Future Investment

Lord Shipley Excerpts

Thursday 27th June 2013 Lords Chamber

[Lord Newby]

My Lords, the Bank of England has expressed the view that low interest rates are here to stay for a significant period ahead. Only an idiot would predict what interest rates will be in 2020 but if we look at the next three or four years, I do not think that anybody would say that interest rates were going to rise significantly, if at all. As for whether employing lots of people to build houses or roads means that fewer people are unemployed, that is self-evidently the case. That is why we are keen to get these programmes moving as quickly as we can.

[Lord Shipley]

My Lords, I thank the Minister for the Statement on infrastructure investment, in particular the commitment to removing bottlenecks on the A19 in Tyne and Wear, both to the south and to the north of the Tyne Tunnel. May I ask him about the proposals for the A1 north of Newcastle and the western bypass? As I understand it, there is a feasibility study to consider problems and solutions to the A1 north of Newcastle. The solution is clear; it is the dualling of the A1. I interpret the Statement as saying that the Government are now moving to the next stage of dualling the A1 north of Newcastle and that we should have cause quietly to celebrate.

May I ask him one thing on affordable housing? I welcome the Statement that has been made today. Has any further thought been given to increasing the borrowing cap on local authorities? The average debt on a council house at the moment is £17,000. There is enormous headroom to increase borrowing. It should not be on the public balance sheet, following decisions to make this a trading account from April last year. There is the capacity to deliver around 40,000 to 50,000 council houses as a consequence of raising that borrowing cap if the Government would do it.

[Lord Newby]

My Lords, in respect of the A1, the noble Lord is absolutely right. There is a commitment to a feasibility study. Upgrading the A1, as he says, means dualling it. I think that quiet optimism strikes the right note. Obviously, if local authorities had their borrowing powers increased they would be able to do as he says. As he knows, the Treasury down the ages has set its face very firmly against such a move. I would be happy to raise his suggestion again with my colleagues in the Treasury.

Queen’s Speech

Lord Shipley Excerpts

Monday 13th May 2013 Lords Chamber

[Lord Shipley]

My Lords, I declare my interest as a vice-president of the Local Government Association. I welcome the comments of my noble friend the Minister, reflecting his and the Government’s support for faster growth by devolving greater financial powers to local government and local enterprise partnerships, particularly from 2015 with the proposals for the single pot. They are hugely welcome.

In the gracious Speech itself, I welcome in particular the proposals on national insurance, which will cut NI for small businesses through the £2,000 employment allowance, thus generating new jobs. I welcome High Speed 2, which will increase passenger capacity, freight capacity and speed in linking the north of England, Scotland and the Midlands together and linking them in turn with London and the south. Better connectivity will drive faster growth.

I welcome the Energy Bill, or its continuation, which will create green jobs and growth, with up to 250,000 jobs in the private sector following an estimated £110 billion of investment. However, in terms of energy, that growth needs to be achieved without ever-spiralling costs to consumers. Today it is reported that almost one-third of UK households say that the cost of gas, electricity and water has become their biggest worry, and the Government will need to pay very close attention to that trend.

I thank my noble friend Lord Bradshaw for his comments on the A1 in Northumberland and the need for it to be dualled throughout its length. On grounds of safety, volume of traffic and access to east coast ports, particularly from Scotland, and to grow the local and regional economy of the north-east, the case is unanswerable, and I hope progress will be made soon. I thank my noble friend Lady Kramer for her constructive and timely suggestions around regional banking, which could be a major catalyst in driving regional growth.

I shall refer to three strategic issues relevant to the gracious Speech that could help the Treasury: first, reducing public spending where it is higher than it need be by investing more in prevention; secondly, reducing overhead costs caused by duplication in public service provision; and thirdly investing further in social rented housing.

In terms of prevention, I am very disappointed that no Bill is yet proposed on the minimum pricing of alcohol. Recent research from Canada has shown that a 10% increase in average minimum price would result in a 9% reduction in hospital admissions and a 32% reduction in wholly alcohol-caused deaths. The costs to the NHS, the police and local councils in dealing with the consequences of alcohol abuse and excess are substantial. It is in the interests of the public purse that minimum pricing is introduced. The same is true of smoking, where good work has been done to reduce it. Reducing it further through plain packaging would save the NHS yet more.

As a third example of how investing in prevention can help to cut costs, I shall mention concessionary fares for pensioners. I declare that I am a holder of a concessionary bus pass. I raise this in the context of the forthcoming Care Bill and proposals for the support of children. There has been some discussion recently about the justification for such passes, but too often it is considered only in terms of its immediate cost. Concessionary bus fares should be seen as part of the support system for carers. They enable older people to travel to give help to families and friends. Demands on the public purse for care could rise without the availability of those bus passes. In addition, without the income from bus passes to bus companies, many bus routes could close down or else would require higher public subsidies to keep them running, which would be of no help to those trying to get to and from work. There are no plans, of course, to change the policy on concessionary passes, but could we look again at levels of reimbursement to local authorities and make them reflect actual usage of buses rather than simply a population split? As a national scheme with national funding, the distribution of the budget needs to reflect the higher costs in those areas with lower car ownership, more bus routes and hence more passengers.

Next I shall speak about the potential for reducing public spending through reducing the overhead costs of public sector organisations that we now know can be achieved through whole community budgeting. There have been whole place pilots in Greater Manchester, west Cheshire, Essex and the London boroughs of Hammersmith and Fulham, Westminster, and Kensington and Chelsea. This latter tri-borough community budget pilot concluded that it could within five years deliver savings of approximately £80 million per annum across all public services through initiatives to drive growth, build homes, create jobs, reduce dependency and rehabilitate offenders. That report was published in October last year. Essex has estimated £127 million cashable savings. West Cheshire and Greater Manchester also forecast substantial savings. The evidence from the Local Government Association is that savings of between £2 billion and £5 billion a year across England can be generated, depending on implementation. In the context of a forecast £16.5 billion funding gap for local government by 2019, it has become clear that some of it could be made up for by community budgeting. It has become vital that this process is progressed speedily.

I agree substantially with the noble Lord, Lord Eatwell, on housing and social rented housing in particular. It is not enough to try to stimulate new housing simply by subsidising mortgages, which is likely in any event to lead to higher prices. The priority has to be increasing the housing supply at levels of affordability, which is why relaxing the housing borrowing cap for the local government rented sector matters. More properties for social rent could reduce significantly the Government’s housing benefit bill in the more expensive private sector. Local authorities have further headroom to borrow without it being counted as public sector borrowing since their local housing accounts are now trading accounts.

There are two Bills in which I shall take a close interest. The first is the local audit Bill. A key role of the Audit Commission was to assess good practice and value for money, and I do not want to see it lost as new audit arrangements are introduced. The second is the water Bill which will reform the water industry in England and Wales. I welcome, in particular, the proposal to ensure that flood insurance remains affordable in areas of high flood risk. When we debated the Growth and Infrastructure Bill, I raised concerns that the duties on Ofwat might be insufficiently strong to drive economic growth strongly enough by guaranteeing an adequate water and sewerage system deliverable to all premises. The Minister indicated then that my amendment was probably unnecessary, and that may indeed be so. However, there might be an opportunity during the passage of the water Bill to make Ofwat’s obligations even more explicit, and I hope we can look at this further.

Finally, making the economy stronger is central to this gracious Speech. The role of our universities will be central to that process. Universities working with their regions and with regional banks will help to underpin the work of LEPs and local authorities. But in repairing our economy, can we put youth unemployment at the top of list of priorities? The Government have done good work with apprenticeships, but the current scale of youth unemployment is deeply worrying. All proposals for investing in growth, of which there are many, should be tested for the number of long-term jobs that they can generate for young people because we cannot permit a lost generation, as seems to be happening in some other parts of Europe.

Budget Statement

Lord Shipley Excerpts

Thursday 21st March 2013 Lords Chamber

[Lord Shipley]

My Lords, I was hoping for several measures to be announced in the Budget, and each has been met: initiatives to generate investment to drive growth, particularly growth that can rebalance our economy away from overdependence on financial services and London; initiatives to get Britain building again, boosting the construction industry and getting houses built; action to implement the report of the noble Lord, Lord Heseltine, No Stone Unturned; action to help small businesses to encourage them to take on more people; and raising the income tax threshold to £10,000.

On investment, we must remember that public spending and borrowing can have a positive impact on growth. I refer to transport improvements, school repairs and improvements, water infrastructure, faster broadband, power stations and infrastructure investments that produce an income. It seems to me that borrowing small amounts, particularly at today’s low interest rates, need not cause problems with financial markets. I will come back to this in a moment in relation to housing, but the message is that infrastructure projects do not have to be big national schemes to generate jobs and growth.

First, the announcement on the income tax threshold was very good news because the threshold of £10,000 will be reached a year early. Since 2010, the Government have taken almost 2.5 million people out of paying tax. In my own region of the north-east of England, 106,000 people have been taken out of paying tax. That is a huge achievement for the Government, which directly helps large numbers of people on low incomes and increases their personal spending power.

Secondly, on small businesses, I was pleased to read last night the reaction to the Budget on the part of the Federation of Small Businesses, whose national chairman said:

“The FSB asked for a budget for small businesses and this is what has been delivered”.

The decision on national insurance contributions for small businesses is particularly welcome. I note the success of the Government’s policy on apprenticeships, which has seen 86% growth since 2010. Indeed, in my own region of the north-east, the growth has been 107%: in other words, a doubling over three years. This is very encouraging because it demonstrates the importance of the private sector vis-à-vis training for sustainable employment, in which small businesses play a crucial role.

Eighty-one of the 85 recommendations in the report by the noble Lord, Lord Heseltine, No Stone Unturned, have been implemented. That is very good news because it really matters. GVA per head between 1997 and 2010 grew in London and declined across the north—that is the north-west, Yorkshire and the north-east—against the UK average. In absolute terms, GVA rose in those regions, but in comparative terms the gap widened. This Government’s job must be to empower those outside London—private and public—to do more to drive growth.

For an indication of what has happened in recent years, let us take the contribution by English region to the national non-domestic rate pool. Last year—2011-12—showed the same thing: that every region outside London, including the south-east, contributed less than its share of population, with London contributing nearly 30%. That dependency is unhealthy for our economy and demonstrates clearly why the empowerment of England’s local enterprise partnerships and local authorities through the single-pot mechanism is so important. The crucial point is that devolving power from Whitehall in such key areas as transport, skills, housing and regeneration—building on existing capacities of other organisations such as the chambers of commerce—will drive growth faster than leaving all key decisions centralised in London.

However, it is important that devolution is real. An example of my concern about the impact of centralised power is the Highways Agency. Sometimes it is claimed that planning gets delayed because councils are slow. Actually, the problem often lies with government agencies. As an example, the Highways Agency is not regionally accountable and is charged exclusively with keeping traffic flowing, regardless of wider economic or social issues. It has a power to stop planning permissions. The immediate solution, requiring no legislation, is for the Highways Agency to have to obtain the Minister’s approval before it uses its power to stop a planning application. The real solution is to give the power to localities to decide for themselves on such matters, as part of a general devolution of power.

On getting Britain building again, the help to buy scheme should boost confidence; something needs to. There were only 98,000 starts in England last year and yet 230,000 households are formed each year. The numbers on housing waiting lists, the rise in demand for temporary accommodation and high rents in the private sector also point to the social and economic benefit of building more homes at below market rates. Councils, and their arm’s-length management organisations where they exist, have the capacity to build more homes, given that council housing is now self-financing. They could raise £7 billion and build up to 60,000 more homes over five years, contributing 0.6% to GDP in the process. That could be done very simply if the Government removed the borrowing cap on housing revenue accounts, relying instead on a prudential borrowing code to guarantee that only sustainable investment got the go-ahead.

Council housing has been self-financing since April last year. That is welcomed, but the average debt on a home is just over £17,000. There is scope for additional borrowing against the asset represented by that existing stock. While I understand the need for the Government to be careful about public borrowing levels, relaxing the housing borrowing cap need not be counted as public sector borrowing any longer. The UK uses a much wider measure of public debt than other countries. Council housing is now a trading activity, and international regulations already permit this to be discounted from government borrowing levels. Unfortunately, the UK does not currently adopt such an approach, and I remain puzzled as to why not.

This Budget provides many opportunities for growth. They need to be grasped. We need to manufacture more, export more and build more on our commercial strength. That is why my noble friend Lord Heseltine’s recommendation that LEPs should produce long-term strategic plans for negotiation with government was right. Also right was the recommendation to publish by the summer sector strategies in key sectors for growth—automotive, aerospace, life sciences, agritech, professional business services, information economy, construction, education, nuclear, oil and gas, and offshore wind. Producing these strategies is very encouraging because they cover the UK as a whole and not just London, so growth will be delivered outside financial services and London. There is a vision in this Budget. It points a clear way forward for growth. For that reason it should be commended.

Queen’s Speech

Lord Shipley Excerpts

Wednesday 16th May 2012 Lords Chamber

[Lord Shipley]

My Lords, on a wide range of measures the Government’s legislative programme is very welcome, not least on banking—particularly the green investment bank—on pensions, on support for children, on competition policy and on constitutional reform. I welcome in particular the decision to consult further on adult care through a draft Bill, because an agreed policy direction is urgently needed.

There has been some criticism in this debate that more should have been said about economic growth in the gracious Speech. However, we should remember that driving growth and rebalancing the economy is the day-to-day work of government, not least through the Budget process. I find the amendment moved by the Opposition today disingenuous because they fail to acknowledge that their own plan for recovery could never have been delivered.

I should like to raise specifically issues arising from impact assessments of Bills and, in particular, the cumulative impact of different Bills passing at the same time. My reason for doing this will become apparent in a moment. We need to understand better that cumulative impact of Bills—for example, the Welfare Reform Bill, the legal aid Bill and the Localism Bill, particularly its housing elements. Each had provisions which impacted on the others. Therefore, individuals and households on low incomes, women, children, single parents, part-time workers and those in rented accommodation, among others, may have found themselves affected by several Bills and not just one. Sometimes, as with universal credit, they might gain; in other cases, the impact might be negative. However, the overall position can be opaque. It is not clear to me that the overall direction in terms of impact is properly and fully assessed across Whitehall, and it seems to be left to third parties to do this.

Take child poverty. In October last year, the Joseph Rowntree Foundation reported:

“Relative child poverty will rise from 20 per cent currently to 24 per cent by 2020/21, the highest rate since 1999/2000 and considerably higher than the 10 per cent target in the Child Poverty Act (2010)”.

The foundation has pointed out that universal credit should reduce poverty substantially, but that poverty-increasing effects of other government changes to personal taxes and state benefits will more than offset that. Another source, the Institute for Fiscal Studies, said in January this year that relative child poverty is set to increase by around 400,000 between 2010 and 2015 and absolute child poverty by a further 100,000. Yet the Queen’s Speech specifically says that the Government,

“will strive to improve the lives of children and families”.

So I hope that, in the coming year, we will see real outcomes to this clearly expressed intention. Perhaps a start could be made with the Local Government Finance Bill, which will devolve council tax benefit to local authorities to manage, along with a 10% cut in funding worth some £500 million. Why 10% and who will pay this? Local authorities will be empowered to increase charges on empty properties and second homes but, if a council does not have many second homes or empty properties, the cost will fall either on individuals in receipt of council tax benefit now—by definition the people least able to pay—or on council taxpayers generally by increasing the level of council tax, which is, in practice, cost shunting from central to local government. As pensioners will be excluded from any benefit loss, it means that those on low incomes—many of them families with children—will have to pay the full cost unless it is spread across council taxpayers generally. I find it odd that this is not explained in the summary impact assessment, nor is there an explanation about the impact on child poverty. No doubt we can debate this further at Second Reading and throughout the passage of the Bill.

I pay tribute to the right reverend Prelate the Bishop of Durham for his contribution in his maiden speech on the state of the economy and sources of investment and in particular for his realistic, and in some cases optimistic, assessment of the opportunities, successes and problems of the region that we both live in. I concur with his comments. He drew out in the debate the skills deficit, which is not unique to the north-east of England. Exactly the same issue would apply in other regions; most notably, I attended a recent meeting in the West Midlands, where employers said that in manufacturing, processing and engineering, around 25% of employers are having difficulty recruiting staff at the correct levels. I was quite astonished by the fact that, despite the millions of pounds that have been spent in recent years on the skills agenda, we have, particularly at levels 3 and 4, a clear skills deficit.

I believe that the problems of the construction industry need to be addressed urgently. The contraction that is now happening may be alleviated by some extra demand arising from the announcements, particularly in housing, in recent months but overall I think further stimulation will be needed, not least in social housing. Hence the need for more thought to be given to increasing councils’ powers and flexibilities to borrow and the need for greater use of their capital receipts from the right-to-buy scheme to be permitted at the very least.

Today’s employment figures show a chink of light. The need for investment in infrastructure seems to be well understood and I hope that the next 12 months will see the underlying rebalancing of our economy set firmly on its course. Meanwhile, inequalities in the face of our financial problems simply must be minimised and fairness maximised to ensure that everyone is in this together.

Banking: Northern Rock

Lord Shipley Excerpts

Thursday 30th June 2011 Lords Chamber

[Lord Sassoon]

My Lords, the Government, through UKFI, will consider all options for the disposal process, including stand-alone remutualisation. However, it is important to recognise that the Chancellor believes that a sales process is most likely to generate the best value for the taxpayer, and that is why that is being explored as the lead option. Of course, the Government are committed to promoting mutuals and we very much welcome bids from mutuals as part of the sales process that is to start.

[Lord Shipley]

My Lords, does the Minister agree that the staff of Northern Rock have, in the past three and a half years, done a magnificent job to recover the status of the bank? Does he agree that maintaining a headquarters function for the bank in the north-east of England remains important? In that context, could it be a condition of sale that the Northern Rock Foundation, the largest charity in the north of England, should continue to have support from whoever buys the bank in order to maintain the good work of the Northern Rock Foundation?

[Lord Sassoon]

My Lords, first of all, it is right that Northern Rock is now a highly liquid and well capitalised strong bank, which is why UKFI has been able to recommend the start of a sales process to the Treasury. Incidentally, for all the very significant reductions in the number of employees that there have been, the bank still has a footprint of some 75 branches—little changed since before the collapse of the bank. As for its commitment to the foundation, the bank has a signed agreement with the foundation, signed in March 2011, under which Northern Rock plc agrees to donate 1 per cent of pre-tax profits to the foundation under a covenant with an initial expiry date of December 2012. It will be very much in the interest of prospective purchasers to make clear, if they want the support of people in the north-east, what their plans are for the headquarters, for their support for the foundation and for other matters.

Comprehensive Spending Review

Lord Shipley Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Shipley]

My Lords, back to the spending review, which is understandably a tough settlement for the public sector. The reasons for cutting the overall deficit are clear in the face of the largest budget deficit in peacetime history. Cuts, however, need to be fair and deliverable.

I declare my interest as a member of Newcastle City Council and a vice-president of the Local Government Association. This is because I wish to concentrate on the impact of the spending review on local government: the overall cut, its front-loading to the first year, 2011-12, the distribution of the cuts through the spending formula and, finally, place-based budgeting, which I believe must now be speeded up.

Councils in England will have an average loss of grant of 7.25 per cent in real terms for each of the next four years. This will be accompanied by new financial freedoms and flexibilities as part of a decentralisation and localism agenda. Those new powers will be welcome. However, the level of savings required for local government is higher than had been anticipated and the front-loading of the savings into 2011-12 makes the settlement extremely challenging. There is a real cut of 28 per cent over the four-year period, despite growth in funding for a council tax freeze and £1 billion extra for social care. The formula funding in the CSR also includes further grants which have been rolled up into the baseline. Put simply, comparing the existing formula grant with that in 2014-15 without those transfers or the new adult social care and council tax support funding shows a real cut of 36 per cent in the formula grant.

Of particular concern is what appears to be a very large reduction in the existing formula grant in 2011-12—the first year of the settlement. It is reduced by £3.5 billion, or 14 per cent in cash terms and approximately 16 per cent in real terms. This is approximately double the average cut of 7.25 per cent quoted as part of the spending review by the Secretary of State.

My concern is compounded by the abolition of the working neighbourhoods fund. The ending of this grant was not, so far as I can see, included in the Chancellor’s Statement on the spending review, in the Treasury’s executive summary, in the Secretary of State for CLG’s letter on the spending review or in any of the regional analyses of the spending review. I am unclear whether it has been included in the impact assessment included in the spending review document. The only certain reference appears to be on page 48, paragraph 2.35, of the main spending review document:

“As a result of this settlement, programmes including the Working Neighbourhoods Fund, Growth Area Funding and the Thames Gateway programme will end, in order to rationalise funding streams, make savings and take a more disciplined approach to Government spending”.

It is unclear which of these three reasons relates to the working neighbourhoods fund grant.

The fund has been used across the country to tackle worklessness by investing in voluntary sector partnerships, thus securing additional leverage and ERDF matched funding. It has helped to address community health and community safety issues. It has tackled economic deprivation and has targeted resources to those young people not in education, employment or training. The fund, worth £0.5 billion, has vanished. With substantial funds now flowing through to the voluntary and community sectors, the loss of the grant could have a serious impact on the viability of some of these organisations, which appears contrary to the desire to support and promote the big society and the third sector. As examples of the scale of this loss, Birmingham will lose £37.1 million, Manchester £27.7 million, Bradford £12.5 million and Leicester £8.3 million. There are also significant losses for London councils—Hackney at £12.2 million and Newham at £11.9 million. The north-east of England will lose £73 million, including £9.2 million from my own council. In total, 65 councils in England stand to lose. In the absence of the working neighbourhoods fund, we need to be much clearer about how the needs of areas of high deprivation will be addressed.

We have heard quite a bit recently about the need to do more with less. There is no doubt that we can, so long as we define carefully what we mean. For example, I doubt that we would do more adult social care if we had less money to spend on it. That we could do more with the same or the same with less is certainly true, but more with less in adult social care? I doubt it. As more money has been found for it—£2 billion by 2014-15—because of pressures on the service, it seems that these doubts are more generally shared.

Nevertheless, doing more for less would most certainly apply across the public sector as a whole in terms of place-based budgeting. The Local Government Association has concluded that £100 billion could be saved over five years if councils, and thus local people, were put in charge of spending on all front-line local services, overseeing economic regeneration, planning, housing and regeneration, home energy efficiency, managing flood and climate risks, adult skills, local transport, primary healthcare, policing and probation and support into employment for the long-term unemployed and workless, most of which currently lie outside local government’s immediate responsibilities.

England has become too centralised and I welcome plans for the localism Bill later this month and for the first-phase pilots in 16 areas of England from April next year in community budgeting in some service areas. However, in my view, these pilots in localism are insufficient in scope and will prove too slow at meeting the challenge of budget reductions. We should never confuse localism with the atomisation of England, where central government continues to control local decisions by controlling the budgets directly through spending departments rather than handing the power and responsibility to local government. Silo central management with silo central cuts is not localism, but it is what will happen unless councils get additional powers more quickly.

There are three issues that I hope my noble friend will consider. First, there is a need to protect areas and people more deprived than others through the revenue support allocation, but how will that be done? Secondly, there is a need for real devolution to local councils to empower them to deliver more for less. How soon might this be addressed? Thirdly, why has the cut in formula grant been front-loaded in year one, well above the average of 7.25 per cent each year for four years? Is that front-loading wise?

Overall, councils will continue to have some of their income from council tax, fees and charges, which are not being cut. However, the rising costs for local councils, not least because of pension costs, general inflation and future workforce remodelling, require understanding and support to ensure that they do not compound the problems of cutting the grant and front-loading that cut into 2011-12.