Budget Statement

Lord Marlesford Excerpts

Tuesday 14th March 2017 Lords Chamber

[Lord Marlesford (Con)]

My Lords, I fear that the Chancellor did make a political misjudgment in what he did to the self-employed. I can understand that, as a tidy-minded man, he would fall for the seduction of the symmetry so loved by the Treasury and so elegantly described to us this afternoon by the noble Lord, Lord Macpherson of Earl’s Court. But did the Chancellor really think through the strange fact that unemployment in the UK is so much lower than in, say, France or Spain? In part it is because we have such a large number of self-employed people that unemployment is so low. The asymmetry of the NIC system helps them greatly. In addition, they have the benefit of the high VAT threshold. At £85,000, it is the highest in Europe; in Spain, it is zero and there they have unemployment of around 25% for many of the young. This threshold is a boon to the small entrepreneur when offering services to those for whom VAT is not reclaimable and enables them to undercut the big boys by a straightforward 20%.

But to criticise without offering an alternative is sterile. I have a specific suggestion about how the Chancellor should raise the additional funds that he needs. Every year since David Cameron became Prime Minister, at Budget time the Chancellor has raised Back-Bench applause by saying that he will freeze road fuel duty. That has been very expensive applause. It is also counterintuitive in a whole number of ways. First, there has been a period of seven years of big fluctuations in oil prices and thus also in pump prices. In general, prices have been falling more recently from the highs of more than $100 a barrel, hitting $126 a barrel in July 2012, to below $30 a barrel in February 2016. For the present, it has settled in the region of $55 a barrel.

Secondly, public policy has been to encourage more efficient use of fuels. Thirdly, almost all new vehicles have become much more fuel efficient during this period. I was brought up with the idea that a family car would go between 20 miles and 30 miles per gallon of petrol, but now it is much more like 40 miles to 50 miles per gallon. Fourthly, at the retail level there is a remarkably inelastic response to fuel prices. HMRC estimates the elasticity of demand for road fuel to be 0.07% in the short run and 0.13% in the medium term, which is very low. A more obvious indicator of the inelasticity is to take actual examples. I have taken the example of fuel prices in Suffolk. Fuel prices in America are very low—but then, of course, they are uninsulated from oil prices. When oil prices go up, fuel prices go up enormously. We have a much higher proportion of duty. Currently, fuel duty is 57.9 pence per litre for petrol or diesel, which is more than 45% of the pump price.

My recommendation is that the Chancellor should increase road fuel duty by 10p per litre. With VAT, this would mean a price rise of 12p per litre. Petrol prices have a weighting of about 3% in the CPI and RPI. The Treasury estimates that the inflation effect of a 10p rise in road fuel duty would be only a 0.3 percentage-point increase in the CPI and RPI. Of course, any increase would immediately fall out of the index at the end of 12 months. Yet the fiscal impact—the benefit, the revenue gained from this increase—would be £4.6 billion a year. That is an extra £4.6 billion to spend on the NHS or any number of other good causes. These figures come from HMRC’s ready reckoner.

The impact of such a rise would be very moderate, as I will illustrate with actual figures. I have taken the price of Shell petrol in Woodbridge, Suffolk, where I live. In May 2010, it was £1.29 per litre. Today, it is £1.22 per litre. If you increase the May 2010 pump price by the RPI inflation of 19% up to December 2016, it would be £1.53. My 10p extra plus VAT would make today’s price £1.34. That would be 19p per litre cheaper than when Cameron first moved into Downing Street—and the Chancellor would have an extra £4.6 billion to spend each year.

Would this be unpopular politically? Initially, probably yes. Ernest Marples once said that if you have to have a political row, have a big one with a result worth getting. My proposal would produce £4.6 billion a year and the inflation increase would be negligible. I recommend this to the Chancellor.

Finance (No. 2) Bill

Lord Marlesford Excerpts

Thursday 26th March 2015 Lords Chamber

[Lord Desai (Lab)]

My Lords, this is the fifth and last time that we are going to discuss a Finance Bill and all that one can say is that, so far at least, the macroeconomic strategy that the Labour Party had laid down before it went out of office has been achieved by the Conservative Party. We are grateful for that. We said that the deficit should be halved. Given the greater ambition of the Chancellor, at least he has managed to achieve half of the job.

I want to concentrate in this debate on lots of things which have not been done. I do so not from a partisan basis but from the point of view of economics. We continue to tax income rather than consumption, and when we tax income we make far too many small distinctions—between married people and this and that—so that the whole thing becomes very complicated. Again and again, we have tried to simplify the tax system. While the raising of the threshold has been very welcome, it really needs thinking out whether we should not just try to find a suitable definition of consumption. I think that would be easier to define than income, which at the higher levels gets to be a very tricky concept. Lots and lots of tax advisers make a fortune out of trying to game the system, so we should think of doing a consumption tax.

To that extent, I am disappointed that the Chancellor, who is a very innovative person, has not put his mind to this sort of thing. Whoever the Chancellor is next time, they may do that. The same argument extends to corporation tax. Again and again, we tax profits, not resource consumption. The important thing is to tax not achievements but expenditure and the consumption of resources, if we could find a way of taxing resource consumption.

My noble friend Lord Haskel talked about productivity. Another aspect of productivity is asking, “Are you achieving an efficient input/output combination? Are you achieving productivity in terms of the non-labour input as well as the labour input in the way that you conduct business?”. We ought to give incentives in such a way that companies economise on resource use rather than just taxing profits. Again, that is an open question for the future; I do not know whether we will be able to achieve it.

Going further along the line, if we can decide early on that whatever we do should encourage work and employment, we ought then to go on to look at the national insurance contribution. I have never understood why we still have that tax. Again and again, promises have been made to merge it with income tax or do something drastic, but we have not had that. In a sense we are stuck in a rut, because it is easier to make marginal changes to the existing tax structure than to review the tax structure itself. I wanted to make that general comment.

One of the things that we are about to face is that the developed economies, which have had the good fortune to grow well and easily over the past 50 years, are about to enter a low-growth economy. Good times are no longer going to be around as they were before. In that sort of situation, we ought to be much more vigilant about achieving growth-enhancing things to the extent that we can. Ultimately, it will be the human resource, the productivity of labour and the way in which we use our resources that will determine the marginal difference between having, as it were, 2% growth or 3% growth.

We need to rejig our thinking. Growth is no longer going to be automatic and natural. We are going to face severe headwinds unless we rethink our economic system. To that extent, while much may have been achieved in the last five years, we have not had time to rethink our economic system. It is about time that we did that, in which case we would not tax income but tax consumption, not tax profits but tax resource use, not tax labour but reward work and, further along, try to find as many other things as possible that could be growth enhancing. We need Budgets that are genuinely growth enhancing and not just tax concessions to businesses. We need better than this.

[Lord Marlesford (Con)]

Before the noble Lord sits down, he raised the interesting question of the expenditure tax. He will remember much better than I do Lord Kaldor’s famous book on the expenditure tax, probably in the 1960s or even earlier. The big problem with the expenditure tax, and I just wonder whether he has taken this into account, was the taxation of the benefit of the ownership of capital. Nicholas Kaldor said that it was necessary to attribute a value to capital as part of the formula under which expenditure could be determined. In other words, the return on capital was part of the income, and then at the end of the year it would be more expenditure that would be counted in. This of course raised the whole problem of the taxation of capital and having a wealth tax, and it foundered on that basis. Does the noble Lord have any view on how he would tackle that problem?

[Lord Desai]

Basically, I would be much more radical than even Lord Kaldor. It is because you are trying to tax income, capital or income from capital that a variety of complications arise in our tax system and our tax code gets ever more elaborate. Beyond the small range of PAYE-type incomes, income is not definable conceptually in economics. Therefore, when you try to tax something called income, you get into complications because people can find ways of redefining whatever it is as not income. The whole approach is really to go down the expenditure tax route—purely expenditure—and not to worry about income of other kinds. If people are deriving income from capital, that is fine. What we would want to know is what expenses they incur in trying to do that, and tax that.

Especially now when we are in a very different dispensation than we have been used to for the past 50 years, we will have to be radical about rethinking our taxation. I would even go further and not worry about considerations like that.

Income and Wealth Inequality

Lord Marlesford Excerpts

Wednesday 26th November 2014 Lords Chamber

[Lord Newby]

My Lords, I completely agree with the noble Lord that many directors have had pay increases which bear no relation to either pay increases that other people have had or the performance of their company, and that is why this Government have introduced a raft of measures to make firms more accountable to their shareholders for the pay packages that directors get. However, I remind the noble Lord that those people who are in the top 1% of wage earners and whose pay has gone up now contribute some 28% of the total income tax collected.

[Lord Marlesford (Con)]

My Lords, does my noble friend recollect that the late Lord Bauer, a pathfinding economist in many areas, suggested that in this context a more objective word than “inequality” is “difference”?

[Lord Newby]

I am not sure that I do recollect altogether. It is important to look at inequalities as well as differences because there is an additional dimension in the word “inequality” to the neutral word “difference”.

Genuine Economic and Monetary Union (EUC Report)

Lord Marlesford Excerpts

Wednesday 2nd July 2014 Grand Committee

[Lord Davies of Stamford]

I am sorry, I take a different view. It seems very contradictory to me. Either you should not have fiscal integration or you should. It is very important that politicians are coherent about these things and I do not think that the Eurosceptics are coherent, not least on the matter of democracy in the EU.

Incidentally, my noble friend Lord Desai made the excellent suggestion that we should have an election for the President of the European Union. I have always been in favour of that, and I quite agree that the EU lacks democratic accountability. You hear all the time from Eurosceptics that the EU lacks democratic accountability, but the moment you suggest any measure at all, whatever it might be—changes at parliamentary level, say, or the direct election of the President—that would supply much greater accountability, they are always against it. Again, there is a blatant contradiction running through their views on the subject. I have to say that if you pursue politics on a contradictory basis like that, you do not do great credit either to your reputation for intellectual clarity or to the good faith of your arguments.

[Lord Marlesford (Con)]

Surely the noble Lord, Lord Davies, is wrong. The point that my noble friend Lord Lamont is making is that the eurozone requires integration. We did not join it because we were not prepared to take part in that integration. The European countries joined because they were prepared to integrate but then they did not actually do it. That is what all the problems were about.

[Lord Davies of Stamford]

I repeat that you cannot at the same time complain about something when it is absent and then complain when it is present; that does not make any sense to me at all. Equally, I do not think that I have heard any response to my points about democratic accountability. If there is a desire for more democratic accountability in the EU, which there is, and if it should be addressed, which in my view it should be, then you cannot turn down every possible proposal that is made in order to achieve that, which is what the Eurosceptics tend to do.

I think that our report makes three conclusions. The first is that the general direction of genuine monetary and economic union is probably right. We support it and think that it is a sensible thing for the eurozone to be engaged in. We feel that it should go further and be completed. We think that it is troubling that one or two elements of the agenda have not been implemented and will not be in the immediate future, notably the retail bank deposit insurance system that we have just referred to and which has been referred to several times today; we are broadly in favour of that and think that it is a very good scheme.

The second general conclusion is that this process is not without risks and costs for our country. That point is made very clearly in paragraphs 185 and 186 of our report, to which I draw the Committee’s attention. It is also made in another document, the British Bankers’ Association report, which we have obviously all been sent. I have been sent a copy, and it has already been referred to and quoted from. I shall quote from it in case some people here have not received it:

“EU, government and industry studies have shown that deepening the Single European Market offers a growth potential that is achievable without further increasing public debt … However, the understandable moves towards stronger Eurozone governance may make it more difficult for the UK financial sector to play a full role. For example, development of Eurozone caucusing, outside the EU-28 format, on matters that impact directly the Single Financial Market could, even unwittingly, damage its integrity”.

The document goes on to raise other risks, not just caucusing but the risk of the eurozone having a permanent president, the risk of the new configuration of the European Parliament being less likely to defend British interests—largely because the Conservative Party withdrew from the EPP, so that is entirely its fault—and other risks.

The fact is that the British public have been bamboozled, and this report goes some way towards redressing that and illuminating them, which is very necessary. They had been persuaded to believe that somehow we can have a half-in and half-out approach, with one foot on one side of the fence and one on the other in our relations with the EU at no cost, or that we can gain all the benefits from the EU without actually subscribing to all its programmes and disciplines. The sheer fact is that you can never do that in life, and you cannot do it in this case. Personally, I would prefer any measure of relationship with and access to the European single market and the EU than none. I am the sort of person who would always prefer half a loaf or even a quarter to no bread at all. However, I am very conscious that we are losing some portion of the loaf by the course that we are adopting. That comes out very clearly in the conclusions to the report, and we have fulfilled a useful function in writing it.

Taxation: Fuel Duty

Lord Marlesford Excerpts

Wednesday 15th January 2014 Lords Chamber

[Lord Newby]

No, my Lords. The noble Lord knows better than anybody else that it would be foolish to set out at this point firm plans for individual taxes for the course of the next Parliament.

[Lord Marlesford (Con)]

Has my noble friend noted that the price of petrol in the petrol stations varies up to 3p within a few miles, and sometimes more? Does he realise therefore that if people are able to pay the extra 3p rather than going to a cheaper place, that suggests what the economists call a bit of a consumer surplus since they are prepared to pay extra? What is the cost to the Exchequer of this reduction? First, I think that it was £400 million for this year but what will it be by the end of the Parliament? Secondly, is it really the best way of spending public money, given all the other demands on the Exchequer?

[Lord Newby]

My Lords, the Government will have eased the burden on motorists by £22.5 billion over the Parliament to 2015-16. The kind of differential that my noble friend describes in a small area is a classic example of a competitive market operating. I am told, although I do not have one myself, that if you have a certain kind of sat-nav it will automatically tell you the price of petrol at petrol stations in your vicinity at the time, which is a very good way of facilitating the market working.

EU: UK Contribution

Lord Marlesford Excerpts

Wednesday 30th October 2013 Lords Chamber

[Lord Marlesford (Con)]

My Lords, following the good point made by the noble Lord, Lord Tomlinson, about the need to control the EU budget, does the Minister recognise that in the 1970s, when government spending in Britain got totally out of control, it was brought under control to a considerable extent by the noble Lord, Lord Healey, when he was Chancellor? Helped by Sir Leo Pliatzky, the Second Permanent Secretary to the Treasury, he introduced cash limits. At the moment, the Commission constantly argues that more money is needed to fulfil the obligations of earlier policy undertakings. Cash limits would do it, or help do it. Will the Government try to get the EU to introduce cash limits?

[Lord Newby]

My Lords, there is a cash limit. There is an overall payment ceiling of €908.4 billion over the next budget period. That is a cash limit.

Taxation: VAT on Retrofitting Buildings

Lord Marlesford Excerpts

Thursday 25th July 2013 Lords Chamber

[Lord Newby]

My Lords, the Government recognise that energy efficiency has a major role to play in meeting carbon reduction objectives while reducing energy costs for consumers, and the process of doing that can and does generate jobs. That is why we have introduced the Green Deal, which, as noble Lords will be aware, encourages home energy-efficiency improvements, paid for by savings on energy bills. The energy company obligation will work alongside the Green Deal, focusing on hard-to-treat homes and low-income households.

[Lord Marlesford]

My Lords, does the Minister agree that the noble Lord’s reference to the United States is not very relevant because the United States does not have VAT? Indeed, it would do much better if it did have it. Furthermore, does the Minister agree that the Government should be very cautious in extending multi-rate VAT because all sorts of anomalies and complications can follow?

[Lord Newby]

My Lords, I have a great deal of sympathy with the noble Lord because my first job as a new employee was working on VAT. It was very complicated when it was introduced; it has got more complicated since then and should not be allowed to get any more so.

Spending Review

Lord Marlesford Excerpts

Wednesday 26th June 2013 Lords Chamber

[Lord Deighton]

I of course accept that one of the consequences of lower interest rates is lower returns to savers. That absolutely follows on and it is a consequence in part of our current monetary policy, and indeed the monetary policy of every major nation. One compensating comment I would make is that of all the constituencies which this Government have striven to protect, looking at the triple-lock protection on pensions the basic state pension has clearly been kept in very good shape during this period of economic challenge.

[Lord Marlesford]

My Lords, the Chancellor said:

“EU law now says that people living in the European economic area can claim winter fuel payments from us, even if they did not get them before they left the UK”.

When on earth did that start and what are the Government doing to persuade the Europeans to change it? When the Chancellor suggests that he will deal with it by linking,

“the winter fuel payment to a temperature test”,

from 2015, what will that save? If it is worth doing it in 2015, why should he not do it in 2014, if not autumn 2013?

[Lord Deighton]

I thank my noble friend for pointing out this unfortunate anomaly in European legislation, which puts us in that position. The Chancellor’s position is that he has dealt with that anomaly in the best possible practical way to reduce that payment, given the timing of its introduction and the form of the obligation we have on us.

EU: Budget Report

Lord Marlesford Excerpts

Thursday 25th April 2013 Lords Chamber

[Lord Hollick]

I am not talking about figures; I am talking about the importance of using the public finances to invest in growth. That is what we need. Without growth, we simply will not be able to repair the public finances.

[Lord Marlesford]

My Lords, I strongly support the fundamental economic strategy of my right honourable friend the Chancellor. On the other hand, I am not wholly happy with the way in which he has been attempting to carry it out. The objectives are right but the methods are rather questionable.

First, he has sought to reduce the deficit, and particularly government spending in many areas, which I support. There is no doubt at all that the expenditure on the whole welfare area has been wildly out of control, and it absolutely has to be gripped. Equally, there is no doubt that growth will come from actual economic activity on the ground.

Much of the problem is caused by the behaviour of the banks. I give credit to Alistair Darling for the way in which he handled the crisis. The mistake was then to use, or to expect to be able to use, the banks as a means of generating growth in the economy through quantitative easing. Far from lending the money that they had been supplied, they used it to reinforce their extremely fragile balance sheets, so QE did not achieve the objectives that the then Chancellor hoped for. The Chancellor should probably have abandoned at a much earlier stage what was effectively his support of the banks and their balance sheets. Their behaviour in the past few years since the crisis has been lamentable. It has been as unethical, selfish and greedy as ever, and it has been incompetent.

With regard to the stimulation of the economy, the time has come for more direct government expenditure on our infrastructure. There are masses of things that can be done. I am of course not talking about nonsenses such as £30 billion on HS2, which is wildly outside any parameter of time and is most unlikely to produce any useful return for the taxpayer or the nation. I am talking about things such as housing, road construction and the maintenance of our national infrastructure, because that is true investment. Giving banks more money through quantitative easing to restore their balance sheets is not true investment.

The Chancellor’s tax policies in one important area have been unwise. I am talking about the petrol tax. The Chancellor has already forgone some £1.5 billion of revenue by not increasing the petrol tax as planned. The extraordinary thing to me is that the petrol tax figure that we are talking about is always about 3p per litre, and that alone costs £500 billion a year, yet the price of petrol at the pump varies by more than that. The price at the pump basically goes up and down according to the price of oil. The Chancellor has made a huge mistake in effectively wasting the opportunity cost of the petrol tax. I hope that as soon as the time is appropriate he will go back and change that particular policy.

I agree with the noble Lord, Lord Harrison—I sit under his distinguished chairmanship on Sub-Committee A of the European Union Select Committee—that the single market in Europe is very important and should be enhanced and nurtured. However, I do not believe that, for strategic planning, Britain can rely on Europe for the future. Europe is in a frightful mess. People say that 40% of our exports go to Europe; that may be. What we should be doing is switching our effort into markets where we can compete and which are expanding, such as Asia, the United States and Latin America, and not pinning our hopes on Europe, because in Europe there is very little hope. My worry is that the European Commission has proved itself to be incompetent in offering advice to member states on how to run their economies. During the euro crisis, it came to the realisation—very late, but in a big way—that it had been a great mistake to confuse the toxic debt of banks with the toxicity of sovereign debt, and decided that they should not be confused.

Let us consider what happened with Cyprus. The European Commission, having made the mistake with the wretched Irish, the Spaniards and the Greeks of making them take the bank debt on to the government books, the very next thing was what happened in Cyprus. That is an example of unparalleled incompetence. What happened was that the Cyprus Government came forward with a plan to rescue their banking sector. Of course, they would come forward with whatever they thought suited themselves and their friends, perhaps including the Russian oligarchs. The plan that they came forward with involved raiding the balances of deposits in banks. It had been for some while a crucial component of confidence in the banking system throughout the EU that deposits in individual regulated lending institutions—banks, primarily—were underwritten up to €100,000. My criticism is that the attempt to sweep that aside so that the small depositors in Cyprus would pay their share—although I could quite see the Cypriots putting that forward—was signed off by the troika of the European Commission, the European Central Bank and, just to remind the noble Lord, Lord Layard, who is so keen on it,the IMF. Those three signed off on a policy that will for many decades, I suspect, put a deep suspicion in people’s minds about lending to banks. The United States has a much prouder record of protecting depositors in banks. I believe that one of the roles of the state is always to protect small depositors in a financial system.

That was a very depressing example, and one reason why I am rather gloomy about Europe being able to work out under the semester what its progress is to be. It is still wrestling with the crucial question, which applies primarily to the euro area, of whether there can or should be mutualisation of debt. Is it possible to have a Eurobond, a bond issued by the European Central Bank, to fund individual countries’ Governments and is underwritten centrally? For how much can this be done? We are not even clear what the total sovereign debt of the euro area is at the moment. It is very doubtful whether this Eurobond will work. There is a thought about having two sorts of bonds: a blue bond, an ECB-guaranteed bond for national Governments, and a red bond, which national Governments would issue. This strikes me as a very questionable approach. What is it trying to achieve?

Budget Statement

Lord Marlesford Excerpts

Thursday 21st March 2013 Lords Chamber

[Lord Marlesford]

My Lords, I am very glad that my right honourable friend the Chancellor stuck to plan A. It would be unthinkable to abandon it. There was no question that it would be abandoned. Yet there are some dangers. I quote one sentence from the Chancellor’s speech that is very relevant:

“I will be straight with the country: another bout of economic storms in the eurozone would hit Britain’s economic fortunes hard”.—[Official Report, Commons, 20/3/13; col. 932.]

Such a storm may have started in Cyprus. It was absolutely astonishing that the troika—the European Central Bank, the IMF and the Commission—should have agreed a package of measures that involved a levy on deposits in Cyprus’s banks: 6.5% on deposits under €100,000 and 9.9% on those above €100,000. That flew in the face of the EU-wide recognition that deposits in banks up to €100,000 are guaranteed. It was an astonishing thing to happen.

In case noble Lords feel that I am being alarmist, or that Cyprus is a mere minnow and we should not worry about it, I would remind them of a little history. On 11 May 1931, the small Austrian Creditanstalt bank failed. That triggered the financial collapse of central Europe. By 13 July, the German Danat-Bank collapsed and all German banks closed until 4 August. Between 19 and 24 August, we had a major economic crisis in Britain. Five days of Cabinet meetings failed to agree the spending cuts demanded by American bankers at the time, and that led to the collapse of the Labour Government. We cannot play these games with the eurozone trying to have it both ways. Only a few months ago, eurozone Ministers declared that they must absolutely make sure that in future there was no confusion between sovereign debt and bank debt. For Cyprus they have again produced a formula that has done precisely that. It is not surprising that the banks in Cyprus are closed.

What is the answer to that? The Chancellor pointed out that 40% of our exports are to Europe. I suggest that the Government do everything they can—Parliament as well—to focus the eyes of exporters beyond Europe. Let us make much more effort about Asia and probably also Latin America. They should become a real priority. I am not saying that the Government can do that: the Government cannot make exports but they can at least propose that as a strategic aim. We must take advantage of the Asian market. We have the inestimable advantage of having special links with Hong Kong, which is the financial centre of Asia. It is the third most important financial centre in the world after London and New York. That is something we really must look at and quickly.

I will quickly mention one or two other points. The shift in the responsibilities of the MPC is very interesting. It will become much more like the Fed. That is a very big responsibility and I hope it can measure up to that. It was right to stimulate the economy with some extra expenditure, but only £3 billion was given. Why so little an amount?

Here I come to the one mistake that the Chancellor made: the fuel tax. That was tempting politics but damned bad economics. Cancelling the fuel tax increases has already cost, by the Chancellor’s own figure, £6 billion. It looks as though, if it continues at this rate, it could cost up to £20 billion by the end of this Parliament. That is not a sensible way of spending money—the opportunity cost is extremely high—first, because it is being done in little slices of 3p and, as everyone knows, 3p is less than the variation in petrol or diesel prices between pumps. Secondly, all vehicles are becoming much more efficient. A vehicle that previously did 30 miles to the gallon now regularly does 40 miles to the gallon. There is therefore a natural and desirable trend for less fuel consumption as fuel costs rise. The United States would not be having its huge financial problems if it taxed road fuel at a sensible level.

There is also a serious lacuna in the Government’s thinking regarding their unwise energy policy involving massive subsidies for solar and wind power that are being passed straight on to the consumer through the levy on the electricity companies. That is a grave mistake.

I welcome the aim of the housing help to buy scheme and mortgage guarantee, but with some apprehension. As the noble Lord, Lord Desai, said, there are real dangers in the Government introducing or getting involved in subprime lending. There are echoes of Freddie Mac and Fannie Mae in America, which did precisely the same thing and whose collapse cost American taxpayers hundreds of billions of dollars.

We must recognise that you have to be delicate when dealing with the City. It currently produces 13.5% of Britain’s GDP. That does not mean that I am any sort of spokesman for the banks. Bank balance sheets are extremely fragile. The noble Lord, Lord Desai, referred to domestic debt; there is still £55 billion of credit card debt held by British banks. That is not the money that you and I spend each month and pay off; it is overrun debt on which the rates of interest are anything between 17% and 25%. The chance of it being paid back is remote, and the question that one must ask is: at what price do the banks have that debt on their balance sheets? If they have it at anything like par, that represents a serious danger. The banks sold off some of that debt about three years ago at rates of between 8p and 12p in the pound. If the outstanding debt were valued at market rather than nominal value, the banks would be safe.

--- Later in debate ---

[Lord Marlesford]

If I may very rapidly read from the Minister’s statement, it was the eurozone finance Ministers who announced the package which included that. The eurozone finance Ministers, therefore, approved that part of the package.

[Lord Dykes]

Yes, of course, because the Cypriot Government then submitted those suggestions to them, which were accepted. That was the sovereign decision of the sovereign country of Cyprus, which made its own suggestions in response to the request from the Council of Ministers and the German Government, and quite rightly.

The difficulty now is what we do from now on and where we go. The reality still confronts us in this economy that, to quote another source from many years ago, one has to enlarge long-term public spending on public assets with a high multiplier effect. Government spokesmen in recent years have kept on saying that public sector is bad and wicked, and private sector is good, and that we should rely on the private sector to respond to the inaction of the Government, but that never works. We all know that, and the evidence is there. Huge global corporations will make their decisions irrespective of what national Governments do. Facebook would not be particularly responsive to particular individual national Governments in the world, for obvious reasons, and neither would Microsoft, although the national subsidiaries in different countries respond to some national government decisions, as we know. Equally, sometimes very high-tech innovative companies in different countries themselves make their own decisions and have particularly good fortune such as very strong bank support and other access to capital, which enables them to be free-floating and not respond to government. However, in the vast majority of businesses, whatever their size, and in particular small companies, the reality is that you wait until the Government are expanding the economy. That is not a criticism of the way companies run businesses; if I was running one now as I used to in the old days I would do the same thing.

The noble Lord, Lord Kestenbaum, who is not in his place now, earlier mentioned economies where public sector and private sector activity is mixed up together in a constructive whole. Bavaria, mentioned by the noble Lord, Lord Haskel, is a very good example of that, where a centre-right moderate Government, over many years, never said no to public spending as long as it was on long-term investment assets. It was nothing to do with short-term current account. The British Treasury is still far too short-term obsessed. Therefore, until we change, we will be stuck in that ominous way that was so ably described by the very able business editor of the Evening Standard yesterday, when he referred again to the Chancellor. He wrote that a wiser man, earlier on,

“would have been less aggressive, less dogmatic about the rightness of his policies, so that he would have had room to manoeuvre when they seemed not to be working. But Osborne has closed down all those options so today’s Budget is the work of a man who is in a hole but continues to pretend that the only way forward is to keep digging. The public finances remain in a dire state, and even a bit of sleight of hand with the numbers can’t conceal the fact that we have made absolutely no progress over the last 12 months”.

The terror of the slightest increase in our interest rates in this country will stop further action until there is a big change of heart.