Queen's Speech — Debate (3rd Day)

Part of the debate – in the House of Lords at 3:32 pm on 8th December 2008.

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Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury 3:32 pm, 8th December 2008

My Lords, I thank the Secretary of State for opening today's debate. I agree with one of his statements—that is, we wish the Doha round well in the interests of this country and the global economy.

The gracious Speech stated,

"My Government is committed to helping families and businesses through difficult times", but there were no policies in it to relieve the pressures on struggling businesses. Instead, the Business Rate Supplements Bill is designed to tax them further.

Only three weeks ago, the Chancellor claimed in his PBR speech that the Government were delivering,

"a comprehensive package of support for business", and that the PBR would,

"help businesses through their current difficulties and enable them to invest".—[Hansard, Commons, 24/11/08; col. 498.]

That is not how business saw the PBR: it saw a web of hidden tax costs and tax rises for business.

The Secretary of State recently delivered a lecture at Chatham House. Many were surprised that the noble Lord started his speech with an anecdote about his relationship with the Prime Minister along the following lines: Prime Minister to Lord Mandelson, "Are you happy, Peter?"; Lord Mandelson to Prime Minister, "If you are happy, then I am happy". I know this is rather difficult to believe. I am not going to dwell on what this exchange tells us about the relationships at the heart of government, tempting though that is, but I am going to turn the question around. Secretary of State to business: "Are you happy, business?". Business to Secretary of State—our Standing Order on asperity of speech precludes me from giving the exact response but the paraphrase is—"You must be kidding".

The noble Lord might have thought that he could come in from Europe on his white charger, wave a magic wand over the business world and all would be well, but he may not have realised what his Government have done to business. There has been a decade of irresponsibility on the economic front which has left our economy ill prepared for the recession that we now face; a decade in which the real needs of business have been neglected.

Since his return to government, the Secretary of State has been rarely absent from the media. He has been engaged on a busy round of meetings, forums, dinners and speeches—sometimes, although not always, about business issues. The question is whether, to echo to the noble Lord's own words in his maiden appearance at the Dispatch Box, he has been toiling or spinning. Business has seen little so far about which to rejoice.

My noble friend Lord De Mauley will wind up for these Benches and focus on the issues for business. Before I turn to the economy, I shall sketch out the past decade from a business perspective. In the years running up to 1997, manufacturing employment was growing again. Since then, 1 million manufacturing jobs have been lost and more are now threatened. Our labour flexibility has been eroded and is threatened still further by the European Parliament which, with the backing of Labour MEPs, plans to end our working time directive opt-out. We are now 12th in the World Economic Forum's competitiveness index; we were fourth in 1997. More than 34,000 new regulations have been introduced which the British Chambers of Commerce estimates have added £65 billion to business costs. Our tax code is the longest in the world and probably the most complex. We have lost our tax competitiveness.

The Government have neither supported nor valued the businesses on which our national prosperity ultimately depends. We now hear that the Secretary of State regards the Government's industrial policy as insufficiently joined up. He has suggested that we need a "more capable strategic state" and a "smart state", and he has even promised a more active industrial policy. If there is one thing that business wants, it is less government and not more.

However, there is one thing that businesses need now: finance. The Government have pumped billions of pounds of taxpayers' money into saving the banking system, but, so far, it has done nothing for British business. The Queen's Speech referred to the Banking Bill, which has already largely completed its passage in another place—I shall save my detailed comments on that until our Second Reading next week—but that Bill is largely about the next banking crisis and not about today's issue of getting the banks lending again.

On that, the Government have sent mixed messages. They have talked about overleveraging, repricing risk and the regulation of liquidity, all of which suggest less and more expensive bank lending. But at the same time they have indulged in publicly hectoring the banks to increase lending. They have failed to get to the core of the issue, which is loss of confidence at the heart of the banking system. The Secretary of State told us today about a new statement of principles and various other actions. We shall see whether they have any impact in practice or it is just more words.

My party does not advocate taking no action, and no matter how many noble Lords opposite say that will not make it true. We have proposed a national loans guarantee scheme for banks which will allow confidence to return to business lending. We have also proposed that government consider guaranteeing credit insurance so that non-bank credit can be restored to normality. We hope that the Government will start to try solutions that work with the grain of the commercial world.

This is our first opportunity to debate the Pre-Budget Report. We had a hugely important debate on the economy at the beginning of November. Even the most pessimistic of us in that debate did not foretell the full horror of the prospects for our economy unveiled in the PBR. The Chancellor had already trailed his coat on the abandonment of his predecessor's fiscal rules, but it still came as a shock to find that they were to be replaced with a "temporary operating rule" of the "I'll do what I like" variety.

Even more shocking is that debt will reach a 40-year high in 2014 at 57 per cent of GDP, and that annual borrowing as a percentage of national income will reach a 63-year high next year. I hope that the Benches opposite recognise that all of those figures are worse than any during our last spell in government.

The Government's figures conveniently ignore huge chunks of debt. It used to be the PFI and Network Rail, but these are now dwarfed by the exclusion of the cost of the various interventions in financial markets. The PBR quantifies this as a whopping eight percentage points in this year. A true figure of the liabilities overhanging our economy would also include unfunded public sector pension liabilities, which would add another 60 or 70 percentage points, but then we might really start to frighten ourselves.

None of this has fooled the markets. Concern about the scale of borrowing that we will have to undertake led to credit default swap prices going through 100 basis points last week for UK government debt. This is higher than for some UK corporates and the leading economies in Europe. More graphically, the foreign exchange markets have taken fright. Sterling has lost more than 25 per cent of its value in the last year, and the collapse has accelerated since the PBR, with the largest single-day fall since we exited the exchange rate mechanism on Black Wednesday.

The Government's narrative—which we have heard again today—is that the recession is a product of events outside the UK and outwith our control. This is plainly untrue. The Government at home have overspent and over-borrowed. That is what gives our economy less scope for fiscal measures now. Our structural budget deficit, created by the current Prime Minister, is one of the worst in the world and we even compare badly with the leading economies in Europe. The Prime Minister believed his own hubristic statements about abolishing boom and bust, and failed to use the good times to prepare for the bad times that now beset us.

The Chancellor wanted the story of his PBR to be one of fiscal stimulus, where the Prime Minister pretends that he is leading the world. The real story is one of small tax cuts today followed by an indefinite period of tax rises and expenditure cuts. The centrepiece was a reduction in VAT, but it is far from clear what effect that will have. A reduction of slightly over 2 per cent in selling prices, in an already heavily discounted marketplace, will have little immediate impact on consumers, even assuming that they want to spend, but it has certainly cost businesses a huge amount to implement. The next big tax measure was the continuation of the higher personal allowances with which the Government attempted to bribe the electors of Crewe and Nantwich. This is a giveaway on paper only, because no one expected that the Government could take those allowances back next year.

The Government take voters for fools. As the Institute for Fiscal Studies has shown, the class-envy increase in the top rate of tax is likely to yield nothing. The rest of the package will hit people earning more than £19,000 a year. Do the Government really think that the PBR is going to stimulate anything but outrage once taxpayers see the reality of higher national insurance contributions, permanent excise duty hikes and the other tax rises that have not yet been revealed? The small print of the PBR contains spending cuts allegedly achieved by £5 billion a year of additional value-for-money savings. The last round of efficiency savings was demonstrated by the National Audit Office to be largely without substance. We do not believe that fairy stories should be allowed to underpin the public finances, and this would not be allowed under our proposals for an office of budget responsibility. At the heart of the PBR are the Government's forecasts for growth in the economy. We fear that they are too bullish about the depth and length of the recession. That is the view of the OECD, the IMF and the Bank of England. Do the Government have a plan B if that view proves correct, and their view proves incorrect?

In Question Time earlier, we had an exchange on whether we should join the euro. I asked the noble Lord, Lord Myners, what the Government's position was on Mr Barroso's view that we would have been better in the current market conditions if we had joined the euro. The noble Lord did not answer the question then, but I hope that when he winds up this evening we will get a straight answer. Our view is very clear—that we would certainly have been damaged had we joined the euro earlier—but I would be interested in the Government's view. If the noble Lord is in any doubt, perhaps he would like to consult the important person sitting next to him, who I am told takes part in these conversations.

There is nothing in the Queen's Speech providing any remedy or relief for businesses struggling to keep afloat in difficult markets that have been deserted by consumer confidence. There is certainly no vision for the future. Similarly, there was little in the PBR that gave comfort to taxpayers. That made it absolutely clear that the cost of 10 years of misrule by the party opposite will haunt taxpayers for a very long time to come.