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Lord Peyton of Yeovil: My Lords, I am most grateful to the noble Lord for giving way. I merely point out that I do not shoot pheasants at the weekend. In so far as I have any wish to shoot at all, it is directed against some people.

Lord McNally: Well, my Lords, I was half right when I mentioned peasants.

The philosophical question—the tug between over-government and a desire to cut back on Government—has been present for at least the past 50 years since the Conservatives campaigned so successfully by promising to make a bonfire of controls. Successive governments have brought in whizz-kids from the private sector to consider the matter. That hides another even deeper trait of Conservative Members: they really want lower taxation and less government, but they do not have the courage to argue the full logic of their case. Hence the hiding of Mr Oliver Letwin during the most recent general election campaign, when he blurted out that they actually wanted to cut 20 billion of public expenditure, but they did not know how they were going to do so.

That is the problem: this debate should really be conducted in parallel with yesterday's debate on government expenditure, when the Government again came under fire from Conservative Members for not cutting expenditure, but few examples were given of how those cuts should be achieved—which parts of public expenditure should be cut to achieve the savings sought. The noble Lord, Lord McIntosh, gave the reply that my party has been giving for some years, to which the Government are a recent, welcome convert: that increased public expenditure may not be the whole answer to better public services, but it is certainly part of the answer. That is why we have supported the Government in devoting more expenditure to public services.

Whether they speak it loudly or whisper it darkly, we reject the Conservative approach, which is really just a resuscitation of old Reaganomics: low taxes, a minimal

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role for government, safety-net public services and a trickle-down distribution of wealth from the rich to the poor. That is their real agenda; they just do not have the guts to expound it. Instead, they choose a superficially easy target: meddling bureaucracy, red tape, inefficiencies in the public service—of which there are clearly examples—burdens on business or gold-plating from Brussels.

It is worth having that philosophical debate, because I am glad to meet the Conservatives on that ground. We on the Liberal Democrat Benches believe that the real answer is a coherent and radical programme of reform. We believe in individualism and civil liberties, as is often heard from these Benches. We want neither the nanny state nor the concept that the man in Whitehall knows best. But we also know, as the noble Lord, Lord Garel-Jones, acknowledged, that when we go to people's doorsteps, they usually ask: "What are the Government going to do about health, education and transport?" They know that the market's hidden hand will not deliver the health, education, transport or even public broadcasting that they want. The people want a political process responsive to their views and quality, value, effectiveness and accountability in their public service.

So where the Motion misses the point is in not accepting that the answer lies in political reform and, to use that horrid European word, subsidiarity—basically, moving power and decision-making to its most effective level. We have one of the most over-centralised states among advanced democracies. We need to get power out of Whitehall and to the appropriate level: whether local, regional, national or, indeed, European. Considering the work now being done in Europe and the century that stretches ahead of us, I should like much more emphasis on Europe being able to promote an effective foreign and security policy.

Lord Vinson: My Lords, I am anxious that the noble Lord should get to the point in this short debate dealing with regulation rather than with foreign affairs.

Lord McNally: My Lords, I will make my speech in my way, as I listened to the noble Lord make his in his way. There is a philosophical point to this, and I am making it. If he does not understand it, that is almost as much his problem as it is mine.

I am talking about moving power and decision-making to the right level. Get decision-making to the right level, and we shall deal with regulation. Is that clear enough? Right! Get power up to Europe on the important, global issues: foreign policy and security. Get power to the regions because, far too often, our regions are overburdened by Whitehall decision-making; and get power back into local government. That redistribution of power and moving power out of Whitehall would be one answer to the problem of over-regulation.

The problem is that having started off as genuine reformers, the Government have become machine-minders. They have lost their enthusiasm for reform.

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For example, we do not know what progress has been made on the Freedom of Information Act 2000. In fact, it has been handed over to the noble and learned Lord the Lord Chancellor as a damage-limitation exercise. Again, if the noble Lord, Lord Vinson, does not know what that has to do with regulation, I point out that unless we open up government, we give power to the bureaucracy.

Likewise, what has happened to the Civil Service Bill? One worry of recent years has been the centralisation of power in No. 10. Indeed, when the Deputy Prime Minister, to whom reference has been made, was told on 18th October by Annette Brooke, MP, that she was not sure that she understood the structure of power in No. 10, he replied: "Join the club". We now have a Policy and Government Division, a Communications and Strategy Division and a Government and Political Relations Division, all headed by political appointments. A central problem of Government is what has happened to reform of the Civil Service. In a lecture given recently by Mr Peter Hennessy, he said that at a Cabinet meeting of 7th March 2002, there was a review of the Civil Service, when it was said that everyone present was,

    "deeply shocked by the sheer incompetence of the civil service to deliver in the modern world".

As one Minister put it, the Cabinet Secretary's publicly expressed belief in the need for a Civil Service Act to clarify the proper roles and functions of a politically impartial Civil Service was,

    "a . . . stunt to entrench the incompetence of the civil service".

Is that an accurate review of the Government's attitude to the Civil Service and to a Civil Service Act? If it is, there is serious problem at the heart of government that must be addressed.

If we are to talk about the power of the bureaucracy and about over-regulation, we must address the reform of the machine and the system of delivery. If the Government have some idea that they can take credit for anything that goes right in the economy or in government but can quickly blame everything that goes wrong on the incompetence of the Civil Service, that would be a sorry state of affairs.

As long ago as 1997, in an earlier lecture, Peter Hennessy warned against "politicised over-mightiness" in government. He said:

    "The notion of a single profession with shared procedures and the bonding of a common ethic is no longer sustainable in an age of executive-type agencies, substantial contracting-out of work if not outright privatisation, separate recruitment and remuneration systems and a determined search for outsiders from beyond the public service to come in and improve performance and the delivery of the service to the public".

That was written in 1997, at the end of the period of Conservative government, but it could have been written today. We are a long way from what Peter Hennessy determined as the ideal:

    "The public service impulse—the desire to join a disciplined profession with its own ethic for the purpose, under democratically legitimated political guidance, of shaping or implementing public policy for the wider public good".

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He also said that that remained,

    "one of the most powerful motivators for those who seek a career in the public service".

If some of the things that I have suggested are true and there is, inside Number 10, a policy unit that believes in micro-management, rather than a Civil Service that believes in professional management, professional people and professional tools, we might be getting close to the core of poor delivery. In 1996–97, I had the honour of serving on the study of the public service carried out by one of your Lordships' committees, under the chairmanship of the noble and learned Lord, Lord Slynn of Hadley. I challenge the Government to call that committee back to the colours to examine our public services again, five years into the life of the Labour Government, as we did after 18 years of Conservative government. I know that the noble and learned Lord, Lord Slynn of Hadley, would be enthusiastic to do that, and I would certainly sit on the committee again.

It is not just the machinery of government that needs action, as the noble Lord, Lord Peyton of Yeovil said. We need reform of Parliament. There is too much sluggishness and too many rumours that things are being kicked into the long grass. There is no real feeling that the Government share the belief, which the noble Baroness, Lady Boothroyd, expressed in a recent lecture, that Parliament must reassert itself against what the noble Baroness described as the "insider trading" style of British politics.

By all means, we should have the war on red tape and over-regulation and keep up the drive for quality, efficiency and delivery in our public services, but we should not lose sight of the benefits of having a public service that is selected on merit, politically neutral and imbued with an ethos of public service. Accompanying the reform of public service, there should be more open government, devolved government, a healthier and more responsive democracy, a fairer voting system, a reinvigorated Parliament. That is the holistic picture of over-regulation or over-government; it is part of the reform. The impression—not least from a rather grey Queen's Speech—is that we have grey machine-minders, instead of a Government committed to radical reform who could deal with many of the problems associated with the Motion.

4.24 p.m.

Baroness Wilcox: My Lords, I thank my noble friend Lord Peyton of Yeovil for introducing this important debate. He described with wit and chilling clarity the proliferation of regulations, the sheer size of government today and the dramatically increasing tax burden being imposed on each of us and on the beleaguered business community. However, my noble friend must be disappointed that no one on the Labour Benches thought the subject worthy of attention. We are, therefore, grateful to the noble Lord, Lord McNally, for giving us the Liberal Democrat view on this important subject, although we do not agree with all that he said.

I shall start with the Government's public expenditure. The Chancellor is raising government consumption by approximately 10 per cent a year in

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money terms. We can now see how much that costs us—the taxpayers—following the publication of figures by the Office for National Statistics. In 2001, 8 per cent more money was spent on public services. It is alarming that that has resulted in only 3 per cent more or better services. The implication of the figures is that, as we on these Benches argued, the extra tax revenue has been less productive than if it had been left to us to decide how and when to spend our money. I fear that that demonstrates that the Government's interventionist instincts have created a situation in which not just businesses but our public services suffer under a sea of new taxes and a sea of red tape.

The competitiveness of British businesses is being undermined, as is their ability to win orders and create jobs. As failure to reform public services translates into failure to achieve improvements in standards on the necessary scale, the indications are that the Government's only answer will be to spend still more. That will lead to escalating problems and an ever-widening vicious circle and, eventually, to further tax increases and/or additional borrowing.

As resources are drained away from the business sector, the Government's failed approach to public services could, in time, undermine the foundations of our economic strength. On these Benches, we are keenly in favour of reducing the burdens on business, introducing sunset clauses, making special efforts to protect small firms and, once again, fighting our corner more vigorously in Europe. Given the opportunity, we will reform public services to ensure better delivery for people and businesses alike, while reducing the burden imposed by our failing services.

Our party is so concerned that we have set up a new commission to examine both specific regulations and the general burden of regulation to provide a new, systemic approach, incorporating the costs, benefits and outcomes of present and future regulation. No doubt, the Wicks group, referred to by my noble friend Lord Garel-Jones, will be listened to intently for City regulation. In outline, we would like to see the regulatory burden imposed by each government department fall year by year. As my noble friends Lord Lang of Monkton and Lord Vinson said, we want to see sunset clauses for new regulations, and we want to ensure that small firms are protected from onerous regulation by raising the employee threshold at which they apply. Increased business taxes inhibit business investment, holding back the future productivity and competitiveness of the UK economy. In November, ONS figures recorded business investment at its lowest level for 37 years.

The Government are committed to huge increases in public sector spending over the next few years. That spending assumes a buoyant economy and a thriving business sector. However, their approach to business—piling on costs and undermining competitiveness—threatens to undermine the revenue sources on which their plans depend. The CBI claims that the Government have increased taxes on business by 47 billion over the period 1997–2005.

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In the latest Budget the Chancellor announced major increases in both taxation and public expenditure. Much of the extra taxation burden is on business with an increase from April 2003 in employers' national insurance contributions raising 4 billion a year and an increase in self-employed NICs raising 450 million a year. It is a tax increase which we on these Benches strongly oppose. The climate change levy represents another significant increase to business costs despite government claims that it is "fiscally neutral".

The Government have presided over a period of great prosperity, much of it due to difficult decisions taken by previous governments. Annual productivity growth has halved. In the first five years of Labour government, average annual productivity growth was 1.3 per cent. In the previous five and a quarter years, it was 2.7 per cent. And, after Labour's 5 billion a year tax on pension funds, the Red Book projects that the savings ratio this year will be 3.75 per cent—the lowest annual savings ratio since records began in 1963.

We have overwhelming evidence that the UK economy is starting to suffer and that the Government's favoured strategy of throwing money at the problem is to be exposed finally as unsuccessful, inefficient and seriously wasteful. What we on these Benches propose is fundamental reform so that the root of the problem is tackled. Whatever happened to the Government's Better Regulation Task Force? Maybe the Minister will tell us.

I was a businesswoman for many years. After that I was privileged to be chairman of the National Consumer Council and represented people who bought both goods manufactured by businesses and services provided by the public and private sectors. In both roles I learnt one thing in particular: governments cannot and should not run things. This Government cannot keep their hands off anything. Government departments are growing and growing. If they are allowed to continue, the sheer size and meddling will stifle every bit of freedom and initiative in our beloved country.

4.33 p.m.

The Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster (Lord Macdonald of Tradeston): My Lords, I, too, am grateful to the noble Lord, Lord Peyton, for the opportunity to address these questions today. In facing the noble Lord in the past, I have usually disappeared quite quickly down some hole that he has set in the road ahead for me. I thought that I might avoid it today but I notice that at the end of his speech he came up with a strong swipe at transport. However, I welcome the professional contributions made today from obviously a depth of personal expertise. I welcome, too, the recognition of the complexity of modern-day society and its widespread aversion to risk, which is often driven by concerns reported strongly in the media.

This Government put regulation very close to the top of their priorities. The Prime Minister himself drives it with a particular passion. When we look at

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regulation—and I shall explain later to noble Lords why—we see that in some areas we come near the top of the international league, according to many objective experts. However, perhaps I may begin with an area that was not too much touched on, but was raised by the noble Lord, Lord Peyton.

Since 1997, there has been a growth in the number of people working in the public sector. That growth has been around 200,000 extra public servants. But that is inside a growth in employment of approximately 1.5 million more people in work, which has given us the lowest unemployment for decades. The interesting point here is that the proportion of public sector workers in relation to the overall work-force has fallen from 19.7 per cent in 1997 to 19.3 per cent in 2001. I make no apologies for the fact that there are 20,000 more teachers or 80,000 more classroom assistants and helpers or that there are 40,000 more nurses, and I doubt whether many noble Lords would complain.

In central government, again there are interesting statistics. In 1976 there were about 750,000 civil servants. That reduced to 494,000 in 1996, the year before the election. Today, the number is 4,000 down on that—490,000 civil servants. The trend has been up since 1999 but, interestingly, the pay bill costs in 2002–03 will drop by 1.7 per cent. Even in Scotland where, clearly, there has been a significant change in its governance, the number of civil servants there has increased by only 500 to just under 11,500. In Wales, the increase has been greater—up by 1,160 to 3,370. Interestingly, the number of quangos has gone down. In 1997, there were 1,128. That has dropped by 103 to 1,025, according to the latest figures that I have.

Therefore, I cannot accept that there is this rapidly growing government that has been described to me. The swings that were taken at the Deputy Prime Minister were a little unfair. His department is dealing with local government with 400 councils, including important areas such as planning, housing and the regions. As far as I recall, the number of Ministers is not the eight mentioned by the noble Lord, Lord Peyton, but six. However, I am happy to be corrected on that.

I should prefer to look at regulation in three areas. Perhaps, first, we may look at it in one of its most important forms: economic regulation. Looking internationally, the Wall Street Journal put Britain in the top 10 for its business-friendly environment, second only to the United States among major economies. The Economist intelligence unit, indeed, put us third on similar measures. Perhaps most tellingly, in October, the OECD report stated that Britain was at the forefront of regulatory reform. Therefore, if we look at the activities of this Government, we can see that they have been trying to keep Britain at the competitive edge of international business.

We have a regulatory impact unit; we have a Better Regulation Task Force, to which reference has been made. The Better Regulation Task Force is made up largely of business interests. It is chaired by

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David Arculus, a notable businessman. It has put 350 recommendations to government since it was formed in 1997 under the noble Lord, Lord Haskins, and all but nine have been accepted.

Therefore, when we take that in conjunction with the DTI initiatives to create the small business service—at present it is trying to streamline the plethora of some 500 grants—and when we think of the depth of consultation that has taken place with business and stakeholders across society, it helps to explain why our record on economic regulation internationally has been so widely applauded.

The second area is, admittedly, contentious: that of social and environmental legislations. Again, noble Lords would not expect me to make any apologies for bringing in a minimum national wage; for extending paid holidays to poorer workers; or for bringing in parental rights or rights for the disabled. However, I accept that there are difficulties as regards the Working Time Directive and the Employment Act. But in those areas we consulted thoroughly with the business sector.

Much of this regulation comes from Europe. Approximately 50 per cent of our regulation emanates from Brussels, and in the area of the environment it is probably around 80 per cent. We try to counter anything which seems overly damaging by scrutinising it in great detail through a Cabinet Committee, the Regulatory Accountability Committee, which I chair. Involved in the work of the committee are the chairman of the Small Business Service and the chairman of the Better Regulation Task Force.

We work very hard in Europe. Noble Lords may have heard of the Mandlekern report which seeks to bring some British disciplines into the activities of Brussels—for instance, regulatory impact assessments. I am delighted to say that the Mandlekern report was backed by the Heads of Government. The Commission now has an action plan for better regulation, and I was recently in Brussels lobbying to make it as effective as possible.

The third category relates to bureaucratic red tape, which has been the bane of British life for many decades. I remember from when I was in business the efforts made by Michael Heseltine to make a bonfire of red tape. He would admit himself that he had only limited success.

We have introduced a regulatory impact unit to build on what was there before. We have a public sector team inside that which has produced some 300 recommendations from across the public sector to strip out unnecessary regulation. We place great emphasis on our regulatory impact assessments and we have brought in the National Audit Office to monitor them much more strongly.

We have produced a regulatory action plan containing 268 measures. That was published earlier this year and its proposals will be delivered inside four years. We have built on the Regulatory Reform Act 2001 and we have introduced a new channel for regulatory reform orders, of which there are 63 in our action plan, to be enacted over the next three or four years.

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We have established an office for public service reform which is working with departments. We have said strongly to departments that they must try to stop the flow of regulation. We have tried to place gateways in departments—successfully in areas such as health and education—to ensure that any proposed legislation is scrutinised thoroughly and discussed with those in the front line before it is introduced. This system is in a rudimentary form in some areas and we want to make sure that it is refined.

As to the stock of existing regulations, the regulatory reform orders are available and can be taken up by trade associations, lobby groups and MPs. When adopted by a Minister, they can run through Parliament on a faster track than other legislation.

A number of noble Lords raised the question of statutory instruments. Given the high standards of debate in the House, this is a rather unfortunate area in which to find distortion. Of the 4,642 statutory instruments, about 97 per cent of them, by our estimate, have no impact on business. The introduction of around 700 last year was the result of emergency measures related to foot and mouth disease. We hope that most of those will fall out from this year's total, which will be significantly lower. Many relate to road consent regimes. We hope that the Local Government Bill will help to make the process much easier and much less likely to lead to bureaucracy.

The Conservative Party spokesperson asserted that it would take 65 years to introduce all the measures in our regulatory reform plan. Again I do not recognise the figures involved. I worry, too, about some of the costs that the Opposition attach to regulation, which at times seem to be plucked from the air. The noble Lord, Lord Lang, mentioned the British Chambers of Commerce—a body with which I worked closely in the past and for which I have great respect. I noticed that one of its officials recently said that the red tape index was something that they had developed on the back of an envelope. That does not give me much confidence in the figures of billions that were attached to it.

Perhaps I may now refer to some of the individual points that have been made. I have tried to explain to the noble Lord, Lord Peyton, that the size of government is perhaps not the problem that he fears it will be. I agree with him that in the Government's approach to these issues it is always better to use the business maxim and try to "under promise and over deliver". I shall adhere to that approach where I can.

As a former Secretary of State for Scotland, the noble Lord, Lord Lang, was able to govern Scotland—he did so with great aplomb during my time—with five Ministers. Unfortunately, the Scottish Office which followed—in which I was a Minister—put the total up to seven. I sometimes felt in coming from business into government that I was doing three times the work I had done before, and so it came as no surprise that the figure went up from seven to 22 under the Scottish Executive. But that decision was taken by elected

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Scottish representatives following the decisive view of the Scottish people in the referendum that led to the 1999 elections.

As to the points made about the DTI, I would argue that it has listened to business in regard to unemployment law and that it has listened to suggestions made by the Better Regulation Task Force on the issue of the red tape day. These are predominantly business groups. As to the issue of sunset clauses, we agree that it was in our manifesto. We shall work on it and try to ensure that it is brought in as appropriate. Of course it is not appropriate for all legislation. Certainly we will fight any unnecessary regulation, not only at local level but in the EU. If the noble Lord will allow, I shall not go into his rather sombre analysis of the PBR, with which he would not expect me to agree.

The noble Lord, Lord Vinson, referred to the Better Regulation Task Force. We have given it a great deal of power. We have also introduced a business regulation team, consisting of secondees from big companies in the private sector, which has been working with trade associations, particularly in the area of fashioning the regulatory reform orders, to strip out any unnecessary regulation. Work is being carried out at present on fire regulations in an attempt to rationalise 100 years of accretions in that area.

I agree with the noble Lord, Lord Vinson—as I do with many of the points made by other noble Lords—that we have to have a more sensible policy towards risk. I recommend to him the document produced by the Cabinet Office in the last month which takes us through some of the complexities and contradictions of a more robust approach. I cannot agree with the noble Lord's doom-laden conclusions, but I accept that there can be unintended consequences. Who can ever forget the Dangerous Dogs Act when a politician is being badly mauled by the press pack? So I take all the points made in that respect.

I think the noble Lord, Lord Vinson, was a little unfair when he said that the FSA is not open; that it makes its decisions in private. It holds all its board meetings in public and publishes its minutes on all decisions. I believe that that procedure has built a degree of public confidence in the FSA.

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