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Queen’s Speech

My Lords, I thank the Secretary of State for his exemplary tour d’horizon of government economic policy both in the past and in the future. I also join the noble Lord, Lord Hunt of Wirral, in saying how much we look forward to hearing the maiden speeches of the noble Lords, Lord Sugar and Lord Martin. I suspect that people may make many comparisons between the two of them, but I doubt that they have ever appeared on the same bill before today. I thank the noble Lord, Lord Hunt of Wirral, for making the first point that I was going to make in this debate on the gracious Speech—that it was not a speech to set out a legislative programme but a speech to fire the first gun in the election campaign. I was looking ahead and not at the noble Lord when he made his speech, and I thought that it was being read by someone else. It was not a "Lord Hunt of Wirral speech" at all; he is usually measured and calm. First he read out quotations by someone who could have read them out himself, because he is here. Secondly, his peroration was an attack on the Government and demonstrated perfectly what has been wrong with the Government’s approach in the gracious Speech, which we might as well not have had at all as the election gun has been fired and we have heard the first rumbles from the noble Lord, Lord Hunt, on the Tory side. My second criticism of the gracious Speech—I am not the first to make it; it is just that we come in this order in our debate—is that a number of the Bills, particularly those that fall within the remit of the Ministry that I have the honour of shadowing, demonstrate the Labour characteristic of assuming that something will happen if a law is passed saying that it will happen. Most of them will not be passed because we do not have the time, as the noble Lord, Lord Hunt, has indicated. I will take but two. The fiscal responsibility Bill makes it law to halve the deficit in four years. We could debate that Bill for one year, two years or four years, but it will not halve the deficit in four years. The Child Poverty Bill sets a legal target for the elimination of child poverty by a certain date. That is a worthy aspiration, but it will not put one penny into the pockets of needy families to help them to eliminate child poverty. The Government, in their last days, really must learn that saying that it must be so does not necessarily make it so. I have three or four proposals for Bills if that is how we legislate to make happen whatever the Government decide will happen. I have the "Win the World Cup in South Africa Bill 2010", the "Win the Ashes in Australia Bill 2011", the "Win 100 Gold Medals at the Olympics Bill 2012", and the "12 June Sunshine Bill"—a guarantee of sunshine on the birthday of the noble Lord, Lord Razzall, every year. Perhaps the Government will consider them if this is their approach to legislation. There is one exception to this, the Digital Economy Bill, on which I entirely agree with the noble Lord, Lord Hunt. We, with the other opposition party, will subject that Bill to scrutiny as it passes through this House. It is very sensible for the Government to have started it in the House of Lords. We will give it much more detailed scrutiny than it would be given if it started in another place, and I very much hope that it will be passed in an appropriate form before the election. In the time available to me, it will be better if I concentrate on the wider business and economic issues on which the noble Lords, Lord Mandelson and Lord Hunt of Wirral, have touched. It is only a year since our debate on the previous gracious Speech. It was, I think, six weeks after the collapse of Lehman Brothers, and around the time the Government had to support the banking system to ensure that it did not collapse. We on these Benches, both here and in another place, have certainly broadly supported the Government’s approach to stabilising the banking system and endeavouring to ensure that the British economy does not fall into too deep a recession. We have broadly supported the measures that have been taken. We certainly thought that the Bank of England’s decision to make a massive cut in interest rates was correct. Indeed, Vince Cable, my friend and colleague in another place, was the first opposition politician to call for that. We agreed that what has become known as quantitative easing was desirable. Of course, quantitative easing was a phrase coined by Milton Friedman, the right-wing economist, who, when asked what he would recommend were America to fall into a deep depression, said that the Government should hire helicopters and drop $5 bills over every major American city. When the Government started quantitative easing, I stood outside the Palace of Westminster in the hope that that would happen, but no $5 bills or £5 notes fell into my hands. On the other hand, we have certainly as a party supported the Government’s programme of quantitative easing. We also felt that it was right to take large parts of the banking sector into public ownership, which of course has happened. The taxpayer now owns significant sections of the UK banking sector. We have not agreed on a number of matters of detail, and we would not have been expected to do so. We would not have cut VAT when the Government did. At that stage, we thought that an income tax cut would have been more effective because it would have put money into the hands of people who could spend it. Interestingly, I seem to remember a disagreement at the time between Clarke and Osborne in another place about whether that VAT cut was desirable. When significant holdings were taken in our clearing banks, we would have taken full ownership of those banks rather than leaving a minority part in the private sector. And when the time came, we probably would not have promoted the Lloyds-HBOS merger. Noble Lords may remember the timing. Initially it looked as though Lloyds had to rescue HBOS, because otherwise it would be part of the banking collapse. But by the time all the legalities and due diligence, if there was any, had been gone through, it probably would have been better—with the benefit of hindsight, and I suspect that the Lloyds Bank shareholders would agree—if the Government had ceased their promotion of it and we had not permitted the waiver of competition rules which was required for it to happen. Because of the time it would take to agree a Tobin tax, we have called for a one-off surcharge on the clearing banks as an alternative. However, these are all matters of detail. By and large, we feel that the Government have handled these issues pretty well. We now look forward, as we did last year, to a number of challenges that are obviously facing the Government. We are looking at a structural deficit in the economy of somewhere between 10 and 13 per cent per annum. Let us forget the amount of the borrowing and what has been spent. Currently, government revenues are running somewhere between 10 and 13 per cent below government spending. Clearly that cannot continue indefinitely. The Tories seem to think that they will be able to solve the problem by a combination of tax and public expenditure cuts, but people are beginning to realise now that the only way of solving this deficit is by pursuing policies of economic growth as we come out of the recession, with economic growth generating tax revenues. I was very interested to see that David Cameron, when he spoke to the CBI conference in the past couple of days, seemed to be moving on to the growth agenda. I assume that that is a recognition that public expenditure cuts alone will not solve the structural deficit problem. I think that the Government realise it. The second problem that the Government are left with is how to get growth if they cannot get the commercial banks to lend adequately. I know that the noble Lord, Lord Sugar, has views on how to get the banks to lend; he may touch on them in his maiden speech. Many businessmen will tell you—I think that the noble Lord, Lord Hunt, was saying this—that the process of generating lending, particularly to SMEs, is cumbersome and tricky. The Government have a problem in any event, because if every bank lent the same amount that they lent two years ago, we would still probably be a third or a quarter short of capacity because of the collapse of the Irish and Icelandic banks, which have simply disappeared from the market. That is the Government’s second problem and their second challenge. The third challenge for the Government is this. Are they going to separate retail banking from investment banking—what other people have called casino banking—or will they carry on permitting the major institutions to operate both retail and investment banking? I was intrigued by the interview the other day with John Varley, the chief executive of Barclays Bank, who made a vigorous defence of why his and other banks should be able to operate both as a retail bank taking public deposits and an investment bank acting for major companies. In a throwaway line he said that of course his remarks did not refer to proprietary trading. It is proprietary trading that has caused all the problems; that is, when banks use their own money to invest in derivative securities and second, third and fourth mortgages in American cities. When the Minister, the noble Lord, Lord Myners, answers the debate, I would be interested to know whether government policy will be to permit the retail banks to carry on with their, albeit regulated, proprietary trading models. I cannot avoid turning to the Tories, and I think that the noble Lord, Lord Mandelson, gave me the green light to do so. Normally one would not take a lot of notice of what the other opposition party said in the debate on the gracious Speech, but some people have suggested that by the time the next gracious Speech is debated, there might be a Tory Government. So what the Tories are doing needs a little more general criticism than I might otherwise have made. I have two serious concerns about current Tory policy in so far as it affects the British economy, the first of which is the European issue. I will not go into the question of whether it is right or wrong for the Tory party to have pulled out of the mainstream Conservative party grouping in Europe to consort with people who glorify the Waffen SS; that is not the purpose of this debate. What I am concerned about is the potential effect of this on the British economy. As we know, the way that Europe works is that the powerful groupings, whether the big right-wing grouping, the liberal or the socialist grouping, really do influence what is happening in Europe. Just when the Tories have alienated themselves from the grouping of Sarkozy and Merkel—that is, the mainstream Conservative parties—we are facing an unprecedented challenge from Europe to defend our position in relation to the likely attack on the financial services industry based in the City. What we now have is the Tory party not participating in the discussions of the major Conservative grouping in Europe on this issue, and the result is that the French and the Germans, who are no friends of the City of London, will be more likely to have their way. The second reason why I have concerns about the Tories’ approach to the economy is that they have been wrong on so many issues over the past 12 months. They were wrong on the financial stimulus, they were wrong on borrowing, and they were wrong on the timing of tax increases and cuts. Perhaps I may quote their leader, David Cameron, when he spoke at the Tory party conference. He said that for him it was, ""the only option. We must pay down this deficit. The longer we leave it, the worse it will be for all of us"." I can do no better than to précis the analysis of Professor Blanchflower of that comment. Professor Blanchflower was a well-respected member of the Monetary Policy Committee and is now an economist at an American university. He said: ""Lesson number one in a deep recession is you don’t cut public spending until you are into the boom phase. John Maynard Keynes taught us that. The consequence of cutting too soon is that you drive the economy into a depression, with the attendant threats of rapidly rising unemployment, social disorder, rising poverty, falling living standards … Such proposals [from the Tory leader] could push the British economy into a spiral of decline that would be impossible to reverse for a generation. In a deep recession, the choice is, ‘the Government does it, or nobody does it’"." I have never welcomed the prospect of a Tory Government, but with their policies on Europe and the economy, that prospect terrifies me.