Queen’s Speech

Baroness Rawlings Excerpts

Wednesday 16th May 2012 Lords Chamber

[Lord Myners]

My Lords, it is a pleasure to participate in a speech on the humble Address and in particular to welcome the maiden speech from the right reverend Prelate the Bishop of Durham, who has already warmed the House to his wisdom and sense of social responsibility. I also look forward to the maiden speech of the noble Lord, Lord Ashton of Hyde—another old Etonian added to the House and a former joint master of the Heythrop Hunt. He is therefore incredibly well informed, no doubt, on the Prime Minister’s thinking on so many policy issues.

The gracious and humble Address contains many good measures that I welcome. As an adopted person myself, I am particularly pleased to see that the Government are giving priority to adoption issues. I also welcome the comments from the Minister about board remuneration, although I continue to believe that the core issue requires institutional shareholders to take more seriously their responsibility in the appointment of the directors and members of remuneration committees. They should best achieve that by becoming members of board nomination committees.

I will concentrate on the economy and on the Bank of England. Mr Andrew Tyrie MP, the Chairman of the Treasury Select Committee, who is a wise and informed man, said in October 2011 that the Government needed:

“A coherent and credible plan for the long-term economic growth”.

He was right and that argument remains the same. As he observed at the time, many of the Government’s policies are downright contradictory. The noble Lord, Lord Skidelsky, in our debate on the European Communities (Amendment) Act 1993 held on 25 April, drew the attention of your Lordships’ House to chart 2.4 in the Treasury document, which clearly shows that the deficit is almost entirely due to the collapse in national output.

The engines that the Government assumed were going to drive growth are simply not working at the moment. Manufacturing activity is not picking up and business investment remains extremely low because of the absence of confidence in the economic outlook. The noble Lord, Lord Razzall, said that the jury was out on Project Merlin. I am afraid that he must have been out when the jury reported that the project has not worked, and the Government have admitted that by not renewing it. In fact, we know we are back in recession, and today’s Bank of England forecasts further confirm that, even though in the period immediately after the general election the economy was growing strongly. So noble Lords will recognise that we now have an economic management that has added incompetence to complacency. The Treasury team is too posh to comprehend what is going on and is now petulantly blaming others for its own failures. We have an economic policy that is devoid of intellectual coherence or economic endorsement—a mixture of assertion, dodgy definitions and flawed calculations.

Fortunately, external developments will give this Government the cover to change their economic policy if they so choose so as to give priority to raising demand and addressing the shortfall in output. They should take bold action to encourage housing, both private and social, which has a very positive contribution to make in its multiplier effect on the economy and on job creation. They should encourage investment in infrastructure. This is the time to say that we are going to build a third runway at Heathrow, push ahead with HS2, build more roads and invest in schools. It is a time when the cost of funding is low and when capacity is available—precisely when a Keynesian would expect the Government to be supplying demand into the economy. The Government should be encouraging capital allowances because they would have a much more immediate impact on the economy than cutting corporation tax, albeit that that is a good thing to do over time. Now is the time to invest in skills, and the time to introduce another temporary cut in VAT in order to encourage demand. However, the Government do nothing.

On the supply side we hear a great deal of talk about cutting red tape, yet we have heard today from the Minister about the groceries code adjudicator. I look forward to debating whether this is really going to be a priority for the country at this particular time. The Office for Budget Responsibility has shown us that the output gap is contracting, but the Government do not appear to be challenging its assertion, based on economic statistics on which we all know that it is extremely difficult to forecast.

Market confidence should not be of pressing concern and the Government should not hold back in addressing the need to push for growth. Interest rates are low because we have borrowed prudently in the past and there is an abundant supply of cash on corporate balance sheets, which at the moment, as the right reverend Prelate pointed out, is going into the gilt-edged market. However, the Government should not believe that these low interest rates are in some way an endorsement of the success of their policy. They are actually a clear message that the policy is not working. There are no growth opportunities to encourage investment.

We talk about monetary policy and quantitative easing. I believe that the Treasury should instruct the Government and the Bank of England to produce a report on the economic case for cancelling gilt-edged securities that have been acquired for value in the market so that they are not redeemed. Can the Minister tell us whether this has any different economic impact from holding them to redemption? The immediate impact of such a policy would not be to monetise debt but to address at a stroke one of the Government’s two fiscal objectives: reducing debt as a percentage of GDP.

The governor will not volunteer to do this. He said in his press conference about the inflation report that it would be “a whole lot easier” to contract the Bank’s balance sheet than to grow it. I do not see how he reaches that conclusion. If you look at the recent article in the Financial Times by Professor Tim Congdon, you will see that the Bank of England’s thinking on quantitative easing is becoming increasingly muddled.

Your Lordships’ House will debate the Financial Services Bill soon. This involves a remarkable—and ill considered—concentration of power in the hands of the governor. It will be unfair on the new governor for him to have as much authority as this Bill currently contemplates. Within the next 12 months the current governor will end a period of office that quite frankly is one of a considerable lack of distinction. I can see the Whip about to ask me to come to a close. The Whip allowed the noble Lord, Lord MacGregor, a little more leeway.

[Baroness Rawlings]

My Lords, I remind the House that the suggested length of contribution is seven minutes. Of course, that exempts noble Lords who speak after a maiden speech.

[Lord Myners]

I was referring to the noble Lord’s contribution to the debate as opposed to his endorsement of the right reverend Prelate, which he had completed at the point when we were allowed to leave the Chamber if we wished.

The current governor is probably the least distinguished since Walter Cunliffe, who served from 1913 to 1918. He has politicised the Bank of England and disregarded the outlook for inflation. We are introducing a policy of financial repression. When we debate the Financial Services Bill, we need to look very carefully at the additional authority and responsibilities that the Bill proposes to give to the governor.