Finance Bill — House of Lords, 2015-11-10
Topic: Macroeconomics
Richard Cavendish (Conservative, Centre-right): My Lords, I am grateful to my noble friend Lord O’Neill of Gatley for introducing this Second Reading debate. I was not quite sure how to approach it, as it is a strange one to be holding in your Lordships’ House, but I start by congratulating the Government on their continuing determination, as I see it, to do whatever is needed to restore good health to the nation’s finances. I realise that that is not always popular or easy, but it is urgent With every passing day, the perception grows that things are not quite so bad after all. "Why not water down the medicine?", some are saying. Some commentators come close to saying that Ministers themselves share that delusion. We remain in a very dangerous place, and it is much to the credit of this Government that they hold to the course on which they were elected. I believe that we are heading for a strong economy, the chief beneficiaries of which are the working poor. It saddens me to think that the noble Baroness, Lady Kramer, and the noble Lord, Lord Lennie, cannot accept that This afternoon, I want to touch on the topical issue of infrastructure and how it can be financed. Especially, I want to focus on my local town of Barrow-in-Furness and its surrounding area. As I have told your Lordships before, we are expecting investment in the region of £40 billion over the next decade. It will come from shipbuilding, pharmaceuticals, civil nuclear, offshore gas and other things, and a very exciting prospect that is for an area whose economic future has not always been certain Here I should perhaps declare a personal interest. I make no secret of the fact that the group of family companies of which I used to be chairman—I have now handed over to my daughter—will want to take advantage of that investment. I refer noble Lords to the Register of Lords’ Interests I think I am right in saying that private or institutional investment in infrastructure projects is at an all-time low. In 2008-09 infrastructure spending reached £57 billion. Since then it has dropped, in 2013-14, to £42 billion. The Chancellor’s anticipated commitment to spend £100 billion on infrastructure will be greatly welcomed, but how to find the money Brooding on this, I was struck by a piece I found on the Centre for Political Studies online news service, CapX, written by George Trefgarne whose father, of course, has long adorned your Lordships’ House with great distinction. Mr Trefgarne’s piece is headed with the words: "An idea whose time has come: project bonds." I strongly commend it and further reading on the subject to your Lordships There was a consensus that allowed my party’s programme of privatisation and the less than ideal PFI arrangements of the party opposite. For whatever reason, that consensus collapsed after the financial crisis. In consequence, there seems to be very little appetite among investors for participating in today’s projects or mechanisms to attract those investors. It is difficult to reconcile the Chancellor’s spending ambitions with his admirable goal of deficit reduction. It is not only the annual deficit that should concern us, but the many billions of pounds that are set to be added to the national debt. Worse, unless a solution is found the Treasury will be on course once again to be in charge of every road, hospital and railway system in the land Mr Trefgarne’s article highlights a potential solution that is being canvassed both here and abroad. Instead of relying on the public sector to deliver our vital infrastructure needs, new companies would be created, perhaps jointly owned by a combination of devolved Administrations, local authorities and private sector investors. They would keep revenues and charges and in turn issue their own debt, underwritten at least in part by the taxpayer. Experience elsewhere suggests that project bonds offer long-term investors attractive yields and significant credit spreads. Typically, they are attractive to pension funds and life insurance companies. I understand that even in countries where public finance is not so constrained, project bonds are used to diversify funding, meet regulatory demands, improve efficiency or quite simply tap into private sector expertise The system is not so different from the one the Victorians presided over that led to the great boom in bridge, canal and railway building, but one does not have to hark back so far for a similar precedent. I believe London’s Crossrail is coming in on time and on budget, if I am permitted to sing the praises of the mayor in your Lordships’ House. It is funded by a coalition of private and public interests, and Transport for London has been licensed by the Treasury to issue its own debt to fund it. The EU and the European Investment Bank are running project bond pilot projects Of course, I am telling my noble friend nothing new, but I would like to ask him how closely he has followed the project bond debate and what conclusions he draws. Does he agree that such a mechanism will not occur without the Treasury willing it to happen? I think I may be right in saying that the Treasury has experience of and a track record with similar financial mechanisms. The proposal would in effect entail the Government launching and licensing an entirely new capital market. Can my noble friend say whether the Government stand ready to do such a thing? Combined with the incomparable existing skills in the City, that makes for a hugely exciting prospect—and a huge problem removed from the Government. If an increasing number of proponents are right about the potential of project bonds, then why wait? Above all, why wait until Wall Street or some other financial centre steals a march on us Returning to Barrow-in-Furness, my personal view is that the beautiful area in which I live is ill-prepared for the large investments I have talked about coming its way. By any measurement, our infrastructure is in a shocking state of disrepair. I have grounds for thinking that our local government representatives are in touch with Ministers and seek ways to remedy these problems. I wish them well. When I was in local government, I remember being tremendously impressed by the skill and ingenuity of our financial officers. I dare say it is a different skill set from the one my noble friend finds at the Treasury, but it is nevertheless completely appropriate to a rural county with a few dominant tier 1 companies and myriad SMEs, among which my family businesses are included. I look forward to a time when devolved government will once again allow this reservoir of skill to be deployed for the benefit of local people, jobs and services Finally, I repeat a plea I have made in other debates. It will not be lost on my noble friend that much of the investment I talked about stems from government procurement of one kind or another. Like the Government, tier 1 companies have cultural problems when it comes to engaging with SMEs. A more sinister problem is when tier 1 companies collude to keep SMEs out. There is often much comforting talk about benefits to the local supply chain, but again and again they fail to materialise. Is it possible to compel large companies to report on what proportion of their business benefits local companies? Also, could the Government be rather more forceful in changing this culture, especially given that they are ultimately the customer It is a pleasure to speak about the problems of success. My noble friend the Minister is an economist of great distinction and I have no doubt he will make a great contribution to Britain’s economic recovery. I live in a rather different world from him—among people who make things, grow things and do things, and market their wares at home and overseas. Our whole existence is about judging risk and living with the consequences. We seldom make a headline, nor do we seek to do so. However, I remind my noble friend that we represent 95% of this nation’s economy. I hope that, as he surveys his huge brief, he will keep in mind that the sector’s interests also need his concern and protection.