to make sure that there is a better alignment between the way that remuneration is paid and the mitigation of risk that should be there. It is precisely to get a better alignment with the risks that are incurred that we are supporting the measures that are being taken globally—limiting the amount of bonus taken up front in cash and deferring a significant proportion of bonuses in line with the proposals of the G20.

Comprehensive Spending Review

Lord Eatwell Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Eatwell]

My Lords, this has been a remarkable debate. There have been some very fine speeches, mostly from these Benches, but also from the Benches opposite. We heard three remarkable maiden speeches from the noble Lord, Lord Allan of Hallam, my noble friend Lady Healy of Primrose Hill and my dear and noble friend Lady Nye.

Two questions have been central to the whole debate. The first is whether this policy is necessary and the second is whether it will work. Is it necessary? That depends on an assessment of the economic state of the nation and, in particular, the Government’s inheritance from the previous Labour Government. Let us reflect on that inheritance for a moment. In 2007, before the recession struck, the economy was growing steadily at a little under 2.5 per cent a year and maintaining the continuing steady growth that characterised Labour’s decade in office. Interest rates were lower than in the US and the cyclically adjusted fiscal deficit—as chart C6 of the Government’s Budget Report shows—was less than a quarter of 1 per cent of GDP. Crucially, the ratio of public debt to GDP was, at 36 per cent, the lowest in the G7 and well below the 42 per cent that Labour had inherited from the previous Conservative Government. This was a time, as many noble Lords have reminded the Minister, when the main plank of the Conservative Party’s economic policy was a commitment to match Labour’s spending plans.

In response to the recession, the Labour Government acted decisively, devising the much copied model for rescuing the banks, cutting taxes and accelerating expenditure, particularly on construction. There were two main results. First, in the very depths of the recession, which, given the size of our financial services industry, hit Britain particularly badly, unemployment was the lowest in the G7 countries other than Japan. Secondly, as a result of the anti-recession policies, the deficit grew rapidly, faster than in any other country, although, because we started from such a strong point, even today it is still the lowest of the large G7 economies.

The strength of the British economy going into the recession meant that even in the face of a severe fall in tax revenues the Labour Government could afford to stabilise the financial sector to save jobs and to save businesses. When the Minister sums up, perhaps he will say what he would have done differently. Would he have spent less and taxed more? How much deeper would he have wanted the recession to be?

In his Budget of March this year, my right honourable friend Alistair Darling put in place a plan for growth and deficit reduction. The OBR Pre-Budget Report states that,

“cyclically adjusted borrowing falls from 8.8 per cent of GDP in 2009-10 to 2.8 per cent in 2014-15”,

and in that fiscal year public sector debt reaches 74.4 per cent of GDP—still lower than any other major G7 country today.

The noble Lord, Lord Sassoon—he was echoed by the noble Lord, Lord Newby—is fond of telling your Lordships’ House that Labour has no recovery plan, yet in the CSR Statement Mr Osborne cited the impact of Labour’s plans and even costed them. He said:

“I have examined this proposal carefully and I have consulted the published documents of my predecessor”.—[Official Report, Commons, 26/10/10; col. 965.]

Was the Chancellor making it up? No, he was not. It is the noble Lord who has been making up this fairy tale.

What has happened as a result of my right honourable friend’s March Budget? Everything has turned out better than expected. Debt is lower than predicted and growth is higher. This Government’s inheritance was an economy on the path to recovery. This year to date, as a result of Labour policies, the economy is growing at an annual rate of 3.25 per cent and is set to beat the target of halving the deficit in four years.

What was the new Government’s balanced assessment of their inheritance? The new Ministers declared Britain “bankrupt” and “shattered”—that was a Liberal Democrat, by the way—and even, as a Tory Treasury Minister said, a “basket case”. This hysterical nonsense became the considered foundation of economic policy. The party opposite seems to have entered the most dangerous realm of all—they believe their own propaganda. The hysteria has produced the policy before us today. At its core is the attempt to eliminate the deficit in four years, even at the immediate cost of lower growth and higher unemployment—hence 25 per cent cuts in total expenditure, heavily weighted towards cuts in welfare. Yet by 2014, the Budget Report states that there is a 50 per cent chance that growth will be at the level that Labour’s plans would have achieved. How is that possible with the size of these cuts?

The predicted performance, the very core of the Government’s policy, depends crucially on a fast and sustained recovery by the private sector to fill the gap left by the fall in public sector spending, and not of course on growth in private consumption; that is cut by higher taxes and unemployment. Instead, private sector investment and house building are forecast to contribute more to the growth of the economy than they did even in the good times before the recession.

Will it work? A little history may help us. As we all know, Tories love cutting the public sector. That is what they came into politics to do and that is what the noble and learned Lord, Lord Howe, did in his Budget of 1981, as the noble Lord, Lord Stewartby, reminded us. As he also reminded us, in response, 364 economists issued a statement that,

“present policies will deepen the depression”—

and—

“erode the industrial base of our economy”.

That statement has been much derided because, as we all know, the economy grew after 1981. However, what is not noticed is that “present policies” were not continued; they were radically altered. The next five years witnessed the most dramatic change in monetary policy since the war, resulting in an extraordinary explosion of consumer borrowing. Consumer demand filled the gap left by government cuts.

Can history repeat itself? It cannot in the liberalisation of credit—that has been done; nor in lower interest rates—they cannot go any lower; nor, of course, in growing consumer demand. As my noble friend Lord Myners pointed out, there is only one monetary policy weapon left: quantitative easing. I have severe reservations about the strategy of maintaining demand by quantitative easing. It may keep interest rates down at the short end, but the lack of long-term bonds is seriously increasing the riskiness of insurance companies and pension funds. It may mean that there is more cash in corporate hands, but will they spend it on investment when expectations of growing demand are so depressed? Is quantitative easing simply pushing on a string? In truth, no one knows.

The other leg of the Government’s policy is their claim to have increased confidence. Confidence in the commitment to cuts, yes; confidence in the loss of jobs, yes. I know that the noble Lord is fond of fairytales but will the confidence fairy really wave her magic wand over a growing Britain? In truth, no one knows. That is why this policy is a huge gamble. For the sake of Britain we pray that it works, but there must be a high probability that it will not; as Mr Osborne says, there is no plan B.

We have the answers to our questions. Is the misery and destruction of this policy necessary? No, it is not; Labour had set Britain on a growth path to recovery. Will it work? No one knows, least of all the party opposite. What we do know is that vital political and economic debate in this country is debased by the Government’s hysterical fantasies of bankruptcy and financial collapse and by their failure to recognise the strength of the policies put in place by Alistair Darling. Labour dealt with the recession and laid the foundations for recovery. It is the responsibility of this Government not to squander that inheritance.

EU: Economic Governance

Lord Eatwell Excerpts

Wednesday 27th October 2010 Lords Chamber

[Lord Eatwell]

My Lords, I am most grateful to the Minister for repeating as a Statement the Answer given to a Question asked in the other place. Before dealing with the issues referred to in the Statement, might I correct a factual error? The noble Lord stated that,

“on the day of the spending review, the vast majority of Labour MEPs”,

voted,

“against a freeze in the EU budget”.

The noble Lord is misinformed. In fact, on Tuesday, Labour MEPs voted against proposals for an increased EU budget. Moreover, Labour MEPs tabled amendments to cut more than €1 billion from wasteful areas such as agriculture and export subsidies. Perhaps the noble Lord would like to reflect on the fact that, on the day of the comprehensive spending review, Tory MEPs voted to increase the European Parliament’s entertainment budget by 50 per cent. Will the noble Lord correct his colleagues in another place?

In the Statement, the noble Lord argued—entirely correctly, in my view—that,

“a strong and stable eurozone … is in our interests just as much as in the interests of our neighbours”.

It follows that we in the UK have a major economic interest in the fiscal policies and arrangements of the eurozone. Will the Minister tell the House what role the UK has played in EU discussions on the co-ordination of eurozone economic policy to date? What measures of policy co-ordination throughout the European Union would Her Majesty’s Government support? What role, for example, did the Government play in the recent weakening in the German position on sanctions imposed on those countries running fiscal deficits in excess of those defined in the stability and growth pact? Does he support the view of President Sarkozy and Chancellor Merkel that a new EU treaty would be required to develop a new stability regime in Europe?

Matters of economic stability are global matters. Important decisions affecting the future of the UK will be taken at the G20 summit in Seoul next month. Given that many of the matters to be discussed at the Seoul summit, including the development of international financial regulation, are matters in which the EU now has an overarching role, will the UK be co-operating with our EU colleagues who are members of the G20 to present a united voice in Seoul?

Public Expenditure: Value for Money

Lord Eatwell Excerpts

Tuesday 26th October 2010 Lords Chamber

[Lord Sassoon]

My Lords, shortly after coming into office we cancelled £6 billion of in-year expenditure. That is the sort of rigorous approach that we will take, not only to inherited expenditure but to the management of all new contracts.

[Lord Eatwell]

My Lords, is the Minister’s commitment to value for money and fairness not truly incredible when the Government are cheerfully imposing larger penalties on families with children than they are on the banks?

[Lord Sassoon]

My Lords, we have introduced a fairness premium worth over £7.2 billion to support the poorest children in this spending review, and I think that that speaks for itself.

Housing: Shared Ownership

Lord Eatwell Excerpts

Monday 25th October 2010 Lords Chamber

[Lord Sassoon]

My Lords, I am wary of straying too far from financial regulation into housing policy areas but I will ask my ministerial colleagues in the Department for Communities and Local Government to write to my noble friend on that point.

[Lord Eatwell]

My Lords, is the Minister aware that in the source book referred to by the noble Baroness, Lady Gardner, there is a clear premise that building societies—mutuals—are significantly less risky than banks because, as the source book itself says, of their,

“lower exposure to wholesale funding and complex financial instruments”.?

If they are less risky, is it not time to reduce the punitive levy on building societies for the Financial Services Compensation Scheme—a levy which is reducing the funds available for lending to house buyers?

[Lord Sassoon]

One of the beauties of the current system and our future system of financial regulation is that decisions about the relative riskiness of different classes of financial assets are emphatically not for government but for the financial regulator, which in due course will be the Bank of England. So while I can ask the Financial Services Authority to write to the noble Lord, I am certainly not going to second-guess its judgments.

Taxation: Avoidance

Lord Eatwell Excerpts

Wednesday 20th October 2010 Lords Chamber

[Lord Eatwell]

My Lords, is the Minister aware that the figure that he has given for reducing tax avoidance and evasion is roughly the same as that which is being taken out of the welfare budget in the current spending review? Why do the Government not collect the taxes and stop hitting the poor?

[Lord Sassoon]

I am a little at a loss to understand why the noble Lord is questioning why we are putting extra money into HMRC to recover this enormous sum of £7 billion annually by the end of the spending review period when that was not done by the previous Government.

Comprehensive Spending Review

Lord Eatwell Excerpts

Wednesday 20th October 2010 Lords Chamber

[Lord Eatwell]

My Lords, we must all be grateful to the noble Lord for expending the energy to repeat the long Statement that we have just heard. It may have appeared rather dull—a number of noble Lords on the Benches opposite fell asleep—but it is a massive gamble. The Government are gambling the jobs, homes and well-being of hundreds of thousands, perhaps millions, of the British people on the hope—fingers crossed—that this will be a price well worth paying; for, make no mistake about it, that is the bet that the Government are placing. They are staking the misery of thousands, and the serious weakening of major British industries and institutions, on the belief that this gamble will not only restore growth to the British economy but restore it at a greater rate than would have been the case if the economic measures embodied in the March Budget of my right honourable friend Alistair Darling were left in place. Can the Minister tell us how many jobs will be lost in this gamble, including not just the loss of public jobs—we know that that number is 500,000—but of private sector jobs, too? Or will he simply confirm that he does not know the answer to that question?

The key component of this gamble is the hope that private sector growth will step in to fill the jobs and income gap left by the Government’s withdrawal from economic responsibility. That was made clear at the time of the June Budget. As we have heard, the Chancellor made clear in the Statement that the Budget and this Statement have to be taken together to assess effectively the impact on the economy, so I refer to table C3 in the Budget 2010 document. There it is made clear that the contribution of government expenditure to growth over the next four years will be relentlessly negative in every year—it will reduce the growth rate of the economy. It is also made clear that the gap cannot be made up by consumer spending as unemployment rises and standards of living fall, so what are the Government betting on? In the Budget report they forecast that growing business investment will make a contribution to the growth of GDP three times greater than it did in the prosperous years 1999 to 2008. On top of that, the Government say that the contribution of investment in housing will be double that in the good times, and that the contribution of net trade will be positive, whereas it was negative in every year of the earlier period. That is pretty difficult to believe. The National Institute of Economic and Social Research does not believe that. Its July report, Prospects for the UK economy, found that government spending cuts will reduce potential growth below that expected from Alistair Darling’s policies in every year from 2011 to 2015. In updated projections published yesterday, the institute finds that the Government’s policies will result in yet lower growth and consequentially higher deficits than they forecast.

There in a nutshell is the gulf in economic policy between the Conservative Government and this side of the House. Our policy is to support growth and investment in order to cut the deficit; their policy is to cut the deficit, and hope. The House will recall that the Government displayed their gambling instincts in the Budget report by presenting various outcomes for the economy with probabilities attached—those fan diagrams that we heard so much of—but that device seems to have disappeared from Spending Review 2010. If we look at the probabilities that the Government put forward, the Chancellor argues in the Budget Statement that there is a 30 per cent probability, a one-in-three chance, that growth in 2015 will be zero. Given that the Government admit that such outcomes are not just possible but likely—a one-in-three chance—will the Minister confirm, as Mr Osborne stated at the weekend, that,

“we have to see this through, and the course which I set in the Budget is the one that we have to stick to”.

In other words, even though his own published statements recognise that his policy might be a disastrous failure, he will not change it. If the bet does not pay off and even more people are ruined than he currently contemplates, there will be no change of policy. There is no plan B.

This is being done, we are told, because the country is bankrupt and expenditure cuts are necessary to survive the “sovereign debt storm”. Will the Minister confirm that interest rates payable on UK debt fell throughout the “sovereign debt storm”, both before and after in-year spending cuts? Not only was the UK’s financial standing never at risk, sterling has become a safe-haven currency during eurozone difficulties. The truth is that the scale of today’s cuts has nothing to do with the overall fiscal position. The truth was revealed by the noble Lord, Lord Sassoon, in the Finance Bill debate in this House on 26 July this year. He said:

“we cannot afford a public sector of the size to which it had grown”.—[Official Report, 26/7/10; col. 1220.]

He also stated that there must be,

“a complete re-evaluation of the Government's role in providing public services”.—[Official Report, 26/7/10; col. 1217.]

That is what this spending review is all about. It is about an ideological commitment to cut the size of the public sector, and I give the noble Lord credit for being so honest to admit it.

Before turning to the scale of the cuts, I would be grateful if the noble Lord would help me with a rhetorical device that the Chancellor uses in his Statement. Whenever a spending increase is announced, it is announced in terms of a sum of money and, as is the way with these things when millions or billions of pounds are involved, it all sounds very impressive. However, when cuts are announced, they are announced as percentages—4 per cent here, 6 per cent there—so that they do not sound quite so bad. Will the noble Lord tell the House what a 7.1 per cent annual reduction in funding for local councils means in money terms? What do the 24 per cent cuts in the budgets of the Home Office and the Ministry of Justice actually mean in money terms? What do they mean in terms of access to justice and prompt justice for all? How much money is being taken from the Department for Business, Innovation and Skills in annual cuts? We are told not the actual figure but that there will be a reduction of 7.1 per cent a year—say, 30 per cent over the period of the review—in the budget of the department that is supposed to support growth and innovation in this country.

Turning to higher education, I declare an interest as a university teaching officer. I am sure that all sides will welcome the commitment to protect the science research budget in money terms, although the real value will inevitably be eroded by inflation. Will the noble Lord tell the House what is happening to the teaching budget in science and engineering? What will happen to the research and teaching budgets in the arts and humanities? As for the future of the planet, what is the money value of the 20 per cent-plus cut in the Department of Energy and Climate Change budget and of the 35 per cent cut in Defra funding? The Minister should not be shy and hide behind percentages but tell us the numbers.

The most important number is the figure for cuts in the welfare budget, because the Government have committed an intriguing sleight of hand. Some departmental budgets have been cut by less than was expected. The noble Lord was delighted to make fun of the Opposition when he referred to only 19 per cent cuts in departmental budgets. Some sweeteners have been added, too. How have those been paid for? They have been achieved by cutting the welfare budget. A complex series of changes was announced in the Statement. Have the Government made an impact assessment of the changes, many of which will impact on Britain's poorest and most vulnerable families? Will the Minister tell the House the overall money value of the cuts in welfare spending, and will he confirm that more is being cut from welfare spending than from all the departmental budgets added together?

All independent assessments have found that the Government's measures will reduce growth over the next five years. That reduced growth will reduce the real income of future generations. That is the real burden that this Government are imposing on our children. The burden will fall immediately on the next generation, including the 15 to 25 year-olds who are desperately looking for a job or a university place or just a chance.

Of course, the gamble may come off, and we all pray that it will. But should it not, this irresponsible approach to dealing with the aftermath of the international financial crisis will impose a loss of real income on generations to come. Today and in the future, Britain will be paying the price of this Government’s gamble.