Low and No-Tax Jurisdictions

Viscount Hanworth Excerpts

Thursday 30th January 2025 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, many of the large corporations that affect our lives are multinational enterprises. This circumstance is a product of the process of globalisation that has taken place over the last half century, albeit that some multinational corporations have far longer histories. Most of the multinational corporations originated in a single country to which they may continue to owe a partial allegiance, but this might be regarded as an historical circumstance that is of little relevance today.

The Ford Motor Company is an early example of a multinational corporation. The company was incorporated in 1903. The headquarters in Dearborn, Michigan no longer commands its European offshoots, but the headquarters has nevertheless been responsible for major financial decisions. This has detrimentally affected some of the former subsidiaries of the company outside the United States.

Two such former subsidiaries were Jaguar and Land Rover, acquired in 1989 and 2000 respectively. Our Government should have intervened to prevent the foreign purchase of these leading British firms; many other Governments would have done so. In 2008 the two companies were sold on to the Indian company Tata Motors when the American Ford company was in financial distress.

Tata had previously been involved in a joint venture with the Fiat motor company, which is now part of a multinational Italian, American and French conglomerate known as Stellantis, which comprises Fiat, Chrysler, Citroën and a host of other marques. This conglomerate was created in 2021 and is headquartered in the Netherlands. It is a paradigm of a modern multinational corporation. The question arises of whether there are disadvantages from this sort of globalisation that might be experienced by the subsidiary companies and by the countries in which they are located.

The history of Jaguar Land Rover demonstrates the manner in which a native enterprise can acquire a global reach. The firm is now set to penetrate the Chinese and Indian markets. It is arguable that it would not be in such a position if it had remained solely in British ownership. However, when such a company becomes part of a much larger organisation it is in a dangerously subservient position. It can be affected by circumstances within the larger organisation over which it has no control, and which can be to its detriment. The sale of Jaguar Land Rover to Tata was occasioned by the financial distress of the Ford Motor Company, which had purchased the firms in an attempt to enhance its own profitability.

The professor, my noble friend Lord Sikka, has highlighted some severe abuses arising within multinational corporations that can affect their subsidiary companies and the nations in which they reside. The profits of a firm can be used by the parent company to sustain other, less profitable parts of the enterprise, when they might have been used for the firm’s own investments. He has pointed to the ways in which multinational corporations can conduct internal trade at fictitious and exorbitant prices to enable them to evade taxes on a massive scale. They can assign the costs of their enterprise to subsidiaries in countries where there are high taxes, and they can assign their profits to subsidiaries in countries in which there are low taxes. By appearing to make losses in the high-tax domains, they can avoid being taxed, and by declaring them elsewhere, they can retain a large part of their profits. To overcome these abuses can require considerable resources and strong co-ordination between the affected nations, which may have vastly different tax regimes.

The UK has a financial services industry of a disproportionate size when measured against the size of its gross domestic product. It is inevitable that it should be in the forefront of advising and facilitating the stratagems of tax avoidance. A dramatic case of tax avoidance that has recently come to light concerns the Russian oligarch Roman Abramovich. He has been residing and trading within the UK. However, his trades and hedge fund operations have been attributed to the British Virgin Islands, a so-called tax haven. In a defence against the charges of tax evasion, the oligarch’s lawyers have declared that he has

“always obtained independent expert professional”

opinion and legal advice, and has

“acted in accordance with that advice”.

This brief assertion reveals two things. The first is that there are plenty of people at hand in the City of London to advise on how to evade the British laws of taxation. The second is that those laws are weak and easily exploited. Our financial sector has mediated many of the acquisitions and takeovers that have created large multinational corporations. In the process, we have lost the ownership of many of our premier enterprises. Our national interests have become subservient to the interests of the multinational corporations to an extent that is probably unprecedented in the developed world.

The UK has lost ownership and control of its major public utilities and of its strategic industries. Utilities in which foreign ownership dominates include electricity generation, water, seaports, airports, railways, rolling stock and much more. The majority of motor manufacturers in the UK are under foreign ownership, a large part of our aviation industry has been sold to foreign owners, we are no longer the owners of our steel industry and most of our cement manufacturing is in foreign ownership—the list could be continued almost indefinitely.

The British financial sector and British banks differ markedly in their behaviour from those in adjacent countries. They have had a long history, and they were originally involved in trade and financial intermediation. Formerly, continental banks were involved principally in agricultural credit, and then they began investing in manufacturing. This may partly explain our nation’s comparative failure to invest in manufacturing, despite the fact that we were the original industrial nation.

Our banks and financial sector invest preponderantly in property and financial assets. The profits are derived from the commissions earned in mediating mergers and takeovers among firms. A major source of income has come from selling our industrial assets to overseas owners. The sale of our assets to foreign owners has enabled us to maintain a large deficit on our current account; the value of the goods that we import far exceeds the value of those that we export. The sale of our assets has also sustained a demand for the pound in international currency markets. This has inhibited our exports by raising their prices for foreign purchasers, which has also been a factor in our industrial decline.

A nostrum to alleviate those problems, propounded by the previous Government, has been to encourage foreign direct investment, which was the theme of the Harrington report that was commissioned by the Conservatives. Such a strategy will invite multinational corporations to enter the British economy. It will add to a deadweight loss, which is the remittance overseas of dividends and interest payments. Those are an incalculable drain on our national income. The noble Lord, Lord Harrington, observes that, when the Government invest, the private sector follows, and that £1 of government investment can unlock between £7 and £10 of private sector investment. He recommends that the Government should become an active investor. The present Government are also pursuing foreign direct investment. However, they seem to be unwilling to become an investor; they would prefer to rely almost completely on foreign capital.

Long-duration Energy Storage (Science and Technology Committee Report)

Viscount Hanworth Excerpts

Thursday 9th January 2025 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, at this late stage of the debate, I am bound to be repeating much of what has already been said. I beg your Lordships’ indulgence for this. My speech may therefore be regarded as a summary as much as a commentary.

Today, we depend largely on renewable sources of energy for generating our electricity. Wind power is the largest component in the mixture of renewable power, and its highest share was achieved on 19 November 2023—between, I believe, 4.30 am and 5 am—when it reached 69%. Such widely proclaimed facts tend to divert our attention from the unreliability and intermittency of renewable sources of power. They are in short supply in periods when the wind does not blow and the sun does not shine.

In such circumstances, our present recourse is to rely on gas-fired power stations to fill the gap in the supply of electricity. These stations are a legacy of a previous era of electricity supply, when North Sea gas was plentiful and cheap. The gas-fired power stations rapidly replaced the coal-fired power stations. However, gas is not cheap and, moreover, burning it releases carbon dioxide, which is the principal agent of global warming. If we are to continue to rely on these power stations, the carbon dioxide that they release must be captured and sequestered underground.

In the absence of gas-powered electricity generation, additional sources of power must be found. Also, a means of storing energy must be found that is available for generating electricity at times when the renewable energy is in short supply. Two leading questions arise. The first concerns the urgency with which these recourses should be pursued, and the second concerns the proportions in which the storage and the additional power should be provided.

The report of the Science and Technology Committee that is the subject of today’s debate emphasises the urgency with which long-term energy storage must be provided, and makes it abundantly clear that the necessary actions to avert an energy crisis are not being taken in good time. To substantiate this aspersion, one needs only to read the recent documents published by NESO—the National Energy System Operator—which is the agency responsible for advising the Government. A simple way of assessing its outlook is to search for “storage” throughout its documents. One will discover that it is to be found mainly within the phrases “carbon capture and storage” and “storage heaters”. There are few instances of the phrase “long-term energy storage”, nor is there any assessment of the available capacity for such storage.

A truth that is revealed by the report of the Science and Technology Committee is that there is only a limited capacity in the UK for storing gas. The current capacity is devoted to storing natural gas. We are told that the UK stores 10 terawatt hours of natural gas, compared with 217 terawatt hours in Germany, 122 in France and 162 in Italy. This startling disparity is explained by our tendency in the past to treat natural gas from the North Sea as if it were on tap. It is no longer readily available to us in this manner.

We must envisage a greatly enlarged future demand for gas storage in underground locations. It will have three aspects. In the short term, there will be a continued and, indeed, increased demand for the storage of natural gas. An enlarged store should partly protect the UK from the volatility of gas prices. There would also be a requirement for the underground storage of captured carbon dioxide, which would permanently pre-empt some of the storage capacity. There should also be a requirement for storing the hydrogen that would be required to alleviate the intermittent scarcity of renewable energy.

The committee report tells of a lack of concern on the part of officials in the face of these circumstances. They are unable accurately to assess what the future requirements for gas storage might be. In the absence of certainty, they are disinclined to take action. The report suggests that action must be taken immediately despite this uncertainty.

The report also suggests that long-duration storage facilities can take seven to 10 years to build and require considerable upfront investment. The problem in providing this gas storage is due in part to the difficulty in devising appropriate incentives to encourage the private sector to undertake the task. A so-called strategic reserve of gas, to be called upon in the rare event of a prolonged dearth of renewable energy, does not offer an attractive investment prospect for private enterprise. This has been demonstrated by the partial closure by Centrica of the Rough offshore gas storage facility on the grounds that it was uneconomic to maintain it. I would suggest that the appropriate word here should be “unprofitable” rather than “uneconomic”.

Neoclassical economic doctrines have come to dominate the thinking of politicians and civil servants, which has made it difficult for them to accept that there is no viable market solution to this conundrum. They hesitate to accept that such a strategic reserve should be in public ownership.

The next matter concerns the sources of our energy. A report from the Royal Society proposes that we should rely almost exclusively on renewable sources of energy—on the wind and the sun. It is proposed that surpluses of electricity from these sources should be used to generate hydrogen by the electrolysis of water. Then, in times of a dearth of renewable energy, the hydrogen should power turbines and reciprocating engines, driving electricity generators. The proposal would involve a major investment in energy infrastructure. Facilities for generating hydrogen and using it to generate electricity are also required. Additionally, a network for piped hydrogen would be required. The electricity network would need to be updated to transfer the power from the remote places where it is generated to places where it might be used. Alternative recommendations involve various amounts of electricity generated by nuclear power.

[Lord in Waiting/Government Whip (Lord Leong) (Lab)]

My Lords—

[Viscount Hanworth (Lab)]

I shall be fairly brief. One recommendation, which I strongly support, proposes that small advanced modular reactors should be deployed to provide heat and power for both domestic and industrial users. The inherent safety of fourth-generation nuclear technologies will allow the reactors to be located near the industrial users, thereby reducing demands.

[Lord Leong (Lab)]

I really urge the noble Viscount—

[Viscount Hanworth (Lab)]

Please let me encapsulate this final point. The time is advisory, not mandatory. I have a major point to make.

The small size of the reactors would be an advantage in this connection in comparison to the so-called small modular reactors which typically have a power output of 300 megawatts, which is more than an industrial user might require. Batteries of advanced modular reactors could be used to create large electricity-generating power stations. A sad fact to which I must testify is that Britain is losing its projects for developing such reactors—they are closing though lack of funds or finding sponsors in other countries.

Autumn Budget 2024

Viscount Hanworth Excerpts

Monday 11th November 2024 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, the economic nostrums of the Thatcher era still dominate the minds of many politicians and civil servants. The Conservative ideology of the time proposed that public enterprise was everywhere economically inefficient, and it was remarked that it was primarily devoted to protecting lame-duck industries and protecting the interests of the workers at the expense of the industries.

Private enterprise was expected to respond to incentives offered by the markets, and it was believed that it could be relied on to maintain the economic infrastructure of the nation. This was the rationale for the privatisation of public enterprises. The public utilities of power and transport were privatised, and inroads were eventually made into the health service and public education. The present Government are devoting their attention to the restoration of the health service and public education, but, for the present, they have set aside the task of reviving the nation’s industries, which also suffered grievously under the previous Government.

It ought to be more widely acknowledged that, when private enterprise fails to generate sufficient investment, the Government must undertake to do so, either directly or by some other means. A litany of examples can be provided to show how Conservative Governments failed to sustain our industrial enterprises, but only the most prominent examples need to be offered. Their greatest failure affects the electricity generating industry, which once operated under the Central Electricity Generating Board. The privatisation of the industry plays into the hands of large foreign multinational corporations, and it was expected that these could be relied on to maintain the electricity generating capacity. In consequence of the plentiful and cheap supplies of North Sea gas, they reacted with alacrity by investing in combined-cycle gas turbine generating plant, which rapidly replaced the previous coal-fired power stations that they had inherited. On the basis of this experience, it was expected that they could be relied on to invest in nuclear power stations—but they failed to do so, and we are left with a dearth of generating capacity.

If the nation is to achieve its targets for reducing the emissions of carbon dioxide, gas-fired power stations must be replaced. But the privatised industry lacks the means to do so, or is unwilling to find the means. The Government persist in believing that nuclear power can be provided by drawing on private investors. It is expected that this can be achieved under a regime of a regulated asset base, which will allow the costs to be imposed on consumers during the time it takes to construct the power stations. However, it appears that the investors are not responding sufficiently to this inducement, and a final investment decision for the Sizewell C power station has had to be postponed. The Government must emulate the Governments of the early post-war years by using public funds to re-establish the nuclear power industry, and they must also use public funds to sustain the necessary research and development into nuclear technology, as happened in those early years.

The second example concerns the failure of the previous Government to provide sufficient support for the nascent industry for manufacturing the lithium-ion batteries that power electric vehicles. They allowed the collapse of the Britishvolt enterprise, which aimed at establishing a so-called gigafactory for producing the batteries. The fact that the enterprise failed to raise sufficient capital from private investors was seen by the Conservative Government as proof of the non-viability of the project. The absence of the proposed gigafactory, and of others to accompany it, almost certainly spells the demise of our native automobile industry.

I conclude by addressing the notion that the lack of investment in our industries can be redressed by encouraging inward financial investment. A report by the noble Lord, Lord Harrington, which was commissioned by the previous Government, strongly advocated inward investment as a cure for our ills. Our present Government, who recently hosted an international investment summit, appear to have adopted this nostrum. Inward investment entails the sale of our industrial and other assets to foreign owners. The dividends and interest payments that are remitted abroad are an almost incalculable drain on our economy. Our lax system of corporate government facilitates the acquisition by foreign parties of many of our small high-tech industries which offer the prospect of our economic revival. It allows foreign enterprises to purchase and control British companies that would otherwise be their economic competitors. The depredations of foreign financial conglomerates that have ownership of British assets have been amply illustrated in recent weeks during our consideration of the water companies and rolling stock leasing companies that have paid vast dividends to their foreign owners.

Autumn Statement 2023

Viscount Hanworth Excerpts

Wednesday 29th November 2023 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, I was deeply perplexed when I listened to the monarch’s speech at the opening of Parliament and, equally, to the budgetary speech of the Chancellor of the Exchequer. The question I ask is: to what extent do these speeches represent an attempt at bamboozling the public, and to what extent do they represent acts of self-deception on the part of the Government? I have not reached any firm conclusion.

The Chancellor’s recent Autumn Statement is full of doubtful claims about the success of the economy. We hear, for example, that under the Conservatives our technology sector has grown to become the third-largest in the world—that is, double the size of the German sector and three times that of France. This seems to be patently untrue, and one may wonder what statistics are being misused to support such a claim. The truth is that our manufacturing sector has sunk to a proportionate level that is way below the corresponding levels of those other economies. What, then, is the technology sector to which the Chancellor refers?

In appraising the Autumn Statement, it is clear that many of its provisions, which include significant reductions in taxes, are intended to enhance the electoral prospects of the Conservatives. However, given how dim these prospects seem to be, one wonders about the extent to which the provisions are intended to embarrass a succeeding Labour Government.

The Autumn Statement has the intention of reducing public expenditure in the early years of the succeeding Government. It severely restricts the financial leeway available to them unless they are prepared to increase taxes. A Labour Government would be intent on repairing the damage that Conservative Administrations have inflicted on public services. Damage has been done to the health service, care for the aged and the finances of local government. Our schools are in a state of physical disrepair, as are our prisons, which are severely overcrowded. Much else needs to be repaired, and public sector wages need to be restored in some measure. However, if the trajectory that has been defined in the Autumn Statement were followed, none of these repairs would be possible. There is also an urgent need to repair the physical infrastructure of the economy, which includes the transport and energy infrastructure. Our water supply and sewerage system also require urgent attention.

Beyond these needs, there are huge and looming costs associated with the transition to a green economy and the fulfilment of the programme to achieve net-zero carbon emissions. Government support is required both to sustain technological innovation and to assist in establishing the facilities that are available to a net-zero economy. So far, little has been forthcoming. An example of the shortfall has been in the failure to satisfy the requirements of the automobile industry in converting to the manufacture of electrically powered vehicles. A precondition for a successful transition is the existence of an adjacent industry for manufacturing lithium-ion batteries. The Government failed to avert the collapse of the Britishvolt project to establish a mega-factory for manufacturing batteries. The project faltered for want of sufficient investment from the private sector—this is at a time when foreign Governments are investing heavily to establish those facilities.

The derelictions of the Government can be attributed, in large measure, to the prevalence of a political philosophy that limits state interventions and proposes that our industrial infrastructure can be sustained by private capital and the initiatives of free enterprise. State interventions are necessary to achieve the transition of our energy sector. The programme to restore our nuclear power faltered because the Government failed to recognise that it could not be achieved by the private sector alone.

Their response has been to imagine that instead we can rely on so-called renewable sources of energy. But here, the intermittence of these resources necessitates a means of storing the energy. In order to accommodate lengthy and unpredictable periods when the sun is masked and the wind does not blow, there is a need for a large amount of long-term storage. It is doubtful whether effective incentives can be devised to encourage the private sector to make the necessary provisions, yet the Government and the Civil Service blithely assume that they can devise a commercial model which will allow them to avoid any direct participation in providing the energy storage.

I earnestly hope that an incoming Labour Government will not suffer from the same delusions. They must take an active role in repairing the damage and in fostering the technological transformation of our economy.

UK Economy: Growth, Inflation and Productivity

Viscount Hanworth Excerpts

Thursday 29th June 2023 Lords Chamber

[Viscount Hanworth (Lab)]

Britain has a lower rate of economic growth than—and its per capita income compares poorly with—many of its European neighbours and others further afield. Questions must be asked about the causes of these deficiencies and what can be done to overcome them. People of different political persuasions give quite different answers.

Prime Minister Liz Truss and her close colleagues had answers to these questions. They proposed that our low rate of growth was attributable to the laziness of the British workers and a lack of sufficient incentives to activate managers and entrepreneurs. In their opinion, the economy was entrammelled by bureaucracy and burdened by a Civil Service and a public sector that were required to be drastically reduced. These aspersions paid little attention to economic reality. The programme of tax cutting and job cutting met with an adverse reaction from financial markets, and Truss was expelled from office.

An indication of the unreality and carelessness of Truss’s programme was her proposal to cut £11 billion in Whitehall waste, to be accompanied by reductions in the salaries of public servants not working in the metropolis. It was quickly revealed that the entire annual salary bill of the Civil Service amounts to some £8 billion. That is significantly less than the size of the proposed cuts. It seemed that there had been an error of categories. Truss was mistaking the size of the public sector for the size of the Civil Service. The idea that the economy is entrammelled in bureaucracy and regulation that needs to be swept away is an enduring, atavistic notion of the Conservative Party that continues to inspire its policies.

The proponents of Brexit assert that we have been suffering from an oppression of regulation imposed by the EU. The falsity of that opinion has been demonstrated during our consideration of the Retained EU Law (Revocation and Reform) Bill. The complaints of bureaucracy tend to be loudest when bureaucratic agencies are understaffed and when, as a result, they are forced to make decisions in a summary and inflexible way. Some of the loudest complaints nowadays are aimed at local authorities, which lack sufficient resources and manpower adequately to fulfil their many bureaucratic functions.

An explanation for Britain’s low economic growth is easy to come by: there is little in the economy on which to base that growth. Britain’s industrial sector, which is where one would expect to find the growth, has been severely diminished; nowadays it accounts for a bare 10% of our gross domestic product. What may not be so evident to many observers is that the hypertrophy of our financial sector has been both an accompaniment to and a cause of our industrial decline. The financial sector has been mediating the sale of our national infrastructure and of our industrial assets to foreign owners. That has maintained demand for the pound and inflated its value, and the overvalue of the pound has made Britain’s exports uncompetitive while lowering the costs of imports. That has been a major cause of our industrial decline.

Among the dogmas that have prejudiced our economic prospects is the belief, which has been central to Conservative economic policy, that the private sector must be relied on to undertake investments that maintain our industrial infrastructure. According to this doctrine, the Government should minimise their involvement and any initiatives that the Government might propose should be assessed on strictly commercial criteria.

The dogma has been maintained in the face of undeniable evidence to the contrary. It has been responsible for a failure to develop our energy infrastructure and for the collapse of the crucial programme for nuclear power, which cannot be sustained by private finance. An industrial transformation is required in order to staunch the global emissions of carbon dioxide. The British Government have been prominent in declaring the need for that transformation but have failed to take the necessary actions. Our targets for the electrification of road transport have been the most ambitious among the European nations, but our support for our automotive industry has been the very weakest. We have failed to promote the manufacture of batteries and hydrogen fuel cells, and the inevitable consequence will be the loss of our automotive industry.

An industrial transformation aimed at achieving net-zero carbon emissions requires strategic economic planning organised by central government. It requires a major expansion of the supply of carbon-neutral energy, which is bound to come preponderantly from nuclear energy. The experience of the present Government indicates that we cannot expect the necessary investment to come from the private sector.

As in the immediate post-war era, we must look to the Government to provide the necessary finance via taxation and government borrowing from the financial sector. Indeed, the taxes should be imposed on those who can afford to pay them, including the large corporations, which have proved adept at avoiding taxation while reaping exorbitant profits. In the absence of major government initiatives to support the necessary industrial transformation, our economic decline will continue. The consequence will be widespread economic and social misery, which may be accompanied by increasing political instability. Further opportunities will be created for populist movements proposing spurious panaceas, such as we have witnessed in the Brexit movement.

Economy: Overseas Trade Deficit

Viscount Hanworth Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, I like to think that my talents are spreading as the years go by but I am not yet capable of reading a French newspaper and so have not read that particular story.

[Viscount Hanworth (Lab)]

My Lords, it is clear that the only way in which to mend the balance of payments is to increase substantially our exports of manufactured goods. For our goods to become saleable abroad, the value of the pound must be reduced. If nothing is done to overcome the balance of payments problem, it is inevitable that the pound will eventually plummet. Can the Minister envisage a more orderly way of reducing the value of the pound?

[Lord O'Neill of Gatley]

My Lords, it is time for repetition again: our trade balance is smaller than it has been at any time in the past 10 years. It has been stable at around 2% of GDP. The deterioration of the current account, which has been significant in the past two years, is due to a growing imbalance in the so-called investment account.

The Economy

Viscount Hanworth Excerpts

Thursday 28th April 2016 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, I also begin by expressing my appreciation of the late Maurice Peston. Maurice was my academic colleague at the start of my university career. Our opinions were in agreement over a wide spectrum of social and economic issues. I valued his friendship greatly, as much as I valued his wisdom and his reckless humour.

The Government have pursued some disastrous economic policies throughout their period in office without heeding the consequences, which have been to perpetuate our economic depression and wreck our manufacturing industries. All the while, they have been fondly imagining that the UK economy can be revived by encouraging investors from overseas. One of their encouragements to investment has been a regime of low business taxes. Our corporation tax rate of 20% is one of the lowest in Europe. It compares with the OECD average of 25%.

The measures by which we protect our workers from exploitation by their employers have become some of the weakest in the European Union. This has also been envisaged as an encouragement to investors. The Government’s mantra has been that Britain is open for business. These inducements have not worked. They have failed to attract productive industrial investment to the UK, nor have our banks or our native financial institutions been willing to invest in our manufacturing industries’ productive capacity. Our manufacturing sector has shrunk to become one of the smallest, as a proportion of GDP, among the economies of the European Union. It now accounts for less than 10% of our GDP.

The regime of low taxes has meant that another of the Government’s objectives—to reduce their budget deficit—has not been met. The date by which the Government’s budget should be returned to surplus has been successively deferred. The swingeing reductions in government expenditure have not succeeded in reducing the deficit. Instead, they have exacerbated our high level of unemployment and served to immiserate a large sector of our population.

There has been some significant inward investment during the period in question that has greatly profited our financial sector and those who work within it. However, instead of talking of inward financial investment, which is a highly misleading description, we might talk more accurately of a process of divestment. The financial sector has been instrumental in divesting the nation of ownership of many of its productive enterprises. They have been sold abroad in a manner that has enriched the financiers. The nation has also divested itself of ownership of a large amount of residential and commercial property in a process that has been accompanied by considerable inflation in prices.

The Government have done nothing to impede these processes. Our lax laws of corporate governance have allowed the hostile takeover by foreign interests and global financiers of some of our premier companies. The laws have permitted the rapine capitalism of which Philip Green, the erstwhile owner of British Home Stores, is a notable exponent. Companies such as Cadbury, Boots and Rowntree’s, which were once the exemplars of philanthropic capitalism, have been sweated by their new owners to produce exorbitant profits in the short term. Many of our high-tech industries have gone the same way. On a previous occasion I highlighted the example of our aviation industry, much of the supply chain of which has fallen into foreign hands. The intellectual capital of these industries has been captured by foreign owners, and further investment in their industrial capacity and research and development has not been forthcoming.

It is widely recognised by the Governments of our economic competitor nations that Governments have a role to play in fostering the research and development that leads directly to industrial applications. Our Conservative Government have chosen to relinquish this role. They have sought justification for this dereliction in their free-market ideology.

A painful example of this failure is provided by our nuclear industry. It was once a world leader. It should have been destined for a major revival in consequence of our need to build a new generation of nuclear power stations. Instead of depending on our native resources, the Government have been prepared to allow any willing provider to build the power stations. It transpires that the only willing providers were the nationalised industries of France and China. A latecomer has been the Horizon Consortium, led by Japan’s Hitachi Corporation. Its advanced boiling water reactor is currently subject to a generic design assessment, which is a very prolonged affair. Now it is doubtful whether the French nationalised industry EDF, or Electricité de France, is prepared to undertake the task. I mention in passing that the Government have flatly rejected the suggestion that we should acquire equity in the French company so that it might become an industry owned jointly by ourselves and the French. That would have been one way of ensuring that a nuclear power station would be built at Hinkley Point. However, in response to that suggestion, we have been told that any contract to build a power station should be a strictly commercial affair. I am inclined to assert that, in view of the Government’s proposed inducements and guarantees, it would be nothing of the sort.

The consequence of this debacle is that we may have to rely solely on the Chinese to build our nuclear power stations. We shall be heavily dependent on a foreign provider with interests and intentions that are likely to be inimical to our own. The encouragement of Chinese inward investment has been a prominent part of the agenda of the Chancellor of the Exchequer, George Osborne. During his trip to China in January 2012, which was ostensibly to encourage their uptake of British exports, he succeeded only in encouraging the Chinese to purchase British companies. Osborne’s encouragement of Chinese investment has had some devastating effects. Uniquely among the countries of the European Union, Britain has offered no resistance to the dumping of surplus Chinese steel on our markets at subsidised prices, with which our own industry could not compete. This lack of resistance has been in consequence of a desire not to offend Chinese interests. The result is that we are in danger of losing our national steel industry, albeit one that is now largely in foreign ownership.

It is now time for me to offer some prescriptions for how a British Government ought to handle their economic affairs. I shall begin with the first issue that I have raised. The Government should reform our laws of corporate governance so as to inhibit the depredations of venture capitalism, be it native, foreign or global. The predominance of the financial sector has been at the expense of the economy’s other sectors. Its activities have enhanced the demand for the pound on the international currency markets. The pound’s elevated value has made it difficult, if not impossible, for British firms to sell their manufactured goods abroad. The Government ought therefore to take steps to devalue the pound in order to encourage such exports. Only in this way can our unprecedented current account deficit be tackled.

The Government ought to be far more active in investing in our national infrastructure. The only infrastructure projects that have been pursued throughout this Government’s period in office have been a legacy of the previous Government. Their unwillingness to undertake more investment has been in consequence of their self-imposed fiscal constraints, which have also made them unwilling to support the research and development that is essential in any successful industrial economy. A Government who intend to support essential social investments ought also to be prepared to raise the necessary taxes. There is huge scope for acquiring extra revenue by addressing the tax avoidance and tax evasion that is rife in this country. Nevertheless, it will be necessary to increase rates of taxation.

Politicians of all parties avoid talking of raising taxation rates. It is feared that to do so will inevitably damage their electoral prospects. However, this need not be so. The US economy’s emergence from the great depression was accompanied by a marked growth in central government taxation and expenditure. Surely the electorate can be persuaded of the necessity of such increases by being reminded of their beneficial effects.

Economy: Balance of Payments and Industrial Productivity

Viscount Hanworth Excerpts

Thursday 10th December 2015 Lords Chamber

[Lord O’Neill of Gatley]

My Lords, luckily the decision on what happens to interest rates has absolutely nothing to do with me and is the responsibility of the independent Bank of England.

[Viscount Hanworth (Lab)]

My Lords, one of the factors that inhibits our exports is our overvalued rate of exchange. Should the Government not consider establishing a sovereign wealth fund to purchase foreign assets whenever the sterling rate of exchange exceeds a certain threshold value? This, after all, would compensate for our selling our family silver abroad.

[Lord O’Neill of Gatley]

My Lords, by and large as a result of the Bank of England’s responsibility for monetary policy, in effect the responsibility for what happens to the exchange rate in a very competitive world is hugely influenced by our monetary policy relative to others. We have been and remain in favour of open markets, where prices are determined in world markets.

Economy

Viscount Hanworth Excerpts

Thursday 10th September 2015 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, I have heard it said by a member of the party opposite that austerity is now at an end. This is a false perception. Our economic misery will not cease until our manufacturing industries and our foreign trade have been revived. This will require a technological revival and a macroeconomic policy very different from the one that the Government are pursuing. I have no confidence that this Government are capable of delivering such a revival.

At the end of the Second World War, Britain was one of the world’s leading technological and industrial nations. Besides being a leader in aviation, Britain was also a pioneer in nuclear technology, in electronics and in digital computing. Our automotive industries were also world leaders. These are the industries that have received the support of the Governments of the nations that are our economic competitors.

In Britain, our technological industries have been damaged by their relationship with successive Governments. Over the years, much of our former technical and scientific competence has been destroyed. The demise of British industry has been accompanied by perennial balance of payments problems that have been due to the overvaluation of the pound.

This problem also dates back to the early post-war years. In 1949, when Stafford Cripps was Chancellor of the Exchequer, the pound was devalued by 30% in order to stimulate our exports. The beneficial effects were quickly eroded by our high levels of domestic inflation. Another devaluation of our currency was needed in the early 1960s. However, the Wilson Government, which had been strongly influenced by British and foreign financiers, were unwilling to take the necessary steps. When it took place in 1967, the devaluation was by an inadequate 14%. In spite of the fact that we now have a floating exchange rate, our currency continues to be overvalued. This persistent overvaluation threatens our future prosperity.

The attitudes of successive Governments to our technological industries were strongly influenced by the problems of our aviation industry. The post-war industry was populated by numerous small and highly innovative enterprises, all of which sought government support. The situation was unsustainable. In 1957, a defence White Paper, sponsored by Duncan Sandys, proposed to solve the problem at a stroke. All projects for manned military aircraft were to be cancelled in favour of anti-aircraft missiles and intercontinental ballistic missiles. Although Sandys did not achieve the complete elimination of manned aircraft, he did establish a precedent for dealing with the technological industries.

The Civil Service, with the Treasury in its vanguard, developed a methodology of cancellation that was applied to many other industries by succeeding Governments. The Government of Harold Wilson did as much as their predecessor in cancelling the high-tech projects that threatened to make inroads into the Government’s budget at a time when they were severely constrained by a balance of payments crisis. This process of curtailment was vigorously pursued by the succeeding Conservative Governments of Margaret Thatcher. The consequence for Britain today and for the foreseeable future is that we have to rely heavily on our economic competitors to provide the technological skills that are so severely lacking. Unless we can amend this situation, our economic prospects will be bleak.

Throughout the post-war period, Britain’s financial sector has survived and prospered, which has been in spite of the weakening of the rest of the economy. The financial sector nowadays profits from an open economy that allows the free inflow of financial capital. A consequence of this inflow is that the balance of payments crisis that would otherwise have been occasioned by the failure of our export industries has been overcome by the sale of our assets to foreign buyers. The inflow of capital is largely responsible for the overvaluation of our currency, and it has greatly enriched those who earn their living in the financial sector. It is notable that, when they have taken trips abroad, ostensibly for the purpose of promoting our export trade, the Prime Minister and the Chancellor of the Exchequer have succeeded not so much in selling our manufactured goods as in selling large stakes in our native enterprises and our utilities.

It should be clear where the current trajectory of the economy is carrying us. We are heading towards economic misery if not towards an economic crisis. The process will not be averted unless we can restore our manufacturing industries and the technical skills on which they must depend. If we do not do so then our society will become increasingly divided between the rich few and the impoverished majority.

Budget Statement

Viscount Hanworth Excerpts

Tuesday 21st July 2015 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, when one considers the Budget speech of George Osborne and the policies that it proposes, one is bound to wonder how much of what we heard was the product of an intentional bamboozlement and how much was the product of the Government’s self-deception.

The previous Budget speeches of George Osborne have been wilfully deceptive. As the leader of the Opposition has observed, they have been full of political traps, games and tactics, and we could have expected as much from the most recent Budget speech. But now there are indications of an undercurrent of a wholly misguided optimism regarding the prospects for the UK economy. We have been told that the British economy is growing faster than any other major advanced economy, that living standards are rising strongly and that the Government’s long-term plan is working. However, we know that growth is slowing, that unemployment has increased and that the rising value of the pound is threatening the viability of our export industries.

It is easy to identify the rhetorical passages of the Budget speech that are designed to mislead, because they represent the exact opposite of what most people recognise as the truth. How many people are liable to be deceived by the assertion that this was a Budget for working people from a one-nation Government, who have the intention of benefitting the whole nation? The Budget has been at the expense of the least favoured of our society—the unemployed, the young and the low earners. The current size of the welfare budget is a clear symptom of the Government’s failure to address the problems of unemployment and low pay. The Chancellor understood that he could not blatantly slash the welfare budget without resorting to a diversionary tactic. This tactic has been to promise to raise the minimum wage in a series of gradual increments. However, these increases will not compensate the low paid for the sums that they will lose from a much less generous tax regime. Nevertheless, the Chancellor has had the effrontery to tell us that those with the broadest shoulders are bearing the greatest burden, and that we are all in this together. This is utter bamboozlement.

We ought also to assess the Budget against the backdrop of the current fiscal and macroeconomic circumstances. A significant element in the fiscal equation is the sale of government assets, which this year will deliver privatisation proceeds higher than the previous record in 1987. The Chancellor’s fiscal strategy relies heavily on such fortuitous circumstances as the availability for sale of the Government’s large investment in the banks that were in danger of failing during the financial crisis. This is far from the judicious balance of taxation and spending to which the Chancellor has alluded.

The Government’s obsession with reducing the levels of taxation and state expenditure is accompanied by a serious dereliction in their duty to maintain the national capital infrastructure. We have seen endless deferments and cancellations of vital investment projects, to the extent that we can no longer claim to be a modern industrial economy capable of competing in the world’s markets. The catalogue of aborted projects is far too large to allow me to itemise it. The latest addition to the list has been the cancellation of the electrification of the Manchester, Leeds and TransPennine railway.

The other macroeconomic account that should command our attention is our external balance of payments, which is in a perilous state. Our current account deficit is now running at over £100 billion a year, which is over 6% of our GDP. The deficit on the current account is due largely to the implosion of our manufacturing industries. Manufacturing as a proportion of GDP is now barely above 10%, and we produce too little to sell to the rest of the world to pay for our imports.

We have been balancing our payments by selling our financial and capital assets to investors from overseas. This has stimulated the demand for the pound, which is responsible for the highly favourable rate of exchange that has made it virtually impossible to sell our products abroad. This circumstance cannot prevail indefinitely, and when it ends we shall be in deep crisis.

There is a delusion in the minds of many members of the Government that is well represented by the document entitled Fixing the Foundations that accompanied the Budget. We find it asserted in red lettering that Britain is:

“A trading nation, open to international investment”.

Being open to international investment implies that we are willing to continue to sell our national assets, including our ports, airports, public utilities and so on to foreign owners. While we continue to do so, there will be no possibility of increasing our exports of goods. While we continue to do so, which can be only for a limited period, the City of London, the bankers, the financiers and those who support them will continue to profit at the expense of the rest of us.

I assert that it is well within the powers of the Government and the central bank to lower the rates of exchange of sterling. They should be purchasing foreign currencies when they become too cheap vis-à-vis the pound. The Japanese, Chinese and Koreans are masters of this strategy, which we should also adopt and pursue vigorously.