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Queen’s Speech

My Lords, the UK economy is mired in the longest recession since quarterly GDP records started in 1955. The third quarter GDP figures, revised today, were far worse than expected. Since these records began, there has never been six quarters of contraction in a row. The Chancellor’s forecast for 2009 of minus 3.5 per cent at Budget time looks distinctly optimistic. Nick Parsons of National Australia Bank stated that, ""if we are to hit the forecast, we would need growth of more than 4% in the fourth quarter"." The document Forecasts for the UK Economy, issued by HM Treasury, now predicts an average independent forecast of minus 4.3 per cent, which is nearly a percentage point weaker. We may be getting over the worst of the GDP decline—there are some signs of recovery—but the economist David Blanchflower sums up matters well in the latest New Statesman. He says that the MPC prediction of a rapid V-shaped recovery to 4 per cent growth in 2010 and beyond looks improbable. The Government’s finances are no better. There has been no budget surplus since 2001. Now the debt figures are totally horrifying. We are faced with an appalling £175 billion deficit this year and the next, or £220 billion according to the most pessimistic independent forecast that I have seen. To blame all this on the global economic recession is being sparing with the truth. The Government must take their share of the blame. While other countries were reducing taxes and building reserves in the good times, the UK was still running a 3 per cent deficit. Other decisions have also had a major impact. Selling off a major part of our gold reserves at rock bottom prices has cost the Exchequer an estimated £4 billion. What are the Government prepared to do about the deficit? The Prime Minister’s recent reaction is to want to spend more money—this time on free social care for the elderly at a time when this cannot be afforded. Do not just take my word for it. According to the Guardian on 19 November, the noble Lord, Lord Lipsey, a former member of the Commission on Long Term Care, said that the Government’s plans amounted to, ""a demolition job on the national budget"." He also said that the Prime Minister’s announcement was like, ""an admiral firing an Exocet into his own warship"." The former Health Minister, the noble Lord, Lord Warner, also criticised the plans. He said there had been no proper impact assessment and no data to show how this would work. The Queen’s Speech promises a Bill to halve the budget deficit over the next four years. Will the Minister enlighten us on how this will be achieved? The Government could start by monitoring key public capital contracts more carefully. According to a TaxPayers’ Alliance survey of 20 November, the TPA calculates that there has been a net overrun of no less than £19 billion on 240 key government projects, a sum equivalent to £750 per family. Overall, it is better to cut back government spending earlier rather than later. The think tank, Policy Exchange, has looked at six periods in the UK and six other countries that have experienced major financial-sector crises in recent years. In all the examples chosen, fiscal corrections promoted recovery rather than created additional recession. Policy Exchange believes that fiscal policy should be focused on spending cuts rather than on tax rises, and that the balance should be in the region of 80 per cent on spending cuts and 20 per cent on tax rises. Then there are the Government’s stimulus measures by way of assistance schemes. The Vehicle Scrappage Scheme seems to have been the biggest success, and I welcome its extension by £100 million. The Business Payment Support Service also seems to have helped a lot of businesses with their cash flow. The Enterprise Finance Guarantee Scheme seems to have gone quite well, with a near 50 per cent take-up. I do not have figures for the Working Capital Scheme, apart from the £2 billion that was taken up by the RBS and Lloyds, and I would be grateful if the Minister could provide these. I am also not clear how much of the Capital Enterprise Scheme of £75 million has been invested and in what. The Automotive Assistance Programme also seems to have been a bit of a mystery. Will the Minister say how much money has actually reached firms? The Trade Credit Insurance Top-up Scheme promised £5 billion. The take-up by mid-October was only £13 million. Does the Minister agree that the scheme had too tight conditions and too high charges? Finally, I shall discuss the Financial Services Bill and make a few comments about the banking industry. The Government’s decision to set up the tripartite system of regulation has proved to be disastrous. As I understand it, the new Bill proposes that the FSA will be able to void contracts signed by bankers and their employers if it believes that the pay structures encourage the individual to take too much risk. While this would probably be an ultimate sanction, I can see even as a non-lawyer that this interference with contract law could give a lot of scope for legal challenge and bankers who would be prepared to challenge it. I am sure that we will examine this part of the Bill carefully in this House. I await more details of the Council for Financial Stability, and wonder whether it will achieve anything new or whether it is necessary at all. The Treasury Select Committee described it in July as totally underwhelming, or like rearranging three deckchairs on the "Titanic". The same thoughts apply to the consumer protection agency. Is there not enough protection already for the financial consumer? Clause 13 extends the time the regulator has to investigate wrongdoing from two to four years. This means that a defendant could be tied up for five to six years if they challenge the FSA's decision and refer the matter to the Financial Services and Markets Tribunal. That is too long. The legislation on City pay, linked in with the change in non-domicile rules and the 50p tax rate, has already meant that a considerable number of financiers have moved abroad. Switzerland in particular, I hear, has been successful in encouraging businesses and individuals from our financial sector. This may not worry the Government or the Opposition until they realise how much of an effect it will have on the tax-take from financial services. Of course it would be ideal to have a stronger manufacturing sector, but in reality how can we compete on the commodity side of manufacturing with the cheaper labour costs of the Far East? Like it or not, we are a service economy, and I cannot see that changing in the near future.