Motion to Take Note

Comprehensive Spending Review – in the House of Lords at 3:15 pm on 1st November 2010.

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Moved By Lord Sassoon

That this House takes note of the Spending Review 2010.

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury 3:39 pm, 1st November 2010

My Lords, in another place, my right honourable friend the Chancellor of the Exchequer set out the conclusions of the Government's spending review. This represents a clear plan to tackle the nation's deficit and demonstrates the Government's commitment to investment in growth, in jobs and in the future of the British economy. It is a plan that has at all times been guided by three core principles: growth, fairness and reform. These are the right priorities for making some of the most difficult decisions that any modern Government have had to make. We should never forget the financial position that we inherited when we came to office. Our country was borrowing £1 for every £4 that we spent. We had the largest budget deficit in our peacetime history and interest payments on our debts will total £43 billion for this year, or £120 million a day.

We need to take control of our country's finances and put them back on a sustainable path because, if we lose that control, our priorities will be determined no longer by the needs of our people but by the demands of our debtors. This loss of control would threaten higher interest rates, rising inflation and more cuts in the future. Indeed, failing to restore credibility to our finances is the most fundamental threat to the recovery, to our jobs and to the growth of our economy. Therefore, I dispute the claim, which some have made, that there is a choice between fiscal discipline and supporting growth. That could not be further from the truth. The choice is between a sound platform to support growth and a lack of control that would undermine it.

In June's emergency Budget, the Government therefore set out the roadmap to recovery. The independent Office for Budget Responsibility looked at these plans and forecast the economy growing and unemployment falling in every year. It has also assessed that we are on course to eliminate the structural current deficit and see debt falling by the end of this Parliament, one year ahead of our mandate. The emergency Budget set out the Government's credible plan to balance the books, while the spending review has shown how we will deliver on it and find £81 billion of savings by 2014-15.

The Chancellor's Statement set out the levels of departmental budgets for the next four years. I will not repeat every decision here. Instead, I want to focus on our priorities: growth, fairness and reform. They have guided our every choice. We are a pro-growth Government who have focused our capital resources on key infrastructure projects in transport and green energy. We are a Government with fairness at our heart and we are a reforming Government who leave no stone unturned in the search for waste, while devolving power and funding away from Whitehall. I shall address each of these principles in turn, starting with growth.

Before I do, among all the contributions to today's debate I will be particularly keen to hear what principles the party opposite would apply to spending reductions and what specific measures it would propose. I will also be listening with particular attention to the maiden speeches of the noble Baronesses, Lady Nye and Lady Healy of Primrose Hill, and to that of my noble friend Lord Allan of Hallam.

On growth, I have already said how our plan as a whole will deliver macroeconomic stability, which is crucial to restoring growth and giving businesses the confidence to invest. However, we are not standing on the wayside waiting for growth to happen. We have prioritised spending on the areas that will deliver the best returns to growth. Over the spending review, capital spending will be higher than that planned by the previous Government. With investment in transport capital across the country, more cash will be spent over the next four years than the past four. We will maintain, in cash terms, resource spending on science. A new green investment bank will lead the way to the economy of the future. Last week, we also published our Local Growth White Paper, which included a £1.4 billion regional growth fund, focusing our resources on the areas that need them most. These actions, and many others, form a major part of our strategy to secure and support sustainable economic growth.

Our second priority is fairness. Fairness means that, across the entire deficit reduction plan, those with the broadest shoulders will bear the greatest burden. It means that, even in tough times, we focus our resources on extending the ladder of opportunity. It means that we look carefully at whether we are doing right by those who receive welfare, as well as by those working families whose taxes pay for it. These are our aims and we have met them in full. We have published distributional analysis that clearly demonstrates that those on the highest incomes will contribute more towards the consolidation. This is not just in cash terms but also as a proportion of their income and consumption of public services combined.

Our progressive approach also places responsibility on the banks to make their fair contribution. We will continue pressing banks to do more and bring forward reforms that improve our financial system. That is why we have introduced the bank levy. Because banks need to follow the spirit, not just the letter, of the law, we have engaged in a concerted effort to get our banks to sign up to the code of practice on taxation by the end of November.

We must ensure that everyone pays their fair share. That has been the motive behind agreeing a new £900 million package for HMRC. This investment will fund a clampdown on criminal behaviour, bringing in £7 billion each year by the end of the Parliament. There is no place for tax cheats in our society and there is no place for people who cheat the benefit system.

That brings me to welfare, with a budget that accounts for nearly £1 in every £3 that we spend. It is certainly right that the Government should help those who need it most. However, in many cases, the current approach has trapped people in a system where it simply does not pay to work. These are people who have been dumped on benefits by the previous Administration and then left there, indefinitely, with no prospects for improving their position. That is not fair on them and it is certainly not fair on the taxpayer. The case for reform is clear; the real question is how we can strike the balance.

Our approach has been this: we are moving to a universal credit system over the course of two Parliaments to do away with the complexity of the current system, ensuring that work always pays. We will introduce a new work programme to provide personalised support to those who need the greatest help back into employment, with private and third sector providers paid on the basis of the additional benefit savings that they secure. We will fund significant increases to the child tax credit to ensure that this spending review has no measurable impact on child poverty over the next two years.

Through the welfare reforms in the spending review, we will find £7 billion net savings on top of those identified at the Budget. Some £2.5 billion comes from removing child benefit from households with a higher-rate taxpayer. This is the most progressive welfare measure in the spending review, but we are making other reforms, too. For instance, we will cap household welfare payments at the average earnings for working households. This has to be right. The welfare system should provide an effective safety net, but it should not pay some workless families far more than the amount that most working families earn. Our reforms mark a historic shift from state dependency to independence.

Throughout this review, we have been clear on one thing: our decisions need to be fair and, in being so, to improve the chances of the poorest and most disadvantaged in our society. Fairness is about opportunity-a chance for a better life, especially for the next generation. Therefore, we have chosen to invest in our children. We have introduced a new pledge for 15 hours' childcare for disadvantaged two year-olds. Cash spending on Sure Start services will be maintained, with a renewed focus on life chances. Although it has meant a greater challenge for other departments, the schools budget will not just match but outstrip inflation in each of the next four years. When you factor in reduced pressures from pay restraint and back-office savings, that amounts to a very significant boost for the classroom. A new £2.5 billion pupil premium will target additional resources on those with the most to gain, because fairness runs through the very heart of this spending review.

I now move on to our third principle: reform. It manifests itself in three separate ways. The first is by bearing down on back-office costs. Each main government department has found at least 33 per cent in administrative savings. We have announced our plans to share services, cut down on waste and abolish unnecessary quangos.

Secondly, we will oversee a massive devolution of power from the centre. Apart from in schools and public health, we will end the ring-fencing of all government grants to local authorities from April next year. We will reduce the number of separate core revenue grants to councils from 90 to fewer than 10. Our new tax increment financing borrowing powers will allow councils to fund key projects and, last week, we announced that we are considering options to enable local authorities to retain locally raised business rates. This puts more power into the hands of local government-the people who know best what is needed in their own towns, villages and cities.

Finally, reform means recognising where the old ways of doing things were not working, so we will overhaul the failed system of social housing. The terms for existing tenants, and their rent levels, will remain unchanged, but some new tenants will be offered intermediate rents nearer to market levels. Together with capital investment, that will enable a more flexible and responsive model, enabling the Government to deliver up to 150,000 new and affordable homes over the next four years.

There will be reform, too, in the justice system. We have a prison population that has been steadily rising out of control. This is not right, let alone affordable. The guilty must be punished, but rehabilitation should not be ignored. In fact, it should be the priority.

I conclude by saying that the coalition Government faced the worst economic inheritance in modern history. The debts that we were bestowed threatened every job and every public service in the country. Our response has seen us make some tough choices on spending, but we have protected health, schools and investment in growth. We have cut welfare and waste, pulled the country back from the brink of bankruptcy and put it on a more stable footing. Ours is the right plan and it is a plan that will help to build the more dynamic, prosperous and sustainable economy that this country deserves.

Photo of Lord Myners Lord Myners Labour 3:52 pm, 1st November 2010

My Lords, I congratulate the Minister on mastering something which it took me a long time to understand as a Minister: when you have to convey unpalatable messages or to spin messages, it is best to keep your eyes firmly fixed on the notes in front of you and avoid any eye contact with those opposite through fear of not being able to maintain a straight face. I congratulate the Minister on maintaining a straight face throughout that speech.

I appreciate that we have more than 50 contributions today, so I shall endeavour to make my remarks as brief as possible. Like the Minister, I look forward to the maiden speeches from the noble Baronesses, Lady Nye and Lady Healy of Primrose Hill, and the noble Lord, Lord Allan of Hallam, who are all significant and important additions to your Lordships' House.

The structure of my response is very similar to the structure of the Minister's speech, which is perhaps not altogether surprising as his speech was almost certainly written by the same people who were writing speeches with completely opposite views for me when I was a Minister, barely a few months ago. I recognise the structure.

We need to ask ourselves the following questions. Are the cuts necessary in scale and in terms of pace and are there alternatives which are worthy of consideration? Are the proposed cuts fair? Are they progressive? Do they fall on the broadest shoulders? I will not speak specifically to that issue, as I am sure that a number of my noble friends on these Benches will wish to do so. It is quite clear from the Institute for Fiscal Studies that the broadest shoulders are not bearing the greatest burden in terms of these cuts. To the extent that this programme can in any way be described as progressive-that is, limited to the top 2 per cent of all income earners-that is specifically as a consequence of the tax changes which the previous Government introduced in their Budget. This is not a fair programme; it is not a progressive programme; and I am sure that others will speak to that effect later in the debate.

Next, I ask myself whether the proposal is, to use parliamentary language, well put. Finally, are the issues of growth sufficiently addressed? The Chancellor presented cutting the fiscal deficit and the share of public spending as a proportion of gross domestic product as unavoidable. It is simply not true. There is a choice in terms of the target and the pace-whether the focus should be on expenditure or taxation and whether the expenditure cuts should fall most heavily on welfare. It is the Government's decision to make cuts on this scale, at this speed and with the greatest burden bearing on the poorest, the most deprived and the most vulnerable in the community. The Minister nodded his head for most of my statement until he saw the consequences of what he was nodding in agreement with.

There was no risk of national bankruptcy. I can say that with confidence, having been a Treasury Minister in May. There was no talk in the Bank of England or the Treasury about national bankruptcy. It is a complete figment of the imagination-a convenient truth that is now peddled by the Government. Let us remind ourselves that the average maturity of funding for government debt is 14 years. Let us remind ourselves that the Government are borrowing at the lowest interest rates for 40 years. That was true before the general election, as it is now. Interestingly-I am sure the Minister would point to this as being a sign of confidence in government-the spread of gilt yields over US dollar yields has expanded. I am afraid the Minister is wrong. His hand movements went in the wrong direction. He will no doubt wish to check the facts and find that I am correct. The spread has widened, so this is not a positive response to the Government. It is a very clear statement from the markets that there is now a real risk of recession. That is the consequence of the policy that the Government are pursuing.

We went into the global financial crisis with the second lowest debt as a percentage of GDP in the G7 countries. It was 36.5 per cent of GDP in 2007-08, which was lower than 42.5 per cent when the party opposite was last in government in 1996. Borrowing as a percentage of GDP in 2007-08 was only 2.4 per cent. That was largely being used for capital investment-for schools, hospitals and infrastructure. Let us remember that the Opposition were committed to the public expenditure programme as late as 2008. Indeed, David Cameron endorsed it as a tough approach. However, we then had a global crisis. It was absolutely right in those circumstances, when we saw a significant reduction in demand in the economy, for the Government to step in to create that demand in a typical Keynesian response.

However, the deficit needs to be addressed. We not only made a clear commitment to address the deficit-to halve it as a percentage of GDP within four years-but had already made a significant start on it. Remember that the deficit was lower at the end of our period in government than was forecast 12 months earlier and economic growth was stronger than had been forecast 12 months previously. Again, the Government's argument now that the crisis they confronted was far greater than they had imagined or envisaged simply is not borne out by the truth. The deficit as a percentage of GDP was lower than we were forecasting, as confirmed by the OBR. Economic growth was faster than had been forecast 12 months earlier. Of course the deficit needed to be addressed but we had a programme to do that. We had a programme to reduce the deficit from 11.1 per cent of GDP in 2009-10 to 5 per cent in 2013-14. The Government's own Office for Budget Responsibility has endorsed the fact that the programme we outlined would have achieved that degree of reduction.

One of the fallacies of the Government's thinking is that, somehow, borrowing is wrong. The family budget analogy-a good family always lives within its means-is used here. The Government miss the point entirely. Borrowing is sensible from a government perspective in a situation where there is endemic, pervasive overcapacity, as there clearly is at the moment; or when there is underutilisation of capacity and higher unemployment of people and capital than would otherwise be available. It is equally sensible to borrow for investment. The Government miss this point because their analysis of the economy is based solely on liabilities, not on assets.

It is absolutely sensible to pass on to future generations the benefits of capital investment-in education, hospitals, roads and infrastructure-and the costs of that investment in a fair and proportionate way. This Government, in fact, are slashing capital investment at precisely the time when we should be increasing capital investment because of the existence of surplus capacity. Now is the time to commission new building work because there is excess capacity in the building and construction industry. I should like the Minister, in his closing speech, to confirm that, under the Government's own economic forecasts, the economy will still be producing at 10 per cent below theoretical productive capacity at the end of the CSR period. If that is, as I believe, correct, then I think it underlines the fact that the Government's policies are pushing us back into a recession and not ensuring that the economy recovers in the way it should.

On the issue of fairness, the Minister has spoken about children. He says that the Government have chosen to invest in children and that investment in children will outstrip inflation. However, we know from public statements that there will actually be a significant reduction in investment and expenditure per pupil in the education system. We know the pupil premium is a sleight of hand-a deception played by one of the coalition partners on the other. We have seen a fairness programme that is going to put the greatest burden on young families, on women, on the disadvantaged, and on local authorities. The Minister talked in a straight-faced way about devolving responsibility from central government to local authorities, but the only thing they have devolved is the axe for cutting. Because they have not had the guts to make the cuts themselves; they have passed most of these cuts on to local authorities. I fail, for the life of me, to see how that squares with the big society.

Thirdly, I ask whether the CSR was well-put. There were presentational tricks. I will be the first to admit that the current Chancellor is not the first to use presentational tricks: the mixture of numbers and percentages, the combination in single statements, paragraphs and sentences of cash amounts and inflation-adjusted amounts. We had more on the widening of the A11 in Norwich than we had on the loss of half a million jobs in the public sector. I hope that the Office for Budget Responsibility will be asked to look at ministerial statements on the economy to ensure that, in the future, they meet certain minimum tests for veracity, balance, and completeness.

What was most striking about the Chancellor's Statement-this is my fourth and final point-was that there was no compelling supply-side narrative and no macroeconomic analysis at all. There was no evidence to support the contention that crowding out was working, or that there was some form of Ricardian Equivalence. There was no acknowledgment at all of what was necessary for the private sector to grow. The absence of a growth narrative was the most significant deficiency from an economic perspective of the Chancellor's Statement. What we do know is that the proposed cuts will reduce economic activity by something in the region of 0.5 per cent per annum through the CSR period. I believe it will be more when one takes into account the multiplier effect. I am confident that the OBR will shortly reduce growth assumptions significantly. That is because we are seeing more unemployment; consumption will be affected by the increase in VAT; demand for credit remains low; the export outlook does not look at all encouraging; and investment by business in the private sector is clearly going to be curtailed until a more certain economic future can be seen.

We need a supply-side agenda, which is simply not being produced by this Government. The Government are fixated on cutting, cutting, cutting and reducing the size of the state. They have no alternative other than keeping fingers crossed and assuming that if the state consumes less, the private sector will somehow more than make up for that-something that is clearly at odds with the fact that we currently have considerable excess capacity in the economy. Cutting back on investment at a time such as this is a tragedy.

The Government have created further uncertainty for the banking industry. They have slashed spending on business support programmes and have abolished the RDAs, replacing them with mere shadows. They are cutting investment programmes in innovation and applied research. Some of the consolations offered in terms of a green investment bank or a carbon-capture demonstration model are, frankly, trifling by comparison. Instead, the Government are increasingly relying on monetary policy. I strongly advise them to avoid compromising the independence of the Bank of England in this respect. I also urge the Bank of England to be very careful about introducing further quantitative easing until it can produce clear evidence that existing quantitative easing has worked. Certainly, the scale of existing quantitative easing exceeds anything which we envisaged was likely when it was first introduced by the Monetary Policy Committee as a possible response to low interest rates.

I have already said that Labour would have taken decisive action to reduce the deficit. What else would we have done? We should have introduced a much more activist programme to support industry and new investment by facilitating investment in innovation and, importantly, putting in place better infrastructure and making sure that private capital was increasingly available to support public needs in terms of infrastructure. I am pleased to read in the Sunday newspapers that the Minister has been travelling the world making the case to sovereign wealth funds for investment in infrastructure. If those reports are correct, that is sensible, although it is slightly at odds with the Chancellor feeling that paying interest on borrowings to non-domestic lenders is somehow unpatriotic, while giving ownership of infrastructure to non-nationals is acceptable. I should like to believe that the Government would invest in and create a new national investment bank. There are important opportunities here to use private capital from interested pension and insurance funds that would give fixed and predictable returns to support investment in infrastructure. However, to date, we have seen very little original thinking from the Government on that.

Finally, what I found shocking about the Chancellor's presentation was the waving of Order Papers and the cheering at the end of his speech. This was deeply insulting to those who will have to bear the burden of this cutting programme. To see the Chief Secretary demoted to a position of being glass filler in chief-filling the Chancellor's glass of water from time to time until he received a note telling him that it would perhaps be sensible if he shuffled up the Bench a little, so he was not as visible to the television cameras, and sat immediately behind the Chancellor-speaks volumes about the discomfort that those on the Liberal Benches must now be feeling. The Chief Secretary said he did not come into politics to cut government expenditure and public funding of needy services. That is what he has done; that is what the Government have done; and in doing that, they have completely failed to put forward a clear growth strategy that is fair and reasonable and which would ensure that the country delivers to its full potential.

Photo of Lord Newby Lord Newby Liberal Democrat 4:08 pm, 1st November 2010

My Lords, no doubt the CSR makes me, like many other noble Lords, angry and frustrated-angry that the US and British banking systems landed us in a major financial and economic crisis; angry that the previous Government had been spending like there was no tomorrow, with big government deficits in every year since 2002; and angry and frustrated that in attempting to clear up the mess we have often been portrayed, as the noble Lord has just done, as latter-day scrooges who take a perverse delight in reducing public expenditure, when nothing could be further from the truth.

There is no doubt that the deficit had to be tackled decisively. We can argue whether the aim should be to eliminate it over the lifetime of this Parliament or over a slightly longer timescale. Labour argues that the timescale that we have adopted is a gamble. Perhaps it is, but Labour's policy-to the extent that we can discern it-is simply a gamble of a different sort. The noble Lord today failed yet again to spell out how Labour would save even £1 of the tens of billions of pounds which it is committed to cut from public expenditure. Frankly, until it does, it has no credibility with me.

These arguments are, however, in my mind now secondary to the main challenges facing the British economy and the operations of the state when it comes to taxation and expenditure. There are two principal challenges which I believe we face and against which this CSR should be judged. First, almost every aspect of our taxation and expenditure systems are no longer fit for purpose. Secondly, we have not responded effectively to the fundamental change in the world economy that is now in full swing.

Take the way we do things. Almost wherever one looks, our public expenditure and regulatory systems have become so complex that they cannot deliver effectively the outcomes that they seek. We have a benefits system that makes the Schleswig-Holstein question look like child's play; we have a pensions system that is confusing and obscure; we have a tax system that is now the most complex in the world and which almost certainly no one-literally no one-fully understands; and we have a regulatory system that stifles initiative in almost every area of public life.

Because we have to cut public expenditure, we are being forced to look afresh at the way we do all these things. This is long overdue and can lead to positive outcomes. I shall give examples. The Building Schools for the Future programme is being cut, but not before another 600 new schools are built. It has been announced that these schools will have to be built at 40 per cent less cost than has been the case until now. This sounds an impossible aim, until you read the document produced by Balfour Beatty that explains how it thinks it can save 30 per cent on new build schools, and a massive 60 per cent on non-structural refurbishment, simply by being more efficient in the process.

In social care, Sandwell healthcare, a social enterprise, was able literally to halve the costs of delivering services previously run directly by the local council, with no loss of pay or other conditions for the staff, by among other things being able to reduce the number of sick days per employee from 32 to one. The challenge now is to ensure that this kind of saving is identified and delivered across the whole range of public spending.

On benefits, the Government have embarked on fundamental reforms. I welcome the plans to introduce a universal benefit and the plans for a citizens' pension, as they are major simplifications of the system and will mean that many people who currently lose out-in the case of the citizens' pension, principally women who stayed at home to have children-will for the first time get the benefits they deserve.

The second challenge we face is how to rebuild the economy in circumstances where the main drivers for growth are the emerging economies and not simply, or even primarily, the US and Europe.

Analogies are often drawn between the current crisis and the 1930s. They are largely misconceived because they ignore the fact that large parts of the world economy are booming and are likely to continue to grow strongly, whatever happens in Europe and the US. Emerging markets now account for a third of the world economy and two-thirds of its growth, which helps to explain why the world economy is now larger than before the financial crisis. All the evidence shows that companies are planning for further cross-border growth. A recent study by BDO showed that 95 per cent of ambitious mid-cap companies are confident about international growth for the year ahead. This is a far cry from the 1930s.

The high levels of growth in the BRICs and the appetite for international expansion by companies offer the UK huge opportunities, but ones that under the previous Administration were simply not adequately exploited. This is not simply or even primarily a matter for government, but government has a crucial part to play. The new Government appear to recognise this potential and have taken some positive steps towards realising it. The early visit of the Prime Minister to India was a good start. However, there is much more to be done. For a start, we must stop making things more difficult for those wanting to trade with or invest in the UK.

Over recent weeks, we have exhaustively discussed the immigration cap, but the current policy, which among other things denies multinational companies with large-scale operations here the opportunity to bring in the highly skilled staff they need to expand their activities, is highly damaging and must change soon.

We must also create the conditions that help companies to grow. We need, for example, a 21st-century infrastructure. In this area, the transport infrastructure announcements are highly welcome, but they deal with only part of the need. The establishment of the green investment bank is also a welcome development, but it needs to attract significantly more capital if it is really to bring our infrastructure up to speed. This should be possible as pension funds, other fund managers and sovereign wealth funds are all looking for long-term, secure vehicles in which to invest. Like the noble Lord, Lord Myners, I was pleased to read of my noble friend's success in discussions with sovereign wealth funds in this area.

We also need a more highly skilled workforce. Here the Government's announcements on the science budget, on funding part-time higher education students on the same basis as their full-time equivalents and on expanding funding for apprenticeships are welcome developments. However, the new system for the bulk of university students needs to include incentives for those of modest backgrounds to attend all our universities if we are to make the best use of the talent which we as a country possess. We also need to do more to reduce the level of functional illiteracy among school leavers and the adult population as a whole.

Regional development is clearly going to be crucial if we are to get a more balanced overall economy. The Government have introduced the regional growth fund but, with less than half the funding of the RDAs and an apparently weak bias towards spending outside London and the south-east, it will struggle to make much of an impact. Indeed, it was rather depressing to see that the initial local enterprise partnerships announced last week covered nearly all the south-east, including some counties already doing extremely well economically, but not large parts of the north. It is hoped that those gaps will be filled, but it is crucial that the limited money available goes to the parts of the economy with the largest amount of spare capacity.

In the CSR, the Government have set out a clear programme for this Parliament. If they meet their stated aims of making the delivery of our public services more effective and efficient and of creating the conditions for businesses to grow, they will deserve to succeed.

Photo of Lord Bilimoria Lord Bilimoria Crossbench 4:17 pm, 1st November 2010

My Lords, I have always believed that a wise person learns from other people's mistakes, a sensible person learns from his previous mistakes, and a fool makes the same mistake over again. The question before us is: is the Government's spending review wise, sensible or foolish?

As regards past mistakes, it is widely held that it was Franklin D Roosevelt's failure to provide prolonged stimulus during the great depression, combined with fiscal tightening, that prolonged the slump and was responsible for the double dip during that period. On the other hand, the Canadian and Swedish examples of making severe cuts in the 1990s that led to their economic recovery are cited as examples of why a country in our position should take similar measures by having our own "bloodbath budget". Well, we have had our "Axe Wednesday".

However, the world was very different in the 1990s. Canada was able to make those cuts, first, because the rest of the world was emerging into a prolonged boom time-a sharp contrast to today-and, secondly, because Canada is a country with enormous natural resources whose exports have accounted for 45 per cent of GDP. Sweden had, 50 years ago, the same level of public sector expenditure as a percentage of GDP as the United States-at 30 per cent of GDP-but, by the 1990s, the figure was well over 60 per cent. However, when those countries began wielding their axe to public expenditure, they were surrounded by a benign and increasingly booming global economy. Furthermore, both countries had the flexibility to use fiscal and monetary measures to compensate for huge public spending cuts.

Just look at the world situation over the past four years. In 2006, the sub-prime crisis started to unfold. In 2007, there was the credit crunch. In 2008-09, there was the great recession. By 2010, we had the sovereign debt crisis. In the same year, we now have the potential global currency crisis, increasing economic protectionism and beggar-thy-neighbour policies around the world. That is a classic domino effect, with one thing leading to another. What is next?

Here in Britain, there is no question that the previous Government squandered away an economy in excellent shape that was handed to them on a silver platter in1997. They used that period of prolonged growth and low interest rates to take public expenditure to well over 50 per cent of GDP, from the 40 per cent level that it had historically been. I am delighted to see that the comprehensive spending review plans to bring public expenditure as a percentage of GDP back to 40 per cent by 2014. I would appreciate hearing the Minister confirm that that is the Government's target.

Today, we have the non-dom levy and the 50p high rate of tax, both of which are driving people away and deterring the best talent from coming into this country. On top of that, the current Government have introduced a madcap immigration cap. In addition, the forthcoming VAT increase will hit every man, woman and child in this country. Those things combined with interest rates of 0.5 per cent-how low can we go?-mean that as a country we have boxed ourselves into a corner, with no room for manoeuvre. We have high levels of unemployment, especially youth unemployment; our housing market has come to a standstill; the spectre of inflation looms; our people have low levels of confidence and high levels of uncertainty; and our banks are not lending. We have to prevent not just the danger that we bump along the bottom for the next few years but the risk that we become another Japan-in the doldrums for two decades.

Our only hope is to play to our strengths and to address our weaknesses. Our weaknesses include nearly £200 billion of welfare and pensions expenditure. I am delighted to see the measures in the CSR to deal with this head on. As much as we all appreciate and love the NHS, there are still tens of billions of pounds of efficiency savings to be made.

With 500,000 public sector jobs predicted to be lost over the coming years, are the Government doing enough to encourage the private sector to provide those jobs? Are they doing enough to promote growth in the economy today? I welcome the £1.5 billion fund and the £200 million enterprise fund to help businesses in this country, but by comparison with the United States, which has created a $30 billion loan fund along with $12 billion in tax breaks specifically for small business, we seem to be falling very far short of the mark. The proposed measures are even more piffling when compared to the hundreds of billions of pounds spent on bailing out the banks, given that it is the small and medium-sized enterprises that will lead the charge to recovery in this country.

Our strengths include our higher education sector, but we are cutting that by 40 per cent over the next four years to try to save £3 billion. Our higher education is the cornerstone of our competitiveness and is one of our biggest export earners through the foreign students that we attract. Surely such a cut is foolishness.

We have had a hastily rushed-through defence review when our brave troops are making the ultimate sacrifice in Afghanistan-a war that is almost 10 years old-and despite the uncertainties that the world throws our way all the time. We did not predict the Falklands war, but it happened. We did not predict 9/11, but it happened. We do not know what is going to happen next, so to skimp on our defence at this time is foolishness.

Our creative industries, our design capabilities and our tourism are strengths, yet we are planning cuts in those. That is foolishness indeed.

I am president of the UK India Business Council, which is funded by UK Trade & Investment, which in turn is funded by the Foreign and Commonwealth Office and the Department for Business, Innovation and Skills. Surely to cut funding that helps UK firms to go global is folly. The Indian economy is booming even in these times. The Goldman Sachs BRICs report predicts that China and India will become the world's two largest economies by 2050, yet Gerard Lyons, who is the chief economist of Standard Chartered Bank, told us yesterday that Britain exported more to Ireland in 2009 than it did to Brazil, India, Russia, China and South Africa combined-countries that have a population of 3 billion. Instead of encouraging the spirit of global enterprise, we make cuts. "Penny wise and pound foolish" seems to be the mantra of the comprehensive spending review.

The amounts involved in those cuts to our areas of strength are tiny compared to the big-ticket items in our areas of weakness, but the effect of destroying our abilities and competitiveness is potentially catastrophic. We are shooting ourselves in the foot. Our Nobel Prize-winning economist Christopher Pissarides has said:

"Unemployment is high and job vacancies few. By taking the action that the chancellor outlined in his statement, this situation might well become worse".

No one denies that cuts need to be made, but the timing, severity, pace and priorities of the cuts and their indiscriminate nature are a cause for worry not just here but in the United States and all over the world.

We are still in the eye of the storm and the global uncertainties continue to whirl around us. Our only chance of getting through depends on our strengths. I implore the Government not to hamper this country's great and special strengths. Help us unleash our strengths and play to them. Then, and only then, will we get through this nightmare and come out stronger than ever.

Photo of The Bishop of Leicester The Bishop of Leicester Convenor of the Lords Spiritual 4:26 pm, 1st November 2010

My Lords, I must crave the indulgence of the House for speaking to your Lordships with laryngitis, but my presence is an earnest of the Church of England's profound concern about the issues before us today.

There are aspects of the comprehensive spending review that we on these Benches would be happy to acknowledge and applaud, not least the commitment to protect overseas aid spending, the re-emphasis on the rehabilitation of prisoners and the proper commitment to prevent structural and personal debt running out of control. However, noble Lords will not be surprised to hear that, like most bishops, I am hearing a great deal of genuine anxiety and concern in my diocese among serious people-vice-chancellors, local authority chief executives, health managers and businesspeople-since the Chancellor sat down after delivering his spending review Statement. Local government chief executives express profound concern about the termination of the so-called specific grants and are deeply concerned about the £2 billion black hole in local authority support that was reported in last week's MJ.

I cannot help coming to the conclusion that there is a gap between a London-centred debate about debt reduction and a different debate in the regions about the extremely painful consequences that are having to be managed by those not privy to the initial decisions. There is genuine fear among some of the most vulnerable people that their already difficult lives are to be made effectively impossible by the assault on benefits. As we all know, there is a growing sense of indignation, which I do not necessarily condone but which I certainly understand, that in the City of London and in the boardrooms of too many companies, it is business as usual with inflated salaries, enormous bonuses and apparent disregard for the Government's rhetoric that we are all in this together.

I am not an economist, but I am well aware that professional economists by no means agree that the Government's approach to the deficit is necessarily the right one. Where the discipline of economics is divided, we expect the Chancellor to be light on his feet and ready to change direction if the impact of his policies turns out to be dramatically different from what is predicted. The Treasury does not know, any more than I do, which group of economists is correct, but the well-being of millions of our fellow citizens depends on the Chancellor getting this right and having the courage to change direction if necessary.

I want to make one key point that is not dependent on economic expertise but it is about the kind of society that we think that we are building. How on earth is the so-called big society vision of stable, mutually supportive communities to be enhanced by changes to housing benefit that will drive poorer people into what amount to townships in the undesirable areas of our towns and cities? That is the inexorable logic of capping housing benefit. More than that, how will limited tenure of social housing help us to build the big society? It is precisely the long-standing residents whose family commitments have begun to recede who are the linchpins that bind a neighbourhood together. The very people who will be the foundation of a bigger, more mutual and caring society are being told that they cannot take security of tenure for granted. The importance of stable populations in neighbourhoods and communities appears to count for nothing. I am led to suspect that any money saved by moving people out of their homes will have to be spent many times over on supporting and managing the problems that follow when formerly stable communities become home to transient populations of insecure tenants who have no incentive to act as though they belong to their neighbourhood. Why should they try to belong when successive governments' housing policies have created, not a big society, but a very thin, rootless society among those who rely on social housing?

The reason why people rely on social housing is, basically, not fecklessness or inadequacy but simply because our mismanaged housing market has fallen out of step with our deeply unequal labour market. When hard work does not pay enough to pay for decent housing, we had better act to raise wages or create more houses to bring their price down. On both counts, successive governments have been too shy of acting. The present belief that cutting housing benefit will depress the market and reduce private sector rents might just work if there were more houses to meet the demand. As it is, all the risk is being born by the vulnerable, not the comfortable.

Photo of Lord St John of Fawsley Lord St John of Fawsley Conservative

My Lords, what the country now needs is not blame for the deficit-we all know who is responsible for that. What we want is hope for the future, which is the second of the theological virtues faith, hope and charity. Anybody listening to the Minister's speech will note a very subtle but clear change in what he was saying. It was shot through with hope for the future, and also flexibility. Congratulations to him for doing so.

Photo of The Bishop of Leicester The Bishop of Leicester Convenor of the Lords Spiritual

My Lords, it seems to me that hope for the future depends on ensuring that those who are most vulnerable, those who are most excluded and those who most depend on the state for any kind of security are made secure by these changes. Hope for the future depends on recognising the widespread damages to society and to social justice from ever-widening inequalities, which have been widely researched and established by many authorities. We do not create a fair society-let alone a big society-by placing some of our fellow citizens beyond the reach of social solidarity. I hope that such is not the intention of the Chancellor but I fear that it may be the effect of some aspects of the review. I hope that the indignation of many people in my diocese turns out to be uncalled for, but I fear that this may be just the beginning, for the cuts have not yet begun to bite deeply.

I trust that the Chancellor will prove quick to turn again if the harm caused by his policies becomes a price not worth paying for merely economic rather than fully social recovery. The Church of England remains committed to work with Government and with others to respond to the vision of the big society, but I fear that the comprehensive spending review has made that vision much harder to realise and even more necessary.

Photo of Lord Lamont of Lerwick Lord Lamont of Lerwick Conservative 4:34 pm, 1st November 2010

My Lords, I welcome the comprehensive spending review. The noble Lord, Lord Myners, made a point of saying that there were choices open to the Government. Indeed there were. I particularly welcome the choice that they made to stick more or less to the ratio of 75 to 25 per cent in the balance between expenditure cuts and tax increases. I believe that the emphasis had to be on public expenditure cuts in order to correct at least part of the overspending of recent years.

Undoubtedly this was a bold set of announcements, for which praise is therefore due. Bold it may have been, but the idea that this was the biggest fiscal consolidation since the dissolution of the monasteries seems somewhat overdone. We are cutting spending by 7.4 points of GDP, which, as the noble Lord, Lord Bilimoria, said, compares with what Canada did in the early 1990s. Sweden, after its banking crisis in the early 1990s, reduced expenditure by nearly 15 per cent, as did Finland. Spain and the Netherlands at the same time reduced spending by much the same amount as the Government are reducing it today. The early 1990s were not at that time a benign environment internationally. Indeed, there had been other fiscal consolidations, such as that of my noble and learned friend Lord Howe in the early 1980s, of a similar magnitude. In this country, from 1993 onwards, we moved from a deficit of 7 per cent of GDP in five years to a surplus. All these fiscal consolidations were achieved without Armageddon arriving.

Of course there are risks, but there are risks also in not acting. The Government were for several reasons right to move more quickly than the previous Government to reduce the deficit. First, the sovereign debt crisis in Europe has altered the balance between the merits of delay and the merits of action. Secondly, as the Minister said, Britain has one of the largest structural deficits in the world. It is true, as the noble Lord, Lord Myners, said, that we compare quite well with other countries in terms of the stock of debt, but the size of our annual deficit means that we are adding considerably to the stock of debt each year. Indeed, the predictions have been that this would top off somewhere at 80 or 90 per cent of GDP. However, if we go on adding at a rate of 10 per cent-or, if it is modified, at a rate of 7 or 5 per cent-we shall increase it considerably, at great risk.

As the Minister said, debt interest is taking an increasing proportion of total public expenditure. After the CSR, there will be savings in debt interest payments, but debt interest is to go on rising during the whole of the expenditure period. With an uncorrected deficit, we would see more and more public expenditure silted up with interest payments. Ken Rogoff, the former chief economist at the IMF, has argued that the relationship between interest rates and debt is not a linear one. Interest rates can rise quite suddenly when a country hits its debt ceiling and he has demonstrated in his work time and again that, when a stock of debt reaches a certain point, it is a dampener on the growth of that economy. We have been running a deficit that is something like one and a half times the level of deficit run by Franklin D Roosevelt in the 1930s, which his own Treasury Secretary at the time confided to his diaries had not done much good or made much difference.

These cuts will not come into effect until next year and they will take four years in total to implement. How long do noble Lords opposite think we can take? What are their criteria for when we should act? One answer that is often given is that we should act when the economy is showing signs of recovery and that recovery is firmly established. It is not easy to say what "firmly established" means, but so far the economy has recovered remarkably quickly. Growth in the past three quarters has been 0.4 per cent, 1.2 per cent and 0.8 per cent, which surprised the markets in general. The ONS has said that the difference between the first and second quarters in underlying growth was much the same, implying that the economy is growing at an annualised rate of 3.2 per cent, which is above its long-term trend rate of growth of 2.35 per cent as found by the previous Government. I am the first to say that there are risks to this growth rate-it may well slow down-but the recovery is faster than that following the recessions of either the 1980s or the 1990s. We have recovered 40 per cent of the loss between the first quarter of 2008 and the third quarter of 2009.

An answer that we sometimes get to the question how we should judge when it is appropriate to tighten policy is that we should wait until the output gap is closed-that is, the difference between output as it is now and where it would have been had there been no recession and the economy had grown during that period at the long-term rate of growth. But how does anybody know what the output gap is? It is a concept that is extremely difficult to measure precisely. Also, it might take years to close the output gap, in which case we would go on adding to the structural deficit by 10 per cent or 5 per cent, or whatever the chosen rate was each year.

There is much concern, understandably-the noble Lord, Lord Myners, referred to this-about the loss of 490,000 jobs in the public sector. That is to be spread over four years but it also has to be seen in the context of a labour market of nearly 30 million people. That labour force increased by over 315,000 in the period between December/February and June/August. If the economy continues to grow-and of course there are risks and huge uncertainties in this-there is every prospect that this sort of redundancy in the public sector can be absorbed.

The noble Lord, Lord Myners, seemed to see the cuts ideologically as part of the desire for a smaller state. Indeed, there have been a lot of headlines about rolling back the state. However, they seem somewhat wide of the mark when one realises that public expenditure in money terms is going to go on rising every year to the end of the survey period and that, at the end of that period, spending in real terms will be where it was two years ago. Spending as a proportion of GDP is going to fall from 47 per cent back to 41 per cent, where it was for much of the 1980s and 1990s. With all due respect, that does not seem to be a radical restructuring of the state but rather a common-sense reversal of part of the overspending that we have seen in recent years.

The right reverend Prelate talked about fairness. There never will be consensus on fairness; fairness is in the eye of the beholder. Some noble Lords opposite think that the entire burden should be shouldered by the better-off, but any objective person will see that the Government have laboured long and hard to try to spread the misery and the pain around. Any cuts proposed in welfare would lead the Opposition to say that this was unfair. Perhaps they should remember what James Purnell said when he was Secretary of State for Work and Pensions, specifically about housing benefit, which was that he wanted to consult in order to see that

"people on benefits do not end up getting subsidies for rents that those who work could never afford."

This has been a difficult package to assemble. I believe that it will gain acceptance by having been assembled by a coalition Government of two parties and that the exercise of doing it has strengthened the coalition. I welcome the CSR. After a decade of recklessness, the Chancellor of the Exchequer and the coalition have laid the foundations for a decade in which we could earn our prosperity in the future rather than borrowing it.

Photo of Lord Peston Lord Peston Labour 4:43 pm, 1st November 2010

My Lords, my contribution is based on three premises: this is the most reactionary economic statement of modern times; the proposals will do serious damage to our economy; and, to echo the remarks of my noble friend Lord Myners, there is no immediate crisis and the Government should have adopted a much more deliberative approach.

The first sentence of the spending review Statement by the Chancellor said:

"Today is the day when Britain steps back from the brink".-[Hansard, Commons, 20/10/10; col. 949.]

There was no brink; there is no brink. Britain is not, and never was, on the verge of bankruptcy. There was no financial catastrophe. The Chancellor's reference to financial catastrophe merely indicates something that I deeply fear-namely, that he has entered into fantasy land. As one sees from reading the whole Statement, he never leaves it. As a devoted watcher of the "The Wizard of Oz", I deeply appreciate his frame of mind, but I thought that this was a serious matter of economics confronting the country and that fantasy is not what the Chancellor really does. I regard his document, despite the damage that it does, as intellectually frivolous.

My noble friend Lord Myners referred to the alleged burden on future generations. Are the Government suggesting that we should have fought the Second World War on a no-borrowing principle? We have all gained from the defeat of the Nazis. The period did not strike me as being terribly bad, although I was only a child. We paid taxes then to finance the national debt that resulted. If we are now to defeat terrorism, are the Government asking us to believe that, if necessary, we should not borrow to finance the resources that we need to do so? The Government are in fantasy land. As my noble friend pointed out, we donate so many good things to future generations that there is, as far as I know from my limited knowledge of economics, no reason not to place a bit of the burden on our children. They will thank us for what we gave them.

The noble Lord, Lord Lamont, referred to recent GDP figures. There have been three good quarters. However, it has been overwhelmingly established by all the economic research that I know that what happened in that period was determined during the previous two years. Not a single bit of the recovery that we observe is remotely attributable to this Government. I looked in vain for the Chancellor in his Statement to thank his predecessor for the legacy that had been left him. He did not even have the courtesy to admit that that was the foundation that was given to him.

The Chancellor devoted a whole hour to a speech that, apart from being reactionary, was one of the most uninteresting of all time. He referred to the IMF. The IMF and the European Central Bank are the two last repositories of completely outdated and erroneous monetarism. They, too, believe in the doctrine, "Private expenditure good, public expenditure bad". The noble Lord, Lord Lamont, et al tell us that this is not ideological; I tell them that it is entirely ideological. It is all about the kind of society in which we would like to live. We cannot avoid that.

The Chancellor said in his Statement:

"The creation of an independent Office for Budget Responsibility has brought honesty back to official forecasts".

Since the official forecasting was done by the economists in the Treasury, who I assure your Lordships are of the highest quality, his remark is totally defamatory. If he had made it outside the Commons Chamber, I wonder what would have been said. The idea that those economists did not give a Chancellor of our time or the Chancellor of this time their best and honest views is preposterous. The Chancellor continued:

"I can confirm to the House that the OBR and its new chair"-

I always use the word "chairman"-

"have audited all the annually managed expenditure savings in today's statement".-[Hansard, Commons, 20/10/10; col. 949.]

Is there any published documentation corresponding to that statement and, if so, where can I find it so that I can read it?

A noble Lord:

It is in the document.

Photo of Lord Peston Lord Peston Labour

No, it is not in there. That is not a document from the OBR; it is a document from the Government.

To what extent is the Chancellor talking to the head and other members of the OBR, who are meant to be independent? If they are meeting, were minutes taken? If so, could we have copies of them so that, for the sake of transparency, we know the nature of the argument that we are dealing with?

The Chancellor tells us that we are all in this together. I refer to the great economist Michal Kalecki, who in 1943-note the date-wrote a brilliant article in Political Quarterly. He said, apropos of exactly what the Chancellor has said:

"For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that 'you shall earn your bread in sweat'-unless you happen to have private means".

I wonder whom Kalecki, if he were alive today, might have in mind. Of course, they are not laughing, because they know what this is really all about.

Photo of Lord Marlesford Lord Marlesford Conservative

I was brought up on the great Kalecki and my recollection of one of his fundamental theses was that the only rescue and hope for capitalism was armament and war. That has not been proved true.

Photo of Lord Peston Lord Peston Labour

That is not true-that was not his view. What is interesting, if I may give a lecture on the history of economics, is that we can distinguish Kalecki from Keynes, although Kalecki made the great mistake of publishing in Polish and therefore was never fully appreciated. Keynes was attacked, particularly by the American right, for being left wing, but he really believed that capitalism could be saved and advocated his policy so that we could go back to capitalist free enterprise. Kalecki believed that the ideology of capitalists was such that they would prefer to destroy the system rather than to allow Governments to intervene to save it. I am glad that the noble Lord is aware of Kalecki; the sadness is that his name still rarely appears in any of the economic textbooks.

I refer again to the problem of what we should be doing. The noble Lord, Lord Sassoon, said that none of us was telling him what he ought to do. I shall not send him a bill when I do tell him. I am a Back-Bencher so I speak only for myself. The first thing that I would do to save money, after what one of our major newspapers called the fiasco of the defence review, is to redo that review and realise that our whole future on the defence side depends on conventional weapons. We should announce immediately that we have no intention of wasting any money on the renewal of Trident; our nuclear deterrent is not a deterrent, because no one can tell us whom it deters and, in any case, it is not independent. What this country needs is a much improved set of conventional armed forces. The Government should go back and think about that.

My second recommendation to the Government is to abolish immediately the raising of VAT at the beginning of next year. It is the last thing that the economy needs. I speak only for myself; I have no idea whether others are deeply committed to raising VAT. My view is that abolishing the increase is the stimulus that the economy needs.

Thirdly, the Prime Minister, instead of looking for headlines in his attack on the European Community by telling us that he is a Eurosceptic, should realise that the biggest waste of money in the whole of Europe is the common agricultural policy. If he had any backbone, he would seek a row with the Europeans to abolish that policy. That would save us enormously more money than the trivial sums that we are talking about.

Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Liberal Democrat 4:54 pm, 1st November 2010

Well, my Lords, that was the noble Lord, Lord Peston, at his peppery professorial best. I welcome what he said about Trident. I hope he will be paying tribute to the Liberal Democrats in Government. We are not meant to brag about this too much but I am still going to mention it. By a feat of negotiation we have managed to get the renewal of Trident put off until after the next election, which, we hope, will at least give time for Labour to change its policy as well. So there is a really serious chance that we will not be committed to a replacement of Trident which the other two main parties were putting forward at the general election.

It is always interesting to hear from the noble Lord, Lord Lamont, with his experience. He certainly does know all about markets losing confidence in governments. I was particularly impressed by the wise words of the right reverend Prelate the Bishop of Leicester about the importance of maintaining stable communities in social housing. I am afraid the real problem about the housing benefit situation is the way the social housing stock was run down disgracefully under Thatcher, Blair and Brown. That is the real reason we are in this mess on housing today.

The Chancellor announced £81 billion of cuts in the CSR and the official estimate of the tax gap-the total of tax avoidance, evasion and fraud-is £42 billion. We must close the deficit, but to do that in a fair and sustainable way, we must repair Britain's broken tax collection machine. Volunteering is all very well, but not when it comes to paying tax. Just like any business in the real world, we must get our revenues up as well as our costs down. I declare my interest as a pension fund investment manager for the past 34 years. It is one of life's rather strange twists that I went from advising a Labour Minister, Roy Jenkins, to working for Warburgs in the City, and the noble Lord, Lord Sassoon, went from working for Warburgs to advising a Labour Minister, Gordon Brown, at the Treasury. Today he is a Conservative Minister and I am a Liberal Democrat Treasury spokesman. With all his top-level experience at the Treasury in the Brown years, the Minister will know where all the bodies are buried and be ideally placed to answer our questions and respond to our concerns in this House.

My right honourable friend Danny Alexander told Parliament last week and the Minister repeated today that there is no place for tax cheats in our society. How we deal with tax cheats will be a crucial test of fairness for us. We will never persuade the great majority of hard-working British taxpayers who pay their dues and cannot afford expensive accountants and solicitors that we are all in this together unless we make fair tax our watchwords. This is not just some airy-fairy academic issue. At the Arsenal on Saturday we were having a moan at half-time about our failure to score against West Ham, when the man behind me suddenly said:

"I liked your piece in the paper, you know. These non-doms get away with murder".

We know a fair bit about dealing with non-doms in this House. I pay tribute again to the fantastic support I have had from noble Lords sitting on all sides of this House for our long and successful battle against delaying tactics and outright opposition from the Front Benches to make all of us here pay full British tax. The House showed itself at its independent and robust best last June when we passed our amendment to the Political Parties and Elections Bill to ban non-dom and non-resident donations. That is now law and just needs a touch on the statutory instrument button. What are we waiting for?

Did your Lordships know that you inherit non-dom status from your father? Just like an hereditary peerage, it passes down the male line, and like an hereditary peerage, you are born a non-dom and you stay one unless you disclaim it. Leading accountants advise me that between three and four million people living in this country, most of whom have lived here all their lives, are non-doms and could claim non-dom tax status for tax purposes if they wanted. Does the Minister agree with that figure, or what is the Government's best estimate if he does not? Can he give us the latest figures for the numbers paying the £30,000 flat charge? What is the Treasury's best estimate, in its detailed review of Liberal Democrat proposals on tax avoidance, of the amount of extra tax which will be raised by limiting non-dom tax status to seven years-the Treasury always initially works these things out- in the absence of behavioural change? The really big benefit of paying no British tax at all-on your income, capital gains or inheritance tax-on all the assets and earnings that you have offshore goes, of course, to the really rich. That is because a £30,000 a year poll tax payment-a non-dom poll tax, if you can call it that-is really just a fleabite for the fat cats.

Our coalition agreement says:

"We will make every effort to tackle tax avoidance, including detailed development of Liberal Democrat proposals".

The Chief Secretary has made a good start in announcing a beef-up of the tax avoidance operation in HMRC. Yet if we can really close the tax gap, as it is suggested, by £7 billion a year in four years by investing £225 million a year in HMRC over the spending review period, why are we not investing far more? Anything like those rates-a 3,000 per cent annual return-would make Bernie Madoff blush, and if it is anything near that, we should be doing far more. If it is that easy to boost the tax take, what a condemnation that is, I am afraid to say, of Gordon Brown's long years at the Treasury, when he tried to run every department but his own.

Very rich people are also past masters at cheating the rest of us on stamp duty. Anyone who knows their way around the property market will tell you that precious few luxury houses or flats worth more than, say, £5 million today ever feature on Land Registry records with stamp duty having been paid. There is an especially abusive scheme using a loophole in the law on Islamic finance to dodge stamp duty, which is sold to Jews, Christians and atheists with no questions asked. Rich tax cheats and their advisers know no shame. More resources for HMRC will help, but the way really to boost the tax take is to simplify the system and close the loopholes. Non-dom status is an open invitation to tax avoidance on a massive scale. That is why our policy on these Benches is to make non-doms come fully onshore after seven years. That gives plenty of time for visitors and people on short-term contracts, but then we say, "If you're in our club, you pay the sub-full British tax, like all the rest of us".

The Treasury is reviewing non-dom status as our coalition promised. I asked the Minister a question 10 days ago on the non-dom review which he did not answer, so he has kindly written to me as follows:

"This is a complicated policy area involving considerations of fairness as well as competitiveness. The Government is aware of the need for interested parties to be engaged on this issue and will make a more detailed announcement about the form and timing of the review, including any formal public consultation, at the appropriate time. I am sorry that I am not able to provide you with a more specific answer at this time".

So am I. Who are the interested parties? Not just the non-dom bankers, we hope, who choose to be British when it suits them and foreigners when it does not. Those words are Vince Cable's, by the way, not mine; he has not changed his mind. Let us act now to limit non-doms to a seven-year free ride and make Britain a country where the rich pay their fair share of tax.