Debate on the Address

My Lords, I believe that the capitalist system has developed and spread in such a way that it now has the potential to deliver unparalleled benefits to the peoples of all the continents of the world. Based on advances in technology and techniques of both government economic management and business practice, we seem to have found a way forward without the problems of world trade cycles which caused such misery in the 1930s and led eventually to world war. Even the long stagnation of Japan, the world’s second largest economy, was sustained with barely a few blips in the economies of the United States and Europe, while at the same time China and now India have been able to embark upon their amazing economic growth. This change is based at least in part on the Thatcherite revolution which has now become a consensus, one which Mr Blair as Prime Minister has tried, in part successfully, to maintain over the past nine years. I am quite often asked, especially by members of the business community on the other side of the Atlantic, whether the general economic strategy in Britain will change under a Gordon Brown Government. I do not know whether Gordon Brown was one of the early believers, but I think that his nine years in No. 11 and as Chancellor of the Exchequer have probably made him someone who does believe in the sort of economy which the Government appear to be trying to run. So when I reply to that question, I usually quote a response made by President Deng Xiaoping to the late Lord MacLehose who as Governor of Hong Kong inquired in 1979 about the future of Hong Kong after the Chinese takeover in 1997: "““Set your hearts at ease””." I am also asked what a Cameron Government would look like. In response to that question I say—without any great inside knowledge, but perhaps in hope—that a Conservative Government will hold fast to the essentials of economic Thatcherism, avoid the mistakes made over the past 10 years, and try to correct some of them. I should like to refer to some of the specific issues which could be significant over the next two years to the leaders of all three political parties. The first is that I believe passionately in free trade, on which all economic progress and prosperity in the world must be based. In that context, as members of the European Union we are entitled to look at other major countries within the Union. I want particularly to talk about France, where what I can see augurs ill, regardless of the result of the next presidential election. Sadly, France seeks to be the nanny of Europe and is still suffering from the curse of 1789. It has long been a very difficult country to govern. I do not know how many of your Lordships read the interview given on 13 November by Mr Sarkozy to Les Echoes—which noble Lords will know is the French equivalent of the Financial Times—during which he set out an extremely clear and strong protectionist programme. He declared himself to be against globalisation and that the main objective of companies should be to employ people rather than try to make profits. He said that he believed in the differentiation of taxation between home-produced and imported products, and that neither EU preference nor protectionism were ugly words. He went on to say that he believed in progressive taxation and both in toughening wealth tax—which we avoided in this country 30 years ago—and inheritance tax. He also wanted to toughen up taxation on both second homes and all chattels. Of course he may not become the next president in April because I suspect that the French will find it hard to resist voting for the delightful Madame Royal. But in an interview through one of her people reported in the Daily Telegraph on 20 November said that the French will insist on a new treaty for Europe, saying that if the British do not sign up to it they will have to go it alone. She says that she will get a new deal, along with Germany, Spain and Italy. That treaty would opt for widespread protection and convergence of tax rates. So this Government and the next, which I hope will be a Conservative one, will need to resist firmly. I move on to public spending. The most important thing about public spending is that it should be efficient. I believe that there is a moral imperative not to use public money to help those who do not need help at the expense of those who do. The noble Lord, Lord Truscott, said that he praised particularly the winter fuel payment. That universal payment to all pensioners is not taxable and is, in my view, one of the worst possible uses of public money. It gives many Members of your Lordships’ House, including myself, untaxed money which we do not need at the expense of those who do need it. We need to look very carefully at spending on programmes such as the winter fuel payment. That brings me to the question of poverty. There has been much discussion recently about relative and absolute poverty. I believe that absolute poverty should always have the priority. Relative poverty is a somewhat meaningless concept on the basis that, by definition, we can never bring everyone to the average and yet it is easy to describe relative poverty as relative in relation to the average. We must focus on the needs of those at the bottom, whether they are there through bad luck or inadequacy, or whether they are victims of structural changes in the economy. Whatever the reason, if they need a helping hand, that is where we should focus our efforts. I am sorry that the noble Lord, Lord Barnett, is not in his place because I particularly enjoyed his remarks about taxation and inflation—not only because I share the general affection in which the noble Lord is held in this House but also because he played a very important part in the running of the economy of this country. He was the Chief Secretary of the Treasury between 1974 and 1979, when his noble friend Lord Healey was the Chancellor of the Exchequer. That, of course, was a period when taxation and inflation were very interesting. Taxation reached the level of 98 per cent—if you adjust the threshold at which it reached 98 per cent to today’s money it is about £76,000—and inflation reached 25 per cent. The noble Lord referred to the functions of the Monetary Policy Committee and said that it should not worry about a change in inflation of 1 or 2 per cent but, of course, in 1975 and 1976 inflation was running at 25 per cent. It is useful for us to recollect some of those changes. When my noble friend Lord Lawson in his 1988 Budget cut the top rate of taxation to 40 per cent, for the first time ever during a Budget speech the House of Commons had to be suspended in disorder such was the outrage expressed from some of the Labour Benches. It is much to the credit of Prime Minister Blair and Chancellor Brown that we still have that 40 per cent top tax rate. I believe that it has made a significant contribution to the economic performance of this country. Deregulation was referred to by the noble Lord, Lord Truscott, as a great aspiration but it is hellish difficult to achieve; all the forces are against it. The only government Minister in whom I would have confidence to tackle it is the noble Lord, Lord Rooker, because he is a tough guy; he could and he would. If I were Prime Minister, I would put him in charge of deregulation. The need for deregulation has been emphasised by many speakers in the debate today. It is a crucial point. Perhaps I may raise a couple of other points which are of great importance to this or any other Government. First, probably the biggest single structural change needed to keep the economy balanced between the working and the retired population is to raise the age level of retirement. The efforts of the Government in this respect have so far been pathetic. Secondly, the City of London has been a major contributor to the economy. It is taking over from New York and took over from Tokyo a long time ago. It has made a tremendous contribution to the prosperity of this country. It has no competitor in Europe and probably no competitor in the world. If it is involved in mergers and acquisitions, I do not mind. It is bringing prosperity to this country and therefore must be encouraged. Let me say a word about the Monetary Policy Committee. I believe strongly in an interest rate policy; it is a valuable instrument for managing an economy. But, of course, to do so, you must be able to raise and lower interest rates. As a general rough rule, it is desirable that real interest rates should either be around the long-term growth rate of an economy or around 3 per cent, which are often quite close together. If you want a demonstration of the importance of being able to move interest rates you only have to look at Japan, where 10 years of stagnation with zero nominal interest rates meant that it was unable to use monetary policy to stimulate the economy. I was very worried when the Fed reduced interest rates to 1 per cent. I am glad they are now at a healthy 5-plus per cent. I believe that the current level of interest rates in Britain is about right. Finally, the highest industrial priority we should have, which is of crucial importance, is that we should make a real effort to go for nuclear power. This is not only because of global warming, although, of course, it meets the demands for controlling it. When the noble Lord, Lord Sainsbury—an extremely effective science Minister in this House—had the courage to say that nuclear power is indeed a renewable, many people did not like it. But he said that from the Front Bench. We need to save hydrocarbons, not only because of the Middle East situation but also because of Mr Putin, in whom we perhaps have diminishing confidence. We must meet future energy demand through nuclear power. Big developments are taking place throughout the world. Interestingly, the thorium reactor has been introduced in India instead of uranium. Thorium is a new technology invented by the Indians and has the great advantage that it does not produce plutonium. The Chinese are busily increasing their output of nuclear power and the United States at last—after 35 years of stagnation in a field where it once led the world—is also turning in that direction. I hope very much that Her Majesty’s Government will do the same and that my party will support them.