Lord Deighton
Main Page: Lord Deighton (Conservative - Life peer)Department Debates - View all Lord Deighton's debates with the HM Treasury
(9 years, 9 months ago)
Lords ChamberMy Lords, I am delighted that the noble Lord, Lord Deighton, has joined us for this debate. I had anticipated that perhaps he would have a slightly more comfortable ride than he did earlier this afternoon in trying to justify the Government’s position on the European issue. But the noble Lord, Lord Forsyth, has made this debate pretty challenging as well and I hope therefore that the noble Lord, Lord Deighton, will enjoy sailing between the shoals of difficulty in this proposal.
We all enjoyed the contribution that the noble Lord, Lord Hodgson, made in Committee. I very much enjoyed reading his piece in the Telegraph this morning—not a journal I go to for enlightenment very often—which was an excellent explanation of the sovereign wealth fund and its benefits. But someone had to point out its problems and the noble Lord, Lord Forsyth, has certainly done that.
I would like to add a dimension to this question. Of course, it looks attractive because it looks as if we are acting like benevolent grandparents—after all, we are the right age—trying to ensure that the future for our grandchildren is reasonably rosy. I am in favour of that. I am sure we all are. But the problem is, of which decade in the 20th century, or in the 19th century, would you have said, “The resources that that society commanded in that decade ought to have had an element of hypothecation not to be spent at that time but to be looked after for the succeeding generations”? The problem with that is if you were able to anticipate the periodic crises in the capitalist society in the 19th century and also get the 20th century right, then you could make appropriate judgments. Otherwise, what we are facing is a situation where, one decade after the next, the society gets considerably richer.
We have been used to 2.3% growth. Of course I recognise the crisis that we all face at present. In fact, I have from time to time upbraided the Government’s Front Bench for seeming to portray it as a British crisis, quite unable to recognise that the whole of Europe and the advanced world, particularly the United States, are under the same strains. But we are having a period of very significant constraint upon growth at present; in fact, of course, we have had a negative position for a number of years. That is why it is right, surely, that all the resources we have available are directed towards improving the balance of this society, as the noble Lord, Lord Forsyth, has indicated. But in previous generations, such as the one after the Second World War, when it was quite usual to have 2.3% growth a year, within a quarter of a century this country had doubled its wealth. That generation would have looked pretty silly to have hypothecated money for those 30 years down the line when the growth in society ensured that the later society was so much wealthier than it was. We have to rehabilitate—and I am glad I am not the first person to actually try to do this—the word “hypothecation”. After the noble Lord, Lord Hodgson, had spoken in Committee I went and had a little chat. I probably indicated in Committee that I took issue with my colleagues at the other end who have got some responsibility for the Opposition’s position on the economy.
Hypothecation is a real problem. Once any area is hypothecated, in effect the flexibility that attends a Government is inevitably reduced and we are all operating—at this time of all times—on the tightest of margins. I think it was said by the outgoing Government at the last election that there was no money left. The incoming Government after the next election are not exactly going to be rolling in vast resources which they can allocate as they wish, hence the reason everybody is reining in the ambitions of potential Governments for the next few years.
I hope that the noble Lord, Lord Deighton, will address himself to what I think is a complex debate. He starts off, of course, from a very strong base because he is the Minister responsible for infrastructure and, after all, will always need to look a decade or more ahead rather than the immediate five years in order to get infrastructure that is effective and accurate at a location. I am not sure the noble Lord, Lord Deighton, can spend too many warm words on the enthusiasm that the Chancellor has shown over the weekend towards this idea. It is an idea worthy of exploration because the noble Lord, Lord Hodgson, has got a concept that could well capture the public mood and would encourage people to say that in fact we need to look to the longer term future in our investment plans. However, I hope that is what Governments intend to do in any case.
Therefore I have no doubt that when the Minister responds he will have warm words to say towards the noble Lord, Lord Hodgson, for the work that he has done and the speech that he has made this evening. However, I hope that he will explain why it is so very difficult for a Government to accept what is—in fact—a majestic argument for hypothecation.
My Lords, as the noble Lord, Lord Davies, has pointed out, superb cases have been made for each side of this argument by my noble friends Lord Hodgson and Lord Forsyth.
Shale gas represents a huge economic opportunity for the UK. It could create thousands of jobs, generate business investment and in future provide substantial revenue for the Exchequer. A sovereign wealth fund would create a legacy for the long term and ensure the benefits are shared with future generations, and we have heard a lot about intergenerational fairness and the issues around that. It is a complicated issue to get right.
As a Government we support the idea and want to explore—I think those were precisely the words used by the noble Lord, Lord Davies—creating a sovereign wealth fund with the money that comes from shale gas. It would be a way of making sure that this money is invested in the long-term economic health of the north of England, because of course that is where most of the reserves are located, and in other areas hosting development to create jobs and investment there. My right honourable friend the Chancellor found this an appealing concept because for him it is all part of building a northern powerhouse, which is at the heart of the Treasury’s current economic strategy. As my noble friend Lord Hodgson pointed out—
Given what my noble friend has said, what answer would my right honourable friend the Chancellor give if Alex Salmond suggested that we should set up a sovereign wealth fund now using the proceeds from North Sea oil so that Scotland would benefit from it? Where does this hypothecation end?
I think the difference between the two opportunities is that, in one case, we are right at the beginning and, in the other, we are right at the end. Now is the time to explore the opportunity with respect to shale gas.
My noble friend Lord Hodgson pointed out that a sovereign wealth fund was implemented successfully in Norway, but that fund was established in 1990, which was nearly 20 years after oil was first produced. The fund was set up when the levels of revenue were already well known—this was a point that my noble friend Lord Forsyth was also getting at. The UK shale gas industry is still in the exploration phase. We will not be able accurately to forecast the scale or timing of shale revenues until more work is done to determine the extent of gas that can be technically and commercially recovered. Therefore, coming up today with a clear plan for how this might fit into issues related to determining how we reduce the deficit and how we invest in the long term is extremely difficult without understanding what the revenues will be—I fully take on the point made there by my noble friend Lord Forsyth.
It should therefore be for future Governments to think about how such a fund could be designed, but we commit to the principle. The Chancellor will demonstrate his commitment to bring forward a proposal in the next Parliament in his Autumn Statement. With respect to the request made by my noble friend Lord Hodgson for a peg in the board now, and for those others who support this idea, I think that the right timing is when we have better information and are able to look at this matter properly. On that basis, I trust that the noble Lords, Lord Hodgson, Lord Whitty, Lord Teverson and Lord Jenkin, will agree not to press their amendment.
Perhaps I might follow up on my noble friend’s point about the Scottish position. He said that we were right at the end and not at the beginning. What would his response be to a proposition that said, “Well, for new fields that are discovered, we should have a sovereign wealth fund”? Let us bear in mind that there are considerable potential resources to the west of the Shetland Islands and so on. Surely this is a very dangerous argument given the delicate situation that we are in, where we appear to be saying that, for some parts of the country and for some energy resources, a different view will be taken of the long-term future. Is this not a very dangerous proposition which could unravel rather badly?
That is one of the reasons for our anticipating that this subject would be explored in the next Parliament rather than this one.
My Lords, I thank all those who have taken part in this debate. I am grateful to my noble friend Lord Jenkin for his experienced view. I accept his stricture that it would have been hard in 1970 to foresee the flows from North Sea oil. I thank the noble Lords, Lord Whitty and Lord Teverson, for their support.
There was a characteristically combative speech from my noble friend Lord Forsyth from which I drew four things. The first was that the priority must be debt repayment; otherwise, it is a charge on future generations. That is fine, so long as you do not think that there should be any intergenerational fairness and you think that the assets that flow from shale gas are ours to use to repay the debts that we have created. That is a philosophical question. Secondly, he said that we should not spend money that we do not have. However, a sovereign wealth fund is not spending; it is saving. It is not actually spending but making sure that we do not spend it. Thirdly, he said that it is like going along to your bank manager and asking to borrow £1.4 trillion. Of course it is, but what we are doing at the moment is saying, “We’re not going to take the actions to cut that; we’re going to pledge some future assets that actually might belong to future generations”. That is the conversation that we are having with our bank manager rather than one about how we cut our coat according to our cloth. On my noble friend’s last point, this is a permissive amendment. It is not designed to set out how things are going to work; it is designed merely to say that, if things develop in a certain way—that is, profitably—then we should look at it again at that point.
In response to the noble Lord, Lord Davies of Oldham, on the question of hypothecation, when we are talking about a finite natural resource that might belong not just to this generation, we should consider whether there is a special case for dealing with it in a particular way, which you might or might not call hypothecation.
Finally, I turn to the Minister’s reply, for which I thank him greatly. It is interesting that, given institutional concern about this, the Kuwait Investment Authority, which is the sixth largest sovereign wealth fund in the world, is worth about $600 billion. It was set up in the 1950s, at a time when Kuwait looked to this country for guidance and help and support, by a team entirely from the UK Treasury. So we have tried to deal with the sovereign wealth fund idea, but not here—only with people who were looking for our advice.
I recognise, and am grateful for, what is at least half—probably more than half and possibly two-thirds—of a loaf tonight. I think that I heard my noble friend say that he wholeheartedly commits to the principle of a sovereign wealth fund, a commitment which he said the Chancellor will reaffirm in his Autumn Statement. Further, the Chancellor will at that time commit to bringing forward a proposal for a sovereign wealth fund in the next Parliament.
There is of course many a slip between principle and practice. I equally have to recognise that my amendment is a pretty rough and ready one on which to hang such a radical new departure for British public policy. Weighing all of these factors up, I am going to trust that practice will follow principle, and watch developments closely. In the mean time, I thank my noble friend for his reply, and I beg leave to withdraw my amendment.
My Lords, this gives me the chance to congratulate the noble Lord, Lord Jenkin, on the assiduous way in which he has pursued this topic and the way in which he has clarified many of the issues. He did so to our great advantage in Committee and has been a great strength today, so the noble Lord, Lord Deighton, knows the nature of the opposition to which he needs to respond.
We regard the noble Lord, Lord Jenkin, as entirely right to raise the key question of the costs to consumers; he is certainly right to repeat the call of the Public Accounts Committee, which argued that departments should consider very carefully the costs to consumers of the policies that they pursue on infrastructure. He is also right, of course, to raise the fundamental issue of ensuring that costs are not unfairly passed on to consumers. If we had more time, we would dwell on the number of occasions where we consider that to have been the case. It is clear that in many sectors costs to consumers have risen very significantly: one in eight households says that their water bills are unaffordable, while around one-quarter of households and 64% of the poorest households spend more than 3% of their disposable income on water bills. Those bills are 40% higher in real terms than they were in 1989. Obviously the licence agreements set a maximum price, but whether Ofwat has quite the powers that it needs to alter those agreements is still unclear. Likewise, the rise in energy bills has been very well documented. The House will of course recognise the extent to which we have been concerned about electricity bills, to the point of indicating that under the next Labour Government there will be a period of time when bills are frozen.
There is an apparent lack of connection between wholesale prices and the retail prices that hit the consumer. It seems pretty obvious to us that the consumer is often getting a bad deal. None of us underestimates the extent to which infrastructure needs to be improved. I am sure that the noble Lord, Lord Deighton, will dwell on that point. However, we need to ensure that increased infrastructure investment does not fall on the consumer, mainly because currently we are very badly in need of better infrastructure delivery. It is absolutely clear that, given that output has fallen by over 19% since May 2010, less than a third of the projects in the Government’s infrastructure pipeline are classed as in construction. Therefore there is a great deal to be done. The Government are rather better at indicating promise and intent than at acting in reality. The imperative is clear. We need to ensure that our infrastructure output increases; likewise, we need to ensure that the costs are not unfairly passed on to consumers, as they have been in some areas in the recent past. I hope that, just as the noble Lord, Lord Jenkin, indicated, the presence of the noble Lord, Lord Deighton, will guarantee that we are pointing in the right direction towards achieving the right balance and a better one than has obtained in recent years.
My Lords, I shall begin by thanking my noble friend Lord Jenkin for raising this matter in the House. As we know, infrastructure investment is a key element of the Government’s economic plan. I agree with the noble Lord, Lord Davies, that it is key to improving our long-term productivity and that delivering it effectively is a part of the Government’s responsibility in working with the industries involved. Of course, we must ensure that it is delivered in a way that is affordable for consumers and taxpayers. That is a crucial and quite complicated issue. The way that we finance and deliver infrastructure in each sector differs. The road sector, which the noble Lord, Lord Berkeley, referred to, is of course financed exclusively through taxpayer funding, so the question of passing the price on does not exist, whereas the energy and water sectors, for example, are predominantly financed in the private sector.
I am pleased to have this opportunity to set out personally the Government’s position on this important issue. If we look at the future pipeline of infrastructure expenditure, it works out that about 60% of it is expected to be privately funded—water, energy and telecommunications are the sectors where that is the case. To ensure that such privately funded investment is affordable for consumers now and in the future has to be central to the Government’s approach, and independent economic regulation is at the heart of that. At the core of the argument I am going to make is that it is actually in our long-term interest to have the regulators primarily focused on this. That is where the expertise is. The fact that they operate independently of the short-term changes that may come from government policy is a very healthy thing in terms of both protecting the consumer and creating an environment that encourages investors to put their money into our infrastructure for the longer term.
In that respect, protecting the consumer is central to the work of our regulators—particularly in the case of Ofwat and Ofgem—and is enshrined in their statutory duties. They are able to take a long-term view free from political involvement, as I said. This is a tried and tested system. Indeed, the ability of regulators to undertake their work independently of government interference is a cornerstone of our regulatory system’s success. Our regulatory system, which has its challenges, is the envy of the world. We need to keep on improving it, but it is a strong competitive advantage for this country.