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Address in Reply to Her Majesty's Most Gracious Speech

My Lords, I start by welcoming the noble Lord, Lord McKenzie of Luton, to the Dispatch Box as a Minister. He has been a regular contributor from the Back Benches to debates on economic affairs since he joined your Lordships' House last year, and so his promotion came as no surprise to those of us on these Benches. I also welcome the noble Lord as a fellow chartered accountant. Perhaps the noble Lord and I might swap notes on how our atypical roles as chartered accountants fit within our institute's requirements for continuous professional development. While I warmly welcome the noble Lord in his new role, I hope that he will not be disappointed if I cannot find quite the same degree of warmth for his speech. The noble Lord, Lord McIntosh of Haringey, who I am pleased to see in his place, in his final appearance at the Dispatch Box in the previous Parliament referred to the recital of the Government's view of their economic management as "the gloat". I can see that the Minister intends to take up where the noble Lord left off. Let me just say that a proper historic understanding of the Government's economic record starts in the early 1990s. My party bequeathed a golden legacy in the economy, without which the Government's bragging would look rather thin. The topics for today's debate are very wide, covering all industry and economic affairs. For these Benches I shall be dealing with the Treasury end of the spectrum and with pensions, while my noble friend Lady Miller will be dealing with the industry end of the spectrum when she winds up. The gracious Speech promised relatively little legislation in the Treasury arena. We welcome the announcement that there will be a Bill to bring home reversion plans within the auspices of the Financial Services Authority: we have long argued that to regulate equity release schemes but not home reversion plans was untenable. The gracious Speech made no mention of a further Finance Bill. I hope that the Minister will say something about what the Government intend. The Minister will be aware that some aspects of the first Finance Bill—broadly those which had had no consultation or scrutiny—were dropped when the election was called. Will there be a Finance (No. 3) Bill? As noble Lords are well aware, this House has a very limited role in relation to the Finance Bill, but a sub-committee of our committee on economic and financial affairs has, for the past two years, done sterling work scrutinising key parts of the Finance Bill. I very much hope that it will be able to continue its involvement this year because certain of the anti-avoidance provisions of the Finance Bill which were dropped last month are in need of rigorous scrutiny. I deplore tax evasion and it is right that our laws should not enable tax avoidance. But businesses need certainty and fairness in the corporate tax system, and some of the rhetoric that has recently been deployed, including by officers of what is now Her Majesty's Revenue and Customs, has overtones of a crusade against any form of tax planning. I have heard senior members of the multinational business community start to question the balance of advantage in remaining UK domiciled. Last night the president of the CBI sent a strong message to the Chancellor about the need to avoid increasing the tax burden on British business. The competitiveness of the UK has been seriously eroded in the past eight years. One element of that is tax, and many countries are now pushing their corporate tax rates below ours. The gracious Speech contained nothing to reassure the business community on taxation. I sincerely hope that we are not about to embark on a period where UK-based multinationals are driven away by tax rates or the general climate. I hope that the Minister will say something about the Government's general approach to corporate tax. The business community needs a clear message, and it did not get it last night when the Chancellor responded at the CBI dinner. There are many issues on the economic agenda. It is difficult to know where to begin; but it is difficult to avoid dealing with the Government's tax and spend policies. I start with spending. We know that the Government have spent a lot since 1997 and plan to continue to spend ahead of GDP growth. The key question is whether the Government are capable of getting value for money when they spend. Despite all the money that has been spent in the past eight years, in particular on health and education, we know that the outcomes have been unimpressive. The Office for National Statistics, even after changing the definitions, concluded that the public sector went backwards in efficiency terms over the past six years. The Government like to pretend that this issue is overshadowed by quality gains, but the truth is that one in three children leave primary school unable to write properly and that a teacher is attacked every seven minutes. The truth is that police are tied up in paperwork and that recorded violent crime rose by 83 per cent; and the truth is that the target culture destroys clinical priorities in the NHS and that more people die of hospital-acquired infections than on our roads. The Government are trying to improve the efficiency of government spending with Sir Peter Gershon's plans. We are not alone in having considerable scepticism about that. We can see no evidence of reduction in Civil Service numbers—quite the reverse. At the end of the day, streamlining the back office and smarter procurement, which is the Gershon prescription, is no substitute for reforming the way in which public services are delivered. The Government have failed on that. They show no signs yet of knowing how to translate public service spending into value-for-money spending. Because of that failure, the planned spending must translate into higher taxes. The Government freely admit that. Their own Budget report shows that tax as a percentage of GDP will rise by 2.2 percentage points to 38.5 per cent during the next five years. More importantly, all major commentators, as well as those of us on these Benches, believe that the Chancellor has got his sums wrong and that further taxes are on the cards in the next economic cycle. We have repeatedly asked the Government which taxes they will raise. It is highly significant that during the general election campaign, neither the Chancellor nor the Prime Minister would rule out national insurance rises. Since the Budget Statement in March, the economic news has been going one way. The Chancellor's Budget calculations are underpinned by growth assumptions of 3 per cent to 3.5 per cent this year, but most forecasts are about 2.5 per cent. The Chancellor stopped the Comptroller and Auditor-General auditing the GDP trend growth figures this year, so that he did not have to listen to the NAO's views, but I hope that he has been watching how consumer confidence has been evaporating in the high street and how consumer debt is now resulting in increased bankruptcies and mortgage repossessions. I hope that he also listened to the Governor of the Bank of England last week, when the Bank downgraded its forecast for 2005 to 2.5 per cent. The Chancellor has been accustomed to boast about his forecasting record, and the Minister repeated that boast today, but he may have to come to terms with the fact that he is not infallible. If the Minister thinks that the Chancellor is still right, as he seemed to suggest earlier, and if it is not unparliamentary, I propose a small wager to him on the outturn figures for growth this year. I predict that tax-and-spend will be a theme of this Parliament, but an even bigger theme will be pensions. We were pleased that the gracious Address said that the Government will, "begin long-term reform to provide sustainable income for those in retirement". 18 May 2005 : Column 34 At last, we have an acknowledgement from the Government that the current system is unsustainable. We have long argued that we have a real pensions crisis in this country, but the Government have been in denial. They have also been in denial about their share of the blame arising from the £5 billion a year advance corporation tax raid initiated in their first term. They have brushed off the falling savings ratio with nonsense about people being more secure and needing to save less. The Government's favoured solution of massive means testing through pension credit has failed in terms of uptake, as any solution that robs so many old people of their dignity deserves to fail. It has also failed to create the right incentives. The gracious Address made no mention of relevant legislation, and I hope that the Minister will confirm precisely what is intended. Will there be a draft pensions Bill, as has been suggested, and, if so, what will it cover and when will we see it? Also, will there be a judicial pensions Bill—again, not mentioned in the gracious Address? We are keen to ensure that judicial pensions can be brought within the new simplified system but, I hope, without any special privileges unavailable to ordinary hard-working people. We are committed to working with the Government on pensions reform. The Government's legacy will in practice ultimately depend on whether they solve the pensions crisis or carry on making it worse. I am sure that we will have a stimulating debate today. I am particularly looking forward to the contributions of my noble friends and to the winding-up speech of my noble friend Lady Miller. On behalf of these Benches, I promise the Government that their performance on economic and industry affairs will have our closest attention both today and for the rest of this Parliament.