Queen's Speech

Lord Lea of Crondall Excerpts

Wednesday 2nd June 2010 Lords Chamber

[Lord Lea of Crondall]

My Lords, I should like to address my remarks to social cohesion in the developing government scenario. I was pleased to hear the analysis of the noble Lord, Lord Skidelsky. I put on record how indebted we are to him for the wonderful book he has written about John Maynard Keynes. Keynes is alive and well, thank you very much. There are lessons to be learnt from the 1930s, as the noble Lord has pointed out in that book, even though the world has changed substantially since then. I echo some of the remarks of my noble friend Lord Myners. I look forward to him being a thorn in the flesh of anyone in the Chamber from his new roving position on the Back Benches.

First, I ask the noble Lord, Lord Henley, whether he agrees that the disaster in the financial services industry has caused the explosive growth in the deficit. Unless we get that right, we shall not get anything right. Eighteen months ago, we were at an annualised rate of 2.5 per cent and now we are at 11.1 per cent. What has happened? There has not been a sudden pay increase for public sector workers. I hope we will not have a dialogue of the deaf. Mr Cameron said that he wanted consensus that we would all tick the same boxes: a fairer society, economic growth, an entrepreneurial spirit and so on. How can we have a mature dialogue unless we have answers to some germane questions? In the middle of all this, we have three or four totally separate black holes in the various analyses being put forward. I do not see why that is so.

The noble Lord, Lord Skidelsky, stopped short of making a point that I should like to make—I believe he would have made the point if he had wished to use this metaphor—that the doctrine of cuts relates to economic growth through the magical resurgence of animal spirits. We are not in the African jungle playing the tom-toms, so what are the animal spirits? Are they the same spirits which led to the disaster? Obviously, if you believe that, you will believe anything. I think that the gloves-on approach in this House in relation to the financial services industry, with some very notable exceptions—I do not want to embarrass my noble friend Lord Myners—suggests that we believe that the financial services industry is still untouchable because it is that part of the world economy which lays the golden eggs. Perhaps the noble Lord, Lord Henley, would kindly answer this question: is the financial services industry now laying golden eggs or is it laying landmines and hand grenades?

It is always the poor that get the blame. I am afraid we are heading in that direction now. The other day, even the Financial Times—my Bible in many circumstances, although not under the editor who is now director-general of the CBI—described many of the obscene salaries in the private sector, notably in the financial services sector, as salaries from another planet. But today's editor of the Financial Times ran a leading article last week on Britain preparing for battle with the unions. What about all the workers? Are they not part of Britain? What about the analysis before the battle? In 1961, Harold Macmillan, in a difficult economic time, had a private talk with George Woodcock, general secretary of the TUC, which led to the setting up of the National Economic Development Council.

At the moment, I do not think that social cohesion is viewed as important. On the contrary: people are moving away from each other at a terrifying rate. I say this in all seriousness to the Liberal Democrat part of the Government because this is a role which they can play and I wish them well in it. We should be looking at an analysis of industrial and economic players and not just at some sort of doctrinal presentation from politicians, worshipping at the altar of the bond markets. As Angela Merkel, hardly a radical socialist, said the other day, we really ought to work together, including in Europe, to ensure that that comes about.

The public sector is not always paid more than the private sector. If you want a top accountant or an economics expert from KPMG to come into Whitehall, you will have to pay them about 50 or 80 per cent extra, in brown envelopes. If we are not careful, we shall destroy morale in public services—in education and in health—which form part of the living standards of the people of this country, as was pointed out by my noble friend Lord Myners, the other day.

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[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.

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[Lord Birt]

My Lords, I share the universal delight in the ascent of the noble Baroness, Lady Wilcox, who during the day seems to have risen almost to the status of sainthood. I only hope that her trademark cheery beam will be maintained in the white-water ride ahead.

I offer a new Government my best wishes and my great hope, given the enormous challenges that they face, that in the national interest they will succeed. There is much of the new Government’s inheritance of which we may all be proud: our social, creative and academic vitality as a nation; our tolerance; our ease with diversity; our renewed spirit of enterprise; and the improving performance of our public sector. However, 2010 will surely come to be seen as a year, alongside 1945 and 1979, when a new Government faced the aftermath of a cataclysm: in this instance, the most severe economic shock of our lifetimes.

The urgent task, as I think we almost all recognise, is the elimination over time of the deficit, our pressing need to return to a position where, across the economic cycle, we spend as a nation only what we earn and not what we can borrow. The politics of reducing that deficit will be severe and testing for the coalition. But it can be done; and it must be done. I have no doubt from my own experience of managing both in the public and the private sectors that the deficit can be eliminated with minimal material damage to critical public sector outcomes. Indeed, many private sector organisations, their very survival in question, have faced up to far bigger challenges and in shorter order. However, I do not minimise the particular challenges that the public sector will always present, not least the intensity of scrutiny and the readiness to protest of all the interests affected.

[Lord Lea of Crondall]

The noble Lord makes play of a very interesting point about the recession-related deficit—in other words, adjusted for the recession. Does he happen to know the current size of the recession-related deficit?

[Lord Birt]

Perhaps the noble Lord will allow me to move to the end of my remarks and hear my argument in full.

There will be, for there always are, some low hanging fruit for the Treasury to pocket. Government can, and no doubt will, cease doing some things that they do now, but the scalpel will prove a more useful tool than the axe. After a long and unprecedented period of increased public spending, conducting a detailed, painstaking analysis of how every part of the public sector can be more productive will be fruitful.

There will be overcapacity, poorly engineered processes and low utilisation, as well as opportunities for shared services, outsourcing and multiskilling. There will be places where labour costs at every level will be higher than in the market, where smarter procurement can bring benefits and where best practice is not universal. Moreover, no part of the public sector should be excluded from a concerted drive to promote improved productivity. There should be no sacred cows, as the noble Lord, Lord Lawson, said earlier. The Government will need a keen sense of what can be done quickly and what may take a little time. A four or five-year framework will be sensible, as the noble Lord, Lord Griffiths, observed. The new Government will discover that while Whitehall has been gradually acquiring in recent years many of the skills needed to oversee large institutions, projects and programmes, the financial skills necessary for the forensic examination of a vast cost base are not yet present in government and will need quickly to be assembled. The new Government will need to reach out into the market for some vital and not just financial skills, and it will need to invest in them if the deficit is to be cut with care. Sometimes you have to spend money to save money.

The other main challenge of the new Government is to restore the health and stability of the economy overall, about which many of your Lordships have spoken. An early and credible plan for cutting the deficit, accompanied by real political unity, will do much to put us back on the right road. But the main task here is to be certain that we have truly identified the causes of our difficulties, both at national and global level, and applied the right remedies. Here I have yet to be reassured. We are two years into the crisis, and still we hear an array of competing views on regulation from technical experts, and we have had world leaders—even in recent months—still bashing bankers rather than explaining how international institutions, nations, regulators, financial organisations, corporations and individuals could all have managed risk more prudently, averting reckless excess, and can manage risk more effectively in future. We appear far from unanimity.

There was an understandable general urge to grapple with how and why we embarked on the war in Iraq. It is not too late for a new Government to bring similar independent scrutiny to bear on the causes of, and the cures for, our current maladies, including the origins of our own structural deficit, which puts us closer to the bottom than the top of the league of virtue among comparable countries. Only on the foundation of a deep understanding and a cool appraisal of all our difficulties can a better future be built.

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[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Henley)]

My Lords, it has been quite a long time since my noble friend Lady Wilcox opened the debate, since when we have heard from some 52 or 53 speakers. As the noble Baroness, Lady Kingsmill, said, we have seen the House of Lords possibly at its best and certainly at its widest in terms of the number of subjects we have covered. It is now my job to try to respond to the wide range of subjects before us, covering a whole array of different departments: the Treasury, transport, energy and climate change, business and my own department, Defra, which I shall get on to in due course.

I shall start by offering my commiserations to the noble Lord, Lord Myners, because he told us that this was his swansong on the Front Bench. As many other noble Lords have said, we will miss him and we look forward to seeing him on the Back Benches. I think it was his noble friend Lady McIntosh who suggested that possibly it was the first of many swansongs and that he was going to become the veritable Frank Sinatra of the Opposition Front Bench by making repeated final speeches. I look forward to those. I also offer my thanks to the noble Lord, Lord Whitty, who offered me some very useful advice from Defra, the department in which he has held office, as has the Lord Speaker and the noble Lord, Lord Rooker. The noble Lord made the simple point that nothing is quite as complicated as people tell him.

I shall start by saying a word or two about my own department. As my noble friend Lady Wilcox emphasised in her opening speech, it is the Prime Minister’s ambition that this Government should be the greenest Government ever. Reducing greenhouse gas emissions, care for the environment and understanding the value of our natural resources should inform all that we do, and it is the responsibility of Defra to ensure that this imperative is understood by government and all others. We are there to explain and promote the economic value of natural resources so that they are managed better and so that those who come after us do not face hardship and disaster through their growing scarcity. We work to ensure a thriving biodiversity and wildlife by preventing habitat loss and degradation; we act to prevent deforestation and to protect the marine environment; we help businesses and communities to adapt to the effects of a changing climate; and we help those sectors for which we are responsible to reduce their greenhouse gas emissions and to contribute to the fight against climate change.

However, Defra is not only concerned with the environment; it is also an economic department. In fact, our departmental remit shows that you cannot separate the two. Therefore perhaps our most important job is to show just how the economics and the environment are intertwined.

During the course of the debate I heard repeatedly from this or that noble Lord that they hoped the Minister would in due course comment on their own particular issue. However, that will simply not be possible. I jotted down a range of different subjects, some of which were raised repeatedly, and I hope I will be able to comment on some of the bigger issues. I think noble Lords will understand that I shall not be able to answer every question that was put to me but, as the noble Lord, Lord Myners, put it, I shall do my best to write to all noble Lords—as I did in my previous incarnation as a Minister and as I am sure all Ministers do—in due course when I have collated all the responses from the different departments. However, as I said, I shall try to deal with one or two of the concerns that have been raised today.

I shall start with the Office for Budget Responsibility because that is where the noble Lord, Lord Myners, started. He asked a number of detailed questions which he would not expect me to answer at this stage and which I shall deal with by correspondence. However, I can give him the assurance that it will be independent—that is important—and that independence will derive from it having complete control over the forecasts it will produce. I was grateful that the noble Lord, Lord Bilimoria, saw that that was a positive step. On the detailed questions, as I said, I shall write to the noble Lord.

Turning to the deficit, the subject most mentioned by noble Lords—indeed, so many noble Lords raised the subject that I cannot list all their names—there were varied views on what to do about it but everyone accepted that it had to be tackled. Even the noble Lord, Lord Myners, accepted that the deficit had to be tackled but felt, as did others—but by no means the majority—that it should not be tackled too quickly. I shall quote the views of the Governor of the Bank of England on this subject. He said:

“The bigger risk at present would be for a new Government not to put in place clear and credible measures to deal with the deficit”.

We are currently running one of the largest deficits in the world. That is simply not sustainable and the longer we delay action the greater the risk of a loss of market confidence, which would mean higher interest rates for all.

I will give way to the noble Lord, Lord Lea of Crondall, just this once, but it is his third intervention in the course of the debate.

[Lord Lea of Crondall]

It is an important question. Perhaps the Minister could write to me and put his reply in the Library. Is he talking about the complete deficit or about a recession-adjusted deficit? How has it suddenly become a recession-related deficit of 11.1 per cent when it was only 2.5 per cent 18 months ago?

[Lord Henley]

That is a question that the noble Lord will have to put to the previous Government, who saw it rise to that level. I shall of course write to him in due course and, as I always do, put a copy of the letter in the Library.

The longer that we delay action on the deficit, the greater is the risk of that loss of market confidence. As I said, that would mean higher interest rates for all, stifling recovery and making challenges ahead even harder.