Queen's Speech

Lord Griffiths of Fforestfach Excerpts

Wednesday 2nd June 2010 Lords Chamber

[Lord Griffiths of Fforestfach]

My Lords, it is a great pleasure to follow a fellow Welshman with such an intimate knowledge of the university sector, which I was in for the first 20 years of my career. I agree with almost everything he said. Before speaking on some issues relating to the economy and business, I, like most others today, congratulate my noble friend Lady Wilcox on her appointment as a Minister in the Department for Business, Innovation and Skills. She is exceptionally qualified for the job, having run her own family business, managed a significant multinational, been on the boards of various companies and chaired the National Consumer Council. On behalf of us all, I wish her well. I congratulate my noble friend Lord Henley, a former Minister, on his current appointment and on his courage in responding to such a wide variety of subjects in today’s debate. I do not envy him.

It is very easy to be depressed about the general economic situation. The UK fiscal position is, frankly, not good. One could say it is rather dire. The eurozone is in crisis, and the markets in the eurozone have been in crisis despite the €750 billion package that was meant to sort out everything. Global financial markets are jitterier than at any time since the aftermath of the financial crisis early last year. Despite this, there are some grounds for optimism. The world economy is growing at more than 4 per cent a year, and world trade has come back in the past 12 months by something like 10 per cent, after having dropped sharply in the recession. In the UK, the coalition Government are unambiguously committed to turning around the financial position, and the pace of the recovery in the UK at present, although fragile, is quite strong in comparison with last year and the projection for next year. Last year, GDP fell by 4.9 per cent; this year, independent forecasts put it at 1 to 2 per cent, and next year it is estimated to be between 2 and 3 per cent. We should take confidence from that.

The key to turning around our economy is sustaining the recovery. That means creating a low tax, enterprise economy that has incentives to save and to build up capital and in which government expenditure is under control. Like the noble Lord, Lord Desai, I think that economic growth is critical. It will lead to higher tax revenues and create more jobs. We have been here before. In the early 1980s and the early 1990s, painful decisions involving cuts in public spending were necessary, but we know that they produced long-term gains. After 1992, we had 16 years of uninterrupted economic growth quarter by quarter.

I believe we can return to that, but we face three challenges. The first is that in the emergency Budget later this month, the Government need to put forward some form of medium-term financial plan that lays out, for at least three years, targets for public spending, taxes, the deficit, public sector borrowing and money supply. They then need to stick to it. Drawing up such a plan is not difficult, and when the numbers are announced later this month they must show a significant reduction in the borrowing requirement as a percentage of GDP. There is no reason why this should lead to a double-dip recession. A medium-term programme that investors believe is credible will restore confidence in the foreign exchange and capital markets and encourage investment. The lower exchange rate—the pound has gone down by 25 per cent over two to three years—will help exports. If we fail in this, and if the Government fail in this, we could well find ourselves in the same position as certain eurozone countries.

Publishing a plan is not difficult, but sticking to it will be. At some stage, the Government’s resolve to balance the books will be tested. There could well be painful strikes, protests and marches, and even the possibility of social unrest, which was mentioned, cannot be ruled out. If we are to return to prosperity and stability, it must be faced. We must avoid the mistakes that Ted Heath made in the early 1970s.

The second challenge that we face relates to the banks. If the recovery is to gain momentum, the banks have to lend more off their own balance sheets and to raise more capital from the equity debt and credit markets for business. Without this, investment will falter and the recovery will be put at risk. At present, there is a lot of talk about new taxes on banks and new regulations on banks. We certainly need a different regulatory framework. I can see why the public are angry at the incompetence, greed and excessive risk taken by banks. Their anger—I say this as a banker—is not without substance. The problem, however, is that if politicians and regulators pursue populist policies that could be quite arbitrary, we might find that the banks, instead of helping the recession and helping growth, are a mortmain on it.

The third challenge is this; it is very important that economic policy is underpinned by a sense of fairness and justice.

[Lord Lea of Crondall]

I am grateful to the noble Lord for giving way in his last minute. When he referred to the banks, I expected to hear an agenda of banking reform, but his statement seemed to be, “Watch it. Goldman Sachs can do no wrong”. Is that not a bit like the Conservative Party’s caricature 20 years ago of the TUC doing no wrong?

[Lord Griffiths of Fforestfach]

This is a complex subject, and we do not have time tonight to deal with it in detail. Clearly, we need a stronger regulatory structure with very clear rules on capital, liquidity, the structure of compensation and so on; about that I have no doubt. It would be wrong for politicians and regulators to respond to the public anger by piling so much regulation and tax on to the financial sector that it cannot play its role in the recovery.

I am way over my time, but my final point is that the sense of fairness and justice as we face difficult times will be very important. Our enterprise economy should never become a Darwinian jungle. So many things can be done by the coalition Government to present the policies fairly. We are in difficult times. We have been here before, we have taken difficult decisions in the past and pain has resulted in gain, and I have no doubt that we can do it again. I wish the coalition Government every possible success.