Financial Markets: Stability
Lord Liddle Excerpts(2 years, 10 months ago)
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Lord Liddle (Lab)
My Lords, I welcome the noble Baroness, Lady Penn, back to her rightful place on the Front Bench. The speeches so far, led by the noble Lord, Lord Sharkey, have been of the highest quality. I must confess that I have already learned a lot from listening to experts such as my noble friend Lord Kestenbaum. I will make some brief observations on how we handle the situation we are now in.
First, we have to recognise that our national sovereignty, where we live in the world, is limited. Kwasi Kwarteng and Liz Truss thought that Brexit had somehow liberated them from constraints on national sovereignty. It has not, and that fact must be recognised.
Secondly, financial stability is essential. I believe we will face a very tough Budget but, when we make these tough decisions, it would be a great mistake to cut the programmes which are most likely in the long term to improve our rate of growth and therefore our ability to finance public services and a generous welfare state. If a Government present well-worked-out plans for investment, which should be audited by independent bodies, and if we invest wisely, we can borrow wisely to improve our position in future. I hope that will still be the case, because we need to invest in not only capital programmes but training. If we are to solve the problems of the health service, we need to invest in the workforce, particularly the social care workforce, because that is a crucial condition of getting the escalating costs of running the NHS under some kind of control. We need to invest in order to save; that is essential.
Thirdly, in tough times we should not neglect problems of poverty and inequality, or the essential role played by public services. We are getting to the familiar point that we want a Nordic welfare state with US levels of tax. That cannot be sustained with our demographic pressures, particularly on the health system. How do we get out of this? I do not believe we can solve the problem simply by imposing fantastically high taxes on the top 2% or 3%. We can do a bit more of that, but we cannot solve the fundamental problem of the welfare state by doing it. We need tax reform.
The noble Lord, Lord Young, illustrated in his excellent speech how prudent tax reforms could improve the housing situation and bring in more money to the Exchequer. The same is true of pensions. Why should better-off people get 40% tax relief when they invest in a pension, as I did, when people on average earnings get only 20%? We should have a standard incentive for investment in pensions. That would bring in a lot of revenue to the Exchequer, and it would be fair.
There are ways forward. Rachel Reeves has begun to address tax reform in business rates, but we must go further in other areas. I hope we can find a way out of this crisis that allows us to invest in growth and also maintain a sense of social justice.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, I join all noble Lords in thanking the noble Lord, Lord Sharkey, for the opportunity to debate this important topic.
The central responsibility of any Government is to protect national security, and an essential pillar of that security is economic stability. That economic security and stability has real and profound impacts on people’s lives, as we have heard in today’s debate, from pensions and savings to mortgage costs and the broader cost of living.
The Motion that we are debating today speaks of the importance of stability in financial markets, and I agree with all noble Lords on the desirability of this. However, it is also important to recognise that many of those factors influencing stability can be beyond our control. There are global forces that can create volatility in the financial markets, as we saw in the past with the global financial crisis and more recently with the shocks of the global pandemic and the energy shock in the aftermath of Russia’s invasion of Ukraine. The role of government and the regulators is to ensure that we have a system that is resilient to those shocks. Since the financial crisis in 2008, that is what we have sought to build.
We created a new Financial Policy Committee to look at risks across our financial system, backed by the powers to tackle them. On the question the noble Lord, Lord Tunnicliffe, asked about whether the Treasury will take a view on financial stability risks in addition to the Financial Policy Committee, the Government remain committed to the Bank of England’s independence, so it is right that the FPC can independently assess the level of resilience required to promote UK financial stability.
We have also developed the UK resolution regime, which provides the financial authorities with powers to manage the failure of financial institutions in a way that protects depositors and maintains financial stability, while limiting the risks to public funds. We have implemented regulations to strengthen the resilience of the banking system, with the major UK banks now reporting core capital ratios three times higher than before the global financial crisis. There has also been a concerted international effort to strengthen the financial system and ensure that the authorities have the necessary tools in place to protect financial stability.
Recognising in particular the significance of the non-bank sector, over the last decade the Government and UK regulators have worked closely with our international partners through the Financial Stability Board to identify vulnerabilities and enhance the sector’s resilience. It is important to pursue this work through international fora due to the global nature of the financial system, and the Government, the Bank of England and UK regulators play an active role in this work. As a result, the system is much more resilient today than it was in 2008.
However, alongside the UK’s independent financial regulators, we continue to closely monitor any developments that could be relevant to UK financial stability. The Treasury, the Bank of England and the Financial Conduct Authority have well-established and mature systems for monitoring the health of our financial services firms and responding when incidents occur. We are also committed to maintaining and enhancing the UK’s position as a global financial services hub.
The noble Baroness, Lady Bennett, questioned what the financial sector delivers for the United Kingdom. She will probably be familiar with the statistics that financial and related professional services employ more than 2.3 million people across the UK, creating £1 in every £10 of the UK’s economic output and contributing nearly £100 billion in taxes to help fund vital public services. We plan to continue to strengthen that sector through the Financial Services and Markets Bill, which is currently in Committee in the House of Commons. We are all—
Lord Liddle (Lab)
The Minister has stressed, rightly, the importance to the prosperity of the City of London of financial regulation, and of a stable financial regulatory regime, which I certainly support. However, the Government are talking about taking powers to overrule regulators. Can the Minister confirm whether or not these powers will be included in the Bill when it gets to this House? Can she tell us how she thinks that will contribute to the independence and stability of the regime, which is so fundamental, as she admits?
Baroness Penn (Con)
I cannot confirm that, but I am sure that when that Bill comes to this House, we will spend sufficient time scrutinising its provisions and ensuring that they deliver the outcome that we all want—a stronger financial services sector—which is important not just for the City of London but for people’s everyday lives in the country.
Finance Bill
Lord Liddle Excerpts(9 years ago)
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Lord Liddle (Lab)
As several noble Lords have said, this Finance Bill belongs to a previous era—not just the era of George Osborne’s chancellorship but also a past era in a more historical sense, one that began with our membership of the Common Market in the 1970s, was shaped largely by the Thatcher Government and ended with the vote for Brexit in June this year. With our exit from the European Union, Britain has to devise a new political economy from the European one that has shaped our destiny since the 1970s. I will talk about this and develop four or five brief themes. I am afraid I am not going to talk much about my noble friend Lord Hollick’s excellent report.
The first theme is the one referred to by my noble friend Lord Darling. It really is time to end the phoney war about where we are on the consequences of Brexit and what the Government’s policy now is. The Government have got to make some hard choices. They have to decide how much priority they give to the single market. They have to say whether they are prepared to contribute financially in order to get access to European markets and to common policies that are in our interests, such as those for research in our universities. They have to be clear whether they are prepared to accept being members of a market where the regulations are not going to be determined in Britain, because that will be the position. I hope that Mrs May will try to resolve some of these uncertainties in her speech at the Conservative Party conference. In the national interest, I hope that she makes clear that the overriding goal of the Brexit negotiations has to be to retain the maximum economic openness that our economy enjoys as a result of its membership of the European single market.
However, we have to do more than that. We have to try to explain better to people how the benefits of that openness can be shared in a fair and transparent way. I do not know whether something could be made of this in policy terms, but I have just been thinking of the many young people who come to work in Britain from the continent. It is clearly evident, as many economic studies have shown, that they make a very positive contribution to the Exchequer. Could the Government find a way of identifying and hypothecating that tax contribution in order to establish a migration impact fund which dealt with some of the social consequences and tensions that have resulted from free movement?
My second theme is that the Chancellor should launch, in his Autumn Statement, an ambitious public investment programme to address the loss of economic potential as a result of Brexit and the tail-off in economic growth as a result of falling private investment. This should be targeted at new sources of growth and designed to correct the regional imbalances in the economy. We should set up a kind of office of public investment which verifies projects on the basis of their value for money. That would reassure people that borrowing money for these purposes was not wasteful spending, but would actually increase economic growth and, as a result, reduce the burden of our debt in the long term. We have to do something about public investment. In the last days of the Labour Government, under my noble friend Lord Darling, it was running at 3% of GDP. It is now well below 2%. It has got to go up: that has to be done.
My third theme is that this new investment programme needs to be part of a coherent, long-term economic plan. Yes, I use the word “plan”, which the Conservatives used so much in the general election campaign. We have to have a plan and a new industrial strategy, which the new Prime Minister has said she is committed to by changing the name of the BIS department. As I say, we have to have a plan and an industrial strategy. I do not think that that is too difficult to do. In fact, it is a logical fit with Brexit, because the Government have already committed themselves to examine the trading position of the British economy sector by sector. It is a relatively short step from that analysis for the Government to work with business sector by sector to identify strengths and weaknesses and threats and opportunities, and examine what positive help a Government can give to industry’s success. Therefore, I welcome the return of an industrial strategy and hope that it will be taken very seriously. I also hope that it will be backed up by resources and that the EU resources currently available for this purpose through the structural funds will not be abandoned but will actually be amplified by the new Government.
Fourthly, the Brexit vote was clearly a cry of pain from the left-behind in our society and a rejection of the elites. Business has to listen very carefully to that message. We have to find ways of re-legitimising the market economy and capitalism. In the post-war era, we thought that the worst excesses of capitalism had been tamed. Today, they have returned. It is terrible that the models of business that people think about in Britain are people such as Sir Philip Green at BHS and Mike Ashley of Sports Direct. What an example they set. Mrs May is very right to stress the need for better corporate governance. I certainly look forward to those proposals and hope that they have real substance.
We must also think about labour market flexibility. I have always been strongly in favour of labour market flexibility, but has it gone too far in Britain? The noble Lord, Lord O’Neill, mentioned the Government’s new skills funding approach. Surely, this is an opportunity to try to raise standards in areas such as hospitality, catering and social care, where one would hope that, by training people better and paying them higher wages, one could deal with some of the abuses—as I see it—of labour market flexibility, and the dependence of some employers and business models on the ready availability of low-skilled migrant labour.
My final point concerns our policy for sterling. I am not sure what I think about this, but we need a national debate on it. One of the clear consequences of Brexit has been a fairly sizeable devaluation. This, of course, will represent in time a significant squeeze on real wages and living standards. Do the Government think that a fall in sterling is an inevitable consequence of Brexit? Do the authorities see a lower rate for sterling as a desirable thing in these circumstances? Should it go further? Should the exchange rate return in some way as an objective of government and Bank of England policy? The governor of the Bank has pointed out that, with our massive balance of payments deficit, we are dependent on the “kindness of strangers”, as he put it. However, one could ask legitimate questions about some of these foreign inflows. Of course, we welcome—everybody should do so—overseas direct investment. But are the flows that are coming in to finance M&A and property investment, particularly in London, desirable—and could we do something to throw grit in the wheels of those processes in order to make them less desirable? This is something that we need to think about.
There are many challenges with Brexit. As the noble Lord, Lord Kerr, said, the economy is entering a long period of grave uncertainty, and it is only through very bold government action that we can address this. I very much hope that the Government will prove up to the challenge.
Queen’s Speech
Lord Liddle Excerpts(9 years, 3 months ago)
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Lord Giddens (Lab)
My Lords, let me join the queue to congratulate the right reverend Prelate the Bishop of Newcastle on her terrific maiden speech and, I gather, on her athletic prowess. She is a very welcome addition to your Lordships’ House.
A huge intellectual and policy-making revolution is beginning today across the world as the limitations of the efficient market hypothesis become evident. We have reached the limits of endless privatisation. The structural strains that we see everywhere, the rise of populist parties, the sharp relative decline of the BRICs, about which the Minister knows a lot, and the accumulation of huge levels of debt in the advanced economies will demand profound revisions in our thinking and policy-making both globally and locally. I see very little sign that the Government have recognised the depth of this imminent intellectual and policy-making shift.
I shall speak of only one area where a great deal of innovative thinking is happening, which is the debate about reindustrialisation in the West. Rebalancing the economy, the march of the makers and the fabled northern powerhouse, which have been mentioned, are the Government’s way of talking about this debate, yet very little flesh has been put on those bare bones. There is a reason for that, which is that the Government find it hard to come to terms with the need for active industrial policy.
The wiping out of large swathes of British manufacturing industry has been a disaster for many communities in the north and in parts of Scotland and Wales. The contrast with Germany is very telling. Only two days ago—sorry, two decades ago—manufacturing in Britain accounted for 22% of GDP—[Interruption.] Mr Mandelson calling.
Lord Giddens
Only two decades ago, manufacturing in Britain accounted for 22% of GDP compared to 23% in Germany. Today, in this country it has fallen to 9%, whereas in Germany the percentage is almost unchanged. It is a huge contrast. As we know, Germany has a substantial trade surplus, whatever you make of the UK trade deficit.
Reindustrialisation should be understood as an avant-garde process, not a reversion to protectionism. As I see it, three components are involved, although each interrelates with the other in a dynamic way—or ideally should do so. I shall put what I have to say as three questions to the Minister.
The first picks up on the speech of my noble friend Lord Morris. What lessons will the Government seek to learn from the travails of the British steel industry, specifically those involving Tata Steel, an episode whose outcome is still far from clear? Will the Government look simply to sell on whatever assets can be disposed of or consider developing a more rounded policy in which social costs are balanced against the economic ones and where longer-term strategies are involved?
Secondly, I think that I was one of the first people in your Lordships’ House to talk about the reshoring debate in the United States several years ago: the idea of bringing back offshored industries to the US. That movement has had considerable success. Firms have been attracted back to their country of origin by a mixture of positive inducements and the fact that rising labour costs, especially in China, have reduced the benefits of offshoring. Has Reshore UK, set up by the Government, achieved anything of note? I have found it hard to find it, if so, and it seems pretty radically underfunded compared to its American counterparts.
Thirdly, and most importantly, some of the most significant advances across the world are happening in what has come to be called advanced manufacturing, driven in large part by the digitalising of production and distribution. Robotics, 3D printing and supercomputing power are the main forces involved. The promotion of advanced manufacturing has become a prime concern of the federal Government in the United States. A recent report of the National Science and Technology Council argued that the knock-on effects are absolutely huge. For each such manufacturing job created, 16 other jobs are established.
The authors of a new book on these issues, The Smartest Places on Earth, spent two years travelling through the United States and across Europe studying areas of industrial renaissance. They came up with remarkable results and speak of “turning globalisation on its head” through the emergence of new hotspots of innovation and job generation, many of them in rustbelt areas ravaged by outsourcing. Costs are being reduced not by cheap labour but by what they call smart production. Manufacture is being reinvented in quite a different guise from the past. The “rustbelt”, as they put it, has become a “brainbelt”.
No one knows at this point how transformative advanced manufacturing will turn out to be in terms of the overall economy. However, a key feature is that the traditional divisions embodied in orthodox economic statistics, between manufacturing and service industries, are being broken down. The puzzle about why productivity has not improved even as the pace of innovation grows might be elucidated here, since perhaps the established measures are becoming obsolete.
The UK does not brook large in the book to which I have referred, although other parts of Europe do, interestingly. The authors question the idea that EU countries are becoming industrial museums; they see them as the centres of an enormous amount of information. What strategies are the Government deploying to ensure that the UK is not once again left behind?
Entrepreneurs’ Relief
Lord Liddle Excerpts(10 years, 6 months ago)
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Lord Newby
My Lords, the Treasury is keeping records and noting the number of businesses. There are a record number of private sector businesses in the country at the moment, with an increase of 760,000 compared to 2010. There is of course a whole raft of measures, from having a long-term economic plan that has kept interest rates low to much more specific measures to support small business, which is helping this phenomenal growth.
Lord Liddle (Lab)
My Lords, can the Minister, in praising the Government’s economic record, explain to the House why if entrepreneurship has flourished so much in this country we have one of the largest trade deficits in the world, at 6% of GDP?
Lord Newby
My Lords, we have had a trade deficit for a very considerable time. One of the reasons we have such a large deficit now is that the amount of net income from UK investments abroad has fallen dramatically, not least because a lot of foreign companies have been investing here. However, the Government have set an ambitious target for increasing exports. By common consent, UKTI is far more focused in what it is doing than it has ever been. We are seeing an increasing number of British companies exporting to an increasing number of countries.
National Infrastructure
Lord Liddle Excerpts(10 years, 7 months ago)
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Lord Liddle (Lab)
My Lords, I declare an interest as a member of Cumbria County Council. My purpose in speaking in this debate is to bring a cold wind of Cumbrian reality to all this chatter about infrastructure. When it comes to infrastructure, London gets most of what it wants—as, probably, as a global city, it should—but the rest of England has to be content with crumbs. These crumbs are from Chancellor Osborne’s table, which his spin doctors try to confect into some imaginary tray of appetising cream cakes. They look tempting and delicious when they are offered but, in the modern world on public health grounds, you are not allowed to get near them.
In Cumbria, we were greatly heartened by the Chancellor’s talk of a northern powerhouse and by the idea of High Speed 3 connecting our great northern cities. But what is the reality? A couple of weeks ago, the Transport Secretary, Patrick McLoughlin, who is a good man, came to Carlisle. It was one of those visits to marginal constituencies that Ministers have to make at this time in the political cycle. Doubtless, he had asked his department to identify what suitable goodies he could announce or perhaps reannounce for Cumbria. However, the cupboard proved very bare. There would be no road improvements to link the centre of Britain’s nuclear industry on the west coast to the M6. Nor would there be improvements in rail connectivity or an improvement in the east-west line from Carlisle to Newcastle. That is a journey of 60 miles, which in the modern world takes 100 minutes but should take 45 minutes. Instead the Transport Secretary came up with the announcement of a single additional early morning train service to take workers from Carlisle to the nuclear site at Sellafield. In my youth, the railway would have described that as a workmen’s special.
This beneficial improvement came out of the recent refranchising of the Northern and TransPennine rail services. What Mr McLoughlin failed to highlight in this announcement was that, as a result of this refranchising, Barrow-in-Furness has lost its direct rail service to Manchester Airport, which used to run every two hours. That service was a crucial lifeline for this isolated town. Why is Barrow losing this service? It is because the TransPeninne units have to be transferred south to tackle overcrowding on the Chiltern line. In other words, there is not so much a northern powerhouse as a southern smash and grab. As a consequence of this shortage of modern rolling stock, in order to provide services in Cumbria, diesels from the freight operator DRS will have to be used to haul old-fashioned coaches that have been retained for steam train excursions.
That is an extraordinary failure and it shows a deeper failure. We in Cumbria were supposed to get the third nuclear power station to be built, but there is no planning for that power station. It is in the national infrastructure plan, but there is no planning whatever. Planning is lacking. That is why I fervently hope that a new Government will implement the proposals made by Sir John Armitt in his excellent paper.
Defence: Budget
Lord Liddle Excerpts(10 years, 10 months ago)
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Lord Newby
My Lords, the Government are committed to that 2% for the remainder of this Parliament and into the next Parliament and to keeping the defence equipment budget growing. Any commitments in the medium term beyond that are commitments that the parties will be making in their manifestos.
The Lord Privy Seal (Baroness Stowell of Beeston) (Con)
My Lords, I am sorry for taking up time in the Chamber, but it is actually the turn of the noble Lord opposite.
Lord Liddle
My Lords, has the Minister read the analysis in Monday’s Financial Times which shows that, on the basis of what at least the Conservatives are proposing, the implications in the next Parliament for non-protected departments will be a budget cut of one-third? What might be the impact of this analysis on the defence budget? Does he believe that the Prime Minister’s assurances to the defence community carry any credibility whatever?
Lord Newby
My Lords, I did read the Financial Times article. It is fair to say that all the parties going into the next election will have different views about how to bear down on the deficit. The Conservatives have one view and the Liberal Democrats have a different view as to where the balance between expenditure cuts and tax rises should fall. I have no idea what the Labour view is.
Young People: Alternatives to University
Lord Liddle Excerpts(10 years, 10 months ago)
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Lord Liddle (Lab)
My Lords, I thank the noble Lord, Lord Monks, and congratulate him on introducing this debate. This is one of the central challenges facing British society, both economically and socially. Unless we can do something about vocational education we will face an increasing problem of NEETs, of which my noble friend Lady Nye has spoken. Opportunities for young people without qualifications are in secular decline. Unemployment rates for people without skills are rising and this is a huge social challenge. At the same time, we have the economic challenge of the huge skills shortages that we know exist in STEM subjects in technician-level jobs. That is a major barrier to us becoming a more successful industrial country. There is now a bit of an opportunity to reindustrialise ourselves.
There have been many expert speeches today, and I am not an expert in this field, but I have thought about it as someone involved in politics for a very long time. What has always struck me is how we have known about this major problem in our society—certainly for decades, though some would argue for over a century—yet no Government have managed to crack it, despite effort, lots of activity and lots of public money. Something about our politics explains this failure. It is partly a lack of ability to build consensus about how we do things—consensus that can last and survive a change of Government.
I remember that when we came to power in 1997 we had two very big promises on vocational education, both of which are worth reminding ourselves of because they show how Governments can fail as well as succeed. One was that we would establish a university of industry, which sounded wonderful—a kind of Open University for skills. The other promise was to establish an individual learning account which, again, sounded an absolutely wonderful idea where employers, individuals and the taxpayer could contribute to a pot of money with which people could decide for themselves how to improve their qualifications. Both of those great ideas bit the dust. Indeed, the ILA was a bit of a disaster and had to be withdrawn at very short notice.
A bit of my bedtime reading at the moment is the excellent book by Tony King and Ivor Crewe, The Blunders of our Governments. This is an area in which there have been blunders by Governments, with too many interventions from the top down by Ministers who try to change things. In future, we have to learn the lessons of that and try to think longer term on how we tackle these problems.
We should look to one of the great successes of Britain, which is our university system. Why are the universities successful? They are autonomous institutions, have a mixed economy of funding and have the ability to decide their own strategy. In vocational education we do not have that number of strong enough institutions and we must put the effort into remedying that systemic failure. What sorts of things would I look at? I would think about how we expand the excellent idea of university technical colleges. I do not think that they will really expand unless we empower our cities to do more in this area. Cities have a crucial role in deciding what skills are needed to be developed in their area.
Secondly, we have our colleges, as the right reverend Prelate said. At present, too many of them are chasing funding streams rather than thinking about how, as institutions, they play a role in the development of their local economy. I think that somehow we have to liberate the colleges. We need to give professional bodies, such as the engineering bodies, a much bigger role in deciding on technical qualifications which should become the ticket for the job. I believe that we need to correct the overflexibility of our labour market. I have come to the view that we will not make progress in this area unless we incentivise employer co-operation sector by sector, so that money for training is provided in return for controlled entry standards and decent pay for people who are doing apprenticeships. The Government have actively to try to bring employers together and perhaps recreate the kind of partnerships that used to exist in some areas with the industrial training boards. It is the institutions that need to be developed if we are to make this sector as successful as our universities have been.
Genuine Economic and Monetary Union (EUC Report)
Lord Liddle Excerpts(11 years, 2 months ago)
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Lord Liddle (Lab)
My Lords, I congratulate my noble friend Lord Harrison on his committee’s excellent report. I have done that before but this is the first time that I am not doing so as Labour’s Europe spokesman. It is a great privilege to be able to address this body knowing that I am free to tell Labour what its policy ought to be rather than putting the best face on what its policy is, so I am looking forward to this speech. I should also say what a privilege it is to listen to the noble Lord, Lord Lamont. I do not agree with him on the euro but his reflections, as a former Chancellor, are extremely interesting and I would be the last person to argue that the euro does not still face difficult problems, which have to be resolved.
The euro’s future is of fundamental importance to Britain. In all the past arguments about whether we should join, the one where the pros have been conclusively proved right is that we in Britain cannot escape the consequences of the eurozone by being outside it. It has a material impact on our economy. We also have to be conscious of the fact that our circumstances might at some point in the future change. I am not arguing that there is any immediate prospect of our joining the single currency. I do not expect to see that for a very long time but Britain’s prospects could change, which might necessitate us joining the single currency.
The real danger for Britain is a repeat of what happened when we did not seize the initiative in Europe right at the start, in the 1950s. We have to be careful that a construction might be put in place that does not entirely suit our national interests. We saw that with the common agricultural policy, which led to the arguments about whether we should enter on the Tory terms in the 1970s and the renegotiation under Harold Wilson, which then led to Mrs Thatcher’s struggles for the British budget rebate, all of which poisoned our relations with our partners. We must try, as an insurance policy for Britain, to make sure that the development of the euro is one that suits us.
I want to stress the most important recommendation of this report and I am very disappointed by the Government’s reply. The recommendation is:
“The Government would be wise not to close the door on the possibility of participation in some elements of Banking Union in the future, and must stress the City of London’s strategic importance for the EU as a whole”.
I have no doubt that the Government will stress the City of London’s importance but if they want to influence the key ways in which the City’s future is determined, they must play a role in the banking union. Be in no doubt: the ECB will be the body that determines the rules by which financial markets work in Europe. It will be that body and the idea that, because we have some minority protections and a European Banking Authority we can sit back and relax, is for the birds.
What about the alliance of the euro-outs, which is supposed to protect our interests? Where are we with Mr Reinfeldt, after Mr Cameron’s ride in the boat with him? Is he not going down to defeat in the September election in Sweden anyway? As for the Poles, what are the prospects for Britain having any influence over Polish policy after what we now know of the expletive-laden remarks of their Foreign Secretary about his old Oxford friend, the Prime Minister? Can we really rely on Hungary and Mr Orbán when he is the man who plays footsie with Jobbik—the fascists in Hungary—who rigs the constitutional court in Hungary and who has passed laws that are offensive to press freedom in Hungary? Is that our only ally in Europe? Are we really proud of that? Do we think we can defend our interests on a crucial issue such as this simply by having an alliance with Hungary?
Lord Flight (Con)
Would the noble Lord not agree that the collaboration between the Bank of England and the ECB has been and remains substantial? Indeed, quite a lot of the ECB regulatory arrangements have been modelled on what has happened here. Whatever the constitutional position may be, the practical position is that the two work hand in hand.
Lord Liddle
I am very strongly in favour of practical co-operation between the Bank of England and the ECB but, fundamentally, it is politics that matters. It will not all be decided in an independent regulatory context. The politics will matter, and we are not well placed at the moment.
The banking union is a significant development. I am a bit more bullish about it than the committee. I think it is a glass half full, rather than a glass half empty. Some academics I greatly respect, who are experts in the field, such as the Peterson Institute’s Adam Posen and Nicolas Véron, believe that we should consider that to be a very significant development. That is why it is so important that we try, as far as we can, to get inside—beyond simply co-operation between the Bank of England and the ECB.
On the wider issue of genuine economic and monetary union, the British love playing this intellectual parlour game of what are the necessary conditions for monetary union to proceed. They never think about the United Kingdom itself: is it a satisfactory monetary union? Clearly, in the United Kingdom we have a London economy which is a tremendous success and something that we all admire, but an out-of-London economy that continues to struggle. We all know that if we imagine them as separate countries, the London pound would be far stronger than the out-of-London pound. The country functions only because of massive fiscal transfers from its richer parts to the poorer.
You can argue that those transfers are not there in the eurozone—of course, they are not, except for the structural funds—but one of the problems with our fiscal transfers in Britain is that they have been extremely opaque. They are about to become less opaque as we go for devo-max in Scotland. I forecast that we will have more political arguments about the functioning of the United Kingdom economy in the decades to come as we have arguments about whether the extent of the fiscal transfers from London and the south-east to the rest of England are sustainable in the long run.
I make that point because I think that the mistake in looking at EMU is to neglect the extent to which its survival has depended on political will. Eurosceptics in this country always underestimate the strength of that political will. An enormous number of things have been done, including the European stability mechanism, the six-pack and two-pack legislation, the fiscal treaty, the ECB supervisory powers and the banking union. A lot has been done; let us not underestimate it. At the moment, politics is making a big difference to the chances of the monetary union overcoming its problems. We are seeing less emphasis on austerity and more fiscal flexibility. In part, we saw that with Mr Juncker going around making sympathetic noises to the Italians and the Spaniards to get their support for his nomination as Commission President.
More fundamentally, there has been a shift in Germany as a result of the formation of the grand coalition, with the disappearance of the Free Democrats from the coalition and the presence of the Social Democrats. The German Vice-Chancellor, Sigmar Gabriel—a Social Democrat—has said that he believes that the south needs more fiscal space and more fiscal flexibility. What the Germans are trying to do, of course, is to link that flexibility to support for needed structural reform in the countries of the south. They are also doing something to rebalance the eurozone themselves, with policies such as the introduction of a minimum wage, which will boost spending power in Germany.
The one remarkable thing in the crisis is that, thankfully, unlike the 1930s—this is the huge historical difference from the 1930s—there has not been a political collapse and a reversion to dictatorship in any of the EU countries, despite the very brutal circumstances that they have had to face. Reforms have been made and democracy has just about survived.
We will need to see further developments before the euro is safe. German rebalancing will have to go further and they will have to be more flexible. We will have to see some debt forgiveness because as the noble Lord, Lord Lamont, said, it is difficult to see how those levels of debt are sustainable in the long run. We will have to see more of a European-led investment policy. That is one way of doing things in favour of growth but making them conditional on reform.
I see the eurozone rescue as an incomplete project but I think the politics are working in the right direction. The political will has been demonstrated. My fear is that as a Euro-out we are not really putting our minds to how we will retain influence over this construction in the years and decades ahead. This report has been an extremely valuable contribution to what is an extremely important issue for the future of the United Kingdom.
EU: Financial Transaction Tax (EUC Report)
Lord Liddle Excerpts(11 years, 9 months ago)
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Lord Liddle (Lab)
My Lords, I declare an interest as the chair of the Policy Network think tank, which produced the report for the City of London Corporation on the future of financial services in Europe. It is available on our website and includes reference to the financial transaction tax.
The Opposition applaud this debate. We agree with what my noble friend Lord Harrison said. He posed a number of relevant questions to the Government and the Minister that need to be answered. A rethink of the financial transaction tax is probably under way in Brussels at the moment. I remember, as a naive young man, reading the article by the Nobel laureate James Tobin which first proposed a version of the financial transaction tax and being very impressed by it. However, it was always clear that it was a very difficult proposal. It would certainly be difficult to make it work unless there was a transatlantic agreement—in the modern world, it may not be possible to do it even then.
Enhanced co-operation raises hugely difficult issues in this area. Under the treaty, enhanced co-operation can go ahead only where it does not do damage to the member states that are not taking part. Therefore, the Government were right in this case to mount a legal challenge. I am not normally of the view that one should conduct one’s engagement in the European Union by mounting legal challenges—negotiation is much better—but in this case, where enhanced co-operation was being pushed ahead in a way that was detrimental to other member states, they were right to take the matter to court.
Anyone who has talked to people on the ground knows that this proposal has run into great difficulties, that many of the member states that initially supported it are having very serious second thoughts and that it is almost certain that the Commission proposals will be heavily revised. We do not know what the outcome of that will be, but the existing proposal looks pretty dead in the water.
However, noble Lords have to take into account the extremely strong feeling on the continent—and in this country—that it was the financial sector that caused the crisis and it is the financial sector that has to pay for the consequences of its irresponsibility. Of course, that is not an argument for a financial transaction tax but that is the principle on which a lot of the political momentum behind this proposal is based. It is linked to the idea that when things go wrong in future there should be bail-ins, not bailouts, and is intended to provide revenues for dealing with bank resolution in the future.
In Britain we have raised taxes on the financial sector. The bank levy is now going to be £3 billion by 2018-19, and stamp duty will be a similar amount. So £6 billion a year, more than we raise in wine duty, vehicle excise duty and inheritance tax, will come from specific taxes on the financial sector. We should talk to our partners about much more effective ways of taxing the financial sector across the Union and get rid of this unfortunate enhanced co-operation proposal.
EU: UK Membership
Lord Liddle Excerpts(11 years, 10 months ago)
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Lord Liddle (Lab)
My Lords, first I add my congratulations on behalf of the Opposition Front Bench to the noble Lord, Lord Wrigglesworth, and welcome him to the House. I have known him for the best part of four decades, I am afraid to say. For me, he has always been a man of solid principle, unfailing good humour and boundless resilience and it is good to see that those qualities are still much in evidence. When he first got into the House of Commons he was at one stage known as Roy Jenkins’s seat warmer, so that the great man could continue to linger a little longer over lunch before he took his seat in the Commons. I would say, on the basis of his performance in this House today, that he is going to be a Lords crowd puller.
I also thank the noble Lord, Lord Shipley, for putting down this debate. He made a very comprehensive, well argued case for Europe, and I do not disagree with a word. We have heard many excellent speeches. It is a timely debate. No one has mentioned that today the Prime Minister is in Brussels at a European Council meeting which has, as one of its main purposes, the discussion of the digital economy, innovation and trade in services, so it is a very appropriate day to be debating the single market. I should like some assurance from the Government that they are taking this opportunity very seriously, because when one looks at the digital economy, economic estimates are that if we had a proper single market in digital this would add 4% to 5% to European GDP. Looking, for instance, at telephones, whereas the US and China have three or four major operators with a single set of rules for their whole economies, we still have hundreds of operators and 28 different rulebooks.
Similarly, when one looks at internet commerce, there is enormous scope for expansion but we have to have common rules on online content and online shopping. If we are going to have online shopping we have to have rules on privacy and data protection, we have to deal with customer worries—a lot of people will not use the internet for shopping because they worry about making payments and their details being disclosed—and we have to have a copyright system for the digital age. Where do the Government stand on all this? It is a legitimate question.
The Prime Minister has gone to Brussels today on another campaign to cut EU regulation. There is nothing wrong with trying to improve EU regulation, but surely what he should have been doing is emphasising the potential, for Britain and the rest of Europe, that real progress towards deepening the integration of the single market could make. Although it is always very nice to see the noble Lord, Lord Newby, on the Bench opposite, it would be so much better if we had a Conservative Minister there who could tell us where the Conservatives stand on the necessary sacrifices of sovereignty and the compromises that have to be made in the European Union if we are going to bring about that deepening of the single market. There is no point just saying, “Wouldn’t it be lovely if we had a digital single market?” Yes, it would be lovely if we had a digital single market, but we have to be prepared to compromise on sovereignty and negotiate. Are this Government really prepared to do that? In fact, what we get from Conservative Ministers is a skulking away from these issues as they try to sleepwalk out of the European Union.
In the package that the Prime Minister has taken to Brussels today there is a document called Cut EU Red Tape: Report from the Business Taskforce, put together by a very distinguished group of businesspeople with a lot of good ideas about improving regulation. We on this side of the House fully support improved regulation, but let us remember that it is much better to have one European rulebook if you are a business operating inside the European Union, rather than 28 separate rulebooks. It would be much more costly to have to deal with that situation.
The document also raises a lot of questions relevant to social Europe; the social side of the single market. It raises questions about the proposed pregnant workers directive, the posting of workers directive, makes claims about inflexible and unclear rules on working time, raises questions about the agency workers directive and the acquired rights directive—a long litany of complaints about social Europe.
I ask the noble Lord, Lord Newby directly: have the Liberal Democrats signed up for an assault on social Europe or have they not? Where do they stand on this list of amendments to social Europe proposed in the document that David Cameron is taking to Brussels today? Do we have another potential Beecroft here? Have Vince Cable and Nick Clegg agreed to these changes on social Europe? On this side of the House, we would like to know.
Of course, all European legislation needs modernisation, but can we hear from the Government that if we have a single market it has to have some social underpinning? In social terms, we are the most lightly regulated country in the OECD—more lightly regulated than the United States. No one who argues for the dismantling of social Europe explains why the Germans and the Swedes can so successfully compete in world markets, facing the same social burdens that we do. Why is our business uniquely sensitive to those questions? In my view, most good corporate practice supports a high level of social standards. A single market has to have social, environmental and consumer standards dimensions.
It is quite possible that the Prime Minister today will get himself into a silly spat with the French when he should be working out with the French how we can use the research money of the European Union to develop a proper industrial strategy for Europe.
The single market is a vital UK national interest, as many Members have said, but opponents like to think that we can have our cake and eat it, that we can somehow leave Europe but retain access to the single market, and that we have a strong bargaining position because they export more to us than we to them. That is almost certainly rubbish. For instance, take the car industry, which is one of our most successful export areas. We would face a tariff of 9.8% if we were not part of the single market. Still, more than 50% of the car production in the UK goes to Europe. I say to the noble Baroness, Lady Noakes, that the relevant point about bargaining power is that only 2.5% of European GDP is exported to Britain, whereas 14% of our GDP is exported to the rest of Europe, so it is not as she presented it.
The single market is essential. I welcome this debate. As the noble Lord, Lord Shipley, said, there can be no ifs or buts about it. As the noble Lord, Lord Giddens, said, our membership of the EU is the biggest issue that we have faced in this country since the Second World War. As the noble Lord, Lord Watson, said, we have to make the case very strongly that we are better off together.