Brexit: European Investment Bank (European Union Committee Report)
Lord Bruce of Bennachie Excerpts(4 years, 10 months ago)
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Lord Bruce of Bennachie (LD)
My Lords, I join all the other members of the committee in thanking my noble friend Lady Falkner for introducing this debate and for her chairmanship of the committee over the last four years. She has done it with considerable application, skill and expertise, and will be sadly missed. The staff who supported the committee were a class act, supporting the committee expertly, promptly and without complaint, in spite of the extreme pressures put on them from time to time.
It is shocking, but not surprising, that this debate is taking place in an empty Chamber. This is a monumental scandal of mismanagement by the Government and a failure of communication to the wider public of one of the serious consequences of leaving the European Union. Members of the committee, and all noble Lords who have spoken, have highlighted the benefits that this institution has provided to the UK—the billions that have been invested across a range of sectors. These benefits are not just financial but nuanced in other ways. The reputation and the AAA credit rating of the bank have unlocked substantial private and public finance, some of which would simply not have happened without the existence of the bank, which is about to not exist for the United Kingdom in the very near future, unless things change very sharply. Of course, we continue to contribute while the investment has almost disappeared. I find it extraordinary that we have allowed a situation in which the UK is not financed, when we are a full member, despite our still providing the resources for that investment.
The Government’s determination to deliver Brexit and, as a number of speakers have said, their ideological indifference—if not hostility—to the public-private partnership that the bank represents, mean that the impact of losing it has been very undervalued. This has been brought out in our report. All we asked for, and all we are getting, is our capital over a long period and without interest—indeed, as the noble Lord, Lord Vaux, said, not even the value of the capital. The retained earnings that our capital has helped generate will stay just that: retained.
I draw the House’s attention to the fact that during the coalition, the Liberal Democrats introduced innovative measures in this area. It was the Liberal Democrats who called for the establishment of the Green Investment Bank. It was Vince Cable who, out of the wreckage of the financial crash, secured the establishment of the British Business Bank. If the Government had thought ahead about the implications of Brexit, I suspect that they might not have privatised the Green Investment Bank. My instincts are that they would have privatised the business bank, had Brexit not happened, but they realised that this was a vehicle they needed to strengthen, rather than let wither away or sell off.
We need to look at how we can replace the EIB. The noble Viscount, Lord Waverley, made some interesting suggestions, which I am not sure would be welcomed by the EU, about how we might find a way of effectively locking ourselves back in through a shareholding of the EIF. It is an interesting idea. Again, if we were in the right kind of negotiating framework and relationship, it might just be possible.
Viscount Waverley
Does the noble Lord agree that the UK does in fact have a lot of experience, through the Asian Infrastructure Investment Bank, which is funding the one belt, one road initiative from China all the way through central Asia and beyond? Maybe there is a lot we could learn from that process.
Lord Bruce of Bennachie
That is indeed true, and of course, Danny Alexander is one of the directors of that bank.
The point, which has been drawn out by all the speakers, is that infrastructure banks—promotional banks, as my noble friend Lady Bowles described them—are well established in many countries. You could argue that the EIB was, in effect, Britain’s answer to that, but as we leave the EU, we do not have an answer to that. I think it fair to say that all the speakers have suggested that now is the time for the Government to think about a promotional bank of this kind, because it is very difficult to see how we are going to fund massive infrastructure projects and the kind of innovative financing for small and medium-sized enterprises that has been provided, and which we do not have any mechanisms in place to deliver.
The evidence we had from KfW, established in 1948 partly to deal with the Marshall plan, demonstrated how a bank of this kind can become a major national asset. Yet, somehow or other, the UK has tended to sniff at these ideas, and we do not have anything to compare to it. When I was chair of the International Development Committee, I argued the case for a British development bank—something that France, Japan and a number of other countries have an equivalent of. We have in the CDC perhaps the nucleus of an organisation that could become a development bank, but on reflection, on the evidence that this committee received, I am of the view that we should not set up a series of banks; we should consider having one national bank which has sectoral commitments. Infrastructure is absolutely necessary—small and medium-sized enterprise finance—but so are development and external activities. I ask the Minister to take away from this debate the fact that we would like the Government to give serious and considered thought to setting up a bank of this kind—and if not, why not? In other words, I ask them to explain their thinking and what the alternative might be, because it is not at all clear from anything the committee has heard.
It is worth noting that, even within the United Kingdom, Scotland is setting up its own bank. I suggest that it will find that difficult in the consequences of a Brexit, and certainly a no-deal Brexit, but at least it is a recognition of something. It would be a bit ironic if Scotland could do something that the United Kingdom feels incapable of doing. What is abundantly clear is that, once we are left to our own resources outside the EIB, the UK’s credit rating is unlikely to soar. It is already downgraded. It is likely to be further degraded. One of the consequences is that we will have difficulty borrowing money and it will be expensive to do so.
It is difficult to see how the UK can possibly replicate the advantages currently available through the EIB. As we have learned, the EIB has the advantage, first, of borrowing at the lowest possible rate and being able to pass that on, and secondly, because of its established expertise, of effectively crowdfunding other sources of investment. There is no institution in the UK that has the capacity to do that, and the UK’s credit rating will be such that, in the short to medium term, we will be unable to do it. The consequence of that—especially if we have no deal, the economy and revenues are shrinking, yet the infrastructure needs and the other investment needs are growing—is that the Government are going to face a huge black hole of astronomical proportions.
We heard the noble Lord, Lord Butler. My mother’s expression was, “You’ll be sorry when I’m gone”. It is the same thing. We are going to be very sorry when the EIB is gone because, as we have established, we can see no future relationship with the EIB; certainly not if we do not negotiate in a constructive way. Without that, we will be left with no viable alternative. We will effectively be in a situation where we do not have a fallback and we have a gap. The noble Viscount, Lord Trenchard, made the point that it was a terrible deal. I am a passionate remainer, but I cannot understand why, if we are going to leave the EU, we do not negotiate the best future relationship that recognises the contribution we have made. Whatever side of the argument you are on, simply to throw up our hands and hand it over was quite extraordinary. We were led to believe that when this was discussed with the board of the bank, the British representative did not even contribute to the discussion, which I find utterly appalling—an abdication of responsibility, if you like.
To conclude, I suggest that the Government have some very hard thinking to do and some very serious questions to answer. I hope the Minister will be able to answer some of these, but I respect him enough to know that those he cannot, he will take away and bring back: I ask him to do that if that is the case. If I may say so, in a very partisan way, this debate and this report tell me exactly why we should stop Brexit.
Lord Young of Cookham (Con)
My Lords, I begin by thanking the noble Baroness, Lady Falkner, for selecting this important topic for debate, for her speech in introducing it, and all noble Lords who have participated in our discussion this evening. I am grateful to the noble Lord, Lord Vaux, for his good wishes on my birthday. I am not sure I wanted to spend it taking a supply and appropriation Bill through the House of Lords, then answering an Urgent Question on rendition, then listening to 90 minutes of trenchant criticism from a Select Committee—but at my age, it is nice that anyone wants to employ me.
I join other noble Lords in thanking the noble Baroness for her work as chair of the EU Financial Affairs Sub-Committee, which is a particularly important role in recent years, providing detailed, expert scrutiny of key issues. She mentioned her five reports and an excellent example of her work is the report before us this evening. I enjoyed reading it, raising, as it does, a number of important issues regarding the EIB, SME finance and infrastructure. I have also read the Government’s response to the consultation paper on infrastructure finance.
One theme running through our debate has been the uncertainty about the future, mentioned by the noble Baroness at the beginning. What is to replace the EIB? Others have been the disappointment at the outcome of negotiations on capital and concern about the drop-off of investment by the EIB, although we remain members of the European Union. There is concern about a shortfall in infrastructure investment. Finally, there are the Government’s proposals for replacement, or the suggestion that the Government should replace the EIB with a national infrastructure bank. I shall try to cover as many of those issues as I can.
I begin by saying that we recognise the role that the EIB has played in providing access to finance in the UK. That is outlined in the committee’s report. We joined the EIB in 1973. We have contributed to its capital and have maintained a callable guarantee of €36 billion. The EIB and its sister organisation—again mentioned by the noble Baroness—the EIF, have operated in two critical areas, with the EIB lending for infrastructure projects and the EIF providing finance for high-growth firms. As the noble Baroness said, the EIB has cumulatively lent approximately €118 billion to UK infrastructure projects. Noble Lords mentioned a range of those investments. Higher education was mentioned by the noble Lord, Lord Giddens, while High Speed 1 and Crossrail were mentioned by others, as was investment in hospitals and schools.
In recent years, preceding the triggering of Article 50, the EIB lent an average of €6 billion per annum to UK projects alongside private investors. Compared to those private investors, the EIB typically offers competitive rates, as the noble Baroness mentioned, as well as support to projects through technical assistance. Another theme running through the debate has been the stamp of approval—the term used, I think, by the noble Baroness —or crowding in, mentioned by the noble Baroness, Lady Liddell, as the influence of the EIB in attracting other investments. I was impressed, as were other noble Lords, by the fact that it employs 3,000 full-time staff, many of them experts, providing the reassurance that other investors might need that these are worthwhile projects to support. Looking at SME finance, the EIB has been particularly important in funding regional SME funds, such as the Midlands engine and the northern powerhouse investment funds.
As we leave the EU, our relationship with the EIB will change. The EIB was established under the treaties, which state that only member states can be members of the EIB, so when we cease to be a member of the EU, we have to leave the EIB. Without being party political, I understand that the Labour Party’s policy is to leave the EU. Therefore, it follows inevitably that we would have to leave the EIB.
Under the terms of the withdrawal agreement financial settlement, the UK has secured the return of its €3.5 billion paid-in capital in the EIB, with payments being made annually for 12 years following exit. That agreement has run into a heavy volley of criticism, led by my noble friend Lord Trenchard, but I say to all those who criticise it that the final agreement was an improvement on the original EU position, which was to return the capital at the end of the loan portfolio’s amortisation. In the final deal, the UK’s capital will now be fully returned by 2030—some 30 years earlier than originally proposed.
The Government’s view is that this represents a good deal for the UK taxpayer, particularly by ensuring that there is no disruption to existing projects as a result of the UK’s departure from the EIB. We will of course continue to be able to draw down funds agreed prior to our departure.
There has been much comment about the future relationship with the EIB once we have left. The Chancellor has made it clear that we are open to the prospect of a future relationship and that discussions on a mutually beneficial relationship with the EIB group will take place during the next phase of the negotiations. The noble Viscount, Lord Waverley, talked about some of the options. We will look at the existing precedents and more bespoke options will be considered and explored as part of the next phase of the negotiations, as the Government have made clear.
The €3.5 billion represents the return of our full paid-in capital. As was mentioned in the debate, the EIB is not a typical commercial bank in that it does not pay dividends from its reserves to EIB members, and nor does the statute provide a precedent or a clear path for anyone to leave. It is important to recognise that the statute does not give members an automatic right to recover either capital or reserves—and, as I have just explained, the negotiated position was a significant improvement on the EU’s opening position. One cannot draw parallels with shareholders in conventional companies. Shareholders in a conventional company cannot expect the company to give their money back when they exit their shareholdings. Rather, they sell their shareholding in the market. However, given the nature of the EIB, that option is not available.
The noble Viscount, Lord Waverley, mentioned the Commission’s original investment, which was financed by member states through the EU budget contribution. The total value of the Commission investment based on the latest EU accounts is €581 million. The UK will receive a share of that proportionate to its budget contribution which, using an estimate of 12.4%, gives an estimated UK figure of €72 million—I think that that was the figure mentioned by the noble Baroness—or €14.4 million each year for five years. The repatriated amount will form part of the overall Article 141 process, so it is likely to be netted off UK contributions for that period.
The noble Viscount also asked whether we have a contingent liability of €36 billion. The answer is that we will maintain a declining financial commitment to the bank in order continually to financially back loans, including those given to projects in the UK granted by the bank during our period of membership—that seems to be fair. However, the commitment will decrease as the existing loans run down. This means that we could be called on to contribute further amounts to the bank, but this financial support will be called on only in very exceptional circumstances, and it is a matter of public record that the bank has never made a call on its callable capital.
Considerable concern was expressed that the EIB has reduced its funding for UK projects although we are still a member. We are aware that the EIB and the EIF are undertaking extra due diligence on UK projects in relation to the UK’s exit from the EU. We have been clear that while we remain a member of the EU, we enjoy the same rights as other member states to access EIB funding. More recently, good progress has been made with several UK projects receiving broad approval over the past year. There has been a loan of €350 million for the UK windfarm project. Triton Knoll was approved in April, while a loan of €1.65 million was approved for the Trafford Park tramline extension in June. In addition, in December last year two loans of €126 million each were approved for the UK companies South West Water and Stonewater social housing. Most recently, the Luton mass transport project had €120 million approved in February.
As the Chancellor has stated, we need to be prepared for all scenarios. We have taken action already by providing additional funding to support SMEs and we have launched a comprehensive consultation process on infrastructure finance to ensure that good infrastructure projects can raise the finance they need. We are determined to make the UK one of the best places in the world to start and grow a business. This means keeping taxes low and ensuring that businesses can access the finance and support they need. We have a comprehensive programme of activity to support businesses. The British Business Bank, which was announced in 2012 and became fully operational in 2014, aims to make finance markets work better for smaller businesses in the UK. British Business Bank programmes are supporting more than £5.9 billion of finance to over 82,000 smaller businesses, as of September last year.
In recent years, as I have just mentioned, the activity of the EIF has declined. We have taken action to address the gaps left by it. At Budget 2018 the Chancellor announced that, as the UK leaves the EU,
“the government will provide the British Business Bank with the resources to enable it to make up to £200 million of additional investment in UK venture capital and growth finance in 2019-20”.
That initiative was welcomed by many noble Lords who spoke in the debate, including the noble Baroness, Lady Falkner, and my noble friend Lord Trenchard. The Government made this funding available on 17 April to ensure that smaller businesses can access the funding they need.
Since the Autumn Budget that year, the bank has been a key partner in implementing the 10-year patient capital action plan announced by the Chancellor, which will unlock over £20 billion to finance growth in innovative firms. In addition, at the 2018 Autumn Budget the Chancellor announced new measures towards ensuring that defined contribution pension schemes can invest in patient capital.
The increased support through the Patient Capital Review means that UK government support for venture capital is now at a record high. Even before the announcement of the additional £200 million of funding for this year, the British Business Bank had the capacity this year to make commitments exceeding the combined average annual commitments from the EIF and the British Business Bank in the three years preceding the referendum.
Creating high-quality infrastructure—mentioned by many noble Lords—is critical. That is why we are increasing infrastructure investment, with the national roads fund reaching £28.8 billion and the biggest investment in the railway since Victorian times. Overall public investment is set to reach levels not sustained in 40 years.
The noble Lord, Lord Giddens, was concerned that the taxpayer would have to fund this investment in infrastructure, but it is not just the public sector that has this role. The private sector has a critical role to play, with around 50% of the £600 billion infrastructure pipeline due to be met by the private sector.
Lord Bruce of Bennachie
Will the Minister comment on the committee’s recommendation that the Government consider setting up a national infrastructure bank? That is exactly the mixture of private and public funds.
Lord Young of Cookham
Yes, I will come to that. That is one of the most important themes that has run through this debate.
Many noble Lords mentioned investment in decarbonisation and in green projects. We have a suite of tools to support private investment in infrastructure. The contracts for difference scheme has made the UK a world leader in offshore wind. The world’s largest offshore wind farm, the Walney extension, opened off the coast of Cumbria in September last year. Elsewhere, the offshore transmission owner regime has brought down the cost of connecting offshore wind farms to the grid, and we have reached 96% superfast broadband coverage.
Also relevant to the debate on infrastructure is the UK Guarantees Scheme, delivered by commercial experts in the Infrastructure and Projects Authority, which has £40 billion of capacity to ensure that good projects can raise the finance they need. We have given the UKGS additional flexibility to offer construction guarantees.
So while the EIB has been active in the UK market, it has worked within a successful and road-tested framework that supports investment. There is a strong appetite from the market to lend to UK infrastructure projects. Untypically injecting a note of party-political asperity, I mention that threats of renationalisation might constitute a threat to inward investment in UK infrastructure projects. We need to be absolutely clear that we do not frighten off the private sector from investing in infrastructure.
We recognise that there are still some challenges in financing infrastructure; for example, in how we respond to new technologies that carry higher risk and how we raise finance for very large projects. That is why at the Spring Statement earlier this year the Chancellor launched the Infrastructure Finance Review. This is looking at the strengths and weaknesses of the market, the role of the EIB, the Government’s existing tools and the institutional structures needed to deliver them. The review also explores a recommendation from the National Infrastructure Commission that if the Government do not maintain a relationship with the EIB, we should consult on establishing a new, operationally independent UK infrastructure finance institution. As the noble Lord, Lord Bruce, has just said, this links to the committee’s recommendation on consulting on a new UK infrastructure bank through the Government’s national infrastructure strategy.
This was one of the themes that I heard running through the debate: that this is something that the Government should consider very seriously. It was mentioned by the noble Baroness, Lady Bowles, the noble Lords, Lord Butler and Lord Bruce, the noble Viscount, Lord Waverley, and many others. The Government should reflect seriously on the points made not just by the committee in the report but during our debate about the need to try to replicate the characteristics of the EIB in generating crowding in of other investment, creating loans at a lower rate of interest and creating the stamp of approval, which was referred to earlier.
The formal consultation period closed in June, and while it is too early for me to share with noble Lords the formal results of the consultation, I can say that we have engaged widely and heard a range of views on the EIB, which we will consider when negotiating any future relationship. The Government have set out our intention to publish a national infrastructure strategy in the autumn. The results of the Infrastructure Finance Review will form part of that strategy, and there will also be a formal response to the consultation.
The noble Lord, Lord Giddens, asked whether UK business would be able to participate in Galileo post Brexit. In a no-deal scenario, future EU programme participation, including in Galileo, will need to be determined as part of any future relationship.
I am conscious that I may not have covered all the points raised in our debate and I will write to noble Lords on those that I have not dealt with. I cannot pre-empt the Government’s spending review at this stage. Obviously, that will be important when it comes to investing in infrastructure, but the Infrastructure Finance Review consultation shows that the Government are taking this issue very seriously.
The noble Baroness, Lady Bowles, and the noble Lord, Lord Butler, asked about debt management, the ONS and definitions. That is venturing into almost theological territory as the noble Lord, Lord Butler, will remember the Ryrie rules and the unending debate about whether or not something scored as public expenditure. It says in my brief that we will leave questions on the interpretation of the guidance to the experts at the ONS, which is an independent body. It is highly likely that a UK bank would fall within the PSND measure. However, the Government will take the views that we have heard on board as we develop our policy following the Infrastructure Finance Review.
Devolved Administrations
Lord Bruce of Bennachie Excerpts(5 years, 2 months ago)
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Lord Bruce of Bennachie
To ask Her Majesty’s Government what new proposals they are considering to facilitate co-decision making on United Kingdom matters between the Government and the devolved administrations.
Lord Young of Cookham (Con)
My Lords, the UK Government and devolved Administrations are working together to develop common frameworks in policy areas where powers returning from the EU intersect with devolved competence and where we need to continue working together following EU exit. We are also carrying out a joint review of intergovernmental relations with the devolved Administrations, considering both the principles and machinery that underpin relations and how they can facilitate the best relationships possible for the future.
Lord Bruce of Bennachie (LD)
I hope that that will have a positive outcome, but will the Minister take note of a publication today by the Institute for Government entitled Ministers Reflect on Devolution? If so, he will note the frustration expressed by Ministers of all parties about the relationship between devolved and UK Ministers. Given that the UK is now in effect a quasi-federal state, is it not time for a more fundamental review of how the devolved Administrations can genuinely be part of UK decision-making, even considering a royal commission and the possible role of qualified majority voting?
Lord Young of Cookham
I understand the frustration to which the noble Lord refers: that was reflected in our debate earlier this year initiated by the noble Lord, Lord Lisvane. After that, I undertook to communicate with the Chancellor of the Duchy of Lancaster, who wrote back to try to allay those concerns, and a copy has been placed in the Library. The review to which I referred is a joint review and can make progress only if it is agreed by all four parties. The noble Lord suggested the heavy guns of a royal commission; I think some nimble light artillery might be better focused to address the issue.
Brexit: Stability of the Union
Lord Bruce of Bennachie Excerpts(5 years, 4 months ago)
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Lord Bruce of Bennachie (LD)
My Lords, across the UK, Scotland and London voted most strongly for remain, which is somewhat ironic given the nationalists’ antipathy towards London and London-based government. Northern Ireland voted clearly for remain, only to find its hard-line Brexit party tweaking the tail of a Brexit-traumatised Conservative Government. A lot has been said, I think rightly, about Theresa May’s and Jeremy Corbyn’s cavalier disregard for those who voted remain. “You lost. Get over it”, they say, but they have been unable to come up with anything that can unite a majority. When the DUP is challenged for representing a minority in Northern Ireland, it asserts that remain voters are predominantly nationalists and can therefore apparently be discounted—second-class votes.
Membership of the EU resides with the United Kingdom and it is not possible for parts of the UK to be in and parts to be out. I suggest that raises the question as to whether we should ever have sought a simple binary majority, or one that was qualified by the views of the constituent parts of the United Kingdom as well.
During a recent visit to Derry, I was able to see and hear how differences already affect what is located on which side of the border and how people and services operate. Moderate unionists who voted remain are beginning to consider whether the complexities of Brexit might make the prospect of a united Ireland unexpectedly attractive, especially now they see a much more liberal Republic and a frozen conservative Province in the north. The polarisation of Northern Ireland politics has left the Province without a democratic voice. Disillusioned young people at an integrated school that I visited in Derry told me that they thought that violence would return to the Province. I was quite shocked that they were unanimous in their view.
For a long time—the noble Lord, Lord Lisvane, referred to this—many people thought that nationalism could be contained within the European Union or at least under its umbrella. That is kind of logical given that the raison d’être of the European Union was to find mechanisms to avoid conflicts getting out of control and leading to war—which has been one of its great achievements.
For many years, the SNP campaigned under the slogan, “Independence in Europe”, so leaving the EU is a problem for it. First, a significant proportion of its voters chose Brexit. Secondly, leaving the UK without the comfort of the EU umbrella could leave Scotland in a cold place, with no prospect of a quick re-entry into the EU. Campaigners in favour of remain have sometimes prayed in aid divergence with Scotland as a threat to the union in simplistic terms. The people of Scotland voted remain by a large margin. Theresa May’s dead deal, something similar or no deal would in many ways be a betrayal of Scotland, or at least an insensitive disregard for the concerns and preferences of its people. Of course, that is seized on by the SNP to make the case for a second independence referendum. “Let’s vote for independence and rejoin the EU”, it says, except it is not that simple. First, the UK is overwhelmingly Scotland’s biggest market. Secondly, however sympathetic the EU may be to Scotland’s warmth towards that Union—in contrast with the SNP’s hostility to this union—Scotland would have to take years and deep economic pain before it could accede to membership, during which time it would be outside both unions.
Surely it is time, Brexit or not, to sort out the mess that the United Kingdom has become and to create a constitution worthy of its name, which guarantees the human rights of everyone in the United Kingdom and accommodates the views and wishes of the devolved Administrations and the regions of England in a legal framework. The Bill in the name of the noble Lord, Lord Lisvane, is a good start. I understand why he asserts that nothing could challenge the sovereignty of this United Kingdom Parliament, but I think that he would recognise that, if it were a matter of a transition to a federal Government, we would eventually need a constitution to which even this House and the other House would have to be subordinated. That is how most modern democracies work. Ours is not working; it is time that we modernised it.
Constitutional Convention
Lord Bruce of Bennachie Excerpts(5 years, 5 months ago)
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Lord Bruce of Bennachie (LD)
My Lords, this has been a very interesting debate about our very complicated constitution, with a disparate range of views, not all of which are going to be easy to reconcile: that in a sense makes the case for having a convention. I join the tributes to the noble Lord, Lord Higgins, who has had a very distinguished career, both in this House and in the other place. He and I were reminiscing just a few weeks ago about a visit we made to Zimbabwe—he mentioned Rhodesia in his speech—at a time when we hoped we might be able to help Zimbabwe in a more positive direction than it turned out. We tried very hard; unfortunately, not enough people listened. He recounted to the House the wide range of activities he has been involved in, as a Minister and as a Member of both Houses, and the House has demonstrated how much it appreciates him and wishes him well in his retirement.
I also congratulate the noble Lord, Lord Foulkes, on securing this debate: I absolutely support the objective behind it of having a constitutional convention. A number of points have been made, but I reflected on what happened yesterday. It brought home to me just how dysfunctional and medieval our political system is. A dispute in a minority party at the other end of the House, which nobody but 317 people were involved in, was supposed to keep us all on the edge of our seats about the destiny of our nation. If that is British democracy, it is a shameful humiliation that it has been brought down to that. The reality is, as the noble Lord, Lord Lipsey, says, that in fact our British political system is at the mercy of the minorities who control the two largest parties—which are in themselves minorities—and we have the nerve to call that a democracy. I agree with the noble Baroness, Lady Jones, on that. We have some very fundamental thinking to do, because people are angry, disengaged and alienated. If we do not do something about it, I actually think we have to worry about civil disorder and unrest when people do not find any democratic outlets for securing the things that matter to them.
I pick on the big picture—the more focused picture. The dimension of England is always the problem for those of us who believe that some form of federal United Kingdom is the only way we can resolve the piecemeal reforms that we have initiated. The argument is that England is too big, so we can do nothing about it, but my noble friend Lord Greaves and others have made some suggestions. For example, my noble friend Lady Janke said we could look at how local government was secured in other countries, and mentioned Sweden and Germany. One of the problems with local government is that it just does not have its powers or financial resources secured: these should be constitutional rights enshrined in the law, and not subject to the will of some passing Secretary of State to start changing the powers or the allocation of how money is distributed, if he needs to please the Daily Mail on a given day for a headline.
Yet this is how our country is being run and has been run and there is very little that people can do. People in local government are asked to do more and more with less and less and as a result people say, “You are no use, you can’t do anything, you are not actually delivering for us”. We need a radical rethink, from top to bottom and side to side, but I suggest that before we have a federal constitution for the United Kingdom we absolutely have to address proper, effective, accountable devolution for England. However, I say in passing that that one of the bad consequences of the Scottish devolution settlement and the creation of a majority SNP Government is that it has been the victim of exactly the same paranoia that has been characteristic, in England, of taking control away from local government and centralising it under the control of a few Ministers. In Edinburgh we have lost control of the police, the fire service and many aspects of planning. We have lost control of our ability to actually fund the services that the Government expect us to provide.
We need, therefore, to start thinking about how we can draw people together, analyse the dysfunctionality that is characteristic of the way we run ourselves and, yes, learn from other countries. The interesting thing about Europe, never mind over 50 years but over the last 20 or 30 years, with the collapse of the Soviet Union, is that when countries had the opportunity to look at the kind of democracy they wanted to be, none of them looked at the United Kingdom as the model to follow. They looked at countries that had proper constitutions and proper arrangements. My noble friend Lord Steel once famously said, “The British constitution is not worth the paper it isn’t written on”. Nobody quite knows what it is: it is there to be manipulated at will by minorities who happen to be in control at any given time.
I was a member of the Scottish Constitutional Convention and was very proud to be part of it. To be fair to the noble Lord, Lord Foulkes, he acknowledged that while we naturally and unsurprisingly give the Labour Party credit—which it deserves because it had had a bloodied nose and needed to learn from it, and did learn from it—the convention was an offshoot of the Campaign for a Scottish Assembly, which was cross-party and non-party, which is really important. When we established the convention, we wanted to be sure that it was as representative and as legitimate as possible, so every elected Member of Parliament and of the European Parliament from Scotland was invited, ex officio, to be a member. Every council in Scotland was invited to send representations and it was supplemented by representatives of trade unions, business organisations, churches, women’s groups and a whole variety of civic society, to enable them to participate and be involved in it. It was not official; the Government of the day treated it with a degree of dismissive contempt and the SNP turned up only to walk out—with the intention of walking out, I think it would be fair to say.
That was unfortunate because there was plenty of room for building consensus, and we did. Indeed, I remember an occasion on which the noble Lord, Lord Foulkes, and I were on the opposite sides of the argument about the voting system. He claimed that I had a gun to his head and the chair of the Labour Party at the time said that the gun was loaded. It was not loaded by me; it was loaded just as much by the Labour movement and other members of the Labour Party, because they recognised that if you were going to secure a Parliament in Scotland commanding the support of the people of Scotland, it had to be genuinely representative of all parts of Scotland—I think that the noble Lord, Lord Foulkes, will understand that— not just the Glasgow Labour Party, which was what people feared. I give credit to Donald Dewar and other leaders for acknowledging that that was necessary. As a result of that, we moved from having an assembly to having a Parliament, to having more than the powers of the Scottish Office and to being elected by a proportional system.
That takes us on to issues such as referendums. If anything has been a constitutional outrage and abuse, it has been the use of referendums in this country. We have no constitutional basis for a referendum. We have a representative system of government, which the people boast about and celebrate, and then we suddenly throw into it the whim of a referendum, which is nearly always to meet the needs of a particular party in a mess. The net result of that political party in a mess has made the country a mess. What a disgraceful piece of leadership that turned out to be. The Scottish independence referendum was possibly the only way to address an issue: if a nationalist party wins a majority and says, “We have a mandate to try for independence”, a referendum is the way to test it. However, I do not agree with the noble Lord, Lord Grocott, that a simple question and a simple majority is the answer. Something as fundamental as constitutional change has to carry a very substantial majority for it to stick. If not, we have exactly the situation we have now; a country split down the middle, incapable of resolving its differences by any proper mechanism.
I am personally not very keen on the idea of a second referendum. I support a people’s vote only as a default mechanism because there does not seem to be any other way of resolving the dilemma. If Parliament can find a majority for a system that is genuinely uniting, I would support that, but the reality is that that does not look likely so it seems to me that we have to consult the people.
Fundamentally, I suggest that a constitutional convention needs to look from the bottom up. It needs to consult as widely as possible. It needs to include politicians: I do not think we can exclude them because in the end it will be politicians who have to implement it. The people making suggestions and having ideas who do not have political antennae need to be informed by that, but I agree that the politicians should not be the drivers. It should be a collective decision that draws from all opinions and especially from the grass roots up.
It has been done in other countries. The founding fathers of the United States built their system on it. Talking about the United States perhaps builds in one particular factor, which is that the lack of a written constitution and of real guarantees means that we have a lack of checks and balances built into our constitutional system. To those who say that we should just do everything gradually, bit by bit, I say that doing it that way is how we have got to this state. We have failed to do anything fundamental by analysing what we need to do. Some say that having gone down the road we have, with a Northern Ireland Assembly, a Scottish Parliament, a Welsh Assembly, a London Assembly and the demand now for much more local and regional government in England, we are well on the way to creating a quasi, if not actual, federal United Kingdom. It is not possible to have a federal constitution that is not written down. By definition, you have to define where the powers lie and how disputes are resolved and the mechanisms for doing so. The whole point about a federal constitution is that power is divided according to the appropriate body for delivering it, and the powers and resources for that body are secured by the constitution, not by the Government of the day or the political minority that happens to be in control.
That would be a fundamental, radical change to the way we do things in this country. It is a citizens’ contract that has never been built. To the extent that we have acquiesced in the way that the country has been run, it is now breaking down to the point where it threatens our ability to make the country governable. The Motion of the noble Lord, Lord Foulkes, is very timely. I point out to him that my noble friend Lord Purvis suggested a Bill three or four years ago. Indeed, there is a fairly proud history of doing that. But the reality is that we need to move and to recognise that this constitution does not work.
Referendums: Parliamentary Democracy
Lord Bruce of Bennachie Excerpts(5 years, 10 months ago)
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Lord Bruce of Bennachie (LD)
My Lords, decades ago my noble friend Lord Steel of Aikwood said that the British constitution was not worth the paper it was not written on. Now we have a more dysfunctional constitution than many of us have ever seen. I do not concur with some of the sentiments expressed to the effect that this wonderful unwritten constitution kind of dynamically works. It is in danger of failing to work and letting us down very badly. If our Parliament does not understand that and start to think about it, we may find that centuries of evolution can be crushed in a very short time.
I want to refer to two different referendums that we had on constitutional issues. In the Scottish referendum on independence there was at least a semblance of a framework. I will claim some credit: it was during a period of coalition, with a Liberal Democrat Secretary of State for Scotland who recognised that there needed to be a shape to that referendum. The shape took the form of the Edinburgh agreement, where all the parties agreed on the principles and the outcome, and that it would be accepted as a once-in-a-generation decision. That was not enforceable but was nevertheless part of the agreement.
It also forced those calling for the referendum—the nationalists—to at least set out, in a very long White Paper, the basis of what kind of independence they were asking the people to vote for. Much of the detail of that White Paper was challenged—and was very challengeable—but it was at least a framework. It forced them to say things such as, “We would operate with the pound sterling”, which exposed the fact that, as we had no central bank and required the authority of the remaining part of the United Kingdom, that was a basis on which independence would not fly, and almost certainly determined the outcome of the referendum, which was to remain part of the United Kingdom. If a process even vaguely approaching that had taken place with the Brexit referendum, there might have been a difference in the context of the debate and the outcome.
History will treat David Cameron very harshly, because to put a question to the people that involved an answer which you had no idea how you could deliver was the most appallingly irresponsible and cavalier, short-term political approach to the destiny of our nation. History will not forgive him for that. We now face a situation in which the majority of people in Parliament and in Government believe that we are embarked on a decision that will deeply damage our country for many years—if not generations —to come. I do not mean just economically: I mean politically, in terms of our standing and influence in the world.
It is essential, therefore, that we look at how we are abusing our constitution, and if we use instruments such as referendums we find ways of putting them into proper contexts. They should probably be reserved mostly for constitutional issues, and a two-stage process may be the only way you can make them work where there is a binary decision. That involves asking people in broad terms which way they want to go, but with a clear undertaking that, having set out the course, the mechanism will then be developed before they are again asked, “Is that still something we should follow through?” I find it ironic that of all the parties in the country at the moment, the one that is most enthusiastic about campaigning to give people a referendum on the outcome is my own party, the Liberal Democrats when we are the party that least needs the referendum. We were completely united from start to finish that it was the wrong thing to do and we should not do it. It is the other parties which are split and may have to go back to the people to get a resolution of their own difficulties, because they are not capable of resolving them themselves. There just seems to be an irony about that.
The position that we need to develop is: if we are routinely to use referendums in future as a means of determining a position, the first thing we have to be clear on in law is whether it is a consultative, advisory referendum or a binding referendum. If it is the latter, before the question is put you have to be able to tell people what the implications or consequences of either of the answers are in detail. The argument we are now faced with is that having had a referendum, anybody who suggests that we should do anything other than implement that referendum—even though we have no idea in what way to do it—is frustrating the will of the people and despising the democratic process. I think it is offensive to suggest that. I do not blame people who voted leave in the context. They were told lies and left to make all kinds of judgments. They were voting for all kinds of reasons, as has been said. It is not my view that they got it wrong, or anything else. Some of them might be absolutely certain that they know what they want and would vote for it again.
However, I believe categorically that when we know that the nation is facing a serious potential mistake, the very least we have to say to people is, “First, we have to be able to agree a course of action, so if we do not have one we cannot have a referendum”. But we are all faced with a situation where literally none of us has the slightest idea what will happen to our country next week, next month or by next March. Yet we turn around and claim that we represent the people and can somehow or other deliver for them, and that we are bound to implement their decision, even though we do not know what it means, because we did not think about that when we asked them the question.
The noble Lord, Lord Higgins, is absolutely right to have initiated this debate. It is essential that the country thinks hard about how we work our constitution and use instruments such as referendums in ways that do not take our country from disaster to catastrophe.