Global Economy

Lord Pearson of Rannoch Excerpts

Thursday 11th August 2011 Lords Chamber

[Lord Pearson of Rannoch]

My Lords, my questions come against the background of the cuts generally and our perilous economic condition. They also feed in to our previous debate. My first question to the Minister is very simple. Do the Government accept their own figure of £9 billion a year, net cash, which we pay to Brussels, with no conceivable benefit to us? If they agree their own figure of £9 billion a year net, will they agree that that comes to some £25 million every day? The sum of £25 million a day would pay the salaries of 833 policemen every day, or 304,045 policemen per annum. I emphasise that that is net cash. I do not mention the costs of over-regulation of 6 per cent of GDP per annum in food and so on.

My second question is: do the Government admit that there would be no crisis in the eurozone without the euro? Do they also admit that there would be no eurozone without the ill-fated project of European integration? On the Statement, when they accepted the remorseless logic of a federal budget, which they appear to have done, are they convinced that the German people, the Dutch people and so on will put up with this? I think they may be mistaken.

Finally, how can they possibly say that the breakup of the euro would be economically disastrous, including for Britain? Could the noble Lord at least justify that because if we face the reality that the thing is going to break up—and the quicker we face it and the quicker it breaks up, the better—we would all be very much more comfortable?

[Lord Sewel]

My Lords, the Minister has rightly drawn attention to the weaknesses, indeed the failures, of the European political institutions in responding to the crisis. Would he care to reflect on the contribution of the political institutions of the United States to the present crisis? Could it possibly have something to do with the fact that they have a political structure based on two elected Chambers, one in which the Executive have a majority and one in which they do not? We have heard that somewhere before.

--- Later in debate ---

[Lord Sassoon]

My Lords, I do not pretend to be an economist. I am sure that if I was sitting an exam paper now, I would fall well short of the mark that the noble Lord, Lord Eatwell, would get. The problem is that we do not live in a pure economics world. A lot of what we are struggling with now is where the world of economists meets the world of markets.

I am not sure where to start with the many interesting interventions that we have had. I go back to the question about the deficit reduction plan: there were some concerns about the size of the deficit rising and others expressed the opinion that we should be investing more and driving borrowing up. It is worth getting a little bit economicsy about this and remembering that there are things called automatic stabilisers, which mean that if the economy does not grow as fast as anticipated there will be additional payments in areas such as welfare, for example. It is worth remembering that the deficit goes up and down. Within the Chancellor's fiscal plans, more money gets pumped into the economy—crudely put—if growth is lower. We should always bear that in mind. There is no absolute rigorous number at which we shoot that does not vary as economic circumstances change.

On the point raised by my noble friend Lord Oakeshott and others about interest rates, of course low bond yields themselves are not a guarantee of growth. Germany has been mentioned, and I will come back to that. Yes, it would be great if we had a deficit as low as Germany and bond yields as low as it does, but the fact is that we have a deficit as high as Greece but interest rates as low as Germany. They are not in themselves a guarantee of growth, but if we divert from the basic course we could very well find ourselves with both a very high deficit and very high interest rates. In those circumstances, growth would be choked off very quickly. That is fundamentally why we have to stick to our plan. My noble friend also talked about tax cuts. To remind noble Lords, the coalition is set out on a track which is significantly raising, and already has raised, the starting level of tax for those at the bottom end of the income scale. That is an important part of the whole rebalancing of the tax and welfare package to get people back into work. Equally, at the other end, my right honourable friend the Chancellor has made it clear that, over the medium term, a top rate of tax of 50 per cent is not conducive to an economy growing consistently and driven by entrepreneurial activity.

My noble friend Lady O’Cathain reminded us of the very big picture and questioned the chances of getting agreement to action on the imbalances. She was right to say that it will be for the autumn meetings of the G7, the G8 and the G20 to make further progress on that. Although there has been considerable frustration about turning good words into action, the latest statements from Ministers are, let us say, modestly encouraging, but it requires a big push this autumn. My noble friend then moved from the very big picture to more micro matters, with the question of regulation and how difficult it is for businesses that want to grow. That is precisely why we have a moratorium on new regulation for micro businesses in the period up to 2014 and that new tests under the “one in, one out” rule are being applied to all new proposals for regulation from Ministers.

[Lord Pearson of Rannoch]

My Lords, what about the regulations that come from our friends in Brussels? The Government’s Answer to me recently said that a majority of all our business regulation comes from Brussels, and we can do nothing about it.

[Lord Sassoon]

If the noble Lord will be a little patient, I will get back to Europe in a moment.

It was nice to have confirmation from the noble Lord, Lord Radice, that we are all on the same side when it comes to wanting to strengthen the eurozone, even if he questions the motives of some of us in wanting to do so. It really is very important that this happens, and we should give it all our support.

On the other European matters raised by the noble Lord, Lord Pearson of Rannoch, his main questions were around the cost of this country’s contribution to Europe. He makes that contribution £25 million a day. I cannot calculate things that quickly, but the fundamental difference between that £25 million a day and the £120 million a day of debt interest that I referred to earlier is that the £25-million-a-day contribution to Europe buys us value for money. Of course we believe that Europe needs to get its budget in hand, that there needs to be much greater fiscal discipline in Brussels and that the proposals for a great expansion of the European budget are unacceptable. Nevertheless, we have to bring ourselves back to the main point that this country gets considerable value from its membership of the European Union, and that that is fundamental to making sure that we have good strong markets for our exports. Yes, there is a burden of regulation from Brussels, and we must make sure that Brussels starts to apply the disciplines that we are applying in this country before it brings forward yet more regulation.

A number of questions were asked by my noble friends Lady Kramer and Lord Cotter and the noble Lord, Lord Harrison, about access to various domestic and European funds. All I say as a general point is that I hear very loudly what is being said. The Government’s objective is to make sure that in direct lending by the banks and in other finance—the most reverend Primate reminded us that the banks are far from blameless in the situation that we are in, and my noble friend Lord Oakeshott and other noble Lords reminded us of the importance of the banks—there is a whole range of financing channels. We have the critical Merlin agreement and European funds such as the regional growth fund—