Economy: The Growth Plan 2022
Lord Tunnicliffe Excerpts(2 years, 1 month ago)
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Lord Tunnicliffe (Lab)
My Lords, I congratulate the noble Baroness, Lady Gohir, on her maiden speech. She clearly set out her position and passion, and she had many ideas for which I have personal sympathy. I also join the regrets of the House for the final speech of the right reverend Prelate the Bishop of Birmingham. His insightful and compassionate contributions were always an important part of our debates, and I fear we are at a point in our history where we need more compassion and discussion.
This has been a fascinating and wide-ranging debate. I suspected that my going through the individual contributions of 55 Back-Bench speakers would get in the way of what I suspect is the desire of the House to listen to the Minister rather than me, so I tried to do an analysis of the contents. On balance the split, while not clear-cut, was about 3:1 in favour of those who had more concerns about than praise for the mini-Budget. Keir Starmer, our leader, said at our recent conference that we must put “country first, party second.” I hope we can all embrace this concept in these extremely difficult times, and that Ministers will reflect on the level of concern expressed today and follow our advice, which is, frankly, to go back to the drawing board.
The Government having spent the summer railing against orthodoxy in the running of the UK economy, it is somewhat ironic that it was ultimately for the Bank of England to step in and restore calm. While the Chancellor stood by, letting the pound plunge and pension funds go to the brink, the Bank took it upon itself to make an unprecedented intervention in the bond market. The initial market response to that announcement was promising: the pound recovered some of its losses against the dollar and 30-year yields dropped sharply for a time. Then the Chancellor took to the airwaves and sent the economy into another spiral.
When the Chancellor of the Exchequer speaks, he does so to a global audience. Any lack of clarity or dithering sparks market panic, with our economy and people suffering as a result. The same is true for veiled swipes at institutions such as the Bank of England. Mr Kwarteng might not like how the Treasury or other institutions do business, but undermining the system is not the way forward.
The International Monetary Fund felt compelled to issue its own rebuke of the Government’s plans, suggesting that they change course immediately. That follows its forecast from earlier this year predicting that the UK will have the slowest growth of any G7 nation next year. It is hard to see the mini-Budget improving that outlook. Standard & Poor’s swiftly put the UK’s sovereign rating on a negative outlook, citing the likelihood of
“weaker than expected economic growth and rising borrowing costs”.
Fitch has since followed suit, noting the contradiction between fiscal policy and the Bank’s attempt to curb inflation. This has been much commented on as trying to drive a car with one foot on the accelerator and the other on the brake. These are not comments to brush away. Our creditworthiness now sits below the economies of France and South Korea.
Let us consider the state of the gilt market. In his recent letter to the Commons Treasury Committee, the Bank’s Deputy Governor laid out exactly why it was forced to intervene in the bond market. His letter is full of strong language about the effects of the mini-Budget, referring to a “self-reinforcing spiral” in debt markets. That created a doom loop which meant that, without the Bank’s intervention,
“it was likely that”
pension
“funds would have to begin the process of winding up the following morning.”
As a result of the chaos, investors the world over saw UK gilts as a higher risk than those issued by Italy and Greece. Even after the pound eventually returned to levels seen before the mini-Budget, our borrowing costs were still elevated.
What does this mean in practical terms? Liz Truss can wave goodbye to her hope of spreading Covid-related debt over a longer term. The Government’s energy intervention just got substantially more expensive, reinforcing the case for an extension of the windfall tax. Who will ultimately have to pay these debts off? That is right—taxpayers up and down the country who are already contending with higher mortgages and other costs.
However, it would be a mistake to believe that these problems started with the Chancellor’s September fiscal statement. The UK is the only G7 nation not to have recovered to pre-Covid levels of real GDP, meaning that many remain out of pocket. Put in other words, household disposable income is falling. That feeds into record low levels of consumer confidence: a staggering minus 49% in September, down 5% in a month from August. With household incomes having to cover higher mortgages and energy bills, many people are being pushed towards consumer credit. Indeed, in August, consumers borrowed on credit cards at the fastest annual rate since 2005.
We are told that the situation will improve once the Chancellor makes his next fiscal statement, now due at the end of the month. Other than tax cuts, what levers do the Government intend to pull? Exactly what impact do they expect them to have? If rumours are to be believed, the Government will pin their hopes on deregulation. This will come across many sectors, but perhaps none more so than financial services.
Noble Lords will recall that much of that regulation was designed alongside international partners in the wake of the 2008 global crisis. We should all be proud of our financial services sector. It generates billions for the economy and employs millions of people across the UK, and its tax bills help fund vital public services. Of course we should support the sector and find ways for it to boost economic growth. That is why we have been eagerly awaiting the legislation implementing the outcome of the future regulatory framework review. So can the Minister confirm this evening whether the Financial Services and Markets Bill will stay in its current form, or will the Government make financial services deregulation part of their planned growth Bill, lumping these very technical matters in with deregulation in other sectors of the economy?
Regardless of the vehicle used, I am not convinced that anybody outside of government wants to see UK firms allowed to adopt practices unthinkable in other jurisdictions. Yes, we want London to remain one of the world’s leading financial centres, but firms tell us that they want high standards. They want preferential access to international markets, but the Government failed to secure that in their negotiations with the EU. Would equivalence not be a quicker, safer route to growth in this particular sector?
While I am asking about deregulation and upcoming legislation, I wonder whether the Minister could answer a few more questions. Are the Truss Government committed to bringing forward the next economic crime Bill, as promised by the previous Prime Minister? If so, when can we expect it? Would the Minister agree that tackling tax evasion and other forms of economic crime is even more important in the current context? In the rush to change financial regulations, do the Government remain committed to the Basel rules? What about the decisions of the Financial Action Task Force in relation to high-risk countries or its country-specific recommendations to improve the UK’s performance in relation to money laundering?
Economic competence is not just about implementing the fiscal recommendations of one’s favourite think tanks; it is about delivering financial stability day after day. We need answers to all these questions and more before we can take the Prime Minister and the Chancellor seriously. Downing Street urgently needs to fix the problem it created two weeks ago. This cannot wait three weeks, until 31 October. The Government need to stop lurching from crisis to crisis, with each new display of incompetence somehow trumping the last. If the Conservative Party cannot get a grip, the Labour Party stands ready to step in and deliver responsible public finances, strong fiscal rules and fair, long-term growth.
Lord Callanan (Con)
This goes back to the point I made to the noble Lord, Lord Vaux, earlier: we will indeed be debating these matters further when the legislation arrives. It is a complicated subject. There are two types of renewables certificate. The earlier renewables obligations were given before 2015, and it can be said that some of those operators are indeed making considerable profits. They are perhaps the ones that the noble Lord is talking about. Then there are those that have been on the contracts for difference scheme since 2015, which are now, I am pleased to say, paying back into the system, such is the success of the CfD regime. But, as I said, we will be debating that when the legislation comes to this House.
Lord Tunnicliffe (Lab)
The Minister has admitted that this is an extremely complex subject. I wonder whether he would consider acceding to the request from the noble Lord, Lord Vaux, and arranging more of a seminar-type event before Second Reading so that we can probe into the understanding—that is, not to make political points but to understand the technicalities we face.
Lord Callanan (Con)
I will certainly look at doing that but, as I said, we are preparing for the legislation. There is furious drafting going on at the moment. It will be in the House shortly. I think noble Lords will find that it addresses some of the points they are raising, but I would be happy to look at holding a seminar as well if they would find that helpful.
Once again I can only agree, as I normally do, with my noble friend Lord Forsyth’s words; what a great Budget Statement it was. He rightly noted, for instance, that investment comes from retained profits after tax. The noble Lord, Lord Bilimoria, for his part, agreed that it is absolutely right to target growth. My noble friend Lord Lamont said that going for growth is a laudable objective. My noble friend Lord Lilley said simply that growth is crucial. All were correct. I cannot agree with everything that the noble Baroness, Lady Wheatcroft, said—I do not normally agree with her very much—but she was right to say that, on growth, the problem has been about delivering.
My noble friend Lord Frost observed that the Government’s opponents think that the right way forward is more of the same, while our belief is that we have to do things differently. The measures in the growth plan represent an ambitious first step towards getting to the 2.5% target through removing barriers to the flow of private capital, supporting skilled employment, accelerating infrastructure construction, getting the housing market moving and cutting red tape for businesses. Historical experience suggests that 2.5% GDP growth is ambitious but achievable given the growth that the UK has observed in the past.
Independent economic forecasters have estimated that the energy package could reduce the headline rate of inflation by around 5% by freezing energy bills. As always, the Chancellor is of course working closely with the Governor of the Bank of England to tackle inflation and closely co-ordinate support for the economy. While more government borrowing is required in the short term to tackle high energy prices, the Chancellor is committed to seeing government debt fall over the medium term. The independence of the Bank of England is sacrosanct and the Government have reconfirmed their commitment to the monetary policy remit. The Government have full confidence in the Bank of England to take action to get inflation back to target.
The right reverend Prelate the Bishop of Durham and the noble Baroness, Lady Brinton, used the phrase “trickle-down economics” as if it is somehow official government policy. I am afraid that, as my noble friend Lord Hannan said, this phrase is a fantasy of extremely fertile left-wing imagination. We have no such policy, as my noble friend Lord Bethell said. No Minister has ever used that phrase. I cannot be clearer: it is fantasy.
The noble Baronesses, Lady Smith of Basildon, Lady Bowles of Berkhamsted and Lady Fox of Buckley, discussed the perceived market reaction to the Government’s decisions. Of course I cannot get into commenting on specific financial market movements. They are determined by a wide range of international and domestic factors. We recognise that there has been some market volatility, which is to be expected as financial markets adjust to policy decisions. The Government do not have a preferred price or yield for assets in financial markets; the price is set by that market. I note, however, my noble friend Lord Lilley’s astute observation that sterling has recovered against the US dollar.
On corporation tax—again, this was mentioned by the noble Baroness, Lady Smith of Basildon—the Government have prioritised cancelling the corporation tax rise and announcing the permanent level of the annual investment allowance to support businesses and increase the productive capacity of the economy. Importantly, the decision on corporation tax is not a cut: it is not proceeding with a previously announced increase.
Meanwhile, the income tax rate cut is being brought forward to April 2023 instead of 2024. This is the first cut to the basic rate in 15 years, supporting over 30 million taxpayers to keep more of their own income. Taxpayers in England, Wales and Northern Ireland will all gain around £170 on average.
The noble Baroness, Lady Walmsley, made the point that freezing the personal allowance is bad for low-income households.
Proposed Merger of Sainsbury’s and Asda
Lord Tunnicliffe Excerpts(6 years, 6 months ago)
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Lord Tunnicliffe (Lab)
My Lords, I thank the Minister for repeating the response to the UQ. First, I pick up on the wording about this so-called merger. Would I be right in thinking that it would be easier for all concerned if we called this a takeover and not a merger, particularly as J Sainsbury is paying 42% of the stock and £2.5 billion to Walmart for the stores? Secondly, we agree that the takeover has to be conditional on clearance by the Competition and Markets Authority. In that regard, the takeover will affect the whole of the food value chain, from farm and factory to the supermarket shelf. It follows that the risk to the public interest from this concentration of ownership has the potential to squeeze competition in the market and poses a risk to workers, suppliers and consumers. Is the Minister confident that the CMA has the remit, resources, expertise and time to do a proper job, given that it has to consider not only the national situation and the local impact on villages and towns up and down the country but competition between domestic bricks-and-mortar businesses and global online corporations such as Amazon? Finally, the Minister’s colleague in another place said that he will be working closely with the Groceries Code Adjudicator. Can he confirm that the Government will also work closely with the Small Business Commissioner?
Deregulation: Public Services and Health and Safety
Lord Tunnicliffe Excerpts(7 years, 4 months ago)
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Lord Tunnicliffe (Lab)
My Lords, I too thank my noble friend Lady Andrews for introducing this debate and thank the many Peers who subsequently agreed with her opening speech—there was, of course, one notable exception. In a previous debate on these matters, I claimed to be the most regulated person in the House. I am sure that that is not true, but for 51 years I have been under the control of one regulator or another: the CAA when I was an airline pilot; the Railway Inspectorate and the fire brigade when I was running London Underground; the nuclear inspectorate when I was chairman of the UKAEA; and subsequently, the regulator on the railway system. In various cases, I have also been involved with financial regulation over perhaps the last 10 years. If there is a worst example of what happens when light-touch regulation gets out of hand, it has to be the financial crisis, and I am delighted by the way that both the Government and regulators have reacted to improve things. My enthusiasm for regulation, which will come out, was slightly blemished by the threat of prosecution by the Scottish Environment Protection Agency when my radioactive rabbits escaped, but apart from that, I believe that regulation is good for society and good for good business.
It is vital that we have the right level of government regulation to protect citizens, particularly the poorest and most vulnerable in society. Indeed, when it comes to public services and health and safety, as in finance and other sectors, the destructive effects of dogmatic deregulation have been plain to see and have been laid out very well in this debate. Many good examples have been provided, and I will add another, in the realm of transport. Outside of London, where public bus services have been deregulated since the 1980s, the number of trips has collapsed from 2 billion to 1 billion; in London, where TfL closely oversees transport services, we have seen the opposite, as the number of trips has risen from 1 billion to 2 billion since the 1980s.
If we accept that untrammelled markets can have negative impacts on society, then we accept the case for regulation. The next question is often framed in terms of extent: should we have more or less regulation? This is important to get right. We must have the right level of regulation to protect citizens in the face of highly complex and evolving markets. We must ensure that regulation stands in the shoes of consumers, making their world safe and fair in areas they cannot control for themselves. We certainly must not see deregulation as an end in itself. Less does not equal better.
Although we must not place undue or unnecessary pressures on business, we must not, as we too often hear from parts of the other side, dismiss all regulations as “burdensome red tape” and seek a minimalist approach. On that note, I would be grateful if the Government would confirm whether they support the view of the Red Tape Challenge initiative that EU regulation 305/2011, which aims to harmonise construction material quality across the EU, including external cladding, is a “red tape folly” which is “expensive and burdensome” for business.
Indeed there is a bigger question than whether we need more or less regulation, which has been touched on in the debate, about the quality of the regulation. Yes, we want the right level of regulation, but above all we want good regulation. Health and safety rules, at their core, are about saving lives. To be effective, they must be well evidenced. They must be flexible enough to deal with new techniques and new technologies. We are fortunate in this country to have the Health and Safety at Work etc. Act 1974, which has at its centre the requirement to reduce risk to as low as reasonably practicable. As far back as 1974, the importance of proportionality was understood—proportionality is the key to safety and good regulation.
Of course we must achieve a good balance between enabling businesses and the economy to grow on the one hand and protecting consumers on the other. Consumers are vulnerable if regulations do not exist, or are not monitored and enforced. Where we fall into a trap is when we see those aims in opposition. In reality they are complementary, and as far as possible government should work with business to design and enforce regulation. In this way, regulation can be both pro-business and pro-consumer—indeed, it must be. Although many noble Lords have pointed out the costs of deregulation to public services, we must equally point out the benefits of good regulation.
A sound regulatory framework depends on clear communication about the purpose and importance of the rules. This is no easy task, especially when many wish to undermine the case for regulation for their own purposes, but it has never been more important to make the case for good regulation and to rebuild trust in both government and business, which is at a record low. Part of the challenge is to inject more transparency, and clear lines of accountability, into our regulatory framework. One reason why so many feel powerless in their lives is the steady dilution of accountability. No one is ultimately held responsible, and no one knows who to turn to for redress. This is compounded by rules preventing proper scrutiny of private contractors who profit from public funds. A more accountable and transparent regulatory regime can play a crucial role in returning a sense of power and control to people’s lives.
Those who believe in the good that regulation can do must be especially vigilant in the context of Brexit and the powers proposed in the repeal Bill published today. As the Government aim to convert 40 years of EU regulation into UK law, it is vital that those regulations are made properly applicable and enforceable in the UK. I have not been reassured by a series of Written Answers provided by the Government to my noble friend Lady Hayter. There are 1,369 directly applicable EU regulations that apply just to consumer issues, 191 for health protection, 728 for transport, and many thousands more in related areas. Without converting these with proper scrutiny, we will be left with gaping holes in our regulatory system in many crucial areas that protect lives. Will the Minister update the House on how many of these directly applicable regulations have so far been redrafted so that they can be applied outside of EU membership? When may we see those redrafts?
My noble friend Lady Andrews rightly underlined the Red Tape Challenge, which ran until April 2013, and which the Government boldly estimated would make £10 billion in savings. I reiterate her call for the Minister to give an updated figure on how many regulations have been scrapped and what is the final total of savings calculated as a result of this measure. Further, I would value a categorical assurance that consumer, environmental and societal protection has not been diluted by these savings.
Most of the contributions from noble Lords were in support of the general theme that my noble friend Lady Andrews set out. I liked the openness with which my noble friend Lord Whitty agreed to be part of the nanny state. I am afraid that I cannot agree with the noble Lord, Lord Patten, that one in, three out—or whatever it is—makes any sense whatever. Bad regulations should be eliminated where there are risks in society—
Lord Patten
When I talked about one in and three out I was referring to my much-encouraged cull of spads in central government. As the noble Lord’s colleague recognises, we were having a little fun at the expense of spads. I was not discussing the general issue.
Lord Tunnicliffe
I am sorry if I misheard the noble Lord. I thought he was demanding one in and one or two out for regulations and had not realised that one in, three out was solely for human beings.
Other noble Lords made some important points. The noble Lord, Lord Stunell, touched on a concept that I have come across in my professional career, which is the idea of having clarity on who is responsible and on the duty of care. My noble friend Lady Young touched on the whole idea of principles. If the principles and themes are debated and got right, the regulation becomes sensible in itself. I liked the approach of the noble Lord, Lord Best, which in my professional career I have found true: getting the regulation right, and then firms and businesses applying it sensibly, means that you will get safer, better operations, and, in the long term, quality in safety and in the environment. Quality pays. My noble friend Lord Hunt touched on the fact that good companies like good regulation—they know the rules of the game and that regulations keep out the freeloaders. The noble Lord, Lord Smith, thoughtfully ran through the tremendously positive impacts that regulations have on the environment, which is extremely important. Like my noble friend Lady Crawley, I too regret that our better-regulation efforts have turned from better regulation to less regulation. It should be about better regulation.
My professional career has shown that regulation, in general, is not burdensome. In general, it requires management to be better and more effective; it makes the world safer, cleaner and fairer; and it means that good managers thrive and that those businesses are not only fairer and safer but more efficient—and, at the end of the day, more profitable.