Bank of England: Interest Rate Policy

Lord Howell of Guildford Excerpts

Wednesday 12th July 2023 Lords Chamber

[Baroness Penn (Con)]

The Bank of England is accountable to both the Government and Parliament. The noble Baroness referred to a report being done by the Economic Affairs Committee in this House. I am sure we will pay close attention to the outcomes of that.

[Lord Howell of Guildford (Con)]

Has it occurred to my noble friend’s Treasury colleagues that the stream of increases in Bank of England interest rates is both deflationary, obviously, and inflationary, in that every 1% increase in the interest rate adds between £15 billion and £20 billion to government debt servicing? Also, since the Government have up to £30 billion or £50 billion per increase in the RPI level, any impact of these interest rate increases on RPI further increases government spending. We really are looking at a double-edged sword. Other, more direct measures are obviously needed to reduce RPI, the pressure for pay demands and all sorts of other inflationary effects.

[Baroness Penn (Con)]

While I will not be tempted by my noble friend to comment on the conduct of monetary policy, I agree that, in the context of high inflation, fiscal responsibility and keeping government borrowing under control are absolutely essential. That is why the Government are committed to that.

UK Economy: Growth, Inflation and Productivity

Lord Howell of Guildford Excerpts

Thursday 29th June 2023 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, we heard just now a very authoritative speech by my noble friend Lord Lamont about inflation, which, obviously, is much too high and is a real disease. I think personally that it will take more than one weapon—monetary policy from the Bank of England, right or wrong—to curb the present inflation. Falling global energy prices, as oil and gas are falling fast, will obviously help.

I will concentrate on something slightly different which is mentioned in the Motion and in the speech made by the noble Lord, Lord Eatwell: namely, the productivity puzzle. To my mind, the answer to it is rather simpler than some of the economists and experts would have us believe. Productivity comes from capital investment in machinery and technology. Louis Kelso, the pioneer of thinking in this area, 60 years ago destroyed the Marxian theory of labour value, making it completely redundant. However, he rightly pointed out that, although productivity and rewards come from capital and machinery, the rewards should go much more to workers and wage earners than they have and do now. That is a major problem we should all be facing.

I know the noble Lord, Lord Eatwell, rightly emphasised the investment element, but, with respect, he was looking slightly in the wrong direction. The state can obviously help and underpin, but it is pretty well short of money. Every state is short of money now. The famous phrase,

“I’m afraid there is no money”

came through to us 12 or 13 years ago, and it is not very different now. There is a shortage of state money for various obvious reasons we can talk about; they have heavy political context.

In our case, we should be thinking more about foreign investment funds and the way in which we can reattract those in a way we are not doing now. In the 1970s and 1980s, we achieved huge Japanese investment from the world’s second largest industrial power, as it was then; it is now third. That had a very definite effect on boosting productivity, not least because the Japanese insisted on firmly ending many of the trade union restrictive and demarcation practices which were holding back productivity drastically. In their new plants, they said, “We’re simply not going to have it. We must talk with one union leader, not dozens”, and they sorted all that out. We backed up that growing relationship with all sorts of innovative linkages, including the UK-Japan 20th century group, which our colleague Richard Needham persuaded Mrs Thatcher and Yasuhiro Nakasone to set up. I had the privilege of chairing it for 10 years, and that certainly helped the mood.

Japanese interest tailed off a bit after that as we entered this century, and it tailed off further after 2010 with the Cameron-Osborne pivot to China. The Japanese were enormously upset; there were almost tearful occasions when they felt that they had been virtually betrayed. That was bad enough but, when we got to Brexit, Japanese interest disappeared almost entirely. They simply could not understand why we had made that decision. They had invested here because it was a launching place to Europe but now suddenly we were going in the opposite direction.

Now, however, Japanese interest is returning. One example of that is the colossal defence project, the Tempest combat fighter, which I see helpfully promoted in advertisements in Westminster Underground station. With that come all sorts of Japanese links and ideas, developing a new relationship. Incidentally, I should declare an interest that I advise two large Japanese firms, Mitsubishi Electric and the Central Japan Railway Company, which runs the best and fastest Shinkansen system in the world.

I ask the Minister what we are doing to deepen relationships with Japan in an innovative way. They go well beyond trade links and beyond even investment incentives. Japan is our best friend in Asia, and Asia is where all the growth is going to be in the next 30 years. We need to be in on that, and Japan is going to be a great help.

How did we get that relationship in the first place? It was always claimed that the huge investment by Sony at Bridgend, which really started the flood of Japanese investment that came in in the 1970s and 1980s, was because Akio Marita had a son at Swansea University. Small things lead to big things. That is an example of all sorts of links, and universities are a part of that.

There is no scarcity of resources outside in the world. With respect, the noble Lord, Lord Eatwell, was looking in the wrong direction. There are billions, indeed trillions, waiting to invest in sovereign funds, pension funds and especially electricity infrastructure. That is the fact that we should now be dealing with.

There are many lessons to be learned from attracting FDI—or not attracting it now. When it returns, productivity will rise again. When other policies across the whole spectrum are regeared to attract FDI—from safe sources, of course—productivity will rise again, real wages will rise, trade deficits will shrink and real growth will resume, but not before we act in the ways that I have indicated.

Budget Statement

Lord Howell of Guildford Excerpts

Thursday 16th March 2023 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, it is a pleasure to follow my noble friend Lord Willetts. Like him, I was pleased to hear the maiden speech of the noble Baroness, Lady Moyo. I confess that I am a fan of her books. They move us on from the patronising terms surrounding so-called overseas aid and assistance to the words we should of course use nowadays of “partnership and mutual development co-operation”, and nothing less than that. In fact, a lot of the wording in the whole area of development and the so-called developing world is a leftover from the last century and the original thinking about overseas aid and development from Walt Rostow and the American pioneers and others immediately post the Second World War and in the 1950s.

Effective co-operation and sustaining of links of all kinds in a constant and friendly manner, and with deep mutual respect, with all the countries of Africa, Asia and Latin America, is now the task of every Whitehall department, especially but not only the Foreign, Commonwealth and Development Office. That is why I think it was an error to have had a separate department for overseas development; I know that many do not agree with that, but it is my opinion. Even now, allied with the old FCO, the DfID element is inclined to silo thinking. My own view is that it would probably be best structured along the lines of the Japanese model, through a powerful agency with entrée to every department, or from the Cabinet Office or indeed No. 10 directly. I notice that in the new integrated review refresh, which was published a day or two ago, they say that the Minister should automatically have a seat on the National Security Council, which I suppose half-recognises what I am saying.

Make no mistake: this is no sideshow. This is national strategy of the most intense kind, which will allow us to determine our prosperity and security. As the Chinese and Russians advance their colonisation of the developing world, this leads us to completely new thinking about our friends and networks, and how we use our resources to help them, and it brings forward the Commonwealth network, in particular, in a completely new light. That is a message which I think the new integrated review has not quite grasped.

Coming to the Budget itself, the most notable thing about yesterday’s Budget and indeed the surrounding context in which it was delivered was how many sources and authorities have been so spectacularly wrong about the inflation rate, its real causes and the course it is taking. There is the good old Bank of England: hopelessly wrong initially about how and when it would rise—they got it a year out of date—giving a wild underestimate of the pace at which it would accelerate, and wrong, I suspect, about the pace at which it now comes down. Then there were Goldman Sachs economists going on last August about 18% to 22% inflation in 2023—miles out and really quite silly. Then there were the eager monetarist theorists, determined to prove that it was all domestically caused, ignoring the real causes from the energy side. They said it was mostly caused by quantitative easing, which I agree may have played a part, but not the main part, and all demanded higher interest rates to defeat it. And there were armies of both commentators and high officials telling us that high inflation was here to stay, that recession was inevitable and was the only answer. Now, of course, they are all busily revising their inflation figures for the second half of this year.

One can laugh a little, but the damage has been done. These inaccuracies were not harmless. On the contrary, they caused great harm in two respects. First, they led to wrong remedies being applied then, because the real sources of inflation were not understood or were ignored. It was a very different kind of inflation from that which we have dealt with in the past. Secondly, because they sounded unnecessary alarm bells, they gave militant union leaders great opportunities to set their members marching and revive outdated class war rhetoric—an opportunity which Mick Lynch and his like have eagerly seized—and frightened millions of people about even bigger real wage cuts than they are facing already. No one seemed willing to face the obvious: that the sources were overwhelmingly external and lay in soaring gas and oil prices, both long before and during the Ukraine invasion and Russian obduracy. No one seemed to concentrate on the obvious central solution, which was, and still is, short-term world production of more gas and oil.

I admit that it is always difficult for Governments and officials to say that they have been blown off course by foreign factors. Jim Callaghan, who in my view was one of our best Prime Ministers, tried that, and I agree that we on the Tory side gave him no mercy and allowed no excuses. However, being predictably blamed by the Opposition—that is their role and they will always do it—was and is no excuse for not appreciating and tackling the real root causes of our problems, or for failing to realise that in oil and gas markets, and indeed in energy markets worldwide, what goes up always comes down quickly, whatever the circumstances, and always has, in past oil shocks and in this one too. I remind the House that I was very involved in some of the oil shocks of the last century.

The adjustment to the Russian cut-off and the nastiness since its lawless invasion was bound to be initially painful but has more or less been corrected with full storage tanks—for those who have storage—throughout Europe, plenty of shale gas in America, careful conservation and now the prospect of much more production from all sorts of places around the world. Indeed, the OPEC leaders, after initially being thoroughly unhelpful to consumer nations in the West, are now planning to expand future oil and gas investment unchecked.

The background of global energy transition is of course in the wings all the time, with a steady but very gradual long-term decline in world fossil-fuel demand. However, only fools imagine that we can take undertake the greatest shift in the pattern of world industry of all time in just a few years when it is bound to take decades, and when getting supply out of sync with world demand—incidentally, fossil fuels are still 82% of all energy needs, not just power—guarantees massive volatility, major suffering and political upheaval and reaction, as we have now in this country and in many others.

The missing piece in our national recovery strategy, in both the inflation fight and in our budgetary calculations all along, has been, first, the external side—the role of foreign policy and not enough clever diplomacy in diffusing these vast external measures—and, secondly, the absolute failure to convey into the public mind and debate the acute and continuing seriousness of the situation that we and all like-minded countries now face. Instead of trying to fight every individual grievance and demand, what has been missing overall is a sober and informed reminder of the fact that everyone, for the moment, will have to face hardship. It is the timing of all these widespread demands for real wage repair that is so miserable and unfortunate. Speech after speech, including, I am afraid, from some in this Chamber, demand more for this and more for that, yet this is a time when we have to prepare for more resource to go on what we have already.

If that sounds gloomy, it is, because it is the reality. It is not quite 1940 and we are certainly not under direct attack, but we are, equally certainly, on the edge of a major war, with a mad—actually perhaps he is not mad, but certainly threatening—Putin in Moscow talking about nuclear use against us, and with us still in the recovery ward after the largest pandemic in world history, which it was by far in population terms, and from the impact of the Ukraine horror itself, including a substantial rundown of our entire armoury to help the gallant Ukrainians. There is no end in sight for that, and an invasion of Taiwan is likely just ahead on the horizon. In essence, we are on a war footing, as the noble Lord, Lord Skidelsky, has repeatedly warned this House.

In these circumstances, the message should simply have been that, while inflation is coming down as fast as it went up, there has to be a timeframe for recovery. It should have been clearly and repeatedly explained that, in due course, much better pay for nurses is entirely desirable and the same goes for doctors, junior and senior, ambulance teams and the rest. There is even no objection to train drivers being enriched—although I personally think that bus drivers do a much tougher job—nor young barristers, physiotherapists nor anyone else, nor to ensuring really good and safe pensions for all of them.

However, and this is the core of it, those better conditions that we all want to see must wait for the duration—“the duration” is a phrase that was used during the Second World War. We will and can recover and find the resources to make good for all who deserve it, just as Beveridge in the last, darkest days of the Second World War said we could do, but not yet.

One-off payments for one-year awards, which are being talked about, may be justified in some cases, but only just. We may even come to our senses in all parties that may form a Government and make sure that modern capitalism works for all, and that millions of earners become owners en masse, with the dignity and security of capital to support every family. Meanwhile, for the duration, as in the darker times of war in the past, there are going to be difficulties and problems all around. I would have liked to have seen much more emphasis on that central message in the Budget—indeed, in all the statements by Ministers and opposition leaders as well—than I can detect, because that is the honest truth.

As for more investment, which is of course the key to our future strength and living standards, and to our fully generous support for the weakest in our society, I obviously hope that the Budget measures will enable more growth, investment and innovation. Perhaps the capital allowances will help. One sort of investment we could do without but which, regrettably, the Government seem poised to make is for another large-scale nuclear reactor at Sizewell in Suffolk, based on a replica design called EPR which has an utterly miserable provenance and a dud history. The official estimate for Sizewell is £20 billion, with readiness in about 2035; it is much more likely to be £30 billion and several years after that. Smaller, new-technology reactor sets, which were mentioned in the Budget, could be in place much sooner and with private instead of public money. That is the nuclear way forward, as my noble friend Lady Moyo mentioned in her maiden speech.

That colossal new expenditure, almost secretly sliding through, should be for future debate—very soon and, I hope, in this House. In the meantime, let it be explained honestly, openly and repeatedly to all the most deserving, to the strikers inflicting present misery and smashing the rights of others, and to the millions still suffering from crippling cost of living pressures that rewards and better days will come—but not, as most of the nation in past times understood intuitively, for the duration of the present world crisis that we are in and must, as a priority, overcome.

IMF Economic Outlook

Lord Howell of Guildford Excerpts

Tuesday 31st January 2023 Lords Chamber

[Baroness Penn (Con)]

I believe that, last week, Tony Danker also welcomed a speech by my right honourable friend the Chancellor of the Exchequer that set out his vision for growth in the UK, looking at the sectors that we are most competitive in, setting out proposals for new regulatory freedoms in those sectors and investing in the drivers of our economy, such as education and enterprise.

[Lord Howell of Guildford (Con)]

My Lords, we ought to add a bit of balance to this discussion and note that the report ended with a comment that Britain was “on the right track”—not that we should place too much weight on the views of the IMF either way, because its record has not been too good. Has the Minister noticed a report from the BBC this morning that it is very worried that its interviewers, editors and staff are not sufficiently apprised of the technicalities and the understanding of modern economics and modern economic trends, and that it is going try to do something about it? Would she encourage it to do something? The impression that invariably pervades the morning programmes—not only on the BBC but others as well—in response to this kind of report is that everything is going wrong. Of course, there are things that need repairing, but the bias—not a political bias between left and right—is between pessimism and optimism, which nearly always comes out on the pessimistic side, so we have a lot to learn and we should encourage them to learn it.

[Baroness Penn (Con)]

I did note the report this morning, and, of course, impartiality is key to the BBC. The report is very interesting but, obviously, taking forward its recommendations is a matter for the BBC, and I believe that it is going to take them forward.

Wagner Group: Sanctions Regime

Lord Howell of Guildford Excerpts

Thursday 26th January 2023 Lords Chamber

[Baroness Penn (Con)]

The Government of course listen carefully to the views of all parliamentarians on this matter. Any decisions on these cases are taken within the legal framework that they need to be taken within.

[Lord Howell of Guildford (Con)]

My Lords, I am sure that my noble friend will appreciate the strength of feeling she has heard from the interventions so far. I think we are coming across our old friend non-joined-up government. It seems incredible that the departments concerned were not able to co-ordinate against a clearly identified enemy—the Wagner Group. Would the Minister accept that we are, in a sense, on a sort of war footing? It is a modern kind of war, a different kind of war, but in the past this would never have been allowed. Can she take back that message and make sure we do not do anything further to succour our enemies?

[Baroness Penn (Con)]

I absolutely agree with my noble friend on the need for co-ordination across government. Obviously different regimes, such as the sanction regime and the proscription regime, have different legal frameworks. I am sure that across government we are working to look at all the tools we have available to ensure that groups supporting the atrocities we see in Ukraine are stopped and that we use the powers we have to intervene on their actions.

Wales: Additional Financial Resources

Lord Howell of Guildford Excerpts

Wednesday 18th January 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, if the noble Lord is talking about levels of inflation, they have been largely driven by external factors such as Russia’s invasion of Ukraine. As I have already reassured the House, in addition to the fact that the 2021 spending review settlement was the largest since the devolution Act, it is also growing in real terms this year and over the spending review period, even taking into account that higher level of inflation.

[Lord Howell of Guildford (Con)]

My Lords, the late Lord Barnett of course disliked the Barnett formula intensely; he realised it had many faults and clearly needed improving. How do the Government feel about suggestions from some quarters that there should be much more fiscal devolution and that the devolved nations and areas should raise their own funds through new taxation? Is that a good idea?

[Baroness Penn (Con)]

My Lords, in the latest round of devolution to the Welsh Government, I believe they were given greater powers to raise taxes than previously. As I said to noble Lords, making use of those existing powers before looking to extend them further would be a sensible way forward.

Cross-Government Cost Cutting

Lord Howell of Guildford Excerpts

Tuesday 6th December 2022 Lords Chamber

[Baroness Penn (Con)]

Can I reassure the noble Lord that these questions are considered in spending reviews? They are also considered as part of the process of collective agreement when new policy is made between the periods of spending reviews. The noble Lord mentioned the MoJ and the Home Office; they will grow by, respectively, 3.6% and 3.1% a year over this Parliament.

[Lord Howell of Guildford (Con)]

The noble Lord, Lord Bird, made a very sound and good point. Would the Minister recommend to her Treasury colleagues that the “10%/slash everything” approach to public expenditure used in recent times is not the best way of controlling and curbing the size of the public sector, of improving its efficiency or of cutting out waste? There are techniques that have been tried in the past, namely the policy programme budgeting system, learned from the original Bureau of the Budget in America 40 years ago, and which should be revisited. Such techniques are much more effective in delivering real, effective, cost cuts, which take into account all the side effects that can sometimes overwhelm the original attempt at economy.

[Baroness Penn (Con)]

My noble friend is right: we must ensure that when we undertake these exercises, we really are delivering efficiency and value for money gains, rather than short-term fixes for departments’ budgets that, in the long term, may create other problems. I can reassure him that no figure is attached to the current exercise; it is about working with departments to see where they can find efficiency savings to help them manage the pressures they are under.

Economy: Balance of Payments and Industrial Productivity

Lord Howell of Guildford Excerpts

Thursday 10th December 2015 Lords Chamber

[Lord O’Neill of Gatley]

My Lords, by and large as a result of the Bank of England’s responsibility for monetary policy, in effect the responsibility for what happens to the exchange rate in a very competitive world is hugely influenced by our monetary policy relative to others. We have been and remain in favour of open markets, where prices are determined in world markets.

[Lord Howell of Guildford (Con)]

Will my noble friend explain to most of the noble Lords who have spoken that nowadays, most manufacturing items have a huge service and knowledge-laden complex in them? Will he also explain that to the Office for National Statistics, which does not seem to understand the difference? Will he not concede that at the moment, as an economy, we have an £86 billion trade surplus on our services overseas, which indicates that the mixture of services and manufacturing that we are developing is the winning formula for the future?

[Lord O’Neill of Gatley]

My Lords, my noble friend Lord Howell points out some extremely important facts, which I encourage everybody to listen to and read more about. I would add, as I emphasised at the start, that there are some signs that our trade balance in goods and services in recent years has improved. The deterioration that so many people talk about is in another source; it relates to the difference between the returns of investors here in the UK and our return on our own investments overseas.

Economy

Lord Howell of Guildford Excerpts

Thursday 10th September 2015 Lords Chamber

[Lord Howell of Guildford (Con)]

My Lords, I welcome this debate promoted by the noble Lord, Lord Haskel, who made several points with which I agreed. I want to focus on the austerity aspect of the debate—we are looking at the concept of “beyond austerity”—and examine some of the myths that surround it.

Austerity may have become a loaded word in some quarters, but the truth is—and this is difficult to accept but essential—that there has to be a permanent downward pressure on public spending at all times. That is essential if we want a balanced economy. Those who want to end austerity and make speeches about it at the moment really want more spending. More spending means more borrowing, which means more taxes to meet the ever-bigger interest payments. That taxation inevitably comes from workers’ wages and salaries, however much you try to squeeze the rich. So ending austerity and calling for a clear anti-austerity agenda—as I believe the fashionable phrase is—are just weasel words for shifting the burden onto working people and the poor to pay for the ever-swelling state. I find it difficult to see why people cannot understand that very obvious point, but those who cannot see it should to my mind follow the advice on the Underground ticket gate, which tells you to “Seek Assistance”. Poor Scotland under Mrs Sturgeon’s economic policy, which is declared to be against austerity, and poor British workers if ever Labour take charge.

To maintain the essential downward pressure on public expenditure, which is needed at all times and not just over the next little while, I welcome the Chancellor’s new fiscal responsibility charter. But will that be enough? I will give a little history. Back in 1970, my colleague Mark Schreiber, who is now my noble friend Lord Marlesford, who I see is in his place, believed that we should import into Whitehall three powerful new tools: PPBS, which is policy and programme budgeting systems; PAR, which is programme analysis and review; and a central capability, subsequently called the central policy review staff, to drive the questioning of every government activity.

The art of questioning is of course to ask the right questions. This was the genesis of the original CPRS idea. We wanted a central capability with colossal and persistent questioning power to ask, and repeatedly ask, the right questions of every part and function of government—every division and every agency. “What are your objectives? Could you achieve them better? Do they need to be achieved in the public sector or could they be contracted out? Could they be achieved better by the private sector? Are they worthwhile and necessary at all?”.

To mount such questioning centrally of course requires massive intellectual power, and that is what we wanted to see centred in the CPRS. We wanted it to drill down into every public sector department, division, agency and state-owned industry systematically and penetratingly, insisting on constant rejustification for every organisation’s or group’s existence in the public sector, with privatisation or abolition as the alternatives if public sector operation and public expenditure could no longer be justified. We saw this as the only way to place a firm and disciplined hand on the whole public sector and on the constant tendency, which is always underestimated, of public activity and public bureaucracy to swell and grow at all levels, which it always otherwise does.

This is not an ideological impulse: it is a practical and managerial one. Government is mushroom-like. If left in the dark and out of the light of challenge and questioning, it always grows. That is inevitable. Pressures good and bad are pushing for expansion all the time. How often one hears the cry “There should be a law about it”, or “We need a new agency”— in a trice we have a new set of regulations, more committees and more spending. That is why we wanted then and still need a really powerful and well-informed inside mechanism to assist Parliament and the national interest, as we did in 1970.

There was support then from the very top, but Civil Service chiefs were very suspicious of too much power in No. 10. Finding the right people to ask really penetrating questions was extremely difficult. One person whom we approached said, “I’m not going around Whitehall asking awkward questions. Socrates did that, and look what happened to him”. So in practice, the CPRS began the right way but it really lost its direction after the 1970s and ceased being a powerful questioning and challenging agency. Instead, it started generalising about the broad direction of government and of macroeconomic policy, so it was abolished. Today we need central spending tightly controlled at all times, and not just in the short period ahead. We could call it austerity. I am afraid that the word “prudence” has been discredited. But whatever others call it, I call it common sense.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, as the first of those making a winding-up speech, I thank and congratulate not just the noble Lord, Lord Haskel, but everyone who has contributed today. I do not think that I have ever sat through a debate in the House where every single speech has opened my mind in a different way and provided me with such extraordinary food for thought. Really, a very exceptional conversation has gone on with all sides of the House.

We have had, in effect, almost two different debates today: one, if I could turn it around, on austerity—I am going to make a few comments on that—and the other on the challenge that the noble Lord, Lord Haskel, has put before us of the extraordinarily disruptive new technologies that are changing the world in which we live. Such technologies will be the basis of the economy going forward and offer us extraordinary opportunities, as well as present us with real risks. I think the beginning of that debate is absolutely crucial.

Let me go back very briefly to austerity. I say again to the Labour Party and the Conservative Party that I completely agree that the crash was caused by the finance industry. There is no question about that. But the problem was that the ability to respond to that required cutting the deficit because public spending by the Labour Government was predicated on the assumption that we had done away with bust and were into a permanent era of boom. When that disappeared, it was simply unsustainable to continue public spending at those levels. But I also say to the noble Lord, Lord Howell of Guildford, that I believe we are no longer following the coalition’s trajectory, which, by the way, when it realised it was moving too harshly, had the common sense to tack its sails and reduce the deficit more slowly. There has been an ideological decision to try to rapidly move to a surplus situation and abandon the underlying principle of the coalition, which was that the burden should always be shared. In the Budget, we saw people who were prosperous and propertied getting very significant advantages and the cuts falling on the poorest of the working poor, children, young people and those with mental illnesses. That is the key change that I would fundamentally dispute, and it worries me going into the spending review.

[Lord Howell of Guildford]

My Lords, the noble Baroness mentioned my name, but I think she is slightly attributing to me views that I do not hold. All I was saying was that the concept of “beyond austerity” seems to imply a sort of nirvana where public expenditure can be completely relaxed. That is a delusion. If that line is pursued, it will hurt many working people very seriously. That is all that I am saying.

[Baroness Kramer]

My Lords, I like the word “prudence”; it is a sensible one to use. As my noble friend Lord Taverne said, in a civilised society taxation plays a key role and there is always a balance between the investment provided by the public sector, support for the vulnerable and the potential that can be brought about by constraining the amount of the economy that the public sector captures.

Let me move on to the more exciting part of this discussion, which will, I hope, be the first of many. During the coalition years, we had a very interventionist Government and an industrial strategy, to which the noble Baroness, Lady Wheatcroft, referred. It was not a free market solution of bringing back R&D investment and rebuilding the technological skills base in this country. It was a working partnership between the Government and business, often through the catapult centres, with a big focus on and support for research, especially the development end of research, and with that a development of the skills base.

Several people have made a key point: apprenticeships are wonderful and every one of us here would support high-quality apprenticeships. I hope the Government will look at how they work, not just in large companies but in small companies, which have been rather neglected. However, the work of the further education colleges in developing skilled people who have the flexibility not just to fill the immediate jobs but the potential to develop new industries and fill the opportunities of the future is absolutely key. I hope the Government keep that very much in mind.

These disruptive technologies are incredibly exciting; to me, that is, in part, because they are so consumer and user-driven. Amazon has become a powerhouse, not because it has been imposed from the top but because people want to change the way they buy. I hate the fact that it does not pay taxes, but we have to solve that problem because it will be a characteristic of so many of the firms of the future. Look at Uber. No matter how we feel about the black cab company, it seems that younger people have found Uber to be effective. However, as people in this House have said, it is a company that does not own a single taxi. I suspect that rather than going to a conventional hotel, many in this House are now looking at Airbnb as a way of booking their summer holiday. In the finance sector, which is rarely discussed in this context, the disintermediation of the big players is phenomenal. Peer-to-peer lending, crowdfunding and small, specialised banks are filling the gap that the financial institutions have allowed to develop, partly because they have hung on to ancient legacy technology—nearly all of them are dinosaurs. One sadness about the return of RBS was that it could have been reshaped into something that matched the new world of alternate finance. Instead, frankly, it has been left as a dinosaur of the old world.

I am concerned about access to financing for SMEs, because the traditional banks are not doing it any better than they were during recession—that is absolutely key; it is being picked up by the alternate world. That world will carry them through the very early days of development with relatively small amounts of finance, but we still have in this country the famous valley of death for companies that are beginning to grow and then cannot get access either to the risk capital or to the lending that they need to make that transition. We live with two consequences that worry me enormously. So many of our brilliant entrepreneurs who start companies have no ambition to grow them to global entities. In the US, their counterparts would do it without question, but they look to sell out. It is partly a cultural attitude, but it is also because that financing to go to a global structure is not available in this country, and it is something that has to be tackled rapidly.

A number of people—my noble friend Lady Miller in particular—talked about the importance of the green economy. It is one of the key economic sectors of the future. I am extraordinarily worried because any conversation now with investors in the green energy sector will tell you that they are holding back because they have been so discouraged by the actions that the Government have taken. Zero-carbon homes were mentioned, as was the withdrawal of support for onshore wind—there is now complete mistrust and suspicion across that sector. Those green jobs are critical to our future.

No one discussed the transport industry, where I have spent the past two years of my life. Ultra-low-emission vehicles together with driverless cars and huge manufacturing change—for example, 3D printing of car parts—revolutionised that industry. The old-legacy companies are scrambling and cannot see a path to the future. We have an extraordinary opportunity to become a leader if we build the market for ultra-low-emission vehicles and driverless vehicles in this country, and allow in the R&D and the jobs that can come with the related manufacturing. I hope that the Government will continue their commitment to that sector which was almost solely driven by Danny Alexander. I know that Oliver Letwin is also a big proponent of it. It is crucial that it continues to thrive because of the opportunities that it presents.

I see that my time is virtually up. I just want to say what an exciting time this, but let me add one very small caveat. It is the European Union. It is critical to us that we remain part of that single market if we are to have this exciting future that potentially sits in front of us. We are seriously at risk of talking this country out of the EU. I direct my comments particularly at the Conservative Benches and ask them, please, to stop the indulgence of the right wing, which is inward-looking and does not understand the dynamics of the market and the new opportunities, and to make sure that Britain is properly positioned as a world and European player with skills and investment and able to welcome and take advantage of those new disruptive technologies.

Greece

Lord Howell of Guildford Excerpts

Monday 6th July 2015 Lords Chamber

[Lord O’Neill of Gatley]

My Lords, let me reassure Members of this House that—as I said in my prepared comments and in repeating my right honourable friend the Chancellor’s Statement—we will do whatever is possible to make sure that any tourists or businesses going to Greece get the right guidance and advice. As to the issues on the ground for the Greek people, raised in the noble Lord’s question, we will be looking for further updated guidance over coming days, pending how the discussions go tonight and tomorrow on the financial and economic relationship between Greece and the rest of the eurozone. But, of course, we would all like to think that we will try whatever is within our means to help the Greek people in potentially challenging circumstances if they were to deteriorate further.

[Lord Howell of Guildford (Con)]

My Lords, one idea that has been widely referred to but was not mentioned in the discussions in the other place this afternoon is that Greece could temporarily leave the eurozone and return if and when matters settle down later. I do not expect my noble friend to give an opinion on that now, but will he see that that point is looked at in the considerations in the coming days? Can he give us any guidance—possibly he cannot—on the treaty-changing implications of that or any other proposal connected with this growing crisis?

[Lord O’Neill of Gatley]

My Lords, while that may not have been discussed in the other House, it has, as I am sure my noble friend Lord Howell is aware, been suggested by some other members of the eurozone. It is certainly something that we are aware of having been raised and it will be mentioned again in discussions; that is for sure. I reiterate, however, that it is not appropriate for me or my right honourable friend the Chancellor to talk about such matters ahead of the delicate discussions that will take place tonight and tomorrow.