Brexit: The Customs Challenge (European Union Committee Report)

Lord Horam Excerpts

Monday 1st April 2019 Lords Chamber

[Lord Horam (Con)]

My Lords, I join other noble Lords in congratulating my noble friend Lady Verma on her excellent chairmanship of our committee. I thank my colleagues and our ever-diligent staff for their contributions to our long and sometimes exhausting —but sometimes rather exhilarating—meetings.

This is our third report on customs and trade. It is right that we concentrated so much attention on this, because whether we remain in a customs union or not, the issue is central to the binary choice that the Government are, I am afraid, not making at the moment, and which we will have at some stage to make. The noble Baroness, Lady Suttie, has just made the point that down the Corridor a very important debate on indicative votes is taking place. The most popular Motion so far, as we saw last week, was moved by my right honourable friend Ken Clarke in favour of remaining in the customs union.

On the point just made in an intervention, I make a distinction between remaining in the customs union and, like Turkey, having a customs union with the customs union. That is a different and separate point. As I understand it, Ken Clarke was arguing for us remaining in the existing customs union, which is the only way to maintain the entirely frictionless trade we have enjoyed with our colleagues in European Union countries for 45 years—and the only way to avoid a hard border in Ireland and keep the United Kingdom together. I fear that if there were a hard border in Ireland, the problem of Scottish independence would loom its hoary head. Therefore, this is a way of keeping the United Kingdom together.

We should not forget the value of inward investment into this country. As an economist, I am extremely aware of this. It exists simply because we are part of a huge market of 500 million people. It is the jewel in the United Kingdom’s crown. We have far more inward investment than Germany, and twice as much as both France and Italy. That would undoubtedly be threatened—indeed, is already being threatened—if we removed ourselves from these arrangements. Politically, this may well be the ultimate compromise we have to make. I voted remain; if the remainers can accept that we will leave the European Union, as we are targeted to do, perhaps the Brexiteers could accept a soft, sensible Brexit that we could support. The 52% to 48% split in public opinion suggests that that is one possible way forward, and I note that the Chief Whip is going to be revealed on television this evening as saying that it is something which the Prime Minister should have thought about when the results of the last general election became apparent.

However, it has to be acknowledged, and I do so now, that important arguments can be made against remaining in the customs union. We would not be able to have our own independent trade policy, and of course we would be a rule taker—the “vassal state”, as it is called: the “servile state” is another phrase that is used—but I would argue that these are overrated as disadvantages. The idea of no independent trade policy is too strong a point to make. In fact, having an independent trade policy from where we are now would be a disadvantage. That is because, if you have an independent trade policy, you are selling entry to a market of 65 million people, whereas at the moment we are selling entry to a market of 500 million people. That is a hugely easier sale than if we had our own independent trade deal. So that is not really an argument that can be sustained.

The other argument is about the vassal state and how we would have to accept regulations decided by the European Union. That is to misunderstand the way in which regulations are made inside the European Union. They are made in expert committees. On those expert committees sit not only Members of the European Union but Members of European countries that have an interest outside the European Union. Norway has been represented on 200 expert committees, even though it is not in the customs union. Britain, given its size, could expect to be on expert committees of that kind, making the rules as we go along—even though ultimately we would not have any say in the parliamentary committees.

However, as the House will fully appreciate, it is very rare for a parliamentary committee to get involved in the detail of what is put before it by experts. Such committees tend to accept the proposals, with only the occasional disagreement. The fact is that, as long as we were in the customs union, we would have a strong position inside the system of making regulations in Europe even if we were not actually in the European Union. Fundamentally, when the question of sovereignty and the right to rule ourselves is discussed, you have to make a trade-off in business between access and sovereignty. If you want access, you have to give up a bit of sovereignty. If you have no access, you can keep all your sovereignty but you will have no access. That is the trade-off you have to make, and we should recognise the reality of that.

A bigger objection to remaining inside the customs union is that others in the European Union may not agree to give us such a deal. They may argue that it is too good a deal for Britain, because once again we would be getting many of the advantages of being inside the European Union without actually being a member. That is something which would have to be explored in the negotiations which I hope would take place. The EU could say, for example, that the UK has to remain inside the single market, and it may want to retain control of our fisheries and agriculture. Once we go down that path, I agree that the issue of “Brexit in name only” is raised. At that point we would have to consider whether we wanted a clean break and a free trade area. Another factor is that the Cabinet is split on this and there is no sign of a resolution.

Finally, I bring good news to noble Lords. Agreement was reached before lunchtime today on the “Politics Live” programme on BBC television between a hard Brexiteer, a remainer who is willing to be a Brexiteer, and a remainer. The three people involved were Steve Baker—there is no harder Brexiteer—Margot James, the industry spokesman, and Jonathan Powell who was Tony Blair’s chief of staff when he was Prime Minister. They agreed—that is the good news. The bad news is that they agreed that there is bound to be a long extension—so I am afraid that, whether we like it or not, we are in for further debates on this subject.

Economy: Budget Statement

Lord Horam Excerpts

Tuesday 13th November 2018 Lords Chamber

[Lord Horam (Con)]

My Lords, I hope that the noble Lord, Lord Haskel, will forgive me but I am not familiar with Table B.1 on page 89 of the Red Book. I am afraid I have not got quite that far into the detail of the Budget but I want to make a couple of other points, which he might agree with.

First, the central objective of economic policy should always be to keep economic growth going at the maximum sustainable level. I am looking directly at the noble Lord, Lord Skidelsky, as I make those remarks. If you keep economic growth going in that way then every other problem, whether it is deficit, debt or inflation—I see that the noble Lord, Lord Skidelsky, is nodding and I feel a glow of pride at that—becomes more manageable. That is the point of getting economic growth at the maximum level where you can sustain it. By that token, therefore, the Chancellor is entirely right to do what he did in the Budget because the fact is that economic growth is very anaemic at the moment, as many noble Lords have pointed out. The Chancellor was right to give a boost and he did so, and all the indicators and predictions by economists are that that will give a mild stimulus—a very mild stimulus, of course—to growth.

The second good thing about the Budget is that it was a restrained boost and rightly so, because he had to keep in his back pocket or behind the sofa—wherever Chancellors put these things—some money for the difficulty that we will face if we have an even worse problem over Brexit than we appear to face at the moment. It was the right call, first, in that it gave a boost and, secondly, in that it was a restrained boost. However, it was of course short-term to face the present situation over the next six to nine months. We all know—the point has been made several times during the debate—that there are other big issues which we have to face.

Here, I think the noble Lord, Lord Haskel, will agree with me: we cannot deal with these issues other than by raising taxation. These are issues such as poverty and what has been revealed by the rolling out of universal credit, for example. There are some of the decisions that we have taken in previous years, not just on the levels of benefit—I certainly welcome the Government’s improvement on those—but on the actual framework. How has it come about that people in some circumstances have been left for five weeks between the end of benefit and the beginning of universal credit? How could anyone conceive of that being a sensible thing to do? These are people who have no savings. They probably have debt, never mind any savings. How are they to manage for five weeks with nothing coming in?

Equally, despite many people thinking the other way, I am afraid I was always opposed to having benefits paid under universal credit every four weeks. Most of these people are used to budgeting every week, not every four weeks. I know that can be changed and that there are arrangements under universal credit for it to be adjusted if circumstances dictate so, but I bet that they have to go through a very bureaucratic process to get that adjustment made. This is therefore a fundamental error, which I deplore, with the system. None the less, it is being tackled and I am very glad that it is.

The other issue, among many others I might mention, is skills. Many people in this country now have credentials, diplomas, degrees and all the rest of it but they do not have skills. Employers and businesses need skills but too many people have chalked up a huge debt from tuition fees to get something almost irrelevant to a prospective employer. That needs to be tackled in a major way.

To do these things, as well as all the other things many noble Lords have mentioned, taxes will have to rise. My noble friend Lord Northbrook quoted some figures but I slightly disagree with him. The figures I have from the Institute for Fiscal Studies suggest that, at the moment, taxes in the UK are 35% of national income. In Germany, the equivalent figure is 39%; in the Netherlands, it is 41%; in France—I love the French—it is 47%. This shows that, by comparison with our European neighbours, we are a lightly taxed country. We are also a lightly regulated country, I might add to some people who think the reverse. There is therefore room for us to increase taxes to deal with some of the serious social and economic problems that we face.

For example, why are capital gains and dividends not taxed as highly as earned income? They were under Margaret Thatcher and I am a Thatcherite on this: let us go back to what she did. They were taxed at the same rate and so they should be. Again, when councils are short of money, why is a house worth £1 million taxed at the same rate for council tax as a house worth £10 million? Why do we not have two extra bands of council tax to deal with the issues? That would surely give local authorities more money to deal with the problems that they face.

One eminent tax accountant made a point the other day about all the allowances, remissions and loopholes in the tax system. He reckoned that there are 1,200 such reliefs, taking away £400 billion from the Exchequer. He gave as an example the entrepreneur’s relief if a person sells his company or small business. Why should he get any relief at all? That costs the Exchequer £2.7 billion. If you invest in the AIM stock market, you get relief on that. Pension relief costs us £30 billion; I defer to my noble friend Lady Altmann on that, but surely anyone who can squirrel away more than £40,000 does not need a greater incentive to do so. All this is available. Then there are more unconventional ideas, such as those mentioned by my noble friend Lord Gadhia, about unwinding QE and having an infrastructure sovereign fund, which is a very attractive idea.

There are immense long-term social and economic problems that we need to face. There are the resources to deal with them if we tackle them in a sensible way. I applaud the Budget for what it was—as a short-term, judicious fix—but I hope that the next Budget is much bolder and much more ambitious.

Brexit and the Labour Market (Economic Affairs Committee Report)

Lord Horam Excerpts

Thursday 8th February 2018 Lords Chamber

[Lord Horam (Con)]

My Lords, I too congratulate the Economic Affairs Committee on another good report. It is crisp, logical and even eminently readable. It is, therefore, rather the reverse of most government papers we have had in recent times, which have been remarkable for their impenetrability. In the case of Brexit, that may have been deliberate, for all I know.

The report starts by reviewing the immigration statistics. My noble friend Lord Forsyth expressed his surprise at the difficulties and problems here. Those of us who have followed this area of information are not at all surprised. It has been obvious for years that the collection of immigration statistics has been extremely faulty. That is why many of us have been extremely grateful for the efforts of the noble Lord, Lord Green of Deddington, who I am glad to see in his place. Migration Watch, which he started, was, for a long time, ahead of the Government in having a feel for what was actually happening in the area of immigration and emigration.

I am strongly in favour of a firm control of immigration policy, as I think are most British people. My main reason for being in favour of control of immigration is the quality of life in this country. My colleague the noble Lord, Lord Hodgson of Astley Abbotts, produced an excellent document recently entitled Britain’s Demographic Challenge, which I recommend to anyone who has not read it. In it he points out that England already is twice as heavily populated per acre of land as Germany and four times as heavily populated as France. On the current Office for National Statistics evidence projections, we will have 9.7 million more people by 2039 than we have now, raising the population to 74-75 million people. This will predominantly, I expect, come in London and the south-east and will affect the quality of life in our part of the world.

As an economist I hate to admit that quality of life is about not only economics but a whole range of other things and I am pleased that in recent months people have begun to question the validity of the gross domestic product as a measure of our standard of living. It has many elements other than the purely economic, and the press of numbers in the south-east of England, in particular, is a real problem.

Immigration undoubtedly causes problems of social cohesion. I was born and brought up in a northern textile town and over many years in my lifetime I have seen that work out in ways which are bad for the collective feeling in such towns.

When considering immigration we should not think only of ourselves in the United Kingdom. For example, I remember from a parliamentary trip to Botswana at the height of the AIDS problem in southern Africa the terrible issues there. I went to some of the hospitals and community centres which were trying to deal with this and hand out drugs to the affected people and found that there was a shortage of nurses. I asked where these nurses were and was told that they were in England in the NHS—they could not keep them in Botswana. Recently I talked to a Jamaican politician who said, “How do you seriously expect us to build a modern country when over half our graduates disappear to America or Europe on graduation? How do you do it?” We have to look at migration on a big scale and from the point of view of other people in the world and not only through self-interest, which we too often do.

People in the UK were reasonably content with the immigration situation when it was in the tens of thousands. During the 1970s, 1980s, 1990s and most of my lifetime it was in the tens of thousands, and sometimes it was almost negligible. However, after the Labour Government came in in 1997 it climbed to six-figure levels and, in some cases, to big six-figure levels, and that alarmed people. Politically, it is one of the ironies of our time that it was precisely that level of immigration which fuelled the leave vote in the referendum, and then the Labour leaders at that time bemoaned the consequences of that. Frankly, it is a question of the biter bit.

Economically, as the report pointed out, the effect on business of having a large number of intelligent and sensible people available to deploy in its workforce was that we neglected the skills of our own people—a point made not only in this report but, presciently, in the economic affairs report in 2008 which predicted precisely that this was happening and would continue to happen. We have lost out in terms of automation, innovation and skills, as well as seeing an effect on wages. I therefore welcome the Government’s industrial strategy which focuses precisely on the areas of skills, automation, innovation and so forth, and I hope that they can get a cross-party consensus because they will certainly need it.

The curious aspect of all this is that we are exiting from the European Union and thus in effect doubling up on the economic challenge that this country faces. We would have to do a lot of this stuff anyway, but Brexit will make it even more important that we get it right. As the report rightly says, companies will have to adapt their business models to a new situation in which there will not be quite so much immigrant labour, and that will take time. My noble friend Lord Forsyth himself said that the implementation period or transition period—whatever you like to call it—will take quite a time, and indeed may take even longer than two years for some industries. That may well be the case and I certainly think that it will take at least two years to bring about the sort of effect that we need.

None the less, I think that we can get out of the situation we are confronting. In our debate on the industrial strategy some weeks ago, my noble friend Lord Willetts made the point that we have cracked this problem in a number of areas. The automotive industry is a hugely successful renaissance sector in this country now while not only finance but services more widely are doing very well. Britain has led in the mobile phone industry and telephony more generally. Medical research and the life sciences are an area of great promise and success for the UK. I would add to that we need a big export drive. There was a slogan after the Second World War: “Export or Die”. It is not quite that, but by heavens it is going to be important as we face a trade deficit of considerable proportions and which may get worse in the immediate aftermath of Brexit. I remain optimistic but we need to get our act together, and this report shows us how we have to do it in relation to the labour market.

Budget Statement

Lord Horam Excerpts

Monday 4th December 2017 Lords Chamber

[Lord Horam (Con)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Bilimoria. He may be interested to know that, when I first became a Member of Parliament along the Corridor, the Prime Minister was Ted Heath—that rather gives away my age. He had a Secretary of State for Trade and Industry called John Davies, who had been chief at the CBI. John Davies had a very tough policy on lame ducks. As it happened, Norman St John-Stevas, had had an accident rather similar to that of the noble Lord’s. He rose at Question Time pleading with him not to be tough on lame ducks. It is a rather long-winded way of saying that I hope that the noble Lord recovers from his accident. He has certainly shown no lack of energy.

We are used to Budgets unravelling with great rapidity in recent years, usually over some relatively trivial, second-order issue. This one has not unravelled so far, as the Chancellor said the other day: 12 days with no unravelling must be some kind of record. It was not only sensible but sure-footed in that respect. There were some extremely sensible provisions in it.

I particularly welcome the help for the homeless. The noble Lord, Lord Best, and I, with a great deal of help from Shelter, lobbied the Chancellor about this before the Budget. Never has my lobbying succeeded before, but on this occasion it did. The Government responded by increasing the so-called targeted affordability fund. This is the fund that puts money into those areas where the gap between the rate of benefit, which has been frozen so far, and local rents is highest. The calculation is that this will save 140,000 people over the next two years from becoming homeless. The upside of this, I tell my noble friend Lord Bates, is that we have cancelled our application to have a further lobby with the Minister for Housing, but we are keeping an eye on things because the fact is that housing is, as the Prime Minster herself said, a core issue for this Government, and much more needs to be done than was evident in the Budget.

The objective, as we know, is to achieve 300,000 houses a year. My noble friend Lord Tugendhat was a little disappointed by the figure of 300,000, pointing out that it was what Harold Macmillan aimed for and achieved in the 1950s. Does he not remember how much simpler things were in the 1950s, when we were very young? It was easy in those days for us to achieve that objective. I do not think that 300,000 houses a year, given the planning difficulties we have in this country, which have accumulated over the years, is that bad an aim. Indeed, I think it will be quite hard to achieve.

I recommend to the Government that they concentrate on two things in trying to get there. The first is incentivising housing associations. Housing associations have committed themselves to achieving a target of 120,000 houses a year, which I think is a very challenging target. They will need all the help they can get to get there. Remember that housing associations are no longer part of the public debt; therefore, the Chancellor can help them without adding to public borrowing, which is a very admirable situation to be in. Secondly, we need to stop selling publicly owned land at the highest possible price. We need to look at the guidance on best value to local authorities, because the land issue is fundamental to getting house prices down.

On the bigger economic picture, the Chancellor was more relaxed about borrowing than some of his predecessors. Here, I am afraid that I disagree with the noble Lord, Lord Hain, and agree, surprisingly, with the economics correspondent of the BBC, who pointed this out. He has borrowed more than he thought he would and the markets did not move an inch, frankly. That rather confirmed my view that the Treasury has always been too concerned about market reaction to excessive deficits. The best way to power down the deficit of a country is to prioritise economic growth. Certainly, we should keep a firm grip on current spending, but to cut back on capital spending is actually very foolish: we should keep that as level as possible over the years, which is the way to get sensible and sustainable economic growth.

The fact is that the pressure on the Chancellor to produce an ambitious, radical Budget was unrealistic. Janan Ganesh, political correspondent of the Financial Times, said:

“They expect them to write a symphony in the middle of a cage fight”.


The cage fight analogy is journalistic hyperbole, but I appreciate that there was a certain amount of unhelpful offstage noises accompanying the Chancellor’s attempt to solve our economic problems. I think he resisted those and produced something very controlled and balanced.

None the less, the fact is, as a number of noble Lords have pointed out, that there are severe structural problems remaining in the British economy. We are, and have been for decades, short of skills, low on investment, both private and public, and not very good at exports. Exports make up 27.6% of our GDP; they make up 46% of Germany’s GDP. That is the real problem that we have to face. It can be solved. Before I became an MP, I started a company which has become a medium-sized company with 250 employees: we export 92% of all our sales. I have never seen a trade agreement. So it can be done, if you have the right product and a willingness to get behind it and tackle world markets.

The issues remain to be tackled, but the Government produced a responsible and competent Budget which keeps us heading in the right direction.