Pre-Budget Report 2006

My Lords, my noble friend Lord Barnett and the noble Lord, Lord Northbrook, spoke about the need to keep inflation within the set limits and not to have to write the very difficult letter to the Chancellor of the Exchequer. After 10 years’ success in this area, I would have thought the Chancellor of the Exchequer might be reasonably relaxed about any small change that might occur in the months or years ahead. But this is his 10th and possibly final Pre-Budget Report that we will examine, and it is reasonable to look over the past 10 years. The most important decision that the Government and the Chancellor of the Exchequer took was to give power to the Bank of England, which resulted in greater stability and allowed incomes per head to rise by up to 60 per cent under this Government. Asmy noble friend on the Front Bench mentioned, the gross domestic product has expanded constantly for 57 consecutive quarters. The problem is that, as this has gone on for a dozen years, people forget how we have always had economic expansion followed by crisis. Not only do people forget the crises of the past, but young people never even knew them and do not realise what an impressive achievement this is. Meanwhile, the expansion continues this year, at 2.75 per cent against a Budget forecast in March of 2 to 2.75 per cent. The air passenger duty is set to rise from £5 to £10. It is important to stress in connection with any attempt to reduce emissions that we are responsible for only about 2 per cent of the world’s emissions. We are a very minor player yet we pretend that these matters are so important that we can decide the future of the world’s global warming. China produces new coal-fired power stations every week. It is quite likely that in this country we may actually benefit from global warming, which could make the south of England more like the Mediterranean and make Manchester more like the south of England. I do not think we need to give as much prominence to this matter as other countries, particularly those which will be more endangered. I have heard it suggested many times that the Atlantic current could be diverted by climate change. For the past 200 years that suggestion has been aired regularly and we are no nearer to a confirmation of it now than we were then. In our situation, we ought not to be at the forefront of countries pressing for climate control, but we could join in a general pressure for control. Meanwhile, the Revenue will benefit from the air passenger duty by about £1 billion in a full year, starting on 1 February. The other tax which has concerned me during the entire period of this Government is the maximum level of income tax, which is set at 40 per cent. The Chancellor of the Exchequer’s scope for the whole of his Budget is severely limited every year by this decision, which was taken early in the life of the Government. At some stage I hope this will be looked at afresh. Forty per cent is not a very high level; in many countries it is much higher. Faced with some of the constraints that arise from time to time, there could be some adjustments there. The City of London is a great financial and international asset. This is valuable, but it is not enough. We cannot run the economy only on the City of London. We import goods and we must export goods. We cannot allow the loss of so many of our manufacturing skills to be dissipated. Our manufacturing industry was dominant in the 1850s, with half of our total exports coming from textiles alone. Then we increased the range of other industrial goods. Now we are becoming more reliant on higher technological products. The products of innovation and manufacturing expertise will increasingly provide our exports in the years to come. Specialisation, not the basic manufacturing from which we benefited so much in the past, will be the basis of our manufacturing industry. As the noble Lord, Lord McKenzie, pointed out, this is inevitable, as China and India, with their combined population of 2.5 billion, against our 60 million, and their large resource of labour from their agricultural areas, produce each year 2 to 3 million science and technological graduates. This is enormous. China’s index of production rose from 2000 to January 2006 by 87 per cent. With all these graduates coming and taking on some of the basic industries that we thought were ours indefinitely, the situation will change. In 2005, growth in China was 8.4 per cent and in India 4.4 per cent. Meanwhile we have witnessed a steady decline in our manufacturing industry as a proportion of gross domestic product. We have a unique experience of macroeconomic stability. This helps productivity, as it makes planning easier. We have benefited from this macroeconomic stability of the past 10 years, for which the Chancellor of the Exchequer is wholly responsible. In the earlier years of technology, we were large producers of general manufactured products. Now that China is awake at last, we have to be more specialist. To do this, we have to increase our education and training programmes. The target for 90 per cent of adults to achieve the equivalent of five GCSEs by 2020 is rather exceptional. I understand the difficulty of the timetable but if we are really serious, should not more realistic and earlier targets be set? It would be splendid if 90 per cent of adults achieved that, but I would like to have seen an aim for a solution and progress rather earlier than 2020. In comparison with Germany, France and some other western countries, our skills levels are not very high. Although the Government stress the need to act in that regard, we must come to a conclusion about how our aims can be achieved. Meanwhile, the budget deficit is continuing and has to come to an end. Macroeconomic stability has helped productivity, since it enables companies more easily to plan for the future, and we have benefited from that. In 2004 the Chancellor of the Exchequer commissioned Sandy Leitch to identify the skills needed to maximise economic growth, productivity and social justice. The report was produced this month. On page 3, the Leitch review recommends that, "““the UK commit to becoming a world leader in skills by 2020””." I would like to see something more positive than just a statement that we will become the world leader in skills. It seems an objective that needs rather more thorough examination. The review goes on to say that the aim is for, "““90 per cent of adults qualified to at least Level 2, an increase from 69 per cent in 2005. A commitment to go further and achieve 95 per cent as soon as possible””." Level 2 is the academic equivalent of five GCSEs at grades A to C and a number of other qualifications. At present, more than 4 million people of working age in England have no qualifications at all and lack basic skills. The new skills envoy, Sir Digby Jones, a member of the national Learning and Skills Council, was appointed the day after the publication of the Leitch report. That shows some enthusiasm, which I am pleased to see. He told the Guardian Unlimited: "““The job is to really push with the employers the need to skill their employees””." I understand the importance that the Chancellor of the Exchequer gives to this; it is probably the most critical long-term issue in our objective of maintaining an important industrial base in this changing 21st century. To justify the Chancellor’s expectations, many more of the details need to be set out. I look forward to seeing this in due course.