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Baroness Neville-Jones: My Lords, it certainly is the intention that in due course we will be able to record not only incoming travel but outgoing travel as well. The noble Lord is right to say that that is not happening at the moment. It is certainly not happening electronically. I cannot give him, I am afraid, a precise date, but I can say that we are doing our very best to speed up the introduction of e-Borders to enable us to have this information. That would not have necessarily borne directly on this episode, but of course everything helps in giving us greater information about those who are

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travelling. As I said at the beginning, it is relevant to know not only about cargo but about those who are potentially travelling in the same aircraft.

Lord Malloch-Brown: My Lords, is there not a tremendous disproportionality between the attention with which an individual passenger's luggage is microscopically examined and what she described as the trusted consigner, whose large packages cannot be examined in anything like the same detail? A second contradiction relates to the long-term interest that we share in the foreign policy of this. We have had many tragic examples now and many budgerigars in the mineshaft, so to speak, of Yemen's role-growing role, sadly-in international terrorist incidents and of the links between Yemen and Somalia, which she mentioned. I ask her to take to her colleagues the concern of all of us that we look at this not just as a border security issue but as a development issue, an intelligence-gathering issue and a diplomatic issue, which we must not shy away from just because of its difficulty.

Baroness Neville-Jones: My Lords, on the noble Lord's first point, the House would agree that we clearly have to increase the capacity to understand and guarantee that cargo travelling around the world is not a danger to the aircraft that it is in or, indeed, to any people who happen to be on that aircraft. As regards what he said about Yemen, the Government are in full agreement. As your Lordships know, the UK is a leading member of the Friends of Yemen, a group that seeks to underpin and help the Government of Yemen to increase the welfare and economic situation of the people of Yemen. A number of countries are contributing to that and a programme is being formulated that should help to put the Yemeni Government on a much more coherent policy of economic development. Other things are happening, including bilateral actions by the UK. Obviously, one policy object is to increase the local Government's capacity to combat terrorism and engage in effective counterterrorism. As I said, the Prime Minister assured the President of Yemen of our continued support. However, underpinning that is quite a lot of technical assistance to that Government to enable them to, in a sense, take charge of their own affairs, because ultimately the Yemenis have to create conditions in which terrorists do not flourish on their soil.

Lord Craig of Radley: My Lords, it has been suggested that it is likely that these bombs would have been exploded in the air. However, earlier it was suggested that they were intended for the recipient of the parcels in Chicago. Can the noble Baroness say any more about why there has been this change of view?

Baroness Neville-Jones: Given the destinations of the packages-one was destined for a synagogue in Chicago and the other for a shared Christian/Jewish centre-there was certainly speculation that these presents were intended for the recipients. I cannot give a precise answer and I would not want to suggest that there is total certainty about what we now assess to be the case-that these devices were intended to explode in mid-air-but the technical analysis tends to suggest that that was more likely to be the intention of the perpetrators.

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Lord Brooke of Sutton Mandeville: My Lords, I have a question on a related issue but it is one that comes into the category of "It's an ill wind". Can my noble friend say what proportion of the companies engaged in making the security equipment, to which reference has been made, falls into the SME category? These companies have a significantly greater reputation for building employment in growing markets than do much larger companies.

Baroness Neville-Jones: I thank my noble friend for that question. I cannot give him a precise percentage figure, although the implication of his question is that it is considerable, and in that he is absolutely right. In this country we have some big companies that tend to be both defence and security contractors. Underneath and alongside them are myriad small companies, or SMEs, that are indeed the source of much of the innovation and inventive technology and some of the science. In this respect, I should also mention our universities, which, as I think is widely acknowledged, are going to contribute to and underpin the strength of this country in the defence and security technologies. This Government's policy is greatly to encourage them to grow and to be real contributors to future security, as well as earning a good living for themselves and this country.

Lord Campbell-Savours: My Lords, are we not deeply indebted to foreign national intelligence officials who risk their lives in gathering intelligence to send to us in the democracies? Is a message going out from the British Parliament to thank the people and officials involved in those countries?

Baroness Neville-Jones: The noble Lord has put it extremely well and I endorse what he has just said. Certainly our intelligence effort cannot be just one-sided-it cannot just be a case of what our own people do, although that should also be the object of our commendation. However, the intelligence that we received on this occasion was undoubtedly extraordinarily valuable and was illustrative of the extraordinary importance of developing these relationships and keeping them in good repair. I entirely endorse what the noble Lord said.

Lord Stoddart of Swindon: My Lords, it was reported on the "World at One" that the Saudi authorities had not informed the Yemeni authorities that there was a suspect package that originated in the Yemen. Was that perhaps a mistake that should be remedied in the future?

Baroness Neville-Jones: My Lords, I am afraid that I do not have any knowledge of that and cannot confirm it. However, it is clear that international co-operation between the parties is extremely important and we are very grateful to those who have helped us on this occasion.

Comprehensive Spending Review

Spending Review 2010

Motion to Take Note (Continued)

5.45 pm

Baroness Kennedy of The Shaws: My Lords, I became aware during the Thatcher years that, if something that was untrue was repeated often enough, it acquired a life of its own and took on the clothes of truth. That

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political tactic meant, for example, the monstering of all trade unions rather than just of trade union excess, the demonising of single mothers and the trashing of the 1960s. That period of civil rights and of great progress for women, homosexuals and ethnic minorities was depicted as though it were the root of subsequent ills. Then there was the invention of hoards of feckless welfare scroungers, when in fact those who have fallen into the abyss of permanent unemployment have always been a minority. Very few people live well on benefits.

What politicians learned then was that, in the new world of soundbites and short concentration spans, the replaying of the same loop could create a sound track that stayed in people's heads. Now the coalition's mantra is, "We have to take terrible measures because of the horrifying financial mess we inherited from Labour". Not a speech is made in this House without those on the government Benches claiming that they are faced with the "Labour mess". We are back to the old saw that the only people who can run the economy are what Orwell called the "striped-trousered ones".

The myth about the inherited state of the economy has to be nailed. We did not hear a peep out of David Cameron or George Osborne about Labour profligacy before the global crisis. Why were they not howling in protest if Labour was throwing money around with such recklessness, as they now suggest? Why did they promise to match Labour's spending plans pound for pound right up to November 2008?

My sadness is, and was, that Labour was, in my view, far too Thatcherite in its economic policies. While it was absolutely vital that Labour worked well with business and the banks and encouraged entrepreneurship and wealth creation, Labour was far too sycophantic towards the City and the financial sector and too desirous of pleasing new friends. That was neither necessary nor, I think, in the national interest. New Labour was so anxious not to seem "old" that it even vacillated before taking Northern Rock into public ownership because it was fearful of excoriation by the Murdoch press and the Daily Mail.

If I may take us back, let us remember that the Conservatives did not want to take the dramatic action that the Prime Minister, Gordon Brown, took to save the banking sector and global capital. He led the world in that stance. Had that not been done, we would have seen interest rates rising through the roof, massive job losses, reclamation of houses on a grand scale and the economy going bust. For the coalition, in its new-found togetherness, to pretend that the vast majority of the deficit is due to Labour's mishandling of the economy is a shameless spin on the truth-I say that as someone who has never been afraid to speak of new Labour's flaws. For the Conservatives to pretend that their party would have been more regulatory or that they would have constrained banking excesses is absolutely risible. Enough former Conservative Ministers and friends of the Conservative Party who sat on the boards of banks failed to ask the questions that should have been asked to give us an idea of what the Conservative position was, and remains, on regulation.

Under Labour, the country entered the recession with low inflation, low interest rates, low unemployment and, as has already been said, the lowest net debt of any large G7 country. Our structural deficit in 2007

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before the banking crisis was 3 per cent of gross domestic product. Two-thirds of that was borrowing for investment, as the House has heard. Therefore, our black hole was only 1 per cent of GDP. The reason that the structural deficit increased to 8 per cent is that we bailed out the banks and dealt with the subsequent downturn. Therefore, a lie is being told and repeated about the mess that was apparently left, when in fact that was where it came from. The larcenous greed of the bankers is now never mentioned. A vast part of the deficit is the consequence of the colossal borrowing that Labour had to undertake to prevent a crash.

Those on the Benches opposite insist that theirs is not an ideologically driven agenda, but I am afraid that the picture of Conservative Members of Parliament waving their Order Papers and cheering for the largest spending cuts in a generation made me feel sick and it defied that claim. The cuts will put 500,000 public sector workers out of jobs as well as thousands more in the private sector whose employment derives from public sector contracts. How will that help growth or regenerate the economy? The gamble that the private sector will create replacement jobs is a monumental one, and many businessmen who are Conservative supporters admit that it is a step into the unknown. This is voodoo economics. To reform welfare at the very time that the Government are taking a scythe to jobs and throwing people on the dole is a double whammy. Services upon which millions have come to rely will be scaled back or shut completely. Think what that will mean to disabled people and the elderly. The aim is a fundamental reconfiguration of the British state with the ultimate destination being a society that is less equal and less humane.

I ask noble Lords whether they have ever seen the hurt and despair in the eyes of those suddenly told that they are redundant or the fear that floods their soul at the prospect of being forced to be "idle"-a word that haunted my childhood-and possibly unable to find other work. Has proper thought been given to the destruction and demoralisation that joblessness wreaks? There are currently people up and down this country waiting in fear for news on whether the axe will fall on them. The impact of such experience on families is huge. The sheer audacity of the programme is such that it is peppered with claims that we will all feel the pain equally, but that is a sleight of hand. The poorest in our society will be hit hardest. They are being used as guinea pigs for this experiment, as the Institute for Fiscal Studies has made clear.

I accept, like everyone, that cuts are necessary, given the banking crisis and the consequent debt that it has placed on our shoulders. The Government talk of creating a country that is fair. If austerity is the need of the day, it must mean more than money. There has to be a corresponding set of ethics. However, I have heard insufficient about tackling tax havens used by the rich. Large companies continue to minimise their tax bills by basing their operations abroad. In the spirit of fairness, surely non-dom status should be abolished altogether. That might not mean a lot in money terms, but it would mean a lot in terms of fairness. America does not tolerate it, so why should we? Sir Philip Green, the Government adviser on

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waste, holds almost all his assets in the name of his wife, who is resident in Monaco and pays no UK tax. Why do we not renegotiate the tax treaty with Monaco? What about Mr Murdoch and News International? What is his and his company's tax status? As for the contribution made by the banks, the coalition levy of £2.5 billion is not nearly enough. It should have been much closer to £5 billion or £6 billion. Then we might have been talking about fairness.

Memories are short, so let me remind people of the state of public services when Labour took office. Our schools and hospitals were in a disgraceful state of neglect, but Labour radically renovated our public services. Like many others, I am not content with all the ways in which that was done. The introduction of phoney markets has not been a productive way forward and has, indeed, been disastrous in some areas. Increased layers of management within public services have become a serious handicap to effective service delivery. Bureaucracy and red tape blight our health and social services. I also think that aspects of our welfare system are in need of reform, but any reform at this time must be carried out with very great care.

Communities where there is intergenerational unemployment need to have those cycles broken, so we should look with care at projects such as the Harlem Children's Zone project, which is innovative in tackling the horrifying consequences of urban poverty. I remind noble Lords about the other economists, not just those who have been mentioned in this debate, who have reminded people of the folly of our Government's policy. The Nobel Prize-winning economist Paul Krugman says that our Government's boldness is going in completely the wrong direction. That view is reiterated by Robert Engle, Eric Maskin, Daniel Little McFadden and, indeed, Christopher Pissarides, all of whom say that the Government's policy did not work for Herbert Hoover and will not work for us. Welfare benefits have more social value in a recession when jobs are scarce, and it is capital spending that creates jobs. That has not been accepted in the policies that are now being promulgated. Having worked in the law all my life and seen up close the effects of deprivation, job loss and poverty, I dread the consequences of such divisive and unjust policies. The social as well as the personal cost will undoubtedly be great.

I understand very well why the Liberal Democrats entered into the coalition after the election. It is perfectly right to want to be in power. We on these Benches want to be in power, too. What I cannot accept is that these are policies that decent Liberal Democrats can condone. I hope that, with noble Lords on these Benches, they will make their voices heard in opposing much of what is being advanced. I remind noble Lords about power. Martin Luther King said:

"Power without love is reckless and abusive".

There is not enough love being shown just now.

5.56 pm

Baroness Campbell of Surbiton: My Lords, I welcome this debate on the impact of the comprehensive spending review. For the benefit of new Members of the House, I should say that my noble friend Lady Wilkins will assist me when I run out of breath, as agreed by the usual channels.

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There is so much to debate, so I have decided to speak to one area only: where disabled people are being asked to pay a price that far outstrips the potential saving to the Exchequer. I know that my noble friend Lord Low will later cover other new financial policies that will affect for good or bad the lives of disabled people. Let me be clear from the outset that I do not deny the need to address the deficit in part through cuts in public spending. It is in everyone's interests, including society's poorest and most disabled, that the books balance. However, to face reality, we must understand reality. Doing so requires us to recognise the full implications of cuts to people in their everyday lives. Only then can we make sensible choices, not just for the individuals who are directly affected but in the public interest.

That is why I have decided to concentrate today on what some may think is a small and insignificant cut to independent living services for disabled people but which has the most disproportionately devastating consequences for their lives. First, before I say what it is, I declare an interest as someone who receives public care and support services targeted by the CSR. I am also a trustee of the National Centre for Independent Living and chair of the Government's Right to Control advisory group. In fact, I often give expert advice to the Minister on disability matters.

A Government proposal under the heading "Welfare Reform" is to,


To claim DLA, you must be under 65 at the time of the claim. The Government estimate that this cut will affect 58,000 disabled young people and working-age adults.

This proposal is seriously flawed for four reasons. First, it will have negative and costly effects on disabled people's health and well-being, their ability to develop social and community networks and their capacity to move on from residential care to be, as the Government want, independent, participating citizens, not dependants. Secondly, it conflicts with the Government's policies for personalisation, independent living and encouraging disabled people to gain or retain employment. Thirdly, it is based on a misunderstanding of the purpose of modern residential care and the potential of disabled people living there. Fourthly, it is incompatible with the UN Convention on the Rights of Persons with Disabilities.

I am sure we all agree that people living in care homes today are full citizens. We should therefore expect and want them to exercise their human and civil rights and to contribute to civil society like everyone else. Residential care homes are no longer, or should not be, places to hide people away in or to deny them opportunities the rest of us take for granted: independence, choice, access to public life and maybe, for those who can, eventually the possibility of work and independence. Residential care homes are not intended to be prisons. We all enjoy activities outside our homes. It should be no different for those living in residential care homes.

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At this point, Baroness Wilkins continued the speech for Baroness Campbell of Surbiton.

Since the CSR announcement on this DLA saving, disability organisations have been receiving alarmed calls from people desperate at the prospect of losing this entitlement to hard-won independence. Last week RADAR heard from Patricia King. Her son and daughter-in-law are both disabled and live in residential care. Without the mobility component, they will no longer be able to visit the doctor, dentist, bank, church, library or shops, let alone relatives and friends. The proposed changes will remove over 45 per cent of her son's total allowances and over 69 per cent of his wife's. Neither the local authority nor the care home is in a financial position to offer free transport as part of its service to the residents. Patricia King, rightly in my view, calls this a cruel cut. She says:

"Some politicians are accepting a 5% cut, but would they accept a 45% or 69% cut to the money that buys them their personal freedoms?".

The DWP argues that the measure would bring care-home residents into line with hospital in-patients, who lose access to the benefit on the same basis. However, the comparison is false. People of working age living in care homes are not in the same position as patients in hospital. In hospital, you are sick and therefore do not need an allowance to go out. Residential care is disabled people's home and the base from which they go out to engage in education, training, work, leisure, travel, family and social contact. For many, it is a stepping stone to living independently in the community. Noble Lords may know that care-home residents must surrender almost all their income to support the cost of their care. They are allowed to retain only about £22 a week for personal expenses, so a basic mobility scooter-a mobility aid often bought with DLA finance-costing about £1,500 is out of reach without the DLA mobility component of £49.85 a week. Removing that component takes away over two-thirds of the care-home resident's income. It makes Britain's most severely disabled people the group who lose most from the CSR; it literally removes their mobility.

At this point, Baroness Campbell of Surbiton resumed.

Could this House consider, even for a moment, denying me my electric wheelchair or the noble Lord, Lord Ashley, his scooter? I am sure noble Lords would be outraged and would defend our right to contribute to the work of the House. I do not accept that the national finances are such that we should now deny people living in care homes the same rights. To be clear, the DLA mobility component helps residents to maintain contact with families and friends, access the big society as a volunteer, participate in leisure and fitness activities and be active members of their local community. Such activities promote physical and mental well-being. They help to sustain one's sense of identity and prevent the loss of confidence and the low morale often associated with depression. The proposed modest savings in DLA are likely to be outweighed by increased demands on the NHS and the costs linked to preventing severely disabled people joining society. It makes neither moral nor financial sense.

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I am deeply concerned that this cut in spending was not subject to a disability, equality and human rights impact assessment, that it was not discussed with those of us who have had years of experience of advising Governments on disability matters, and that the Treasury failed to run it by its own expert department, the Office for Disability Issues, which found out about the policy on the morning of the CSR announcement. I hope the Minister will explain that to me.

The big fair society can be achieved only if support structures are there to enable disabled people to play their part. Otherwise, we will go back to a time when most disabled people were caught in a culture of dependency with no alternative but to beg for charity or to be jolly grateful for what they got. This fills me with dread. I am sorry that if this debate continues beyond 10 o'clock, I will not be here or, if I am, I will be bedding down on the Back Bench. I have to be home as my CSR-dependent support service dictates my moves. Please think again on this very small cut that illustrates where we are heading.

6.08 pm

Lord Knight of Weymouth: My Lords, it is a great privilege to follow that speech by the noble Baroness, Lady Campbell, and I look forward to the Minister's response. I, too, am looking forward to the maiden speeches from the noble Lord, Lord Allan, and my noble friends Lady Healy and Lady Nye.

I served on the National Economic Council for the last year of the previous Government, and I noted what the Chancellor said, which was repeated by the Minister in his opening remarks, that the Government,

and that the country was on,

This was an inheritance of a growing economy, very low interest rates, low inflation and falling unemployment, but with a growing deficit. It is important to distinguish deficit from debt. Clearly, a rising year-on-year deficit adds to debt, but it is in the context of the overall debt-to-income ratio of the nation. As we heard from my noble friend Lord Myners, in 1997 that was 42.5 per cent. By fixing the roof while the sun shone, we got that down to 36.5 per cent in 2007-08 when the global financial crisis hit. At that point, we had the second lowest debt-to-income ratio in the G7 after Canada. That meant that when the crisis hit-when, as we heard from the noble Baroness, Lady Kennedy, the Conservative Opposition were pledging to match our spending and wanted more, not less, banking deregulation-we had the room to borrow to make up for the collapse in tax revenues that is at the root of the deficit.

With London as the global centre for finance we were especially hard hit and the deficit is very high as a result, but it is important to remember that tackling the deficit is as much or more about increasing revenue through growth than it is about cutting public spending. We borrowed to buy bank shares, assets that can be sold in time; we borrowed to invest in housing to keep people in construction employment and in their homes;

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we borrowed to invest in jobs and defeated all expectations of a year ago that youth unemployment would exceed 1 million and general unemployment would exceed 3 million. The fiscal stimulus worked and still left room to continue to borrow if further investment in growth were needed, alongside necessary reductions in spending.

There is also room for less haste, with fewer mistakes and fewer contradictions along the way. We do not have to have the fiasco of the implementation of the child benefit cuts that have been described by experts as "unworkable". We could buy time to iron out contradictions. For example, today we hear that the noble Lord, Lord Young, is to address the Prime Minister's concerns about,

How does this square with the work programme procurement, mentioned by the Minister in his opening remarks, which is an essential plank in the Government's economic strategy and is effectively closed to any but the very largest contractors?

We also have time to get the phasing right. I support the principles behind the work programme. We were developing the pilots to test the risks behind this idea as we left office. How do the Government think that a programme that pays by results of sustained job outcomes will work if there are no jobs in the labour market? Should we not wait until private sector jobs growth is secure? PricewaterhouseCoopers estimates that the CSR job losses will be half a million each from the public sector and private sector. I make that a total of about 1 million. In government, we estimated that 1 million job losses cost £4 billion in benefit and lost tax revenues. Is that being properly accounted for?

Will those jobs come back? Vacancies are falling, claimant numbers are rising, and last month saw the first rise in youth unemployment for many months. Current employment growth is largely in part-time work and is not showing through in falling claimant figures. Many employers-very responsibly during recession-put staff on short time and will now grow output through increasing hours and productivity rather than through rushing to take on more staff.

Jobs growth comes through four possible sources. Will it be through consumer growth? Looking at the current retail figures, and with VAT going up in January, I suspect not. Will it be through housing-led growth? The housing market looks pretty flat, and government spending on housing is being cut by 60 per cent. Could it be through trade-led growth? Admittedly the IMF predicts that virtually every other major economy will grow faster than that of the United Kingdom, but the signs remain poor. Could it be through investment-led growth?

I welcome the Prime Minister's late conversion in his speech last Monday to the Confederation of British Industry, but I have to say to him, "too little too late". If he was serious he would not have cancelled the regional development funds, Sheffield Forgemasters, Building Schools for the Future, or support for the creative industries. He needs his version of last year's

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excellent New Industry, New Jobs strategy which my noble friend Lord Mandelson introduced. Nor would he be cutting the entitlement to free training for first level 2 qualifications for adults over 25 or charging fees to those over 25 wanting A-level equivalents. He would not be slashing the educational maintenance allowance, which has done so much to persuade those from poorer backgrounds to carry on learning. Skills and long-term growth do go together.

These training cuts are also the tip of the iceberg of unfairness in this spending review. As we have heard, the Institute for Fiscal Studies has been clear that families are the biggest losers, and the poorest are hit hardest. For example, the VAT increase means that compared with the richest 10 per cent, the poorest 10 per cent lose double the proportion of their income.

It has been said by the Minister and the noble Lord, Lord Lamont, that we are in effect opposing for our own sake and not offering anything in return, but alongside our focus on jobs and growth we agree with continuing the migration off incapacity benefit that we started, we support aspects of the reform of the disability living allowance-although I have listened carefully to the noble Baroness, Lady Campbell, and I hope the Ministers have too-and the principles of the work programme build on what we did in government. There is room to make reforms of the welfare system, but we oppose the changes that will make it harder to get back into work, that are unfair and that undermine the basis of our welfare state. The real-terms cut to working tax credits, especially the childcare element, will reduce the incentives to work and make those in low-paid employment significantly worse off.

And what of those who now lose their jobs? As the labour market continues to be difficult, they will get a cut of 10 per cent in housing benefit after 12 months on jobseeker's allowance, regardless of how hard they are working to get back into employment. They might also have a large family in an inner city and find themselves having to move because of the housing benefit cap. They might be unable to work because of sickness and have paid national insurance through their working lives, find themselves still sick 12 months later, on the tougher work capability assessment, and then lose entitlement to contributory employment support allowance and get no money until the family falls within the means test. Under no version of fairness could the Minister pretend any longer that this CSR is fair.

That takes me to my final point. In their haste, the Government have pulled the rug from under the basics of the welfare state-the universal principle and the contributory principle. No more the idea that everyone pays in and everyone gets out: that we are taxed as individuals and assessed for benefits as households. The changes to child benefit and employment support allowance need careful debate and consideration, not the unseemly haste, the high risk or the shambolic delivery plans that are unfolding as this spending review unravels.

6.17 pm

Lord Haskel: My Lords, I am not going to speak about the economics of the CSR. My noble friend Lord Myners did that with devastating logic. My

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concern is about the process. Can the Government and the local authorities carry it through? It is easy to put numbers on a spreadsheet; it is a lot more difficult actually to deliver the proposed savings, as the Government, with the housing benefit and child benefit problems beginning to become apparent, are beginning to find out. Is this project a sound platform, as the Minister put it, or is it fantasy land, as my noble friend Lord Peston put it?

I start with Sir Philip Green's report. I feel qualified to do this because for 30 years I was in the textile business and on the receiving end of exactly the sort of thing that Sir Philip proposes. Unfortunately, he told the Government only half the story. After you get the hard talk, most firms will then carefully send someone round to ensure that the goods or the services that have been ordered will be delivered on time and satisfactory in quality and that there will be no problems. They know that the problems of the suppliers become the customers' problems, only magnified. Is Whitehall set up to be the kind of enlightened customer who is needed to do that? Is it more Toyota and less Topshop?

Writing in the Financial Times on 20 October, my noble friend Lord Adonis has his doubts. He says that, based on his experience as a Minister over many years, the intensive Whitehall support, as he calls it, is just not there. Last week, when debating government contracts with consultants, we were reminded that the National Audit Office said that the Government lack the information, skills and strategies to manage them.

What are the Government going to do to make sure that the budgeted savings are actually delivered? With this lack of time and skills, the Government are right on one thing; cut a service entirely rather than trim it and do it badly-do it properly or not at all. However, they are seeking to economise by encouraging the outsourcing of some of the services on the principle that the private sector does it better and cheaper than the public sector. This is sheer dogma, as my noble friend Lord Peston explained. What has produced the improvement is not privatisation but competition, and where the public sector has had to compete with the private sector, the public sector has done pretty well. We need look no further than the National Health Service. Where some NHS operations have been contracted out to the private sector, the private sector has had to be paid between 30 and 50 per cent above the tariff of the NHS hospitals. The chief economist of the King's Fund also pointed out that the private sector takes the less complicated cases.

On Welfare to Work, independent reports state that there is no hard evidence that the independent sector does better than Jobcentre Plus. Indeed, when Pathways to Work was rolled out for people on incapacity benefit in 2008-09, the private sector providers performed worse than Jobcentre Plus, and private sector prisons are certainly not consistently at the top of the performance tables.

Instead of sacking civil servants and contracting out services or closing them, why have not the Government allowed them to compete with the private sector? If we are all in it together, surely they deserve a chance too; or is it again too much rush, too little thought, all in the name of no alternative?

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The experience of the London Borough of Barnet proves my point. It had its own mini-CSR some time ago, and last week the council leader said that the savings for this year will be less than half those projected in its budget precisely because of the problems that I have outlined. Surely there is a red light flashing there. However, a decision has been made; people will be sacked and it is up to the private sector to employ them. Let us consider how realistic that hope is. I know that the Government have the support of many business leaders in this policy, but you will notice that they are careful to give their support in their private capacity. This is because when it comes to business, things are different. Again you get only half the story. My noble friend Lord Knight pointed out that, yes, they may be creating new jobs, but old jobs are being destroyed at a faster rate because of the continuous search for innovation and increased productivity. This applies to every sector. A typical British manufacturing worker today produces four and a half times as much as their equivalent did in 1980. That is why there are far fewer jobs in manufacturing even thought manufacturing output is about 70 per cent higher than it was then. This applies throughout business and industry.

The Government tell us that 176,000 vacancies are known to jobcentres, implying that these are jobs for people on the unemployment register. Last week, the noble Lord, Lord Sassoon, told us that 300,000 jobs were created in the second quarter, and the noble Lord, Lord Lamont, repeated it. Again we get only half the story. What we are not told is how many jobs ceased to exist and how many jobs were taken up by the 40,000 or 50,000 people a week who are in employment but change jobs. It is easy to cherry pick the labour market figures, but it is very difficult to give a true figure.

Like other noble Lords I ask where these extra jobs are going to come from. I welcome the plans to invest more in our infrastructure; I welcome the plans to develop Britain's offshore wind power industry. Certainly these should create new jobs but, like the noble Lord, Lord Bilimoria, I ask whether this is enough. I welcome the new innovation centres-a Labour innovation, I might add-but do not expect quick results; it will take three or four years before they show results. The Technology Strategy Board and the knowledge transfer networks have been doing this kind of work for some years and, yes, there are several projects in the pipeline. I declare an interest as the honorary chairman of perhaps the largest knowledge transfer network. However, this is a pretty thin supply-side narrative, as my noble friend Lord Myners put it. Growth in the economy does not necessarily mean more jobs; it may mean more output, but the two do not necessarily go together.

Where is the money for these new jobs going to come from? Big business has money but is looking to cut its costs by destroying jobs while most new jobs are created by small and medium-sized enterprises-the very sector that is being starved of investment capital. Like the right reverend Prelate the Bishop of Leicester, I, too, think that there is something wrong when banks are making a fortune trading the very debt for which the rest of us are making sacrifices. Is it because

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quantitative easing does not get beyond the banks? Banks do not create jobs-innovation and demand do. Perhaps the quantitative easing should go straight to business and industry.

I am concerned about the Government's ability to manage their strategy and budget. Will the promised savings be delivered? Will the private sector be able to absorb the jobless from the public sector and still remain competitive? I am concerned about where all this is leading: about the direction of travel. The Minister portrays the CSR in economic, fairness and reorganisational terms; others see it differently. I am a bit of an old leftie and I see it in terms of the Government failing in their duty to protect the public good from private interests, an issue to which several noble Lords have referred. Whatever our perspective, it is testing the limits of our tolerance. The CSR should be given more time and approached with a lot more caution and humility.

6.27 pm

Lord Tugendhat: My Lords, like other noble Lords, I look forward to hearing the maiden speakers who are yet to come in the debate. I hope that they will not be put off by the length of the list and that they will contribute not only on this occasion but on many others when it is to be hoped that the speakers list will not be so long. It is also a great pleasure for me to follow my noble kinsman, the noble Lord, Lord Haskel. It is the first time I have had the opportunity to say that in this House and I am pleased to have been placed at this position in the pecking order. However, we will not be approaching the problems in hand from quite the same vantage point.

There can rarely have been an occasion when an incoming Government have moved so quickly and decisively to grapple with the country's economic problems. They were right to do so: not because we were in the position of Greece or Ireland-we were not-but because the situation was running out of control and, after the denials and prevarications of the previous Government, any dawdling or delay could have provoked a crisis. In saying that, I am not referring to the noble Lord, Lord Myners, or even to the previous Chancellor of the Exchequer, Alistair Darling. I am of course referring to the previous Prime Minister. It was he who set the tone of his Government, and his denial of the nature of the problems facing the country meant that the incoming Government had to move quickly and decisively.

My noble friend Lord Lamont was right to draw attention to the deepening of the sovereign debt crisis in the eurozone. At the moment it is dormant, but it has certainly not gone away and no doubt we will have to deal with it again during the coming months. So this was a time for boldness and the Government have shown that. As a result, they have got themselves ahead of the markets. They do not have to worry about international confidence, their credit rating, or funding the deficit. This is a much better position to be in than not having done enough and being subject to speculation that they were going to have to come back and do more. There are, of course, as any army that advances very rapidly knows, dangers in getting ahead of the game. The question now is whether, in

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their determination to eliminate the structural deficit so quickly, they are putting growth and jobs at risk. By placing so much emphasis on this particular economic measure and fiscal consolidation as the means to achieve it, there is the question of whether it will stifle economic growth. In my opinion, there is such a danger. Faced with the protracted pain set out in the Chancellor's programme, will companies now cut back on investment and hiring?

Banks, as we well know, are under attack for the low level of their corporate lending. But banks have not gone on strike. They are not lending because they do not want to lend. The reason they are not lending is that the value and volume of viable applications reaching them are not as high as we would like them to be. That is the problem. Consumers are also being affected. We are told that half a million public sector jobs will go. Many times that number of people will be fearing for their futures and cutting back on their household spending. That will be true not just in the public sector but also in those sections of the private sector that will be hit by the cutback in the public sector. The Governor of the Bank of England called recently in his speech in the Black Country for half a million jobs to be created in our export industries. How good that would be. I hope they are, but it is a big ask when times are so hard in so many of our principal export markets.

So, having got ahead of the game, established their credentials, ensured that their credit rating is secure and that the funding will be possible, I hope that the Government, by acting quickly and decisively, will take advantage of the room for manoeuvre that they have created. Room for manoeuvre is a precious commodity in economic policy-making and the Government now possess it. I believe that they should not now regard an arbitrary target of deficit reduction by means of fiscal consolidation as the be-all and end-all of their economic policy. Rather, they should be willing to calibrate that programme in accordance with the needs of the real economy, by which I mean growth and employment. When the record of this Government comes to be judged, it will be on the basis of those criteria. The debt reduction programme should contribute to that and not dominate their overall economic policy. It is through economic growth and high employment that tax revenue is generated and that benefits are held in check, and that can make a considerable contribution to the reduction of the deficit. This aspect of policy now needs to be given more emphasis. The speeches which the Prime Minister gave last week and the initiatives which he took show that he appreciates that. I believe that the Government have put themselves in a strong position and they deserve credit for that. They have room for manoeuvre and I hope they will show the pragmatism and flexibility that the economic situation will require.

6.34 pm

Baroness Hollis of Heigham: My Lords, the Minister has insisted today that the CSR cuts are fair and that they support the DWP's 21st Century Welfare paper for a universal credit to bring people back into the labour market, mainly through making work pay. Really?

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On fairness, the Budget cuts and the CSR, as the IFS and some of my noble friends have said, have hit the poor more than all but the wealthiest 2 per cent. But there are other forms of redistribution-horizontal, if you like. This hurts women more than men. The analysis of Yvette Cooper shows that three-quarters of the Budget cuts and two-thirds of the CSR cuts fall on women, as well as the fact that 40 per cent of women work in the public sector. So they are hit through their wage, their job, their tax, their benefits, and public services. It also takes from children rather than the childless. The Government say they want to end child poverty by 2020. The JR Foundation believes that there will be 3 million more children below the poverty line by 2020. Instead of redistributing from the healthy to those who are not, as the noble Baroness, Lady Campbell, said, disability benefits will be threatened, frozen or cut. As for geographical distribution, the cities in the north which depend on public sector jobs and social housing are savaged while prosperous suburbs remain unaffected. Yet generations of Government have deliberately relocated Civil Service agencies and bodies out of high-rent and high-employment London and the south-east to the more depressed north. The CSA went to Dudley, the Patent Office to Newport, the Inland Revenue office to Nottingham, and the NHS executive and the DSS to Leeds. It is profoundly unfair for a Prime Minister representing wealthy Witney to talk about the north's unhealthy dependence on public sector jobs when that relocation was supported by all parties as part of sensible regional economic policy. So the CSR hurts women, children, disabled people, the inner cities, and the north disproportionately. In all of these dimensions it is unfair.

The one redistribution I have not mentioned is between those who are in work and those who are not. The Minister made much of this, as though the CSR would encourage people into the labour market, given the jobs economy. Like many noble Lords on both the opposition Benches and the government Benches, I welcome the 21st Century Welfare paper of Mr Duncan Smith and the noble Lord, Lord Freud, for a universal credit underpinned by ensuring that work always pays and that mini and part-time jobs are supported to keep a toehold in an increasingly difficult labour market until those jobs can gradually become full time. What is bizarre-I hope that the noble Lord, Lord Freud, is aware of this-is that the CSR actively discourages entry into work, and if you are in work, it caps any aspirations you may have to seek better prospects. In my view, it is goodbye to this Green Paper, which we all know, given that the Treasury is extending its implementation time to two Parliaments, is loathed by the Treasury.

Increase your pay by £1,000 into the higher rate tax category and you lose twice as much in child benefit as you gain in pay. If you create cliff edges, do not be surprised if people are not too keen on walking over them. The father on £42,000 will not take that pay rise. Supporting work incentives by punishing improved work prospects-brilliant social policy. It is perverse. Similarly in social housing, increase your pay and risk losing your home as an insecure tenancy. Social housing is for the down and out; if you climb the work ladder you will be up and out. Of course you will not work

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those extra hours or take that pay rise if it costs you your home. It is perverse-brilliant social policy again. Staying with housing and non-dependent adult deductions, the adult son, we will assume, is living at home and in low-paid work. The parents will now lose almost their whole housing benefit as his notional contribution to their rent increases by a third or more. What will happen? Either, he will leave, the parents will get full housing benefit again, and he will get housing benefit on his new place, in which case the housing benefit bills will rise and more housing will be needed. But the parents will now be under-occupying and therefore they may be evicted, even though there are no small properties available around them. So the result will be higher housing benefit, more housing used up and insecurity all round. Or he can stay at home, save his parents' housing benefit, and stop work-the intelligent, rational strategy. It is brilliant social policy again. It is perverse. I will say more on housing on Thursday because carnage awaits us there.

The employment and support allowance has been mentioned already. After one year, it is to be means-tested. Who will it means-test? It will not just be him and any savings, but his wife. If she holds down a part-time job as well as caring for him, she may find that his ESA is withdrawn. What would you do in her situation? Either you reduce your hours right down to the minimum or you probably stop work altogether. Well done: the CSR has ensured that they enter retirement much poorer than they are now. She as a part-time carer has lost her place in the world of work. If in a few years she is unfortunately on her own, she will not be able to regain it. She will remain poor, workless and isolated into retirement. We have all spent the past decade trying to help parents stay in work as far as they can. The CSR may now destroy that. It is brilliant social policy again.

The same goes for the move from 16 to 24 hours' work for a couple with children, of which one job has to be at least 16 hours, before they can get tax credits. That is not just cruel, it is perverse. It will affect more than 200,000 families. Many men are now accepting substantially reduced hours at work, but, without working tax credit, which is worth up to £70 a week on top, that work may not pay. Yet if they stop working, it will be very hard to regain a full-time job. If he loses his full-time job, she will give up her part-time job because the tax credits are not there to make that work pay. Neither of them will have a foothold in the labour market to keep them in the knowledge economy of work and, as the economy, we hope, strengthens, to work full time. Brilliant social policy, pulling them both out of the labour market. It is perverse.

The child care element of working tax credit will go down from covering 80 per cent of costs to 70 per cent and affect half a million poor families, who will lose up to £30 a week. At the very same time as the Government are seeking to propel lone parents of five year-old children back into work, they are ensuring that, for many, with the increased cost of child care and transport, work will not pay. Brilliant social policy.

The Minister and the noble Lord, Lord Freud, want a single universal benefit, incorporating housing benefit and council tax benefit, to make work pay. I

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support that. But the Government intend to localise-balkanise-council tax to 500 local authorities, which will make that universal credit impossible to deliver. It is brilliant and unbelievably stupid. I could cite another dozen examples from the CSR, each one of which undermines 21st Century Welfare, which I am sure all your Lordships welcome. I respect the efforts of Iain Duncan Smith, the noble Lord, Lord Freud, and Steve Webb, and I want to support them, but what on earth are they doing allowing the CSR to destroy those proposals detail by detail, forensic cut by forensic cut, before the DWP has even published the results of its consultation paper? The best way of getting fairness between poor families out of work and other hard working families is to help the workless into work, provided we can create the growth economy. That is what the consultation paper seeks to do; that is what the CSR will destroy.

I did not expect the CSR to be fair, not from this Government-and the IFS has shown how unfair it is-but I expected the policies of the DWP, the DCLG and the Treasury to be coherent and consistent. Not on your life. The CSR has made a shambles of future welfare reform and, as always, it will be the poor who pay the bill.

6.44 pm

Lord Foulkes of Cumnock: My Lords, it is a great pleasure to follow my noble friend Lady Hollis, who is probably the greatest expert on welfare in this House. I hope that the Government will take some account of her very carefully argued contribution today-they would be well advised to do so. When we eventually get to the end of this debate, I shall go outside and look at the colour of the moon because today is an interesting day, for I agreed with almost everything that the noble Baroness, Lady Kennedy of The Shaws, said. That is most unusual. Given such a coalition, we must be arguing in the right direction.

Speaking very much as a layman and not as an economist-we have heard contributions from some very eminent economists on our side-I want to make only three points. The first is a detailed but vital matter relating to the budget of the Department for International Development, in which I used to work. That budget is rightly protected in the CSR, but it is protected because of the pressure that we put on the Government when they were in opposition. We got assurances that they would protect that budget. However, it is vital that DfID's budget is not raided for funds by other departments, especially the FCO, which has its beady eyes on some aspects of DfID's budget, and the Ministry of Defence. The latter's expenditure in Afghanistan needs to come under the defence budget and the work being done by DfID needs to be clearly humanitarian. Great pressure will be exerted by the FCO and the Ministry of Defence, but it must be resisted.

My second point relates to the manifestly false claim of fairness in the CSR, which all my colleagues have commented on. The cuts to welfare have been swift and severe-as we heard from my noble friend Lady Hollis and from the noble Baroness, Lady Campbell of Surbiton, in a powerful and moving contribution-but

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there has been almost nothing at all relating to tax dodgers, who could contribute a huge amount more to our revenues. There has been some indication that HMRC will get some more money to deal with illegal tax evasion, but there has been nothing at all about tax avoidance, which has been described by the Deputy Prime Minister, who I remind some Members opposite is still a Liberal Democrat, as immoral. It is immoral at the best of times, but particularly at present. Nothing has been done to start closing the loopholes offered by the tax havens of our own overseas territories. There is no international co-operation with other countries to deal with tax avoidance. The noble Lord, Lord Oakeshott, made a powerful argument in that direction, but the power of his argument is perhaps detracted from by the fact that he is in the strange limbo of being a Liberal Democrat spokesperson rather than a Minister. If he was a Minister who was incorporated into the Government, we might have greater confidence that some work would be done on tax havens and tax dodgers.

Reference has also been made to the bankers. I find it appalling that some of those who caused this crisis in the first place are still in charge of the banks and stuffing their pockets with huge amounts of money.

One lighter moment came in a delightful spat over the cap on housing benefit, when our well beloved Mayor of London described the effect as being like that of ethnic cleansing in Kosovo. He was then forced to withdraw the remark, no doubt due to some public school loyalty. However, what was missing from that argument was the reality. Housing benefit payments are so high in the centre of London because rents are so high, and they are pushed up by people who are rich. Ordinary workers can no longer afford to stay and live in London, whether in rented or in any other kind of accommodation, without some support.

My third and main point is that, although I agree with everyone who has said that we must cut down waste and increase efficiency in the public sector-indeed, that is what the Labour Government wanted to do-I cannot accept, having thought about the matter again and again, that the pressure on government to cut the deficit is as strong, compelling and powerful as Ministers pretend. I just do not believe it. To whom do we owe this money? Who are the debtors? We have not had any mention of them so far. Do we owe the money to some celestial pawnbroker or some global loan sharks, who will come and do us in if we do not repay?

If the Chancellor and the Government's spokesman today in the Lords are to be believed, the money is owed to foreign Governments and to foreigners, who are prospering at our expense. I wondered whether that was right, so I tabled a parliamentary Question, which the noble Lord answered. In fact, the debts to all the foreign countries and foreign private bodies taken together represent less than 30 per cent of our total indebtedness. Of the rest, which is more than 70 per cent, 30 per cent is owed to UK insurance corporations and to pension funds-no doubt some of our pension funds here-and 27 per cent is owed to the Bank of England, 10 per cent to other financial institutions, 7 per cent to banks and the rest to households, local government and public corporations.

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In his introduction, the Minister claimed that the coalition Government's actions are responding to the demands of our debtors. Perhaps in his reply he could say where those demands are coming from. Which of our debtors are demanding that we take this action? I certainly do not see it. Perhaps the credit rating agencies were demanding it, but I sometimes wonder whether too much attention is paid to them, given that they are private organisations based in the United States, Canada and Japan. Surely we as a country can join together with other countries and take some responsibility, and some control and authority, over what the credit rating agencies say.

I believe that the CSR is not only unfair but unnecessary. The Tories are using it as a totally false pretence to justify what they have wanted to do for a long time for ideological reasons. The Liberal Democrats are their hapless human shields. They deserve the greatest blame for these cruel and unfair cuts, because of what they said before the election and what they are now doing, which is entirely the opposite.

6.52 pm

Lord Low of Dalston: My Lords, I hope that the Minister will have got the message that we are beginning to get rather tired of the partisan rhetoric about train crashes and the like, to which we are habitually treated as a characterisation of the situation that the coalition faced on coming into office. Such rhetoric is, for one thing, exaggerated and, for another, quite wrong. I would expect a greater degree of clear-sighted objectivity from this House in considering the origins of our present difficulties, which clearly lie with the excesses of finance capitalism rather than with the Labour Government. It was Gordon Brown, not George Osborne, who brought us back from the brink. Gordon Brown may not have been a very good fox, but he was a pretty good hedgehog-noble Lords will remember that the fox knows many things but the hedgehog knows one big thing.

I have taken some trouble, with the help of the Library, to try to get an objective handle on our financial position, amid all the claims and counterclaims that are made. As always, it is not difficult to use the statistics selectively so people will refer to structural deficit or debt and use OECD and G7 countries as the comparator as best suits their argument. The most dispassionate assessment that I can make is that our structural deficit was larger than that of most OECD and G7 countries as we entered the recession and our level of public sector net debt was higher than that of most OECD but not most G7 countries-not the big ones. However, our total public sector borrowing requirement was a manageable 2.6 per cent of GDP, similar to that inherited from the previous Government, and the level of public sector net debt was actually lower. The level of indebtedness has since gone up sharply for what I would argue were unavoidable reasons-much more unavoidable than the measures contained in the comprehensive spending review.

Those measures are intended to reduce the debt, but the results of attempts to do the same thing by similar means in the 1920s and 1930s are not encouraging. Between 1919 and 1923, national debt rose from 135 per

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cent of GDP to 180 per cent; between 1929 and 1933, it rose from 160 per cent to 180 per cent. The OECD says that about half of fiscal contractions in the EU in the past 30 years have led to growth in the economy, and it cites Canada, Denmark and Ireland as examples-though Ireland might not provide such a good model at present. There was recovery following the fiscal contractions of 1931 and the early 1980s, but in a very good article in this week's New Statesman, the noble Lord, Lord Skidelsky, argues persuasively that that had much more to do with the abandonment of the gold standard and the loosening in monetary policy than with fiscal consolidation.

Whatever view you take, it seems that the macroeconomic judgment of the CSR is just that-a judgment-and some would say it is a gamble. Whatever it is, the proposed measures are certainly not unavoidable. As the noble Lord, Lord Haskel, said, they put the interests of bankers, markets and the institutions of finance capital-what used to be referred to as the ruling class, although that perhaps makes me even more of a lefty than the noble Lord, Lord Haskel-before the interests of the ordinary citizens of this country. To be honest, it does not seem to me that Labour's ideas are a whole lot better; I would describe them as "coalition-lite". At all events, in circumstances when the harm done to the fabric of our society by the CSR is palpable and certain but its benefits are at best speculative, I agree with the noble Lord, Lord Haskel, that it is incumbent on the Government to search for an alternative strategy that subordinates the interests of the financial system to those of ordinary people.

The financial system is only a means, not an end. Instead of terrorising us with spectres of debt so that we forget our own interests, the Government should be demystifying the debt, a good part of which is owed only to ourselves in the form of pension funds and the like-as the noble Lord, Lord Foulkes, clearly demonstrated-and is not nearly as astronomical as we are asked to believe. At the end of the Second World War, according to the UK Debt Management Office, the national debt stood at 252 per cent of GDP, as opposed to a mere 50 per cent or so at present. That debt was paid off over a much longer period than is currently proposed and, during that period, we managed to implement the Beveridge reforms and found the National Health Service. That is the sort of framework in which we ought to seek the solution to our present difficulties.

Moving on from the strategy to the specifics of implementation, although a great deal could be said-I associate myself with the remarks of the noble Baroness, Lady Campbell, about the withdrawal of the mobility component of DLA from those in residential accommodation-I shall concentrate in the short time that I have left on the Government's decision to limit contributory employment and support allowance to 12 months. I believe that that will cause great hardship. The Government's decision fails to recognise three key points. First, those who have paid into the system through tax and national insurance have a right to expect that, if they become sick or disabled, the benefits system will support them as they come to terms with their impairment, gain access to rehabilitation services,

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retrain, learn new life skills and then move towards work. They paid in in the belief that they could rely on such support. The proposed change has not been consulted on and is a radical redrawing of the contract between the citizen and the state.

Secondly, it is completely arbitrary to say that everyone must find work within 12 months or lose a benefit for which they have contributed. Every individual is different in their journey towards work. Most important of all, there are simply not the jobs to enable everyone on ESA to get a job within 12 months. Since 2008, long-term unemployment has almost doubled to 797,000 while vacancies have fallen to 467,000. That leaves a deficit of 330,000 jobs. The impact is therefore clear. The Government will be means-testing large numbers of people on the work programme and ending their contributory ESA before they find work. Not only is that sadistically harsh, but it comes at completely the wrong time, as the noble Baroness, Lady Kennedy of The Shaws, has said. It is also self-defeating, and will completely undermine the welcome objectives set out in 21st Century Welfare, which, as the noble Baroness, Lady Hollis, has said, we all support. I will not be surprised if the time limiting of ESA, together with the changes to DLA and housing benefit contained in the CSR, come to be totemic symbols of coalition heartlessness such as the ending of free school milk in an earlier age.

Finally, the majority of the 1.5 million incapacity benefit claimants who are due to be migrated on to ESA over the next three years will face the same 12 month limit and means test. That is because the majority of those are expected to pass the new work capability assessment and be allocated to the work-related activity group. The vast majority of IB claimants have been on the benefit for five years or more, which means that they have complex needs in terms of making the journey back to work. Complex needs require time to address them; the time-limiting policy completely disregards that. Have the Government made any assessment of the proportion of claimants who will qualify for income-based support as they come off ESA? I should be grateful if the Minister could enlighten me.

The damaging and unjust consequences of time limiting ESA are just one of many reasons-the noble Baroness, Lady Hollis, has instanced a string of further examples of perversity-why the Government should seriously rethink the CSR. If they refuse to do so, I would not mind betting that they will be forced to do so in due course.

7.03 pm

Lord Davies of Stamford: My Lords, that was a very eloquent and well-informed speech and I hope that the Government have taken careful note of it. I am delighted to follow such a substantial and distinguished contribution.

I think all of us were delighted and greatly relieved at the good performance of the economy in the third quarter and the fact that the growth rate was at 0.8 per cent. But it is quite ludicrous-actually embarrassingly ludicrous-for the Chancellor to go around almost in an orgy of self-congratulation about that. Anyone who knows anything about how an economy works

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and the time lags in an economy knows perfectly well that there is nothing that could have happened in fiscal or monetary policy since the middle of May which would have affected the output of the economy three or four months later. There was no change in fiscal policy over that period. Quite clearly, if tributes are to be given, they are to be given to the former Prime Minister and to the former Chancellor for the course that they had correctly set during the difficult international conjuncture of the past two or three years.

Undoubtedly the Government are now embarked on economic policies which are very risky. It is not just I who says that-there have been eloquent supporters of the Government today in this Chamber, the noble Lords, Lord Lamont and Lord Tugendhat, who have acknowledged the same thing. You cannot take £133 billion out of the economy over five years-taking the combination of expenditure reductions and increases in taxation-with impunity. That is roughly on average 2 per cent of GDP per annum. That is an enormous reduction in aggregate demand and begs a tremendous question as to where that aggregate demand is going to come from, particularly in present international circumstances. There are obviously great risks. No sensible person denies that and sensible Tories today have acknowledged that.

I am worried about two aspects. I may be right or I may be wrong but my inclination is that Government are cutting expenditure too far too fast. I may be completely wrong, but there are two slightly more objective factors here, which concern me deeply. The Government do not seem to be helping themselves very much. I have several examples in mind. It seems to me extraordinarily ill-chosen, in the situation in which we find ourselves now, to increase the VAT rate from the beginning of January. Every fool knows that January and February are the low point seasonally in the economy when consumption is at its lowest. Increasing a consumption tax like VAT at that point is likely to exacerbate the volatility of the economy rather than stabilise it. Why 1 January or perhaps 4 January? Why then? Any sensible person would have done it perhaps in April, or in two stages. It is extraordinary.

I put another example to the noble Lord, Lord Sassoon, at Questions the other day. Why allow the publication of a forecast that there are going to be 490,000 job losses in the public sector over five years-a calculation that must be based on knowledge of which particular departments and functions are going to be affected-without saying what those departments and functions are. As a result it is not just 490,000 people and their families who are going to be desperately worried and cutting back on their consumption expenditure and increasing their savings ratio, but it is going to be millions on millions of people in the public sector-other than those who have been explicitly protected- any of whom could feel that they are going to be targeted. It is not a sensible thing to do when you are trying to replace with enhanced consumption spending your explicit and deliberate reduction in public spending. I am worried about that.

I am also worried that the Government do not seem to have much of a fallback position. If you ask them, the reply is "monetary policy". There are two problems

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there. One is because of the time lags. If the Government find that they have cut expenditure too far and too fast and killed the recovery, it will be too late to use monetary policy then because monetary policy does not feed through into output for a year or two. Again they will have exacerbated the volatility of the economy and have got the thing badly wrong.

The next thing that concerns me in this context is that monetary policy at present levels of interest rates means of course quantitative easing. I am concerned that the Government are getting rather addicted to quantitative easing-rather like an adolescent discovering drink or drugs. It tastes pleasant, it makes you feel good-let us have some more. There is a big question about quantitative easing which the Government need to answer. The Government have never answered it as far as I know-in fairness I am not sure the question has ever been asked-so I shall do so now explicitly and ask for an answer. It is very easy for the Bank of England to buy in this paper, creating automatically bank deposits and generating an increase in the monetary aggregates. That is an easy and apparently painless thing to do. But when is the Bank going to sell back that paper? Is the Bank ever going to sell back that paper? Is this part of the Government's debt that is being bought in by the Bank of England going to be permanently monetised? If so, how much do the Government plan permanently to monetise in this fashion? Is there a ceiling? May I have an answer please from the Minister? If there is no intention to monetise, when and in what circumstances is it planned to sell back this paper, bearing in mind of course that selling it back will be in direct competition with government new issues in the gilt market at the relevant time. That is a problem that does not exist when you increase and use interest rates to manage demand. It is an important question to which the country needs a clear and explicit answer. When and in what circumstances is that paper to be sold back?

I was going to speak at slightly greater length about some of the perversities in the measures on benefits in the comprehensive spending review. However, my noble friend Lady Hollis made an absolutely brilliant analysis and she was followed by an extraordinarily distinguished analysis from the noble Lord, Lord Low. They have done so well that I am going to do something quite different. I ask the noble Lord, Lord Sassoon, whether he would be good enough to commission from the DWP and the Treasury a reasoned response to all the perversities that were set out by my noble friend Lady Hollis and the noble Lord, Lord Low. He should not only send that to them but put a copy in the Library for the benefit and elucidation of us all.

I am of the view that welfare reform is a very good thing and that Iain Duncan Smith's single benefit idea is much to be commended. As I see it, it forms a coherent progression with the measures taken by the previous Administration to make sure that people had a greater incentive to work and that there were fewer perversities in the system. That was created by the introduction of the minimum wage and by the tax credit scheme which were, again, very important measures of welfare reform. Similarly, I would welcome other measures in the same direction. There were egregious abuses with regard to housing benefit. I am perfectly

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happy to acknowledge that and it is good that we are addressing them. Indeed, I have always felt that housing benefit was inherently problematic because it tends to drive up rents. Too often, landlords assume that the maximum that the benefit office or local authority will pay is the minimum that they will demand. It becomes an engine for driving up rents and therefore contributes to the problem that it is designed to alleviate: homelessness. Yet that does not mean to say that the Government are very clever to have produced a situation in which literally tens of thousands of people-so we are told by no less a figure than the Mayor of London-will be forced out of their homes.

My noble friend Lady Kennedy spoke movingly about people who are confronted with redundancy. I think that would have moved noble Lords on all sides of the House. Yet if you go home and tell your children that you are to be evicted, it is only scarcely less horrible than having to go home and say, "I've got the sack". We should think carefully about the tens of thousands of our citizens being forced to leave their homes in that way. I put it to the Minister that there was a solution which was, at once, more practically sensible, more economically judicious and more humane in all these matters-this goes for child benefit as well. It was to introduce the new, more stringent rules for new applicants, to phase in the new rules for existing claimants, to use transitional relief; and to withdraw benefits at a certain level-whatever effective rate of taxation that might be. That could have been done in a less economically disruptive and less dramatic way in terms of the human impact on families.

It is never too late, I say to the noble Lord. What is the point of having these debates if the Government come here with a closed mind before they start? I hope that some of the thoughts that have come out of this debate will indeed be taken back by the noble Lord, Lord Sassoon, to his colleagues and that we might get a slightly better result than the one we have before us at present.

7.13 pm

Baroness Turner of Camden: My Lords, I want to concentrate on what I believe to be the general direction of government policy, as revealed by the review, and its possible effect on all of us as individuals. To put it simply, the Government's approach seems to be based on the perception "public bad, private good". Hence the emphasis on privatisation, which was also a feature of the previous Government of which some of us were critical. Yet the present coalition is taking this much, much further. Hence the so-called reform of the welfare state, although, as the shadow Work and Pensions Secretary has pointed out in the other place, welfare reform and welfare cuts are quite different. It looks as though we are mostly going to get cuts.

First, there will be public sector unemployment, which the Government's own figures indicate will be almost half a million lost jobs. Secondly, there will be a decline in welfare benefits, on which many of our fellow citizens depend. I believe that, in both instances, the impact on women will be disproportionate and certainly not fair. The unemployment resulting from

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the public sector cuts is likely to be mostly of women, as a large number of women are employed in the public sector. I have already had letters from women working in the public sector who are scared that they will lose employment in areas where alternative employment is virtually non-existent. We heard some explanations today from my noble friend Lady Hollis of exactly why that is.

We sometimes forget just how women's rights were improved in the last century. At the beginning, women really were second-class citizens with no right to vote, limited access to jobs and limited access to higher education. There was widespread discrimination. If women had jobs, they were expected to leave when they got married. In many large companies, women were employed only in non-career jobs and were not included in pension schemes until they were over 30 and presumed to be "on the shelf"-that is, unmarried. There was widespread discrimination in unequal pay and, of course, a lack of promotion opportunities in employment. The widespread discrimination that existed has now disappeared, although some complaints can still justifiably be voiced nowadays. Those improvements were achieved as a result of a continuous campaign by previous generations of women. It is sometimes not appreciated just how much was due to women's access to the job market and to equality legislation, for which Labour Governments were largely responsible. That meant that women achieved independence. They did not have to stay in relationships that were impossible for them.

The spending review, with its impact on women's employment, could put at risk the achievements of past generations. The Government believe that the private sector will create alternative jobs. In fact, the loss of jobs in the public sector could result in further job losses in the private sector. A number of speakers have explained that today. Many experts do not think it credible that the private sector will be able to create jobs on the scale that will be needed.

As to the review's proposal on public services, local government has been threatened with cuts and some councils are already responding by cutting staff. Services likely to be at risk involve the provision of social care for elderly people. This is already a problem in many areas and, again, an area where the impact is most likely to be felt by women. Many of the elderly will be older women, whose carers, if they have them, are also likely to be women. I remember when, during a previous employment crisis, those seeking work were famously told by the noble Lord, Lord Tebbit, to get on their bikes and look for work. Well, many did, with the result that family members often do not live close to one another any more; they no longer live round the corner and some even live abroad, hence Age UK's current campaign on behalf of older people living alone.

Perhaps the Government think that all necessary social services will in future be provided by volunteers in the so-called big society. We should greatly respect those who volunteer to help others, but caring for elderly and disabled people is a service that should be provided regularly in any civilised and developed society. I shall perhaps be told that the review provides for

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social care some £2 billion from 2014-2015. I welcome that, but it is some years ahead and the need exists now. Moreover, local government will, presumably, be responsible for administering it along with other services and is already suffering from cuts in income. Will this new money be ring-fenced? Other services under threat, including the provision of social houses, have already received much attention and will, no doubt, be further debated in this House.

I believe that the spending review is ideologically motivated. It is presented to the public as if there is no alternative and as if it is all the fault of the previous Government. Yet alternatives have been suggested by many experts, including a number who have spoken from this side of the House in this debate. What is being proposed could disrupt many lives, mostly of poorer people.

I find it ironically amusing that the talk of the big society often refers to a variety of voluntary organisations, when one of the largest voluntary organisations in this country-with a leadership elected by its membership-is the trade union movement. But unions do not get a mention-oh no. They are apparently not part of the big society as far as the Government are concerned. It is the job of unions to represent their members-many thousands of ordinary workers-and we can expect that they will endeavour to do so. As a former union official, I hope that they will succeed.

The welfare state was created after the Second World War because no one wanted to return to the poverty of the 1930s. The policy direction outlined in the spending review is neither fair nor just and puts at risk some of the achievements of previous generations.

Baroness Anelay of St Johns: My Lords, following inquiries from many of those taking part in this important debate and discussions with the opposition Chief Whip, it may be helpful if I advise the House that, at the current rate of progress, with speeches of around eight to 10 minutes, the House is likely to rise after midnight.

7.22 pm

Lord Higgins: My Lords, by a quite extraordinary coincidence I was about to raise that very matter in my opening remarks. Indeed, I was going to say how glad I was that my noble friend the Chief Whip did not say at the beginning of business that we should try to rise by 10 o'clock or that speeches should be curtailed accordingly. Particularly with the ever increasing size of the House, we will find more and more pressure to reduce speeches to a length at which, in a debate of this sort-of great importance and considerable complexity-it would not be possible for the House to fulfil its job of holding the Government to account as effectively as it should. It is very much a question of balance. I understand my noble friend's point, but we should beware of excessive curtailment of the length of our speeches, as that may frustrate our very purpose. We are in fact barely half way through the list of speakers and are therefore likely to go rather late. However, I do not think that anyone has gone over about 10 minutes and many speeches have been of an extremely high quality. They have raised a number of questions, such as fairness and so on. I intend to concentrate on a rather different aspect.

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As I said at the time of the Statement on the spending review, it is quite extraordinary that the Treasury officials and Ministers should have managed to carry out such a comprehensive review in the time that they took. It was desirable that they should do so and, overall, they have done a remarkably good job. There are some obvious omissions-for example, I simply do not understand why winter heating payments should not be means-tested-but, by and large, they got the balance pretty right.

The basic controversy raised before, through and after the election was summed up rather cleverly, as always, by the noble Lord, Lord Myners, who said that this was a question of scale and pace. He took the view that the scale was too large and the pace was too quick. I take the contrary view. Experience shows that it is extremely difficult to cut public expenditure quickly. It almost always takes much longer than people expect. The pace proposed by the Government is probably the minimum at which we ought to aim, because we will almost certainly undershoot it. That was a matter of great debate among all parties but, on the whole, the Government got the pace about right.

With scale, we are faced with a rather strange situation. Individual cuts are clearly a matter of great controversy and depend on many of the arguments that we have heard deployed this afternoon. However, the reality is that, even after all these cuts, public expenditure will go on rising, from £702 billion to £713 billion next year and to £724 billion and £740 billion in the years after that. With cuts, that is strange and therefore important, particularly given the interest that we have to pay, which has been shown to be going up from £43 billion now to £63 billion in 2014-15-a massive increase. I assume that the Treasury's calculation has been done on the assumption that the rate of interest at which it is able to borrow remains the same. Perhaps my noble friend will confirm that.

My noble friend Lord Tugendhat raised big issues about the situation with the international financial markets. We are fortunate in having most of our borrowing spread over a lengthy period of time, but it would not take a large increase in the average rate at which we could borrow-particularly at the margin-for that £63 billion by 2014 to look much bigger. We are making the most optimistic assumptions that we can. Worldwide record low rates of interest are being used. That may be very dangerous for the future.

The other problem is aggregate demand. I raised this at the time of the relevant Statement and my noble friend referred to the forecast of the Office for Budget Responsibility, which said that, on aggregate, demand in the economy would go up. Again, that is strange against the background of a programme of what the Opposition would call "savage cuts". What will happen to aggregate demand? Is it my noble friend's view that the situation will get worse or better? There was much joy in the City over the past few days at the fact that the quarterly rate of growth was 0.8 per cent. However, if I understand it correctly, that was before the cuts. They have not yet had any perceptible effect. I would have thought that the level of aggregate demand would go down. These are extremely difficult calculations. For example, what is the effect on aggregate

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demand of large numbers of civil servants becoming unemployed and their spending power being correspondingly reduced? It would be helpful to know the views of the Treasury and the Office for Budget Responsibility on what will happen to aggregate demand.

If aggregate demand is going to decrease, the question whether there should be further stimulus arises. My final point, which I have raised previously, is on quantitative easing. The noble Lord, Lord Myners, seemed to be recanting somewhat in his opening speech. The £200 billion of quantitative easing that he introduced was widely publicised as an increase in the money supply. In reality, following that quantitative easing, the money supply went down. That fact has not registered. We will therefore need to assess carefully what the effect of further quantitative easing would be on the level of demand. Against that background, we have the problem of not knowing what has happened to the country's productive potential as a result of the recession and crisis and whether it is much less than it was at the beginning of that period.

These are complex issues. However, so far, the spending review has not been placed in the overall context of the management of the economy, which is now significantly divided between the Treasury and the Bank of England. We need a much more detailed analysis presented to us, by either the Government or the Office for Budget Responsibility, if we are to assess the true economic impact of this spending review over the next four years.

7.29 pm

Baroness Sherlock: My Lords, I wish to focus on the impact of the spending review on families with children. Having looked through the measures, I have three broad concerns. First, it seems quite clear that the measures taken together have a disproportionate effect on families with children. There are £7 billion cuts in welfare spending in the spending review, on top of the previous £11 billion in the Budget. The charity Family Action, which works with some of the poorest families in this country, has calculated that there are 21 separate welfare cuts affecting working families. The IFS has pointed out that one key effect of the CSR is to refocus benefit spending away from families with children. That cannot be reasonable. Even the proposal to withdraw child benefit from a fairly random selection of higher-rate taxpayers is, in effect, not a redistribution from rich to poor but a movement of resources away from some families with children to society as a whole. Once again, a group of families with children is bearing the cost.

Secondly, the measures appear to add complexity and to get in the way of helping working families, as my noble friend Lady Hollis has so ably pointed out. Some of the cuts affect only families with one or more parents in work, such as the changes to working tax credit. I am particularly concerned about the decision to reduce the amount of childcare help that working families receive. That could cost up to £1,500 a year for a family. I spent some years running a charity that works with single parents. We ran schemes that helped single parents into work and I learnt two things: first, that most single parents want to work if they can find

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a job that they can combine with looking after children; and, secondly, that many of them live right on the edge financially. Every single penny is counted. A rise of 50p an hour in the cost of childcare can prove disastrous. Parents, who may find themselves £1,500 a year worse off in relation to childcare, could find that they simply cannot afford to pay the nursery or pay the childminder. If the childcare falls apart, so does the job. If we want lone parents to work, we have to make that possible for them.

This comes on top of the measures in the Budget that include something that sounds very technical, as my noble friend Lady Hollis has pointed out: a disregard of £2,500 in working tax credit for in-year falls in income. As the Minister will realise, this may sound technical but the results can be quite significant. Let us suppose that a mother loses a cleaning job or her husband's hours in his factory are cut and the family loses £2,400 a year in wages. This change will mean that their tax credits cannot be recalculated to take account of that fall in income. They could lose £975 a year from that one measure alone compared with the tax credits that they should be getting. That is not supporting work.

On complexity, there is also the proposal to localise and cut the funding for council tax benefit. The assumption seems to be that council tax benefit will be replaced in April 2013 by grants to local authorities, which can choose the best way of using the money to try to provide rebates for council tax bills. The budget will be £500 million a year less, so clearly poorer families will lose out, but it also means that we will end up with 100-plus local authorities deciding the best way in their authority to rebate council tax. As the IFS has pointed out, that goes directly against the principles behind the Government's universal credit; it goes directly against a single national policy, against clarity and against simplicity. As the IFS points out, it also creates a postcode lottery in which some local authorities may choose to use the money to persuade low-income families to live somewhere else. Therefore, it fails both the fairness test and the complexity test.

Finally, I am concerned about the measures that could hit the very poorest families. Poor families with children will be disproportionately hit by many of the housing measures that the Government have proposed. The measures to cap benefits must surely affect mostly large families who live in high-rent areas, often because that is where the jobs are. Even the flat-rate measures will strike terror into the heart of families more than others. My noble friend Lord Knight of Weymouth referred to the proposal to cut 10 per cent from the housing benefit of people who have been on JSA for more than a year. I truly cannot understand what that measure is designed to achieve. It obviously cannot assume that your rent goes down if you are on the dole for a year; and it cannot presumably be to motivate you to look for a job because the JSA already does that. If you do not look for a job, your benefits can be sanctioned. If you are offered a suitable job and you do not take it, your benefits can be stopped altogether. It cannot be to motivate you to do that. What, then, can it be for? I simply do not understand it. Is it simply a punishment for having failed to find a job? Do the Government believe that it is impossible not to find a

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job? If the Minister thinks that, I would be very happy to take him to parts of County Durham where I could demonstrate only too readily that that is not the case.

What would be the effect of that? If you have been out of work for a year, you have probably already exhausted all your savings; you have probably already been round all your friends and family and anyone else in your network who has money, many of whom will be in a similar position in some areas. So what do you do? If, at that point, your housing benefit is cut by 10 per cent, even if that were only £15 a week, that could be an enormous amount of your disposable income. Frankly, it might as well be £1,500 a week for all the difficulty you will have in finding it. What would that do to a family with children? You are out of work, your housing benefit has been cut and your landlord will not randomly reduce the rent for those who happen to have been on JSA for more than 12 months, so you cannot make the rent and at some point your arrears build up and you are likely to be evicted. Then we have a homeless family. How is public policy advanced in any way? Even if we simply wanted to make it likely for them to get back into work, how would they do that? What are the consequences for the children? I simply cannot understand what this policy is designed to achieve.

We all accept that there must be some pain as we try to lift our country out of this global recession, but we all agree that it must be done fairly. I suggest that fairness requires two things, and I hope that the Minister will take careful note of these. First, fairness requires-a phrase I think he likes-that those with the broadest shoulders should bear most of the burden. Sadly, the IFS has already proved that the CSR is clearly regressive and that that is not happening. Fairness also requires that the most vulnerable, those with the least ability to cope, should be protected from the worst effects of the cuts that we must all bear. How could poor families with children be anything other than in that category?

7.36 pm

Lord Allan of Hallam: My Lords, I thank all those officials and Members who have helped our class of 2010 to have such a smooth and warm introduction to the House. I wish the officials in particular well with the class of 2010B, which I understand may soon follow.

In choosing this debate for my maiden speech, I am conscious that I have to work to two constraints: first, to be concise, a quality which I am sure is always appreciated in debates in this place but especially when so many noble Lords wish to speak; and, secondly, to avoid being too contentious on a subject that naturally arouses strong opinions when it is so important to so many citizens of this country, as has been demonstrated by the many interesting and powerful speeches already made today.

Mindful of those constraints, I want to make a few short remarks on the way in which the Government have been opening up their vast store of data about the workings of the public services and how that is having an impact on the spending decisions that we are considering today. First, I declare an interest when speaking on information technology, as my employment

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outside this place is with the company Facebook. Although Facebook is not generally directly involved in public sector IT projects, some parts of the company have had commercial relationships with the Government. I hope that that position will equip me with up-to-date knowledge of trends in the information technology sector that will prove valuable to this House, as it informs my contributions to your Lordships' work.

I turn to the agenda of opening up government data in the context of the spending review, which has very much been a cross-party agenda. In the last Government, it had several champions, most notably Tom Watson when he was a Minister in the Cabinet Office, and the noble Lord, Lord Knight of Weymouth, when he was in another place and very much engaged in that agenda. It has been enthusiastically taken forward by this new coalition Government, and has also engaged many experts outside the party political realm, notably Sir Tim Berners-Lee, Professor Nigel Shadbolt, Tom Steinberg and Rufus Pollock. A common objective shared by all those contributors may not necessarily be to support directly the Government's policies; it may be to ensure that this is not an esoteric exercise for those in the technical community but an exercise that realises the potential of information to transform public services more generally.

I believe that that process is impacting the spending review in several important ways. First, the Government decided to release a database from the Treasury called the combined online information system, or COINS, proving that some in the Treasury clearly have a sense of humour, contrary to public perception. The COINS database provides a wealth of data to anyone interested in modelling the country's finances. It means that more people than ever before will have the key data that they need to analyse the Government's spending decisions and performance.

Secondly, decisions have been taken in both local and central government to publish information about individual items of public expenditure. This will dramatically increase the level of scrutiny of purchasing decisions and allow many minds to take a view on whether value for money has been achieved.

Thirdly, there is a significant opportunity for growth in the UK economy-again, something we have heard about in the debate tonight-by building services based on the data provided by government. Rufus Pollock, in a study commissioned by the Treasury during the time of the previous Government, calculated this value at £6 billion per annum.

Fourthly, public services can be enhanced through innovation around these data. For example, anyone who has used a Boris bike to get around London will know that apps for the iPhone and Android phones, which let you see how many bikes are free in any location, are a real and often necessary complement to the bike service itself. This is a small example of how data around public services can both contribute to significantly enhancing economic efficiency and, in the case of transport services, to minimising environmental cost.

Finally, new online channels provide ever greater scope for people to engage in debates on such policy issues as the spending review. This is not a substitute

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for the process of policy deliberation in Parliament but, handled correctly, can be a valuable complement to it as a broader range of well informed citizens can bring their perspective directly to our policy debates.

In closing, I refer back to the fact that outside this place I work with many people in their 20s and 30s who are building great technology businesses and creating significant new economic and social value. To me, this is a reminder that while technology projects can and do sometimes go badly wrong and end up costing the taxpayer more than they are supposed to save, we should certainly not turn our backs on the transformative power of technology-led innovation. The question for the public sector should not be whether technology can make its services both more cost effective and better for citizens-it certainly can do this, just as it has transformed many other parts of our lives-but how to realise this potential most effectively. This is a much bigger subject than I can cover today, but it is one to which I have no doubt that I will return during my service in this House.

7.42 pm

Lord Bates: My Lords, it is a privilege to follow my noble friend Lord Allan after his excellent maiden speech, which observed all the conventions that he rightly outlined at the beginning of his speech. As someone who is relatively new to this House and made a similar journey from the other end of the Corridor, I think that the speed with which he has adjusted to the climate of this House bodes well for the future. One of the great joys of following the maiden speech of someone who is so intertwined with the world of information technology is that there is an embarrassment of material that one can refer to. I shall not mention much of it, other than to say that it is highly impressive and worth viewing, especially the noble Lord's weblog. He began his undergraduate studies at Cambridge in anthropology and archaeology. I am not quite sure which of those areas will be of most value in understanding the workings of your Lordships' House, but I am sure that they will both come in very handy. He also had remarkable prescience in giving way in the 2005 general election in his Sheffield Hallam constituency to an unknown politician from across the pond called Nick Clegg, who went on to achieve some rather impressive things, as I am sure the noble Lord will do in his contributions in this House. His contribution this evening has been very much welcomed.

Given the time constraints, I want to add something new to the debate, which I am thoroughly enjoying and have found provocative and interesting, as always. That newness will come from speaking about the region that I come from-the north-east of England, where I am involved in two small and medium-sized enterprises. I have a passion for the region, which is often cited as being one of those that will be most severely hit by the forthcoming public spending constraints. There is a great deal of fear in the region about the consequences of those decisions that are coming down the track. It is not easy. However, I have to preface my remarks by saying that we would not be in this position had the foot been applied gently to the brake two years ago in public expenditure rather than

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heavily to the accelerator. This accelerated the level of debt and, therefore, the initiatives that are necessary for this Government to take to correct the national macroeconomy. It is important that that is said, but it has been said many times already this evening and I think that it is generally accepted. I want to focus on what can be done and what the consequences might be.

The north-east of England has a higher dependency on the public sector than any other region in the United Kingdom. The public sector accounts for 56.4 per cent of the north-east economy. A study by PricewaterhouseCoopers-I retrieved it from the UNISON website, so I hope that it is accepted on both sides of the House as a reliable source-estimates that the impact of the public sector cuts on the public and private sectors over the next five years will be around 43,000 jobs or 4.1 per cent of the workforce in the north-east, which currently numbers around 1 million. Every single one of these job losses will be a personal tragedy for those affected, but if handled correctly these changes in our economy can put the north-east economy on a more sustainable and upward path for the future.

As evidence for this, I cite a collection of data that has been produced by the north-east public relations firm Recognition PR, which has tracked the new private sector job announcements in the regional press from September to the end of October. The total number of new jobs announced in the private sector was 4,451 in two months, which is very encouraging. Moreover, the same regional newspapers identified some £271 million of new investment by the private sector in its businesses in the north-east. That is more than the entire annual budget of the regional development agency, so it is a significant sum. It comes not from bureaucrats picking winners but from business owners investing in their own businesses, so the likelihood of its succeeding and leading to further growth is also there.

One of the great strengths of the north-east is that it is one of the few regions that exports more than it imports. Exports from the north-east in the second quarter of 2010 were at their highest level ever, at £2.29 billion. Again, that is a cause for some encouragement to believe that the private sector can, if freed up, fill the gap that will necessarily be created by adjusting the national public finances.

We are not an island in the north-east of England. Therefore, when you talk to businesses about what is necessary, they will tell you first that what we need is macro-stability. Unless there is macro-stability, investors will not invest in the region and customers will shy away. Therefore, it is essential that these actions are taken so that we retain low interest rates.

I am also keen that we create an enterprise economy-one that is very much focused on growth. In that effort, the decisions to reduce corporation tax rates, to do away with the previous Government's proposed increase of 1 per cent in national insurance contributions, which would have ripped another £250 million from the north-east economy, and to freeze business rates will all help, as will freezing interest rates. The sooner we get back to growth, the faster the new jobs will come. If the economy of the north-east grows by 2 or 3 per cent, that is another £1.2 billion of investment in the regional economy. It is like adding a new Sage or

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companies the size of Greggs and Northumbrian Water to the regional economy every year. That will create jobs and wealth.

In the two minutes remaining, I will focus on the lessons that we can learn from the past. I was involved in public life in the 1980s when changes were made to the heavy, nationalised industries. I know the heartfelt pain that was caused in many communities, including to many members of my family who were involved in those industries at that time. One thing that I thought was a great mistake that we made as a Government, even though we did what was necessary at that time, was not to reskill and retrain people, allowing them to drift into the benefit culture, from which many of those communities still have not emerged. I think that there are some real opportunities. When people are leaving the public sector, we should provide them with the skills and retraining necessary to contribute to the private sector. As an example of this, the Northern Recruitment Group has set up a course called "Leadership Enterprise Opportunity"-a great title for a course. It takes senior executives who are leaving the public sector and retrains them to apply their skills to the private sector. That is having a hugely beneficial effect. Not only are those individuals securing jobs, but they are realising that a lot of the skills that they have-particularly in the areas of finance and IT-are easily transferable into the commercial sector and can contribute to the growth of that sector.

Finally, I love the imagination that was shown in introducing a cut or a break in national insurance contributions for new businesses that are setting up outside London and the south-east. This is an imaginative approach to providing incentives for businesses and for people to set up enterprises. However, I think that we could go further. I wonder whether the Minister would consider starting a discussion about whether we could recreate some of the attributes of the old enterprise zones, which did so much to bring about the physical regeneration of parts of the north-east of England. We could say that in certain black spots-for example, Middlesbrough, Hartlepool, Easington and Blyth-if you set up a new business, not only will you not pay national insurance contributions on the first 10 employees, but you could also get breaks in corporation tax, business rates or capital allowances. This would use the difficult choices that have to be made at this time in order to build a more sustainable footing for the regional economy going forward.

7.52 pm

Lord Berkeley: My Lords, I congratulate the noble Lord, Lord Allan of Hallam, on his speech. He managed to be non-contentious, as is required, but I can see that his independence of ideas on matters technological will enable him occasionally to challenge the coalition's thinking. I look forward to hearing him often in this House. I was also interested in the comments of the noble Lord, Lord Bates, about what a great job the regional development agency for the north-east has done. He will be aware that, in Schedule 1 to the Public Bodies Bill, it is down for abolition. I am assuming that he will oppose its inclusion in the Bill and I look forward to joining him in doing so, as I think that the agency has done a fabulous job in the past.

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I am going to speak about transport, which features strongly in the CSR documentation. The coalition policy document sets the scene by stating:

"We will support sustainable growth and enterprise balanced across all regions and industries ... giving new incentives for green growth".

In the same document, in the transport section, there is an interesting mix of projects large and small, capital and revenue-related, long and short term, including a new system of HGV road user charging, no more funding for fixed speed cameras, a new dual carriageway in Norfolk, support for sustainable travel initiatives and the establishment of a high speed rail network,

Finally, there is an emphasis on the "green economy". That seems to be a sustainable green policy across government. It needs to be, as the Stockholm Environment Institute, which is associated with the University of York, published a report in August saying:

"Transport is a major source of greenhouse gasses, and it is increasing emissions faster than any other sector of the economy. Growing levels of car use, road freight and flying have created difficulties in reducing transport's greenhouse gas emissions".

Perhaps we should examine what the Government are going to do about it.

What is good in the CSR is that the funding for many capital projects has largely been retained. We can read about rail projects: the Midland main line and the east coast main line are going to improve, but there is still no news about the Great Western main line electrification or the Thameslink upgrade and new rolling stock. It is interesting that the Chancellor, in his Statement, announced electrification between Manchester, Liverpool, Preston and Blackpool, but the Department for Transport is still failing to confirm that. Perhaps Mr Osborne is going to be the new Secretary of State for Transport as well.

Elsewhere it is cuts, cuts and increasing fares on public transport, while, frankly, the road sector is getting off pretty scot free. The bus subsidy has been drastically reduced, by something like £200 million. Therefore, there will be fewer services, costing more, particularly in country areas, which I would have thought Conservative and Liberal Democrat MPs would oppose. The consequence will be that more people will use their cars. Train fares are due to rocket, with regulated fares to increase by 25 per cent over the next four years and, I think, about 33 per cent over five years. What I find interesting is that, less than two years ago, the current Minister for Railways, Theresa Villiers, who was then shadow Transport Secretary, stated that a fare increase of 3 per cent above inflation would price people off the railways. Norman Baker, who was then the Liberal Democrat transport spokesman, said the same thing:

"We will cut rail fares, changing the rules in contracts with Train Operating Companies so that regulated fares fall behind inflation by 1 per cent each year".

They both agreed, even before the coalition was formed, that fares were going to be too high, but they have now done a massive joint U-turn. It means that fewer people will travel by rail because they cannot afford it; they will use their cars more. As my noble friend Lord Foulkes said, the housing benefit changes will force people out of London and other major cities, which will mean that they have to pay even higher rail fares

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to get into the cities. There is not much alternative to getting into London. Perhaps I can offer the Mayor of London, Boris Johnson, another phrase: transport is getting like Kosovo, too.

Roads are going to become a free-for-all in places where there are no traffic jams; there is no more funding for speed cameras, so more motorists will be speeding. There will be £37 million of cuts in the road safety grants and operating expenditure this year. More people will get killed or injured. There is always the option of increasing charges for road use to match the increases for using bus and rail. There may be road user charges for foreign lorries, if the Department for Transport can find a way of doing that legally, but we have heard of no constraints or charges for cars. The Mayor of London is even scrapping the Kensington congestion charge scheme because motorists do not like it. Well, they wouldn't, would they? However, it would bring up the charges to balance the increase in rail and bus fares. This is the policy of a potential Prime Minister and it epitomises the coalition, which, to me, appears to be allowing motorists to do what they like, with less and less fear of being fined, pricing people off public transport and on to roads and, after less than six months, dumping any policy associated with green initiatives and lower-carbon transport.

Clearly, the coalition accepted in its programme for government that a sustainable growth policy was necessary across all government departments, and transport is one of the worst offenders. However, on the basis of numerous independent reports, as well as evidence in the UK and parts of Europe, we will actually have higher carbon emissions. It is rather depressing that the Liberal Democrats in coalition are not diluting the worst excesses of the Tories in their love of motor cars and belief in the divine right of drivers to do exactly what they like, where and when they like. The Government could have raised revenue from the highest polluters-cars and lorries-which would have reduced emissions, because road transport's emissions are about five times more polluting than rail's per passenger mile or freight mile. It is possible to change behaviour and reduce carbon emissions at the same time, but that needs a consistency of policy that has so far and so quickly eluded the Government.

One project that the Government are praying in aid as important is High Speed 2-the new line that Ministers have been announcing for some time-but the problem is that many in the industry feel that the Government are not really serious about it. Members of Parliament along the whole route are campaigning against it and making the most outrageous statements about high-speed lines. All that they need to do is to go and look at HS1 in Kent to realise that it is a good scheme. The Government need to do a lot more to promote HS2, otherwise they will be just saying that they are doing it and it is not going to happen.

Returning to the coalition document, I believe that on present evidence the Government are not supporting sustainable growth across all regions and industries and are not giving incentives for green growth. They are doing exactly the opposite, taking us back to some of the Tory policies of yesteryear.

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8.02 pm

Lord Judd: My Lords, we certainly faced a very severe global financial challenge. Corrective action at national and international levels was essential. There can be no argument about that, but, as this debate is well illustrating, the issue is about what action and what timetable.

Adam Smith was a highly ethical man. His first writing was about ethics. He approached economics with ethical commitment as a given. The roots of this crisis lie in an ethical vacuum into which greed relentlessly moved. The heaviest burden of the measures proposed for recovery compounds the lack of principle. It falls on the less affluent and particularly harshly on the poor, on people who struggle to live at a lower or lowest level of society. Those are the innocents who had absolutely nothing to do with generating the crisis, save that they were too often wickedly seduced into grotesque personal debt.

The bankers and self-indulgent rich who live at the top of the pile appear to be escaping with very little real hurt. We live in an age in which wealth and profits are privatised, but in which risk is socialised. This makes a total nonsense of market theory. The self-correcting disciplines are absent. The innocent are crushed and punished to pay for the transgressions of the gamblers.

The Prime Minister likes to talk of broken society and of family, but it is the Government's response to the crisis which is smashing society and crushing families. The greatly respected Institute for Fiscal Studies has underlined that the poorest are to be hardest hit, with families as the biggest losers. All this is compounded by insensitivity and remoteness from the harsh realities of struggle, of the pressures and acute stress that affect life for millions of ordinary people. Listen to Grant Shapps, the Housing Minister, as reported in yesterday's Observer. This is what he said:

"I don't deny some people may well need to move. Not tens of thousands. The impact assessment says that there are about 17,000 people in London whom the cap would affect".

Seventeen thousand people would be stressed beyond endurance on what matters most for their security and any chance of a constructive life-a home. That is something that all of us, not least those in the Cabinet, take for granted.

The Government have also launched an attack on universalism in benefits. Universalism is about inclusiveness and social cohesion in a healthy community, where people are not stigmatised and institutionally patronised. It is about all belonging with the same rights as citizens. Of course this must mean a convincing system of progressive direct taxation, with all of us paying according to our ability to ensure a society worth living in. For too long, the concept and values of service have been, in effect, denigrated. Service is not seen as being for clever people. Money is their game. But the quality of mutual service is essential for an integrated society. Do any of us really want to be reliant on health provision driven by markets, as distinct from vocational commitment and a culture of service and care? Do any of us really want our children to be at schools and universities driven by markets, not by dedicated teachers and professors in a culture of unyielding

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commitment to learning and the generation of enlightened self-confident citizens? Are we really happy at the thought of older years dominated by anxiety and the ruthlessness of market forces, as distinct from a national culture of concern and national care?

The Prime Minister talks of big society, but that was exactly the vision of the so-called welfare state-the dignity of secure citizenship as against the insecurity of a rat race for survival, with volunteers scurrying about to put patches on the wounds. Why have we allowed the word "welfare" to become associated with failure? Welfare is about well-being for us all. No; Galbraith was right when he described the stark grimness of private affluence and public squalor. For social justice, progressive taxation, not cuts, is the route which clearly should be taken.

Save the Children, with all its experience and integrity, is convinced that the eradication of child poverty can be achieved only if the income of the poorest households is increased. Save the Children argues that boosting family incomes is the most effective way to improve children's health, educational attainment and life chances. Its impressive analysis indicates that the comprehensive spending review measures will hurt families experiencing in-work and out-of-work poverty and are likely to reduce the incomes of families with children living on incomes below the 60 per cent median. I fervently hope that the Minister has had time to study the detailed policy brief prepared by Save the Children. Has he? Have the Government? If not, can the Minister give a firm undertaking to do so and put the considered response to that brief in the Library?

It is very welcome that the Government are standing by their pledge of 0.7 per cent of gross national product for overseas development assistance. This is for the most disadvantaged people of the world, although, as a former director of Oxfam, I would be happier if the pledge were to be fulfilled in the context of a demonstrably greater commitment to a fairer society within the UK itself. Within that pledge there are points still to be clarified. Will all the DfID staff cuts to be imposed affect the effectiveness of front-line staff? How will that effectiveness be guaranteed? How will the Government ensure that there are adequate essential human resources to support front-line workers with the policy analysis, research and international advocacy which are indispensible to the quality of aid spending and the best possible use of taxpayers' money? If the increase to 0.7 per cent by 2013 is to be back-loaded, as seems to be the intention, there will be a steep increase-perhaps as much as 33 per cent-in spending in 2013, rather than straight-line increases from 2010. This will surely require careful scrutiny. How will this scrutiny be provided?

Andrew Mitchell has indicated that the spike in spending in 2013 will be facilitated in part by delaying the UK's contribution to the 16th replenishment of the World Bank's International Development Association. As the United Kingdom is the largest donor to IDA this could mean that the World Bank is unable to maintain current levels of disbursement to low-income countries for the first two years of the next IDA round. What reassurances can the Minister give us on the implications of this and how they are being met? The Government have committed themselves to spend

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30 per cent of aid, both bilateral and multilateral, on fragile states by 2014. Some of that reprioritisation will presumably take place in the next two years. This coupled with the IDA payment delay could mean that more stable, but nevertheless poor, nations could lose out as the aid budget does not increase and spending priorities are put elsewhere. Again, can the Minister reassure us on this point?

On the Government's highly welcome commitment to conflict resolution and security sector reform-here I should declare an interest as a trustee of Saferworld-does the Minister agree that addressing root causes of conflict and security in fragile states is about more than spending money on security interventions, that promoting lasting and sustainable security necessitates a holistic approach to security and development and not siloing them off as separate issues; in other words, that development needs security and security needs development? Is it not vital that any security interventions HMG do support must have practical concern and support for poor marginalised and vulnerable populations at their heart?

Climate change is having a devastating impact in poor countries, keeping vast numbers of people trapped in poverty. It is imperative to move towards a global low-carbon economy. At more than 552 million tonnes, the UK's CO2 emissions are the seventh largest globally-more than those of the 112 lowest-emitting countries put together. We have an inescapable responsibility. In doing what we should be doing to fulfil that responsibility, can the Minister assure us that raiding the aid budget will not be the easy option, depriving as this would the poorest? Will the Government press for raising climate finance by alternative measures such as aviation and shipping fuel taxes or a tax on international financial facilities?

As the Government squeeze, if not in part throttle, the BBC, how will they make certain that where the BBC is most needed-in its overseas reach, keeping hope and values alive among tyranny and oppression-it will remain fully committed and effective? And where, in places such as Russia, the BBC can help to keep the struggle for accountable democratic government alive, will the Government make certain that there will be no further cuts? Do the Government agree that it is not just a matter of size of audience-a market matter-but a matter of qualitative significance, where this is crucially required? How will the Government use their influence to ensure that the expertise, analysis and in-depth knowledge, which have won the overseas service its outstanding reputation, are not dumbed-down and diluted as overseas news services are combined with mainstream BBC news services?

There has been a severe global financial crisis-of course there has been-from which we have not been immune. This has been aggravated by the greed and irresponsibility of the banks and others. The tragedy is that we do not seem to have learnt-we are drifting back already to the old ways. The gamblers and opportunists are there again. Just as the Government have rejected an imaginative Keynesian approach, so they have failed so far to call the financial system to account. As they increasingly put the burden of the inevitable consequences on the less rich and the poor, they rub salt in the wounds by talk of our all being in

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it together-of volunteers being mobilised to tend the casualties and victims. One day, the sooner the better, we shall have to rediscover national solidarity and start building a real sense of just community.

8.14 pm

Lord Skidelsky: My Lords, it is a sign of the jittery state we are in that a slower-than-expected slowdown in the rate of growth is hailed as strong evidence of recovery. Of course it is nothing of the sort. It marks the end of a period in which the economy has been supported by fiscal policy, with some help from the depreciation of sterling. The direction of fiscal policy has now been reversed. In their recent comprehensive spending review, the coalition Government confirmed that they will embark on cuts that will withdraw between 1.5 per cent and 2.5 per cent of nominal demand from the economy every year for the next four years.

The Government's own independent watchdog, the Office for Budget Responsibility, has estimated that every 1 per cent decline in current government spending knocks 0.6 per cent off economic growth. I have never been able to understand how cutting the budget deficit in present circumstances is supposed to help employment and growth. The noble Lord, Lord Higgins, asked a very pertinent question: what do the Government consider to be the effect of the cuts on aggregate demand? Well, he did not get an answer. We are never told what the answer is. Instead, we are assured that private spending will miraculously spring to life on a wave of confidence induced by the Government's very announcement of the deficit plan. Well, the most recent data show that in September bank lending posted its largest drop by more than £4 billion since January. If that is an indicator of the private sector's new appetite for spending, I must remain sceptical about the newly fashionable doctrine of contractionary fiscal expansion, as it is known; the idea that if you contract the budget deficit, the economy will expand.

The present policy bears the strong personal imprint of the Chancellor. His rhetoric prepared the ground for it; he implemented it; and his political future depends on its success. Mr Osborne is not a reluctant cutter; he is an enthusiastic cutter; he is a conviction cutter. Normally I applaud conviction politics. It is rare enough for a politician to have convictions. But it is a great shame that the Chancellor's convictions are so little-rooted in theory or in experience.

"Even a modest dose of Keynesian spending-say, increasing it by an additional 1 per cent of GDP-is a cruise missile aimed at the heart of a recovery",

the Chancellor said in October 2008, barely a month after the collapse of Lehman Brothers, with the global economy going into a tailspin. No wonder Vince Cable said at the time:

"George Osborne is clearly way out of his depth".

I wonder what Vince Cable thinks now. Mr Osborne is clearly a man of ability and determination, but I have to say in all seriousness that in his present position he is a menace to the future of the economy.

The Chancellor believes that any stimulus that needs doing should be done by monetary policy. In present circumstances, that means quantitative easing, or printing

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money. I do not accept the argument that the last quarter's figures make this less likely. What matters for monetary policy is the state of the economy in six months' time, not six months ago. So I expect that in due course the Bank of England will follow the Federal Reserve Board and probably Japan's central bank down this path. The question is: will it work?

We have the experience of last year to go by. Between March 2009 and February 2010, the Bank of England injected £200 billion of liquidity into the economy. Over the year of quantitative easing, reserve balances at the banks quadrupled but the quantity of bank lending hardly budged. The same story is told by the money supply figures. In the years leading up to the crisis, M4-the Government's preferred measure of broad money, including bank and building society deposits-grew consistently between 6 and 9 per cent year on year. However, in the past 12 months, M4 has grown at only 1 per cent and M4 lending has fallen by 0.7 per cent, the weakest number since records began in 1998. What has happened is that the "money multiplier"-the ratio of money supply to monetary base-has continued to fall as banks absorb the influx of money into their reserves without increasing their lending.

The same story can be told in other areas. Quantitative easing failed to bring down long-term interest rates-the spread between the bank rate and the long rate hardly fell. Nor was there any evidence of the so-called wealth effect-the argument that firms use quantitative easing to buy assets and the rising asset prices enable them to raise money by issuing new shares and bonds. There was indeed a rally in the stock market in 2009 but this was accompanied by a sharp decline in company flotations. Paper wealth went up but there was no effect on corporate issues, investment and activity as in the quantitative easing storyline.

The failure of quantitative easing should come as no surprise to a Keynesian. As Keynes said, if money is the drink which stimulates the system to activity,

Quantitative easing is simply the expression of the monetarist view that, if you increase liquidity, money GDP will rise proportionately after a short lag. However, it is not the printing of money that causes GDP to rise but the spending of money, and the spending of money depends not on the quantity of bank reserves but on the willingness of the private sector to borrow and the willingness of banks to lend at rates of interest at which they can borrow. However many trillions of dollars or pounds Governments pump into the economy, this will not stimulate borrowing or lending if consumer demand is not there.

Ministers are constantly exhorting banks to lend. Banks say that there are no borrowers, by which they mean borrowers at the going interest rate. However, here is a suggestion for overcoming this blockage which is consistent with the deficit reduction programme. The Government should set up a national investment bank, which they would capitalise and mandate to spend £X billion a year on investment projects at interest rates low enough to fulfil the investment mandate. We are already promised a tiny prototype of this in the proposed green investment bank. Candidates for such

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investment would be infrastructure projects such as the high-speed rail link mentioned by the noble Lord, road building and repairs, house construction by local authorities, or projects to do with carbon emissions-insulating houses, solar panels and so forth. Lending by the investment bank would not affect the deficit and so would not spoil Mr Osborne's austerity story. True enough, subsidised interest rates imply a lower expected return on equity than from current lending, but a lower return is still better than no return, which is what idle capital now earns.

There may be better ways but the goal is clear: to unblock the channel of spending when orthodox fiscal and monetary policy is, for one reason or another, disabled. Unless we succeed in doing that, we will be doomed to years of interminable recession.

8.24 pm

Baroness Billingham: My Lords, let us not beat about the bush but focus our attention on one specific area by considering the impact of the Government's actions. In the spending review, the Government claim that they have been forced into making a series of choices, which they allege are based on seeking "fairness" and "reducing ... wasteful spending". My question for the Minister is how wiping out all the advances made in school sport in the past decade can be seen as either fair or a reduction in wasteful spending.

Yes, it has been hard making those advances. I can recall many Members from all sides in this Chamber taking part in those debates. There have been passionate debates, but we have always had a consensual and positive view about sport. How we fought and railed against the couch potatoes. How furious we were at the selling off of school playing fields. How we moaned about the loss of grass-roots sport and, equally important, the demise of competitive sport in all our schools.

I can name all of you-from the alliance to the Cross Benches and my own side-who challenged the Labour Government to put sport back into the curriculum and into extracurricular activities as well. How we all rejoiced when a minimum of two hours of sport in the curriculum was announced, and how we cheered even louder when we heard of the "Kelly hours", which gave us the prospect-at long last-of an additional five hours of sport in state schools. That was a triumph, of which we could all be justly proud.

How could the Secretary of State, Jeremy Hunt, be so docile when Michael Gove announced that £162 million that was previously earmarked for annual sports funding was to be redirected to general schools funding? The outcome of those changes is inevitable. School heads, desperate to do well in Ofsted inspections and in league tables, will inevitably be led to transfer money from PE into their more academic programmes. Michael Gove will thus be able to hide behind the human shield of heads' self-determination-a cowardly and sneaky way to behave. At the same time, the specialist school system, under which some 400 schools became sport focused and 3,200 sports co-ordinators were introduced-one in every secondary school in the country-was wiped out.

As for the timing of these disastrous cuts, are the Government aware, or do they even care, that the 2012 Games were supposed to set our young people

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alight and encourage others to take up new sports? Their legacy was to include thousands of others making a new life for themselves in the sporting framework. In fact, the successful bid stressed the value of sporting heroes time and again. The 25 per cent cuts in total spending will decimate school and grass-roots sport and make a mockery of Seb Coe's promises that the legacy is as important as the Games themselves. That will adversely affect not hundreds or thousands but millions of children. It is carnage and it is grossly unfair.

We will reap the rewards with more obese and disaffected youngsters and the loss of the skills and international sporting success that we are all so proud of and eager to attain. I guarantee that more than 80 per cent of any medals that we win in the London Olympics will be won by competitors from private school backgrounds. The future will be more unfair and divisive. When I hear the head of Eton College announcing the sale of its famous playing fields, I will know that the alliance is indeed playing fair and that school sport will be taken from all youngsters, irrespective of their background and schooling. I await the response to that possibility from the Prime Minister and, indeed, from many of his Cabinet colleagues. At that time, I might be convinced that we are all in it together, but I doubt it.

This weekend we put the clock back an hour for totally misguided reasons and not based on the greater good. The coalition Government have just turned the sporting clock back to the 1980s, to the previous time that the Conservative Government wrecked school sport. They should be ashamed of themselves. They have a chance to think again and reverse this appalling strategy. If not, a whole generation will be lost to sport. That surely is too high a price for any nation to pay.

8.30 pm

Lord Plumb: My Lords, we have had the privilege of listening to some interesting, varied and sometimes provocative speeches today, but I have not yet heard anyone speak of British agriculture, which is the one group that can really help our country's economy. I am proud to be involved in British agriculture-I declare my interest as a farmer-so I will speak on the spending review's implications for agriculture and horticulture as well as for the future role of the Department for Environment, Food and Rural Affairs, which faces substantial cuts. We have to examine where those cuts will come and what effect they may have.

Defra has not always been the flavour of the month with many farmers because the unnecessary complications in the single farm payment and the rural development schemes cause burdensome expense. Every tree, building, rock, hedge, ditch, pole or pond that impinges on grazing or cropping areas has to be identified as a result of the gold-plating of European policies. I hope that, following the spending review and the reduction in bureaucracy and red tape, farmers can get on with their farming and show much more effectively and clearly the economic value of food and energy production to the nation, through growth, efficiency and innovation.

However, it is necessary to look way beyond the farm gate to the food chain as a whole. Collectively, the agrifood sector accounts for 6.7 per cent of the total economy of this country and generates some

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£85 billion in GVA to the United Kingdom economy. Many people are surprised to learn that 3.6 million people are employed in agriculture, which equates to 14 per cent of total employment in this country. The United Kingdom food and drink industry accounts for 5 per cent of total exports, with over £14 billion generated through overseas sales last year.

The credit crunch has awakened food patriotism among consumers and has increased dedicated supply chains, which are a feature of the agrifood sector. We know that farmers are more aware than most of the challenges of limited resources and climate change. Farmers recognise that they can contribute to developing renewable energy markets and emerging technologies. The biofuel market is a classic example. That market is developing very quickly-we should catch up with some other European countries before too long-and is often delayed only by planning consent.

We recognise that Defra has undergone substantial restructuring in recent years, so it is important to determine its future structure as soon as possible. There is obvious uncertainty and speculation among the bodies under review, including the Agriculture and Horticulture Development Board, the Environment Agency and Natural England. Natural England plays an important part in teaching through school visits to farms. I speak from experience, as 34 schools have adopted my son's farm so that children can see what is going on in the countryside. At the same time, it is appropriate for Government to restructure antiquated regimes, such as the Agricultural Wages Board, and to refocus spending priorities and delivery.

I have many questions for the Minister about the details of the spending cuts that I know are under consideration. With a 33 per cent cut in expenditure, am I correct in assuming that £174 million will come from a reduction in running costs? What are the savings in administration? Money is overdue for payment from Brussels for the higher level scheme. Will that be delayed? Farmers are telling me that the scheme has already been delayed for some considerable time. Will the savings on the rural development programme of £66 million apply just to the environment scheme? If the sterling-euro exchange rate is a factor, is there any provision for unexpected movement? What exactly are the department's spending commitments on animal health? One could go on with these questions, which have to be put.

Minister, I do not expect an answer tonight, but please take note of those questions, because they are real and they are being asked. I hope that in doing so, you will know that farming is at the heart of the financial recovery and is willing to play its part in doing everything possible to reduce the deficit. I am confident that it will.

8.36 pm

Lord Clark of Windermere: My Lords, the noble Lord, Lord Plumb, has spent a lifetime in politics very successfully defending and advocating the interests of the farming community. He tempts me to mention another side of the rural community-that of the forestry industry. As a former chairman of the Forestry

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Commission, I am going to yield to that temptation. Like every other government department, the Forestry Commission has taken a hit with the comprehensive spending review-a 25 per cent cut. I think about what it has done in recent years in timber production, biodiversity, conservation, access, climate change, health promotion; the list goes on and on. When I consider that the net cost last year to the Exchequer of the Forestry Commission in England-and it is only the Forestry Commission in England that the Treasury can actually touch-was a mere £10 million to deliver all those public benefits, I just wonder what the Treasury is up to.

Having yielded to temptation, I now take up the invitation of the Minister to take note of the spending review. The House will be pleased to hear that I am not going to deliver what I had originally planned because, quite frankly, there have been some brilliant contributions in this House this afternoon. Not all have come from this side, although they mainly have. They have also come from the Cross Benches; the noble Lords, Lord Skidelsky, Lord Low of Dalston and Lord Bilimoria, all made real, pertinent and thoughtful points. If the Minister believes that he can leave this debate with his case accepted he is, I am afraid, going to be disappointed.

We tend to think of the spending review as an economic issue, but it is as much, or perhaps more, to do with politics as it is with economics. I must credit the Government for the way they have managed to swamp the media and persuade them that there was no alternative to these cuts; that they had to be done, and done immediately; and that the Labour Government had left an unwholesome mess. That case has been refuted time and time again, but it needs repeating time and time again that this is an ideological battle. In this respect it divides both sides of the House. It is to do with the power and the size of the state. I know where we on this side stand, and I know where the majority of Members on the Conservative side stand. I am a bit unsure where the Liberals stand or whether they stand anywhere. They seem to be sitting on the fence yet again, and I am sure this causes a great deal of anguish to a number of Members.

Most honest and neutral people were horrified by the Chancellor's announcement in the other House and the reaction of Conservative MPs. The bigger the cuts, the louder the cheers-and yet every one of those cuts will mean that tens of thousands of ordinary, decent citizens are going to lose their jobs. This will apply not only in the public sector but in the private sector because, as we have been reminded constantly today, roughly for every job lost in the public sector the multiplier effect means that a similar job will be lost in the private sector. That has never actually reached the airways or the pages of the newspapers; it has never been spelled out that we are talking about cuts not only in the public sector but in the private sector as well.

I have also noted the letters in the press-obviously co-ordinated-from business leaders saying that they will make up the losses. I should like to write to every one of these business leaders and say, "Tell us how many jobs you are going to create in addition over the

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next four years". That is the only way in which can we judge them. We can judge the Government because it is a matter of public record, but they have called in their supporters from industry and they must be challenged.

I take the point greatly that we are risking the economy of this country. There has been talk that the Labour Government did not invest for dark days when it was sunny. What is investment in education and higher education? If this country is to survive and prosper-and I want it to do so-we shall have to get out and win markets. Although we are talking about a recession, the reality is that the economies of the world are bigger now than before the recession. There are opportunities for our exporters in the growth economies-China, Brazil, India and so on-and the pound is at a level at which we should be taking advantage of them. However, we will do that only if we use the skill, the ingenuity and the brains of our young people. I believe that one of the best capital investments that the previous Labour Government made was in the field of education. I could also refer to other fields.

I challenge the point about the level of indebtedness. The key yardstick is the size of the national debt against the size of the GDP; that is the way to judge it. If you read the British press, listen to the British radio or watch the British TV you would think that we were at the top of the league: that we were in the most difficult position. That is not the case. The top country-I think that a Member on the other side of the House referred to this-was Japan, with indebtedness of 225 per cent of GDP. Running down the list you find the United States at 93 per cent and France at 84 per cent. You have to go down to 12th position before you come to the United Kingdom at 77 per cent. That is far too high-I concede that straightaway-but it is only 2 per cent higher than the model that is always held up in Europe: that of Germany.

Of course the problem is difficult and real and the deficit needs to be decreased, but I would argue that to try to decrease the deficit through cutting public spending and reducing demand is not a very propitious way to move forward.

8.44 pm

Lord Stewartby: My Lords, I nearly forgot to get up, I was so interested in what the noble Lord, Lord Clark, had to say. It has been a very vigorous but extremely interesting debate. I have not prepared a speech of any length, which is a good thing, because much of it has already been said by my noble friends Lord Lamont, Lord Tugendhat and Lord Newby, so I just want to pick out some of the main themes of my rather attenuated speech.

There can be no doubt that the figures of deficit and interest charges have been at a dreadfully dangerous level. Interest is now at over £40 billion a year, which is much larger than the whole of the schools budget and the whole of the Ministry of Defence's expenditure. One cannot run the economics of a country on the basis that it can hold those levels of debt. The same is true of the scale of the structural deficit, which is over £100 billion, according to the Budget and CSR papers,

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so clearly tough measures were going to be necessary. There is no doubt that in a situation like this, making changes early is always going to be the right course, because if you leave problems to fester, they normally get worse in the process. I think the Chancellor has done right to see that immediate action was taken, and the CSR now sets out a way ahead after a very bruising period. I am afraid I cannot follow the noble Lords, Lord Myners and Lord Peston, in their defence of the state of the British economy that they bequeathed to their successors, but I thought it was a very bold attempt.

I cast my mind back to nearly 30 years ago and the 1981 Budget, because I think it contains some interesting matters that are relevant in any period of tight budgetary squeeze. I used to carry the then Chancellor's bags at that time, so I had to field a lot of representations from individual Back-Benchers who were not happy about the composition of the 1981 Budget, to put it mildly. Because the Chancellor was always so busy, I got fielded to talk to these people and it has made an indelible impression on me because that was a classic case of tax increases in a recession. It is a lesson which we would do well to remember today. One of the great moments in that period was a letter written to the Times by 364 academic economists, who said:

"Present policies will deepen the depression, erode the industrial base of our economy, and threaten its social and political stability".

Well, what happened? From the very moment they signed the letter, the economy turned and began a course of recovery. It made me feel that, although sometimes latent, there was a sort of energy in the British economy if it was left to get on with its work and not hindered by too many regulations or unattractive fiscal situations.

I have been concerned in recent weeks about the supposed "double-dip" recession that may be around the corner. I would be the first to say that there are many uncertainties in the economic world at the moment, not only in this country but abroad. The situation in many countries, particularly in Asia and the Far East, is much more serious, but you do not see much comment about it in this country. When I ask people what the case for the supposed double dip is, I do not get an answer. There has been much talk, but no explanation. People just toss in the double dip as if it was some shadowy possible event hanging over us.

This brings me back to my original point; there is a tendency to be pessimistic about our economic performance and potential. Just as the 364 economists gave an extremely pessimistic assessment of what the 1981 Budget would do to people, so there has been a pessimistic slant in the response to the CSR and the public reaction to it. Of course, two or three quarters of better GDP do not guarantee a strong recovery, but they are more likely to point to an improvement than a deterioration, so I was not surprised that the figures were a bit better than people had expected.

When we are asked where growth is coming from, I would give greater emphasis to something that has hardly been mentioned: investment by the corporate sector. The banks may not be lending very much because they cannot find decent borrowers. One of the reasons for that is that many of the people who were

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borrowers have strength in their own balance sheets to the point where the corporate sector has far more resources than are needed for the level of activity that is taking place. It could afford to do a lot more.

It is important in a recovery that companies should have confidence that there is stability and that there are further improvements to look forward to. There has been a reduction in corporate taxes and other measures to help businesses. The latest output figures are encouraging. There are other straws in the wind. Those in business whom I talk to or meet say that there are far more examples of companies looking for opportunities to do things, having sat on their hands for quite a long time. The noble Lord, Lord Knight, spoke about investment. That could be one of the stronger elements of recovery.

However, there is still a long way to go. The Government must hold their nerve in implementing the plans set out in the CSR in the face of the criticism and challenges that will certainly follow. I believe that they have the commitment and determination to do so and that the double-dippers may be disappointed. I have moved in the past few months from being moderately pessimistic to being moderately optimistic. I just hope that it will work out that way.

8.59 pm

Baroness Nye: My Lords, I should like begin by thanking your Lordships for the generous and warm-hearted welcome which I have received from all sides of the House. The staff have done their utmost to help me settle in, and I am very grateful indeed for the kindness that was shown to my family on the day that I was introduced. I should particularly like to thank my sponsors, my noble friends Lady Kinnock and Lady Royall. When I say friends, this is not simply the normal courtesy given to a colleague from my own Benches. I can genuinely say that they have been among my closest friends and mentors for-I am almost afraid to say this-nearly 30 years.

Having spent those three decades working in the precincts of the Palace of Westminster, I was labouring under the misapprehension that I knew my way round. I soon discovered that my knowledge ended as soon as the green carpet gave way to the red. I recognise that I have a very great deal to learn.

In a working life dedicated to the Labour movement, I have had the good fortune to have worked for three leaders of the Opposition, two Prime Ministers and one Chancellor of the Exchequer. I have endured 18 long years of opposition-and, yes, 12 very long years of government. Yet I have only one claim that is, I believe, virtually unique in the world of politics: in all that time, I have never before delivered a public speech. So this really is a maiden speech. Be kind!

The background to this debate on the spending review is the events of 2008 and the financial storm that began in America but then spread to all parts of the world. Prior to the global financial collapse, the UK had by far the lowest ratio of public debt to GDP of any of the G7 economies; in fact, it was about half the G7 average. Our budget deficit, the subject of some subsequent criticism, was actually very close to

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the average for the advanced economies. When the storm hit, there were serious choices to be made. The UK played a leading role in ensuring that the choice of the international community was to intervene in the markets on an unprecedented scale. We can now see that this extraordinary action prevented a very major recession from developing into a slump. We can perhaps too easily forget how close the world came to an economic calamity which could have rivalled the 1930s in its severity and social consequences.

The nationalisation of Northern Rock was not a choice that the Government wanted to make, nor was the injection of capital into other UK banks. But this action meant that no British saver lost money, and virtually all other advanced countries followed the UK's lead. It was not action to bail out the bankers; it was action to protect people's savings and, ultimately, to protect their livelihoods as well. There was also direct government action to restore the wider economy to growth; help for small businesses that were in need of credit; targeted tax cuts to help families at the lower end of the income scale; and investment in infrastructure projects to maintain employment. A housing collapse was avoided by special government support to people who were threatened by the repossession of their family home.

In February 2009, the UK had a historic opportunity to lead the way out of recession when the G20 meeting came to London. The co-ordinated global action agreed at that meeting will stand as a landmark when the history of the recession comes to be written. The global financial crisis caused tax receipts to fall and public spending to rise. It is common ground across the political spectrum that action now has to be taken to reduce the government deficit, and everyone recognises that the incoming Government have a difficult task in choosing the right path for deficit reduction. One thing is certain: the deficit will not be reduced without a plan for growth and a focus on maintaining employment.

I am especially worried about the future for our 16 to 19 year-olds. I was born not far from here geographically into a family where the sole provider, through no fault of her own, was my mother. Although she had left school at 14, her father had made her train as a shorthand typist so that she had a skill that would be her means to support herself and her family. I also left school early, at 17, but I was one of the lucky ones. Opportunities came along which I was able to grasp. For many of today's 17 year-olds, that will not be the case. They need our help.

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