§ 3.6 p.m.
Debate resumed on the Motion moved on Tuesday last by Lord Clinton-Davis—namely, That an humble Address be presented to Her Majesty as follows:
Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament".
§ The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)
My Lords, our debate today will focus on industrial, economic and social affairs. We are making excellent progress on all those fronts. The Government's legislative programme includes a range of measures aimed at further modernisation of the economy, strengthening our industrial base, promoting long-term, stable growth and increased productivity and competitiveness.
I am delighted to open this debate which may be one of the longer debates on the Queen's Speech. I shall focus on the contribution our continuing modernisation programme for the welfare system is making to our goal of long-term economic stability. My noble friend Lord Simon of Highbury will have much more to say about the Government's programme for industry and the economy when he closes the debate.
In particular, I look forward to the maiden speeches of my noble friends Lord Evans of Watford, Lord Clarke of Hampstead, Lord Brookman and Lord Christopher and the noble Lord, Lord Craigmyle. Their industrial and trade union backgrounds—rich, varied and deeply expert—will give a dimension to the debate on industry and the economy in particular, which is the more welcome because that voice has not always been heard in its fullness in this House.
There are three essential features for this country's long-term economic strength and success: first, a consistent long-term framework for both monetary and fiscal policy; secondly, tackling our long-term productivity gap by working with business, investing in education and innovation and encouraging enterprise and competition; and, finally, welfare reform based on work and security.
I turn to the first of those; namely, sound economic policy. We need to put an end to the stop-go, boom-bust of the past 20 years. We need to allow individuals, families and businesses to plan ahead with confidence. For the first time, Britain has a consistent framework in both monetary and fiscal policy which will build for us sturdy and sustainable growth. Prudent fiscal planning means that even allowing for slower world economic growth, the Government will deliver their commitment—£40 billion of extra money for health and education—without risk to public finances.
364 The second challenge the Government face is that of productivity because our long-term prosperity depends on the productivity of UK business and its employees. Our policy is therefore geared to getting the best out of all people and making sure that everyone has the opportunity to fulfil their potential. For too long this country's productivity has lagged behind its competitors. At present—and these are startling statistics—the UK has a productivity gap of around 40 per cent. with the United States and 20 per cent. with France and Germany, even though both their wage bills and non-labour wage costs are much higher than this country.
In most sectors of the economy, Britain is far short of the best in the world. We need to invest in plant and in research and development; we need to invest in people. We need a well-educated, well-trained, high-productivity labour force, hence our investment in education—£19 billion more. Also, we need to invest in a minimum wage because we know that the lowest paying employers have the lowest productivity in our economy.
I repeat that my noble friend Lord Simon will be enlarging on those points in winding up. But, just as we need to ensure a sound and stable economy and just as we need to build for long-term productive growth, so, too, we need a social security system that underpins our investment in people and does not subvert it. In other words, we need to rebuild an effective welfare state.
In the past 50 years the structure of the economy has changed; industrial patterns and working conditions are very different. Our spending on social security has moved upwards; it is now 1p in every 3p of government spending compared with 1p in every 5p in 1979. Yet the system is failing. Inequality has grown; poverty has grown; more and more has been spent; less and less has been achieved.
We must have a fundamental shift of emphasis. We must use the welfare state to create opportunities and incentives for people. Earlier this year our welfare reform Green Paper set out our principles for reform and they were overwhelmingly endorsed by those who responded to that Green Paper. We are now putting those principles into practice. We have already done a lot through earlier announcements this year. But with the proposals in the Queen's Speech for a welfare reform Bill, we will be setting out measures to modernise the system and deliver on our central welfare reform objective—work for those who can; security for those who cannot.
The welfare state for too long has been a passive distributor of benefits doing little or nothing to help people move from welfare to work. Almost one in five working-age households have no breadwinner compared to less than one in 10 in 1979. Nearly 3 million children are growing up in workless households. I remember the story told by my right honourable friend in another place, Mr. Frank Field, that he visited a Birkenhead school and asked a 10 year-old what he was going to do when he grew up. He expected the answer "train driver", "airline pilot" or whatever; but the child said, "When I grow up I am going to draw my Giro".
365 For those who can, work is the best route out of poverty. It facilitates social inclusion; it gives status. It strengthens independence. It is the gateway to economic advancement, the foundation of a secure future and a role model that we in turn can hand on to our children. We cannot afford to have a society of three-generation workless families. But the system fails to provide enough help to get people into work, consigning too many people to the twilight of the margins of our society and to an inadequate and unfulfilling life on benefit. We fail together to ensure that work pays. Too often we reduce the choice for people to one of subsistence benefits and, to our shame, subsistence wages. And too often there are barriers to getting people into work, even in the benefit rules themselves which focus on and reward people for what they cannot do rather than encourage them to risk-take and see what they can do.
We have been attacking worklessness consistently and I hope effectively since coming to office. We have a threefold strategy to tackle each of those failings. We want to refocus welfare on helping people develop their potential and move from welfare to work through the New Deal. We want to make work pay through the minimum wage and the working families tax credit system. We want to remove barriers to work.
First, the New Deal is the biggest ever investment by government in jobs and training. It represents partnership between government and business; a joint investment in Britain. The New Deal for young people and the long-term unemployed is already producing encouraging results—170,000 people have already joined; nearly 40,000 have already found work and two-thirds of those are in unsubsidised jobs. By next April we expect 300,000 people to have benefited. And the New Deal is now being extended to all lone parents and disabled people so that they, too, have the opportunities they say they wish to have.
An uncertain economic outlook makes it even more difficult to invest in helping people into work rather than leaving them on welfare. The stable course for growth set out in the pre-Budget Report provides the platform for the New Deal to succeed. Employment has risen by 400,000 since the election. The economy is still expanding and creating new jobs. Around 2 million people either move into employment or change jobs each quarter and 250,000 leave the claimant count each month. Over 200,000 new vacancies are being notified to Jobcentres every month. That is in response to those who ask: if we are training people through the New Deal, are the jobs there? The evidence and the statistics exist to support it.
We are also refocusing the new system on work right from the outset with the Single Gateway. That will redesign the way in which working-age people claiming benefit enter the benefit system. All those who can work will be helped to do so and everyone will be given a more professional, more personalised and flexible service. To coin a cliché, it is a "something-for-something" deal. It is only reasonable to ask people who are claiming benefit to participate in an interview to hear about the opportunities open to them before they start on benefit. Young people will not have the option to remain on benefit; but for 366 lone parents and disabled people we want the interview to ensure that they have the empowerment of the information so that they can make the appropriate decision, balancing their domestic responsibilities and the like with what seems to them to be their best choices. That measure will be included in the welfare reform Bill.
The welfare reform Bill will also include reform of the "All Work Test" for benefits for people with long-term illness or disability. The present test focuses exclusively on what people cannot do—for example, they cannot carry a bag of potatoes; they cannot put a hat on their head—rather than finding out whether they can, with training, operate a word processor. We have proposed a new test which provides information about what people are capable of as well as about their incapacity and physical or mental health frailties. The aim will be to help those with long-term illness or disability to understand how they can match their skills and abilities with a range of support which is available to help them into suitable work. It is what disabled people tell us they want and society cannot afford to continue to neglect their very real talent.
Incapacity benefit was never intended to top-up the incomes of those who retire early. We are proposing to take some account of occupational and personal pensions above £50 per week when paying incapacity benefit. That will achieve a fairer balance between private and state provision. Our proposals for IB will also modernise the contributory principle, strengthening the link between recent work and earning entitlement to benefits; restoring the benefit's original purpose as a source of income for those who have recently paid national insurance contributions—not paid them some 20 or 30 years ago—and who have had to give up their work through illness or disability.
We are making work pay by introducing tax and benefit reform as well as the minimum wage, help with childcare and promoting family-friendly employment practice. From April all employees will receive a tax cut of £66 a year as a result of cutting the entry fee to national insurance; employers will not pay NI on earnings below £83 per week. The Chancellor will bring in a 10 pence starting rate of income tax when economic conditions are appropriate. The minimum wage from April will benefit 1.9 million employees and, in turn, encourage employers to invest in them and in their training. That will now be worth their while.
This Session, the tax credits Bill will bring in the working families tax credit and disabled person's tax credit. Working families will be guaranteed an income of £190 a week. A single disabled person will be guaranteed at least £150 a week in work, and a working disabled person and a couple with one child, £220 a week. Both tax credits will include help with childcare costs, which we know are one of the biggest hurdles particularly for single parents. We are also investing directly in quality childcare provision through the national childcare strategy. The Government's consultation paper on the family is seeking views from employees and employers about the best ways to 367 introduce family friendly employment policies to help both parents, husband and wife, to balance work and family life as both of them surely want to do.
We will reduce burdens on employers, particularly those with small businesses, in the Bill already introduced into your Lordships' House which we shall start to debate soon. It merges the Inland Revenue with the Contributions Agency, allowing small businesses to sort out their taxes and contributions through a single organisation.
We are removing barriers to work. We have already acted to change the rules to allow people on incapacity benefit to take a job without losing benefit if they fall ill again within 12 months. In other words, we can encourage people to take a risk, knowing that if they need to return to benefit, either because their health falters or the job folds, they will not have lost higher levels of benefit.
We have also changed the benefit rules so that disabled people can do as much voluntary work as they wish without fearing any loss of benefit. As many of your Lordships will know from first-hand experience, voluntary work is not only valuable in itself but is often a good first step in returning to the labour market. We are acting to remove the barriers of prejudice by introducing legislation this Session to assist disabled people, through a disability rights commission, to secure comprehensive civil rights, as well as helping employers to meet their obligations. That is a reform rightly highlighted by my noble friends Lord Ashley and Lord Morris.
As well as reforming the welfare state so that we help people into work and remove the barriers to work, we also need to modernise our system. On another occasion I adapted George Eliot to claim that the happiest nations have no history. We are not in that happy state. Social security has a past. The welfare state we have inherited was shaped largely in the 1940s. Indeed, two-thirds of our legislation is still shaped by the Beveridge rules, yet in Beveridge's day, the matters were very different.
Women's work was predominantly in the home while men—their husbands—earned a wage. Today, two women in three of working age have a job while, on the other hand, few men have the prospect of a 40-hour, 40-year job, as in Beveridge's day. Equally, because so many women are now in waged work, we have an increasing need for caring to be done by the fewer and fewer people available in the unwaged labour market.
In Beveridge's day, people insured against the risk of old age. The average mortality age was 66. Today people save, not insure, in the certainty of, on average, at least 10 years of retirement. Welfare has changed. The state no longer has a monopoly on welfare. For example, occupational pensions have played a huge part in enriching the older generation. Equally, family structures have changed. In Beveridge's day, there were fewer single parents and they were mostly widows. Now there are nearly 2 million lone parents bringing up their children.
368 For all those reasons—the changes in women's work, men's work, caring responsibilities, old age and family structure—we need to bring the welfare state up to date to deal not only with the challenges of today's world but those we face over the next half century. In the past, the welfare state has struggled to reflect the needs of a changing economy, changing work practices and changing industry. We need to ensure that we can meet those needs in future.
The New Deal is a good example of how we are rebuilding the system to make it responsive to the needs of the labour market. We are also proposing measures to be included in the welfare reform Bill to bring contributory benefits up to date; for instance, our proposals for support for people in bereavement.
Those reforms will provide new widows—and for the first time widowers—who satisfy the qualifying conditions with a lump sum payment of £2,000 paid at the time of bereavement when help is most needed. At present, the sum is £1,000. That will be followed by a weekly bereavement benefit payable for six months where there are no dependent children, but continuing for widowed parents—men and women alike—until their youngest child ceases to be dependent, perhaps until the age of 16 or 18.
Equally important as work for those who can is security for those who cannot work. However, the system here fails too many people. We need to channel help to those most in need. That is what we are doing, helping families, disabled people and pensioners.
We are increasing child benefit by the largest ever amount from April 1999. That will go up £2.95 per week to £14.40 per week for the first child. Extra increases are already in place from this November for children in families on income-related benefits. We have announced plans for disability income guarantee for those aged under 60 on income support with the highest care needs, which will give single disabled people a guaranteed income of at least £128 a week and couples £169 per week. There will be a similar guarantee for severely disabled children in families on income support so that a couple with one severely disabled child with caring needs will receive at least £199 per week.
I turn to our proposed reforms for severe disablement allowance. Reform will focus the benefit on people disabled before age 20 who have not had the chance to work. Perhaps they were born with Down's Syndrome or cerebral palsy. That extra help could be worth up to £25.60 per week after a year on benefit. Young people who have had no opportunity to work and pay contributions will be entitled to a level of benefit which, for the first time ever, will float almost all of them off means-tested benefits.
For the first time, too, we are proposing to help three year-old and four year-old severely disabled children by extending to them the higher mobility rate in disability living allowance, currently worth nearly £36 a week. That will greatly increase the help we are able to give to families with children who have very severe motability problems. For example, their parents will be able to obtain a car to carry around large and cumbersome equipment such as oxygen tents or whatever else may 369 be necessary to meet the child's needs. That will particularly help families of young children where a child has, for instance, severe cerebral palsy, severe limb or spinal defects or severe neurological disorders.
The well-being of future pensioners depends upon their ability to take up adequately rewarded employment. The best way we can help future pensioners is to ensure that they have adequate, well-paid jobs in their 20s, 30s and 40s on the basis of which they can build up contributions towards their retirement income. But, as the House will know, we also need to do more to ensure security for many of today's pensioners, particularly older single women—that is, widowed women for the most part—who have not had an opportunity to make adequate provision for their retirement.
That is why we are introducing a minimum income guarantee for pensioners from April 1999 of £75 per week for single pensioners and £116.60 per week for couples, plus an annual payment to help with winter fuel bills. We are also identifying pensioners who do not claim the cash help to which they are entitled and are encouraging them to do so. That is important because too many pensioners miss, on average, £17 per week of benefit. That could really make a difference between a cold and a less cold winter for them. We are getting rid of eye test charges for the over 60s from April 1999 and widening travel concessions.
This Government are determined to address the long-term needs of Britain. That includes the need for long-term reform of pension provision. The welfare reform Bill, which we expect to see in this House perhaps around next spring, will start pensions reform by providing for fairer divorce settlements and greater security, especially for women in retirement. As this House determined the policy framework of what was then called pension splitting—what we now call pension sharing—I am sure that that measure in particular will receive a warm welcome when it comes to this Chamber.
The Bill will also provide a new framework of secure, flexible and value-for-money stakeholder pension schemes for people who cannot join an occupational scheme, because they do not exist, and for whom personal pensions are unsuitable. Further proposals for long-term reform of the pension system will be set out in the forthcoming pensions Green Paper.
To conclude, we are making good progress towards our long-term goals for the economy; namely, to secure economic stability, to encourage work, to raise productivity and to create a fairer society. In other words, an end to the boom and bust, stop/go policies of the 1980s and early 1990s. But we cannot have a fully effective economy without a modern welfare state to support and sustain it. The system needs reform. Doing nothing is not an option: simply increasing benefit levels modestly is hugely expensive and still leaves people marginalised and relatively poor. We are determined to modernise the welfare state by providing opportunities for people to work where they can and providing decent levels of benefit where they cannot. We believe that we will be delivering a welfare state fit to face the challenges ahead.
370 I commend to the House the measures contained in the Queen's Speech.
§ 3.31 p.m.
§ Lord Fraser of Carmyllie
My Lords, it is always a pleasure to listen to the noble Baroness opening a debate. On a day which will highlight industry, as well as economic and social affairs, I am not surprised that she has focused most particularly on social affairs, being expert, if not somewhat repetitive, on the subject as she undoubtedly is. But, even more so, I am a little surprised that she gave no particular focus to either industrial or economic affairs. Indeed, since this debate on the gracious Speech first began just over a week ago, the Government's position has fallen into further disarray.
I shall pass over that incomprehensible explanation from the Chancellor of the Exchequer when giving his position on harmonisation of taxation within the European Union. Suffice it to say that, when the EU Commissioner gave him a coherent and restricted line on what he intended, he rather tellingly failed to follow it through. However, if I do the Chancellor of the Exchequer any injustice as regards the explanation that he has sought to give to the nation, I very much look forward to the noble Lord, Lord Simon, correcting me. It would certainly do the country a great favour if it had some lucid explanation of what the Government intend in this vexed area. It would also be helpful if the noble Lord could explain how that approach will be of benefit to our national economy.
The first of the two events which lead me to conclude that the Government's position has fallen into further disarray was the outcome of the Euro election in north-east Scotland at the end of last week. Until the last European election, the Labour Party actually held that Euro seat and within that seat it still holds five parliamentary constituencies. However, on Thursday it was reduced to third place behind the Tories in Scotland; indeed, that is a part of Scotland where, I regret to say, we do not even hold a single seat. Mrs. Helen Liddell is reported as saying:It would be dangerous for any party to draw conclusions from this result".At least in one economic sense, to which I shall turn later, there is one very obvious conclusion that we should all draw from that result.
However, it was a doubly curious conclusion because, uniquely in a by-election of that character, the Prime Minister and four Cabinet Ministers appeared to support the Labour Party candidate. I acknowledge that their task was probably a hopeless one because the candidate initially claimed that she had been born in Aberdeen. Then, when it was established that she had not been and had in fact been born in Staffordshire, she fell back on the less provable event that she had been conceived in Aberdeen!
The significance of that electoral event is that I hope it may at long last bring to an end the deeply unattractive blend that has characterised the Government's approach both in the last debate on the gracious Speech and in this one. I have in mind that blend of vindictiveness and triumphalism. I doubt that it will ever get through to 371 those pager-controlled clones in another place, but it would infinitely enhance the quality of debates in this House if we were to be freed of that characteristic and were prepared to engage in more reflective debate.
The second event since this debate began, which must have been truly alarming to the Government, was the publication by the Office for National Statistics of UK trade figures for September 1998. When we were in office we were accused of fiddling every set of figures that there ever were—from inflation through to unemployment. Being instinctively a rather more generous-spirited party in opposition, I have no intention whatever of challenging the basis for those statistics. I have no doubt that Mr. David Ruffles, who was the statistician in charge of the trade and goods statistics, is a professional of unimpeachable integrity. His problem is that he has a rough old job. In September 1998 he had to record that the UK deficit in goods is estimated at a record monthly level of £2.5 billion. That is not a record over the past five years, nor is it a record for the 1990s: it is a record since these statistics were first kept.
However, despite that catastrophic decline, the Government accept no responsibility. Instead, the South-East Asians are certainly to be blamed and it also appears that the Russians have made their contribution. In fact, anyone is to blame except the Government. At the same time, the Chancellor of the Exchequer repeats his rather lame mantra, which I noticed the noble Baroness picked up; namely, that there is to be no return to boom or bust. If the Chancellor of the Exchequer were to turn to his economic bed-mate "prudence", whose name he so frequently invokes, I am sure that she would offer him the following reassurance. There was no return to bust because, so far as concerns trade and goods, we are already there.
Before the debate is over, I hope that the Government will tell us by what yardstick we are to judge whether in fact we have returned to bust and whether, in the face of these alarming economic figures, the Chancellor of the Exchequer will revise downwards his growth figures of a few weeks ago, as every responsible commentator in the country recognises is now undoubtedly necessary.
The curiosity of the Government's position is further this: it is never their fault when things go wrong. When everything has failed it is someone else's fault. So when Siemens in the north-east of England had to announce the proposed closure of its remarkable semi-conductor plant in Newcastle, it was not their fault. I actually have some sympathy with the Government over that position because there had indeed been a massive plunge in the worldwide price of semi-conductors. However, I am now pleased to see that there is at least some glimmer of hope that someone may be prepared to take on this factory, continue the semi-conductor production there and provide employment. It is not those who are going to provide the jobs who are to take the credit; indeed, even before the deal has been settled, we have already been told that it is either to the credit of the Prime Minister or Mr. Peter Mandelson that this is to be achieved.
372 It might be too much to hope, but if there are results beyond the economic control of the Government, modesty might allow them to acknowledge that they should not seek to take the credit for it if those events correct themselves. On the contrary, a better, more realistic and responsible approach would be to face up to what might be the economic consequences of their own actions.
The noble Baroness made mention of the minimum wage. After what we went through last year, I have no intention of returning to the issue. But it would be helpful, at a time when there are economic problems in this country, if we had at long last some true estimate from the Government of what they believe will be the consequences for those seeking employment. Now that we are to have fairness at work in this Session of Parliament, it would be interesting to know to what extent there is any acknowledgement made that some people may lose their jobs or others may find it much more difficult to secure employment—particularly as it is clear that it will affect a large number of smaller firms, in respect of whom the Government frequently claim to have a real regard. The Government ought to face up to their responsibility for that.
I said that after the north-east of Scotland by-election there was one economic conclusion that we might draw. As the noble Lord, Lord Simon, will certainly have noticed, this past week the price of a barrel of oil descended to a 13-year low in real terms. That has been the lowest price that it has reached. But for anybody watching the price of oil over the past year, it must have been very obvious indeed that that price was certainly not going to firm and that there was every risk it would collapse in the way that it has done.
In spite of that, following on the general election, the Chancellor of the Exchequer announced that there was to be a review of oil taxation. That oil taxation review bumbled on for month after month after month, and it was only with a sort of adolescent petulance that the indication was given in the early summer that this review would not take place after all. But the Government failed to indicate whether they would be returning to a review of that taxation.
This is not simply a matter of remote interest to those who are keen on taxation matters. It has had a direct knock-on effect on those people who are employed in the fabrication and supply business to the oil industry. Although there is a clear focus on such activities in the north-east of Scotland, there is also a very real focus on that activity all the way up the east coast of the United Kingdom. I would anticipate, as this unhappy downturn occurs in supply and fabrication activity, that regrettably the north-east of England is likely to suffer quite as much as any other part of the country.
I hope that we might at long last get some realisation that it is not only the policies that the Government introduce that might do damage to our economy but that when they are as careless as they were over the oil taxation review they so damaged the confidence of those people who might otherwise have found jobs, or continued in jobs that they had found, that they lost that opportunity.
373 Up to this point I have focused my remarks on goods. There was a time when certainly old Labour would have regarded themselves as the jealous guardians of the manufacturing sector in the United Kingdom—a voice that is more muted, certainly in another place, than it once was. I do not want to focus simply on those issues, alarming as they are for the United Kingdom as a whole. But before I conclude I would like to turn to the matter of services. I want to recognise most particularly how important financial services are to the United Kingdom. Something like 1 million people in the City of London work in financial services. What they achieve represents about 7 per cent. of our gross domestic product.
As the gracious Speech unfolded and the debate on it began, we anticipated that we would hear what would happen to the Financial Services Bill. It is a Bill of undoubted complexity. I have no doubt that the Government certainly began on the right course by embarking on extensive consultation. It is troubling that when the Leader of the House rose in the immediate aftermath of the gracious Speech she did not indicate—as we had anticipated and as press reports had led us to believe—that the Bill would be shortly introduced in this House, where there is a wealth of experience which would have significantly improved the Bill before it went to another place. That is not going to happen.
We have been advised that this Bill will not be introduced, as I understand it, at any time before the spring of next year. It will not be subjected to careful, expert scrutiny in your Lordships' House first, as one might have anticipated. The indications to date are that it will be introduced in another place. The other place might deal with it more superficially than your Lordships, but, nevertheless, if it is introduced in the spring it will undoubtedly take many weeks before the Bill has been properly considered in another place. We are then left with the alarming question of when are we to have the opportunity to scrutinise the Bill in the fashion which is undoubtedly required. There are a number of points of principle that we will need to discuss, and there is certainly a myriad of details we will want to examine carefully.
On points of principle, for example, we would wish to see a clear objective contained within the Bill that it is to be part of the responsibilities of that new single super regulator to ensure an international competitiveness for the United Kingdom. I fear that, as consultation has progressed there is growing unease in the financial sector that, far from there being simply an issue of regulation here, there may be the alarming risk that the Bill will contain a rather anti-competitive characteristic. Given the responsibilities of the noble Lord, Lord Simon, for competitiveness, I hope that he will reassure us that a clear regard will be had to that particular issue.
My Lords, I am grateful to my noble and learned friend for giving way. He has raised a very important point. Is it being suggested by the 374 Government that this is to be treated as a revenue Bill, which therefore limits the powers of your Lordships' House?
§ Lord Fraser of Carmyllie
My Lords, I do not know. But I certainly understand the proposed timetable. I suppose that I am leading towards a rather bleak realisation that possibly the Government are anticipating that this Bill might in some way be carried over into the next Session. If that is the proposal, it raises some very difficult considerations—not for your Lordships—undesirable as it is that the timetable for considering such a Bill should not be unduly extended.
But let us get away from issues of our own responsibilities and our own convenience. It concerns me that this vital sector of our economy—an absolutely crucial one which, if anything, we would wish to see grow rather than contract in any way—will effectively be in limbo for something over a year. I cannot believe that it is to the advantage or the good health of the financial institutions—be they in the City of London, Edinburgh or any other place where they provide such valuable employment and give us such a worldwide pre-eminence—that that extended period of limbo should exist. I very much hope that before we get to the end of this debate we will understand exactly what is intended. We have every intention of scrutinising the Bill as constructively and carefully as we possibly can. However, we will not be prepared to participate in a shoddy, unduly protracted legislative process. I hope the Government appreciate that it cannot be expected that this House will nod through such an important piece of legislation.
I conclude by saying, in harmony with the noble Baroness, Lady Hollis, that I, too, look forward to the maiden speeches which are to be made during today's debate. I hope that the Government will understand the realities of the economy of this country and, now that we are well into their period of office, will at long last accept some responsibility for it.
§ 3.50 p.m.
§ Lord Razzall
My Lords, the Minister indicated in her opening remarks that today's debate extends across a number of areas: industry, the economy and social affairs. In my opening remarks I will be touching on industrial and economic matters and will be helped and assisted by various of my noble friends. My noble friend Lord Russell, in winding up, will respond to many of the points raised by the Minister on social issues.
I am afraid that from these Benches we did not allocate any of my noble friends to the unscheduled amendment introduced by the noble and learned Lord, Lord Fraser, regarding the results of the north-east Scotland European Parliament by-election. Perhaps it would be better if I left it to the noble Lord, Lord Simon, to deal with the points he made in what I calculate was 20 per cent. of his speech. From these Benches we do not draw any conclusion from an election in which approximately 79 per cent. of the electorate voted against the Conservative Party and in which, on turnout, under 4 per cent. of the adult population of that constituency voted for it.
375 The noble Baroness indicated in her opening remarks that the first touchstone of the Government's economic policy must be to endeavour to create a sound economy. She indicated that there will be a departure from the boom and bust policy which she regards as having occurred under previous administrations. I will not attempt to follow the lead of my noble friend Lord Rodgers of Quarry Bank on the first day of the debate on the gracious Speech in attempting to give marks out of 10 to the Government for their handling of the economy. Suffice it to say, broadly from these Benches, and from our Benches in another place, we have agreed with the Government's overall macro-economic position.
We believe that the public finances are sounder than they have been for some years. The Conservative Opposition might well say that that is the result of the Government's inheritance from them. However, there is some inconsistency in that statement which is sometimes made from the Conservative Benches with the statement from their Benches that the population of this country has been subject to many new taxes. There is a little inconsistency between, on the one hand, claiming credit for the inheritance and on the other hand blaming the Government for what they have done since. Be that as it may, we would say that the public finances are sound.
As noble Lords will be aware, we strongly welcomed the initial decision of the Government to give independence to the Bank of England in relation to monetary policy. The Liberal Democrats had advocated that for many years. We support the Government's policy in that area. We note with interest that even economic writers, such as Anatole Kaletsky in The Times, who were extremely sceptical at the time are now beginning to come round to the view that the policy is working, is the correct one and is a model for the kind of independent central bank that we look to see.
On the technical side, we have welcomed the decision of the Treasury, in calculating public expenditure, to separate capital expenditure from revenue expenditure. We regard that as a significant development in the management of our public finances. It has long been regarded by people in business as silly that social services expenditure and expenditure on unemployment benefits should, for public expenditure purposes, be calculated in exactly the same way as capital expenditure on roads, hospitals and schools. We very much welcome the Government's ability to persuade the Treasury mandarins to convert to that view.
However, having said that, in two areas we are clear that we would not have started from here were we in government. First, although we welcome the public expenditure increases announced by the Chancellor of the Exchequer, we remain critical of the Government's policy of sticking to the Conservative Government's expenditure plans for the first two years of their period in office. We believe that that was an imprudent exercise of the power of the Treasury in relation to the needs of social services, education and the National Health Service. We regard it as an unnecessary and draconian 376 policy imposed by the Treasury. As noble Lords will be well aware, we would have increased taxation, if necessary, to absorb that public expenditure.
Secondly, we believe that the Chancellor of the Exchequer made a significant mistake by not putting up taxes for the consumer immediately the Government came into office. Most economic commentators now agree that the previous administration, presumably in an attempt to win the last election, allowed consumer spending to run too far ahead of where it should have been. While understanding the political constraints on the Government, we believe that a mistake was made by not damping down consumer expenditure at that point. As a result of the failure to take that decision, we believe that the reduction in growth in the economy has been greater than it otherwise would have been. Therefore, in those two areas, we criticise the Government. As I said, we would not have started from here.
We find the position of the Conservative Opposition somewhat puzzling. I note that of the 60 to 65 commentators who comment on the economy not one is currently indicating that he believes that the economy is heading for recession. The argument is about whether the growth rate will be 1 per cent., 1.5 per cent. or 0.5 per cent. But not one significant academic or economic commentator is actually forecasting a recession. I thought that the only person who was doing so was the Shadow Chancellor of the Exchequer in another place. However, I now know that two people are doing so. There is the Shadow Chancellor of the Exchequer in another place and the noble and learned Lord, Lord Fraser of Carmyllie, who in his speech today indicated that he believed that the economy—
§ Lord Fraser of Carmyllie
My Lords, I know that my speech may have been uninteresting to the noble Lord but he might at least quote me accurately. I said that as far as I was aware every responsible commentator in the country is revising his figures downwards.
§ Lord Razzall
My Lords, it is correct that those were the words that were used. Nevertheless, the tenor of the Conservative Party's opposition to the Government's economic policy has been that the Chancellor is driving the economy into a recession which he is refusing to forecast and is therefore over-optimistic. The main reason I think that is an inadvisable position for the Conservative Opposition to take—I would welcome the Minister's confirmation of this when he replies to the debate—is that the Treasury has indicated, and indeed the Prime Minister has indicated in press comment, that were the economic statistics to prove to be worse than the Government currently forecast, nevertheless borrowing would be allowed to rise to maintain the public expenditure plans that the Government have announced.
Those students of the economy who have not been bedazzled by the monetary policy mumbo-jumbo of the 1980s will know that that is classic Keynesian economics. I think this House would welcome a confirmation from the Minister when he replies to the 377 debate that that is exactly what the Government's policy is and that there is no intention of their being blown off course with regard to their public expenditure plans, and, if necessary, they will allow public spending to rise and enable it to absorb the recessionary pressures.
I now turn to manufacturing industry. The noble and learned Lord, Lord Fraser of Carmyllie, has a point here. Clearly the issue of manufacturing closures and manufacturing activity in this country is a significant one. The problem that the Government and all of us who comment on these issues are faced with is that manufacturing industry these days probably affects only about 20 per cent. of the economy of this country, and probably half of that 20 per cent. is not involved in manufacturing as we have traditionally known it, but is involved in the assembly of components which are often brought in from overseas. Nevertheless it is the case that manufacturing industry in this country is suffering. We see factory closures and unemployment rising in that sector. Without going as far as the Conservative Opposition, we think it is disappointing that the gracious Speech has not produced any measures to deal with the downturn and the problems of manufacturing industry.
There are two obvious areas where we need confirmation that action will be taken. First of all, there is nothing in the gracious Speech about cutting red tape and reducing bureaucracy. That would have a significant impact on small manufacturing companies. Secondly, the Minister indicated in her earlier remarks that productivity was at the heart of the problems of industry. There is nothing in the gracious Speech to tackle those problems of productivity. It would be helpful if the Minister who is to reply to the debate could comment on what the Government intend to do with regard to announcements and plans. We are aware of possible studies by the Treasury and possible action. However, as regards any debate on our current industrial position, it is important that, if possible, those plans should be spelt out.
I turn to the industrial policy measures set out in the gracious Speech. The promotion of the right honourable Member for Hartlepool has enabled the DTI to rise up the Queen's Speech pecking order in terms of the number of Bills that we have before us. We obviously welcome in principle the legislation to promote electronic commerce. It will be interesting to see what that legislation contains. Apart from giving it a broad welcome there is nothing more that we can say at this stage. However, we have some reservations about press reports that some kind of Internet "tsar" will be created, on a par with the drugs tsar, to try to promote the Internet because it seems to us that that rather belies the way in which the Internet is supposed to work; namely, "bottom up" rather than hierarchically "top down". Nevertheless, we look forward to seeing the Bill.
We also look forward to the implementation of the fairness at work legislation. We wait with interest to see whether the Government's initial proposals have been developed further following the consultation exercise. Should that be the case, we on these Benches will not wish to intrude into the private grief of the Government and the trade union movement as to what may or may not have happened. I say as an aside to the noble and 378 learned Lord, Lord Fraser of Carmyllie, who also touched on the minimum wage in his remarks, that I think it is true to say that not one of the European countries that has a stronger economy than ours and a greater GDP per head than ours and a greater growth rate over the past 10 to 15 years than ours, does not also have fairness at work proposals and minimum wage legislation at least as strong as the measures that will be proposed here. Some lesson should be drawn from that.
There are three major areas in which the Government should be criticised in relation to the implications of the gracious Speech for industry and the economy. First of all, it is extremely disappointing that there is no real provision for anything to be done about the "green agenda". The Deputy Prime Minister has striven nobly from Kyoto to Buenos Aires to bring the Government into the forefront on these issues. Yet nowhere do we see any proposals to tackle carbon taxes, pollution, and the green taxes that we were promised by the Government in the run-up to the election. We note with horror that the Government appear to be backing down as a result of pressure from the motor industry in relation to the whole area of motor car control, inner city pricing, and taxes on large cars. We feel that this is a significant omission which lies right at the heart of what should be a major plank of the Government's industrial policy.
Secondly, we feel that the Government and the gracious Speech are weak on what I would describe as the rights of the consumer. In the press, in this House and in another place there has been consistent questioning of the Government with regard to what is now emerging as a potential major scandal for the consumer in this country. By and large people pay more in this country for similar products than anywhere else in the European Union. There are all kinds of reasons for that but I believe the evidence is now consistent enough to show that that is the case. I know that when the Minister replies to the debate he will say that he introduced the Competition Act to give the OFT the power to do something about that situation. Time will tell. I believe there is a significant omission in the gracious Speech with regard to the Government's commitment to ensure that this matter is tackled. Whenever we raise this issue we are told that a campaign has been run by the Daily Express, as if that makes everything all right. However, the Sunday Times has also run a campaign on this issue and many people have produced evidence of what is happening. It is vital that the consumer interest in this country is protected. We wait with great interest to hear whether the Minister will confirm that he will ensure the necessary steps are taken following action by the Office of Fair Trading.
The third and final area I wish to discuss constitutes from our point of view the most glaring omission from the gracious Speech; namely, the question of the euro. Were a Liberal Democrat government in power and were this our gracious Speech, we would now bring into effect legislation to enable a referendum to be held. There is no doubt about that. We believe that it was a significant mistake on the part of the Government not to take steps immediately after the election to hold the referendum on joining the euro, and not to take steps 379 immediately following such a referendum to join the euro at its inception. We believe that is a mistake that the Government will regret.
Notwithstanding the attempts by newspapers such as the Sunday Telegraph, which last Sunday falsified figures to indicate that there is some movement against the euro, we believe that the population of this country is moving away from, "Should we join the euro?" and towards, "When should we join the euro?". While recognising that we shall not have enabling legislation this Session which would allow us to hold the referendum or legislation that will enable us to join the euro, it would be extremely helpful if the Minister would give some indication of the timetable, and some indication that the Government's thinking has moved on, so that the question is now no longer "if' but "when". We believe that failure to decide on when to join the euro bedevils our economy.
§ 4.10 p.m.
§ The Lord Bishop of Oxford
My Lords, this debate is obviously a special one, with no less than five maiden speeches. I look forward to learning from the wealth of experience that they will bring of industry and economic and social affairs.
Over the past 15 years I have had a number of opportunities to address gatherings of business leaders. I always enjoy such occasions because business brings an important element of realism into any discussion. In the end, business has to work or it goes bust. In that spirit of respect for business, I want to refer to the statement in the gracious Speech that the Government,
will continue with economic policies designed to build stability for the long term".Talking to business people 15 years ago, one was aware of a spirited defence of the position that the shareholder always reigned supreme. Today it is widely accepted that the shareholder is one among a number of stakeholders: the employee, the customer, the supplier and the wider community, including the environment. It is recognised that each of those stakeholders has a legitimate claim and that the long-term success of the company depends upon that being worked out in practice. The mission statements of most modern companies will contain an expression of that commitment to the stakeholder concept. That is a remarkable change in the way in which our best companies view themselves and want others to view them. Of course, it is possible to be cynical and to regard mission statements as no more than window dressing, an attempt to look good on the front page of a glossy annual report. Even that may not be entirely worthless if you agree with the Duc de la Rochefoucauld that,
Hypocrisy is a tribute which vice pays to virtue".Nevertheless, in our best companies there is an ethos that is undergirded by, and suffused with, a definite set of values. Nor is that just pure idealism unrelated to the hard facts of the financial world. The "Tomorrow's Company" project, sponsored by a number of our 380 leading companies, shows that the stakeholder concept is fundamental to the long-term prosperity of a company. In short, ethics and profits go together.
I focus on this point for two reasons. First, the stated intention of the Government in the gracious Speech is,the modernisation of the country, its institutions, its public services and its economy".I believe that that modernisation is linked integrally with a revaluing of our national life; that is, a rediscovery and a reaffirmation of the values without which there can be no long-term well-being or prosperity. By values I do not primarily mean a set of principles urged by religious bodies. I mean teasing out, articulating, affirming and strengthening those values already implicit in our best institutions which lie somewhere in every human heart.
There are many modes of being modern—some superficial, some merely fashionable and some actually dangerous. True modernisation is inseparable from a greater emphasis on the shared values which not only bind our society together but which are also essential for its long-term well-being and prosperity.
My second reason for focusing on the point is that industry and commercial life generally have a crucially important role to play in this endeavour. As the gracious Speech put it, the Government are committed,to work in partnership with business, and welcome the improved relations between business and trade unions".I believe it important to affirm the continuing role of trade unions. It has been fashionable in recent years to knock them or try to marginalise them. Historically, trade unions have played a vital role in pressing for the basic values in industry and commercial life that today we take for granted. Often they have had to struggle against powerful vested interests in the name of a basic humanity. They still have an important role to play.
It is all too easy to confine values to a special debate on the subject or to associate them only with issues of personal morality or so-called "family values". However, values are fundamental to every aspect of our national life. That is why what has happened in our best companies in recent years has been so significant. They have publicly recognised the role of values in their long-term prosperity. That is shown not only by their method of operation but also by the way in which they have supported inner-city regeneration and many worthwhile social projects and through the lending of expertise as much as financial support.
Today's debate is about industry, economic and social affairs. We rightly associate social affairs with values, ensuring that the disabled are properly cared for, helping people into work, and so on. As the Minister put it, "Work for those who can, security for those who cannot." The problem is that debate of that kind is so often polarised between those who support issues of social welfare and social concern, which are traditionally associated with values, and those who like to speak on economic and industrial affairs, which traditionally have been regarded somehow as "value-free zones". There is no such thing as a value-free zone.
381 Part of my thesis is that the kind of values that commercial and industrial life today are rediscovering and reaffirming are crucially important for the whole of our society. Values run, and need to run, right through all aspects of our lives, the public and economic aspects just as much as the social aspect. Business, both companies and trade unions, have played and continue to play an important role, helping to modernise our society in such a way that the core values, on which society as a whole depends, inform and shape our industrial, economic and social life.
§ 4.19 p.m.
§ Lord Evans of Watford
My Lords, beware, I am a printer. Because I am a printer, it was with great anticipation that I ventured into your Lordships' Library. Books give me great pleasure. I delight in fine printing, good typography and elegant works. But, as I said, beware, I am a printer. If we are to believe Thomas Carlyle, my democratic trade is capable of dismissing hired armies and cashiering senates, but I promise that I have nothing so drastic in mind.
However, my reason for making an early visit to the Library was not simply for the pleasure of handling its fine volumes. Faced with the disconcerting prospect of this maiden speech in your Lordships' House, I wanted to discover what some of my new colleagues had said upon their introduction. It confirmed for me what a cosmopolitan collection, from many varied walks of life, this House is.
My apprenticeship began when I was 15. Luckily, I came to love the produce of my labours, but looking back I realise that formal apprenticeships were not as good as nostalgia would have us believe. Often, the institution encouraged what amounted to indentured slavery when boys were forced to do skilled men's work for a fraction of the proper wage. Gladly, those times have changed.
When I started, everyone believed that an apprenticeship meant a trade for life and that the skills learned would provide for an entire career. How vastly different it is today. Such is the speed of change that only continuous learning ensures that a person continues to be a valuable skilled provider; and it is now quite likely that a distinct change of career will occur two or three times during an individual's working life.
I was fortunate. By my mid-20s I had gained experience in sales and marketing within the printing industry and at 29, having saved a few thousand pounds, decided to start my own business. Some noble Lords will have personal experience of the trials and tribulations of starting and running a small enterprise. They will know how difficult it is to survive, how much one depends on customers and suppliers and, above all, on the loyalty of staff.
Cash flow is always the main concern of small and medium-sized enterprises—or SMEs as we are now collectively known. For this reason I was delighted when the Late Payment of Commercial Debts (Interest) Act received Royal Assent in the summer. As noble Lords will know, the Act seeks to ensure that large firms do not use their muscle unfairly to delay payments to smaller suppliers.
382 The Act has yet to have much effect. Fear of recession, whether justified or not, is currently prompting some large firms to become sticky-fingered with cash which rightfully belongs to their suppliers. I hope that the intention of the Act is not to be thwarted by corporate bullying tactics, such as pretending invoices are not received, or the wilful abuse of procurement procedures as an excuse to delay settlement. These are not commonplace in well run companies.
SMEs provide 50 per cent. of this country's economic growth but also suffer a 50 per cent. failure rate within four years of inception. Many are hampered by unfair and now illegal withholding of their money by larger corporations. Eighty per cent. of this country's working population is employed by companies with fewer than 200 staff. Small and medium-sized businesses are a vital part of our economy and must be treated fairly.
Today, 27 years after I started, my business has grown to employ 180 people. We work in printing, publishing and graphic communications globally and are proud to be part of the United Kingdom's fifth largest manufacturing industry. Printing employs around 170,000 people in over 12,000 companies with a combined annual turnover of about £13 billion.
As noble Lords consider the gracious Speech and its particular relevance to industry, economics and social affairs, it occurs to me that my experience in building up a small company from scratch may be of some relevance. So I asked myself: what more could be done to help small firms? I have said that training has become a life-time activity. As the Government have made very clear, they believe strongly that education is the key investment for ensuring that Britain maintains and improves its economic position in the world. Despite this, few companies provide ongoing training for their staff, for the simple reason that they feel they cannot afford the time or the money. They are probably wrong, but any encouragement of, or assistance for, personnel development that could be offered to SMEs would, I believe, be both welcome and cost-effective. Its vital importance has been brought home to me during a 15-year happy association with the Institute of Personnel and Development in a joint enterprise to publish its highly regarded fortnightly magazine, People Management.
The ability of small firms to provide secure jobs so that people can develop their skills cries out for economic stability, a need clearly identified by the Prime Minister. So the Government's attempts to steady our economic ship in the choppy waters of globalisation, as evidenced by lower interest rates and corporation tax, are very welcome.
Our banks also have an important role to play in helping companies to weather the economic storms and, in turn, help to stabilise the economy. Like many others, I was dismayed to observe how, without warning, some British banks brutally brought down the shutters on small firms during the last recession. Whether they like it or not, banks have a social responsibility to our community which is wider than mere shareholder accountability. That said, it is welcome news indeed that 383 the Government are considering legislation to provide companies in financial difficulty with a period of creditor respite for the purposes of reorganisation. I hope that the banking community will appreciate how helpful such legislation has proved to be in building the United States' economy and will consider its response to the proposed changes to insolvency law very carefully and positively.
Finally, one contribution that the Government could make to improve the prospects of small firms in this country would be to review the way that government departments and public institutions conduct their procurement policies. Human nature is such that long-established supplier/customer relationships are comfortable but this can be anti-competitive and, in the long run, economically damaging to society. It also leads to complacency. I believe there is still considerable room here for improvement in the way that public money is spent.
I thank your Lordships for giving me the time to say a few words on behalf of small and medium-sized businesses—and in particular, those in printing. The economic future lies in the hands of those who have the courage to be entrepreneurs. I see no shortage of potential candidates and I urge the Government to do all that they can to assist them.
§ 4.27 p.m.
§ Baroness O'Cathain
My Lords, I am honoured to have been selected to congratulate on behalf of the whole House the noble Lord, Lord Evans of Watford, on his fascinating maiden speech. The noble Lord has had, and is still having, a brilliant career. As he said, he started his apprenticeship as a printer at the age of 15 and rose to launch one of Europe's leading print companies with an annual turnover, I am told, in excess of £50 million. That progression, which could not have been achieved without a huge commitment to part-time study, continuous learning and sheer hard work, is what we all admire. Although the noble Lord has achieved such success in business, he has still had the time and energy to develop his interests in a number of charities and political organisations. As a fellow Fellow of the Chartered Institute of Marketing, I am delighted to thank him for a memorable and relevant maiden speech. I truly look forward to his future contributions to our deliberations.
Like the right reverend Prelate the Bishop of Oxford I noted in the gracious Speech the phrase,My Government will continue with economic policies designed to build stability for the long term".When I heard the gracious Speech, I momentarily breathed a sigh of relief—but only momentarily. I was unable to stop my mind racing back to last year and to one of the first economic policies introduced by this Government, which was doubtless designed to build stability for the long term but, sadly, in the short term has proved to be anything but stable. I refer to the decision to change the ACT rules. I hope that in relation to the welfare reform Bill that is to be introduced we may have an opportunity to look at the matter afresh.
384 A new government run by a party that had not been in power for 18 years were almost bound to make some errors. I cannot remember who said, "A man who does not make a mistake does not make anything," but I shall give the Government the benefit of the doubt and suggest that the ACT issue has had genuinely unintended consequences. I hope that in the interests of formulating policies designed to build stability for the long term the Government may change their mind.
Today's debate on the gracious Speech deals with industry and economic and social affairs. The consequences of the ACT policy change have been serious in terms of additional cost burdens on industry, the effect on the economy, and the implications for social affairs.
The annual cost of the change to the British Telecommunications Pension Fund is estimated by Lane, Clark and Peacock to be £166 million. In the case of British Gas the amount is £92 million, and for the Railways Pension Fund, £30 million. These are annual charges. They are figures I have picked out at random. The position is serious, particularly at a time when there is genuine worry about an economic slow-down. I hope that the noble Lord, Lord Razzall, will note that I did not mention the word "recession"—merely a slow-down in growth.
However, my plea to the Government is not based solely on the cost to industry. It seems we are dealing with a difficult situation. The Department of Social Security is giving broad hints—and more—that pensions are an area of ever-escalating cost pressure on the Exchequer and that perhaps more people should provide pensions for themselves and rely less on the state pension. I applaud the move. However, the very act of changing the ACT rules has made that alternative much less attractive. It was in effect a double hit—a hit in terms of business costs and a disincentive to follow the laudable suggestion that people should seriously consider planning to provide additional pensions for their third age, the current euphemism for old age.
I assure the House that company boards up and down the country, including those on which I sit, are now looking hard at changing their pension schemes to move towards money purchase schemes instead of final salary schemes. I have received information from the National Association of Pension Funds indicating that my experience is by no means unique. J. Sainsbury, for example, according to NAPF, has estimated the cost of the change to be £10 million per annum. It has had to pay additional contributions and has taken steps towards a money purchase scheme.
As I am sure everyone knows, money purchase schemes are nothing like as attractive as schemes based on final salaries. I shall not bore the House by detailing the reasons. Suffice it to say that it would be a sensible and welcome move if the Government could see their way to changing the policy now. In my personal experience of business one receives many more Brownie points by admitting that one was wrong in the first place and changing course than by sticking rigidly to an approach that had had unintended consequences.
385 Having got that off my chest, I should now like to congratulate the Government on their radical decision to introduce a Bill to transfer the Contributions Agency to the Inland Revenue. I have a very high regard for the staff of the Inland Revenue, who have to be the least loved members of society. General reaction to tax collectors, tax inspectors et al has always been negative, right from the time of Christ when they were among the most despised of people. In those days, tax collectors operated on a "commission" basis and probably merited some sort of ignominy. In my book the Inland Revenue is probably the most dedicated, efficient and trustworthy band of civil servants I have ever dealt with—but I guess I would say that, being the daughter of an inspector of taxes.
The decision to amalgamate the Contributions Agency with the Inland Revenue should result in significant savings in administration—dead costs, as I usually describe administration charges. It should eliminate a great deal of the hassle of trying to get answers about one's deductions, be they income tax or national insurance. Let us face it: national insurance contributions are income tax under another name. I am sure that amalgamating the two will lead to greater efficiency. It is a good move. Indeed, I wonder why it has not happened before.
Thinking about the proposal—and it is quite radical—I wonder whether the Government care to be tempted to be even more radical and add to the Inland Revenue both the Benefits Agency and Customs and Excise. I am aware that the Benefits Agency is vast, and doubtless people will say, "Oh no, we couldn't possibly do that." But let us think about it a little longer before dismissing it out of hand.
The efficiencies in administration (dead costs) could be huge and—and it is an important point—having the Inland Revenue, the Contributions Agency and the Benefits Agency under one administrative system would almost certainly give power to discover and act upon benefit fraud. It would in effect result in a one-stop shop for the gathering and spending of the largest amount of money handled by government agencies.
Continuing in the spirit of radicalism, perhaps I may suggest that the whole question of negative income tax could also be considered. Just because it was the suggestion, I believe, of Milton Friedman is no reason for not revisiting the proposition. It is just a thought. I ask your Lordships to remember that you heard it first here, and from the Opposition Back-Benches!
All economists fall into the trap of analysing everything ad infinitum. I am not decrying analysis, but very often we fall into the trap of sifting out analytical results that do not conform to our long-held, if unstated, views about a particular issue.
The Government have undertaken analysis as to why industry in this country is relatively uncompetitive, and we have all heard the major reason—productivity. The noble Baroness the Minister majored on that in her opening remarks, quoting the productivity gap between the UK and the US as being 40 per cent. and that between the UK and France and Germany, 20 per cent.
386 Analyses of productivity are very seldom what they seem at a first, superficial glance. The reflex action when faced with a diagnosis of productivity shortfalls is to hammer industry or employers for low productivity. I fear that we have heard that again today. It leads to a demoralised industrial sector, all the more demoralised because the sector is aware that in much of what it does it cannot change much.
The McKinsey Report, Driving productivity and growth in the UK economy, is probably the catalyst for this emphasis on productivity. Of course we must improve productivity. However, having read the McKinsey Report, I was slightly taken aback to see that selectivity had once more come into play and that one of the major reasons for our relatively inadequate performance in the productivity stakes does not get mentioned by government spokesmen or by the media; namely, the stultifying regulatory environment in which we operate.
The regulatory system in this country seems to be expanding all the time. We in this House have tried to halt the pace of expansion. At every turn, yet more regulation appears. All of us seem powerless to halt it. I fear that I have personally fallen into the trap on many occasions when I have said, "Why don't we legislate for X, Y or Z?" But the McKinsey Report makes it clear that the regulatory barriers in the economy are a significant hindrance to our competitiveness.
A few points raised by the McKinsey Report bear stating here. All are direct quotations from the report. The first is:Product market and land use regulations create harriers to the entry of new firms and hinder the domestic expansion of the most productive UK companies. As a result, the best operators tend to focus their efforts elsewhere, on increasing domestic margins or expanding internationally. Because of this, unproductive businesses are able to generate reasonable profit margins and stay in business long after they would otherwise have been forced out".Secondly,The CAP has severely limited the supply of milk to UK dairy producers … as a result UK dairy producers have faced supply constraints in developing more productive dairy products such as cheese and yoghurt. Countries less disadvantaged by regulation have been able to build much stronger and more productive dairy processing industries which in some cases now export their produce to the UK".Thirdly,Strict building codes have prevented the development of a productive hotel industry".Fourthly,Regulations governing pricing and competition have artificially constrained the productivity of the UK's fixed telecoms network".So it goes on. Finally, from my batch of selected quotations, I offer this:High street banks and other retailers located in listed buildings encounter difficulties in modernising their branches to improve customer services".I do not point a "guilty" finger at anyone or any government but we should all be aware, when we criticise British industry for its lack of competitiveness, that as legislators we should examine our own actions first and establish whether or not we have to shoulder some of the blame.
387 We all anxiously await publication of the competitiveness White Paper and hope that the regulations point is both exposed and dealt with. To use the in word, we need to modernise our whole plethora of regulations in a root and branch way, not just tinker with the twigs.
I wish to comment briefly on two other issues highlighted in the gracious Speech. The first concerns the promise to introduce legislation to improve the regulation of financial services and markets. I look forward to the consideration we shall give the Bill. Much of the draft Bill is to be welcomed, but there are areas which need further attention, including consumer compensation, an enhanced international role for the FSA and the need to continue consultation.
The second issue relates to the fact that legislation will be brought forward to provide a fair basis for water charging in England and Wales. I declare an interest as a director of a water company and look forward to contributing to the debate, based on my experience from the coalface, or should I say from the pipeline.
All of us in this House have the shared objective with the Government that, whatever we determine in the months to come, we hope that it will contribute to building stability for our economy in the long term. I look forward to the months ahead and hope that we are all successful in achieving that objective.
§ 4.41 p.m.
§ Lord Christopher
My Lords, for me it is a pleasant happenstance that I follow the noble Baroness, Lady O'Cathain. She illustrates very well for me one of the first impressions I had when I came into this House a few weeks ago. It is how often many of your Lordships have crossed my path, and I yours, over the course of the past quarter of a century. The noble Baroness, Lady O'Cathain, is one. That leads me to say that the lasting impression I have is of the friendliness and help which my new colleagues and I have received from everyone in this House. That is certainly true of noble Lords, and particularly of all the officers and staff. I hope that there is some mechanism for conveying to them that such remarks are made about them, not as a matter of form but most sincerely.
It was a considerable surprise to me at my age to be invited to come here, but there are a number of possible reasons for it. If credit is due to anyone, it is the late Lord Houghton of Sowerby, who was the general secretary of the Inland Revenue Staff Federation, from whence I came. I very much appreciated remarks about the Inland Revenue and support them entirely. Lord Houghton established a culture which has done a great deal of good for many people. He believed in matters mentioned yesterday: training, fitness and productivity. Although he never used the word, he almost invented the concept of "stakeholders". Therefore it is a great privilege to me to come into the House and find the noble Lord, Lord Callaghan, here. I have wondered several times what would have happened both in the federation and in other quarters if he had not gone into the Navy. He and Douglas greatly supported 388 me with their advice, and that is so of Douglas particularly from the time when he and I had our first clash at my first conference in 1953. He won, but it somehow led to a friendship which lasted until he died a couple of years ago.
Lord Plant of Benenden followed Douglas as general secretary. I now join two colleagues, the noble Lord, Lord Brooke of Alverthorpe—and noble Lords will join me in wishing him a speedy recovery from his illness—and my noble friend Lady Symons of Vernham Dean, who has already found herself on a distinguished Front Bench.
I reflected on what Douglas would have expected me to talk about. He believed very much in lateral thinking and in being radical. I do not think he would have wanted me to spend the time without making suggestions for change. So I hope he would be content that my maiden speech in your Lordships' House should be about the so-called "stakeholder" pensions on which we await a Green Paper.
Here I had better declare an interest. I am the executive chairman of Trade Union Fund Managers—a small unit trust company—and of the trustees of the charitable trust which owns it. We just might have a small interest in what happens in the future.
I understand why the Green Paper has been so long delayed. I am even a little encouraged by that delay and glad that it will be green and not white, since neither Lloyd George nor any government since have put the ultimate pensions system in place.
Therefore, I wish to question the wisdom of a conventional approach of a stakeholder pension scheme per se. I ask my noble friend Lady Hollis of Heigham, the Minister, to consider instead provision for retirement age through an individual retirement savings fund—an IRSF. I shall explain.
What—at least as I see them—are our objectives and perhaps the tests by which any scheme will be judged? First, whatever is done, whether or not it is compulsory—and my own belief is that any change is likely to be unworkable without compulsion—must not be or even look like more taxation or higher national insurance contributions. The global economy, anyway, pushes us towards lower taxes to sustain growth and work.
Secondly, I believe we must look towards personal ownership of whatever results. It is good psychology, but it also offers the prospect of maximum long-term benefit and, most importantly, provides absolute portability, certainly within the EU and probably worldwide. On that score, I am uneasy about the fashion for group and industry schemes.
Thirdly, we must look for rock-bottom charges. Fourthly, combined with that, we must look for top quality value for money.
Fifthly, the history of pensions suggests that we need to ensure that there is flexibility for governments to alter regulations to meet social and economic changes over time.
389 Sixthly, we need a scheme which does not openly encourage employers to wind up good existing pension schemes or shift to schemes such as those to which the noble Baroness, Lady O'Cathain, referred.
How could it be done differently if it is not literally a pension scheme? I believe that it could be by means of a fund—an IRSF—invested for, say, 30 years in equities and, perhaps afterwards, progressively in less volatile securities. It could be a fund reported upon regularly by the manager to its personal owner.
What I see as important, if we are contemplating a period of a full working life—as I now do by way of illustration—is this. Over 40 years to the end of 1997, £1,000 invested in the equivalent of the all-share index, with net income re-invested, would be worth £173,000 today.
An objection to equities, oft repeated, was described in a pensions pamphlet which I recently received as,the fluctuations of the rocky world of stock markets".There is, of course, volatility in all market places, but this is not a valid reason for not using equity investment. The year 1992 saw the UK leave the ERM. The Financial Times/Stock Exchange all-share index dropped more than 15 per cent. over three months. What happened afterwards? One thousand pounds invested in June 1992, just before the ERM affair, would now be worth £2,200; £1,000 invested immediately after the crash would now be worth £2,600. But if the investment had been delayed until June 1993, the outcome would be £1,980. For different reasons, 1998 has witnessed similar phenomena—thus far anyway.
As I have said, taking a prudent view of 40 years is more likely to provide greater benefits on my basis than any likely pension scheme, and at much lower annual charges.
I have asked myself why the only thing that one should be allowed to do with such a fund is to purchase an annuity. Goodness knows why it is still demanded today. The objective of the state is to avoid burdens falling upon it. I imagine that it will be possible, annually, to calculate the minimum additional pension that any of us requires beyond the state or any other pension we may have so that we are not eligible for other state benefits. There are options that are not exclusive.
First, if the fund is large enough to provide income above the minimum requirement one can put the fund into "trust", by which I mean escrow, and draw income. On death, subject perhaps to a special tax after a reasonable exemption limit of, say, 15 per cent. in current terms to take account of the fund's origins, the fund could be part of a deceased's estate.
Secondly, one could require everyone to pay to the state whatever was required to purchase the minimum extra pension. Anyone would be free to use any balance as he wished, perhaps subject to a requirement to provide additionally for old age care. The Government would accept responsibility for paying this supplementary pension and for inflation-proofing it. This means that the Government would be assured as to the citizen's minimum income. Because the state would be both insurer and payer there would be no regulation 390 costs, no private sector profits to be met and, assuming that payment was with the basic state pension, no extra payment costs.
Thirdly, another option would be to purchase at least the minimum annuity in the market. One would be free to use any balance as one wished, again subject perhaps to the need to provide for old age care.
I believe that this proposal, perforce outlined but briefly, goes a very long way towards meeting flexibly, perhaps in a popular way, the long-term aims of the Government. It could even become effective, albeit modestly, in contributing to individual retirement needs quite some time earlier than a narrow pension proposal. What is more, the owners receive all that is put into the fund both by themselves and their employers and the growth that has accrued over the period of time.
I make only one request of the Minister today. I am confident that the response will not be quite as bleak as that which Lord Houghton of Sowerby received in his early days when he made proposals for a pay-as-you-earn system. The Inland Revenue Staff Federation invented the pay-as-you-earn system. He was told by the then Chancellor, who I believe was Sir Kingsley Wood, to keep his nose out of the Government's business. The Government introduced pay-as-you-earn a short while afterwards. I simply ask my noble friend to think about what I have suggested. I thank the House for listening to me so patiently.
§ 4.53 p.m.
§ Lord Levene of Portsoken
My Lords, it gives me particular pleasure to have the privilege of congratulating the noble Lord, Lord Christopher, on his perceptive contribution to this debate in his maiden speech today. His experience in the Inland Revenue both as a civil servant and latterly as general secretary of the staff federation brings a particular insight to your Lordships' proceedings in this House. His work and concern for many of the less fortunate members of society will also be of great value in your Lordships' consideration of these issues. We all look forward to hearing more from him in future.
I must declare two interests and make one apology. My interests are as chairman of Bankers Trust International and this year as Lord Mayor of the City of London. My apology is that my duties as Lord Mayor require me to leave the debate before it is over to attend the Queen's state banquet for the President of Germany.
My responsibilities as Lord Mayor cover two areas in the gracious Speech: the governance of London and the proposals for reform of the regulation of the financial services industry. The governance of London was dealt with in yesterday's debate, but I should like to place on record two points. First, your Lordships should note that in due course they will receive a Private Bill sponsored by the Corporation of London which will set in hand its own reforms, designed to modernise its electoral system and to give the world's international financial centre the best and most efficient local government, catering for the special needs of the industry, to be found anywhere in the world. Secondly, London governance and financial services are interrelated in this way: the 391 success of our financial services contributes to the stature of London as a genuinely world city. The better London as a whole is run the more attractive it becomes as a location for the companies and individuals who make up the financial services industry.
The City of London, which I represent, has become one of the strongest brand names that this country has. It is now recognised around the globe as the world's greatest international financial centre, as the noble and learned Lord, Lord Fraser, observed. But, like Wall Street in New York, which is used as a metaphor for that country's financial services industry, the same industry in London has now spread well beyond the City's and London's boundaries. But it is that industry which is called "the City", as its core activities are still concentrated in the Square Mile, and doubtless always will be. Today over 1 million people in Greater London work in financial services. The national figure is 4 million, which is the same as for the entire manufacturing sector.
The next Session of Parliament will be a very busy one. Despite that, we must guard against anything that creeps into the legislative programme here or elsewhere which will harm this asset; it is vital not only to the UK but to the whole of Europe.
The City has given the UK a huge competitive advantage throughout history. But today, all the nations of Europe can benefit from that same competitive advantage. The number of overseas banks and other financial services firms in London is the clearest evidence of that. It is one of the most important messages that the City needs to convey in Europe during the coming year, especially in the context of economic and monetary union. The euro will certainly bring huge changes and the City is well prepared; indeed, it is better prepared than many others. Throughout the New Year bank holiday weekend, when most of London is either revelling or asleep, some 30,000 people will be working in the City in order to prepare for the first day of trading in the euro on 4th January 1999.
The single currency will not rob London of its importance in the European time zone overnight. On the contrary, the deep, liquid markets in the City will be essential for the euro's birth and effective operation next year and in the future irrespective of whether or not the United Kingdom joins. While the United Kingdom is outside the first wave of the euro, the City of London is very firmly in and will trade the new currency from day one almost certainly to a greater extent than the rest of Europe's markets put together. The euro, however, may not even be the most important challenge. Other issues will profoundly shape the City's future. One is the role of financial services in modern society. Will financial institutions take on responsibilities allocated to the state over the past half century? What are the responsibilities of fund managers? Does greater private provision for personal financial security mean that the City will be subject to greater public accountability?
Technology is another challenge. New nimble providers will emerge. Borrowers and savers have already found innumerable and ingenious ways to cut out traditional intermediaries as many City markets have 392 discovered, sometimes uncomfortably. We are even treated to a vision of banking being conducted by satellites orbiting miles above the earth, conveniently free from inquisition by any government or tax collector.
Intense and intensifying competition within and between financial centres partly stems from relentless technological innovation. But the long history of the City suggests that it has little to fear from competition. That is why the City generally has always welcomed the creation of a single market in financial services in the European Union. The completion of the single market is vital to the prosperity of the whole of the European Union.
However, the rules for the single market must be drawn up so that Europe's financial business generally is not driven offshore and outside Europe altogether. The Commission's plans for a withholding tax to apply across the European Union to savings, income and, in particular, the huge euro bond market, concentrated in London but an asset to the whole Continent, will be highly damaging to Europe's standing in world financial markets. Elimination of harmful tax competition is fine, but it becomes self-defeating if the effect is to send business to other countries; and who is the winner then?
The Government have rightly taken a firm position against these plans. But I urge the Commission and the European Union presidency, both Austria now and Germany next year, to work through the OECD to seek world-wide agreement on such changes first instead of seeking to bring them into Europe alone. That is the only way to avoid the damage across Europe that they would otherwise bring.
This afternoon I have talked about a genuine British success story. The success of the City of London brings jobs and prosperity not only to London and the United Kingdom but to Europe as a whole. We promote standards of excellence which are generally the envy of the world. We act as hosts to an international community which affects the global nature of our world economy. It is vitally important that in implementing this Queen's Speech, and others in the future, Parliament and government are mindful of that, and nurture it as such to the benefit of London, Britain, Europe and the world.
§ 5.1 p.m.
§ Lord Brookman
My Lords, it gives me personal pleasure in this maiden speech to have the opportunity to talk about a subject close to my heart: the manufacturing industry.
I welcome the measures set out in the gracious Speech which I believe will continue to form the basis for a fairer society in this country. All my working life has been spent, in one way or another, in the steel industry, an industry which was given much support earlier today. I started at the Ebbw Vale steelworks in south-east Wales in 1953, following the footsteps of my grandfather, father and brothers. Those were the days when one expected to begin and end one's working life with the same employer. It was one of the periods when Welsh rugby reigned supreme. How times have changed!
393 At that time, my steelworks employed some 13,000 people. Today, that figure is reduced to 1,250 and continues to decline with rationalisation and so on. The scale of change in the steel industry is clearly illustrated by a statistic that I uncovered recently. When I began work in 1953, the steel industry in the UK employed 450,000 people producing over 17.5 million tonnes. Last year, 18.5 million tonnes were produced by fewer than 50,000 people. The changes that I and many others have witnessed at first hand have been staggering and painful for those communities like my home town of Ebbw Vale.
Yet today the UK steel industry, despite its current difficulties, is a success, with £4 billion a year being earned in exports, which is a fivefold increase over the past 15 years. I suggest that that is not an inconsiderable sum.
One of the current difficulties faced by manufacturing—and the steel industry is one of the most badly affected sectors—is the high exchange rate, which was mentioned earlier today. I am sure that that has been discussed many times in this House. There are those who are unhappy about the Government's decision to give the Monetary Policy Committee responsibility for setting interest rates, and in that respect I very much welcome the statement made by the noble Baroness the Leader of the House regarding the appointment of a Select Committee to consider its operation and to make recommendations.
From my perspective, a crucial question that needs to be asked is: how does the MPC's decision affect manufacturing? I believe that there is a need for the MPC to be given a wider remit which gives equal weight to employment and output as well as the control of inflation.
There have been suggestions, most notably from the TUC, for an exchange rate target. That may seem unfashionable in some quarters, but it would, if set at a sensible level, greatly assist our manufacturing industries.
I give one example of the consequences of too high an exchange rate. British Steel plc has claimed that every 10 pfennig increase in the value of the pound against the deutschmark results in £100 million lost profits. I am sure that noble Lords agree that it is a cause of great concern. However, I must say that in my view the Government have made a very good start in addressing the supply side of the economy and focusing on Britain's productivity problems, although it will undoubtedly be some time before the measures to address investment and training start to bear fruit.
It must be right for the productivity issue to be given top priority. The recent McKinsey Report, already touched on by the noble Baroness, Lady O'Cathain, showed that in many areas Britain is lagging behind its competitors in terms of productivity, although we must be careful, I suggest, to compare like with like. For example, the United States of America has higher prosperity per head, but that is partly as a result of longer working hours and higher employment rates. Moreover, productivity growth in the United States has been less. One disturbing fact is the growth in America 394 of the "working poor". Significantly, according to the McKinsey Report the world leaders in manufacturing workplace productivity are France and Germany.
I suggest that it is quite clear from analysing that report that the deregulations of the 1980s did nothing to create a more productive society. What these statistics seem to imply to me is that there is a positive correlation between the levels of investment, research and development, and growth and productivity. Here again, I would say that the UK steel industry is an exception, having increased its productivity by 10 per cent. per annum over the past 15 years. In fact, the UK steel industry is, by common consent, among the most efficient in the world. That is a tribute to the joint efforts of management and the workers in the industry. That is why the current difficulties that our domestic steel industry faces are a cause for concern.
The steel industry has invested in training and new technology and has introduced new working practices to improve quality and increase productivity. Yet the resulting benefits are under threat due to circumstances which many would suggest and some would agree are beyond the industry's control.
In my opinion the key to the continuing successful introduction of measures to improve the performance of our manufacturing industry is to ensure the involvement of social partners. We need to continue to develop a culture in this country between employers and the workers which is based on trust and mutual respect, one which recognises that workers and their elected representatives have a legitimate role to play in improving the performance of the companies for which they work.
For all my working life as a trade union official, whether locally or at national level, I sought to develop a relationship with employers, including industrialists such as my good and noble friend Lord Paul, who sits on the Benches below me today, which was based on trust and mutual respect. That is why I wholeheartedly endorse the Government's commitment in the gracious Speech to continue to work in partnership with business, and their welcoming of the improved relations between business and trade unions. I am personally delighted that the Government are to bring forward measures to establish a forward-looking balance of rights and responsibilities for employers and employees and will promote partnership at work.
There may have been an argument—indeed, a strong view held by many—that trade unions were obstructive to change in the past. But my experiences demonstrate otherwise. I shall use what influence I have to encourage unions to work with employers on the basis of such social partnership. In my opinion, the measures in the gracious Speech lay the foundation for such partnership and fairness at work, as well as promoting competitive success. I am delighted to support the Government's programme.
Finally, I thank everyone—and I genuinely mean everyone—for the warmth and friendship shown to me and the new Peers who have joined me in your Lordships' House. It is indeed a privilege to be here.
§ 5.11 p.m.
§ Lord Wade of Chorlton
My Lords, it gives me immense pleasure on behalf of the whole House to congratulate the noble Lord, Lord Brookman, on his maiden speech. As we gathered, he is a Welshman of steel, a formidable combination. On reading a little about him, what impressed me most was that one of his pastimes is keeping fit. I must admit that that is one aspect of life which I have never been able to put at the top of my agenda. In fact, I always carry a telephone number in my pocket so that should I get the urge to jog I can ring the number and the lady on the other end will talk me out of it. Therefore, I have great admiration for the noble Lord's iron discipline that has allowed him to go to the gym rather than to be seduced away by his trade union activities. It has been a privilege to listen to his maiden speech; it is a privilege that he should join us in your Lordships' House. We wish him well and look forward to the many other opportunities which we shall have to hear his views on a whole range of subjects.
In discussing industry and the economy, it must be said that within the United Kingdom we have some of the finest and most efficient companies in the world, companies which produce the finest products in the world. We have some of the best managers and some of the leading employees with skills and a range of enthusiasms which are difficult to beat.
The noble Baroness, Lady Hollis, referred to the fact that our productivity needs to improve. Clearly, when one looks at the demands on society and government, we need to see a steady increase in the economic growth of this country if we are to have a hope of ever meeting the demands that society is continually putting upon us. Therefore, it is right that we should address the issues which are preventing that necessary development and growth.
My noble friend Lady O'Cathain referred to the McKinsey Report, as did the noble Lord, Lord Brookman. It was my intention to make that the basis of my remarks. Therefore, I shall now be able to shorten them, which will be in the interests of all.
The gracious Speech states:At home, the central economic objectives of my Government are high and stable levels of economic growth and employment, enabling everyone to share in higher living standards and greater job opportunities".That is extremely important. I read with some interest the comments of Peter Mandelson when speaking at the CBI national conference recently. He said:Businesses' overriding responsibilities are to win markets and to make profits; government's to concentrate on getting the business environment right. Competition drives innovation, customer service and competitiveness. My ambition at the DTI is simple: to create a world-class environment for business, bringing business into the heart of policy making in Whitehall, in the regions and in Europe".I agree strongly with those sentiments. But one is sometimes doubtful whether the implementation fits in with other aspects of government policy.
396 I agree also with the part of the gracious Speech which refers to regional development agencies. It confirms that they,will be established in England, decentralising decision-taking to the English regions. They will have a remit to serve both rural and urban areas".I hope that they will be responsible for business growth.
The underlying point of the McKinsey Report is to draw attention to the fact that we need to look again at some of the critical trade-offs in the United Kingdom between social and economic objectives. The balance between the two has probably gone more towards social and environmental aspects and has forgotten the important economic objectives for which any European policy and government policy must be responsible. Wide productivity gaps will ultimately be unsustainable in a global marketplace in which customers have their pick of goods and services from anywhere in the world and while best practice customers seek to extend their advantage into more and more national markets. In such an environment, companies which are not up to the standard of the global benchmark for productivity will eventually become non-viable.
Those arguments do not propose the wholesale lifting of land and property regulations. Many other matters must be brought into consideration. What matters is that planning decisions and regulations are made on the basis of full and accurate information and properly balanced objectives and that when choices are made, everyone understands the possible economic consequences.
Product market and land use regulations create barriers to the entry of new firms and hinder the domestic expansion of the most productive of our companies. I am extremely grateful to my noble friend for citing some of the quotations which I intended to give because that has made life much easier for me.
Let us look at some of the proposals. To reform product market and land use regulation, there needs to be, first, a systematic identification of the barriers in each product market and the barriers to world-class productivity. A thorough assessment is then needed to understand the economic cost against social benefit together with a comprehensive reform of product market and land use regulation. I have personal experience of dealing with small and growing companies from both the financial and management points of view. I believe that those are extremely serious issues which the Government must address.
It is unfair to ask local planners to implement a more growth-orientated regulatory regime if their communities do not see any direct benefits from it. Local communities should derive financial benefits from new investment in their areas.
We need to develop a modern approach to competition and increase exposure to global best practice. Government and industry could sponsor international benchmarking studies to identify the rate of productivity improvement in the UK and the causes for the gaps. More positive action could be taken for the creation of incentives for companies, particularly overseas companies, to start operation in sectors of low productivity rather than in areas of low employment. In 397 many of our activities we have put too much emphasis on employment creation rather than on improving productivity. There is no doubt that higher productivity is the best stimulus for creating jobs. The creation of jobs is not the key to economic growth but productivity is.
We must invest more in the capability and flexibility of the working population. The regional development agencies will have a responsibility for rural matters and rural economy issues. There is no question that there is a crying need for retraining and the development of ideas and enthusiasms in the populations which are now encountering serious problems in rural areas. We need a much better policy to deal with the retraining of those people. We need to remove barriers to entrepreneurship and technological innovation.
We need improvement in the commercialisation of academic research. I have been instrumental in the north west in the development of Campus Ventures, a special company of Manchester University set up to encourage the commercialisation of innovative ideas. I notice the noble Lord, Lord Sainsbury, looking at me. He was recently invited to visit but unfortunately had a more pressing engagement. I ask the noble Lord publicly again to put it on his agenda. I hope that at Manchester University he will see how we have been able to take 30 or 40 companies from scratch (no assets, only an idea) and turn many into successful businesses. It has needed outside resources and input from a whole range of people to make it happen. It is so important to the future of our economy.
The universities should improve their ability to develop more potentially high-tech entrepreneurs. In my view universities could provide courses for entrepreneurs which would give confidence to seedcorn capital and venture capital companies to back those who have passed such courses. The Government could underwrite such financial support. In Germany there is a special scheme supported by the government where people, if financed by banks, will be underwritten by the government if they have passed the appropriate courses. We need much more support to assist people with technological skills to run businesses. It is an area we need to examine more closely.
We need investors better educated in the needs of small businesses. The noble Lord, Lord Evans, in his maiden speech—I agree with so much of what he said—drew attention to the needs of small businesses by detailing how he had struggled in the early stages. Clearly, there is a wide gap between those who can provide the finance and the needs of small businesses. Neither understands the needs and the working mind of the other. A great deal could be done in that regard with the support of the Government.
Seedcorn investment needs particular attention and support. We need provision of a liquid exit market to provide finance for seedcorn investment companies to re-invest. I am involved with one or two seedcorn investment organisations. We find it extremely difficult to get our money out of company A in order to invest in company B because it is very often the only capital that was in that seedcorn company and the next stage 398 cannot be brought in until we find a solution. We require the removal of barriers to the formation of natural clusters of entrepreneurial ventures. Clusters act as a magnet for talent and reduce costs. Many universities and centres of higher education wishing to create such clusters face problems of planning which prevent development along lines the market really needs.
It is my belief that tax and fiscal harmonisation in Europe would be against competition; it would be against economic growth in Europe; and it would be against the interests of all those who live in Europe. I hope the Government will stick by what they say and resist it at all costs.
I believe that what the Government are tackling and what is being discussed in this debate is the need for an economic policy which encourages all levels of entrepreneurship, ideas and the technology within that economy which is essential to achieving everything else we wish to see.
§ 5.23 p.m.
§ Lord Newby
My Lords, it is a great pleasure for me to speak in a debate with so many maiden speeches. I do not know whether there is a collective noun for maiden speeches—perhaps it should be a lobby—but I have listened with great interest and wish that I were able to take up all the points that have been made. I was particularly sympathetic to some of the comments of the noble Lord, Lord Christopher, in respect of pensions. I would like to debate with the noble Lord, Lord Brookman, the alleged relationship between employment in the steel industry and the prowess of the Welsh rugby team. Although one could do a time-series which might or might not prove that in the case of Wales, one might have a bit more difficulty in applying the same principle to New Zealand.
Instead I wish to concentrate this afternoon on a number of international aspects of our economic and industrial affairs. I suspect the House will not be too surprised if I start with the vexed question of EMU. The Queen's Speech contains the following ringing declaration, that Her Majesty's Government,
will encourage preparations in the United Kingdom for the introduction in other Member States of the Euro".The biggest economic initiative since the Treaty of Rome receives in the UK a mere whimper by way of government response. One may disagree with Opposition policy but at least it is clear. There will be no entry into EMU for at least the life of this Parliament and the next.
It seems to me that the Government's position is truly inglorious. The Chancellor wants us in. The Secretary of State for Trade and Industry wants to get us in. Yet Rupert Murdoch does not want us in yet, at least until his European empire has grown somewhat. And so we have an elaborate device for the five economic tests to give spurious cover for a political decision to procrastinate. No wonder that industry is confused and unsure how to prepare for 1st January.
In Continental Europe, by comparison, dual pricing in the shops (the euro and the national currency) has graphically demonstrated to everyone that change is on 399 the way. Here business is understandably loath to spend money preparing for the euro when it is often unsure how it will affect it in the short term and even less clear about the longer term. Given the lag between any decision to enter and the ability of banks, shops and industry to manage the transition to the euro, even a decision in principle now to enter would leave us a number of years behind the 11 initial members of the euro club.
We will, in January, see the Government's changeover plan for entry, which I suspect will show that the changeover period will be some three to four years. The earliest, therefore, that the UK could enter would be 2002, but even that would require a decision early next year and so far there has been no sign of this.
It seems to me that there are significant short- and long-term costs to this delay. It is particularly so because the pound and interest rates are still too high. As far as sterling is concerned, although the trade-weighted value of the pound appears to be only a little above its May 1997 level, looking at the real effective sterling exchange rate used in the OECD index, it is clear that it is some 8 per cent. higher than in May last year and fully 26 per cent. above the level in May 1996. In other words, it is clear that sterling is still somewhat over-valued and life is going to remain tough for exporters. The economists Goldman Sachs, in their weekly economic update, suggest this week that they consider the level of 2.50 deutschmarks to be close to the fair value of sterling, still some 30 pfennigs below where we are today.
A lack of government commitment over the coming months, I believe, runs the real risk of leaving the pound open to buffeting between the Scylla of the euro and the Charybdis of the dollar. It is hardly a stable basis on which our exporters can plan. If the pound is too high it is clear that our short-term interest rates are still extremely high in relation to those of Europe. At 6.75 per cent. it is around double the 3.3 per cent. average in the euro zone. With the retail side of the UK economy still softening it may well be that the Bank of England is able to cut interest rates by a further quarter point next Thursday, but this will still leave a yawning gap between the UK and the euro zone. The clear commitment to join the single currency now could help take pressure off our hard-pressed manufacturing sector.
If these are short-term problems, in the longer term we face the prospect yet again of Britain having no real ability to determine many of the rules of the euro game simply because we are not at the table. The Chancellor may have signed up to the new European way with his socialist and social-democratic colleagues, but the plans which this document sets out are predicated on the reality of the euro. The truth, of course, is that this Government still cling too much to the old British way of dealing with Europe: letting the other members take the risks and set the rules and then coming in late and expecting the rules to be changed to suit us.
An example of what we are missing by being left out relates to some of the principles on which the European Central Bank is now planning to operate. The effect of having had an independent central bank means that 400 we have discovered a measure of openness and accountability in dealing with the central bank. The European Central Bank started off with a different tradition and, frankly, we had little input into that. Had we been at the table from the start it would have been easier for us to obtain a greater degree of openness and accountability from the European Central Bank.
The Government's lack of clarity on the euro is matched by their lack of clarity more widely on the question of taxation and the implications of EMU for taxation. It must be said that a tremendous amount of nonsense has been written on this issue over recent weeks. For example, contrary to what one might have thought on reading some of the tabloids, there are no plans to harmonise income tax; there is no conspiracy to set uniform business taxes. There has been some discussion about co-ordination and co-operation to avoid mutually harmful tax competition, and surely that makes sense. Even on the one issue on which there is a firm proposal which causes some concern in this country, to which the noble Lord, Lord Levene, referred—namely, the withholding of tax on savings—that is opposed not only by the UK but also by a number of other member states. Therefore, even if the veto on tax matters did not exist—and it does exist—that measure would not have obtained a qualified majority and stands no realistic chance of going through.
It seems to me that the paranoia in relation to tax reflects a lack of self-confidence in the country and an unwarranted assumption that if a Commissioner or Cabinet Minister in another member state floats an idea it is about to be imposed upon us virtually without our having any say, whereas, by comparison, if a UK Cabinet Minister floats an idea there is an assumption that it will necessarily meet a hostile reception and sink without trace. Neither of those stereotypes is true but they have bedevilled our relations with the EU from the start. I fear that this Government's policy will do little to change that.
Perhaps I can make a final point on tax. There may be some areas where a joint approach to taxation makes sense. One which is specifically in our minds on these Benches is the area of energy taxation, where there is a clear desire across Europe and in this country—as the noble Lord, Lord Marshall, demonstrated in his recent paper—to have a degree of taxation on energy matters. It makes sense that that is done in a co-ordinated rather than in a piecemeal way.
A final area to which I should like to refer this afternoon goes beyond the euro and our relations with the EU, but relates to a broadly similar matter; namely, the fact that increasingly our economic and industrial success depends on the actions of a range of international institutions. So far I have talked about the European Union. I should like to speak briefly about the international financial and economic institutions. They have an increasing importance across a whole range of matters affecting the UK, both directly and indirectly, by the impact they have on the economies of our trading partners, particularly in the developing world.
I have been pleased that over recent months the Government appear to be taking the lead in a number of major issues affecting those institutions, whether it is 401 Internet commerce or an attempt to recast the MAI. But there is a gap in the way that Parliament deals with its scrutiny of those bodies.
Tremendous time and effort is taken both in another place and this House to call domestic institutions to account. When it comes to international financial and economic institutions, all of which have UK representation, there is little attempt, ability or opportunity to discuss what we are doing in, for example, the EBRD or the World Bank. That is a major gap which has the effect that those institutions not only are but are also seen to be unaccountable, and that diminishes their standing among politicians and more generally. I urge the Government, therefore, to give some consideration to how the principle of scrutiny which we have developed in domestic institutions can be extended to these increasingly important international counterparts.
§ 5.34 p.m.
§ Lord Craigmyle
My Lords, a newcomer to your Lordships' House is frequently asked whether he feels nervous. I say "No. Their Lordships' House is a kind place, whose Members and officers epitomise helpfulness and encouragement", for which I am very grateful. However, I am awed by the content and majesty of your Lordships' deliberations. And with awe, I now crave your Lordships' indulgence.
We have a welfare system built up over 50 years, so complex in its results that it is almost impossible to predict the outcome of any change made to it. The effects of change can seldom be only those which were intended. I wonder sometimes whether Ministers wish that they could sweep away the entire edifice and start again with a clean slate. Plainly, the Government should be congratulated on taking on entrenched and systemic problems.
Along with the great majority of family men, I chose marriage. Families founded on marriage are most likely to produce children who do well in school; who go on to higher standards of education and who get jobs. Like their parents, they tend to be healthier than children from other families. They see their doctors and visit hospitals less often and are less likely to need social or financial assistance from the state. When the time comes, they have the best chance of repeating their satisfactory childhood experiences when raising their own children. Children of marriages are least likely to turn to substance abuse or to crime. Have I made a case for marriage yet? In the interests of fairness, I sought to find unflattering statistics about marriage. I failed. It has been shown that married people are even less likely to have road accidents—I do not know why.
Of course, we can be grateful that some unmarried families buck the trend in a positive direction. But we cannot escape the statistical probabilities that shape society. Plainly, there are huge benefits in being married and I am delighted that the Government have a stated aim of supporting and encouraging marriage; all the traits of marriage bring fulfilment and joy to relationships and stability to the country. They make the 402 family, as the Home Secretary rightly said, the building blocks of society. They are of course also a gift to the Exchequer.
Frequently in a family, not just in marriage, one parent—usually the mother—stays with the children for their early years. She watches over their every development, understanding through an invisible bond their unspoken needs, and answering their questions at the rate of 20 to 30 an hour. Such diligence is not for sale. Love has no price. Yet a mother is often under great pressure, both social and financial, to seek paid employment while leaving her children in care. The suggestion seems to be that government agencies or non-related persons can make up for the lack of a parent. I am very uncomfortable with that suggestion.
Yet, some parents wish to work away from their children; we will never know just how many until they are presented with an unbiased choice. An unbiased choice means no loss of benefits for those who would look after their own children. It means that their spouses, if they have spouses, should not pay extra tax as a result of leaving their partners at home.
I have avoided numerical statistics. I shall resort to quoting some to express just what a pickle we are in. The medium gross income for families is now £407 per week. If that comes from the efforts of a single earner with, say, two children, it is reduced by tax and benefit losses to 48 per cent. of the net equivalised income of a single person earning the same amount. Less than half.
Poverty has become a marital issue. I am grateful to the analytical services division of the DSS which last week showed how children are affected by it. Taking poverty at half average income, most children affected by it are from married families. There are 1.8 million of them. The point, my Lords, is that marriage is being driven into poverty in spite of its intrinsic strengths.
These are gritty problems to embrace, but as long as the Government drive towards their stated aim of supporting marriage—and I hope that they will—I am sure they will receive wide support.
§ 5.40 p.m.
§ Lord Barnett
My Lords, it is traditional to congratulate a maiden speaker. I do so not because it is traditional but because it is well deserved. That was an excellent speech. Indeed, we have heard many excellent speeches today, but that of the noble Lord, Lord Craigmyle, has given us all a great deal to think about. I declare an interest in the sense that my parents, I am happy to say, were married. I shall turn shortly to a few matters concerning tax, to which the noble Lord also referred.
I know that the noble Lord runs a successful string of SMEs; that is, small and medium enterprises. I declare an interest as chairman of an SME. For obvious reasons, I believe that small is beautiful.
The noble Lord also has a great social conscience and has a good deal to do with social and charitable organisations. I know that he will be a great Member of your Lordships' House for however long he is here! 403 I look forward to hearing him speak as often as possible, as, I am sure, do other noble Lords. His views will be of great interest to us.
The noble Baroness, Lady Hollis, will forgive me if most of my speech is on the economy. However, perhaps I may comment first on means tests. The noble Baroness did not say much about them. However, there is no need for her to apologise if from time to time the Government need to use them in order to achieve their objective of helping those in greatest need. That would include taxation of child benefit. I know that that is not entirely a matter for her, but I hope that it will be a matter for my right honourable friend the Chancellor of the Exchequer. Traditionally, we in the party have always opposed means tests because of the way they worked in the past. However, provided that they are carried out so as to give dignity and respect to the recipients, we should not need to apologise for them. I urge that point on my noble friend.
I turn to the economy. There has been much talk in the press about crisis and recession. The media likes the word "crisis". It makes a nice headline and is a useful word to them. I do not blame them for using it; they have to fill their papers with something. However, I noticed that the Prime Minister, recognising that the word "stability" would not make a good headline, added another word. He said, "Stability is sexy". Even that did not prompt too many headlines!
I asked myself two questions: "Is there a crisis? Is there a recession?" I first had to answer the question: What is a recession? I asked a number of economists and received at least three different definitions—my learned friend Lord Desai will have many more. The first is that there are two successive quarters of negative growth. The second definition, by some economists, is that any fall in growth is a recession. The third, which might be a more recognised definition, is growth below a sustainable trend.
At least two of those definitions are effective now. There has certainly been—and there is now—a slow down in economic growth. More importantly, what will happen to economic growth next year and the year after? That is the real cause for worry about whether there is or is not a recession.
The Chancellor, in his recent pre-Budget Statement, forecasted that next year we shall see 1 to 1.5 per cent. growth; the following year 2.25 to 2.75 per cent., and in 2001 2.75 to 3.25 per cent. Other economists have more varied views. Perhaps not surprisingly, if one consults a large number of economists one will receive a large number of views. However, I am in the "don't know" category. I would not care to forecast tomorrow's weather, particularly in Manchester where I live.
The question is whether growth in the economy in two years' time will be affected by a quarter or a half per cent. cut or increase in interest rates. I find it astonishing that anybody is able to say that a quarter per cent. more or less will do this or that in two years' time. For those reasons, I have probably ruled myself out as a member of the Monetary Policy Committee, but 404 perhaps not of the Select Committee which studies what the MPC is doing. I have always envied people who are able to make such forecasts.
On the one hand, we read that a quarter per cent. cut in interest rates is not enough, but, on the other hand, we read that a half per cent. cut causes panic. That is another buzzword. I do not know the answer. I would prefer to have lower rates than at present. Sadly, unemployment is set to rise. That seems true, whichever economists' views are taken into account.
Some manufacturers are having a bad time though not all. That, I understand. I have spoken to many manufacturers. Much of the problem is to do with high interest rates and the high exchange rate. However, I have to say that I have not heard those who criticise such high rates suggesting ways to reduce them. I shall put one or two suggestions to my noble friend in a moment. I would prefer higher rates of growth—to pay for so many of the things which need to be done—even with a small risk to the level of inflation. However, I do not believe there is much of a risk at present. I do not blame the Monetary Policy Committee for dealing with interest rates in the way it has. After all, your Lordships and another place gave it the powers in the Bank of England Act to give the highest priority to inflation and, as I said previously, only then to give consideration to the Government's own economic policy. I hope that might be changed in the not too distant future.
How much lower will growth fall? I fear it is distinctly possible that the Chancellor may have been too optimistic. I hope that I am wrong. However, I would have qualified the forecast if I had been the Chancellor. On the other hand, even if the gloom-mongers or doomsters are right about growth. It seems to me that the borrowing requirement—we no longer seem to use those four letters, the PSBR—leaves plenty of room to avoid an old-style slump or crisis. The plain fact is that in 1997–98 the borrowing requirement, or the PSBR, was £42.1 billion. Of course, that is a lot of money—unless one says it very quickly—but in 1998–99 GDP is likely to be around £855 billion. Therefore, the PSBR will be less than 40 per cent. However, if my noble friend will forgive me for using the term, the Maastricht criterion is 60 per cent. I know my noble friend will understand that we can well afford that kind of borrowing requirement.
I hope that the Government will allow the borrowing requirement to rise so as to prevent growth falling too low. It seems to me that there is today a low inflation culture both here and in Europe, and, indeed, in the western world. So I prefer stability, whether "sexy" or not, to the doomsters' predictions.
However, although this will upset my noble friends the Eurosceptics, we could have even greater stability if we were more positive on economic and monetary union. I hope that my noble friends will not just dismiss the scare stories about tax harmonisation because of our veto. I would not like to pretend that the tax system is perfect in every sense—I believe that there is clear room for improvement—but we should not dismiss every possible change as being ridiculous. It would not be. Indeed, there is also room for change in that respect! Of 405 course, Eurosceptics will not believe what I say. During the debate a few weeks ago on the European elections Bill, I said that if they offered every member of the Community a bar of gold it would be turned down. Equally, any tax harmonisation would be turned down even if it were to our benefit. I hope that we will not turn that down.
The main issue is not tax; it is the consequences of economic and monetary union, whether we are in or out. EMU is due to start in a month's time. I know that some people believe that we can ignore it and live happily ever after—and I shall not mention names—but I hope that most of us will recognise that that is a ludicrous idea. The plain fact is that we will be affected whether we are in or out. As we said in our report on the European Central Bank, being in is not risk free but we also said unanimously that it will work.
So what should the UK be doing? I have one final, simple question for my noble friend the Minister to which he can give me an equally simple answer when he responds to the debate. I urge him not to repeat the Prime Minister's statements. He is an independent Minister here in this House and does not necessarily have to agree with everything that the Prime Minister says. As it stands, we seem unlikely to join much before the year 2003. I should like to focus briefly on the statements made by the Prime Minister and others that we will join economic and monetary union when the time is right and when it is in the UK's national interest.
Therefore, does my noble friend the Minister agree that it is not a question of if but of when we will join the EMU? After all, that will still leave us free to join when the time is right. Indeed, it will be a no-lose situation, because we will not join until the time is right. Interest rates would start to fall to the 3.3 per cent. average in Europe, and our exchange rate would also start to fall. Can my noble friend confirm that it is a question of when we join rather than if? I know that he will give me a truthful answer to that question.
§ 5.54 p.m.
§ Baroness Sharp of Guildford
My Lords, it is a pleasure to be speaking in this debate when we have been treated to so many excellent maiden speeches. Indeed, I look forward to hearing another one very shortly. I put my name forward for the debate because I wish to record my endorsement of the Government's commitment recorded in the gracious Speech to promoting growth and higher levels of employment both within the UK and within the wider framework of the European Union. Like the noble Lord, Lord Barnett, I feel that those commitments are important.
However, I wish to address my remarks today to one of the issues which has already been fairly well covered; namely, the productivity gap. I should like to speak specifically about two issues arising from that gap which I believe to be very important and which have not received enough attention to date. The first issue is that of skills. As the noble Lord, Lord Barnett, said, last year the UK recorded a growth of 3.5 per cent. But that rate of growth, which is one of the highest rates that we have recorded over the past 25 years, was considered 406 unsustainable. It was considered unsustainable because we would run into bottlenecks on the supply side which would force us into inflation. As a result, the Monetary Policy Committee stepped in and raised interest rates—as it is bound to do because legislation requires it to do so if it fears that inflation will rise—and, in so doing, has not only cooled the economy by raising the cost of credit but has also disproportionately hit manufacturing industry by raising the value of the pound.
As my noble friends Lord Razzall and Lord Newby pointed out, had the previous government, or even this Government, taken our advice and used taxation rather than interest rates to cool the economy and, on top of that, had they made a commitment to enter in the euro at the earliest possible point, we might have avoided these problems. But we did not. However, be that as it may, the point that I wish to bring to your Lordships' attention is that, even though the unemployment figure last year was still close to two million, nevertheless, with the growth rate 3.5 per cent., we teetered on the brink of inflation. Why is that? What are these supply-side bottlenecks that cause us to move into inflation so rapidly?
I believe that the most important of those bottlenecks is the one that we hear so much about; namely, the skills bottleneck. This year it has been computer programmers and systems engineers partly because of the millennium bug, but—and those who work in the property business will know this very well—we have also run out of electricians, bricklayers and plumbers. Indeed, we have run out of a great many ordinary skills which we might have been expected to have. But now that we have a deregulated market in all those areas, the moment the economy tightens, wages rise rapidly and the skills shortages show themselves very clearly.
The Government quite rightly identify education as a key priority. It lies at the heart of the productivity problem. Much has been achieved by increasing the proportion of 18 year-olds going into higher education and by encouraging many older people to go back into higher education. But we still have a disproportionate number of young people leaving school at the age of 16 and failing to achieve a proper post-16 education or training. A recent survey reported in The Times Higher Education Supplement found that standards on training schemes are extremely low and leave much to be desired. Many of those who have been put through training schemes then pass on to another such scheme and thereby miss the chance to get a proper job.
The old apprenticeship system that we had, which required seven years of sitting next to Nelly, quite rightly collapsed at the end of the 1970s and in the early 1980s. We now have what we call a modern apprenticeship system but far too few young people sign up for modern apprenticeships and far too few of those who do sign up carry on with the apprenticeship to the end. As a result we have far too few qualified plumbers, electricians, bricklayers and telecoms engineers and far too many cowboys who have done a little bit of a course here and there. It is precisely this lack of skills in core areas such as construction that makes a 3.5 per cent. rate 407 of growth unsustainable for us. Unless we address this issue, we shall not be able to bring unemployment down.
I am not yet convinced that the Government have grappled with the issue of vocational training. Last year, an excellent report was published by a group led by the noble Baroness, Lady Kennedy, but we have yet to see the result of that report coming through. Perhaps too much emphasis is currently being put on the school and higher education sector and not enough on this sector. I look forward to hearing the Minister's comments on this issue.
I would like briefly to turn to the second issue of small and medium-sized businesses. We have already had some discussion of it in this House. Again, if we look at the productivity problem, it is the performance of these companies which lies at the root of it. In some senses it is a matter of needing to hi-tech our low-tech businesses. New technologies—particularly information and communication technologies—have transformed both industrial processes and administrative procedures for such companies. It is vital that these opportunities are seized by industry, large and small. It is in taking up these new technologies that the small business sector is the laggard.
How best can small business be helped? We have had many schemes put forward but they have been predominantly schemes concerned with what I call the hi-tech end of small business. They are concerned with seed corn capital, with venture capital, with helping to link up with universities in terms of hi-tech businesses. Yet the core problem of productivity lies not with our hi-tech businesses but with our non-hi-tech businesses and the way they take up new technologies and use them to improve their productivity. It is the tail of these small companies that weighs down our productivity performance.
I recommend to your Lordships a programme undertaken in the United States called the Manufacturing Extension Programme. It is deliberately based on the same sort of ideas as the agricultural extension programme, ideas about getting out and helping small businesses on the ground. There, they work in conjunction with state governments, local government, local universities and local community colleges to upgrade the performance of small businesses.
We see the same in Germany with the Frauenhofer Society institutes, which work in conjunction with their local chambers of commerce and serve the Mittelstadt, which is such an important part of German industry. I want to draw to your attention the transformation which has taken place in Germany over the past 10 years. I work a great deal in the area of biotechnology. I am fascinated that, in the past 10 years, Germany, from having lagged behind in terms of small biotechnology companies, is now leading Europe. When they decide to pick up and work on new technologies, the Germans work very fast indeed.
We need policies for small and medium-sized businesses which start bottom-up, not top-down. It is no good the DTI laying down policies that have to be 408 followed through government offices of the regions, and so forth. We hope very much that the new regional development agencies may do some of this. But I fear that they also are too top-down. They have not been given enough discretion. We have not yet sufficiently cut the Treasury bond. We need to see more vitality and more creativity coming up from the bottom. If we are prepared to give some discretion to certain of these institutions and organisations, I believe we can do it. I do not believe we can do it if we continue to keep the reins too tight.
I recommend both areas as being important to the productivity issue. We have spoken a great deal about this in this debate. It is an issue that has bedevilled the UK economy for the past 50 years. Education and skills and the performance of small businesses are key factors in Britain's performance. I welcome the priority given to both issues by the Government within their overall economic strategy and I look forward to hearing from the noble Lord, Lord Simon, as to how it is proposed to carry forward these matters in future.
§ 6.05 p.m.
§ Lord Clarke of Hampstead
My Lords, I am conscious of the fact that I am the fifth of the maiden speakers this afternoon, but I would like to offer my congratulations to the other four noble Lords who have preceded me in their maiden speeches. They were of excellent quality. I just hope that the standard will be continued for the next few moments.
I would like to spend a few moments remembering two noble Lords—now, sadly, no longer with us—who have sat in your Lordships' House and who bore the same title of Hampstead. I refer to the late Lord Pitt of Hampstead and the late Lord Finsberg of Hampstead. They were two noble Lords separated by their political allegiances but together in their desire to give of their best endeavours to help others throughout their distinguished public lives.
All three of us were candidates in the Hampstead Parliamentary constituency. The late Lord Pitt entered your Lordships' House in 1975. David Pitt, as he was in 1959, contested the Hampstead parliamentary seat in that year. I well recall that election. I canvassed many households seeking support for David. I am pleased to say that he never held me responsible for the fact that he was unsuccessful. In both the 1974 general elections, I stood as the Labour candidate and my opponent was the late Geoffrey Finsberg. Like the late Lord Pitt before me, I too was unsuccessful. Geoffrey Finsberg, as he was then, retained his seat until his retirement from the other House in 1992. Later that year he entered your Lordships' House.
It is with a little pride and a great deal of humility that I say during this, my first contribution to your Lordships' House, that I remember both noble Lords with much pleasure. I am proud to say that they were both my friends. I can only express the hope that in my time here I can get somewhere near the high standards that they both set. It is a very tall order. All I can say is that I shall try.
409 I listened carefully to the gracious Speech. I was hoping that it would contain an indication that the industry that I have been associated with for over half a century would at long last know what its future would be. I speak of our great Post Office, a post office that I joined at the age of 14 in 1946.
I am aware that I am not the first postman to join your Lordships' House. That honour fell to my noble friend Lord Ewing of Kirkford. While I accept my place as the junior postman in this House, perhaps I can claim to be the first telegraph boy to arrive here. I have no doubt that someone will correct me on that point if I am wrong.
Speaking of postmen, I understand that my noble friend Lord McIntosh of Haringey, in a reply to a point made by the noble Lord, Lord Ewing, on the 10th November at col. 626 of the Official Report, said that the noble Lord, Lord Dearing, had informed your Lordships' House that he had been a postman. This information came as a bit of a surprise to me. 1 recall a number of delicate situations in the Post Office when the noble Lord, Lord Dearing, was in fact chairman of the Post Office Board and I was a senior negotiating officer for the Union of Communication Workers. I thought that I should check carefully what the noble Lord said, and col. 507 of the Official Report provided the answer. Declaring his interest in the Post Office, the noble Lord, Lord Dearing, described himself:as a former postman of sorts".—(Official Report. 9/12/98; col. 507.]I can assure your Lordships that he was not the sort who got up at around half past four in the morning to deliver the mail. He did not join us in serving the 26 million addresses that our great Post Office serves every day. I have had the opportunity to speak to the noble Lord, Lord Dearing, about this. He was happy to concede that he had not delivered many letters but he said he had sold a lot of stamps.
The gracious Speech mentioned that other measures would be laid before Parliament. It is my hope that among those other measures will be a decision on the future of the Post Office. During my long years with it I have witnessed many reports and reviews of the Post Office. Recently they have come in thick and fast. Including select committee and Monopolies and Mergers Commission reports, they have averaged one per year for the past 13 years. To many employed in the industry—I include management and staff alike—such constant examination and re-examination appear to take up time and resources that could be better used in the ever-present determination to improve on the magnificent service that they already provide. I believe that it is the best service in the world—and I have seen many of them in my long time as a union official in the Post Office.
The Post Office that I am so proud of has contributed much to the Treasury over many, many years. This year, the financial targets set through the external financing limit have again been met, and met handsomely. Given an overall external financing limit target of £313 million for the Post Office as a whole, it actually achieved £338 million—£338 million paid direct to the Treasury on top of the £217 million paid in corporation tax.
410 It is not only this year that the Post Office has met the target set for it by the Treasury. For 20 years the Post Office has achieved subsidy-free profits. It has exceeded the external financing limit target set for it in 13 of the past 16 years. It has contributed in excess of £2 billion to the Treasury during the same period of 16 years.
I would add that this success story has been achieved at a time when Royal Mail has been able to maintain 33 months of stable prices. With the price freeze that will last until next April, it is the longest period of price stability for more than 40 years.
The Post Office, all of it—the counters business, Parcelforce and Royal Mail—deserves better. It is my sincere hope that, when the current review is concluded, it will recommend that our Post Office should be allowed to get on with its job of serving the public. It should, in my view, be given the commercial freedom that it has asked for, real commercial freedom that will allow it to compete and grow unencumbered by the constraints of the public sector borrowing requirement.
The case for allowing the Post Office to have commercial freedom has been well made by both management and the unions in the industry. In July of this year, John Roberts, the Chief Executive of the Post Office, when presenting the 1997–98 accounts, said:We are planning our future on the basis that it is no longer a question of whether we will be getting commercial freedom, but when".He added:But it must be real commercial freedom which will allow us to compete and grow our business, unfettered by the chains of the Public Sector Borrowing Requirement".The Communication Workers Union, my union, has recently put its model for an independent publicly owned corporation to London Economics. That theory of an independent publicly owned corporation has been validated and supported by London Economics. The general secretary of my union, Derek Hodgson, has welcomed the firm backing given by such a highly regarded leader in the field of the economics of privatisation and regulation. Mr. Hodgson has said:The IPOC model, if accepted by the Government, will give the Post Office the commercial freedom it needs to compete, it will impose discipline on managers; at the same time it will give the public an assurance that the Post Office monopoly will not be exploited to produce excessive profits".Commercial freedom will allow the Post Office to plan outside the Government's public expenditure cycle. It will give it freedom to borrow and invest, freedom to enter into acquisitions, joint ventures and strategic alliances and freedom to allow the workforce to share in the success of the Post Office.
The competition that faces the Post Office—and especially the Royal Mail—is real. At least eight overseas postal authorities are busy at work in the United Kingdom competing for business with Royal Mail. The uncertainty that has overshadowed the Post Office for so long has to be ended, and ended quickly, if our great publicly owned corporation is to beat off the challenges of foreign postal administrations.
411 I am grateful for the opportunity to say a few words about the Post Office. Noble Lords will have gathered that I have a deep affection for it. It has given me so much. My hope is that the loyal and dedicated staff who work in the postal business will soon be told that their future employment will be within a publicly owned corporation, free of Treasury constraints. The Post Office should be given the commercial freedom that will help it to maintain its fine traditions and to ensure that our Post Office remains the world's best.
Finally, I join with others in placing on record my sincere thanks to the officers and staff of your Lordships' House, who, without exception, from the date of my introduction on 20th October and before, have been so courteous and helpful. I am most grateful to all of them. Thank you, my Lords, for your patience.
§ 6.14 p.m.
§ Lord Harris of High Cross
My Lords, it is a real pleasure for me to express on behalf of the whole House our congratulations to the noble Lord who has just sat down. He told us that he joined the Post Office at the age of 14. He did not go on to say that he worked his way through the trade union ranks to become deputy general secretary of the Union of Post Office Workers, that he served on the Labour Party's national executive committee and that he was briefly chairman of the Labour Party. In his spare time he is also active with the Friends of Israel group and was one of the co-founders of One World in Action. In my 20 years' experience in the House, I have never seen five maidens perform such a lavish sacrifice of virginity in the space of a few hours. We all hope we will hear the noble Lord, Lord Clarke, speak frequently in the House. I personally hope he will address us constantly on the issue of commercial freedom for the Post Office, an issue on which he can count me a strong ally.
On the occasion of the last Queen's Speech in May 1997, I ventured to offer warm congratulations to the new Labour Government. I do not think it will do them much good if, as a Cross-Bench full-frontal market economist, I now appear too enthusiastic. I must confess to increasing reservations, although I am far from abandoning all hope, much less looking around for political asylum. The tribute I shall shortly pay to Gordon Brown as Chancellor is, I suspect, more generous than he might receive from others on the Labour Benches.
Before turning to economics, I want to express my own shared anxiety over the Government's headlong stampede into constitutional experimentation. I refer not only to the emasculation of your Lordships' House and to the threatened dismemberment of the United Kingdom but also to the denaturing of our vigorous politics through proportional representation, whether through open or closed lists. Perversely, as a Londoner, I am even fearful of the new layer of local government that is threatened, even if we can keep out of the mayor's parlour certain self-advertising, power-seeking individuals.
412 Whenever I see amiable activists like Ken Livingstone or the less amiable activists like Mr. Alex Salmond in full cry I recall Adam Smith's distinction between the ideal which he described as,
a legislator, whose deliberations ought to be governed by general principles which are always the same",in contrast to what he called,that insidious and crafty animal, vulgarly called a statesman or politician, whose counsels are directed by the momentary fluctuation of affairs".Here we glimpse two faces of new Labour: on the one hand, the insidious, indiscriminate constitutional experimentation; on the other, I am glad to say, the principled macro-economic strategy trumpeted in the gracious Speech as,the historic decision to give the Bank of England the power to set interest rates".These two faces have precisely opposite tendencies. In place of constitutional recklessness, we have a Chancellor who displays financial prudence. Instead of half-baked adventurism, he will offer well considered construction. In contrast to short-term expediency, the Chancellor sticks resolutely to the long-term view. Come to think of it, Gordon Brown is about the only Scot in an administration dominated by Scots who appears to have any kinship with dear old Adam Smith.
By giving the Monetary Policy Committee the single objective of keeping inflation around the central target rate of 2½ per cent., the Chancellor has removed from all influence the insidious and crafty politicians around him who are always urging lower interest rates without too much concern for inflation. His simple aim is to entrench long-run expectations of a stable monetary environment. The absence of such stability has not only kept our interest rates higher than Germany's; it has also meant the disruption of production and employment by the alternation of stop-go policies throughout the 1950s, 1960s and 1970s. No one seems at the moment to have noticed that the Chancellor's first major step after the election of 1997 was to undo the first major step of an earlier Labour government after the election of 1945; namely, to reverse the nationalisation of the Bank of England. It has thus taken half a century to rumble Keynes and to rediscover the older wisdom that money is too important to be entrusted to politicians.
I am genuinely sorry that the Tories felt obliged to denounce this one promising innovation by new Labour, just as I am disappointed that Mr. Gordon Brown has failed to acknowledge that his success to date could not conceivably have been possible without the sound economic inheritance from the Tories. As regards the Monetary Policy Committee, I simply add that, in the unavoidable absence of Montague Norman, it seems to be doing a pretty good job. My own view is that this innovation by Gordon Brown displayed a personal courage not matched by a British Chancellor since my noble and learned friend Lord Howe of Aberavon struck down exchange control in 1979. Who would now try to reverse that particular initiative?
Alas, if the Chancellor deserves high praise for judgment and rare vision on this key issue, the same cannot be said for his other policies. Having won the 413 election by promising to stick to Tory income tax rates, he promptly removed exemption on insurance company funds, raised stamp duty on buying and selling homes, and killed off personal equity plans. He thereby weakened both the Government's economic and social strategies by simultaneously discouraging private pensions, taxing mobility of labour, and attacking personal savings. We have then to add the future uncertain impact of minimum wages, the EU's social charter, the strengthening of trade union influence, loose talk about "fairness at work", and the ceaseless extension of regulation, which other noble Lords have mentioned. All such measures must cumulatively add to production costs and subtract from the very flexibility which was the unacknowledged inheritance Thatcherism gave to the new Labour Government.
In a recent article entitled Drifting back to bad old Labour days, my friend, Professor Colin Robinson, the scholarly editorial director of the Institute of Economic Affairs, exposed the Government's Achilles' heel. In a succinct sentence pregnant with warning, he wrote,The fundamental problem is that there are no obvious limits to regulation".It is these cumulative burdens that will increasingly imperil the Government's hopes for sustained growth and employment and will undermine the very basis on which their burgeoning social policies are hopefully founded. A neglected paradox is that Gordon Brown's successful monetary strategy relies on depoliticisation; that is, getting government and the bureaucrats out of the action. Yet at the same time his colleagues are busy almost casually extending politicisation into every other department of policy.
In conclusion I suggest a last reason for welcoming the denationalisation of the Bank of England. It seems to me to remove the only respectable reason for joining EMU, which was to fix a chronically weak, suspect pound sterling against periodic devaluation. Henceforth we no longer need that anchor, whether it be the deutschmark or the wholly unproven euro. Therefore I commend even to Liberal Democrats the half dozen words in the gracious Speech pledging, without any of the customary ifs or buts, that Her Majesty's Government,will maintain the United Kingdom's abatement".For those words alone I offer up a prayer of heartfelt thanks. For the rest I admit to thinking that we could have got along quite nicely without troubling Her Majesty to deliver this gracious Speech.
§ 6.25 p.m.
§ Baroness Turner of Camden
My Lords, I welcome the opportunity to participate in this debate, which has been distinguished by so many excellent maiden speeches. I would like in the time at my disposal to discuss two aspects of the speech about which I have some knowledge and some concerns, although I speak against the background that I believe the Government's welfare package to be well-intentioned and benign, and therefore, generally speaking, I believe it should be supported.
414 First, there is the question of pensions. We are promised a Green Paper, but in the meantime there will presumably be some interim legislation to bring in stakeholder pensions for those not able to be members of occupational schemes and unable for various reasons to be covered by personal pensions. I assume that many of these people will be self-employed. There has been an increase in the number of self-employed, largely as a result of the employment shake-out we saw under the previous government. Of course it is right that something should be done for such people, many of whom are far from well off.
However, pension provision in general continues to present a number of problems. There is never any difficulty about pension provision for people in secure, reasonably well-paid employment. Many of them will be covered by good occupational schemes or will make their own private arrangements. The difficulties always arise when considering how to protect people in retirement who have been in low-paid employment during their working years. Often such people have had a chequered work pattern, moving from job to job. Large numbers of women are in that situation. To expect such people voluntarily and individually to set aside money in order to provide for retirement, when many live from payday to payday, is really expecting rather a lot.
There has been much talk of making second-tier pensions—presumably stakeholder pensions—compul-sory. I think this will be difficult for the less well off and will be widely seen as another tax. My own view is that the previous Labour government in the mid-seventies were responsible for introducing the best pensions framework that this country has ever seen. It became known as the Castle Plan after my noble friend Lady Castle who was responsible for its introduction. For the first time everyone would have to be in a second-tier pension, either SERPS or a contracted-out occupational scheme. SERPS itself—with its provision that pensions would be based on the best 20 years' earnings uprated—was basically redistributive and enormously beneficial to women. It would have been possible to have transformed SERPS into a national pensions plan, and to make access available to the self-employed. Unfortunately, the line taken by the previous government that SERPS in its original form could not be afforded seems to have been widely accepted. I think that is wrong.
One way or another, retirement has to be paid for, if not through a good state scheme, then at much greater expense through private insurance schemes. In case it is claimed—as it sometimes is—that the problem with state schemes is that governments often change the goalposts so there is bound to be an element of uncertainty, I point out that the financial services industry is not exactly risk free. Many people who took out personal pensions have begun to find that out. Indeed, few seem to realise just how much they must set aside from current disposable income in order to be sure of a pension large enough to have a reasonable standard of life in retirement. "The value of investments can go down as well as up", as financial services providers now must tell their clients. There will, of 415 course, be a need to establish standards for stakeholder pensions and a system of regulation. Perhaps the Minister will tell us about that.
The second matter with which I should like to deal is the welfare package. There is a great deal about it that is entirely good. I welcome the establishment of a disability rights commission. My noble friend Lady Gould spoke about that with some passion yesterday. She was quite right that it is an enormous step forward.
There seems to be a genuine attempt to deal with poverty. Who can disagree with the proposition that the only real, long-term way out of poverty is through work? The concept of the "single gateway" on to the benefits system is a good one. At present, the benefits system is extremely confusing and often people do not receive their entitlement. That is particularly true of older people.
On the other hand, there is undoubtedly benefit fraud. It is in no one's interest that that should continue. It is alleged that, along with errors, fraud has cost the system around £1 billion a year.
However, some aspects of the welfare package arouse a certain amount of disquiet. It is clear that the emphasis will be on work, rather than on benefits. But what kind of work? What will be available? Is it really to the advantage of very young children that someone else should be paid to look after them while their mother undertakes poorly paid work elsewhere, which may mean that she has all the extra hassle of working, plus the expense involved, plus keeping a home going for her family, but at the end of it she is only a few pounds a week better off?
I am glad to note that the acceptance of a job will be voluntary for a lone mother, but I am a little unhappy about the pressures that are likely to build up to get young women into low-paid employment, when they might prefer to stay with their children while they are young. I certainly think that no mother with children under the age of five should be subjected to any kind of pressure to work whatsoever. If she wants to work and good quality childcare is available, that is fine, but it must be a genuinely voluntary choice.
My other point—I have mentioned this before—relates to widows' benefits. My noble friend Lady Hollis will not be surprised that I have returned to this subject again. I was rather surprised to read in the Queen's Speech that widows' benefits are to be "modernised". One would not have realised from that that the intention is that for a number of widows such a benefit is in future to be removed altogether as an automatic entitlement. The reason is stated to be the need to treat widowers equally, as a result of a decision that is expected from the European Court of Justice. On that basis, both widows and widowers will receive a bereavement grant, which is to be increased to £2,000. Widowers and widows with dependent children will receive what seems to be the equivalent of the present widowed mothers' allowance. However, the benefit currently paid to widows between the ages of 45 and 55 will apparently disappear as an automatic entitlement, although present benefits will continue.
416 The Government intend to save around £600 million by scrapping widows' benefits. Presumably, in future, a widow will be expected to present herself at the "single gateway" when an attempt will be made to find her suitable work. It is difficult to see what sort of work will be available for an ageing woman who has spent most of her life bringing up a family.
One reason advanced for that is that there have been very big changes in women's roles since Beveridge. Nearly 50 per cent. of all women work during marriage. It is also said that many receive generous occupational pension provision. Of course, there have been changes, but are they really as great as many would have us believe? More women may work, but often in part-time, badly paid employment. Many may benefit under a husband's occupational pension scheme, but it must be recognised that most occupational pensions are based on the assumption that they are second-tier provision. In other words, the basic state pension is an integral part of the total pension provision. The same is true as far as the widows' benefit is concerned, which, in any event, is only a portion of the full pension. That also is based on an assumption that there will, in the case of a widow, be a widow's pension in addition.
There may, of course, be a few wealthy widows around, just as there are well-to-do people entitled to the basic state pension. However, that is no reason for removing the automatic right to benefit from large numbers of other widows who are far from well off. Widowhood is a traumatic experience anyway, and for many there is the added burden of penury.
As I said in an earlier debate, the benefit is a contributory one. It is paid on the basis of the husband's contributions record. I gather that the benefit will be paid to widowers on the same basis—that is, the wife's contributions record. As women, in general, are more likely than men to have an incomplete contributions record, it follows that it is unlikely to cost as much to pay the full benefit to widowers as has been suggested. So it is possible that it would not cost so much to equalise benefits as between men and women without taking away benefits from women.
I am aware that previous governments have been only too willing to depart from the contributory principle, as the previous Conservative administration did over SERPS. However, that does not make it right. Therefore, I hope that the present Government, whose intentions, as I said before, are entirely benign, will not feel tempted to follow suit.
§ 6.35 p.m.
§ Lord Skidelsky
My Lords, as this is my first speech as Opposition Treasury spokesman in your Lordships' House, I shall surprise your Lordships by talking about Treasury matters.
The Government have promised to make,high and stable levels of growth and employmenttheir central economic objective. That wholly laudable aim is subject to two provisos in the gracious Speech: the freedom given to the Bank of England to set interest 417 rates to meet the Government's low inflation target, and the Government's commitment to,abide by its fiscal rules".Those rather bland phrases express the consensus view that the main contribution macro-economic policy can make to growth and employment is to provide a stable environment for business.
I agree with the noble Lord, Lord Harris of High Cross, when he said that no political party has a monopoly of wicked Chancellors. But it was partly at least because the Labour Party had the reputation of being an inflation-prone, high-tax, high-spend party that the Chancellor imposed those two self-denying ordinances on himself.
Monetary policy is safe because the Chancellor has given control of interest rates to the Bank of England, and fiscal policy is safe because he has shackled himself to the "golden rule". What is the "golden rule"? It states that the net increase in public debt must not exceed government spending on investment. That means that the current account must balance over the economic cycle. The Chancellor intones that rule on every ritual occasion. Perhaps he sings it to himself in the bath. I emphasise it because that is the test against which he wants his fiscal policy to be judged. The question is: will he stick to it? Has he stuck to it? I suggest to your Lordships that his lapse into virtue was a purely temporary aberration.
Before the Chancellor came into office, he pledged to stick for two years to the spending plans of his predecessor, Mr. Kenneth Clarke, and he did. Because he inherited a rapidly improving fiscal position and because the economy in 1998 grew faster than expected, he is now looking forward to a budget surplus for the first time in 10 years. All credit to him for that, although it is a bit rich of him to claim sole credit. He simply borrowed Mr. Clarke's hair shirt for a couple of years.
However, two years of virtue seem to be about as much as a Labour Chancellor can take. At the first opportunity, last July, Mr. Brown announced £40 billion-worth of new spending on health and education over the three years 1999 to 2001. It would be completely affordable, he said, because the economy would grow at 2¼ per cent. a year over that period. Our party warned at the time that his three-year spending commitment was reckless and based on hopelessly optimistic growth estimates. The noble Lord, Lord Barnett, apparently agrees with this. In July the Financial Times stated soberly:Gordon Brown is taking a risk, but one which a British Labour Chancellor could scarcely avoid".That is an astonishing, but I think perfectly accurate, admission that a British Labour Chancellor is driven to take such risks because he is under constant spending pressure from his party.
We were right in our warning. A few weeks ago the Chancellor came to the House of Commons to announce that the economy will not grow by 2 per cent. next year, but by only 1 per cent. He blamed that on the global downturn following the east Asian crisis. But when 418 Labour's forecasts were made in July, Asia was already in crisis. A prudent Chancellor would have waited for his surplus before telling us how he intended to spend it.
Mr. Brown is not in the least disconcerted by the rapid falsification of his most recent growth estimates. The new assumption, made a few weeks ago, is that after a small dip in 1999 the economy will resume its growth at an even faster pace than he previously forecast. That is how he now expects to balance the books.
So what is the current position? There will be a small budget surplus this year as a result of the Chancellor sticking to Conservative policies. He promises us another one in two years' time as a result of sticking to Labour forecasts.
Lord Bruce of Donington
My Lords, I am grateful to the noble Lord for giving way. Will he agree that the Chancellor did have a reserve to which the noble Lord has not referred, in that the coming into operation of self-assessment meant that over £10 billion came in six months earlier than it would have done under the normal tax arrangements? That was never discussed by anyone, but it constituted a reserve upon which he could lean.
§ Lord Skidelsky
My Lords, I am talking about the forecasts over the next three years on which the spending plans are based, not about the current position of the revenue.
It is worth reminding ourselves that surpluses do not actually exist until they turn up in the Treasury's coffers. They are predictions based on guesses. The Shadow Chancellor, Mr. Francis Maude, rightly called them "fantasy forecasts". Why? Because the Chancellor expects the economy to expand faster than most independent forecasters do. He seems to believe that he has abolished the business cycle single-handedly. He entirely discounts the effects of new Labour taxes and regulations on the costs of doing business, notably the windfall tax, the minimum wage and the working time directive. Has the Chancellor considered that those measures might worsen the supply side of the economy during the period of his forecast and therefore raise the natural rate of unemployment?
The truth is that the Government have taken a fearful gamble with taxpayers' money. The iron rods with which the Chancellor bound himself have turned into elastic bands. The gamble may come off; after all, gambles sometimes do. But if the downturn is deeper than he estimates, his present spending plans will land him seriously in the red.
Using more sombre estimates, the National Institute of Economic and Social Research predicts that the Chancellor will fail to meet his "golden rule" by £23 billion over the lifetime of this Government. The whole point of the golden rule is to ensure that over the cycle surpluses and deficits balance. By committing himself to spend his surplus before he has earned it, he has consumed his deficit before he needs it. The surpluses vanish in the fog; the debt remains.
The gamble is doubly reckless because it jeopardises the very credibility that the Chancellor has been at such pains to build up. There will be another opportunity to 419 explain why I do not think the golden rule is a satisfactory fiscal rule, but at least he should have stuck to it so soon after announcing it.
The Chancellor's policy also jeopardises the operational independence of the Bank of England. Our party opposed that policy because it provided neither for proper ministerial responsibility nor for full independence. The Bank carries the blame for high interest rates without any statutory right to criticise government policy that may have brought them about. Ministers talk up the Bank's independence while pressing it in public to reduce interest rates. The danger in the future is that loose fiscal policy will drive interest rates up just at the moment when we need them to come down. The Bank will then be left in a politically exposed position.
I wish to put a question to the Minister who will reply to the debate. When the Bank was given its mandate to maintain price stability, did it request, or secure, any assurances from the Chancellor on fiscal policy?
These rather dry technical matters conceal a fundamental political reality. The Chancellor has to gamble with the public finances because he has to feed unrealistic expectations about what public spending can achieve. His prudence, which I believe is genuine, and his party's belief in high public spending pull him in opposite directions.
Our party believes in lower taxes, lower spending and a smaller state. We do not delude ourselves that those are easy goals to achieve, but we made a start and will go further in future. The Labour Party believes in the exact opposite. It exists to spend people's money, but dare not openly avow the need for higher taxes. The technical question of how to balance the national accounts is thus bound up with the philosophical question of how large the state should be and what it should do.
We on these Benches believe that the more freedom we give people to make their own choices, the easier it will be to stick to prudent finance and the better it will be for our economy and our country. I very much look forward to joining battle in that cause.
§ 6.47 p.m.
§ Lord Shore of Stepney
My Lords, I find this Queen's Speech a rather difficult subject with which to grapple. There is plenty of material on a whole range of matters, certainly on constitutional alleged reforms and changes to the welfare state. Those will no doubt be discussed at great length as Bills come forward.
However, there is one conspicuous omission—economic policy and the economy. Indeed, apart from two bland references to the general objective of stability and growth, it earns no elaboration in terms of policy or measures. That is almost unique in my experience, which is now considerable. It accounts for the fact that the economy, instead of having a whole Queen's Speech day allotted to it, is jammed in the middle of industrial policy, and the entirely different, though very important, subject of social policy and welfare.
420 I therefore ask: why are the economy and economic policy not being discussed? Is it because all is going well with the economy? Is it because affairs are working out so splendidly that we really have no reason to look again in any detail at economic policy or the way in which it is unfolding?
Like the noble and learned Lord, Lord Fraser, who led for the Opposition, I, too, looked at some recent publications. There are plenty to choose from, as he and I well know. I looked at the latest CBI bulletin and the latest government statistics. It is true that this last month has recorded the largest ever deficit in the gap between the export and import of goods that this country has recorded in the whole of its history. That includes the terrible year which I know well, 1974, when without warning we were faced with the quadrupling of world oil prices before we had a drop of our own indigenous oil to set against it. It was greater even than that. Something was happening.
When we look a little more closely at other economic factors, what do we find? The CBI Forecast, which is a regular publication, with its strengths and weaknesses, nevertheless forecasts the growth of the economy at no more than 0.7 per cent. in the forthcoming year, 1999. Its forecasts for manufacturing output is minus 1.2 per cent. For the following year, 2000, it forecasts a growth of 0.2 per cent.
We are all sufficiently familiar with economic statistics not to be overwhelmed by them. However, at least we can interpret them to some extent. My interpretation is that we face a growth in unemployment of not less than half a million over the next 12 to 18 months. I add to that a matter of considerable importance which may throw a little light on why we are doing so badly. I have in my hand the monthly statistics on trade which state that in September total exports of goods fell 3 per cent. while total imports of goods rose 5 per cent. Exports to EU countries—that zone of stability and prosperity—fell 1.5 per cent. Those to non-EU countries fell 5.5 per cent., a good deal more. Imports from EU countries rose 4.5 per cent., those from non-EU countries rose 6 per cent.
That serious deterioration of export performance and the propensity to import, as regards the rest of the world, can be substantially explained by the appalling collapse of the economies of so many parts of the world, beginning in south-east Asia and extending much more widely, including Russia and elsewhere.
The fall of our exports to Europe and the substantial increase in our imports from the European Union are not due to the collapse of economic activities inside the EU. In my view, they are the direct effect of the folly of allowing the British exchange rate to be decided by interest rates and by allowing those interest rates to be decided independently by the Bank of England. We have no control over our exchange rate because we have abandoned the only way of influencing the exchange rate, which is through interest rate policy. The first thing the Chancellor did, as we were cogently reminded from the Benches behind me not long ago, was to abandon what we had for 50 years; control over the Bank of England and interest rates.
421 I return to my question: why are we not having a serious debate on the economy and economic policy? Certainly not because the economy is doing well, so we can put that on one side. I believe that I know the answer to the question. We are not debating economic policy because there is no United Kingdom macro-economic policy. We do not have one. To have a macro-economic policy, we must have at least three capabilities: first, an ability to influence interest rates, the bank rate; secondly, an ability to influence the exchange rate; thirdly, an ability to influence the volume of demand as a whole by operating on the balance between taxation and expenditure.
§ Lord Shore of Stepney
My Lords, I shall give way in a moment. It is not an accident, it happened deliberately. The Chancellor abandoned those things out of conviction, because he does not believe that any British government should in future even attempt to manage the economy in the interests of Britain and the British people. He believes and is ensuring that we should hand it over—he believes in macro-economic policy, yes; but not British macro-economic policy, European macro-economic policy instead. So he is happy to have the discipline of interest rates, provided only that it is a European central bank which determines them and not a bank based on London. He is happy indeed to have the Chancellor's judgment about the Budget and about the balance between expenditure and income decided by treaty, by Maastricht, by 3 per cent. of GDP. I shall now give way.
§ Lord Skidelsky
My Lords, I thank the noble Lord for giving way. He wants a debate on economic policy. I ask him this question: why does he believe that it is so important that our Government should retain these instruments when we have had such a relatively dismal record in the post-war period, when we were using those instruments freely? Why are they so important? What is the evidence that they will improve our economic performance?
§ Lord Shore of Stepney
My Lords, I shall not at present attempt to answer that not because, as the noble Lord will well understand, I lack any ability to answer, but because of time and the width of the debate.
I have directly related the debate to the economy and the fact that we have no macro-economic policy; that we have adopted a European macro-economic policy. Whether or not that is right, we can debate the implications at another time. But that is why we are not debating economic policy now—because we do not have one.
I come to the fundamental problem for the Government. Things have happened since the previous Queen's Speech; momentous events. First, the world economy has changed and, as we all know, the balance of risk is no longer inflation, it is deflation. Because of that, virtually all the arrangements made under Maastricht based on the fear of inflation are outmoded and out of date.
422 The second great change is the political balance in Europe; the Left or centre Left has taken over. The centre Left has brought in two major new policies that have left our Government gasping. First, they want a policy of full employment and economic expansion. In pursuit of that policy, Lafontaine, Schröder and all the rest have taken head on the banker, Mr. Duisenberg, who will not allow them to cut interest rates, and the European commissioners, who will not allow them to relax the Growth and Stability Pact and who keep them squeezed within the parameters of the 3 per cent. borrowing requirement. This is a great problem, but the struggle is not yet resolved. Therefore the Government are left in the unhappy position of having to decide which European macro-economic policy to adopt: the old one embedded in the treaty or the new one which under German leadership will almost certainly emerge after a fierce conflict with Duisenberg and the European Commission.
The other great innovation is the vast new offensive to thrust forward the federal project. It is on the lips of the German Foreign Minister and Chancellor. All those who say that this has been invented by the Eurosceptics had better start thinking very hard. I believe that the Government face a very difficult choice. They do not know which way to turn and which Euro-policy to back and adopt. I believe that the sensible approach is to recognise that we are coming to the parting of the ways. There is a federal way, but it is not for us and we should not attempt to pursue it. We should be quite clear that very soon the choice is between the proper defence of British interests and the abandonment of those interests in the vain and foolish endeavour to be at the heart of Europe.
§ 7.1 p.m.
§ Lord Desai
My Lords, first I apologise to my noble friend on the Front Bench for not being in my place at the beginning of the debate. Today we have heard five excellent maiden speeches. I want to concentrate on the sixth maiden speech made by the noble Lord. Lord Skidelsky, as Treasury spokesperson for the Opposition. I do not know whether I disagree more with the noble Lord, Lord Skidelsky, or my noble friend Lord Shore. I shall have difficulty in manoeuvring between them.
I refer first to one matter alluded to by the noble Lord, Lord Skidelsky. Does the prospect of recession face us? My noble friend Lord Barnett also spoke to this matter. He started by expressing scepticism about forecasts and then made one or two of his own. For the past five years we have had very good economic growth because we have had a stable monetary framework with or without an independent Bank of England. This began with a very high deficit. I need hardly remind the noble Lord, Lord Skidelsky, that the highest deficit in recent years was under a Conservative government and forecasts went very, very wrong. Forecasts have not just begun to go wrong. I recall that on that occasion the figure was £50 billion. We have had a stable monetary and fiscal policy and good growth. Quite unusually, we have had a five-year recovery boom period that puts us in a very good budgetary situation. Even if the worst fears of the 423 noble Lord, Lord Skidelsky, were realised, an overspend of £24 billion over three years in an economy which averages £870 billion per year in GNP frankly is peanuts. It represents less than one per cent of GNP per year. Therefore, even on the basis of the worst fears of the noble Lord, we do not face a budgetary disaster. It may not be 1987 when we had a surplus, but it is not 1992. We must get the numbers into perspective. There is no great black hole.
My right honourable friend the Chancellor got into the bad habit of taking three-year totals and bandying them about as if they were one-year totals. He thought that he would spend £40 billion on health and education and everybody became excited, but that was £40 billion over three years. What I liked about both the July budget and his return to the House with revised forecasts was the comment that his three-year spending targets would not be abandoned although the forecast was a greater slowdown in growth than he had previously thought. That is remarkable. Every previous Chancellor of both parties has panicked and immediately begun to cut spending. I believe that what the Chancellor said about fiscal stability meets the point. I am in the unusual position of praising the Chancellor from the Back Benches, which is not my normal role, but in this he is right. He has said that these are three-year spending targets and he will stick to them. When the Budget was presented I recall saying from my position here that it was not actual spending but a steady state forecast. Actual spending would deviate from that because the economy would not behave as one expected—no economy does so—and that is why most forecasts must be revised. The first point to make is that perhaps there will be a slowdown in growth. We may even have technically a recession, as my noble friend Lord Barnett defined it: two quarters of lost output. I still say that that will not lead to a budgetary disaster because the worst assumptions that the National Institute can make still result only in £24 billion over three years. I believe that that is peanuts.
How bad is the economy? I come next to the point made by my noble friend Lord Shore about the balance of trade deficit. For some time we have not had the panic about the balance of trade that we used to have in the 1960s and 1970s because we now live in a very different regime. Once one has free capital mobility, balance of trade deficits can be financed by capital movements. They are a counterpart of capital movements. Many noble Lords will recall how in 1980 we had an over-valued pound and a large deficit but there were capital movements to compensate for it. We now live in a very different world. This is not the world of the 1950s, the 1960s or the 1970s. Welcome to globalisation. With free capital movements we do not have to think in the same terms. The fact is that despite this big deficit the pound has not collapsed—far from it. Manufacturers may be happy if it did. The rules of the game are now very different.
I remember going to the launch of the single issue of Marxism Today—I go to these kinds of events—and hearing a speech about how the Blair project had not understood globalisation. I remember saying to someone 424 that the one thing the Government had understood properly was globalisation. The Government understand that with globalisation it is very important to get the framework right and not to swim against the tide, which is foolishness, and to minimise damage to the economy.
I believe that despite the balance of trade figures, to which my noble friend Lord Shore alluded, the impact of such a deficit on the real economy will be minimal in today's world because of the flows of capital. There may be a slowdown in growth and a recession but if action is taken it will go up again. I expect the recession to be short. Even if the recession was not short I do not believe that it would affect the real economy very much.
I wish to make two other points in this context. I agree with my noble friend Lord Shore that we are entering an era of deflation rather than inflation. It is a serious danger. When Sub-Committee A of the European Communities Committee, chaired by my noble friend Lord Barnett, had hearings on the European Central Bank, I asked almost every witness this question. Does a stable rate of inflation mean that one will have that rate of inflation? Is it 2.5 per cent. or less? Are you going to be symmetrical above and below the inflation target? Alternatively, will you say, "Let's get the prices down and don't let's worry about anything else?"
If the European Central Bank were to say that it would like a target but that if the rate falls below it is happy, we are in serious deflationary danger. The Bank of England's target is very different. It is 2.5 per cent., and that is that. If the figure goes below that, it is under a statutory duty to reflate the economy. That is the right way to set an inflation target, especially if one is in a deflationary situation. We have to say that there is no asymmetry; there is symmetry above and below the rate of inflation.
I agree with my noble friend Lord Shore in saying that I am not all that worried about hyperinflation. The noble Baroness, Lady Sharp, raised the question as to whether there are real limits to the ability of the economy to expand. If the economy hits a bottleneck, there will not be inflation but a balance of trade deficit. All that happens is that we import more if a bottleneck is hit. Deflation is a danger and we shall have to rethink our policies in the future. But I do not think that for the life of this Parliament there will be any great difficulty in following through the code laid down by my right honourable friend.
Finally, given the new labour market, the fragmentation of production, and so on, it is optimistic to think that work will be found for everyone who needs work. I am sceptical of that. As regards reform of the welfare state, although it would be very nice if everyone found work, it is wildly optimistic to think that everyone will do so. Therefore, the safety net that exists for people who, despite their best efforts, cannot find work should not be dismantled because it is unlikely that we shall attain the full employment levels that were prevalent in the 1950s and 1960s. As I said, the world has changed and we have to adapt to the world.
§ 7.12 p.m.
§ Lord Cooke of Islandreagh
My Lords, I agree with the noble Lord, Lord Shore of Stepney, when he expresses surprise that the economy was not much mentioned in the Queen's Speech. However, it is clear that that has not stopped us talking about it today. My view of the economy is very simple. Unless the economy generates wealth and employs directly or indirectly most of the available workforce, the United Kingdom is in real trouble. That is what one has to consider.
I do not intend to compete with many of today's able and interesting speeches on the economy and different elements of it. I wish to speak about two aspects which I believe are important. Over the years we have suffered the CAP which affects agriculture. The policy has produced many undesirable distortions for the economy and economics of agriculture. Now I believe that they are almost at crisis point. Arable farms in the United Kingdom have been able to make good profits with such ridiculous things as set-aside, and so on. Unfortunately, the grassland farmers—they are important in Wales, Scotland and Northern Ireland—have an entirely different story to tell. They rear cattle and sheep, and grow very good grass. They are losing money, and the position is getting worse. It is not clear how it can be cured.
In Northern Ireland, the situation is very much worse. For years its agricultural food business was a success story. It employed 77,000 people, with 4.2 per cent. of the GDP of Northern Ireland. Unfortunately, that is no longer the case. The exchange rate is making it difficult to rebuild the foreign markets for beef which it enjoyed before the BSE-based embargo stopped all beef exports. Fat lamb prices are lower than 10 years ago; and in November the profit on a fat pig sold for bacon was minus £23 per pig. It is estimated that 30 per cent. of our pig farmers have already gone out of business, and many of them are bankrupt.
The noble Lord, Lord Dubs, is well aware of the situation and has been in close discussions with the leaders of the farming industry. Recently a package of aid for UK farmers was announced, but it is not enough to stop further bankruptcies.
In Northern Ireland, it is not just the rural economy which depends on agriculture; the rural social structure is based on farmers and their families. Any collapse of farming would have serious consequences. At present, farmers in Northern Ireland owe £500 million to banks and £45 million to feed merchants; and the situation is getting worse. The present income of farmers has dropped 78 per cent. from 1996 levels. These problems will not be easy to solve. They may have a world-wide base, but until the viability of the agricultural food business can be stabilised, I urge the Government to study more deeply the problems of the industry in Northern Ireland and to discuss with it the full situation. I hope that the Government will take whatever steps are necessary to offset the present rate of loss until the way forward to viability becomes clearer.
426 I wish to speak about one element of the industrial economy and manufacturing. In manufacturing the large companies, which are often multinationals, receive all the attention. But we are dependent on small and medium businesses and start-up companies to refresh the large companies. Unless that refreshment is ongoing, we have real cause to worry. What is going on? On the face of it, the businesses are in reasonably good shape, and most small and medium companies are determined to overcome what they hope is a temporary downturn.
The noble Baroness, Lady O'Cathain, spoke about the effect of regulations and restrictions on businesses. I wish to speak about one specific element. Last week I studied the new working time regulations which became effective in October without discussion and with no warning. The working time regulations are detailed. They are restrictive and complex, covering all manner of things. They restrict the average maximum working week to 48 hours. They detail rest periods in work breaks. They require four weeks paid holiday. They list nine headings which employers must attend to or face the wrath of the various enforcement agencies. I know that small companies do not have much time to undertake such work in addition to what they are doing; and they certainly do not have the inclination. The majority of small firms work all hours of the day and night, as necessary to address and advance their business. Out of that, they derive a sense of achievement. They must now spend hours listing all manner of details which are far in excess of what any company would need to keep for pay purposes.
A survey by the Economist Intelligence Unit ranked Britain as second in the world for its business environment during the period 1994 to 1998. About 50 per cent. of companies starting up in Europe in those years came to the United Kingdom because of that favourable environment. What will prospective new companies think of those regulations? I am sure they will not think much of them. So why do we have them? The regulations have been introduced into the United Kingdom in compliance with a European directive in respect of which we have had no input. That is only a beginning. We are now threatened with similar restrictions applying to junior doctors and truck drivers. I am told that the directive may increase the cost of distribution involving night driving by as much as 30 per cent. That is not just alarming, but threatens the British economy which everyone in business knows is now part of the world economy where we are competing with east and west, north and south.
A few minutes thought about the history of the United Kingdom is relevant. Throughout the second millennium, in medieval times, our people have been energetic, imaginative and have accepted risk whether as brigands or tribal warriors, later as mercenaries and later still as business adventurers or colonisers. The citizens of these islands have been outstanding adventurers. The industrial revolution in this country led the world. We can continue to box beyond our weight in the new world economy by using our wits, inventiveness and so on.
427 In the past 500 years, despite all efforts, European countries have failed to stop us. Have they at last found a way to bring us to heel by introducing new and restrictive directives to which they do not pay very much attention? I believe that that bears thinking about. With a few more regulations like that, can one imagine any man with ambition or initiative prepared to put up with such obstacles to development in the United Kingdom? Shall we continue to have start-up businesses to refresh our larger businesses? I very much doubt it.
I find the whole business of very detailed restriction and regulation in matters of great detail to be extremely worrying. If it continues, the inevitable result will be at first, a slow and later a rapid decline in company growth, and from that a decline in the economic health of the country. Unfortunately, politicians who have little or no experience of business are the last to be able to judge the effect of such regulations.
I believe that we should regard those regulations as an amber light for the United Kingdom economy. We must wake up before it is too late. For the first time I have felt that if I were younger, I should seriously consider emigration. We must stop that regulation and nannying. We do not need it. Employers, unions and workers, generally speaking, have arrived at good and appropriate arrangements. If we intend to compete in the world economy, we must just stop that nonsense.
In the press this morning I read that Brussels was taking exception to a small package of assistance to small and medium-sized companies in Northern Ireland, which was announced recently. It was apparently too much for Brussels. It has taken objection also to alleged assistance for ship repairers. That is ironic because anyone who knows anything about shipbuilding and ship repairing will know that there are all kinds of different devices available to countries on the Continent by which they can undercut UK repairers. We must watch out. I agree with the noble Lord, Lord Shore, that we must look seriously at our relationship with a Europe which adopts such devices.
§ 7.25 p.m.
§ Lord Davies of Coity
My Lords, first, I too add my congratulations to those noble Lords who have made such excellent maiden speeches in this debate.
It is my intention to speak only on the Government's proposals to introduce legislation to improve and extend fairness at work. That legislation should be welcomed universally not only because of the specific benefits it will provide for working people but also, I believe, because it will enable workers to have the greater dignity and self-respect to which they are entitled in their employment where they spend so much of their lives. By raising the status of employment in that way, it will make for a much better workforce.
The legislation is not only intended to be fair. Its purpose is also to be enterprising, bringing both sides of industry closer together, encouraging working in partnership and enhancing greater co-operation, commitment and mutual respect. It is legislation which 428 no employer with vision, understanding or feeling for those he employs need fear. Indeed, many employers already practise much of what the legislation proposes.
My best example of an employer fitting that description is Tesco. I first came to have dealings with Tesco as a trade union officer nearly 30 years ago. Over the years, I saw the company move from a pile-it-high, sell-it-cheap retailer to the United Kingdom's leading grocer. Most of us in this House, I have no doubt, know that the noble Lord, Lord MacLaurin, as chairman of Tesco—he now sits on the Conservative Benches—was largely responsible for that dramatic trading change.
When the noble Lord, Lord MacLaurin, headed Tesco, he was not only enterprising but his consideration and feeling for those in his employ was second to none. When I was elected general secretary of USDAW—the Union of Shop, Distributive and Allied Workers—in 1995, Ian MacLaurin and I became good friends and remain so today. Throughout the whole period of the previous government's anti-trade union legislation, he never lost faith in his belief that good relations with those he employed and those who represented them was both right and proper and made good business sense.
Tesco not only wanted to be among the business leaders but also wanted its staff to be among the best in terms of wages and conditions of employment. The joint work of Tesco and USDAW is one of the prime examples of how partnership is good for the employer and good for the employee. The company and the union, in good times and in bad, worked together to achieve success and both have benefited. On the one hand, Tesco profits have continually increased; its market share has increased; and the company is continuing to expand. On the other hand, the staff have security of employment and wages and conditions among the best in the retail sector, including share options, pensions and sick pay schemes.
Despite the constant bombardment the trade unions were receiving from the Conservative government, never once did Tesco lose faith in its relationship with USDAW. If anything during that period the relationship strengthened because both sides worked together to achieve common objectives. Indeed, following the introduction of one particular piece of anti-trade union legislation, I remember that Tesco was one of the last companies in this country to relinquish the union membership agreement. It did so only after the company and the union had renegotiated a further agreement for recruitment and retention of union members. Today, USDAW's membership among Tesco staff is only just short of 100,000. That is no doubt the largest membership that any union has with a single employer in the private sector in the United Kingdom.
Those employers with the vision and the approach of Tesco have nothing to fear from the legislation because they have nothing to fear from those they employ and nothing to fear from those whom the staff choose to represent them. Of course I appreciate that what I have described has not always been the case. But we have moved on, and it is now necessary to go even further and encourage the same approach to be adopted throughout the whole of industry.
429 When I started work at 15 in the Port Talbot steelworks where I remained for nearly 20 years, except for two years in the Royal Air Force, I experienced a very different approach. Those were the days in the steel industry before the change to which my noble friend Lord Brookman so ably referred. The steel plant where I worked was large with nearly 20,000 workers, fully unionised, with full recognition and collective bargaining rights, and yet the two sides of industry were distinct, each side often entrenched in pursuing its own separate interests, a clear absence of common objectives and a culture of conflict rather than co-operation. The company was strong and the unions were strong—strong as distinct from influential, strong in an environment of conflict, not influential in an environment of partnership. The culture was based on management's right to manage and the union's right to organise, wholly lacking in the co-operation necessary to seek and pursue common interests that benefit both sides.
Yet I was well paid under the system—or so I thought. The work was hot, dirty and hard. My wages were made up of a relatively low basic wage supplemented by shift pay, tonnage pay and abnormal condition money. But what of the other employment conditions? There was no sick pay, no pension provision, minimum holidays and holiday pay savagely reduced because it did not include the supplementary payments. Nevertheless, as a shop steward I cut my eye teeth on this kind of employer/employee relationship and eventually learned that it was never going to be in the long-term interests of either side and certainly not in the interests of the nation.
There must be a balance, a balance between fairness and enterprise. If, at one time, the environment of conflict was damaging enterprise, there is no merit and nothing to be gained in swinging the pendulum so far in the other direction that unfairness becomes savagely acute, which I am afraid is exactly what occurred under the previous government. Before I contrast what the proposed legislation will achieve as distinct from what was introduced during the 18 years of Conservative rule, let me quote the embarrassing findings of the Committee of Experts of the ILO, the International Labour Organisation, of which Britain was one of the foundation cornerstones. It reported in July 1996:The International Labour Organisation (ILO) has again condemned UK employment laws because they do not meet international standards aimed at protecting the rights of trade union members. In a hard-hitting report, the ILO's Committee of Experts has said that the law which is supposed to protect trade unionists from victimisation is too weak. The Committee points to the change in the law in 1993 which says that where workers refuse to give up their rights to collective bargaining and are denied a pay increase, their employer is not guilty of victimisation.I emphasise the word "again".
This was not the first time that the Conservative government were charged with ignoring and riding roughshod over international employment conventions. Other countries, to whom we would expect to show a good example, became more and more bemused as we were compared more and more with China, Cuba and other dictatorships for our violation of ILO standards. However, at a conference in Geneva in June 1997, at which I was present, my right honourable friend 430 Andrew Smith made clear that the Government were anxious to repair the United Kingdom's poor reputation in the International Labour Organisation after a decade of formal complaints about UK breaches of ILO conventions. Speaking at the ILO conference, Mr Smith, Minister of State for Employment, said that he welcomed the opportunity to put on record the United Kingdom's,wholehearted commitment to human rights and our full support for the ILO's efforts to promote internationally recognised core labour standards".In keeping with this commitment was the speedy restoration of union rights at GCHQ, reversing the Conservative government's 1984 ban on unions.
From those two extracts one sees the clear difference of approach between the two governments.
There are specific employment issues which further illustrate that difference of approach. Before a worker was entitled to make a claim to an employment tribunal for unfair dismissal the Tory Government in 1980 increased the service qualification to two years. The Labour Government now proposes to reduce the qualifying period to one year. In 1984 the Conservative Government banned trade unions at GCHQ and sacked workers who remained in trade unions. Throughout the 1980s they removed many of the rights enjoyed by trade unions and trade unionists. Additionally they made it easier for employers to prevent workers joining a trade union. In contrast the Labour Government have restored trade union rights at GCHQ and have provided justice for the sacked trade unionists. Now the Labour Government propose to allow as of right trade unions to represent their members where members wish it. Where 40 per cent. of the staff vote in a ballot, trade union recognition will be established. When more than 50 per cent. of the staff join, union recognition will be automatic.
In 1980 the Conservative government cut maternity rights. Now Labour will extend maternity rights, allow fathers to have paternity leave and introduce time off to care for sick children. The Tories removed the minimum protection for young workers in 1986 and for all workers in 1993 when they finalised the abolition of the wages councils which had been introduced by Winston Churchill at the beginning of this century. Labour, however, in an approach completely opposite to that of the Conservatives, has already introduced the provisions for a national minimum wage in order to protect the most vulnerable and most exploited of those in the world of work.
These are just some of the examples which demonstrate Labour's confidence that, given the encouragement, both sides of industry can work in partnership, can pursue common objectives of mutual interest and can work as one for the good of all. The Labour Government believe in wealth creation and in social justice. These two are the respective sides of the same coin in any civilised society. If enterprise and fairness do not go hand in hand, then in my view our civilisation is in great danger. As I do believe they go hand in hand, I welcome the Labour Government's proposals wholeheartedly and hope that many of your Lordships do as well.
§ 7.38 p.m.
§ Lord Stoddart of Swindon
My Lords, like other noble Lords I, too, would like to congratulate the bevy of maidens we have heard from today and hope that we will hear much from them in the future.
In the gracious Speech the Government said that their policies were well placed to weather the international financial storms and to emerge stronger from them. I hope they are right. I do indeed believe that it is possible for them to be right provided they follow the economic and industrial policies which are suitable for Britain and which put Britain's interests first. My noble friend Lord Shore emphasised that point and wondered whether our Government was doing that. As it happens, I have with me Council recommendation 11393/97 which seeks to bring an end to the situation of excessive government deficit in the United Kingdom. It says,It hereby recommends that the Government of the United Kingdom should put an end to the present excessive deficit situation as rapidly as possible".That seems to me to be the same as an instruction under the Maastricht Treaty and smacks of the sort of instruction we used to receive from the IMF in 1976. But, of course, it was lending us money. The difference is that we regularly give the European Union and the European Commission around £2.5 billion to £3 billion every year. Therefore my noble friend was absolutely right to draw attention to the fact that our policies do not appear to be putting business interests first, but putting those of Europe first.
As other noble Lords have mentioned, it is true that there are serious problems ahead, especially in relation to the balance of trade, which reached a huge deficit of £2.5 billion in September of this year and, indeed, after taking invisibles into account, £1.5 billion. That deficit can be managed over the medium and long term provided British industry, especially manufacturing industry, is given help and encouragement. In the short term that deficit will be cushioned by inward investment which continues to flow into Britain.
Indeed, investment flows into Britain in greater volume than into other European countries. The United Kingdom accounts for 34 per cent. of overseas direct investment into the EU. There must be good reasons why people want their trade to come to this country as opposed to going to other countries in the European Union. Those reasons are, of course, that they find the business and industrial environment in this country better than it is on the Continent. It is therefore extremely important that we do not adopt policies, practices and regulations emanating from the European Union which will hinder business and industry and curb their desire and ability to expand and maintain their operations in the United Kingdom.
The noble Lord, Lord Cooke of Islandreagh, who has experience of these matters, outlined the difficulties which small and medium businesses in particular are experiencing. But he is not the only one. No less than the chairman of Rolls-Royce warned that United Kingdom firms, including Rolls-Royce, could move abroad to escape industry costs and regulations imposed by the European Union. Industry does not need those 432 regulations; it needs the freedom and encouragement to expand in this country so that our people are given jobs. That ought to be a priority of Her Majesty's Government.
I want to turn to taxation. We heard a little about that this afternoon and I am going to say a little more. Indeed, over the past week a great deal has been said in the newspapers about tax harmonisation in the European Union. They have been described by Joyce Quin, the Minister for Europe, the Chancellor of the Exchequer and other people in this House this afternoon as "scare stories". Unfortunately, in the past those scare stories often proved to be accurate and the British people found themselves faced with a fait accompli about which they could do nothing.
That is the problem. Newspapers running those articles and reports have no doubt been reading the Commission document 398Y0106(01). That was the conclusion of the ECOFIN council on 1st December 1997 laying down tax measures covered by the code on taxation and setting up the group to assess tax measures that may fall within that code. It will, of course, be widened. Once we have a code, from then on it will be built on. That has been the experience so far, and that, I am sure, will be the experience in the future. We know that once the Commission starts down a road it is never satisfied until it reaches the end and controls it.
One of the taxes the European Union wishes to impose upon us is the withholding tax. It will do this country a great deal of harm and lose many jobs. A failure by the Chancellor to state absolutely and unequivocally that he will veto that tax has led to fears that we are on the road to damaging tax harmonisation in that respect. As Aneurin Bevan so aptly said, "You don't have to gaze into a crystal ball when you can read an open book"; and there are many books to read about the activities of the European Union over the past 25 years since we have been members.
Then, of course, there are the statements of European leaders, particularly the new German Chancellor, the German Finance Minister and the German Foreign Minister. Mr. Schröder, the Chancellor, said in his inauguration speech that he wanted a federal Europe along German lines. There is no mistake about that. Mr. Lafontaine, the Finance Minister, wants high government spending and harmonisation of taxes. He is quoted as saying a united currency needs a fair and equal tax framework. There is no doubt about that; he said it. We cannot argue with him. Of course, Mr. Fischler, the Foreign Minister, believes that Germany should be at the heart of a new European political entity and he is quoted as saying,We ought to work on a common constitution to turn the EU into an entity under international law".In plain English that means a country called "Europe".
Those are not scare stories. Those people are serious about European political as well as economic union. It does not matter what they call themselves—whether it be CDU, SPD or Green—the ambition is the same; that is, a European superstate under German suzerainty. As I said, it is there. Time and time again Kohl said it, and now his successor is saying it. The person has changed but the policy remains exactly the same as it was before.
433 Taxation, monetary policy and central planning are the building blocks of such a European superstate. It is not the newspapers that raised these issues that are the scaremongers. They are doing their duty in raising awareness about what is going on in the European Union and telling people about it.
The House of Commons should be particularly concerned about the demand for euro taxation because its power derives from its ability to grant or withhold supply. If it once loses that power, it will become completely redundant. Indeed, we should not be worrying ourselves about the hereditary Peers; we should be concerning ourselves with the future of the House of Commons and its powers over the Executive. In case noble Lords think that I am scaremongering, they should read the reply to a Question to the noble Lord, Lord Tebbit on 2nd November at column WA28. In effect that makes absolutely clear that once a Minister has decided—and he does not have to have the authority to decide—to support a tax measure and it becomes a measure in Europe, that cannot be overturned by the House of Commons without the House of Commons committing an offence. It would be illegal under European law. That, in effect, removes the right of the House of Commons to bring Ministers to account and to decide what taxation is to be.
That is a serious matter. The House of Commons must take it seriously. We know only too well how the creeping competence of the European Union has taken over much of our government and decision-making. The Prime Minister—who declared in the Sun newspaper in March 1997, just before the election, that he was a British patriot—should, at the summit in a couple of weeks time, prove his patriotism by declaring firmly and unequivocally that taxation is not a matter for the European Union but for the British House of Commons, and that he will veto any attempt to extend the powers of the European Union any further into the realms of taxation. Further, he should reiterate firmly that Britain does not want, and will not be part of, a centralised European superstate. If he does that, he will find that he has much support in the country.
§ 7.51 p.m.
§ Lord Blackwell
My Lords, in listening to the opening speech from the Government Front Bench, I was encouraged to believe that I might share with the Government the criteria by which I would wish to judge the various measures put forward in this programme. First, do these measures support wealth creation by free enterprise within a stable economy? Secondly, do they encourage people to take primary responsibility for looking after themselves and their family while protecting the needy? I would welcome confirmation that the Government share those objectives. I would applaud them for doing so. Having said that, I believe that on both points their rhetoric diverges substantially from the reality of what this programme and other measures brought forward by the Government will deliver. I shall summarise why I believe that to be the case.
434 As regards free enterprise, I applaud the Government for having carried through a number of measures of privatisation against previous opposition. However, as mentioned by many noble Lords, their fondness for regulation and legislation, is the enemy of enterprise. I refer to the working time directive, the minimum wage and the introduction in this Session of the workers' rights of recognition. All that will add to the cost of employment and the burden on business. I agree with the noble Lord, Lord Davies, that the Government have a very different approach to these issues from that of the previous government.
When the Government speak in Europe, they applaud and recognise the benefits of flexibility in the UK economy and in the UK labour market. That flexibility has, over the past 10 to 15 years, led to a substantial share of inward investment from Europe to the UK. It has led to the on-costs on top of labour costs being half or less in the UK than in some other European countries. That has encouraged the growth of employment, with many more jobs being created in the UK than in other European countries. In practice, despite talking of encouraging flexibility in Europe, the Government's policies have been taking us in precisely the opposite direction. They have taken us away from the flexibility that we have enjoyed, imposing on us the same kind of inflexibility suffered by other European economies. Having signed the European social chapter, I fear that the Government now have no protection against further rigidities and costs entering the UK economy. I believe that there is nothing in this programme which will help enterprise to cope with those disadvantages.
I turn to economic stability. Like my noble friend Lord Skidelsky, I pay tribute to the fact that the Chancellor initially continued the constraints on public spending which he inherited. I also pay tribute to the sound finances which he inherited. However, I believe that those have been put at risk by the spending commitments which have been given. In particular, the contingency, which is traditionally provided for in future government spending plans, has, so far as I can see, been almost entirely eliminated in order to try to balance the books. Higher spending inevitably means higher taxes. I believe that the risks which have been taken are risks which we may well, in the future, consider to have been inappropriate.
I would welcome the Government stating not only their commitment to the golden rule, but restating the commitment of the previous government to keep public expenditure below 40 per cent. of GDP as a long-term, permanent target. I echo the words of the noble Lord, Lord Stoddart of Swindon, about the threat to taxation in this country—and low taxation in this country—from the European policy on taxation. Like the noble Lord, I, too, would welcome further confirmation from the Government that they would veto any such proposals for the harmonisation of taxes in Europe and where precisely they believe they have the power to veto if such proposals were put forward.
I turn to the third area of the programme, that of encouraging people to look after themselves and their families. Again, there are some good things in what the Government have done. The introduction of interviews 435 for work is something that has been developed consistently over the past two decades. The noble Lord, Lord Young of Graffham, when he was Secretary of State for Employment, first introduced restart interviews. Unemployed people had interviews to encourage them back to work before receiving benefit. That principle was gradually extended by the previous government. I welcome the further extension of that principle to try to ensure that people are properly interviewed before receiving an automatic entitlement to benefit. I also welcome the continuing review of the criteria for benefit entitlement that the Government have proposed. However, we will need to look carefully at the details as with other measures, to ensure that they are fair and do not prejudice people.
Against those improvements, I believe that the Government's programme totally fails to address the wider issue of welfare reform, particularly in the area of pension development. Their only measure in that area so far has been the tax on private pensions. That will leave many existing pensioners worse off. Although there is promise of further progress on stakeholder pensions, we have yet to hear any details on what might be proposed to widen pension holding further.
If the Government really are having problems in coming up with ideas on this matter, they might look back at the proposals put forward by the previous government; namely, to use National Insurance contributions and a rebate from such contributions to start to build up private pension funds for individuals. Those proposals were initially welcomed by the then Opposition when they were put forward but were attacked shortly afterwards because that appeared to be opportunistic. However, those proposals had been worked out extensively over a period of time by officials in the Department of Social Security and the Treasury. They were well founded and by far the most exciting and innovative proposals to be brought forward on this topic. If the Government are unable to bring forward anything better, I would urge them to swallow their pride, reconsider those proposals and reintroduce them. At the minimum, I should like to suggest that any plan brought forward should be set alongside those proposals and tested against them to see whether it is better in terms of value for money and better as regards benefits and building up a long-term fund of investments to offset against pension costs in the next century.
So, as I look through the programme I agree with the objectives which are set out in a number of areas and which the noble Baroness outlined at the beginning of today's debate. However, an electorate will not judge this Government on the rhetoric; it will do so on the delivery. As regards the measures that we are talking about today, as in so many other areas of the Government's programme, I fear that the practical delivery falls a long way short of the rhetoric. On that basis, that I find that the programme as put forward fails to fill the gap.
§ 8 p.m.
§ Lord Haskel
My Lords, I believe that it may have escaped the attention of the noble Lord, Lord Razzall, that, early in the gracious Speech, we were told that the Government will seek to improve productivity by,measures addressing competition, investment, entrepreneurship, and improving the skills of the British people".I shall focus first on entrepreneurship. Like my noble friend Lord Evans, I am delighted that the Government are brave enough to grasp this matter. But I wonder if the Government realise the size of the task that they have taken upon themselves. Make no mistake, entrepreneurship is not some business technique to be taught in schools and introduced by consultants: it is a cultural shift in all areas of society—not just in business—and some of these areas are quite surprising.
Entrepreneurship is not pure self-interest or narrow opportunism, as the previous government might have thought. Individual self-interest is not a basic building block for a healthy economy. Entrepreneurship is showing individual initiative—individual initiative within acceptable social norms. The late John Smith said that part of the work of the Department of Trade and Industry was to balance the imperatives of the market with fairness and social justice in society. That is why the task of my noble friend the Minister as "Competitiveness Minister" is so difficult. He has to convert us into entrepreneurs while maintaining John Smith's delicate balance.
As with many changes of attitude, you have to start with education. Commercial awareness has received little attention in the debate on the curriculum, yet it could be introduced quite simply; for example, when teaching ways to solve problems, examples could be taken from present-day commercial success. But what is obvious is that young people will need to be entrepreneurial in their attitude because they will no longer have jobs for life, and this attitude will help them through the 21st century. Perhaps this is where GNVQs will score.
In his recent pre-Budget report, the Chancellor of the Exchequer outlined plans for up to eight institutes of enterprise at British universities. Unlike the noble Lord, Lord Wade, I am not sure if there can be formal training for enterprise. Institutions can teach business basics, but I suspect that enterprise and entrepreneurship are about a spark and a leap of imagination which cannot be taught; indeed, it can really only be demonstrated.
What is important when training people for enterprise is having the school or university plus an incubator together in the same premises. That mixture helps to generate enthusiasm and excitement which, in turn, can ignite the spark of imagination. This is important because the measure of an entrepreneurial economy is how fast and effectively it generates commercial ideas and exploits them.
Entrepreneurship is not just a matter of business training and awareness. It is also a matter of our attitude towards risk and reward, and towards success and failure. Our change of attitude towards these is the measure of our cultural shift to an entrepreneurial society. Investing in a hedge fund or moving money 437 round the world short-term is not the kind of risk I mean. I mean the risk of being in business itself. The cultural shift is that instead of being resentful or jealous of reward, we view it as an accolade—as just reward.
As many of us know, it is also easy to fail. You are trying simultaneously to judge the movement of the market and the movement of money, and you have to get them both right at the same time. These are very difficult judgments to make. Sometimes you just have to be lucky. That is why the Secretary of State is right to suggest that we must change our attitude towards failure. I do not believe that he had in mind our English cricketers in Australia; indeed, I think he meant that an entrepreneurial society will benefit from the lessons of failure. Failure will encourage entrepreneurs to try again. So it is important to sort it out quickly. Perhaps this does mean leaving the debtor in charge so that the team, the skills and the knowledge gained can be kept intact to help turn the failure into a success.
Certainly protection is required against the unscrupulous, but an entrepreneurial culture assumes that not everyone is unscrupulous. Perhaps the cultural change required is that, instead of failure carrying the stigma, those who have never failed as entrepreneurs should be criticised for not trying hard enough.
Of course, many failures are due to companies being badly run. The DTI recognised this many years ago. It is to the credit of the previous government that they set about trying to reduce the number of failures not with money but with advice, support and training. Unfortunately this enthusiasm has resulted in a multiplicity of schemes which are sometimes bewildering: TECs, Business Links, Enterprise Agencies, personal business advisors, pre-start advice and training, export advice and assistance, IT for All, and entrepreneur clubs.
The noble Baroness, Lady Sharp, spoke about these things. I believe they do help to increase the success rate and, most importantly, they help to screen out some of the potential failures. But obviously some rationalisation is required. It is to be hoped that the regional development agencies will do this vigorously, and soon.
However, the real cultural shift, the really ambitious change needed to convert us into an entrepreneurial society, is to introduce entrepreneurial attitudes into areas of life other than just business and commerce. People have to be entrepreneurial about their own lives and careers in every kind of work, public and private, voluntary and paid.
My noble friend Lady Hollis said in her opening remarks that people would have to take more risks. She is quite right in that respect. They have to behave in an entrepreneurial way because they can no longer expect to climb the rungs of the company ladder; neither can they expect to receive big payouts in the event of failure.
The companies themselves have become unstable. This sort of risk may be more depressing than energising, but it is where the cultural change is needed. My noble friend Lord Evans reminded us that entrepreneurial people have to take responsibility for their own progress and continuous professional development.
438 The Minister will also have to focus on the voluntary sector. The Government now depend on the voluntary sector to deliver quite a range of services. Indeed, those doing voluntary work already have to show entrepreneurial skills. My wife is a governor of an FE college, and the skills she needs are every bit as entrepreneurial as those needed to run a business. It is essential that this change in culture pervades the modern voluntary sector, because at some time or another we may all need to call on our voluntary work entrepreneur.
Cultural entrepreneurs are also to be encouraged. Within the word "cultural", I include design, fashion, film and graphics, as well as art, music and the theatre. An entrepreneurial society must embrace these activities too, but the means will have to be different for three main reasons: the assets are intangible, the skills are cultural and the people are—well—difficult. It is impossible to organise creative people. An entrepreneurial society understands this. That is why it is important to create an environment where they can be effective and flourish. It is to the credit of local authorities that they are doing so in a number of innovative ways. Planners are providing the infrastructure for them. Not only is there the famous cluster in Cambridge and the noble Lord, Lord Wade of Chorlton, mentioned Manchester, but Sussex has more than 350 companies covering all branches of new media. Glasgow, Sheffield and Newcastle are doing their version of the same thing. Nor does this apply only to hi-tech business. There is a cluster of caravan manufacturers and all their specialist component suppliers in Yorkshire. In this way the public sector is already making an important and imaginative contribution to the entrepreneurial society.
It is a big project to improve productivity by entrepreneurship because it means change in every sector of our society. But economics is not just about numbers. As the right reverend Bishop of Oxford said, it is about values and I think it is about change in society. Making it more possible to show individual initiative will not only improve our productivity, it will improve our lives.
§ 8.10 p.m.
§ Lord Ewing of Kirkford
My Lords, I begin my contribution to this debate on the gracious Speech in the same way as last year in the debate on the first gracious Speech of the incoming Labour Government. I wish the occupants of the Government Front Bench well in the Session ahead. They will have realised today that the post they hold can sometimes be lonely and always difficult. When I offer my support I am the first to accept that, in terms of attendance, that support may be patchy; but in terms of loyalty to the job that my noble friends on the Front Bench are charged to discharge, they have my full support. In case any noble Lord thinks that in such an indication of support I buy favours, let me disabuse your Lordships of any such thing. The eloquent testimony is that number 26 on the list of speakers is hardly the greatest favour I have ever been awarded.
439 I have listened over these last two days to 12 maiden speeches—seven yesterday and five today—all of them making a marvellous contribution to our discussions on the various aspects of the gracious Speech. A number of them were from trade unionists whom I know well. Each time one of my trade union colleagues has contributed to the debate—either in a maiden speech or as a contribution to the debate, as did the noble Lord, Lord Davies of Coity,—I am reminded of a rather virulent trade union conference which I once attended. The general secretary was having great difficulty with the unruly delegates. At the end of the general secretary's address he was faced with about 10 per cent. of the delegates booing him and 90 per cent. applauding. He turned to his deputy and he said, "Well, that's me won that debate". His deputy quickly disabused him of any such idea by explaining that the 90 per cent. who were applauding were applauding the 10 per cent. who were booing. There was no such thing in your Lordships' House; there was unanimous approval of the 12 maiden speeches.
There is no Scottish legislation in the gracious Speech, for very understandable reasons—although obviously in the National Health Service Bill that is to come before your Lordships' House in due course there will be a Scottish element. The Scottish Office requires legislation for the restructuring of the National Health Service—the reduction of the number of trusts in Scotland and the introduction of the new system. In my view, that will be the only opportunity between now and the establishment of the Scottish parliament to discuss Scottish business. I apologise to my noble friend Lord Simon, who has to respond to this debate, for taking advantage of this opportunity to address specifically Scottish problems.
Before I do so—and before I forget—I want to pay generous tribute to my noble friend Lord Clarke of Hampstead, who kindly referred to me in his maiden speech as the first postman to enter your Lordships' House. My noble friend Lord Simon is about to become the third postman because I am going to ask him to deliver my comments to the Scottish Office once I have concluded my speech.
I came to the other place after a by-election in 1971, having been a rural postman and delivered letters each morning to my local Member of Parliament, Sir John Gilmour. I can hear him even to this day, as I was being introduced to the other place, saying in a rather loud voice to his colleagues, "There is something going wrong with this place. They have got my postman here how". I do not know what he would say now that he can see two postmen here in your Lordships' House.
The important point is that when it comes to the reform of your Lordships' House, just as we would expect the other place to represent the make-up of the population of the United Kingdom in every aspect, whatever system is adopted for the appointment of Members of your Lordships' House it should be devised in such a way that the membership of your Lordships' House also reflects the make-up of the United Kingdom—and postmen are part of that make-up.
440 If at any time in my constituency I was faced with an unruly lady at an election meeting, I used to remind her that I had seen her at seven o'clock in the morning in her dressing gown and her curlers. There was nothing better designed to quieten her down than reminding her of that.
§ Lord Ewing of Kirkwood
I apologise. For the avoidance of doubt, I have never seen the noble Baroness at seven o'clock in the morning in her dressing gown. I apologise to the noble Baroness.
I turn quickly to the structural defects, as I see them, in the Scottish economy. There are serious structural defects that I would hope the incoming Parliament—of which my noble friend Lord Watson of Invergowrie will be a member, having been elected as the Labour candidate for the Glasgow constituency of Cathcart—will address. Down the years these structural defects have become more and more pronounced. In our history the main industries of coal mining, shipbuilding and heavy engineering have all gone. They were replaced during the Macmillan government in the mid-1950s—to be fair to that Conservative government—by the car industry at Linwood on the one hand and the light truck division of British Leyland at Bathgate on the other. That was to be the new industrial horizon in Scotland. They have gone as well. When they were gone they were replaced by the electronics industry, the micro-chip industry and the semi-conductor industry.
My noble friend Lord Bragg, in an excellent maiden speech yesterday, referred to Silicon Valley in California. When the micro-chip industry and semi-conductor industry came to Scotland, Scotland was nicknamed Silicon Glen. But there is a difference between Silicon Valley and Silicon Glen—and it is a very important difference. Silicon Valley kept the hi-tech jobs and Silicon Glen got the low-tech jobs. One of the reasons that the semi-conductor and micro-chip industries in Scotland are going through the difficult phase they are experiencing now is that these were low-tech jobs and not hi-tech jobs.
We are now faced with a massive influx of call centre jobs. Scotland is soon to become the call centre capital of Europe. Those jobs are welcome. I do not want any misunderstanding about that. They are the difference between very high unemployment and unemployment which the Government are beginning to manage and get the better of. But in themselves they mask a serious underlying structural problem in the Scottish economy.
In the late 1980s and early 1990s one million manufacturing jobs were lost in this country. For a year, interest rates were at 15 per cent. One million manufacturing jobs were lost, never to return. In case noble Lords think that massive capital investment brings about the re-creation of those manufacturing jobs, I shall disabuse them of any such thought. In my former parliamentary constituency of Grangemouth, BP, with which my noble friend Lord Simon is familiar, has announced in the past month a massive capital investment of £500 million. There is to be a new ethanol plant, an extension of the ethylene facility and the 441 construction of a power station. When all that is finished, and after the £500 million of investment in the petro-chemical industry, because of the closure of an ethanol plant at Baglan Bay in Wales there will be 70 fewer jobs than there are at the present time.
I want the new Scottish parliament to seek a much higher quality of inward investment than has been attracted to Scotland over the past 20 years. As I drive from Edinburgh airport, along the M.90 motorway, to my home on the east coast of Scotland, I pass that massive plant that was built for Hyundai. It stands empty. It has car parking space for 2,000 cars. Two thousand jobs were promised but not one materialised. That was not just because of the collapse of the Korean economy but was primarily as a result of the low quality of inward investment that was attracted in that instance. Instead of the new Scottish parliament turning its attention to the reorganisation of the eight police forces in Scotland, it should leave the police alone to get on with the job of fighting crime and the drug problem. It should turn its attention to the much more serious long-term problem of the structural defects in the Scottish economy.
I conclude with two points. I listened carefully to my noble friend Lord Shore. One of my happiest times during my years in both Houses was when I worked with my noble friend shadowing the Department of Trade and Industry. I listened to my noble friend Lord Stoddart. I resile completely from his conditions for meeting the test of patriotism. It is dangerous for any individual to lay down conditions so that if a person fails to meet those conditions or takes the opposite view he is not regarded as a patriot. That is a complete mistake. It is 27 years since we joined the Common Market and 25 years since we had the referendum on whether or not to stay in. In listening to our debates I have been driven more and more to the conclusion that the question we shall have to put to the people of this country is not whether we join the single currency but whether we want to continue to be part of Europe. We cannot be sour partners. We have to be either enthusiastic or we have to face up to the realities of the approach that is being taken by those who do not want to be part of Europe.
I shall leave my comments at that. I have abused the courtesy of your Lordships this evening. I should be very grateful if my noble friend Lord Simon, because I know that he is not briefed to deal with Scottish Office matters—I have taken advantage of that—could ensure that my comments are passed to his colleagues in the Scottish Office.
§ 8.25 p.m.
§ Lord Roll of Ipsden
My Lords, I must begin with an apology to the House and particularly to the noble Lord who will be winding up. Owing to a long-standing and now, I am afraid, rather delayed previous commitment, I shall not be able to stay until the end of the debate.
This debate, like others on the gracious Speech, has ranged over many issues, as indeed the gracious Speech did. The gracious Speech outlined a heavy and 442 important legislative programme. On that I have little to say at this stage. Like many others, I regret the delay in the setting up of the food standards agency. I hope that the reassuring words which we heard yesterday will prove to be right. If funding is the issue, I find it difficult to believe that an effective and equitable method cannot be found. In my old days at the Ministry of Food, and later in the enlarged Ministry of Agriculture, I always found the leaders of the food distributive trades to be co-operative and enlightened. Therefore, I hope that we shall soon see the food standards agency on the statute book.
As regards the freedom of information legislation, what we heard yesterday was perhaps less precise and less reassuring. Obviously, this will be a much more circuitous and prolonged process, but I profoundly hope that the measure will not fall by the wayside.
The words "modern", "modernise" and "modernisation" enjoy great favour with the present Government. I have no quarrel with that. But if the Government are really, in the words of the gracious Speech, "to modernise" Britain, it is important to add to the more mundane measures which we are constantly discussing something of the order of a freedom of information Act. I cannot believe that that would really jeopardise the confidential nature of the relationship between Ministers or between Ministers and officials. Indeed, it may well be that the enormous volume of rumours that now surround these matters and that appear in the public prints all the time may be braked to some extent by the existence of a freedom of information Act.
The major part of the legislative programme is occupied by reform of welfare provisions. This corresponds to one of the major priorities of the Government, and that, too, I thoroughly support. They are difficult issues and will no doubt produce a prolonged process of debates in both Houses, which has in fact already started. Whether, when it is all done, we shall really have a fundamental restructuring of the welfare state remains to be seen. I confess to a slight doubt about that point because what is lacking at the moment is some concern about what I might call the more intellectual—dare I say?—ideological, aspects of this matter; namely, poverty and equality and the gap between poverty and wealth. These are difficult matters.
Poverty is too serious a subject to apply to it the famous remark by Mark Twain about the weather: everybody talks about it but nobody does anything about it. However, I believe that we shall not be able to escape this problem, which is still with us and is getting worse. Recently we were starkly reminded of that by the report of the former Chief Medical Officer of Health, Sir Donald Acheson, which produced some facts which I hope no one in the House would be prepared to ignore in regard to health, ill-health, expectation of life and so on. I believe that this will have to be tackled. It will probably have to be tackled not in an intellectual and ideological manner, but rather more in what I might call a technical and almost mechanical manner.
I am glad that the Government have decided to ask Mr. Martin Taylor to look into the whole question of the relationship between taxation and benefits, which is 443 one way of getting into this problem. The matter has been discussed over the years and many imaginative, innovative but possibly not practical measures have been produced from time to time. I hope the current little local difficulty will not prevent Mr. Martin Taylor from producing his report and will not prevent the Government from giving their views on it in due course.
On broader aspects of economic policy, the gracious Speech—as has already been pointed out by the noble Lord, Lord Shore, among others—has relatively little to say. When I spoke in the economic debate on the Address last year during the first debate in this Parliament, I supported the Government against much criticism for having adopted a two-year standstill on taxation and spending. I did so not only on the ground that was so often mentioned by a former Labour Prime Minister—namely, that it was right that the government should have a chance to look at the books, as Harold Wilson was often quoted as saying—but also because I felt that after 18 years out of office a New Labour Government (New Labour in every sense of the word) was apt to be confronted with a flood of claims which it might be difficult to resist without the existence of the standstill.
I think this forbearance has been justified. As the Chancellor has announced, we shall shortly have before us a spending programme of £40 billion which is to be concentrated mainly on the Government's two priorities of health and education. As has been pointed out by a number of speakers—including the noble Lord, Lord Barnett—the present state of the public finances, as the gracious Speech rightly points out, is relatively good and provides a basis on which perhaps a more forward policy can now be pursued. We can then at the end of the day see whether in terms of household management the Government have done their job.
But, of course, macroeconomic policy—or economic policy in the large—is not only a matter of household management; it is also a matter of what effect it has on the economy generally, as has already been pointed out by a number of speakers. On that the gracious Speech has relatively little to say. It speaks of interest rates, or at least it mentions the fact that the Bank of England under its newly gained independence is now responsible for fixing short-term interest rates. This is a controversial subject. I, for one, support what has been done. A few years ago I chaired an independent panel on this very subject and naturally I was gratified when the legislation brought forward by the Government, and now embodied in the Bank of England Act, reflected to a large extent our recommendations.
I believe that there is a certain amount of misunderstanding about this. We are sometimes told—and some echoes of this view have been heard during this debate—that the Monetary Policy Committee of the Bank of England is not mindful enough of the needs of the economy for growth and employment. I believe that is to some extent misconceived. The remit of the Monetary Policy Committee is stability of prices. As I think the noble Lord, Lord Barnett, pointed out, it is supposed after that also to give some consideration to the Government's general economic policy. But not 444 only does looking after growth and employment not fall directly into its remit, the means available to it to achieve stability of prices are nowadays confined to the movement of short-term interest rates. The quantitative and qualitative direct control of credit has long since fallen into disuse and indeed into disrepute. I think that is right as it is almost impossible even to conceive of a practicable way of doing that. However, this pitting of finance Ministers against central bankers—the one saying, "You must do this through your fiscal policy" and the other saying, "You must do this through your interest rate policy"—is, I think, neither fruitful, nor indeed seemly in the long run.
It is understandable that this now occupies a large part of the public debate. As has already been pointed out, the climate of opinion has changed dramatically from fear of inflation to fear—dare I say?—of deflation, but at any rate, of recession everywhere. Is this to be wondered at with 16 million unemployed in Europe, 4 million in Germany alone? We have heard some rather harsh words about Mr. Schröder and Mr. Lafontaine, but I wonder what we would say about our own Ministers if they were not concerned about a level of unemployment of that order. I believe that we might think somewhat differently about it. I am not saying for one minute that what has been proposed, or thought to have been proposed, by Mr. Lafontaine about this is necessarily right. However, I think it is absolutely right to be concerned about that matter.
Here I come back to the question of what monetary policy can do and what fiscal policy can do. Although this is not the time to go into this matter in any great detail, all I would say is that in my view, for what it is worth, and in my experience, the consequences of both, but certainly of monetary policy, on the economy generally vary from time to time and from country to country. They are not necessarily always the same. What the Monetary Policy Committee of the Bank of England can do with a half percentage point change in short-term interest rates is not necessarily what Mr. Alan Greenspan is able to do with a somewhat similar measure. If you extend that to fiscal policy more generally, you have to look only at Japan. The rate of inflation and indeed the interest rates in Japan are hardly visible. I happened to be in Tokyo on the day when the Japanese parliament in both Houses approved a 500 billion yen appropriation in order to remedy the weaknesses of the Japanese banking system, together with a programme of reform of the banking system. Since then, the Diet has voted something of the order of 200 billion yen to encourage consumption. Has anything happened so far? No, it has not. I do not think I need elaborate here on what would happen if we went in for that: we would have roaring inflation. However, in Japan nothing like that happened. Therefore, a certain amount of caution about these matters is clearly indicated.
Finally, I wish to say a few words about Europe. After the fire and brimstone we heard from a number of noble Lords—no doubt we shall hear some more from the noble Lord, Lord Bruce of Donington—including from noble Lords whom outside the Chamber I would address as friends, but here parliamentary usage makes that 445 impossible, I am filled with fear and trembling at the thought of saying anything positive about any aspect of Europe. However, I cannot deny views which I have held for perhaps 50 years and certainly not views which I hold about the euro.
If I remember rightly, the only mention of Europe in the gracious Speech is in relation to enlargement. Enlargement has become almost like motherhood and sliced bread in that everyone is in favour of it. It is not universally welcome on the Continent, but everyone is in favour of it. Unfortunately, owing to the anti-European virus that was injected into the body politic during the previous administration, anything we support tends even today to carry a lingering suspicion that we do so in part at least as a diversionary tactic in order to take attention away from something which is of much more immediate interest to our European partners.
Enlargement is important. The form of the common agricultural policy is very important. Restructuring the institutions of the European Union on the basis of the Amsterdam Treaty or in any other way is very important. However, just a month from now something will happen that will probably be the single most important development in the 40 years of the European Common Market, later the European Community and now the European Union: the euro will be a fact—not perhaps on 1st January, which is a Friday, but on 4th January, which is a Monday and probably the first working day.
Despite the danger of incurring the wrath of some of my colleagues in the House, I must say that I agree entirely with the words of the noble Lords, Lord Newby and Lord Barnett. The noble Lord, Lord Barnett, as chairman of Sub-Committee A of the Select Committee on the European Communities, has done so much to enlighten and instruct us on all these matters. In the previous Session, he tabled a Motion which was designed not to force a decision on the Government, but to encourage the Government to be a little more forthright. That Motion languished on the Order Paper for a long time and now, of course, has gone.
Obviously, we cannot ask for a decision from the Government today. The Government are committed to wait until the next election and then to have a referendum when they are ready to recommend either joining the single currency or not. That is a long timetable. As the noble Lord, Lord Barnett, and others pointed out, that probably means waiting until the end of 2002 or perhaps until the middle of 2003. All right: I cannot help thinking of what the late Nikolai Lenin used to call the "hammer blows of history". It may be that even that cast-iron timetable will have to yield to developments that we cannot yet foresee in the next 12 to 24 months.
Let us assume that that is all it is. I think that the time is rapidly approaching—if it has not already come—for the Government to be a little more forthcoming and more forthright, not so much for the sake of our European partners, but for the sake of our own electorate. We have to prepare the electorate. Today, we have rumour: "This Secretary of State is in favour"; "That Secretary of State is wobbling"; and, "That 446 Secretary of State might well be in favour but it is politically dangerous to come out in favour". And so it goes on. I do not believe that such hesitation is the right attitude. Perhaps we should now go in for an old-fashioned "vigorous vodka". I hope that the Government will try, in one way or another, to become more forthright and forthcoming.
With the greatest respect, I must confess that I cannot help thinking of the words of that wonderful, but today not much appreciated, poet Andrew Marvell. Admittedly, he used them in connection with a much more intimate matter: namely, when addressing "his coy mistress", but I cannot help feeling this:Had we but world enough, and time,This coyness, Tony, were no crime. …But at my back I always hearThe euro's chariot hurrying near: …All right, let them think it's safe and soundMust we wait 'til the media moguls have come round"?
§ 8.43 p.m.
Lord Bruce of Donington
My Lords, it is always a most agreeable experience to listen to the noble Lord, Lord Roll of Ipsden. I entirely agree with him about the necessity for bringing forward as soon as possible a comprehensive freedom of information Bill. If there is one thing that all citizens (of whatever grade) really need, it is access to fact lest they be seduced unduly by myth, by the sheer volume of the press, by the sheer skill of orators and all the rest of it. The more facts we can acquire, the better—and the greater the amount of time we have to study those facts, the better. Some conclusions might be very surprising.
At the conclusion of the first Session of this Parliament, the Government had passed 52 Acts of Parliament—a formidable range of Acts, covering a variety of subjects. Not all of those Acts are immediately operable, but their implementation is, quite properly, to be spread over a period of some three years or so. That is all very acceptable. Indeed, it is perhaps useful to remember that the Attlee government of 1945 to 1950 passed 84 Acts during the same period. They were not exactly idle in the administrative field either. It will be recalled that it was our Chancellor of the Exchequer in those days, Dr. Dalton, who brought forward the Act nationalising the Bank of England and establishing a bank rate of 2 per cent. which persisted for 20 years thereafter. During that time, unemployment never exceeded 3 per cent; inflation exceeded 2.9 per cent. on one occasion only and, on the whole, we did fairly well despite the difficulties of that time.
I put the matter in that setting because sometimes, unless we are aged socialists like me, we tend to forget the past and the contribution that was made by the then government.
Let me say at once that I entirely support the Government's programme as laid down in the Queen's Speech. The programme will take some time to enact and will need much ingenuity and persuasion. I hope that the priorities will be set correctly—that is to say, that the evils and injustices from which so many of our population suffer will receive a greater priority in 447 enactment than what I would call "mere constitutional measures" which have an effect on our citizens only over a longer period of time.
We must bear in mind that our unemployment rate is unacceptable. After all the doctoring of the figures has been revealed—and there have been numerous endeavours to indoctrinate the country as to their true nature—according to the International Labour Organisation, unemployment in the UK is running at over 6.4 per cent. The ILO's rate is the latest, lowest possible estimate of unemployment. According to the old claimant rate, our unemployment is now, apparently, rapidly declining, but that is mainly due to a reclassification.
What troubles me and my colleagues a little is that the existing unemployment rate, whatever it may be—and it is certainly a considerable multiple of the official version—seems to be taken for granted. It seems that the old doctrine that "Unemployment is a price worth paying" (which was enunciated by the then government of the Conservative Party) seems to have become more generally accepted, perhaps unconsciously, as the norm, including by some of our own people. However, I believe that the existing rate is unacceptable and that it remains a great sore affecting the whole country and poisoning the lives of millions of our people. It is to solving that that our endeavours should be directed.
We are committed to a programme of reform—and it is a very good one. I repeat that it is one that I support. However, it will need money, whereas we are continually enjoined that we have to have "sound finances"—I believe that is the term—and practise prudence in administration. Those terms have an echo in the distant past, when Mr. Philip Snowden was Chancellor of the Exchequer and Montague Norman was at the Bank. I do not say that they correspond precisely with the words of our present Chancellor of the Exchequer and Mr. Eddie George, but there is a vague echo which we must somehow dispel. So let us accept immediately that in order to implement the Government's programme we must have adequate funds with which to do so.
I respectfully suggest that that should precipitate a ruthless examination of the expenditures that now take place to see whether they are in any way to be lowered so that such things as hospital facilities or increases in nurses' pay can be implemented. Those matters must be examined carefully. With that in mind—noble Lords would expect me to come to this subject—we have to look to taxpayers' money being paid directly into Europe. That is of some importance.
Every year we have a deficit of £2,500 million in terms of cash from taxpayers' pockets that is payable direct to the European Communities. I shall not argue the merits of the reasons for that, but it is a fact. It is also a fact that, year by year, we have an abatement negotiated by the former Prime Minister, the noble Baroness, Lady Thatcher, worth £1,500 million a year. These are not inconsiderable sums.
But the reason why we must take a careful look at them in order that we can have the money to do what we wish to do, is that there are now moves afoot, notably on 448 the part of the President of the European Commission, who has come out in forthright terms as advocating the abolition of the abatement that was negotiated on our behalf. I repeat: year by year, on average, it is worth about £1,500 million.
There have also been suggestions that even after that, Britain is receiving a much better deal than is implied by its payment of a mere £2,500 million into Europe every year and that measures have to be taken to correct that position downwards—so much so that it has been suggested, notably by the President of the European Parliament during the past month, that there has to be a new own resources tax for the European Commission. It has not been suggested what form it may take, except that it should be a separately levied tax payable by each country and levied on each citizen in order that the Community can have more funds to spend. These matters are beyond doubt. They are all documented and, as noble Lords know, I have documentation in my possession for practically everything I say and more.
A new proposal was brought forward only a couple of years ago to harmonise taxation. Needless to say, what the Commission meant—it was explained in memoranda which can be obtained by any Member of this House—was raising our VAT levels, which are lower than those in Europe, to the European level. That would involve taxing newspapers, babies' clothes, food and so on. These are all facts, and they are alive and kicking at the moment—so much so that even today our own Ministers were at an ECOFIN meeting discussing the code of conduct in regard to tax harmonisation. The code of conduct was defined in earlier memoranda which I have in my possession as an arrangement that was not binding but was acceptable to member states. Today, in Brussels, Ministers have been discussing the results of the various meetings that have taken place to draw up the code of conduct.
Are we really so naïve in our relations with Europe as not to believe that a code of conduct will lead inevitably to tax harmonisation whether we like it or not? It is very simple. All the Commission has to do is to levy it. All that we can then do is to take the matter to the European Court. Two years later the court may decide. When it decides, it will do so on the basis of the preambles to the various Acts that bring the provision in, the recitals and so on, bearing in mind that the whole purpose of the EC, which is bound to be taken into account by the European Court, is ever closer union. Who doubts that the decision would go against us?
It may be said that the United Kingdom can use its veto. No, no, my Lords. I well remember when I had the honour of representing my party on the Opposition Benches challenging the then government on this point. I was assured that the veto would remain. Unhappily, it has been tried before. It happened in May 1982, when Britain exercised its veto. What promptly happened was that the rest of the member states ignored it, so the veto did not hold.
Moreover, European law is interpreted by the European Court of Justice. Its concept of justice is not quite the same as ours. The court can take into account presumed intentions in determining what the law means. 449 I therefore hope that we shall receive some assurance that Her Majesty's Government have taken legal advice and are satisfied that they can exercise a veto against any such proposal as I have mentioned. Whether it be VAT, excise duty, income tax or corporation tax is immaterial. If I receive an assurance from the Government today that they are absolutely convinced that the veto will hold, it will considerably ease my mind and, I believe, the mind of the country.
In the meantime, in case all these matters may militate against our being at the heart of Europe, perhaps I may with respect notify noble Lords that there are only two states at the core of Europe; namely, Germany and France. Those two countries concluded the Elysée Treaty in 1963, by virtue of which they undertook to inform one another and arrive at a common position before every meeting of the Council of Ministers. Are we under any illusion that that does not still apply? They are there. They are at the core of Europe. In any case, what does being "at the core of Europe" really mean? On reflection, many may decide that it is a meaningless term, a merely emotive term which has no practical effect. What will happen, unless we are extremely vigilant, is that France and Germany between them will go on being the countries at the core of Europe, with the Commission as their obedient tool.
§ 8.59 p.m.
§ Lord Nunburnholme
My Lords, the noble Lord, Lord Bruce, talked of the intention of our present Government to use the veto. I remind him that the road to hell is paved with good intentions. Two weeks ago I asked the question: "Would we be equalising our VAT rate on hotel accommodation?" To that question, there was no comment at the time. I no longer need to ask. It has been answered by M. Yves-Thibault de Silguy and Signor Mario Monti in Brussels, with their European tax harmonisation. M. Yves-Thibault said: "The momentum behind economic and monetary union, once the rocket is launched, there is no going back". Mr. Jamieson, of the Sunday Telegraph, wrote last Sunday:Rockets do occasionally blow up and when they do it is on the whole better to not be on board".I concentrate noble Lords' attention on a fait accompli intended for 1st January 2001. So far, Spain has our fishing grounds. Net agricultural food exporters on the continent have successfully minimalised our farming production by exacerbating the BSE crisis and the ridiculous false market of set-a-side. False marketing can only be upheld for a limited length of time.
I reiterate what the noble Lord, Lord Stoddart, said. There is now the 20 per cent. withholding tax directive, COM (98) 295, to be effective from 1st January 2001 on all interest paid on the international bond market. The US tried that in 1963. The federal rate was set at 16 per cent. The bond market left Wall Street for London the following morning. In 1987 the tax was withdrawn, but too late.
If we implement COM 295, that market will return to New York on the morning of 2nd January 2001. The City produces £1,100 million per annum, employing 11,000 highly qualified dealers from the bond market alone. The City contributes £25 billion to the balance of 450 payments plus a further £2 billion on law and ancillary services per annum, four times more than North Sea oil. The City pays more business tax than Wales. Noble Lords might think that no one will gain with none of the tax going into any European coffer. They would be wrong. The pre-eminent international financial status of the City would be weakened and Frankfurt wants that business. How long are we to be forced to accept those polluted laws?
I crave your Lordships' indulgence for my pronunciation: "Europäische Wirtschaftlich Gemeinschaft" translates, I am told, as "European Economic Community." It is an expression used by a previous German chancellor in about 1937, or was it 1934?
With the 48-hour working week being slipped in—federalisation by stealth—there will be an inevitable increase in unemployment, and a large one too. Coincidence or not, last Saturday 4,200 redundancies were announced; on Monday a further possible 3,000 in the City of London, due to the merger of the Deutsche Bank and Bankers Trust.
Was the Government's large majority due to their possible future merit? Alternatively was it by default—negative voting against the Conservative Party? That was probably quite correct at the time. Did New Labour catch the market's ear? To me, it has musical connotations: "Variations on a washing powder." But the wash still needs a dryer—a spin dryer. I do not see the voters ever forgiving or forgetting.
There is one sentence from Dr. Faustus in the play by Christopher Marlowe:How am I glutted with conceit of this".
§ 9.6 p.m.
§ Lord Jacobs
My Lords, the noble Lord, Lord Ashley of Stoke, was to have spoken before me but he has asked me to express his regret that he had to withdraw because he is unwell.
My noble friend Lord Rodgers of Quarry Bank stated on the second day of the debate on the Address:The Queen's Speech is very strong on the need for economic growth but we will have failed if, by the end of this Parliament, the rich have grown richer but the poor are no better off'.—[Official Report, 25/11/98; col. 40.]The Treasury has stated that this country ranks a humble 11th out of the 15 members of the European Union in terms of national income per head. But in one respect we top the tables: we have the highest retail prices of all the 15 countries. High prices cause the greatest suffering to those on lower incomes. If we could achieve an average reduction in retail prices of 7 per cent. this would be worth more than two years of economic growth.
Is this an unrealistic dream? Are the Government powerless in the face of the efforts by importers, manufacturers and retailers to keep prices high and prevent real competition? Improving competition is the recognised way of lowering prices. The Government have successfully introduced a new Competition Act. I applaud that but I must tell your Lordships that it will 451 prove quite inadequate in exposing the informal cartels that manufacturers and retailers describe as price leadership.
Two reasons are put forward to explain high prices in the United Kingdom. The first is high shop rents, particularly in London. They are high but no higher than in New York. If it is high rent that keeps up prices, why are prices not lower in depressed areas in the north of England where rents are low? The second reasons is the strength of sterling. Frankly, I have never understood this, for a strong pound should mean lower prices for imported food, cars and televisions. The Competition Act may not realise the great hopes placed upon it, for high retail prices are seldom caused by provable illegal actions of the retailer or manufacturer. The Office of Fair Trading may require even stronger powers to carry out investigations as they have in the US.
I must declare an interest as an enthusiastic consumer. Take the price of cars. Many noble Lords will be aware that in the UK prices are on average 20 per cent. higher than in the rest of the Common Market. Recently, a UK car manufacturer, when asked about the state of the UK car market, described it as "Treasure Island". I guess that that is treasure for them.
The media have successfully proved that car dealers are afraid to offer discounts on new cars. However, the public are unaware that manufacturers have reduced dealers' margins from the European level of 17 per cent. to just 10 per cent. There is not much room for lower prices there! Car prices are high here because in the 1970s when employers were not permitted to give employees wage increases employees were provided with cars as a perk. As a direct result, more than 50 per cent. of all new cars are supplied to fleet users. These cars bypass the dealers and are offered at discounts of up to 40 per cent. Most manufacturers do not like this arrangement but none dares act alone to halve these discounts for fear of losing their share of the market. As a direct consequence, retail prices have to be kept very high to compensate manufacturers for huge fleet discounts. If these discounts were halved retail prices could come down by at least 15 per cent.
The Competition Act cannot help. I urge the Government either to secure an agreement directly with the manufacturers or to legislate as in the US to oblige manufacturers to supply cars only through dealers. Today, a dealer who sells 1,000 cars a year may receive a discount of little more than 10 per cent. while a 1,000 car fleet user gets 40 per cent.
We come to the problem of food prices. The Sunday Times for the past 12 months has carried out a remarkable investigation of food and other retail prices, resulting in a recent leader entitled "Rip-off Britain". The Sunday Times proved that UK supermarket food prices are the highest in Britain. They are higher than in France, Germany and Holland despite the fact that those countries also charge VAT. The cost of a mixed basket of food was 30 per cent. higher in the UK. Why? Years ago when Tesco, the first supermarket was founded the motto of its founder was, "pile 'em high and sell 'em cheap." What a betrayal of that principle we have today.
452 Then every high street had two or three supermarkets really competing on price. Today many supermarkets operate within shopping centres as anchor stores without a competitor. Effectively they have a geographical monopoly. They are nevertheless popular because they offer a vast range of quality food products and other merchandise, but at high prices. Their gross margins are excessive and their net profit margins are the highest in the world—double those in the United States. To create real competition in this country we need more discount food clubs such as COSTCO in the US and others in Germany. If the Government want to lower food prices they should insist that every shopping centre includes a discount club or second supermarket. Then we would have real competition.
Finally, we come to televisions and computers. The Dixon retail chain has a 40 per cent. share of the retail market and is continually attacked for its prices. I do not defend it but I pose this question: why is it that John Lewis, Comet and even the discount shops in Tottenham Court Road sell identical products at identical prices? These are high margin products and yet no one offers a discount. The probable reason is fear that the manufacturer might cut off supplies or slow down deliveries. That is illegal but small firms might be out of business before the Office of Fair Trading or Brussels brought a case to court.
Television manufacturers are preventing price competition, but they are also charging inflated prices to retailers for their products. Take Sony, for example. Its televisions in the UK, excluding VAT, sell for 40 per cent. more than in the United States. Clearly the UK is "Treasure Island" for it also.
In conclusion, the Chancellor of the Exchequer has expressed serious concern about prices in this country. He wants to lower the cost of living but he must do more than rely on present legislation available to the DTI, the OFT and Brussels. A more radical and creative approach is needed. Improvement in living standards could be immense. I urge the Government to get real on this issue.
§ 9.14 p.m.
§ Baroness Thornton
My Lords, I join with noble Lords in congratulating the—I shall not call them a bevy of maidens; I think that it is an inappropriate expression—the clutch of maidens we have heard today.
The gracious Speech centres around the importance of modernising,the country, its institutions, the public services and its economy".For that I think that we should be grateful. At the end of the 20th century I want Britain to be at the cutting edge of innovation and progress, so it seems entirely right and proper that the gracious Speech should concentrate on those themes. Part of the modernisation of our society and economy must involve the development and growth of new kinds of enterprises, of new ways of doing business, and the adaptation of old ways to meet new needs. It is on a specific aspect of that that I wish to address my remarks.
453 At the outset I have to declare an interest, indeed a life-long passion, for the cause of co-operatives and social enterprise. I have been a co-operative member since the age of 16. I have worked for the co-operative movement at various times of my life. I am retiring as the chair of the Co-operative Retail Services London Political Committee this coming week; and I have recently been co-opted as a management board member of Social Enterprise London. Social Enterprise London is a recently created not-for-profit organisation which has been established to promote and develop new kinds of enterprise in the London area. It has been a great source of delight to me and many of my fellow co-operators that the present Government have taken such an enlightened view of the value and place of social enterprise in our society and has recognised the growing contribution of that sector.
It might be helpful to some if I describe more fully what is meant by the term "social enterprise". Briefly, social enterprises are self-help organisations which bring people and communities together to run their own businesses with the twin aims of economic empowerment and social gain. Specifically, they are democratic in practice and principle; they have explicit social and economic aims and values; and they earn income for their own financial independence and viability. Those who are familiar with the Rochdale Pioneers and the formation of the early co-operatives will recognise those aims as being the modern expression of the principles upon which the early co-operatives were formed.
What are the examples of social enterprise today? There are a great many and millions of people are involved in various forms of them across the world. They are common ownerships, worker co-operatives and other types of employee-owned businesses. They are community-based businesses where local people and organisations have got together and set up a trading organisation managed by them to provide services and create jobs, often, but by no means always, with the support of local churches.
We are all familiar with the important contribution of housing co-operatives in providing affordable homes for people who have difficulty in buying or renting. They can be social firms or projects set up to support the intermediate labour market. Those enterprises operate as trading businesses but are specifically designed to provide work experience and training for people with, for example, severe physical handicaps or learning difficulties. There are sometimes very local schemes called LETs (local exchange and trading schemes) which are trading networks, trading for services carried out rather than money.
By far the largest part of the social enterprise sector is the consumer co-operatives. Noble Lords will be aware of the range and scope of the traditional consumer co-operative sector—the CRS, the CWS, the Co-operative Bank, the Unity Trust Bank and Co-operative Insurance, Travel and Funeral Services. However, there are many other smaller consumer co-operative initiatives and I think that we are likely to see a growing number of hybrid and mixed co-operatives providing care services. There is a 454 growing number of examples of co-operative nurseries, and co-operatives which provide care for elderly and disabled people.
There are also credit unions. It is about those which I wish to address the final part of my remarks to your Lordships' House. A credit union is a financial co-operative established to help people save and borrow money. They are formed around groups who share a common bond. They may be employees of a particular organisation or they may live in a particular geographical area; for example, a housing estate or a village. They can provide access to saving and borrowing on reasonable terms for people who may not be able to have access to banks or large financial institutions. They provide an alternative to high interest moneylenders.
It is estimated that there are 50,000 credit unions with an estimated 100 million members around the world. The total assets of credit unions are more than 359 billion dollars. That is not a small business. It has provided the impetus for economic development in many communities which have suffered or are suffering hardship, impoverishment and under-investment.
But credit unions do not enjoy the widespread recognition and support that they should have in the UK. One reason for that—and it was highlighted in a recent report by the Social Exclusion Unit—is the unsympathetic legal framework under which credit unions operate in the UK.
Despite that, in 1997 there were more than 520 credit unions in the UK with assets of approximately £80 million and new ones are coming on stream every week. Some of the most successful are those based in the workplace; for example, the West Midlands Police credit union.
Ironically, access to credit has always been difficult and expensive for those who may need it most. Financial exclusion is not new. The UK is a leading world finance centre yet in 1998 it served the poor of this country not at all well. A surprisingly large number of people in Britain have no current account at a bank or building society. The same social exclusion unit to which I referred earlier says that 2.25 million people have no bank account and many of those are likely to live in poor neighbourhoods where unscrupulous lenders thrive. Some lenders have been reported to charge interest rates of as much as 200 per cent.
That large group of people is made up mainly of women, the young, the old, the unemployed and those in low-paid jobs. They are more likely to live in rented accommodation. They often have restricted or no access not just to credit but to many of the financial services which most of us take for granted.
One of the Social Exclusion Unit's action teams is now looking at access to financial services and we can expect a report in July 1999. I am pleased to say that part of its brief is to examine:the scope for development of credit unions, building on planned legislative change".At present credit unions are governed by the Credit Unions Act 1979. Its main problems, as outlined by the Association of British Credit Unions, are that they have 455 restricted and low lending limits, restrictions on the amount members can save and a maximum pay-back time which may be prohibitive. That pay-back time is a period of two years. For someone who is in difficulty with moneylenders or with their credit cards, two years is not a sufficiently long period for them to repay their debts. Moreover, community groups are debarred from using the local community credit union to deposit funds.
In fact, it occurred to me that the authors of the original legislation were so timid that they almost guaranteed that credit unions would find it impossible to prosper in the UK. There is little point in dwelling on the reasons for that. I prefer to look forwards rather than backwards.
It was with much anticipation that the credit union movement and its supporters awaited the consultation paper that was produced earlier this month by the Treasury. It proposes amendments to the 1979 Credit Unions Act and there is much in the document to be welcomed. Indeed, I join with my friends in the credit union industry in doing so. The Economic Secretary to the Treasury has responsibility in that area and she is a Minister who has a huge breadth and depth of knowledge of social exclusion issues. That gives me great confidence in the consultative process which is currently taking place.
However, the proposals in the consultative document do not go far enough. I have a suspicion that because credit unions are not part of the familiar traditional structures of the financial sector the innate conservatism of finance and Treasury advisers and draftsmen is leading them to be overly cautious. If the proposals are adopted as they are, credit unions will still lack the legal framework needed to help significantly the financially and socially excluded.
I shall not go into details about the many proposals that the credit union movement wish to have included, but I urge the Government to look at this area and perhaps find some way through.
In conclusion, I commend the gracious Speech for its wide-ranging commitment to change and development and I look forward to the Government applying its principles in relation to credit unions.
§ 9.25 p.m.
§ Lord Burns
My Lords, it is a privilege to have the opportunity to contribute to this debate today. The gracious Speech referred to the need both to weather the international financial storms and to build stability for the longer term. In my contribution I would like to comment on both these aspects and to say a little bit about the development of the international financial storm, some implications for the UK and some aspects of the various economic policies directed to achieving long term stability.
As several noble Lords have mentioned throughout this debate over several days, the financial storm began in Japan and several south east Asian economies. It is worth recording that over the past year this region has suffered a substantial decline in industrial output; in other words a significant part of the world is already 456 technically in recession, however much we may care to debate whether or not this is likely to happen in the West. Of course the most recent trigger was the Russian devaluation and default in the summer, which sparked off a very substantial widening of interest rate spreads and falling equity prices and raised real concerns about a more widespread recession.
Over the past few months we have seen some of the biggest downward revisions in forecasts of world activity that I can recall. On the positive side, of course, falling world prices have softened inflationary pressures and this in turn has increased the room for manoeuvre by the authorities in attempting to deal with these problems. We have seen short term interest rates come down in a number of countries, and long term interest rates have fallen to what are now historically low levels, which also serves to ease the pressures to quite an extent.
In south east Asia there are now some tentative signs of industrial production bottoming out after the sharp decline, and, as noble Lords have mentioned today, Japan has recently introduced a substantial package of measures directed towards supporting demand in the banking sector. Although it is not yet possible to judge how successful this will be—and I listened very carefully to what my noble friend Lord Roll had to say about this—I feel that the region is going to remain a source of considerable uncertainty for some time yet.
Perhaps more surprisingly—and again this has been mentioned by some noble Lords—the United States economy is also a source of some uncertainty. The fall in savings ratio and an expansion of credit have sustained growth there, but what we are seeing is an increasing number of observers who believe that demand cannot be sustained in this way. Perhaps the most cautious approach would be to say that it is quite unlikely that the United States is going to be the same engine for world growth in the period ahead as it has been in recent years, despite some of the more favourable indicators we have seen over the last few weeks.
Of course there are still dangers lurking elsewhere in the world, particularly in China and maybe South America. All of this, as a number of noble Lords have explained, has considerable significance so far as the United Kingdom is concerned. Until the explosive financial events of the summer, I think there had developed something of a consensus about the situation in the UK. The general view was that output was a little bit above trend, putting some pressure on domestically generated inflation (not a huge amount). It was generally thought that to reach the inflation target we would have to go through a period of slow growth and the quite fine balance of disagreement centred on whether that was going to require higher interest rates or whether sufficient action had already been taken to bring it about.
What we have seen in the last few months has been a very sharp weakening of consumer and business confidence. Exports have fallen, particularly to non-EU countries, by quite significant amounts. The signs are, as we keep seeing day by day from reports from the 457 High Street, that retail demand has now softened considerably and business surveys are pointing to an unwanted build-up of stocks in the system.
The question being asked is whether the forces at work in the wider world have presented the Monetary Policy Committee with a different job. Falling world prices have made it easier to hit the inflation target and the weakness of world trade is threatening a slowdown in output which is greater than we need. The whole balance of the debate, as those who follow the minutes of the Monetary Policy Committee will know, changed significantly after the events of the summer.
What remains to be seen—there is still a considerable amount of uncertainty—is whether the business confidence indicators are exaggerating the present situation because of the financial fragility or whether they are telling us that there is a real risk of recession next year. I am second to none in the seriousness with which I study business indicators. Over the years, business confidence surveys have a good record as leading indicators, particularly of the short-term outlook. They are telling a grisly story at the moment. However, it is worth bearing in mind that on occasions they have also been misleading, particularly at times of financial uncertainty. Given the absence of major imbalances in the UK economy, it is perhaps surprising that the business confidence indicators are as bad as they are. My conclusion is that it would be wise to prepare for possible short-term weaknesses in the months ahead, even if they are relatively short lived.
That leads us on to the question of how robust is the policy framework that we have to deal with this tricky situation. I should like to make one or two comments on that. As a number of noble Lords explained, monetary policy is now in the hands of the Monetary Policy Committee of the Bank of England. That is the organisation we charged with undertaking that job. I have no desire to get into the business of guessing whether or not it is going to make the correct calls on interest rates. But, having watched the high standard of debate at the MPC on a number of occasions when I attended as the Treasury observer, we can be sure that the full range of arguments will be addressed. At the end of the day, there is a balancing process and only time will tell whether or not the correct decisions are reached.
I have not always been an advocate of this type of arrangement. People who have worked with me in the past will know that for some time I was unconvinced that it was wise to try to transplant central bank independence into the UK. It may be said that that is not surprising in a Treasury official. But my issues of substance were that I was worried about the difficulty of designing a workable remit for the committee in this complex world where there are short-term trade-offs even if there are no long-term ones. There was also the complicated task of designing an appropriate mechanism of accountability, which was something that concerned me.
More generally, again as one would expect from a Treasury official, I was unattracted to the argument that appeared in some quarters that we would be better off 458 whoever set interest rates as long as it was not Treasury Ministers. There are some people who still feel that way, though I am not one of them. In the event I came to see operational independence as workable, and I should like to mention why. This is important in terms of the present debate. The real reason is the success of the arrangements we had had over the six years which led up to it, which were started by the noble Lord, Lord Lamont of Lerwick, when he was Chancellor of the Exchequer. He introduced the regime of inflation targets; he started the monthly round of monetary meetings with the Governor of the Bank of England; and he asked the Bank to produce a quarterly report setting out its views as to how we were performing in relation to the target. That got the whole process moving.
We then had the strengthening of accountability by the bold decision of Kenneth Clarke, as Chancellor, to publish the minutes of the monthly meetings, which again has been a great success. If one looks back over the six years during which this broadly similar system has been in place—it started in late 1992/early 1993—the target measure of inflation has been within a range of 2 per cent. to 3.5 per cent. It was that success with the inflation target remit, combined with the enhanced accountability achieved through the publication of the minutes, which persuaded me that it was sensible to go the further step of putting interest rate decisions into the hands of the Monetary Policy Committee. This was described in the gracious Speech as an historic decision by the new Government. I believe that to be absolutely correct. However, it can also be seen as a natural development of the previous arrangements and what led up to them.
It is right that your Lordships' House and Parliament generally should want to scrutinise various aspects of how the arrangement is working, and possibly to make suggestions. I have already heard a number of suggestions from noble Lords. It is not difficult to compile a list of matters suitable for ongoing scrutiny—for instance, the definition of the target; whether factors apart from inflation should be in the remit; the composition of the committee and the reporting arrangements.
It is right that we should continue to keep our attention on those matters. However, at the same time it is only reasonable to give the MPC a fair chance over a sustained period. I cannot help pointing out that it is characteristic of this country that any arrangements set up to control inflation are very quickly subject to extreme bouts of hostility whenever the going gets tough. That may go some way towards explaining why, on average, we have had higher inflation than other major countries over the past 30 years.
I also welcome the Government's success with public finances to date and their control of public expenditure. Again, the new Government have built upon the work of the previous government and improved it in some important respects.
Controlling borrowing over the business cycle is always tricky but, in my view, the combination of the code for fiscal stability and the process of the 459 comprehensive spending review have given us a better chance of achieving the necessary control. However, it is important to recall that, while commitment to a clear framework helps, it does not solve all the problems. Judging what is happening to the underlying public finances will always be difficult. Unexpected events often take place. I hope that, simply because we have a code of fiscal stability in place, that will not persuade people to think the job is much easier than it has ever been before. Events will arise and difficulties will emerge.
Finally, I should like to offer a few observations on financial supervision. The gracious Speech stated:Legislation will be introduced to improve the regulation of financial services and markets, with a new statutory regulator, the Financial Services Authority".I suppose that I should declare a small interest here. Just as I was present at the birth of the MPC, I was also present at the birth of the Financial Services Authority. Therefore, I retain a parental interest in how well this infant is doing. Undoubtedly the legislation will come under a lot of scrutiny in this House, and I am sure that that is right. However, I should like to take the opportunity to ask noble Lords to bear a number of points in mind as we go through the process of scrutinising this legislation.
The first is the overwhelming case for bringing together the various financial regulatory agencies. Global financial institutions require new approaches to supervision. The international reaction to the FSA has been very positive and has established London in a leadership position in financial regulation.
Much work has been done to bring together the management of the various regulatory bodies in advance of the legislation, even though the legal powers remain with the individual boards. That has left a curious halfway position where the group has been managed as one group but the statutory responsibilities remain with the individual boards. I believe that that situation can be allowed to exist for only a relatively short interim period. There would be risks for the City of London and investors in allowing those arrangements to persist for too long. So, while it is right that there should be detailed scrutiny in this House and in another place, there is also a need to get on with this legislation with the minimum of delay.
Secondly, we all share a desire to avoid excessive regulation and burdens on the industry, and it is important that savers and investors have a significant responsibility to be intelligent customers. However, we should also recognise that financial products have special characteristics of their own. Often, people make a substantial financial commitment and it will take many years to see the full implications of their decisions. That points to a closer scrutiny of the selling process than would be necessary with many other goods and services.
In considering the new legislation, I am sure that noble Lords will be warned repeatedly about the costs to the industry. I believe it is right that we should be aware of them but it is also important that this House 460 gives full consideration to these issues from the perspective of the consumer, because that also matters a great deal.
Finally, while we all share a desire to protect the rights of individuals working in the industry, and it is terribly important that justice must be done, we should also recognise that all is not well with the existing arrangements. As they consider the new legislation, noble Lords should remember that the current procedures have not been as effective as we would like in dealing with insider dealing and market abuse, because it has been very difficult to secure prosecutions against wrongdoers. That is bad for the long-term reputation of the City of London; it is also extremely damaging for the long-term success of the City.
I hope that those points will be borne in mind and I look forward to the debate on this important legislation. It is legislation which will actually make a powerful impact upon a vital part of our economy for a very long time.
§ 9.40 p.m.
§ Lord Watson of Invergowrie
My Lords, I suppose that on every occasion we have debates in this House someone has to be the last to speak from the Back Benches. I am very pleased to see that so many noble Lords have remained in the Chamber, especially on the Front Benches, specifically to hear my contribution this evening; indeed, that is very much appreciated. Of course, I wish to add my good wishes and congratulations to those who made their maiden speeches today. I believe that my noble friend Lord Stoddart referred to them as a "bevy of maidens", while my noble friend Lady Thornton said she thought that that was an inappropriate description. In the part of the United Kingdom from which I come, the word "bevy" has a slightly different meaning. If those who made maiden speeches today feel the same sense of exhilaration that I experienced just about a year ago when I made mine, I should think that the word "bevy" is an appropriate adjective to apply to them at this moment. However, I enjoyed listening to them and very much wish to congratulate them on their maiden speeches.
My noble friend Lord Ewing of Kirkford made a typically enjoyable, well-informed and thought-provoking contribution this evening. He is a bit of a wily old fox and drew as much as possible about Scotland from his contribution as one could possibly have done in terms of the Scottish content of the Queen's Speech. We know very well the reasons for that. I should like to say briefly that I echo those views as regards the needs of the economy, and the macroeconomic policy as it applies to Scotland. Of course, that includes inward investment.
It is extremely important that the high quality of education both at school and post-school which exists in Scotland is turned into the kind of high quality jobs to which my noble friend referred. There is no reason why that should not be the case. We certainly have not only within Scotland but also within other parts of the UK a very well educated workforce or potential workforce. We must ensure that the kind of investment coming into 461 the country, and indeed the investment generated from within, enables that workforce to be employed and boost the economy in a way which has perhaps been lacking in recent times. I very much hope that the contribution made by means of the decentralisation of government in this country through regional development agencies—not just as regards Scotland, Wales and Northern Ireland, but perhaps within the next five to 10 years in England as well—will assist that process.
I want this evening to concentrate on one particular issue. I shall not detain noble Lords for too long. I want especially to talk on an area which reflects my own immediate experience and, indeed, my experience further back before I became a Member of the other place. I refer to the Government's Fairness at Work White Paper. Some contributions have already been made in that respect during the debate. I should declare an interest here in that I worked for the Manufacturing, Science and Finance Union for some 12 years. Now, some people would say that I am on the other side—although the word "side" is perhaps much less appropriate these days—because I am director of a company with fewer than 20 employees which, in terms of recognition, is outwith the realms of the White Paper.
It is a matter of some concern to me that since the White Paper was published last May there has been a considerable amount of lobbying—to put it at its mildest—by employers and employers' organisations to have that document watered down. I find that saddening, especially because the White Paper was put together only as a result of a great deal of discussion, consultation and, indeed, compromise by both employers' and employees' representatives to reach the kind of consensus which is appropriate in modern industrial terms in order to produce the kind of entrepreneurial spirit within the economy to which my noble friend Lord Haskel referred.
That is why I believe it is unfortunate that there are attempts to water down the White Paper, which was a balanced outcome of discussions. Not everyone by any means got what he or she wanted; in fact, many people were dissatisfied with it. However, it was largely accepted as the kind of compromise which was appropriate for the times. The balance contained within that White Paper will be in danger of being destroyed if significant changes are made to it when it is published in the form of a Bill. It is particularly unfortunate that the new CBI president and the Newspaper Publishers Association—perhaps we should not be surprised by that last group—have made it clear that they do not accept the Labour manifesto commitments which were given such a resounding backing in May 1997 on issues such as those contained in Fairness at Work.
Had that campaign been mounted within the context of a wholesale reversal of 18 years of Conservative Party policies—the anti-trade union legislation, if you like, which was so clearly outlined and contrasted by the noble Lord, Lord Davies of Coity—it might be understandable. That is not the case. The White Paper does not seek to do that, but to create a level playing field from the steep slope assembled by the Thatcher 462 and Major governments, some of whose former Ministers sit on the Benches opposite. They are not there at the moment, but they attend from time to time.
It was the whole ethos of fairness not favours put forward by the trade unions and the Trades Union Congress which led not only to the White Paper but to its name, Fairness at Work. It was widely accepted and it is unfortunate that the proposals are not being carried through.
In his introduction to Fairness at Work, the Prime Minister said that it represented a very minimum infrastructure of decency and fairness for people at the workplace—but still it seems to go too far for the liking of some employers and employer organisations. What do they have to fear? It would appear that they want a situation whereby workplace practices in this country are quite different from those applying in many of the EU member states which are the direct competitors of British industry.
What do they have to fear from "family friendly" policies, as they are described within the White Paper, such as maternity leave? What do they have to fear from the withdrawal of the upper limit on awards in industrial tribunals? I have spent a considerable amount of time representing trade union members at industrial tribunals. Going back to the 1980s, I can remember when the upper limit was £10,000. You had to be dealing with a situation where an individual had been very badly treated to get anywhere near that sum. The upper limit was £10,000 12 years ago; it currently stands at £12,000 for unfair dismissal. I would not like to make a calculation of what the cost of living increase would put that figure at now. The proposal in the White Paper is to remove that upper limit, as happens in sex and race discrimination industrial tribunal cases, and yet employers are arguing that the upper limit should be some £40,000.
It needs to be said that some 70 per cent. of all dismissal claims to industrial tribunals fail. If an employer has a proper procedure at work, it is unlikely that unfair dismissal proceedings will occur. Again, I come back to the question of what they have to fear. All they have to fear is that employees will take action against them if they have left themselves open to it. As ever, prevention is much better than cure.
The major issue which has emerged from this debate—some of it quite publicly over the past few months—is the proposal to grant automatic recognition to a trade union where 50 per cent. plus one of a workforce are in membership of a trade union. It seems that employers are now advocating that a whole raft of hurdles should be put in place to prevent this happening—for example, that the majority should be more than 50 per cent. and that members should have three or six or 12 months' membership while at the company. Even where both those hurdles are overcome, an affirmative ballot should be held. Without wishing to be flippant, as was said recently, it seems that the only condition that does not have to be met is that those forming a trade union membership should be left-handed and born on Thursdays. That seems to have as much logic as some of the other barriers which 463 have been placed in front of trade unions seeking, quite democratically—and at 50 per cent. plus one it is democratic—to have recognition to represent their members who, by joining a trade union, have signified that that is what they want the trade union to do on their behalf. There is nothing revolutionary about that; it has been fairly well established over the years.
It seems that the aim of those trying to put up such barriers is to throw as much rubble as possible in the path of trade unions moving towards recognition. They are trying to put as much detail as possible in the Bill in order to cause interminable delays and perhaps to leave the process open to judicial review wherever possible. All this is happening where people are already members of a trade union. It is not to prevent them joining.
All of these provisions already apply in many other European Union member states where British industry's major competitors are to be found. It seems strange, to put it at its mildest, that some parts of British industry should feel that they need government assistance to allow them to trade on what they regard as a fair basis with their competitors.
I wish to finish on a point which I believe gives graphic evidence of the great need for the proposals in the White Paper. It might be felt that that was not the case just now but at the moment there is a dispute in London which highlights the need for the automatic recognition procedures to which I have just referred. It concerns a Danish company called Rosti. It is a multi-national electronics firm with some 340 workers in the Wembley area of London. Of the 340 workers, 62 per cent. are members of the Transport and General Workers Union. The vast majority of those workers are Asian. The supervisors—the cell leaders, as they are interestingly termed—and management are almost exclusively white.
Unionisation in the company began in November of last year following the introduction of a new, fairly severe 12-hour shift working pattern. In April of this year, management issued letters to certain shift workers threatening the sack if workers did not meet the requirements. It seems that management has deployed a range of union avoidance tactics, including victimisation and intimidation. I am aware that there are always two sides to any story, but the length of the dispute makes it clear that there is a need for the intervention of some representation on behalf of the workforce. There are elements of racism, with Asian workers being denied promotion, and health and safety has been compromised, with European and domestic legislation allegedly being flouted in a number of ways.
There is a bright spot on the horizon in that, after a year, the management has agreed to the Advisory, Conciliation and Arbitration Service intervening to hear the case for union recognition. I understand that that will take place next week. That, in itself, is good news. However, my argument is that none of this should have been necessary. In that situation, more than 60 per cent. of the workforce were in the union. When the management was approached to recognise the union, 464 that did not happen. Had the White Paper proposals been in place, that would have happened and the stand-off that has taken place would not have been necessary.
If there can still be instances in 1998 of antics which are more reminiscent of Victorian times, it is clear that legislation is required to bring about harmony and to allow the kind of relations to which I referred earlier to flourish. Under the Fairness at Work proposals, that would happen.
There is much talk these days about flexibility at work. It seems to me that the idea of flexible workforces works almost inevitably in favour of the employer. All too often, flexibility tends to be a euphemism for an employer's ability to hire and fire with maximum haste and minimum responsibility. I suggest that that is not acceptable. It is not acceptable, I freely concede, to the vast majority of employers. We are talking about a minority. That is the whole point. Legislation like this is needed to bring the minority into line and to do the kind of things that the vast majority think nothing of doing and have done for years. It is really a question of dignity at work. Everyone in the work place ought to have that dignity. I say in closing that the White Paper provides that. I urge my noble friends on the Front Bench to convey that message to whatever they regard as the appropriate ears.
§ 9.54 p.m.
§ Earl Russell
My Lords, I hope the House will forgive me if I do not make any attempt to reply to the debate as a whole. It is a debate of many parts. I enjoyed, of course, the speeches of the five maiden speakers and would like to congratulate them all. Five maidens actually is not a record. As I was listening I remembered John Arlott, who has become the voice of nostalgia in my mind, referring to a succession of 17 young maidens. But these have done better. Those to which John Arlott referred did not take a single wicket between them; these have taken a wicket with every over, and I congratulate them.
I say to the noble Lord, Lord Ewing of Kirkford, I do not know why he is so surprised at the thought of postmen in Parliament. Postmen, like sentries, have a contemplative profession, and the more of them we have, the better.
Perhaps the most notable speech was that of the noble Lord, Lord Barnett. I remember the noble Lord, Lord Barnett, many years back as the voice of fiscal rectitude. He is not, of course, always right but Ministers ignore the noble Lord, Lord Barnett, at their peril. On this occasion the noble Lord told us that fiscal rectitude had been carried too far. The shock was a little like God telling us we are too good! I hope Ministers will pay attention to what he said.
The noble Baroness, Lady Turner of Camden, made a notable and thought-provoking speech, to which I shall return at the proper places in my argument. The noble Lord, Lord Blackwell, perhaps a little unwisely, accused the Government of too high a level of spending. I do not know whether he has read the report of the Treasury Select Committee on the Comprehensive Spending Review. It was published on 27th July, which is not a 465 wise time to publish a report that needs attention. What it showed is that if the Chancellor's spending increases are taken, as they should be, over five years and not over three, the annual rate of spending through the Parliament is 1.7 per cent., compared with 2.2 per cent. per annum under the Major government. If the noble Lord thinks that the rate of spending is excessive, what does he think of the rate of spending of the government which he had the pleasure to serve?
§ Lord Blackwell
My Lords, I think the latest spending increase has to be related to what is going on in the economy at the time. The relevant comparison now is what the expenditure increase of this Government is compared with that which was projected under the previous government. When the economy is growing, expenditure as a percentage of GDP is expected to fall. I believe it was expected to fall from around 41 per cent. in 1996 to about 37.5 per cent. in 2001. It is now expected to be about 38 or 39 per cent. of GDP. After the latest forecasts I expect it will be even higher. That is why I asked the Government if they would confirm a target of keeping public expenditure below 40 per cent. of GDP.
§ Earl Russell
My Lords, the noble Lord takes the previous government's spending limits a little more seriously than the former Chancellor of the Exchequer, who once told my honourable friend Mr. Bruce that they were for the birds. Perhaps the noble Lord was one of the birds!
I was amused by the comments of the noble Lord, Lord Bruce of Donington. He is a good parliamentary sportsman. I do not think he will mind my saying the thought that came into my mind. If he were at the gates of Hell and watched Satan opening them before him—I mean nothing personal because this could happen to any of us—his first cry would be, "I exercised the veto". But I am afraid that really would not do him much good and I think he knows that himself.
I wish to mention one measure in the gracious Speech which has not been mentioned so far, and that is the measure to reduce the age of consent. I am extremely glad to see this measure coming back. I hope it will have a slightly quieter passage than it did last time. I congratulate the noble Baroness, Lady Young, on the care with which she has entered into consultation about details of some of the questions which arose last time. I thank also the noble Lord, Lord Williams of Mostyn, and his officials for the care which they have put into these consultations. It will not, of course, remove disagreement. We do not expect it to. However, it may at least narrow the area of disagreement and do something to lower the temperature.
Perhaps I may address one question to those who are thinking of opposing that measure. What do they hope will be the effect of success? A great many of them said then that they were not in favour of imprisoning 16 year-olds and 17 year-olds. They wanted the law simply in order to express disapproval. It was something of an eye-opener to read Matthew Parris's "Clapham Common" column, which is, I think, one of the great historical documents of the late 20th century, as well as 466 a great piece of literature. It made me understand how difficult it is for anyone to lead a respectable sex life which they cannot avow in public. When that issue returns I hope that those points will be taken into account.
I should also like to mention briefly the draft law on sex discrimination and sexual harassment, recently offered by the Equal Opportunities Commission. I hope that that receives favourable consideration from the Government, although I appreciate that it can hardly be for the legislative programme of this Session.
My main area of concern must obviously be the welfare reform Bill and the points that go with it. My honourable friend Mr. Rendel, our social security spokesman in another place, recently said that social security has emerged as one of the most glaring gaps between our policy and that of the Government. That is truer of some areas of the welfare reform Bill than of others. I hope that pensions will be one area where that might be slightly less true.
I congratulate the Minister, the noble Baroness, Lady Hollis of Heigham, on the appearance of pension-splitting on divorce. The noble Baroness was in at the birth of that proposal and I am glad that she will have the chance to introduce it. However, as I am sure she will be the first to say, it will be an abominably complicated process. It may do more for women who have formerly been married and who have children than the Child Support Act has ever done or ever will do. However, the problem is that there is not enough to go round. Granted that that is so, it is right that the misery should be shared more equally, but we shall all have problems to address in that area.
On the stakeholder pension, we on these Benches have grasped the nettle of compulsion. I remember when I was 23, newly employed and entering into an occupational pension scheme, being absolutely furious to discover that the scheme was compulsory. Looking back on it, from the perspective of 40 years later, I am extremely glad it was. The principle of compulsion, after all, is well known in national insurance and I do not think there is anything so startling about it.
The difficulties are those to which the noble Baroness, Lady Turner of Camden, and indeed the Minister drew attention. What does one do for those with irregular patterns of employment who are unable to make up the regular pattern of contributions for that second pension? This, of course, will be further complicated by the proposals of the Taylor Report for the lower limit on national insurance, which are themselves good and constructive proposals. However, we have here two contradictory imperatives. I am sure that the Minister knows the problem. Indeed, she has already referred to it. I shall judge the success of what they do about pensions on how well the Government cope with that. I wish them luck.
For the rest, we on these Benches think that the welfare reform proposals rest on a largely mistaken diagnosis. They rest on the premise of defending modernisation, but I am not exactly clear what that is. I have never seen any government definition of it. It must mean either that everything new is for the better, 467 which is a proposal too simple to be taken seriously, or it must be meant to be praise of a specific type of change. If it is the second, I should like to know what that specific type of change is.
The next point, which perhaps worries me most, is that the Government have to a large degree fallen for the notion of welfare dependency. In the Acheson Report, powerfully referred to by the noble Lord, Lord Roll of Ipsden, it is strongly stressed that benefit levels are too low to be compatible with good health. Indeed, there is a great deal in the report about what it terms "food poverty" on benefit. It is stressed that that is for many people a great deal worse because, not having cars, they have to add on the cost of bus journeys—if indeed there are any buses—to where they can obtain food. I am not altogether convinced that such low benefit levels have the attractive quality with which the Department of Social Security has always credited them. There is a certain implausibility about the notion of welfare dependency.
More generally, there seems to be a flaw running through the Government's thinking when they talk about "work for those who can"; namely, they believe that the way to get people into work is to change the social security system to encourage them to come off benefit. They have not gone so far as to use the Charles Murray phrase, "weaning them off" benefit. It appears to be government thinking that changing the benefits system is the best way to get people into jobs. It sounds like that. The Minister quoted the number of workless households as evidence of failure of the social security system. If that is not what she meant—and I should be very glad to hear that it was not—I should be glad to know what she did mean.
Obviously, there is a great deal going wrong. I have not been persuaded by anything in the Green Paper or any government statement on social security that matters are going wrong because of a failure of the social security system. It seems rather like blaming the ambulances for the casualties that they bring in.
The next matter that concerns me is the itch to compulsion. The manifesto merely said that if people did not take up welfare-to-work options, then life on full benefit is not an option. The Prime Minister, on the other hand, said in his Amsterdam speech that life on benefit is not an option. The Prime Minister has clearly won over the manifesto. We have an extension of total disentitlement, most recently in the new pilots for over-25s for welfare-to-work.
We really do need to think about what we are doing here. The Acheson Report has said that,all policies likely to have an impact on health should be evaluated in terms of their impact on health inequalities".That is a perfectly reasonable request. But if benefit levels are too low to be compatible with general good health, what should we say about those who receive no benefit at all? It seems, prima facie, plausible to suppose that that effect would be rather worse. But there is no specialist research on the effects of disentitlement to benefit. No government have undertaken any. I ask the Government to undertake such research in the course of 468 monitoring the sanctions for welfare-to-work before they introduce any further measures of disentitlement to benefit.
In a Written Answer a couple of days before Prorogation, the noble Baroness, Lady Blackstone, told me that in studying the effects of disentitlement on welfare-to-work the Government did not have records of the percentage, whether total or partial, of disentitlement or the length of sanction. Given that statistical limitation, I do not see how the Government will carry out the study. I should like to see this done rather better.
Turning to the more specific measures that the Government are bringing in, there are changes in incapacity benefit. I entirely agree with the Minister, who spoke very powerfully on this matter, that there are people on incapacity benefit who could do some forms of work. If they are to be offered "carrots", I am strongly in favour of that and it is a good thing. However, when we start thinking about sticks or pressures, it is another matter.
If we look at the Government's analysis of the rise in numbers on incapacity benefit, we run into another series of questionable assumptions. Last time, the Government thought that a lot of people who were on incapacity benefit should not be and that they could save money by getting them off it. But the incapacity benefit leavers survey in progress found that only 40 per cent. of people leaving incapacity benefit got into work and only 20 per cent. of those disentitled to incapacity benefit got into work. However, almost half of all incapacity benefit leavers claimed a new benefit within six months. A great many, one-fifth of incapacity benefit leavers, were back on incapacity benefit at the time of the search. That suggests that the alleged saving has more or less disappeared.
I ask the Minister when we can expect the study to be completed. I was quoting from the DSS 1996–97 research handbook and there is a further instalment to come. In the light of that, I wonder whether the assumptions being made about savings are a little optimistic. One should have expected this rise in numbers. Statistics on ill health in the Acheson Report show a significant class link between poverty and ill health between the years 1945 and 1964. The figures were 17 per cent. for professionals and 48 per cent. for the unskilled. In addition, we know from many studies that unemployment has a bad effect on health. I wonder whether we find here not abuse, as the department has been tempted to think, but a serious medical effect. We should bear in mind that medicine has reduced mortality but has not succeeded in reducing morbidity. Here we have a failure in joined up government.
I also wonder about the Government's decision not to allow incapacity benefit for those who have not paid contributions in the past two years. It is possible that some of those people may be ill partly because of unemployment. All the material in the Acheson Report would support that. In some areas, such as South Kilburn, the ward next door to where I live, there are not the jobs. One does not get a job, because one can 469 go round the treadmill of the job centre a thousand times and there is nothing there to apply for. No amount of changes in social security can alter that.
The Government need to wonder about the attempt to change SDA to a contributory system for those over 20. What will happen to students, most of whom will not have made contributions during that time?
I hope the Government will think carefully about housing benefit. A view is being put forward, most notably by Frank Field, that one needs to do something to control housing benefit, to give the tenant an incentive to shop around and seek a cheaper rent. But so far as I can see, it is a sellers' market. There is not much available in the way of cheap private rented accommodation and the tenant who is made to shop around by a cap on his financial resources tends to end up homeless, at greater expense to public funds.
If we examine what has happened to caps on housing benefit in the single room rent and the local reference rate, what tends to happen is that either the landlords stop letting to people who are on benefit—and the newsagents where I live are full of such notices—or in periods of high interest they sell the house, stop letting at all and make more money out of the interest on capital than they would ever have made by doing anything.
So before the Government go further down that route, I hope they will think twice and three times. I hope they will look at the research by Centrepoint, Shelter, the citizens' advice bureaux and a good many other bodies and think hard about it. We should like to see first some mending of the holes cut in the safety net which allow people to fall through. I am raising the case of 16 and 17 year-olds for my 10th successive Session. I do not want to beat my great-grandfather's record of 12 Sessions before he got the Jewish Disabilities Bill on to the statute book, but if I have to I shall. When are we to get the results of the review of the habitual residence test? The Minister promised that to me at the end of the Government's first Summer Recess. It was promised at the end of the second Summer Recess. I know that a European Court case is pending because I have some involvement in it, but I should like to believe that that review will eventually be concluded.
Finally, the Minister will remember the feelings that I expressed when the previous government removed the entitlement of some asylum seekers to benefit. I did not expect this Government to disentitle the rest. The Minister will say that they have been left with visible means of support, but this is in kind, more expensive, less suited to anyone's needs and is tied to a condition that they live in a specified place. This is closer to internment than benefit and we shall hear more of it in this Session before it is through.
§ 10.16 p.m.
§ Lord Higgins
My Lords, it is a somewhat daunting task to wind up at the conclusion of a debate that has already lasted over seven hours and has included 34 speeches. I do not envy the Minister's task in replying to it. The debate has been remarkable for the fact that we have heard no less than five maiden 470 speeches. There has been speculation as to the correct words to describe such a group. Looking at noble Lords opposite, perhaps "a phalanx of maidens" is appropriate. I hesitate to use the expression "block vote" given the number of trade union affiliations.
The noble Lord, Lord Evans of Watford, dealt with small businesses; the noble Lord, Lord Brookman, dealt with the steel industry; and the noble Lord, Lord Clarke of Hampstead, dealt with the Post Office. Therefore, in terms of the subject matter of this debate—industry—they could not have covered a wider spectrum of expertise. We look forward to hearing more from them in the future. The noble Lord, Lord Christopher, concentrated on pensions. My experience over the past year in this House is that proceedings on pensions tend to be more like seminars than debates and consist of the noble Baroness, Lady Hollis, the noble Earl, Lord Russell, and myself. Any additional reinforcements are greatly welcomed. We shall look forward to hearing from the noble Lord on that subject.
Perhaps the most remarkable maiden was that of the noble Lord, Lord Craigmyle, who spoke exclusively and rightly about marriage. I believe that in the context of welfare reform an increasingly important issue is the way in which those within or without marriage should fit into the social security system. His contribution was very valuable. I have already said that we look forward to hearing the other maiden speakers on many occasions. Alas, as a consequence of the Government's proposals for your Lordships' House the number of occasions on which noble Lords can hear further from the noble Lord may be limited. That is very greatly to be regretted.
I concentrate my remarks on the question of welfare reform. First, perhaps I may say a word or two on the presentation of government policy in two respects. First, there is deep concern about the way in which increasingly over the past year we have had government by leak. It has become almost standard practice for the press to say that the Secretary of State for this or that department will tomorrow announce this or that particular proposal. It is a worrying development. The technique from the point of view of the spin doctors is clear. If it is good news the Government get it out the day before and have a second bite at the cherry when the Opposition can say something on it. If it is bad news they anticipate what will be said and when it is criticised by the Opposition the next day the spin doctors say to the press, "That's all out of date." It is a discourtesy to the House and a worrying development.
The curious thing is that it has been linked with another presentation device: to repeat as though new something which has been announced several times before. I pointed this out in the debate last week, as the noble Baroness will recall. And what do we find today? A large chunk of the noble Baroness's speech is a repetition of what was in the Chancellor of the Exchequer's last Budget speech as though it were new. Even stranger perhaps, the wording of the gracious Speech seems reminiscent of what was said only a few days before in the prorogation speech. The general presentation of government policy—it is an important parliamentary matter—gives some cause for concern.
471 I said that I wished to concentrate on social security issues. However, perhaps I may say a few words on some of the other points raised. There has been much publicity in the past few days as regards the European Union and tax harmonisation. I had much sympathy with the view put forward by the noble Lord, Lord Stoddart, who pointed out that the whole basis of our parliamentary system, albeit now largely the responsibility of the House of Commons, rests on the control of money—the granting of supply, in particular the ability to raise taxes or to make expenditure. If that is being shifted elsewhere by way of tax harmonisation, inevitably the power of Parliament must be reduced. That is worrying.
I was somewhat worried by the Chancellor of the Exchequer's broadcast this morning. When talking about tax harmonisation he seemed to be totally unaware of the situation with regard to valued added tax and the sixth directive. When winding up, perhaps the Minister will tell us the up-to-date position as regards our resisting any proposal to remove zero rating on value added tax. I declare some historic interest since it was a tax that I had the pleasure—it is not quite the right word—of steering through the House of Commons originally. We need to know exactly how much control we still have.
In many ways this is a difficult debate because it has covered such a wide range of issues: industry, economic and social affairs. But there has been a fascinating debate within a debate which was started about halfway through the proceedings by my noble friend Lord Skidelsky and taken up by a number of noble Lords, in particular the noble Lords, Lord Shore and Lord Desai. It raised a number of important issues. Given my history I am tempted to go into the matter. However, I shall pick up only one important point which links the economic situation to social security. My noble friend Lord Skidelsky is, I think, universally recognised as probably the greatest authority on Lord Keynes. I pointed out recently that Lord Keynes's views are becoming more and more fashionable under the present Government. Lord Keynes was remarkable in his general theory of bringing together the important relationship between savings and investment—not ex post savings and investment, which are always equal, but the disparity between ex ante savings and investments.
In that context the way in which the Government are developing their policy of more and more means testing is creating a serious deterrent to saving. People within a wide range of incomes will feel that if they are to have this kind of social security system they will not find themselves any better off if they save than those who are more profligate, do not save, and end up on the social security system. That covers quite a wide range of issues. I see some assent from noble Lords opposite.
It is equally true in relation to those making provisions for pensions. There will be a serious danger that unless people receive a very large pension, they may well feel that it is scarcely worth contributing because they will end up on means-tested benefits. Therefore, that is a particular aspect of the matter—the 472 link between the economic side of things and the whole question of savings and investment with the social security system.
I turn to the main points about the Government's welfare reform programme. It is becoming increasingly clear now what the outlines are. In my view it is also absolutely clear that it is not the programme on which they fought the election. They were very clear then. There was speech after speech by the present Prime Minister, when he was in opposition, saying very clearly, "Our intention is to cut the social security budget in order to spend more on health and education." It is absolutely clear that they have failed in that attempt. Indeed, far from being cut, the social security budget has gone up and up. It would be helpful if the Government would admit that that is so because at the moment it is clouding the entire debate on welfare reform.
Of course, it has been said, "We did not say we were going to cut it absolutely. We were merely going to cut it as a percentage of GNP or as percentage of spending." At Question Time the noble Lord, Lord McIntosh of Haringey, was saying just that. I can find absolutely no trace whatever of any statement by any Minister of the present Government in opposition, or in the manifesto, saying that they meant they would merely cut it as a percentage of GNP or of public spending. If that is wrong, perhaps the noble Baroness will write to me and tell me so.
The reality is that even in terms of a percentage of one or other of those two variables, the Government still are not succeeding. There are a number of reasons. If anything, the actions they have taken have increased expenditure on social security—notably £1.5 billion on the working families tax credit.
The relationship in terms of a percentage of national income is going in the wrong direction because the Chancellor has admitted that the growth rate will be significantly less than what he first predicted. Therefore, on both those grounds, the Government have not succeeded in what they said they were going to do. We shall now see an increasing number of relatively minor matters which are considerably to the disadvantage of particular groups of people.
§ Earl Russell
My Lords, does the noble Lord agree that what he is saying about the failure to produce real cuts is true equally of Mr. Darling and Mr. Lilley, and that therefore we might constructively think about what are the forces which mean a continual increase in the budget. I believe that it is not in the social security system.
§ Lord Higgins
My Lords, with respect to the noble Earl, I do not believe that that is so. The reason that there was a move in the right direction was because the Chancellor of the Exchequer adopted for the initial two-year period the plans of the previous government. What has happened is that that has carried the Government through so that they will be able to say, to some extent, that over the Parliament, they have not 473 done too badly. But that is because they stuck to our plans and subsequently changed them for the later part of the period.
I wish to return to the important points that I was making that there are now to be a series of cuts to the detriment of particularly disadvantaged groups. The noble Baroness Lady Turner of Camden, pointed out the way in which there have been cuts, for example, in widows' benefits. In particular they are benefits to which people had contributed.
This brings me to the next point which is very important. The Government are now increasingly undermining the contributory principle. Some people (widows of 45 to 55 mentioned by the noble Baroness opposite are an example) will not receive benefits to which they have contributed and to which they believe they are entitled. The Government are in the process of removing entitlement from people who have contributed. The contributory principle is getting more and more eroded.
On the other side of the equation, some people will now receive benefits, previously contributory, for which they have not contributed. Therefore, we should expect, in connection with specific legislation, such as the Social Security Contributions (Transfer of Functions, etc.) Bill, a huge explanatory memorandum for which no doubt at the Committee stage we shall be grateful. It says that national insurance contributions are paid into the National Insurance Fund and that payment of NICs gives entitlement to contributory benefits. There should have been added, "Unless the Government decide to take them away after the event" or, "Unless the Government decide to take away this entitlement." No doubt this is one of the major pieces of legislation we can turn to in subsequent debates.
This is not a minor matter. It is a fundamental change in the whole basis of expectations on which people have been relying. We are now told that we are going to have a new benefits entitlement test. This again appears in the explanatory notes. That sounds a pretty sinister idea, "a new benefits entitlement test." Why cannot we stay with the old benefits entitlement? This is a matter we will need to pursue. The Government's proposals are certainly massive as far as legislation is concerned. The noble Baroness and I and the noble Earl and others will spend many hours on, I think, five Bills now (I thought it was four) which are to be covered by the so-called social security reform programme.
We have, on the one hand, the Bill to which I have just referred. That is said to be technical. I think one should always be wary of any Bill which is said to be technical or an amendment. I remember once being told by my officials in the Treasury that something was a technical amendment and I found that retrospectively I had made about 25 people criminally liable. A technical Bill should be viewed with suspicion and we shall view it with quite a lot of suspicion.
We are also to have a Bill, I understand, on the working families tax credits. I have already spelt out in your Lordships' House what our objections are to those proposals, not just the cost but the way in which they are likely to encourage fraud and the fact that they are not well targeted as far as income groups are concerned.
474 Thirdly, we have a Bill which is, I understand, the so-called welfare reform Bill, which will cover pensions, stakeholder pensions, what the noble Baroness now describes as pension sharing rather pension splitting (something which we shall certainly need to examine carefully), disabilities, widows and so on, of which a central feature is the so-called gateway. May I ask one question in relation to that? There are those who will be told they must apply and turn up for interviews in order to get through the new gateway. What sanctions will be imposed if they do not turn up? More specifically, what is going to happen if lone parents simply do not turn up for the interview? I think they are concerned about compulsion. We ought to know what the penalties are both in the general case for all applicants to the gateway and more particularly for lone parents.
Finally, I turn to the question of pensions. We have been promised a pensions Green Paper and we have been promised a pensions Green Paper and we have been promised a pensions Green Paper. The last promise was that it would appear in the autumn or towards the end of the year. Perhaps the Minister can tell us: is it the case that we are going to have that Green Paper before Christmas? Time is running out and it would too silly if it were delayed again. I presume the answer to that question will be yes.
In relation to pensions reform more generally, we need to see what the situation is with regard to the provision of second pensions and whether or not there is a degree of compulsion—a point made by the noble Lord, Lord Christopher, in his maiden speech. The noble Earl, referring to the noble Lord, Lord Barnett, said that he was rather wobbly on fiscal rectitude but suddenly seems to be wildly in favour of means-testing. I believe that was what he said. Certainly, more and more means testing is a feature of the present Government's policy and the direction in which they are moving.
Having said that—I know it has become fashionable to quote Mr. Frank Field—the way in which Mr. Field spelt out the arguments against the present Government's policy on means testing is important, as is the fact that he had the courage to criticise what the Government have done to date. For example, in an article in the New Statesman dated 27th November, he says that,many widows without children will lose out after six months—to the tune, eventually, of £500 million a year… national insurance rights of long-term sick and disabled workers were hacked away for savings of £750 million".The trouble is that the Government, having announced that they were going to cut the social security bill, have failed to do so and are increasingly finding extremely mean ways in which they can seek to achieve their objective. That is something which we will debate during the course of legislation. We have already made it plain that we shall adopt a responsible attitude to each of the Bills. There are many features which require careful scrutiny but there are certainly some features which are extremely objectionable.
§ 10.36 p.m.
§ The Minister of State, Department of Trade and Industry (Lord Simon of Highbury)
My Lords, I repeat the praise of the noble Lord, Lord Higgins. It is a great privilege to close this debate on industry, economic and social affairs. I thank the noble Lord for his sympathy—I feel that there was genuine sympathy from him for the task at hand. There is also consistency from government; and the presentation of policy which maintains consistency is, in my view, laudable. I prefer it to volatility.
I congratulate noble Lords sitting behind us on their maiden speeches. They are sitting behind and in front of me and after seven hours I am becoming a little confused as to which direction. The noble Earl, Lord Russell, likened them to 17 young maidens. I presume he was thinking of them as a left-arm bowler. That seems to fit very well.
I do not want to dwell too much on individuals. But from Highbury we always look up to Hampstead. Perhaps I can say to the noble Lord, looking from Highbury to Hampstead, that I have great sympathy for the very fine speech and points he made about the Post Office and its role in our economy.
I would also like to attempt to reply to some of the points made during today's wide-ranging debate, and to review some of the major themes in the gracious Speech; so this will be partially helicopter and partially ground troops. I hope your Lordships will understand that if I am unable to respond to each and every issue raised today—it will have been noticed that my noble friend Lady Hollis and I have been scribbling—we have undertaken to write to all those who feel that a substantive point has been missed.
The second legislative programme outlined in the gracious Speech will continue with economic policies designed to build stability in the long-term. I hope that both the noble Baroness and I have made that clear.
I believe that this is an appropriate occasion to welcome the noble Lord, Lord Skildelsky, to the Front Bench and to welcome his first intervention on Treasury matters. I look forward to deciding, in future, whether forecasts are fantasy or real. I do not think I shall talk much about that today. Time will tell. In my view, the noble Lord, Lord Desai, in his excellent intervention, answered clearly on the issue of scope for spending through the cycle and over the cycle while maintaining a prudent approach to public finances. That is a critical part of the policy of stability in the long term. I merely add that the fiscal policy is set out to achieve long-term stability, not for short-term demand management.
However, where it is consistent with the fiscal rules, fiscal policy can support monetary policy, as it has over the past year. In 1997 to 1998, there was a substantial fiscal tightening of around £20 billion. I believe that the noble Lord, Lord Razzell, was asking for more. However, as that was the largest tightening in any one year since 1981, I felt that to be quite significant already. The July 1997 Budget included significant tax increases in the personal sector, which I believe helped to encourage a more balanced recovery. Indeed, we have seen fiscal and monetary policy moving together.
476 The noble Lord, Lord Skidelsky, asked whether the Bank was aware of the golden rule when it set out on its monetary policy. I believe that the MPC stated that it sets interest rates to meet the Government's inflation target "taking account of all available information". I was delighted to hear the noble Lord, Lord Burns, in his fascinating speech and update of recent history, welcome both the new monetary and fiscal policy frameworks. Both frameworks now focus on delivering economic stability. I believe that Britain is now better placed to steer this stable path than in the past.
In welcoming the noble Lord, Lord Skidelsky, I shall not continue on the topic of monetary stability, but I am sure that everybody knows the path we are trying to steer. We certainly know very well. If I speak for any of the three subjects tonight, it is for industry. My experience of 35 years has made clear to me that the present economic downturn has made this a tough year for business; there is no question of that.
With one quarter of the world in recession—including Japan—no country is immune from the effects of the current instability and the world economy. We all know that the world growth forecast this year has reduced from over 4 per cent. to 2 per cent. But we are determined not to be deflected from building long-term stability and from keeping on a consistent course. This is a macroeconomic policy. The consistent course has been marked thus far by low inflation, now declining interest rates and sound public finances. For those who doubt that we have a macroeconomic policy, I commend the pre-Budget Report, HM Treasury November 1998. It may be called "strategy", but I regard strategy and policy as similar issues. So, I do not think it is right to say that we do not have a policy.
§ Lord Shore of Stepney
My Lords, the pre-Budget Statement carries just the same input of European macroeconomic policy as the Budget Statement and the Queen's Speech.
§ Lord Simon of Highbury
My Lords, we are both agreed that there is a policy. In my old oil company days, I was fond of saying that performance is strategy. It is important to underline the fact that delivering is a great feature of the Government's requirement and responsibility. We are delivering on the economy. Within the first legislative Session we put in place new frameworks for both monetary and fiscal policy to deliver macro-economic stability. Long-term interest rates are now the lowest for 35 years and inflation is at its 2.5 per cent. target. We were reminded that the latter was nearly 10 per cent. in the early 1990s. The exchange rate is now back down around the level that we inherited, with the inflation we inherited being squeezed from the system. So I think that we are performing.
477 There are other elements of economic performance which are worth underlining. The economy is continuing to grow. In my view, we have heard some extraordinary statements which could force one seriously to doubt whether the economy is actually growing currently. In fact, it is growing at an annual rate which is still above 2 per cent., and employment is up by 400,000 since the election. Moreover, over 170,000 young people have entered the New Deal and 90,000 people will benefit from pilot programmes for the long-term unemployed. I believe that to be a mark of real performance.
However, the real point is that the latter has come about as a result of some quite tough decision-making. I agree that there were features of the inheritance that were certainly stronger than one could have hoped for when I was in my business life. But I think that we erred on the side of letting inflation back into the system and that we were slow to handle that situation. We had to put a lot of pressure into the system, as I have already described, to ensure that inflation was squeezed out, because industry needs low inflation, low-cost money and a financial background which is stable and understood. I know that I speak for many of my former colleagues in seeing that as the absolute keystone of macro-economic management.
I turn now to the future. On the basis of what I have said, I believe that we are better placed to weather the difficult storms that the global situation can present us with, and indeed still could. We have heard some sensible voices of caution about our capacity to forecast, which I heed with great care. But we are still forecasting growth of 1 per cent. to 1.5 per cent. next year, and that is not so out of line with, I believe, 44 current economic forecasts for next year. Indeed, the average is somewhere just below the 1 per cent. level, so we are in play with half of them and slightly out of step with the other half, which is not a bad place to be.
Of course, all of us will watch the growth rate with care and attention, but I am not sure that we are as out of line as some people have suggested tonight. I can certainly assure the noble and learned Lord, Lord Fraser, and my noble friend Lord Shore that the last time I looked at these statistics—last month—exports to the USA and Europe were still growing but that that was not the case with regard to Asia. Aggregated over the whole of the Asian marketplace, we have seen a significant downturn in the region of around 30 per cent. Although forecasts should always be treated with caution, I believe that they are still sound and that we are in the middle of most people's current expectations for growth for this economy next year. That includes the Bank of England, the IMF and other such noteworthy institutions.
I have tried to set out tonight the foundation for our future success. In my view, and as expressed in the gracious Speech, we shall only achieve our long-term goals through an even more radical modernisation of our economic policy in favour of opportunity, in favour of enterprise and in favour of work. Only the truly enterprising and innovative can hope to take advantage of the global economy. That is why encouraging enterprise and the knowledge-driven economy is at the forefront of our forward agenda. I believe that that 478 recognises some of the issues which my noble friend Lord Haskel put on the table about understanding risk and delivery and, indeed, how to build entrepreneurialism in our society.
I have had the helicopter on macroeconomic management in broad terms and the stability we are seeking. I turn now to the supply side issues raised in the gracious Speech. The pre-Budget report last month set out measures to increase productivity and provide support for enterprise. These apply particularly in relation to the small and medium-sized enterprises within our economy. Areas to be considered were fiscal incentives for small business, support for research, help to broaden share ownership and the wider issue of skills training and the change of culture. These measures will be complemented by the publication later this month by my right honourable friend the Secretary of State for Trade and Industry of a White Paper setting out how we can boost Britain's competitiveness.
I would like to thank the noble Baroness, Lady Sharp of Guildford, and the noble Lord, Lord Wade of Chorlton, for their excellent contributions to the issue of supply side reforms. Whether it was in relation to the skills area and the requirement for further education, or whether it was in relation to the issue of regulation and the need to look at the regulatory package applied to small businesses, both followed very much our ideas. I can ask only for patience to develop those ideas further in a White Paper.
I believe that we are making great strides by concentrating on how to put in place a strategy to tackle our fundamental economic weakness; the productivity gap which exists with our most successful competitors. Two or three interesting speeches highlighted that gap. It is certainly no fantasy. Whether or not we find there to be fantasy in the forecasts, we will not find any fantasy in analysing the productivity gap. It is the main reason for our lower standard of living. Productivity is a fundamental yardstick of economic performance; poor productivity holds a nation back. We are determined to narrow that gap.
Again, I agree very much with the intervention of the noble Lord, Lord Wade, and the theme of advice that in today's world productivity creates the jobs, not central government diktat. Therefore, we must work very, very hard at the issues which lie behind our inability to bring productivity to a higher level. What does that mean? It means that we have to invest more, educate better and train more.
Our purpose for industry is not a criticism of industry. It is an observation about the outcome of a series of policies over decades. Our purpose for industry is to help it to create, add more value, produce better quality products and better services. The University of Industry, which my noble friend Lord Sainsbury will help bring to fruition early in the year 2000, will have the very strong job of training and educating the SME community.
I believe that we are moving in the right direction. We need to do so with pace because the ambition, although simple, will be complex in achieving—and that is to turn Britain into the leading knowledged-based economy of 479 the world. If I may use an excellent quotation from the noble Baroness, Lady Sharp, we must all try to hi-tech our low-tech businesses. That is the secret. It is the right strap line or sound bite for what we wish to do in a knowledge-driven economy. I could not agree more.
In global markets, where products can be made and shipped anywhere and in which production technologies can soon be copied, we cannot base our future prosperity simply on the traditional building blocks of the old industrial economy, such as raw materials and cheap labour. I was interested to get a small lecture on the oil industry from the noble and learned Lord, Lord Fraser of Carmyllie, who has now become an expert since we swapped. However, I noticed that he was pointing out to me that the price of oil was low. Of course, that has its advantages for the community at large. I very rarely hear the other side of the strong exchange rate coin, which is that our input costs in industry are 10 per cent. lower this year than they were last year. By golly, if that does not give industry a benefit, I do not know what does. But I agree with the noble and learned Lord that we have to watch the level of taxation very carefully, as indeed the Chancellor did. That is why it has not been adjusted, but we will keep it under close review.
What we have to do is base our competitiveness on distinctive assets which cannot be so easily imitated—assets based on our creativity and talent. We have to bring them together to ensure a winning process. Competition of the future will be about the process that you put in place. Many people can copy your assets, and your competitive advantage in technology terms can have a short lifetime. But the process by which you put together knowledge, information and value will be the way to win in the future.
That is why we will introduce an electronic commerce Bill in this Parliament. It is estimated that within five years electronic commerce could be a market worth more than £300 billion. Our aim is to create the best climate for the UK for trading on line, so that British companies can build on a competitive market at home and expand those services abroad. The internet is literally transforming industries. We know that and we are determined that Britain shall lead this revolution and not follow it.
Enterprise will flourish best with an active partnership between government and business and between business and the unions. Many of my colleagues behind me have spoken about that partnership. I shall say no more than that noble Lords will have to wait for the publication of the papers. I heard clearly that noble Lords are in support of a sound partnership. I heard the comments of my noble friend Lord Brookman and have taken account of them.
We are talking about the culture of partnership at work, a culture which is already evident in most successful modern companies. As the right reverend Prelate the Bishop of Oxford rightly said, many modern companies espouse these principles, but current employment law does not always foster the objectives. We will correct that by establishing, through the fairness at work Bill, a balanced framework of workable and practical measures for the future. We welcome the 480 positive remarks of the noble Lord, Lord Razzall, in that respect. We will provide rights for the individual at work, including greater protection against unfair dismissal. We will bring forward measures to establish a forward-looking balance of rights and responsibilities for employers and employees. An efficient and effective financial services industry is also vital for our prosperity, stability and international competitiveness. The financial services and markets Bill announced in the gracious Speech will improve the regulation of financial services and markets.
§ Lord Fraser of Carmyllie
My Lords, before the noble Lord passes from that point, I want to be clear what he is saying. In the gracious Speech there was express provision that legislation would be introduced to improve the regulation of financial services and markets with a new statutory regulator, the financial services authority. What I am still anxious to get is a clear indication, as we go forward in this Session, as to when that legislation will appear. I said in my speech that I understood that it would be introduced in the spring. I have subsequently had reason to believe that I was wrong in that and that it will not be introduced as a Bill at that time. The best we can hope in the spring of this year is that there will be some pre-legislative scrutiny proposal. If that is correct, it would seem to me there is a real danger that what is contained within the Queen's Speech will not be implemented or delivered during the course of this Session. It really is important that we know the Government's position on that.
§ Lord Simon of Highbury
My Lords, I was about to mention that. It has been announced that the Government's legislative programme for the current Session of Parliament will include the financial services and markets Bill. There will be a period of pre-legislative scrutiny by joint committee of the House of Commons and House of Lords. That answers, in part, the question of when the Bill will start. There will be pre-legislative consultation in both Houses because of the technical nature of the Bill.
Under the proposed new arrangements for carry-over of legislation, the Bill could, if necessary, complete its passage in the first half of the 1999–2000 Session. As has been rightly pointed out, these are requirements for the rationalisation of an industry which is absolutely crucial to the growth of the City of London and our economy at large.
An important part of the Government's strategy outlined by my noble friend Lady Hollis is to help make work pay. Many people on low incomes are trapped in poverty and the tax and benefits system stands in the way of people trying to get out of poverty. That trap frustrates ambition and locks people into poverty. The Government believe that the best route out of poverty and a life on benefits is through work. That is why we are introducing a series of measures to help make work pay. Reforms to the tax and benefits system have been mentioned at length today. We welcome the support of the noble Lord, Lord Razzall, for the minimum wage. As noble Lords are aware, we are also working extremely hard on the development of the working families' and disabled persons' tax credits.
481 I welcome the timely contribution of my noble friend Lord Christopher. It will be considered carefully as we progress towards publication of the measure that I have discussed. I have noted many important points that were made on welfare reform in general. I shall content myself with discussing pensions and benefit structures. We are happy to assure my noble friend Lady Turner of Camden that SERPS will continue to play a valued part in our pensions policy. As regards widows' benefits, we confirm that existing widows, many of whom may not have worked, will have their benefits protected. However, nowadays as many women work as men. Therefore the right to review widows' benefits is constructed accordingly.
As regards lone parents and the single gateway we propose only that to obtain benefit lone parents should sign in by attending an interview. Thereafter it is their choice whether they join the New Deal or prefer to look after their children full time. Of course, if they cannot get to the—
§ Lord Simon of Highbury
My Lords, if they do not sign in, they do not get a benefit, but they do not have physically to turn up. They will be able to contact the gateway—if I can put it that way—to enrol themselves. However, I am sure we shall have plenty of time to discuss that as we progress through the Bill.
§ Lord Higgins
My Lords, what the noble Lord has just said—but he may wish to reconsider his reply—is that if they do not turn up, they do not get benefit. Is he really saying that if a lone parent fails to turn up, his or her benefit stops dead?
§ Lord Simon of Highbury
My Lords, this applies to new claimants only. They would have to make contact with the interviewer. I take it that there is confusion about this matter. I hope the noble Lord will permit this matter to be dealt with in correspondence as it is rather late in the day and I believe we shall discuss this detail at great length—
§ Lord Simon of Highbury
My Lords, we guarantee that they will receive benefits when they make contact.
§ Earl Russell
My Lords, before I ask my question, perhaps I may say that I shall be satisfied with a letter. May I ask for an assurance that, when people are interviewed, the interviewer will not be subject to any performance indicator depending on the number of people he or she places in work?
§ Lord Simon of Highbury
Yes, my Lords. The target relates only to contacts, not to work placements.
I turn now to the speech made by the noble Earl, to which, given the hour, perhaps I may make a sketchy response. Perhaps we shall have to indulge in some more letter-writing. I hope that the noble Lord, 482 Lord Higgins, will understand that I am not the expert in this area. If there are any main points of policy on which the noble Lord is confused—
§ Lord Simon of Highbury
My Lords, I meant to say that if there are any main points of policy on which I may be confused, my noble friend will assist. I am covering a wide range of subjects in only a short time.
On welfare to work, we are not saying that we must reform social security to coerce people into work; instead, we are seeking to make work pay so that low-paid workers do not lose 90p in the pound. That is why the working families tax credit, the minimum wage, the New Deal and our childcare arrangements are all focused on the objective of making work pay.
The noble Earl referred also to incapacity benefit. We are expecting the results of the study soon.
Our reforms of the all-work test are not savings-driven. They are about extending opportunity. The two-year contribution rate is to strengthen the contributory principle. I am referring to those in work who have to have such a benefit because of illness.
On the holes in the safety net for 16 and 17 year-olds, we believe that such young people should be in education and training. If they are in exceptional hardship, they are, of course, entitled to financial help.
On the habitual residence test, we are awaiting the outcome of the European Swaddling case, to which reference has been made, and we shall make recommendations in the light of that.
Perhaps I may now turn with enthusiasm to the points made about Europe. That will be a slightly unusual feature of the debate on this subject. The gracious Speech referred to Europe and economic reform in no fewer than three paragraphs. I should like to make it clear that we shall continue to work with our partners to improve our economies and, therefore, the economy of Europe; to liberalise markets for products, services and labour; to stimulate employment and, through greater flexibility at national level, to achieve national plans for labour market reforms.
We shall work for a successful euro because that is in the interests of the 11 partners and in our own interests. We shall prepare Britain for the option to join the euro in the next Parliament because—I hope that this is a clear response to my noble friend Lord Barnett—we have said clearly that we shall prepare and decide. That means that if you are on the side of those who are awaiting the referendum decision with any doubt in your mind, the question will be "if', but that if you are awaiting the referendum decision in the full expectation that the outcome will be positive, the question will be "when".
We are busily preparing for the exercise by working with small businesses. I personally have made contact with 1.6 million small businesses this year. That effort was carried out largely by my postal friends, for which I am extremely grateful. I have had 250,000 replies and I now understand that 300,000 small businesses are thinking about, and preparing for, the fact that the euro 483 will be with us on 1st January 1999, whether or not we support it. Those small businesses are now preparing better than they would have done previously. That is a contribution to the British economy. I rather regretted our "semi-detached" approach to this matter under the previous administration. Fifty per cent. of our small businesses are now in contact with Euroland in a business sense. A quarter of those have already made good preparations.
I am delighted to tell my noble friend Lord Stoddart that the reason why people invest in the UK as the number one country for foreign investment in Europe, according to those to whom I speak, is the fact that they like the flexibility of our economy and are absolutely convinced that we shall join in economic and monetary union and the euro. That is why most of them like to come here.
Taxation is an interesting subject that has arisen during the debate. I shall attempt to respond to the interesting points raised. The Government have made it clear that we will not support any action at European level that will threaten jobs or the competitive position of British business. So any tax proposals will need to pass that acid test. Questions of tax require a unanimous decision. So there is no question of tax changes that we do not support being imposed on us by Brussels. The test has to be whether in any particular case the proposal delivers economic or financial benefits for the United Kingdom. If it does not, then we shall oppose it and argue our case. I agree with the noble Lord, Lord Newby, that we are much more effective when we are inside Europe arguing these cases rather than standing outside saying that we disapprove of the whole process. If necessary, at the end of the day we shall be prepared to use our veto to protect the national interest.
Having outlined those principles, perhaps I may comment on the three areas that have been subject to recent speculation; namely, VAT, corporation tax and withholding tax. On VAT, the House should be clear that there are no detailed proposals to change the existing rates. We were elected with a clear pledge to maintain the zero rate of VAT on food, children's clothes, books, newspapers and public transport fares. The UK's zero rates are fully safeguarded under existing EC arrangements.
On corporation tax, there are no Community proposals so far as the harmonisation of corporation tax is concerned. Indeed, no one proposed minimum rates of corporation tax at today's ECOFIN meeting. The political reality is that harmonisation of corporation tax across Europe is a non-starter. Rates, in Ireland at 10 per cent., in Finland at 28 per cent., in the UK at 30 per cent. from next year, and in Germany at over 40 per cent., pose some problems for the harmonisers. It is increasingly being realised that raising corporate tax rates would harm the competitiveness of the EU economy and we simply should not allow corporation tax rates to be raised to the existing level of some other countries.
484 On the issue of withholding tax, the motive behind this measure is one that I hope we all support: to prevent tax evasion. That is its purpose. It is aimed chiefly at Belgian and German citizens who place funds in the highly secretive banking system in Luxembourg—
§ Lord Shore of Stepney
My Lords, will my noble friend give way on that point? I would indeed have his assurance that he does not look upon withholding tax, or the avoidance of withholding tax, as in any sense tax evasion, and therefore legitimate and to be preserved in the interests of the United Kingdom.
§ Lord Simon of Highbury
My Lords, if I may continue with my reply my noble friend may receive an answer to that question. The Chancellor called today at ECOFIN for other countries to tackle the problems of banking and banking secrecy. Having studied the draft directive on withholding tax, we believe that it is fundamentally flawed. In particular, it would be very damaging to the Euro-bond industry, as indeed our noble Lord Mayor informed us. The British Euro-bond market has earnings of £5 billion and employs nearly 11,000 people. So clearly the withholding of tax as presently proposed is unacceptable. The Chancellor has made it clear that exchange of information between banks and tax authorities is a much better solution, and I am sure he is right. We would not accept a directive including Euro-bonds, as the Chancellor made clear in Brussels today. If it remains unchanged, we will use our veto—
§ Lord Shore of Stepney
My Lords, when my noble friend uses the word "unacceptable" in reference to withholding tax and to the present position of London, to whom does he think it is unacceptable—the European partners or the United Kingdom?
§ Lord Simon of Highbury
My Lords, I cannot speak for all the partners. He was speaking for the United Kingdom, but I guess that some of us believe that it is also unacceptable to some of our partners.
With that, I hope I have clarified both the principle and the key issues behind the tax questions that have been raised.
I do not know whether noble Lords are aware that, at dinners in the City, normally there is a book running at this stage on how long the wind-up will take. I am constantly aware that by using the words "wind-up", I am in some danger, in the new British language, of being accused of overdoing it.
It has been a wide-ranging debate, and in conclusion I wish to return to the overall theme of the gracious Speech. This Government will continue with economic policies which steer a course of stability through a world economic slowdown. Our objective is that Britain not only steers a stable course but that, by building our long-term strength, is equal to any difficulty the global economy presents.
Because British inflation has been brought down to its target of 2.5 per cent., and because we have set in place a long-term monetary framework, with the independence of the Bank of England, Britain is better placed than in the past to meet these global challenges.
485 Having reduced borrowing by £20 billion, we shall continue to pursue our prudent and sustainable expenditure plans. We shall invest in education, healthcare and our infrastructure to equip our country for the future. We will stay within prudent borrowing limits and maintain our aim to keep public expenditure below 40 per cent.
We will push ahead with measures to improve productivity, to expand opportunity and to encourage investment and entrepreneurship. This Government are steering a stable course, prudently investing in the future and continuing in their drive to increase productivity and provide support for enterprise.
This is the programme for which the British people voted. This is the programme we are delivering.
§ Baroness Amos
My Lords, on behalf of my noble friend Lady Hayman, I beg to move that the debate be now adjourned until tomorrow.
486 Moved, That the debate be now adjourned until tomorrow.—(Baroness Amos.)
§ On Question, Motion agreed to, and debate adjourned until tomorrow.