Autumn Statement
Lord Taverne Excerpts(8 years, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Taverne (LD)
My Lords, the Chancellor’s strategy, as confirmed in the Autumn Statement, is to shrink the state and turn Britain into a low tax, low spending economy, with a public sector reduced to 36% —the lowest in the European Union. I fear that there will be austerity in many ways more devastating than during the coalition years. This will affect local government, universities and education generally, but especially further education, as the noble Lord, Lord Shipley, pointed out. Tax credits, which imposed a considerable burden on the lowest paid, have not, in effect, been abandoned; they have been postponed. Inequality will increase—with what consequences? As Wilkinson and Pickett showed in The Spirit Level, a low tax, low public spending state is a recipe for a dysfunctional state. We will emulate all the worst characteristics of the United States.
It is all justified because, Mr Osborne claims, we must balance the books as a way to faster economic growth. Low-tax economies do not grow faster than higher-spending ones. Piketty’s meticulous record of the rise and fall and rise of inequality in France, Britain, Germany and the United States showed that, in the post-Second World War period until the Reagan-Thatcher era began—a period known as les trente glorieuses, during which inequality was reduced, not only in Europe but also in the United States—economic growth was in fact higher than in the days of inequality.
Conservatives have stressed the growth we have achieved, but I fear that our recovery is somewhat fragile. We have a huge trade deficit which has been financed by the inflow of hot money. We have increased our dependency on the financial sector and the Government have failed to rebalance the economy. The financial sector is very vulnerable to a renewed credit crunch—which is far from unlikely.
As the noble Lord, Lord Skidelsky, pointed out, we have not increased productivity. Mr Osborne’s policy of shrinking the state will not improve productivity. More equal, higher-tax European countries have higher productivity per hour not only than Britain but also the United States which depends for growth on immigration. Growing inequality in Britain means fewer youngsters from poorer families will go to university, worsening the shortage in skills. A sense of unfairness in industry, because of the huge inequalities of pay, militates against teamwork and trust—vital factors in productivity.
Further, Mr Osborne seems to believe “private investment good, public investment bad”. He now lumps public and private expenditure together as part of public spending. Public spending funds research and development which is too long term for private companies.
As the noble Lord, Lord Skidelsky, pointed out, the Government’s economic policy is a return to Victorian values. The Victorians believed in the moral virtue of balancing the books. It is a return to Ricardo and Montagu Norman and Herbert Hoover. It is as if Keynes had never lived.
Economy
Lord Taverne Excerpts(9 years, 2 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Taverne (LD)
My Lords, the Chancellor’s declared aim is to shrink the state—to turn Britain into a country with a strictly limited role for the public sector and low taxation. In fact, the Government have even gone so far—incredibly—as to commit themselves to a legislative ban on certain tax increases.
The result of this policy in the next few years will mean, as has been pointed out by the noble Lord, Lord Haskel, major cuts which will have to be borne by local authorities; welfare budgets will be seriously affected, as will public services such as the police. It is probable that we will find that even education and the National Health Service will not prove to be exempt. The Government, in effect, plan the withering of the welfare state. They rely on the free market and deficit reduction to produce growth.
Free markets are not efficient; reckless deregulation and the failure of financial institutions, not profligacy and borrowing by Governments, were the main causes of the crash in 2008. Spain and Ireland, for example, were running budget surpluses before the crash. What could be more convincing evidence of market failure than the emergence of banks which were able to take huge, unjustified and disastrous risks, and had to be rescued because they were too big to fail? The best way to reduce deficit, as history shows, is by growth, not austerity. As the noble Lord, Lord McFall, pointed out, Britain’s record between 1945 and 1970 and that of the United States during the Clinton presidency are only two of many examples.
In fact, contrary to the mantra propagated by market fundamentalists, public investment is generally not less productive than private. Not only does it promote essential public goods but, as the noble Lord, Lord Haskel, pointed out, it promotes innovation through basic research which the private sector regards as too risky or unprofitable. That has been essential in the United States, for example, to the success of private IT and technology companies. In Britain, the National Health Service is far more efficient than private health provision in the United States. Of course, public investment must be paid for by taxation, but as the famous American judge Oliver Wendell Holmes pointed out:
“Taxes are the price we pay for civilisation”.
Further, contrary to the mantra of market fundamentalists, high taxation has not historically proved incompatible with economic growth. Indeed, periods of high and progressive taxes in the United States as well as Europe after the war were, as Piketty has shown, times of unusually fast growth, particularly in high-tax Scandinavian countries. In fact, it is inequality that can seriously hold back productivity and growth; it destroys good will and a sense of fairness about relative incomes, which are essential to trust and effective teamwork, which, in turn, enhance productivity.
A shrinking state is the creed of the Tea Party. It is the path to a dysfunctional society. We should not travel one more miserable inch along such a fearsome road.
Budget Statement
Lord Taverne Excerpts(9 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Taverne (LD)
My Lords, there were good bits in the Budget, such as measures against tax avoidance and the policy of increasing real wages. The latter is particularly welcome because it will increase demand after years of severe austerity, which caused real wages to decline, reduced demand, prolonged the recession, substantially shrank our GDP and lowered productivity. It was in fact only after some relaxation of austerity, through some loosening of tight fiscal policy in 2012, that the economy began to grow again. However, this growth happened mainly because after a slump all economies rebound in time, but how far and how fast the economy rebounds depends on government policy.
In the election campaign, the Conservatives scored a major triumph, and I do not just mean their election victory. Through brilliant propaganda, they persuaded the public that they were the party of economic competence, that Labour had caused the crisis by borrowing and that the key to recovery from deep recession is a return to balancing the books. Time after time Mr Cameron taunted Mr Miliband, “You caused the crisis by borrowing. How can you propose policies that mean more borrowing, or oppose our policies, which will reduce borrowing?”.
This successful campaign—putting all the blame on borrowing—was based on a number of fallacies. Reckless borrowing was not the cause of the crash in 2008; it was the failure of the financial institutions and reckless deregulation, based on the blind belief in the efficiency of markets and the doctrine of rational expectations. The crash was caused by the bubble in the mortgage market, securitisation, gambling with derivatives and the banks ignoring risks in the drive for ever bigger and faster profits.
Furthermore, the doctrine that we must eliminate deficits and balance the books, with the substantial deep cuts in public spending that that entails, is not the basic cure for economic decline. That is going back to the 1930s and the pre-Keynesian conventional wisdom preached by Montagu Norman, the all-powerful Governor of the Bank of England at the time.
Unfortunately, the obsession with balanced budgets has spread far and wide in the European Union. I have always admired Germany, which has been one of the best-governed and best-managed countries and the least nationalistic in the European Union. It has been much more compassionate towards the Syrian refugees than we have. However, at this time its belief that borrowing is a sin and its insistence on deficit reduction by ferocious austerity threaten the survival of the eurozone and possibly even the future of the European Union itself. The reforms that countries such as Greece need cannot possibly be achieved by ruinous austerity. Indeed, we seem to have forgotten the lessons from history. The extreme, ruinous regime of austerity imposed on Germany by the Versailles Treaty led to the rise of Hitler. Keynes predicted disaster in his famous book, The Economic Consequences of the Peace.
The post-Second World War picture, by contrast, was very different. Germany’s recovery after 1953 would not have been possible without massive debt relief and other measures to revive the German economy. In Britain, reducing debt by cutting public spending was not a priority for the Attlee Government. That Government launched the welfare state and the National Health Service at a time when the ratio of debt to GDP was over 200%, and they achieved a growth rate of over 3%. Indeed, after 25 years of economic growth between 1945 and 1970, the national debt shrank from 240% of GDP to 64%. History shows that the best way to reduce deficits and achieve structural reform at the same time is through growth, not austerity.
I find it deeply depressing that the Labour leadership has swallowed the mantra about balancing the books. That is why they dare not challenge head-on the Osborne doctrine of shrinking the state by further devastating cuts in public spending and welfare, making some of the poorest poorer still. They give the game away by accepting the need for balanced budgets. I am afraid that the media, including the supposedly left-wing, anti-Conservative BBC, have swallowed the mantra of balancing the books uncritically. Most of the economic pundits on current affairs programmes on television are City economists, who take a City view. No wonder the new conventional wisdom has convinced the public.
It is time that we heard more frequently in the media from those who do not subscribe to deficit fetishism. More, please, from Nobel prize winners such as Amartya Sen, Paul Krugman and Joseph Stiglitz, or, for that matter, from our own colleague, the noble Lord, Lord Skidelsky.
Budget Statement
Lord Taverne Excerpts(9 years, 8 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Taverne (LD)
My Lords, it is a long time since I spoke in an economic debate. My reason for speaking today is my deep disappointment with the Budget. I respect George Osborne, who does not normally seek cheap popularity. He has depth and stamina and is not a PR man, unlike some other senior figures in the Government. But his Budget boasted about our economic success. If one looks at the record, one will see that boasting reveals a certain degree of complacency. At one time, I was a non-executive director of some major companies. I found the companies that kept declaring how excellent they were to be generally mediocre. The really good British companies were self-critical and concentrated on improving their weaknesses, not on boasting about their strengths.
In fact, our economic record since the crash of 2007 has not been brilliant. There has been progress, but our recent recovery is based on some very shaky foundations. Perhaps the most serious deficit we face is a huge trade deficit, which means that we depend precariously on the inflow of hot money. According to the IMF, the current account deficit is some $120 billion, the largest of any OECD country and three times that of France, with which Osborne compared us so unfavourably. The inflow of hot money, that is excluding capital for portfolio investment in companies and property, is some $210 billion. Our dependence on this fickle form of capital is greater than that of any other major country and it could flow out very rapidly. For example, after the election we are committed to a referendum, and polls show that there is a real chance of Brexit. That could be an economic disaster.
Why can we not pay our way? Because we are not competitive. Indeed, we are pretty well bottom of the league of major countries in the growth of productivity—on which, in the end, as many speakers have mentioned, prosperity depends. Our GDP per head is still 0.5% below what it was in 2007. Productivity has recovered much faster in the United States, Germany, Japan and—please note, Mr Osborne—in France.
Furthermore, the monstrous inequalities in today’s Britain have increased. More people are in jobs, that is true, and unemployment has fallen—good—but at the cost of a major decline in wages, the biggest in more than 100 years. There is now some recovery, but it is very slow. At the same time, top executive pay has been rising by more than 10% a year while wages have suffered.
For that, there is no justification, moral or economic. Inequality does not improve growth or productivity, and of course it undermines a good society. Two of the most important books that I have read in the past decade are The Spirit Level, by Wilkinson and Pickett, and Capital in the Twenty-first Century, by Piketty. The first shows that the most unequal countries are also the most socially dysfunctional. Piketty traces the rise and fall and rise of inequality in the United States, Britain, France and Germany and explains that it is due to the fact that generally, return on capital grows faster than the growth of GDP. Hence, the owners of capital, the rich, grow richer. He also shows that the post-war years, when, through progressive policies, inequalities were reduced in all those countries, were also the years of fastest economic growth. So much for the need to pay chief executive officers and bankers millions a year so that we can be better off or to pay bankers huge bonuses to stop those who helped to bring about the crash being recruited abroad for their unique skills.
Conservatives favour shrinking the state and tax cuts. Tax cuts mean crippling public services. Apart from anything else, it is foolish for Mr Cameron to pledge no VAT rise. He could reasonably say that he sees no present need for an increase in VAT and has no present plans for it, but why tie his hands with solemn pledges when he does not know what crises may be ahead?
Anyway, it may be unfashionable, but in my belief, in present circumstances tax cuts should be the lowest priority of policy. I am with that great American lawyer Oliver Wendell Holmes. He not only dominated the Supreme Court for 20 years after his appointment at the age of 72—which is a good example for those of us of riper years—but declared that paying taxes is the price for a civilised society. Amen to that.
Lord Deighton
That is consistent with my earlier response, that we did not have that choice because the markets would not have allowed us to continue with the scale of deficit we had.
Many noble Lords made very useful and interesting contributions on the housing market: the noble Lords, Lord McKenzie, Lord Best, Lord McFall, Lord Whitty, the noble Baroness, Lady Valentine, and the noble Lord, Lord Graham, who, with mobile homes, may well have the solution to some of our supply problems. The current status is that over 500,000 homes have been built during this Parliament. Of course, that is also tied to the financial crisis, but planning approval and housing starts are now at their highest for seven years, so they are benefiting from part of the recovery.
I agree with the general sentiment of most noble Lords who contributed on this topic that supply is the principal problem, and that dealing with our planning system, incentivising local authorities to build more, using both sticks and carrots in the process, is absolutely key to the way ahead. The noble Lord, Lord Best, suggested that there was nothing in the 2015 Budget for housing supply, but then referred to all the things in the small print that are going on. The demand-side interventions by my right honourable friend the Chancellor have been very effective; Help to Buy has been a successful policy—more than 80,000 people now own homes who would not have been able to do so before. The OBR and the Bank of England are comfortable that the impact of improving demand in that way has not been highly inflationary to the house price market.
There were lots of comments on pensions and savings, from my noble friends Lord Freeman and Lord Flight—who talked about the savings rate in a very interesting and thoughtful contribution about what we need to do about the long-term savings rate and how important it is—and from my noble friend Lord Northbrook and the noble Lord, Lord McKenzie.
One of the key questions all noble Lords asked was about where we are on Pension Wise, which is the service provided by government to provide guidance to people who are now faced with these new flexibilities. There are three potential channels: the digital channel—noble Lords can go home tonight and look at that, as it is up and running—which gives a description of what the flexibilities are; the telephone channel which is managed by the respected organisation TPAS—you can call up a call centre now and book an appointment with TPAS to have a 45-minute telephone session; and you can also call up Citizens Advice, which is the respected brand that delivers the face-to-face service. Therefore, each of those organisations—TPAS and Citizens Advice—has hired and put its people through a training programme so that they are ready to meet the demand. Of course, that is a very challenging thing to work out, because it is very hard to work out how many people will want what kind of advice, and when. However, we have done everything we can to ensure that that service will be available with the right capacity and the right quality—and to take on board my noble friend Lord Freeman’s point, with support from the FCA there will be plenty of opportunities to have a look at how it is working, and there will be a lot of work around making sure that potential scammers cannot be successful.
It is useful to be critical about growth and productivity performance, because it is important to focus on what we can do to make it better. We should remember that we are growing faster than anybody else at the moment, so it is not all bad news.
My noble friend Lord Taverne and the noble Lord, Lord Hunt of Chesterton, talked about the role of foreign capital coming in—hot money, as my noble friend referred to it. Generally speaking, this economy has enormously benefited from being an open economy, with the advantages that come with that. The noble Lord, Lord Hunt, referred to Hitachi, which has come here to assemble the trains, and has also decided to set up in the UK as the base for its European rail business. So, generally speaking, operating as an open economy has been a hugely successful thing for this economy.
Lord Taverne
Would my noble friend deal with the question of the danger of the inflow of hot money, which makes us very vulnerable indeed if there is a crisis of any kind? Is not the deficit on the balance of trade a very serious failure of the present Government?
Lord Deighton
There is a deficit on the balance of trade, although the most recent figures two weeks ago were the strongest that they have been for a very long time. I accept that our relative export and import performances are not as strong as they should be, but I would not put it down to a failure of this Government. It is a chronic long-term challenge, which British industry has to face up to.
Hot money is a complicated subject. In terms of investing and having ownership shares in our big businesses, I frankly do not find that particularly disturbing, because we are in a global market and those ownership positions are traded very actively. As I said, Britain has benefited on a net basis and manages that exposure very effectively.
The noble Lord, Lord Northbrook, asked what the future was for a business rates review and the annual investment allowance. The Chancellor said that that allowance would be looked at in the Autumn Statement next year.
There was a strong consensus for more decentralisation around the House—the noble Baroness, Lady Valentine, for London and my noble friend Lord Shipley, looking at the north-east.
My noble friend Lord Thomas referred to the tidal lagoon in Swansea, and I am delighted that that has moved into the next stage of negotiation. I was also delighted that he pointed out the work that has been done for farmers to help with their volatility by spreading out their taxes over a five-year period.
I am very much in sympathy with the perspective of the noble Lord, Lord Stevenson, on the arts, which is an important part of life and a great national strength. Through the tax system we are doing quite a lot to support the film industry.
In conclusion, I thank noble Lords not just for this debate but over the years that I have been at the Dispatch Box, when we have had very interesting exchanges. I have learnt a lot and improved my perspective from it. I thank my noble friend Lord Newby, who has been my colleague at the Treasury and has been magnificent at the Dispatch Box.
Despite the argument that we have been having, the British economy is in a very different situation five years on from the one that we inherited. We have stabilised the public finances. There is a very valid debate about the pace at which deficit reduction continues from here, but the circumstances of the economy will have a great deal to do with that, as they did over the past five years. For me, the focus is really on two things, both of which I would describe as productivity challenges. One is in the public sector, delivering great outcomes but in a much smarter way with more limited inputs. The same applies to the private sector, where the Government’s job is to create an environment in which we can unleash the inherent dynamism of that sector and, frankly, let them get on with it.
Queen’s Speech
Lord Taverne Excerpts(10 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Taverne (LD)
My Lords, there are many achievements of the coalition that are to its credit, but not the Prime Minister’s policy towards Europe and, in particular, his commitment to a referendum in 2017. Its folly was exposed in a debate in this House in January, when we debated the Private Member’s Bill on a referendum. What is the policy and what has been Mr Cameron’s strategy? It is for a major repatriation of powers, which would involve treaty change, and after a new deal had been done that would be submitted to a referendum in 2017. I apologise for repeating some of the arguments made in January, but they were never answered and they are of extreme importance.
In 2017, it would be the referendum year and so not exactly the year in which to conclude a very difficult deal. The process of negotiation was completely ignored: there would first need to be a vote for a convention, then there would have to be a unanimous vote for an intergovernmental conference and anything that it unanimously recommended as a deal would have to be ratified by the different countries, in many cases by a referendum. There is not a cat’s chance in hell of achieving all this within two and a half years of the next election, so what would happen? In March, to his credit, the Prime Minister somewhat modified his aims in an article in the Daily Telegraph in order to avoid a treaty change and some of the difficulties mentioned.
There are two obstacles to his policy now. The first question is whether the Conservative Party, which especially after the next election is likely to be even more anti-European or Europhobe than many of its members are now, would accept the modified proposal and less ambitious aims. Secondly, the timetable problem will not in any way be resolved, because there cannot be a special deal for Britain only. It would have to be a Europe-wide deal. There is no support whatever in any country for a special deal for Britain.
It is true that there are many people who want changes in Europe. The difficulty is that they all want rather different changes. To take one small example, Sweden wants to repeal the ban on chewing tobacco and the restoration of wolves. More seriously, the French want more protection for their agriculture and, generally, not more free trade and they are very set on a social Europe, whereas many people want to modify, for example, the working time directive. The five years it took to secure our budget rebate after hard negotiation would be a doddle compared to getting 28 nations together to agree a new deal for Europe.
Further, the Prime Minister needs allies, because he has a lot of support for some of the things he seeks, and he has consistently made difficulties for allies so that they can hardly support us. He gratuitously alienated the Poles, the Romanians and the Bulgarians, and he has made life very difficult for Angela Merkel because he keeps threatening that if we do not get what we want, we will leave, and more and more voices are being raised in Europe which say, “If you threaten to leave, for God’s sake go. Good riddance”.
What then would be the consequence if there was no deal or only a cosmetic deal of the kind which the Conservative Party after 2015 is unlikely to accept? The result would be that, if there is a Conservative overall majority at the next election, the odds are on exit because if Cameron, despite not having a deal, says he will still recommend that we stay in, the party would replace him with a more Europhobe Prime Minister. If he has changed his mind, as sometimes he has hinted, and would then say we should leave, what would be the result? The odds would then be on exit because you would have an anti-European Government, a stridently hostile anti-European press and a significant UKIP influence. That would be completely different from the situation in 1975, when all three parties were united in favour of staying in, the press was in favour of staying in and there was no mood of poisonous xenophobia created by UKIP.
The issue is not the principle of a referendum, because the Labour Party and the Liberal Democrats are in favour of a referendum if there is a major treaty change and a new deal has been reached. Then it should be put to the people because we will know what sort of Europe we are asked to stay in or leave. What I do not understand is why pro-Europeans ignore these arguments. The principle is not that of the referendum but of the question of timing.
Sterling: Exchange Rate
Lord Taverne Excerpts(11 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
My Lords, I agree with the noble Lord. I would just say, however, that we have been successful in reorienting trade towards the BRICS countries. China trade has increased by 76% while trade with Russia has increased by 71% and trade with other countries has increased by an almost similar amount. The problem we have been up against more than anything else is that the demand in our principal market area, the EU, has been very flat and declining. There has been a rebalancing of trade, and as the EU comes out of recession later in the year we hope that we will be able to pick up exports there as well.
Lord Taverne
My Lords, considering the massive devaluation of sterling since 2007 and the present state of our trade balance, is it not evident that devaluation is a tool of limited use in dealing with our economic problems?
Lord Newby
My Lords, it is a tool of limited use but that does not mean it is of no use at all. Obviously, you cannot have over a prolonged period all countries devaluing or competitive devaluation becomes a race to the bottom. The Governor of the Bank of England and the MPC would argue and have argued that without that devaluation our trade position would have been worse than it has been.
Economy: Quantitative Easing
Lord Taverne Excerpts(12 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sassoon
My Lords, we are straying a bit from the effect of quantitative easing and on to the Government’s fiscal policy, for which the Bank of England is not responsible. However, the fiscal deficit that we inherited has been cut by over a quarter. We are on track. As to what would have happened under a Labour Government at this point, the independent research shows that the country would have been left with an additional £200 billion of debt on top of the present Government’s plans.
Lord Taverne
My Lords, there is an urgent need in British industry for long-term loans for SMEs. The trouble is that our banks are not very good at this. Banks in Germany, France, the Netherlands and Canada are much better. Will the Government seriously consider following their pattern and setting up an investment bank or institution that specialises in providing such loans, perhaps modelled on the German Kreditanstalt für Wiederaufbau?
Lord Sassoon
My Lords, we are putting together a British business bank in order to bring together the various schemes that SMEs and all companies have access to. I entirely agree with my noble friend that this is an ongoing and very serious issue. We will continue to use the strength of the Government’s balance sheet, which is due to the credible deficit reduction plan, to back up schemes such as the infrastructure guarantee scheme, which goes precisely to one part of the demand and need for long-term bank finance. We will, and have already, come forward with schemes, because I completely agree with my noble friend that this is a critical area.
Economy: Monetary and Fiscal Policy
Lord Taverne Excerpts(13 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sassoon
My Lords, I will let the noble Lord, Lord Eatwell, read the actual words in Hansard tomorrow. [Interruption.] No, I am not changing anything. The MPC has to take account of the prospects for growth and inflation when it is judging how to set the direction of monetary policy. Its target is an inflation target, but it needs to take account of a wealth of other factors when making its decision, so that is what it does.
Lord Taverne
My Lords, do the Government not agree that in the present circumstances a simultaneous policy by many countries of rigid deficit reduction and fiscal contraction carries the danger of leading to depression, which will not cure the deficit?
Lord Sassoon
My Lords, I certainly agree that different countries should be taking different tracks, depending on their particular deficit and debt positions. I can only quote the concluding statement of the IMF, in its recent assessment, that:
“The current policy mix of tight fiscal and loose monetary policy remains appropriate”.
EU: Financial Assistance
Lord Taverne Excerpts(13 years, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sassoon
My Lords, first, there will be no hypothecated borrowing by the Government to back up—as far as I am aware—the loan to Ireland. Of course, the loan to Ireland—as and when it is drawn down—is subject to approval in legislation if and when it comes to your Lordships’ House. We might return to it over the next few days. The loan has to be approved by Parliament. It is then drawn down. Of course funds have to come from somewhere, but there is no intention to back that up with a specific loan.
It will not be for the Government to determine the accounting, but the intention is that the bilateral loan will carry an interest rate that is 2.29 per cent higher than the sterling seven and a half year swap rate that applies at the time. On this week’s figures, that would be an interest rate of 5.9 per cent, which would be considerably in excess of the UK Government’s borrowing rate. My understanding—as I say, it is not the Treasury’s decision—is that the net interest margin, which would of course be a gain because the receipts from Ireland would exceed the costs to the Exchequer, would indeed be a positive contribution on the fiscal balance.
Lord Taverne
My Lords, is it not inevitable that to make the rescue operations effective, and at the same time to avoid a treaty amendment, the stability mechanism will increasingly become an intergovernmental eurozone mechanism? What plans do the Government have to avoid the United Kingdom being increasingly bypassed in key decisions in the European Union?
Lord Sassoon
My Lords, I do not think there is any question of us being bypassed on key decisions in the European Union, as our participation in recent debates about Ireland and the wider crisis have demonstrated. It will be up to Europe to decide how the permanent arrangements are put in place. The October European Council resolved that there should be a crisis resolution mechanism, and there has been a verbal commitment that the UK will not be asked to be part of it.