Economy Debate

I thank my noble friend Lord MacGregor for securing this timely debate. At present, we have one of the largest budget deficits in the developed world. I am deeply concerned about the state of British finances and the impact of the national deficit on our GDP. Government debt currently stands at more than 50 per cent of GDP, and the deficit this year will be £167 billion, which is a record high. According to the Government’s own projections, they will be borrowing £734 billion over the next six years, taking our national debt to £1.3 trillion. The level of national debt has risen so drastically that next year we will spend more on debt interest than on education. These figures are extremely worrying.

We need to look at how this dire situation came about. The present crisis came to light because the banks were reckless in their lending and the regulatory authorities failed in their duty to ensure that proper practices were being undertaken. The situation was compounded by the fact that the Government had borrowed excessive amounts, no adequate controls were exercised on spending and there has been a considerable wastage of the country’s resources. Furthermore, the Government failed to take appropriate actions to generate revenue in different channels. With regard to expenditure, in my own business operations I have always believed that my expense ratio should not exceed an acceptable percentage of the revenue. Now that we are in a state of crisis, we need a clear plan to steer us out of this unfavourable situation and put us on a path to recovery.

The glaring failure of financial regulation must be adequately addressed, to the extent where a similar bailout by taxpayers of institutions becomes a distant possibility. I am in favour of plans to give the Bank of England greater responsibility concerning financial regulation. The economic downturn exposed the failure of the current system. We should seek international agreement on banking reform and the application of levies, if need be on a limited national basis. We now have a lower credit rating than other highly industrialised countries such as Germany and USA. We need therefore to safeguard Britain’s credit rating with a credible plan to eliminate a large part of the structural deficit.

At this juncture, I declare that I am the chairman of an insurance broking and financial services organisation. We need to maintain and strengthen our role in promoting Islamic finance, which is based on mutuality, ethical behaviour, transparency and the acquisition of assets which give it more stability. Growth in the Islamic banking sector globally is nearly 30 per cent per annum. Therefore, there are further opportunities for our country’s involvement. Had the financial institutions undertaken a greater volume of Islamic products, the financial problems we are facing would probably have been less severe. We must, of course, promote our financial services industry, but it is also imperative that we manufacture and export specialist goods such as precision machinery and pharmaceutical products. We have the expertise and resources to produce and export such goods. We need to have a balanced economy and encourage ideas which will further promote our manufacturing sector.

A large number of opportunities are presented by the improvement in the standard of living in countries such as India and China. We should be increasing our exports of high-value goods and financial services to these millions of potential new customers. It is important that our future economic strategy recognises the importance of small businesses, entrepreneurs and innovation to our recovery. Small and medium-sized companies play a vital role in job creation; it is therefore essential that those enterprises are not burdened by excessive bureaucracy. Cutting waste and reducing the layers of bureaucracy in our public services is vital to increasing efficiency in our industries.

The 1 per cent increase in employers’ national insurance contributions will impact small and medium-sized businesses the most. The national insurance increase is estimated by the Federation of Small Businesses to cost 57,000 jobs. Furthermore, it is imperative that the banks increase their lending to small and medium-sized enterprises. The increase of tax to 50p will affect businesses as well as entrepreneurs who generate wealth for the country and create jobs. The tax is therefore counterproductive.

The level of youth unemployment is now one of the highest in Europe. Young people have the potential to make a vital contribution to our economy and society. It is the responsibility of those in government and commerce to work together to develop a strategy that will help our young people to weather the economic storm. Independent scrutiny of our fiscal policy is vital to repairing the fragile economy and building trust among the public, a large number of whom contributed to the recent bank bailouts. For this reason, I support the proposal of the shadow Chancellor to create an independent office for budget responsibility if the Conservative Party forms the next Government.

The Budget delivered by the Chancellor of the Exchequer was in fact a long political statement that lacked substance and constructive thinking. The Chancellor did not give us enough indication about what his party will do to tackle the present crisis. The Government wasted the years when we had economic prosperity and failed to make hay when the sun was shining. We need to rescue the economy from the dire state it is in by implementing the eight clear and transparent benchmarks suggested by the Conservative Party. In addition, it is imperative that we take remedial action immediately, rather than delay taking the strong medicine which will cure our illnesses.

The plan put forward by the Conservative Party to right 13 years of wrongs committed by Labour is one that will have Britain up and running again and will maintain our position as one of the leading nations in the world.

 

Extracts relating to responses taken from speeches by other Peers including the Minister are listed below:

 

Lord Newby (Liberal Democrat Spokesperson for the Treasury):

For the future, it seems that there are two linked questions. How quickly should we reduce the deficit? More important, what kind of economy do we want to see in the future? We should start by recognising that the balance of the world economy is shifting rapidly eastward. I agree strongly with the comments of both the noble Baroness, Lady Valentine, and the noble Lord, Lord Sheikh, about this, not least what the noble Lord said about the need to develop the Islamic finance capacity in London.

 

 

Baroness Noakes (Shadow Minister for the Treasury in the House of Lords):

Thirdly, we believe that we must make a start on reducing the deficit as quickly as possible-I was grateful for the support of my noble friend Lord Sheikh on this. It is not enough to say that we will be good but not yet. Starting does not mean cutting savagely and it certainly does not mean making cuts that harm our recovery from the recession. Demonstrating real commitment by making hard decisions today, rather than talking about it, is a part of credibility.

 

 

Lord Myners (Financial Services Secretary to the Treasury):

The noble Lord, Lord Bilimoria, made an interesting speech from the Cross Benches. I could see that he made it from the Cross Benches; it was less easy to conclude that from listening to what he had to say. It was sad that he was not in the House when the noble Lord, Lord Sheikh, made his speech. Perhaps he would like to look at the noble Lord’s speech, because it had some interesting insights both into national economic management and into the management of private businesses. I was sure that people could agree with certain parts of his speech, but I found it more difficult to believe that people could agree with the whole of it, as he seemed to talk first in terms of increasing expenditure on defence, education and a number of other areas but then immediately coupled that with a call for a rapid reduction in public expenditure.

 

I have already referred to the excellent contribution by the noble Lord, Lord Sheikh.

 

 

Updated: 26/03/2010 — 2:39 PM