House of Lords
English Language Learning
Lord Greaves
To ask Her Majesty’s Government what is their assessment of the role that learning English as a foreign language plays in the integration of people from different backgrounds.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, the ability to speak English is important for playing an active role in society. Lack of English can be a factor in social exclusion and a barrier to the integration of migrants. English language skills allow individuals to realise their potential in education and in the workplace, to get on with others in their neighbourhoods, and to make informed decisions about health and other public services.
Lord Greaves
My Lords, I thank the Minister for that helpful reply. Today is a day of action in communities all around the country by people who are campaigning to save ESOL provision, which is threatened with big cuts. What meaning has the big society for people who cannot communicate with their neighbours or take part in their local community? In particular, restricting free ESOL classes to people on so-called “active benefits” will be disastrous for many people—for example, women who are full-time housewives in Asian households and who will lose their lifeline to the wider community. Will the Minister talk to the department responsible for these cuts, and does she think that that department is meddling in areas which it does not know much about?
Baroness Hanham
My Lords, in the current economic climate, different decisions have to be made on ESOL as well as on everything else. The Government are prioritising investment in training for unemployed people who are actively seeking work. We expect those who come from other countries to work in England, or their employers, to meet the cost of their English language courses. We will no longer fund ESOL in the workplace. On the division of responsibility between departments on this matter, I will make sure that the BIS aspect goes back to that department.
The Earl of Listowel
Does the Minister understand the deep concern of a head teacher of an outstanding primary school in inner-city Manchester, 80 per cent of whose intake is Somali children, that funding for its ESOL courses may be cut? Is she aware of the research that shows that what happens in the home—the support that parents give children in their education—is the single most important factor in achieving the best educational outcomes for them?
Baroness Hanham
My Lords, as far as I am aware, the education of children is not affected. Children are taught English in schools and will continue to be so taught despite this measure. The Department for Education, of course, is responsible for that.
Lord Tebbit
My Lords, does my noble friend not agree that the expression “English as a foreign language” is not quite correct? English is not a foreign language in this country.
Baroness McIntosh of Hudnall
My Lords, I hope the Minister agrees that the remarks of the noble Lord, Lord Tebbit, do not entirely bear examination. However, while I largely agree with the remarks of the noble Lord, Lord Greaves, we in this country have a less than exemplary record in understanding the importance of learning other people’s languages. Does she agree that, as part of the thrust towards getting people to learn our language, it would be good if we got better at learning theirs?
Baroness Hanham
My Lords, the thrust of the Question was about people learning English so that they could integrate into our country, not about whether the education system should ensure that we can speak languages elsewhere. I am conscious that throughout the House someone will speak anything from Mandarin to German to French; we would have a handful of interpreters if we asked for them.
Baroness Hussein-Ece
My Lords, I declare an interest as someone who learnt English as a second language at school. Can my noble friend comment on the impact these proposals will have on women and low-paid workers who will no longer be eligible for English classes? How does it sit with the constant call for people from ethnic minorities to integrate if they cannot access classes to learn English?
Baroness Hanham
My Lords, people not covered by the full ESOL subsidy will still be subsidised by 50 per cent for the course. I am sure that, where colleges of further education and training organisations identify people specifically able to go into work and learn in their communities, the other 50 per cent will be found. I appreciate that there are members of communities who have come to live in this country who find it difficult to access, but I am bound to say that there has always been that difficulty.
Lord Hunt of Kings Heath
My Lords, I declare an interest as my wife is an assistant principal of a college that does extensive ESOL teaching and is impacted by the potential cut. Will the Minister look at the issue of women, particularly Asian women, in many of our major cities who will not be eligible for the full grant because they are not on active benefits? The noble Baroness has said that some of those women may be able to get access. Does she accept that the evidence so far is that thousands of women will not? Is she prepared to look at this matter again?
Baroness Hanham
My Lords, it is not entirely a matter for my department to look at this again. We are clear that people who are not on active benefits will get some support. I recognise that, as with any reduction in money, someone will not win out. However, the point about people who are in their homes and not accessing English as a second language is, I am afraid, covered by the 50 per cent reduction.
Lord Roberts of Llandudno
My Lords, as I address the Chamber in my second language, what provision is there, through the British Council or other overseas movements, to teach those who wish to come to the UK some basic English before they start on their journey?
Baroness Hanham
My Lords, under recent legislation, people who want to come here on tier 2 will have to speak English before they apply for a visa. English language tuition is widely available internationally, including through the British Council, and, as far as I am aware, there is no intention of changing that.
NHS: Reorganisation
(13 years, 1 month ago)
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Baroness Williams of Crosby
To ask Her Majesty’s Government what is their latest estimate of the cost of the reorganisation of the National Health Service and what proportion of that is due to redundancy and early retirement.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, the Government published an impact assessment alongside the Health and Social Care Bill. This estimated the costs of the transition at £1.4 billion. Just over £1 billion was estimated to be as a result of redundancy. The £1 billion has not been split into redundancy and early retirement as these decisions will be made at a local level. The proposed reforms will save £1.7 billion per year from 2014-15 onwards.
Baroness Williams of Crosby
I thank my noble friend for that Answer, but I am aware that the National Audit Office, on the basis of its own surveys, has indicated a considerably higher figure. In an important article written by the professor of medical health at the Manchester Business School, the estimates are between £2 billion and £3 billion. Could my noble friend tell us the cost of the redundancies that have arisen from PCTs being brought to an end and people moving into the new consortia, and whether that figure is part of the figure that he has given to the House?
Earl Howe
My Lords, I would do best to refer my noble friend to the impact assessment, which provides a detailed breakdown of the figures that I have just given. I acknowledge that we have had to make assumptions in drawing up the impact assessment. Those can be challenged, and I am aware of the figures that my noble friend has referred to. But I do not believe that changing the figures—and they are bound to change in the nature of the exercise—will make a significant difference to the overall cost. The assumptions made in the modelling are based on the best available evidence that we have at the moment.
Baroness Thornton
Among many others, the Conservative MP Sarah Wollaston recently argued in the Daily Telegraph:
“I cannot see that it makes sense to foot the bill for redundancies for the entire middle layer of NHS management only to be re-employing many of them within a couple of years”.
As the Minister has said, the Government’s assessment of the redundancies varies between 600 and 1,200. Can I tempt the Minister to give us his best guess of how many of those redundant managers will be re-employed within the NHS within two years? Indeed, does the Minister think that this is an acceptable use of taxpayers’ money?
Earl Howe
We expect that about 60 per cent of management and administrative staff currently employed in PCTs and strategic health authorities will transfer to the new GP consortia or the NHS commissioning board. Those are straight transfers. As for those who leave the service, we have included claw-back arrangements in the redundancy scheme so that, if any employee returns to work for the NHS in England within six months, they will be required to repay any unexpired element of their compensation.
Lord Walton of Detchant
Does the Minister accept that many members of the administrative staff of the NHS are acting as if the Bill were already in law? For instance, staff in the PCTs are melting away. It is crucially important that those who will be required to help to administer the GP consortia should be kept on. Equally, now that the Government accept that the NHS commissioning board will require some regional infrastructure to commission highly specialised services, what action are the Government taking to ensure that the experienced and dedicated staff involved in the regional strategic authorities who carry out those commissioning tasks will be kept on?
Earl Howe
I am very grateful for the noble Lord’s question, because it gives me the opportunity to pay tribute to the skill and dedication of our managers and administrators in PCTs and strategic health authorities, whose skills we will most certainly need once the modernisation plans have been completed. We are clear that those who are able to provide these skills and can give us continuity into the new system are people we want to keep. We are encouraging them to stay and hope that they will. We are encouraging also the pathfinder consortia to engage with the PCTs to enable that to happen.
Baroness Gardner of Parkes
Following the question from the noble Baroness, Lady Thornton, could I ask my noble friend more about this transfer? Does he recall that, in previous reorganisations of the health service, large numbers of people claimed redundancy payments and then got very favourable jobs afterwards? Does he not think that the six months that he mentioned as the claw-back period is probably not enough at a time when the health service is very stretched? Also, will he consider what the noble Lord, Lord Walton, said about reorganising some of those posts now to avoid that situation?
Earl Howe
My Lords, we are beginning to reorganise the system. Under current rules, we are enabled to do so. I understand my noble friend’s particular point about the claw-back arrangements but there is perhaps a countervailing argument over what is fair and unfair in redundancy arrangements. In that sense, one cannot push the issue too far. Having said that, we are on track with the retirement scheme. We are seeing a deliberate and carefully managed process of reducing staff numbers at primary care trust level, leading up to the clustering of primary care trusts, which I am sure my noble friend knows about.
Lord Patel
Can the Minister say whether the Government have made any assessment of the transaction costs of the reform?
Earl Howe
I can tell the noble Lord, as I did before this Question began, that the transaction costs are not in my brief. However, we are in a different world now from the one we were in 10 or 15 years ago. We have a payment-by-results system which is well established. It is important to understand that the modernisation programme is not about competitive tendering, because it will streamline the whole process whereby providers to the health service will be enabled to offer their services to patients. It is not dependent on competitive tendering and the transaction costs should reflect that beneficially.
European Court of Human Rights
(13 years, 1 month ago)
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Lord Marlesford
To ask Her Majesty’s Government what means exist for them to challenge judgments of the European Court of Human Rights which have overruled decisions of the United Kingdom Supreme Court in ways which the Government consider unfounded in law.
The Advocate-General for Scotland (Lord Wallace of Tankerness)
My Lords, if a Chamber of the European Court of Human Rights gives a judgment against the United Kingdom, we may request referral of the case to the Grand Chamber. Grand Chamber judgments and Chamber judgments that have become final because there has been no request for referral, or because a request has been rejected, are binding on the parties and not subject to any further challenge.
Lord Marlesford
My Lords, I thank my noble and learned friend for that Answer. While we all obviously favour and support human rights, and endorse the role of the judiciary in supporting them, does he agree that the performance of the European Court of Human Rights has done little to enhance its reputation? Perhaps I may give him an example from an Answer given recently to the noble Lord, Lord Hylton, about seven people whom the previous Government sought to have extradited to the United States on terrorist accusations. This was between 2007 and 2009, and the European Court of Human Rights is still considering those cases. Is it really conceivable that it can take up to four years to consider such a case and is it surprising that, as a result, people are beginning to think that the European Court of Human Rights is weak on law but strong on politics?
Lord Wallace of Tankerness
My Lords, with the kind of cases that the European Court of Human Rights deals with, its judgments can inevitably be supported in some cases—as indeed they have been in many cases by the public—and not supported in others. On the point that my noble friend makes, the fact that there is a backlog of around 140,000 applications suggests that something is not working effectively. That is why the Government are committed to supporting and building on the process of court reform which is already under way in Strasbourg. As part of that reform process, the Government wish to see a strengthening of the principle of subsidiarity; that is, that the convention should principally be implemented at national level.
Lord Anderson of Swansea
My Lords, does the Minister agree that that backlog has been caused in part by Georgia and Russia flooding the court with applications and that there are new procedures in place to deal with it? Will he also confirm that we in the United Kingdom have an exemplary record, albeit with a delay in one case, in responding to judgments of the court and not seeking to pick and choose? If we now refuse to implement the judgment in respect of the rights for prisoners instead of negotiating to see what the best outcome is, what effect does he think that will have on serial defaulters such as Russia and Turkey when until now our record has been exemplary?
Lord Wallace of Tankerness
My Lords, the noble Lord makes an important point: this country’s implementation of ECHR judgments has been very good and consistent with our obligation to respect and implement our international treaty obligations. He referred to the number of additional cases. The process that was started at Interlaken, where the United Kingdom was represented by the distinguished former Attorney-General, the noble and learned Baroness, Lady Scotland, is under way, and it is hoped that when Britain has the chairmanship of the Council of Europe for six months starting in November this year, we will be able to build on these reforms.
The Government’s position on prisoner voting has been set out, but we have also requested that the court’s judgment in the case of Greens and MT v UK should be referred to the Grand Chamber of the European Court. If the Grand Chamber agrees to the referral, it will look at the case again and issue its own judgment.
Lord Thomas of Gresford
My Lords, given that there are 250 applications to the Supreme Court for appeals in this country and 2,700 applications from the United Kingdom to the European Court, do the Government have any plans for having two or three more divisions of the Supreme Court in this country, perhaps sitting in Downing Street, to hear human rights cases as a court of final appeal, with full legal aid, and thus give some succour to the legal profession?
Lord Wallace of Tankerness
My Lords, I am not aware that the Government have any plans to set up such additional divisions of the Supreme Court, but I am sure that the point made by my noble friend will have been noted by the Ministry of Justice.
Baroness Scotland of Asthal
My Lords, following the work that we commenced in Interlaken, is there now a timetable for reform? What specific measures do Her Majesty’s Government intend to take with others to ensure that the ECHR is as robust as we would all like it to be?
Lord Wallace of Tankerness
My Lords, as I have indicated, we hope that during the period of our chairmanship of the Council of Europe we will be able to take forward the reforms. All 47 members of the council believe that there ought to be reforms. We want to look at ways in which we can make the court more effective and efficient in dealing with the backlog and, as I have said, to reinforce the idea that the court’s role should be a subsidiary one; namely, that member states should have the primary responsibility for protecting convention rights in their own country. We hope that we can make progress on that during our chairmanship.
Lord Neill of Bladen
My Lords, will the Minister comment on the position of the Supreme Court? So far he has talked about government action, but the Supreme Court said in 2009, in a case called Horncastle, that it can decide not to follow a decision of the court in rare cases where that court has failed to “appreciate or accommodate” particular aspects of our domestic process. In such a case the Supreme Court can refuse to follow it, giving reasons, in the hope that that will then be picked up in a subsequent judgment by the court in Strasbourg. Do the Government have a position on whether that is a satisfactory arrangement?
Lord Wallace of Tankerness
I think that the specific case to which the noble and learned Lord refers has been heard by the Grand Chamber and a decision is awaited. The position under the Human Rights Act is that while our courts are not obliged to follow the precedent set, they must give proper consideration to it. In the more recent case of Pinnock, the Supreme Court indicated that it would generally follow Strasbourg’s decisions unless there were good reasons for not doing so.
Human Trafficking: EU Directive
(13 years, 1 month ago)
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Baroness Royall of Blaisdon
To ask Her Majesty’s Government what representations they have received asking them to help stop human trafficking by opting in to the European Union Directive.
The Minister of State, Home Office (Baroness Neville-Jones)
My Lords, the Government received a range of representations, including from parliamentarians, members of the public and non-governmental organisations. We said, referring to the opt-in, that we would make a decision about the finalised text at the end of the process, rather than at the beginning of the drafting. This is what we have now done. The Minister for Immigration has written to the parliamentary scrutiny committees in both Houses, seeking their views on our intention to apply to opt in.
Baroness Royall of Blaisdon
My Lords, I am grateful to the Minister for that Answer. I pay tribute to the Government, who are doing the right thing, although I regret that it has taken too long. I also pay tribute to the Anti-Slavery International petition, women’s groups and other campaigners, who have clearly brought to bear a great influence on the Government. The National Working Group for Sexually Exploited Young People has found that there are only 38 areas in the UK with a specialist service in place. What are the Government doing to ensure that there is effective intervention and consistent local delivery of these services around the country; and how will these nationally important functions be managed under the Government’s proposed politicised policing framework, as set out in the Police Reform and Social Responsibility Bill?
Baroness Neville-Jones
I can hardly accept the last point made by the noble Baroness. As regards the quality of the services that the Government wish to see in place, there are certainly some excellent boroughs that can act as best practice models, including such places as Hillingdon. The Government’s aim, obviously, is to ensure that all boroughs and local authorities operate at the level of best practice. There is constant consultation between the Government, local authorities and the NGOs involved to achieve that result.
Baroness Goudie
My Lords, I am very pleased that the Prime Minister has now done a U-turn and stated that human trafficking is a terrible crime. Will the Minister ask the Prime Minister whether he will put the issue on to the G8 and G20 agenda for November? As she knows, human trafficking is a now global issue and it should be on these international agendas. That is the only way in which we will see the end of it in our lifetime.
Baroness Neville-Jones
I do not think that the Prime Minister has made any kind of U-turn—he has made a very clear statement of the Government’s position on the evils of human trafficking. I will take back the point about the desirability of having this on the G20 agenda.
Lord Boswell of Aynho
My Lords, will my noble friend also consider the extreme importance of effective police co-operation in dealing with this vile practice? I cite in particular the very constructive relationship that has been formed between the Metropolitan Police and the authorities in Romania. It is very important that people should understand that this is a matter not just of one or two criminals but of very organised gangs who are quite prepared to clean out the young people in a particular district in an exporting country and to disseminate them round the richer countries of the world, under their orders and making profits for their vile trade.
Baroness Neville-Jones
My noble friend is quite right: human trafficking is a concern for all constabularies. It is also a concern for the Serious and Organised Crime Agency, which operates internationally. He is right to say that this is a global issue. It is also a matter in which the police take a lead in our ports of immigration, most particularly in places such as Heathrow and St Pancras, ensuring that when there is suspicion that a child has been trafficked, the suspicion is picked up immediately and the arrangements to handle the case are put in place.
Baroness Massey of Darwen
My Lords, what discussions are ongoing between the Government and the organisations concerned with the trafficking of women and children into this country? How will the identification of the number of people trafficked, which is very vague, be improved? How will the Government tackle situations involving employment and housing, rather than just prosecuting people?
Baroness Neville-Jones
I think that the noble Baroness is referring to the desirability, with which the Government agree, of having, in effect, an end-to-end process in which one is able, through contacts abroad, to understand the systems for trafficking; to pick up the children being trafficked as and when they arrive in this country; and then to be able, with the local authority, to ensure that proper care is taken of them. That, in fact, is the Government’s aim, and we are trying to bring together a system that ensures that that happens. We are in very close consultation with those NGOs that take a strong and constructive interest.
Baroness Hamwee
My Lords, I am sure that the Minister will agree that the end-to-end process must include healthcare. Many of the people who have been trafficked will have been very damaged by the process. What are the Government doing to support good healthcare for them?
Baroness Neville-Jones
The local authorities have overall responsibility if a child has been taken into care, and the local health authorities are involved in the process that they put in place.
The Lord Bishop of Exeter
My Lords, I am sure that the noble Baroness will be aware of the sterling work which has been undertaken by my friend the most reverend Primate the Archbishop of York in consistently pressing Her Majesty’s Government to achieve a united front across Europe for tackling this evil of human trafficking. But is she also aware of the Tearfund report, Silent No More, which was launched this Monday at Lambeth Palace with the support of both Archbishops, and which highlights the largely untapped potential of the church in preventing and reducing the impact of sexual violence, and the associated task of improving attitudes to women in many parts of the world? Will she join me in welcoming and commending this important report?
Baroness Neville-Jones
I pay tribute to the very notable work done by the most reverend Primate the Archbishop of York. It gives me great pleasure to be able to welcome this church initiative.
Business of the House
(13 years, 1 month ago)
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Lord Strathclyde
That the debate on the motion in the name of Lord Lawson of Blaby set down for today shall be limited to four-and-a-half hours.
Statutory Instruments
The Chairman of Committees
That Baroness Berridge be appointed a member of the Joint Committee in place of Lord Campbell of Alloway, resigned.
Economy: Government Policies
(13 years, 1 month ago)
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Lord Lawson of Blaby
To call attention to government policies to promote enterprise, growth and the fundamental rebalancing of the economy; and to move for papers.
Lord Lawson of Blaby
My Lords, I look forward enormously to this debate. There is a glittering array of speakers and, indeed, there can be no Chamber anywhere in the world that possesses so much expertise and experience in the fields of economics and business as this House does. I welcome in particular, as I am sure we all do, the maiden speeches that we will hear from my noble friend Lady Stedman-Scott and the noble Lord, Lord Hussain.
Inevitably, this debate is likely to focus very much on yesterday’s Budget, and that is what I intend to do in my opening remarks. I welcome the Budget for a number of reasons, the most important of which is that it has stuck—and my right honourable friend the Chancellor has been very firm about this—to what is commonly known as plan A. I am referring to the overriding need during the course of this Parliament to eliminate the structural budget deficit—the fiscal consolidation—or the cyclically adjusted fiscal deficit. As the highly respected Institute for Fiscal Studies has pointed out, in all the 34 countries of the OECD, only Ireland has a larger cyclically adjusted fiscal deficit than this country has. The cyclically adjusted fiscal deficit is that part of the deficit that is not due to the recession but is entirely due to the gross mismanagement of the public finances by the previous Government and by Mr Gordon Brown, in particular.
I congratulate the Chancellor, in difficult circumstances, on sticking to his guns on this central issue. It will be increasingly difficult over the next 12 months. We have a very difficult year ahead. The public expenditure cuts are only just beginning to take effect. There will be a great deal more unpopularity and many more problems than there have been already. There will be difficulties on a large scale with a number of public service trade unions. However, the Chancellor has to hold his nerve and go through it. The Budget yesterday is a sign that that is what he intends to do. In fiscal consolidation and in public expenditure cuts, he has set out to do the least that is needed economically. However, it is probably the most that is possible politically.
There is absolutely no need to hold back for fear of the fragility of the economy. It would be wholly wrong to do so. The world economy, and the British economy with it, is firmly on the recovery path. It is true that the recovery is slow, and is likely to continue to be so for the next 12 months. It is true that it will be bumpy, and that some quarters will be very uncomfortable. However, it is clear that the world economy is on a recovery path.
The Budget contained quite a few lollipops, as they were known in the Treasury in my day. Every Chancellor, including me, likes to put a few lollipops in his Budget. It is possible that there were rather too many in this Budget. Lollipops all have to be paid for and they also complicate the scene, whereas the Chancellor has rightly said that one of his watchwords will be simplification.
The lollipops are there for political reasons. I wonder whether there is not another approach that the Government could have adopted—and can still adopt—to a greater extent than they have so far. In the 1980s, we made a virtue of unpopularity. It carries a lot of conviction, because it happens to be true, if you say to people: “Look, no politician likes to be unpopular. We are politicians and we do not like to be unpopular. We would never do anything unpopular unless it was the right thing to do. We are doing it because it is necessary. We would far rather do popular things”. I know that noble Lords opposite think that many of us on this side are crazed fanatics powered by ideology. That might be the way that the Labour Party works—I do not know the inside of the Labour Party and I am not particularly interested, either—but not only is it a wholly inaccurate description of the Conservative Party and of our Liberal Democrat allies and friends, but the public know that it is complete nonsense, so all that happens is that the Labour Party loses all credibility.
The Government are doing the right thing, even though it is unpopular and will continue to be so. The criticism from the faint-hearts often comes from those—there are many in the media, as well as on the Benches opposite—who are obsessed with trying to fine-tune the economic cycle. One cannot fine-tune the economic cycle. The overriding need in economic policy for any Government—and this is what this Government are doing—is to focus firmly on the medium and longer terms.
In this context, the priorities are twofold. Eliminating the structural deficit is absolutely essential, as I have already said and as my right honourable friend the Chancellor made abundantly clear. There is also the need to cut back the relative size of the state in order to achieve the maximum rate of growth of which this economy is capable. That is where the growth strategy comes in. Greater growth will lead to a larger public sector and more public services in the future.
However, in the short run, it is necessary for the state to be only of the size that the economy at the time can afford. That is the essential path to improved economic growth, which we all want to see. There is no growth button that any Government can push. Growth comes from industry and from the inherent creativity of mankind. Of course, we had growth long before we had activist Governments with activist economic policies. You have to remove impediments, as the Chancellor is doing. Many of these impediments have very well-meaning intentions behind them but they remain impediments and they have to be removed wherever possible.
The Budget identifies three areas in that context. The first is deregulation, the second is tax reduction and the third is tax reform. On deregulation, I welcome what was in the Budget yesterday, particularly the proposed deregulation of the planning system. That is a very serious impediment and deregulation in this regard is long overdue.
It is clear that tax reduction will have to wait. Because of the appalling fiscal position and deficit that this Government inherited, there is no scope for tax reduction at present, but it will have to come. I was very glad to hear my right honourable friend the Chancellor say that he wanted the,
“most competitive tax system in the G20”.
That is quite a target. He has done well on the corporate tax side but, so far as concerns personal taxation, we have a very long way to go before we have the most competitive tax system in the G20. In fact, we are now well down the list. That is the context for his remarks about the 50 per cent top rate of income tax, which is way higher than that of most of our competitors in the G20. He saw it as temporary and is asking Her Majesty’s Revenue and Customs to inquire into whether there is any increase in revenue from raising the top rate to 50 per cent. Clearly the implication must be that if the inquiry shows no significant increase, or even any increase, in revenue, he will bring it down. I welcome that.
I hope that my right honourable friend will also look at the experience of the 1980s. When I reduced the top rate of tax from 60 to 40 per cent in 1988, it brought about an increase in revenue, not a reduction. Not only that but I have been accused of being a socialist because, as a result of this, we found that the highest taxpayers—the richest people in the country—were contributing a larger share of the total income tax revenue than ever before. Therefore, I think that that should be studied, as well as the effects of increasing the top rate from 40 to 50 per cent.
On tax reform, the Chancellor enunciated some principles. Those principles were absolutely right and I welcome them. However, the main thing that he announced was the amalgamation of the national insurance contribution and income tax systems. This was widely trailed in the newspapers and was announced in the Budget yesterday. I say to the Minister, and through him my right honourable friend the Chancellor, “Don’t go there.” There is nothing new about it. The first time I was involved in it, at a distance, was when my successor as Financial Secretary to the Treasury, the late Nick Ridley, of whom so many of us in this House have very fond memories, was very interested in doing it. Therefore, when my noble friend Lord Howe was Chancellor, there was an inquiry into what was known as NICIT in the Treasury. Some people thought that it was called that because Nicholas Ridley was in favour of it, but in fact it was an acronym for national insurance contributions and income tax. NICIT was looked at then and, very wisely, nothing was done.
However, after the 1987 Budget, I decided that my next Budget in 1988 would be a major reform of personal taxation. I was very keen on NICIT so, for nearly a year starting immediately after my 1987 Budget, I instigated the most thorough investigation into NICIT by the Treasury and the Inland Revenue that there had ever been. I did not abort it until January 1988, shortly before the Budget, because I had high hopes of it, but it could have been the biggest elephant trap that you could fall into. I do not have time to explain why, but that is the fact. If the Minister and my right honourable friend the Chancellor would care to look at page 827 of the original version of my memoirs, they will find an admirable summary of the main reasons why they should not go there.
Many noble Lords wish to speak in this debate and I do not want to take my full time allowance, as we wish to hear all the other contributions. We all want the Government’s policies to succeed. Inevitably, I understand that that is a problem for the party opposite, as it always is for Oppositions—there is nothing special about this Opposition. Oppositions tend to be slightly schizoid because they know that if the Government’s policies are successful, that is good for the country, but that might also be good electorally for the party in office and they are not very happy about that—but that is their problem.
On the electoral aspect, what is important is that this is, at bottom, what democracy is about. Democracy is a system that allows the Government of the day to do what they believe to be right and gives them a reasonable time in which to do it. At the end of the day, the people decide whether they should have a second innings. As we know from what is happening in much of the Arab world today, the essence of democracy is the ability of the people peacefully to eject a Government in whom they have no confidence. In this country, for many years, we have had an electoral system that fulfils that function better than any conceivable alternative would do, and that is an overwhelming reason for not changing it. I beg to move.
Lord Sugar
The House will be indebted to the noble Lord, Lord Lawson, for initiating this debate and for what he has said. He will recall that when he was Chancellor under the noble Baroness, Lady Thatcher, I was one of her blue-eyed boys. The young fellow from Hackney, who had done well, was a fine example of entrepreneurial spirit. She hauled me all over the place, displaying me as a prime example of what can be achieved. I was in and out of Downing Street more often than the window cleaners and possibly the noble Lord, Lord Lawson.
The thing is, people like me are a dying breed. When as a young man I went to a bank with my hand out, they thought I was part of a Morecambe and Wise team. “Do you have any collateral, a balance sheet, some history of profits?”, they asked. “No”, I replied. “Well then, clear off”, was their response. Like many others, I realised at an early stage that if you want something, you have to get it yourself. My idea of government support was: you supply me hospitals, schools, a police force, roads to drive on and a good environment for me to do business in, and that will do me fine; but do not poke your nose into my business.
To reflect on the past 15 years or so, it has been customary for a person dressed in a nice pair of designer jeans and a nice blue blazer with a white open-collared shirt, a bottle of Evian in one hand and a wonderful Microsoft spreadsheet in the other, to walk into a bank, mention the word dotcom and walk out with £5 million. Those days, I am afraid, are over. We all know what went wrong there; and we also know what a mess the banks got into recently; but the penny has not dropped with some people. We still have in some cases an expectancy culture, where people still think that there should be money freely available to finance lost causes, poorly run companies or a whim of an idea.
When I was employed as an adviser to Her Majesty's Government last year, I had occasion to visit many small to medium-sized enterprises across the country and spoke to several thousand people. The most frequently asked question of me was, “What can this Government do to help my business?”. My reply was not perceived as helpful. I told them, “Do not rely on any Government to assist you in running your business. You are people who have chosen to go into business, which is very enterprising, and I am pleased about that, but do not expect to get any advice from the Government about what products you should make, what ideas you should pursue, what services your business should provide or how you should market your products and generate income, because that is what you are supposed to do”.
More recently, I have asked people, “Who is there in government able to dish out such advice? Just step back and look at them”. Take, with the greatest respect, the current Business Secretary. He has never been in business or run a business. He has been an adviser or a politician all his life. He has never touched the coalface. Frankly, what does he know? It is this realism that brings me to my next point. In my opinion, the current Government are very good at window-dressing the demise of the economy by blaming it all on the banks. It is very convenient continually to repeat the same old broken record: “It’s not our fault. It’s the banks’ fault; it’s the previous Government's fault”.
Let us take a look at that for a moment. True, the banks were irresponsible, and they have been told in no uncertain terms to get their act together. However, having told the banks to get their house in order, the current Government are constantly bleating that the banks are not being helpful in lending money to small businesses, whereas the message to the small business community should be one of realism in understanding that no one is going to lend money to a lost cause. The banks are now looking at the traditional criteria of showing some assets or having some historic record of profits before parting with their money. They are definitely open for business. That, I remind your Lordships, is how they make some of their money. In my recent seminars, I have received comments from some people along the lines of, “The bank has been outrageous. It has actually asked me to put up some collateral—my house, for example”. Well, I am very sorry, but why not? Why should it take a risk on you if you are not prepared to take a risk on yourself?
In my capacity as a business adviser to the previous Government, I visited many Business Link centres, which I understand are funded in some way by government although I am not at all clear how. The cost of running these organisations was something in the region of £250 million per year. To be perfectly frank, apart from meeting a nice bunch of people, there was no real business advice dished out other than simple stuff you could pick up and learn for yourself by going on the internet. I urge the Government to redeploy money spent on these types of initiatives in other directions. As a simple example, there are so many empty premises around the country, large factories and warehouses, that can be converted and made into incubator factories. They could contain a core factory and a silo of workshops on the periphery. The core factory would be accessible to the individual businesses like satellites around a nucleus.
The noble Lord, Lord Lawson, said that sometimes you need to be unpopular. I think that the Government should come clean in their message to help small-to-medium-sized enterprises. You cannot on the one hand tell the banks, “You've been naughty by being irresponsible”, and on the other hand say, “Go and be irresponsible again. Go and help lost causes”. Give SMEs the facts of life. By all means be bold and be adventurous, but be realistic. Do not expect anybody in Whitehall to give you any hints and tips on how to do it because, basically, that is a case of the blind leading the blind. You are the business people, you are the ones with the ideas, and you are the ones who are going to drive your businesses forward, but regrettably, as with everything else in life, there are no free lunches.
All government can do is to provide a good business environment and assistance from HMRC—for example, export credit guarantees if you are successful enough to find an export customer, tax breaks for entrepreneurs who sell their businesses and tax deductions for investment in R&D. Here is the final point. To take advantage of the lollipops, as the noble Lord, Lord Lawson, called them, the wonderful tax incentives announced in yesterday’s Budget, perhaps I may just bring everybody down to earth again by saying that to benefit from them, you have to make a profit first. How to do that is something on which this Government, and perhaps some others, have not been capable of advising.
Lord De Mauley
I remind noble Lords that speeches are limited to seven minutes.
Lord Newby
My Lords, I congratulate the noble Lord, Lord Lawson, on getting such a timely debate on the Budget and economic policy—we normally debate these issues weeks after the event, so it is a pleasant change to be able to do it contemporaneously—and, like him, I look forward to hearing the maiden speeches in today’s debate.
The big political and economic question is whether there should have been a plan B at this point: should the Government have changed their broad macroeconomic policy? It seems to me that the only circumstances in which such a change would have been justified would have been if there had been a major change in the outturn or the outlook for the British economy. The OBR report published yesterday makes it clear that although there has been a short-term downward revision in growth, and therefore a slight rise in borrowing in the short term, its assessment is that, over the medium term, the Government’s plans are broadly in line to meet the targets set for the lifetime of the Parliament. Therefore, in my view, if the Government changed course, they would simple lose all credibility in economic policy-making.
Many commentators are asking, “Can’t we just ease the pain? Can’t we just spend a bit more?”, as if it would be costless. There has been a lot of argument about whether, if the Government had taken a soft approach last summer, there would have been major problems with the credibility of sterling and the cost of government borrowing. The Opposition have said, “We are not like Greece, therefore the fact that Greece has to spend 12.5 per cent on borrowing is irrelevant”. No, we are not like Greece, but we are not miles away from Spain’s current position. It currently has to pay 5 per cent on government borrowing compared with our 3.5 per cent. That is a big difference. If this Government, or any Government, were seen not to be taking their fiscal responsibilities seriously, you could bet your bottom dollar that those rates would zoom up. That cannot be in the long-term interests of the British economy.
I am looking forward to hearing the noble Lord, Lord Eatwell, explain the Opposition’s view on how they would meet their commitments under the Fiscal Responsibility Act. So far, we have heard not one word from the Opposition about how they would approach the circumstances in which we now find ourselves.
Before turning to the growth agenda, the main subject of today’s debate, I should like to say something about two issues. The first is tax avoidance. Broadly speaking, the Government’s measures here are extremely welcome, from the big-ticket items down to the reduction in low-value consignment relief on VAT, a subject that we debated in your Lordships' House a couple of weeks ago. Less welcome, however, is the rather supine approach to non-doms. The Government’s approach—basically to kick the issue into the long grass, as the predecessor Government did—is poor. A stronger approach should have been taken.
I should also like to probe slightly the Government’s intention regarding high-value housing. We know that many people avoid paying stamp duty on their houses by putting them into an offshore trust. There is a rather ambiguous sentence in the Budget speech about making sure that people with high-value housing pay their fair share. Can the Minister say whether the Government intend to do something about the stamp duty loophole; and if they do not, will they give the issue further consideration?
As for growth, much will depend on the extent to which people in the private sector, particularly the manufacturing sector, feel confident about the environment in which they seek to do business. The mood among manufacturers—and I have just come from a conference of small businesses in the manufacturing sector—is much more buoyant than one might think from reading most of the commentary. The Budget contains a range of provisions—on, for example, the planning rules, business rate relief and the business angels plan—that will help the sector. I am particularly pleased to see the additional support for apprenticeships which will cover 40,000 unemployed young people, and the 100,000 work experience placements that the Government have announced, with highly credible large companies taking the lead in making them available.
There are two issues on which I can give only two cheers. The first is the green investment bank. It has taken a long time to get the bank up and running, but I welcome the fact that it now is, and that it will have £3 billion available for lending to this sector. It is a pity, however, that it will not be able to borrow for the lifetime of this Parliament. I know all about the accounting rules but, frankly, there are times when you have to bite the bullet and decide what really matters. I would not have thought it beyond the wit of the Treasury to explain in its various documents the extent to which the liabilities of the green investment bank are separate from other government liabilities, and therefore to make it perfectly clear that a green investment bank that is able to borrow is not incompatible with reducing the overall budget deficit.
Enterprise zones are the second issue on which I can give only two cheers. Ever since they were introduced their track record has been mixed. One can only hope the fact that the zone boundaries will be determined by the LEPs—and therefore likely to cover the parts of the region with very good growth prospects, given the location—will make them more cost-effective than they have been in the past.
The key constraint facing many businesses remains their ability to borrow. The banks claim that there is no demand. I know that many manufacturers can get working capital from the banks for neither love nor money, so I just hope that the Government will keep the banks’ feet to the fire on the commitments that they have made but have yet to deliver on.
Finally, the challenge now is for the Government to implement this raft of measures and to keep listening to manufacturers in particular about further things to be done. The noble Lord, Lord Sugar, will be surprised to learn that the Secretary of State for Business, Innovation and Skills agrees with him to the extent that he understands that the Government cannot themselves generate growth, they can only create a climate in which entrepreneurs are encouraged to flourish. In my view, the Budget contains many positive steps in this direction, but there is much more to be done.
Lord Brooke of Sutton Mandeville
My Lords, it is certainly a pleasure to follow my noble friend Lord Newby, and it is always a privilege and a pleasure to follow the lead of my noble friend Lord Lawson of Blaby, just as it was during the four years of his outstanding chancellorship at the Treasury. I was the only Treasury Minister in those four years never to have worked in the City, a condition that will infect my speech today, although in the Treasury’s housekeeping role I could not have enjoyed more being on the Treasury Christmas card committee. My noble friend was its chairman and I was the only other member. He gave guidance and took the decisions, I did the work, and our cards were voted much the best of all the Finance Ministry Christmas cards in the European Union by the Commission in Brussels. My noble friend was in characteristically grand form today.
The Library briefing note is of its usual high standard, but I saw it only an hour and a quarter before the debate started, and I shall concentrate on the wider world than Whitehall and the City. However, I am wholly behind the present Chancellor’s policies as laid out yesterday. When I was in the private sector 40 years ago, I would give up an annual day to sit at the feet of that polymath sage, Herman Kahn of the Hudson Institute, who was confident that the UK would survive in the post-industrial society because of its recognised global eminence in government, education and medicine. I am therefore particularly pleased about the Chancellor’s backing for advanced manufacturing, for life sciences and for the creative industries, all of which play well to our national DNA.
We should all be grateful to my right honourable friend David Willetts, in my right honourable friend Vincent Cable’s department, to his success in protecting the science base and the science budget, for reinforcing the finances of universities and for helping to secure the recent revision of student visa priorities and procedures. I smiled when earlier this week the Official Opposition claimed credit for having closed down 140 bogus institutions of further education, as if it was a badge of honour that after 13 years there should be 140 such institutions available to be closed down.
After a quarter of a century as the Member of Parliament for the most inner of inner city seats in the land, I no longer live in London except when attending your Lordships’ House, and I observe the national economy from the far end of Wiltshire, a county with so long a history as to be a proxy for a national bellwether. Wiltshire has 40 per cent of the world’s chalk grasslands—I repeat that that is a global figure—and so was a magnet for Bronze Age man since there were no trees to cut down. It was where Alfred the Great achieved his victory over the Danes at the battle of Ethandun in 878 on the downs above the great priority church at Edington. That was built on the medieval wool finances of west Wiltshire, the latter being why Bradford-on-Avon in its built environment has proportionately more listed buildings than any other place in England.
Until recently, Wiltshire had no higher education institutions other than the Royal Military College of Science at Shrivenham—we are, since Alfred, a very military county—but the Sarum Missal was a key text in the evolution of the Church of England; the spire of Salisbury Cathedral was the highest in Europe and a copy of Magna Carta sits in the chapter house; Wilton, just outside Salisbury, was the medieval capital of Wessex and the Wilton Diptych, now in the British Museum, is the earliest surviving painting in England. Scarcely a year goes by without new archaeological evidence emerging from the mysteries of Stonehenge and Silbury Hill. Advanced manufacturing, scientific research and online consultancy occur all over the county. As I said in an earlier debate, 200 yards from where I live is a small engineering firm that builds buses in Brazil and trucks in China, and won Boris Johnson’s prize for the new Routemaster bus.
I say all this is because—and I understand that the Prime Minister would approve—Wessex is not only the first proper region outside the home counties but a classic tourism county. Although I cannot be sure of the background, the news from the Rialto is that the vibrant and ubiquitous Wessex travel agency, Bath Travel, has recently sold its single medium-haul aircraft, which was always seen off from the marvellously convenient airport at Bournemouth until his recent demise by its exuberant chairman, the late Philip Bath. He knew most of the passengers, and they knew the reliability of his service to exotic locations all round the Mediterranean, the Atlantic and eastern Europe. It might have had its last flight in its colours because of old age or because of the state of demand, but it is a great loss to those passengers and, in either circumstance, it is a classic case of family finance needing a return to normal conditions of credit.
Tourism is an activity that has dozens of component aspects. Successful tourism requires each part to play its part well, and good performance requires good morale. When I was in the private sector, I had as clients two major family firms that had come here during the depression, because Garfield Weston and Forrest Mars thought that England was a soft market and then proved it. There is much to be said for Warren Buffett’s mantra that hard times represent good opportunities, but for our economy to benefit from them we need morale that makes us look on the bright side and enthusiastic leadership.
To return to London for a final footnote, I declare an interest as president of the British Art Market Federation, which employs 60,000 people directly, and another 60,000 indirectly, behind a turnover of nearly £8 billion. For generations, London’s art market has been the second largest in the world, but it was reported last week that China last year overtook us, part of the reason being the commercial disadvantage from which the EU suffers through the unique application of droit de suite, or artists’ copyright. The noble Lord, Lord Myners, who is taking part in the debate today, asked a Written Question about this, which was answered on Tuesday by my noble friend Lady Wilcox. I know that she was not seeking to mislead the House, but her Answer relied in part on admirable academic research conducted four years ago, whereas I know that her advisers at the Intellectual Property Office, a week before her Answer was given, had a copy of the British Art Market Federation’s submission to the European Commission’s current consultation on this subject, which is four years more up to date. It takes one back to Harold Macmillan’s remark about looking up a train in last year’s Bradshaw. This sector of the economy is not only sufficiently important but so great a British success story as to deserve, in a fast moving market, government being wholly up to date. I am not expecting a reply to this in my noble friend the Minister’s winding-up speech, but I look forward to news of the Government’s policy on these negative developments.
Lord Hussain
My Lords, it gives me great pleasure to speak in your Lordships’ House for the first time. I am grateful to all the staff of this House for their kindness and help, and to noble Lords from all sides who have been so welcoming. My special thanks go to my introducing Peers, my noble friends Lord Rennard and Lady Hussein-Ece, who have been extremely helpful to me.
I might be one of very few Peers who have experienced migration in the early part of their lives. I arrived in the UK with my family from Kashmir at the age of 14 to join my father who was working in Rochdale in the textile industry. One Member of this House once said that his father got on his bike to look for a job; mine got on a plane.
I left school at 16 to work to help my family. I did a variety of jobs—anything that would pay a wage to support my family. I struggled through the new way of life with everything from culture to language, and from religion to the British weather, being very different from what I left behind.
From my early days in the UK, I was engaged in many different local issues, beginning with leading a successful campaign for facilities for young people. I helped to set up a youth centre called the Kashmir Youth Project in Rochdale back in early 1980s, the first of its kind. It was officially opened by a Minister of the time, Sir David Trippier. That visit was followed by visits by many other Ministers and dignitaries, including His Royal Highness the Prince of Wales. The project provided several vocational training workshops, including on office skills, childcare, sewing, carpentry, electrical work and computers, as well as recreational facilities and an advice centre.
My passion for equality and fairness led me to be involved in the Community Relations Council in Rochdale, where I served for many years. In Luton, where I made my new home in 1993, I served on the management boards of various schools, the law centre and the local trade union council. I also led campaigns for the rights of oppressed people in many parts of the world, including Palestine, East Timor and, particularly, Kashmir, which is still waiting for the right of self-determination granted to it by the United Nations in 1948.
For many years I have fought extremists of religious and/or political views emerging from many different sides. I believe extremists not only divide our society but damage the very fabric of the multicultural and multi-religious society that we all enjoy. Hence it is the duty of every one of us to challenge this behaviour in order to prevent that from happening.
In 1996 I became an elected councillor for Luton borough; I was the first in my family to become involved in public life in the UK. In 2003 it was the war in Iraq that forced me to leave the Labour Party and join the Liberal Democrats, which proved to be a turning point in my life. In the following few years, I served on the local council as a portfolio holder, a deputy leader of the council, a parliamentary candidate twice, and finally I find myself here in your Lordships’ House.
In my working life I have worked in many different fields, from textile manufacturing to banking and from insurance to community work. I have also worked for myself, as a small business person, for many years. This has given me an insight into the issues and problems, as well as the freedom and benefits, of small business people. My experience has given me an understanding of the importance of small businesses to the national economy. In my home town of Luton, around half the people in employment work for small firms employing fewer than 10 people. There is no reason to believe that in this respect Luton is different from any other towns in Britain.
The vital part that small businesses play in generating and maintaining employment must not be underestimated. In the history of British businesses there are hundreds, probably thousands, of stories of small businesses that have grown into very large ones, playing their part in the general well-being of our society, employing thousands of people and paying millions to the Treasury in taxes.
Small businesses depend on the ingenuity, enthusiasm, expertise and flexibility of their owners and workers. However, to grow into large ones they also need investment. Many of the small business owners that I talk to tell me that in order to get an investment loan from the bank they first have to prove that they do not need it. It is good to see that the Government have made a promising start on the process of re-educating the banks on their responsibilities to help small businesses to grow.
The owners of some very small businesses tell me that they have extreme difficulty in running their businesses and acting as immigration officers at the same time to make sure that their employees have the right kind of paperwork to work in the United Kingdom, or they run the risk of being liable to heavy fines and/or imprisonment.
I am confident that, both in the measures that have already been announced and those under consideration, the Government recognise the critical part small businesses can play—and are eager to play—in setting our economy on the path to steady and sustainable growth.
Lord King of Bridgwater
My Lords, it is a particular privilege for me to be the first to have the opportunity to congratulate the noble Lord, Lord Hussain, on his immaculate maiden speech. It combined exactly what the House likes to hear: a very interesting explanation of his background and experience, and then some very interesting thoughts on the situations that he has faced in the many varied activities in which he has been involved. I could not help thinking that he was almost a founder member of the big society, given the part that he has played both in Rochdale and in Luton, which makes it even easier for me to call him my noble friend. As he has been unsuccessful standing for election twice but has now been welcomed to these Benches, I hope that he will not have to stand for election again.
I was also pleased with the noble Lord’s commercial experience of having run things. He has passed the Sugar test as someone who has actually run something. I plead guilty myself: I speak in this debate as somebody who has spent all my life, apart from my time in government, trying to run things in business. I endorse strongly what the noble Lord, Lord Sugar, said. Given my noble friend’s particular background, the situation we face, the attempts to traduce the Muslim tradition in the world at present, and the need for people with the courage to speak out against some dangerous and evil people who are trying to mislead many of their community, he has a valuable part to play. I know that the House will listen with great interest to his further contributions, which we will certainly welcome.
I thank my noble friend Lord Lawson for the way in which he introduced the debate. I shall just repeat my previous remarks about elections: under a different form of House, I do not think that the House would have had the privilege—the day after the Budget—of having a debate led with the authority and experience that we had from my noble friend. However, I am afraid that I have just one comment, which is that I do not think that he is quite as good a Tory and exponent of Conservative economic policy as the noble Lord, Lord Sugar, but in other respects he was extremely good.
The debate is about the Government’s policies to promote enterprise, growth and the fundamental rebalancing of the economy. In my judgment, that is most certainly needed. My concern is that it is tougher than many people think. An old adage is often quoted that the future is not what it used to be. A lot of people are going on as though we have had a bit of hiccup—a bit of a knock—but that we will be back on the old track. So why do we not have normal growth coming back? The situation is infinitely more difficult. We face a record budget deficit. I noticed that the Chancellor mentioned the risk of a continuing sovereign debt crisis. We go home last night and hear that the Prime Minister of Portugal has resigned and that there is a crisis meeting this evening in Brussels, which I understand our Prime Minister will attend. Under the arrangement introduced by Mr Alistair Darling at the end of the last Government, if there has to be a substantial drawing down of assistance for Portugal, the implication is that it could cost this country a further £3 billion. I do not think that was known at the time.
An interesting passage in the Chancellor’s speech yesterday referred to the relative interest rates in various countries. He made the point that, although we have a deficit bigger than any of these countries, our interest rate is relatively comparable to that of Germany. As he said yesterday, it is half the rate payable in Portugal, a third of the rate of interest that Ireland has to pay, and a quarter of the rate that Greece has to pay. Of course, the figure for half the rate of Portugal is already out of date because I do not know what Portugal’s rate will be now. If it has no Government there will have to be an election, so there will not be any Government for another two months and it cannot agree on any of the public expenditure cuts and improvements needed to stabilise its position.
We have to earn our living in this world. As Will Hutton said in an interesting article, the present faltering recovery could easily be blown off course by any major crisis. When we look at earning our living in the world and ask where our markets are going to be, we must look at the situation in the eurozone. Ireland is a much bigger customer of this country than many people realise. How good is Ireland’s purchasing going to be? How good are our sales going to be to Ireland in the next year or two? Then there are Spain, Portugal, France and Italy. I am sorry if the catalogue goes on—I thought of marking my comments earlier by saying that anyone of a sensitive disposition ought to leave before I got too far into the difficulties that I see facing us. But of course we then have Japan. As we stand here today, we do not have any idea what will happen, with people running in and out of Tokyo. Is there or is there not a risk to the drinking water in Tokyo? How bad is that crisis going to be? Every day we see a different estimate of what the cost to Japan may be of the quite appalling disaster that has overcome that country.
Then there is the instability in north Africa and the Gulf—a part of the world of which I have had some experience. Those who would wish to see a change of Government and wish to see democracy introduced into many of these countries must also recognise what an appallingly difficult situation those new Governments will face. They will come in with a 50 per cent increase in food prices, and not only an increase but in many cases an acute shortage of food. They have increases in fuel prices as well and some very serious youth unemployment. That is the background against which there will be new, inexperienced Governments, and I do not give them a lot of chance to be enduring Governments who will be able to quickly establish the calm and stability that the market needs. It is against that background that I see the challenges that we face.
I used to sit in a school chapel under a poem by Sir Arthur Hugh Clough, which said:
“If hopes were dupes, fears may be liars”.
I remember the final line, quoted without a stutter by King George VI in one of his Christmas messages when America came into the war. He said:
“In front the sun climbs slow, how slowly,
But westward, look, the land is bright.”
I think that that needs changing now, because in economic terms I am not sure that the westward does look so bright. Eastward, yes, I hope—with the opportunities that we have not seized as we should in India and in China—and southward as well. South America and Africa are areas and markets that are much more interesting now. There is an interesting times conference going on at the moment, with African leaders asking why Europe and Britain does not take more interest.
There are great challenges ahead and undoubtedly it will be very difficult. But Iain Macleod’s first law of Budgets is that first impressions are usually wrong, and I have some hopes that, having seen this described as the most pro-growth Budget seen for a generation, we may at last slowly and in a most difficult situation start to climb out of the problems that we have inherited.
Lord Renton of Mount Harry
My Lords, it is always a great pleasure to follow a speech by my noble friend, who I have known for many years. I do not disagree with him, either with the pessimism or the optimism. However, I want to talk about a different matter in my few minutes. Before I do that, I join in what he said about the noble Lord, Lord Hussain, and his speech. It was a very great pleasure to hear him, and it was particularly good to hear about his small business. I wish him every continuing success both in his business and here in the House of Lords.
The Times has an article today about the Chancellor’s speech. The article said that the Chancellor has chosen the right sectors of the economy to dominate the world as London’s financial services do: advanced manufacturing, life sciences and creative industries. It is on that subject that I should like to speak. There are some aspects of the Budget that very much fit in, particularly in relation to the workforce, with the comments that the Times makes. Here we have the need to create a more educated workforce that is the most flexible in Europe. The next paragraph says that youth unemployment rose by 100,000 between 2004 and 2008 and has risen by a further 250,000 since the start of the recession. That, of course, is extremely bad news. It has to change and has to be helped to change. But then we hear that the Government will find an additional 80,000 work experience places for young people, ensuring that up to 100,000 places will be available over the next two years. That is a very important statement in the context of the Budget, to which we may not have paid enough attention. I very much welcome that. It gets down to the case of the additional apprentices. I was told earlier today that Nissan has reported that in making cars in north-east England it employs more apprentices than all the other manufacturers in the area put together. Surely this is the time when manufacturers have to get back to the habit of employing young people—those aged between 16 and 18—who have everything to learn.
I also welcome very much what is in the Budget speech about the expansion of university technical colleges. That is extremely important if we are to be at the top of the world in the new production about which we are hoping. Here I say a word about my own local university, the University of Sussex, which was founded exactly 50 years ago to concentrate on arts and sciences—about 50:50. I was lucky enough to be on the council for 10 years. The noble Lord, Lord Briggs was the first vice-chancellor, and he very much developed the arts side of the university. Now we have a scientist as the vice-chancellor, Professor Farthing, who has turned the university back to being into science—exploring and trying to help by finding out new opportunities in the scientific world. In one of his recent reports, he said:
“Research expenditure at our university has grown over the past few years, leading to the employment of enormously skilled and talented individuals and the promise of substantial future economic impact as much of the research will be commercialised. Our programme has recently expanded to include internships in the environmental, engineering, finance and accounting, pharmaceutical and media sectors”.
The point I end with is that if we can do that in Sussex, surely other universities should be following us into doing much the same. If we are to compete with the likes of India, China and Brazil, if we are to be at the top of the league, as the Chancellor put it yesterday, in advanced manufacturing or life sciences, we have to get closer to our universities and share with them the aim, the intelligence and the plans that will be necessary for us to be successful in the future manufacturing world. I regard that as a major but very important challenge, and I hope that universities will follow what my own university is doing at the moment.
Lord McFall of Alcluith
My Lords, I am delighted to participate in this debate and I congratulate the noble Lord, Lord Lawson, on choosing it. Enterprise, growth and the fundamental rebuilding of the economy are very relevant. I congratulate the noble Lord, Lord Hussain, on an excellent speech and I wish him well in his future in the House. I draw the House’s attention to the Register of Lords’ Interests as I make my speech.
This Budget is fiscally neutral but it is a gamble on growth because the underlying assumption is that there will be an economic rebound to trend. In fact, we need a thumping 3 per cent growth by 2015 if we are to keep on course. We have heard the mantra, “It’s the debt, stupid”, but regarding our present situation and the growth objectives the distinctive feature is the amount of private debt which we have in the country. We have seen a conversion of private to sovereign debt within this crisis, which is why we are talking about Portugal, Ireland and other countries today. Indeed, PwC illustrated that by describing it as a debt time-bomb, where we have a £10 trillion barrier to overcome by 2015.
Some people have stated that our having a public debt is to be celebrated, in the sense that Governments have intervened to save the private sector. While we should be mindfully relieved by that, we still have to attend to the issue of “too big to fail”. If we do not attend to that, we are going to come back to a crisis in future so we have to be mighty thankful. We are going to live with these consequences for many years and ordinary people will be paying the price. They will have to pay off debt but also increase savings. I am very conscious of that as I undertake to look at occupational pensions over the next few years for the National Association of Pension Funds. There is no doubt that responsibility will be transferred to the individuals.
On enterprise, for me the economy needs a spare tyre. Adam Posen made that very point; we need it to lend to manufacturing, to small businesses and to infrastructure. We do not have that in our economy at the moment. I have been calling for a national investment bank for a number of years and I asked the previous Government about that issue. However, I noticed yesterday that Zac Goldsmith has expressed his dismay at the Government for not being bold enough on the green bank. We need to be bold on a national investment bank. The noble Lord, Lord Skidelsky, was saying in an article in the Financial Times the other day that we could have a limited fiscal commitment of £10 billion, with subscribed capital being drawn down over the next four years. That would allow the new bank to finance sufficient spend to more than offset the £87 billion of spending reductions planned before 2015. One thing I am certain of is that we need to be bold.
As the noble Lord, Lord Lawson, has noted, we need a fundamental rebalancing of the economy. If we are to make our way in the 21st century, we have to make things. We have to complement the giant, productive economies of China, India and the rest of Asia and we should not be beguiled by the arithmetical GDP figures. We need development in all areas of our country and GDP has to embrace social as well as economic criteria. We must preserve the social fabric, not rupture it. A generation of unemployed young people or a high number of unskilled people will not help finances in the long term. Having unemployment at 2.53 million at the moment, with almost 1 million young people aged 16 to 24 unemployed, is an inauspicious start.
I witnessed the destructive nature of unemployment on young people when I was a schoolteacher in Glasgow in the 1970s and 1980s. I was reminded of that at the weekend when visiting an old family friend, Mr Andrew McGroarty. He is aged 95 and has just lost his dear wife Agnes after 70 years of marriage. He is a deeply humble, gentle and spiritual man who has led an exemplary life. However, as we were talking last week he left me in no doubt with the force, the clarity and indeed the eloquence of his remarks about how socially destructive the unemployment was following the depression in the 1930s, when he was a young man. His was an authentic voice, warning of the perils of leaving families and communities to their bleak fate if the Government do not work for the common good. Those are wise words indeed. I finish by delving into history for the wise words of Lord Keynes, who said:
“I do not understand how universal bankruptcy can do any good or bring us nearer to prosperity”.
That bankruptcy is not just a financial reference; it also affects people and society.
Baroness Stedman-Scott
My Lords, if anybody had suggested to me 18 months ago that I would be standing here, having been ennobled and making my maiden speech, I would never have believed them. Some noble Lords are worried that I do not know my right from my left and that I may not be sitting on the correct Benches. I have to tell your Lordships that all my political ancestors were Tories. I only know this because a cousin of mine has done our family tree since my ennoblement, and no one was more surprised than I to find that 10 of my ancestors were MPs and two were Barons.
At the outset, I must thank my two sponsors, my noble friends Lady Fookes and Lord Freud. Special thanks must go to my noble friend Lady Fookes; she is my mentor, and her support and counsel have been invaluable to me in acclimatising to the House. I pay tribute to the professional and dedicated members of staff who serve this House. Their help has been much appreciated.
I joined the House with no special qualifications, save that I am the chief executive of an independent charity, Tomorrow’s People. I hope that all your Lordships have heard of it; its mission is to help those furthest from the labour market to get and keep a job. If you can get somebody into a job, that is a good thing and if you can keep them there, that is a truly great thing. We work and support people on a one-to-one basis. We take them on an individual journey and their needs are at the heart of everything we do. In essence, we are more interested in their destiny than their history. Tomorrow’s People has helped me to understand the issues faced by the long-term unemployed in this country and has given me and my colleagues an opportunity to find innovative solutions to their worklessness.
An example of that would be the work that we have done in doctors’ surgeries—indeed, that was adopted by the previous Administration—as well as our work with whole families in which not one member has a job. I remember Dr Roy Macgregor, a GP, asking me what could be done about his “heart sink” patients. I have to confess that it was not a condition I had ever heard of. When I asked him what he meant, he told me, “There are people who come into my surgery and my heart sinks because I can do nothing for them. It is a job they need, not medication”. There is no doubt that, for the majority, work is the best route out of poverty and that we need a vibrant economy to create the jobs that are so desperately needed.
I thank my noble friend Lord Lawson of Blaby for securing this important debate. I am sure that it will come as no surprise to your Lordships to know that there are whole families in this country in which no one is employed. Even in economically successful times, when levels of unemployment were comparatively low, there were still whole households where no member worked. The Office for National Statistics stated in 2009 that there were more than 3.1 million households where no one aged 16 or over was in employment. That is such a waste.
That is why I chose this debate in which to make my maiden speech. The health and vibrancy of our economy is crucial to creating the jobs that are needed. We have to ensure that there is innovation not only in identifying solutions to help people overcome the barriers and issues that they face but in the development of different forms of finance. After all, this all has to be paid for.
I draw noble Lords’ attention to the bonds developed by Allia, where investors can make working capital available in the knowledge that they will be guaranteed to get it back, which I would think was a good thing, and also to the social impact bonds. Time prevents me from going into detail about these two bonds, but they should be given serious consideration. The need for us to help those furthest from the labour market is greater than it has ever been, and we are going to have to turn over every stone to find the resources to ensure that we can help these people in difficult times.
With jobs thin on the ground, it is imperative that we help those furthest from the labour market to manage their period of economic inactivity in such a way that they stay in good shape and can take advantage of the opportunity when it comes so that they are ready and can maximise what is given to them. There will be a cost to this—I understand that it has to be paid for—but the cost will be greater if we stand by and do nothing.
I look forward to working with all noble Lords in this House to try to achieve this, because none of us is as clever as all of us. On entering this House I received a card that read, “Some make it happen, some watch it happen and some ask, ‘What happened?’”. I know where I—and, I hope, all of us—stand in that respect.
Baroness Hooper
My Lords, it is a great privilege and pleasure to be the first to congratulate my noble friend Lady Stedman-Scott on her first-class and heart-warming maiden speech. Given her family’s political involvement in the past, which we now learn about, and her own background in volunteering, especially in relation to work with young people and employment services, most notably, as she has said, as chief executive of the Tomorrow’s People Trust, my noble friend speaks with authority and has underlined the human element in a debate that up till now has concentrated rather on the dry economic facts. She brings a wealth of hands-on experience to enrich our debate today, and I feel sure that she will continue to do so on many occasions.
I turn to my own short contribution. I have listened with great interest to the well informed contributions from the many eminent speakers so far and accept that the main objective for the Government, as my noble friend Lord Lawson said at the outset, must be to eliminate the fiscal deficit. My own focus, however, will be on government policies to promote enterprise and growth in relation to trade. The CBI has emphasised the need to galvanise our export performance. My right honourable friend the Secretary of State for Trade, Innovation and Skills has explained how the Government intend to help small and medium-sized businesses to engage more in trade, and has pledged strongly to support efforts at both national and EU level to remove barriers to trade, particularly for SMEs. The recent White Paper, Trade and Investment for Growth, published a month ago, sets out the steps that the Government will use to achieve that. All this is good news so far as it goes.
However, I draw attention to a part of the world where these efforts will be well received. Latin America—I am glad that my noble friend Lord King of Bridgwater made reference to its importance—provides a huge market of over 500 million people, from Mexico in the north, through the tropical countries of Central America and South America to Cape Horn on the rim of Antarctica. The combined GDP of Latin America is equal to China’s. It is a region rich in resources—oil, gas, gold, silver, copper and, not least, agricultural products.
The noble Viscount, Lord Montgomery of Alamein, called attention to all that potential in the debate that he introduced last June. Happily, the Government accepted the message. My right honourable friend William Hague acknowledged in his Canning lecture last November that not only does our country have a legacy of good will from the support given to the various independence movements 200 years ago in the days of George Canning but, over the centuries and years, British know-how, expertise and investment have gone into building railways, roads and banks, so there is a solid base on which to build.
The Foreign Secretary pointed out that at present UK exports to Latin America make up barely 1 per cent of all international exports to the region. He illustrated this by saying that we export more to Ireland than we do to the whole of Latin America. When I think of the efforts made over the years by a number of individuals and organisations to redress this balance, I am appalled. The Foreign Secretary, however, went on to say that in the past three years UK Trade and Investment has seen a 500 per cent increase in the number of British companies looking for help with the Brazilian market. Brazil, after all, is a leading BRIC, with a population of over 200 million.
What steps have been taken by the Government to promote this interest in Latin America, to make efforts to increase our trade with those countries and to meet the needs of SMEs? Furthermore, since trade and investment are not only bilateral but need a multilateral approach, what are the Government doing to press forward with the negotiations between the European Union and Mercosur, which comprises the southern-cone countries of Argentina, Brazil, Paraguay and Uruguay, and with the negotiations between the EU and the Andean region, which comprises Colombia, Ecuador, Peru and Bolivia? Those are countries with growth rates that most European countries must envy. What about the flourishing SICA countries of Central America? I look forward to hearing the Minister’s reply and to listening to the remaining speakers on a considerable and prestigious list.
Lord Oakeshott of Seagrove Bay
My Lords, I welcome my noble friend Lord Hussain, who is sadly not in his seat at this moment. I found his speech fascinating and moving. I also congratulate the noble Baroness, Lady Stedman-Scott. I think that she is the big society in person.
I thank the noble Lord, Lord Lawson for introducing this debate. He has lost nothing of his focus or timing. Some of us on these Benches might possibly have drawn our breath in slightly to hear ourselves described as his allies and friends. He is certainly a friend, ever since we used to discuss politics over the dinner table together at Nuffield College, Oxford, in the early 1970s—I am much fatter than I was then, sadly, but at least he is much thinner—but allies? Up to a point, Lord Lawson.
I declare my interest as a pension fund manager for the past 35 years and as an entrepreneur for the past 25. I started my own business in one room with a partner and a secretary and I am still running it today. Our size has increased to eight employees so I welcome Vince Cable’s pledge of no new regulations for the next three years.
I support the broad thrust of the Budget and the overriding need not to run risks with the markets while they have Britain over a barrel. On the day when Portugal’s Government have just fallen, when Greece is staring down the barrel of default on its debt and with Greek bonds yielding 13 per cent, Irish bonds nudging double-figure yields and Spain, as my noble friend Lord Newby pointed out, looking shakier by the day, we must err on the side of caution. When you have been dumped with a mountain of debt from the disastrous Brown/Balls double act at the Treasury and you have to borrow tens of billions every year just to buy time, I am afraid that you have to tough it out while you trade your way out.
I remember that Roy Jenkins, when I worked for him, always told me how much he regretted the biggest mistake of his chancellorship when he took over from Jim Callaghan after devaluation in 1967. He did not cut as much as he should have initially and had the agony of having to go back for a second bite a year later.
I also support, as do all Liberal Democrats, the further substantial move towards taking the low-paid out of income tax. The pledge that we made at the election to take everyone earning less than £10,000 a year out of income tax was very powerful and an important reason why people voted for us. It is at the centre of the coalition agreement, which says:
“We will increase the personal allowance for income tax to help lower and middle income earners. We will announce in the first Budget a substantial increase in … 2011”.
We have now done that twice. We must press on to achieve the full goal over the period of this Parliament. If we do, it will be our proudest Liberal Democrat achievement in government, and will give millions of people a real reason to vote for us. Do not forget—you can vote Tory, Labour, Liberal Democrat, UKIP or Green, but what you cannot do at the next election is vote for the coalition.
The other key point in how we will fund this is to give priority to increasing the personal allowance over other tax cuts, including cuts to inheritance tax. That is just as well. Do noble Lords remember the great triumph of the present Chancellor, George Osborne, at the Tory conference two or three years ago, when he announced that he would make big cuts in inheritance tax, funded by a new levy on non-doms? When the Minister replies, he might remind us of how much George Osborne claimed that levy would raise. In practice, last year 5,600 non-doms paid the £30,000 charge, raising the magnificent sum of £168 million. You do not get much of an inheritance tax cut from that.
In the coalition agreement we also promised to focus on tax avoidance, including detailed development of Liberal Democrat proposals. The Treasury has developed our proposals, but why has it ignored them? On non-doms, I am afraid the Chancellor has bottled out, just like Gordon Brown. What is particularly distasteful is the announcement that there will be no further change in non-dom taxation over the course of this Parliament, which is exactly what the previous Government did. The Guardian today rightly points out that there has been a “big sigh of relief” from people advising non-doms. Sean Drury, the international mobility partner at PWC said:
“I am checking the temperature with my senior non-dom clients but I think that ultimately there will be a big sigh of relief … It could have been worse”.
That says it all. For rich non-doms, £30,000 a year is a flea bite and £50,000 a year is a minor irritant. They will be laughing all the way to the Caymans.
On stamp duty, the Chancellor’s speech highlighted correctly the problem of abuse. Everyone who knows the property market in this country knows that precious few properties worth more than £5 million ever show up in the Land Registry with proper stamp duty having been paid when they change hands. However, the Budget speech highlighted the problem but offered no solution. We Liberal Democrats can; it was in our manifesto and was quite clear. The abuse is simple. Rich people hide their houses behind a company cloak, so stamp duty is payable at 0.5 per cent when they change hands, rather than at 4 per cent or—from 1 April—5 per cent on properties worth more than £1 million. That is what honest taxpayers have to find when they move. Therefore, we say: just strip away the sham companies and charge the full stamp duty on the underlying property value. What is the Treasury waiting for?
The Chancellor must stick to the course he has set, but it will be far easier if the country believes we are all in it together. That must include the non-doms and the super-rich, who are still paying nowhere near their fair share.
Lord Higgins
My Lords, I join those who congratulated my noble friend Lord Lawson on obtaining this debate, and particularly on his sense of timing. As he rightly says, we are able to debate in the context of the Budget, which we do not normally have the chance to do the day after the Budget has been delivered. I welcome what my noble friend Lord Lawson described as the “lollipops”. Given the context of a neutral Budget, the Chancellor has been very imaginative in that respect, particularly with regard to the proposals for charitable giving in relation to inheritance tax. That will be of great importance, particularly to the arts.
I also welcome very much the fact that we have suddenly reverted to a Red Book after years of glossy magazines—the printing of which costs huge sums of money—produced by the previous Government. I also welcome the analysis of the Office for Budget Responsibility. When we debated this with my noble friend on the Front Bench, no one mentioned that the OBR would need the full details of the Budget in advance of its being delivered. The traditional view in the Treasury was always that the overall picture ought to be confined to Treasury Ministers, the Permanent Secretary and, if he was lucky, the Prime Minister. There is no doubt that this arrangement increases the risk of leaks, which may of course be market-sensitive. None the less, the innovation of having these forecasts is a considerable advantage.
This debate is largely concerned with economic growth. There is dreadful confusion over what we mean by economic growth. We must make a distinction between a situation where there is excess capacity in the economy, as there is now as a result of recent crises, and the Government utilising that capacity, which in turn produces economic growth—a matter for demand management—and economic growth in the sense that we seek to increase the underlying productive potential of the economy. It is very important to keep the two separate. I have to say that the Red Book constantly confuses them. As far as the second situation—the underlying growth in potential for the economy—is concerned, the Chancellor has introduced several measures that will be very helpful.
I will say something about the other aspect: the extent to which the demand management of the economy enables us to utilise some of the resources that are being wasted at present. It is important to put this into context. I am particularly concerned about the lack of co-ordination between fiscal and monetary policy. Mr Gordon Brown did several things that we now see very clearly were mistakes, such as—certainly—his tax on pensions, which wrecked the previous system of defined benefit schemes in the private sector. Then there was the tripartite agreement, which everyone now agrees was a mistake.
His giving independence to the Bank of England has, on the whole, been reviewed as a good thing, but I have never taken the view that what he introduced was a good thing. It was not the case that he gave control over monetary policy to the Bank of England. He gave control of interest policy to the Bank of England and relied then on a single interest rate in the Bank of England, which was clearly inadequate as there are many different interest rates. The effect has been that until quite recently, with the introduction of so-called quantitative easing, the Bank of England has been concerned not with monetary policy, in the sense of the supply of money, but only with interest rate policy.
I am concerned by the Red Book’s executive summary. Under the heading “A Strong and Stable Economy”, it states:
“monetary policy will ensure price stability, and thereby support the wider economic stability”.
It is quite apparent, and has been for a considerable time, that the way that the Bank of England is handling these matters is not producing price stability. We are way above the target range. Therefore we need, at the very least, to revise the Bank of England’s terms of reference if we are to avoid that.
Secondly, I want to take up a particularly important point at the heart of the present political debate—whether the measures being taken to reduce the deficit are happening too fast. The leader of the Opposition in the House of Commons stressed this point very heavily indeed. He thought that the policy was too fast and too tough. One has only to look at the final page of the Red Book and the penultimate table, which includes the current forecast and takes into account all the Chancellor’s Budget proposals, to see that although it is true that cyclically adjusted net borrowing will reduce in percentage terms, that is the effect of the cycle. It is the effect of what I referred to earlier—taking measures that will enable you to mop up the productive capacity which at present is being wasted. However, in the March forecast and the absolute figures at the bottom line of the table, it is absolutely clear that net debt goes on increasing, despite the measures that the Chancellor has taken and despite the effect that the OBR thinks the cuts will have over the period until 2014-15.
Therefore, what the Chancellor is doing is the absolute minimum required to deal with the deficit. If one were to delay those measures as the Labour Party proposes—although we have no clear idea of what it is really proposing in that respect—we would find ourselves in a crucial situation that continues to deteriorate. If we were to delay more, the deficit would go on increasing for a very long time. It does that even on the Chancellor’s proposals. However, it would be far worse—and absolutely disastrous internationally in economic terms, as noble Lords have said—if we were not to go ahead on the basis that the Chancellor has outlined.
Baroness Valentine
My Lords, I congratulate the noble Lord, Lord Lawson, on securing this timely debate. I declare that I am chief executive of London First, a not-for-profit business membership organisation seeking to improve London's competitiveness.
My contribution comes in the form of a “SWOT”—strengths, weaknesses, opportunities and threats—although I have taken the liberty of reordering it into a “TSWO”. First, however, I should like to test the meaning of the phrase “rebalancing the economy”. Rebalancing can mean relatively less activity in the south-east and relatively more in the north, or relatively less activity in the public sector and more in business, or it can mean relatively less activity in financial services and more in green industries. However, ahead of rebalancing must surely come growth, to deal with our immediate debt problem. I am pro more growth in the north, but alongside, not instead of, growth in the 30 per cent more productive south. I am pro growth in the private sector, but we need to cut government spending as well. I am pro green industries, but also pro financial services that provide a million jobs across the country and currently contribute substantially more. If growth is our priority, our main challenge is international competitiveness. The UK needs to maximise its helping from the global banquet at the same time as the Government start to rebalance the shrinking pie of UK government spending.
I start with the threats. In the West, Germany and France compete with the UK for car design and production, creative services and high-tech innovation. London competes with New York for investment in global HQs, as it does for global deals in financial and associated markets. In the East, South Korea and Russia are increasingly competitive; and Shanghai, Singapore and Mumbai are also after London’s lunch. In the most recent Z/Yen Global Financial Centres Index, Shanghai, for instance, rose seven places from a year earlier to fifth place overall.
Of course the UK has many strengths. We speak the world’s favourite trading language, are in a convenient time zone, have stable legal and political systems and a heritage of openness to other cultures. Our membership of the EU brings a market of 600 million consumers. London is the preferred destination for Chinese investors as they seek to develop trading links with Europe and the US, while American investors see the UK as a bridgehead to Europe and the Middle East.
However, our weaknesses are of our own making. New immigration rules risk hassle and delay for valuable international professionals and students. Chinese tourists, who spent over $40 billion last year, are spending millions of euros in Galeries Lafayette, Paris, rather than pounds on tea in Fortnum’s, Piccadilly. Why? It is because only 110,000 were prepared to tackle our clunky visa application system. Heathrow is full, but government seems content for aviation policy to drift. New nuclear generation may be a difficult subject post-Fukushima, but we must address genuine concerns about energy capacity.
Our top rate of tax of 52 per cent, when national insurance is added, is the highest of the world’s 10 leading financial centres, and is now higher than in Germany and France—traditional tax-hungry regimes. I welcome the Chancellor’s acknowledgement that this is a temporary tax measure. I trust that the newly announced review of its effectiveness will take account of lost revenue from those who have chosen not to work in London as a result.
However, opportunities remain. In a time of global turmoil the UK is a stable and trustworthy regime. It can signal a competitive approach on tax, and stand by it. It can export expertise to the rapidly growing economies of the Far East. It can invest in its infrastructure; and, of course, we have the opportunity to showcase the UK at the Olympics next year.
Let me give the Minister some simple, specific ideas. First, minimise the bureaucracy of new immigration rules and simplify Chinese tourist visa applications. Secondly, as suggested in the Conservative manifesto, appoint a Minister to Brussels to influence emerging regulation, such as financial supervision and labour law, which have a disproportionate effect on the UK. Thirdly, tackle the 180,000 migrants who have overstayed their visas and crack down on bogus colleges, but look after and welcome legitimate international students, who will be tomorrow’s leaders.
In summary, let us not adopt the horseracing practice of handicapping winners, especially when younger colts are accelerating on the rails. Instead of bashing bankers, we should encourage creative, dynamic people—bankers, architects, restaurateurs or computer game developers—to set up and grow businesses here. The Government called yesterday a Budget for growth, but I remember so-called Budgets for prudence which proved to be anything but that. It is not the intention or the rhetoric that counts, but the action and the implementation.
Lord Griffiths of Fforestfach
My Lords, it is a great pleasure to follow the noble Baroness, Lady Valentine, who has done so much to increase prosperity and jobs in this great city of ours. It is also a great pleasure to take part in a debate secured by the noble Lord, Lord Lawson, who has had such a distinguished record as Chancellor, and who is raising important issues in this debate. I should like to make three points.
The first is that I am delighted that the Chancellor has stuck with the medium-term fiscal strategy that he introduced in his first Budget last summer—namely, achieving a current balance in the public sector and ensuring that, by 2015-16, national debt as a percentage of GDP will fall.
The Budget recognises the pain that people are going through, but at the same time it is a Budget of hope. In 2009, output fell in this country by 4.9 per cent. In 2010, it rose by 1.3 per cent. This year, it is set to rise by 1.7 per cent. Between 2012 and 2016, it will go up by between 2.5 and 3 per cent. We are gradually recovering in the cycle; we will go above trend and then come back down to just over 2 per cent. This prediction of the Chancellor is based on two perfectly reasonable assumptions. The first is that the trend rate of growth of just over 2 per cent is based on long-term factors. Politicians cannot manipulate the trend rate of growth in the way that they can change taxes or government expenditure. The trend rate of growth depends on long-term factors such as trend productivity growth, the trend growth in average hours worked or demographic factors. Secondly, exports are growing at an annual rate of 15 per cent. The intentions of business investment look very good.
I spend most of my working life in the City of London. At the time of the Budget last summer, I felt that many people in this country did not realise what a knife edge we were on, and how easily, if we had ducked having a very tough medium-term financial strategy, we could have been in the same position as Ireland, Portugal and Spain.
I have one concern that has not been much mentioned in this debate: inflation, which at present is persistently above target. As somebody who has been thinking about the British economy ever since I started teaching at the LSE in 1965, I am sceptical about whether one can explain a rate of inflation that is consistently above target simply by reference to external factors such as indirect taxes, excise duties or the price of oil. I agree with the noble Lord, Lord Higgins, that when inflation seems to be permanently at twice our target rate, money and credit must be brought under control. No one wants to raise interest rates, but if that is the only way to make sure that inflation does not eat away at the core of our economy, they will have to be raised.
I welcome what the Budget says about deregulation and about encouraging enterprise. This takes me back a few decades to when I worked in No. 10. Regulation is crucial to a modern economy, but it is also a tax and it can be a dead hand on small business. The Plan for Growth, which I tried to read when I woke up early this ,morning comes forward with no fewer than 145 measures that the Government will take to implement a programme. It then adds:
“This list of areas is by no means exhaustive”.
I am all in favour of enterprise and deregulation, but who owns the 145 measures, and who will be accountable for their implementation? It looks like a huge wish list. The Government urgently need to prioritise, reduce the list to half a dozen things, then try relentlessly to make sure that they are implemented.
My third point concerns youth unemployment and training. I said that the Government recognise pain but offer hope. The greatest pain is felt by young people who leave school or university and have no jobs. There is nothing more dispiriting. Youth unemployment is not far off 1 million. The Government say that they will introduce 50,000 new apprenticeships and 100,000 work experience placements, expand university technical college programmes and introduce a new work programme. That is all fantastic, but it will take time and will require extreme concentration by the Government to ensure that it happens. It is easy to say things but not deliver.
In conclusion, this is a credible Budget in difficult circumstances. I am delighted that the Chancellor has stuck to plan A and is introducing greater deregulation and enterprise. I would like strategy to be more focused and I would like him to make job creation and youth training a priority for young people who are suffering.
Lord Haskel
My Lords, I, too, thank the noble Lord, Lord Lawson, for giving us the opportunity for an early debate on the Budget. The noble Lord urged the Chancellor to make a virtue out of unpopularity. His noble friends on the Lib Dem Benches must be confused, because they have the unpopularity without the virtue. As usual, we will have to wait for some time to see if the Chancellor's aspirations contribute to growth, and what will be the impact of the small print.
I will deal with one small aspect of the Budget, for the results of which we will not have to wait. Before I do, I congratulate the noble Lord, Lord Hussain. I am sorry that he is not in his place, because I see him as a kindred spirit. I, too, am an immigrant who built up a business. Mine was in Yorkshire rather than Rochdale. I, too, passed the Alan Sugar test: I put my house on the line. I say to the noble Lord, Lord King—I am sorry that he has just gone out—that I, like my noble friend Lord McFall, see business and industry as part of society. That is why I am on these Benches, not on those. The separation of business and society concerns me. I have never known a time when the two were more divided. Sadly, this is a time of hostility between them.
The cause is not difficult to find. We have seen extravagant pay deals, not only for bankers but for other executives. The noble Lord, Lord Oakeshott, spoke of tax avoidance. Businessmen move their businesses around the world to pay less tax. Martin Sorrell of WPP said on the radio this morning that now that he has got his way, he will move his business back. All this gives the impression that a business is just a money-making machine for a few lucky people—so much for the idea that we are all in this together and are all sharing the pain. Andrew Whitty, the chief executive of GlaxoSmithKline, one of our major corporations, strongly warned against this last week. I say, good for him.
However, the Budget seems to indicate that the separation of business and society is what the Government want. Does it matter? It does, because in today's business world it is from this interface that much growth and innovation come. We see this in the new ways in which we communicate with each other—and there is a lot more to come. There are new ways of keeping healthier, new and better ways of learning, new and imaginative ways of living a greener lifestyle, and new ways of harnessing our experiences as we go through life. Venture capitalists in America call this the experience economy. The Government are looking for innovative ways in which business can deliver public services—cutting back the state, as the noble Lord, Lord Lawson, put it. Surely it is from this interface between business and society that the new ideas will come, yet the Government's actions are going in the opposite direction.
Perhaps I may give a couple of examples. One is apprenticeships. Youth unemployment is a social problem crying out to be tackled and it is one where business can play an important part. The noble Lords, Lord Renton and Lord Griffiths, spoke about this. The Prime Minister said that we want to make all young people,
“feel more part of our country”.—[Official Report, Commons, 23/3/11; col. 947].
So why are the Government not doing something for all young unemployed people instead of speaking about 40,000 or 50,000 apprenticeships? Only one firm in 10 offers apprenticeships. Yes, we are told that there will be new technical colleges, but society is going to have to carry the pain of the resentment of the many who are left out.
Many noble Lords have welcomed the fact that planning restrictions are to be eased. This is the very procedure that protects society but the Government have chosen to listen to the special pleading of business. The problem with planning is the inefficient way in which it is managed. Yes, that could well be improved by localising it but councils have been told in this Budget to come down firmly on the side of business. How they may deal with this apparent contradiction in terms is a mystery to me, but it only reinforces the divisions.
The Budget is going to reduce red tape. Wonderful. Every Government in every Budget have promised to do that. However, the purpose of regulation is also to protect society, to ensure that we have clean water, clean air, safe food, safe transport, and protection for our children and old people. The way to cut regulation is not just to listen to the special pleading of business about the things that they find burdensome but to remove the regulations which no longer serve society. There are plenty of those. Until this attitude is changed to one that combines the interests of business and society, the promised bonfire of regulations will continue to be a damp squib.
We are told that our public servants stand in the way of innovation and that our deficit is caused by a bloated public sector. Yes, our Civil Service probably does need restructuring and modernising, but why is this not done by showing dynamic leadership and by modernising the way that the public service works with new structures, new equipment and new models? Then, those involved will want to make it happen. But no. The Government choose to demotivate and demoralise the very people who are going to have to implement their new policies and the result is yet more division.
Given the limited things that the Government can do, why are they cutting off this promising area of jobs and growth, or can this just be left to the market? Certainly in the past 20 years standards of living have risen and businesses have grown. Perhaps much of that was based on the credit boom, on the devaluation of sterling, and on North Sea oil, which the Government are milking again, but at least business and society shared the benefits. However, now that has come to an end and it cannot be repeated. The world has moved on to a place where innovation, new jobs and new businesses have as much of a social ingredient as a technical and scientific one. Surely sensitive and sensible involvement from the Government and regulators will help to speed up this kind of innovation and growth, moving it along. However, I am afraid that I see no signs of that in the Budget or, indeed, elsewhere in the economic policies of this Government.
Lord Northbrook
My Lords, like other noble Lords, I am grateful to the noble Lord, Lord Lawson, for initiating this debate. Before I move on to discuss the very important issues that my noble friend raises, I should like to congratulate the Chancellor on his vigorous approach in tackling the appalling legacy of the Budget deficit left to us by the last Labour Government. This had to be the first economic priority after the election. His deficit reduction policies have been approved by a whole range of organisations and individuals including the IMF; the European Commission; the OECD; Fitch, the rating agency; and Timothy Geithner, the US Treasury Secretary. This is all in contrast to the last Labour Government’s legacy.
I noted with interest the wise words of the noble Lord, Lord Myners, in his interview with the Guardian in August last year, when he reflected that the Labour Government had abandoned fiscal responsibility, that the former Prime Minister “grew to forget” the golden rule, and that Labour ran large deficits in the middle part of the last decade when the economy was clearly running at full capacity, that the party needed to come clean on what cuts it would make, and that it needed to prove once again that it is a credible party of economic management. The noble Lord criticised the current shadow Chancellor. He said:
“I don't agree with Ed Balls. I do think the Labour party has to wrestle with the fact that it tends to leave office with large deficits. And I think its licence to govern is weakened—and it would be weakened in the future—if it could not produce credible arguments to show that it is capable of sound economic management through the cycle”.
The Chancellor, having set out his fiscal policy, can now concentrate on promoting enterprise and growth. His key message was that he was boosting manufacturing, growth and jobs by cutting taxes for businesses and entrepreneurs, scrapping burdensome regulations, radically reforming the planning system, investing in science and innovation, and providing more support for young people with 50,000 apprenticeships and 100,000 work experience places. I will look at most of these areas in turn.
First, I shall focus on the help for business. I welcome the extra reduction in corporation taxes for large companies from April 2011, the reforms to the foreign profits legislation, the announcement of new enterprise zones and the proposed low rate of corporation tax for offshore finance companies. That will all be good news for larger businesses. Also, the Chancellor has dealt a very generous hand to VCTs and EIS investors, increasing the tax relief and the amount of investment while rightly warning against abuse of the rules. The slight improvement in the capital allowance regime for short-term assets is good news. I also welcome the relaxation of the rules for non-doms, allowing them to offset tax on money remitted here to invest in the UK.
Those positive aspects of the Budget far outweigh the negative ones for a few sectors of the economy. Terry Scuoler, chief executive of EEF, the manufacturers’ organisation, while praising the Budget in the main, said that,
“the significant rise in energy bills threatened by the Carbon Price Floor is unwelcome”.
The Financial Times today has also pointed out that the medium-sized oil companies will suffer from the new output levy:
“Britain’s offshore oil and gas industry is one of the biggest losers in the Budget, with industry representatives warning the surprise increase in the tax on production would not only deter investment in the North Sea but could also raise dependence on imports”.
In the banking sector, banks such as HSBC might be more inclined to move their headquarters overseas after yet another levy. Nor do I see much help for unincorporated smaller businesses on the tax front. Although they might benefit from scrapping existing regulation and easier planning laws, there is little assistance for them elsewhere—except in the R&D area, which I shall come to—particularly if they are in the manufacturing sector. New employment laws will come into force later this year, which might hinder companies taking on staff.
I move on to the subject of regulation. The Chancellor unveiled a series of useful measures, scrapping existing regulation that costs businesses £350 million a year and a moratorium on new domestic regulation for firms with fewer than 10 employees. However, the approach to regulation remains ad hoc, unfocused and, in the long run, in danger of being unsuccessful. The Government need to do three things: first, stem the flow of new regulation; secondly, rationalise existing regulation and eliminate barriers to competition and innovation; and, thirdly, reduce the costs of compliance. Without that strategic cross-departmental approach, the regulatory regime, rather than our growth rate, will keep growing.
In support of my view, I refer to the second report of the Regulatory Policy Committee issued in February this year. This committee advises the Business Secretary and is charged with reducing unnecessary regulations. It reviewed no fewer than 189 impact assessments in the last quarter of 2010. Of those 189, 57 were EU-sourced and 132 were from Whitehall. The RPC concluded that no fewer than 44 per cent of the impact assessments that it scrutinised were inadequate. It does not split the inadequacy between Whitehall and Brussels. In fact, its report is far less useful than it might have been, but at least it highlights that the tide of new regulation is even higher under this Government than the last.
Next, I come on to the proposed reforms of the planning system. These radical reforms to planning and regulation are to support economic development, including a presumption in favour of sustainable development. However, I ask the Minister how this change to the planning system squares with the current coalition policy of local plans?
Moving on to the area of science and innovation, I applaud the decision to support innovation and manufacturing with an additional £100 million this year for new science facilities and an increase in the SME rate of research and development tax credit over the next two years.
Overall, I welcome the 2011 Budget. The Chancellor has a difficult hand to play and no money in the kitty. His message is clear: Britain is open for business and it has produced major incentives to companies and individuals to create wealth, which I believe is the right approach for the future growth of the UK economy.
Baroness Kramer
My Lords, I suspect that when we look back on this Budget in a few years’ time, two measures will stand out: the Chancellor's commitment to raising the tax threshold, a commitment to fairness even at a time of tackling a major deficit and a significant economic crisis; and the green investment bank. The bank will start slowly, but in 20 years’ time when we look back it will be seen as key to achieving a response to climate change, which, as I think almost everyone in the House is aware, is an absolute imperative.
I am very supportive of yesterday's Budget, but in my speech I will raise some of the issues that were not tackled and ask the Government to look at them seriously. As the noble Lord, Lord Griffiths, who is not in his place, said earlier, we have a challenge to rebound to trend growth and then to sustain trend growth. For any developed country, growth at that pace is a significant challenge. We do not have the potential that countries such as India or China have, with relatively low GDP per capita, to accelerate growth beyond trend, and it requires many things being done correctly.
One of the issues that was not addressed in the Budget is capital accumulation. Without that in place, it is very hard to see how we achieve sustained growth. In plain English, capital accumulation is essentially savings. I think that the savings rate in this country—others will correct me—runs at about 2 per cent of GDP, and most economists would say that it needs to be about 10 per cent of GDP for there to be sustained trend growth. I know that that is difficult. People have wrestled with the issue of how to persuade people to focus less on immediate consumption and more on long-term savings. Without that in place, achieving successful growth in the economy over the long term will be a challenge and, rather than duck that, we have to address it head on.
My second issue is about infrastructure, which was hardly tackled in the Budget. There were some measures to invest in various rail improvements and I know that elsewhere transport investments are going ahead. Essentially, one pillar of economic growth that the Government can provide is infrastructure and, traditionally, we have spectacularly failed to do that in this country. We have allowed much of our infrastructure to fall into decay. I raise the possibility that we keep continuing at that pace partly because of the way in which we measure growth. We constantly use GDP, which, as this House will know, has no depreciation in it. Any depletion of resources is not reflected in GDP and gives us a distorted sense of what, in many ways, is happening to our infrastructure.
I have a very quick example, but I am not an economist so others may correct me. If you look at growth between the two troughs of the Thatcher period, you will see that growth was averaging about 1.7 per cent, but I am told by economists that, if you remove from that number the depletion of oil and gas in the North Sea—a non-renewable resource—growth would have looked pretty flat at zero. In other words, we were achieving that by what looked like fundamental growth but it was in fact usage of a depleting resource. We have not included that in the way in which we tackle our thinking. Surely now is the time to make that change.
Gordon Brown attempted to do it in many senses by the golden rule, but that became abused politically. The privatisation of utilities was a mechanism to get around some of that, and PFI, under the last Government, was probably the most expensive way to carry out investment into projects and infrastructure. Again, it circumvented some of the issues. I ask that we consider tackling this issue head on.
The noble Lord, Lord Sugar, raised the issue of credit and said that you cannot ask banks to lend to inappropriate companies and inappropriate projects. I do not think anyone in the House would expect them to do that. I say to the noble Lord, Lord Sugar, that when he began his business and went to British banks and was turned away, I suspect that if he had gone to a bank in Germany or in the United States he would have had a very different response. The high street banks in this country have lost the people, the skill base or the willingness of the institutions to carry out risk assessment, to look at a proposal or a project, to begin to understand a would-be entrepreneur and to recognise whether there is a business there for which they can provide financial support and in which they can participate.
All that has largely been discarded for a much more mechanistic and inexpensive way of assessing any request for a loan from a small business, especially from a micro or a new business, that ticks a number of boxes in a fairly superficial way and does not carry out the kind of skilled risk assessment that there used to be in the past. We have lost our Captain Mainwarings and, to be straightforward about it, it seems to be very difficult to spark the new ventures that everyone here sees as essential to underpin growth in the economy again. Banks will be required to lend 15 per cent more, but we cannot let them get away with lending just to medium-sized well established companies to meet their quota; we have to get them to do the work with the micro and new businesses or make them finance someone else to do it.
As my time is running out, I have one last comment—on localism. It seems to me that one of the best things that the enterprise zones can say to local authorities is, “Ease up on planning regulations and in return any growth in the business rate will go directly to you”. This seems to be the first time that we are reconnecting local authorities with business development within their own communities. The fact that the business rate goes to central government has removed every incentive. In the past, we had local authorities engaging with local businesses and local people who drove forward development, particularly of new and small businesses. We need that re-engagement. I ask again that the Government look at that issue.
Viscount Trenchard
My Lords, I am grateful to my noble friend Lord Lawson of Blaby for introducing the debate. Your Lordships' House is indeed fortunate to have this debate on the day following the Budget. In recent weeks and months your Lordships have spent an inordinate amount of time discussing tinkering with the constitution rather than concentrating on important, urgent matters such as the subject of my noble friend's Motion. It is good that we have an opportunity to redress the balance today.
I declare an interest in that I am employed by Mizuho International, the investment banking arm of the Mizuho Financial Group of Japan, but I speak in your Lordships' House in my personal capacity. Nevertheless, my employment circumstances—the fact that I also serve as a director of an investment company whose manager’s ultimate holding company is Prudential Financial of the United States and as a director of a chemical manufacturing company on Teesside, whose ultimate holding company is the Lotte Group of Korea, provide me with a basis to judge how attractive the United Kingdom is seen as a centre for investment by major foreign, financial and industrial groups. They will certainly welcome the Chancellor's decision to reduce the tax burden on controlled foreign companies.
My noble friend's Motion calls attention to,
“Government policies to promote enterprise, growth and the fundamental rebalancing of the economy”.
I believe that, in referring to rebalancing the economy, my noble friend means to rein in the bloated public sector in order to create the resurgence that we need in the private sector. The policies pursued by the previous Government produced more than 1 million new mainly unproductive jobs in the public sector but saw the loss of 1.7 million jobs in our already depleted manufacturing sector.
There are those who talk about rebalancing the economy between the financial and manufacturing sectors. They believe that the economy is a zero-sum game and that a withdrawal of resources from our flagship financial sector will assist the creation of a larger and more profitable manufacturing and industrial sector. I think that the reverse is the case. In order to nurture and build on our manufacturing base, it is essential to protect and preserve London's position as the leading global financial centre to ensure that innovative companies can obtain the funds that they need to grow; and that personal and corporate tax rates are low enough not to counterbalance the United Kingdom's other natural advantages over rival investment centres.
During the 11 years for which I worked for Kleinwort Benson in Japan, I was able to encourage Japanese companies to invest in the United Kingdom because of our relatively low tax rates, our sound and stable political system, a reliable accounting system, a respected legal system based on common law and our relatively benign regulatory regime. All those relative advantages have now been compromised to a greater or lesser extent.
The Chancellor's announcement that he will ask HMRC to find out the truth as to whether the application for the 50 per cent tax band is revenue-positive is welcome. The top rate will actually be 52 per cent from next month, and it is probably already counterproductive. It makes it too expensive for international companies to base their most talented employees in this country and adversely affects the competitiveness of our markets. However, I cannot help wondering whether HMRC’s study will be entirely objective. Far too much time and resources are now being wasted on the interplay between market participants and regulators. More importance is now placed on that than on the interaction between lenders and their clients. Senior executives of banks cancel meetings with their clients in order to be available at all times for the FSA, which is now overstepping the mark through its unwarranted incursions into matters such as the composition of subsidiary boards of directors and its unreasonably tough interpretation of capital adequacy rules.
I have some sympathy for the FSA, because besides its dismemberment it has been subjugated to the three new European level regulatory bodies: the EPA, the ESMA and the EOPA. I deeply regret that the previous Government acquiesced in the subordination of our regulatory regime to Brussels. The consequences, including the unnecessary and inappropriate regulation of hedge funds and, indeed, all alternative investment companies, are already having a negative effect on the promotion of enterprise and innovation in the financial sector, limiting the dispersal of risk among multiple players small enough to fail.
Financial markets are global, not European, and the new regulatory regime definitely hinders the City in playing the role that it should have in the promotion of cracks and enterprise in the wider economy. Do the Government fully understand just how serious the problem is, and what steps does my noble friend intend to take to mitigate its damaging consequences?
It is also crucial to ensure that the other formerly attractive features of United Kingdom markets are preserved and protected during a period when higher than optimum taxes need to be applied. I do not argue that lessons did not need to be learnt from the financial crisis, but bankers have been forced unfairly to take a disproportionate part of the blame. There is no evidence that we need more intrusive and more specific regulation. Rather, too much regulation lulls market participants into a false sense of security and tends to absolve them from responsibility for their actions. Will my noble friend bring his influence to bear on the Chancellor and persuade him to reverse the unfair attempt to exclude the banks from the welcome reduction in corporation tax through a further increase in the bank levy? That will do nothing to enable the banks to increase lending to SMEs, and it will have a negative effect on the competitiveness of British banks and of London as a financial centre.
Time does not permit me to comment on many of the other positive measures in the Budget. However, I ask the Minister two further questions. First, will he tell the House whether and when the Government will restore the personal allowance to all taxpayers, thus removing the disincentive caused by the 64 per cent effective band, which is of course widened by £1,200 by the new £600 increase in the personal allowance? Secondly, welcome though the 2 per cent reduction in corporation tax certainly is, will he set out a timetable for its further reduction to 20 per cent—or even the 15 per cent advocated by the Institute of Directors?
All in all, I congratulate the Chancellor on his pragmatic and courageous response to the critically high public sector deficit produced by the profligate and uncontrolled public spending policies pursued by the previous Government. The Chancellor is right to stick to his guns.
Lord Hodgson of Astley Abbotts
My Lords, I, too, thank my noble friend for giving us the opportunity to debate this important topic today.
With the passing of time, the reality of the economic record and performance of the previous Labour Government becomes clearer. Having inherited a decent economic situation in 1997, it is a pretty depressing story. To be sure, there were some nuggets amid the dross—the decision to stay out of the euro and handing over the setting of interest rates to the Bank of England— but the underlying theme was that the man in government, whether central or local, knows best. Complexity was piled on complexity, needing armies of enforcers. Measures were so complex that they often missed their target. They were presided over by a man who claimed that he had abolished boom and bust—hubris indeed.
Today, one of the most amazing features is the collective amnesia that seems to have overtaken the Labour Party on that whole matter. As the noble Lord, Lord King of Bridgwater, reminded us, the perilous situation in which we remain appears to the Labour Party to be nothing to do with its record in government but merely the result of a malign alliance between sub-prime mortgages in the US and rapacious bankers elsewhere in the world.
For me, the most depressing statistic of the past 12 years—here I echo my noble friend Lord Trenchard—has been the shift in employment from the private to the public sector. As my noble friend told us, more than 1 million jobs went out of the productive economy into the state sector, so that there are now parts of the country in which 40 per cent or even 50 per cent of the people employed are employed by the state. That trend leads to madness and is certainly no way to build a prosperous Britain.
I particularly welcome the Chancellor's efforts to rebalance the economy by stimulating private sector economic activity. It is true that because, as his Labour predecessor told him when he took office, there is no money, these measures are necessarily modest, but cuts in corporation tax, extending EIS tax relief, relief for small businesses from further regulation and so on are all very welcome.
Although the Government can set the mood and prime the pump, reviving the economy will need a much greater contribution from the private sector banks than there is at present. Here I follow my noble friend Lord Newby. When he winds up the debate, my noble friend will reply that the banks have promised to lend an additional £190 billion to SMEs. That is quite true, but stating the quantum is not the whole answer. The equally important issues are, first, the process by which the funding is obtained, secondly, the time it takes to complete it and, thirdly, to whom it is being offered.
The past few years have seen the end of what has been called relationship banking for SMEs. In prior years, the bank manager would get to know his customer over a period of years and would have a certain amount of latitude on extending credit facilities on his own initiative. Certainly his assessment of the credit-worthiness and likely success of the borrower would be taken into account in any lending decision. That is no longer the case. Now it is all down to credit scoring. The credit committee knows nothing about the business. It does not know whether the applicant has been a customer of the bank for five minutes or 50 years; it is all down to the credit score. In effect, the relationship manager in most of these banks now fulfils a function akin to the speak-your-weight machine that you find on a seaside pier.
Then there is speed. SMEs are time constrained. They do not always plan ahead as well as they should, so speed of response is very important. While it is true that the banks have made some progress in this regard since the darkest days of 2009, there is more to be done. Then there is the question of which firms will get the funding. Let me illustrate with a practical example. A firm of my acquaintance needs occasional short-term funding for one to seven days, usually of about £1 million. It is well secured and is therefore low risk. The firm decided that, in order to allow for a margin of error, the application to the bank should be for a credit facility of £2 million. You may imagine its surprise when the credit facility offered was £5 million and a covering note suggested that the bank would happily entertain a request for £10 million. Inquiries revealed that this lending would qualify to be part of the bank’s contribution to the £190 billion and because it was very low risk, so the higher the amount it could attribute to it, the better. I hope that my noble friend will monitor carefully not just the quantum of lending but the process by which it is made available and its destination.
This promise by the banks, like the Chancellor’s Budget, addresses the short-term tactical challenges. Looking further ahead, if we are truly to rebalance the economy, there will need to be much higher capital investments by SMEs in the future than in the past. This will require the availability of longer-term funding facilities than envisaged by the £190 billion pot. That in turn poses a challenge to the banks under the matching liquidity provisions envisaged by the Basel 3 proposals. I trust that the Government are keeping this longer-term issue firmly in mind as they navigate their way through the choppy short-term seas.
Lord Tugendhat
My Lords, I, too, thank the noble Lord, Lord Lawson, for introducing this debate and add my congratulations to those of others to the two maiden speakers who made such notable debuts in this debate.
I begin from a position where I feel much happier with the Government’s language on the economy now than when we had our last big economic debate in November on the comprehensive spending review. I am delighted by the commitment to growth and by the measures that have been launched to give that commitment substance: the tax changes, the reforms to the planning system, the scrapping of regulations and so forth. This is a welcome change from the emphasis that was too much the case last year on cuts, cutting back and looking at everything through the prism of cuts. I warned then that I feared that the Government had perhaps swung too far towards austerity and that that would prejudice the health of the economy over the period of the Parliament. I pointed out that ultimately over the period of the Parliament, this Government will be judged by the criteria of growth and employment. I very much want them to be judged favourably by those two criteria and to have earned a favourable judgment. I do not want them to be found wanting.
I fear that events since the debate we had in November have gone some way to bear out the fears that I expressed at that time. We have had the fourth quarter fall in GDP and have the very high level of unemployment, which at 8 per cent is the highest level for 17 years and, as my noble friend Lord Griffiths pointed out, is at a particularly severe level for young people, with very dramatic and detrimental consequences for a great many individuals in that age group.
Against that, I argued that the Government’s bravery in grasping the deficit nettle has enabled them to get ahead of the markets. No one now doubts the seriousness of the Government’s commitment to cutting the deficit or their strength of purpose. They have therefore succeeded in gaining some room for manoeuvre, and I believe that they should take advantage of it. They should use it not just for the reasons that I have already given, substantial and powerful though they are, but because on top of them we now face far greater risks to the world economy than was the case at the end of last year, or at least when last we debated these matters. We have the ongoing events in the Middle East and North Africa, we have Japan and we have the continuing intractable problems in the eurozone, exemplified in today’s papers by the news of the fall of the Portuguese Government.
In the autumn, the Governor of the Bank of England spoke of 500,000 jobs being created in our export industries. I wonder whether he would be willing to repeat that suggestion now. I think that the outlook for our exports and our major export markets is a great deal less good than it was then. All these things have occurred before the spending cuts and their consequential job losses in the private as well as in the public sector really begin to bite. They are nearly all still to come. At the same time, inflation is not just more than twice the target figure, it is continuing to accelerate.
This is a very dangerous and explosive mix: rising unemployment, rising prices and perhaps in the not-too-distant future rising mortgages, although I hope the Bank of England will heed the dangers of increasing interest rates in the present climate. In plain English, what this means is that a great many people in our country are going to suffer a lot of pain and anguish, and that is a prospect which we must take into account in assessing what the Government should be doing at present. I believe that economic policy is a matter of balance. A Government should have a clear direction and clear objectives, and I am delighted that this Government should have both of those things. But within that context, the priorities and the pace need to be varied from time to time to take account of changing circumstances. Failure to vary the pace and to vary to some extent the course and—we have seen this in the past, and some of us in this House go back to the Heath Government—failure to heed the warning signals can lead to smash ups and that dreaded term, the U-turn.
That is something that I very much hope that this Government will avoid and why I believe they should take advantage of the room for manoeuvre which they have earned in order to shift the balance somewhat back towards a modification of the cuts programme and an increase in capital spending. They should think again about both those factors. We have recently heard a great deal about the OECD. The Government should also take heed of the OECD’s warning in its recent report that the large cuts in public expenditure being planned are a risk to long-term growth. I hope they will take account of these matters and that they will bear in mind the fact that it is not only through cuts that deficits are reduced. With more investment, there would be more employment. With more employment, there would be more consumer spending, and that in turn would lead to higher tax revenues.
Lord McKenzie of Luton
My Lords, it is a particular pleasure to follow the noble Lord, Lord Tugendhat, particularly given the contribution that he has just delivered. I should like to offer my congratulations to the noble Baroness, Lady Stedman-Scott, and a fellow Lutonian, the noble Lord, Lord Hussain, on their excellent maiden speeches.
A short while back, when our rail infrastructure stalled and ground to a halt, it was because we had the wrong type of snow. Now it seems that our economy is stalling, not only because the snow is back but because we have had the wrong type of inflation—increasing spending on benefits but not having a commensurate increase in tax revenues. It is particularly timely that we are having this debate today and we should congratulate the noble Lord, Lord Lawson of Blaby, on giving us this opportunity. I remember well his 1988 Budget and the Finance Bill that followed. I was tucked away in a garret in Norman Shaw North scribbling amendments for the Labour Front Bench, all of which, sadly, were defeated.
However, in comparison to the autumn forecast, growth is down in 2010, and in 2011 and 2012. Unemployment is up in every year and spending on social security benefits is up by some £12 billion over the Parliament. The OBR expects the economy to be 0.7 per cent smaller in 2015 than it did in November, just a few months ago. Borrowing is up by £43 billion over the forecast period—£11 billion a year extra in 2015-16. The noble Lord, Lord Newby, talked about this being a slight rise in borrowing, which I find interesting terminology.
So what is happening? Last year, when we left office, the economy was growing strongly again. Inflation was lower and unemployment was falling. Everyone knows that the deficit has to be addressed but we continue to hold to the view that the Government’s approach is cutting too deep and too fast. In doing so, they are fuelling unemployment, thus making it more difficult for growth to take hold.
There can be a plan B. We could quite credibly halve the deficit steadily over four years, and not try to cut it further and faster than any other major economy in the world. That is not being faint-hearted. There would have to be tough choices to get the deficit down, including spending cuts and tax rises. But the most important thing in getting the deficit down is what happens to jobs and growth in the economy, which is why last year, as the economy started growing again and unemployment was falling, the deficit came in £20 billion lower than was expected. All that changed as the economy stopped growing at the end of last year, and unemployment is now rising again. As the Financial Times today reports, all the Chancellor’s tinkering yesterday, and all the lollipops with enterprise boosting, red tape cutting and planning regulations, has had no effect on the OBR’s assessment of long-term growth assumptions.
While yesterday may have made little change, we should remember what has gone before and the pain that is still to come. By 2015-16, the CPI switch will mean change for those claiming benefits, tax credits and public service pensions. There will be a hit of £10.5 billion annually. We know that the VAT cost is £13.5 billion annually. There are changes in restrictions to the employment and support allowance that will hit to the tune of £1.1 billion, cuts in child benefit of £2.5 billion and there are more.
Yesterday’s efforts by the Chancellor can reasonably be described as fiscally neutral and some of them nifty. He held true to the Lib Dem aspiration of increases in the income tax personal allowance but by the end of the forecast period equivalent amounts will be clawed back by changing the default indexation assumptions from RPI to CPI. This will apply to national insurance thresholds—until those far-off days should national insurance ever be merged with income tax. I think that we would be wise to listen to the comments of the noble Lord, Lord Lawson, on that matter. But it means that capital gains tax annual exempt amounts and ISA limits will be less favourable and generous in the future. The reduction in the national insurance contracting out rate is a further hit on business and on individuals.
We also heard from the Chancellor that his vision for growth encompasses the ambition that we should have the most competitive tax system in the G20 and that the system should be simple to understand and easy to comply with. In order to have the most competitive system in the G20 depends on how things are measured. Inward investors will not just look at headline rates; they will look at effective tax rates. Yesterday’s announcement of a further 1 per cent cut in the rate of corporation tax is no doubt welcome but the more substantial cuts announced in the June Budget last year were largely paid for by restrictions on capital allowances and investment allowances. We heard yesterday the simplistic line that our tax code is now the longest in the world. Frankly, that does not help. Tax law and regulations are structured differently in different countries. Try putting the US code with all its regulations and guidance end to end.
As for simplification, of course it makes sense to sweep away redundant provisions but I wonder how many additional pages of legislation will flow from yesterday’s announcements. We have heard about changes to the controlled foreign companies’ regime, the taxation of foreign branches, stamp duty land tax bulk purchasing and the taxation of non-doms, to mention just a few. There are a raft of anti-avoidance provisions, which we support, but these will not be dealt with by simplifying the tax system. Unless and until we have a general anti-avoidance provision, they will require specifically targeted changes to the law. That will then set new boundaries for the avoidance industry to assail.
The Government’s approach to regulation seems to be that it is inevitably undesirable and should be quashed at every turn. No one would argue for unnecessary regulation but just occasionally it would be good to hear the Government speak up for regulation which has been transformational. The Health and Safety at Work etc. Act was built on political consensus. It has helped to save many lives over the years and has been beneficial for business and society in saving costs and the misery of people who might have been injured or made ill by their work. We weaken all that at our peril. Dame Carol Black, in her review of the health of Britain’s working age population, estimated the annual economic cost of sickness absence and worklessness associated with working-age ill health to be more than £100 billion per year.
To conclude, there was nothing in the Budget yesterday which gives comfort on growth. Let us hope that this debate will provide ammunition to the Chancellor to enable him to rethink.
Lord Bates
My Lords, I join the noble Lord, Lord McKenzie, in paying tribute to my noble friend Lord Lawson for securing this debate. I also pay tribute to him for its title, which emphasises enterprise and the need for rebalance. I will come back to that in my remarks, particularly focusing on the north-east of England, which is where I am from and where I am for.
I also want to pay tribute to the excellent maiden speeches, particularly that of my noble friend Lady Stedman-Scott. Through Tomorrow’s People and its operation in Newcastle, she has made a profound difference to the lives of many people in the north-east. Tomorrow’s People takes some of the hardest-to-reach young unemployed people and puts them on a course. That gives them confidence, inspires them and builds their self-worth. It manages to get employment or training posts for 70 per cent of these young people. My noble friend is certainly someone who makes things happen.
The noble Lord, Lord Sugar, said that the test for being able to speak on these matters was being able to demonstrate that you run something. Having set up three businesses and currently being involved in two others, I probably just shave past the “Sugar test”. But, given the impact which my noble friend Lady Stedman-Scott has made on transforming the lives of so many in our inner cities, I am more interested in struggling a little closer towards a “Stedman-Scott test” of whether we are making a worthwhile contribution to society.
I want to focus on the north-east of England because to me it represents an excellent case study of the need for rebalancing the economy. The Centre for Economics and Business Research has shown that, over nearly 11 years of the previous Government, the public sector as a share of the north-east regional economy rose from 48.6 per cent to 63.9 per cent. This increase has gathered pace over the past two to three years and, if left unchecked, it is on a trajectory heading towards 70 per cent and perhaps even beyond. The claim is not that the north-east of England’s public sector is too large but that its private sector is too small. That is the reason for the imbalance and why we need to focus on growth.
The previous Government placed great emphasis on two things, one of which was the regional development agency One North East. Much was said in the debate last night lamenting its passing, as if the economy will stutter to a halt the minute it closes down. Yet, after 11 years of operation during which the agency received funding of £2.7 billion, the gap between the north-east and the rest of the country has widened: it was 83 per cent of the national average in 1998 and 78 per cent in 2010.
Moreover, during the recent recession, some in the north-east of England noted that the recession hit London, the banking sector and financial services, but that the north-east would mercifully be spared because a large section of the local economy revolves around the public sector and manufacturing—which I will come back to shortly—but that was actually not the case. The economy of the north-east contracted faster and more sharply, by 6.1 per cent, between 2008 and 2009 whereas London—at the epicentre of the shock, if you like—contracted by only 4.41 per cent.
My point here is that there is something fundamentally wrong with the understanding and the approach taken by the previous Government. We have seen a massive reduction in the number of manufacturing jobs in the north-east. Between 1997 and 2009, the reduction in employment in the manufacturing sector amounted to 95,000 jobs, and 56 per cent of those jobs were in the advanced manufacturing sector. That is important if we bear in mind that we need to do two things to get the economy of the north-east back on its feet and moving forward strongly.
First, we need to create an enterprise culture that is less concerned with state intervention and believing that organisations, strategies and structures will somehow deliver growth. Growth is delivered by businessmen taking risks; that is what creates wealth. Essentially, the Government can create the conditions for growth, but they cannot create the jobs. It was laughable when Ministers used to come up to the north-east and talk about agencies that had actually created so many jobs. I never came across an agency that created any jobs, but I did come across some that had destroyed a few. Businesspeople and entrepreneurs create wealth and jobs, and they are to be encouraged.
The second thing is the importance of manufacturing, which was what the Budget yesterday was all about. It talked about creating enterprise zones that will focus on manufacturing. It talked about the green investment bank that will invest in manufacturing. It talked about reducing regulation, which is important to manufacturing. It also talked about increasing apprenticeships and the new university technical colleges. All of these things are exactly what the economy in the north-east needs.
That is not to say for a moment that the Government have no duty to intervene in order to speed the economy of the north-east on its way. That is why they have announced significant investments in centres of excellence for renewable energy in Blyth and the Centre for Process Innovation on Teesside, and why they have invested £350 million in the Tyne and Wear metro and so on. The Government are taking an innovative approach while recognising that it is limited.
I shall close with this: a year ago almost to the day, the Labour Cabinet arrived in my home town of Durham in full gung-ho general election mode with a plan to announce a massive new trains order with Agility Trains for the north-east. Unfortunately, that happened to coincide with news of the closure of the Corus TCP plant and the loss of 3,000 jobs. The decision was that the good news of the trains order would be lost in the bad news of the steel plant closure and therefore the announcement was pulled. It is with great pride that I can say that over the past two weeks, the Corus TCP plant has actually been reopened by a new investor who is creating jobs, and that the Agility Trains order, stopped on that occasion, has been given the go-ahead. That is what this Government are doing for the north-east and I am proud of them.
Lord Empey
My Lords, I apologise for some unavoidable absences during the debate. I, too, congratulate the noble Lord, Lord Lawson, on bringing this subject forward because I am a new Member of this place. The issues that have been debated over the past couple of months since I joined the House, such as the AV referendum proposal, fixed-term Parliaments, the Public Bodies Bill and the European Union proposals, are all matters of considerable constitutional importance and therefore of great interest to me and, no doubt, to your Lordships. However, it cannot be said of the people on the streets of Glasgow, Manchester, Cardiff or Belfast that they talk of little else. On the other hand, this debate goes to the heart of what really does matter to the people on those streets as they wrestle with rising food and fuel costs, rising unemployment and, almost as bad, the threat of unemployment, along with increased borrowing costs and now the prospect of significant inflation. These are the things that people are talking about around the breakfast and the dinner table and at work. I am therefore glad that we are addressing these issues today.
This situation has not come about overnight. It has happened as a result of over-ambition, with previous Governments perhaps believing that we could spend our way to a better economic future based on financial and other services. It has long been believed that future jobs would come largely from the service sector, particularly the financial services sector. While of course we all value those jobs, there was a bias in Government against manufacturing. A view was held that it was old hat: “Never mind about smelly businesses and people getting their hands dirty. We’ll concentrate on financial services, on derivatives and insurance”. Important as those things are, there has to be a solid manufacturing base to create the wealth that we as Governments and Parliaments want to spend.
What a difference two years has made to our perception of where we should be going. Today, manufacturing is thankfully enjoying something of a revival, fuelled in part by lower exchange rates. Land-based businesses and food production have also held steady in this uncertain world of rising commodity costs. In short, there is no substitute for a significant manufacturing sector in order to generate the wealth to pay for our public services. We must pay more attention to this sector and hold it in higher esteem.
I turn to the other point I wish to make. There is an element of snobbery in this country that seems to value those seeking a career in the manufacturing sector rather less than those who choose a career in the professions. That pervades our education system at virtually all levels and must be discouraged. The Government can give a lead here and set the tone.
In recent days, as we have seen, our Armed Forces are in harm’s way yet again. Many noble Lords have been calling for a rethink of the recent defence review. That is entirely understandable. However, the principal reason for the review, apart from strategic issues, was lack of cash. That cash can come only from the wealth creators in this country, who generate the taxes needed to pay for our military assets. Like many in this House, I would like to see an aircraft carrier with aircraft that can fly from it, able to project power in a dangerous situation and protect our national interests. Who would not? However, that will not happen unless we get our economic policies right. I wish the Chancellor well in his endeavours to cure our country's problems. We will all benefit if he succeeds.
I want to mention two things that previous speakers said. The noble Lord, Lord Renton, mentioned apprenticeships, and the noble Baroness, Lady Stedman-Scott, in her maiden speech mentioned dealing with people in the harder-to-reach areas of the labour market. We have been pushing perhaps too many people towards university and higher education, and perhaps not enough towards apprenticeships, learning trades and learning skills that can keep our businesses going. We also need that; we need a balanced economy. The noble Lord, Lord Renton, mentioned internships, which are an excellent idea. Many graduates languish on the unemployment register, stack shelves in supermarkets or do whatever they can do, and maybe there are opportunities here to introduce them to work and give them a chance.
The noble Lord, Lord Bates, made the point that the public sector in his region now accounted for 70 per cent of the economy. I can reflect on that from my region, where we are in exactly the same position. The right approach is to say not that the public sector is too big, but that the private sector is too small. Will we be able in this country to revive the concept of entrepreneurship and treat it with the esteem that it deserves? The Government can take a lead here. That would encourage people to believe that there is a future outside the accountant’s office or the law practice, valuable as they are.
The noble Lord, Lord Sugar, gave us all a lesson earlier on what it means to be confronted with the reality of seeking funds to get started in business. You have to have an idea, some back-up and the will to succeed. As a nation, we need to raise the esteem in which we hold people who carry out this function in our economy, otherwise there will be no taxes for any of us to spend.
Lord Lyell
My Lords, I thank my noble friend Lord Lawson for giving us a chance to discuss the economy. He may be startled, since normally in debates like this there is a welcome period of silence from me. However, today I humbly put my toe in the water and refer to one particular part of industry.
Thirty-three years ago, I was sitting roughly where the noble Lord, Lord Davies of Oldham, is sitting. Early in January 1977, I was suddenly advised that the Patents Bill was going to start in your Lordships’ House. I was the junior member of the Front Bench, something in the nature of a reserve scrum-half at Murrayfield with the Titans wishing to seize the ball from him. I was told that part of the law on patents was applicable directly to industry. Lord Belstead suggested to me that I should take consultations—take lessons, indeed—from the pharmaceutical industry. I thought that that was ripe stuff—certainly from him—to a Member of your Lordships’ House with not one O-level in science, although it is fair enough that I did grind out the yardage as a chartered accountant. I went to speak to the pharmaceutical industry and through the years have followed everything that has gone on in that industry. The last figures that I had were that the UK had a £7 billion balance in overseas trade in our favour from that industry. It is the best of nine major industries, which will bring a glow to the heart of my noble friend Lord Lawson, let alone the Minister.
Why is that the case? First, there is the excellence of the people and facilities in research and development in the industry. It is also an example of a tremendous partnership between the public and private sectors. Since 1948 and the institution of the National Health Service, the industry has worked well with it. I understand that there is something called the VPRS, the voluntary price restriction scheme; my noble friend Lady Hooper may be able to correct me. There is another, the PPRS; I do not think that is a reference to pill-poppers, but she might be able to advise me on that later. The schemes have been enormously successful in providing tremendous and outstanding service—one that is unique in the world—to the United Kingdom for health. They are clearly something in the nature of a ritual dance between the Department of Health and Ministers in your Lordships’ House and the other place, let alone representatives of the industry either in your Lordships’ House or outside. The schemes seem to be something like a bean-bag or a squeegee: the Government push them in one direction and the beans scoot out in another. However, there seems to be a unique relationship between the Government, the public sector and the area of the private sector connected with health and outstanding success in production and industry.
Your Lordships may not be surprised that I have a blue tie today; I am from Scotland. I understand that 11,000 people are directly employed in full-time high-quality jobs in the pharmaceutical industry and the health industry in Scotland. In the United Kingdom, 72,000 full-time jobs are applicable directly to the pharmaceutical industry, and 27,000 of those are highly qualified persons in research and development. It is a huge sector of our economy, and it has interests throughout the community. Two companies give all sorts of little advice on a very local level. Certainly in my area of Dundee, as well as elsewhere in Scotland, one can find enormous help from two companies—enormous health companies—that give advice to Girl Guides, Scouts and other voluntary organisations.
Time is limited and, above all, there are many more important speakers than myself on these massive macroeconomic details, so I shall return to what I call the retail or consumer side of health. I take medicines. I declare an interest, that I am no stranger to the hospital ward, mainly thanks to what is so well known to my noble friend Lord Hodgson: winter sports. I have spent a good time on the ward with broken legs—both—shoulders, hands and other things; I tell him that it has been due more to orthopaedics than to liver problems or overindulgence in Switzerland. One day in June 2006, I was looking forward to taking part in your Lordships’ House and suddenly I was struck down with something called an ischemia—a light stroke. My noble friend Lady Hooper may be able to explain it, but not today. Within one month, I was back at home in Scotland watching the final of the football World Cup. That shows the enormous and matchless service that the health industry gives to everyone, and it gave it to me that month. It was perhaps luck on my part—I might even say divine intervention since I do not know many Members of your Lordships' House who have taken what I did but have been back in your Lordships' House in eight weeks—but perhaps your Lordships have mixed feelings on that.
I understand that the budget for the National Health Service is £120 billion each year. I believe that that is very well spent. Perhaps I may conclude by making a plea to the Minister. There is a very well known and widely respected worldwide company that has had some difficulties recently. He will know that it is in Sandwich in Kent. I am sure that he and his colleagues will attempt to alleviate the problem. Indeed, we found in yesterday’s Budget—I am not too sure in which section; I know that it was on page 18 of the guidance—references to innovation parks and research. My noble friend Lord Northbrook referred to this, too. The Babraham Institute in Cambridge and Norwich Research Park will share in a £100 million boost for science research funding. Any help that the Minister can give to this particular firm would be gratefully received.
I conclude with two mottos, both of which will be familiar to my noble friend Lady Hooper. One is nil satis nisi optimum—only the best will do. That applies to the pharmaceutical industry, and I hope that my noble friend the Minister will be able to give enormous help to it. The second motto refers to pill-poppers such as me, retailers and consumers: every little helps. It is because of the eternal watchfulness of my noble friend the Minister and the Government that we have in the United Kingdom some of the cheapest but best-value medicines in the world. Your Lordships have been very kind. I am very grateful and in good health. I look forward to listening to what the Minister has to say. I am especially grateful, for once, to my noble friend Lord Lawson for this debate.
Lord Risby
My Lords, it is a great pleasure to follow on from my noble friend Lord Lyell. I add to the congratulations already offered to my noble friend Lord Lawson on securing this debate and on being a truly reforming Chancellor. I also congratulate warmly my two noble friends Lord Hussain and Lady Stedman-Scott on their excellent maiden speeches. I know that they will greatly enrich the proceedings of your Lordships' House in the years to come.
We appear today to be in something of a circular situation, with consumers feeling bruised and nervous, their confidence weak and, in consequence, banks being reluctant to lend, especially to smaller and start-up businesses. Yet, ironically, the overall cash position of corporate Britain is very high by historic standards. Unleashing this would undoubtedly spur on economic growth and confidence, and this was at the heart of what the Budget was all about.
A fundamental necessity for any new Government after the general election was to convince the markets that the deficit would be tackled, and this has worked. While the interest-level cost of our massive borrowing has decreased, it has risen in other countries, as we have heard, such as Spain and Portugal. What has happened in the past 24 hours to Portugal absolutely says it all. Given that we have the highest deficit in the industrialised world, we had to respond to the sovereign debt crisis, which was and is pervasive in southern Europe. We avoided that, and had we not done so, the consequences would have been simply cataclysmic. Interest rates would have risen. Even now, with restraint, our total debt will be £1.36 billion.
Lord Risby
Trillion. It is simply wrong and absolutely immoral to bequeath to our children and grandchildren a debt burden of this order, which would have been even worse because of the profligacy of this generation in government.
However, at the heart of this most difficult legacy was the behaviour of banks, so disproportionately important to the UK economy. This was due substantially to a failure of proper regulation. I have heard it described as a product of light regulation. The FSA’s bureaucratic procedures and micromanagement meant that it did not focus on the big picture—for example, the borrowing and lending practices of Northern Rock. The tripartite system ensured that neither the Treasury nor the FSA nor the Bank of England took the necessary pre-emptive action to stop what so tragically ensued. It diminished in consequence our credibility and ability to influence the pattern of emerging European financial services regulation.
Nevertheless, given the massive importance of the financial services industry, it is crucial that previous failed arrangements are replaced. No regulatory system is perfect, but at least the Bank of England previously closely monitored financial institutions and will do so again. Without this, overall economic recovery will not happen. While Governments can assist with an appropriate tax and regulatory framework, it is the private sector that will ensure this, with innovation and new enterprise crucial to it.
I declare an interest in this regard because I am deputy chairman of the Small Business Bureau. The renewed emphasis on smaller businesses is extremely important, as the weight of regulatory and tax pressure is for them inevitably disproportionate. Planning laws have been too restrictive and have benefited larger businesses such as supermarkets. They have also had the effect of distorting house prices. Therefore, I greatly welcome George Osborne’s recognition of this, and the reform of Business Link to assist budding entrepreneurs is welcome, too.
Of significant potential is the renewed government-supported export drive, which specifically includes small businesses. It is gratifying that the strategy outlined in your Lordships' House by my noble friend Lord Green includes financial support and advice to SMEs. The structure of export promotion in this country has been ill focused, with regions even competing with each other at international trade fairs. Our trade promotion activities compared with those of our rivals have been inadequate, and the strategy which has been outlined brings fresh coherence to a huge marketing opportunity abroad. The new enterprise finance guarantee scheme, a new working capital scheme, a new bond support arrangement and credit insurance are specifically targeted at SMEs and in that regard are particularly welcome.
This focus on acorn companies is long overdue. They account for half of all private sector output and 60 per cent of private sector jobs. Freeing them from new domestic regulation, limiting audit and reporting burdens, the small business rate relief and fresh access arrangements to increase finance to them, matched with easier planning consents, will help promote entrepreneurial activity. The increase in the SME rate of research and development tax credit is additional good news.
History has shown us that, in politics, defeat often produces a kind of introspection. It has certainly manifested itself since the last general election. It is as if the Opposition were not responsible at all for the economic crisis which engulfed us. In the context of the economy today, to have one policy, which is simply to say that reduction of the deficit should be slower, is frankly no policy at all. If there is a coherent alternative strategy, I hope that we shall hear it today.
Lord Myners
My Lords, I join other Members of the House in congratulating the noble Baroness, Lady Stedman-Scott, and the noble Lord, Lord Hussain, on their maiden speeches, and the noble Lord, Lord Lawson, on his timely securing of this debate. I pay tribute to the noble Lord as one of the three great post-war Chancellors of the Exchequer that this country has had in office.
Yesterday’s Budget, on which the noble Lord, Lord Lawson, said we were likely to focus in speaking to this debate, was characterised as a Budget for growth. However, rather sadly, the text did not follow the headline, because we had a story of declining growth—the third downward adjustment in growth forecasts for the current year in the space of 10 months. The only things that went up were the things we did not want to go up. Unemployment is going up by another 140,000; inflation is going up, including the important GDP deflator; and the deficit is going up.
On the growth front, the world is enjoying stronger growth. In all our major competitor countries, growth estimates have increased over the past three months. In the UK, we are going in the reverse direction. Even the long-term forecasts from the OBR on growth were due to a sleight of hand. The OBR has a simplistic model: if growth is not delivered this year, it adds it into future years, so it will always track back to a long-term trend growth of 2.25 per cent. There is asymmetrical risk in the OBR forecast. Put simply, the risk of us doing better than the OBR has forecast is, first, low; and, secondly, of little consequence. The risk of us doing a lot worse is high and could be devastating.
This was less a Budget for growth than a Budget which clings to growth assumptions to support the logic of the thinking behind the Budget. I do not see the party opposite as being one of “crazed fanatics”, as mentioned by the noble Lord, Lord Lawson. There is a logic to what the Government are doing—I do not deny that—but the Budget and the Government strategy is driven by ideology and is resting on some crude misunderstandings of economics. The challenge for this side of the House is to set out the facts and articulate clear and credible alternatives. We have not always done that.
Let us look to the facts. During the period 1997-2010 the UK achieved the second highest growth rate per capita in the G8 countries, surpassed only by Canada. That is a fact of achievement under the previous Government. The deficit in 2007, before the global financial crisis, was less than 3 per cent and borrowing as a percentage of GDP was in the bottom quartile for the G8 countries. In 2007, George Osborne endorsed the Government’s spending plans. Indeed, he said he would replicate the quantum of government spending. That is the backdrop to an economy which was then confronted by a global crisis. Its impact on us was emphasised—the Prime Minister was wrong to say that we were less exposed to the global and financial sector downturn than other economies; we were hit hard—because of our dependence on financial services. We were hit not on expenditure—it was not an increase in expenditure; the cyclical adjusters went up—but on taxation. That is a temporary phenomenon; once the economy recovers, taxation recovers.
In 2010, the economy was recovering: we had had two quarters of successive economic growth, the deficit was coming down—it was £20 billion lower than forecast—growth was re-established and unemployment was coming down. That has all been placed at risk by the economic strategy of this Government—a strategy that is based on a misreading of the economy; a misreading of the impact of their own talk of austerity, which is forcing down economic confidence, as we see from the nationwide index and other indices of business and consumer confidence; and a misreading of basic economics and finance.
I shall cite three examples. First, it is simply wrong to remove demand from the economy when we have significant excess capacity. The role of the public sector is to provide demand in those moments when the export sector or the private sector is not providing the demand. Secondly, there was no panic in the area of funding—quite the opposite. We were funding at record low rates, with maturities which, due to the wisdom of previous Chancellors of the Exchequer, were the longest of the G8 countries.
We must remember that a deficit in itself is not wrong; it is the purpose for which it is used. To have a deficit to run benefit payments over a long period of time is an inter-generational transfer which is difficult to justify. To have a deficit for capital investment—to build roads, hospitals, schools and infrastructure—is a good thing. That is where the ideology of the Government, which is centred on small government, is wrong because it is not supporting investment in infrastructure.
Many of the measures announced yesterday were sound—it is not my job to emphasise them—but there were a raft of inadequate headline grabbers: the double tracking of railways in the Cotswolds and an enterprise zone in Sheffield—I wonder how the Prime Minister and Deputy Prime Minister thought up those two; the filling of pot holes; a new home subsidy which will simply drive up the price of houses; and the non- doms hit again. That is a very bad thing for the economy; it is something that we did which I deeply regret. I also deeply regret the 50p tax rate. These measures are anti-growth and wrong for innovation and economic prosperity.
The new enterprise zones will simply move activity from one area to another, although I will be arguing the case that Cornwall should be one of them. If the gift is there, one might as well reach out for it. Interestingly, the 11 zones announced today are all in urban areas. I hope we will find some rural areas among the other 10 to be announced.
Where are the growth builders in this Budget? Infrastructure investment—cut; education—cut; workforce expansion—to be reduced. I welcome the simplification of the tax system but we need stable and predictable taxation. Yesterday we were hit by a sudden increase in oil tax. Last night the Chief Secretary guaranteed that the oil tax would not be passed on to customers; can the Minister give a similar guarantee that the bank levy will not be passed on to customers? I believe that it will be because the bank sector is not openly competitive enough. I am sure that the banks are now regretting deeply all the time they spent on project Merlin because, clearly, the Government’s word was not worth it in terms of what they expected to get out of it.
I hope that we also look to monetary policy. I am deeply concerned about the doubling of inflation. I am aware of the time; I am closing and there is no need for the Minister to gesticulate because I am sure that on this occasion he can cope with my questions. I am deeply concerned about inflation and it is a great shame that the Bank of England is losing its credibility because it is unable to do the right thing to combat inflation.
Lord Ahmad of Wimbledon
My Lords, I join other noble Lords in thanking the noble Lord, Lord Lawson of Blaby, for bringing forward this debate at an important time for our country. I, too, wish to pay tribute to the maiden speeches of the noble Baroness, Lady Stedman-Scott, and the noble Lord, Lord Hussain. One touched on the issue of youth engagement and youth employment, and the other on community cohesion and fighting extremism—issues which, I can assure both noble Lords, resonate with your Lordships’ House.
The Budget just delivered in the other place by my right honourable friend the Chancellor was about sustaining confidence in the markets; it was about demonstrating a willingness to continue to make difficult decisions to tackle the burden of debt; it was about implementing measures which are not governed by short-term headlines but aimed at long-term growth. I believe it achieves all three. Indeed, the influential ITEM Club has already alluded to the fact that the Government have achieved the aims of both controlling expenditure and increasing revenues.
It was interesting to follow a former City Minister after hearing him respond, in part, to my noble friend Lord Risby, who asked, “What is the alternative?”. I noted that he said that the Conservative Party and the coalition Government believe in small government. We do. What is the alternative—big government? We have had enough of that already.
At the height of this global economic downturn, I wish to focus on the City of London and its crucial role. Financial services account for a 10 per cent share of UK GDP—more than in many other major economies. On employment, UK financial services across the country employ more than 1 million people, with 3,000 people employed in financial services in more than 62 constituencies in the UK. Financial services generated a trade surplus of more than £36 billion in 2010, and the tax take of UK financial services amounted to £53.4 billion in the year 2009-10, accounting for approximately 11 per cent of the UK tax receipt. As regards UK GDP, we can see that the contribution that the UK makes with its financial services sector is greater than that of both France and Germany. At a time when the coalition Government are rightly making difficult decisions on expenditure, with the vital contribution made by the financial services industry to the Exchequer, even as the effects of the crisis wade across institutions in the City, the industry has demonstrated resilience in these challenging global economic conditions.
We need to ensure as a Government that we work with firms operating across the financial and professional services to see that the UK remains as a good place in which to invest and work towards creating a sounder environment for growth. Indeed, I welcome recent statements from the City in the preamble to the Budget about firms that have said that they would stay the course and remain in London. They recognise that steps were necessary in regulating certain markets and they see the need to address wider economic conditions. That means that they need to be part of the solution. We should move forward and stop blaming banks. The coalition does not blame banks, as was said earlier by noble Lords opposite, although we do hold the previous Government to account. But it is not about blaming banks; it is about working with banks.
Indeed, I am reminded of my early years. The noble Lord, Lord Hodgson, talked about credit scoring now becoming the core activity for banks—and banks need to look at that again. I am reminded of my own career. When I started and I walked into my first job as a lending officer within a bank, I was told, “Tariq, what you need to apply is Campari and ice”. As a teetotaller and a young trainee, I thought that was a rather strange acronym to put forward. It was a matter of looking at each small business, its character and ability and means to pay. We need to get banks focused on that style of lending. Therefore it is right that the current Government are working with the banks to ensure that we create the right conditions for small businesses and large corporates to prosper. We can take the example of Goldman Sachs and the programme for 10,000 small businesses, with free business and education courses. SMEs are reliant on bank lending, yet debt capital markets are another option. We need to work hard in ensuring that we remove some of the hurdles and barriers to diversify the financing sources for SMEs.
We are seeing new actions announced in the Budget, with reforms to the enterprise initiative scheme; raising income tax relief to 30 per cent from April; and the big society bank, dealing with the need to increase civil organisations’ financing through social finance intermediaries. On bank financing, there will be £190 billion in new credit for businesses and £76 billion to be allocated to the SMEs. We heard the noble Lord, Lord Sugar, allude earlier to those SMEs that have no collateral and those businesses that have no track record. The review and the extension of the enterprise finance guarantee in new lending, which should raise more than £2 billion in this Parliament, is also to be welcomed. Then there is the business growth fund for established SMEs with high growth potential. The UK banks have increased their contribution, bringing the total size of the fund to £2.5 billion. That is due for launch in May 2011. Then we will be working with the BBA to restore bank business relationships, which may have faltered, and to improve standards with lending and business mentoring. That demonstrates the willingness of this coalition Government to work with banks to deliver the solutions our economy and our country needs.
It is my belief that this Budget tackles the debt legacy left by the Labour Government. We have heard a string of Labour spokesmen offering us advice, but as my noble friend Lord Risby said, the only advice they can offer is that we are doing all of this too quickly. No alternative is offered. The approach of the coalition Government, with George Osborne as Chancellor, does not carry the support of the Benches opposite but it carries the support of institutions such as the IMF, the OECD and the IFS. It is a Budget of growth, focused on the long term and on the recovery of our economy and our country.
Lord Selsdon
My Lords, I have to confess that I have spent the bulk of my life in the financing of trade and in your Lordships' House. It is in the latter that I have probably had the greatest benefit, because I was told that I should listen to everything that noble Lords said over years and that I would be suitably drip-fed by geriatrics. Much therefore of what I have learnt I shall try to regurgitate today.
I ask and beg, as someone who has been involved in trade, that the Government should please return to using the word “trade” and restore the Board of Trade. I hate the word “business”, as it reminds me when in the morning my mother would say to me, as a small boy, “Take the dogs out for a walk and make sure they do their business”. When we came back she would say, “Was it little business or big business?”
We can learn much from history. Like the noble Lord, Lord Brooke, I like to return to things and go back into the history of trade. I go back only 500 years to when the Council of Trade was formed. Its mandate was to,
“take into … consideration the true causes of the decay of trade and scarcity of coyne and to consult the means for the removing of these inconveniences”.
Moving on another 70 years, the mandate for the Council of Trade was extended:
“Ye shall take into your consideration ye inconveniences the English Trade hath suffered in any parts beyond the seas. And are to enquire into such articles of former treaties as have been made with any princes or states in relation to trade”—
maybe even the EU. Your Lordships and those who produce such papers today should look at the latest one in the early 18th century, which was:
“To examine into and take an account of the state and condition of the general trade of England and of the several particular trades into foreign parts… to consider what means profitable manufactures already settled may be further improved and how new and profitable manufactures may be introduced”.
Why do we need all these statements when it is already there?
When I joined the House, I used to get put on committees by my noble friend Lord Jellicoe and the noble Lord, Lord Shackleton, because I was young enough at the time. One point they made to me was that, when things are really bad, that is the time for really good opportunities. I served on one of the first Select Committees on trade. I was told that it would not be appropriate for me to intervene or to speak but that, if I listened, I might learn something. That Committee was looking at trade and we had a visit one day from a very important Minister: my then right honourable friend who is now my noble friend Lord Lawson. He came and stood before us and gave us what we described later as a very interesting lecture on the different Ms—relating to the money supply—which I am afraid I did not understand. I did not dare to ask any questions but Viscount Amory, who had been a Chancellor, asked him a few. The noble Lord, Lord Lawson, responded with vigour—in those days, he had slightly more latitude than he has today—and Viscount Amory then said, “Thank you so much, Chancellor, for your clear and lucid explanation”. I admit I am still confused but happy to be confused at a much higher level. I am really grateful to my noble friend for what he has done today because some interesting matters have come out of this debate.
If I may return to the subject of trade, we have had a growing trade deficit since 1947, when my great-uncle Sir Stafford Cripps was effectively President of the Board of Trade and was followed in that by Harold Wilson. That deficit has grown and grown. I raise this in many debates as the noble Lord, Lord Myners, knows. We have a deficit in manufactures of around £100 billion, which has grown and grown. We have a surplus in invisibles—some of which are really becoming invisible now, such as the North Sea revenues and others—of about £50 billion and therefore an overall deficit of £50 billion. On the current account, can the Minister tell me what the UK budget deficit is at present? We seem to be a country of deficits. When we look at where we trade it is with 71 countries of the world, yet we have a surplus with only 12 of them. The biggest surplus we had was with Ireland, followed by the United States, but the Irish surplus has fallen away. It may not be important that we should have trade surpluses, but I have a feeling that, unless something is done about it, the situation could get worse.
On the subject of investment, over the years since the war we have always had a pretty even balance between inward and outward investment. However, what that investment is put into is of considerable importance; hence I welcome the concept of the enterprise zones. I spent a lot of time in inner-city projects, particularly in Docklands. I found it remarkable how quickly something could take off once it reached a certain height. The declaration of enterprise zones here is a good idea, as is the idea that foreigners who live in England might be able to get tax allowances from reducing their taxation levels if they genuinely invest in new projects. We should give the same thought to the United Kingdom’s activities overseas. We need to import food and therefore to invest in agriculture in Africa and in all the ancient areas where we went, because we only expanded our economies internationally or created an empire because we needed the materials and products that came from those countries.
If we do not have a lot of money, somehow the application of clawing money back by granting tax allowances on international and national investment appeals to me. I have said enough and I hope that your Lordships will realise that I did not intend to drip-feed you in any way at all. Please remember that we can learn an enormous amount from your Lordships. I have learnt very much indeed today.
Lord Paul
My Lords, as is customary I declare an interest: I am chairman of the Caparo Group, a manufacturer of industrial products. First, I thank the noble Lord, Lord Lawson, for initiating this debate. In September 1986, when he was Chancellor, he inaugurated our Caparo merchant bar plant in Scunthorpe. I am pleased that this facility, unlike many manufacturing units in the UK, continues to flourish.
It is clear that economic policy is the instrument that makes or breaks a nation. When so much of the UK’s destiny is at stake, we must examine the policies that will determine our economic future. There is a great deal of economic knowledge and wisdom in this House and when we discuss economic issues a good amount of debate is focused on dynamic, even glamorous, sectors of the economy such as information technology, financial services and new energy resources et cetera. That is well and good, but it sometimes underemphasises or overlooks the manufacturing sector.
Today, I focus on manufacturing because my entire life has been involved in the manufacturing industry and I am deeply concerned about the current state of it in this country. What is needed are some policy initiatives and a sustained follow-through. I shall suggest a few measures that I believe could soon create the environment in which UK industry could flourish once more.
First, reduce the administrative burden on industry. The present taxation arrangements, pension structures and human resources regulations are needlessly complicated. I congratulate the Chancellor on making an effort yesterday, and I hope that it will be successfully implemented. Secondly, there should be a tax distinction between financial services businesses and industrial companies. Manufacturing cash flow requires large outlays over long periods before any money can be recovered, which surely deserves tax recognition. We also need to revise R&D tax credits to encourage investment in practical production processes. Thirdly, we need to stimulate small enterprises, which are among the most innovative businesses, by giving them special capital allowances and lowering their tax thresholds.
Initiatives like the enterprise finance guarantee scheme are supposed to put cash into the economy, with the Government providing guarantees to the lending banks. In reality, banks are still asking small business owners to provide personal guarantees against borrowing. This is why, speaking in this House on 8 December 2008, I suggested creating a state-sponsored national industrial bank. We need that even more today.
Even the United States, the citadel of free enterprise, is talking about setting up a state-sponsored infrastructure bank because it is evident that this is one of the most effective ways to mobilize capital for national purposes. There is a shortage of engineers in manufacturing industry, partly because finance industries offer graduates better incentives. It is expensive for manufacturers to take new people and train them. Why not give capital allowances so that industry can hire people? That would solve the problem of skills shortages and give employment to university graduates, many of whom cannot find a job. There should also be incentives for larger businesses, public and private, to form closer links with universities such as my company has with Wolverhampton University, which has reviewed over 1,000 potentially commercial inventions.
We hear a lot about manufacturing success. However, in the past 30 years manufacturing’s contribution to GDP has declined from 30 per cent to 11 per cent. In spite of that, manufacturing is doing well thanks to the efforts of our managers and workforce, and I congratulate them. They have performed with exceptional capability in adverse conditions. Without them there would be hardly any UK industry. Conversely, given appropriate support of the kind that I have outlined, our workers could produce world-class results.
In the mean time, other countries have seized opportunities. China, India, Brazil and other countries have focused on manufacturing. Look at the numerous visits that Western leaders now make to these emerging economies. Statesmanship is now salesmanship. This is surely the grand paradox of our age—leaders who pay obeisance to manufacturing abroad while tending to neglect it at home.
UK Governments always begin by saying that they want to help manufacturing. I do not doubt the good intentions. We in manufacturing are waiting for this Government to put into practice an effective industrial policy, but we should not have to wait much longer. If we do, we risk evolving into a “comprador” nation, simply buying and selling the manufactures of others and servicing their needs. Manufacturing is the bedrock of our independence and, with sensible policy corrections, can be a powerful source of steady employment and social mobility. In the larger sweep of history and in the lives of nations, these are things that really matter.
Lord Lexden
My Lords, the great national tasks of stimulating enterprise and growth and of rebalancing our economy, to which this important Motion refers, create profound challenges for us all. Nowhere are these challenges more formidable than in Northern Ireland, in whose affairs I have taken a deep interest since the 1970s when I worked as political adviser to Airey Neave while he was Conservative Shadow Secretary of State for Northern Ireland. Sadly, the Belfast agreement of 1998 has not yet had the effect of setting the Province on the road to sustained economic progress. Nearly 13 years on, it remains the poorest region in our country. A higher percentage of its working age population is economically inactive than that of any other region. Its economy today is strikingly unbalanced. The private sector is small and the public sector is dominant, as it is in the north-east of England, to which my noble friend Lord Bates referred so tellingly earlier. Public spending in Northern Ireland has risen to the remarkable point where it is equivalent to more than two-thirds of GDP. This state of affairs is sustained by taxpayers in Great Britain, who provide the resources for roughly half of all government spending in Northern Ireland.
The Province’s grossly unbalanced economy is in part the result of the ravages of terrorism, with which I, like so many others, am personally familiar. I say this on the day that a memorial plaque is to be unveiled in another place to Ian Gow. I went around many Northern Ireland businesses with him. How Ian cheered and heartened them with the marvellous neo-Churchillian language that he loved to employ. The spirit of enterprise and the desire for private sector growth have not vanished from the Province, whose great private sector industries—shipbuilding, linen, rope-making and engineering—integrated its economy with Britain’s in the 19th century.
As my right honourable friend the Secretary of State for Northern Ireland stressed in a speech in Washington last week, the Province remains an excellent place in which to do business. It has first-class transport links to the rest of our country and to Europe; its education results are significantly better than those of other regions; and it is the first part of Europe to have 100 per cent broadband access. It is against this encouraging background that the Northern Ireland Executive, uniting representatives of both communities, is fostering a strongly pro-business climate. In this new pro-business climate a number of forward-looking economists, accountants and businessmen based in Northern Ireland recently came together to form the Northern Ireland Economic Reform Group.
In a report last May, the group examined the Province’s current unbalanced economy in great depth. It concluded that the key to rebalancing lay in a sharp reduction of corporation tax, enabling Northern Ireland to benefit in the way that the Republic of Ireland had done from its 12.5 per cent rate. On the basis of detailed calculations, the report predicted that Northern Ireland,
“would benefit from a much larger private sector, including 80-90,000 extra jobs over 20 years”.
The report also stated:
“A reduction in CT tax to a level close to that in the Republic of Ireland would quite quickly raise overall tax revenues”,
in Northern Ireland as new investment took place. Old fashioned Tories like me, imbued with the scepticism of Edmund Burke, treat the bullish forecasts of professional economists with some caution. Nevertheless, a case has surely been made for a low rate of corporation tax in Northern Ireland that deserves full consideration, not least because of the competitive disadvantage created for the Province by the Republic of Ireland’s current low rate. For some years that has been the firm view of my right honourable friend the Secretary of State for Northern Ireland.
The joint manifesto published by my party and the Ulster Unionists—then led by the noble Lord, Lord Empey—for last year’s election contained a commitment to,
“produce a government paper examining … mechanisms for changing the corporation tax rate in Northern Ireland, in order to attract significant new investment”.
The commitment was incorporated in the coalition agreement and, following an announcement by the Chancellor in yesterday’s Budget, a consultation paper entitled Rebalancing the Northern Ireland Economy was published this morning by the Treasury. It sets the scene for the full discussion of the,
“extent to which a phased reduction in the rate of corporation tax in Northern Ireland could support a rebalancing of the economy”.
It is my profound hope that the discussion that the consultation paper will produce will have a positive outcome so that the flame of enterprise, which has survived the Province’s long, dark years, can burn more brightly. Then Ulster’s new-found peace and stability would be matched by a new-found prosperity.
Lord Eatwell
My Lords, this has been a fascinating debate, enhanced by excellent maiden speeches from the noble Lord, Lord Hussain, and the noble Baroness, Lady Stedman-Scott. Reflecting on what was said by the noble Lord, Lord Lawson, in his customarily elegant introductory speech and on the remarks of many noble Lords opposite, it occurred to me that the economic policies being pursued by the Government may be characterised as good—good politics, that is.
Two elements of the Government’s stance bear the mark of good politics. First, it is always a good idea to have a scapegoat. We have today heard numerous references to the so-called “economic mess” inherited by the Government and to the “record deficit”. With a good scapegoat, you can justify almost anything. It is good politics. Secondly, it is good politics to inflict the maximum pain on the electorate in the first years of a new Government and save up all the sweeteners for the 18 months or so before an election, when the Government can triumphantly declare deliverance from the misery that they themselves have created. All this is good politics, but it is rotten economics.
On the scapegoat point, noble Lords might have noticed that yesterday in the Budget the Chancellor admitted that the UK debt ratio will peak at 71 per cent. I wonder how many noble Lords were puzzled by that statement. How could that be when there is purportedly such an awful financial mess and so-called record deficits that our debt ratio will peak at a level lower than in every other G7 country other than Canada, and at a level lower than in Germany when it entered the crisis? However, let us not go into another debate about debt ratios, use silly expressions such as Britain being on the brink of bankruptcy, or make foolish comparisons with Greece, Ireland or Portugal.
The scapegoating approach is rotten economics, not because the Government convinced themselves of this nonsense but because they have convinced the markets and business, too. By their own politically advantageous hysteria, the Government have, as my noble friend Lord Myners noted, destroyed business and consumer confidence. It is not surprising that the OBR revealed yesterday that business investment growth is down and has locked Britain into a bond-market straitjacket from which it is now almost impossible to escape without abandoning the scapegoating slogans. It is good politics, but rotten economics.
On the timing of sweeteners and elections, unfortunately that is rotten economics, too. The problem is that you cannot be sure that the economy will have recovered in time to deliver the goodies. As the Bank of England’s Monetary Policy Committee minutes published yesterday record, it is,
“not yet clear that the weakness in output growth seen in the latter part of 2010 would prove temporary, particularly in light of the latest indicators of a further weakening in consumer spending”.
That is the Bank of England’s view. This is before the savage government spending cuts hit the economy next month.
The low growth and increased unemployment that the Government’s policies have produced have, as my noble friend Lord McKenzie, also pointed out, cut projected tax revenues for the next five years. I repeat; they have cut revenues for the next five years, so there will be a lot less to give away. The fall in revenues and the consequent increase in government borrowing revealed in the Budget are an indication that we may have entered a terrible downward spiral in which higher taxes and spending cuts result in low growth and unemployment that in turn result in lower revenues, higher welfare payments and a growing deficit—exactly the scenario painted in the OBR’s economic report. That is what the noble Lord, Lord Higgins, should be afraid of. Instead of falling, borrowing is rising.
However, the real failure of this budget is the subject of today’s debate—the failure to promote the rebalancing of the economy that is necessary to enable Britain to grow its way out of recession, and out of deficit. Consider the measures that the Chancellor claims will create growth. Research and development tax changes sound good, until you realise that these will benefit just 7,000 out of the 4.8 million small firms in this country. The entrepreneurs’ relief sounds good, until you realise that the benefit will go to just a few hundred people. The new apprenticeships that will reach 12,500 young people sound good, until you realise that 60,000 young people have become unemployed in the past year alone, adding to the 1 million young people currently unemployed. The enterprise zones sound good—until one looks at all the academic evidence that demonstrates that they are the most expensive means available of creating jobs, because so many of those jobs would have been created anyway. Enterprise zones are just a neat way of avoiding taxes—perhaps in Cornwall, too.
What of the cuts in corporation tax and fuel duty? The OBR's verdict is that the effects will be “minimal”. No wonder, since the cut in corporation tax has been paid for by cutting investment allowances. How stupid is it to take from companies that invest and hand out the money as a tax cut to all companies, whether they invest or not?
The OBR's verdict on this Budget for growth is that:
“We do not believe that there is sufficiently strong evidence to justify changing our trend growth assumption in light of policy measures announced in Budget 2011”.
That is it: no change.
The real damage to the hope of rebalancing the economy is to be found not in the failure of the Budget but in the announcement on the day before that inflation was at 5.5 per cent, and in the Government’s admission that inflation is likely to stay that high for the rest of this year, and to be higher than previously forecast for the next five years. That point was emphasised by the noble Lord, Lord Griffiths.
This country has one goose that can lay rebalancing golden eggs: British manufacturing, as the noble Lords, Lord Renton, Lord Empey and Lord Paul, and the noble Baroness, Lady Hooper, noted. Over the past year, manufacturing has performed very well, with rapid export growth stimulated by the sharp fall in the value of sterling. However, the competitive advantage derived from the devaluation is being eroded by our relatively high inflation rate. Moreover, the high rate of inflation is likely to bring forward the day when the Monetary Policy Committee raises interest rates and seeks to reduce inflation by raising the exchange rate, weakening further the stimulus to exports. We have only one goose and we are in danger of killing it.
The danger derives not just from the Government's failed macroeconomic strategy, important though that failure is, but from the timidity of the growth strategy laid out in The Plan for Growth published yesterday. The essence of the plan is summed up under the heading: “What the Government will do now”. The main headings are: “minimise regulatory burdens”, “reform the planning system”, “improve the corporate governance framework”—by removing the need for audits—“provide finance for new and growing businesses”—by small tax incentives—“further improve innovation in the UK”—by small but useful measures—and, “improve competition”.
The clear theme is to reduce the role of government—something that surely pleases the noble Lord, Lord Ahmad—and create a slightly biased playing field relative to our major competitor countries. This is not what Britain needs, as my noble friend Lord Haskel pointed out. We do not need a biased playing field; we need a new game, as the noble Lord, Lord Bates, suggested. The rules of the new game can be learnt readily by studying the success of other economies—something that the noble Lord, Lord Risby, might care to do. What is needed is a secure, plentiful and stable flow of finance to fund industrial investment, together with a structure of corporate governance that fosters a commitment to long-term innovation and investment. Neither of these conditions is present in Britain.
Our fundamental problem is illustrated by the fact that more than 70 per cent of purchases and sales of industrial stocks and shares over the past year have been by day traders and short-term investors. British industry is owned by people to whom the long-term future of a company is irrelevant. The mantra that the duty of the board of a company is to pursue the best interests of the shareholders is vacuous when the shareholders change by the hour. Instead of secure sources of finance for industry, we have a fragile banking system that is overly dependent on short-term wholesale funding and in which a significant proportion of financial innovation is driven not by the demands of economic efficiency but by the desire to avoid taxes and/or the strictures of financial regulation.
Of course, better regulation would not be enough to secure the industrial financing that we need. That will require a fundamental reform of the UK's financial sector that goes far beyond the terms of reference of the Independent Commission on Banking. The reform should encompass not just the welcome creation of the green investment bank but the creation of an industrial investment bank, as called for by my noble friend Lord McFall, with the funding muscle to make a real difference to Britain’s small and medium-sized industries—the industries from which innovation and jobs predominantly come.
Nothing so radical was evident in yesterday’s Budget. Indeed, there was nothing radical at all. Whether there is fuel in the tank is debatable, but everyone can see that all the tyres are flat. That is because the other crucial component of a growth strategy is missing. The Government have chosen to throw away the ignition key. What will ignite growth is demand. Investment will take place only if there is the prospect of stable, growing demand. Without prospective demand, it does not matter how cheap or reliable funding might be, how generous the tax breaks or how innovative the technology. Without prospective demand, you simply stand to lose your money, and there lies the central failure. By consciously suppressing demand, the Government are consciously suppressing growth. That is why growth is down—not just now but for the foreseeable future. The noble Lord, Lord Lawson, described this as being least needed economically. I must say that I prefer the noble Lord of the Lawson boom rather than the one of fiscal masochism.
The OBR’s forecasts show growth recovering after 2013. However, one should not be misled, as the noble Lord, Lord Newby, has been. The OBR made it clear that its medium growth forecasts are based on the forecasts of potential growth—that is, on capacity and not on demand for that capacity. Only if there were some magic fairy that ensured that capacity was fully utilised would those growth rates be attained.
There is no magic fairy. This Chancellor has undermined Britain’s recovery from the consequences of the international financial crisis. Worse than that, by making the wrong choices at the wrong time he has weakened the growth prospects of the British economy for years to come. The characterisation of this Budget as a “Budget for Growth” is a title worthy to stand alongside Orwell’s Ministry of Truth. It was a Budget for stagnation. However worthy the micromeasures, the verdict remains that of the Office for Budget Responsibility—no impact on long-term growth. No impact at all.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, we have had a tremendously interesting and wide-ranging debate, and I add my gratitude to my noble friend Lord Lawson of Blaby for having secured it on the day after the Budget. It has been a debate enriched in particular by notable maiden speeches, to which I shall return. I wish that I had the time to do justice to all the points made but I am very grateful for all the contributions, even if I am not able to cover more than a small percentage of them.
Last June’s Budget was all about rescuing the nation’s finances and paying for the mistakes of the past. Yesterday’s Budget was about reforming the nation’s economy so that we have sustainable growth and jobs. However, this will not be possible without sticking to our deficit reduction plan. It is that plan which has secured economic stability and our international credit rating, and it has been commended by the OECD, the IMF, the World Bank and many others. Therefore, I am very grateful for the starting point of my noble friend Lord Lawson, who, at the beginning of the debate, confirmed, as did many other speakers, that the prime duty of the Government—and it is what my right honourable friend the Chancellor did yesterday—is to stick to plan A to eliminate the structural deficit. That was touched on by my noble friends Lord Newby, Lord King of Bridgwater and Lord Tugendhat in particular, who stressed that these are difficult times in which we have to operate. Indeed, the consistent message across a range of speakers, including my noble friends Lord Oakeshott of Seagrove Bay, Lord Higgins and Lord Griffiths of Fforestfach, was that we must carry on with that plan. There were one or two discordant voices, but only one or two, led by the noble Lord, Lord McKenzie of Luton. But it flies in the face of all the advice, domestically and internationally, that we are getting.
I say to the noble Lord, Lord Myners, who tries to paint a very negative picture of where we are, that on the latest figures, which the EU has put out, the growth numbers for the UK this year are lower than those forecast last year, very largely due to the disappointing fourth quarter that we had last year, which flows on through to this year. I acknowledge that, but nevertheless, on the EU’s figures, the UK will grow faster this year than France; it will grow faster than the eurozone average and it will grow faster than the average of the EU. We must get out of the habit of talking down the prospects of the economy.
The action taken by the Government has allowed us to move from rescue to recovery. Yesterday’s Budget will encourage enterprise and increase investment; it will support exports, manufacturing and innovation; and it confronts a hard truth, which has been ignored for far too long, that for the past decade Britain has been losing ground in the global economy. While other nations have reduced their business tax rates, ours have increased; while other countries have removed barriers to enterprise, ours still stand; and while our competitors have improved their education systems, reformed welfare and increased exports, we have gone backwards on all those measures.
The legacy bequeathed to this Government was one where Britain’s future was gambled on a debt-fuelled model of growth that has clearly failed. It is no good saying there was growth as it was based on unsustainable debt and the private sector was crowded out. As we have been reminded, the state represents almost a half of all our national income. We simply cannot afford to continue down that path. It is a point that has been made forcefully today and most forcefully made by noble Lords on the opposite Benches, starting with the noble Lord, Lord Sugar. He made it quite clear that it was ill-discipline in the banking system—he did not quite get to say that it was ill-discipline that was allowed to go on by the previous Government. That was one element of it.
The noble Lord, Lord McFall of Alcluith, drew attention to another aspect of the legacy that we have in the too-big-to-fail challenge. My noble friend Lord Oakeshott of Seagrove Bay drew attention to excess debt and the noble Lord, Lord Haskel, again referred to debt-fuelled growth. I could not agree more. My noble friend Lady Kramer very rightly made the point that, if the growth is to be sustainable, we have to move from a debt-fuelled to a savings-fuelled basis for growth.
The noble Lord, Lord Myners, seems to have forgotten where he was on these matters only a few months ago. As he put it—I could not put it better:
“The mistake we made as a government was that we ran large deficits in the middle part of the last decade when the economy was clearly running at full capacity”.
I do not think he drew our attention to that today but, if I am wrong, I apologise—I missed it. However, the fact that we need sustainable growth is at the root of what the Government now have to fix.
Britain, like any other nation, has to earn its way as the world becomes more competitive. We have to reverse the trend that has seen us drop from fourth to twelfth in the global competitiveness league. We have to ensure that growth is to the benefit of every region of the UK, not just of London and the south-east, a point that has been made this afternoon. The alternative would be to accept this country’s economic decline and a continuing fall in living standards for our population. That is why my right honourable friend the Chancellor has set out the Government’s new vision for growth. It is a vision that has four key economic ambitions at its heart: that Britain should have the most competitive tax system in the G20; that Britain should be the best place in Europe to start, finance and grow a business; that Britain should be a more balanced economy by encouraging exports and investment; and that Britain should have a more educated workforce that is the most flexible in Europe.
First, I take taxation. Britain used to have the third lowest corporate tax rate in Europe; we now have the sixth highest. Our tax code has become so complicated that it has overtaken that of India to become the longest in the world. We have to address that. Our taxes must be fair, predictable, simple to understand and easy to comply with; and they have to be efficient in supporting growth. From April this year, corporation tax will be reduced not just by one percentage point, as we announced last June, but by two, and it will continue to fall by one percentage point in each of the next three years, taking our corporate tax rate down to just 23 per cent, which is 16 per cent lower than it is in America, 11 per cent lower than in France and 7 per cent lower than in Germany, and will give us the lowest corporate tax rate in the G7.
A lot of points on tax have been rightly raised in our debate. My noble friend Lord Lawson kicked it off by taking the big picture view: drawing our attention in particular to the need to look forensically at the top rate of income tax. Yes, of course, we will look at the lessons of his dramatic reduction of the top rate from 60 per cent to 40 per cent, and factor that in. I acknowledge and note that the noble Lord, Lord Myners, did not agree, and is prepared to say so consistently, with his Government's decision to raise the top rate to 50 per cent. My right honourable friend the Chancellor has made it quite clear that that is not part of what he sees as the medium to long-term regime for income tax.
On the question of the possible combination of income tax and national insurance, I take the warnings of my noble friend Lord Lawson to heart. Yesterday, my right honourable friend described it very precisely as an operational merger. We are conscious of the difficulties. Indeed, we keep a copy of my noble friend's memoirs on the ministerial floor; it is presently in the office of my honourable friend the Exchequer Secretary. We will take the lessons to heart. It will be a measure that will certainly reduce administrative burdens for employers. It will bring the two regimes operationally together. It has the capacity to allow us to smooth out some major inconsistencies, but we will take it stage by stage through the consultation process.
On tax incentives for entrepreneurs, I very much agree with the noble Lord, Lord Sugar, and my noble friend Lord Northbrook, who drew attention to those important measures. On fairness, which underpins everything that the coalition does in the tax system, my noble friends Lady Kramer and Lord Oakeshott of Seagrove Bay, rightly drew attention to the coalition's emphasis on measures to take 1.1 million people totally out of the tax system and measures that will lower income tax for 25 million people. While we are on fairness, I say to the noble Lord, Lord Haskel, that the pain is indeed being fairly shared. As was confirmed in the distributional analysis published in the Budget document yesterday, the top 20 per cent of households by income will make the biggest contribution to deficit reduction. That is absolutely right and proper. Lastly in this area, I am grateful to my noble friend Lord Higgins for mentioning measures on charitable giving. It is expected that the inheritance tax measure will result in about £300 million additional benefit to charities when it is in full effect.
Our second ambition is for Britain to become the best place in Europe to start, finance and grow a business. In this area, I agree with many speakers that there is a pressing need for reform. In the past decade alone, countries such as Germany, Denmark and Finland have overtaken the UK in the international rankings for competitiveness. The Government’s plan for growth has many actions in it, too many actions for a few of your Lordships who made references to lollypops and so on, but it is out of a process where we had the most intensive and wide-ranging discussions with representatives of business. These measures were widely welcomed yesterday by business as responding to what it asked of us and they are measures which we have been able to afford. I assure the noble Baroness, Lady Valentine, that we will see these things through. She is quite right that it is a plan for action that will be driven through. A similar point was made by my noble friend Lord Griffiths of Fforestfach who questioned the responsibility for seeing it through. I could recite the list of ministerial responsibilities, but I assure him that implementation will be vigorous.
I note that a number of contributions stressed the regional aspects. I am always refreshed to hear my noble friend Lord Bates reminding us of the vigour with which the north-east is responding to very difficult conditions. I welcome his recognition of how some of the proposed interventions target his region. We seem to have the north-east and the south-west in coalition in that corner. It was also good to be reminded that Wiltshire has been thriving and leading the way from the mid-9th century. I am grateful to my noble friend Lord Brooke of Sutton Mandeville for that.
Another very important and separate regional dimension was raised by my noble friend Lord Lexden and the noble Lord, Lord Empey. I am grateful to my noble friend for mentioning that the Treasury has today published a document on rebalancing the Northern Ireland economy as the Northern Ireland economy faces particular challenges. Another dimension mentioned by a number of noble Lords, including, in his inimitable way, my noble friend Lord Lyell, is the industrial sector. We have it very much in our plans.
When one steps back from all the measures, it is perhaps the issues to which my noble friend Lord Lawson drew attention at the beginning of the debate that are critical. They were also mentioned by my noble friends Lord Northbrook and Lord Tugendhat. They are the broad deregulatory measures. I think a new and concerted look at the planning system is important. I am grateful to my noble friend for stressing that.
The third of the Government’s ambitions is the need to have balanced growth to encourage investment and exports. I shall highlight a few of the measures we are taking. We have put a lot of effort into the sectoral cut when discussing them with numerous sector groups. For example, in life sciences, we will radically reduce the time it takes to get approval for clinical trials, which is critical if the UK is to continue to be at the cutting edge, and in the digital and creative industries, we will improve the intellectual property regime. The noble Lord, Lord Paul, quite rightly drew attention to the mixed picture in manufacturing. On the one hand, there has been very dramatic slippage in manufacturing over the past decade, but on the other, our manufacturing sector still has very great strengths. I am pleased to say that at the moment manufacturing is growing at a record rate with 14,000 more jobs having been created in the sector in the past three months. To help this to continue and to build on this progress, the Government are creating new export credits to help smaller businesses. We are launching Britain’s first technology and innovation centre for high-value manufacturing, and we are funding a further nine new university centres for innovative manufacturing.
Several noble Lords, including the noble Lord, Lord Sugar, in his fascinating speech, drew attention to the help to SMEs, which is critical. My noble friend Lord Newby drew attention to the difficulty of getting credit and my noble friend Lord Hussain, in his very clear, direct and interesting maiden speech, could not have been clearer about a number of things, but particularly the challenge facing SMEs. I also note that there will now be at least two doughty champions for Luton in this House and we shall be reminded of all the good things that are going on there.
I assure my noble friend Lord Hodgson of Astley Abbotts that we will watch very closely the process by which SMEs get credit. I am grateful to my noble friend Lord Risby for stressing the range of support that the Government are giving SMEs. I am grateful also to my noble friend Lord Ahmad of Wimbledon for his different perspective on these issues. In a related area, my noble friend Lady Hooper rightly stressed the need for us to press on with trade arrangements that benefit small, medium and large companies. Yes, we will place new emphasis on EU bilateral free trade agreements and, yes, we are working on Latin America. Only next week, the Deputy Prime Minister will be there and of course he will promote trade as part of his visit.
On the last of our four ambitions for growth, to create a better educated workforce that is the most flexible in Europe, it is alarming to see that Britain’s working age population has lower skills than the same demographic in America, Germany and France. That perhaps is the biggest problem facing our economy and is why the Government are committed to funding new university technical colleges, which will provide 11 to 19 year-olds with vocational training that is among the best in the world. But that will not alone solve the problem. Our attention quite rightly was drawn to that issue by a number of speakers. In the maiden speech of my noble friend Lady Stedman-Scott, she could not have been clearer about the challenge of getting young people, even those furthest away from the labour market, into employment. I can only commend the work that she has done and does with Tomorrow’s People and I thank her for her contribution. These issues were also touched on by my noble friend Lord Renton of Mount Harry and the noble Lords, Lord McFall of Alcluith and Lord Haskel.
The noble Lord, Lord Haskel, talked about 40,000 apprenticeships for the young and unemployed. It is perhaps worth remembering that that is incremental to what the Government had already announced. It brings the total number of apprenticeships available over the next four years to 1.2 million. As a result of this Government’s policies, and because this is so critical to the future of the economy, there will be some 250,000 more apprenticeships over that period.
In summary, the Government are looking to get the economy back on the right path. I say to the noble Lord, Lord Eatwell, that we will reverse the trend of the past decade that has seen our share of world exports decline, has seen the UK’s economy becoming increasingly unbalanced and has seen our businesses held back by a mountain of bureaucracy and a myriad of red tape. That is the legacy of the previous Government. Instead, we will make the UK Europe’s leading destination for enterprise, with the most competitive tax system in the G20, the most flexible workforce in the EU and an economy that is the envy of the world. That is how we will drive growth in this country, how we will create the jobs for the future and how we will build the more dynamic, prosperous and sustainable economy that this country deserves.
Lord Lawson of Blaby
My Lords, we have had a truly excellent debate. I suspect that your Lordships will be relieved to know that I intend to be very brief indeed as I have a plane to catch. I thank most sincerely all those who have taken part in the debate. I thank in particular my noble friends Lord Hussain and Lady Stedman-Scott, who treated us to two outstanding maiden speeches. We look forward to hearing them frequently in the future. With that, I beg leave to withdraw the Motion.
Adapting to Climate Change: EU Agriculture and Forestry (EUC Report)
(13 years, 1 month ago)
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Baroness Sharp of Guildford
To move that this House takes note of the Report of the European Union Committee on Adapting to climate change: EU agriculture and forestry (8th Report, Session 2009–10, HL Paper 91)
Baroness Sharp of Guildford
My Lords, it is a year now since the European Union Committee published our report on adapting EU agriculture and forestry to climate change. In that report, we acknowledged that there had been changes to the climate in the past and repeated the widely shared concern that current projections of climate change indicate a far higher level of uncertainty in the future. We quoted from a November 2009 statement made jointly by the Met Office, the Natural Environment Research Council and the Royal Society which said that scientific evidence of dangerous, long-term and potentially irreversible climate change had significantly strengthened since 2007. The statement went on:
“In the UK, we will be affected both directly and indirectly, through the effects of climate change on, for example, global markets (notably in food), health, extent of flooding and sea levels”.
Indeed, your Lordships will recall what happened in Cumbria in November 2009 when unprecedented levels of rainfall caused flooding that devastated much of the area’s infrastructure. Water levels in Cockermouth, for example, reached over eight feet at their worst point. Estimates suggest that the cost of the damage to homes, businesses and infrastructure has amounted to more than a quarter of a billion pounds. Your Lordships will also be well aware of the recent Foresight report entitled The Future of Food and Farming which identifies climate change as one of the major challenges that our global agriculture and food system face.
We carried out our inquiry against this wider background, but more specifically in relation to the White Paper, Adapting to climate change: towards a European framework for action, which the European Commission had published in April 2009, together with a linked paper, The challenge for European agriculture and rural areas. In general, and perhaps even more so in the light of the Foresight report, our feeling was that the White Paper failed to emphasise the urgency of these issues. Perhaps I may also say that we felt that also to be true of the Government’s response. The White Paper was rather too long on aspiration and on getting together to prepare models and strategies, but somewhat short on action.
The main focus of our report is on the actions that the UK and our EU partners can and should take to face the challenges posed to agriculture. This in turn sets the discussion in the context of the common agricultural policy, where there is a larger debate now under way about reform after 2013. I should also mention that our report related to forestry as well as agriculture. Because the Commission published its Green Paper, Forest Protection and Information in the EU: Preparing forests for climate change, only in March 2010 when we were concluding our inquiry, we returned to the forestry aspects of our inquiry in July of last year when we responded to the Green Paper. My remarks today will take account of that response as well.
The Commission White Paper of April 2009 foresaw a two-stage approach on adaptation measures. Phase 1, from 2009 to 2012, would prepare the ground for a more comprehensive EU adaptation strategy. Phase 2, from 2013 onwards, would see that strategy implemented. Emphasis was rightly placed on action at the national and local level, while the Commission’s role was essentially that of strategy setting.
As regards agriculture and forestry, in phase 1 the Commission proposed that measures for adaptation and water management be embedded in national rural development programmes from 2007 to 2013. We explain in our report that those rural development and environmental programmes are supported under Pillar 2 of the CAP, which at present makes up some 20 per cent of the CAP spend—some €96 billion over that seven-year period. There was an interim review of the CAP in 2008—the health check—which, among other things, led to an agreement by member states that several “new challenges” should be seen as priorities for funding under the second pillar. Among those were measures towards the mitigation of, and adaptation to, climate change.
We heard from witnesses to our inquiry, including a representative of the Commission's Directorate-General for Agriculture and Rural Development, that after the health check the take-up of climate change measures had been very disappointing, with only some 14 per cent of funds available used for this purpose and the bulk of the funding used by countries that had already been giving priority to such measures. We felt that there was much room here for greater transparency—perhaps a little naming and shaming—and recommended that member states should be required to spell out what they had done to promote measures for adaptation to climate change in the annual rural development programme reports which they are required to provide to the Commission.
In the White Paper the Commission also proposed that, before 2013, there should be an examination of the capacity of the CAP's farm advisory service to reinforce knowledge and adoption of new technologies that facilitate adaptation. That issue is very much at the heart of our concern about the future of agriculture in this country and in the EU more generally. One chapter in our March 2010 report deals with what we call research and knowledge transfer; and we are clear that the double challenge of feeding the world's growing population, at a time when climate change is likely to restrict the landmass that can usefully be cultivated, demands both developing new and innovative technologies and making use of those that already exist but where farmers need help with putting them into practice.
The White Paper proposed that by 2011 the EU should set up what it called a “clearing house mechanism” to serve as a database on climate change impact, vulnerability and best practices on adaptation. That is fine as far as it goes. However, more widely, we are concerned by the evidence that we received suggesting significant neglect of scientific research into agriculture generally and specifically into adapting agriculture and forestry to climate change. That was particularly true of the UK. We heard, for example, that between 1970 and 2010 there had been a significant fall in the number of agricultural research institutes in the UK, and in the number of university departments of agriculture and land management, paralleled by a large drop in the number of students in these subjects.
In our report, we therefore call on the Government to ensure that the UK's research capacity is strengthened. We also make clear our view that there is an important role for the EU to identify the research gaps, and to look to fill them with research supported by the Commission through the framework programme as well as by co-operative efforts between member states. Since our report, I am pleased to note progress in that respect. In March 2010, when our report was published, the first steps were being taken to set up a very promising co-operation between the UK's Biotechnology and Biological Services Research Council, the BBSRC, and France's National Institute for Agricultural Research, INRA, to carry out joint research into agriculture, climate change and food security.
A commitment to generating new knowledge is essential but not sufficient. It is also essential that such knowledge is translated into new products and techniques and that it can be applied in practice. Since last autumn our committee has been conducting a further inquiry, into innovation in EU agriculture. We were stimulated to undertake this latest inquiry by our work on adaptation to climate change and the seeming deficiencies in both the volume of agricultural R&D and the means of spreading best practice. In the past few months, we have learnt a great deal about the state of advisory systems in the UK and in other EU member states. In particular, I want to draw your Lordships' attention to the farm advisory system which all member states have been required to provide under the CAP over the past decade.
This requirement was introduced in parallel with the introduction of so-called “cross-compliance” obligations on farmers receiving direct payments under the CAP—obligations to meet certain conditions relating to environmental protection in their agricultural practice. Different member states have acted on the farm advisory system requirement in different ways. We have heard that, in some countries, FAS representatives are found to offer a very helpful service, while in others they are seen, in effect, as agricultural policemen.
We know that the Commission is reconsidering the role and functions of the farm advisory system and that the UK Government are looking again at arrangements in this country. We are clear that there is an unacceptable gap in the provision of advice to farmers—and that agricultural advisers could, and should, act as conduits for the application of research advances to farming practices. We look to the Minister to tell us more about the Government’s intentions in this respect.
The Commission’s White Paper looked to the period from 2013, the phase 2, for the implementation of strategies on adaptation to climate change. This coincides with the next funding period for the CAP, hence the shape of the CAP after the further reform which is now under discussion. In our report we said that the defining characteristics of the future CAP should be the “sustainable intensification” of agriculture, a term which was persuasively advanced in the Royal Society’s 2009 report, Reaping the Benefits.
In November last year, the Commission published a communication, The CAP towards 2020: Meeting the food, natural resources and territorial challenges of the future. We responded to it with a letter which drew heavily on our report on adaptation to climate change. In it we said that we welcomed the idea of the “greening” of Pillar 1 of the CAP, which would imply making some of the income support funding contingent on the delivery of environmental public goods. We have suggested that eligible activities might include incentives to mitigate agriculture's contribution to climate change and to adapt the impact of climate change on agriculture. We reiterated our view that there is no case for payments to be made available without an environmental justification. Again, we have stressed that better integration of environmental considerations in Pillar 1 must go hand in hand with vastly improved knowledge transfer systems.
I must say just a few words about the committee’s views on forestry in the context of concerns about climate change. In our July 2010 response to the Commission’s Green Paper, we agreed that there was no need to give the EU competence for forestry to match the competence which it has in relation to agriculture, while accepting that this still left scope for valuable action to be taken by the EU. Forests can play a key role in combating climate change, both as a carbon sink and as a source of renewable energy. We were much influenced by the evidence that we received from Professor Read, which suggested that restoring the proportion of UK land devoted to forestry to the 16 per cent at which it stood in 1980—compared with 12 per cent of our landmass today—could reduce UK carbon emissions by some 10 per cent, which is a very substantial amount.
However, we made clear our concern that the economics of forestry could prove the greatest obstacle to such policies. Given the wide range of experience across the EU, we recommended that the Commission should work with member states to exchange experience and develop an economic assessment of the viability of providing significant additional afforestation. I have to say that, so far, we have seen no strong signs of support from the Government for such a policy. I would welcome some comment from the Minister today on this recommendation.
Mr Jim Paice MP, the Minister of State at Defra, wrote to us at the end of June 2010 to set out the Government’s response to our report. I am glad to say that there is quite clearly a lot in common between our views and those of the Government on the issues with which we dealt in the report—not least on the longer-term shape of the future CAP. However, as I have indicated, we have not so far been able to persuade the Government in relation to our recommendations for future action on research and knowledge transfer. For example, in their response, the Government commented that,
“the number of agricultural institutes is not a good measure of agricultural research output”.
We accept that—but it could still be a debating point. There is certainly a whiff of complacency about such an answer, particularly in light of the widespread concern, as we heard from our witnesses, that there has been a significant decline in agricultural research in this country and a major failure in knowledge transfer down to farm level.
The Government also commented that,
“communication to farmers and land managers is important to ensure that research and knowledge are used on the ground”.
Given our analysis that in England such communication currently falls short of what is required to enable farmers to put innovative knowledge into practice, we expect the Government to take on board the need to make farm advisory services more effective. In June 2010, the response said that Defra was mapping advisory services “to inform future decisions”. I hope that the Minister will be able today to say something more positive about those decisions .
We have also received a response to our report from European Commissioner Sefcovic in a letter dated 7 September 2010. We were encouraged to read that the Commission agreed with most of our views and recommendations. It is fair to say, however, that the evidence of the extent of its agreement will come when there are more specific legislative proposals for the future of the CAP.
My remarks this afternoon have shown how intensive a debate is now under way in relation to the future of the CAP, in Brussels and in the capitals of the EU member states. As our report of March 2010 makes clear, however, the sustainable intensification of agriculture must be a key determinant of the future CAP and must include a range of measures aimed at adaptation to climate change. It is important that these measures are put into effect in not too distant a time. I beg to move.
The Earl of Selborne
My Lords, the House will wish to join me in thanking my noble friend Lady Sharp for the authoritative way in which she has introduced this important report. I wish to thank all members of the committee who contributed, a year ago now, to this report and I am grateful that we at last have an opportunity to debate it.
I warm to the concept enunciated by my noble friend of sustainable intensification, which is the key to future common agricultural farming policy in Europe. European farming has to be considered in a long-term context and needs to be reviewed in the light of adapting to climate change.
I declare two interests: I chair the Living With Environmental Change programme, which is a partnership of major UK public sector funders of environmental research; and I am a farmer.
The role that Europeans and the global population might expect to be the contribution of Europe to meeting the global needs of food production after 2013 needs to be put into the context of not only climate change but of environmental, economic and demographic change, and over a much longer period than in the past the CAP has been considered; it is perfectly reasonable to think in terms of 40 years. Of course, when we are thinking about food security, as we are in a global sense, we have to recognise that there is absolutely no validity in simply considering national food security, or even continental food security. It all has to be looked at in terms of the needs of the world. If we look at the rather chequered career of previous common agricultural policies, we recognise that the obsession, which was perhaps understandable, of trying to achieve European food security in some ways exacerbated the problems in poorer countries by undermining local production by subsidised exports and import tariffs. So the concept that the committee enunciates of sustainable intensification is not, quite frankly, a policy that in some member states will chime very warmly—but for all that it needs to be promoted very strenuously.
The issues that will face us over the 30 or 40 years, which we can predict fairly confidently, bear repeating. There will be a population of 9 billion or more, with increased purchasing power. That is a positive factor; it is excellent that there are now opportunities for people to assume the nutritional levels that we take for granted. It is not to say that the millennium goal of 2,100 calories per capita will be met in many parts of the world, but at least there will be very significant populations that will eat more meat and therefore will need more animal feed, so the demand for feed will increase. We know also—or it is perfectly reasonable to assume—that the land area for crops will decline, at the very best. If it increased, it would be clearly at the expense of environmental issues, not least the loss of biodiversity. The urbanisation of so many parts of the world demonstrates that it is highly improbable to expect new cropped areas. So there will be severe limits in reclaiming for agriculture new land areas, and there will be a limitation of other natural resources—water above all, but also fertilisers and fossil fuels, which we would wish to limit because of their impact on climate change.
To go back to water, one of the most critical of those natural resources, we must remember that of the available fresh water already 70 per cent is used on a global scale in agriculture, although not of course in this country. The figure is relatively low in this country. But when you look at how you are going to increase production, you have to recognise that fresh water is a finite resource and that innovation is clearly required. Against that there is the issue, which we have discussed regularly, about the increased demand for biofuels, which has land use implications, and the need for agriculture, to make a contribution and to reduce its adverse impacts, in terms of not only climate change but environmental pollution to soil and water.
Above all, the requirement is to ensure that with the new agricultural systems that we anticipate having to be produced through new technologies, we must ensure that the price of food remains within the capacity of the poorer countries, which at the moment find it difficult sometimes to compete for food. Indeed, the higher food prices threaten their development.
In the developed world, as opposed to the developing world, we face increased volatility in food prices, which arises quite rapidly and unexpectedly sometimes, as we saw last year, with food bans from Russia, Ukraine and other countries. In 2009, Chatham House said very reasonably that we can no longer afford to take our European food supplies for granted. We may not be short of food ourselves, but our purchasing power of European consumers leads to these adverse impacts, export bans and food droughts, which we have seen since 2009, as a direct consequence of our reliance on food that we can purchase more rapidly than others. Over the next 40 or 50 years, we need in Europe to promote increased production, particularly in countries where consumption will increase—that is, we want to promote production in poorer countries and reduce price volatility, which helps no one. Above all, we want to develop lower cost production systems, or low-cost production systems at any rate, because I fear that they will not be lower than at present. We need to reduce our dependence on inputs, particularly of fossil fuel, and to make much better use of water. That is what we mean by sustainable intensification, which has to be done with the same or a reduced land area. The bulk of future increases in production will thus have to come by greater output per hectare, which means higher yields and a dependence on good quality soils, adequate amounts of water and the development of appropriate technology.
Chapter 6 of this helpful report deals at some length with the research and development requirements. This is where, with our own role in the United Kingdom, we recognise that we are the repository of much of the underpinning science. That is certainly relevant to other European countries, if perhaps to a lesser extent. While it is true that applied agricultural research has declined over the past 20 years, the same has not been true of the biological sciences as a whole. All credit to the previous Administration, particularly while the noble Lord, Lord Sainsbury, was Science Minister. He did a lot to underpin the basic sciences. The tragedy is that much of that basic science is not being adequately applied in ways which are relevant to these production areas where we see problems looming ahead, so we need to build those bridges.
We need technology transfer that is appropriate to the users. I remember that when Archbishop Tutu was asked what had been the greatest and most important advance in Africa over the past 10 years, or perhaps in his lifetime, he said that it was the mobile telephone. That is because many African farmers will have access to a mobile telephone with a camera on it. Being able to photograph the crop or the disease, they can get instant transfer with the sort of technology they are looking for. Above all, we need the infrastructure to ensure that the development work moves the science, which has moved so fast. In molecular biology, we now have knowledge of the plant and animal genomes. All that gives us a great opportunity and there is huge potential for innovative approaches.
The problem is that we have not been prepared to embrace some of those new technologies, an obvious example being GM soya. We have to rely on imported protein for animal feed, which we cannot grow competitively in Europe. Soya is now largely grown as genetically modified. If we insist on importing the non-genetically modified, our production systems will simply be more expensive. Of course there is a great deal of hypocrisy anyway, because we import meat that has been fed with GM soya—in fact we cannot tell whether it has or not. That is simply a case of not embracing a new technology for reasons that are nothing to do with either the science or the risk.
New technologies that will be relevant are no-till agriculture, which has already been widely adopted in Europe and certainly has much more application elsewhere around the world, and better irrigation systems, where the report refers to the technologies developed in the Middle East. I particularly draw attention to the excellent work done is Israel in developing irrigation systems that have far less loss through evaporation. Above all, there is integrated cost protection. All of those lead to lower input farming systems and cost minimisation.
We need to fund this strategic and applied agricultural research. Over the past 20 years, we have lost momentum. I have heard of and read many reports, and it is encouraging to hear Ministers say that they recognise that this now needs to be addressed, but it takes 20 years to move from basic research right through to the applied end of the spectrum. We need to understand that it should surely be part of our overall assistance to developing countries around the world. We are the repositories of so much of this science and we have an obligation to make sure that it is properly transferred.
Lord Giddens
My Lords, the most reliable measurements we have of CO2 in the atmosphere are those of the Mauna Loa observatory in Hawaii. As of February 2011, those showed levels of CO2 to be still rising. It is up to 391.76 parts per million, compared with 389.85 parts per million last year. Not only are those rising, they are increasing at an accelerating rate from decade to decade. Because, as collective humanity, we are doing so little to change the situation, it is now unlikely that we will be able to confine global warming to an average to two degrees Celsius—as noble Lords will remember, the limit that most scientists regard as reducing risk to reasonably manageable dimensions.
Whatever we do now, there will be significant levels of climate change. Noble Lords should remember that that climate change is irrevocable and cumulative. Once the greenhouse gases are in the atmosphere they will be there for centuries, and we know of no way of getting them out again. That means that globally, regionally and locally we will be deeply in adaptation. The term “adaptation” sounds benign and almost reassuring, but the risks that we face are truly profound and scary. It is a myth to suppose that the most dangerous changes will be confined to the developing world; Europe is as vulnerable as anywhere else to the increasingly intense patterns of drought, flooding and extreme weather that will follow.
For that reason, because of its emphasis on adaptation, I welcome the report. It was produced before I became a member of the sub-committee but I congratulate my colleagues on its production and on their excellent work. It is a highly important report because agriculture and land use produce something like 10 per cent of the greenhouse gases produced by the European Union, including some very lethal ones, notably methane.
The report and the EU commissioner’s White Paper are both rich in detail so I will comment only on a few aspects, and then only briefly. First, a core point is that we have to think about adaptation proactively and in a long-term fashion. It is no good waiting for climatic changes to occur and then trying to adapt to them later; our defences against a newly aggressive nature would be quickly overwhelmed. We have to prepare and invest now for outcomes that may be 20 or 30 years off. This is a difficult situation because it involves the assessment of future risk and there are several different scenarios for what that risk will be, so preparing for the long term is complex—it is not a simple matter. However, it is easy to find instances of where the threats are. For example, the core agricultural industries that exist in the southern Mediterranean almost certainly will not be there at all 20 years down the line, so we face massive issues of adaptation and we have to prepare now, not leave them for the future.
Secondly, improving the resilience of crops, woodland areas and water management systems is going to be key. Science and technology will have a massive role here, and I agree wholeheartedly with the comments that the noble Earl has made on this issue. I agree with the report when it emphasises the importance of biotechnology, which is probably the only way of simultaneously increasing the productivity and the hardiness of crops in response to changing climatic conditions. I do not see any other way of doing that on the horizon.
Thirdly, it is right to point out, as has been pointed out, that forestry has a dual role. Over 40 per cent of the EU is still forested. Protecting the forests is crucial since deforestation is a major source of greenhouse gas emissions in Europe and across the world. Forests also absorb CO2 and therefore act as a brake on emissions. I think that the Green Paper on forestry and the work on forestry that is currently being done in the European Union and, I hope, in this country will have a crucial role in adaptation in future.
Fourthly, it is important to stress that there is a positive side to all this, in spite of the real risks and dangers with which we will have to cope. We know that creating a low-carbon economy can have many positives, such as reducing our dependence on imported oil and gas, creating new industries and generating net new jobs. It is not often said that much the same goes for adaptation, which will also have to be creative and innovative. It will, I hope, at least have similar positive consequences. A good example is the research that is now going on into latest-generation biofuels. They can be grown in areas where no crops can be grown at the moment; they can be grown in the far north and, in the form of algae, in the oceans. There are many other examples of a proactively positive approach to adaptation. It is important not to lose sight of the significance of this.
The tasks facing us are huge. It is an open question whether, on a global level, we can cope with them. Certainly, in our region we must do so on a pan-European level, as it is obvious that climate change is no respecter of national boundaries. In conclusion, I would like the Minister to comment on anything he sees fit to comment on in what I have said, but also on one core question. Does he accept that adaptation to climate change must be proactive and demands a long-term strategy, as well as a pro-European one?
Lord Teverson
My Lords, unlike the noble Lord, Lord Giddens, I will speak more about mitigation. However, I must agree with him, after that very serious and penetrating speech, about how important adaptation is. If we do not make sure that our agricultural systems and crops are far more robust than they are at the moment, there will be a real problem in food security globally, especially in Europe, in the future.
The thing that I liked about this report was that it brought focus on to the agricultural sector. I am someone who gets particularly involved in issues of mitigation. I can never really understand why, effectively, mitigation is in DECC and adaptation is in Defra. It seems to split an important policy area, but we should not get into that in this debate. Agriculture does not come over very strongly; it is a theme that is sometimes, but not often, recognised. The steel, aluminium, cement and aviation industries get top billing, and we often forget about agriculture and forestry altogether. Why is that wrong?
I am very glad that this report highlights why it is wrong. First, agriculture accounts for around 14 per cent of global greenhouse gas emissions. In Europe, as the report points out, it accounts for almost 10 per cent—9 per cent, I think. In the UK, the figure is 7 per cent. However, I ask myself: if 7 per cent of greenhouse gas emissions in the UK are from agriculture, what proportion of GDP comes from agriculture in the UK? It is close to 1 per cent. Perhaps that is an unfair comparison and ratio, but here we have an industry that, as a percentage, contributes seven times more to greenhouse gas emissions than to national product. For all those reasons, this is an important sector.
This is further highlighted in the report by figures that I found quite staggering. Nitrous oxide is, as the report says, 300 times more lethal as a greenhouse gas than CO2, but in agriculture accounts for some two-thirds of emissions. Agriculture accounts for almost half the emissions of methane, which I thought was 70 times more potent than CO2 but the report says is somewhat less so. That means that this sector is important, and it is one that I ask the committee to keep focusing on in the future. It is one of which we should take a great deal of notice.
However, that is as nothing compared with forestry. When one looks at forestry on a global scale—as the noble Lord, Lord Giddens, said, climate change knows no boundaries—one sees 30 million acres of deforestation per annum creating more greenhouse gases than motor vehicle and truck emissions worldwide. It varies between 15 and 20 per cent, depending on the rate of deforestation in any one year. The sector is crucial for the rate of global warming in future. I will return to the relevance of this for Europe, which has already deforested most of its land surface. However, in a small but perhaps quite important way, it could perform better and reforest more.
Another area of mitigation that worries me—again, it relates to points made by the noble Lord, Lord Giddens—is that agriculture plays an important role even in Europe with biomass and biofuels. It has been disappointing that after the introduction of regulations such as the renewable transport fuel obligation, and the enthusiasm for biofuels, we had a very negative analysis of the sector which reversed the view about whether it could help with climate change mitigation. I urge the Government to stick with making sure that we get the sustainability criteria right for biofuels, so that we do not throw away this opportunity for the advancement of the agricultural sector in terms of mitigation of climate change by saying that it is too difficult or controversial. As we have already heard in the debate, whether it is algae or growing biomass in areas where it is not grown at present, we have a great opportunity. We in Europe should not give that away, nor rely on imports from the rest of the world.
I come back to the strength that Europe can have—and has had in Cancun—because of its status in the negotiations on the reduction of emissions through deforestation and forest degradation. Europe is crucial to enabling that programme to succeed, both because of its political leverage and through its financial contributions to making sure that that will become possible. It is one of the most crucial short-term programmes that we have to make a significant difference to climate change. What is the current state of negotiations on this part of the United Nations procedures? The Government have taken a lead in this area, but do they feel that Europe is putting sufficient emphasis on global deforestation to make sure that it is kept high on the agenda? I know that there has been movement in this area, whereas in others there has not. It depresses me that Europe, after the Lisbon treaty, still has pillars in the agricultural sector and in the common agricultural policy. We got rid of them in justice, home affairs, the CFSP and other areas, but we still have them in agricultural policy.
Something in the report that I liked is the idea of the carbon contract and carbon compliance. This is fundamental to reform of the common agricultural policy. Will the Minister and the UK Government champion this concept when considering where the CAP should go in future?
This is an excellent report. I hope that there will be renewed focus on this area, and I look forward to the Minister's responses on the crucial issue of the management of our climate for the future.
Lord Cameron of Dillington
My Lords, first, I declare an interest as a farmer, as a Lawes trustee at Rothamsted Research Station and as the new chairman of the Government’s global food security strategy board.
I was not on Sub-Committee D at the time of this report, so I come at the subject only from the evidence of my own experience, and I hope that your Lordships will forgive me if I extend my horizons slightly wider than Europe.
The Government’s chief scientist has, rightly, become famous for his “perfect storm” analogy, wherein the world has to produce at least 50 per cent more food over the next 40 years without damaging the environment, while emitting fewer greenhouse gases and using less energy and, above all, without depleting our water supplies. It is on this last issue that I should like to focus today in connection with agricultural adaptation. Indeed, the committee report highlights my point, saying:
“Effective water management lies at the heart of efforts to adapt EU agriculture to climate change”.
Although the Environment Agency gave evidence to the committee that water availability in England and Wales is going to be 15 per cent lower by 2050, it is elsewhere in the world, including southern Europe, that water problems are going to be really critical.
We actually have enough fresh water in the world to go around. We are currently using only 54 per cent of all accessible fresh water, which leaves 46 per cent untapped. However, even now, with today’s population, the reality is that a child dies as a result of poor sanitation every 20 seconds, amounting to some 1.5 million preventable deaths each year. Without serious political action, that situation can only get worse. Total world water demand is projected to rise by over 30 per cent by 2030. Many river systems, such as the Yellow River in China, the Murray-Darling in Australia, the Colorado in the US and the Indus in Pakistan, are already running dry due to excess irrigation. As we will all be aware, the Indus had terrible floods recently. However, it is the Indus delta, which is a very fertile and productive area of Pakistan, that has problems. It is being invaded by saline water and is thus becoming less productive.
Meanwhile, projections in Mediterranean countries such as Spain and Morocco indicate that declines in rainfall of up to 30 per cent might be expected in the future. Equally, the rainy seasons in Africa and India seem to be starting later and later. Perhaps because of this, Indian farmers are now taking 100 cubic kilometres more from their aquifers than are being replaced by rains. They have to drill deeper and deeper. Likewise, the water level in the aquifer under the Hebei Province of China, where much of the wheat is grown, is falling at the rate of 3 metres per annum.
As the noble Earl, Lord Selborne, has already commented, nearly 70 per cent of all water in the world consumed by man goes to produce food. Water availability becomes a critical issue when 40 per cent of the renewable resources are used for irrigation. It is at that point that difficult choices have to be made between agriculture and urban water supplies. By 2030, some southern European countries will be at or nearing this 40 per cent level, and, believe me, all politicians will choose to support the urban voter over his rural brother. Therefore, in all these countries and regions, adaptation and new practices will be needed, and I give a few examples.
The first is drip irrigation. Israel is at the forefront here, employing expensive sub-surface drip irrigation that puts the water right to the roots of the plant. There are not even pipes on the surface, and of course that is infinitely better than spray irrigation, where most of the water evaporates.
The second is recycling urban sewage. For example, faced with paying higher costs for imported water and desalination, Singapore has gone for self-sufficiency through treated sewage water. When the fifth plant opens this year, water from flushed toilets and so on will account for some 30 per cent of Singapore’s drinking water. There are other examples, such as in India, where the sewage effluent of Hyderabad is mixed with the waters of the River Musi and put into underground pipes to help to grow vegetables in Andhra Pradesh.
The third is better capture and storage. They do not have to be big reservoir schemes, as many small schemes for individual farms and communities are usually better. In southern Europe and elsewhere they will need government support either with grants or with cheap capital.
The fourth is better use of shallow aquifers. If you want to store water in a hot country, what better way is there than pumping the excess water in the rainy season down to the underground aquifer to store it so that you can use it later on? You have a ready built reservoir, free from the problems of evaporation and free from the problems of flooding people’s homes, as can happen when you build an above-ground reservoir. I realise that there are complications in doing that, but as a method it has been quite successfully used in many parts of the world.
The fifth is better use of modern farming systems, such as no-till cultivation techniques, which, again, the noble Earl, Lord Selborne, mentioned. That greatly reduces the evaporation of water from the soil and encourages better organic matter, which is very useful in developing countries as an important source of fertiliser.
Last, but not least, we need to make better use of modern plant-breeding techniques across Europe. For example, if you can silence the gene in maize which makes the plant transpire and therefore need twice as much water as it really needs in order to grow its cobs, you can help to feed more with less. Equally, plant breeders are finding varieties of rice and other staple crops that now require less water than old varieties. There is a variety of rice with the wonderful name of scuba rice which allows rice to survive underwater in floods for much longer periods than was possible in the past.
Europe simply must invest in new technology and it must not be frightened of persuading its consumers that these varieties are safe to grow and to eat. I have a view that if scientists, farmers and everyone involved in the food chain seriously focused on how to feed 9.4 billion people—our forecasted population—we will be able to feed them, providing, of course, politicians and other funders can take a long-term view.
On water, no one is denying that there will not be serious problems in some areas, which there already are, as there is some political unrest and strife in areas such as northern Kenya and the Middle East. As regards food shortages, if the nations of the world can continue to work together and trade together, water shortages will remain localised and not affect the overall supply of food. I agree that that is a big “if”, and the key phrase is “providing politicians can take a long-term view”—which, in the immortal words of Private Frazer, means: “We’re all doomed!”.
Lord Framlingham
My Lords, I am deeply honoured to become a Member of your Lordships’ House, and I am immensely gratefu1 for the warm welcome I have been given by everyone, not least the staff of the House who have been unfailingly helpful and kind throughout. I am deeply indebted to my sponsors for escorting me safely through my introduction: the noble Lord, Lord Geddes, who is an old friend from Suffolk, and the noble Baroness, Lady Boothroyd, under whom I had the great pleasure of serving as a Deputy Speaker. I am particularly grateful to them as a recent illness has left me temporarily unsteady on my legs. I suspect that they were as anxious as I was throughout the entire ceremony.
As Michael Lord, I was for 27 years the only Lord in the Commons. On my appointment to your Lordships’ House, I would have been a Lord in the Lords. I was advised by the powers that be that this really would be most confusing in so many ways, not least in debates in your Lordships’ House, where I would have been referred to as the noble Lord, Lord Lord. To choose another title was no hardship. On the contrary, taking the name of Framlingham, a delightful ancient and historic market town in my old constituency, where I was originally adopted as a parliamentary candidate in 1983, gave me, and will always give me, enormous pleasure.
For my last 13 years in the Commons, I was a Deputy Speaker. That has inevitably made me, among other things, a good listener. How often in the Speaker's Chair I yearned to intervene in a debate, only to realise later how glad I was that I had not.
Fairness and firmness are required of the occupant of the Speaker's Chair. To the extent that I have any of these qualities, I got them in due part from all the sport that I played over the years—particularly, in my younger years, Rugby football. I played for Cambridge against Oxford in the 1960 Varsity match. Our fair and firm, top international referee was a highly respected Welshman called Mr Gwynne Walters. Impeccably dressed, he always refereed in a blazer; he refereed impeccably too. Although the match was ferocious, as all such matches are, not one player spoke a word to him throughout the entire match. How things have changed. Modesty forbids me mentioning the outcome of the match, save to say that further details could be gleaned from the noble Lord, Lord Butler of Brockwell, who played on the opposite side.
A Deputy Speaker in the Commons must have a good memory. He or she must be able to name immediately what was, in my day, any one of 650 honourable Members at the moment that they rise to speak, however unexpectedly. It was not always so. In earlier times, the occupant of the chair simply pointed to whomever he wished to speak next. Then, on 19 May 1685, the House of Commons, in its wisdom, elected as Speaker Sir John Trevor, who appears to have been cross-eyed. The result was that every time he pointed, two people stood up. Ever since then, names have had to be remembered and called.
Before entering the House of Commons, I started and ran my own forestry company. I became increasingly involved in what is sometimes called urban forestry and, finally, in arboriculture. I was privileged for several years to be the president of the Arboricultural Association. Having listened to the debate so far, I am sure that your Lordships will be well aware that arboriculture is about trees for their looks; as opposed to silviculture, which is about trees for their timber.
I worked through the dreadful ravages of Dutch elm disease and on the subsidence problems caused by trees near buildings on shrinkable clay subsoils. When, some years ago, the Clore extension was added to the Tate Gallery, I was retained to ensure the survival of the adjacent London plane trees. Strangely enough, my experience proved useful soon after I arrived in the House of Commons. Someone had advised the felling of the Catalpa trees in New Palace Yard. I was asked what I thought, and I am delighted to say that, 25 years later, they are still there. I have a great interest in our ancient and historic trees as well. Before politics took over entirely, I lectured both in this country and in the United States.
One of the most pleasurable duties of a Deputy Speaker in the House of Commons, when the Speaker is not available, is to greet and entertain visiting Speakers or their deputies. Without exception, they were full of admiration and respect for our Parliament, its systems and traditions, and anxious to learn from us wherever possible. They still truly believe that we are the mother of Parliaments. I trust that we do too.
My great pleasure in being appointed to your Lordships' House was heightened by the fact that I have a huge affection for and belief in our Parliament, the way it works and all it stands for. We take it for granted, in this rapidly changing world, at our peril. I have always believed that one of the principal duties of any generation is to hand on to the next generation that which has been entrusted to its care. In this context, I say that I was deeply saddened that we have agreed to experiment with allowing the use of electronic devices in this Chamber. I believe that that will prove to be harmful and disruptive, and I sincerely hope that it will not become a permanent feature.
Politics is often said to be the art of the possible, but sometimes I think it is the art of having the courage to do the obvious. I also suspect that many great issues are essentially very simple and that we make them complicated when we do not want to face them. In this, the role played by your Lordships’ House in the great issues of the day, free from simplistic party politics, is so very important.
I thank the noble Baroness, Lady Sharp, for her comprehensive introduction of her report. The term forestry—one of the topics of this debate—means different things in different countries and to different people and organisations. In this country, it originally referred to the hunting domains of kings, thus we have Hatfield Chase and Cannock Chase, and it came to mean, until relatively recently, planting and harvesting trees, principally softwoods, for timber. Currently the word covers everything from the great Kielder Forest to copses on our farms, and from ancient woodlands to urban forestry in Milton Keynes. It includes large tracts of conifer-planted uplands as well as the New Forest, the Forest of Dean and, in my part of the world, Thetford Forest.
In many of these areas now, the amenity value of woodland is considered to be as important as its timber value. In this increasingly hectic world, it seems more and more people are turning to and appreciating the enjoyment provided by trees and the habitat that they create and preserve. Whatever the terminology, however, it is all about trees. Trees really are one of the world’s blessings. They take in our carbon dioxide and give us back their oxygen. They give us their timber and their fruits. They help to stabilise mountainous regions, are crucial in the battle against desertification and, on top of all this, they are a joy to behold. So whether they grow in our country, in tropical rainforests or in the developing world, we must do all we can to increase tree cover. Regardless of the pros and cons of climate change, let us do the obvious and plant trees, protect rainforests and generally treat trees with the respect that they deserve, not for their sake, but for our own.
I thank noble Lords for listening to me so patiently. I look forward to making further contributions to debates in your Lordships’ House in due course and to playing my part in the affairs of this noble House.
The Earl of Caithness
My Lords, it is a very great pleasure to congratulate my noble friend Lord Framlingham—the noble Lord, Lord Lord—on his excellent maiden speech and to welcome him to the House. Besides gracing the green grass at Twickenham, he is a great sportsman because he also captained the parliamentary golfing association and has participated in many other sports. He has also done lots of other things in his life. He has great experience, which he will bring to the House, in local government, having served on North Bedfordshire Borough Council and Bedford County Council before he contested the seat of Manchester Gorton in 1979 where he got over 38 per cent of the vote, and nobody has come close to that figure since then. He was realised as a good bet for the future, and he moved from a Labour stronghold to a fairly good Conservative stronghold in Central Suffolk which later became Central Suffolk and North Ipswich, which he served from 1983 to 2010. More important than that, he brings to this House huge experience in agriculture and, particularly, forestry, and we welcome him for that especially. He graduated from Christ’s College, Cambridge with an MA. Presumably he played rugby for Cambridge rather than for the rather superior Oxford, which I would have supported, although I did not go there. His knowledge of forestry will be important in the future. We welcome my noble friend. We all enjoyed his maiden speech very much.
Turning to the debate, I say to my noble friend Lord Henley that I sympathise with him because he has an utterly impossible job. Far too much is expected of Governments but Governments cannot manage the climate. There is too much sensational press reporting on climate change and utter confusion in the minds of a lot of people who cannot separate climate change and manmade or man-encouraged greenhouse gases. Underlying all that, there is a huge lack of scientific knowledge. What there is is often contradictory.
The noble Lord, Lord Giddens, talked about air temperature. Just to show that we are not all on the same side, I would rather welcome a change in air temperature and a little warming in Caithness. That would be good. After all, it was much warmer in the days of the bronze age, as can be seen from archaeological evidence. My noble friend Lord Teverson will know that from Dartmoor. I know it from Caithness. It was certainly warmer when my ancestors, the Norsemen, came over to this country and benefited by integrating with the Picts.
Air circulation, an issue on which we are short of scientific knowledge, concerns me more. We are told that because air temperature is going to rise it will be more stormy. But the storms that bring the rain to this country, mostly during the winter, arise very much because of the difference in temperature between the Arctic and the mid-latitudes. The wider that temperature, the greater the storms. If, as it is, the Arctic ocean is increasing in temperature, the gradient between the two temperatures is decreasing and the chances of storms are decreasing. We believe that that is what happened in the times of the Norsemen who went Viking. That could bring positive benefits but it could also mean that we will have very variable rainfall in the future. I am rather more sceptical than the noble Lord, Lord Giddens, as regards manmade climate change but I take the precautionary principle. I think that that is based on the fact that I am more of a countryman. I really believe that we have abused our planet in far too many ways.
On agriculture, the key to adaption, mitigation and changes for the future is the common agricultural policy, reform of which is essential. In her excellent introduction to the debate my noble friend Lady Sharp spelt that out clearly. However, what is more important about changing the CAP is the fact that it is the only way in which the EU will ever get close to playing a part—I hope a strong part—in feeding the burgeoning world population. I believe that to be a much more serious threat than manmade climate change. That is why paragraphs 68 and 69 of our report are so important and I welcome the Government’s reaction to that point.
I hope that my noble friend Lord Henley will work towards a reform of the common agricultural policy that is flexible because each area in Europe is different. Each area in the UK is different. Some of the solutions will need to be quite local. We have talked about the air circulation of the jet stream, which affected our weather this winter and brought on the early snow. Sutherland and Caithness are adjoining counties in the north of Scotland; one has hills and one has not. A local solution will be extremely important. Perhaps I may stress to my noble friend Lord Henley how worried some of us were about evidence that we received from the Commission, which seemed totally to lack comprehension that we are a maritime climate, unlike most of the rest of the continent. Therefore, our problems are different, particularly in the less-favoured areas.
As my noble friend Lord Framlingham said, there is a change of perception of forestry. There also is a change of perception as to how people view the countryside. That is why paragraph 150, in which we say that farmers and foresters must be compensated when they make a provision of public goods, is important. The Government gave a warm response to that recommendation. However, that is the easy bit. The difficult bit is how to value the provision of public goods. If my noble friend can say anything on that, it would be very helpful.
A point that has not been raised is regulation in agriculture and forestry. In our current report alluded to by my noble friend Lady Sharp, we took evidence from Rothamsted Research, which said:
“The disjunction between restrictive regulation in the EU and the lack of resources for agricultural research and innovation is probably the biggest threat to the long-term viability and competitiveness of EU agriculture”.
We will discuss that rather more fully next Tuesday evening, so I will not say anything more now.
I want to say a brief word about forestry, which was mentioned by my noble friends Lady Sharp and Lord Teverson. We do need more trees. That is essential not just for their significance as regards carbon but also for preventing the further degradation of soils. However, unless trees are profitable, they are not going to be planted. If they are not profitable, the taxpayer is going to have to subsidise the landowner or planter of the trees. That brings me back to paragraph 150, which I have just mentioned. Agriculture is one thing: you grow a crop and harvest it in the same year. When you plant a forest you are looking at what your grandchildren will harvest. Therefore anyone who is going to plant trees has to have confidence in the Government. As Governments change, we have seen time and time again that what one Government promise, the next may renege on. More importantly, the woodland owner has to compete with the Forestry Commission. As we discussed the other day, the Forestry Commission is both judge and jury in its own right. It controls anything a private owner can do and can set up in competition to the private owner. My noble friend faces a huge challenge in creating a climate in which people can have the confidence to plant trees for the future. It is necessary, but under the present structure with the Forestry Commission, it is not likely to happen.
I end with a brief word about innovation and research. There is no doubt that our research base, which, as my noble friend Lord Selborne said, has stood us in good stead, is now at severe risk. We were prime leaders around the world, something the noble Lord, Lord Cameron of Dillington, knows far better than me. British agriculturalists did a phenomenal amount of good work in Africa and elsewhere. Unless we put more into research and allow farmers to innovate by ensuring that the resulting knowledge reaches farming and forestry people, I am afraid that we face a fairly bleak future.
Lord Taverne
My Lords, I, too, congratulate the noble Lord, Lord Framlingham, on a delightful maiden speech. We look forward enormously to his future contributions. This is a fairly welcome and very good report which should be read together with the Foresight report and the later one from the European Commission, which has now been published. It is clear from these what the problems are: hunger, rising population, a shortage of good agricultural land, a severe shortage of water and all the effects of climate change.
I will speak only on the question of biotechnology. I have probably made more speeches about biotechnology than any other Member of this House. The reason is that it is not generally appreciated in Europe that while biotechnology is not a panacea for all our problems, and while an enormous amount of valuable research into greater productivity in agriculture is being done, which holds a lot of promise for the future, in Europe we have not recognised quite how important agricultural biotechnology is. Indeed, the Government demonstrate an attitude of considerable caution. Europe imposes severe restrictions on the import of food and feed, which has repercussions for those elsewhere who want to export to Europe. In many countries there are bans on biotechnology. As I have said, the Government are also cautious. In this report, the junior Minister for Agriculture said that the benefits of genetically modified crops have not yet been established. I do not know where he gets that idea from or whether he has really looked at the international evidence, which is quite clear.
What is not recognised is that, outside the European Union, agricultural biotechnology has been the fastest and most effective application of a new technology in agriculture ever. It is an enormous success story. There are now 148 million hectares on which genetically modified crops are cultivated, in 29 countries. Over 15 million farmers now grow genetically modified crops, over 14 million of them small-scale. There is no doubt about the crops’ success. One can look at the emphasis given to them in China, which regards agricultural biotechnology as one of the most important technologies for the future. In India, it is growing at a very fast pace indeed. So far as the problems in terms of greater productivity and dealing with drought are concerned, biotechnology has an enormous amount to contribute, as the noble Lord, Lord Giddens, said.
Under those circumstances, why is there still such opposition? I think it is because we tend to treat the green organisations—Greenpeace and Friends of the Earth—and the organic movement with extraordinary respect. We treat them as though they stand for motherhood. People are terrified of criticising them publicly, yet if one looks at their effect on agriculture one sees that they do far more harm than good. They keep saying that we must prove that the technology is safe, but there have been any number of reports. Every national academy of sciences in the world—those from Mexico, India, China, the third world, America and Brazil, the Royal Society and other European societies—has examined this time after time. Their conclusions are absolutely clear: that so far there is no evidence of harm to human health or the environment, despite 12 years of growth and consumption. That is completely ignored by Greenpeace and Friends of the Earth, and their opposition is not rational. Many years ago, when this House held an inquiry into genetically modified crops, Lord Melchett—then director of Greenpeace—gave evidence. He was asked:
“Your opposition to the release of GMOs, that is an absolute and definite opposition? It is not one that is dependent on further scientific research … ?”.
His answer was:
“It is a permanent and definite and complete opposition”.
That means that it is a faith—it cannot be influenced by evidence—and nothing has changed. All the evidence of the way in which genetically modified cotton has been a huge success throughout the world—it saved the Australian industry and has spread faster in India than anywhere else—is completely ignored or contradicted. The result is that the European Union is left behind.
Again, as far as the organic movement is concerned, I have made the point several times that at a time of cuts it is extraordinary that we spend £30 million a year subsidising the inefficient use of land; it is used to encourage conversion to organic farming. There is no question about it: organic production is a less efficient use of land. Why does organic food cost more? It is not because organic farmers want to rook the public, but because the yield is consistently lower. That cannot be denied, yet we subsidise it. If we spent that £30 million on agricultural research, it would be of enormous benefit. We would not have to cut the programme at all; in fact, we could give extra help to those excellent crop research institutes in Norwich—the John Innes Centre—and Rothamsted and to the Scottish research institutes.
The European Commission has issued any number of reports stressing the advantages of genetically modified food, explaining why it is no danger to health or the environment. But the Commission also subsidises Greenpeace and Friends of the Earth with €100,000 a year to carry out anti-GM propaganda in India. It is an extraordinary position.
In this country, the opposition to genetically modified food is superficial. That has been shown by some careful research done in Nottingham and Cardiff. The Government should speak out boldly, stop being cautious and give a lead. If we do not support this technology we will continue to be left behind, and Europe as a whole will suffer.
Baroness Miller of Chilthorne Domer
My Lords, I must remind the House of my interests; my husband and I own and run a 40-acre vineyard, and I am chair of the All-Party Group on Agro-Ecology. I warmly thank my noble friend Lady Sharp of Guildford for her knowledgeable and passionate introduction to the report, as it came to some important conclusions that were rather hidden behind a slightly anodyne summary and a less-than-passionate introduction. I am glad that she has redressed that today.
Agriculture and forestry are tremendously important; after all, they occupy the vast proportion of the entire land surface of the EU. For that reason alone, they offer tremendous opportunities for climate change mitigation to be incorporated into our land use. There are also some dreadful penalties to be paid by future generations if we do not manage to get adaptation right. Those penalties will be paid in food production, flooding and the very ability of future generations to able to produce food at all.
Is the Commission capable of altering the CAP in order to address some of this? That is where my worries lie. The difficulty was spelled out in some of the evidence that the committee received from Ms Andugar, which is on page 158 of the report. She said:
“The CAP is not a climate change policy, so it is impossible for this policy to provide all the tools, incentives or instruments”.
That is the crux of the issue.
I agree with my noble friend Lord Teverson that the debate hovers unhelpfully at the moment around pillars—pillars are depressing—and whether we should green Pillar 1 rather more or move further towards Pillar 2, where environmental goods are recognised as a desirable outcome. I am worried that the Commission might simply settle for the compromises that are needed to achieve any CAP reform by 2013. Those compromises will fall far short of what it must deliver in order to start addressing some of the critical issues that climate change puts before us and which your Lordships have touched on today. Here, I disagree with the noble Earl, Lord Caithness. Even without climate change, the issues of profligacy and waste would be no less critical. We cannot go on using water as we have. we cannot go on using artificial fertilisers as we have, and we would need three planets in order to farm as we have. I think that the noble Earl is nodding assent. Even if we set climate change aside, the CAP would still need radical reform.
It was cheering to hear in our evidence sessions of the multiple wins to be had from incentivising land users and farmers to take the right measures that address not only climate change but the crucial issues of soil quality, water stress and waste. For example, green cover crops slow down water run-off, stop soil erosion and allow better water absorption, with leguminous plants reducing the need for artificial fertilisers. All these provide more opportunities for beneficial insects and encourage biodiversity.
The report gets very excited about biochar—I agree that the evidence from Mr Prodi MEP was among the most exciting and compelling that the committee received. However, the committee could have extrapolated more fully the biochar lesson, which was that there should be no such thing as waste in the agricultural process. Waste at the start of the food chain is compost, mulch and manure; at the end of the food chain, and under some of the new technology coming forward, it is biofertiliser from the anaerobic digestion of food waste. We all agree that there is far too much food waste, but while it exists, let us use it. Biofertiliser is a liquid containing nitrogen, phosphate and potash, along with other trace elements, and it can be applied to farmland, reducing drastically the need for purchased fertilisers. That is another example of a win, win, win situation.
As other noble Lords have mentioned, this report needs to be read in conjunction with the recent government report from Foresight entitled The Future of Food and Farming. That report contains a critical, almost throwaway, sentence. It states that there is nearly as much carbon in the organic compounds contained in the top 30 centimetres of soil as there is in the entire atmosphere. That deceptively small statement contains an enormity of importance on which the UK Government and the Commission need especially to focus.
There are dangers in badly managed soils and potential in properly managed soils. In order to manage soil, farmers and land managers need the skills and knowledge, and indeed the right incentives, to restore its health and its properties. We have had more than 50 years of throwing on to it as much imported and artificial fertiliser as a farmer could afford. That has resulted in degraded, eroded soils and an industry addicted to artificial fertiliser.
I disagree with my noble friend Lord Taverne, who has offered biotechnology as the solution to the problem, but it will not restore the soils or supply more water. Before he is tempted to intervene, I should say that I have a very short time in which to speak and that I have kept my remarks as moderate as I can. We have to consider other ways of addressing this issue.
The UK response to the Commission communication and consultation, published in January 2011, also contained a worrying phrase. It said that,
“a minimum level of direct payment for small farms—however defined—would provide a perverse incentive to such farms to remain small and would impede consolidation”.
However, there is nothing magic about consolidation. Small farms might have seemed undesirable in the 1980s monoculture philosophy of maximising one-crop production as cheaply as possible without worrying about externalising the costs. Now we are thinking about carbon outputs, soil compaction from enormous machinery and, indeed, unemployment as the workforce is reduced. In today’s world, small farms can be seen as highly efficient units. Indeed, some studies of innovations on farms in south-east Asia have discovered highly efficient units of mixed production that re-use animal manures; they have a mixed polycultural approach and spread the risk for the farmers.
They also deliver a landscape that is attractive and rich in biodiversity. You do not find many tourists demanding to see the wheat fields of the Ukraine, but mixed farming areas such as Tuscany, Devon, Dordogne and County Waterford are attractive to tourists and wildlife alike—and they produce high quality food.
There is a huge amount of training to be done, knowledge to be imparted and research to be undertaken, and that message from the report is incredibly valuable. As noble Lords have mentioned, we need to build on the best of modern knowledge. The noble Lord, Lord Cameron of Dillington, mentioned drip irrigation, for example. How simple, but how very important. We also need to build on the tradition of what grows best where, not only geologically but climatically. Again, biotechnology cannot deliver that for us.
The EU and its member states had better address fast the appalling situation that has arisen whereby vast tracts of land—most recently, for example, 50,000 hectares in Kenya—are being sold off to European companies to produce biofuels. Smallholders in those areas are being dispossessed to become the urban unemployed. That situation is utterly immoral. It might be about meeting the EU climate change targets, but we cannot accept it and we should not encourage it.
Finally, I ask the Minister: what are our preparations for Rio 2012 on the agricultural side of the equation?
Baroness Quin
My Lords, this has been an extremely interesting debate. I, too, congratulate the committee on its report and congratulate the noble Baroness, Lady Sharp of Guildford, on how she introduced it today. Indeed, I thank all speakers in the debate, but give a particular warm thank you to the noble Lord, Lord Framlingham, for his impressive and very enjoyable maiden speech. It was a pleasure to listen to it. It is always a bit of a surprise to address long-standing colleagues in another place by a completely new name. Indeed, it might have been rather fun to talk about the noble Lord, Lord Lord, but I fully understand—and I think that we all appreciated—the reasons for his choice of title. It is a particular pleasure for me to be able to pay tribute to him, having been a colleague of his in another place. Because of that, I have known of his long and distinguished history of interest and involvement in agricultural and forestry issues. That was clearly illustrated today. His description of the role of trees in our world was better than any I have ever heard before. We greatly look forward to the contributions on these and other issues that he is going to make during his time in your Lordships' House.
The issue of the environment and climate change is obviously one on which action is needed at every level—from the dustbin outside your house to the stratosphere. Action is needed at local, regional, national, European, global and international levels. This report obviously looks particularly at the EU role in tackling these issues, and does so in a number of different ways, which I think are highly appropriate. It looks, very importantly, at the role of the common agricultural policy and at environmental policy more generally within the EU, as well as other EU policies that may have an influence on this area, whether they are policies on research and development or approaches to forestry, although there is not a formal EU forestry policy, structural funds and so on. All those issues need to be taken into account in looking at the EU’s role. Finally, the report refers to the EU’s role in world affairs and how its role in negotiations can affect the global outcomes on environmental and climate change issues. We have seen the Government’s response, which I understand is dated September 2010. The Minister may be able to give some updates. I notice, for example, that in the response to us it is mentioned that there will shortly be a formal response to the Commission’s forestry paper. I wonder what stage that is now at, whether that formal response has been submitted, and how favourable it was to the Commission’s ideas.
I turn to the areas relating to the EU’s role that the committee has identified. First, I think that the committee was right to look at the common agricultural policy in the immediate short term and to look ahead at the revision of the CAP in 2013, which is an extremely important moment for us. The committee is also right to have focused on the role of the second pillar, which has become one of the more important developments in the EU in recent years. I remember during my own time in the department when it was smaller than it is now. Although it has grown fairly slowly in comparison to Pillar 1, it is none the less an important development, and the committee is right to assess its potential for the future.
The noble Baroness, Lady Miller, expressed some frustration with having to talk about pillars all the time. However, that is how the CAP is organised at present and we have to look at that in order to decide how we would best like to see things change for the future. Certainly, to me, the second pillar has always had the great benefit of, first, being able to help sectors of agriculture which Pillar 1 traditionally ignored, such as pig and poultry producers and other areas. Secondly, I felt that it was a much more forward-looking part of the agricultural policy than Pillar 1, because it allowed farmers to identify new market opportunities. Thirdly, and perhaps most importantly, it factored in the environment in a way that agricultural policy in the EU had singularly failed to do up until then. I think we in the UK have tried to use that potential within Pillar 2 to good effect in the environmental schemes that have been brought in. Those have involved the delivery of important public goods. Since this is public money, it is important that some public goods are delivered as a result of it.
I also agree with the point made by the noble Earl, Lord Caithness, about the need for a more flexible policy. There is certainly no doubt that Pillar 2 has been a good deal more flexible than Pillar 1. Although I understand and appreciate how important many of the payments under Pillar 1 are at present, none the less that has been a rigid, ossifying policy as opposed to Pillar 2, which has the potential to both work with the market and bring in environmental factors. Furthermore, as the noble Earl said, it has the potential to respond to the different agricultural situations in different member states, and in different regions within them.
Interestingly, the committee itself identified some of the present needs of different parts of the EU. One passage in the report refers to the needs of southern European countries and I very much accepted what the committee said on that. In its response, the Government made the reasonable point that in terms of the projects supported, Pillar 2 is largely the responsibility of member states. However, I hope that will not prevent at least the encouragement of certain activities in the countries of southern Europe, where there was particular concern. Indeed, the sharing of knowledge and expertise is also a relevant task within the European Union.
Obviously, we are not sure at this stage how negotiations will proceed on the futures of Pillars 1 and 2 under the reform of the CAP but, whatever the balance in future, there certainly needs to be much more coherence between the two, particularly in view of the environmental and climate change goals that we feel are so important. There needs to be coherence in that respect with the structural funds as well, so that one part of the EU system is not working against some of the goals and commitments which we have, quite rightly, set ourselves. I should be interested to know whether the Government have already identified some of the gaps in the rural development programmes that they think ought to be filled in future, particularly when tackling environmental and climate change issues.
In their response, the Government also praise the voluntary approach adopted by farmers and the industry. That is important as during my own involvement with agriculture, I have certainly seen how much more environmentally aware the farming community is and how many useful initiatives have been taken. Those, such as the Campaign for the Farmed Environment, need to be recognised. There is also, for example, work being done in the dairy industry to identify ways of reducing greenhouse gases and so forth. At the same time and given the gravity of the situation, which was well put to us by my noble friend Lord Giddens, we have to monitor carefully what is happening and be prepared to take tough measures if necessary. The voluntary approach can deliver a lot but it cannot be entirely left to that, given the danger of simply slipping backwards rather than moving forwards, as my noble friend Lord Giddens mentioned in the statistics that he gave us.
The noble Lord, Lord Cameron, mentioned the importance of water. I will not repeat what he said but I thought that the comments he made about the situation both in the EU and more widely internationally were important.
Forestry is also part of the subject of the report. What action do the Government propose to take as a result of the Read report, which the noble Baroness, Lady Sharp, also mentioned and which was first produced in 2009? How might some of the issues that have been raised today be taken forward by the new panel on forestry that was announced recently? Its remit includes climate change mitigation and adaptation, along with a number of issues that have been raised during the course of this debate. Today’s debate will therefore be relevant to the work of that panel.
I have mentioned the vivid description by the noble Lord, Lord Framlingham, of the role of trees and the importance of urban woodland planting, which was mentioned by other speakers in the debate. I noted yesterday that my noble friend Lord Clark of Windermere, who used to chair the Forestry Commission, talked about the 1 million trees that had been planted in Wigan, the 1 million in Moseley, the 1 million in Ellesmere Port and the 2 million in Warrington. Although these trees were not planted for profit, they were planted with the public good and public benefit in mind, and that is an important aspect of what we are talking about today.
All Members of the House today have stressed the importance of research—the noble Earl, Lord Selborne, mentioned research into plant disease—and the potential of biotechnology. I agreed with the point in paragraph 180 of the report that an important aspect of the research work being undertaken by the Commission on biotechnology and GM will be ensuring that the conclusions of such publications are accompanied by public communication strategies. There is a real need for a rational debate on these issues to take place.
The noble Baroness, Lady Miller, mentioned the issue of soil management and use. I note that mention was made in the Government’s response to the committee’s report of the Defra research programme. Can the Minister give us an update on the work of that programme?
Sharing and disseminating information in the EU are obviously crucial and the committee is right to stress that. However, it is also right to stress that doing so needs to be translated into effective advice for farmers, farm workers, landowners and voluntary organisations and indeed throughout society. The role of the EU in world affairs was also mentioned. I very much support what the report said about it.
Overall, in our response to these challenges, we need to follow the words of my noble friend Lord Giddens who urged the Minister to be proactive and positive, despite the huge challenges that face us. I welcome the report and this debate, and I wish the committee every success in its future deliberations on this and related issues.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Henley)
My Lords, along with other noble Lords, I offer my congratulations to my noble friend Lord Framlingham on his maiden speech, particularly on bringing his expertise in both forestry and agriculture from another place to this House. I hope that in due course I can deal with some of those concerns. He raised some of his other concerns about the use of new technologies in this House. That is not a matter that I will try to address this evening, but will leave for the House authorities to address in due course.
Like other noble Lords, I congratulate not only the noble Baroness, Lady Sharp, on introducing this debate, but all the members of the committee—those who served on it, those who serve on it now and those who have spoken in the debate. We welcome the report on adapting to climate change. I can give a simple assurance to the noble Lord, Lord Giddens: yes, we take adaptation to climate change very seriously. We support it and it has all-party support. We will continue to work with the previous Government’s Climate Change Act. As the noble Lord will remember, we have the adaptation sub-committee, which is chaired by our own noble Lord, Lord Krebs. He will also know that we are required to lay the national adaptation programme before Parliament in 2012 and revise it every few years. We will make sure that we do so by January of next year.
As the noble Lord also knows, there are requirements on several key organisations to produce their own reports on adaptation to climate change. Only recently, we saw some of the key organisations, such as Network Rail, the water companies and others, produce theirs. I involved myself in the launch of Network Rail’s report, just to see how it was going on. We are very glad for what it did and the work it is doing, much of which could be described as being on the “stitch in time saves nine” principle. That is, if one does some work now it will save much greater work later, when changes that are sure to happen take place. As the noble Lord put it, certain things have already happened that make change inevitable whatever we can do in mitigation in the future.
We welcome the opportunity to discuss these important issues. As the noble Baroness, Lady Quin, put it, this is an opportunity to give an update on what the Government have been doing. As the noble Baroness will know, it is almost the anniversary of the publication of this report; it came out just before the election last year. If I can correct her, my honourable friend Mr Paice sent the Government’s response on 29 June. At least, that is certainly the date that the noble Lord, Lord Carter of Coles, cites in his letter of 7 July 2010, in which he thanks Mr Paice for submitting the Government’s response to the report on adapting to climate change. I just make that very small point. I will respond by giving an update on what has been happening since then, because we laid out our response in some detail last year.
We have listened to constructive comments that have been made by all noble Lords as we decide what further action is required to ensure that agriculture and forestry, in both the United Kingdom and Europe, are able to prepare themselves for the threats and—we ought to say, as others have implied—the opportunities that climate change might bring. I was grateful to the noble Baroness, Lady Sharp, for mentioning the Foresight Global Food and Farming Futures report, which was published in January. It provides further evidence of the challenges facing the global food system; and of the need to adapt to climate change to continue to produce food sustainably, and to produce more food for a population that, as the noble Lord, Lord Cameron of Dillington, said, is likely to rise to a little more than 9 billion by the middle of this century. We hope that at that stage, with a bit of luck, it might stabilise at that level.
I start by dealing a little with research and knowledge transfer, which was raised by many Members, particularly the noble Baroness, Lady Sharp. All noble Lords will be aware that only yesterday my right honourable friend the Minister of State for Agriculture and Food gave evidence to the committee’s new inquiry into innovation in EU agriculture. He answered questions on research and development capacity, programmes and adaptation to climate change. The Government have funded the development of climate change scenarios that provide an essential tool for predicting the impact of climate change. Defra has also commissioned research that used those scenarios to determine the impact on United Kingdom agricultural production and on wider ecosystem services. Therefore, we now have a reasonable understanding of what these impacts are, and are working to identify and prioritise measures for on-farm adaptation. Further discussions with key stakeholders will take place shortly.
The department will also continue to monitor the situation closely. Work is ongoing on the climate change risk assessment, which will draw together evidence and analysis to evaluate the risks, threats and opportunities for the UK posed by climate change. As I made clear in my opening remarks, the report will be laid before Parliament by January 2012, and will inform adaptation policy.
Under the United Kingdom cross-government food research and innovation strategy 2010, set out by the Chief Scientific Adviser, government departments, public funders, industry and academics are all working together to consider how they can stimulate R&D and innovation to meet the challenges posed by climate change and the threat to food security. In addition, the Government will invest up to £90 million over five years in match-funding industry-led applied research through the Sustainable Agriculture and Food Innovation Platform. That funding will stimulate the development of new technologies to increase productivity, and at the same time reduce the environmental impact of the food and farming industries. The aim is sustainable intensification.
I will refer briefly to the report, Science for a New Age of Agriculture, produced by my noble friend Lord Taylor of Holbeach when we were in opposition but adopted by the Government, which was published last December. We are committed in our structural reform plan to implement the recommendations of this report, and work is ongoing in that area.
The Government also feel that communication to both farmers and land managers is important to ensure that research and knowledge are used on the ground. We are considering ways to develop and facilitate knowledge transfer, to help farmers adapt so that they can produce food sustainably. In February, Defra started a study to look at how to develop and deliver integrated advice to farmers on a range of policy objectives, including climate change adaptation, mitigation, competitiveness and environmental outcomes. This integrated advice pilot is also expected to report early next year.
The current farm advisory system in England provides one-to-one advice via a telephone helpline service. We intend, as part of the development of a more industry-led approach to farm advice, to explore further the potential for face-to-face advice, and in particular to address areas where breaches of requirements are common. Defra is considering the future delivery of cross-compliance advice under the FAS and will develop options for a big-society approach that will fit in with other advice streams.
In the context of the EU, it is expected that the clearing-house mechanism that was foreshadowed in the European Commission's 2009 White Paper on adapting to climate change, which was referred to by a number of noble Lords, will go live at the beginning of 2012. It will be an aid for the development of adaptation strategies focusing on the needs of national and regional policy-makers.
I turn now to the long-term changes to the CAP. As noble Lords will know, last November the Commission published its communication, The CAP towards 2020: Meeting the Food, Natural Resources and Territorial Challenges of the Future. It identifies adaptation to climate change and fostering green growth through innovation as objectives of a reformed CAP. The Government have responded to the communication and are now taking an active part in discussions with the Commission and with other member states. As I think noble Lords will know, the Government’s view is that at this stage the proposals do not go far enough and they risk missing a vital opportunity to put farmers on the right footing. The challenges that farmers are facing are serious and require a long-term solution. Ambitious reform of the CAP is needed if farmers are to meet those climate change adaptation targets and other challenges in the future, as well as to make the most of the opportunities.
The Government agree with the committee that a reformed CAP should reward land managers for the provision of public goods, including land adaptation actions which would not otherwise be undertaken. The CAP should also support sustainable production, which may mean not supporting agricultural production where it would result in unacceptable environmental cost. The United Kingdom is already providing effective support for environmental public benefits through the various agri-environment schemes under Axis 2 of Pillar 2. There is already provision for adaptation actions under the existing Rural Development Programme for England—the RDPE—and measures that benefit soil, water or biodiversity also underpin adaptation action. This should continue to be supported under Pillar 2 as part of a reduced CAP supporting climate change resilience and correcting market failure.
The Government will continue to work positively within Europe to press for the greater ambition that we see as necessary on CAP reform. It will obviously be a very difficult matter, as anyone who has ever been involved in agricultural negotiations in Europe will know. I see almost a wry grin on the face of the noble Baroness, Lady Quin, but she knows what I mean, and I think other noble Lords do as well. However, we shall continue to work to that end.
We will also continue to work with the Commission and other member states on the implementation of the EU White Paper on adapting to climate change, which includes embedding adaptation in all EU policies and not just the CAP.
Perhaps I may say a word or two about forestry. This subject was raised initially by the noble Baroness, Lady Sharp, and then by all other noble Lords. Climate change represents a significant challenge to our trees and woodlands. It is possible that climate change is currently allowing some of the diseases that come into the country to take hold in our forests. There are also synergies between climate change adaptation, forestry and meeting a number of other environmental objectives, including the water framework directive. However, those synergies will be exploited only if land management is treated in a holistic way. The CAP reform process represents a real opportunity to develop that approach and for woodlands to play an integrated role with agriculture.
The noble Baroness, Lady Quin, and others referred to Professor Read’s report, which showed conclusively that woodland creation is a very cost-effective approach to helping to tackle climate change. The noble Baroness, Lady Sharp, stressed the evidence that Professor Read gave to the committee. As part of the work of the Woodland Carbon Task Force, the Forestry Commission has also commissioned analysis to examine further the returns of investment in different types of woodlands in delivering a range of ecosystem services, including mitigating and adapting to climate change. This will help to focus investment where it will deliver the greatest benefits for the least cost. It is also important to consider the implications for forests when developing and implementing EU directives and other legislation.
The noble Baroness, Lady Sharp, and my noble friend Lord Caithness also asked about support for forestry. I assure them that, as a result of recent controversies, if I may put it that way, we have set up a panel on the public forest estate. The panel will, as the noble Baroness, Lady Quin, will be aware from the terms of reference, range slightly wider than purely the public forest estate, which manages some 18 per cent of our woodlands. It will obviously consider these matters.
We will also always look at what other support forestry needs because, as my noble friend Lord Framlingham made clear in his maiden speech, forestry yields many benefits, not just in carbon retention but in many other public goods, and it provides timber that has uses. For that reason my noble friend Lord Caithness was very anxious to know what we can do to make forestry a profitable and sustainable industry. That might be too big a question to deal with now, but I think we all agree that forestry should be a sustainable and profitable industry for the good of the country in the future.
Monitoring the effects of climate change and the suitability of adaptation actions in the agricultural and forestry sectors will be essential to the development of robust and coherent adaptation strategies. Sharing that information at European level will provide added value for member states to develop their own programmes.
The noble Lord, Lord Cameron, and the noble Baroness, Lady Miller, stressed the importance of water and water quality and possible future problems in dealing with water shortages, not just in parts of the United Kingdom but throughout the world. I was very grateful for what the noble Lord said about making much more efficient use of water. We shall certainly continue to support research into improving water efficiency. I can give an assurance that quite a lot of work is going on in Defra in that respect. He is certainly right to talk about the problems that face us. We will also continue to discuss these matters, as we did only yesterday or the day before, with our water stakeholders’ forum. That was built around the water framework directive.
I have a brief comment to make about the remarks from the noble Lord, Lord Taverne, on biotechnology and GM crops, a matter that was addressed by other noble Lords. I can give him an assurance that the United Kingdom has worked towards finding a solution, with the Commission, to the low-level presence of non-approved GM in feed imports. That will certainly reduce the threat to feed suppliers bringing in food that might otherwise be contaminated, if that is the right word. We recognise that GM is, dare I say, a controversial issue and as the noble Lord made clear when he commented on Lord Melchett’s comments, it can be somewhat polarised. We believe that the argument should be based on the existing science and evidence; we will always make our decisions on scientific evidence for the future. I am sure that in the long run, once we have achieved a consensus on these matters, it will be right to go forward in a direction that will help to feed the world in the future.
I end by thanking the committee for its work. We look forward to future reports that the committee will bring forward. I can assure the House that the Government are committed to assisting agriculture and forestry in every possible way to adapt to climate change, and I can give an assurance that we shall continue to work with our domestic, European and international partners to achieve that end.
Baroness Sharp of Guildford
My Lords, I thank all noble Lords who have participated in the debate and, in particular, join others in congratulating the noble Lord, Lord Framlingham, on his excellent and very amusing maiden speech. Like the noble Baroness, Lady Quin, I shall treasure his words that trees are one of the world's blessings. That was one of the themes of our debate. With the exception of my noble friend Lord Caithness, who is somewhat of a sceptic on these things, all noble Lords who have spoken have stressed how vital the subject of the adaptation to and mitigation of climate change in European agriculture is to the future of the planet.
Noble Lords have spoken not only about the CAP but about water and soil management, forestry, research and its applications, and the role of GM technologies in raising productivity. All those issues are relevant and extremely important. I thank noble Lords for bringing them to the attention of the House; and I thank the Minister for his comprehensive response.
It has been a good and wide-ranging debate. With those thanks, I commend the Motion.