Queen’s Speech

Lord Monks Excerpts

Monday 13th May 2013 Lords Chamber

[Lord Monks]

My Lords, I, too, will address the long-term prospects for the economy, as well as the relationship with the European Union. I am pleased to be able to follow the noble Lord, Lord Tugendhat, who has expressed some very wise words from the Conservative Benches, words that I hope will be heard loudly in that party as the frenzied debate seems to be kicking off again in such a vigorous way.

Before the crash of 2008, only a few of us warned of the excesses of what we termed “casino capitalism” in the financial services industry. These excesses, as we now know, were not even properly understood by many of those in the financial services sector themselves, including many at the top of our greatest banks. We know the consequences: the bank problem became the problem of the nation states, and the consequences of austerity which have resulted need not have been as severe as they have been, as was well spelt out by my noble friend Lord Eatwell. However, the consequences are plain. As Francis O’Grady, the new general secretary of the TUC, said recently:

“The victims continue to be those who did least to cause it”.

Spending cuts are weakening vital services. Austerity rolls back gains in equality, and real pay levels, for most, are falling. Our performance on exports, as the noble Lord, Lord Tugendhat, just spelt out, continues to be unimpressive, and contrasts with our neighbours—not just Germany but our neighbours on the other side of the North Sea.

Apart from the noble Lord, Lord Heseltine, and, on a good day, the Business Secretary, no one on the Government side seems to show the urgency and energy that is necessary to tackle the mess we are in and to rebalance our economy more in the direction of the other side of the North Sea. As the Business Secretary said in the equivalent debate in the other place last Friday, there are no easy answers. However, there are some wrong answers, and these include a slavish belief in deregulation and in scapegoating the European Union for our difficulties. I ask, as my noble friend Lord Glasman did recently in an article in the New Statesman, why Germany is doing comparatively well. It has the highest level of workforce participation in its governance; it has the greatest degree of regulation of labour market entry through insistence on high-class vocational qualifications; and it has the most severe constraints on capital in its banking system. How can that be? The orthodoxy practised on the other side of the House is that you grow by deregulating, reducing workers’ rights and cutting some standards. The Queen’s Speech mentioned extra proposals in that direction. The German example is not being followed. We should go for the high road and not seek some kind of low road to growth. I looked in vain in the gracious Speech for evidence that the noble Lord, Lord Heseltine, or the Business Secretary had had a decisive influence on the Government’s programme, but I found little trace of anything other than the deregulation of employment tribunals and a further weakening of health and safety standards.

If there is a distressing lack of energy and application to the problem of rebalancing the British economy, there is no lack of energy in the debate in the Conservative Party about our relationship with the European Union. I note with great concern that scepticism is rapidly turning to phobia. Our problems are being presented as the EU’s fault—not just by eccentrics but by people who are much respected in the affairs of this nation. The call for divorce from the EU risks becoming a Tory stampede for the exit. I was pleased to see, as the noble Lord, Lord Tugendhat, mentioned, Boris Johnson partially taking on this case in today’s Telegraph and—rather bravely given the current mood—arguing that the UK will have to recognise that most of our problems are not caused by the European Union. For once, I find myself in agreement with him.

It is not the EU’s fault that we do not have a better record of export to the rest of the world, or to the EU itself. They are not alternatives. To compare the single market with a comfort zone akin to pre-war imperial preference is surely wrong. I wish that there had been a fixation among more British businesses on exports to the EU, or indeed to anywhere else. However, too many of our businesses did not have sufficient motivation, expertise or whatever to do the job. We cannot blame others for that; we must look inside ourselves. Neither is it the EU’s fault that much of what remains of the UK’s manufacturing is overseas owned, with the car industry the prime but far from the only example. Many of those owners are here only because of our EU membership. Ignoring this would be a huge national risk that certain metropolitans, or even expatriates, seem to be ignoring at present. Those of us from the weaker regions know exactly what is at stake.

Why would we want to loosen our ties with our neighbours, especially when we rely so much on inward investment and overseas ownership? A very dangerous vision is developing of a Britain that is somehow offshore, with low tax, low regulation, low benefits and low standards, but able with impunity to go around the world undercutting the standards of the best and thinking that we will get access to their markets. If you think that occasionally there are problems with the single market, which there are, and that occasionally there are obstructions to the way trade operates in Europe, as there can be, you should listen to the stories of people who trade with the rest of the world. There, protection is the norm and not the exception. Businesses that export all say that the difficulties of breaking into markets, including the Commonwealth and the United States, are on a pretty large scale.

We on this side of the House, and many elsewhere, will do our utmost to keep us from becoming a sort of Greater Monaco, seeking that low road to the future. Presenting the EU as the enemy, which the noble Lord, Lord Forsyth, seemed to do, is ridiculous and over the top. There are many problems to iron out in future, but that is not the way to do it. It is not in Britain’s interests to follow that route even a little way, and I hope that the Conservative Party will come to its senses as quickly as possible.

Economy: Growth

Lord Monks Excerpts

Tuesday 29th January 2013 Lords Chamber

[Lord Monks]

My Lords, I am grateful to the noble Lord, Lord Lang, for mentioning the pensions issue which is a gathering storm for this country as private sector pensions reel under the present problems. Those problems are complicated for all the reasons that he gave and are intensified by the economic crisis.

Like others, I welcome the noble Lord, Lord Deighton, to his new hot seat. I hope that he enjoys it and that he proves to be as good a student as he was all those years ago in Cambridge. There are many good tutors around the Chamber.

I think we all recognise the difficulty of the situation that we are in. We all agree with the noble Lord, Lord Heseltine, that this is the worst crisis that this country has faced in modern times. I happen to be in the camp—unsurprisingly, perhaps—which believes that austerity leads to more austerity. While we are discussing economic history, I think that President Roosevelt has a better record than President Hoover when confronted with the problems of the time. I think that the chorus of calls for change and greater expansion, which are growing much more widely than on these Benches, are now reaching into the Government. I hope that they will be heeded quickly.

However, my main purpose is to address some of the longer-term problems of the UK economy which have contributed to our being in the mess that we are in. It is very important that when we get through the present problems we do not just slump back to a situation of business as usual. This country is not a basket case—I agree with Boris Johnson on that note of cheer—but it has some long-standing weaknesses which need addressing and which we have been able to put on one side at different times of our recent history. The weaknesses are well known and I will not labour them but the shrinkage of the manufacturing sector has not been fully compensated by the rise in the services sector, with the consequence of a widening balance of payments.

The noble Lord, Lord Forsyth, referred to the record of Mrs Thatcher’s Government but we should remember the costs of some of those changes on the supply side in terms of the action that was taken against trade unions. About 3 million jobs were lost in the manufacturing sector. A heavy price was paid for that in some of the old industrial areas and some of the political ramifications are still very much reverberating. Both the noble Lords, Lord Lang and Lord Forsyth, were on the front lines of the battle in Scotland. That battle still goes on, albeit in a different form. Social discord was very high and the costs of all that were borne to some extent—quite a large extent—by the fact that the North Sea oil revenues were flowing and the Exchequer was benefiting greatly from that.

We still have the problem of the shrinkage of the manufacturing sector. We have been consumers and borrowers rather than savers and investors. Too few of our companies think long term and we have a relatively low spend on innovation. Indeed, at present, investment in new machinery appears to be at a lower level than in Austria, Turkey or Mexico. R&D figures are better: the UK is fourth in the EU, but efforts are disproportionately concentrated on defence and pharmaceuticals.

Low productivity levels were referred to by the noble Lord, Lord Lang, and others as reflecting inadequate skills and low capital investment. Industrial relations are still poor in some places and communication at work also leaves a lot to be desired. We must face the fact that a high proportion of our economy—the commanding heights in some sectors—is in foreign ownership. This raises the question of why there are relatively few British entrepreneurs able or willing to take on some of these sectors. We also know that we have a systemic tendency for rewards for top executives to outstrip performance and those of other employees. This inequality can have a downward effect on growth and this is important for this debate, as well as for equality. We have a concentration on traditional markets. As the noble Lord, Lord Howell, said, we have an improving presence in China, India and Latin America but it is still relatively weak compared to our major European competitors. Behind it all, we have the imbalances in our economy between the relatively prosperous south-east and eastern regions and the rest of the UK.

So what can we do about this? We know it is very complicated but there are some glaring weaknesses that the complexities should not stop us from addressing. First, can we learn some lessons from Germany and put an obligation on employers, widely accepted there, to train, not just young people but others as well? Can we not use the public procurement process to encourage all contractors to reach the high standards of training achieved when contracts were awarded for the Olympics, in the human relations side of which huge project the noble Lord, Lord Deighton, was so successfully involved? Furthermore, we know that many in this House would favour deregulation of the labour market and we heard the Prime Minister talk about that in his Bloomberg speech just last week. Why is it that the other economies around the North Sea, if I can call them that, all have regulated labour markets? They did not follow the deregulation, easy hire-and-fire, route of the English-speaking world: collective bargaining is still strong at sectorial level, as are extensive information and consultation arrangements and worker representation in boardrooms. This style of corporate governance has greatly assisted the development of long-termism, a more equal spread of rewards and good economic and export performance.

We also need to look at management culture and education. The UK often boasts of its world-leading business schools and universities but they often seem to be a transmission belt to put people into the financial services sector. How can they be more like staff colleges for a new North Sea economy and impregnate the other areas of industry and services? The noble Lord, Lord Lang, also referred to taxation. At present, the tax system favours borrowing over savings, debt over equity, capital gains over income and tax breaks for the wealthy rather than help for the poorest. Those emphases need to be changed. Can we restore a requirement in major takeovers to examine the social implications of bids and make takeovers a little harder? Perhaps we could re-examine the scope for the state to take golden shares in key UK companies while we still have some of these left. Every time we devalue, as we are doing now, British companies become cheaper for people in stronger currency zones.

The national investment bank, an idea espoused by the noble Lord, Lord Skidelsky, is clearly a way of trying to produce a more patient and readily available source of capital for research, innovation and SMEs. I would also like to see, as proposed in the report of the noble Lord, Lord Heseltine, regional policy restored and those regions that are particularly hard hit, because they are dependent on the public sector, given some help with new dynamism and entrepreneurial flair which needs to be extended beyond the capital and its favoured environs. I do not expect answers to these questions today, though I am sure we will continue to debate them. I have one particular question: are the Government likely to respond to the report of the noble Lord, Lord Heseltine, No Stone Unturned in Pursuit of Growth? That report got a good reception in the House and it is important that, with all the differences on display in this debate, we find things we can unite around. Many of the proposals in the report are very attractive to very many of us.

Air Passenger Duty

Lord Monks Excerpts

Monday 28th January 2013 Lords Chamber

[Lord Monks]

My Lords, I rise to add my voice to the concerns that have already been expressed by other noble Lords in this debate. In doing so, I declare an interest as president of the British Airline Pilots Association. There can be very little doubt that the APD is an important revenue raiser for the Chancellor and substituting it would be an extremely difficult task. However, the rapid increases that have taken place in recent years make the UK stick out like a sore thumb, in the European airspace in particular, but rather more widely even than that. At present levels, it is unfair and regressive. It is one-tenth of the French level, and the Dutch have abolished this kind of duty at Schiphol, which is perhaps the major competitor to Heathrow. As other noble Lords have said, to fly to Australia via Amsterdam, which is a very viable option for much of provincial Britain, could mean a saving of about £85 in tourist class and more in the premium classes.

Given the other pressures that British aviation is under—particularly the shortage of capacity at Heathrow, as confirmed again by the recent snow, which demonstrates that the airport is always operating at the margin—we are adding further, self-inflicted damage to ourselves with this tax and we risk losing ground against major competitors. Airlines are being disadvantaged, and workers and employees of those airlines are also at risk. I understand that the Flybe redundancies that were announced just last week are being put down to the level of this duty and its effect on the business, which has one or two more marginal routes than perhaps some of the bigger airlines. I also understand that AirAsia recently abandoned the Kuala Lumpur to Gatwick route, citing the level of air passenger duty, as well it might. With those figures, it is difficult to be sceptical.

Civil aviation is a big British success story and we need big British success stories in the UK. Hobbling the industry in the way that this tax does is very unfortunate, and I strongly support the calls that are being made by noble Lords for a review of the tax. I do not think it has a major environmental impact, for reasons already expressed, and the anomalies make it a very difficult tax to defend, except as a valuable source of revenue. Justice demands that this tax is reviewed and that we find other sources of revenue, perhaps from all those whom the Prime Minister accused of aggressive tax avoidance, last week in Davos.

Public Service Pensions Bill

Lord Monks Excerpts

Wednesday 19th December 2012 Lords Chamber

[Lord Monks]

My Lords, I declare an interest as a trustee director of NOW:Pensions, an offshoot of the giant Danish Pensions Institute ATP, which now seeks to make a success of auto-enrolment in this country.

The growth of occupational pensions was one of the outstanding, if rather unsung, features of 20th-century Britain. As the noble Baroness, Lady Noakes, said, there has been a relationship between the public and private sectors, in this case, with the public sector, along with some enlightened private companies, leading the way in pensions provision. Pensions spread after the Second World War, particularly in the 1960s, to white-collar workers in the private sector on a fairly general basis and then to more and more blue-collar workers in that same sector. Some missed out, including many women and part-time workers. It was not a universal progress. Some companies did not introduce this provision but many did. However, overall, there was substantial progress. Indeed, by the 1990s, the surpluses of pension funds were used to fund generous redundancy packages in both the public and private sectors and many employers took pensions holidays. However, all that seems a long time ago. As others have said, today, defined benefit schemes in the private sector are in full-scale retreat, are closed to new starters or are being wound up altogether.

This issue was looked at by the noble Lord, Lord Turner, and the noble Baroness, Lady Drake. We miss the noble Baroness who is not present as she is unwell. We all send her our best wishes for a quick recovery. Their report showed the paucity of provision in the private sector for many people. This matter is being addressed by the auto-enrolment programme to a degree: that is, the compulsory provision of pensions by all employers in due course with the auto-enrolment of employees in the scheme. We simply need this programme to work, and to work well, certainly much better than the stakeholder pension scheme which was the last attempt at dealing with the problem.

Why did we get into this mess? Gordon Brown was mentioned in dispatches by the noble Baroness, Lady Noakes, but there was a range of issues that are now fairly clear. Actuarial revaluations were done rather suddenly; longevity rates—a very welcome development —increased; new accountancy rules highlighted pension liabilities in company accounts and the Maxwell scandal triggered some tightening of the rules. Legal and tax changes certainly played their part. Apart from those introduced by the Labour Government, the noble Lord, Lord Lawson, made some changes which encouraged the sale of personal pensions—or should I say the mis-selling of personal pensions—on a pretty large scale. The noble Lord, Lord Lamont, also made some changes which encouraged pensions holidays by employers.

A further factor was the practice of top managers establishing their own top hat schemes, which, not surprisingly, seemed to lessen their commitment to maintaining the scheme of their employees.

[Lord Flight]

I thank the noble Lord for giving way. I would like to add two other factors. First, stock market performance has been weak for more than a decade—stock markets are generally lower than they were 10 years ago. Secondly, pensions became overburdened with obligations in the private sector, the costs mounting all the time. Financially, those have been two of the most important ingredients.

[Lord Monks]

I acknowledge that they were important, but it is just a pity that so many employers did not make provision for that when they took their pensions holidays. They did not put away for a rainy day—it certainly came, and it is still with us.

This brings me back to the relationship between the public and private schemes. There have been many like the noble Baroness, Lady Noakes, who have been suggesting that because the pensions provision in the private sector, although not collapsed, has seriously receded, we should see some equivalent steps taken in the public sector. I am very pleased to see that the Government’s view was significantly modified during a series of talks with the public sector unions, which were facilitated by the TUC general secretary, Brendan Barber, to whom the noble Lord, Lord Sharkey, has paid due tribute. Incidentally, Brendan retires at the end of the month, and I know the House will wish him well and record our appreciation for the job that he has done in many areas, not just in this one. I think those talks have been successful, particularly in the continuing commitment to defined benefit schemes across the public sector.

Then the talks move down to sectoral level, where the picture varies. Some agreements have been made, some talks are continuing, and we have some disputes in certain sectors. In the view of some of the public sector unions, the Bill uses legislation to make changes that were not acceptable in the negotiations. The reaction in the fire service, parts of the Civil Service and parts of the teaching profession bear this out at the present time. The inevitable reality for these groups of workers is that pensions are becoming more expensive and they could be unaffordable at the rates of contribution that are being charged for many staff. Retirement ages are increasing and the scope of the benefits is being cut. I hope that during Committee there will be an opportunity to look at the way these changes are going to affect particular groups of workers for whom it will be different according to, for example, the arduous nature of their job, as my noble friend Lord Davies mentioned at the start.

This framework has been sorted out nationally, and that is reflected in the Bill. However, the Bill has some problems which I hope that we can address. There is some unnecessary detail in some areas including revaluation rates where it cuts across some of the packages agreed at sectoral level. There is an omission in some cases of a full commitment to the Fair Deal policy for workers contracted out of public services. Where is the recommendation of the noble Lord, Lord Hutton, for a review of the link between the state pension age and the normal pension age in public sector schemes? I think that the noble Lord, Lord Newby, expressed some assurances that had been made in the other place, which I hope will be put into effect when we get into the detail in this House.

The Local Government Pension Scheme is in many ways is a distinctive scheme, and I will want to pursue issues about its governance in Clauses 4 to 6. Again, some assurances have been given, and we will be testing in due course exactly what they will mean. One other technical area that could be important is scheme closure, which has the potential to trigger major changes in the local government scheme’s investment strategy. I hope that we can close down legal ambiguities in this area.

Some public sector workers will be paying more for their pensions and working longer before they are eligible to take them. For some individuals, that will be a bitter pill that will change their expectations of the future. However, I pay tribute to those in the talks who have softened some of the proposals by taking a diametrically opposite view to that of the noble Baroness, Lady Noakes. The pensions remain good, and we should continue to be proud of that. I hope they will provide an example to the private sector as they did in the early years of the 20th century about what its direction of travel should be.

I hope that the Government will take fresh note of the concerns that have been expressed in this debate and be ready to address them in Committee.

Euro Area Crisis: EUC Report

Lord Monks Excerpts

Monday 21st May 2012 Lords Chamber

[Lord Monks]

My Lords, one of the small pleasures of working in Brussels for eight years as general secretary of the European Trade Union Confederation was to be examined periodically by the House of Lords European Union Committee and to talk with others in the waiting room about just how serious and expert those sessions were, and how well respected the committee and this House is among those people on the inside who give evidence to it from across the Commission and the other European institutions. I thank the committee for a typically good piece of work. It is a balanced and sensible report on a very difficult situation. The tone of the report is about right as well; it is worried but friendly. It is constructive and trying to help, in a rather modest way—not in a kind of “Britain knows best” way, which is too often the tone of some of the critics of the euro and the way that it has developed.

As the crisis has been developing in the eurozone, there are more and more opportunities for those such as the noble Baroness, Lady Noakes, and others in this House who tend to say to the other side of the argument the four most annoying words in the English language: “I told you so”. The harsh fact is that this is the most difficult economic crisis in the West since the 1930s. It has probed and prised open the cracks in the design of the euro system—and the cracks, by the way, in the economic system which the UK developed over the past 30 years, with our overemphasis on financial services and our ignoring of the importance of manufacturing, and in some of the old-time truths which underpinned the rise of this country in the past. How do we get by? Let us be frank in this House about it. We get by through the devaluation of sterling, which is still 20% down against the euro, with all its troubles, and by quantitative easing, with our central bank printing money. These two ingredients are one reason—perhaps the main reason—why the UK recession is not a lot worse than it is, but those options are not available to our neighbours in the eurozone.

Perhaps we should think for a moment what would have happened without the euro and suppose that this crisis had happened and that all the national currencies were still in place. Their values would have been moving around as some Governments were forced, or chose, to devalue their currencies. Inevitably, had that happened accusations would be flying that the devaluations were a protectionist measure. That very powerful argument would have been going on in Europe at present. The single market would be under considerable challenge, as others considered taking retaliatory action against those who had devalued their currencies. Indeed, if our exports had been rather more impressive than our imports, and it was the other way round, we would have had a much harder time from our European partners than we have had since the devaluation of the pound took place. If the present situation is very difficult, and I certainly acknowledge that it is, the alternative would be difficult too.

British government policy is in the curious position of emphasising the virtues of austerity at home, in the UK economic and political scene, while loudly proclaiming the growth and expansionary path in the eurozone. That is particularly aimed at Chancellor Merkel. This leaves the UK wide open to a charge of, at best, inconsistency and, at worst, rank hypocrisy. After all, actions—not words—matter, and the shrinkage of the UK economy provides limited help to the economies of our neighbours in the present circumstances. Should we now not be asking ourselves how we can help the eurozone do what it must do if it is to survive? Could we, for instance, publicly and intelligently support the ideas of eurobonds and the mutualisation of some of the debt of the hardest hit economies? Could we not encourage making the European Central Bank a lender of last resort like national banks so that it could stand ready to rescue in the most difficult circumstances? Could we not take a fresh look at taxes on financial transactions both to check reckless speculation, of which we have seen far too much, and to act as a fresh and much needed source of public revenue? Can we support the creative use of the surpluses in the EU regional and social funds and a stronger financial base for the European Investment Bank? Can we take the lead on something? I believe it should be on a scheme on youth unemployment which would impact on those countries where that problem is particularly serious at present. The UK could take these positive initiatives from outside the eurozone. At present it is like a frustrated football fan sitting in the grandstand shouting plenty of advice that nobody takes any notice of.

The steps I suggest are not just gestures of help for the eurozone; they are self-help for the UK as well, just as the Marshall plan was not just American generosity but American self-interest. If the eurozone can resolve its contradictions and do something to deal with the cracks in its architecture, it will benefit itself, but it will benefit the UK as much as anyone.

Queen’s Speech

Lord Monks Excerpts

Wednesday 16th May 2012 Lords Chamber

[Lord Monks]

My Lords, Members of the House may have noticed that two members of the Cabinet have had rather difficult speaking engagements today. The Home Secretary has been to the Police Federation, always a frosty audience when there is a dispute on, and the Foreign Secretary has been at the CBI dinner. For him that would normally be a pretty straightforward engagement, but I wonder how the CBI reacted to his weekend speech and remarks exhorting British business to work harder and stop whinging. Several Members have criticised him for those remarks, but in one area —he may not know that he is going to be congratulated on this; I am sure he does not—that of the deregulation of employment protection law, I think he is dead right. A large number of employer lobbyists have certainly been whinging about that and pressing the Government to weaken employment protection legislation. The gracious Speech serves notice of an intention to take this work forward. That is one of the few ideas that is linked to spurring growth in the current depressed economy.

This view, which I accept is commonplace among many employers—it is the staple diet of conversations in the lounge bar—is not borne out by the evidence. The Labour Force Survey shows that the effects of employment protection legislation on both spurring and protecting employment are neutral over the cycle. All the surveys that have been done in various countries, apart from those with really excessive regulation, show that to be the case.

We have already debated the rise in the qualifying period for unfair dismissal to two years and the removal of lay members from employment tribunals. I will not go over all that again because there are new proposals now being consulted on, proposals to introduce a fee of over £300 to seek redress at a tribunal and for no-fault dismissals in firms employing 10 or fewer people. That is simply paying them off with the equivalent of a redundancy payment, regardless of the justice of their position or what the employer may have done. We have heard tributes paid to this country and its creativity and I agree with some of that, but for this country to take such an abject route to growth or think it is going to find a way to growth is a counsel of despair. Saying the UK can only compete if our people are cheaper, work longer and are less protected is a counsel of despair, and a low road to growth if ever there was one.

Since the economic crisis hit us, there has been a clear need for more British companies to be able to move up the value chain to be more innovative, more creative and more highly skilled on a wider range of products and services than we have at the moment. That should be the Government’s strategy, not simply a cheapening process, which seems to be the aim at the moment. That would be the high road to growth rather than the low one, and would involve us doing things well and doing new things on a continual basis.

This process should also involve us thinking about what companies and workplaces should be like in the future. How does executive pay fit in? Should workers be on the remuneration committees? Should we develop a more Germanic system of worker engagement, pulling people together for the good of the firm and the good of the country? That is what the company of the future should embrace and that should be our agenda in this area. That is why, on the other side of the North Sea, people in companies embrace the things that I am talking about. For us to get from where we are now to where they are would inevitably mean more law, not less.

Not all employers are whinging about the employment legislation. The Chartered Institute of Personnel and Development said:

“Businesses have far more to lose in lost productivity from a de-motivated and disengaged workforce than they stand to gain from the ability to hire and fire at will”.

I ask the Minister and his colleagues to listen to that wise voice and pay less heed to the whingers.

Sovereign Credit Ratings: EUC Report

Lord Monks Excerpts

Tuesday 15th November 2011 Lords Chamber

[Lord Monks]

My Lords, it is a puzzle to me, as it is to some of you, that the three major credit rating agencies, which have made such great errors of judgment in recent years, managed to survive and to prosper. Yet that is the story of the big three, and despite their level of failure investors certainly take notice of their assessments. I can sympathise with what my noble friend Lord Myners said about perhaps not taking them so seriously, but the reality is that many people do and they are a significant influence. I am afraid that we cannot belittle them and pretend that they are a marginal influence. At the very least they are an alibi for investors, with their boards, to say, “Well, it got AAA ratings”, or whatever it was on a particular investment that has gone wrong.

Let us look at their record briefly. Enron was rated AAA. In addition, there were the sub-prime mortgages mentioned by my noble friend Lord Foulkes. The display of a near-fatal lack of curiosity about the people to whom sub-prime mortgages were being sold—mainly people who were low paid and in precarious work—in the United States, was curious, to say the least. Somehow, it was forgotten that there was a risk to those people on the margins of home ownership if interest rates rose a bit and real estate prices fell. The credit rating agencies missed that point. A lot of people missed a lot of points in the economic crisis, as we know, but the credit rating agencies were somewhere at the heart of what went on. They were not on the margins in the C-stream, making comments that people took little note of.

Now the agencies are passing judgments on the troubled eurozone countries. I do not think that they are doing so with much sensitivity to the consequences of their judgments. Several noble Lords referred to the mistake about the downgrade of France last week. The mistake was corrected promptly, but that correction has proved insufficient to quell nervous markets, which had already been betting that France would soon lose its coveted AAA rating. The announcement of the downgrade, therefore, should have been very carefully checked before the judgment was given in the first place, given France’s linchpin position in the eurozone crisis. It clearly was not checked.

Before 2008, credit rating agencies gave dodgy products the benefit of nearly any doubt, provided they were being paid by the issuers of the debt. Now they seem to be compensating for their earlier misjudgments with strict assessments of the sovereign debt of individual countries. I do not believe that there is a conspiracy to do down Europe or the euro. But I do believe that incompetent businesses in a key area like this should pay a price and not fly free.

I congratulate the European Union Committee on the way that this was presented by my noble friend Lord Harrison, and on the analysis, which hits the right note about these agencies. I am more sceptical about the central recommendation, that a more competitive environment will be enough to raise standards. It is obvious that a more competitive environment—as the noble Lord, Lord Vallance, said—could lead to a bidding war between agencies to curry favour with their potential customers.

I do not share the scepticism that several noble Lords expressed about the European Commission proposals. I am not quite sure exactly what the status is of the proposals that were issued this afternoon, but I would not rule out the idea that agencies’ conflicts of interests could be better regulated. Nor would I rule out the idea that agencies might refrain from action during the rescue of a particular country with sovereign debt problems. It is fairly clear that a country in such a position is already in big trouble, without Standard & Poor’s coming along and possibly giving an inaccurate judgment on the situation that the country finds itself in.

I would like to see a register of past performance of credit rating agencies—where they have been right or wrong. That would aid transparency in what is a difficult and risky area.

The other proposal the European Commission was set on—whether it is in the final proposals remains to be seen—was the idea of a civil action in the event of bad advice or a bad rating. People in professions have to pay a price if they are negligent in some way. I do not think that there should be a rush to judgment, or a rush to say that this is another example of Europe trying to barge into the sacred fields of the City of London. The City of London’s future cannot be as a greater Monaco—slightly offshore—if it is to thrive and meet the top standards in the country. It should be welcoming good standards, not appearing, as it often does, to be pushing them away. I do not agree with my noble friend Lord Myners in his judgment of Commissioner Barnier.

I ask the committee, in its future work, to look carefully at the proposals of the Commission to add to its own. We can perhaps find some degree of unity. The Government’s position was reasonably positive: to place a tighter rein on the agencies and develop a more reliable system than the current dangerous oligopoly.