Debate on the Address

Part of the debate – in the House of Lords at 5:00 pm on 14 November 2007.

Alert me about debates like this

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury 5:00, 14 November 2007

My Lords, I thank the Minister for opening the last day of debate on the gracious Speech. The Minister spoke about the importance of the creation of business wealth in our country, but he did not tell us whether he thought the Chancellor's recent CGT changes would help or hinder that. We know what the business community thinks, but what does the Minister, who used to be a champion of business, think? If he would like to tell the House, I will happily give way to him. Well, perhaps he could whisper the answer to his noble friend Lord McKenzie of Luton, who could let us know later on.

The scope of today's debate includes economic affairs. I was therefore somewhat surprised and disappointed to find that the noble Lord, Lord Davies of Oldham, who speaks in your Lordships' House on Treasury matters, was not taking part in our proceedings today. I am delighted, of course, that the noble Lord, Lord Jones of Birmingham, has opened the debate and I certainly look forward to the speech of the noble Lord, Lord McKenzie of Luton, when he winds up, but I have to say to noble Lords that it is odd that the Government's own spokesman on economic matters in your Lordships' House will not be defending the Government's economic record.

This is all of a piece with the Government's unwillingness to debate the economy in your Lordships' House. On 9 October, the Pre-Budget Report and Comprehensive Spending Review were announced in another place. That was the Statement which was hastily rescheduled to provide a platform to launch the general election that never was because the Prime Minister bottled out. We on these Benches believe that the PBR/CSR Statement was a very important one which ought to have been debated by your Lordships on a timely basis. It not only set out the Government's assessment of the economy and some of the fiscal measures that will appear in next year's Budget, but included the long-awaited spending plans for the next three years. It represents a crucial part of the policies of the Government. Noble Lords will doubtless recall how in those few weeks after our return in October, the business of your Lordships' House was extremely light and we often rose early. Members on these Benches continually pressed the Government for a debate on the PBR/CSR in that period, but we were stonewalled.

In that light, I make no apology for dealing with some of the substance of the PBR and CSR today. Indeed, I crave the indulgence of the House to dwell rather longer than I would otherwise have done on the statement in the gracious Speech that the Government would,

"pursue policies to secure a stable and strong economy, with low inflation, sound public finances and high levels of employment".

But before I turn to that, I should say that I shall be covering matters from a Treasury perspective and will also speak to some matters that fall within the Department for Work and Pensions, as the noble Lord, Lord McKenzie of Luton, is with us. My noble friend Lady Wilcox will be winding up for these Benches and will focus on issues covered by the Department for Business, Enterprise and Regulatory Reform.

The Government have built our economy on debt. Just as we can confidently predict that night follows day, so can we predict that the Budgets and Pre-Budget Reports of this Government will revise their forecasts of debt upwards. This PBR was no exception, adding another £16 billion of debt over the next five years. The Government meet their 40 per cent of GDP debt rule only because some key items are left out of account, items such as Network Rail and PFI liabilities.

Our economy has experienced an unbroken growth record since 1992, which is something that we can be proud of. But since 1997, that growth has to a considerable degree been on the back of consumer expenditure. There would be nothing wrong with that if disposable incomes had been growing commensurately, but the disposable income ratio has been falling as rising taxes have taken their toll. The Institute for Fiscal Studies has calculated that the latest PBR will increase taxes by a further £2,600 per annum for the average family over the next five years. In addition, wage earners are now suffering real income declines as RPI inflation remains above earnings growth, and well above the CPI inflation that the Government target. The Queen's Speech referred to low inflation, but the inflation experienced by those on low incomes, especially pensioners, is well above their income growth. The latest news on food and fuel prices will keep RPI inflation uncomfortably high in the near term. The net result of all this is that the majority are experiencing a real income squeeze. The savings ratio this year hit a 40-year low, which will in turn exacerbate our pensions crisis in years to come, a point I shall return to later.

Personal debt is also at record levels, nearing £1.4 trillion and higher than the UK's GDP. Much of this is secured on property and the level is driven in part by the rise in house prices. Are the Government still complacent about house prices? Now that house prices have started to slide, do they still have no worry about their impact on the economy?

While debt default levels and mortgage repossessions are increasing, they have not reached crisis levels taken in the context of the whole economy—although they undoubtedly represent tragedies for the individual families involved. Of more concern to the economy is the impact that stressed household finances will have on consumer spending. Do the Government have any concerns on this front? If consumers stop spending, what will underpin economic growth? We all know that business investment as a percentage of GDP is at its lowest level since records began, and the cack-handed capital gains tax changes announced in the PBR will depress that still further. Businesses are reeling from the rise in the corporate tax burden and from high interest rates, and the state cannot fuel growth without more tax and spend.

The Government cannot take the blame for the sub-prime debt problems which emanated in the US and are now rippling around the world. My noble friend Lord Marlesford will address this issue. But the Government will be blamed if they have, through imprudent policies, left our economy more vulnerable to external shocks. The price of being a highly indebted nation in every sense may not yet be apparent to us.

The gracious Speech also stated that the Government would,

"continue to work to build a prosperous and secure European Union, better able to respond to the challenges of globalisation".

We think it would be so much better if the Government concentrated on equipping our own business community to respond to the challenges of globalisation. Only last week, the World Economic Forum's competitiveness league table showed how the Government's policies have resulted in the UK slipping to ninth place. Our tax code is the longest in the world and one of the most complex. Our headline corporation tax rate is due to reduce next year but that is not enough to restore our competitiveness, especially against the faster growing economies with which we compete for corporate investment. Regulatory burdens, which my noble friend Lady Wilcox will cover, have reached frightening levels.

Where in the Queen's Speech, the PBR or the CSR do we find the Government setting out policies which will equip the UK for the competitiveness challenges of globalisation? The noble Lord, Lord Jones, tried to say that all these measures will do that and that the Government have policies, but we are far from convinced that they will achieve the outcomes that we urgently need.

The gracious Speech referred to high levels of employment but said nothing about unemployment; it failed to acknowledge that there are now nearly 5 million people on out-of-work benefits, including 2.7 million on incapacity benefit. As Joseph Rowntree studies have shown, the incentives to move from benefits to work have got markedly worse for many groups under this Government. In the 16 to 24 age group there are 1.2 million NEETs—those not in employment, education or training. This group has increased in the past 10 years, underlining the abject failure of the Government's youth employment policies.

The Government have got themselves into a dreadful mess on immigration: they cannot count the numbers which have swelled our workforce or the proportion of new jobs taken by immigrants, and they have no idea about the economic benefit or disbenefit of their ineffective immigration policies. The Government have hidden behind platitudes rather than facts, and my right honourable friend Mr David Cameron has now put down clear markers for the scope of the debate that we urgently need on issues such as the impact of immigration on our overstretched public services. Recently the Prime Minister has borrowed a slogan from the British National Party in his call for "British jobs for British workers". Will the Minister explain how that will work and how it will impact on the Government's policies towards immigrant workers?

I shall run through some of the Bills within my subject area. The gracious Speech promised a Bill to,

"protect depositors and ensure confidence in the banking system", but there is silence as to how the Government will repair the damage they have inflicted on the reputation of our financial services system through their mishandling of the Northern Rock affair. The first run on a UK bank in 140 years occurred on this Government's watch, and it is in large measure a result of the failure of the tripartite arrangements that were the brainchild of the Prime Minister. We will work constructively towards appropriate depositor protection, but that is not anything like the end of the story of Northern Rock and we shall expect the Government to do much more than that Bill.

I shall say nothing today about the Dormant Bank and Building Society Accounts Bill, as we already have Second Reading scheduled for that next week. The only other relevant Bill mentioned in the gracious Speech is one that Her Majesty described as one to,

"place a duty on every employer to contribute to good ... workplace pensions for their employees", which is a classic bit of new Labour spin. The Pensions Bill is actually about getting employees to save for their retirement before any question of employer contribution arises.

We have supported efforts to achieve higher pension savings, but that support is not unconditional and we remain concerned about a number of issues, all of which were debated in the context of the previous Session's Pensions Act. This Session's Bill is not assured of a trouble-free passage in your Lordships' House. It will do nothing to deal with the Government's failure to honour the ombudsman's recommendations for proper compensation for those who lost their pensions, and will assuredly do nothing to eliminate the disparity between the majority of the workforce and public sector workers, whose pension arrangements are gold-plated at taxpayers' expense.

Not mentioned in the gracious Speech, though mentioned by the noble Lord, Lord Jones, was a National Insurance Contributions Bill, which we will greet with little enthusiasm. By aligning the income tax and national insurance thresholds, the Bill will achieve a welcome simplification of the structure of personal tax. However, it is being introduced not in a cost-neutral way but in the tax-grabbing style of this Government, and will cost middle-income families around £1.5 billion a year. The Bill will also legitimise the Chancellor's latest pension raid via the state second pension. Put simply, the Bill is just one big money-raising exercise to shore up shaky government finances.

Another Bill not mentioned was the one allowing the privatisation of the student loan book. That policy came directly from our 2005 manifesto and we look forward to working on it.

Lastly, there will be a European Communities (Finance) Bill, which has a price tag of over £7 billion. It will legitimise the damage done by the former Prime Minister last year when he gave up a large part of our EU rebate in return for precisely no EU reform. We simply cannot afford EU membership at whatever price our profligate neighbours demand.

Her Majesty's most gracious Speech said that the Government would,

"take forward policies to respond to the rising aspirations of the people of the United Kingdom".

It would be nearer the truth for the Speech to have said that the policies were designed to satisfy the aspirations of this Government, who have run out steam, are desperate to cling to power and lack the courage to ask the people whether they can stay in office. We on these Benches will work tirelessly to demonstrate the poverty of vision of this failing regime.