|Previous Section||Back to Table of Contents||Lords Hansard Home Page|
Lord Desai: My Lords, I wish to ask the Minister about the reconstruction and development efforts that will follow. The noble Baroness said that the World Bank would take a lead in this matter. I do not believe that the World Bank has much experience in this area. Would not the European Bank for Reconstruction and Development be more appropriate?
Baroness Chalker of Wallasey: My Lords, the major reconstruction programme will be spread right across the international community. That is why the international financial institutions, of which the World Bank is a leader, will lead on the financial aspects of the reconstruction. They have the relevant experience. They have the experience which, with respect, the European Bank for Reconstruction and Development does not have in hand to help make some of the changes that need to take place. They are far better placed to ensure that there will be further burden sharing with the United States and Japan. That is a critical matter. Also, we should look at reconstruction not only from the point of view of getting the infrastructure jobs done, but also as regards some carefully targeted help which will assist Bosnia in its transition to a market-based economy. In that regard Britain has unrivalled experience through the know-how funds.
Before turning to the hopes for growth and rising employment in the gracious Speech, I want to follow the example of the noble Lord, Lord Jenkins, as amiably as possible with some peace offerings to both sides of the House, to both the Tory and Labour Parties. Unfortunately, my compliments do not extend to the Liberal Democrats, except to the witty, pointed and even too brief speech of the noble Lord, Lord Jenkins. However, I cannot offer any compliments on his wholly illiberal defence of high taxation.
To the Opposition I offer totally genuine and sincere congratulations on their recent promising progress towards acknowledging the economic potency of competitive markets, splendidly expressed today by my old friend and adversary the noble Lord, Lord Peston. It seems to me that Mr. Blair and his friends have signed the pledge against collective worship in public at the shrine of primitive statism. Though the Tories fear the result of that remarkable conversion, I welcome "new Labour" as a convert to what its leader, in candid moments, openly celebrates as the "dynamic market economy". At least until the general election we shall
It would be lacking in the objectivity expected from the Cross-Benches not to extend equal congratulations to the new Conservative Party--new, that is, since 1979. Why else would Labour suddenly change its spots and even its carnivorous nature if not for the courageous example of the noble Baroness, Lady Thatcher, in demonstrating that old Labour was unelectable?
In the spirit of emerging consensus, I shall start with a carefully worded proposition that follows well the speech of the noble and learned Lord, Lord Fraser of Carmyllie. Despite solid gains in domestic productivity and international competitiveness which he outlined, there remain serious grounds for dissatisfaction with the performance of our economy, not least in the stubborn persistence of high, long-term unemployment. In order to carry Labour's education further forward, I chose a text from a Left-wing source that it would generally admire much more than I have done or currently do. My mystery voice was reported recently as urging,
I start therefore, as economists often do--and the noble Lord, Lord Peston, occasionally--with the latest Blue Book on UK national accounts for the period 1984-1994. During that decade net national income more than doubled from almost £300 billion to over £600 billion. Allowing for inflation, real net national income rose over that decade by a useful but fairly modest 30 per cent. During the same period total government expenditure almost doubled from around £150 billion to £290 billion. Again allowing for inflation, spending rose by almost 20 per cent. National income up by 30 per cent. and government spending by 20 per cent. means that both the Government and the Opposition are correct when they say variously that government spending has risen and that it has fallen. It has risen in absolute terms, but it has fallen as a proportion of a more rapidly increasing national income.
The first question I should like to ask both Front Benches is how we explain that, with the Government disposing of almost half the national income, Labour still finds it possible to convey a picture of a country seething with discontent. Not only Labour: is anyone satisfied with the so-called welfare state which takes 60 per cent. of our large national budget? We have discontent among suppliers--doctors, nurses and so forth--and discontent among the customers of the welfare state in schools, hospitals and so forth. At times the entire public sector seems like a workhouse that is full of Olivers always asking for more. But it already takes 60 per cent. of the budget and the budget takes almost one half of the national income.
My third question goes to the heart of the economies of the west and not just of the United Kingdom. Does anyone really believe that economies carrying such a burden of government are likely to perform particularly well in a rapidly changing world? That suggests a whole crop of further questions. Is there any conceivable way of raising that kind of money in taxation without severely damaging efficiency and wealth creation? Does anyone know of a "good" tax? I personally favour a shift from income tax to VAT as being less damaging and less distortionary to the economy. However, as a declared chairman of FOREST and a frequent smoker, the penal tax on tobacco has now reached the stage where it encourages smuggling from the Continent of hand-rolling tobacco to the sacrifice, at the last count, of £580 million to the Exchequer. The sale of cigarette paper is going through the roof and that of hand-rolling tobacco is going through the floor. That situation has been achieved by these absurd penal taxes.
No one any longer doubts that high income tax discourages enterprise and encourages avoidance. The tax on low incomes increases the attraction of social benefits and dependency, and is a cause of what Lord Keynes himself called "voluntary unemployment". Above all, whatever the initial impact of a tax, its incidence is ultimately upon the productive powers of the economy. In short, I am arguing that high taxes not only depress taxpayers, but they also depress growth and employment, which are the targets sought by the gracious Speech.
The truth is that while Mr. Blair and his colleagues are struggling bravely to liberate their party from the last vestiges of collectivism, the new radical agenda is moving on. To meet the unprecedented transformation that we are seeing in technology and foreign trade, we have urgently to devise new programmes for reducing government spending from nearly one half to nearer one quarter of the national income. I was encouraged during the vacation to read the stimulating and uplifting text of the noble Lord, Lord Skidelsky, The World After Communism. He pitches tax as a proportion of income at 30 per cent., but then he is on the Conservative Benches and from these Benches I am advancing to 25 per cent.
Social benefits now cost almost £100 billion a year. Frank Field has bravely picked up the banner of selectivity in welfare, first raised in the 1960s by the Institute of Economic Affairs with which I then had some connection. In those days we incurred the ire and odium of people like Richard Titmuss and the old-fashioned paternalists of all parties. With rising incomes and increasing private provision, as Mr. Blair has said, I would add that success in targeted anti-poverty policy will come to be measured not by
Labour has recently taken to accusing the Conservatives of lurching to the right. Let me now reveal my "mystery voice" from the left which I quoted earlier as calling for lower taxes and the partial dismantling of the welfare state. Who was this monster? It was none other than that champion wet, Christopher Patten. He was speaking here about his experiences in Hong Kong, where he boasted that the top income tax rate of 15 per cent. is paid by only 2 per cent. of its prosperous workers.
In conclusion, I urge Tories to keep lurching towards Mr. Patten's vision of Britain as a low-taxed rival to the Asia tigers. It should be low-taxed rather than low-waged. I agree with the noble Lord, Lord Peston. The alternative to looking east is not to stand still, but to risk our economy, with the rest of Europe sliding west.
Lord Prior: My Lords, I suppose it is appropriate that I should be called to speak between the noble Lord, Lord Peston, and my old friend, the noble Lord, Lord Harris of High Cross. I suppose that I would find myself somewhere in the middle. Having said that, I find myself at least responding to the questions that the noble Lord has just asked. I believe that they require an answer. I was delighted to see the speech of Mr. Christopher Patten, although I am not certain that all his experiences in Hong Kong have redounded to the benefit of this country, but that is a subject for another day.
As regards the speech of the noble Lord, Lord Peston, he was a little selective in his choice of some of his statistics and also in some of the periods which he took for them. I felt that if ever by any mischance he found himself sitting on the Government Benches--perhaps on the Government Front Bench--I would have some delight in quoting back to him in later years quite a bit of his speech. It was a good, robust opposition speech, but it did not have much reality in relation to the problems that the Government face and perhaps his party may one day have to face.
I find the economy in pretty good shape. I welcome this debate in particular, coming as it does before the Budget. I believe that one of the improvements in having it in November or early December is that it gives noble Lords and the other place the chance of proper debate before the Budget takes place as we have the Queen's Speech in front of it. I believe that the Chancellor has done a very good job extremely well over the past three years. We have had steady growth, a steady fall in unemployment--although a great deal still remains to be done--and reasonably low inflation. We have had no housing boom and people now buy houses in which to live rather than as a hedge against inflation or as a means of getting a bigger mortgage in a year or two to spend money on other things. We have had no retail boom. Most retailers may not like the slack trade at the moment, but they do not want to go back to the boom and bust of previous years.
My advice to the Chancellor--not that I anticipate that he will accept it--is not to throw away the good work that he has done over the past three years. We do not want any irresponsible tax cuts. I follow entirely what the noble Lord, Lord Jenkins, had to say on this subject. I say to him that we should perhaps take a leaf out of his book on William Gladstone, which I believe is one of the great biographies that I have seen and read. Mr. Gladstone introduced his Budget of 1853 after Mr. Disraeli had had a rather unfortunate experience. Mr. Gladstone had said that he was very much against income tax, but he found himself having to defend it. At the same time he suggested that if it kept stable for three years, after that time he would start to reduce it by 1 per cent. at a time. That is a graduation practice that might well be followed by the Chancellor in his Budget next week.
I think that the politics of it point to behaving with great sense and without recklessness. There should not be any binge because that would undoubtedly be followed by bust later on. Perhaps I may suggest to the noble Lord, Lord Peston, that we can leave that to his party because every day now we hear some new initiative from the Labour Party about reducing taxation or promises not to put it up. Those words are always accompanied by promises of increased expenditure on practically every facet of government policy. We are told that all that can be safely accomplished by stepping up the rate of growth and that if we return to a growth rate of 4 per cent., we shall have no problems. My mind immediately goes straight back to the ill-fated national plan of 1965 which was introduced by the late George Brown. That led to total disaster. This time round it would not take a quarter of the time to lead to disaster that it took last time because world markets are much more difficult now than they were 30 years ago. Furthermore, our lurches from booms to bust over the past 30 years have made our economy much more vulnerable than at that time.
That is all that I want to say about the economy, but I should like to turn now to the trade sector. I declare an interest as chairman of GEC. I should like to commend particularly the vigour and work of our foreign missions and embassies which I believe are now doing an exceptionally fine job throughout the world. About five years ago I was critical in this House of the Government's attitude towards exporters and manufacturing industry and of their failure to give British industry the drive and example that it needs. I believe that there has been a transformation over the past few years. I find the officials at the Foreign Office helpful, well informed and the envy of a good many other countries. In fact, I think that I saw something that I should not have seen the other day from an American source, describing the various aids and forms of help that various countries give their exporters compared to that given by the American Government. The report on Britain showed that our foreign service and the efforts made by our embassy and Government were considered by the Americans to be the best in the world. It was nice to read that from an American source.
However, the path to trade is never easy and I should like to take the House for a few moments through a problem that I have recently encountered. About a month ago I spent a week or so in the Middle East, including Saudi Arabia. I found there anger and intense resentment that we should be permitting a Saudi national bearing a Yemeni passport and using a false name to obtain a visa, to come here and then to abuse the privilege of his temporary residence by running a hostile campaign against a state with whom for many years we have had the most friendly and cordial relations and with whom we do a great deal of trade, particularly in high technology, thus involving the sort of jobs which the noble Lord, Lord Peston, says that we should support.
I am not arguing the relative merits of the asylum policy as evidenced in the Queen's Speech, but our approach to political asylum is based on the 1951 United Nations Convention on the Status of Refugees which has been in general incorporated into British law. It is in need of revision. Furthermore, it seems to me that the ever-increasing speed of communications will lead to greater opportunities to abuse a system which was established before the days of the fax and the satellite, which were never dreamed of by the drafters of the convention. Under current legislation it is not an offence to conspire in the UK to commit a terrorist act in another country. Surely that cannot be right, and surely it should be made clear that we will not tolerate incitement against a friendly power by those seeking asylum.
I should like to quote from an article in this week's Economist, commenting on the bombing of one of the national guard's headquarters in Riyadh just over a week ago. A shiver went down my spine when I read the headline because only two weeks previously I was visiting GEC employees working there, and I thought for a moment that two or three of the people to whom I had spoken had been murdered. So I have strong feelings on this subject. An article in the Economist stated:
Therefore, I urge the Government in their own interests to look carefully at the legislation and to heed the warning that I am giving this afternoon; otherwise there could be serious consequences for our trade. Having said that, my general advice to the Government is to act with prudence and honour and political rewards will follow.
Lord Barnett: My Lords, of the last two speakers, I normally find myself agreeing more with the noble Lord, Lord Prior, than with the noble Lord, Lord Harris of High Cross. However, on this occasion I was rather surprised by at least one point raised by the noble Lord, Lord Prior. He said that people are now buying houses in which to live rather than invest. My understanding and information from the house builders and estate agents to whom I talk is that they are not doing that at all. Indeed, that is one of the problems at the moment.
As the noble Lord, Lord Harris of High Cross, probably knows, I usually disagree with him on economic matters and I do not agree now with his total support for Mr. Blair and Mr. Brown, as I shall make clear a little later. Indeed, I disagree with my right honourable friends and I hope to explain why.
It was fascinating to listen to the noble and learned Lord, Lord Fraser of Carmyllie, who opened the debate. According to him, everything is so wonderful. I could not help wondering why we need a Budget next week. It is all going very well. Indeed, the noble Lord, Lord Prior, said virtually the same thing: we do not need a Budget, we have it now. The economy is running marvellously. The Minister hardly referred to anything about the economy in the Queen's Speech. So perhaps I may be forgiven if I repeat some of the somewhat meaningless and contradictory words in the Queen's Speech:
With great respect to the Government, it just ain't possible to do all that at the same time. That is the real problem of the Queen's Speech. You need to be something of a magician to carry that out in the first year. There may be one or two magicians in the Government--I suppose that is possible--but I find it hard to believe that the whole lot of them are magicians. There is no indication that they will be able to carry out all those policies next year.
Economic growth this year, we know as a fact, is declining. Unemployment has been falling, happily, as we have been told, although this month there was a small increase. So we are told that it is a statistical aberration. Indeed we are always told it is a statistical aberration when something is wrong. When it goes right every month, that is not a statistical aberration, it is accurate. Nevertheless, unemployment has generally been falling. On the other hand, this year the public sector borrowing requirement will clearly be much higher than that forecast by the Chancellor in last year's Budget, and in his Red Book. I shall return to that point later. I say that that is the case despite this month's aberration on the borrowing requirement. It will clearly be out of line with what was forecast.
The share of income taken in public expenditure is higher than when I left it as Chief Secretary to the Treasury in 1979. I would not complain about that if I could see real improvement in public services, but I
There is no need for us to look too far. We know what it is all really about. It is about the Chancellor improving his reputation with Conservative Back Benchers. That is what he is concerned about, and I understand that. He does not want to be blamed too much when they lose the general election. He may have some other job in mind at that stage. So I understand that. But the plain fact is that, by cutting personal tax in an attempt to win that general election, first, he will not achieve it, because people have already seen through that argument, and he will not get a feel-good factor from it.
In addition to cutting taxes, I am afraid that the Chancellor will bring the public sector borrowing requirement back towards balance in the medium term, as we are told. We understand that his own advisers have told him that he should not seek to do that. I must say that I agree with his advisers. He should not have sought to do that. He has no need to. He is also, it seems, wrong about inflation. This year, despite this month's statistical aberration, inflation has been going up. I must say that the Government are doing very well on statistical aberrations at the moment.
Unless the Government change their policy somewhat fundamentally, it looks likely that next year inflation will be 3·5 per cent. rather than 2·5 per cent. He could of course reset his PSBR and his inflation targets in the Budget next week, but judging from the Queen's Speech that seems unlikely, although he has left himself some room for manoeuvre by being just a little bit ambiguous on both those fronts to allow more to be done, but he cannot have growth at the same time.
So what exactly does the Chancellor have in mind? I hope that he will in fact meet his economic growth targets and his employment targets, but he may exceed his inflation target and his PSBR targets. He and we and the country could live with that, because that is much more important when, on his own figures, unemployment will still be over 2 million.
Against such a background, the Chancellor may achieve his target of a £3 billion or £5 billion cut in public expenditure. Indeed, he could achieve even more if he cuts the contingency reserve, which last year had £3 billion in it. It would mean that there would be nothing left for his Ministers to spend by way of contingencies. So he could spend even more than that, and, as a percentage of £700 billion of GDP, it is not much more than petty cash, as my noble friend Lord Peston would tell us, although he did not tell us today.
Even if that were to be pursued, as seems all too likely, the net result would be higher personal consumption. That is what we would get. Admittedly it would be from very low levels, but it would be offset
As it is, just when we need more investment, we are likely to have less. We have already had indications that the manufacturing sector is slowing down. There has been a foreshadowing of a slow-down in growth there. Our main export markets to Europe have been slowing down. Thus it seems likely that growth next year will be higher than this year--that is not too surprising because it has been pretty low--but it will be based largely on higher personal consumption. We may be able to get through next year, but I fear that a future Labour Government would be faced with the difficulty of hitting the usual constraints again. Certainly the Chancellor will be hoping that he is no longer there when he meets those constraints, as he most certainly would.
It is all very sad, for it seems that we still cannot sustain more than 3 per cent. growth without running into those constraints of higher inflation and higher PSBR. What I find especially sad is that the Labour Party does not have an answer either, although I welcome one or two of the proposals, such as the one-year capital allowances, which should help investment, and the proposed help for youth unemployment. Those are good proposals but are not sufficient to solve this perennial problem.
I know only too well that there is no simple answer. I want to see higher public expenditure on, for example, education, health, training, social services, and so forth, but I am only too conscious of the impossibility of paying for it without higher growth and, as my noble friend Lord Peston said, higher growth in productivity, rather than higher taxes. Certainly in the long term we must hope to achieve that, but in the short term I would finance some of that expenditure from slightly higher borrowing, which we can well afford, thus giving the economy the kick-start it really needs. I understand why my right honourable friends are not prepared to say that. I can say it but they cannot. It is what I would do but, as is obvious, I am not speaking for them.
Such a provision would be better than the current or even lower levels of public expenditure that we are likely--indeed, certain--to get in next week's Budget. I understand that the Chancellor of the Exchequer will tell us about public expenditure cuts. My suggestion is that it would be far better for a Labour Government not to accept the Government's levels of public expenditure but to increase them. The result would not mean the lower levels of economic growth, as we are told by the Government. The plain fact is that if one compares our levels of public expenditure as a percentage of GDP with other western countries between 1979 and 1995,
We are constantly told by the Government--indeed, we were told by the Minister in opening the debate--that everything is marvellous; as regards economic growth, inflation and so forth, everything is wonderful. The Government have managed that with a higher level of public expenditure as a percentage of GDP than other countries. How did they achieve that miracle? I am sure that the noble Viscount the Leader of the House will be able to tell us. He is smiling, so obviously he has an answer in his brief.
The plain fact is that the Government have managed it not through any miracle but with higher levels of public expenditure. However, I believe that the crucial question should be: what is our main objective in running the economy? What should be the main objective of a Labour Government? Certainly, it is not tax cuts. I could accept, eventually, a lower tax rate of 10 pence in the pound in order most to help lower paid families and to provide incentives. But as was said by my noble friend Lord Peston, we need growth in productivity to pay for the decent levels of public services that are required in a civilised society. That and low unemployment should be the top priority of a Labour Government. Certainly, it would be for me. But I fear that next week's Budget will be going for tax cuts, certainly not for the lowest paid. I hope that they will be condemned.
Lord Boyd-Carpenter: My Lords, we are on the last lap of the debate on the gracious Speech. I wish to begin by reminding your Lordships that this debate was prefaced by probably the best speeches of a mover and seconder of the humble Address that it has been my experience to hear during a number of years in your Lordships' House. We were given an extremely good start by two splendid speakers, and I wish to put that on record.
Secondly, I wish to remind your Lordships that we shall be dealing, as we have been told, with questions of finance. In that regard, I was intrigued when I glanced at the Consolidated Fund Bill, which is now before us. I do not know how many of your Lordships recall the terminology used in that Bill. It states:
We are dealing with finance at a moment of great importance and great difficulty. It is very difficult to know what the Government ought to do by way of taxation. However, I say at once that I wholly disagree
As your Lordships know, VAT has been applied freely in recent months and years. I shall not weary the House by repeating the ridiculous imposition of VAT on church bells, save to point out that if one is trying to find a really silly piece of taxation that is a good example. It has caused a lot of hardship to those who run small country parishes. VAT puts up prices everywhere. It now falls on insurance and air travel. In every direction in which one looks, VAT is increasing prices and therefore having a directly inflationary effect. I hope that any changes in taxation which the Government see fit to make will include a reduction in this very damaging tax. One puts an additional charge on necessities of one kind or another and can then say that one is apparently seeking to deal with inflation. In fact, one is simply creating inflation.
As your Lordships know, the need is to cut expenditure. There are considerable directions in which expenditure can still be usefully cut. I suggest that one is our substantial contribution to Europe in order to subsidise tobacco production there. No doubt my noble friend will be able to give the House the figure but I know that we contribute a substantial annual sum to the subsidy which goes mainly to Spain and Italy in order to finance the production of tobacco. If one takes the view, as officially the Government and many noble Lords do, that the smoking of tobacco is injurious to health, it is ridiculous that we should increase our tax burden in order to subsidise its production. I know that it will be said that those countries cannot grow anything else. Well, if they cannot grow anything else, they had better stop growing altogether! To say that a damaging poison must be produced in a country because it can find no other product to produce is a ridiculous argument which need take up no further time of the House.
There is other expenditure that can be cut. I approach the question of legal aid with caution and diffidence, but the cost of legal aid has risen steadily year after year. The noble and learned Lord the Lord Chancellor gave the figure for the current year as £1,400 million, which is an enormous sum and much larger than was the amount a few years ago. Why is it necessary steadily to increase the cost of legal aid in the circumstances of today? Does that not suggest that there is a lack of control over that expenditure?
There are other areas in which there is very considerable expenditure. There is the VAT on insurance premiums. And yet one would have thought that it was good government policy to encourage people to take up policies of insurance.
And then there is the VAT on air travel, about which I feel very strongly. Some of your Lordships may recall that some years ago I was responsible for our Civil Aviation Authority. It is a source of great pleasure to
Another area of expenditure which we have discussed recently--it is very substantial--is that for asylum seekers. The extremely slow method used to sort them out and deciding, as has to be decided in the case of many of them, that they should return to the place from which they came, apparently produces, according to a Government statement, an annual cost by way of benefits of one sort or another of £200 million a year. Again, why is that necessary? I suggest that the Government require to take a tougher line on public expenditure generally in order to be able to not increase but to reduce taxation.
The high levels of taxation--and they are still high--which we have in this country are a handicap to our competitive effort. They make our products more expensive and less saleable. The more that we can reduce our government spending and the levels of taxation that consequently follow from that, the more competitive British industry can be. I hope that the Government will not be discouraged by some of the remarks that have been made in your Lordships' House this afternoon and on other occasions from steady efforts to reduce expenditure and therefore, consequently, to reduce taxation. If they do that, they will have served this country very well and I have little doubt that this country will be grateful to them and that we may again have the pleasure of a Conservative Government.
The Earl of Caithness: My Lords, I follow straight on from my noble friend Lord Boyd-Carpenter because sadly, the noble Baroness, Lady Castle, has scratched her name from the list. I understand that that is because she is suffering from flu. I am sure that we all wish the noble Baroness a speedy recovery and hope to see her back in the Chamber quickly.
I listened with interest to what the noble Lord, Lord Jenkins of Hillhead, had to say about the improvement of the Government Front Bench. Without a doubt it has improved substantially in the past 18 months just as, indeed, the Labour Front Bench has improved substantially since 1981. Perhaps it is all just a question of timing and when one leaves the Front Bench.
In the gracious Speech, Her Majesty said that her Government will continue with firm financial policies based on permanently low inflation. That is to be welcomed because inflation has been such a destroyer and it is totally dishonest. Inflation leads to a dishonest monetary system and we have suffered from that over the past 30 years or so.
I was very interested in what the noble Lord, Lord Barnett, and my noble friend Lord Prior said. My noble friend Lord Prior said that we must not go back to the boom or bust era that has plagued us for the past 30 years. The noble Lord, Lord Barnett, said how difficult it is to square the circle between achieving steady growth over 3 per cent. and then not having high inflation. I felt that they should have both gone on to analyse why we have that situation. When I had the honour to be Paymaster General in the Treasury, I was always concerned as regards the extremely good efforts which governments of both persuasions have made to control the economy. Neither wanted to see high inflation. When the noble Lord, Lord Barnett, was Chief Secretary, he did not want the problems which he encountered. And we did not want the problems which we encountered in the 1980s when everything seemed set fair. Yet we have had three massive collapses in asset values. We had the property collapse in 1974, which I remember well; we had the problem with shares in 1987; and we had the collapse of the property market again in 1989.
In spite of the very best endeavours of whichever government were in power, it was not possible to prevent those events occurring. We have now another good, healthy economic situation just as we had in the mid-1980s. I just do not want this Government to lose the opportunity to take us forward again on a steady path.
Therefore, I have looked at the problem carefully and I have found somebody who I believe has actually put his finger on why we have these problems. We have them because the whole system under which we operate is totally wrong. We operate on a debt-based system. That did not come about through choice. We did not vote on it. It was an incremental result of the closing of the gold window in 1971 by President Nixon. Since then, the whole debt-based system has led to the sort of disasters we faced in the 1970s and 1980s and are likely to face again unless we move away from that system.
As the noble Lord, Lord Barnett, said, at present the economy is slowing. The backlog of orders for businesses is beginning to reduce and that is a slightly worrying sign. People are insecure in their jobs and in their homes. They are frightened of what the future may hold. That is not an easy situation for any government to handle.
What is the solution that most economists put forward? They say that we should lower interest rates. I was at one time a firm believer in the interest rate mechanism as the lever to control the economy. I must say to my noble friend on the Front Bench, Lord Cranborne, that I no longer believe that. It plays a part but it is by no means the only lever. It has brought such misery and distress. In effect, what has it done? The lowering of interest rates has encouraged people to borrow more and it has encouraged those who are not in debt to borrow for the first time. When interest rates are raised, everybody is penalised. When they come down, the urge to borrow is increased. That increases the debt which each of us as individuals and the country have to bear. That, in turn, slows down the whole economy of the country and is extremely detrimental.
Therefore, I disagree with those economists who say that we should lower interest rates. I say to the Government, "Please do not lower interest rates and do not fiddle with the housing market." I am back in property and the housing market again, as I was before I went into government. I hope that the Government will not interfere with that. There are various problems in the housing sector--negative equity and so on--but the Government should not interfere with it because it will sort itself out, although it will take time.
When one considers the role of government one sees what a small player the Government are now in the whole financial market. It is worth looking back at figures from the Bank of England. In 1971, when President Nixon closed the gold window, the money stock in the United Kingdom stood at £31 billion of which £3.5 billion was government minted notes and coins and the balance of £27.5 billion was in deposits. That had existed for many years. We had run the largest empire in the world with less than that; we had been a reserve currency for most countries in the world with figures that were less than that; and we had been a very successful nation with figures less than that.
What has happened since the closing of the gold window? In the intervening 24 years to September 1995 the government minted an additional £19 billion, bringing the total notes and coins to £22.5 billion. A simple piece of mathematics will show that the total money stock--the M4--should now be in the order of £50 billion. It is not. In September 1995, M4 stood at £608 billion. Of that £608 billion, £585.5 billion was in deposits. The banking sector and finance sector had created £558 billion in deposits in 24 years. No government authority or government approval was involved; indeed, there was nothing that the Government could do about it. That has increased the handicap that a government of any persuasion will have to face under this debt-based monetary system.
I believe that one of the problems is the level of reserve requirement. It used to be 20 per cent., but it is now rather less than 1 per cent. As a result, the level of domestic debt has increased by more than 20 times in 24 years. We now have a total of deposits and capital on loan of over £700 billion. How long can we tolerate that situation? How long can any economy sustain that level of debt? How long can any government operate the right type of policies, which this Government wish to operate, with that sort of handicap?
I strongly believe that we should have low inflation. I should also like to see steady growth. I do not like the boom and busts. But my fear is that unless this Government, or the next government of whatever persuasion, take an urgent and radical look at the system the banking and finance sectors operate in this country, they will be operating with two hands tied behind their backs. I do not blame the banks. That is the system under which they operate. The more successful they are--and British banks are very successful--the more they run this country into a debt that we are handing on to our children. That is not something they will thank us for.
Lord McCarthy: My Lords, I hope that the House will forgive me if I do not follow the previous speaker as regards the content of his speech. I was interested to hear that it is all the fault of Richard Nixon because he closed the window. I am most receptive to that kind of argument, but instead I want to do something which I hope is in order. I do not want to discuss so much the gracious Speech because what I wish to discuss is not mentioned in it. However, I take it that we can raise with the Government matters that are not mentioned because, after all, at the end of the gracious Speech it states:
The noble and learned Lord, Lord Fraser of Carmyllie, said a great deal in his opening remarks about forms of competitiveness and about competition. However, the only mention that he made of unemployment was to refer to a fact that the figure had gone down by some 700,000 since it peaked in 1993. That comes out at about 28,000 a month and means that, in another year, the figure will be down to 2 million and, if it continued for a further three years, it would be down to 1 million. So it is not very useful to tell us that it has gone down by that amount since the peak in 1993.
Yesterday the Minister of State for Education and Employment in this House spoke in the debate. He is also responsible for education. Although his speech ranged widely and included agriculture and rural areas, he did not mention employment and certainly not long-term employment. Indeed, in my estimate, the last time that the Government in this House--and I cannot speak about the other place--discussed the question of unemployment, especially long-term unemployment, was in answer to a Question tabled on 24th October by my noble friend Lord Dormand. My noble friend asked the Minister about long-term unemployment and what he was doing about it. The Minister replied (at col. 962 of Hansard) that it was a matter of great importance and that it was a "key priority". But, again, no concrete proposal or additional measures which would, perhaps, increase the rate of decline in unemployment were advanced.
It is about that that I want to ask the Government. In the next parliamentary Session what do they propose to do about unemployment and, in particular, long-term unemployment? We know that the Minister said on 24th October that the Government were providing 1.5 million job opportunities. I do not know whether that it is the total number of placings made in the Jobcentres. I do not know whether that is adding up all the interviews and making them 1.5 million attempts to get people back into work. I am not talking about that; I am talking about positive measures.
Let us take, for example, the one positive measure in which the Government are involved; namely, the training and enterprise programme. A recent edition of what used to be the Ministry of Labour's Gazette but what is now called Labour Trends tells us that 350,000 places have been allocated this year in the programme. That compares very badly with the activities of the training and enterprise programme at the last point in the previous cycle--round about 10 years ago, in 1984--when the programme was producing 661,000 places. It is not just that the number of places is in decline; it is the content of that decline. I say that because the Government have more or less maintained the number of places on the youth programme. That programme has only been cut by about 20 per cent., but if one looks at adult provision as regards the years 1984 and 1994, it will be seen that there has been a 75 per cent. reduction in adult provision on the training and enterprise programme. In other words, the latter programme is now a youth programme. Nothing really is done in the training and enterprise programme for adults who are out of work. My question is: why not?
Are the Government saying that adult unemployment is to be solved by the upswing of the cycle, if and when it arises? Is the argument that we can leave adult unemployment--and, in particular, long-term unemployment--to improvement in the general competitiveness of the economy and the general level of demand for labour? If the Government believe that, they really have gone back on every argument of previous governments in the early 1980s, with its later recession, and certainly of the Labour governments of the 1970s. No serious economist really believes that the problem of long-term unemployment can be solved by the upswing of the cycle. We are talking about people who find it increasingly difficult to obtain any kind of employment. Only carefully designed, special measures have any chance whatever of taking such workers out of the unemployment trap.
The Government should think seriously about the matter. Indeed, when the Chancellor of the Exchequer thinks about it seriously he says and does things which indicate that he is beginning to understand that one cannot expect significantly to improve the problem of long-term unemployment by waiting for the upswing of the cycle. In the 1983 and 1984 Budgets the Chancellor floated a small number of measures which were designed to improve the level of positive job creation.
My next question to the Government is as follows. In 1984, in his Budget speech, the Chancellor made five tiny suggestions. I want to know what has happened to those suggestions and how far they have improved the position of the long-term unemployed. For example, he reprieved the community action programme. How many people among the long-term unemployed did that put back into work? He introduced a small extension of the three week work trial programme. He made further minute cuts in National Insurance payments for employers, as he said that that would help to put people back into work.
I am sure that every Member of the House here today knows the Work START programme backwards but, in case there are one or two who do not, let me say that the Work START programme promised £60 a week for six months to any employer who took on a member of the long-term unemployed who had been out of a job for two years. We have had a pilot of the START programme for two years. I am not asking the Government, and certainly not the Minister here tonight, to prejudge any announcement which the Chancellor might make tomorrow about the future of the START programme, but he could tell us something about how it is getting on. He could tell us whether the Government consider that it has been a worthwhile exercise. As I have said, there has been a pilot scheme for two years.
Many people believe that the START programme, which the Government had stumbled on and then fumbled with all this time, could represent a major improvement in the employment conditions of the long-term unemployed. It has the attraction--if one is looking for it--of being a nil cost solution because £60 a week given to the employer to take someone off the unemployment register is slightly less than it costs to keep that person on the register and on benefit for a year. The average cost of the average person on the benefit register, whether that is unemployment benefit or supplementary social benefit, is £3,200 a year. Therefore, one makes a little. It offers the possible prospect of a nil cost solution. Instead of giving the money to the worker, one gives it to the employer and the person comes off the register.
Some people, and indeed some professors who should know better--including Professor Snower, for example, of Queen Mary College--think the Government could put 1.5 million people into work with this wonderful programme. I do not suggest that. I think that that is just a piece of econometric trash. Nevertheless, he said that it would represent a 20 per cent. reduction in marginal labour costs; that it would put 1.5 million people into work; and that we would reach an unemployment rate of somewhere between 3 per cent. and 4 per cent. That would be a miracle but the scheme is worth trying and anyway the Government have been fiddling about with it for two years.
The main defect of such a programme--I wish to say a few words about this before I finish--is our old problem of dead weight. If one hands out the money that one gave to the worker on the dole to the employer, after a while the employer would develop a system which he calls "churning". That is a fancy name which
I have two points to make about that. First, we never sought to monitor these programmes effectively previously and when the programmes operated in the public sector they had much less dead weight than they had in the private sector. I leave that with the Government. Secondly, if we are really trying to get people into work who have been out of work for two years, we should not be terrified by a certain amount of dead weight. If the employer is being forced by the subsidy--and if the subsidy is nil cost or very close to nil cost--to select workers he would not normally select (employers would not normally select people who have been on the unemployment register for two years for all kinds of reasons) and yet we reduce long-term unemployment significantly faster than we reduce total unemployment, that would not be a bad thing. Be that as it may, I have asked a series of questions. I hope that the Government will be able to answer some of them, and I hope that despite the fact that there is nothing in the gracious Speech about unemployment, the Government have some policies.
Viscount Astor: My Lords, I believe that industry in this country is now in a better position to take advantage of the opportunities for growth that now exist than most of our competitors in Europe. This is of course due to the sound economic and fiscal policies that this Government have maintained during their time in office. We now have economic growth with low inflation and an ability to compete not only in Europe but in the important markets opening up in eastern Europe and in the rest of the world. Therefore I welcome the proposals in the gracious Speech to improve competitiveness, remove burdens on business and in particular to improve the progress of deregulation. I am afraid that "progress" is perhaps an optimistic description because it has been painfully slow progress. However, before looking at the reasons for that, I give a warm welcome to the forthcoming Broadcasting Bill.
The broadcasting industry needs this Bill. It is one of our most important industries, contributing no less than £3.5 billion to our economy. It accounts for no less than £1 billion of our exports, and we have an export surplus of £200 million. The world broadcasting market is expected to grow by 70 per cent. over the next 10 years. Our broadcasting industry is profitable and produces quality programmes that are admired worldwide. However, the industry needs to grow to compete with the vast empires that have been created in Europe and in America. For too long we have tried to separate artificially different sections of the media. New technology and changes in consumer behaviour have made our old rules and regulations redundant. What is more worrying is that these rules have provided a barrier to growth and new investment. In particular they have blocked British companies and have allowed those with new technology, who are often based outside this country, an almost free run, unfettered by regulation, to create new, near monopolies.
As the law stands, if one owns newspapers one cannot own television. If one owns television, one cannot own satellite. If one owns local radio, one cannot have a share of local newspapers. We must treat the media industry, whether it be newspapers, television, cable, satellite, radio, or any combination of any or all of those, in the same way as any other industry. The barriers between parts of the industry do not make sense. Newspapers are now providing news on demand on one's personal computer, telephone companies are looking at ways of providing video on demand on one's television. What should we call these services? Are they television, telephony, or computing? I believe we must have proper competition law that covers the industry as a whole, and that includes encryption services which are the access point for those wanting to use cable or satellite services.
That competition law must also include the BBC, which now has a large commercial business in addition to its public sector broadcasting role. With regard to the BBC, I hope that the Government will privatise the BBC's transmission business and that in order to raise the maximum revenue possible they will allow an open bidding contest. There could be substantial savings in transmission costs for both the ITV companies and the BBC. The sale of its transmission business will give the BBC the funds needed to invest in digital terrestrial transmission.
The past year has been an interesting time in the broadcasting world. Satellite now has a firm foothold, and cable is operating in many cities. BT wants to change the rules halfway and join in the game, encouraged by the party opposite. So does Michael Grade at Channel 4, and many of your Lordships will remember being lobbied vigorously on the subject of the Channel 4 funding formula.
I urge the Government to think very carefully and seriously before amending in isolation any one part of the financial arrangements set out in the Broadcasting Act 1990. Channel 4 may well pay some £60 million to the ITV companies this year, but the ITV companies themselves will pay £370 million to the Treasury.
Perhaps I may explain briefly why I believe that this is such an important issue. The financial and formula arrangements in the 1990 Act, however imperfect they may be, were carefully weaved together. Many hours of debate took place in your Lordships' House. As a result of the Act financial projections were made. The investment required was then raised and, finally, bids put forward based on the Act.
Although the new Bill, which has yet to be published, deals primarily with the ownership and licensing of digital services, pressure will again be exerted on your Lordships' House and the Government to change the current arrangements. It must be resisted because, if we are to encourage investment in new digital technology, which will involve hundreds of millions of pounds, there must be confidence that a viable return for investors is possible. If Parliament changes the rules on which bids for franchises were based it would be the equivalent of changing the prospectus after flotation. That is not
Independent television is a great success story in this country. We share the English language with the Americans; it is time that we started to share some of their prodigious export successes. I believe that the Government reforms will give broadcasters every opportunity to do just that.
I return to the subject of deregulation. As I said earlier, progress has been painfully slow. I am afraid that some of the regulations that have been made redundant are so minor as to be almost irrelevant. We have not managed yet to cut the red tape. Therefore, I am delighted that the Deputy Prime Minister is to lead the initiative to speed up the process. He has been in the DTI, so he should know where to find some of the prime candidates. Government departments cling to their regulations like drowning men cling to a liferaft.
We often hear the excuse that regulations were forced on us by Brussels. In many cases that is simply not true. The bizarre rules seem to be entirely home grown. To be fair, sometimes they are made in response to some vague EC directive from Brussels that no other country seems to have bothered with, let alone read. However, most of the regulations are invented in Whitehall, and often pursued with great vigour by government departments, local government and quangos. Small businesses feel under threat. They feel that they are attacked with a vengeance not seen since the Inquisition.
Even seemingly simple regulations are often interpreted and enforced in unreasonable ways. If, for example, local traders go to their local magistrates' court and are able to win their case their problems have just begun. Local councils instantly go to appeal, and therefore threaten the trader with the possibility of huge costs being imposed if the judgment goes the other way at the next stage. What business can afford to take that kind of risk? Even the largest balk at the cost.
I hope that the Government will also look closely at quangos. I believe that there are too many and that there is room for rationalisation. Conservative principles are about devolving power to the individual; too often we have merely devolved power to the quango.
I dislike the culture of "quangockery" that has invaded and taken over our lives. Some have no right of appeal against their decisions. Some constantly reinvent their reasons for existence. They often pass increased costs via higher charges to the consumer. These are expensive organisations. The Government must ensure that the taxpayer gets value for money.
I hope that deregulation will be put into top gear. It is not about removing protection from the public; it is about removing barriers that prevent industry from being successful. I know that Ministers take the problem seriously and I look forward to speedier progress.
The Labour Party, if it is ever elected, plans to introduce the Social Chapter, so successfully excluded from the Maastricht Treaty by my right honourable friend the Prime Minister. They also plan to introduce a minimum wage, although they do not know how much it will be. The noble Lord, Lord Peston, did not manage to cast even the tiniest amount of light on that issue. Both those actions would destroy the advantages that this country has obtained, advantages which the Labour Party would instantly throw away. Businessmen I have met in Europe recently wish that their own governments had not signed the social chapter. They find that it is making competition with the growing manufacturing countries, particularly in the Far East, impossible.
I also found no great enthusiasm for a single currency. We do not necessarily need it. Different countries have different economic needs and conditions vary, as do public spending, taxes and interest rate policies. It is a bogus argument to say that we cannot remain at the heart of Europe without automatically agreeing to a single currency. If the time ever becomes right it will be obvious, but that is certainly not in the near future.
It has become fashionable in your Lordships' House to declare one's interests, so I shall declare two. The first is that since July I have again become involved in commerce--the alternative to becoming one of the students of the noble Lord, Lord Peston. At least it is better than that. The second interest I have to declare is that I intend to do all that I can to ensure that the party opposite never has a chance to govern. I have been on the Opposition Bench. I know what it is like, and I do not intend to return. After all, noble Lords opposite have got used to their places, and who am I to disrupt them? Let them remain in their familiar surroundings for a long time to come, in their favourite places.
Like the noble Viscount, I shall also speak mainly on broadcasting, although the whole national heritage sector, with which I am concerned, has considerable economic as well as cultural significance which is often underestimated. That sector employs 3 million people in the arts, sport, media and tourism, and the latter two sectors are forecast to be among the highest European growth sectors. Therefore, that sector matters.
I shall not deal today with the arts and sport, which were not mentioned in the gracious Speech, except to say that we shall be watching closely to see when the very specific promises made by the Prime Minister and Ministers in both Houses on the question of lottery distribution and additionality in public expenditure are broken. I warn that if and when direct grants to the arts and sport are cut and replaced by lottery distributions there will be very strong grounds for bitter complaint.
My main focus today is on broadcasting, which, as the noble Viscount, Lord Astor, rightly pointed out, is one of the most dynamically growing sectors in the British economy. In the next few weeks we expect in
We shall scrutinise the BBC Charter and Agreement closely, seeking to ensure that they offer to Britain's and indeed the world's greatest public service broadcasting asset the financial and editorial freedoms necessary for it to survive and expand in the future competitive world of global multi-media. We also hope that that is balanced. We hope that the Charter and Agreement have an explicit list of the conditions and objectives which the BBC must meet to retain the support of licence fee payers--for example, on impartiality, accuracy, taste and decency, a continuing commitment to educational broadcasting and patronage of the arts, and continuing full coverage of parliamentary proceedings.
We also wonder whether there are ways to make the governors of the BBC--I see they are in the news again--more fully and separately accountable, possibly to Parliament itself. We need, and they need, to ask to whom they are responsible and for what.
There are strong rumours of the privatisation of the BBC transmitters although it was not specifically mentioned in the gracious Speech. We on this side would look very critically at that, seeking to ensure that the BBC is not put to any disadvantage by the sale of its transmitters and especially that it should not be squeezed on monopoly prices. However, I accept that there is a problem in the current situation regarding how the BBC funds digital terrestrial television transmission investment and how it could, under present rules, compete for third party business.
The Broadcasting Bill is of enormous potential significance--more so from the national point of view than any other piece of legislation in the Queen's Speech. It will effectively draw the landscape for British broadcasting in the rocketing multi-media and interactive world of the 21st century. It will contain provisions for cross-media ownership. The Government have floated their views already. We broadly welcome them. We reserve our position on the detailed points system, and so forth, but the proposal appears, commendably, to offer support to our basic objectives; diversity of view, plurality of ownership, and avoiding excessive dominance by one owner.
We are concerned at the potential erosion of the regional dimension and the enormous powers for the proposed new regulator. We are especially concerned that increased cross-media ownership will result in less choice of information and ideas. It would be a pity if the bias and sensationalism of much of our printed press further infected television. We accept the need for greater freedom to be allowed to newspapers and broadcasters in an area where the separate sectors are converging because of technology. However, we wonder whether it would be better to allow newspapers and broadcasters owning other media sectors to be limited in their expansion to new media outlets, so expanding choice.
The Government are right to have grasped the nettle now; I commend them on that. We on this side have not until now had an opportunity to respond because the consultative document was rushed out in the Recess. However, I shall offer a few brief reactions now.
First, we support a future cut-off date for switching from analogue to digital because that is the only way that one can guarantee to an investor the prospect at some point of a major audience for digital television. We do not accept the need to divide the proposed digital multiplexes between operators and broadcasters who sub-lease from the operators. That is too complex. It would also prevent the BBC from owning a multiplex. We see no reason why it should not. We see no reason why ITV, perhaps in conjunction with Channel 4, should not own one or two. The licences should be to both operators and broadcasters.
I believe, too, that the existing terrestrial broadcasters who are being reserved guaranteed space on the multiplexes should have full multiplexes and not parts of them as proposed in the government paper. They need sufficient band width to accommodate all developments in the practical future--for instance, high definition television. Under the Government's proposals for only 6 megabits, one of the reserved people, the BBC, could not have high definition television which requires 9 megabits of band width. I believe that those broadcasters should be given sufficient band width. They should be given the full multiplex. It is right that they should have that because a multiplex requires common editorial management. There will be continuing questions of choice among many broadcasters within that multiplex regarding who gets how much space. That decision should be taken by a single overall provider. That is enough technical jargon for my lifetime.
Back to Table of Contents
Lords Hansard Home Page