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Address in Reply to Her Majesty's Most Gracious Speech

My Lords, I join the noble Baroness in welcoming the noble Lord, Lord McKenzie of Luton, to his new post. It is quite a shock not to be facing the noble Lord, Lord McIntosh of Haringey, when dealing with these matters. That will take some getting used to, but in a sense I am pleased for the noble Lord that he has been relieved of his Treasury duties at this point, because he is such a fervent believer in government policy. He took almost childlike delight in welcoming every new target hit and every new school built. It would have been cruel if he had been expected to come to the Dispatch Box in the period ahead to explain why the Government may not necessarily meet every possible target and that everything is not going to plan. I wish him well in his retirement. The starting point for today's debate is obviously the state of the economy. At best, it is in the state of the curate's egg. In many ways, the economy is obviously weakening. Industrial output is at its lowest since 1996. In retailing, we have the worst high street conditions for many years. In the housing market, most observers are reporting that house prices are falling. At the same time, stocks of unsold property are rising. Therefore, it is almost certain that prices are set to fall further in the months ahead. As the noble Baroness pointed out, at a time when we have high levels of consumer debt and borrowing, any reduction in house prices is likely to lead quickly not just to retrenchment but to bankruptcies. We have already seen the beginning of that and a very worrying trend it is. Whatever happens to growth, it is clear that it will not be fuelled primarily by strong domestic demand in the months ahead. Last night, the Chancellor was very quick to blame reduced growth prospects in the EU as having a knock-on effect in this country, but it is clear that much of the downturn in growth, as and when it happens, will be domestically generated. Perhaps he needs to have a word with Ed Balls to revise his theory; perhaps we should have an endogenous lack of growth policy. It is therefore clear that exports will be crucial to future prospects. Again, the picture here is mixed, partly because the state of the euro-zone economy is relatively weak, with France, Germany and Italy all to various degrees showing signs of weakness not offset by strength in Spain and elsewhere. Also, although the pound has weakened somewhat, it is unlikely to weaken sufficiently in the short term to bring sustained relief to British manufacturing. The other big imponderable is the question of interest rates. I very much hope that the Bank of England will be reticent about increasing rates, even if forecast levels of inflation edge up beyond the 2 per cent threshold. In my view, it has failed to act decisively to bring inflation up to 2 per cent—as we know, it is a symmetrical target. It was happy for inflation to be less than 2 per cent. As inflation now edges up, the Bank needs to take into account to an even greater extent than it already has the famous "subject to that" qualification in the Bank of England Act—namely, to take account of growth and employment in deciding on the interest rate, not just the absolute level of inflation, as long as it is within its target. With regard to the Monetary Policy Committee and the Bank of England, I express the hope—no doubt, forlornly—that the Chancellor will, as he moves to appoint a new external member of the MPC, adopt the more open and transparent practices that this House has urged on him on several occasions. The consequence of the likely reduction in growth will be that the Government will find it difficult to keep the golden rule without either trimming their growth plans for public expenditure or raising taxes or a combination of both. It would not be valuable at this stage to speculate on when and by how much we might get into that difficulty, nor would it be valuable to speculate on an ideal level of taxation. However, I hope that, when we get to the point at which difficult decisions may be required, we will be spared a simplistic debate that equates the overall level of taxation with economic success. Noble Lords may have noted the publication last week of the World Competitiveness Yearbook by the IMD management school in Lausanne. It showed that high and low taxation economies were vying for the top places in the competitiveness league table. The key issue, it seems, is not so much the amount of tax revenue raised, within reason, or even the way in which it is raised, although there is some evidence that it pays not to tax business too heavily: the key issue is how effectively tax revenue is spent and the overall business environment in which people must operate. The Government have it in their power to determine such issues. So far, their performance has been mixed. Like the noble Baroness, Lady Noakes, we will look to see how the Government act to implement the Gershon review, which will be a good indication of the importance with which they treat such issues. Noble Lords will be pleased to know that I do not propose to rehearse the differences that we have with the Government over their expenditure priorities. We spent much time during the election campaign discussing that. However, I shall refer briefly to four aspects of the way in which the Government operate that will affect our success in achieving growth and productivity. The first aspect relates to tax. We know that this Chancellor is a great tinkerer with the tax system. He wins the prize for the number of pages of tax legislation that it is possible to implement in one eight-year period. At every point, he has failed to take the advice of his predecessor, the noble Lord, Lord Healey, when it comes to tax complexity. He knows that it is a bad thing in principle, but, unlike the noble Lord, Lord Healey, he has not realised that, when you are in a hole, you need to stop digging. On he goes, digging and digging. As a result of the Chancellor's manic tinkering a raft of proposals has been introduced with great fanfare, before having to be rescinded. The most obvious recent example is the stamp duty relief for disadvantaged areas, which had the opposite effect to that which was intended. I suspect that, in the months and years to come, we will find that the self-investment pensions regime is another area in which bad practice will be introduced as a result of the Chancellor's policy and will need to be reversed. I hope that the House will consider the administrative aspects of the next finance Bill, particularly next year, when we have the next stage of the legislation dealing with the merger of the Revenue and Customs and Excise. We spent considerable time considering the original Bill, and it would be a mistake if the House were denied the opportunity to examine the next raft of detailed provisions, which will demonstrate how our revenue departments will work. The second area to which I wish to refer is regulation. Regulation is widely if not universally accepted as a major drag on business activity. We therefore welcome the regulatory reform Bill. However, it seems to me that the real problem is the mentality of Ministers and, even more important, that of civil servants. I am not convinced that a single piece of legislation will deal adequately with the problem. There are many examples of badly implemented regulation. One that is entirely home-grown and for which we cannot look to Brussels for an excuse is the way in which the Licensing Act 2003 is being implemented. Noble Lords will have seen that only 5 per cent of licensed premises have so far submitted their form for the new licence, even though the deadline is coming up quickly. That is hardly surprising. They are required, for example, to submit detailed floor plans of all their premises. For a company such as Pizza Hut, that will require much redrawing of plans, and it will cost that company £500,000. Each licence holder must send a copy of the application to eight statutory bodies and advertise the application in the local newspaper. Any slight error in the application will mean that the application is rendered invalid and will be returned, so that the applicant has to start again. Many of the businesses that we are talking about are quintessential small businesses, struggling hard to make a living. They work extremely hard and put a lot into the local community. One wonders how successful a single regulatory reform Bill will be in dealing with that problem. Among the other legislation, the regulation of home reversion and Sharia home finance arrangements by the FSA is welcome. However, we hope that the legislation will not lead to too much box ticking—a disease that is pretty rampant at the FSA—when the new provisions are introduced. We welcome the new companies Bill, which is long overdue, and we welcome the Consumer Credit Bill, which is also overdue. With all the legislation, we will have a chance in this Session, in theory, to make quite an impact on the burdens on business and the regulatory burden more generally. I hope that the legislation will have the effect that the Government desire. The third element, on which, I think, we will spend more time in this Parliament that in the previous one, is an issue that generated much heat but little light during the general election campaign. It is economic immigration and the extent to which, for the successful growth of the economy, we need to draw workers into this country to fill the vacancies that we cannot readily fill. It is interesting to strip away the rhetoric and consider the facts about economic migration. A recent ESRC study by Dustmann and Glitz, for example, showed that immigration resulted in greater production and new jobs. A recent UK government document showed that migrants were responsible for 15 per cent of trend growth and 10 per cent of GDP but were just 8 per cent of the population. Overall productivity is increased by bringing in migrants. Their complementary skills allow the indigenous population to do more productive work. The key thing—certainly at the level that we have experienced in recent times—is that migration into this country for economic purposes has not primarily displaced other workers but has met skill shortages. I hope that, as we examine the Government's plans and our own slightly—not hugely—different ways of approaching the issue, such considerations will be uppermost in our minds. Finally, I shall talk briefly about regional development. In his opening speech, the noble Lord said that the Government wished to bring freedom, flexibility and funding to the regions. I agree, but I am afraid that, whatever they have brought up to now, it has not been freedom and flexibility. For example, the learning and skills councils must look over their shoulder at every turn before they can move, rather than talk to the RDAs. London regulates everything that they do. That is an example of how the Government have got it precisely wrong. The fact that Business Link, for example, is told by central diktat not only what it must do but how many staff of what grade in every region it must involve shows how ridiculous the Government's attitude to regional development is and shows that freedom and flexibility, although good watchwords, are simply not being implemented. My noble colleagues will have more to say on other aspects of the debate today; notably, energy and the equality Bill. To sum up, as regards legislation in the DTI and Treasury fields, we will be broadly supportive of what the Government seek to achieve, but we will look to ensure that it really facilitates productivity and growth. On the economy as a whole, we are concerned rather than alarmed about our current growth prospects, but enjoin the Government to press ahead on those aspects of the productivity and growth agenda that remain under their control and are crucial to our future economic success.