The noble Lord also made a point about an independent chairman. It may well be that the House of Commons looks at this and takes a different view, but we did not think it was right to mandate that the chairman should be independent because in local circumstances there may be an obvious person who could act as that independent chairman.

Amendment 5 agreed.

Clause 13: Removal of geographical restrictions in relation to combined authorities

Amendment 6 not moved.

Amendment 7

Moved by Baroness Williams of Trafford

7: After Clause 14, insert the following new Clause—

“Requirements in connection with establishment etc. of combined authority

(1) The Local Democracy, Economic Development and Construction Act 2009 is amended as follows.

(2) In section 103, omit subsection (6) (combined authorities: area must have been included in a scheme under section 109).

(3) In section 110 (requirements in connection with establishment of combined authority), for subsections (1) to (3) substitute—

“(1) The Secretary of State may make an order establishing a combined authority for an area only if—

(a) the Secretary of State considers that to do so is likely to improve the exercise of statutory functions in the area or areas to which the order relates,

(b) the constituent councils consent, and

(c) any consultation required by subsection (2) has been carried out.

(1A) If a scheme for the establishment of the combined authority has been prepared and published under section 109 the Secretary of State must have regard to that scheme in making the order.

(2) The Secretary of State must carry out a public consultation unless—

(a) a scheme has been prepared and published under section 109,

(b) the constituent councils carried out a public consultation in connection with the proposals contained in the scheme and provided the Secretary of State with a summary of the consultation responses, and

(c) the Secretary of State considers that no further consultation is necessary.

(3) In this section “constituent council” means—

(a) a county council the whole or any part of whose area is within the area for which the combined authority is to be established, or

(b) a district council whose area is within the area for which the combined authority is to be established.”

(4) In section 113 (requirements in connection with changes to existing combined arrangements), for subsections (1) and (2) substitute—

“(1) The Secretary of State may make an order under section 104, 105, 106 or 107 in relation to an existing combined authority only if—

(a) the Secretary of State considers that to do so is likely to improve the exercise of statutory functions in the area or areas to which the order relates,

(b) the constituent councils consent, and

21 July 2015 : Column 1044

(c) any consultation required by subsection (2) has been carried out.

(1A) If a scheme has been prepared and published under section 112 the Secretary of State must have regard to that scheme in making the order.

(2) The Secretary of State must carry out a public consultation unless—

(a) a scheme has been prepared and published under section 112,

(b) the authorities that prepared and published the scheme carried out a public consultation in connection with the proposals contained in the scheme and provided the Secretary of State with a summary of the consultation responses, and

(c) the Secretary of State considers that no further consultation is necessary.

(2A) In this section “constituent council” means—

(a) a county council the whole or any part of whose area is within the area or proposed area of the combined authority, or

(b) a district council whose area is within the area or proposed area of the combined authority.””

Baroness Williams of Trafford: My Lords, Amendment 7 modifies the processes for establishing a combined authority to provide, where the circumstances warrant it, a fast-track process that maintains all the necessary safeguards. We discussed a similar amendment on the first day of Report, and explained the Government’s rationale for streamlining the process for establishing a combined authority. We returned to that amendment on the final day of Report, particularly to consider it in the context of the Delegated Powers and Regulatory Reform Committee’s report of 14 July. I explained in depth the background to the amendment, the need for it, and the safeguards that we were providing.

Noble Lords will recall that the noble Lord, Lord Tyler, sought further time both to consider my detailed explanation and for the House to consider the Delegated Powers Committee’s report. I withdrew the amendment and promised to return to it at Third Reading. In moving Amendment 7, I have considered the Delegated Powers and Regulatory Reform Committee’s report and I have had discussions with the noble Lord, Lord Tyler, and considered his concerns. I have retabled the amendment with certain modifications, which I consider address those concerns.

The amendments that I tabled on Report provided for a fast-track process, which removed the requirement for councils to undertake the lengthy process of preparing a governance review and scheme, where the substance of these had been undertaken in a different way—for example, through agreeing a devolution deal. In this case, the requirements on the Secretary of State to apply the statutory tests and consult would remain. The amendments tabled on Report also enabled an alternative streamlined approach where the councils develop a governance review and scheme, while the requirement for the Secretary of State to consult the councils that have prepared the scheme would be replaced by requirements that the Secretary of State must have regard to the scheme and the councils must consent to the establishment of the combined authority.

I have now tabled a modified amendment, Amendment 7, which removes the unnecessary duplication within the statutory process for establishing a combined authority, while ensuring that there is always a public

21 July 2015 : Column 1045

consultation before a combined authority can be established. If the councils have prepared and published a governance review and scheme, including carrying out a public consultation, and if the Secretary of State considers that no further consultation is necessary, the Secretary of State can proceed without undertaking a further consultation. However, if councils have not prepared and published a governance review, including a consultation, or if the Secretary of State considers that the local consultation is not sufficient, the Secretary of State must undertake a public consultation. We consider that this streamlines the process for establishing a combined authority by removing the duplication of requiring both a local and a Secretary of State consultation without losing any of the safeguards inherent in the process. I beg to move.

Lord Tyler (LD): My Lords, I am extremely grateful to the Minister. Not only did she make it possible for me to meet her and her officials when she was looking at the detail behind her new amendment; she has also admirably explained its purpose. It is a huge improvement. All Members of your Lordships’ House who have been involved in the discussions on this Bill will agree that one of the central issues we have been looking at all along is to ensure that there is not just public consent, but genuine enthusiasm for these new structures. By ensuring that there will be adequate consultation at the local level, and that if there is not, the Secretary of State will make sure that there will be before any new scheme or arrangements are put in place, she has done the House and local government a very considerable service.

I think that other Members of the House felt that there was an underlying suggestion that streamlining and fast-tracking could be taken by a small group as a short-cut to avoid public consultation, and in that way, a small and relatively exclusive group could find itself taking decisions without that degree of public consent. We now recognise that the amendment is a great improvement. But it lays a responsibility, if I may put it like this, on the constituent authorities which come together to try to form a combined authority to deal with this issue expeditiously. I think that the noble Lord, Lord Heseltine, whom I regard as the godfather of this Bill—in the nicest possible sense; in the ecclesiastical manner rather than in the sense of a Sicilian godfather—will agree that while we want to try to make sure that people respond to these opportunities with enthusiasm, they should not hang about unnecessarily. As I say, the amendment is therefore a great improvement.

Perhaps I may remind your Lordships of the original recommendation made by the Delegated Powers and Regulatory Reform Committee because it goes to the heart of this issue:

“We see the scheme process, which involves local engagement and consultation, as being wholly different from the process of discussion and negotiation which takes place only between the local authorities and the Secretary of State. One engages wider local interests; the other does not. The House may therefore wish to press the Minister to provide a fuller explanation for the amendments, and, in particular, to explain how wider local engagement will be ensured, if the existing statutory processes for review and publication of a scheme are no longer a pre-condition to the making of an order by the Secretary of State”.

The Minister has gone further. She has not just explained, she has responded to the recommendation, and we should be extremely grateful that she has done so.

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Since this will be my last opportunity to contribute to the debates on the Bill, I congratulate the noble Baroness and thank her very much indeed for the way in which she has carried out her great responsibility for the Bill; indeed, I must express my huge admiration for the way in which she has done so. I have also been enormously impressed by the hard work of Members on all sides of the House, not least the noble Lords, Lord McKenzie and Lord Beecham, on the Labour Front Bench, and especially my noble friend Lord Shipley along with his team. I repeat what I said earlier: I still regard the noble Lord, Lord Heseltine, as the godfather of the Bill.

5.45 pm

Lord McKenzie of Luton: My Lords, this amendment is the promised revisit of what was originally Amendment 62 —a fast-track process for establishing a combined authority or changing matters affecting an existing authority. We are grateful to the Government for facilitating this revisit, prompted by the noble Lord, Lord Tyler.

Consternation was caused by the fourth report of the Delegated Powers and Regulatory Reform Committee, which of course reported just the day before we last considered this matter on Report. The committee commented on the removal from the process hitherto of local engagement and consultation. As the noble Lord, Lord Tyler, has just pointed out, it differentiated the process of discussion and negotiation between just the local authorities and the Secretary of State from the need to engage wider local interests. So we welcome the fact that the Government have brought forward revised arrangements for a fast-track process, but one which requires a public consultation where the constituent councils have not produced evidence of a satisfactory one either by virtue of the Section 109 or Section 112 schemes, or otherwise. This is a welcome acceptance of the fact that a fast-track process does not need to be in conflict with proper community engagement and consultation.

Perhaps I may say a brief word here about the other amendments which were the subject of criticism by the Delegated Powers and Regulatory Reform Committee in the same report. They related to the opportunity for the Secretary of State to confer public authority functions on individual local authorities. As for what is now Clause 8, the committee concluded, and we agree, that there is no reason why legislation giving wide discretion as to the conferring of functions should not at the same time give a clear indication of what those functions might be.

We contemplated an amendment to this effect, but frankly, we discussed the issue on several occasions and brought forward amendments which were rebuffed. At this juncture we see no point in marching through each other’s ranks again, so we will leave it for further debate in another place. But I think we recognise that over time, with an annual report and the robust individual reports which have been offered when orders are progressed, a picture will emerge of the broad parameters of what is possible.

Amendment 7 agreed.

21 July 2015 : Column 1047

Clause 16: Power to transfer etc. public authority functions to certain local authorities

Amendment 8 not moved.

Amendments 9 and 10

Moved by Baroness Williams of Trafford

9*: Clause 16, page 16, line 4, at end insert—

“( ) Regulations under this section may not provide for a regulatory function that is exercisable by a public authority in relation to the whole of England to be exercisable by a relevant local authority in relation to its area if the regulated function is itself exercisable by the relevant local authority by virtue of regulations under this section.”

10*: Clause 16, page 16, line 13, at end insert—

““regulated function” means the function of carrying out an activity to which a regulatory function relates;

“regulatory function” has the meaning given by section 32 of the Legislative and Regulatory Reform Act 2006.”

Amendments 9 and 10 agreed.

Amendment 11

Moved by Lord Warner

11: After Clause 17, insert the following new Clause—

“Devolving health service functions

Notwithstanding the provisions in sections 8, 16 and 17 enabling the Secretary of State to transfer health service functions to combined authorities or other public bodies, the Secretary of State responsible for the health service—

(a) must remain able to fulfil all statutory duties placed on him under health service legislation in force at the time of transfer;

(b) must not transfer health service regulatory or supervisory functions vested in national bodies responsible for such functions; and

(c) must ensure that authorities or bodies to whom health service functions are transferred adhere to the national service standards and the national information and accountability obligations placed on all health service bodies responsible for functions of the kind being transferred.”

Lord Warner (Lab): My Lords, before speaking to this amendment tabled in my name and those of the noble Baroness, Lady Walmsley, and the noble Lord, Lord Patel, let me declare my interest as an adviser on health and care to Capsticks Solicitors.

This is the last time that the Minister will have to listen to me banging on about the NHS, which is no doubt a cause for celebration in DCLG. The amendment brings us back to the issue of safeguards for the devolution of NHS functions. Our earlier discussions on this issue have tended to generate more heat than light, and I think the problem lies in the fact that the Bill was never designed for the devolution of NHS functions. It is a Bill for devolving essentially local government functions away from central government. It is not designed for devolving functions from a 67 year-old iconic National Health Service, with a large number of statutory duties placed on a Minister, supported by a bevy of national bodies and requirements, and strong public expectations of adherence to national standards and rules. So far, the Government have struggled

21 July 2015 : Column 1048

to come up with a formula that reconciles the centralised characteristics of the NHS, which is held in great public affection, with a move towards the greater devolution of the delivery of health services and health service functions that many of us would like to see.

Let me reiterate that I am not opposed to using the Bill for devolving NHS functions to properly accountable combined authorities or new public bodies. I just want the Bill to contain clear safeguards which recognise that some essential national characteristics of the NHS should continue to function. I do not think it sufficient, as many of us have tried to explain to the Minister, to use individual transfer of function orders to reserve certain functions to the Secretary of State. That pays insufficient attention to the statutory NHS duties placed on the Secretary of State for Health that he simply cannot offload on to other bodies. At the same time, as we have said before, it is an approach that is likely to fragment the national, cohesive nature of the NHS, leading to a ragbag of local devolution arrangements.

I have tried to distil from our earlier discussions a short clause setting out the three health service issues that have to retain national characteristics. First, the Health Secretary,

“must remain able to fulfil all the statutory duties placed on him under health service legislation”.

That has simply not been clear from the Government’s explanations. In framing this provision, I have been much helped by the contribution of the noble and learned Lord, Lord Mackay of Clashfern, in our previous discussions.

The second issue is to stop the transfer of,

“regulatory or supervisory functions vested in national bodies”.

This goes wider than the prohibition of transferring regulatory functions in Amendments 3 and 4 that the Government have now introduced. The natural character of the NHS means that there are bodies that can be both regulatory and supervisory. For example, Monitor is not just a regulator but a supervisor of failing trusts. CQC is both a regulator and, I would suggest, a service improvement agency. There are other national bodies that make NHS services safer for patients without being full-blown regulators within the terms of Amendments 3 and 4. If anyone thinks the NHS does not need national supervisory bodies, they should read yesterday’s Healthwatch report on hospital discharges.

The third prong of my amendment requires the Health Secretary to,

“ensure that … bodies to whom health service functions are transferred adhere to the national service standards and the national information and accountability obligations placed on all health service bodies”.

That is particularly important for patient access to information and exercising their freedom of choice over service access outside the area of a combined authority.

I am grateful to the clerks in the Public Bill Office for their technical help in framing this amendment, and to colleagues for their assistance in drafting it. I have also been assisted in pursuing this matter by briefings from the BMA—I often do not take credit for advice from the BMA—NHS providers and the specialist services commissioning group.

21 July 2015 : Column 1049

The Bill needs an override provision such as this if the essentially national character of the NHS is not to be lost. I hope the Minister agrees that it needs to be in the Bill as part of this House’s scrutiny of the Bill. I beg to move.

Baroness Walmsley (LD): My Lords, I do not think that I need to say very much because this amendment has been very ably introduced by the noble Lord, Lord Warner, but I do support it. I thank the Minister for introducing Amendments 3 and 4 today because they address part of the concerns we have had. However, many concerns remain, regarding accountability, information service standards and, of course, supervision. There are many functions that would never be appropriate to devolve to a local authority, such as the duty to ensure a supply of appropriately trained personnel in the health service, a matter for which Public Health England—which is answerable to the Secretary of State—has responsibility. It would never be appropriate to devolve those functions, and there are many of them. The noble Lord, Lord Warner, has crafted a very clear statement of what is required. Although the noble Baroness did her very best on Report to assure us that the Government share this amendment’s intentions, we need the amendment on the face of the Bill. Legislation needs to be clear, and that is what this is.

Lord Patel (CB): My Lords, I shall be brief. I said on Report, and say again today, that I support the Government’s intention to devolve NHS functions. I think that a lot of good will come out of it. For a start, we might explore a possible model of integrating primary, secondary and social care, which may lead to useful innovations elsewhere in the NHS. However, what is important, and as the noble Lord, Lord Warner, said, is that certain key characteristics of the National Health Service have to be maintained, particularly when it comes to regulatory and supervisory functions. I agree with the noble Lord that the proposals should not inadvertently lead to fragmentation and variation in healthcare. The risk is that individual transfers of functions will do exactly that.

The noble Baroness, Lady Walmsley, and I appear on the Marshalled List as supporters of Amendment 11, which was tabled by the noble Lord, Lord Warner. I shall not comment on paragraph (a) of the proposed new clause because it has been adequately referred to, particularly in the intervention by the noble and learned Lord, Lord Mackay of Clashfern, on Report, which was very helpful. Paragraph (b) states that the Secretary of State,

“must not transfer health service regulatory or supervisory functions”.

The noble Lord has mentioned NICE, the CQC and Monitor, but there are many other bodies, including the key one, Health Education England, in terms of training all healthcare workers.

Paragraph (c) of the proposed new clause refers to national service standards. I would mention patient safety issues in particular, as those have become paramount in our National Health Service following the Mid Staffs fiasco. I would also mention the requirement to report on mortality ratios in all hospitals and health authorities, to report on unexplained deaths and the need to reduce the excessive number of deaths that are occurring from cancer, diabetes and other diseases.

21 July 2015 : Column 1050

I had hoped, as I have said, that government Amendment 3 would cover all those issues, but it does not. The amendment does not in any way stop devolving NHS functions, as proposed in the Bill; it just clarifies the functions that a devolved authority itself cannot change because they are national, regulatory and supervisory. It is for those reasons—to protect those functions—that I support the amendment.

Lord Mackay of Clashfern: My Lords, as the noble Lord said, we have discussed this amendment since Report, and I think that it is an excellent amendment that puts in a nutshell what we think is necessary as a way of controlling the operation of devolution so that it does not break up the health service.

Local issues in relation to the health service require very careful handling, as noble Lords know. For example, in order to get sufficient expertise in a particular technique there have to be enough operations—if it is an operation technique—to give the people doing it experience and confidence. If there have to be operations in every locality, you cannot do that. There is a tension between localism and a degree of centralisation in running the health service which is absolutely essential. I agree with the noble Lords, Lord Patel and Lord Warner, and the noble Baroness, Lady Walmsley, that it is entirely right for the operations of the health service in a locality to be under the supervision of the local authority. It manages that in the particular locality rather along the lines of the Greater Manchester proposals that we have seen. I do not think that there is any question that the Secretary of State was intending to do more than transfer these particular functions that are in the local area to the control of the local authority or combined authority—the authorities relevant to localism—rather than have separate health authorities as we have seen in the past. As has been said by the noble Lord, Lord Patel, who has very much more experience than I do in this area, that has a very good potential for improvement and innovation, and therefore I sincerely hope that this can be agreed.

6 pm

It has been extraordinary to see this Bill come forward with so much agreement. The noble Lord, Lord Prescott, originally had the idea of a powerhouse in the north—although I think he called it something different—and that idea has been championed by my noble friend Lord Heseltine in the report that he wrote for the Government some time ago. I am delighted to see this Bill come out of all that, with a degree of co-operation and origination from different parts of the political system. I find it extremely good that all the parties are able to agree about this sort of thing, and it strikes me as a good way forward for our country that experts such as the noble Lords, Lord Warner and Lord Patel—I think that the noble Baroness, Lady Walmsley, is also an expert in this area—should contribute immensely to that happening.

As your Lordships will have noticed, this Bill is promoted not by the Department of Health but by a different department, so it would not surprise me if my noble friend is not able to accept this amendment today, but I am sure that there is good will towards it—certainly, I undertake to do all that I can to ensure

21 July 2015 : Column 1051

that an amendment or something very like this will go into the Bill at some stage. I certainly strongly support it, but I think that an element of agreement may be required—this was discussed at Report stage after all, and in a way it is quite a privilege to have this amendment following Report, as we have only been able to formulate it clearly following Report—and I hope that we will be able to deal with it on that basis.

The Earl of Listowel (CB): My Lords, may I just remind your Lordships with this particular concern that health visitors have recently been put under the responsibility of local authorities, so this may be an opportunity to have a little test of how well local authorities manage health provision? I am sure that health visitors would be very grateful if your Lordships would keep a close eye on their development in the new circumstances, because we do not want to see a falling off, as we have seen in the past, in health visitor provision.

Lord Hunt of Kings Heath: My Lords, I start by echoing the noble and learned Lord’s comments about the co-operation that has clearly been evident during the passage of this Bill, and I hope that the noble Baroness might be prepared to accept the amendment. It may not be absolutely perfect, but of course the Government would have the opportunity of bringing amendments in the other place. I think that it is clear that the House would like the noble Baroness to do that.

It is clearly important that the NHS remains a national service, comprehensive and free at the point of use, where broadly we can get the same quality of service wherever we live in England. Equally, I think that most of us want the NHS to contribute to this new devolution world, and clearly the integration of health and local authority services offers much in itself.

Often, the NHS is the largest local employer in any local authority area, so it has an important contribution to make to the local economy. In my own city of Birmingham, the NHS is responsible for huge inward investment in R&D, and it will be the same in Greater Manchester and in other parts of the country—particularly where you combine medical schools, teaching hospitals, academic health science networks and the encouragement of local industry. One of the things that we all want to see is the NHS being prepared to invest in innovative new products and medicines that have been developed in the UK, which we have been slow to adopt generally.

What we are trying to do here is to take both the huge advantage that devolution gives us and the integration of health and local government but without undermining the essential, national nature of the NHS. Noble Lords have mentioned four areas where that is important. First, in the reconfiguration of services, we cannot have combined authorities getting in the way of the necessary centralisation of specialist and tertiary referral services. Secondly, when it comes to training doctors and nurses, the reason that we have seen a crisis in recruitment and high costs from agency nurses is that a decision was taken in 2010 to reduce training commissions; we have to have national planning and

21 July 2015 : Column 1052

decisions about the number of doctors and nurses that we train. We cannot have local authorities opting out of their responsibilities in that regard.

The noble Earl mentioned health visitors, which is an excellent example of where there has been a transfer of responsibility of public health duties to local authorities. Those health visitors were given a guarantee that they would be employed when they went on their training courses, so we cannot have local authorities now saying, as some are doing, “We can no longer afford to employ you”. Those health visitors were given a guarantee, and as a national service we have to ensure that they are found a job.

What we need to do is ensure that the national characteristic and nature of the NHS—the national rules, the standards and, particularly important, the Secretary of State’s accountability to Parliament for the NHS—are retained in this new devolution package. That is what my noble friend Lord Warner is seeking to enshrine in statute: some clear safeguards that reflect those national characteristics. I hope that the Government will be prepared to accept his amendment.

Baroness Williams of Trafford: My Lords, Amendment 11 makes specific provisions in relation to a transfer of health functions from a public authority to a combined authority or other public body. It requires that the Secretary of State responsible for such services must continue to be able to fulfil his statutory duties conferred by existing legislation. It also requires that the combined authority or other public body to which the functions are transferred should adhere to national standards and accountabilities which are attached to those functions under existing legislation.

As I have said in previous debates, and as is set out in the Greater Manchester memorandum of understanding for devolution of health and social care, there is absolutely no intention through this Bill to remove or undermine the core duties on the Secretary of State, or to dismantle accountabilities for health services as enshrined in existing legislation. Whatever bespoke devolution arrangements are agreed with a particular local area, that principle will remain.

I state this as a clear commitment to this House. Thus, nothing in the Bill changes the position of the Secretary of State under Section 1 of the NHS Act 2006, which provides that,

“The Secretary of State must continue the promotion in England of a comprehensive health service”.

The Secretary of State retains in all circumstances ministerial responsibility to Parliament for the provision of that health service.

Likewise, the Secretary of State must always adhere to the core NHS duties. These duties include, when exercising functions in relation to the health service: a duty to secure continuous improvement in quality of services; a duty to have regard to the NHS constitution; a duty to have regard to the need to reduce inequalities; and a duty to promote autonomy. These duties are set out in Sections 1A to 1F of the National Health Service Act 2006.

As I have made clear, there is no intention or possibility of the Bill changing these duties of the Secretary of State. Further, as I have said in previous

21 July 2015 : Column 1053

debates, any decision the Secretary of State takes about using the order-making powers in this Bill to confer health functions must be taken in conformity with these duties. Without in any way affecting these duties of the Secretary of State, if a combined authority were, for example, to have conferred upon it a function to commission certain health services, the provision in Clause 8—which the House agreed on Report about conditions and limitations when conferring functions—would allow us to require that the combined authority, when exercising its commissioning functions, must likewise be subject to these core NHS duties, such as to promote the NHS constitution.

On Report, the noble Lord, Lord Hunt, commented that the issue we are discussing is more about symbolism, but he also recognised that one should avoid unnecessary legislation. I agree that this issue is one of symbolism. I am also very clear that symbolism is important and tempting. However, legislation is not the place for symbolism. The place for symbolism is in the discussions we are having and the commitments given to this House. For this reason, while I understand and strongly support the intention behind this amendment—that is, to make clear to all that the vital principles for the NHS will be upheld—I do not believe that it is necessary, nor do I consider that it is appropriate. As I have said a number of times, this Bill is an enabling Bill which includes general rather than service-specific powers. If this amendment were to be accepted, health functions would be specified on the face of the Bill, which would change the whole approach we have taken.

Noble Lords asked some specific questions—for example, on how to retain national standards where health powers are devolved. It is important to note that, when transferring functions to a combined authority or conferring functions on it, the Bill allows us to additionally place on a combined authority duties such as those held by the Secretary of State under new Sections 1A to 1F of the relevant legislation, as I have mentioned previously, or other duties held by NHS England or CCGs.

The noble Lord, Lord Warner, talked about the purpose and design of the Bill. We see it as a broadly enabling Bill, as I have just said. We have always said that we will devolve powers only where there is a clear accountable body. This applies equally to any health powers as to other powers that are devolved.

My noble and learned friend Lord Mackay and the noble Lord, Lord Patel, asked specifically about Amendments 3 and 4 as applying to regulatory functions such as those of the Care Quality Commission. Amendments 3 and 4, which we have just approved, mean that the regulatory functions of a national regulator such as the CQC cannot be devolved to, say, a combined authority exercising functions that the Care Quality Commission would have regulated.

The noble Lord, Lord Hunt, mentioned the importance of health in devolution. Health is absolutely an important element of devolution. As the Chancellor has said:

“We will hand power from the centre to cities to give you greater control over your local transport, housing, skills and healthcare”.

That is our aim and we will do that within a strong NHS. A strong NHS relies on a strong local economy

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and devolution will enable strong local economies with strong local governance. In areas with such accountabilities in place, such as Manchester, health devolution is something we support.

Given that I have placed those comments on the record, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Warner: My Lords, the Minister’s response is deeply disappointing. There is a simple problem with this Bill and the way in which the Minister and her department have approached it: they simply do not understand the National Health Service’s national characteristics. It is not uncommon for Bills to contain statements of principle. That is not an unusual phenomenon. I have been in this House 15 years and I have sat through debates in which statements of principle have been put into Bills, so the idea that that is something we never put in legislation is simply untrue. We have to put this on the face of the Bill. It is what the NHS expects and what many of us think is essential if we are to successfully pursue the Government’s admirable policy of devolving more functions down to the local level. If the Government want to do that successfully and to take the NHS with them, I suggest to the Minister that they need to think again about this issue.

Throughout our deliberations on the Bill I have worked on the assumption that the Government did want to take the NHS with them. Certainly, the briefings I have received strongly suggest that the NHS is confused and baffled about precisely what the Government are up to. Simply relying on assurances from the Front Bench and a memorandum of understanding in Manchester is not good enough. I do not want to go banging on about this but I am unconvinced by what the Government are saying. There needs to be on the face of the Bill a provision of the kind included in this amendment. I wish to test the opinion of the House.

6.16 pm

Division on Amendment 11

Contents 217; Not-Contents 152.

Amendment 11 agreed.

Division No.  2

CONTENTS

Aberdare, L.

Adams of Craigielea, B.

Addington, L.

Ahmed, L.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Armstrong of Hill Top, B.

Bakewell of Hardington Mandeville, B.

Barker, B.

Bassam of Brighton, L. [Teller]

Beecham, L.

Benjamin, B.

Berkeley, L.

Bhattacharyya, L.

Blackstone, B.

Boateng, L.

Bonham-Carter of Yarnbury, B.

Bradley, L.

Brinton, B.

Brooke of Alverthorpe, L.

Brookman, L.

Browne of Belmont, L.

Cameron of Dillington, L.

Campbell-Savours, L.

Cashman, L.

Chester, Bp.

Clancarty, E.

Clark of Windermere, L.

21 July 2015 : Column 1055

Clement-Jones, L.

Clinton-Davis, L.

Collins of Highbury, L.

Corston, B.

Cotter, L.

Craigavon, V.

Curry of Kirkharle, L.

Davies of Coity, L.

Davies of Oldham, L.

Dean of Thornton-le-Fylde, B.

Desai, L.

Dholakia, L.

Donaghy, B.

Donoughue, L.

Doocey, B.

Dubs, L.

Elder, L.

Erroll, E.

Falkland, V.

Falkner of Margravine, B.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Fearn, L.

Foulkes of Cumnock, L.

Gale, B.

Garden of Frognal, B.

German, L.

Giddens, L.

Glasgow, E.

Gordon of Strathblane, L.

Goudie, B.

Gould of Potternewton, B.

Grantchester, L.

Greaves, L.

Grender, B.

Grocott, L.

Hamwee, B.

Hannay of Chiswick, L.

Hanworth, V.

Harris of Haringey, L.

Harris of Richmond, B.

Harrison, L.

Hart of Chilton, L.

Haskel, L.

Haworth, L.

Hayman, B.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hilton of Eggardon, B.

Hollick, L.

Hollis of Heigham, B.

Howarth of Breckland, B.

Howarth of Newport, L.

Howells of St Davids, B.

Howie of Troon, L.

Hoyle, L.

Humphreys, B.

Hunt of Kings Heath, L.

Hussain, L.

Hussein-Ece, B.

Janke, B.

Jolly, B.

Jones, L.

Jones of Cheltenham, L.

Jones of Whitchurch, B.

Judd, L.

Kennedy of Southwark, L.

King of Bow, B.

Kinnock, L.

Kinnock of Holyhead, B.

Kirkwood of Kirkhope, L.

Knight of Weymouth, L.

Kramer, B.

Lea of Crondall, L.

Lee of Trafford, L.

Lennie, L.

Lester of Herne Hill, L.

Levy, L.

Liddle, L.

Linklater of Butterstone, B.

Lipsey, L.

Lister of Burtersett, B.

Listowel, E.

Loomba, L.

Low of Dalston, L.

Ludford, B.

Lytton, E.

McAvoy, L.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

MacKenzie of Culkein, L.

Mackenzie of Framwellgate, L.

McKenzie of Luton, L.

Maddock, B.

Manzoor, B.

Mar, C.

Marks of Henley-on-Thames, L.

Masham of Ilton, B.

Massey of Darwen, B.

Maxton, L.

Mendelsohn, L.

Monks, L.

Morgan, L.

Morgan of Huyton, B.

Morris of Yardley, B.

Newby, L.

Nicholson of Winterbourne, B.

Nye, B.

O'Loan, B.

O'Neill of Bengarve, B.

O'Neill of Clackmannan, L.

Palmer of Childs Hill, L.

Palumbo of Southwark, L.

Parminter, B.

Patel, L.

Patel of Bradford, L.

Pendry, L.

Pinnock, B.

Pitkeathley, B.

Prescott, L.

Prosser, B.

Purvis of Tweed, L.

Quin, B.

Ramsay of Cartvale, B.

Randerson, B.

Rebuck, B.

Redesdale, L.

Reid of Cardowan, L.

Rennard, L.

Rodgers of Quarry Bank, L.

Rooker, L.

Rosser, L.

Rowe-Beddoe, L.

Rowlands, L.

Royall of Blaisdon, B.

Sawyer, L.

Scotland of Asthal, B.

Scott of Needham Market, B.

Scriven, L.

Sharkey, L.

Sharp of Guildford, B.

Sherlock, B.

Shipley, L.

Shutt of Greetland, L.

Simon, V.

Smith of Basildon, B.

Smith of Gilmorehill, B.

Snape, L.

Soley, L.

Steel of Aikwood, L.

Stephen, L.

21 July 2015 : Column 1056

Stoddart of Swindon, L.

Stoneham of Droxford, L.

Strasburger, L.

Suttie, B.

Symons of Vernham Dean, B.

Taverne, L.

Taylor of Blackburn, L.

Taylor of Bolton, B.

Taylor of Goss Moor, L.

Teverson, L.

Thomas of Gresford, L.

Thomas of Winchester, B.

Thornton, B.

Tonge, B.

Tope, L.

Touhig, L.

Truscott, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Turner of Camden, B.

Tyler, L.

Tyler of Enfield, B.

Uddin, B.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walmsley, B.

Walpole, L.

Warner, L.

West of Spithead, L.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wigley, L.

Wilkins, B.

Woolmer of Leeds, L.

Young of Norwood Green, L.

NOT CONTENTS

Ahmad of Wimbledon, L.

Armstrong of Ilminster, L.

Ashton of Hyde, L.

Astor of Hever, L.

Attlee, E.

Balfe, L.

Bates, L.

Berridge, B.

Bew, L.

Blencathra, L.

Bourne of Aberystwyth, L.

Bowness, L.

Brabazon of Tara, L.

Brady, B.

Bridgeman, V.

Bridges of Headley, L.

Brooke of Sutton Mandeville, L.

Brougham and Vaux, L.

Browning, B.

Byford, B.

Caithness, E.

Callanan, L.

Cathcart, E.

Cavendish of Furness, L.

Chisholm of Owlpen, B.

Colville of Culross, V.

Colwyn, L.

Cope of Berkeley, L.

Cormack, L.

Courtown, E.

Crathorne, L.

Crickhowell, L.

Cumberlege, B.

De Mauley, L.

Deben, L.

Denham, L.

Dixon-Smith, L.

Dunlop, L.

Eaton, B.

Eccles, V.

Eccles of Moulton, B.

Elton, L.

Empey, L.

Evans of Bowes Park, B.

Farmer, L.

Faulks, L.

Finkelstein, L.

Fookes, B.

Forsyth of Drumlean, L.

Fowler, L.

Framlingham, L.

Freeman, L.

Freud, L.

Gardiner of Kimble, L. [Teller]

Glenarthur, L.

Glendonbrook, L.

Gold, L.

Goldie, B.

Goodlad, L.

Grade of Yarmouth, L.

Greenway, L.

Griffiths of Fforestfach, L.

Hameed, L.

Hamilton of Epsom, L.

Harris of Peckham, L.

Helic, B.

Henley, L.

Heseltine, L.

Higgins, L.

Hodgson of Astley Abbotts, L.

Holmes of Richmond, L.

Hooper, B.

Howard of Rising, L.

Howe, E.

Hunt of Wirral, L.

Inglewood, L.

James of Blackheath, L.

Jopling, L.

King of Bridgwater, L.

Knight of Collingtree, B.

Lamont of Lerwick, L.

Lawson of Blaby, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Liverpool, E.

Livingston of Parkhead, L.

Lothian, M.

Lyell, L.

McColl of Dulwich, L.

Mackay of Clashfern, L.

Magan of Castletown, L.

Maginnis of Drumglass, L.

Marlesford, L.

Mawson, L.

Mobarik, B.

Montrose, D.

Moore of Lower Marsh, L.

Morris of Bolton, B.

Moynihan, L.

Naseby, L.

Nash, L.

Neville-Jones, B.

Neville-Rolfe, B.

Newlove, B.

Northbrook, L.

Norton of Louth, L.

O'Cathain, B.

O'Neill of Gatley, L.

Oppenheim-Barnes, B.

Perry of Southwark, B.

21 July 2015 : Column 1057

Plumb, L.

Popat, L.

Prior of Brampton, L.

Rana, L.

Rawlings, B.

Ribeiro, L.

Ridley, V.

Risby, L.

Rogan, L.

Ryder of Wensum, L.

St John of Bletso, L.

Sassoon, L.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharples, B.

Sheikh, L.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shields, B.

Shrewsbury, E.

Spicer, L.

Stedman-Scott, B.

Stirrup, L.

Stowell of Beeston, B.

Suri, L.

Taylor of Holbeach, L. [Teller]

Taylor of Warwick, L.

Trees, L.

Trefgarne, L.

True, L.

Tugendhat, L.

Ullswater, V.

Verma, B.

Warsi, B.

Wei, L.

Whitby, L.

Williams of Trafford, B.

Younger of Leckie, V.

6.30 pm

Schedule 3: Overview and scrutiny committees

Amendments 12 and 13

Moved by Baroness Williams of Trafford

12: Schedule 3, page 28, line 22, after “COMMITTEES” insert “AND AUDIT COMMITTEES”

13: Schedule 3, page 31, line 48, at end insert—

“Audit committees

4 (1) A combined authority must arrange for the appointment by the authority of an audit committee.

(2) The functions of the audit committee are to include—

(a) reviewing and scrutinising the authority’s financial affairs,

(b) reviewing and assessing the authority’s risk management, internal control and corporate governance arrangements,

(c) reviewing and assessing the economy, efficiency and effectiveness with which resources have been used in discharging the authority’s functions, and

(d) making reports and recommendations to the combined authority in relation to reviews conducted under paragraphs (a), (b) and (c).

(3) The Secretary of State may by order make provision about—

(a) the membership of a combined authority’s audit committee;

(b) the appointment of the members.

(4) Provision must be made under sub-paragraph (3) so as to ensure that at least one member of an audit committee is an independent person (as defined by the order).”

Amendments 12 and 13 agreed.

A privilege amendment was made.

6.31 pm

Motion

Moved by Baroness Williams of Trafford

That the Bill do now pass.

21 July 2015 : Column 1058

Baroness Williams of Trafford: My Lords, I thank all noble Lords, even the noble Lord, Lord Warner, for the part they have played during the passage of this Bill and for being so patient with me, this being my first Bill. Thank you.

Lord McKenzie of Luton: My Lords, as we have come to our “Auld Lang Syne” moment, I thank the Minister and her team for their engagement with this Bill. We should congratulate the noble Baroness; this is her first Bill and she has approached it with humour, patience and a willingness to engage. I also thank the noble Lord, Lord Shipley, as our deliberations have been particularly advantaged by him and his team; the Bill team for its willingness to engage; my Labour colleagues; my noble friend Lord Beecham and his continuing infectious humour; the noble Lord, Lord Kennedy; and the vital input from my health colleagues, my noble friends Lord Hunt, Lord Warner and Lord Bradley. I believe that we have collectively done our job in scrutinising this Bill and we wish it safe passage in another place. It is a worthy Bill which could herald great change.

Lord Shipley: My Lords, from these Benches, I thank the Minister for—as the noble Lord, Lord McKenzie, said—her good humour in the passage of the Bill, despite the several defeats the Government have had. As I said, I hope that there may be an opportunity for the things on which we have a different opinion from the Government to be looked at very closely in the House of Commons, because there is a lot of merit in the amendments that your Lordships’ House has decided to pass. I also thank the noble Lord, Lord Heseltine, who the noble Lord, Lord Tyler, referred to as the godfather of the Bill. He is certainly its architect, and the vision that the noble Lord has shown over the years in driving this agenda forward has been hugely important. Finally, I thank the Members of the Labour Front Bench and the Bill team for a very happy process, which has addressed all the issues that have been of concern to us—many thanks to the Minister for that collaborative approach. I very much hope that we see many affirmative procedures as new proposals come forward in the months ahead.

6.33 pm

Bill passed and sent to the Commons.

Budget Statement

Motion to Take Note

6.34 pm

Moved by Lord O'Neill of Gatley

That this House takes note of the economy of the United Kingdom in the light of the Budget Statement.

Baroness Chisholm of Owlpen (Con): My Lords, there are 24 speakers for the debate on the Budget Statement. If Back-Bench contributions are kept to around seven minutes, the House should be able to rise at approximately 10 pm.

21 July 2015 : Column 1059

The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con): My Lords, the British economy is now fundamentally stronger than it was some years ago. We have recovered significantly from the financial crash of 2008. We have seen real GDP growth higher than that of any major advanced economy in 2014, and that is the current consensus expectation for this year as well. We have started to see rising wages and, until very recently, particularly strong increases in the rate of employment. We have also seen business investment 31.9% higher than it was in 2010. Although this all puts us in a relatively strong position, if we want to make this recovery truly secure, and truly national, there is still a lot that we need to do. We need to increase our growth; step up our productivity a gear or two; and continue reducing the budget deficit—because in normal economic times, that is the right thing to do. Of course, we also need to see our external current account deficit improve.

This Budget will continue Britain’s journey towards economic security and prosperity. The first way we achieve this relates to a continued course of deficit reduction in line with the pace set in the previous Parliament. As I have just said, in normal economic times, it is right that Governments run an overall budget surplus. That gives a Government much more room for manoeuvre in the event of an economic downturn. This is sensible fiscal policy. The fiscal path laid out in this Budget is set to take us eventually into surplus. Importantly, it takes a smoother path than had previously been set out because we can get to the same destination while keeping a steadier pace.

The budget deficit is now less than half of the 10.2% it was in 2010 and this year it is forecast to fall to 3.7% of GDP. Our fiscal plans forecast this deficit to fall further to 2.2% in 2016-17; down to 1.2% the following year; down to 0.3% the year after that; and then to a budget surplus of 0.4% in 2019-20. At the same time, our national debt share is forecast to continue falling in every single year, down from around 80.3% of GDP this year to 68.5% by 2020-21.

The spending decisions we need to make to get there are indeed tough but they are necessary. Without sound, sustainable public finances, there can be no real economic security for working people. The fiscal charter published earlier this month commits the UK to sticking to this path: achieving a budget surplus by 2019-20 and then maintaining a surplus thereafter. The only exception to the rule would be if there is a recession or a marked slowdown; that is, if the Office for Budget Responsibility judges that we have real GDP growth of less than 1% a year, as measured on a rolling four-quarter basis. There is still a view in some quarters that we are in an age of austerity but from an overall fiscal policy perspective, with strong employment and recent above-trend growth, this is surely no longer the case. The charter will bind the country to living within our means.

Under this Budget’s fiscal plan, we require some £37 billion of further consolidation over this Parliament. Some £17 billion of this comes from measures set out by the Chancellor in the other place; namely, £12 billion from welfare and £5 billion from tackling tax evasion, avoidance, non-compliance and planning, and imbalances

21 July 2015 : Column 1060

in the tax system. The other half will be set out following this autumn’s spending review. As a point of principle, no year will see overall cuts as deep as those required in 2011-12 and 2012-13. As a second point of principle, we will make our spending decisions in a fair and balanced way.

The second way in which we can secure this country’s recovery is through improving our growth and productivity. In my maiden speech in this House I said that our productivity challenge is well known, that we can try to do a lot better and that we should see the so-called productivity gap as an exciting opportunity, as well as a challenge. The productivity plan that we recently published—all 82 pages of it—shows we are rising to that challenge. It is based on a two-pronged approach: first, encouraging long-term investment in economic capital, including infrastructure, skills and knowledge; and secondly, promoting a dynamic economy, one that encourages innovation and helps resources to flow to their most productive use. The policies introduced in this Budget will help to make that plan a reality, so I would like to outline the highlights again.

First, overhauling the vehicle excise duty system and hypothecating the money that this duty raises into a new roads fund will pay for the sustained investment in roads that this country needs over the long term. We remain committed to the £15 billion that we have already allocated for new roads for the rest of this decade.

Secondly, we will give people the skills that they need to secure a better job. Apprenticeships have been a significant success story but the rate and quality of training has been uneven, to say the least. To tackle that, the Budget will introduce an apprenticeships levy on large firms. Firms that offer apprenticeships can get back more than they put in and that money will be directly controlled by employers. This stands not only to deliver 3 million more apprenticeships but, crucially, to enable an increase in the quality of apprenticeships, paving the way for a new generation of higher-skilled workers. Our productivity plan also contains measures to improve schools education by creating more free schools, ensuring that there is a university technical college within reach of every city and training up an additional 17,500 teachers in science, technology, engineering and mathematics. The Budget will also increase the cash available to enable English students from low and middle-income back- grounds to study at university, while putting funding on a long-term sustainable position—including asking those who benefit from a university education to contribute more of the costs of their degrees once they are earning.

Thirdly, we will be building up strong, interconnected cities beyond our capital. Research that I carried out before I entered Government shows that this is central to driving growth and productivity, and revitalising many areas of Britain. Indeed, what I inelegantly called “ManSheffLeedsPool” was the spiritual precursor to the northern powerhouse. We will roll out further powers to Greater Manchester and work to have devolution deals with the Sheffield city region, the Liverpool city region, Leeds, West Yorkshire and its partner authorities and, as of very recent events, the north-east, as well as delivering a new round of enterprise zones for smaller towns and extending the coastal

21 July 2015 : Column 1061

communities fund. To bring the towns and cities of the northern powerhouse closer together, the Budget will create a new statutory body, Transport for the North, whose remit will include an Oyster-style ticketing system across the north. While we are of course heavily focused on the northern powerhouse, we are also very focused on other engines of growth such as the West Midlands. Why not perhaps have powerhouses, too, in the east Midlands, as well as on the south and south-west coasts?

The third way in which we will give this country economic security is by helping our businesses to prosper and securing long-term investment in it. This Budget cuts the rate of corporation tax to 19% and then to 18%—the lowest in the G20, saving businesses around £6.6 billion by 2021. The employment allowance will be increased from £2,000 to £3,000, taking up to 90,000 firms out of employer NICs completely, while the annual investment allowance will be set at £200,000, eight times higher than the previous permanent rate, helping to increase investment by around 0.6% by 2020-21.

Furthermore, while we still believe that banks should make an additional contribution to the public finances, we have set out the path to a more competitive and sustainable basis of taxation: a 26% rate of corporation tax and a 0.1% levy on banks’ UK balance-sheet liabilities. The productivity plan sets out further measures to meet our ambitious export target of £1 trillion by 2020 and build stronger links with the world’s emerging markets. As a priority, the Government will remodel how they try to deliver on trade, exports, investment and prosperity, so as to have a step-change in the quantity of our exports and investments. We will focus on diversifying into more markets, increasing the integration of international service sector markets, supporting trade sector agreements beyond the EU and reviewing how SMEs finance their exports.

The fourth way in which we are securing this country’s economic recovery is by putting the welfare system on to a more sustainable footing and giving the country a pay rise. For a long time, we have been a low-wage, high-tax, high-welfare society—one which took money away from the poorest in taxes then gave it back to them in the form of tax credits and welfare. Far too many people have been trapped in a lifestyle of benefits dependency. Where we ought to be is the opposite: a high-wage, low-tax, low-welfare society—one in which it pays to work and where our benefits system targets its support towards the most vulnerable. Through the changes we are announcing in this Budget, that is where we are moving.

The Budget sets out £12 billion of welfare savings, which is what we need if we are to live within our means as a country. The cost of tax credits more than trebled in real terms over the 2000s—the so-called noughties. It is now £30 billion, so the Budget will reduce the level of earnings at which a household’s tax credits and universal credits start to be withdrawn and from April 2017, in all but the most exceptional cases, families who have a third or subsequent child will not be eligible for additional tax credit or universal credit support. All in all, these changes to tax credits will return real-terms tax credit spending to the level that it

21 July 2015 : Column 1062

was in 2007-08. The number of families with children eligible for tax credits will fall to five out of 10 in the next financial year, down from six out of 10 currently and from nine out of 10 back in 2010. The Budget will also freeze working-age benefits, excluding statutory payments such as maternity pay and disability benefits, and reduce rents paid in the social housing sector by 1% a year for the next four years.

At the same time, we will honour our commitments to support the elderly, the vulnerable and disabled people. The Budget will roll out free childcare of up to 30 hours a week to all—all—working parents of three and four year-olds and put more money into the pockets of our working families. Next year, we will raise the tax-free personal allowance higher than previously forecast to £11,000 a year, which will mean less tax for 29 million people, and—in one of the flagship policies of this Budget—from next April we will introduce a national living wage, which will start at the rate of £7.20 an hour and rise to £9 an hour by 2020. As a result of these changes, a typical renting household with two full-time earners on minimum wage and two children will see its income rise by 12% in real terms over this Parliament, and by 2017-18 eight out of 10 working households will be better off by an estimated average of £130 a year.

The figures I have set out today make a real difference to people’s lives. They represent the security of finding employment, of having a decent living wage and of living in a strong and stable economy. The Budget includes measures to increase spending on our National Health Service and to meet our NATO defence spending commitment of 2%. It introduces important changes to inheritance tax, to the non-dom taxation system and to dividend taxes. It rebalances our welfare system, putting it on a more sustainable footing. It helps make our country and our businesses more productive. It paves the way for further significant employment increases. It cuts taxes for 29 million people and gives up to 6 million people a pay rise. The Budget sets the United Kingdom up for a stronger, more prosperous future. I am delighted to be introducing it to your Lordships.

6.50 pm

Lord McFall of Alcluith (Lab): My Lords, it is a pleasure to participate in this debate. I did not think I would see the day when Tory Back-Benchers cheered a Budget which introduced higher taxes, a Chancellor ordered wages in the country to go up by unilateral government fiat and a party ordered other people who owned homes—namely housing associations—to sell those homes. Perhaps next year the Chancellor will talk about getting the trains running on time.

The Chancellor said that this is a smaller-welfare, lower-tax economy—but it is absolutely not. This was a tax-raising Budget, not one of a tax-reforming Chancellor. There are £14 billion of tax increases, partly offset by £8 billion of tax cuts. We have perverse tax changes. The Minister mentioned the bank levy, which was introduced on 1 January 2011 and was intended to encourage banks to move to less risky funding profiles. The Parliamentary Commission on Banking Standards, on which I served, identified a bias in the tax system that encouraged banks to increase leverage and use debt rather than equity. We concluded

21 July 2015 : Column 1063

that the tax system was “misaligned with regulatory objectives”. The commission recommended that the Government consult on introducing an allowance for corporate equity. Instead, in the summer Budget, the Government announced a reduction in the bank levy, offset by a supplementary corporation tax charge of 8% of bank profits. This change penalises the smaller, safer challenger banks which we all wish to see improve competition in the market. The winners are the larger, too-big-to-fail international banks. Instead of the Government following the recommendations of the parliamentary commission, the tax system is becoming less aligned to the objective of a safer and lower-leveraged banking system.

The first headline conclusion from the Budget is that its changes are regressive: the IFS has made it very clear that the Government take from the poorer rather than the richer households. Secondly, the Budget penalises hard-working people. George Osborne has talked about strivers and shirkers, but it is the strivers being penalised in this Budget. Thirdly, the Budget will do nothing for skills, work incentives or the productivity agenda. This Government have had the worst possible record on productivity for the past six years. The Governor of the Bank of England at the time, Mervyn King—now the noble Lord, Lord King of Lothbury—came before the Treasury Committee and said that productivity was the urgent issue for government, but nothing has been done to date. Lastly, there has been no attempt, as I mentioned, to simplify or reform a creaking tax system. The key fact is that the increase in the minimum wage cannot fully compensate for the major losses experienced by tax credit recipients.

We have seen one language for the campaign trail but another for legislating for regressive change. Already, one manifesto commitment—the £72,000 limit on an individual’s liability for care—has been abandoned. When it comes to strivers, 3 million receive working tax credits, which are there to supplement income, but they will all lose a minimum of £1,000 a year. Two out of three children growing up in poverty are from working households. What will this do for aspiration and social mobility? The Government have also abandoned the child poverty targets which they signed up to in the Child Poverty Act 2010. The Welfare Reform and Work Bill currently going through Parliament removes the four child poverty targets set out in the 2010 Act and the Government’s duty to meet those targets. The remit and the name of the Social Mobility and Child Poverty Commission have now been changed so that it will become the Social Mobility Commission. The term “child poverty” has been expunged from the language of government.

However, sadly, a dominant feature of the Government’s language is the pejorative use of the term “welfare”. Let us remind ourselves what welfare is. The welfare budget is £220 billion, £90 billion of which—41%—is the state pension. That will be untouched. We have housing benefit of £24 billion, or 11%, and we have tax credits of £30 billion. So when we talk about tax credits, let us get them into perspective in terms of the welfare budget and welfare provision. The Government have decided to protect the majority of the welfare budget, but that will produce intergenerational barriers. For example, under-25s are excluded from the minimum

21 July 2015 : Column 1064

wage, penalised on housing benefit and discriminated against in terms of student grants. That is the experience being felt on the ground today.

A Caritas Social Action Network report dropped into my postbox this morning. Its overview says that it,

“has found that the welfare changes of the past five years and the delivery of those changes in the UK are pushing claimants and support staff to the edge of their capacity”.

It adds:

“Staff of CSAN charities are under increased pressure to provide support in the face of a rigid welfare system, which they see as a return to ‘Victorian’ poverty, and which prevents them from addressing the underlying, long-term issues in their clients’ lives”.

For short-term gain, the long-term issues have been ignored. That is Caritas saying that, not anyone else.

The FT has also stepped into the argument. I am not talking about the Morning Star here, but the FT, which I have been looking at over the past few days. It has said that because of the abolition of local government watchdogs, the changing and diminishing role of local government in England has been starkly exposed. There have been £18 billion of cuts in real terms since 2010, with another £10 billion due by 2020—twice the rate of cuts to UK public spending as a whole. What does that mean? The FT is very clear what it means. That £18 billion budget cut affects the elderly: 65 out of every 1,000 people aged over 65 were receiving care in their own home in 2009-10; the equivalent figure for 2013-14 was 46. There were 694,000 children on the Children in Need register in 2009-10; the equivalent figure now is 781,200—a 12.5% increase.

This is against the background of a severely weakened international system—one that, not least, has not been assisted by the debacle in Greece. We have seen one-third wiped off the value of the Chinese economy in the past month, equivalent to €1.5 trillion being destroyed, enough to write off Greece’s debt five times over. We have seen a political Chancellor directly intervening in the market, but without explanation, consultation or a measured approach. Maybe the Chancellor is master of the Treasury and the Government, but as time passes, perhaps he will be a servant of the economy.

6.59 pm

Baroness Kramer (LD): My Lords, my sadness in responding to this Budget is that it begins to unravel the key achievement of the coalition years, which was to restore the economy and fiscal responsibility in a way that is fair and lets the greatest burden fall on the broadest shoulders. The Minister said that no one could any longer call this an age of austerity. But the centrepiece of the Budget is £12 billion in welfare cuts, when no more than £3 billion to £4 billion was necessary to achieve the long-term goals. It hits hardest the working poor, public sector workers such as nurses and teachers, the young and the mentally ill. It strongly favours big corporations over small businesses and it heavily advantages homeowners at the expense of renters. Frankly, if you are earning £100,000 and own a £1 million home, you love this Budget. If you earn a modest wage and have children, you need to start tightening your belt hard.

21 July 2015 : Column 1065

Perhaps the most cynical step in the Budget has been to hide the impact. The Treasury has for years issued a detailed distributional analysis to show honestly and transparently where the blows and the benefits fall. This year, that has been curtailed. Key years and key income groups have been excluded. The Government have that data. Will the Minister publish them or will he continue the sleight of hand?

I am particularly concerned about the impact of this Budget on the young. They lose in every way. Children with working parents on modest wages will really feel the crunch as any tax and wage benefits are more than off-set by cuts in tax credits and the changes to universal credit, especially the change in income thresholds and work allowances. Children in future large families—and such families are always few—will seriously suffer from the benefits cap. We say that we are concerned about children’s nutrition and well-being, so how does this make sense?

Young people who have grown up in areas of unemployment and who get on their bike to find an apprenticeship or job in another part of the country can no longer get housing benefit. Whose floor should they sleep on? When in work, the under-25s are excluded from the new minimum wage. We have all lauded the number of youngsters from poor homes now going to university. However, the key to this—the maintenance grant scheme—has been abolished. What is BIS’s estimate of the impact on student numbers from poor homes?

The Government talk about parity for mental health, but they have eliminated the employment and support allowance, a scheme largely populated by people with depression, bipolar disorder or schizophrenia—people with episodic illnesses who will now be given no additional support. How do the Government even attempt to justify this?

What of public sector workers, the nurses, teachers and police who carried on despite severe pay constraint through the recession? How can they possibly cope with severe pay restraint for another Parliament? When I hear the Minister say that this is not an age of austerity, is he saying it to them?

With this Budget, the Government have confirmed their bias towards big corporations rather than small businesses. We are pleased to see the increase in the minimum wage, although it is another sleight of hand to call it a living wage. However, the tax breaks to off-set this through reduced corporation tax benefit big companies, which frankly can already manage the change, and not the small and medium-sized businesses that tend to pay little corporation tax anyway. SMEs are the backbone of our future; surely the benefits could have been targeted at them, whether through NI or another mechanism—not at the big companies but at the small businesses.

The Minister has talked a great deal about productivity, which is a vital subject and on which I hope we will have a proper future debate. His paper Fixing the Foundations is in large part a reaffirmation of existing programmes and policies that we support, although in notable cases, such as the level of capital investment and devolution, it is far less daring than the measures we pushed for. However, let me just put down a marker on two issues on which we will fight what are outrageously retrograde steps.

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The first is the right to buy from housing associations, aggravated by rent reductions. It is just wicked, at a time when we have a severe shortage of homes with affordable rents. It disrespects generations of work by dedicated charities, but it also destroys our cities. I have talked to estate agents, who of course will not go on the record, but who are rubbing their hands and telling me with great confidence that iconic properties—currently owned by charities such as Peabody in city centres, especially in London—will be available in five years to market to foreign buyers. Our great urban centres are already losing their mixed communities. How is productivity enhanced by diminishing them even more?

The second is the decision not to proceed with the zero-carbon homes scheme. We struggle to retrofit our historic stock of homes, which consume too much energy and leave thousands of people in fuel poverty, and now the Government ensure that even more homes are built below modern standards. Zero-carbon homes may cost marginally more to build—though that is arguable, because under the pressure of this coming regulation, construction companies have found new ways to be able to achieve that target—but homes built below those standards are certainly far more expensive to run for the homeowner or tenant than a zero-carbon home would be. I recognise that the Government pride themselves on using phrases such as “green crap”, but now they show themselves to be completely uninterested even in energy conservation.

If we talk of productivity and economic growth, why does this Budget choose to gut key support for renewable energy, an area in which British companies were just beginning to reach world competitive standards? Green industries are the future and our foreign competitors are glowing with this Government’s ideological destruction of rising key UK firms—how backward-looking and, now I must understand, how typically Conservative.

There are, obviously, measures that we support in this Budget: the increase in the tax-free personal allowance, a keystone Liberal Democrat policy, initially resisted by the Tories; devolution; increased childcare; apprenticeships; and other key Lib Dem policies. We support the move towards a better minimum wage. We support the tightening of tax rules for non-doms, though it is sadly slight and we would like more. There has been some action on pension relief and tax evasion, encouragement for R&D and investment in infrastructure. However, the truth is that the Financial Times got it right: on the basis of this budget the Tory party can,

“be seen as a lobby group for the already prosperous and propertied”.

What an opportunity lost.

7.07 pm

The Lord Bishop of Birmingham: My Lords, I am grateful for the Minister’s reprise of the recent Budget Statement and for the opportunity to join this debate. I welcome the expectation of a strengthened economy. I also welcome the aspiration for the common sense of living within our means and the wisdom of reducing both the deficit and national debt as a proportion of GDP.

The Minister is more aware than most of the difficulties and costs of such ambitions, as the Government seek to address the weaknesses of our economy, identified

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in the Budget as low investment, low skills, low wages and low productivity. Will he agree that in a Budget for a one-nation economy, the effects of resolving these difficulties and the costs they incur should be spread justly and proportionately across society, and that a transition to an economy where, as the Chancellor said, “all can prosper” will require all the rigour and vigour of an inclusive capitalism?

The aim of adjusting benefits, as the Minister has already mentioned today, to a proper level of support—indeed, the sort of support envisaged by the founders of the welfare state—and away from the drudgery of false dependency will be achieved only if there are affordable jobs providing the foundation for households that are not only self-sustaining but wealth-building. Meanwhile, as these jobs are emerging in a strengthening economy, and with our increasing ability to compete in a global market, will the Minister give details of whether the working-age benefits freeze and the changes in tax credits that have been outlined—highlighted in the calculations of the Institute for Fiscal Studies—will result in more young people being better off or worse off, even with the new living wage?

I am grateful that the Minister again waved the Fixing the Foundations document, which he encouraged us to read at Questions a few days ago. I have been pleased to do so, and found it inspiring and encouraging, as someone who formerly ran businesses and was part of the economy. There are more details in that than can be dealt with today—and I was grateful that the noble Baroness, Lady Kramer, mentioned that we might debate these in more detail at future opportunities.

Today I want to emphasise two interlinked elements of productivity: skills and the regions. The Minister knows that improved productivity, resulting in well-resourced jobs, requires a complex range of measures, including investment capital and research and development, to put into practice enterprising and risky ideas in the local economies, and ideas producing popular goods and services that people want to buy, meaning that the company and workers are rewarded for its enterprise with affordable wages. Then there are the wider issues of good infrastructure that he mentioned, such as transport, housing, healthcare and policing—but also, of course, a practical planning framework. In all this, I ask that the immediate focus in this wide menu of policies should be on the development of skills that connect directly with the opportunities of business, manufacturing, science, technology and administration.

The emphasis on universities is most welcome at that high level, and we know that we should develop more highly skilled adventurers in developing our economy, not just have to import them from overseas. But will the Minister affirm that with apprenticeships—the target of 3 million has been mentioned—there is an intentional link with education, which has been mentioned in passing, and the aspiration of independent living with this desire for enterprise and profitability? There is a joining up that needs to be done if we are to make a real difference in the lives of this generation in the life of this Parliament.

Furthermore, will the Minister encourage the streamlining not just of universities but of further education in the regions, and the provision of particular

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support for talented teenagers from poorly resourced backgrounds for these apprenticeships? I am thinking not only of incentives for businesses, which have been outlined in the arrangements, but for those individual, aspiring young people for whom access to travel-to-work costs and the dream of independent housing is still far out of reach. These and other measures are in my view—and, I believe, in the Government’s—best achieved with a very strong commitment to regional responsibility and autonomy. Your Lordships touched on this in the end of the previous debate.

Investment in infrastructure and public services has already been mentioned as a regional good, not least in the same breath as the northern powerhouse. But will the Government now give similar public attention to fuelling the Midlands engine? In the Midlands there is 24% of manufacturing; it is the strongest exporter, with an increase of more than 70% in the past six years, and the only region with a trade surplus with China. I urge the Government not to wait for a perfect political Midlands settlement or restructuring but to support current initiatives towards increased productivity —for example, with Midlands Connect, which is making a marvellous vision for transport infrastructure. Then there is Drive West Midlands, which is about the automotive supply chain—and, of course, returning to the skills agenda, there is the ambition for Birmingham to be a CSR city, joining professions, commerce and businesses to the most deprived schools in the most deprived wards in Birmingham.

The invaluable one-to-one mentoring that is behind the high-level macro and microeconomic policies that we are debating today, and the generous person-to-person relationships and resourcing needed to bring these new participants, who otherwise will not join in the benefits of all that we are planning today, is one of the most remarkable opportunities for what might be called a remodelled regional civic virtue, as those who have are able to bring into this wonderful country of ours the opportunities for those who have not. The test of the success of this and future Budgets for a country living within its means will be the growing number of households that are equipped and completely free to earn the means to live. I trust that the Government and the Minister, with all his expertise, will be able to provide us with measurable evidence of those new households in the months and years to come.

7.14 pm

Lord Higgins (Con): My Lords, in general over the past 50 years, it has been true that incoming Labour Governments have had a good economic inheritance and Conservative Governments have had a bad economic inheritance. Certainly, the incoming coalition Government had a quite appalling economic inheritance—so it is something of a relief to find ourselves now in a situation where we have an incoming Conservative Government and a reasonable inheritance. Of course, it is true that there is an enormous amount still to be done. None the less, employment is at record levels, and we are in a situation where there are higher wage settlements, but they are not yet inflationary. As my noble friend pointed out, business investment is rising, and so on. So we still have a very big job to do.

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As has been pointed out repeatedly, this is the first Budget from a Conservative Government for a long while. In some respects, it is not entirely a Conservative Government, which was reflected in the remarks of the noble Lord, Lord McFall, who succeeded me as chairman of the Treasury Committee in another place. If there is one piece of Conservative economic dogma that has been as clear as anything it is that there is a danger that setting a minimum wage is likely to reduce employment. Therefore, it is a bit of a surprise suddenly to find that we are not in favour of a minimum wage but we are now in favour of a living wage, and so on—and that is the centrepiece of the Chancellor’s proposals. None the less, we must recognise that, given the problem on the other side of the equation with welfare cuts, this was probably necessary for balance. We must hope that it works out; there are clearly some timing problems, but it is an interesting development.

The thing that is clearly Conservative is to say that we must live within our means and we must go on reducing the deficit. It is of course the case that the date by which we are supposed to be back in the black has moved back a year from 2018-19 to 2019-20. But there is still a massive amount to do. If one looks at the publication by the Treasury today on public expenditure and so on, we are going to borrow this year an extra £50 billion. We talk too readily about billions or even trillions. If we are talking of billions, it is in this case 75 followed by nine zeros. It is a very big increase in borrowing. None the less, it is hoped that we will reduce the borrowing over this Parliament, which is tremendously important for two reasons. First, we really cannot go on lumbering future generations with the kind of level of debt reflected by the trillions of pounds that we now have. Secondly, ever since we ran into the deficit problem as a result of overspending by the previous Government, we have been in the situation whereby the normal basis of economic management—if you are in a boom you increase the surplus and if you are in a recession you run a deficit—has simply not been possible. We have been concentrating on reducing the deficit, so the normal balance has not been a feasible means of managing fiscal policy. Consequently, a huge weight has been put on monetary policy. On the whole, while initially the MPC tended to concentrate on interest rates rather than on the quantity of money, the subsequent increase in quantitative easing and so on has saved us from the disaster that would otherwise have resulted, given that we could not use fiscal policy to balance the economy.

I say in passing that I hope the Governor of the Bank of England will be a bit more restrained in his forward guidance. The first two or three examples had to be changed in a very short period. Surely we would do better to leave it to the analysis across the board by all the experts in the matter so that we can take a balanced view.

Interest rates are going to go up and in my view, though the Bank of England apparently disputes this, there is a very real danger that people have taken on mortgages that they are not going to be able to finance once interest rates go up significantly. As a Member of Parliament I lived through a period when people would come in on a Friday night saying they were in negative equity. I dare say that the right reverend Prelates may

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also have experienced this, and it is not something that we want to see again. None the less, the approach that we are adopting at the moment is the right one.

I had the privilege of serving on an ad hoc Select Committee on Personal Service Companies. There was some dispute because the Treasury refused to send as a witness either the Treasury Minister or any officials. None the less we produced a report, and it is somewhat gratifying to find that in this Budget the proposals we made, without Treasury advice, seem almost entirely to have been accepted.

The other aspect that is somewhat worrying is the way in which so many areas are being ring-fenced with regard to future economic management. Saying that we are not going to change income tax, value added tax or national insurance and so on is probably going to be a serious problem by the end of the Parliament, and I think that in the event it will be recognised that it is not a realistic way of proceeding. It may be a reasonable way of going into an election, but when we come to the end of the Parliament it may well have to be changed.

Generally speaking, though, the outlook is good. My noble friend has rightly stressed that we have more to do, but we have more opportunities ahead of us than we have had for some time.

7.22 pm

Lord Bhattacharyya (Lab): My Lords, I declare my interest as chairman of the Warwick Manufacturing Group, an academic department of the University of Warwick. It is a pleasure to debate our economic situation in such distinguished company.

The summer Budget may have been a mere sequel to the spring Budget, but it had a very different plot. I welcome the Chancellor’s decisions that the pace of deficit reduction should slow, wages must rise, non-doms need to pay more tax and departmental spending cuts should be smaller. I only wish that he had recognised these needs before the election.

However, there are several poor choices in the Budget. Take the excise duty surcharge on vehicles. The vehicle sector is one of the largest exporting sectors in this country but the Chancellor has put a duty surcharge on it. The premium automotive sector is one of our few manufacturing success stories. I do not see why the Government want to levy a punitive charge that will discourage innovation in low-emission cars and exports.

That said, it is always better to seek consensus than conflict, so I wish to focus on a problem that all parties agreed the Budget must address: our low productivity growth. The Chancellor calls it the challenge of our lifetime, and it is not hard to see why. On page 180 of the Office for Budget Responsibility forecast we see what will happen if productivity stalls: economic growth falls by one-third, we miss all our current and proposed fiscal targets and the welfare cap is breached. Economic success therefore requires an improvement in productivity.

Productivity has many components. It cannot be transformed with a glib announcement; it requires sustained focus over many years on a broad range of measures. Business investment in this country has been historically low, whether in capital or in innovation,

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and I welcome all measures that will help change Britain’s historic short-term mindset, which has removed most of our manufacturing industry and brought it down to 10% of GDP. Without strong support for industry, especially for inward investors, they will eventually look elsewhere. We were responsible for the biggest inward investment in this country, and those investors are also surprised by what is happening here. I deal with many such investors, and they all say that there is a lack of support for long-termism, expansion and innovation in Britain.

I am pleased that the science capital budget is protected, and I welcome the removal of the cap on student places. Equally, the reduction in corporation tax and the permanent investment allowance are positive steps. Another key to encouraging investment is a highly-skilled, productive workforce. The British skills deficit is nothing new. The solution has eluded Governments since the abolition of the industrial training boards over 30 years ago.

We have had many quangos, from TECs to the Learning and Skills Council, but the skills gap has remained the same. This is because until skills training is driven and funded by industry, it will be poorly targeted. That is why I strongly support the Budget announcement of a statutory apprenticeship levy. When I was a graduate apprentice there was a levy on my company, and that was the reason why some of the training that occurred there was wonderful. I first called for a graduate levy in this House eight years ago. If set at half of 1% of payroll, the levy would provide £2 billion for skills training each year. As a good Labour man, I note this is more than business will get from the proposed corporation tax cut.

The Government should not fudge this. If businesses benefit from reduced corporation tax, they should contribute to improving productivity. Industry should help to design the levy but it must not be delayed or watered down. A target of 3 million apprenticeships has been set. Without the levy, only cheap, low-skill apprenticeships would be offered, as is happening now. This means that the funding from the apprenticeship levy is essential to transforming technical education in Britain. The Government should set out the detail of their plans and how they will be delivered. This is a question not only of apprenticeships but of using them to reshape technical education. Many businesses sponsor the university technical colleges of the noble Lord, Lord Baker. A similar partnership is essential throughout post-16 education.

I mentioned the automotive sector earlier, so let me give a practical example. The British car industry is competing against one of the best-trained and most innovative workforces in the world in Germany. So alongside a multibillion-pound R&D budget, invested largely in British engineering, Jaguar Land Rover is forming for the first time its own learning academy, offering integrated training from apprentice to postgraduate level. JLR has 3,000 craft apprentices and 1,100 higher apprentices. This year alone it is taking 450 graduates and over 300 apprentices. These need training and skills in many different disciplines and specialities. Companies like Dyson, Rolls-Royce, JCB and BAE Systems also use a range of the best

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FE colleges and universities to provide technical education for all employees. The apprenticeship levy will create demand for quality technical education from firms that cannot invest on the scale of these manufacturers, especially those down the supply chain.

That will require a transformation in skills supply. So, ahead of the levy, we should be challenging universities, colleges and business to design technical education programmes together. We have many outstanding science and engineering departments in Britain. These should be beacons of quality technical education. As we at Warwick do for JLR, universities should accredit quality and ensure multidisciplinary capability. FE colleges can ensure that technical education is accessible to all, and industry must demand that these programmes are built on real business need—and pay.

The Government should not waste money creating new institutes of technology or national colleges for apprenticeships. Instead, under the levy, industry should choose which programmes to support, from GCSE to PhD. The best would then expand organically. This bottom-up system would ensure that every worker could expect their employer to give them worthwhile skills and qualifications, and that would be a major boost for future productivity.

The Budget had many flaws but I am glad of the focus on productivity. For that, the Chancellor and the Business Secretary deserve praise. Now, the question is whether their plans will match their rhetoric. They have set themselves the right test and it is one we must hope they pass.

7.30 pm

Lord Taverne (LD): My Lords, there were good bits in the Budget, such as measures against tax avoidance and the policy of increasing real wages. The latter is particularly welcome because it will increase demand after years of severe austerity, which caused real wages to decline, reduced demand, prolonged the recession, substantially shrank our GDP and lowered productivity. It was in fact only after some relaxation of austerity, through some loosening of tight fiscal policy in 2012, that the economy began to grow again. However, this growth happened mainly because after a slump all economies rebound in time, but how far and how fast the economy rebounds depends on government policy.

In the election campaign, the Conservatives scored a major triumph, and I do not just mean their election victory. Through brilliant propaganda, they persuaded the public that they were the party of economic competence, that Labour had caused the crisis by borrowing and that the key to recovery from deep recession is a return to balancing the books. Time after time Mr Cameron taunted Mr Miliband, “You caused the crisis by borrowing. How can you propose policies that mean more borrowing, or oppose our policies, which will reduce borrowing?”.

This successful campaign—putting all the blame on borrowing—was based on a number of fallacies. Reckless borrowing was not the cause of the crash in 2008; it was the failure of the financial institutions and reckless deregulation, based on the blind belief in the efficiency of markets and the doctrine of rational expectations. The crash was caused by the bubble in the mortgage

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market, securitisation, gambling with derivatives and the banks ignoring risks in the drive for ever bigger and faster profits.

Furthermore, the doctrine that we must eliminate deficits and balance the books, with the substantial deep cuts in public spending that that entails, is not the basic cure for economic decline. That is going back to the 1930s and the pre-Keynesian conventional wisdom preached by Montagu Norman, the all-powerful Governor of the Bank of England at the time.

Unfortunately, the obsession with balanced budgets has spread far and wide in the European Union. I have always admired Germany, which has been one of the best-governed and best-managed countries and the least nationalistic in the European Union. It has been much more compassionate towards the Syrian refugees than we have. However, at this time its belief that borrowing is a sin and its insistence on deficit reduction by ferocious austerity threaten the survival of the eurozone and possibly even the future of the European Union itself. The reforms that countries such as Greece need cannot possibly be achieved by ruinous austerity. Indeed, we seem to have forgotten the lessons from history. The extreme, ruinous regime of austerity imposed on Germany by the Versailles Treaty led to the rise of Hitler. Keynes predicted disaster in his famous book, The Economic Consequences of the Peace.

The post-Second World War picture, by contrast, was very different. Germany’s recovery after 1953 would not have been possible without massive debt relief and other measures to revive the German economy. In Britain, reducing debt by cutting public spending was not a priority for the Attlee Government. That Government launched the welfare state and the National Health Service at a time when the ratio of debt to GDP was over 200%, and they achieved a growth rate of over 3%. Indeed, after 25 years of economic growth between 1945 and 1970, the national debt shrank from 240% of GDP to 64%. History shows that the best way to reduce deficits and achieve structural reform at the same time is through growth, not austerity.

I find it deeply depressing that the Labour leadership has swallowed the mantra about balancing the books. That is why they dare not challenge head-on the Osborne doctrine of shrinking the state by further devastating cuts in public spending and welfare, making some of the poorest poorer still. They give the game away by accepting the need for balanced budgets. I am afraid that the media, including the supposedly left-wing, anti-Conservative BBC, have swallowed the mantra of balancing the books uncritically. Most of the economic pundits on current affairs programmes on television are City economists, who take a City view. No wonder the new conventional wisdom has convinced the public.

It is time that we heard more frequently in the media from those who do not subscribe to deficit fetishism. More, please, from Nobel prize winners such as Amartya Sen, Paul Krugman and Joseph Stiglitz, or, for that matter, from our own colleague, the noble Lord, Lord Skidelsky.

7.36 pm

Lord Tugendhat (Con): My Lords, there is much to admire in the Budget—and I do admire it—but I should like to take the opportunity this evening to make what

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I hope the Government will regard as some constructive criticisms. I begin by drawing attention to the Chancellor’s Statement, in which he said:

“Public spending should reflect public priorities”.—[Official Report, Commons, 8/7/15; col. 324.]

Of course it should, but those priorities are bound to change with the passage of time, and the Government need flexibility to respond accordingly. That may seem obvious, but this Government have denied, and are denying, themselves that flexibility by each year increasing the number of so-called protected departments and items. The result is to freeze priorities and to give the impression that some departments are more important than others. Thus, the protected aid budget looks, and is, treated as though it is far more important and central to the Government’s concerns than the Foreign and Commonwealth Office.

Another bad effect is that having a protected budget and guaranteed increases inhibits innovation and creative thinking. It leads to sticking to the old ways of doing things and asking for more money each year. It also means that at a time like the present, cuts have to be concentrated on the diminishing base that is unprotected, with the result that massive cuts occur in those areas in which the knife falls. I think here particularly of housing benefit and tax credits. I do not dissent from the line of the Government’s march or from the policy itself, but the cuts have been very aggressive and will not be compensated for by the living wage, which will benefit a different group of people.

So on the one hand is an ever expanding group of departments and items that are protected and, on the other, those that are being cut and cut again. I see today that some departments are being asked to produce plans involving savings of 20% to 40%. Over time, that is bound to lead to an extremely unbalanced budget and to the freezing of priorities, and getting out of that bind will be quite difficult. We have heard much in recent years of my party—the Conservative Party—breaking free from the shackles of the coalition, so it is ironic that the Chancellor should restrict his freedom of action in a manner that will become increasingly burdensome to him and make his ability to respond to changes in circumstances much more difficult.

I now turn to the living wage. As many have pointed out, this is a proposal that, if put forward by Labour, let alone by Brussels, would be attacked from these Benches as an unjustifiable invasion into the way in which business operates, particularly small businesses. The Chancellor has taken it upon himself to determine by fiat the level of wages over a wide area of the economy. Although his aim—to push wages up rather than hold them down—is different from that in the 1970s, it is a return to the policies of the Wilson and Heath Governments. Neither is usually held up as an exemplar by Ministers in this Government but we are returning to those days, as my noble friend Lord Higgins, who was in the House of Commons with me at that time, may agree. I see him nodding. Those of us who remember those days know what is likely to happen. The living wage is likely to become an instrument of electoral tactics, just as the setting of interest rates used to be before the Monetary Policy Committee was established.

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I understand that the Government are aiming to improve this country’s low productivity, as the Minister pointed out in his introductory speech. He wants a high wage, high productivity economy, which is a good thing. However, the danger is that the Government may be taking us down the French route of exchanging low productivity for high productivity, coupled with high unemployment—especially among the most disadvantaged. Normally when the Conservative Government look across the channel, we do so in order to criticise the way the French do things. Here, we seem to be looking across the channel in order to copy what the French are doing, and it may very well have the same consequence.

It is right for the Government to determine the direction of the economy and take the big strategic decisions, but in a number of areas implementation is best depoliticised and left to experts. That is why I support the Monetary Policy Committee and the Low Pay Commission. I very much hope that, having neutered, or rendered null and void, the Low Pay Commission, the Chancellor will not now turn his fire on the Monetary Policy Committee.

As I said at the outset, there is much to admire in this Budget but now is the time—especially in this House—when constructive criticism is required, and I hope that the Minister will take what I have said in that spirit.

7.42 pm

Lord Desai (Lab): My Lords, it is a pleasure to take part in this Budget debate. It is the first one in many years in which the noble Lord, Lord Skidelsky, is not speaking before or after me, so I feel a bit lonely.

I confess that, unlike the distinguished people whom the noble Lord, Lord Taverne, mentioned, I have always broadly supported the Chancellor’s economic strategy. In 2008-09, for whatever reason, the global economy had one of the biggest output shocks in 70 years. The effect was that the debt-to-GDP ratio, which was 37% in 2007, practically doubled in three years. From that point onwards there was a problem, in that output was much below its pre-crisis level, there was a big deficit and one had to find a way out. One way would have been to borrow more and raise the GDP ratio faster. The other was the direction the Chancellor took: to try to cut the deficit and go down the route of austerity. Whatever the earlier debate was, the aim of the route the Chancellor took has more or less come about, and he can now claim that the UK has the fastest growing economy in the G7—which is not saying much because the other G7 economies are not growing very fast.

I am more worried about the next five years over which the Chancellor has drawn his strategy. According to the projections, the economy is not supposed to grow above 2.5%. That is about half a percentage point below our historic growth rate, which means, given that growth in productivity and GDP are connected, that one cannot simply say that productivity will grow. If it is to grow in the way the Government think, where are the results in GDP growth? There is something missing between the growth projections and the hopes for growth in productivity.

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Between 2000 and 2007, growth was roughly 3% and productivity grew by just under 2%. The situation will be difficult, and although the announced policies are no doubt very good, they relate to only a small part of the economy—the manufacturing industry. A large part of the economy is accounted for by the care sector and the service sector, which are not marketable services. I am not saying that they are a drag on the economy, but we have to factor that in when we consider why productivity is so low. That is worth doing and we have to devise a way in which the surplus-producing part of the economy can finance the welfare-producing part.

That said, the Chancellor, having succeeded in the first five years, is getting a little too ambitious. There is too great a hurry to move into surplus. He does not need to hurry that much. I hope that somewhere in the Treasury there are contingency plans in case things go wrong. I do not like the way household debt is increasing. According to the projections, if one strips out pension savings, household savings have practically collapsed. We are back to where we were when the seeds of the previous crisis were being sown. Household savings were down, household debt was up, everyone was mad about buying houses—and now, especially given the low interest rates, a new financial crisis might be bubbling up.

That is why I am not happy about the promise not to raise taxes. If you do not want to raise taxes, fine, but do not promise not to raise them. We should remember when President Bush said, “Read my lips”. That is what can happen, and it is no good making promises you do not need to make. It worries me that the Government think that they can get away with not increasing income tax, VAT and so on. They will have to be inventive and find another way to raise money, perhaps by increasing vehicle excise duty or creating something really imaginative such as a tax on haircuts.

Britain has had a low-productivity economy for a long time, when compared with the other G7 countries. There are diagrams in the Budget document showing that every other G7 country except for Japan is ahead of us in productivity. This has been true for at least as long as I have been studying macroeconomics in this country —50 years. We have always had a low wage, low productivity economy. Our productivity is much lower than our wages in relative terms, which is why we have always had inflationary pressures. Low wages remain a problem, and the whole argument about tax credits was that they made low wages respectable. The Chancellor has said, “I am going to limit tax credits”—fine—“and then I will introduce the living wage”. As many noble Lords have said, it is hard to understand the macroeconomic logic in ratcheting up the wage rate. It is a very noble aim, but I like the Chancellor being Gladstone, not Disraeli: I like him as a hard-hearted, not a soft-hearted man. He has made a major macroeconomic mistake in going for the living wage. He will have to carry a larger unemployment burden; I do not see any way in which he can escape it. I wish him luck.

7.50 pm

The Earl of Listowel (CB): My Lords, I thank the Minister for introducing this debate. I am grateful for many of the measures in the Budget, particularly the Government’s very successful policies in terms of making opportunities for employment much more widely available.

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I can remember many years observing Louise Casey as she sought to deal with the problem of rough sleeping. In her work, she emphasised above all things the need urgently to find purposeful activity for people who had been on the streets for some time. She also quite controversially pushed for the public not to provide money to those on the street because she felt that it was a pull factor for them. From my own experience of caring for a middle-aged man who is mentally ill and has been unable to work for quite some time, I can see the degenerative effect on him of feeling that he is not helpful to anybody else. Worklessness and dependency are corrosive to the soul, so I heartily commend the Government on their successful policy in terms of raising the level of employment, which has many benefits, including raising children out of poverty.

I also welcome what was said around the Budget Statement about relaxing property development restrictions; I declare my interest as a landowner who has recently had success in gaining planning permission for residential development. There are real concerns for local property owners, which should be respected of course, but I had the feeling from time to time that we were jumping through many hoops, and seemed to have done the right thing, and then suddenly we were told no. There was great uncertainty in that process. We need to respect the local community’s concerns, but at the same time there is a need to have more homes. That needs to be addressed, too.

The topic that I seek to address is principally to do with family homelessness; that is, expectant mothers, mothers with very young children, mothers or parents who are escaping violence and the temporary accommodation that they are put into. I want also to talk about the withdrawal of housing benefit from those aged under 21 and the very poorest families.

I want to make a couple of requests to the Minister. The first relates to productivity. Will he consider looking at the role of secure families in terms of the long-term achievement of better productivity? In principle, if a child in his or her earliest days has a strong attachment to their mother and then a secure upbringing, they should be far more resilient when they reach 18 or 19, so the inevitable knocks and difficulties will not strike them back so easily. They might well be more able to learn and therefore pick up the skills necessary for the developing job market.

It is striking for me that Italy does well in productivity—

A noble Lord: Oh!

The Earl of Listowel: Well, compared to us, I suppose. Perhaps I should not pursue that. Germany and France may be better examples in comparison with the United States. One would think that the United States, with its many advantages in many ways, would outstrip those two far but, in terms of family households with an absent parent, Germany has a level of 15% and France has 17%, while the US has 26% or 27%. There may be some interesting inquiries to be made there.

The second request that I make of the Minister is to look at the long-term cost of family homelessness that I have just described. A recent, important report on the cost of failing to meet the perinatal mental health needs of mothers identified a long-term cost of £8 billion

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a year of failing to meet those needs. So it is possible to project such costs into the future. It would be helpful in future Budgets to think, for instance, about the treatment of homeless families and to ask what the long-term cost is of failing to address their needs. The Minister might work with the Department for Communities and Local Government and perhaps commission a charity such as the Centre for Social Justice to look at the issue of family homelessness and the long-term cost, and at what the policy options might be to mitigate any harm arising from homelessness.

There are many challenges to families who are homeless. I commend the Government on continuing the work of the troubled families initiative, so ably led by Louise Casey. However, even its model of forming relationships with such families through a family support worker must be challenged if there is such a high turnover of families moving, with it being hard to intervene effectively.

I want briefly to quote from what last week’s Economist said about homelessness and the housing crisis:

“Without roofs over their heads, certain households can appeal to be put up by their local authority. Families with children, expectant mothers and those escaping domestic violence all have a legal right to emergency accommodation … At the end of March, 64,610 households in England were living in council-provided temporary housing, a quarter more than in 2010”.

The article goes on to talk about the move to private accommodation:

“Private tenancies are precarious … The number of people made homeless following the termination of a rental contract in the private sector trebled between 2009 and 2014; termination of contract is now the main cause of homelessness … Despite relying more on private landlords, councils are leaving thousands of families out in the cold. Fewer than half of all applications for temporary accommodation are accepted. Even those households that meet the sufficient conditions—having young children, being pregnant, and so on—are frequently let down. In the first three months of this year, councils failed to find homes for 6,900 households that had a legal right to emergency shelter. That is 80% more than in 2010”.

The article goes on to say that this is a growing crisis.

I welcome much of what the Government have done in the past with the support of the Liberal Democrat and their proposals for the future, but I ask the Minister whether he might look particularly at these concerns around family homelessness and its long-term impact.

7.57 pm

Lord Freeman (Con): My Lords, I want to concentrate my brief remarks on the relevance of the Budget to transport. I start by paying tribute to the noble Baroness, Lady Kramer, for her work as Minister of Transport. It is rather strange to see her sitting on that side of the Chamber rather than this side. In particular, the coalition Government made good progress, thanks in large part to the noble Baroness, in terms of a national infrastructure plan. It will take a long time both to fulfil and to perfect it, but progress was made and I congratulate her in particular on her role as Transport Minister.

I preceded the noble Baroness by almost 20 years as Transport Minister and want to concentrate my remarks on road and rail transport. In particular, I had responsibility then for HS1, which I am glad to see there are now proposals to extend up as far as Rye—I always thought that was a sensible move—and greatly

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to improve the economy of a rather deprived part of Kent. I was responsible also for the privatisation of large parts of British Rail, which ended up, obviously, with the privatising of the rolling stock as opposed to the infrastructure. I think that that has stood the test of time.

The Minister and my noble friend Lord Higgins referred to the relevance of a vibrant and growing economy in terms of being able to afford improvement in our infrastructure. I must say to my noble friend that I have sat at his feet for getting on for 20 years and have learned more about public finance from him than from many others. Long may he continue to participate in the Budget debate. It is always a pleasure to sit near him and listen to his words of wisdom. He emphasised once again the importance of connecting a growing and vibrant economy. In this instance I am referring to transport. In the last Parliament, the total investment in transport—not the running costs—was roughly £40 billion. The forecast in the Budget Statement for this Parliament was that over five years it would be £56 billion. That is a 40% increase and must be welcomed because it will improve the living standards and health of the national economy. I welcome what the Chancellor had to say about transportation.

First, on rail, HS2 is still in the planning stage. It seems to have been in the other place now for several years, but I understand that the Commons is getting somewhere towards approving a specific route for the first part of HS2. I hope that it will come to your Lordships’ House in due course. It is an important project in terms of increasing capacity—it is about not speed but capacity—for those travelling from the north to London and vice versa. As I said, that Commons committee is still looking at the detailed objections to the route, but I hope that the other place will make progress and that your Lordships’ House can look at this very shortly.

Many noble Lords may not be aware that the noble Lord, Lord Adonis, has just been appointed to the board of HS2. Perhaps that is why he is missing from the Benches today. I congratulate him on that appointment. He was one of the initiators of HS2. I hope that he will enjoy his position on the board. He may regret not being able to comment as freely as he otherwise would have been able to in your Lordships’ House but I pay tribute to his initiative on HS2. The noble Lord and I are joint patrons of the Independent Transport Commission. His words of wisdom there and particularly on HS2 are welcome.

In the last Parliament there wasan increase in expenditure on our trunk roads. The Chancellor mentioned in his Budget speech a figure of £15 billion for this Parliament. These are major trunk roads, many of which need desperately to be improved, particularly in the north of the country.

As far as Crossrail is concerned, which the Chancellor referred to, I congratulate Ministers in the last Parliament —perhaps the noble Baroness had part responsibility for this—for sticking to completion of construction of Crossrail 1. I calculated the cost to be about £2 billion per annum during its construction phase. I hope that the Chancellor will look favourably on extending that

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to Crossrail 2—that is to say, north-south alignment. Incidentally, although there was frequent comment about HS2 costing £40 billion, £50 billion or £60 billion, the annual cost I calculated to be about £4 billion per annum for construction. That is twice the cost of Crossrail.

Finally, the Budget referred to transport in the south-west. I was delighted to learn that the Chancellor calculated a budget of £7.2 billion for the south-west only in terms of major infrastructure. That is much to be welcomed. Better transport infrastructure must follow an improvement in the economy. I welcome that. I hope that in due course your Lordships will see the result of a successful Budget forecast.

8.04 pm

Lord Haskel (Lab): My Lords, I, too, welcome the focus of this Budget on productivity. On Friday morning, I got hold of this paper and I read it and, yes, the index indicated that the paper was going to deal with the many aspects of productivity that concern us on this side of the House—so, welcome to our concerns, Minister.

I started reading the paper and fairly soon I got the same feeling you get when you take a book out of the library and, after you have read the first chapter or two, you realise that the plot is familiar. Gordon Brown’s five drivers for productivity were all there, but enterprise had been split up into resurgent cities, fair markets, infrastructure and productive finance. That was practically what Vince Cable did when he produced his industrial strategy, as the noble Baroness, Lady Kramer, has reminded us. Okay, the diagnosis has not changed, so what about the medicine?

My friends in business keep pointing out to me that what matters in the end is individual businesses becoming more competitive and raising their game. How does the business plan encourage this? At paragraph 2.13, Sir Charlie Mayfield is going to engage with other business leaders to develop proposals to encourage long-term financial thinking. Yes, investing in science and innovation is an important part of productivity, but where to invest? Sir Paul Nurse has been asked to lead an independent review. In a recent debate, the Minister himself and several other noble Lords were concerned about the way we measure productivity. True enough, on Budget day it was announced that Sir Charlie Bean will review the work of the Office for National Statistics. I think that noble Lords will get the message. There have been endless reviews, but what we need is action. We need action because next April, the low-wage subsidy is going down and the minimum wage is going up, but the IFS has told us that one does not balance the other out, in spite of the additional allowances.

The only way to deal with this is, as I say, for business to raise its game and take practical steps. I do not think that this is unreasonable because the answers already exist, as my noble friend Lord Bhattacharyya reminded us. I have been told by friends that Six Sigma, continuous improvement and lean processing are all tried and tested methods in common use. There is a modern manufacturing centre and catapult in Sheffield to help out. ISO 2001 and matching markets are all known to be effective ways of raising productivity

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in services, as is connecting everything digitally on standard platforms. I am sure that the Minister knows that. I can tell my noble friend Lord Desai, who is not in his place, that in the hospitality and services sectors, which are very large, productivity goes up when staff are offered a career with a clear pathway and investment is made in skills. That is largely because you get retention. Generally, there are all kinds of digital schemes to raise productivity which are supported by the noble Baroness, Lady Lane-Fox, in her capacity as a promoter.

Success does not hinge on a list of proposals, however worthy they may be. It requires the Government to reshape their political position so that all the signs point to raising productivity, but in this Budget the message is mixed. My noble friend Lord McFall mentioned some of the mixed messages. Rebalancing tax on dividends helps, but perhaps long-term investment would be better served by a higher level of tax relief on capital instead of a small, lower level reduction in corporation tax. Also, is a more generous inheritance allowance an incentive to invest?

There are other pressures. If productivity fails to increase sufficiently but wage growth continues to accelerate, the Bank of England would be forced to raise interest rates more quickly. That will help neither investment nor exports. Our balance of payments deficit has to be tackled. So my point is this: if it is the intention of the Government to help pay for the increased minimum wage and the withdrawal of in-work benefits by raising productivity, practical steps have to be taken, and they have to be taken now. In 12 months’ time, in-work benefits will decrease and the minimum wage will go up. If productivity does not fill the gap, the numbers that the Minister gave us just will not work. We will see yet more poverty and inequality, and especially more child poverty, as other noble Lords have mentioned.

The Chancellor has said that Britain deserves a pay rise. Yes, but we have to earn it, and do so through productivity. We know how to do that and many firms are already doing it, but others must raise their game and meet the challenge—and they must do it now. What are the Government going to do to encourage this?

8.11 pm

Lord Scriven (LD): My Lords, the Minister said at the beginning of the debate that this was a fair and balanced Budget, but I hope to show over the next few minutes why it is not. This is the first Budget without the coalition of the Liberal Democrats in government, so the Tories have been able to deliver their own Budget. It has come at a time when finances are improving and stability is beginning to return. At that point, one has to make a choice: do you have a fair and balanced Budget or do you penalise the poorest and the most vulnerable in our country who have made some of the hardest sacrifices over the past few years?

I can only draw on my own experience. I am from the north. I was born in the north, and it is where I was educated and have spent most of my life. Those who heard my maiden speech know that I come from a very humble background. I am the son of a refuse collector and a hospital cleaner. Many of my friends in Huddersfield

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where I went to school are the very people the Government say they are trying to help. They are people on low wages who get up every morning to do the best for their families and they make sure that they have the dignity of work. This Budget will hit them the hardest. I am probably relatively young for this place, and I must suppose that young people are going to be severely hit by the Budget.

Let us start with the north. First, this is not a Budget for the whole of the north. For example, if I lived in Cumbria, I would wonder where exactly my part of this Budget was. The Government have been microscopic in how they look at the north. I find it quite amusing that the Minister talks about transport for the north and the Oyster card. What is the point of having the Oyster card when you are being put on train pacers which are the equivalent of sheds on wheels because investment has been withdrawn? Where is that investment for the Midland Mainline? Where is that investment for the TransPennine routes? The best way to deal with productivity is to link those powerhouses of the north together, yet it is on pause. Will the Minister tell us when the pause ends? Or will Crossrail 2 take precedence over the powerhouse of the north?

I want to come on to welfare and social justice, and the new living wage. Actually, it is not a new living wage; as the OBR would say, it is a minimum wage premium. The living wage, through the Living Wage Foundation is £7.85 per hour outside London and £9.15 in London. Yesterday, IKEA said that by 2016 it would pay that real living wage.

This is a smokescreen; it is not a living wage. The reason why it has been brought out—incidentally, nobody under 25 will get it—is to hide the serious reduction the lowest paid will face through the benefit changes and, particularly, the tax credit changes that the Government are making. The Institute for Fiscal Studies stated clearly that the,

“more important tax credits are to someone’s income … the less likely they are to be compensated by the higher minimum wage”.

Why is that? The Social Mobility and Child Poverty Commission says that the cuts to tax credits will hit 45% of working families. It says that the vast majority of them—72% of those with the greatest losses—will earn less than £20,000 a year. It is estimated that 3 million people will lose £1,350 a year due to the changes. Those on earnings between £10,000 and £20,000 —some 754,000 families—will lose more than £2,000 per annum. Those earning between £20,000 and £30,000 will lose about £2,800 per annum—about 51,600 families.

We have seen what is happening in this Budget. The poorest have to have the broadest shoulders. The key fact is that the increase in the minimum wage cannot provide full compensation for the majority of losses that will be experienced. As the IFS said, it is “arithmetically impossible” for that change to be made. Why have the Government chosen to give tax breaks to dead millionaires when that will affect only 6% of all estates that will have to pay that amount of inheritance tax? It is not fair and it is not balanced.

The first step for many young people in terms of their education after leaving school is further education—the first step towards skills and productivity. This Budget takes £400 million away from further education. It is

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all right talking about apprenticeships but for some of the colleges or the areas where young people will go to get technical skills, £400 million has been taken away. As I said, the living wage does not even apply to the under-25s, and I do not understand the changes in housing benefit.

There are scores of young people under 21 in this country who run away from home for the sake of getting housing benefit. Let me give one statistic of young people who are lesbian and gay who leave home because they have come out—69% say that it is because they have had problems about their sexuality at home. Does anyone think that when they leave home in those circumstances they will say to an official that they are gay or lesbian so that they will be seen as an at-risk category? Of course they will not. They will be made homeless.

Is this a Budget for aspiration? No. It is Budget for financial desperation for many. Is it a Budget for the northern powerhouse? No. It is a Budget for the northern poor house, I would suggest. Finally, is it a Budget that lets young people dream and hope? No, it is more of a Budget for young people to fear, with some of the opportunities that they want taken away from them.

8.19 pm

Lord Blencathra (Con): My Lords, it is a pleasure to follow the noble Lord, Lord Scriven. I can tell him that I have lived in Cumbria for 30 years, and I welcome the Budget. I suspect that most of my former constituents would have welcomed it as well.

I also congratulate the noble Baroness, Lady Kramer, not only on her work as a coalition Minister but because today is her birthday. Even if I could remember her age as printed in the Times, I would not dare say it—I do not want to suffer like Sir Tim Hunt and be driven out of the club for some inappropriate sexist remark—but I congratulate the noble Baroness.

I want to concentrate on the minimum wage. Fifteen years ago, I opposed the minimum wage and thought it would damage job creation and was an unnecessary interference with business. I was wrong and so were my Conservative colleagues, and we acknowledge that. The minimum wage was the best thing Tony Blair ever did, and since its introduction I thought the minimum wage was working quite well and I did not pay much attention to it.

However, two years ago I was appalled to discover that some of our largest and most profitable companies were paying the minimum wage to their employees, and that the taxpayer was having to top up those wages with housing benefit and tax credits. Okay, I know that most of your Lordships knew that long before I caught up with what was happening in the workplace. I found it obscene—and I find it obscene—that low-paid workers who are paying their taxes are subsidising many highly profitable companies who are earning their profits on cheap wages.

I became an immediate convert to the living wage and I am delighted that the Chancellor has set out a programme to implement it by 2020. I know that some critics will rightly say that it is still not enough to live

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on—that it is not a real living wage—but at least we are heading in the right direction, and in politics if you have the direction right and the concept right, that is not a bad start.

All my political life, the CBI has been a whinging organisation, never satisfied with any Government. As a teenager, I remember CBI spokespeople slamming the Callaghan Government in 1976, 1977 and 1979, and then a few months later, after Margaret Thatcher was elected, they were slamming her equally hard, too. What did they have to say on the living wage plans in the Budget? They said:

“To increase the minimum wage on average by 6 per cent a year in this parliament is quite a gamble for businesses, which will struggle to leverage the productivity to pay for it”.

But what did Simon Walker, the director-general of the Institute of Directors say? He said:

“There will be a bit of gulping but I think it’s right and I think our members can actually manage it”.

Quite so, and once again we see in the CBI the unacceptable face of capitalism—willing to take another cut in corporation tax but not wanting to reward the lowest-paid workers who have made the profits.

Indeed, I urge the Chancellor to go further and faster with the living wage. I know my noble friend the Minister cannot dare to comment on this in his wind-up or he will be drummed out of the club, but I suggest that all companies with profits over £500 million or with executives earning more than £5 million or handing out dividends of more than 4% per annum should be made to reach the £9 per hour by 2018. Examples of companies paying more than 4% in dividends are: GlaxoSmithKline, Shell, Wm Morrisons, Sainsbury’s, BP, Anglo American, Centrica and a dozen other large companies. It is interesting, looking at the website for London, that the companies paying the living wage in London are mainly small and medium-sized enterprises. Last year, Sainsbury’s, Morrisons and Tesco had combined profits of £3.8 billion—okay, they were down from the £3.9 billion that they made in 2013 and the £4.1 billion in 2012—yet pay only the minimum wage.

The salaries of CEOs and executives in the FTSE 100 rose by 15% in 2014 and the gap between the highest-paid executives and their lowest-paid employees has never been wider. In 1998, chief executive salaries were 57 times larger than the average worker; now, they are 178 times larger. And there is no correlation whatsoever between huge salary increases for executives and company worth, company growth or company profits. So I say to Mr Cridland of the CBI, who has just retired: if you think your companies will struggle to pay their lowest-paid workers a 6% per annum increase, they seem to have had no difficulty paying their directors 15%. Not to be left out, of course, last year BBC staff got a 2% pay rise, but their so-called stars got 22%. So even that lovely left-wing organisation treats its workers no better than the capitalists do.

Before my noble friends think I am making a bid to be Mr Jeremy Corbyn’s policy guru, I must state that I do not believe in capping top pay, but I do believe in everyone in a company sharing in its success. That is proper capitalism, and we see it practised by John Lewis and Waitrose, which already pay above the minimum wage. As has already been said, yesterday

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IKEA announced that it would pay more than the minimum wage. The founding boss of Iceland Foods said last weekend as he slammed big retailers who pay only the minimum:

“Of course this is going to be painful but we’ll do it with a smile on our face. I’m all in favour of this living wage and if everyone has to pay it then it’s better all round”.

He went on to describe the claims of some supermarkets that staff discounts made up for low pay as “brainless”, and said that they had a moral duty to pay higher wages.

I turn briefly to apprenticeships. I agreed with every single word that the noble Lord, Lord Bhattacharyya, said on the apprenticeship levy. I say to my noble friend the Minister that if we can appoint the noble Lord, Lord Adonis—whom I think the Secretary of State for Transport appointed to a committee on HS2— I hope we can consult the noble Lord, Lord Bhattacharyya, or find a role for him in advising on how the levy could work. I applaud the levy for apprenticeships provided that it does not lead to the recreation of all those bureaucratic industry training boards we had in the 1970s. The CBI again criticised it, saying:

“A volunteer army is always better than conscription”.

That is not true, as we discovered in the Second World War. It would be foolish for the Chancellor to intervene if all the businesses were coming forward and training the workers we need but they are not, and it is not fair that some companies do no training and poach workers from others. So since the volunteer army of willing employers has not materialised, it is time to try conscription—but keep it simple.

When we introduce the Bill on Sunday trading, leaving aside other arguments about Sunday trading, if the big shops are to get a chance to open for longer on Sundays, I hope the Chancellor will say, “If you open for longer on Sunday and make extra profits, then you pay the full minimum wage for your Sunday workers”.

In conclusion, capitalism is the only system that works. Socialism has been tried in many countries over the past 90 years or so and has always brought poverty, famine and devastation. Free trade, private enterprise and responsible capitalism improve the living standards of everyone and make the world a safer place, but periodically it needs a harsh reminder of what responsibility is. If I may use a less vulgar anatomical word, I rather liked the comment of the unnamed Cabinet Minister who said that the Budget,

“was designed to give British industry a kick up their lazy”,

backsides. I look forward to the day—I think the right reverend Prelate the Bishop of Birmingham hinted at this—when a person working a 40-hour week gets a wage from an employer that the person can actually live on without taxpayer support. I know we are still a very long way away from reaching that goal, but this Budget has started the journey and I commend it.

8.27 pm

The Lord Bishop of Peterborough: My Lords, I begin with two heartfelt thank yous to the Government: first, for replacing the minimum wage with the new living wage. I and others on these Benches argued for a

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living wage in the last Parliament. Now we have it and I am grateful. Secondly, I thank the Government for spreading the pain of further austerity over three years rather than two, and so reducing the depth of the cuts in each year. On behalf of these Benches, I say thank you.

The Church of England’s General Synod decided some years ago to pay its lowest-paid employees at the level of the living wage. That has not been entirely straightforward. As the media have picked up, a few cathedrals in particular have taken longer to achieve this than many of us would have liked, but it is now happening. One of the complications has been ensuring that our contractors and subcontractors pay their staff at the right level. That has to be written into contracts, which takes time. Then monitoring and enforcing that decision can be difficult.

I am very conscious of employers across the country for whom this will not be easy. In Peterborough, for example, there are many people on, or just above, the current minimum wage, often working sessionally or seasonally in warehousing, distribution, crop picking or catering. Those people should be paid a living wage but they are not always well represented or organised, so I hope this good change will be monitored and enforced. I hope, too, that those of us who can afford it will be willing to pay a bit more for our vegetables, coffee or online purchases.

Although I fully support the Government’s clear aspiration to have a higher-wage economy, in which benefits should be much less necessary for people in work, the process of getting there and the situation of the weakest members of the working population during the transition are important. I accept that tax credits and other benefits cannot be afforded at the level at which they have been paid. But sudden significant reductions will always hit the poor hardest. In particular this time, couples with children where only one partner has a full-time job and single parents are likely to be hard hit. I urge the Government to look at ways of phasing-in these cuts, or finding other ways of supporting those people.

Yes, please help the poor out of poverty. Yes, please let us have a higher-wage economy—though local councils and other public bodies might need a bit more help to enable them to pay the new living wage. But please, as we make the transition, let us also support those employers and employees at the sharp end.

8.30 pm

Baroness Seccombe (Con): My Lords, I very warmly welcome this Conservative Budget. It is a balanced piece of legislation and I praise the Government for the practical position they have taken. The Chancellor said he wants to move this country from a low-wage, high-tax, high-welfare economy, to a higher-wage, lower-tax and lower-welfare one. This is a truly Conservative position, with which I wholeheartedly agree and which the British people voted for only a few weeks ago at the general election.

The best way for people to help themselves and their children out of poverty is through finding work. This Budget is clear that those who can work will be expected to look for it and to take it when offered.

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Through the measures laid out by the Chancellor, we will be moving the expectation held by people currently looked after by the state back to themselves. Surely this has to be the right way forward for a country which wants to have a healthy, growing economy and to provide a better future for our children and grandchildren. It is not fair to leave them with an ever-growing welfare bill. But, more importantly, it is not fair to leave vast swathes of the population on welfare, unable to escape the poverty trap, by providing benefits and a welfare system which does not encourage hard work or aspiration.

I am particularly pleased to see the replacement of the jobseeker’s allowance for 18 to 21 year-olds with a new youth obligation. This will mean that young people are either in work or in education and are not automatically entitled to housing benefit. This will mean that worklessness is not allowed to set in at a young age and will set the younger generation off on a journey towards a fulfilling career and gainful employment.

Likewise, I welcome the promises to reform employment and support allowance, to help increase employment among those with health challenges who are able and want to work. Where people need support back into work, it will be provided. The Work and Pensions Secretary has long been committed to this laudable aim. The welfare state should be there to support people when they need it, rather than a permanent source of income for those who choose not to work. This is true of all working families and parents. I was therefore delighted to see that lone parents, who at the moment can struggle with childcare costs, will be given the same entitlement to 30 hours’ free childcare, as introduced in the Budget for working parents of three and four year-olds. I hope this will encourage back into work people who can so often be put off by childcare costs.

Jobs are being created. The greatest legacy of the previous Government is the rise in employment and job creation. As we well know, 2 million jobs have been created since 2010, and we want to create another 2 million and beat the OBR forecast that 1 million more will be created in the next five years. Let us make sure that the majority of those jobs are filled by people who are currently on out-of-work benefits. Living standards are also forecast to continue growing, as they did under the coalition Government. This was mainly due to the increase in employment that we have seen.

There is no choice. Noble Lords opposite can continue to argue over cuts and the Budget but this should not be a political move but more of an economic policy. We cannot afford for the welfare budget to go back to increasing at the rate it did under the previous Labour Government. Gordon Brown said that tax credits would cost the country £600 million annually, yet today they cost a staggering £30 billion each year. This is unaffordable and we need to change it now.

The British people accept that the country needs to live within its means, with proper and generous provision for the elderly, the vulnerable and the disabled. We should not leave burgeoning debts for future generations to sort out. My views have been endorsed this past weekend while canvassing for a county council by-election.

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It is evident on the doorstep that people are looking for change, as the interim leader of the Labour Party, Harriet Harman, discovered.

We have been given a mandate by the British people to sort the economy out, cut the welfare bill, lower taxes and increase the living wage. Now I believe it is up to this House to ensure that we listen to what people have asked for and give a wholehearted welcome to this Budget.

8.36 pm

Lord Soley (Lab): My Lords, this is an interesting Budget, although as the noble Baroness, Lady Seccombe, almost implied, there is an interesting confusion between the politics of it and the economics of it. When the present Chancellor of the Exchequer starts writing articles in the Guardian, of all papers, and telling everybody on the Labour side to vote for it, you recognise there is a political message in this and really what he is saying is, “Look, we’re the new Blairites. You stay in the old-fashioned position because we are moving on”.

Actually, there is a more sophisticated argument than that and I think it is a pity if we focus excessively on the benefit cuts. There are some very painful cuts, which need to be faced up to and dealt with, and I think they are going to be more of a problem to the Government than they realise. But the underlying problem here is that I am not quite clear what the Government’s economic strategy is. As the Minister acknowledged in his opening remarks, the issue is that we need growth; we need improved productivity; we need greater investment, particularly in small companies; and I would argue massively for the advanced science and technology budget and the training that is linked to that. I will come back to that in a moment. I find the strategy a bit worrying.

Also, if you take the wider view, you cannot look at the British economy in isolation from what is happening in the rest of the world. The Government acknowledge that things could get blown off course by whatever happens with the euro or, indeed, the Chinese economy. All I would say is that if we carry on with this sort of arm’s-length approach to Europe, we will lose friends there, and they could be very important. It was significant in the Greek crisis that increasingly, the continental European papers were saying, particularly in France, “Where is Cameron?”. The argument was not that we should put money into saving the euro, but there was a very real opportunity for Britain to offer its good services, knowledge and experience in both finance and diplomacy to try to help Greece and the other euro countries reach an agreement which perhaps would have been better than the existing one.

I say this only as a passing comment—and the Minister, with his northern background, will know this—but the air passenger duty is still dangerously high on long-haul flights. If Newcastle airport loses its flights to the Emirates, Amsterdam and Frankfurt, which could well happen, that will be a severe blow to the region because Newcastle relies increasingly on those airports as an economic driver. As I have said in other debates, airports are indeed economic drivers; they do for the world economy what railways did for the British economy in the 19th century. We ignore that at our peril.

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On the minimum wage—now the living wage—my immediate reaction, like that of many people, was that this is a step in the right direction. I listened to the noble Lord, Lord Blencathra, with interest. He acknowledged the change that he and the Tory Party had to make on this issue. That is welcome and right but there is a problem because, for a start, the Government are excluding the under-25s. Secondly, it comes in over a period of time, so whether it is a living wage or just a continuation of a minimum wage depends much on how it is uprated. As someone who was involved in these discussions when Labour was in government, I acknowledge that there is a relationship between the minimum or living wage that you set and unemployment, and that you have to get that balance right. I think we all acknowledge that. The danger is that we will push the younger generation—the under-25s who will not be eligible—into that lower-paid category when they are precisely those whom we ought to be getting into higher wages as they get more skills and experience.

I hear all that the Minister has said and I note what is being done on training in the Budget, including on science and technology education, to all of which I say: “Yep, that’s good”. But as I have said before in this House, we are missing a trick with the advanced training we could offer in digital technology. Just because a person has been on benefits for a long time or is from a damaged background does not mean that they cannot manage modern IT systems. In fact, they are sometimes remarkably good at it. Everybody who comes before a government department of some type and is unemployed, or is perhaps in a dead-end job, really ought to be offered the skills to enable them to be fully IT-literate. By that, I mean having full digital ability to design and set up their own websites.

It is remarkable how many young people set up their own websites when they leave school and start designing and selling things. A couple of years ago, I spoke to a young girl who started by buying shoes and putting her designs on them, and then putting them on her website and selling them. People do a range of such things and, as I indicated, many people from what are often regarded as failed backgrounds can do quite well. I am a great fan of what the noble Baroness, Lady Lane-Fox, is doing and we really need to give her her head and say, “Get on it, right across the system”. The aim of the strategy ought to be to make Britain, in Brian Cox’s words, the best place in the world to do science. There is another message about Europe there: we get more grant money from the European Union for research in our universities than any other European country, so we need to keep winning friends there, not losing them.

I say again that in talking about the lack of strategy, I worry about the linkage. The Government have done a lot of things to take benefits away from young people but they do not do that with older people, because pensioners tend to vote Tory. I am a pensioner and I am entitled to a free TV licence but I do not actually want one. Indeed, when it all blew up that the Government were using the economic system to make the BBC pay for those, it suddenly dawned on me that I was not claiming one. I do not intend to because I

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want the BBC to succeed. The BBC is a real economic driver and we ought to be supporting it, not undermining it.

My final point is that there is, as yet, no housing strategy. I note what the Government say about housing, but whether it is the private sector, the social sector or the purchase sector, we do not have a housing strategy. Until we do, a lot of people will be vulnerable and lose out on employment prospects.

8.45 pm

Lord Palumbo of Southwark (LD): My Lords, in September 2007, George Osborne announced that a future Conservative Government would match Labour’s spending proposals. He promised real increases in spending on public services year after year. There was not the slightest mention of spending restraint. Just six months later, this position was completely reversed. Labour, he said, had failed to fix,

“the roof when the sun was shining”,—[

Official Report

, Commons, 13/3/08; col. 431.]

and was to blame for everything which had gone wrong. In June 2010, the newly elected Chancellor opened his first Budget speech by saying:

“This emergency Budget deals decisively with our country’s record debts”.—[Official Report, Commons, 22/6/10; col. 166.]

He promised to pay for the past and plan for the future, to eliminate the deficit within five years and that debt would peak at 70% of GDP in 2014. In the event, the deficit target was overshot by £165 billion and borrowing will rise to 80% of GDP in this financial year. As recently as March, the Chancellor promised he would run a surplus by 2019. Only four months later he announced that this had been pushed back—yet again, and for the fifth time—to 2020 and that the Government will borrow £18 billion more over the next five years than he had announced just four months ago.