Queen's Speech — Debate (5th Day)
Lord Northbrook (Conservative)
My Lords, I fully support the coalition's plan to cut the budget deficit as being its most important economic aim. If the coalition had not tackled this we could have been in the same state as Greece. Much progress has been made on this front. When the Government came to power, the outturn for that year of net borrowing stood at £156 billion. The final 2011-12 figures showed that it had gone down to £126 billion as per the Government's target.
The success of the conventional gilts auctions so far this month, which have already raised £9 billion at a most favourable rate of interest, shows that the markets have faith in our debt reduction policy, which is so important. The CBI has given its seal of approval to the Government's economic policies. Its economist has stated that there will be a small recovery this year of 0.6% and a much better improvement in 2013, when the figure will be 2%. The CBI is also confident that inflation will continue on a downward trend and come close to hitting the Government's target of 2% in the spring of 2013. It believes that consumer spending will recover as inflation falls further and disposable incomes begin to recover.
John Cridland, the director-general, also said at the start of May:
"Despite the disappointing GDP estimate for the first quarter from the ONS, we still think the UK economy will grow in 2012, with faster growth next year. Optimism among businesses has been increasing since the turn of the year, with manufacturing demand holding up. And that is beginning to translate into more jobs and investment".
The IMF is also fairly upbeat. In April it upgraded its economic forecast for 2012 growth to 0.8%. It cited the colossal efforts in February to avert eurozone meltdown by the European Central Bank when it extended cheap lending to banks. As other noble Lords have stated, we had two bits of very good news today on the employment front and on motor sales. But this can be built on to help business at this critical stage, particularly when things in Europe are bound to get a lot worse.
On Monday, the Prime Minister played host to his Business Advisory Group. Key players such as Justin King of Sainsbury's have urged the Government to implement in full the schemes that they had and were given.
According to the Sunday Times on
"number of regulatory proposals deemed 'Not fit for purpose' remains unsatisfactory".
The report goes on to state that over a quarter of impact assessments failed to pass the RPC test.
The next problem area is the banks. They have two conflicts. First, the Government want them to increase their lending. However, that clashes with their need to build up capital. The Independent Banking Commission requires them to hold much more capital than their foreign rivals. The Bank of England's new Financial Policy Committee said recently that banks should,
"give serious consideration to raising external capital in the coming months",
"improve the resilience of their balance sheets".
Much more needs to be done to sort out this dichotomy so that the UK economy is not placed at a competitive disadvantage to other countries' banks. Yet this does not excuse the attitude of some banks with regard to lending to smaller companies. The £20 billion national loan guarantee scheme began in March. It enables government-subsidised cheaper loans to companies but apparently the major bank, Santander, has yet to offer this lifeline to its customers, and Lloyds is offering discounts only on loans above £25,000. The Forum of Private Business is unhappy with this situation. Its spokesman said yesterday that:
"This is massively disappointing. We said all along that we had serious doubts whether the smallest firms most in need of cheaper credit would benefit from this scheme".
Could the Minister please assure the House that more pressure should be put on the likes of Santander and Lloyds, and let me know how much of the £20 billion of the scheme has been taken up?
The banks also have to face in the background the problems of the eurozone. We do not know whether the Greek political parties may be able to form a Government after the election that can put through the necessary measures to meet the requirements of the EU and IMF loans. The European Union has to decide whether to give in yet again and come up with another compromise, or that there has to be an early exit of Greece from the euro. It would be much better if an early exit of Greece from the euro were to be organised quickly and in confidence, up to the point when the necessary announcements must be made.
I move on next to the subject of quantitative easing. I am not an economist, but it has been suggested that the QE scheme is not being used fully for what it was designed for. When it was set up, the Bank of England said it would be used for corporate bond purchases as well as gilts. That has not happened. Would it not help the economy much more if QE was switched more towards corporate bond purchases, and what are the risks of so doing? The operation seems designed to help more with debt management issues rather than corporations.
The Government need to cut taxes further. Corporation tax remains high in the UK compared with other countries in the G20. We still rank behind Canada, Mexico, China and Turkey in terms of business taxes. I welcome the Chancellor's decision to cut corporation tax in the Budget, but we are still only in the middle of the G20 pack, according to the CBI. If we are to encourage manufacturing, why not increase the rate of capital allowances? Also, the top rate of personal tax should be reduced to 40% as soon as possible.
Employee measures contained in the Queen's Speech are unhelpful to industry. The proposed well-meaning sharing of maternity leave will cause a bureaucratic nightmare and certainly discourage any employment of a husband and partner in a business. Anecdotally, I hear that small business employers are less keen to employ a woman of child-bearing age due to not having the infrastructure to cope.
In summary, the coalition are making all the right moves with regard to the most important issue of deficit reduction, but much more needs to be done to stimulate the economy without resorting to a Keynesian stimulus which could endanger our credit status and make it so much more difficult to get rid of the terrible debt burden that we inherited from the last Government.