Queen’s Speech

Lord Giddens Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord Giddens (Lab)]

My Lords, let me join the queue to congratulate the right reverend Prelate the Bishop of Newcastle on her terrific maiden speech and, I gather, on her athletic prowess. She is a very welcome addition to your Lordships’ House.

A huge intellectual and policy-making revolution is beginning today across the world as the limitations of the efficient market hypothesis become evident. We have reached the limits of endless privatisation. The structural strains that we see everywhere, the rise of populist parties, the sharp relative decline of the BRICs, about which the Minister knows a lot, and the accumulation of huge levels of debt in the advanced economies will demand profound revisions in our thinking and policy-making both globally and locally. I see very little sign that the Government have recognised the depth of this imminent intellectual and policy-making shift.

I shall speak of only one area where a great deal of innovative thinking is happening, which is the debate about reindustrialisation in the West. Rebalancing the economy, the march of the makers and the fabled northern powerhouse, which have been mentioned, are the Government’s way of talking about this debate, yet very little flesh has been put on those bare bones. There is a reason for that, which is that the Government find it hard to come to terms with the need for active industrial policy.

The wiping out of large swathes of British manufacturing industry has been a disaster for many communities in the north and in parts of Scotland and Wales. The contrast with Germany is very telling. Only two days ago—sorry, two decades ago—manufacturing in Britain accounted for 22% of GDP—[Interruption.] Mr Mandelson calling.

[Lord Liddle (Lab)]

Not at all.

[Lord Giddens]

Only two decades ago, manufacturing in Britain accounted for 22% of GDP compared to 23% in Germany. Today, in this country it has fallen to 9%, whereas in Germany the percentage is almost unchanged. It is a huge contrast. As we know, Germany has a substantial trade surplus, whatever you make of the UK trade deficit.

Reindustrialisation should be understood as an avant-garde process, not a reversion to protectionism. As I see it, three components are involved, although each interrelates with the other in a dynamic way—or ideally should do so. I shall put what I have to say as three questions to the Minister.

The first picks up on the speech of my noble friend Lord Morris. What lessons will the Government seek to learn from the travails of the British steel industry, specifically those involving Tata Steel, an episode whose outcome is still far from clear? Will the Government look simply to sell on whatever assets can be disposed of or consider developing a more rounded policy in which social costs are balanced against the economic ones and where longer-term strategies are involved?

Secondly, I think that I was one of the first people in your Lordships’ House to talk about the reshoring debate in the United States several years ago: the idea of bringing back offshored industries to the US. That movement has had considerable success. Firms have been attracted back to their country of origin by a mixture of positive inducements and the fact that rising labour costs, especially in China, have reduced the benefits of offshoring. Has Reshore UK, set up by the Government, achieved anything of note? I have found it hard to find it, if so, and it seems pretty radically underfunded compared to its American counterparts.

Thirdly, and most importantly, some of the most significant advances across the world are happening in what has come to be called advanced manufacturing, driven in large part by the digitalising of production and distribution. Robotics, 3D printing and supercomputing power are the main forces involved. The promotion of advanced manufacturing has become a prime concern of the federal Government in the United States. A recent report of the National Science and Technology Council argued that the knock-on effects are absolutely huge. For each such manufacturing job created, 16 other jobs are established.

The authors of a new book on these issues, The Smartest Places on Earth, spent two years travelling through the United States and across Europe studying areas of industrial renaissance. They came up with remarkable results and speak of “turning globalisation on its head” through the emergence of new hotspots of innovation and job generation, many of them in rustbelt areas ravaged by outsourcing. Costs are being reduced not by cheap labour but by what they call smart production. Manufacture is being reinvented in quite a different guise from the past. The “rustbelt”, as they put it, has become a “brainbelt”.

No one knows at this point how transformative advanced manufacturing will turn out to be in terms of the overall economy. However, a key feature is that the traditional divisions embodied in orthodox economic statistics, between manufacturing and service industries, are being broken down. The puzzle about why productivity has not improved even as the pace of innovation grows might be elucidated here, since perhaps the established measures are becoming obsolete.

The UK does not brook large in the book to which I have referred, although other parts of Europe do, interestingly. The authors question the idea that EU countries are becoming industrial museums; they see them as the centres of an enormous amount of information. What strategies are the Government deploying to ensure that the UK is not once again left behind?

Economy

Lord Giddens Excerpts

Thursday 10th September 2015 Lords Chamber

[Lord Giddens (Lab)]

My Lords, we are struggling to recover from one of the greatest economic crises in modern history. Anyone who offers simple nostrums about how this can be achieved needs his or her head examined. The crisis is structural, not just cyclical, and a great deal of innovative thinking will be needed to get the world economy back on track.

I do not see where this innovative thinking is coming from at the moment, but the group of doctrines that has become known as “austerity” is certainly not it. I am not sure that current Keynesian doctrines can supply more than part of the answer either. The idea of austerity is intuitively attractive, and would even seem to comply with common sense: when in debt, cut back on spending. Yet what applies at the level of an individual or a household manifestly does not apply at the level of the economy. I always respect what the noble Lord, Lord Howell, has to say, but on this matter I fundamentally disagree with him. The principles of austerity have failed wherever they have been applied. Not only that, they have acted against the very outcomes they are supposed to achieve.

Although halting and beset with problems, the US has made the best recovery among the advanced economies, which is the result of dynamic policies of an activist central bank coupled with a range of large-scale government interventions. The $800 billion stimulus Bill introduced by the US Government increased GDP by two percentage points from late 2009 to 2011, avoiding a double-dip recession. The contributions the Bill made to helping the less well-off were very substantial. Some 5.3 million people were prevented from slipping below the poverty line—a very considerable accomplishment.

Progress that has been achieved in the UK is in spite of the austerity measures adopted or, to put it more accurately, because at certain points they were relaxed. Employment has held up well, but that is largely because of depressed conditions at the lower end of the labour market. GDP capita as of 2014 was fully 16% below what it would have been if trends before the crisis had continued.

Among the extraordinary features of the aftermath of the crisis, which have been referred to by my noble friend Lord Monks, is that private irresponsibility has become redefined as public debt, and that the poor are being held accountable for the fecklessness of the rich. The former Governor of the Bank of England, the noble Lord, Lord King, put this quite well:

“The price of this financial crisis is being borne by people who absolutely did not cause it”.

The huge further cuts planned to welfare will have damaging consequences for those working on low incomes, the unemployed, young people and the disabled. The raiding of Labour’s cupboard to provide a veneer of social justice will not stop this becoming a toxic mix. In the mean time, disparities of wealth and income between the top 1% and the rest continue to soar. The structural causes of the crisis are to date at best only partly addressed, and remain dangerous.

I have one major question for the Minister, who will forgive me for losing my voice through this speech. RBS is being sold back to the private sector. Does that mean that it is no longer too big to fail? I would like a yes or no answer to that question.

--- Later in debate ---

[The Commercial Secretary to the Treasury (Lord O’Neill of Gatley) (Con)]

My Lords, as the noble Baroness, Lady Kramer, suggested, yet again we have had a very interesting debate this afternoon. For myself, it is particularly helpful that it is on many topics very specifically close to my role as a Minister. As was pointed out by a number of noble Lords, it is the second debate on closely related matters that we have had in two days. Whether the greater participation of noble Lords present here today than the one two days ago is a sign of the growing appetite for such discussions or the hour at which the earlier one took place—or some sporting event of that particular evening, or what is about to follow this debate—I shall leave others to ponder.

I was somewhat unsure as to quite what the noble Lord, Lord Haskel, might have had in mind with his very specific reference in the title of the debate to,

“the British economy beyond austerity”.

Like others, I congratulate him on the content that he chose to focus on—on productivity. I heard the noble Lord describing what we are entering into as the age of productivity. Linked to the tone of what I have already said, I cannot resist the temptation to say that we must hope that the amount of discussion now taking place in this Chamber and the attention that we are giving the topic of productivity is itself a leading indicator of what may happen to productivity performance. I do not need to further remind the House that we had a specific discussion about productivity on Tuesday, and I encourage noble Lords, if they have time, to read the documents that are now available in the very likely event that I miss referring to all of those matters in my subsequent comments. I am conscious of the fact that our time is under intense pressure.

From what I have heard from noble Lords, there appears to be general recognition that some degree of deficit reduction and a focus on maintaining a lower level of debt has in the past been generally the right thing to do, even if not everybody signs up to exactly the same path. Coincidentally, I encourage noble Lords also to read, if they have the time, Chris Giles in today’s Financial Times. He has written a very topical piece linked to the comments made by many noble Lords about the ongoing performance of the fiscal accounts in view of policy and the economic recovery. In my judgment, the tone of that piece supports the general view that it has been correct and appropriate for fiscal policy to have been focused on deficit reduction. I was somewhat fearful before I listened to the noble Lord, Lord Haskel, that we would yet again end up having primarily a discussion about the appropriate stance of fiscal policy. While a number of noble Lords made some useful comments on that topic, the debate has been very rich and much broader.

Before I try to address the number of specific points raised and add some comments myself, I would also like to focus on the issue of austerity. Several noble Lords, notably my noble friends Lord Howell and Lord Selsdon, the noble Viscount, Lord Hanworth, the noble Lords, Lord Soley and Lord McFall, and the noble Baronesses, Lady Wall and Lady Kramer—I apologise if I have missed anyone out—tried to focus on the conceptual environment that we are in in the context of austerity. At the risk of sounding too much like I did in much of my previous life as an economist, it is important to remind noble Lords that, while our deficit is now less than half what it was at the peak of around 10% of GDP in 2010, and our debt to GDP ratio appears to be stabilising, it is at a very high level of 80% of GDP. In most standard economic textbooks, usually irrelevant of one’s political bias, it is generally expected and desirable to run fiscal surpluses in times of economic performance beyond what is generally regarded as the trend rate of economic growth. That is not least because it would mean that, for the inevitable moments when life becomes somewhat less favourable and economies turn down, there is an opportunity for fiscal policy to provide the additional help that one would hope would be there for monetary policy and other forms of intervention to try to ensure a recovery.

In that regard, let me highlight for noble Lords the fact that last year the UK economy grew by 3%, and I think I am right in saying that five of the past six consecutive quarters have experienced what would typically be regarded as above trend growth. Most independent estimates congregate around a figure of 2.4% of GDP in terms of our long-term trend, so I would encourage future discussions and debates about many of these topics to think about the stance of fiscal policy and the use of the word “austerity” in that context. That is because, as has been pointed out by a number of noble Lords and in the piece in the Financial Times that I referred to, it is not clear that the stance of fiscal policy either has stopped or is stopping the economy currently from growing above trend, and certainly there appears to be growing evidence, as the economy continues to expand, on whether the past stance, where fiscal policy was very definitively tightened, ultimately stopped the kind of recovery that we are now apparently enjoying.

But linked to the welcome introduction by the noble Lord, Lord Haskel, in my judgment it is important that the discussion should move on and focus on other things which are in themselves part of the productivity issue, as a number of noble Lords have already pointed out in welcome comments, but separately from the productivity issue are important in themselves to our economic future. I shall briefly summarise my thoughts on what are generally four areas: the performance of our external trade; investment; the so-called rebalancing of the economy; and, connecting back to the issue I shall start with, the topic of productivity. Before I do so, I must apologise because the sheer number of questions that were put in my direction means that of course I have no chance of answering them all, especially those that were particularly complicated, but I choose to answer two that I regard as being direct and simple.

The noble Lord, Lord Giddens, put to me a yes or no question on whether RBS is no longer too big to fail. I am going to be an economist and say that I will not give him a yes or no answer. What I will do is repeat what I think the Governor of the Bank of England has said, which is that the bank is now in a position where it can begin its return to the private sector. I think that that is what most observers, particularly those with expertise, have believed throughout the unfortunate years of the past is where it ultimately belongs.

[Lord Giddens]

I thank the Minister. The issue is really whether there is still an implicit public guarantee behind the bank.

[Lord O’Neill of Galley]

In view of the sensitivity surrounding this topic and the fact that there are to be further discussions, I do not intend to pursue it at length. I have given the short answer which I thought I should give. However, we can follow this up in a written format.

My noble friend Lady Wheatcroft put a very pointed question to me about Hinkley Point. I shall say two things. I along with many others am spending a considerable amount of my time on the said topic, and decisions will be made in due course on many important factors, including the issue of value.

In the remaining half of my speaking time, I shall turn to the four areas I have already mentioned which I believe are particularly important to the economy beyond austerity, the first of which is of course the issue of productivity. I do not want to overelaborate or spend too much time going yet again into the details of the productivity plan. I am grateful that a number of noble Lords made reference to it in the debate, albeit that some of those references were not as favourable as I would have hoped. The important point I want to emphasise is that, as I mentioned in the debate on Tuesday, a senior Treasury official has been appointed to lead a cross-departmental group holding regular meetings to ensure that what is announced in our implementation plan is being implemented. That senior official will report back to me, thus allowing me to get directly involved as and when the need arises. I should add that I have encouraged this official, as part of her reporting back, to keep challenging me and the Government on any areas which officials believe, from their objective point of view, are being neglected or not being given sufficient attention. They should not feel shy about suggesting that we might perhaps want to reconsider them. I will not reveal the name of the person to avoid them being bombarded with the wisdom of noble Lords.

The second area on which a number of noble Lords commented briefly is international trade, which is of course highly important to our economic future. It is in itself part of the productivity story, but it is of sufficient importance that we need to focus on it in and of itself. It is right to recognise that the previous Government had already put a renewed focus on exports. The further support and encouragement given to UKTI has resulted in a more than doubling of the number of businesses receiving direct help on an annual basis since 2010. However, how we perform as an exporting nation is only partially determined by what we can do ourselves. It is a reality that the biggest driver of a nation’s exports is the level of domestic demand in its export markets. Over recent weeks, our friends in the media have only too willingly highlighted with their seemingly never-ending gloom that there are considerable challenges on an ongoing basis in many parts of the world, and there is not a great deal that we can do to control those developments. However, what we can do is work harder in the specific areas we have highlighted and spend more time trying to ensure that our trade performance improves in those places where domestic demand is likely—none of us ever knows—to perform most strongly.

I apologise that I cannot recall the noble Lord who specifically mentioned it, but China was briefly touched on. I am sure that many Members of the House are aware that, the week after next, the Chancellor will be leading a group of senior businesspeople and a number of Ministers, myself included, on an economic and financial dialogue visit to China. Given my own past and my now ministerial hat, I think that it is a particularly important trip. I should like also to point out in the context of the current excitable discussions about what is going on in China that, even in the event of the Chinese economy slowing to growth of 5% a year instead of the remarkable levels it has enjoyed for the past 30-plus years—and which, I should add, was much less than is currently believed by the consensus—that growth would equate, before the end of this decade, to the equivalent of another United Kingdom economy being created. It is a hugely important opportunity for us.

I am sure that a number of noble Lords are excited about and looking forward to the visit from the leadership of India later this year. Right at this moment, the country’s economy appears to be one of the few in the world that might be growing more quickly than that of China. These are the places in which, using my ministerial position, I am encouraging many different parts of government to make sustained efforts to boost our trade performance.

Closely related to that, a third area of great importance is, of course, investment, and, in particular, related to the international trade picture, international investment into the UK. As has been noted by a number of noble Lords, the fact that we have significant investment coming into this country, despite our shared views of the considerable challenges from many parts of the world, should not be ignored. I find it quite intriguing analytically—I noted it in the context of the interesting comments of the noble Viscount, Lord Hanworth, on the level of the pound—that, if things are as bad as many of us focus on, why the pound seems to do so well relative to a number of other currencies. That is perhaps a discussion for another day. It is certainly a consequence of a considerable number of investors around the world wanting to invest in the UK, including investing in our infrastructure and benefiting from what they perceive to be reasonably stable and attractive economic policies, including our taxation policies. As can be seen in the Budget, and as I have discussed, there remains, and will continue to remain, considerable focus on ensuring that that environment remains friendly.

The fourth and final area that is crucial, in the spirit of the excitement that the noble Baroness, Lady Kramer, talked about and which reflects my own focus, is the rebalancing of the economy. I say this towards the end of a week when we have received—we will hear a lot more about this, I am sure, in the coming days and weeks—a considerable number of bids from different parts of the United Kingdom, not just England, for devolution deals so that local areas can have a greater say and control over their own economic affairs, including specific asks that, one would imagine, may do something to boost their productivity and that of the nation. I have spent a considerable amount of time in the past few weeks travelling around the country, particularly to the northern powerhouse area, ahead of these bids. The number of anecdotes I have heard are highly encouraging that there may be some signs, probably not yet evident in our data, that our economic performance is becoming more diverse.

I repeat something that I said on Tuesday night: in the context of the ongoing debate about the appropriate stance on fiscal policy and public spending, it was frequently suggested a number of years ago that some regions of the UK would be especially vulnerable because of their dependence on government spending and would therefore suffer particularly as a result of the fiscal policy. My travels around the country, particularly the north-east, have shown me—this is quite interesting and very encouraging—that the growth in private sector job creation has more than compensated for any loss of public sector jobs. It is one of the regions that has seen the biggest rise in employment relative to its base in the past few years, and long may this continue. It will remain an area of intense focus with regard to government policy.

In conclusion, we have had an excellent debate; in some ways it is a shame that it could not go on for longer. I congratulate the noble Lord, Lord Haskel, on securing the debate. We all want to see the country reaping the rewards of a strong economy, and we are all committed to having in place the right policies to achieve that. Fiscal responsibility will, however, need to continue. As has been recognised, rather than simply focusing on fiscal policy, it is appropriate for more attention to focus on trying to do the right thing in order to improve our productivity performance, which will enable all our citizens to enjoy greater wealth.

Medical Innovation Bill [HL]

Lord Giddens Excerpts

Friday 12th December 2014 Lords Chamber

[Lord Giddens (Lab)]

I support Amendments 1 and 6 —the latter because I speak as someone who has spent much of his life studying innovation. I recognise that the backdrop to this Bill is the massive acceleration of innovation in some core areas of medicine, so the point is to try to bridge the gap between that and the time taken to test medicines. However, I will comment especially on Amendment 1, even though I cannot hope to match the rhetorical power of my noble friend Lord Winston.

I have stressed several times in the debate the crucial importance of looking for possible unintended or even perverse consequences that the Bill could have. Amendment 1 is very worth while for this reason. It would certainly be a perverse outcome of the Bill if it had the effect of inhibiting or slowing down emergency measures where they need to be taken, and I hope therefore that the noble Lord, Lord Saatchi, might be prepared to accept both the amendments, which seem to me to add strength to the Bill.

[Lord Mackay of Clashfern (Con)]

My Lords, as far as Amendment 1 is concerned, I think that the later amendment tabled by my noble friend Lord Saatchi has the same effect. Amendment 1 is very clear on the matter, and I think that it has been the law that emergency treatments are dealt with in a way that is suitable for the emergency. Accordingly, something of this sort in the Bill is an improvement.

I find Amendment 6 more difficult. As I said in Committee, “innovation” is an ordinary word in the English language, so to try to list all possible innovations seems to suggest a foreknowledge of what innovations may be introduced in the future. It requires unnecessary precision. As I said, “innovation” is a reasonably simple word and it is easy for a practitioner to carry it in their head. I venture to think that Amendment 6 would be somewhat more difficult to carry in your head. I have read it, of course, but I would find it quite difficult to repeat it now without reading it, so I will not attempt that test.

On the later amendments, it seems to me that emergency medicine is certainly not intended to be dealt with by the Bill. It is obviously intended to deal with a deliberate decision to administer a treatment into which has gone a degree of consultation and prior thought. I am therefore entirely of the view that innovation ought not to be covered by it. In so far as my noble friend Lord Saatchi’s amendment does not do that already, Amendment 1 is very acceptable so far as I am concerned.

Medical Innovation Bill [HL]

Lord Giddens Excerpts

Friday 27th June 2014 Lords Chamber

[Lord Giddens (Lab)]

My Lords, I join other noble Lords in congratulating the noble Lord, Lord Saatchi, on his extraordinary determination in conceiving of the Bill and in bringing it this far. Many here will remember his opening comments in the short debate some while ago. The noble Lord, Lord Willis, who followed the noble Lord, Lord Saatchi, commented that in all his years in the House of Lords,

“I do not think I have ever heard a more moving, considerate or emotive speech than that of my noble friend Lord Saatchi”.—[Official Report, 16/1/13; col. 761.]

We have heard another emotive and powerful speech from the noble Lord this morning.

A good deal of public discussion and consultation has ensued since then. Emotion and compassion may remain the driving forces behind the Bill, but it must clearly be shaped by reason, since we are talking about promoting the cause of medical science. It is fair to say, as we have heard today, that core aspects of the Bill remain controversial and fiercely debated.

At the minimum, the noble Lord, Lord Saatchi, has stirred up a significant debate, which has involved many people, including patients, and has had the outcome of unsettling the medical establishment to some extent. I have been sitting here and the noble Lord, Lord Winston, has been fidgeting away through some of the observations that have been made; he himself gave an extremely interesting speech. However, whatever else happens, the noble Lord, Lord Saatchi, has already achieved a great deal by stirring up the issues and bringing them to widespread attention.

I lend my general support to the Bill, although I accept that there are some difficult problems to be resolved. I have a different view, as someone who has worked on innovation issues for some years, from most noble Lords who have spoken so far. I am a social scientist. If you look across the whole field of science and technology, we are living through a period of the greatest and most accelerated innovation in human history. There has never been a period with so many breakthroughs and transformations in so many areas of the sciences and other aspects of our lives. In terms of its speed, scope and global nature, this is a time of technological and scientific innovation simply beyond parallel.

In some areas which overlap heavily with medicine, innovation is exponential rather than simply linear. This is the backdrop to the concerns of the Bill, which I take to be—in some parts, anyway—about the widening gap between the accelerating pace of innovation and the time-consuming nature of established testing procedures. There is often good reason for caution in bringing new treatments to the patient. Yet with the onrush of advances it must make sense to pioneer much faster ways of deploying them, especially when the level of need is acute. We have heard from two noble Lords next to me that the medical profession is exploring various ways of doing this and it is necessary to do so. However, the proposals in the Bill are certainly worth pursuing to see whether they do add something different.

The point of the proposals as I understand them is not only—perhaps not even primarily—that some people close to death might be saved or have their suffering alleviated. It is, following what the noble Baroness, Lady O’Neill, has said, that their involvement could bring benefits to perhaps very large numbers of people in the future if this is seen as part of an ongoing learning process. Like everyone, I think that plenty of questions remain which need to be explored if and when the Bill proceeds. I will briefly mention three.

If the Bill’s objective is to be a kind of mutual learning process, which is how I see it—I was encouraged by what the noble Lord who referred to himself as a rat said in his contribution—we have to decide what would be the nature of the evidence base that is accumulated and who would police it. Open-source access will help but is clearly not enough in itself. I was reassured to hear that there is an Oxford initiative, referred to by the noble Lord, Lord Saatchi, which might be a beginning. This would need to be done in a systematic, co-ordinated way or it simply would not belong within the province of science.

Secondly, as the critics ask, are there adequate safeguards to prevent an imbalanced dialogue between patient, doctor and relatives? We know that it would not be the patient’s decision alone; relatives would almost certainly be called in along with the doctor. This issue has to be explored. Since patients are in a highly vulnerable position it is not always clear that there is an egalitarian dialogue between doctor and patient. I do not say that it cannot be achieved, but this has to be further explored.

Thirdly, as has been mentioned by noble Lords and is important for us social scientists, well motivated policies often have unintended consequences. These have to be thought about in advance. For example, a well publicised case in which a treatment backfires through this process might produce greater rather than less conservatism if it achieves a great deal of public attention. My question for the Minister is whether people are thinking about the possible unintended consequences. Have they been thoroughly scrutinised and thought through?

I hope that the Minister will comment on these points. However, I reiterate that the Bill should be taken forward, and repeat my congratulations to the noble Lord, Lord Saatchi, on his quite extraordinary, amazing persistence, involvement and capacity, and on the speaking qualities that he has demonstrated in pushing this on.

Economic Inequality

Lord Giddens Excerpts

Monday 10th February 2014 Lords Chamber

Asked by

[Lord Giddens]

To ask Her Majesty’s Government what policies they have to address economic inequalities in British society.

[Lord Newby (LD)]

My Lords, according to the latest ONS statistics, income inequality in the UK is at its lowest level since 1986. The Government are committed to ensuring that all families benefit from the return of growth to the economy and maintain that the best route out of poverty and the best way of reducing inequality is for households to move into work.

[Lord Giddens (Lab)]

My Lords, I thank the Minister for that response. However, I do not recognise it at all. Burgeoning social exclusion on the bottom; stagnant wages in the middle; runaway incomes and wealth at the very top—this is not a formula for a stable and integrated society. Surely the Government need some more radical and far-reaching policies to deal with this disturbing situation, which even the grandees at Davos are rather perturbed about.

[Lord Newby]

My Lords, one of the priorities of the Government is to ensure that work pays for everybody. This is one of the benefits that the Universal Credit will bring. This is one of the advantages of taking 2.7 million people out of income tax altogether. This is one of the reasons why my colleague, Vince Cable, has asked the Low Pay Commission to look at raising the minimum wage beyond what it might otherwise do, and this is why the Government support the living wage. Ensuring that work pays—and pays well—for people at modest levels of income is a top priority for this Government.

EU: UK Membership

Lord Giddens Excerpts

Thursday 24th October 2013 Lords Chamber

[Lord Giddens (Lab)]

My Lords, I join other noble Lords in congratulating the noble Lord, Lord Shipley, on having initiated this debate. I especially add my congratulations to the noble Lord, Lord Wrigglesworth, on his maiden speech, which was witty, meaty and suave. By “suave” I do not mean to criticise; I mean that his speech was very assured. When I gave my maiden speech, I was trembling all over and could hardly hold my papers. The noble Lord is a welcome addition to this House.

As this debate has shown, all debates in this country about the European Union now take place in the shadow of a future referendum on Britain’s membership. To me it is of the utmost importance that there should be a full and thorough public debate on this issue and I am worried that this might not happen—that is the burden of most of what I have to say. There is a real danger that Britain could sleepwalk towards exit, with many of the public simply being unaware of the seriousness and complexity of the issues involved.

I am a committed pro-European—indeed, something of a passionate one. My noble friend seemed to indicate that we do not exist. We do exist. Many people like me feel an emotional, not just pragmatic, commitment to the European Union and what it has accomplished for the continent over the past several decades. However, I am not one of those who hold that it would be economic suicide for Britain to quit the Union. There are scenarios in which the country could survive quite well, perhaps even prosper, although its influence in the wider world would be sharply and irretrievably reduced.

Leaving the EU would not be the marginal issue that many citizens appear to think. It would be the most consequential decision that the country had taken for 60 years and involve a protracted and wrenching adjustment. To me, leaving the EU would mean the reinvention of the country. The idea that the UK could simply leave the EU and become the same as it was in 1950, going back to having some kind of autonomy in the wider world, is simply ridiculous. An enormous process of reinvention of identity would have to occur. If it did, the country could in principle be successful, but such a course of action should not be contemplated without intensive and, above all, informed public discussion. I hope that this discussion in your Lordships’ House will be the first of many that will involve the wider citizenry, not just a proportion of people in this establishment.

The immediate economic problems to which Britain would have to respond if it left are easy to state but, as my noble friend Lord Desai said, not as easy to quantify as many on either side of the debate seem to think. I hesitate to disagree with a colleague from the LSE, especially an economist who admits to the fallibility of economics—that is something to behold—but I spent the past six months of my life studying the economic statistics of the EU and I know that some of the assertions that are made are robust and some are not. For example, we know that the single market has made a fundamental contribution to the overall wealth—the GDP—of the EU, including this country. The calculation of a 2.2% net addition as a result of the single market before the 2008 crisis is robust. What are not so robust are the employment statistics. We do not really know. Between 2 million and 3 million jobs here depend on the EU, but the counterfactuals are so difficult to state that no one can simply assert that bluntly. It has been demonstrated, however, that the financial services industry would inevitably suffer if the UK left the EU. One can forget the idea that Britain could become a sort of offshore banking centre like Singapore. London could perhaps do that if it seceded from the rest of the UK, but there is no chance of that happening. There is no doubt that leaving the EU would have a serious impact on the financial services industry.

I wish to make the more subtle argument that most of the important economic losses would stem from factors that are not wholly economic. Here I would reverse the conventional wisdom about Britain losing sovereignty as a result of its membership of the EU. It can be demonstrated that every member of the EU gains sovereignty from being a member and does so when acting alone—not just as a member. This can be done easily by reference to the proposal mentioned by the noble Lord, Lord Shipley, for the EU-US free trade agreement. That will be the single most important source of wealth and job generation for both sides that has ever been established. Could anyone think that Britain outside the EU, feebly knocking on the door and timidly asking to be let in, represents more sovereignty than if we were an active participant in the European Union when it negotiates such an agreement? That would be ridiculous.

I conclude with questions for the Minister that lie behind everything that I have been saying and to which I should like a response. What concretely will the Government do to ensure that the open and informed debate that the country needs will actually take place? What concrete measures will they take to make sure that citizens are directly involved?

--- Later in debate ---

[Lord Newby (LD)]

My Lords, I thank all noble Lords for their contributions to the debate today and, in particular, the noble Lord, Lord Shipley, for initiating it. It is a huge pleasure to be able to congratulate my noble friend Lord Wrigglesworth on his maiden speech. As his speech demonstrated, he speaks with great authority about the economy of the north-east, and with great authority more generally. The noble Lord, Lord Giddens, described his speech as witty, meaty and suave. It struck me that these are fitting epithets for him as a whole.

[Lord Giddens]

My Lords, I do not want to damage the life of the noble Lord in the House of Lords, because the word “suave” might chase him forever, but it was intended as a compliment, so perhaps that subject should be dropped—in a suave sort of way.

[Lord Newby]

I took it as a compliment.

I first met my noble friend 32 years ago, when I went to work in the Whips Office of the SDP. Like my noble friend Lady Falkner, I was one of the workers and he was a grandee. Therefore, it gives me particular pleasure now to be his Whip and to make sure that he is in every respect a model Member of your Lordships’ House—as I am sure he will be.

The Government are clear that membership of the EU is in the UK’s interest. The EU helps to advance UK national interests, influence and values. It provides freedom for British people to live, work, study and retire in Europe, and supports UK jobs, prosperity and growth through increased trade, both inside the single market and through free trade agreements.

The principal economic benefits of our membership of the European Union can be categorised under the headings of trade through our access to the single market, encouraging investment and promoting competition, thus driving down prices for British consumers. I shall deal with each of those three principal areas in turn.

The UK’s EU membership supports jobs, prosperity and growth in this country through increased trade. Our membership gives UK companies access to the world’s largest single market, with a GDP of about £11 trillion and 500 million consumers, without customs or tariffs. Free trade agreements through the EU lower trade barriers and increase access to markets. If the EU completed all trade deals currently under negotiation, EU GDP could be increased by about £275 billion. In particular, independent analysis commissioned by the Government has found that the net benefits to the UK of the EU-US free trade agreement currently under negotiation could add up to 0.35% to the UK’s economy. I absolutely agree with my noble friend Lord Watson that our ability to conclude such free trade agreements in a world where the WTO is a declining influence is immeasurably enhanced by being part of the EU. The idea that you can go into such negotiations with the same strength as a single country is surely completely mistaken.

Europe remains the main destination for UK exporters, with just over 50% of our goods exports destined for Europe in 2012. That has real benefits for UK businesses: 80% of businesses believe that the single market delivers concrete benefits to them and the Department for Business, Innovation and Skills forecasts that the EU will remain the UK’s most important market for at least the next 10 to 20 years. That strong trade relationship due to our membership delivers clear employment benefits, with one in 10 UK jobs to some degree dependent on trade with the EU.

The CBI study and others which have been quoted show truly remarkable levels of support for continuing EU membership. Underneath the fact that 80% of companies, broadly speaking, say that they wish us to remain in the EU, it is interesting that 47%—almost half—said that without EU membership, they believe that it would be more difficult to hire skilled workers. It is not just access to the market but access to workers.

I say two things about trading elsewhere to the noble Baroness, Lady Noakes. First, as several noble Lords have said, there is no trade-off between trading to the EU and to the rest of the world. The more a company trades in one part of the world, the more likely it is to be good at trading somewhere else. Secondly, we want many more companies to start trading, and the logical place for them to start, particularly if they are small, is with the EU. For a small company thinking about foreign trade, the prospect of doing it in Brazil, China and India is almost a bankrupting prospect. You do not have the time. You do not have the money. You do not have the knowledge to do it. The only logical place to start is the EU. That will continue to be the case.

Secondly, being part of the single market helps UK businesses to attract inward investment from both inside and outside Europe, enabling them to operate on a more efficient and global scale. The UK is the top destination in Europe for inward investment, attracting 21% of all foreign direct investment projects in Europe last year.

Our access to the single market is a key motivation for foreign investment in the UK economy, with half of all foreign investors in 2010 citing access to the single market, among other factors, as a key reason for investing in the UK. A number of noble Lords have dwelt on this point. The noble Lord, Lord Shipley, made the point that Nissan, which provides 6,000 jobs in his region, is there because of our EU membership. If we were to leave, the number of jobs would shrink.

The City of London Corporation, in the representation made to us which the noble Lord quoted from, said that many EU European banks locate in London to access the markets in which London has accrued specialities. Many non-UK EU firms choose to list on the London Stock Exchange in order to access the capital on offer there, directly channelling capital to European businesses from London. If we were not members of the EU, the idea that the City would be able to continue sailing serenely along with no threat from competitor centres in the EU seems implausible.

The single market also encourages competition and innovation across the EU, bringing down prices for consumers and increasing productivity in the UK. We are clear, however, that the EU could do better to become more competitive to deliver further economic benefits. That is in the interests not just of the UK but of all member states. The EU must become more competitive if we are to continue to improve the standard of living which Europeans currently enjoy, firstly by completing the single market in services, particularly in the digital and energy sectors. I give the noble Lord, Lord Liddle, an absolute assurance that the Government are committed to promoting the single market. It has been a centrepiece of our engagement with the EU. When my colleague in another place, Ed Davey, was at BIS he set up a group of like-minded countries, which eventually involved a majority of EU member states, to promote the single market in an effective way. It shows, incidentally, how the UK can take a lead in the EU even though we are not in the eurozone area. The completion of the single market is a central goal of the Government.

The second important role in making the EU more competitive revolves around agreeing the international trade agreements to which I have already referred. Finally, we are committed to cutting red tape to allow the engines of growth in the eurozone and across the EU the space that they need to flourish.

Completing the single market by removing all barriers to trade is estimated to increase UK GDP by about 7% and prices would fall by approximately 5% due to increased competition. In this tough economic climate, this would obviously provide a real boost if we could achieve it for UK businesses and consumers.

On the international free trade agreements with both advanced and emerging economies, progress continues to be made. The landmark deal reached between the EU and Canada, to which my noble friends Lord Maclennan and Lord Watson of Richmond referred, will benefit the UK economy and businesses by over £1.3 billion a year. As I have already said, the potential deal with the US would dwarf that.

Cutting red tape from the EU is crucial to allow small businesses to start up and then expand. Last week, six senior business leaders presented a report to the Prime Minister on reducing the burden of EU regulation; the noble Lord, Lord Liddle, referred to this. Their findings are based on research carried out across Europe. They have found that there is potential to save EU businesses billions of pounds by improving the regulatory environment. Their aim is not to abandon all regulation; they want to reduce the burden on small and medium-sized firms who create the vast majority of new jobs in Europe, and employ two-thirds of the workforce. The Government support their views, and are committed to ensuring that EU regulation does not hold UK businesses back.

The noble Lord, Lord Liddle, referred to a number of proposals in this report. The one which seems to be a classic of the kind of change we need, and which should be achievable, is the proposal to press for an urgent increase in the public procurement thresholds which significantly hold back small businesses in bidding for public sector work.

As the noble Lord, Lord Shipley, pointed out, these views are increasingly being accepted across the EU. The days when greater harmonisation was almost seen as an article of faith by member states are now over. We are in a strong position to take a lead in making EU regulation proportionate and growth promoting.

The noble Lord, Lord Liddle, asked whether the Government were speaking with one voice in terms of the single market and in terms of the report to which he and I have both referred. I can assure the noble Lord that the Government are speaking with one voice. He described the Government’s attitude as an assault on social Europe. This is a grotesque caricature of both the Government’s position and the proposals in the report. It does not reflect the Government’s attitude in any respect.

One question that is commonly asked or implied is whether the UK, given its semi-detached nature, is able to make progress with the kind of reform agenda to which I have been referring. We believe that we are and that we can. For example, we have secured the first ever exemption of micro-businesses from new EU proposals from the start of this year. We have also secured agreement on a single European patent after 23 years of EU negotiation, with the new patent court based in London for key pharmaceutical and life sciences sectors. This will be an important engine of growth for the UK’s R&D sector.

We have persuaded the European Commission to review the body of EU legislation to identify existing obligations from which micro-businesses could be exempted. Finally, we have delivered the first ever real-terms cut in the EU’s seven-year budget while protecting the UK’s rebate.

We had an interesting discussion, principally between the noble Baroness, Baroness Noakes, and the noble Lord, Lord Desai, about—

Economic Prosperity and Employment

Lord Giddens Excerpts

Thursday 18th July 2013 Lords Chamber

[Lord Giddens]

My Lords, let me begin by congratulating my noble friend Lord Haskel on having introduced the debate in such an elegant fashion. I also congratulate the noble Lord, Lord Cope, on his expanding family.

It amazes me that some people still seem to think that the economic crisis is cyclical. After all, it is the most profound crisis since the 1920s and 1930s. It is still in play after five years. No country—not the United States, not Germany and not this country—has shown, as yet, a sustained economic recovery. This crisis, to my mind, is clearly structural and demands a fundamental rethinking, much of which has to be done in the academic world. Neoclassical economic theory will have to be replaced by a 21st-century version of political economy. A reappraisal of the role of the state and active government will be central to that process. No one of course, as my noble friend Lord Haskel has said, wants a reversion to the old model of top-down planning, but the economic free-for-all of the past 30 years has collapsed in a most spectacular way, with the state having to pick up the pieces, causing suffering to many of the most vulnerable in our society.

That rethinking is starting, and has begun with what I would describe as a sort of historical retrieval process, a kind of hidden history, of the state’s key involvement in all the major technological transformations of the past 20 or 30 years and in all the surges of economic prosperity associated with them. The idea that the role of the state is to stand aside, reduce red tape and let entrepreneurial instincts flow turns out, through recent research, to be much of a myth. All the major transformations affecting economic development have had heavy public involvement, and it is only now that the research is being done by economic historians to bring that out. My noble friend Lord Haskel referred to several of them. They include the most massive one of our age, the internet. We still do not really understand it, and it has caused an absolute transformation in human history. However, it has its origins, as is very well known, in state involvement, although, it has to be said, that was in part for defence purposes, not for economic prosperity.

These findings are as true of the US as elsewhere. Noble Lords might remember the story that circulated a little while ago—it is probably apocryphal—of a major American leader, who will remain anonymous, who was looking at the difference between the United States and Europe and said, “The trouble with the French is that they do not have a word for entrepreneur”. Well, we do not have a word for entrepreneur either, expect for that one. However, we do have a new book by Mariana Mazzucato, The Entrepreneurial State, which I recommend to noble Lords because it is a detailed study of how the state is essentially a risk taker. In countries that have an active state, the state has taken risks that private capital will not. Whatever private capital breakthroughs have come, they have been the result of the preparation carried out by active government.

Rather than using the examples that Mazzucato offers, I will take the case of shale gas, which has been studied in detail recently by the Breakthrough Institute in the United States. In the US, conventional gas began to decline in the early 1970s, which started a collaboration between the industry and the federal Government under a Republican President, Gerald Ford. Everybody knew that there were large deposits of gas, but the existing techniques of extraction were not up to it. There was an extensive partnership with federal agencies and, incidentally, with universities. National laboratories across the country, such as those in Lawrence Livermore, were crucially involved. A tax credit for unconventional gas was introduced in 1980, which lasted until 2002. The Department of Energy and the federal Government continued the funding of research when no one else at all was interested. The towering figure in the industry, George Mitchell, who I like very much—partly because he is a very good tennis player, and I admire people who can do two things really well—came along and applied the final touch, as it were. He made the final breakthroughs, but this would have been impossible without state involvement.

I am a supporter of shale gas, as long as it is properly regulated and coupled with the closing down of gas-fired power stations, but supporters of shale gas who decry subsidies for renewables should remember the tale that I am telling, because breakthroughs will come there too. The trouble with the UK is that they are likely to come in the United States and China, which are making the most substantial investments. The US might have led in shale gas, but it is also a big leader in renewables.

Infrastructure (Financial Assistance) Bill

Lord Giddens Excerpts

Tuesday 23rd October 2012 Lords Chamber

[Lord Giddens]

My Lords, I hesitate to disagree with two distinguished professors of economics from the same institution as me, the London School of Economics, and with my noble friend Lord Adonis. Actually, I do not mind; it is good to have a bit of controversy in these debates, even from the same side of the House. Anyway, I feel more positive about this Bill than they do.

To me, the Bill is quite interesting, set against a background of previous government policy and the Government’s previous approach to cuts. It seems to mark something of a move away from the Government’s formerly—if I may say so—somewhat primitive approach to cuts, which everyone accepts have to be made. In many areas the Government have looked for cuts in a simplistic and even counterproductive way by not analysing their knock-on consequences. As a result, we do not even know in some important areas whether the cuts that are made truly are cuts.

I will give an example from the sector that I know best, the university sector. In this country we have a number of world-class universities. However, the consequences for the economy of the Government’s migration policy are very debatable. I have looked at the figures provided by the country’s main university groups, and it seems to me that these measures have cost the country money, not saved it. If you do not look at knock-on consequences, you simply do not know what a cut amounts to.

It is also very important to say that the obverse applies—renewed investment does not necessarily imply more borrowing, even in the short term. Again, it depends wholly on the economic consequences for jobs, revenue and demand. Whatever the limitations of the National Infrastructure Plan 2011, it seems to make clear that infrastructure spending can have a multiplier effect on productivity, employment and demand. The Government should always seek to balance these things when looking to produce a more effective system of savings and growth for the economy.

Infrastructure investment is a key area for other reasons. The professor at Oxford, Dieter Helm, a writer I much admire for his work on energy and infrastructure, has recently edited what seems to me to be the definitive book on British infrastructure, which rejoices in the sexy title of Delivering a 21st Century Infrastructure for Britain. I do not know how many copies it will sell but it is a pretty good book. He makes the point forcefully that not many businesses would want to locate in the UK because of its infrastructure which,

“is not fit for the digital age and much of it is very carbon-intensive”.

It depends which ranking system you chose but in the most well used one, the Competitiveness Index, the UK ranks only 24th in the world for competitiveness in the area of infrastructure. The outgoing Labour Government must shoulder quite a bit of the blame for this situation. Even though I am a Labour supporter, the Labour Government’s record—my noble friend Lord Adonis will forgive me—in transport, energy and housing was not impressive.

I have four questions to ask the Minister. I know that he is going to want to reply to the bombardment from the noble Lord, Lord Adonis, but he might perhaps spare a bit of time for my pathetic little inquiries. First, infrastructure is a very wide category and the Bill makes it open to a diversity of investors. How will balance be achieved if too much funding concentrates on certain areas? How will priorities be determined? There is a lot on priorities in the national infrastructure plan but I cannot see the relationship between that and the Bill at the moment, especially if it is driven too much by who is actually prepared to stump up money rather than by an overall plan.

Secondly, the Government claim initial successes for their pension infrastructure platform but the problems of linking pension funds to infrastructure investment are well known. Only 1% of pension funds globally are invested in infrastructure projects—for good reason, as there are often high risks in the early stages of such investment and pension funds are not normally geared to such risk-taking. How will the Government confront this issue?

Thirdly, and importantly, where will the burden of risk end up? As these are long-term projects, will the burden of risk in the Bill end up with the public sector in most cases, and therefore will they, as I said earlier, involve far greater cost to the public purse than might appear in the system that is set out?

Fourthly, energy is mentioned often, but what will be the relationship between this Bill and the new Energy Bill, which I believe will be published next month? At the moment energy policy seems to me, and I think to most people in the industry, pretty chaotic, with the Prime Minister saying one thing and other Ministers saying something else, with the Treasury apparently holding different views from the Department of Energy and Climate Change. Do the Government recognise the need for at least a 20-year planning cycle for core energy supplies? Does this not imply getting well away from a strategy based largely on short-term market fluctuations? In other words, I do not see from this Bill and the plan how long-term planning is to be achieved. We know that it cannot be achieved by the methods of the 1960s and that it is difficult to plan on a long-term cycle when technological innovation and other innovations are inherently unpredictable. Planning there must be, though, and the Government should devote a lot more attention to what form this will take if their interventions in infrastructure are to be at least a little bit more successful than the noble Lord, Lord Adonis, thinks is possible.

--- Later in debate ---

[Lord Skidelsky]

The noble Lord is quite right. The argument can be developed, but my point about picking winners and losers is that there is no empirical evidence for it being true, as a general proposition, that the state is more likely to pick losers than the private sector. We have had many examples of that not being true. The economic collapse of 2008 is a very good one.

[Lord Giddens]

Would the noble Lord accept that there is actually evidence that the state is quite often better? If you look at the history of energy industries and most technological innovations, they have normally been kick-started by government investment. This applies to all the major technology that has transformed our lives over the past 20 or 30 years.

[Lord Skidelsky]

I am happy to accept that. I was making a more modest claim.

A mere guarantee for privately initiated schemes is bound to be less successful, apart from in the efficiency of the schemes, at securing the required volume of investment than a commitment by the Government to a definite infrastructure programme. So while I wish UK Guarantees well, a certain amount of scepticism is in order.

In the final part of my speech, I want to consider what is happening to the economy. When an economy is crawling along the bottom, any small wave is likely to lift our spirits. Over the past three quarters—that is, the past nine months—the economy has shrunk by 1%. Even if, as now expected, it achieves a positive growth of about 0.8% this quarter, that still leaves it in roughly the same place as it was a year ago. Moreover if, as commentators suggest, this boost is due to the Olympics, it will be in the nature of a windfall. However much we may rejoice in the achievements of our athletes, 28 gold medals is not enough to turn the British economy around.

However, there is still a puzzle, which is that unemployment has been static in the past few months, and even falling slightly, despite the fact that output is flat and the economically active population has increased by 550,000 over the past two years. You would therefore expect unemployment to have increased. Why has it not done so? That is the puzzle. There are several possible explanations, none of them conclusive, because the facts necessary for a convincing answer are buried in a labyrinth of tricky statistics and slippery definitions. It may be that employers have been hoarding labour, but that becomes less plausible the longer the recession goes on. Part of the answer at least must be that productivity—that is, output per hour worked—has been falling. As the Guardian put it,

“it now requires many more of us to labour away to churn out the reduced volume of stuff”.

Falling productivity is just as serious a problem for the economy as rising unemployment, and a greater problem in the longer term.

The Prime Minister claims that 900,000 extra jobs have been created in the private sector over the past two years. I never know how many it is—sometimes it is 900,000 and sometimes it is 1 million; it goes up every day, but I am sticking to the 900,000 figure for the time being. That is not of course the net increase in jobs, given that 400,000 jobs have been lost in the public sector. The net increase in jobs has been 500,000. Can the Minister, the noble Lord, Lord Newby, tell us how many of the net gains in employment are full-time? Labour market statistics suggest that more than half of them are part-time or self-employed. Can the Minister also say whether those registered on government work programmes count in the Prime Minister’s extra 900,000 private sector jobs? The point is this: if a lot of the private sector job creation consists of part-time low-skilled jobs at the bottom end of the service sector, it would explain the decline in productivity that limits the rise in unemployment, but it is a poor omen for that vibrant, high-value economy that is supposed to secure our future prosperity.

I wish the Government well in these plans because I wish the country well, but we will need much more solid evidence than we have seen so far to believe that we have turned the corner and started to repair the damage of the past two and a half years.

--- Later in debate ---

[Lord Newby]

My Lords, as predicted this has been an extremely interesting debate. I think I have been grilled by three LSE professors, which is probably par for the course in your Lordships’ House. I will do my best to respond to many of the questions raised. As an introduction, I have two points for the noble Lord, Lord Adonis. First, as far as I am aware, under the previous Labour Government’s plans there was an intention to have significant reductions to the deficit, about which not one word escaped the noble Lord’s lips. Presumably, had he had some ongoing responsibility he would have been trying to make sure that all that reduction had no impact on infrastructure spending. But that was wishful thinking. There would have been significant changes in infrastructure spending, even if the noble Lord was still in his former position.

Another point was made earlier by my noble friend Lady Maddock. Labour's record on housing and other areas of infrastructure expenditure, particularly social housing, hardly stands forensic scrutiny. It has certainly left us with a legacy on housing which we are struggling to put right.

The noble Lord asked a plethora of questions and I can respond to only some of them. His concern for the A14 is touching. I can confirm that it is a priority project. The Government announced in July that there will be support for an upgrade of the A14. As he surmised, the proposed scheme involves tolling. We are continuing to work on the funding package and are focusing on finding ways to bring forward construction earlier than 2018 by, among other things, streamlining the planning and procurement processes and identifying local contributions to the costs of the scheme. As my noble friend Lady Gardner of Parkes said, although circumstances are different in Australia, if other countries can do tolling it should not be beyond our ability.

The noble Lord asked about airport capacity and was scathing about the fact that we have now embarked on a review. Sadly, he did not tell us what Labour’s policy was in terms of hub airport capacity. The fact that I do not know what it is is no doubt a failure on my part. He also asked about HS2 and I can assure him that we are expecting a Bill on HS2 in the next Session. The Government are pressing ahead with the scheme.

The noble Lord referred to the fact that some 63 of the projects in the national infrastructure plan had vanished. That is true. It is the nature of large projects: some are brought forward and disappear and others come forward that were not there then. He will be relieved to know that next month there will be an update on the national infrastructure plan and he will be able to see not just which projects have dropped out but which new ones have dropped in.

The noble Lord asked why a second Bill concerning infrastructure was coming forward with infrastructure in the title—the Growth and Infrastructure Bill. That Bill has a completely different purpose from this one, although they have a single objective, which is to bring forward economic activity. That Bill deals with the planning and other non-financial constraints around getting housing in particular going. This Bill is purely a financial Bill.

My noble friend Lady Gardner of Parkes raised the desirability of getting more small builders operating. We agree. There has been a big reduction in the small building sector. We intend to support the establishment of a debt aggregator, which is an inelegant phrase. Such a body will be able to raise relatively large volumes of finance to lend to organisations such as builders needing smaller amounts of funding than a typical bond. It acts as a collective that will allow the money to filter down.

My noble friend also asked about the green belt and infilling. We are committed to safeguarding the green belt, but we recognise that there is some previous developed or brownfield land in many green belt areas that could be put to more productive use. We are encouraging councils to make best use of this land while protecting the openness of the green belt in line with the requirements of the National Planning Policy Framework.

The noble Lord, Lord Desai, accused us of doing a U-turn, or perhaps he congratulated us—I am not absolutely sure. He said that one of the problems is that the system is flush with money and he asked what the market failure is. There are two components, possibly. First, many companies are short of confidence to invest, largely because of the international economic situation. And secondly, the banking sector has not fully recovered from the great heart attack of 2008 and long-term lending in particular has not returned to the conditions that we saw before the crash. This is trying to help make it easier for banks which are very unwilling at the moment to lend in the long term, even for projects which in normal times they would lend on. As I mentioned in my opening speech, the volume of interest we have had suggests to us that this will be effective. The noble Lord said that many people are stuck because they cannot get a bank loan, which is undoubtedly the case. That is because of the problem that I referred to that the financial markets are not in a normal mode for long-term lending.

My noble friend Lady Maddock helpfully referred to the fact that the Government are committed to building 170,000 new social homes during the course of this Parliament. But she made the point that there are 390,000 new households being formed every year. We have a big problem and it is partly a cultural problem across the political parties. In the 1950s parties had in their manifestos figures indicating the number of houses that they were going to build. This was one of the key things that made Macmillan’s career. Housing has slipped down the political agenda and different sectors—health and education, for example—are vying for funds. We are all having to reassess the urgency of the need to get more funding into housing. It is a long-term issue and it is becoming more and more clear that it is a difficult issue; all parties, if you look at their performance in recent years, have tended to give it a broadly equal degree of priority, but it has probably not been a high enough degree of priority.

The noble Lord, Lord Giddens, asked me four exam questions and I will do my best to answer at least some of them. He asked about priorities and how Infrastructure UK decides between all the proposals coming forward. We have set out a menu of things, all of which are important, but there is not any artificial predetermination of priorities before we see what the applications say. Every application will be looked at on its merits.

[Lord Giddens]

Would the noble Lord agree that a menu is not a plan?

European Union Committee: Multiannual Financial Framework

Lord Giddens Excerpts

Tuesday 19th June 2012 Grand Committee

[Lord Giddens]

My Lords, I congratulate noble Lords involved in producing these two reports. I also congratulate the noble Lord, Lord Boswell, on his new role and wish him well.

Apropos of nothing, I note that previous EU debates in which I have spoken have tended to be very male dominated. That is also true of this debate. For some reason we have 14 noble Lords speaking but only one noble Baroness; why this should be so, I am not clear.

The EU today is a strange contradictory entity. On the one hand, it has its traditional structure still functioning with long time horizons and with the Commission as its policy engine—the background, if you like, to these two reports. In this version, the EU moves in a closeted, bureaucratic way. I shall call this EU1. On the other hand, there is the EU, dominated by the eurozone, as a firefighting mechanism enmeshed in almost daily crises and having to make rapid responses to them. I shall call this EU2.

As we know, EU2 has a de facto president, Angela Merkel, even though she has no formal legitimacy. In EU2 the Commission, and even to some extent the Council, have receded into the background. They are not arenas where significant decisions are initiated, just confirmed. In EU2 vast amounts of money are being channelled around Europe to shore up states and to protect banks. These sums of money are massively greater than the orthodox EU budget. Far from the,

“smart, sustainable and inclusive growth”,

talked about in the Europe 2020 literature, in EU2—in other words, in the real Europe of the moment as opposed to the paper Europe of plans for the future—there is no growth at all. Europe is essentially mainly mired in recession.

The question at the moment, I suggest, is how to bring these two Europes together. The second of the two reports is much more conscious of this fundamental issue than is the first and reflects the essentially continuing nature of the crisis between the time at which the first and second reports were produced. The second report rightly observes that,

“the euro area crisis has not stimulated … radical thinking”,

about the immense challenges the EU now faces. I think that this is true.

In the light of this, I ask the Minister to comment on three primary issues. First, Mrs Merkel rightly and necessarily wants far greater fiscal integration in Europe. This is where the real Europe—EU2—is moving. As far as I can see this will not be possible without a budget for the eurozone countries, and most of the colleagues with whom I have discussed this agree with me. That budget will not be the same as the budget being discussed in these documents. When the Government say that they will oppose any new taxes, does this apply to taxes specifically established within the eurozone as part of a new fiscal integrated system?

Secondly, Europe 2020 has to become Europe 2012. The report refers to:

“An industrial policy for the globalisation era”,

and to:

“An agenda for new skills and jobs”.

This cannot be just a leisured anticipation of the future—in other words, the sort of paper Europe that we have always had in the past with very slow incremental change—but has to have bite in the here and now.

The politicians of EU2 are trying to drive through, almost overnight, reforms that should have been made over a decade or more. The fundamental issue of how to reconcile austerity with growth remains hugely problematic. What do the Government make of President Hollande’s proposal for an injection of €120 billion into the eurozone economy as a stimulus? I understand from the French newspapers that this would be primarily based on project bonds, which are touched on in these reports, and would be massively greater than anything that would come within the orthodox EU budget.

Thirdly, if it survives as a recognisable entity—and I hope that it does—EU1 has to resemble EU2 far more closely. The EU has to be more innovative and, as others have said, much more flexible and less bureaucratic. The mountains of bureaucratic literature that come to you when you are on an EU committee in this House are amazing. I am on the same one as the noble Lord, Lord Carter, who chairs it brilliantly, but we get enormous amounts of this. I do not think that this is possible in the EU’s new environment. It must act quickly. It is not just a matter of the moment, responding to crisis. This is an immensely fast moving world, so the EU must be reconstructed if it is going to be effective. It must be much more fast moving.

The second report has interesting proposals of its own to make and considers some proposals from the Commission. What is the Government’s view of how these goals are best achieved? How can the EU become much more adaptable and fast moving for the future? It cannot survive unless it does so. You cannot just revert to EU1, away from EU2. If it is to survive the EU has to be dramatically more adaptable.

In conclusion, even in the horrible crisis in which the EU is enmeshed, as a pro-European I would not want to give up the European dream. Even against the backdrop of this crisis or perhaps using it as a mechanism for necessary change, I would like to see the EU creating a model for growth different from that of the United States and from China’s and integrating it with the European social model. American growth is based on cheap credit, cheap energy and endless mobility. This is surely not a way for the future. The Chinese model for growth is environmentally far too destructive to be profitably copied elsewhere. In Europe a different model of growth can be still be pioneered which would be environmentally as well as economically sustainable.

Euro Area Crisis: EUC Report

Lord Giddens Excerpts

Monday 21st May 2012 Lords Chamber

[Lord Giddens]

My Lords, I congratulate all noble Lords involved in writing the report, which is insightful, well reasoned and fairly non-partisan. The eurozone is on the edge of collapse into a precipice, and with it the world economy. However, it is important to recognise that the situation of the EU as a result of this has been completely transformed. There is no way that the EU can stay as it is. There is no way that the traditional cumulative method of building the European Union can be sustained in such circumstances. Federalism in some sense—including fiscal integration, as noted in the report—is the condition of the survival not only of eurozone but, in any essential sense, of the European Union.

The situation is dramatically affecting politics. I do not think that anyone has noted this, mainly because it is so blindingly obvious. Something extraordinary is going on politically across Europe. It is a Europeanisation of politics far beyond anything that has ever happened. This is true both where Governments have been replaced without elections, as in Greece initially and in Italy, and in countries that followed due electoral process, such as Spain and France. The same will certainly be true of Germany. The German election will be fought largely on European terrain. It is hard to overestimate what a massive transformation this is, although of course it occurs as a result of forces that are extremely difficult to manage.

It is possible that we will never go back to national politics in Europe. Of course, the eurozone could collapse, in which case there could be a reversion to the pre-existing system—but I think that that is very unlikely. Probably the whole scope of European politics has changed, and one could say that maybe national politics will never again hold the stage in Europe in the way that it did in the past. This is high drama by any reckoning.

The report rightly stressed that the fiscal compact and other planned budgetary disciplines would not be enough to resolve the crisis. My noble friend quoted the report, which stated that,

“ultimately the resumption of sustainable economic growth will hold the key”.

“Ultimately” at the moment is the wrong word because as we know, and as my noble friend mentioned, to some extent the report has been overtaken by events. The arrival of President Hollande and citizens’ revolts—if I may call them that—in Greece, Spain and elsewhere have already pushed growth back on the agenda, and President Obama nudged the eurozone in this direction at the G8 meeting.

The question of the hour concerns the relationship between austerity and growth—terms that I do not like very much. Rather than austerity we are talking about a version of economic sustainability; austerity is the wrong word. On growth, we have to ask what kind of growth, whom it will be for, who will receive the benefits and how it will be distributed in society. A resumption of growth that goes to only 0.05% of the population will not serve any social benefit.

While we talk about the relationship between these two elements, we should not offer facile solutions. At this juncture we need profound rethinking, mainly because there has been a generalised loss of competitiveness in the West which I would trace back for at least the past 25 years. This decline in competitiveness in relation to the large developing economies has been happening. In spite of everyone lauding the reforms that the Germans have made—I am happy with that because I was, in a marginal way, involved in some of them, especially Agenda 2010 and reform of labour markets—even Germany is not competitive in world markets; it is competitive because of the shelter of the euro. A very good paper has been written on what would happen if Germany withdrew from the euro, which is that large chunks of its industry would become uncompetitive overnight.

In contra-distinction to what the noble Lord, Lord Willoughby de Broke, said, this is not just a crisis of the eurozone. My noble friend Lord Monks put it well when he said that the generalised crisis of competitiveness in western economies has driven apart and revealed the frailties which were there in the euro project from the beginning. So the future of the euro, if I may put it this way, is not only a matter of the euro.

Let me make a few points about the relationship between austerity and growth. Although I said that I have strong reservations about the terms and would like them to be dropped, the Prime Minister was right to say that the two are not inconsistent with one another. The key difficult question economically is what is the relationship in the context of not only a national economy such as this one but in the context of the more generalised European economy.

My main objection to the Government’s programmes in this country is that they do not seem thought through. You cannot even say whether a cut is a cut unless you trace out the knock-on economic implications of whatever reductions have been made. This is quite close to home to me, working in the university sector, because the Government’s reforms of universities could produce a situation where there is less revenue coming in than there would have been if the reforms had been differently structured. This is partly because universities generate a lot of revenue anyway and partly because of the esteem with which they are invested on an international level. In many areas the Government have not thought through the knock-on implications of their programmes of cuts, and if you do not do that you cannot develop a sound plan for the future.

As has now come to the fore with the advent of President Hollande and Mario Monti in Italy, Keynesian-style infrastructure investment can make a difference if it is carried out on a European level, is funded by the European Investment Bank and is invested in sensible projects—not roads but, for example, the building of an integrated pan-European grid, with a fair chunk of renewable energy in it, would be a sensible and systematic project.

It is obvious that the debate at the moment is being carried on between, as it were, the neo-monetarists and the neo-Keynesians and I find it very inadequate. I do not think a Keynesian solution will generate the jobs and style of growth we need any more than a revamped neo-liberal position. We need something more basic and more innovative than that. In general, we have to think much more innovatively.

Even though one can talk about sustainable growth and growth in general and say that one is in favour of it, in current conditions it is extremely hard to achieve in any western economy. The US is finding it as difficult as the core European economies are, although this is disguised by the effects of the euro in the eurozone.

A good example of the difficulty is that one of the main arguments for generating new jobs produced in this country and in the European Union 2020 document is that the EU should be at the cutting edge of technological innovation. It could do this, for example, in the energy industry and keep ahead of competition from the large developing economies. However, this is not possible in any straightforward, facile way. You only have to look at the history of the German solar industry to see this. It is exactly the sort of industry one would expect to keep the German chunk of the European economy ahead of other parts of the world. However, the Chinese started constructing solar panels much more cheaply, with a higher level of technological sophistication than the Germans could manage, more or less undermining the German industry completely. The same thing has happened in the United States.

To me, this shows the scale of the task in front of us. In Europe we have a double task. We have to save the eurozone because, contrary to what has been said by some other speakers, flawed though it is, it is really the condition of some kind of stability, economic and otherwise, in the European Union. Therefore, it is imperative, but the task, if you link it through with a generalised loss of competitiveness, is truly formidable. As an academic, social scientist and economist, I think that we do not actually have the concepts and the ideas we need to break through the situation. Therefore, we are reduced to this rather stale confrontation of traditional economic orthodoxies.

--- Later in debate ---

[Lord Davies of Oldham]

My Lords, this has been a fascinating debate. I am sure that when the noble Lord, Lord Harrison, began his work with the committee on this report he scarcely anticipated that we would have quite such a wide-ranging debate. It has ranged from practical solutions for how we might emerge from the difficulties to the cataclysmic perspective that the game is up and we may as well fold up our tents and go home.

There are two dimensions to this debate to which I have the greatest difficulty in responding. I have great difficulty in responding to my noble friend Lord Giddens, not because I do not respect his analysis but because I cannot cope with the situation. He says that we, as politicians, do not have the intellectual machinery or concepts to get ourselves out of these difficulties. That may be so but I assure my noble friend that that will not stop politicians trying.

[Lord Giddens]

I did not mention politicians once. I was talking about intellectuals, saying that we do not have the capability to resolve the issues that face us at the moment. Therefore, it is not surprising that politicians are struggling, too.

--- Later in debate ---

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, I welcome this opportunity to discuss the European Union Committee’s report on the euro area crisis. I first thank the noble Lord, Lord Harrison, and the committee for its thought-provoking analysis, and particularly my noble friend Lord Roper for not only this report but all the other truly excellent work that the committee has done in recent years, which I am fully confident will continue at that excellent level under the chairmanship of the noble Lord, Lord Boswell of Aynho.

The House is aware that these are difficult and dangerous times for the European and the global economy. The ongoing crisis in the euro area continues to undermine confidence and growth right around the world. We have kept the UK out of that storm by taking decisive and resolute action to tackle our deficit, but it is in our vital interest that the euro area reaches a lasting and sustainable resolution to the crisis, and it needs to do so quickly—a point firmly emphasised by my noble friend Lord Dobbs.

As the noble Lord, Lord Harrison, reminded us at the outset, the Governor of the Bank of England said only last week, the difficulties in the euro area represent,

“the biggest risk to recovery”,

in the UK. So it is in the UK’s national interests that we work to resolve these difficulties.

Resolution of the euro area crisis requires three things: resolving the ongoing uncertainty about Greece; ring-fencing other vulnerable euro area member states; and properly recapitalising Europe’s banks. We should recognise that some progress has been made. Greece was given a second programme of assistance and the face value of its debt written down. As the committee also notes, banks need to be sufficiently capitalised to withstand the instability. At home we have taken the necessary actions and as a result all UK banks passed the recent European Banking Authority capital adequacy tests. However, recent events remind us that significant risks remain and the IMF rightly warns us all that the global economy remains very fragile. That is why we agreed to increase our contribution to the IMF by £10 billion on condition that the IMF supports countries not currencies, that other IMF members also increase contributions, as they have done, and that the Euro area increases its own firewall, as it, too, has done.

Noble Lords will be aware that the Government are taking forward legislation to ratify the EU treaty change that provides the legal basis for the European stability mechanism, and we will start to debate that on Wednesday. That means that the position will, I trust, be clear to my noble friend Lady Noakes and to others in this House: the UK will not be making further contributions to eurozone bailout funds under the EU budget. Ultimately, high deficit, low competitiveness countries need to confront their own problems head on. They need to continue taking difficult steps to cut their spending, increase their revenues and undergo structural reforms to boost competitiveness. I agree with much of what the noble Lord, Lord Giddens, said. This is about economic sustainability, in his words—or fiscal sustainability, as I would put it. He did not find another word for growth so I will continue to call it growth. His analysis was very interesting, although, of course—

[Lord Giddens]

I prefer the term “wealth creation” to growth. You can find other words and you probably need to break them down into various component parts to make sense of what people mean when they use “growth” in a generalised sense, which is not terribly useful.

[Lord Sassoon]

I am grateful to the noble Lord for those comments. I disagree with some of the fundamental aspects of his analysis of the Government’s prescription for the UK economy but I think that goes a bit beyond the narrow topic of today’s debate.

As we have previously said, the euro area must also put in place governance arrangements to deliver the greater collective support and responsibility that the remorseless logic of monetary union demands. We want the fiscal compact to work in stabilising the euro and putting it on a firm foundation. We support the decision of euro area countries in the fiscal compact to commit to clear rules on fiscal discipline which the UK agrees are needed to make the single currency work effectively.

Questions were raised about the ratification of the fiscal compact. Although I will not comment on the likelihood of that happening, I can update the House and report that so far Greece, Portugal and Slovenia have ratified the compact. The compact will come into force once 12 euro area member states have deposited their instruments of ratification. The ratification processes are significantly different in different member states, but that is where things stand.

As the committee report notes, we agree that eurobonds are another issue that deserves further analysis and serious consideration. I agree with the noble Lord, Lord Monks, on that. Of course, any steps that are taken towards closer integration must not be prejudicial to the single market. We agree with the committee that matters relating to the internal market must remain the preserve of all 27 EU member states. This is why last December the Prime Minister did not agree to measures the euro area wanted to pursue on further fiscal integration being part of the EU treaties without adequate treaty-level safeguards for the single market.

I am sure that my noble friend Lady Williams of Crosby will not be surprised—she may be a little disappointed, but I am sure not too disappointed because we have discussed this before—that there is not a lot extra that I can add. My right honourable friend the Chancellor deposited an answer with the Treasury Committee, which is on its website, that goes as far as is appropriate and consistent with the need to keep the details of negotiations confidential. However, I draw noble Lords’ attention, if they have not read it, to that document.

We also agree wholeheartedly with the committee that we all need to address Europe’s low productivity and lack of economic dynamism. The UK has been leading that charge and has formed an alliance with 11 other EU leaders to set out an action plan for jobs and growth in Europe, including completing the single market in services and digital—a point to which my noble friend Lord Maclennan of Rogart drew attention. He was right to do so.

The Prime Minister’s focus at the next informal European Council this month, and at the June European Council, will be on ensuring that the focus in Europe remains on promoting growth. The UK’s specific growth agenda includes the digital single market and the services directive, but also, importantly, completing all the open bilateral EU trade deals, which themselves could add €90 billion to the EU economy. A deal with the US would be bigger than all the others put together, but they are each important. Of course, we want the Commission to commit to a new programme to reduce the overall regulatory burden, following on from the current administrative burden programme that concludes in 2012. The Government will be pursuing that agenda very vigorously with our European partners.

Some other aspects have been referred to in the debate. Again, the noble Lord, Lord Monks, referred to the possibility of an increase in lending capacity by the European Investment Bank. That could indeed have a part to play, although I of course disagree with the noble Lord on his views on a European financial transaction tax. That is not the way to go.

My noble friend Lord Maclennan of Rogart also referred to project bonds, which are another possible funding mechanism, which, if the funding comes out of existing EU resources and is carefully designed to be consistent with the need to minimise EU expenditure, is certainly another option that merits exploration.

I should address one or two of the specific questions that were raised on Greece. I take as my starting point the fact that we must respect the Greek people’s choice in their forthcoming elections. That point was expanded on by the noble Lord, Lord Judd, but I certainly take as a starting point the fact that we have to listen to what they decide they want to do. The important thing for all of us is for Greece to find a way out of economic crisis in co-operation with its creditors and for it to get back to sustainable growth and sustainable wealth generation. This Government hope that Greece can agree a way forward on this as soon as possible.

Notwithstanding the encouragement of the noble Lord, Lord Harrison, I am not going to speculate on what may or may not happen in Greece or in any other EU member state. Various scenarios were painted by some noble Lords—my noble friend Lord Marlesford, the noble Lord, Lord Willoughby de Broke, and others—but I shall not comment on those. All I will say is that the Government are undertaking extensive contingency planning to deal with all potential outcomes of the euro crisis. As the House will recognise, given the sensitivity of this work both to the markets and to international relations we will not deviate from the normal response, which is not to divulge specifics of the Government’s plans.

My noble friend Lady Noakes specifically asked about the exposure of the UK economy to Greece. The numbers relating to the relatively limited direct exposure of the UK banks and the UK economy generally to Greece are published, but clearly there is a need for a convincing firewall, as we all know the step change that there would be if contagion spread. Therefore, although I do not recognise the construction that the noble Lord, Lord Davies of Oldham, put on Robert Chote’s remarks, I think we all recognise the very serious implications if these issues are not dealt with speedily and in all their dimensions.

I was asked about one or two other issues. The noble Lord, Lord Harrison, asked about the impact of the French elections and what changes there will be with the new President. Of course, as he should have been, my right honourable friend the Prime Minister was very quick to congratulate Monsieur Hollande on his election victory. France is an important partner of the UK. We look forward to the close co-operation on foreign and defence policy, as well as on other areas, continuing with the new Government. The Prime Minister and the President had a warm exchange in their initial call and they subsequently met at the G20 meeting at Camp David. They are working together closely and are looking forward to building on the close relationship that exists. Therefore, based on the discussions in recent days, I think that the impact can only be positive.

The last point I raise nervously but I do so for completeness in tackling the issues that came up in the debate. The noble Baroness, Lady Crawley, said that this was not the time to speculate about a possible referendum—words which I am sure her noble friend Lord Mandelson and the shadow Chancellor will very much take to heart if they listen to this debate or read it afterwards. However, I shall not go further than that.

In conclusion, these are indeed dangerous times for the European economy. It is vital that euro area Governments pull together to deliver a sustainable resolution to the crisis, tackling their deficits, forging closer governance arrangements, and boosting competitiveness and growth. On all fronts, the UK will work as a strong and positive partner with our European neighbours to restore prosperity right across the European Union.