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Pre-Budget Report 2007

My Lords, it is not very often that we have a chance to debate Treasury matters, so I thank my noble friend for moving this Motion. Apart from the Minister, all the speakers in this debate spoke last Wednesday and so we may go over some of the same ground, but I am sure that it is ground worth repeating. I largely agree with my noble friend’s analysis of the economy but I am a little more sanguine than he is about the rate of growth. Since the Pre-Budget Report on 9 October, the clouds on the horizon have perhaps become a little darker, but I certainly do not agree with the description of the economy that we had from the noble Lord, Lord Marlesford. We are not going to slide into financial recession because of problems in the financial sector; the rest of the economy is working. According to the FT/Harris poll yesterday, business is surprisingly optimistic. Yes, credit may be harder to come by but there is life outside the financial services sector, and life outside that sector seems to be going pretty well. Last week, I congratulated the Government on maintaining a free and open economy since they came to power more than 10 years ago. Indeed, I think it is one of the triumphs of the Labour Government that they have managed to do this over the entire period that they have been in power. We can maintain a free and open economy only if we stick to the fiscal rules—that is why we have them. The Minister reminded us that, if our budget was not in balance and our debt affordable, there would be the same calls for protectionism that we are beginning to see in the United States and elsewhere. This free and open style of economy has to be supported by a strong monetary and fiscal regime, as described by my noble friend, and we also have to have a high degree of competitiveness. In his speech of 9 October, the Chancellor said that our competitiveness—that is, our ability to compete and succeed in this global age—will depend on our continuing investment in the economy. He went on to say that, in today’s knowledge economy, this investment is not just in physical capital assets but also in skills, innovation and intellectual property. The Minister reminded us of that and I agree. In a modern knowledge economy as well as investing in buildings and machinery we also have to invest in design, training, branding, responding to customers’ needs and all the related software and services. This is how you remain competitive in a modern knowledge economy. With the Pre-Budget Report my right honourable friend the Chancellor published a paper explaining how this kind of intangible investment relates to our competitiveness and productivity and how we actually seem to be doing rather well. I found the paper pretty convincing. The Chancellor is right to promote this kind of knowledge business in the Pre-Budget Report. Good jobs come out of it—jobs that are highly paid with a low carbon footprint and attractive working conditions. Skills training, investment in science and transport and support for local investment and local economic development will all help this kind of economy, as will the 2p reduction in corporation tax for next year. Compared with all this support for business, the outcry against the taper relief on capital gains tax seems to me to be out of all proportion. When I started my business, capital gains tax was either 60 or 80 per cent. It was such a long time ago I cannot remember. People starting up businesses do not think about this sort of thing. People who look upon a business as a financial commodity to be packaged and bought and sold from one to another may take a different view. I hope my noble friend will bear this in mind and not let it distract him. A tax rate for economic stability is what is important for us all. There is a distraction but it is not a distraction of tax. The distraction comes from the United Nations Intergovernmental Panel on Climate Change and its meeting in Valencia. The panel tells us that the climate is changing more rapidly than we thought. There was practically unanimous agreement that the change was man-made but it agrees with the Stern report that there is still time to do something about it. The Minister spoke about investing in the environment. This means less time to spread out our investment. If we accept what the Joint Committee on the Draft Climate Change Bill said, there would be less time to spread out investment in flood defences, in carbon capture and storage, in the next generation of cleaner cars and in cleaner energy. It means bringing forward the rise in the climate change levy and reducing VAT on energy-efficient products. It means expanding the European Emissions Trading Scheme more quickly to other organisations on the ground and in the air. I wonder if the Minister has given any thought to this. If the realities of climate change demand more of our budget in the near future, how will this activity affect economic stability? If the environment becomes more of an economic imperative, what will be the social effects? What will be the budgetary effects? These are the kind of questions my noble friend will have to address between now and the Budget next April.