Finance (No. 3) Bill

Lord Tugendhat Excerpts

Monday 18th July 2011 Lords Chamber

[Lord Tugendhat]

My Lords, this debate has ranged very widely but I shall confine my remarks to the sub-committee’s report. As I am a member of the Select Committee but not of the sub-committee, I can say with a clear conscience how very good the report is.

We are debating the report against the background of a number of far-reaching constitutional changes, some actual and some prospective. Often, the most far-reaching changes are those which are least noticed when they are introduced and appear to be the least spectacular. That may very well prove to be the case on this occasion with the Government’s new approach to tax policy. It represents an interesting new direction and will, I think, have a considerable impact on the formation of policy in the future. I congratulate the Government as did the noble Lord, Lord MacGregor, on its implementation.

I should like to make a few I hope helpful suggestions. My first hope is that that the Treasury and future Chancellors will not be afraid of being boring. The temptation inherent in producing an annual draft Finance Bill will be to cut a dash and to make an impact. There will be some years when that will be the right thing to do, when it will be appropriate to serve up a delectable menu of substantial changes. That will not be the case every year and quite likely it will not be the case in most years. I hope that the new approach will lead not only to a more consultative approach to tax policy, but also to one that is more measured and selective, and that Chancellors will not be judged by how far-reaching or how dramatic the changes are from one year to another.

My second hope is that the Treasury and future Chancellors will not be afraid of disregarding occasionally the constraints imposed by the new approach. I noted what the Minister had to say on that point when he opened this debate. I agree with the sub-committee’s strictures on the disguised remuneration measure and the supplementary charge on oil and gas profits. However, there will be occasions when it will be right for the Government of the day to act quickly in response to a difficult or crisis situation. The banking crisis of 2008 and its aftermath provide a case in point. There is a good general rule that should normally be observed, but there will be occasions when Chancellors will be right to take more immediate action.

My third hope is that the draft Finance Bill will spark off what might be termed an iterative process with a set of proposals for action in one area sparking suggestions for action in another. We see an example of this already in the way that taking evidence on tax avoidance has prompted the committee’s request for the Government to follow up their anti-avoidance strategy with one for tackling evasion. Given that HMRC calculates that the loss from all forms of evasion and default is £22.6 billion versus £7.5 billion for avoidance, this seems highly desirable.

Finally, I turn to the role of the Economic Affairs Committee, or rather its sub-committee. I strongly agree that the new system provides an admirable opportunity to make better use of the experience and expertise of Members of the House of Lords. This is exactly the sort of role that the present House of Lords is well qualified to perform. The report puts forward two possible options in paragraph 122. I suggest that consideration should also be given—as the noble Lord, Lord MacGregor, pointed out, this is a matter for the whole House—to establishing the sub-committee on a permanent or semi-permanent basis. I am not committed to that formula, but I want to ensure that a variety of possible options is explored in order to ensure that the experience and expertise in the House of Lords is harnessed in the most effective way, whatever that may be.

To conclude, I congratulate the Government above all on the introduction of the new approach to tax policy and on the way in which they have started the implementation of that policy. While one should, generally speaking, adhere to the rules, there will be occasions when it will be appropriate to go outside them.

Greece: Default Contingency

Lord Tugendhat Excerpts

Monday 20th June 2011 Lords Chamber

[Lord Sassoon]

My noble friend Lady Noakes asks a very good question. It is inevitable that people will ask: was the package appropriate? One should take comfort from the fact that the IMF has a long and successful record of implementing restructuring programmes. The IMF programme for Greece was put in place in market conditions and with a market outlook somewhat different from that which Greece and the eurozone subsequently encountered. The first requirement is for the Greek Government to be encouraged to get back on track, to stick to the agreed fiscal consolidation path. Beyond that, it is for the IMF to see what needs to be done. The key thing is for the original plan to be back on track. I therefore think that we should not at this point second-guess whether the plan is or is not appropriate.

I will not be drawn into whether the Greek situation would be better in one hypothetical scenario or another.

[Lord Tugendhat]

My Lords, does the noble Lord agree that, however brave the Greek Prime Minister is —he has shown extraordinary guts and determination—and however much a new Greek Government might wish to pursue the austerity programme and the conditions being laid down, there must be room for doubt whether any Greek Government can secure the degree of self-discipline within the country that would enable them to meet the conditions of the IMF and of the other European countries? That being the case, does the noble Lord not agree that the great interest of the United Kingdom Government lies in co-operating as closely as possible with our eurozone partners in putting together contingency plans to meet whatever eventuality may occur, because the Greek Government are extremely unlikely to be able to live up to their promises?

[Lord Sassoon]

My Lords, I am not going to be drawn by my noble friend Lord Tugendhat into giving a commentary on Greek politics, which I am not qualified, in any case, to do. However, the Greek Parliament will hold a vote of confidence on the new Government very soon—I believe that it may be tomorrow. Critically, the Greek Parliament will vote on a medium-term fiscal strategy consistent with the agreement into which they have entered. That vote in the Parliament is expected to be later this month. I think that it would be wrong to question the commitment of the Greek Government and Parliament to the package. On contingencies and close co-operation, I can only confirm that, either in terms of what is being done by the authorities in the UK or in co-operation with our European partners, we will certainly look at a wide range of contingency plans and scenarios.

Economy: Government Policies

Lord Tugendhat Excerpts

Thursday 24th March 2011 Lords Chamber

[Lord Tugendhat]

My Lords, I, too, thank the noble Lord, Lord Lawson, for introducing this debate and add my congratulations to those of others to the two maiden speakers who made such notable debuts in this debate.

I begin from a position where I feel much happier with the Government’s language on the economy now than when we had our last big economic debate in November on the comprehensive spending review. I am delighted by the commitment to growth and by the measures that have been launched to give that commitment substance: the tax changes, the reforms to the planning system, the scrapping of regulations and so forth. This is a welcome change from the emphasis that was too much the case last year on cuts, cutting back and looking at everything through the prism of cuts. I warned then that I feared that the Government had perhaps swung too far towards austerity and that that would prejudice the health of the economy over the period of the Parliament. I pointed out that ultimately over the period of the Parliament, this Government will be judged by the criteria of growth and employment. I very much want them to be judged favourably by those two criteria and to have earned a favourable judgment. I do not want them to be found wanting.

I fear that events since the debate we had in November have gone some way to bear out the fears that I expressed at that time. We have had the fourth quarter fall in GDP and have the very high level of unemployment, which at 8 per cent is the highest level for 17 years and, as my noble friend Lord Griffiths pointed out, is at a particularly severe level for young people, with very dramatic and detrimental consequences for a great many individuals in that age group.

Against that, I argued that the Government’s bravery in grasping the deficit nettle has enabled them to get ahead of the markets. No one now doubts the seriousness of the Government’s commitment to cutting the deficit or their strength of purpose. They have therefore succeeded in gaining some room for manoeuvre, and I believe that they should take advantage of it. They should use it not just for the reasons that I have already given, substantial and powerful though they are, but because on top of them we now face far greater risks to the world economy than was the case at the end of last year, or at least when last we debated these matters. We have the ongoing events in the Middle East and North Africa, we have Japan and we have the continuing intractable problems in the eurozone, exemplified in today’s papers by the news of the fall of the Portuguese Government.

In the autumn, the Governor of the Bank of England spoke of 500,000 jobs being created in our export industries. I wonder whether he would be willing to repeat that suggestion now. I think that the outlook for our exports and our major export markets is a great deal less good than it was then. All these things have occurred before the spending cuts and their consequential job losses in the private as well as in the public sector really begin to bite. They are nearly all still to come. At the same time, inflation is not just more than twice the target figure, it is continuing to accelerate.

This is a very dangerous and explosive mix: rising unemployment, rising prices and perhaps in the not-too-distant future rising mortgages, although I hope the Bank of England will heed the dangers of increasing interest rates in the present climate. In plain English, what this means is that a great many people in our country are going to suffer a lot of pain and anguish, and that is a prospect which we must take into account in assessing what the Government should be doing at present. I believe that economic policy is a matter of balance. A Government should have a clear direction and clear objectives, and I am delighted that this Government should have both of those things. But within that context, the priorities and the pace need to be varied from time to time to take account of changing circumstances. Failure to vary the pace and to vary to some extent the course and—we have seen this in the past, and some of us in this House go back to the Heath Government—failure to heed the warning signals can lead to smash ups and that dreaded term, the U-turn.

That is something that I very much hope that this Government will avoid and why I believe they should take advantage of the room for manoeuvre which they have earned in order to shift the balance somewhat back towards a modification of the cuts programme and an increase in capital spending. They should think again about both those factors. We have recently heard a great deal about the OECD. The Government should also take heed of the OECD’s warning in its recent report that the large cuts in public expenditure being planned are a risk to long-term growth. I hope they will take account of these matters and that they will bear in mind the fact that it is not only through cuts that deficits are reduced. With more investment, there would be more employment. With more employment, there would be more consumer spending, and that in turn would lead to higher tax revenues.

Loans to Ireland Bill

Lord Tugendhat Excerpts

Tuesday 21st December 2010 Lords Chamber

[Lord Tugendhat]

My Lords, like other noble Lords who have spoken, I applaud the Government’s decision to offer Ireland a loan, and I also applaud the manner in which it was done. I do not agree with the noble Lord, Lord Davies of Stamford, that it was grudging or anything of that nature. I rather agree with the noble Lord, Lord Bew, that the Irish reaction has shown that they recognise that this was done in a full-hearted and generous fashion, and I am very pleased about that. It was done without strings, it was done quickly and the Chancellor of the Exchequer was quite right to emphasise that it was done in the British interest. Britain and Ireland are two neighbouring countries, their economies are very much bound up with each other, what is good for Ireland in terms of prosperity is good for Britain, and it is right that this should be recognised. Others have spoken of the extent to which Ireland is a major export market, of the way that the economies of Northern Ireland and the Republic are very much bound together, of the number of British companies that operate in the Republic and, of course, of the exposure of British banks, especially the Royal Bank of Scotland, to the Irish financial sector. In helping Ireland, the Government are not diverting money from worthy causes in the United Kingdom, but are acting to safeguard British jobs, British interests and British taxpayers’ money. The sooner Ireland can return to prosperity, the better for us that will be.

I got the impression, but perhaps I am wrong, that the Minister felt that the measures that have been taken would secure that. I hope he is right, but I have to say that I am not so sure. I feel that further pain may be on the way and that some of the pain may be felt by private lenders. That remains to be seen, and I certainly hope that the measures taken by us and by the other participants in the rescue operation have the desired effect. Like the noble Lord, Lord Bew, I see this very much in the context of the Anglo-Irish relationship, both present day and historical.

There are some who suggest—it may even be that the noble Lord, Lord Pearson of Rannoch, will express this view—that because Ireland is a member of the eurozone, and we are not, we should somehow stand aloof from it. I think that is absurd. The Prime Minister and the Chancellor of the Exchequer, as well as the Minister this evening, have repeatedly said that it is in Britain’s interest that the eurozone should be a success. Of course, that does not mean that we have the same responsibilities towards each other as the members of the eurozone, but it does mean that we should recognise the nature of our links with it and the existence of our exposure to it. We are not an offshore island in that sense with a financial system separate and distinct from that of our European neighbours. The whole apparatus of British financial services and the City of London as a great international centre are intimately bound up in the wider European financial system. They are, of course, intimately bound up in the global financial system, but most intimately and most directly they are bound up within the European, and through the European, in the global financial system. The two are not mutually inconsistent. This has been a great source of profit to the United Kingdom. It continues to be so, and Mayor Boris Johnson never ceases to point out the benefits that accrue to London as well as to the United Kingdom.

It is very much in our interest that we should participate, but I part company from the noble Lord, Lord Liddle, so far as the permanent mechanism is concerned, and I find myself much closer to the position of the Minister. As I said, we do not have the same obligations and responsibilities to the members of the eurozone as they have to each other, so I feel it is right for us not to sign up to something that would involve us in a permanent obligation. I do not mean by that that we would necessarily wish to stand apart on some future occasion. We might, or we might not. I felt that the noble Lord, Lord Liddle, drew too much on the Irish example. Our relationship with Ireland is quite different from our relationship with any other European country. However, I can well imagine that circumstances might arise—

[Lord Davies of Stamford]

It is not surprising that as a man of the world and a former European commissioner, the noble Lord is not someone who is so foolish as to want to exclude any possibility in the future and lose flexibility, but does he not agree that if we are not part of the permanent mechanism, we will not be part of the conversations, we will not be part of the analysis and we will not be part of the decision-making mechanism? We might have the opportunity to come in later on to a deal that has already been put together by others or to try to find some bilateral solution in the face of a much bigger multinational arrangement, but surely that is not a very sensible way of conducting our country’s affairs.

[Lord Tugendhat]

No, I do not agree with the noble Lord. He draws too clear a distinction between membership and non-membership. I do not want to get diverted, as others have, from the main theme of my speech, but I think that Britain is a substantial member of the European Union. Therefore, conversations do not take place in one room with Britain being excluded entirely. People need to know what Britain is thinking and there has to be a certain interchange.

There are people who thought that if we did not join the euro, we would somehow be excluded from a lot of discussions. There are certainly discussions in which we do not take part and it may be that Ministers are rather relieved sometimes that they do not have to. But Britain is too big an entity to be entirely excluded and only brought in at the end of the discussion when everything has been decided. If Britain is to play a role in a future crisis, people will want to know beforehand what our attitude is likely to be, how far we might be able to go and under what terms we might be able to participate.

That brings me back to my line of march. When perhaps future problems arise, we should look at each of them and take a decision on their merits—certainly recognising our considerable interests in the eurozone; certainly recognising the importance of our membership of the European Union; and certainly recognising our interests in the political stability of different countries. But we should look at these things on their merits, decide our position on each one as it comes along and ensure that the decisions we take are subject to parliamentary approval. We are much more likely to carry confidence in the country and have support from the electorate if we are seen to do it on the merits, rather than if we are seen to have signed up to a certain automaticity.

[Lord Liddle]

My Lords, I have a great deal of respect for what I have described as the pro-European pragmatism of the noble Lord, Lord Tugendhat. He has shown that over the years in many of his contributions to the European debate. But what is being ignored is the point that came out in the Bank of England report from which I quoted; that is, the interconnectedness of our banking systems. Although it may not be the case that British banks have a lot of sovereign debt in Greece, Portugal and Spain, they have a lot of relationships with French and German banks, which have those obligations. Therefore, we would be inextricably bound up if there was a crisis. We should be trying to take a lead in sorting this out, not waiting for the telephone call from Mrs Merkel.

[Lord Tugendhat]

Again I am grateful for the kind words of the noble Lord, but I do not think that the world works that way. Perhaps I might refer to his former distinguished leader, Gordon Brown. We were not of course part of the eurozone, but, as the noble Lord says, our financial centre is intimately bound up with the rest of Europe. It is a considerable interest of ours. It is a source of profit and a great many things.

When the crisis hit, and the Lehmann Brothers went down in the September, the fact that we were not part of the eurozone did not stop President Sarkozy calling Gordon Brown over to Paris or stop Gordon Brown playing a considerable role in the decisions which were taken. We are not going to have a situation in the European Union where a country as big as this, and as significant as this, is in one place and everyone else is huddled in another, and they do not talk until they have made up their mind. They need to know what we think, they need to know what terms we would come in on and they need to know whether we would be willing to help at one level or at another level.

Of course, I recognise our interconnectedness. Like the noble Lord, I have devoted a good deal of my life to trying to make the interconnectedness greater. But I do not think that if we are not members of the eurozone, we ought to sign up to something which carries with it the automaticity of the permanent mechanism.

I do not entirely expect the Minister to make a comment on my final point. What goes around comes around. I am delighted that the Chancellor of the Exchequer can claim that on this occasion we are not part of the problem, but that we are part of the solution. He is right. On this occasion, we are part of the solution.

All of us in this House have long memories. All of us know that there have been many times when the United Kingdom has needed support from its friends. All of us know that there have been moments when the United Kingdom has run into difficulty and has looked to others for help. It would be a brave man or woman who would assert that such a situation could never occur again. I am sure that under the stewardship of the Chancellor of the Exchequer and my noble friend Lord Sassoon, it will not occur under this regime. But who knows when it might and it certainly behoves us in dealing with others to do as thou wouldst be done by.

Comprehensive Spending Review

Lord Tugendhat Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Tugendhat]

My Lords, like other noble Lords, I look forward to hearing the maiden speakers who are yet to come in the debate. I hope that they will not be put off by the length of the list and that they will contribute not only on this occasion but on many others when it is to be hoped that the speakers list will not be so long. It is also a great pleasure for me to follow my noble kinsman, the noble Lord, Lord Haskel. It is the first time I have had the opportunity to say that in this House and I am pleased to have been placed at this position in the pecking order. However, we will not be approaching the problems in hand from quite the same vantage point.

There can rarely have been an occasion when an incoming Government have moved so quickly and decisively to grapple with the country’s economic problems. They were right to do so: not because we were in the position of Greece or Ireland—we were not—but because the situation was running out of control and, after the denials and prevarications of the previous Government, any dawdling or delay could have provoked a crisis. In saying that, I am not referring to the noble Lord, Lord Myners, or even to the previous Chancellor of the Exchequer, Alistair Darling. I am of course referring to the previous Prime Minister. It was he who set the tone of his Government, and his denial of the nature of the problems facing the country meant that the incoming Government had to move quickly and decisively.

My noble friend Lord Lamont was right to draw attention to the deepening of the sovereign debt crisis in the eurozone. At the moment it is dormant, but it has certainly not gone away and no doubt we will have to deal with it again during the coming months. So this was a time for boldness and the Government have shown that. As a result, they have got themselves ahead of the markets. They do not have to worry about international confidence, their credit rating, or funding the deficit. This is a much better position to be in than not having done enough and being subject to speculation that they were going to have to come back and do more. There are, of course, as any army that advances very rapidly knows, dangers in getting ahead of the game. The question now is whether, in their determination to eliminate the structural deficit so quickly, they are putting growth and jobs at risk. By placing so much emphasis on this particular economic measure and fiscal consolidation as the means to achieve it, there is the question of whether it will stifle economic growth. In my opinion, there is such a danger. Faced with the protracted pain set out in the Chancellor’s programme, will companies now cut back on investment and hiring?

Banks, as we well know, are under attack for the low level of their corporate lending. But banks have not gone on strike. They are not lending because they do not want to lend. The reason they are not lending is that the value and volume of viable applications reaching them are not as high as we would like them to be. That is the problem. Consumers are also being affected. We are told that half a million public sector jobs will go. Many times that number of people will be fearing for their futures and cutting back on their household spending. That will be true not just in the public sector but also in those sections of the private sector that will be hit by the cutback in the public sector. The Governor of the Bank of England called recently in his speech in the Black Country for half a million jobs to be created in our export industries. How good that would be. I hope they are, but it is a big ask when times are so hard in so many of our principal export markets.

So, having got ahead of the game, established their credentials, ensured that their credit rating is secure and that the funding will be possible, I hope that the Government, by acting quickly and decisively, will take advantage of the room for manoeuvre that they have created. Room for manoeuvre is a precious commodity in economic policy-making and the Government now possess it. I believe that they should not now regard an arbitrary target of deficit reduction by means of fiscal consolidation as the be-all and end-all of their economic policy. Rather, they should be willing to calibrate that programme in accordance with the needs of the real economy, by which I mean growth and employment. When the record of this Government comes to be judged, it will be on the basis of those criteria. The debt reduction programme should contribute to that and not dominate their overall economic policy. It is through economic growth and high employment that tax revenue is generated and that benefits are held in check, and that can make a considerable contribution to the reduction of the deficit. This aspect of policy now needs to be given more emphasis. The speeches which the Prime Minister gave last week and the initiatives which he took show that he appreciates that. I believe that the Government have put themselves in a strong position and they deserve credit for that. They have room for manoeuvre and I hope they will show the pragmatism and flexibility that the economic situation will require.