Queen’s Speech

Lord King of Lothbury Excerpts

Thursday 4th June 2015 Lords Chamber

[Lord King of Lothbury (CB) (Maiden Speech)]

My Lords, I am extremely grateful for your Lordships’ patience in allowing me to wait until after the general election before burdening the House with my views, and for the warm welcome that I have received. Parliament is a forbidding place for a central banker—our experience is usually confined to appearances in the other place before the Treasury Committee. I can report that, contrary to that body, the Economic Affairs Committee of this House offered not only greater decorum but also a superior quality of discussion.

With the general election behind us, I shall say a word about the economic challenges facing the country. Before that, I add my welcome to the noble Lord, Lord O’Neill, who will be responsible for many of the policies aimed at improving the performance of our economy. He will add expertise to the experience of the House at a time when economic issues loom large in our politics, especially in relation to Europe.

Over the past five years, the UK economy has expanded by almost 10%, faster than official statisticians initially estimated but still slower than expected at the beginning of the previous Parliament. The task now, as then, is to rebalance the UK economy away from private and public consumption and toward investments and exports. Monetary policy is in good hands, fiscal policy is tackling the structural deficit and banking is being reformed.

We have made progress, but we face two challenges. The first is to raise productivity throughout the economy—easy to say, hard to do. Several noble Lords today have made convincing contributions to explain what we need to do. Despite recent official data, we should be optimistic about the long-run growth rate of the British economy. Innovation is our strength. If we support research and encourage its application to commercial ventures, I believe that we will make up the output lost in the financial crisis. We have not yet fully resolved the problem of “Invented in Britain; developed abroad”, and I hope that the Government will look closely at any inhibitions to the development of British discoveries at home.

The second challenge is the continuing slow recovery of the world economy. No major economy has found it easy to generate a sustainable recovery. Indeed, most countries today could argue that if only the rest of the world was growing at its normal rate then they would be fine but, since it is not, they are not. With interest rates close to zero and fiscal policy constrained by high debt levels, many countries have resorted to pushing down their exchange rate. One does not have to employ the emotive language of “currency wars” to see that this is a zero-sum game. And one of the costs is that the appreciation in sterling’s effective rate of over 10% over the past 18 months is holding back the rebalancing of our economy.

Most problematic is the position of monetary union in Europe. The first crisis weekend to deal with Greece was almost exactly five years ago. Since then, the crisis has spread to other countries. It ebbs and flows with little sign of any permanent solution and, as all the options for the euro area are unpalatable, the inevitable result is drift. This feeds directly into the problems facing the Government in renegotiating our relationship with the European Union.

I hope that the Government will approach those negotiations not with a British shopping list but with a simple principle for the future of the European Union: the nature and speed of political integration required for monetary union to survive is wholly different from that appropriate for countries outside the euro area. The reality is that for the foreseeable future there will be two types of member of the EU: those in the monetary union and those outside it. This is not a temporary state but one that will continue for a considerable time. Failure to recognise that reality will threaten not only monetary union but the wider Union, too.

I echo the views of the noble Lord, Lord Higgins. I think that a deal could be based on a binding declaration that countries outside the euro area would not prevent further political integration among the “ins” in return for a guarantee that those steps would not apply to the “outs”. That is not a British demand, but an attempt to save Europe from itself. This is as much a challenge for Chancellor Merkel as it is for our Prime Minister. It will be her taxpayers who foot the bill for greater integration of the euro area.

There are two challenges: raising productivity at home and, in Europe, a more realistic approach to the development of the Union. In both cases the process would be helped by what John Maynard Keynes once described as “ruthless truth-telling”. We in this House can show that it is not only the child but also men and women of a certain age who can say that the emperor has no clothes. Interest groups at home and a few of our partners in Europe may not always like what we say, but they will listen. And who knows, with good arguments, we might even change some minds.