Government Spending Review 2013

Lord Davies of Oldham Excerpts

Wednesday 3rd July 2013 Grand Committee

[Lord Davies of Oldham]

My Lords, this has been a fascinating and somewhat lopsided debate. It is my task to at least try to achieve some balance in the arguments before the country at present. I have only just got my breath back from the Minister’s very first statement, in which he said that this economy has been well managed by the Chancellor from the beginning. So why is the Chancellor back with a second comprehensive spending review Statement? Why is he back with a second round of cuts? I accept that, as the noble Baroness, Lady Noakes, indicated, the economy may not be in a double-dip recession, but why is he here in circumstances where it is absolutely clear that there has been no growth in this economy for the past three years?

There is nothing in the Chancellor’s proposals, which the Minister has been defending with his usual elan today, that suggests growth for the future. The noble Lord of course has particular expertise on infrastructure. We all appreciate that and welcome his appointment to give the Government a boost in that respect. However, let us recognise that there has been no expenditure on infrastructure since 2010. In fact, all those issues which were planned at that time, which I think the Minister referred to as the 2010 pipeline, have been effectively blocked. There is virtually no progress on any of the 2010 schemes. Now, of course, infrastructure spending is being suggested—in the distant future. The things being boasted about are HS2 and north-south Crossrail. Both projects are 10 to 15 years away from significant expenditure; perhaps it is a little earlier with HS2, but certainly not prior to the next general election. If it is being suggested that there will be a boost to the economy through infrastructure spending over the next couple of years, everyone needs to be disabused of this idea. That is not going to happen.

I accept a number of points that were made in the debate. I appreciated the point of the noble Baroness, Lady Kramer, about the decline of manufacturing industry. On whose watch was that? Which Chancellor said that we were going to rely on the service-industry economy? That was the noble Lord, Lord Lawson, in the 1980s. Who turned their backs on the manufacturing industry in the 1980s, when we saw a massive collapse in manufacturing jobs? It was the party of Margaret Thatcher. I will give way to the noble Baroness, of course.

[Baroness Noakes]

Can the noble Lord remind the Committee what happened to manufacturing industry on Labour’s watch?

[Lord Davies of Oldham]

The very tragedy, in my view, of Labour’s watch was that it actually continued too many of the positions adopted by the Conservative Party in the 1980s. As regards manufacturing—the noble Lord, Lord Haskins, also made an important point on that—we should have put much greater emphasis upon the development of skills in our society. We have not equipped any of the next generation for the kind of economy that we seek to sustain.

I understand what the noble Lord, Lord Risby, indicated in terms of the enormous value of foreign investment. Of course we would all welcome that but does he think that foreign investors are enthusiastic about the great uncertainty over Britain’s relationship with Europe? That is the product of discord in the governing coalition. How welcome is that for potential investors? The noble Baroness, Lady Noakes, indicated the areas in which she welcomed what was happening but even she will recognise that the IMF has said that some £10 billion ought to be invested in infrastructure in “shovel-ready” industries, particularly construction. It ought to be put into housebuilding because that is the fastest way in which you could inculcate some element of demand into the economy. However, are the Government pursuing that strategy? If the noble Lord, Lord Deighton, were able to identify schemes that could fulfil that aim, I would be surprised. I give way to the noble Lord.

[Lord Risby]

I am most grateful but a little confused by what the noble Lord is saying. We have just had a record increase, the highest ever, in foreign direct investment in this country, way ahead of anywhere else and the highest in Europe. The point that I was making is that that trend is increasing, so I am afraid that his argument is not sustained by the reality.

[Lord Davies of Oldham]

My Lords, I was making a point that the noble Lord ought surely to take into account. Far from there being an environment in which foreign investors will necessarily find a place to invest in the future, as long as we are extremely uncertain about our relationship with the biggest market that we service, Europe, it is bound to cause anxieties among investors.

I also noted what the noble Lord, Lord Higgins, said—he is also my noble friend when we are on the golf course. He was very concerned to address some real points to the Minister with regard to the future of interest rates and the assumption made about future public expenditure. The Minister must address that point in his reply.

I appreciated the point that the noble Lord, Lord Shipley, made about local authority finance and being able to identify local resources. One product of the debate on Scottish independence and the referendum will be to identify those issues as far as Scotland is concerned. That is bound to give a stimulus to the broad argument that the noble Lord is putting forward about the resources available to the various localities of the United Kingdom and the needs that may be identified. I would have thought that that is bound to take a significant step forward as a result of the debate on next year’s Scottish referendum.

The noble Lord, Lord Flight, entertained us all with the Hayek versus Keynes debate. Although the noble Lord said that growth before the Second World War was considerable, he may have noticed that full employment in this country did not return until we went into wartime defence production. It is quite clear that under the Hayek principles you can certainly run an economy with a considerable level of unemployment. However, that word has not been manifest in this debate at all because the fact that we have significant levels of unemployment is a limited consideration for all those on the Conservative Benches concerned with how to manage the economy. We have people coming out of our colleges and universities who are highly qualified by any standards and who, in the past, would have expected to find a choice of jobs. They are facing a situation where the market is such that there are no jobs available. That is why I was grateful that the noble Lord, Lord Flight, identified the thinking behind the Conservative position and, to a more limited extent, the Liberal Democrat position with regard to what the Government are doing at present.

It took the right reverend Prelate to introduce morality into this debate. Why is it that the only person who is prepared to talk about those people who suffer the real costs of what is being carried out in the name of austerity is the right reverend Prelate? He identified the shock we all felt in the Chamber yesterday when it was suggested by a Conservative Minister that food banks are supply-driven and nothing to do with people’s needs. People’s needs have occasioned the development of food banks, which are necessary, but our great shame. Nor is there any understanding on the Conservative side about what it is to lose one’s job at present. It is quite okay to say, “We will cut public expenditure by making sure that there is a week in which one cannot claim jobseeker’s allowance”, but what do noble Lords think the morale of a family will be when someone loses his job against a background where the chances of getting a fresh job are very limited indeed? Why is it that, within that framework, it is thought that a really effective cut is to make sure that an application for support cannot be made until a week has elapsed?

[Baroness Kramer]

Can the noble Lord, Lord Davies, confirm that, during the years of the Labour Government, job centres were prohibited from referring any client to a food bank?

[Lord Davies of Oldham]

I am not well enough equipped to answer that question, nor am I quite sure of the point of the question.

[Baroness Kramer]

I shall try to be helpful. Like many people, I take the view that we live in a country where food banks should not be necessary, but unfortunately they have been necessary for a long time because the same issues of delays over benefits and various kinds of crises have affected those at the bottom. As I understand it, during the Labour years, job centres were not permitted to refer clients to food banks. As noble Lords know, you can go to a food bank only with a reference from an appropriate person: a job centre, a doctor or a limited number of other people. You cannot just turn up and make a claim. Today, job centres offer vouchers where they think there is need, but that need is not very different from the need that existed before. Food banks were just not announced.

[Lord Davies of Oldham]

Food banks are developing in almost every constituency in Britain because the so-called supply-driven factor has been occasioned by the demand of real necessity at present. It is a vastly different situation from that which obtained a decade or even five years ago.

I would ask the Minister to take on board the very important points that have been made by his noble friends today in supporting the coalition. Will he also, at some point in his remarks, address the question of morality? Why is it, for example, that his supporters are concerned to promote a bedroom tax that ensures that there is a desperate issue for impoverished people as to whether they will be forced to move but that when a mansion tax is proposed by the Liberal Party, there are all sorts of anxieties that people who are reasonably well off might be obliged to move and about what an affront to fairness that would represent? The mansion tax would be aimed at properties of very considerable value and at people who know they well might come under attack rather than the very large numbers of people who, under the bedroom tax, are being forced to move from their homes, the schools which their children attend and even the localities in which they have lived for very many years. I hope the Minister will address some of those points.

[Lord Deighton]

My Lords, first, I thank all noble Lords for their insights, ideas and challenge. It has been a most fascinating exchange and I congratulate the noble Lord, Lord Davies, on holding up the Opposition’s end there. I will address his question about morality straightaway. To me, this is a very simple issue: unless we are able to create a state that can actually afford to sustain itself, those who are most vulnerable will be the most exposed victims of the fall-out from that kind of financial crash. We have to get our ability to afford a welfare state in the right state so that we can sustain it. That is the way that we protect the vulnerable in the long run.

The Chancellor was back with another spending round because we had not defined the spending plans for 2015-16. We took the opportunity to lay out the investment programme through to 2021 because, as I explained in my earlier remarks, we think that it is the right way to provide an environment in which people can plan investment correctly. On the general question of whether anything is really being done about growth for the future, the point is precisely to begin to deliver a programme from which future Governments will benefit. They can quibble over who was responsible for the earlier decisions. These kinds of investments have very long lead times and our planning is trying to break the link between the political and economic cycles. There was some misunderstanding there, in that I do not think anybody was trying to claim more; we were just trying to claim that there is a long-term plan. Public sector gross investment in this decade, 2010 through to 2020, is slightly higher on average than in the previous decade, if you smooth out the peaks and the troughs and take the average.

In terms of delivery today, the noble Lord, Lord Davies, is correct that projects from 2021 and onwards, or in five years’ time, have an impact later. However, the projects we are undertaking now are having an impact. Crossrail is being delivered now—the money in the spending round is for the feasibility study for Crossrail 2. Crossrail will be open in 2018-19 and we are spending something like £15 billion on it. It is the biggest urban infrastructure project in Europe and is going on now, right under our feet. That a very good example of delivery. Similarly, we have upgraded 150 stations, completed more than 30 road projects, opened more than 80 new free schools, delivered more than 84,000 affordable homes and done an enormous amount in rolling out 4G mobile services. There is a significant amount of delivery going on now and we are trying to plan for future delivery. We are trying to accelerate it and make it better value all the way through. I accept the point of my noble friend Lady Noakes that it is not necessarily a good thing just because it is an infrastructure project. We have to evaluate them all, which is what we did in the plan through to 2020. We re-evaluated them all on a zero-budget basis and approved the ones that we thought were most powerful.

My noble friends Lady Kramer and Lord Northbrook both asked about the welfare cap. It will apply to welfare, of course, but does not apply to state pensions. As my noble friend Lady Kramer implied, it will work off the OBR forecast. If the spending is forecast to breach the cap, the Government will have to explain what action has been taken. We will put a buffer in place to ensure that any policy actions are not triggered by small changes. That is how that one works. For the information of the noble Lord, Lord Northbrook, the areas being capped are all in social security: housing benefit, disability benefits, pensioner benefits and tax credits.

The noble Baroness, Lady Kramer, also asked whether we would be focusing on the quick wins in infrastructure and leaving the longer-term strategic projects because they have a longer lead time. It is the portfolio that works; I addressed this earlier. Lots of delivery is going on at the moment and we are trying to put a consistent long-term plan in place. We will, of course, look at local funding of infrastructure projects, of which TIF is one example. Another example is the single local growth fund. The European funds we are allocated will be put into the single pot and be part of that as we devolve responsibility.

I was delighted that the discussion got around to our international competitiveness—I thank the noble Lord, Lord Risby, for giving us the detailed example of what is going on with Algeria. I have spent a lot of my own time dealing with inward investment. This country has a tremendous advantage. Overseas investors really want to invest here. They trust us. They believe in our rule of law. There are many things they like about the opportunities we create here. We are working very hard to exploit this to the country’s fullest advantage. On export promotion we are continuing to fund UKTI. It is in the process of transforming our approach to trade and its support to a very focused business approach.

We had a very powerful discussion about our fiscal position and whether we are moving quickly enough to address what I accept are still very high levels of borrowing. It is absolutely critical that people understand that the deficit each year is extra borrowing—it is adding to the stock of borrowing. I do not think that that is generally perceived or understood more widely. The implications of understanding that properly should focus attention on addressing the deficit as fast as possible.

In defence of the pace at which the Government are addressing the deficit, we are still focused on reaching a balance by 2017-18. We are on that path. There is a plan in place. I am very open to challenges about the paradigm shift, as my noble friend Lady Noakes suggested, that we could be more radical in some of the ways we deliver public services and in some of the ways we have structured the Civil Service. That is a challenge we should set for the next tranche of cost improvement. Without that it becomes very difficult to continue—again, in my noble friend’s words—to “salami-slice”.

My noble friend Lord Shipley asked about whole-place budgets. Community budget pilots have demonstrated that it is possible to do much more by joining up local authorities; I do not think there is any question about that. That is why we talked about the £3.8 billion social care budget that we have set aside. We have also set up a £200 million pot to accelerate joint working among local authorities. Whether we can release the borrowing cap on HRAs is another matter. If we were to do that it would add another £7 billion to public sector borrowing every year. Most of the schemes which creatively try to allow more borrowing at the local level are captured and increase public sector borrowing. That is always the constraint that we are trying to manage.

My noble friend Lord Northbrook asked for a response on public pension cuts. My noble friend Lord Newby and I will certainly get back to him on that.

The noble Lord, Lord Empey, asked why UK pension funds are not investing in UK infrastructure. He is correct to say that that industry is highly fragmented compared to its counterparts overseas. That is why we have worked with the industry to consolidate funds into a pension infrastructure platform of £1 billion. Ten funds have come together so that they can gain economies of scale, develop the expertise to assess those credits and provide us with the scale to begin to get them into that business in the same way that, for example, the Canadians have so effectively prosecuted over the past few years.

I could not agree more with the noble Lord, Lord Haskins, that we need to rationalise the number of funding streams going into skills training. That is why we have set up the single local growth fund so that we can begin to provide that kind of rationalisation.

The noble Lord, Lord Empey, asked about VAT and how it is applied to building. I will get back to him in writing on that.

I thank noble Lords for a very stimulating debate.