Eurozone Crisis

Lord Lawson of Blaby Excerpts

Tuesday 17th January 2012 Lords Chamber

[Lord Sassoon]

My Lords, as I have repeatedly made clear this afternoon and on other occasions, the UK Government want to see a strong and dynamic eurozone and European economy. But it is for the eurozone countries to take the lead in supporting the euro as a currency.

[Lord Lawson of Blaby]

My Lords, there is only one thing as worrying as the collapse of the eurozone, and that is the continuation of the eurozone. It has been demonstrated to be fundamentally flawed and is the cause of all these problems. Is the noble Lord, Lord Campbell-Savours, not right that at the heart of the thing that we need to address is the risk of a banking meltdown? Will the Minister give an undertaking that should it prove necessary for the United Kingdom Government to rescue any British banks, they will do so on much tougher terms than the ludicrously soft terms on which the previous Administration went in to save banks?

[Lord Sassoon]

My Lords, we have a lot to learn about the softness with which the previous Administration went about a lot of things. One of the key lessons for this crisis is that we must stick to a deficit reduction programme that is firm and fair, and keep this country isolated from the worst of the problems that are all around us.

Economy: Private Capital Investment

Lord Lawson of Blaby Excerpts

Tuesday 20th December 2011 Lords Chamber

[Lord Sassoon]

My Lords, to be clear, the three measures that I mentioned in my opening Answer were indeed new and additional measures, the costings of which are given in the Autumn Statement.

[Lord Lawson of Blaby]

Does my noble friend expect that the important changes in the relationship with the Royal Bank of Scotland that the Chancellor of the Exchequer announced yesterday might lead to more lending by the Royal Bank of Scotland to small and medium-sized enterprises?

[Lord Sassoon]

My Lords, that is a very interesting question. The board of RBS has made it clear that it is going to concentrate its business on its corporate and personal banking and therefore, certainly relative to its total business, it will indeed achieve that.

Independent Commission on Banking

Lord Lawson of Blaby Excerpts

Monday 19th December 2011 Lords Chamber

[Lord Lawson of Blaby]

My Lords, I warmly welcome the Government’s determination to press ahead without equivocation with the radical proposals in the Vickers commission report. My noble friend will be aware that ever since the banking crash of 2008 I have been campaigning for a complete structural separation of retail and investment banking. The proposals go a long way towards that, although not all the way.

I realise that there is a problem, which the Vickers commission recognised, that full enforced structural separation is probably contrary to European law, but, as I am sure that my Liberal Democrat friends would agree, that is not something that we should allow to stand in our way.

My concern is twofold. First, the top management of banks may be deficient in judgment and in some cases may be deficient morally, but they are certainly not deficient in well advised ingenuity. There is a real risk that they may find ways around the ring-fence if there is not full structural separation. Secondly, what we need is a cultural separation. We need to have a culture of prudence back again in retail banking, unlike the culture of adventure, if I may call it that, in investment banking.

I confess to my noble friend that I am concerned about the difficulty of having two totally separate cultures in one organisation. When this is in place it will be necessary, as the noble Lord, Lord Eatwell, said, at least to keep it under review all the time, although I think he is wrong in saying that we should keep the Vickers commission alive to do it. We should charge the Bank of England and the organisations that have been set up under the new regime with the responsibility of keeping this under close monitoring all the time, so we may need to go to full separation.

Finally, on the timing—I will confine myself to the ring-fencing—I am very glad that the ring-fencing legislation is going to come forward first, but there is bound to be a time lag because not only is the legislation complex but the banks will then need time to change and reorganise themselves to implement whatever the final decision of Parliament is in that legislation. I urge my noble friend to introduce the legislation not merely in this Parliament but in its next Session.

Euro

Lord Lawson of Blaby Excerpts

Thursday 27th October 2011 Lords Chamber

[Lord Sassoon]

I really do think that the noble Lord, Lord Howarth of Newport, puts up completely false choices and alternatives here. The fact is that significant progress has been made overnight to stabilise the eurozone. A lot more work needs to be done to fill in the detail but that is a first major step. I see that the noble Lord is nodding his head. That is point number one. Secondly, the idea that the UK is going to be marginalised in the “euro-outs” is simply not true. On Sunday, the Prime Minister established the key principle that we would be there, as we were yesterday, with a voice at the table on all matters involving all 27 EU member states. The idea behind the Question is that somehow it is just the UK versus the rest. We must be reminded that the other euro-outs include Poland, Sweden, Hungary, the Czech Republic and four others. We will play a critical part in driving forward the single market, and that is very important to the euro area.

[Lord Lawson of Blaby]

My Lords, does my noble friend not agree that it is a fundamental fact that monetary union in the eurozone is not viable short of a fiscal union, and that a fiscal union cannot come into being without full political union, which fortunately is as improbable as it is undesirable?

[Lord Sassoon]

My noble friend Lord Lawson of Blaby cuts to the chase with singular directness. I think that this is an onion with many layers to it and we need to go stage by stage. Having established the immediate priority of the stabilisation of the eurozone, of course the strengthening of the fiscal arrangements within the eurozone is the second priority. The Government signed up to that during the summer and the implementation of that needs to be taken forward. It is in the UK’s interest that that happens. It may lead, as the overnight statement said, to treaty changes and, as a consequence of that, the UK Government will seek to ensure that they take advantage of any opportunity to advance the UK’s interest. I think we need to regard this as a step-by-step process.

Banking: Quantitative Easing

Lord Lawson of Blaby Excerpts

Monday 10th October 2011 Lords Chamber

[Lord Sassoon]

My Lords, I think we risk straying from the Question. I know that, in a masterly wheeze, words about QE were added to this Question late in the day by the noble Lord, Lord Barnett. I think that quantitative easing is one of many questions relevant to the sale of bank shares but a relatively small consideration in present circumstances. Given that the Question is about the sale of bank shares, this is one of many factors that is relevant.

[Lord Lawson of Blaby]

My Lords, although privatisation of RBS and the Lloyds Banking Group—ideally after separating completely the retail and investment operations of the two groups—is clearly some way off, does my noble friend recognise that the immediate need is for the Government to adopt a much more hands-on relationship with them than hitherto to ensure an adequate flow of lending to small businesses?

[Lord Sassoon]

I very much agree with my noble friend that the immediate priority is not so much consideration of the sale of the banks—UKFI will continue to monitor that closely—but to keep credit flowing. In relation to that, the Merlin agreement is critical. We treat the management of RBS and Lloyds on an arm’s-length basis, but we will ensure, as we have, that we have an agreement with all the major banks to increase lending on what it was last year and what it otherwise would have been. The third quarterly numbers will be released under the Merlin agreement shortly.

Banking: Lloyds and RBS Shares

Lord Lawson of Blaby Excerpts

Thursday 30th June 2011 Lords Chamber

[Lord Sassoon]

My Lords, what I said is that we are considering all options for the disposal of the shares in RBS and Lloyds Banking Group. My right honourable friend the Deputy Prime Minister has asked the Treasury to consider a particular disposal option, and that is what UKFI and the Treasury are doing.

[Lord Lawson of Blaby]

Will my noble friend tell the Treasury that there is no need to consider this tired old suggestion for long? It was fully considered in 1979 when we embarked on the original privatisation programme and I am sure that his officials will be very pleased to give him all the old papers showing that it bristles with practical difficulties, not least the precise method of allocation, quite apart from the point made by the noble Lord, Lord Barnett. Will my noble friend also bear in mind the wise words of that great radical, Thomas Paine:

“What we obtain too cheap, we esteem too lightly”.

Banking: Government Shares

Lord Lawson of Blaby Excerpts

Monday 13th June 2011 Lords Chamber

[Lord Sassoon]

Number one, this is a Question about the disposal of bank shares; number two, I would not believe everything that you read on the front page of the Financial Times every day.

[Lord Lawson of Blaby]

My Lords, in saying that financial stability should be one of the considerations in the disposal, which I warmly welcome, does my noble friend agree that an element of that financial stability must be ensuring the greatest possible separation between retail banking and investment banking?

[Lord Sassoon]

My Lords, I will wait with interest to see what the final report of the independent commission led by Sir John Vickers says on that point but, as indicated in its interim report, it is at the heart of its deliberations. The Government await with interest its final report.

Banks: Cheques

Lord Lawson of Blaby Excerpts

Monday 6th June 2011 Lords Chamber

[Lord Sassoon]

My Lords, the facts of the situation are that the number of cheques being used has declined dramatically in recent years. There were approximately 4 billion cheques in use in 1990 and by 2009 that had reduced to approximately 1 billion—and it is expected to reduce very significantly again over the next few years. The fact is that the system has declined in use and it will require a very expensive rewrite of the clearing systems if it is to continue in its present form. The last thing that the Government or users of cheques would want to see is charges being passed on to users of cheques if that was a result of banks having to put in place an expensive new system. So one has to be pragmatic about this and give them the time, which they are taking, to come up with an alternative, including a paper-based alternative, that is acceptable to small businesses, charities and other individuals.

[Lord Lawson of Blaby]

My Lords, I am sure the whole House will have welcomed the Answer that the Minister gave to my noble friend’s initial Question, but will he go a little bit further? Will he undertake to use the power of the Government’s holdings in a number of banks—and the way that those banks are privatised, as I hope they will be—to encourage competition in retail banking in this country and, as part of that competition, to try to encourage at least one of the new entrants to continue to provide a checking service?

[Lord Sassoon]

My Lords, I am happy to confirm to my noble friend that competition is key to so much of making our banking system work better than it has in some respects in the recent past. That is precisely why the Independent Commission on Banking was given competition as the heart of its remit. Whether in relation to alternative payment mechanisms or to so many other things in banking, I completely agree that competition has to be at the heart of it. Again, when it comes to the Government’s shareholdings in the banks, the independent commission has made some provisional findings which very much touch on the banks that the Government control.

EU: European Financial Stabilisation Mechanism

Lord Lawson of Blaby Excerpts

Thursday 31st March 2011 Lords Chamber

[Lord Sassoon]

My Lords, they are both correct. It may be helpful if I explain the situation a bit further. The discussion on which there was consensus concerned the process that would apply at the ECOFIN meeting on 9 May. There was no consensus on the question of the underlying policy matter. As my right honourable friend the Chancellor said in his written evidence to the Political and Constitutional Reform Committee:

“The purpose of the phone call was not to reach agreement, but for Mr Darling to consult me on the course of action he proposed. Given he was still Chancellor of the Exchequer at that point, representing the UK in a dynamic negotiating environment, it was for him to reach decisions. He did this, aware of my views”.

That is the evidence of my right honourable friend the Chancellor.

[Lord Lawson of Blaby]

My Lords, can my noble friend confirm that, whatever precisely may have happened on that regrettable occasion in the recent past, so far as the future is concerned there is firm agreement between us and the European Union that, when the present mechanism is replaced by a new mechanism in a couple of years’ time, we shall not be part of or bound by that new mechanism?

[Lord Sassoon]

My Lords, I am grateful to my noble friend Lord Lawson of Blaby, who, as is customary, brings us back to what is really important. I can absolutely confirm what he says. At the European Council on 17 December 2010, this Government did what the previous Government failed to do, which was to get agreement that there would be an amendment to the treaty that would achieve a permanent mechanism to be established by the member states of the euro area to safeguard the financial stability of the euro area as a whole. Therefore, it is indeed correct that, as of 2013 at the latest, the United Kingdom, being outside the euro area, will not be part of this mechanism. That is the critical point, which I can confirm.

Economy: Government Policies

Lord Lawson of Blaby Excerpts

Thursday 24th March 2011 Lords Chamber

Moved by

[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.

--- Later in debate ---

[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.

Motion withdrawn.